<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-13252
McKESSON CORPORATION
A Delaware Corporation
I.R.S. Employer Number 94-3207296
McKesson Plaza, One Post Street, San Francisco, CA 94104
Telephone - Area Code (415) 983-8300
Securities registered pursuant to Section 12(b) of the Act:
(Name of Each Exchange
(Title of Each Class) on Which Registered)
Common Stock, $.01 par value New York Stock Exchange
Pacific Exchange, Inc.
Preferred Stock Purchase Rights New York Stock Exchange
Pacific Exchange, Inc.
Securities registered pursuant to Section 12 (g) of the Act: None.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
Aggregate market value of voting stock held by nonaffiliates of the Registrant
at June 2, 1997: $2,628,255,561
Number of shares of common stock outstanding at June 2, 1997: 45,897,016
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Stockholders for the fiscal year
ended March 31, 1997 are incorporated by reference into Parts I, II and IV of
this report. Portions of the Registrant's Proxy Statement for its Annual
Meeting of Stockholders to be held on July 30, 1997 are incorporated by
reference into Part III of this report.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item Page
- ---- ----
PART I
<S> <C> <C>
1. Business............................................................. 1
2. Properties........................................................... 5
3. Legal Proceedings.................................................... 6
4. Submission of Matters to a Vote of Security Holders.................. 8
Executive Officers of the Registrant................................. 9
PART II
5. Market for the Registrant's Common Stock and
Related Stockholder Matters......................................... 11
6. Selected Financial Data.............................................. 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations........................................... 11
8. Financial Statements and Supplementary Data.......................... 11
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.............................. 11
PART III
10. Directors and Executive Officers of the Registrant................... 12
11. Executive Compensation............................................... 12
12. Security Ownership of Certain Beneficial Owners and Management....... 12
13. Certain Relationships and Related Transactions....................... 12
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...... 13
Signatures............................................................ 15
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS
(a) General Development of Business
The Company's objective is to become the world leader in health care supply
and comprehensive pharmaceutical management across the entire supply chain, from
manufacturer to patient. (As used herein, the term "Company" includes McKesson
Corporation and its consolidated subsidiaries.) Since late 1995, in pursuit of
this goal, the Company completed a number of acquisitions and undertook several
initiatives to further focus the Company on its core health care business:
. In December 1995, the Company acquired McKesson BioServices Corporation, a
business that provides product marketing and support services for the
pharmaceutical industry, for approximately $20 million.
. In April 1996, the Company acquired Automated Healthcare, Inc. ("AHI"), a
business that specializes in automated pharmaceutical dispensing systems
for health care institutions, for approximately $65 million.
. In November 1996, the Company acquired the pharmaceutical distribution
business of FoxMeyer Corporation ("FoxMeyer") out of bankruptcy for
approximately $598 million.
. In December 1996, the Company disposed of its 55% equity interest in Armor
All Products Corporation ("Armor All"), a non-health care business.
. In February 1997, the Company acquired General Medical Inc., a multi-market
distributor of medical-surgical supplies, for approximately $775 million.
. In March 1997, the Company disposed of Millbrook Distribution Services Inc.
("Millbrook") a non-health care business.
. In March 1997, the Company sold its Aqua-Vend vended water business, a unit
of the Water Products segment.
Developments which could be considered significant to individual segments
of the business are described under (c)(1) "Narrative Description of Business"
on pages 2 through 5 of this report.
(b) Financial Information About Industry Segments
Financial information for the three years ended March 31, 1997 appears in
Financial Note 16, "Segments of Business", on page 46 of the 1997 Annual Report
to Stockholders, which note is incorporated herein by reference.
1
<PAGE>
(c) Narrative Description of Business
(1) Description of Segments of Business
The Company conducts its operations through two operating business segments
which generated annual sales in fiscal 1997 of $12.9 billion, approximately 98%
of which were generated by the Health Care Services segment and approximately 2%
of which were generated by McKesson's Water Products (as hereinafter defined)
business.
Health Care Services
PRODUCTS & MARKETS
Through its Health Care Services segment, the Company is the largest
distributor of ethical and proprietary drugs and health and beauty care products
in North America. The Company is the market leader in its core U.S. drug
distribution businesses. U.S. Health Care Services operations also include
Healthcare Delivery Systems, Inc. ("HDS") and McKesson BioServices Corporation,
through which the Company provides marketing and other support services to drug
manufacturers, AHI, a business that specializes in automated pharmaceutical
dispensing systems for hospitals and Zee Medical, Inc., a distributor of first-
aid products and supplies to industrial and commercial customers. International
operations include Medis Health and Pharmaceutical Services Inc., a wholly-owned
subsidiary and the largest pharmaceutical distributor in Canada, and the
Company's 22.7% equity interest in Nadro, S.A. de C.V., the largest
pharmaceutical distributor in Mexico.
The Company's domestic distribution operations include the pharmaceutical
health care products and medical-surgical supplies distribution businesses. The
Company supplies drugs and health and beauty care products to independent and
chain drug stores, hospitals, alternate-site facilities, food stores and mass
merchandisers in all 50 states. Using the names "Economost" and "Econolink" and
a number of related service marks, the Company has promoted electronic order
entry systems and a wide range of computerized merchandising and asset
management services for drug retailers and hospitals. The Company also supplies
computer-based practice management systems to drug retailers. The Company
believes that its financial strength, purchasing leverage, nationwide network of
distribution centers, and advanced logistics and information technologies
provide competitive advantages to its drug distribution operations. For
example, the Company uses Acumax(R), a computerized bar-code scanning system, to
track items in its warehouses. Acumax enables the Company to achieve order
filling and inventory accuracy levels of more than 99%, ensuring that the right
product arrives at the right time and place for both the Company's customers and
their patients.
Health Care Services serves three primary customer segments: retail
independent pharmacies, retail chains and institutional providers (including
hospitals, health care facilities and pharmacy service operators) which
represents approximately 37%, 31% and 32% respectively, of U.S. Health Care
Services revenues. In addition, McKesson's Pharmaceutical and Retail Services
unit focuses on drug manufacturers as a customer segment by providing them
marketing and other support services.
Independent Pharmacies. In addition to distribution services, the Company
provides value added services to independent retail pharmacies through
management information systems, including inventory management, electronic
billing, current pricing and other financial management offerings. In
February 1996, the Company launched the OmniLink/SM/ centralized pharmacy
technology platform and the associated Valu-Rite/CareMax/SM/ network of
independent pharmacies. The combined offering is designed to link independent
pharmacies, creating a "virtual chain" for contracting with pharmaceutical
suppliers and managed care organizations. As of March 31, 1997, OmniLink had
been installed in over 1,800 pharmacies.
2
<PAGE>
OmniLink is designed to offer pharmacies streamlined transaction processing
through connectivity with managed care organizations, while promoting
compliance with managed care formularies and appropriate reimbursement from
managed care plans. The service also improves cash flow for pharmacies and
enhances pharmacy revenues through programs such as 24-hour advanced funding
of third-party reimbursements, prescription refill reminders, patient direct
marketing and distribution of coupons and samples from over-the-counter
products.
The Company currently has two pharmacy programs for independent pharmacies-
Valu-Rite(R), a voluntary cooperative program, and Health Mart(R), a
franchise program. Through Valu-Rite, the Company provides its independent
U.S. retail drug store customers with a common marketing identity, group
advertising, purchasing programs, promotional merchandise and access to a
pharmacy provider network. At March 31, 1997, approximately 5,200 stores were
participating in the Valu-Rite program. Through Health Mart, acquired as part
of the FoxMeyer transaction, the Company provides its community pharmacists
with a franchise program. Currently, Health Mart has approximately 650
franchisees. Together, Valu-Rite and Health Mart pharmacies comprise
approximately 25% of the nation's independent retail pharmacies.
Retail chains. Retail drug chains do business with the Company mainly
through primary sourcing and secondary sourcing. In primary sourcing, a chain
depends on the Company to supply its logistics, warehousing and contract
administration functions, much as the Company performs primary distribution
for all other retail customers. In secondary sourcing, the Company "backs up"
the chains' own warehouses with deliveries on an as-needed basis.
Institutional Business. The Company, through its McKesson Health Systems
unit, provides drug distribution services, and related logistics and
management information systems support, to the institutional market, which
includes hospitals, alternate-sites and integrated health networks. The
acquisition of FoxMeyer strengthened the Company's position in the
institutional marketplace. Also, the General Medical acquisition further
enhanced the Company's competitiveness, particularly in the fast-growing
alternate-site segment. General Medical is the nation's leading supplier of
medical-surgical supplies to the full range of alternative-site health care
facilities, including physicians and clinics, long-term care and home-care
sites, and is the third largest distributor of medical-surgical supplies to
hospitals.
Manufacturers. The Company's Pharmaceutical and Retail Services unit
develops innovative marketing and distribution services to help build and
sustain sales for manufacturers' pharmaceutical products. Through its HDS
unit, this group operates integrated systems for specialized delivery of
biotech and other high-cost pharmaceutical therapies. These systems manage
manufacturer cost and information requirements through financial assistance
programs for patients, reimbursement support and patient advocacy programs,
product hot-lines, pharmacy-based sampling and physician and patient
information programs. These services are also provided to manufacturers on a
stand-alone basis outside of integrated service systems. Through McKesson
BioServices Corporation, this group also provides support services to
commercial, non-profit and governmental organizations engaged in drug
development and biomedical research including biological repository
management, clinical trials support and regulatory process management
services.
The Company also provides a service to drug manufacturers with McKesson
Select Generics/SM/, an enhancement of the Company's Multi-Source Complete(R)
generic drug program which was launched in May 1996. Through the Select
Generics program, retail customers have access to a broad line of
approximately 1,350 generic items, and single suppliers are chosen for each
item, thereby offering to manufacturers the advantage of exclusivity and
compliance.
3
<PAGE>
COMPETITION
In every area of operations, the distribution businesses face strong
competition both in price and service from national, regional and local full-
line, short-line and specialty wholesalers, service merchandisers, and from
manufacturers engaged in direct distribution. The particular areas in which
U.S. Health Care Services provides services are in a rapid state of development,
and therefore there are no clearly defined markets in which U.S. Health Care
Services competes. It nonetheless faces competition from various other service
providers and from pharmaceutical and other health care manufacturers (as well
as other potential customers of U.S. Health Care Services) which may from time
to time decide to develop, for their own internal needs, those services which
are provided by U.S. Health Care Services and other competing service providers.
Price, quality of service, and, in some cases, convenience to the customer are
generally the principal competitive elements in the Health Care Services
segment.
INTELLECTUAL PROPERTY
The principal trademarks and service marks of the Health Care Services
segment are: ECONOMOST(R), ECONOLINK(R), VALU-RITE(R), Valu-Rite/CareMax,
OmniLink, Health Mart(R) and R\\X\\OBOT/TM/. The Company also owns other
registered and unregistered trademarks and service marks and similar rights. All
of the principal marks are registered in the United States and registration has
been obtained or applied for in Canada with respect to such marks. The United
States federal registrations of these trademarks and service marks have ten or
twenty year terms, depending on date of registration; the Canadian registrations
have fifteen year terms. All are subject to unlimited renewals. The Company
believes this business has taken all necessary steps to preserve the
registration and duration of its trademarks and service marks, although no
assurance can be given that it will be able to successfully enforce or protect
its rights thereunder in the event that they are subject to third-party
infringement. The Company does not consider any particular patent, license,
franchise or concession to be material to the business of the Health Care
Services segment.
Water Products
PRODUCTS & MARKETS
McKesson Water Products Company ("Water Products") is a leading provider in
the $3.4 billion bottled water industry in the United States. It is one of the
largest bottled water companies in most of the geographic markets in which it
competes. Water Products is primarily engaged in the processing and sale of
bottled drinking water delivered to more than 530,000 homes and businesses under
its Sparkletts(R), Alhambra(R), and Crystal/TM/ brands in California, Arizona,
Nevada, Oklahoma, Washington, Texas and New Mexico. It also sells packaged water
through retail stores.
COMPETITION
Although this business faces competition from several larger competitors,
the competition is generally widely dispersed between many different entities.
Principal among the large local competitors of the Water Products segment are:
Arrowhead (California and Arizona) and Ozarka/Oasis (Texas) (both owned by
Nestle); Hinckley & Schmitt (Arizona, Las Vegas, and Southern California) and
Sierra Springs (Northern California and Texas) (both owned by Suntory
International Corporation); Crystal Geyser (nationally distributed); Evian
(nationally distributed) (owned by Groupe Donone, S.A.) and private label
brands. This operation faces significant competition in both price and service
in all aspects of its business.
4
<PAGE>
INTELLECTUAL PROPERTY
The principal trademarks and service marks of the Water Products segment
are: SPARKLETTS/R/, ALHAMBRA/R/ and CRYSTAL/TM/. Water Products also owns other
registered and unregistered trademarks and service marks used by the Water
Products segment. All of the principal trademarks and service marks are
registered in the United States, in addition to certain other jurisdictions. The
United States federal registrations of these trademarks have terms of ten or
twenty years, depending on date of registration, and are subject to unlimited
renewals. The Company believes this business has taken all necessary steps to
preserve the registration and duration of its trademarks and service marks,
although no assurance can be given that it will be able to successfully enforce
or protect its rights thereunder in the event that they are subject to third-
party infringement. The Company does not consider any particular patent,
license, franchise or concession to be material to the business of the Water
Products segment.
(2) Other Information About the Business
Customers -- No material part of the business is dependent upon a single or
a very few customers, the loss of any one of which could have a material adverse
effect on the Company or any of its business segments.
Environmental Legislation -- The Company sold its chemical distribution
operations in fiscal 1987. In connection with the disposition of those
operations, the Company retained responsibility for certain environmental
obligations and has entered into agreements with the Environmental Protection
Agency and certain states pursuant to which it is or may be required to conduct
environmental assessments and cleanups at several closed sites. These matters
are described further in Item 3 "Legal Proceedings" on pages 6 to 8 of this
report. Other than any capital expenditures which may be required in connection
with those matters, the Company does not anticipate making substantial capital
expenditures for environmental control facilities or to comply with
environmental laws and regulations in the future. The amount of capital
expenditures expended by the Company for environmental compliance was not
material in fiscal 1997 and is not expected to be material in the next fiscal
year.
Employees -- At March 31, 1997, the Company employed approximately 13,300
persons.
Backlog Orders -- Both of the Company's segments seek to promptly fill or
otherwise satisfy the orders of each such segment's customers. Accordingly,
neither of the Company's segments has a significant backlog of customer orders.
(d) Financial Information About Foreign and Domestic Operations and Export
Sales
Information as to foreign operations is included in Financial Note 16,
"Segments of Business" on page 46 of the 1997 Annual Report to Stockholders,
which note is incorporated herein by reference.
ITEM 2. PROPERTIES
Because of the nature of the Company's principal businesses, plant,
warehousing, office and other facilities are operated in widely dispersed
locations. The warehouses are typically owned or leased on a long-term basis.
The Company considers its operating properties to be in satisfactory condition
and adequate to meet its needs for the next several years. Information as to
material lease commitments is included in Financial Note 11, "Lease Obligations"
on page 41 of the 1997 Annual Report to Stockholders, which note is incorporated
herein by reference. Due to the numerous warehousing, office and other
5
<PAGE>
facilities utilized by the Company in its business operations, the Company does
not believe that any one of its facilities is materially important to the
Company.
ITEM 3. LEGAL PROCEEDINGS
In addition to commitments and obligations in the ordinary course of
business, the Company is subject to various claims, other pending and potential
legal actions for product liability and other damages, investigations relating
to governmental laws and regulations, and other matters arising out of the
normal conduct of the Company's business.
The Company currently is a defendant in seven civil actions filed since
late 1993 by retail pharmacies. The first proceeding, Feitelberg v. Abbott
Laboratories, is pending in the Superior Court for the State of California
(County of San Francisco) and is now referred to as Coordinated Proceeding
Special Title, Pharmaceutical Cases I, II and III. The second proceeding, HJB,
Inc. v. Abbott Laboratories (now known as MDL 997), is pending in the United
States District Court for the Northern District of Illinois. The third
proceeding, K-S Pharmacies, Inc. v. Abbott Laboratories, is pending in the
Circuit Court of Wisconsin for Dane County. A fourth action, Adams v. Abbott
Laboratories, was filed in the U.S. District Court for the Eastern District of
Arkansas. A fifth action, Salk Drug Co. v. Abbott Laboratories, was filed in
the District Court of Minnesota, Fourth Judicial District. A sixth action was
filed in California Superior Court for San Francisco County, Horton v. Abbott
Laboratories, et. al. has been consolidated with Coordinated Proceeding Special
Title, Pharmaceutical Cases I, II and III. A seventh case, Durrett v. Upjohn
Co., filed in the United States District Court for the Northern District of
Alabama, was served on McKesson in 1996. These actions were brought as purported
class actions on behalf of all other similarly-situated retail pharmacies. A
class has been certified in Feitelberg and in MDL 997. There are numerous other
defendants in these actions including pharmaceutical manufacturers, a
pharmaceutical mail order firm, and several other wholesale distributors. These
cases allege, in essence, that the defendants have unlawfully conspired together
and agreed to fix the prices of brand name pharmaceuticals sold to plaintiffs at
artificially high, discriminatory, and non-competitive levels, all in violation
of various state and federal antitrust laws. Some of the plaintiffs specifically
contend that the wholesaler and manufacturer defendants are engaged in a
conspiracy to fix prices charged to plaintiffs and members of the purported
classes (independent and chain retail drug stores) above the price levels
charged to mail order pharmacies, HMOs and other institutional buyers. The
California cases allege, among other things, violation of California antitrust
law. In MDL 997, plaintiffs allege that defendants' actions constitute price
fixing in violation of the Sherman Act. In the K-S Pharmacies, Inc., Salk Drug
and Durrett complaints, plaintiffs allege violation of Wisconsin, Minnesota and
Alabama antitrust laws, respectively. In each of the complaints, except Adams,
plaintiffs seek certification as a class and remedies in the form of injunctive
relief, unquantified monetary damages (trebled as provided by law), and
attorneys fees and costs. In addition, the California cases seek restitution. In
MDL 997, plaintiffs have appealed the court's ruling granting the motion for
summary judgment filed by the Company and other wholesaler defendants. In K-S
Pharmacies, the court dismissed the Company and other wholesaler defendants with
prejudice and plaintiffs have appealed. In Durrett, the court denied the
wholesaler's motion to dismiss. The Company believes it has meritorious defenses
to the allegations made against it and intends to vigorously defend itself in
all of these cases. In addition, the Company has entered into a judgment sharing
agreement with certain pharmaceutical manufacturer defendants, which provides
generally that the Company (together with the other wholesale distributor
defendants) will be held harmless by such pharmaceutical manufacturer defendants
and will be indemnified against the costs of adverse judgments, if any, against
the wholesaler and manufacturers in these or similar actions, in excess of $1
million in the aggregate per wholesale distributor defendant.
In December 1996, a purported stockholder class action entitled Vogel vs.
Armstrong, et. al. was filed in the Court of Chancery of the State of Delaware
against the Company, Armor All Products
6
<PAGE>
Corporation ("Armor All"), then current members of Armor All's Board of
Directors and The Clorox Company ("Clorox"). The complaint alleges that (i) the
Company and Armor All's directors breached their fiduciary duties to Armor All's
public shareholders by entering into an agreement to sell Armor All for an
insufficient price, (ii) the Company and the Armor All directors, contrary to
their fiduciary duties, consummated the sale in order to favor the Company over
the public shareholders of Armor All, and (iii) Clorox, in purchasing the shares
of Armor All, aided and abetted those breaches of fiduciary duty. Plaintiff
seeks rescission, compensatory damages, interest, attorneys fees and costs. The
Company has filed a motion to dismiss the complaint, believes it has meritorious
defenses to the allegations made against it, and intends to vigorously defend
the litigation.
In January 1997, the Company and twelve pharmaceutical manufacturers (the
"Manufacturer Defendants") were named as defendants in the matter of FoxMeyer
Health Corporation vs. McKesson Corporation, et. al. filed in the District Court
in Dallas County, Texas. In its complaint, Plaintiff (the parent corporation of
FoxMeyer Drug Company and FoxMeyer Corporation collectively, "FoxMeyer
Corporation") alleges that, among other things, the Company (i) defrauded
Plaintiff, (ii) competed unfairly and tortiously interfered with FoxMeyer
Corporation's business operations, and (iii) conspired with the Manufacturer
Defendants, all in order to destroy FoxMeyer Corporation's business, restrain
trade and monopolize the marketplace, and allow the Company to purchase that
business at a distressed price. Plaintiff seeks relief against all defendants
in the form of compensatory damages of at least $400 million, punitive damages,
attorneys fees and costs. The Company has answered the complaint, denying the
allegations, and removed the case to federal bankruptcy court in Dallas. A
motion by defendants to transfer the case to bankruptcy court in Delaware and a
motion by Plaintiff to remand the case to Texas State Court are pending. The
Company believes it has meritorious defenses to the allegations made against it
and intends to vigorously defend the litigation.
In July 1995, a purported class action was filed in the Supreme Court of
the State of New York against General Medical Corp., Inc. and several other
defendants by Richard A. Bernstein, Chairman and President of Rabco Health
Services, Inc. and Chairman of General Medical at the time of its leveraged
buyout in 1993. Plaintiff alleges a conspiracy to orchestrate the buyout of
plaintiff's interest in Rabco at an unfairly low price. Plaintiff alleges
common law fraud, breach of fiduciary duty and inducing breach of fiduciary
duty. Plaintiff 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 an appeal by plaintiff is pending. The Company
believes that it has meritorious defenses to the allegations made against it and
intends to vigorously defend the action.
Primarily as a result of the operation of its former chemical businesses,
which were divested in fiscal 1987, the Company is involved in various matters
pursuant to environmental laws and regulations:
The Company has received claims and demands from governmental agencies
relating to investigative and remedial actions purportedly required to address
environmental conditions alleged to exist at five sites where the Company (or
entities acquired by the Company) formerly conducted operations; and the
Company, by administrative order or otherwise, has agreed to take certain
actions at those sites, including soil and groundwater remediation.
The current estimate (determined by the Company's environmental staff, in
consultation with outside environmental specialists and counsel) of the upper
limit of the Company's range of reasonably possible remediation costs for these
five sites is approximately $22 million, net of $5 million which third parties
have agreed to pay in settlement or which the Company expects, based either on
agreements or nonrefundable contributions which are ongoing, to be contributed
by third parties. The $22 million is expected to be paid out between April 1997
and March 2028 and is included in the Company's recorded environmental reserves
at March 31, 1997.
7
<PAGE>
In addition, the Company has been designated as a potentially responsible
party (PRP) by the U.S. Environmental Protection Agency under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (the
"Superfund" law), for environmental assessment and cleanup costs as the result
of the Company's alleged disposal of hazardous substances at 22 Superfund sites.
With respect to each of these Superfund sites, numerous other PRPs have
similarly been designated and, while the current state of the law potentially
imposes joint and several liability upon PRPs, as a practical matter costs of
these sites are typically shared with other PRPs. The Company's estimated
liability at those 22 Superfund sites is approximately $2 million, net of $4
million which insurance companies, and $3 million which another PRP, are
expected or have agreed to contribute to the Company's allocated share. The
aggregate settlements and costs paid by the Company in Superfund matters to date
has not been significant. The $2 million is included in the Company's recorded
environmental reserves at March 31, 1997.
The potential costs to the Company related to environmental matters is
uncertain due to such factors as: the unknown magnitude of possible pollution
and cleanup costs; the complexity and evolving nature of governmental laws and
regulations and their interpretations; the timing, varying costs and
effectiveness of alternative cleanup technologies; the determination of the
Company's liability in proportion to other PRPs; and the extent, if any, to
which such costs are recoverable from insurance or other parties.
Management believes, based on current knowledge and the advice of the
Company's counsel, that the outcome of the litigation and governmental
proceedings discussed in the preceding paragraphs will not have a material
adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders, through the
solicitation of proxies or otherwise, during the three months ended March 31,
1997.
8
<PAGE>
Executive Officers of the Registrant
The following table sets forth information concerning the executive
officers of the Registrant as of June 2, 1997. The number of years of service
with the Company includes service with predecessor and acquired companies,
including McKesson.
There are no family relationships between any of the executive officers or
directors of the Registrant. The executive officers are chosen annually to
serve until the first meeting of the Board of Directors following the next
annual meeting of stockholders and until their successors are elected and have
qualified, or until death, resignation or removal, whichever is sooner.
<TABLE>
<CAPTION>
Name Age Position with Registrant and Business Experience
- --------------------- ----- ----------------------------------------------------------
<S> <C> <C>
Alan Seelenfreund 60 Chairman of the Board since July 1994 and a Director since
November 1994; Chairman and Chief Executive Officer (July
1994-March 1997). Formerly Chairman of the Board and
Chief Executive Officer (November 1989-November 1994) and
a Director (July 1988-November 1994) of McKesson. Service
with the Company - 22 years.
Mark A. Pulido 44 Chief Executive Officer since April 1997 and President and
Chief Operating Officer and a Director since May 1996.
Chief Executive Officer, Sandoz Pharmaceuticals Corporation
(January-April 1996) and Chief Operating Officer (December
1994-December 1995). Other positions in the previous five
years, all with Red Line Healthcare Corporation, a Sandoz
affiliate: Chairman of the Board (December 1994-January
1996), Chairman, President and Chief Executive Officer
(March 1992-November 1994), President and Chief Executive
Officer (January 1992-March 1992). Service with the
Company - 1 year 1 month.
William A. Armstrong 56 Vice President Human Resources and Administration since
September 1994. Formerly Vice President Human Resources
and Administration (April 1993-November 1994) and Vice
President Administration (July 1991-April 1993) of McKesson.
Service with the Company - 25 years.
Michael T. Dalby 51 Vice President Strategic Planning since September 1994.
Principal at McKinsey & Company, Inc., an international
management consulting firm (1988-1994). Service with the
Company - 2 years 9 months.
John H. Hammergren 38 Vice President and President of McKesson Health Systems
since January 1996. President, Medical/Surgical Division,
Kendall Healthcare Products Company (1993-1996) and Vice
President and General Manager (1991-1993). Service with the
Company - 1 year 5 months.
Richard H. Hawkins 47 Vice President and Chief Financial Officer since September
1996; Vice President and Controller (September 1994-
September 1996). Formerly Vice President (April 1993-
November 1994) and Controller (April 1990-November 1994)
of McKesson, Chief Financial Officer (September 1993-
November 1994) of McKesson's Drug Company division and
Vice President Finance (February 1991-April 1993) of
McKesson's Distribution Group. Service with the Company -
13 years.
</TABLE>
9
<PAGE>
<TABLE>
Name Age Position with Registrant and Business Experience
- --------------------- ----- ----------------------------------------------------------
<S> <C> <C>
David L. Mahoney 42 Vice President since September 1994 and President,
Pharmaceutical and Retail Services since August 1996;
President, Pharmaceutical Services Group (February-August
1996). Formerly President of Healthcare Delivery Systems,
Inc., a wholly-owned subsidiary of the Company, (September
1994-December 1995) and Vice President Strategic Planning
(July 1990-September 1994) of McKesson. Service with the
Company - 7 years.
Mark T. Majeske 39 Vice President and President, Customer Operations since
August 1996; Executive Vice President, Field Operations
(November 1995-July 1996) and Executive Vice President, Central
Region, Drug Company division (July 1994-November 1995). Senior
Vice President of Field Operations Hamilton HallMark
Electronics (April-July 1994) and Vice President of Strategic,
Canada and NAFTA Operations from 1992 to April 1994. Service with
the Company - 2 years 11 months.
Ivan D. Meyerson 52 Vice President and General Counsel since July 1994. Formerly Vice
President and General Counsel (January 1987-November 1994) of
McKesson. Service with the Company - 19 years.
Nancy A. Miller 53 Vice President and Corporate Secretary since July 1994.
Formerly Vice President and Corporate Secretary
(December 1989-November 1994) of McKesson. Service with the
Company - 19 years.
Steven B. Nielsen 49 Vice President since March 1997 and Chairman and Chief
Executive Officer of General Medical Inc. (since May 1994) and of GM
Holdings, Inc. and General Medical Corporation (since December 1993),
all wholly-owned subsidiaries of the Company. President of General
Medical Corporation (December 1988-April 1997). Service with the
Company - 3 months.
Charles A. Norris 51 Vice President and President of McKesson Water Products Company, a
wholly-owned subsidiary of the Company, since September 1994.
Formerly Vice President of McKesson (April 1993-November 1994) and
President (May 1990-November 1994) of McKesson Water Products Company,
a wholly-owned subsidiary of McKesson. Service with the Company - 7 years.
Alan M. Pearce 48 Treasurer since May 30, 1997; Assistant Treasurer (September 1994-
May 30, 1997). Formerly Assistant Treasurer (August 1977-September 1994)
of McKesson. Service with the Company - 19 years.
Carmine J. Villani 54 Vice President and Chief Information Officer since January 1997; Vice President,
Information Management of the Drug Company division (November 1994-January 1997).
Formerly Vice President, Technology Integration (1992-1994) of McKesson. Service
with the Company - 5 years.
Heidi E. Yodowitz 43 Controller since October 1996; Staff Vice President, Planning & Analysis (1995 to
1996) and Assistant Controller (September 1994-1995). Formerly Assistant
Controller of McKesson (June 1990-September 1994). Service with the
Company - 7 years.
</TABLE>
10
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
(a) Market Information
The principal market on which the Company's common stock is traded is the
New York Stock Exchange and on the Pacific Stock Exchange. High and low prices
for the common stock by quarter appear in Financial Note 18, "Quarterly
Financial Information (Unaudited)" on page 49 of the 1997 Annual Report to
Stockholders which note is incorporated herein by reference.
(b) Holders
The number of record holders of the Company's common stock as of March 31,
1997 was 14,385.
(c) Dividends
Dividend information is included in Financial Note 18, "Quarterly Financial
Information (Unaudited)" on page 49 of the 1997 Annual Report to Stockholders,
which note is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data is shown on pages 20 and 21 of the 1997 Annual
Report to Stockholders and is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of the Company's financial condition
and results of operations appears in the Financial Review on pages 22 to 28 of
the 1997 Annual Report to Stockholders and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements and Supplementary Data appear on pages 29 to 49 of the
1997 Annual Report to Stockholders and are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
11
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information with respect to Directors of the Company is incorporated by
reference from the Company's 1997 Proxy Statement (the "Proxy Statement").
Certain information relating to Executive Officers of the Company appears at
pages 9 and 10 of this Form 10-K Annual Report. The information with respect to
this item required by Item 405 of Regulation S-K is incorporated herein by
reference from the Company's 1997 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information with respect to this item is incorporated herein by reference
from the Company's Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information with respect to this item is incorporated herein by reference
from the Company's Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information with respect to certain transactions with management is
incorporated by reference from the Company's Proxy Statement.
12
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Exhibits and Financial Statement Schedules
The following consolidated financial statements of the Company and the
Independent Auditors' Report are included in the 1997 Annual Report to
Stockholders and are incorporated by reference in Item 8. Page number
references are to the 1997 Annual Report to Stockholders.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report 50
Consolidated Financial Statements
Statements of Consolidated Income for the years ended
March 31, 1997, 1996 and 1995 29
Consolidated Balance Sheets, March 31, 1997, 1996 and 1995 30
Statements of Consolidated Cash Flows for the years ended
March 31, 1997, 1996 and 1995 31
Statements of Consolidated Stockholders' Equity for the
years ended March 31, 1997, 1996 and 1995 32-33
Financial Notes 34-49
10-K
The following are included herein: Page
----
Independent Auditors' Report on Supplementary Financial
Schedule 16
Supplementary Financial Schedule:
II Consolidated Valuation and Qualifying Accounts 17
</TABLE>
Financial statements and schedules not included or incorporated by
reference herein have been omitted because of the absence of conditions under
which they are required or because the required information, where material, is
shown in the financial statements, financial notes or supplementary financial
information.
Exhibits submitted with this Form 10-K as filed with the SEC and those
incorporated by reference to other filings are listed on the Exhibit Index on
pages 18 to 23.
13
<PAGE>
(b) Reports on Form 8-K
The following reports on Form 8-K or amendments to previously filed
reports on Form 8-K were filed during the three months ended March 31,
1997:
1. Form 8-K/A Amendment No. 1
Date of Report: November 22, 1996 Date Filed: January 21, 1997
Item 5. Other Events
---------------------
The Registrant reported that it and twelve pharmaceutical
manufacturers were named as defendants in the matter of FoxMeyer
Health Corporation vs. McKesson Corporation et. al.
Item 7. Financial Statements, Pro Forma 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: December 31, 1996 Date Filed: January 13, 1997
Item 2. Acquisition or Disposition of Assets
---------------------------------------------
The Registrant reported that it had completed the disposition of its
equity interest in Armor All Products Corporation.
3. Form 8-K
Date of Report: January 28, 1997 Date Filed: February 5, 1997
Item 5. Other Events
---------------------
The Registrant announced that it had signed a definitive agreement to
acquire privately held General Medical Inc.
4. Form 8-K
Date of Report: February 11, 1997 Date Filed: February 11, 1997
Item 5. Other Events
---------------------
The Registrant announced that Mark A. Pulido had been named Chief
Executive Officer effective April 1, 1997.
5. Form 8-K
Date of Report: February 21, 1997 Date Filed: February 24, 1997
Item 5. Other Events
---------------------
The Registrant announced that it had (i) executed a definitive
agreement to divest Millbrook Distribution Services Inc., its service
merchandising unit, to R.A.B. Holdings, Inc., a private investment
group, and (ii) completed its acquisition of General Medical Inc.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
McKESSON CORPORATION
Date: May 30, 1997 By: /s/Richard H. Hawkins
--------------------------------
Richard H. Hawkins, Vice
President and Chief Financial
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on May 30, 1997 by the following persons on behalf
of the Registrant and in the capacities indicated:
/s/Alan Seelenfreund /s/Mark A. Pulido
- ---------------------------------------- -----------------------------------
Alan Seelenfreund, Chairman of the Board Mark A. Pulido, President and
Chief Executive Officer and
Director
/s/Richard H. Hawkins /s/Heidi E. Yodowitz
- ---------------------------------------- -----------------------------------
Richard H. Hawkins, Vice President and Heidi E. Yodowitz, Controller
Chief Financial Officer
/s/Mary G.F. Bitterman /s/Tully M. Friedman
- ---------------------------------------- -----------------------------------
Mary G.F. Bitterman, Director Tully M. Friedman, Director
/s/John M. Pietruski
- ---------------------------------------- -----------------------------------
John M. Pietruski, Director Carl E. Reichardt, Director
/s/Jane E. Shaw /s/Robert H. Waterman, Jr.
- ---------------------------------------- -----------------------------------
Jane E. Shaw, Director Robert H. Waterman, Jr., Director
15
<PAGE>
INDEPENDENT AUDITORS' REPORT ON
SUPPLEMENTARY FINANCIAL SCHEDULE
The Stockholders and Board of Directors of McKesson Corporation:
We have audited the consolidated financial statements of McKesson Corporation
and subsidiaries as of March 31, 1997, 1996 and 1995, and for the years then
ended and have issued our report thereon dated May 16, 1997. Such consolidated
financial statements and report are included in the 1997 Annual Report to
Stockholders and are incorporated herein by reference. Our audits also included
the consolidated supplementary financial schedule of McKesson Corporation,
listed in Item 14(a). This consolidated supplementary financial schedule is the
responsibility of the Corporation's management. Our responsibility is to
express an opinion based on our audits. In our opinion, such consolidated
supplementary financial schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Francisco, California
May 16, 1997
16
<PAGE>
Schedule II
McKESSON CORPORATION - CONSOLIDATED
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED MARCH 31, 1997, 1996 AND 1995
(in thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------- ----------- ------------------------------ ------------ ------------
Additions
------------------------------
Balance at Charged to Charged to
Beginning Costs and Other Balance at
Description of Period Expenses Accounts Deductions/(1)/ End of Period/(2)/
- --------------------------------- ----------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C>
AMOUNTS DEDUCTED FROM
ASSETS TO WHICH THEY APPLY:
Year Ended March 31, 1997
- -------------------------
Allowances for doubtful
accounts receivable $23,743 $23,035/(3)/ - $24,800 $21,978
Other reserves 15,240 18,470 - 10,974 22,736
------ ------ ------ ------ ------
$38,983 $41,505 $ - $35,774 $44,714
====== ====== ====== ====== ======
Year Ended March 31, 1996
- -------------------------
Allowances for doubtful
accounts receivable $38,249 $13,679 $ - $28,185 $23,743
Other reserves 13,098 10,595 - 8,453 15,240
------ ------ ------ ------ ------
$51,347 $24,274 $ - $36,638 $38,983
====== ====== ====== ====== ======
Year Ended March 31, 1995
- -------------------------
Allowances for doubtful
accounts receivable $13,582 $49,005/(4)/ $ - $24,338 $38,249
Other reserves 13,135 1,900 - 1,937 13,098
------ ------ ------ ------ ------
$26,717 $50,905 $ - $26,275 $51,347
====== ====== ====== ====== ======
</TABLE>
- ----------------------------------------
NOTES:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
(1) Deductions:
Written off $25,107 $28,338 $27,324
Credited to other accounts 10,667 8,300 (1,049)
------ ------ ------
Total $35,774 $36,638 $26,275
====== ====== ======
(2) Amounts shown as deductions from:
Current receivables $43,948 $38,088 49,217
Other assets 766 895 2,130
------ ------ ------
Total $44,714 $38,983 $51,347
====== ====== ======
</TABLE>
(3) Includes charges of $15.1 million for receivable reserves related to
management's reevaluation of the U.S. Health Care business' estimated
exposures for bad debts, disputed amounts, customer allowances and rebates.
See Financial Note 4.
(4) Includes charges of $32.2 million for receivable reserves related to
facility closures and a reassessment of credit risks in the Company's
Health Care Services business. See Financial Note 4.
17
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
- ------ ----------------------------------------------------------------------
<S> <C>
2.1 Restructuring and Distribution Agreement dated as of July 10, 1994, by
and among McKesson Corporation, a Delaware corporation ("Old
McKesson"), McKesson Corporation, a Maryland corporation ("Maryland"),
Clinical Pharmaceuticals, Inc. ("CPI"), PCS Health Systems, Inc.
("PCS") and the Company (Exhibit 2.1 (1)).
2.2 Amendment, dated as of October 10,1994, by and among Old McKesson,
Maryland, CPI, PCS and the Company, which amends the Distribution
Agreement (Exhibit 2.2 (3)).
2.3 Second Amendment, dated as of November 3, 1994, by and among Old
McKesson, Maryland, CPI, PCS and the Company, which amends the
Distribution Agreement (Exhibit 2.5 (5)).
2.4 Agreement and Plan of Merger, dated as of July 10, 1994, by and among
Old McKesson, Eli Lilly and Company ("Parent") and ECO Acquisition
Corporation (the "Purchaser") (Exhibit 2.3 (4)).
2.5 Amendment, dated as of August 8, 1994, by and among Old McKesson,
Parent and Purchaser, which amends the Merger Agreement (Exhibit 2.4
(5)).
2.6 Asset Purchase Agreement dated as of October 3, 1996 by and among
FoxMeyer Corporation, FoxMeyer Drug Company, Health Mart, Inc.,
FoxMeyer Software, Inc., FoxMeyer Funding, Inc., Healthcare
Transportation System, Inc. and Merchandise Coordinator Services
Corporation as Sellers, and the Company, as Purchaser and FoxMeyer
Health Corporation (Exhibit 2.1 (10)).
2.7 First Amendment and Waiver to the Asset Purchase Agreement dated as of
November 7, 1996 by and among FoxMeyer Health Corporation, FoxMeyer
Corporation, FoxMeyer Drug Company, Healthcare Transportation System,
Inc., FoxMeyer Software, Inc., FoxMeyer Funding, Inc., Health Mart,
Inc., Merchandise Coordinator Services Corporation d/b/a FoxMeyer
Trading Company, and the Company (Exhibit 2.2(10)).
2.8 Agreement and Plan of Merger, dated as of January 28, 1997, by and
among General Medical Inc., the Company, Spider Acquisition
Corporation and certain stockholders named therein (Exhibit 2.1 (12)).
3.1 Restated Certificate of Incorporation of the Company, as filed with
the Office of the Delaware Secretary of State on February 7, 1996
(Exhibit 3.1 (8)).
3.2 Restated By-Laws of the Company, as amended through May 30, 1997
(Exhibit 4.2 (14)).
4.1 Rights Agreement dated as of September 14, 1994 between the Company
and First Chicago Trust Company of New York, as Rights Agent (Exhibit
4.1 (4)).
</TABLE>
18
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
- ------ ----------------------------------------------------------------------
<S> <C>
4.2 Amended and Restated Declaration of Trust of McKesson Financing Trust,
dated as of February 20, 1997, among the Company, as Sponsor, The
First National Bank of Chicago, as Institutional Trustee, First
Chicago Delaware, Inc., as Delaware Trustee and William A. Armstrong,
Ivan D. Meyerson and Nancy A. Miller, as Regular Trustees (Exhibit 4.2
(15)).
4.3 McKesson Corporation Preferred Securities Guarantee Agreement, dated
as of February 20, 1997, between the Company, as Guarantor, and The
First National Bank of Chicago, as Preferred Guarantor Trustee
(Exhibit 4.7 (13)).
4.4 Indenture dated as of March 11, 1997, by and between the Company, as
Issuer, and The First National Bank of Chicago, as Trustee.
4.5 Registrant agrees to furnish to the Commission upon request a copy of
each instrument with respect to issues of long-term debt of the
Registrant, the authorized principal amount of which does not exceed
10% of the total assets of the Registrant.
10.1 Tax Sharing Agreement, dated as of July 10, 1994, among the Company,
Old McKesson, Parent and the Purchaser (Exhibit 10.1 (1)).
10.2 HDS Services Agreement, dated as of July 10, 1994, among Parent, PCS
and Healthcare Delivery Systems, Inc. (Exhibit 10.2 (1)).
10.3 McKesson Services Agreement, dated as of July 10, 1994, between PCS
and the Company (Exhibit 10.3 (1)).
10.4 Memorandum of Understanding, dated as of July 10, 1994, between Parent
and the Company (Exhibit 10.4 (1)).
10.5 Non-Competition Agreement, dated as of July 10, 1994, between the
Company, Old McKesson, the Purchaser and Parent (Exhibit 10.5 (1)).
* 10.6 McKesson Corporation 1994 Stock Option and Restricted Stock Plan (as
amended through March 26, 1997).
* 10.7 McKesson Corporation Supplemental PSIP (Exhibit 10.7 (2)).
* 10.8 McKesson Corporation Deferred Compensation Administration Plan amended
as of March 30, 1994 (Exhibit 10.8 (2)).
* 10.9 McKesson Corporation Deferred Compensation Administration Plan II as
amended though September 28, 1994 (Exhibit 10.9 (2)).
* 10.10 McKesson Corporation Directors' Deferred Compensation Plan (Exhibit
10.10 (2)).
* 10.11 McKesson Corporation 1994 Option Gain Deferral Plan (Exhibit 10.12
(3)).
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
- ------ ----------------------------------------------------------------------
<S> <C>
* 10.12 McKesson Corporation 1985 Executives' Elective Deferred Compensation
Plan (Exhibit 10.13 (2)).
* 10.13 McKesson Corporation Management Deferred Compensation Plan (Exhibit
10.14 (2)).
* 10.14 McKesson Corporation 1984 Executive Benefit Retirement Plan as amended
through May 30, 1997.
* 10.15 McKesson Corporation 1988 Executive Survivor Benefits Plan (Exhibit
10.16 (2)).
* 10.16 McKesson Corporation Executive Medical Plan Summary (Exhibit 10.17
(3)).
* 10.17 McKesson Corporation 1988 Management Survivor Benefits Plan (Exhibit
10.18 (2)).
* 10.18 McKesson Corporation Severance Policy for Executive Employees (amended
and restated as of May 31, 1996) (Exhibit 10.2 (9)).
* 10.19 McKesson Corporation 1989 Management Incentive Plan (Amended and
Restated Effective April 26, 1995) (Exhibit B (6)).
* 10.20 McKesson Corporation 1981 Long-Term Incentive Plan (As amended through
January 29, 1997) (Exhibit C (16)).
* 10.21 McKesson Corporation Stock Purchase Plan (As amended and restated
through March 26, 1997) (Exhibit B (16)).
* 10.22 Form of Termination Agreement by and between the Company and certain
designated Executive Officers (Exhibit 10.23 (7)).
* 10.23 Description of McKesson Corporation Retirement Program for Nonemployee
Directors (Exhibit 10.24 (7)).
* 10.24 Separation and Mutual General Release Agreement entered into as of
February 12,1996 by and between the Company and a former Executive
Officer (Exhibit 10.24 (8)).
* 10.25 Form of Employment Agreement effective as of January 31, 1996 by and
between the Company and corporate Vice President who is also President
of the Company's Health Systems unit (Exhibit 10.1 (9)).
* 10.26 Form of Employment Agreement, made effective as of May 20, 1996, by
and between the Company and its President and Chief Operating Officer
(now Chief Executive Officer).
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
------ ----------------------------------------------------------------------
<S> <C>
10.27 Agreement and Plan of Merger, dated as of November 26, 1996, by and
among Armor All Products Corporation, The Clorox Company and Shield
Acquisition Corporation (Exhibit 10.1 (11)).
10.28 First Amendment to the Agreement and Plan of Merger, dated as of
December 1, 1996, by and among Armor All Products Corporation, The
Clorox Company and Shield Acquisition Corporation (Exhibit 10.2 (11)).
10.29 Stockholder Agreement, dated as of November 26, 1996, by and among the
Company, The Clorox Company and Shield Acquisition Corporation
(Exhibit 10.3 (11)).
* 10.30 McKesson Corporation 1997 Non-Employee Directors' Equity Compensation
and Deferral Plan (Exhibit A (16)).
* 10.31 Form of Employment Agreement, dated as of January 27, 1997, by and
between the Company and a corporate Vice President who is also
Chairman and Chief Executive Officer of General Medical Inc., a wholly-
owned subsidiary of the Company.
* 10.32 Form of Consulting Agreement, dated as of March 28, 1997, by and
between the Company and its Chairman and former Chief Executive
Officer.
10.33 Credit Agreement entered into as of March 31, 1995, among the Company,
Medis Health and Pharmaceutical Services Inc., an indirect wholly-
owned subsidiary of the Company, the several financial institutions
from time to time party to the agreement (collectively the "Banks"),
Bank of America National Trust and Savings Association, as Agent for
the Banks, Chemical Bank, as Co-Agent for the Banks and Bank of
America Canada, as Canadian Administrative Agent. (Exhibit 10.25 (7)).
10.34 Custodial Agreement Acknowledgment entered into as of March 31, 1995,
among the Company and Bank of America National Trust and Savings
Association (the "Custodian") in its capacity as Custodian under the
Custodial Agreement and as Agent for the Banks from time to time party
to the Credit Agreement. (Exhibit 10.26 (7)).
10.35 Pledge Agreement entered into as of March 31, 1995 among the Company
(the "Pledgor") and Bank of America National Trust and Savings
Association, as Agent for the Banks from time to time party to the
Credit Agreement. (Exhibit 10.27 (7)).
10.36 Guaranty entered into as of March 31, 1995 among the Company (the
"Guarantor"), in favor of and for the benefit of Bank of America
National Trust and Savings Association, as Agent for and
representative of the Banks party to the Credit Agreement. (Exhibit
10.28 (7)).
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
------ ---------------------------------------------------------------------
<S> <C>
10.37 First Amendment to Credit Agreement dated as of August 31, 1995, among
the Company, Medis Health and Pharmaceutical Services Inc., an
indirect wholly-owned subsidiary of the Company, the several financial
institutions party to the 1995 Credit Agreement (the "Banks"), Bank of
America Canada as Canadian Administrative Agent, Chemical Bank as co-
agent for the Banks, the Bank of America National Trust and Savings
Association as agent for the Banks.
10.38 Second Amendment to Credit Agreement dated as of April 10, 1996, among
the Company, Medis Health and Pharmaceutical Services Inc., an
indirect wholly-owned subsidiary of the Company, the several financial
institutions party to the 1995 Credit Agreement (the "Banks"), Bank of
America Canada as Canadian Administrative Agent, The Chase Manhattan
Bank as co-agent for Banks, and Bank of America National Trust and
Savings Association as agent for the Banks.
10.39 Third Amendment to Credit Agreement dated as of November 4, 1996,
among the Company, Medis Health and Pharmaceutical Services Inc., an
indirect wholly-owned subsidiary of the Company, the several financial
institutions party to the 1995 Credit Agreement (the "Banks"), Bank of
America Canada as Canadian Administrative Agent, The Chase Manhattan
Bank as co-agent for the Banks, and Bank of America National Trust and
Savings Association as agent for the Banks.
10.40 Pledge and Security Agreement entered into as of August 31, 1995,
among Macfor International Finance Company, a wholly-owned subsidiary
of the Company, and Bank of America National Trust and Savings
Association, as agent for the several financial institutions from time
to time party to the 1995 Credit Agreement.
10.41 Custody Agreement dated as of August 14, 1995, between Bank of America
National Trust and Savings Association, as Custodian, and Macfor
International Finance Company, a wholly-owned subsidiary of the
Company.
10.42 Custodial Agreement Acknowledgment entered into as of August 31, 1995,
between Macfor International Finance Company, a wholly-owned
subsidiary of the Company, and Bank of America National Trust and
Savings Association, as custodian and as agent for the several
financial institutions from time to time party to the 1995 Credit
Agreement.
10.43 Credit Agreement entered into as of November 4, 1996, among the
Company, the several financial institutions from time to time party to
the agreement (the "Banks"), The Chase Manhattan Bank as co-agent for
the Banks, and Bank of America National Trust and Savings Association
as agent for the Banks.
10.44 Letter Loan Agreement dated as of February 21, 1997, between the
Company and Bank of America National Trust and Savings Association.
11 Computation of Earnings Per Common Share for the Five Years Ended
March 31, 1997.
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit
Number Description
- ------ ----------------------------------------------------------------------
<S> <C>
13 1997 Annual Report to Stockholders. Portions not incorporated by
reference are furnished for informational purposes and are not deemed
to be filed herewith.
21 List of Subsidiaries of the Company.
23 Independent Auditors' Consent.
27 Financial Data Schedule.
99 Registration Rights Agreement, dated as of January 28, 1997, by and
among the Company and certain stockholders named therein (Exhibit 99.2
(12)).
</TABLE>
- ----------------------------------------
Footnotes to Exhibit Index:
* Denotes management contract or compensatory plan, contract or arrangement.
(1) Incorporated by reference to designated exhibit to the Company's
Registration Statement on Form 10 filed with the Commission on July 27,
1994, File No. 1-13252.
(2) Incorporated by reference to designated exhibit to Amendment No. 1 to the
Company's Registration Statement on Form 10 filed with the Commission on
August 26, 1994, File No. 1-13252.
(3) Incorporated by reference to designated exhibit to Amendment No. 2 to the
Company's Registration Statement on Form 10 filed with the Commission on
October 11, 1994, File No. 1-13252.
(4) Incorporated by reference to designated exhibit to Amendment No. 3 to the
Company's Registration Statement on Form 10 filed with the Commission on
October 27, 1994, File No. 1-13252.
(5) Incorporated by reference to designated exhibit to Amendment No. 4 to the
Company's Registration Statement on Form 10 filed with the Commission on
November 7, 1994, File No. 1-13252.
(6) Incorporated by reference to designated exhibit to the Company's definitive
Proxy Statement dated June 9, 1995 for the Annual Meeting of Stockholders
held on July 26, 1995.
(7) Incorporated by reference to designated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1995, File No.
1-13252.
(8) Incorporated by reference to designated exhibit to the Company's Annual
Report on Form 10-K for the fiscal year ended March 31, 1996, as amended by
Amendment No. 1 on Form 10-K/A, filed on February 13, 1997, File No. 1-
13252.
(9) Incorporated by reference to designated exhibit to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1996, File No. 1-13252.
(10) Incorporated by reference to designated exhibit to the Company's Current
Report on Form 8-K filed with the Commission on November 22, 1996, File No.
1-13252.
(11) Incorporated by reference to designated exhibit to the Company's Current
Report on Form 8-K filed with the Commission on December 10, 1996, File No.
1-13252.
(12) Incorporated by reference to designated exhibit to the Company's Current
Report on Form 8-K filed with the Commission on February 5, 1997, File No.
1-13252.
(13) Incorporated by reference to designated exhibit to the Company's
Registration Statement on Form S-3 filed with the Commission on May 2,
1997, Registration No. 333-26443.
(14) Incorporated by reference to designated exhibit to Amendment No. 1 to the
Company's Registration Statement on Form S-3 filed with the Commission on
June 9, 1997, Registration No. 333-26103.
(15) Incorporated by reference to designated exhibit to Amendment No. 1 to the
Company's Registration Statement of Form S-3 filed with the Commission on
June 18, 1997, Registration No. 333-26443.
(16) Incorporated by reference to designated exhibit to the Company's definitive
Proxy Statement dated June 18, 1997, for the Annual Meeting of Stockholders
to be held on July 30, 1997.
23
<PAGE>
Exhibit 4.4
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
McKESSON CORPORATION
and
THE FIRST NATIONAL BANK OF CHICAGO, as Trustee
Indenture
Dated as of March 11, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
CROSS REFERENCE SHEET*
Between
Provisions of Trust Indenture Act (as defined herein) and Indenture
dated as of March 11, 1997 between McKESSON CORPORATION and THE FIRST NATIONAL
BANK OF CHICAGO, Trustee:
<TABLE>
<CAPTION>
SECTION OF THE ACT SECTION OF INDENTURE
<S> <C>
310(a)(1) and (2)...............................................................................................6.9
310(a)(3) and (4)......................................................................................Inapplicable
310(b).................................................................................6.8 and 6.10(a), (b) and (d)
310(c).................................................................................................Inapplicable
311(a).........................................................................................................6.14
311(b).........................................................................................................6.14
311(c).................................................................................................Inapplicable
312(a)..................................................................................................4.1 and 4.2
312(b)..........................................................................................................4.2
312(c)..........................................................................................................4.2
313(a)..........................................................................................................4.3
313(b)(1)..............................................................................................Inapplicable
313(b)(2).......................................................................................................4.3
313(c)...................................................................................4.3, 5.11, 6.10, 6.11, 8.2
and 12.2
313(d)..........................................................................................................4.3
314(a)..................................................................................................3.5 and 4.2
314(b).................................................................................................Inapplicable
314(c)(1) and (2)..............................................................................................11.5
314(c)(3)..............................................................................................Inapplicable
314(d).................................................................................................Inapplicable
314(e).........................................................................................................11.5
314(f).................................................................................................Inapplicable
315(a), (c) and (d).............................................................................................6.1
315(b).........................................................................................................5.11
315(e).........................................................................................................5.12
316(a)(1)..............................................................................................5.9 and 5.10
316(a)(2)..............................................................................................Not required
316(a) (last sentence)..........................................................................................7.4
316(b)..........................................................................................................5.7
317(a)..........................................................................................................5.2
317(b)...............................................................................................3.4(a) and (b)
318(a).........................................................................................................11.7
</TABLE>
*This Cross Reference Sheet is not part of the Indenture.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C> <C>
ARTICLE I DEFINITIONS
SECTION 1.1 CERTAIN TERMS DEFINED....................................................... 1
ARTICLE II SECURITIES
SECTION 2.1 FORMS GENERALLY............................................................. 7
SECTION 2.2 FORM OF TRUSTEE'S CERTIFICATE OF
AUTHENTICATION...................................................... 7
SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES........................................ 8
SECTION 2.4 AUTHENTICATION AND DELIVERY OF
SECURITIES.......................................................... 11
SECTION 2.5 EXECUTION OF SECURITIES..................................................... 13
SECTION 2.6 CERTIFICATE OF AUTHENTICATION............................................... 14
SECTION 2.7 DENOMINATION AND DATE OF SECURITIES;
PAYMENTS OF INTEREST................................................ 14
SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE......................................... 15
SECTION 2.9 MUTILATED, DEFACED, DESTROYED, LOST AND
STOLEN SECURITIES................................................... 21
SECTION 2.10 CANCELLATION OF SECURITIES; DESTRUCTION
THEREOF............................................................. 22
SECTION 2.11 TEMPORARY SECURITIES........................................................ 22
ARTICLE III COVENANTS OF THE ISSUER
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST........................................... 23
SECTION 3.2 OFFICES FOR PAYMENTS, ETC................................................... 23
SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE
OF TRUSTEE.......................................................... 24
SECTION 3.4 PAYING AGENTS............................................................... 24
SECTION 3.5 COMPLIANCE CERTIFICATES..................................................... 25
SECTION 3.6 CORPORATE EXISTENCE......................................................... 26
SECTION 3.7 MAINTENANCE OF PROPERTIES................................................... 26
SECTION 3.8 PAYMENT OF TAXES AND OTHER CLAIMS........................................... 26
SECTION 3.9 LUXEMBOURG PUBLICATIONS..................................................... 26
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE IV SECURITYHOLDER LISTS AND REPORTS BY THE
<S> <C> <C>
ISSUER AND THE TRUSTEE
SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS
TO NAMES AND ADDRESSES OF
SECURITYHOLDERS..................................................... 27
SECTION 4.2 REPORTS BY THE ISSUER....................................................... 27
SECTION 4.3 REPORTS BY THE TRUSTEE...................................................... 27
ARTICLE V REMEDIES OF THE TRUSTEE AND
SECURITYHOLDERS ON EVENT OF
DEFAULT
SECTION 5.1 EVENT OF DEFAULT DEFINED, ACCELERATION
OF MATURITY; WAIVER OF DEFAULT...................................... 29
SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE;
TRUSTEE MAY PROVE DEBT.............................................. 32
SECTION 5.3 APPLICATION OF PROCEEDS..................................................... 34
SECTION 5.4 SUITS FOR ENFORCEMENT....................................................... 35
SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT
OF PROCEEDINGS...................................................... 35
SECTION 5.6 LIMITATIONS ON SUITS BY SECURITY HOLDERS.................................... 35
SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS
TO INSTITUTE CERTAIN SUITS.......................................... 36
SECTION 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY
OR OMISSION NOT WAIVER OF DEFAULT................................... 36
SECTION 5.9 CONTROL BY HOLDERS OF SECURITIES............................................ 36
SECTION 5.10 WAIVER OF PAST DEFAULTS..................................................... 37
SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT
MAY WITHHOLD IN CERTAIN
CIRCUMSTANCES....................................................... 37
SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF
UNDERTAKING TO PAY COSTS............................................ 37
ARTICLE VI CONCERNING THE TRUSTEE
SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE
TRUSTEE; DURING DEFAULT; PRIOR TO
DEFAULT............................................................. 38
SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE............................................... 39
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS,
DISPOSITION OF SECURITIES OR
APPLICATION OF PROCEEDS THEREOF..................................... 40
SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES
OR COUPONS; COLLECTIONS, ETC........................................ 41
SECTION 6.5 MONEYS HELD BY TRUSTEE...................................................... 41
SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF
TRUSTEE AND ITS PRIOR CLAIM......................................... 41
SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICER'S
CERTIFICATE, ETC.................................................... 41
SECTION 6.8 INDENTURES NOT CREATING POTENTIAL
CONFLICTING INTERESTS FOR THE
TRUSTEE............................................................. 42
SECTION 6.9 QUALIFICATION OF TRUSTEE: CONFLICTING
INTERESTS........................................................... 42
SECTION 6.10 PERSONS ELIGIBLE FOR APPOINTMENT AS
TRUSTEE............................................................. 42
SECTION 6.11 RESIGNATION AND REMOVAL; APPOINTMENT
OF SUCCESSOR TRUSTEE................................................ 42
SECTION 6.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR
TRUSTEE............................................................. 44
SECTION 6.13 MERGER, CONVERSION, CONSOLIDATION OR
SUCCESSION TO BUSINESS OF TRUSTEE................................... 45
SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS
AGAINST THE ISSUER.................................................. 45
SECTION 6.15 APPOINTMENT OF AUTHENTICATING AGENT......................................... 46
ARTICLE VII CONCERNING THE SECURITYHOLDERS
SECTION 7.1 EVIDENCE OF ACTION TAKEN BY
SECURITYHOLDERS............................................................. 47
SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND
OF HOLDING OF SECURITIES............................................ 47
SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS............................................. 47
SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT
OUTSTANDING......................................................... 47
SECTION 7.5 RIGHT OF REVOCATION OF ACTION TAKEN......................................... 48
</TABLE>
iii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
ARTICLE VIII SUPPLEMENTAL INDENTURES
<S> <C> <C>
SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CON-
SENT OF SECURITYHOLDERS............................................. 48
SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT
OF SECURITYHOLDERS.................................................. 50
SECTION 8.3 EFFECT OF SUPPLEMENTAL INDENTURE............................................ 51
SECTION 8.4 DOCUMENTS TO BE GIVEN TO TRUSTEE............................................ 51
SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF
SUPPLEMENTAL INDENTURES............................................. 52
ARTICLE IX CONSOLIDATION, MERGER, SALE OR
CONVEYANCE
SECTION 9.1 ISSUER MAY CONSOLIDATE, ETC., ONLY ON
CERTAIN TERMS....................................................... 52
SECTION 9.2 SUCCESSOR CORPORATION SUBSTITUTED........................................... 52
SECTION 9.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE...................................... 53
ARTICLE X SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE..................................... 53
SECTION 10.2 APPLICATION BY TRUSTEE OF FUNDS
DEPOSITED FOR PAYMENT OF
SECURITIES.......................................................... 57
SECTION 10.3 REPAYMENT OF MONEYS HELD BY PAYING
AGENT............................................................... 57
SECTION 10.4 RETURN OF MONEYS HELD BY TRUSTEE AND
PAYING AGENT UNCLAIMED FOR TWO
YEARS............................................................... 57
SECTION 10.5 INDEMNITY FOR U.S. GOVERNMENT OF
OBLIGATIONS......................................................... 58
ARTICLE XI MISCELLANEOUS PROVISIONS
SECTION 11.1 INCORPORATORS, STOCKHOLDERS, OFFICERS
AND DIRECTORS OF ISSUER EXEMPT
FROM INDIVIDUAL LIABILITY........................................... 58
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE
BENEFIT OF PARTIES AND HOLDERS OF
SECURITIES AND COUPONS.............................................. 58
SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND
BY INDENTURE........................................................ 58
SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE
AND HOLDERS OF SECURITIES AND
COUPONS............................................................. 58
SECTION 11.5 OFFICER'S CERTIFICATES AND OPINIONS OF
COUNSEL; STATEMENTS TO BE
CONTAINED THEREIN................................................... 59
SECTION 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND
HOLIDAYS............................................................ 60
SECTION 11.7 CONFLICT OF ANY PROVISION OF INDENTURE
WITH TRUST INDENTURE ACT............................................ 60
SECTION 11.8 NEW YORK LAW TO GOVERN...................................................... 60
SECTION 11.9 COUNTERPARTS................................................................ 61
SECTION 11.10 EFFECT OF HEADINGS.......................................................... 61
SECTION 11.11 SECURITIES IN A FOREIGN CURRENCY OR IN
ECU................................................................. 61
SECTION 11.12 JUDGMENT CURRENCY........................................................... 61
ARTICLE XII REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 12.1 APPLICABILITY OF ARTICLE.................................................... 62
SECTION 12.2 NOTICE OF REDEMPTION; PARTIAL
REDEMPTIONS......................................................... 62
SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR
REDEMPTION.......................................................... 64
SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM
ELIGIBILITY FOR SELECTION FOR
REDEMPTION.......................................................... 65
SECTION 12.5 MANDATORY AND OPTIONAL SINKING FUNDS........................................ 65
</TABLE>
v
<PAGE>
THIS INDENTURE, dated as of March 11, 1997, by and between McKESSON
CORPORATION, a Delaware corporation (the "Issuer"), and THE FIRST NATIONAL BANK
OF CHICAGO, a national banking association, as trustee (the "Trustee"),
W I T N E S S E T H:
WHEREAS, the Issuer has duly authorized the issue from time to time of
its unsecured debentures, notes or other evidences of indebtedness to be issued
in one or more series (the "Securities") up to such principal amount or amounts
as may from time to time be authorized in accordance with the terms of this
Indenture;
WHEREAS, the Issuer has duly authorized the execution and delivery of
this Indenture to provide, among other things, for the authentication, delivery
and administration of the Securities; and
WHEREAS, all things necessary to make this Indenture a valid indenture
and agreement according to its terms have been done;
NOW, THEREFORE:
In consideration of the premises and the purchases of the Securities
by the holders thereof, the Issuer and the Trustee mutually covenant and agree
for the equal and proportionate benefit of the respective holders from time to
time of the Securities and of the coupons, if any, appertaining thereto as
follows:
ARTICLE I
DEFINITIONS
SECTION 1.1 CERTAIN TERMS DEFINED. The following terms (except as
otherwise expressly provided or unless the context otherwise clearly requires)
for all purposes of this Indenture and of any indenture supplemental hereto
shall have the respective meanings specified in this Section. All other terms
used in this Indenture that are defined in the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"), or the definitions of which in the
Securities Act of 1933, as amended (the "Securities Act"), are referred to in
the Trust Indenture Act, including terms defined therein by reference to the
Securities Act (except as herein otherwise expressly provided or unless the
context otherwise requires), shall have the meaning assigned to such terms in
the Trust Indenture Act and in the Securities Act as in effect from time to
time. All accounting terms used herein and not expressly defined shall have the
meanings assigned to such terms in accordance with generally accepted accounting
principles, and the term "generally accepted accounting principles" means such
accounting principles as are generally accepted at the time of any computation
unless a different time shall be specified with respect to such series of
Securities as provided for in Section 2.3. The words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Indenture as a whole
and not
1
<PAGE>
to any particular Article, Section or other subdivision. The terms defined in
this Article have the meanings assigned to them in this Article and include the
plural as well as the singular.
"Affiliate" has the same meaning as given to that term in Rule 405 of
the Securities Act or any successor provision.
"Authenticating Agent" shall have the meaning set forth in Section
6.15.
"Authorized Newspaper" means a newspaper (which, in the case of The
City of New York, will, if practicable, be The Wall Street Journal (Eastern
Edition), in the case of the United Kingdom of Great Britain and Northern
Ireland (the "United Kingdom"), will, if prac ticable, be The Financial Times
(London Edition) and, in the case of the Grand Duchy of Luxembourg
("Luxembourg"), will, if practicable, be the Luxemburger Wort) published in an
official or common language of the county of publication customarily published
at least once a day for at least five days in each calendar week and of general
circulation in The City of New York, the United Kingdom or Luxembourg, as
applicable. If it shall be impractical in the opinion of the Trustee to make
any publication of any notice required hereby in an Authorized Newspaper, any
publication or other notice in lieu thereof which is made or given with the
approval of the Trustee shall constitute a sufficient publication of such
notice.
"Board of Directors" means either the Board of Directors of the Issuer
or any committee of such Board duly authorized to act on its behalf.
"Board Resolution" means a copy of one or more resolutions, certified
by the secretary or an assistant secretary of the Issuer to have been duly
adopted or consented to by the Board of Directors and to be in full force and
effect, and delivered to the Trustee.
"Business Day" means, with respect to any Security, a day other than
any day on which banking institutions in the city (or in any of the cities, if
more than one) in which amounts are payable, as specified in the form of such
Security, are authorized or required by any applicable law or regulation to be
closed.
"Commission" means the Securities and Exchange Commission, as from
time to time constituted, created under the Exchange Act, or if at any time
after the execution and delivery of this Indenture such Commission is not
existing and performing the duties now assigned to it under the Trust Indenture
Act, then the body performing such duties on such date.
"Corporate Trust Office" means the office of the Trustee at which the
corporate trust business of the Trustee shall, at any particular time, be
principally administered, which office is, as of the date of this Indenture,
located at One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126,
Attention: Corporate Trust Administration.
"Coupon" means any interest coupon appertaining to an Unregistered
Security.
"Covenant Defeasance" shall have the meaning set forth in Section
10.1(C).
2
<PAGE>
"Depositary" means, with respect to the Securities of any series
issuable or issued in the form of one or more Registered Global Securities, the
Person designated as Depositary by the Issuer pursuant to Section 2.3 until a
successor Depositary shall have become such pursuant to the applicable
provisions of this Indenture, and thereafter "Depositary" shall mean or include
each Person who is then a Depositary hereunder, and if at any time there is more
than one such Person, "Depositary" as used with respect to the Securities of any
such series shall mean the Depositary with respect to the Registered Global
Securities of that series.
"Dollar" or "$" means the coin or currency of the United States of
America as at the time of payment is legal tender for the payment of public and
private debts.
"ECU" means the European Currency Unit as defined and revised from
time to time by the European Monetary System of the European Community.
"Event of Default" means any event or condition specified as such in
Section 5.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Value" when used with respect to any Voting Stock means the fair
value as determined in good faith by the Board of Directors of the Issuer.
"Foreign Currency" means a currency issued by the government of a
country other than the United States of America.
"Holder," "Holder of Securities," "Securityholder" or other similar
terms mean (a) in the case of any Registered Security, the person in whose name
such Security is registered in the security register kept by the Issuer for that
purpose in accordance with the terms hereof, and (b) in the case of any
Unregistered Security, the bearer of such Security, or any Coupon appertaining
thereto, as the case may be.
"Indenture" means this instrument as originally executed and delivered
or, if amended or supplemented as herein provided, as so amended or supplemented
or both, and shall include the forms and terms of particular series of
Securities established as contemplated hereunder.
"IRS" means the Internal Revenue Service of the United States
Department of the Treasury, or any successor entity.
"Issuer" means (except as otherwise provided in Article IX) McKesson
Corporation, a Delaware corporation, and, subject to Article IX, its successors
and assigns.
"Issuer Order" means a written statement, request or order of the
Issuer signed in its name by the chairman of the Board of Directors, the
president, any vice president or the treasurer of the Issuer.
3
<PAGE>
"Judgment Currency" has the meaning set forth in Section 11.12.
"Non-U.S. Person" means any person that is not a "U.S. person" as such
term is defined in Rule 902 of the Securities Act.
"Officer's Certificate" means a certificate signed by the chairman of
the Board of Directors, the president or any vice president or the treasurer of
the Issuer and delivered to the Trustee. Each such certificate shall comply
with Section 314 of the Trust Indenture Act and include the statements provided
for in Section 11.5.
"144A Global Security" has the meaning set forth in Section 2.8(b)(i).
"Opinion of Counsel" means an opinion in writing signed by legal
counsel who may be an employee of the Issuer or other counsel satisfactory to
the Trustee. Each such opinion shall comply with Section 314 of the Trust
Indenture Act and include the statements provided for in Section 11.5.
"Original Issue Date" of any Security (or portion thereof) means the
earlier of (a) the date of such Security or (b) the date of any Security (or
portion thereof) for which such Security was issued (directly or indirectly) on
registration of transfer, exchange or substitution.
"Original Issue Discount Security" means any Security that provides
for an amount less than the principal amount thereof to be due and payable upon
a declaration of acceleration of the maturity thereof pursuant to Section 5.1.
"Outstanding" (except as otherwise provided in Section 7.4), when used
with reference to Securities, means, subject to the provisions of Section 7.4,
as of any particular time, all Securities authenticated and delivered by the
Trustee under this Indenture, except
(a) Securities theretofore cancelled by the Trustee or delivered to
the Trustee for cancellation;
(b) Securities, or portions thereof, for the payment or redemption of
which moneys or U.S. Government Obligations (as provided for in Section
10.1) in the necessary amount shall have been deposited in trust with the
Trustee or with any paying agent (other than the Issuer) or shall have been
set aside, segregated and held in trust by the Issuer for the Holders of
such Securities (if the Issuer shall act as its own paying agent),
provided, that if such Securities, or portions thereof, are to be redeemed
prior to the maturity thereof, notice of such redemption shall have been
given as herein provided, or provisions satisfactory to the Trustee shall
have been made for giving such notice; and
(c) Securities which shall have been paid or in substitution for
which other Securities shall have been authenticated and delivered pursuant
to the terms of Section 2.9 (except with respect to any such Security as to
which proof satisfactory to the Trustee
4
<PAGE>
is presented that such Security is held by a person in whose hands such
Security is a legal, valid and binding obligation of the Issuer).
In determining whether the Holders of the requisite principal amount
of Outstanding Securities of any or all series have given any request, demand,
authorization, direction, notice, consent or waiver hereunder, the principal
amount of an Original Issue Discount Security that shall be deemed to be
Outstanding for such purposes shall be the amount of the principal thereof that
would be due and payable as of the date of such determination upon a declaration
of acceleration of the maturity thereof pursuant to Section 5.1.
"Periodic Offering" means an offering of Securities of a series from
time to time, the specific terms of which Securities, including, without
limitation, the rate or rates of interest, if any, thereon, the stated maturity
or maturities thereof and the redemption provisions, if any, with respect
thereto, are to be determined by the Issuer or its agents upon the issuance of
such Securities.
"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"PORTAL Market" means Private Offerings, Resales and Trading through
Automatic Linkages Market.
"principal" whenever used with reference to the Securities or any
Security or any portion thereof, shall be deemed to include "and premium, if
any," provided, however, that such inclusion of premium, if any, shall under no
circumstances result in the double counting of such premium for the purpose of
any calculation required hereunder.
"QIB" or "Qualified Institutional Buyer" means "Qualified
Institutional Buyer" as such term is defined in Rule 144A under the Securities
Act.
"record date" shall have the meaning set forth in Section 2.7.
"Registered Global Security" means a Security evidencing all or a part
of a series of Registered Securities, issued to the Depositary for such series
in accordance with Section 2.4, and bearing the legend prescribed in Section 2.4
and any other legend required by the Depositary for such series.
"Registered Security" means any Security registered on the Security
register of the Issuer.
"Regulation S" means Regulation S under the Securities Act, or any
successor provision.
"Regulation S Global Security" has the meaning set forth in Section
2.8(b).
5
<PAGE>
"Required Currency" shall have the meaning set forth in Section 11.12.
"Responsible Officer" when used with respect to the Trustee means the
chairman of the board of directors, any vice chairman of the board of directors,
the chairman of the trust committee, the chairman of the executive committee,
any vice chairman of the executive committee, the president, any vice president
(whether or not designated by numbers or words added before or after the title
"Vice President"), the cashier, the secretary, the treasurer, any trust officer,
any assistant trust officer, any assistant vice president, any assistant
cashier, any assistant secretary, any assistant treasurer, or any other officer
or assistant officer of the Trustee customarily performing functions similar to
those performed by the persons who at the time shall be such officers,
respectively, or to whom any corporate trust matter is referred because of his
or her knowledge of and familiarity with the particular subject.
"Restricted Security" has the meaning set forth in Section 2.8(b).
"Rule 144" means Rule 144 under the Securities Act.
"Rule 144A" means Rule 144A under the Securities Act.
"Rule 144K" means Rule 144(k) under the Securities Act.
"Security" or "Securities" (except as otherwise provided in Section
7.4) has the meaning stated in the first recital of this Indenture, or, as the
case may be, Securities that have been authenticated and delivered under this
Indenture.
"Securities Act" means the Securities Act of 1933, as amended.
"Subsidiary" means any corporation of which at least a majority of the
outstanding stock having the voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether or not at the time stock
of any other class or classes of such corporation shall have or might have
voting power by reason of the happening of any contingency) is at the time of
determination directly or indirectly owned by the Issuer, or by one or more of
its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.
"Transfer Restriction Termination Date" means the earlier of the first
date on which (i) the Securities of a series (other than such Securities
acquired by the Issuer or any Affiliate thereof since the issue date of such
Securities) may be sold pursuant to Rule 144K (or any successor provision) and
(ii) all such Securities have been exchanged or sold pursuant to an effective
registration statement.
"Trustee" means the Person identified as "Trustee" in the first
paragraph hereof and, subject to the provisions of Article VI, shall also
include any successor trustee. "Trustee" shall also mean or include each Person
who is then a trustee hereunder and if at any time there is more than one such
Person, "Trustee" as used with respect to the Securities of any series shall
mean the trustee with respect to the Securities of such series.
6
<PAGE>
"Unregistered Security" means any Security other than a Registered
Security.
"U.S. Government Obligations" shall have the meaning set forth in
Section 10.1(A).
"Voting Stock" means stock of any class or classes having general
voting power under ordinary circumstances to elect a majority of the board of
directors, managers or trustees of the corporation in question, provided, that,
for the purposes hereof, stock which carries only the right to vote
conditionally on the happening of an event shall not be considered voting stock
whether or not such event shall have happened.
"Yield to Maturity" means the yield to maturity on a series of
securities, calculated at the time of issuance of such series, or, if
applicable, at the most recent redetermination of interest on such series, and
calculated in accordance with accepted financial practice.
ARTICLE II
SECURITIES
SECTION 2.1 FORMS GENERALLY. The Securities of each series and the
Coupons, if any, to be attached thereto shall be substantially in such form (not
inconsistent with this Indenture) as shall be established by or pursuant to one
or more Board Resolutions (as set forth in a Board Resolution or, to the extent
established pursuant to but not set forth in a Board Resolution, an Officer's
Certificate detailing such establishment) or in one or more indentures
supplemental hereto, in each case with such appropriate insertions, omissions,
substitutions and other variations as are required or permitted by this
Indenture and may have imprinted or otherwise reproduced thereon such legend or
legends or endorsements, not inconsistent with the provisions of this Indenture,
as may be required to comply with any law or with any rules or regulations
pursuant thereto, or with any rules of any securities exchange or to conform to
general usage, all as may be determined by the officers executing such
Securities and Coupons, if any, as evidenced by their execution of such
Securities and Coupons.
The definitive Securities and Coupons, if any, shall be printed,
lithographed or engraved on steel engraved borders or may be produced in any
other manner, all as determined by the officers executing such Securities and
Coupons, if any, as evidenced by their execution of such Securities and Coupons,
if any.
SECTION 2.2 FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION. The
Trustee's certificate of authentication on all Securities shall be in
substantially the following form:
7
<PAGE>
"This is one of the Securities referred to in the within-mentioned
Indenture.
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By ______________________________
Authorized Signatory"
If at any time there shall be an Authenticating Agent appointed with
respect to any series of Securities, then the Trustee's Certificate of
Authentication to be borne by the Securities of each such series shall be
substantially as follows:
"This is one of the Securities referred to in the within-mentioned
Indenture.
[_________________________________]
as Authenticating Agent
By _______________________________
Authorized Signatory"
SECTION 2.3 AMOUNT UNLIMITED; ISSUABLE IN SERIES. The aggregate
principal amount of Securities which may be authenticated and delivered under
this Indenture is unlimited.
The Securities may be issued in one or more series and each such
series shall rank equally and pari passu with all other unsecured and
unsubordinated debt of the Issuer. There shall be established in or pursuant to
one or more Board Resolutions (and to the extent established pursuant to but
not set forth in a Board Resolution, in an Officer's Certificate detailing such
establishment) or established in one or more indentures supplemental hereto,
prior to the initial issuance of Securities of any series,
(1) the designation of the Securities of the series, which shall
distinguish the Securities of the series from the Securities of all other
series, and which may be part of a series of Securities previously issued;
(2) any limit upon the aggregate principal amount of the Securities
of the series that may be authenticated and delivered under this Indenture
(except for Securities
8
<PAGE>
authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to
Section 2.8, 2.9, 2.11, 8.5 or 12.3);
(3) if other than Dollars, the coin or currency in which the
Securities of the series are denominated (including, but not limited to,
any Foreign Currency or ECU);
(4) the date or dates on which the principal of the Securities of
the series is payable;
(5) the rate or rates at which the Securities of the series shall
bear interest, if any, the date or dates from which such interest shall
accrue, on which such interest shall be payable and (in the case of
Registered Securities) on which a record shall be taken for the
determination of Holders to whom interest is payable and/or the method by
which such rate or rates or date or dates shall be determined;
(6) the place or places where the principal of and any interest on
Securities of the series shall be payable, if other than as provided in
Section 3.2;
(7) the right, if any, of the Issuer to redeem Securities, in whole
or in part, at its option and the period or periods within which, the price
or prices at which and any terms and conditions upon which Securities of
the series may be so redeemed, pursuant to any sinking fund or otherwise;
(8) the obligation, if any, of the Issuer to redeem, purchase or
repay Securities of the series pursuant to any mandatory redemption,
sinking fund or analogous provisions or at the option of a Holder thereof
and the price or prices at which and the period or periods within which and
any terms and conditions upon which Securities of the series shall be
redeemed, purchased or repaid, in whole or in part, pursuant to such
obligation;
(9) if other than denominations of $1,000 and any integral multiple
thereof in the case of Registered Securities, or $1,000 and $5,000 in the
case of Unregistered Securities, the denominations in which Securities of
the series shall be issuable;
(10) if other than the principal amount thereof, the portion of the
principal amount of Securities of the series which shall be payable upon
declaration of acceleration of the maturity thereof;
(11) if other than the coin or currency in which the Securities of
the series are denominated, the coin or currency in which payment of the
principal of or interest on the Securities of such series shall be payable;
(12) if the principal of or interest on the Securities of the series
are to be payable, at the election of the Issuer or a Holder thereof, in a
coin or currency other than
9
<PAGE>
that in which the Securities are denominated, the period or periods within
which, and the terms and conditions upon which, such election may be made;
(13) if the amount of payments of principal of and interest on the
Securities of the series may be determined with reference to an index based
on a coin or currency other than that in which the Securities of the series
are denominated, the manner in which such amounts shall be determined;
(14) whether the Securities of the series will be issuable as
Registered Securities (and if so, whether such Securities will be issuable
as Registered Global Securities) or Unregistered Securities (with or
without Coupons), or any combination of the foregoing, any restrictions
applicable to the offer, sale or delivery of Unregistered Securities or the
payment of interest thereon and, if other than as provided in Section 2.8,
the terms upon which Unregistered Securities of any series may be exchanged
for Registered Securities of such series and vice versa;
(15) whether and under what circumstances the Issuer will pay
additional amounts on the Securities of the series held by a person who is
not a U.S. person in respect of any tax, assessment or governmental charge
withheld or deducted and, if so, whether the Issuer will have the option to
redeem the Securities of the series rather than pay such additional
amounts;
(16) if the Securities of the series are to be issuable in definitive
form (whether upon original issue or upon exchange of a temporary Security
of such series) only upon receipt of certain certificates or other
documents or satisfaction of other conditions, the form and terms of such
certificates, documents or conditions;
(17) any trustees, depositaries, authenticating or paying agents,
transfer agents or registrars of any other agents with respect to the
Securities of such series;
(18) any other events of default or covenants with respect to the
Securities of such series;
(19) if the Securities of the series are to be convertible into or
exchangeable for any other security; and
(20) any other terms of the series (which terms shall not be
inconsistent with the provisions of this Indenture).
All Securities of any one series and Coupons, if any, appertaining
thereto shall be substantially identical, except in the case of Registered
Securities as to denomination and except as may otherwise be provided by or
pursuant to the Board Resolution or Officer's Certificate referred to above or
as set forth in any indenture supplemental hereto. All Securities of any one
series need not be issued at the same time and may be issued from time to time,
10
<PAGE>
consistent with the terms of this Indenture, if so provided by or pursuant to
such Board Resolution, such Officer's Certificate or in any indenture
supplemental hereto.
SECTION 2.4 AUTHENTICATION AND DELIVERY OF SECURITIES. The Issuer
may deliver Securities of any series having attached thereto appropriate
Coupons, if any, executed by the Issuer to the Trustee for authentication
together with the applicable documents referred to below in this Section 2.4,
and the Trustee shall thereupon authenticate and deliver such Securities and
Coupons, if any, to or upon the order of the Issuer (contained in the Issuer
Order referred to below in this Section) or pursuant to such procedures
acceptable to the Trustee and to such recipients as may be specified from time
to time by an Issuer Order. The maturity date, original issue date, interest
rate and any other terms of the Securities of such series and Coupons, if any,
appertaining thereto shall be determined by or pursuant to such Issuer Order and
procedures. If provided for in such procedures, such Issuer Order may authorize
authentication and delivery pursuant to oral or electronic instructions from the
Issuer or its duly authorized agent or agents, which instructions, if oral,
shall be promptly confirmed in writing. In authenticating such Securities and
accepting the additional responsibilities under this Indenture in relation to
such Securities, the Trustee shall be entitled to receive (in the case of
subparagraphs (2), (3) and (4) below only at or before the time of the first
request of the Issuer to the Trustee to authenticate Securities of such series)
and (subject to Section 6.1) shall be fully protected in relying upon, the
following enumerated documents unless and until such documents have been
superseded or revoked:
(1) an Issuer Order requesting such authentication and setting forth
delivery instructions if the Securities and Coupons, if any, are not to be
delivered to the Issuer, provided that, with respect to Securities of a
series subject to a Periodic Offering, (a) such Issuer Order may be
delivered by the Issuer to the Trustee prior to the delivery to the Trustee
of such Securities for authentication and delivery, (b) the Trustee shall
authenticate and deliver Securities of such series for original issue from
time to time, in an aggregate principal amount not exceeding the aggregate
principal amount established for such series, pursuant to an Issuer Order
or pursuant to procedures acceptable to the Trustee as may be specified
from time to time by an Issuer Order, (c) the maturity date or dates,
original issue date or dates, interest rate or rates and any other terms of
Securities of such series shall be determined by an Issuer Order or
pursuant to such procedures and (d) if provided for in such procedures,
such Issuer Order may authorize authentication and delivery pursuant to
oral or electronic instructions from the Issuer or its duly authorized
agent or agents, which instructions, if oral, shall be promptly confirmed
in writing;
(2) any Board Resolution, Officer's Certificate and/or executed
supplemental indenture referred to in Section 2.1 and 2.3 by or pursuant to
which the forms and terms of the Securities and Coupons, if any, were
established;
(3) an Officer's Certificate setting forth the form or forms and
terms of the Securities and Coupons, if any, stating that the form or forms
and terms of the Securities
11
<PAGE>
and Coupons, if any, have been established pursuant to Sections 2.1 and 2.3
and comply with this Indenture, and covering such other matters as the
Trustee may reasonably request; and
(4) At the option of the Issuer, either one or more Opinions of
Counsel, or a letter addressed to the Trustee permitting it to rely on one
or more Opinions of Counsel, substantially to the effect that:
(a) the form or forms of the Securities and Coupons, if any,
have been duly authorized and established in conformity with the
provisions of this Indenture;
(b) in the case of an underwritten offering, the terms of the
Securities have been duly authorized and established in conformity
with the provisions of this Indenture, and, in the case of an offering
that is not underwritten, certain terms of the Securities have been
established pursuant to a Board Resolution, an Officer's Certificate
or a supplemental indenture in accordance with this Indenture, and
when such other terms as are to be established pursuant to procedures
set forth in an Issuer Order shall have been established, all such
terms will have been duly authorized by the Issuer and will have been
established in conformity with the provisions of this Indenture; and
(c) such Securities and Coupons, if any, when executed by the
Issuer and authenticated by the Trustee in accordance with the
provisions of this Indenture and delivered to and duly paid for by the
purchasers thereof, and subject to any conditions specified in such
Opinion of Counsel, will have been duly issued under this Indenture,
will be entitled to the benefits of this Indenture, and will be valid
and binding obligations of the Issuer, enforceable in accordance with
their respective terms except as the enforceability thereof may be
limited by (i) bankruptcy, insolvency or similar laws affecting
creditors' rights generally, (ii) rights of acceleration, if any, and
(iii) the availability of equitable remedies may be limited by
equitable principles of general applicability and such counsel need
express no opinion with regard to the enforceability of Section 6.6 or
of a judgment denominated in a currency other than Dollars.
In rendering such opinions, any counsel may qualify any opinions as to
enforceability by stating that such enforceability may be limited by bankruptcy,
insolvency, reorganization, liquidation, moratorium, fraudulent transfer and
other similar laws affecting the rights and remedies of creditors and is subject
to general principles of equity (regardless of whether such enforceability is
considered in a proceeding in equity or at law). Such counsel may rely upon
opinions of other counsel (copies of which shall be delivered to the Trustee)
reasonably satisfactory to the Trustee, in which case the opinion shall state
that such counsel believes he and the Trustee are entitled so to rely. Such
counsel may also state that, insofar as
12
<PAGE>
such opinion involves factual matters, he has relied, to the extent he deems
proper, upon certificates of officers of the Issuer and its subsidiaries and
certificates of public officials.
The Trustee shall have the right to decline to authenticate and
deliver any Securities under this section if the Trustee, being advised by
counsel, determines that such action may not lawfully be taken by the Issuer or
if the Trustee in good faith by its board of directors or board of trustees,
executive committee or a trust committee of directors or trustees shall
determine that such action would expose the Trustee to personal liability to
existing Holders or would affect the Trustee's own rights, duties or immunities
under the Securities, this Indenture or otherwise.
If the Issuer shall establish pursuant to Section 2.3 that the
Securities of a series are to be issued in the form of one or more Registered
Global Securities, then the Issuer shall execute and the Trustee shall, in
accordance with this Section and the Issuer Order with respect to such series,
authenticate and deliver one or more Registered Global Securities that (i) shall
represent and shall be denominated in an amount equal to the aggregate principal
amount of all of the Securities of such series issued and not yet cancelled,
(ii) shall be registered in the name of the Depositary for such Registered
Global Security or Securities or the nominee of such Depositary, (iii) shall be
delivered by the Trustee to such Depositary or delivered or held pursuant to
such Depositary's instructions and (iv) shall bear a legend substantially to the
following effect: "Unless and until it is exchanged in whole or in part for
Securities in definitive registered form, this Security may not be transferred
except as a whole by the Depositary to the nominee of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the Depositary
or by the Depositary or any such nominee to a successor Depositary or a nominee
of such successor Depositary."
Each Depositary designated pursuant to Section 2.3 must, at the time
of its designation and at all times while it serves as Depositary, be a clearing
agency registered under the Exchange Act and any other applicable statute or
regulation.
SECTION 2.5 EXECUTION OF SECURITIES. The Securities and each Coupon
appertaining thereto, if any, shall be signed on behalf of the Issuer by the
chairman or vice chairman of its Board of Directors or its president, or any
executive (senior or other), a vice president or its treasurer, under its
corporate seal (except in the case of Coupons) which may, but need not, be
attested. Such signatures may be the manual or facsimile signatures of the
present or any future such officers. The seal of the Issuer may be in the form
of a facsimile thereof and may be impressed, affixed, imprinted or otherwise
reproduced on the Securities. Typographical and other minor errors or defects
in any such reproduction of the seal or any such signature shall not affect the
validity or enforceability of any Security that has been duly authenticated and
delivered by the Trustee.
In case any officer of the Issuer who shall have signed any of the
Securities or Coupons, if any, shall cease to be such officer before the
Security or Coupon so signed (or the Security to which the Coupon so signed
appertains) shall be authenticated and delivered by the
13
<PAGE>
Trustee or disposed of by the Issuer, such Security or Coupon nevertheless may
be authenticated and delivered or disposed of as though the person who signed
such Security or Coupon had not ceased to be such officer of the Issuer; and any
Security or Coupon may be signed on behalf of the Issuer by such persons as, at
the actual date of the execution of such Security or Coupon, shall be the proper
officers of the Issuer, although at the date of the execution and delivery of
this Indenture any such person was not such an officer.
SECTION 2.6 CERTIFICATE OF AUTHENTICATION. Only such Securities as
shall bear thereon a certificate of authentication substantially in the form
hereinbefore recited, executed by the Trustee by the manual signature of one of
its authorized officers, shall be entitled to the benefits of this Indenture or
be valid or obligatory for any purpose. No Coupon shall be entitled to the
benefits of this Indenture or shall be valid and obligatory for any purpose
until the certificate of authentication on the Security to which such Coupon
appertains shall have been duly executed by the Trustee. The execution of such
certificate by the Trustee upon any Security executed by the Issuer shall be
conclusive evidence that the Security so authenticated has been duly
authenticated and delivered hereunder and that the Holder is entitled to the
benefits of this Indenture.
SECTION 2.7 DENOMINATION AND DATE OF SECURITIES; PAYMENTS OF
INTEREST. The Securities of each series shall be issuable as Registered
Securities or Unregistered Securities in denominations established as
contemplated by Section 2.3 or, with respect to the Registered Securities of any
series, if not so established, in denominations of $1,000 and any integral
multiple thereof. If denominations of Unregistered Securities of any series are
not so established, such Securities shall be issuable in denominations of $1,000
and $5,000. The Securities of each series shall be numbered, lettered or
otherwise distinguished in such manner or in accordance with such plan as the
officers of the Issuer executing the same may determine with the approval of the
Trustee, as evidenced by the execution and authentication thereof.
Each Registered Security shall be dated the date of its
authentication. Each Unregistered Security shall be dated as provided in the
Board Resolution referred to in Section 2.3. The Securities of each series
shall bear interest, if any, from the date, and such interest shall be payable
on the dates, established as contemplated by Section 2.3.
The person in whose name any Registered Security of any series is
registered at the close of business on any record date applicable to a
particular series with respect to any interest payment date for such series
shall be entitled to receive the interest, if any, payable on such interest
payment date notwithstanding any transfer or exchange of such Registered
Security subsequent to the record date and prior to such interest payment date,
except if and to the extent the Issuer shall default in the payment of the
interest due on such interest payment date for such series, in which case such
defaulted interest shall be paid to the persons in whose names Outstanding
Registered Securities for such series are registered at the close of business on
a subsequent record date (which shall be not less than five Business Days prior
to the date of payment of such defaulted interest) established by notice given
by mail by or on behalf of the
14
<PAGE>
Issuer to the Holders of Registered Securities not less than 15 days preceding
such subsequent record date. The term "record date" as used with respect to any
interest payment date (except a date for payment of defaulted interest) for the
Securities of any series shall mean the date specified as such in the terms of
the Registered Securities of such series established as contemplated by
Section 2.3, or, if no such date is so established, if such interest payment
date is the first day of a calendar month, the fifteenth day of the preceding
calendar month or, if such interest payment date is the fifteenth day of a
calendar month, the first day of such calendar month, whether or not such record
date is a Business Day.
SECTION 2.8 REGISTRATION, TRANSFER AND EXCHANGE. (a) The Issuer will
keep at each office or agency to be maintained for the purpose as provided in
Section 3.2 for each series of Securities a register or registers in which,
subject to such reasonable regulations as the Issuer may prescribe, it will
provide for the registration of Registered Securities of such series and the
registration of transfer of Registered Securities of such series. Such register
shall be in written form in the English language or in any other form capable of
being converted into such form within a reasonable time. At all reasonable
times such register or registers shall be open for inspection by the Trustee.
Upon due presentation for registration of transfer of any Registered
Security of any series at any such office or agency to be maintained for the
purpose as provided in Section 3.2, the Issuer shall execute and the Trustee
shall authenticate and deliver in the name of the transferee or transferees a
new Registered Security or Registered Securities of the same series, maturity
date, interest rate and original issue date in authorized denominations for a
like aggregate principal amount.
Unregistered Securities (except for any temporary global Unregistered
Securities) and Coupons (except for Coupons attached to any temporary global
Unregistered Securities) shall be transferable by delivery.
At the option of the Holder thereof, Registered Securities of any
series (other than a Registered Global Security, except as set forth below) may
be exchanged for a Registered Security or Registered Securities of such series
having authorized denominations and an equal aggregate principal amount, upon
surrender of such Registered Securities to be exchanged at the agency of the
Issuer that shall be maintained for such purpose in accordance with Section 3.2
and upon payment, if the Issuer shall so require, of the charges hereinafter
provided. If the Securities of any series are issued in both registered and
unregistered form, at the option of the Holder thereof, except as otherwise
specified pursuant to Section 2.3, Unregistered Securities of any series may be
exchanged for Registered Securities of such series having authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2, with, in the case
of Unregistered Securities that have Coupons attached, all unmatured Coupons and
all matured Coupons in default thereto appertaining, and upon payment, if the
Issuer shall so require, of the charges hereinafter provided. At the option of
the Holder thereof, if Unregistered Securities of any series, maturity date,
interest rate and
15
<PAGE>
original issue date are issued in more than one authorized denomination, except
as otherwise specified pursuant to Section 2.3, such Unregistered Securities may
be exchanged for Unregistered Securities of such series having authorized
denominations and an equal aggregate principal amount, upon surrender of such
Unregistered Securities to be exchanged at the agency of the Issuer that shall
be maintained for such purpose in accordance with Section 3.2 or as specified
pursuant to Section 2.3, with, in the case of Unregistered Securities that have
Coupons attached, all unmatured Coupons and all matured Coupons in default
thereto appertaining, and upon payment, if the Issuer shall so require, of the
charges hereinafter provided. Registered Securities of any series may not be
exchanged for Unregistered Securities of such series unless (1) otherwise
specified pursuant to Section 2.3 and (2) the Issuer has delivered to the
Trustee an Opinion of Counsel that (x) the Issuer has received from the IRS a
ruling or (y) since the date hereof, there has been a change in the applicable
Federal income tax law, in either case to the effect that the inclusion of terms
permitting Registered Securities to be exchanged for Unregistered Securities
would result in no Federal income tax effect adverse to the Issuer or to any
Holder. Whenever any Securities are so surrendered for exchange, the Issuer
shall execute, and the Trustee shall authenticate and deliver, the Securities
which the Holder making the exchange is entitled to receive. All Securities and
Coupons, if any, surrendered upon any exchange or transfer provided for in this
Indenture shall be promptly cancelled and disposed of by the Trustee, and the
Trustee shall deliver a certificate of disposition thereof to the Issuer.
All Registered Securities presented for registration of transfer,
exchange, redemption or payment shall (if so required by the Issuer or the
Trustee) be duly endorsed, or be accompanied by a written instrument or
instruments of transfer in form satisfactory to the Issuer and the Trustee duly
executed, by the Holder or his attorney duly authorized in writing.
The Issuer may require payment of a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with any exchange or
registration of transfer of Securities. No service charge shall be made for any
such transaction.
The Issuer shall not be required to exchange or register a transfer of
(a) any Securities of any series for a period of 15 days preceding the first
mailing of notice of redemption of Securities of such series to be redeemed or
(b) any Securities selected, called or being called for redemption, in whole or
in part, except, in the case of any Security to be redeemed in part, the portion
thereof not so to be redeemed.
Notwithstanding any other provision of this Section 2.8, unless and
until it is exchanged in whole or in part for Securities in definitive
registered form, a Registered Global Security representing all or a portion of
the Securities of a series may not be transferred except as a whole by the
Depositary for such series to a nominee of such Depositary or by a nominee of
such Depositary to such Depositary or another nominee of such Depositary or by
such Depositary or any such nominee to a successor Depositary for such series or
a nominee of such successor Depositary.
16
<PAGE>
If at any time the Depositary for any Registered Securities of a
series represented by one or more Registered Global Securities notifies the
Issuer that it is unwilling or unable to continue as Depositary for such
Registered Securities or if at any time the Depositary for such Registered
Securities shall no longer be eligible under Section 2.4, the Issuer shall
appoint a successor Depositary eligible under Section 2.4 with respect to such
Registered Securities. If a successor Depositary eligible under Section 2.4 for
such Registered Securities is not appointed by the Issuer within 90 days after
the Issuer receives such notice or becomes aware of such ineligibility, the
Issuer's election pursuant to Section 2.3 that such Registered Securities be
represented by one or more Registered Global Securities shall no longer be
effective and the Issuer will execute, and the Trustee, upon receipt of an
Officer's Certificate for the authentication and delivery of definitive
Securities of such series, will authenticate and deliver, Securities of such
series in definitive registered form without coupons, in any authorized
denominations, in an aggregate principal amount equal to the principal amount of
the Registered Global Security or Securities representing such Registered
Securities in exchange for such Registered Global Security or Securities.
The Issuer may at any time and in its sole discretion determine that
the Registered Securities of any series issued in the form of one or more
Registered Global Securities shall no longer be represented by a Registered
Global Security or Securities. In such event the Issuer will execute, and the
Trustee, upon receipt of any Officer's Certificate for the authentication and
delivery of definitive Securities of such series, will authenticate and deliver,
Securities of such series in definitive registered form without coupons, in any
authorized denominations, in an aggregate principal amount equal to the
principal amount of the Registered Global Security or Securities representing
such Registered Securities, in exchange for such Registered Global Security or
Securities.
If specified by the Issuer pursuant to Section 2.3 with respect to
Securities represented by a Registered Global Security, the Depositary for such
Registered Global Security may surrender such Registered Global Security in
exchange in whole or in part for Securities of the same series in definitive
registered form on such terms as are acceptable to the Issuer and such
Depositary. Thereupon, the Issuer shall execute, and the Trustee shall
authenticate and deliver, without service charge,
(i) to the Person specified by such Depositary a new Registered
Security or Securities of the same series, of any authorized denominations
as requested by such Person, in an aggregate principal amount equal to and
in exchange for such Person's beneficial interest in the Registered Global
Security; and
(ii) to such Depositary a new Registered Global Security in a
denomination equal to the difference, if any, between the principal amount
of the surrendered Registered Global Security and the aggregate principal
amount of Registered Securities authenticated and delivered pursuant to
clause (i) above.
17
<PAGE>
Upon the exchange of a Registered Global Security for Securities in
definitive registered form without coupons, in authorized denominations, such
Registered Global Security shall be cancelled by the Trustee or an agent of the
Issuer or the Trustee. Securities in definitive registered form without coupons
issued in exchange for a Registered Global Security pursuant to this Section 2.8
shall be registered in such names and in such authorized denominations as the
Depositary for such Registered Global Security, pursuant to instructions from
its direct or indirect participants or otherwise, shall instruct the Trustee or
an agent of the Issuer or the Trustee. The Trustee or such agent shall deliver
such Securities to or as directed by the Persons in whose names such Securities
are so registered.
All Securities issued upon any transfer or exchange of Securities
shall be valid obligations of the Issuer, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Securities surrendered upon
such transfer or exchange.
Notwithstanding anything herein or in the terms of any series of
Securities to the contrary, none of the Issuer, the Trustee or any agent of the
Issuer or the Trustee (any of which, other than the Issuer, shall rely on an
Officer's Certificate and an Opinion of Counsel) shall be required to exchange
any Unregistered Security for a Registered Security if such exchange would
result in Federal income tax consequences adverse to the Issuer (such as, for
example, the inability of the Issuer to deduct from its income, as computed for
Federal income tax purposes, the interest payable on the Unregistered
Securities) under then applicable United States Federal income tax laws.
(b)(i) Securities that are distributed to QIBs will be represented by a
global Security (the "144A Global Security"). Securities that are distributed to
Non-U.S. Persons will be represented by a global Security (the "Regulation S
Global Security"). Each of the 144A Global Security and the Regulation S Global
Security shall be referred to herein as a "Global Security." If Global
Securities are issued, transfers of interests in the Securities between the 144A
Global Security and the Regulation S Global Security will be made in accordance
with the standing instructions and procedures of the Depositary and its
participants and the Trustee shall make appropriate endorsements to reflect
increases or decreases in the principal amounts of such Global Securities to
reflect any such transfers.
Except as provided below, beneficial owners of a Security in global
form shall not be entitled to have certificates registered in their names, will
not receive or be entitled to receive physical delivery of certificates in
definitive form and will not be considered Holders of such Securities in global
form.
(ii) So long as the Securities are eligible for book-entry
settlement, and to the extent that Securities are held by QIBs or Non-U.S.
Persons, as the case may be, in a Global Security, or unless otherwise required
by law, upon any transfer of a definitive Security to a QIB in accordance with
Rule 144A or to a Non-U.S. Person in accordance with Regulation S, unless
otherwise requested by the transferor, and upon receipt of the definitive
Security or Securities being so transferred, together with a certification from
the transferor that the transfer is being
18
<PAGE>
made in compliance with Rule 144A or Regulation S, as the case may be (or other
evidence satisfactory to the Trustee), the Trustee shall make an endorsement on
any 144A Global Security or any Regulation S Global Security, as the case may
be, to reflect an increase in the aggregate principal amount of the Securities
represented by such Global Security, and the Trustee shall cancel such
definitive Security or Securities in accordance with the standing instructions
and procedures of the Depositary, the aggregate principal amount of Securities
represented by such Global Security to be increased accordingly; provided that
no definitive Security, or portion thereof, in respect of which the Issuer or an
Affiliate of the Issuer held any beneficial interest shall be included in such
Global Security until such definitive Security is freely tradable in accordance
with Rule 144K; provided further that the Trustee shall, at the written request
of the Issuer, issue Securities in definitive form upon any transfer of a
beneficial interest in the Global Security to the Issuer or any Affiliate of the
Issuer.
Any Global Security may be endorsed with or have incorporated in the
text thereof such legends or recitals or changes not inconsistent with the
provisions of this Indenture as may be required by the Depositary, by the New
York Stock Exchange or by the National Association of Securities Dealers, Inc.
in order for the Securities to be tradeable on the PORTAL Market or as may be
required for the Securities to be tradeable on any other market developed for
trading of securities pursuant to Rule 144A or required to comply with any
applicable law or any regulation thereunder or with the rules and regulations of
any securities exchange upon which the Securities may be listed or traded or to
conform with any usage with respect thereto, or to indicate any special
limitations or restrictions to which any particular Securities are subject.
(iii) Each Security that bears or is required to bear the legend set
forth in this Section 2.8(b) (a "Restricted Security") shall be subject to the
restrictions on transfer provided in the legend set forth in this
Section 2.8(b), unless such restrictions on transfer shall be waived by the
written consent of the Issuer, and the Holder of each Restricted Security, by
such Holder's acceptance thereof, agrees to be bound by such restrictions on
transfer. As used in this Section 2.8(b), the term "transfer" encompasses any
sale, pledge, transfer or other disposition of any Restricted Security.
Prior to the Transfer Restriction Termination Date, any certificate
evidencing a Security shall bear a legend in substantially the following form,
unless otherwise agreed by the Issuer (with written notice thereof to the
Trustee):
THE SECURITY EVIDENCED HEREBY HAS NOT BEEN REGISTERED UNDER THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR
FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE
FOLLOWING SENTENCE. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A
UNDER THE SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED
INVESTOR" (AS
19
<PAGE>
DEFINED IN RULE 50l(A)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT)
("INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS NOT A U.S. PERSON AND IS
ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN OFFSHORE TRANSACTION, (2)
AGREES THAT IT WILL NOT PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD
APPLICABLE TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K)
UNDER THE SECURITIES ACT (OR ANY SUCCESSOR PROVISION), RESELL OR OTHERWISE
TRANSFER THE SECURITY EVIDENCED HEREBY EXCEPT (A) TO McKESSON CORPORATION
(THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, (C) TO A QUALIFIED
INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT,
(D) TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO SUCH TRANSFER,
FURNISHES TO THE TRUSTEE FOR THE SECURITIES A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THE SECURITY EVIDENCED HEREBY (THE FORM OF WHICH LETTER CAN BE
OBTAINED FROM SUCH TRUSTEE), (E) OUTSIDE THE UNITED STATES IN COMPLIANCE
WITH RULE 904 UNDER THE SECURITIES ACT OR (F) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF
AVAILABLE) AND (3) AGREES THAT IT WILL DELIVER TO EACH PERSON TO WHOM THE
SECURITY EVIDENCED HEREBY IS TRANSFERRED A NOTICE SUBSTANTIALLY TO THE
EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY TRANSFER OF THE SECURITY
EVIDENCED HEREBY PRIOR TO THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE
TO SALES OF THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE
SECURITIES ACT (OR ANY SUCCESSOR PROVISION), THE HOLDER MUST CHECK THE
APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF RELATING TO THE MANNER OF
SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO THE TRUSTEE FOR THE
SECURITIES. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR OR A PURCHASER WHO IS NOT A U.S. PERSON, THE HOLDER MUST, PRIOR TO
SUCH TRANSFER, FURNISH TO THE TRUSTEE FOR THE SECURITIES SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS THE COMPANY OR THE
TRUSTEE MAY REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE
PURSUANT TO AN EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THIS LEGEND WILL BE
REMOVED AFTER THE EXPIRATION OF THE HOLDING PERIOD APPLICABLE TO SALES OF
THE SECURITY EVIDENCED HEREBY UNDER RULE 144(K) UNDER THE SECURITIES ACT.
AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION," "UNITED STATES" AND "U.S.
PERSON" HAVE THE MEANINGS GIVEN TO THEM BY REGULATION S UNDER THE
SECURITIES ACT.
20
<PAGE>
Following the Transfer Restriction Termination Date, any Security or
security issued in exchange or substitution therefor (other than Securities
acquired by the Issuer or any Affiliate thereof since the issue date of the
Securities) may upon surrender of such Security for exchange to the registrar in
accordance with the provisions of this Section 2.8, be exchanged for a new
Security or Securities, of like tenor and aggregate principal amount, which
shall not bear the restrictive legend required by this Section 2.8(b).
SECTION 2.9 MUTILATED, DEFACED, DESTROYED, LOST AND STOLEN
SECURITIES. In case any temporary or definitive Security or any Coupon
appertaining to any Security shall be mutilated, defaced, destroyed, lost or
stolen, the Issuer in its discretion may execute and, upon the written request
of any officer of the Issuer, the Trustee shall authenticate and deliver, a new
Security of the same series, maturity date, interest rate and original issue
date, bearing a number or other distinguishing symbol not contemporaneously
outstanding, in exchange and substitution for the mutilated or defaced Security,
or in lieu of and in substitution for the Security so destroyed, lost or stolen
with Coupons corresponding to the Coupons appertaining to the Securities so
mutilated, defaced, destroyed, lost or stolen, or in exchange or substitution
for the Security to which such mutilated, defaced, destroyed, lost or stolen
Coupon appertained, with Coupons appertaining thereto corresponding to the
Coupons so mutilated, defaced, destroyed, lost or stolen. In every case the
applicant for a substitute Security or Coupon shall furnish to the Issuer and to
the Trustee and any agent of the Issuer or the Trustee such security or
indemnity as may be required by them to indemnify and defend and to save each of
them harmless and, in every case of destruction, loss or theft, evidence to
their satisfaction of the destruction, loss or theft of such Security or Coupon
and of the ownership thereof, and in the case of mutilation or defacement shall
surrender the Security and related Coupons to the Trustee or such agent.
Upon the issuance of any substitute Security or Coupon, the Issuer may
require the payment of a sum sufficient to cover any tax or other governmental
charge that may be imposed in relation thereto and any other expenses (including
the fees and expenses of the Trustee) or its agent connected therewith. In case
any Security or Coupon which has matured or is about to mature or has been
called for redemption in full shall become mutilated or defaced or be destroyed,
lost or stolen, the Issuer may instead of issuing a substitute Security, pay or
authorize the payment of the same or the relevant Coupon (without surrender
thereof except in the case of a mutilated or defaced Security or Coupon), if the
applicant for such payment shall furnish to the Issuer and to the Trustee and
any agent of the Issuer or the Trustee such security or indemnity as any of them
may require to save each of them harmless, and, in every case of destruction,
loss or theft, the applicant shall also furnish to the Issuer and the Trustee
and any agent of the Issuer or the Trustee evidence to their satisfaction of the
destruction, loss or theft of such Security or Coupons and of the ownership
thereof.
Every substitute Security or Coupon of any series issued pursuant to
the provisions of this Section by virtue of the fact that any such Security or
Coupon is destroyed, lost or stolen shall constitute an additional contractual
obligation of the Issuer, whether or not the destroyed, lost or stolen Security
or Coupon shall be at any time enforceable by anyone and
21
<PAGE>
shall be entitled to all the benefits of (but shall be subject to all the
limitations of rights set forth in) this Indenture equally and proportionately
with any and all other Securities or Coupons of such series duly authenticated
and delivered hereunder. All Securities and Coupons shall be held and owned
upon the express condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of
mutilated, defaced or destroyed, lost or stolen Securities and Coupons and shall
preclude any and all other rights or remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement or
payment of negotiable instruments or other securities without their surrender.
SECTION 2.10 CANCELLATION OF SECURITIES; DESTRUCTION THEREOF. All
Securities and Coupons surrendered for payment, redemption, registration of
transfer or exchange, or for credit against any payment in respect of a sinking
or analogous fund, if any, if surrendered to the Issuer or any agent of the
Issuer or the Trustee or any agent of the Trustee, shall be delivered to the
Trustee or its agent for cancellation or, if surrendered to the Trustee, shall
be cancelled by it; and no Securities or Coupons shall be issued in lieu thereof
except as expressly permitted by any of the provisions of this Indenture. The
Trustee or its agent shall dispose of cancelled Securities and Coupons held by
it and deliver a certificate of disposition to the Issuer. If the Issuer or its
agent shall acquire any of the Securities or Coupons, such acquisition shall not
operate as a redemption or satisfaction of the indebtedness represented by such
Securities or Coupons unless and until the same are delivered to the Trustee or
its agent for cancellation.
SECTION 2.11 TEMPORARY SECURITIES. Pending the preparation of
definitive Securities for any series, the Issuer may execute and the Trustee
shall authenticate and deliver temporary Securities for such series (printed,
lithographed, typewritten or otherwise reproduced, in each case in form
satisfactory to the Trustee). Temporary Securities of any series shall be
issuable as Registered Securities without coupons, or as Unregistered Securities
with or without coupons attached thereto, of any authorized denomination, and
substantially in the form of the definitive Securities of such series but with
such omissions, insertions and variations as may be appropriate for temporary
Securities, all as may be determined by the Issuer with the concurrence of the
Trustee as evidenced by the execution and authentication thereof. Temporary
Securities may contain such references to any provisions of this Indenture as
may be appropriate. Every temporary Security shall be executed by the Issuer
and be authenticated by the Trustee upon the same conditions and in
substantially the same manner, and with like effect, as the definitive
Securities. Without unreasonable delay the Issuer shall execute and shall
furnish definitive Securities of such series and thereupon temporary Registered
Securities of such series may be surrendered in exchange therefor without charge
at each office or agency to be maintained by the Issuer for that purpose
pursuant to Section 3.2 and, in the case of Unregistered Securities, at any
agency maintained by the Issuer for such purpose as specified pursuant to
Section 2.3, and the Trustee shall authenticate and deliver in exchange for such
temporary Securities of such series an equal aggregate principal amount of
definitive Securities of the same series having authorized denominations and, in
the case of Unregistered Securities, having attached thereto any appropriate
Coupons. Until so exchanged, the temporary
22
<PAGE>
Securities of any series shall be entitled to the same benefits under this
Indenture as definitive Securities of such series, unless otherwise established
pursuant to Section 2.3. The provisions of this Section are subject to any
restrictions or limitations on the issue and delivery of temporary Unregistered
Securities of any series that may be established pursuant to Section 2.3
(including any provision that Unregistered Securities of such series initially
be issued in the form of a single global Unregistered Security to be delivered
to a depositary or agency located outside the United States and the procedures
pursuant to which definitive or global Unregistered Securities of such series
would be issued in exchange for such temporary global Unregistered Security).
ARTICLE III
COVENANTS OF THE ISSUER
SECTION 3.1 PAYMENT OF PRINCIPAL AND INTEREST. The Issuer covenants
and agrees for the benefit of each series of Securities that it will duly and
punctually pay or cause to be paid the principal of, and interest on, if any,
each of the Securities of such series (together with any additional amounts
payable pursuant to the terms of such Securities) at the place or places, at the
respective time or times and in the manner provided in such Securities and in
the Coupons, if any, appertaining thereto and in this Indenture. The interest
on Securities with Coupons attached (together with any additional amounts
payable pursuant to the terms of such Securities) shall be payable only upon
presentation and surrender of the several Coupons for such interest installments
as are evidenced thereby as they severally mature. If any temporary
Unregistered Security provides that interest thereon may be paid while such
Security is in temporary form, the interest on any such temporary Unregistered
Security (together with any additional amounts payable pursuant to the terms of
such Security) shall be paid, as to the installments of interest evidenced by
Coupons attached thereto, if any, only upon presentation and surrender thereof,
and, as to the other installments of interest, if any, only upon presentation of
such Securities for notation thereon of the payment of such interest, in each
case subject to any restrictions that may be established pursuant to Section
2.3. The interest, if any, on Registered Securities (together with any
additional amounts payable pursuant to the terms of such Securities) shall be
payable only to or upon the written order of the Holders thereof and, at the
option of the Issuer, may be paid by wire transfer or by mailing checks for such
interest payable to or upon the written order of such Holders at their last
addresses as they appear on the Securities register of the Issuer.
SECTION 3.2 OFFICES FOR PAYMENTS, ETC. So long as any Registered
Securities are authorized for issuance pursuant to this Indenture or are
outstanding hereunder, the Issuer will maintain in the Borough of Manhattan, The
City of New York, an office or agency where the Registered Securities of each
series may be presented for payment, where the Securities of each series may be
presented for exchange as is provided in this Indenture and, if applicable,
pursuant to Section 2.3 and where the Registered Securities of each series may
be presented for registration of transfer as in this Indenture provided.
23
<PAGE>
The Issuer will maintain one or more offices or agencies in a city or
cities located outside the United States (including any city in which such an
agency is required to be maintained under the rules of any stock exchange on
which the Securities of such series are listed) where the Unregistered
Securities, if any, of each series and Coupons, if any, appertaining thereto may
be presented for payment. No payment on any Unregistered Security or Coupon
will be made upon presentation of such Unregistered Security or Coupon at an
agency of the Issuer within the United States nor will any payment be made by
transfer to an account in, or by mail to an address in, the United States unless
pursuant to applicable United States laws and regulations then in effect such
payment can be made without tax consequences adverse to the Issuer.
Notwithstanding the foregoing, payments in Dollars of Unregistered Securities of
any series and Coupons appertaining thereto which are payable in Dollars may be
made at an agency of the Issuer maintained in the Borough of Manhattan, The City
of New York if such payment in Dollars at each agency maintained by the Issuer
outside the United States for payment on such Unregistered Securities is illegal
or effectively precluded by exchange controls or other similar restrictions.
The Issuer will maintain in the Borough of Manhattan, The City of New
York, an office or agency where notices and demands to or upon the Issuer in
respect of the Securities of any series, the Coupons appertaining thereto or
this Indenture may be served.
The Issuer will give to the Trustee written notice of the location of
each such office or agency and of any change of location thereof. In case the
Issuer shall fail to maintain any agency required by this Section to be located
in the Borough of Manhattan, The City of New York, or shall fail to give such
notice of the location or for any change in the location of any of the above
agencies, presentations and demands may be made and notices may be served at the
Corporate Trust Office of the Trustee.
The Issuer may from time to time designate one or more additional
offices or agencies where the Securities of a series and any Coupons
appertaining thereto may be presented for payment, where the Securities of that
series may be presented for exchange as provided in this Indenture and pursuant
to Section 2.3 and where the Registered Securities of that series may be
presented for registration of transfer as in this Indenture provided, and the
Issuer may from time to time rescind any such designation, as the Issuer may
deem desirable or expedient; provided, that no such designation or rescission
shall in any manner relieve the Issuer of its obligations to maintain the
agencies provided for in this Section. The Issuer shall give to the Trustee
prompt written notice of any such designation or rescission thereof.
SECTION 3.3 APPOINTMENT TO FILL A VACANCY IN OFFICE OF TRUSTEE. The
Issuer, whenever necessary to avoid or fill a vacancy in the office of Trustee,
will appoint, in the manner provided in Section 6.10, a Trustee, so that there
shall at all times be a Trustee with respect to each series of Securities
hereunder.
SECTION 3.4 PAYING AGENTS. Whenever the Issuer shall appoint a
paying agent other than the Trustee with respect to the Securities of any
series, it will cause such paying
24
<PAGE>
agent to execute and deliver to the Trustee an instrument in which such agent
shall agree with the Trustee, subject to the provisions of this Section,
(a) that it will hold all sums received by it as such agent for the
payment of the principal of or interest on the Securities of such series
(whether such sums have been paid to it by the Issuer or by any other
obligor on the Securities of such series) in trust for the benefit of the
Holders of the Securities of such series, or Coupons appertaining thereto,
if any, or of the Trustee;
(b) that it will give the Trustee notice of any failure by the Issuer
(or by any other obligor on the Securities of such series) to make any
payment of the principal of or interest on the Securities of such series
when the same shall be due and payable; and
(c) that it will pay any such sums so held in trust by it to the
Trustee upon the Trustee's written request at any time during the
continuance of the failure referred to in the foregoing clause (b).
The Issuer will, on or prior to each due date of the principal of or
interest on the Securities of such series, deposit with the paying agent a sum
sufficient to pay such principal or interest so becoming due, and (unless such
paying agent is the Trustee) the Issuer will promptly notify the Trustee of any
failure to take such action.
If the Issuer shall act as its own paying agent with respect to the
Securities of any series, it will, on or before each due date of the principal
of or interest on the Securities of such series, set aside, segregate and hold
in trust for the benefit of the Holders of the Securities of such series or the
Coupons appertaining thereto a sum sufficient to pay such principal or interest
so becoming due. The Issuer will promptly notify the Trustee of any failure to
take such action.
Anything in this Section to the contrary notwithstanding, but subject
to Section 10.1, the Issuer may at any time, for the purpose of obtaining a
satisfaction and discharge with respect to one or more or all series of
Securities hereunder, or for any other reason, pay or cause to be paid to the
Trustee all sums held in trust for any such series by the Issuer or any paying
agent hereunder, as required by this Section, such sums to be held by the
Trustee upon the trusts herein contained.
Anything in this Section to the contrary notwithstanding, the
agreement to hold sums in trust as provided in this Section is subject to the
provisions of Sections 10.3 and 10.4.
SECTION 3.5 COMPLIANCE CERTIFICATES. The Issuer will furnish to the
Trustee on or before January 31 in each year (beginning with January 31, 1998) a
brief certificate (which need not comply with Section 11.5) from the principal
executive, financial or accounting officer of the Issuer stating that in the
course of the performance by the signer of his or her duties as an officer of
the Issuer he or she would normally have knowledge of any default or non-
compliance by the Issuer in the performance of any covenants or conditions
contained
25
<PAGE>
in this Indenture, stating whether or not he or she has knowledge of any such
default or non-compliance and, if so, describing each such default or non-
compliance of which the signer has knowledge and the nature thereof.
SECTION 3.6 CORPORATE EXISTENCE. Subject to Article IX, the Issuer
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the rights (charter and statutory),
licenses and franchises of the Issuer and its Subsidiaries; provided, that the
Issuer shall not be required to preserve any such right, license or franchise,
if, in the judgment of the Issuer, the preservation thereof is no longer
desirable in the conduct of the business of the Issuer and its Subsidiaries
taken as a whole and the loss thereof is not disadvantageous in any material
respect to the Securityholders.
SECTION 3.7 MAINTENANCE OF PROPERTIES. The Issuer will cause all
properties used in or useful in the conduct of its business or the business of
any Subsidiary to be maintained and kept in good condition, repair, and working
order and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Issuer may be necessary, so that the business
carried on in connection therewith may be properly and advantageously conducted
at all time except to the extent that the Issuer may be prevented from so doing
by circumstances beyond its control; provided, that nothing in this Section
shall prevent the Issuer from discontinuing the operation or maintenance of any
of such properties, or disposing of any of them, if such discontinuance or
disposal is, in the judgment of the Issuer desirable in the conduct of the
business of the Issuer or any Subsidiary and not disadvantageous in any material
respect to the Securityholders.
SECTION 3.8 PAYMENT OF TAXES AND OTHER CLAIMS. The Issuer will pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent: (a) all taxes, assessments and governmental charges levied or
imposed upon the Issuer or any Subsidiary or upon the income, profits or
property of the Issuer or any Subsidiary; and (b) all lawful claims for labor,
materials, and supplies, which, if unpaid, might by law become a lien upon the
property of the Issuer or any Subsidiary; provided, that the Issuer shall not be
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is being
contested in good faith by appropriate proceedings; and provided further that
the Issuer shall not be required to cause to be paid or discharged any such tax,
assessment, charge or claim if the Issuer shall determine that such payment is
not advantageous to the conduct of the business of the Issuer and its
Subsidiaries taken as a whole and that the failure so to pay or discharge is not
disadvantageous in any material respect to the Securityholders.
SECTION 3.9 LUXEMBOURG PUBLICATIONS. In the event of the publication
of any notice pursuant to Section 5.11, 6.10(a), 6.11, 8.2, 10.4 or 12.2, the
party making such publication in the Borough of Manhattan, The City of New York
and London shall also, to the extent that notice is required to be given to
Holders of Securities of any series by
26
<PAGE>
applicable Luxembourg law or stock exchange regulation, as evidenced by an
Officer's Certificate delivered to such party, make a similar publication in
Luxembourg.
ARTICLE IV
SECURITYHOLDER LISTS AND REPORTS BY THE
ISSUER AND THE TRUSTEE
SECTION 4.1 ISSUER TO FURNISH TRUSTEE INFORMATION AS TO NAMES AND
ADDRESSES OF SECURITYHOLDERS. If and so long as the Trustee shall not be the
Security registrar for the Securities of any series, the Issuer and any other
obligor on the Securities will furnish or cause to be furnished to the Trustee a
list in such form as the Trustee may reasonably require of the names and
addresses of the Holders of the Registered Securities of such series pursuant to
Section 312 of the Trust Indenture Act:
(a) semi-annually not more than 5 days after each record date for the
payment of interest on such Registered Securities, as hereinabove
specified, as of such record date and on dates to be determined pursuant to
Section 2.3 for non-interest bearing Registered Securities in each year;
and
(b) at such other times as the Trustee may reasonably request in
writing, within thirty days after receipt by the Issuer of any such request
as of a date not more than 15 days prior to the time such information is
furnished.
SECTION 4.2 REPORTS BY THE ISSUER. The Issuer covenants to file with
the Trustee, within 15 days after the Issuer is required to file the same with
the Commission, copies of the annual reports and of the information, documents,
and other reports that the Issuer may be required to file with the Commission
pursuant to Section 13 or Section 15(d) of the Exchange Act or pursuant to
Section 314 of the Trust Indenture Act.
SECTION 4.3 REPORTS BY THE TRUSTEE.
(a) On or before the first July 15 which occurs not less than 60 days
after the earliest date of issuance of any Securities and on or before July
15 in each year thereafter, so long as any Securities are Outstanding
hereunder, the Trustee shall transmit by mail as provided below to the
Securityholders of each series of outstanding Securities, as hereinafter in
this Section provided, a brief report dated as of the preceding May 15 with
respect to:
(i) its eligibility under Section 6.10 and its qualification
under Section 6.9, or in lieu thereof, if to the best of its knowledge
it has continued to be eligible and qualified under such Sections, a
written statement to such effect;
27
<PAGE>
(ii) the character and amount of any advances (and if the
Trustee elects to so state, the circumstances surrounding the making
thereof) made by the Trustee (as such) which remain unpaid on the date
of such report and for the reimbursement of which it claims or may
claim a lien or charge, prior to that of the Securities of such
series, on any property or funds held or collected by it as Trustee,
except that the Trustee shall not be required (but may elect) to
report such advances if such advances so remaining unpaid aggregate
not more than 0.5% of the principal of the Securities of such series
outstanding on the date of such report;
(iii) the amount, interest rate and maturity date of all other
indebtedness owing by the Issuer (or any other obligor on the
Securities of such series) to the Trustee in its individual capacity
on the date of such report, with a brief description of any property
held as collateral security therefor, except any indebtedness based
upon a creditor relationship;
(iv) the property and funds, if any, physically in the
possession of the Trustee (as such) in respect of the Securities of
such series on the date of such report;
(v) any additional issue of Securities of such series which the
Trustee has not previously reported; and
(vi) any action taken by the Trustee in the performance of its
duties under this Indenture which the Trustee has not previously
reported and which in the Trustee's opinion materially affects the
Securities of such series, except action in respect of a default,
notice of which has been or is to be withheld by it in accordance with
the provisions of Section 5.11.
(b) The Trustee shall transmit to the Securityholders of each series,
as provided in subsection (c) of this Section, a brief report with respect
to the character and amount of any advances (and if the Trustee elects so
to state, the circumstances surrounding the making thereof) made by the
Trustee (as such) in respect of the Securities of such series since the
date of the last report transmitted pursuant to the provisions of
subsection (a) of this Section (or if no such report has yet been so
transmitted, since the date of this Indenture) for the reimbursement of
which it claims or may claim a lien or charge prior to that of the
Securities of such series on property or funds held or collected by it as
Trustee and which it has not previously reported pursuant to this
subsection (b), except that the Trustee shall not be required (but may
elect) to report such advances if such advances remaining unpaid at any
time aggregate 10% or less of the principal amount of Securities of such
series outstanding at such time, such report to be transmitted within 90
days after such time.
28
<PAGE>
(c) Reports pursuant to this Section shall be transmitted by mail to
all Holders of Securities of such series, as the names and addresses of
such Holders appear upon the Securities register as of a date not more than
15 days prior to the mailing thereof.
(d) A copy of each such report shall, at the time of such
transmission to Securityholders, be furnished to the Issuer and be filed by
the Trustee with each stock exchange upon which the Securities of such
series are listed and also with the Commission. The Issuer agrees to
notify the Trustee when and as Securities of any series become listed on
any national securities exchange.
ARTICLE V
REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS
ON EVENT OF DEFAULT
SECTION 5.1 EVENT OF DEFAULT DEFINED, ACCELERATION OF MATURITY;
WAIVER OF DEFAULT. "Event of Default" with respect to Securities of any
series, wherever used herein, means each one of the following events which shall
have occurred and be continuing (whatever the reason for such Event of Default
and whether it shall be voluntary or involuntary or be effected by operation of
law or pursuant to any judgment, decree or order of any court or any order, rule
or regulation of any administrative or governmental body):
(a) default in the payment of any installment of interest upon any of
the Securities of such series as and when the same shall become due and
payable, and continuance of such default for a period of 30 days; or
(b) default in the payment of all or any part of the principal on any
of the Securities of such series as and when the same shall become due and
payable either at maturity, upon any redemption, by declaration or
otherwise; or
(c) default in the payment of any sinking fund installment as and
when the same shall become due and payable by the terms of the Securities
of such series; or
(d) failure on the part of the Issuer duly to observe or perform any
other of the covenants or agreements on the part of the Issuer in the
Securities of such series or contained in this Indenture (other than a
covenant or agreement included in this Indenture solely for the benefit of
a series of Securities other than such series) for a period of 60 days
after the date on which written notice specifying such failure, stating
that such notice is a "Notice of Default" hereunder and demanding that the
Issuer remedy the same, shall have been given by registered or certified
mail, return receipt requested, to the Issuer by the Trustee, or to the
Issuer and the Trustee by the holders of at least 25% in aggregate
principal amount of the Outstanding Securities of the series to which such
covenant or agreement relates; or
29
<PAGE>
(e) a court having jurisdiction in the premises shall enter a decree
or order for relief in respect of the Issuer in an involuntary case under
any applicable bankruptcy, insolvency or other similar law now or hereafter
in effect, or appointing a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or similar official) of the Issuer for any
substantial part of its or their property or ordering the winding up or
liquidation of its or their affairs, and such decree or order shall remain
unstayed and in effect for a period of 60 consecutive days; or
(f) the Issuer shall commence a voluntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or
consent to the entry of an order for relief in an involuntary case under
any such law, or consent to the appointment or taking possession by a
receiver, liquidator, assignee, custodian, trustee, sequestrator (or
similar official) of the Issuer or for any substantial part of its or their
property, or make any general assignment for the benefit of creditors; or
(g) any other Event of Default provided in the supplemental indenture
or Board Resolution under which such series of Securities is issued or in
the form of Security for such series.
If an Event of Default described in clause (a), (b), (c), (d) or (g)
(if the Event of Default under clause (d) or (g), as the case may be, is with
respect to less than all series of Securities then Outstanding) occurs and is
continuing, then, and in each and every such case, except for any series of
Securities the principal of which shall have already become due and payable,
either the Trustee or the Holders of not less than 25% in aggregate principal
amount of the Securities of each such affected series then Outstanding hereunder
(each such series voting as a separate class) by notice in writing to the Issuer
(and to the Trustee if given by Securityholders), may declare the entire
principal (or, if the Securities of any such affected series are Original Issue
Discount Securities, such portion of the principal amount as may be specified in
the terms of such series) of all Securities of all such affected series, and the
interest accrued thereon, if any, to be due and payable immediately, and upon
any such declaration, the same shall become immediately due and payable.
If an Event of Default described in clause (d) or (g) above with
respect to all series of Securities then Outstanding, or an Event of Default
described in clause (e) or (f) above occurs and is continuing, then, and in each
and every such case, unless the Principal of all of the Securities shall have
already become due and payable, either the Trustee or the Holders of not less
than 25% in aggregate principal amount of all of the Securities then Outstanding
hereunder (treated as one class) by notice in writing to the Issuer (and to the
Trustee if given by Securityholders), may declare the entire principal (or, if
the Securities of any series are Original Issue Discount Securities, such
portion of the principal amount as may be specified in the terms of such series)
of all of the Securities then Outstanding, and the interest accrued thereon, if
any, to be due and payable immediately, and upon such declaration, the same
shall become immediately due and payable.
30
<PAGE>
The foregoing provisions are subject to the condition that if, at
any time after the principal (or, if the Securities are Original Issue Discount
Securities, such portion of the principal as may be specified in the terms
thereof) of the Securities of any series (or of all the Securities, as the case
may be) shall have been so declared due and payable, and before any judgment or
decree for the payment of the moneys due shall have been obtained or entered as
hereinafter provided,
(A) the Issuer shall pay or shall deposit with the Trustee a sum
sufficient to pay
(i) all matured installments of interest upon all the Securities
of each such series (or all the Securities, as the case may be); and
(ii) the principal of any and all Securities of each such series
(or of all the Securities, as the case may be) which shall have become
due otherwise than by acceleration; and
(iii) interest upon such principal and, to the extent that
payment of such interest is enforceable under applicable law, on
overdue installments of interest, at the same rate as the rate of
interest or Yield to Maturity (in the case of Original Issue Discount
Securities) specified in the Securities of each such series (or at the
respective rates of interest or Yields to Maturity of all the
Securities, as the case may be) to the date of such payment or
deposit; and
(iv) all amounts payable to the Trustee pursuant to Section 6.6;
and
(B) all Events of Default under the Indenture, other than the non-
payment of the principal of Securities which shall have become due by
acceleration, shall have been cured, waived or otherwise remedied as
provided herein,
then and in every such case the Holders of a majority in aggregate principal
amount of all the Securities of each such series, each such series voting as a
separate class (or of all the Securities, as the case may be, voting as a single
class), then Outstanding, by written notice to the Issuer and to the Trustee,
may waive all defaults with respect to each such series (or with respect to all
the Securities, as the case may be) and rescind and annul such declaration and
its consequences, but no such waiver or rescission and annulment shall extend to
or shall affect any subsequent default or shall impair any right consequent
thereon.
For all purposes under this Indenture, if a portion of the principal
of any Original Issue Discount Securities shall have been accelerated and
declared due and payable pursuant to the provisions hereof, then, from and after
such declaration, unless such declaration has been rescinded and annulled, the
principal amount of such Original Issue Discount Securities shall be deemed, for
all purposes hereunder, to be such portion of the principal thereof as shall be
due and payable as a result of such acceleration, and payment of such portion of
the principal thereof as shall be due and payable as a result of such
acceleration, together with interest, if any,
31
<PAGE>
thereon and all other amounts owing thereunder, shall constitute payment in full
of such Original Issue Discount Securities.
SECTION 5.2 COLLECTION OF INDEBTEDNESS BY TRUSTEE; TRUSTEE MAY PROVE
DEBT. The Issuer covenants that (a) in case default shall be made in the
payment of any installment of interest on any of the Securities of any series
when such interest shall have become due and payable, and such default shall
have continued for a period of 30 days, or (b) in case default shall be made in
the payment of all or any part of the principal of any of the Securities of any
series when the same shall have become due and payable, whether upon maturity of
the Securities of such series or upon any redemption or by declaration or
otherwise, then upon demand of the Trustee, the Issuer will pay to the Trustee
for the benefit of the Holders of the Securities of such series the whole amount
that then shall have become due and payable on all Securities of such series,
and such Coupons, for principal and interest, as the case may be (with interest
to the date of such payment upon the overdue principal and, to the extent that
payment of such interest is enforceable under applicable law, on overdue
installments of interest at the same rate as the rate of interest or Yield to
Maturity (in the case of Original Issue Discount Securities) specified in the
Securities of such series); and in addition thereto, such further amount as
shall be sufficient to cover the costs and expenses of collection, and such
other amount due the Trustee under Section 6.6 in respect of Securities of such
series.
Until such demand is made by the Trustee, the Issuer may pay the
principal of and interest on the Securities of any series to the registered
Holders, whether or not the Securities of such series be overdue.
In case the Issuer shall fail forthwith to pay such amounts upon such
demand, the Trustee, in its own name as trustee of an express trust, shall be
entitled and empowered to institute any action or proceedings at law or in
equity for the collection of the sums so due and unpaid, and may prosecute any
such action or proceedings to judgment or final decree, and may enforce any such
judgment or final decree against the Issuer or other obligor upon the Securities
and collect in the manner provided by law out of the property of the Issuer or
other obligor upon the Securities, wherever situated, all the moneys adjudged or
decreed to be payable.
In case there shall be pending proceedings relative to the Issuer or
any other obligor upon the Securities under Title 11 of the United States Code
or any other applicable Federal or state bankruptcy, insolvency or other similar
law, or in case a receiver, assignee or trustee in bankruptcy or reorganization,
liquidator, sequestrator or similar official shall have been appointed for or
taken possession of the Issuer or its property or such other obligor, or in case
of any other comparable judicial proceedings relative to the Issuer or other
obligor upon the Securities, or to the creditors or property of the Issuer or
such other obligor, the Trustee, irrespective of whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise and irrespective of whether the Trustee shall have made any demand
pursuant to the provisions of this Section, shall be entitled and empowered, by
intervention in such proceedings or otherwise:
32
<PAGE>
(a) to file and prove a claim or claims for the whole amount of
principal and interest (or, if the Securities of any series are Original
Issue Discount Securities, such portion of the principal amount as may be
specified in the terms of such series) owing and unpaid in respect of the
Securities of any series, and to file such other papers or documents as may
be necessary or advisable in order to have the claims of the Trustee
(including any claim for amounts payable to the Trustee under Section 6.6)
and of the Securityholders allowed in any judicial proceedings relative to
the Issuer or other obligor upon the Securities, or to the creditors or
property of the Issuer or such other obligor; and
(b) unless prohibited by applicable law and regulations, to vote on
behalf of the holders of the Securities of any series in any election of a
receiver, assignee, trustee or a standby trustee in arrangement,
reorganization, liquidation or other bankruptcy or insolvency proceedings,
custodian or other person performing similar functions in respect of any
such proceedings; and
(c) to collect and receive any moneys or other property payable or
deliverable on any such claims, and to distribute all amounts received with
respect to the claims of the Securityholders and of the Trustee on their
behalf; and any trustee, receiver, or liquidator, custodian or other
similar official performing similar functions in respect of any such
proceedings is hereby authorized by each of the Securityholders to make
payments to the Trustee, and, in the event that the Trustee shall consent
to the making of payments directly to the Securityholders, to pay to the
Trustee its costs and expenses of collection and all other amounts due to
it pursuant to Section 6.6.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any
Securityholder any plan of reorganization, arrangement, adjustment or
composition affecting the Securities of any series or the rights of any Holder
thereof, or to authorize the Trustee to vote in respect of the claim of any
Securityholder in any such proceeding, except as aforesaid in clause (b).
All rights of action and of asserting claims under this Indenture, or
under any of the Securities of any series or Coupons appertaining to such
Securities, may be enforced by the Trustee without the possession of any of the
Securities of such series or Coupons appertaining to such Securities or the
production thereof in any trial or other proceedings relative thereto, and any
such action or proceedings instituted by the Trustee shall be brought in its own
name as trustee of an express trust, and any recovery of judgment shall awarded
to the Trustee for ratable distribution to the Holders of the Securities or
Coupons appertaining to such Securities in respect of which such action was
taken, after payment of all sums due to the Trustee under Section 6.6 in respect
of such Securities.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party) the Trustee shall be held to represent all the Holders
of the Securities or Coupons appertaining to
33
<PAGE>
such Securities in respect to which such action was taken, and it shall not be
necessary to make any Holders of such Securities or Coupons appertaining to such
Securities parties to any such proceedings.
SECTION 5.3 APPLICATION OF PROCEEDS. Any moneys collected by the
Trustee pursuant to this Article in respect of any series shall be applied in
the following order at the date or dates fixed by the Trustee and, in case of
the distribution of such moneys on account of principal or interest, upon
presentation of the several Securities and Coupons appertaining to such
Securities in respect of which monies have been collected and stamping (or
otherwise noting) thereon the payment, or issuing Securities of such series in
reduced principal amounts in exchange for the presented Securities of like
series if only partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses applicable to such series
of Securities in respect of which monies have been collected, including all
amounts due to the Trustee and each predecessor Trustee pursuant to Section
6.6 in respect to such series of Securities;
SECOND: In case the principal of the Securities of such series in
respect of which moneys have been collected shall not have become and be
then due and payable, to the payment of interest on the Securities of such
series in default in the order of the maturity of the installments on such
interest, with interest (to the extent that such interest has been
collected by the Trustee and is permitted by applicable law) upon the
overdue installments of interest at the same rate as the rate of interest
or Yield to Maturity (in the case of Original Issue Discount Securities)
specified in such Securities, such payments to be made ratably to the
persons entitled thereto, without discrimination or preference;
THIRD: In case the principal of the Securities of such series in
respect of which moneys have been collected shall have become and shall be
then due and payable, to the payment of the whole amount then owing and
unpaid upon all the Securities of such series for principal and interest,
with interest upon the overdue principal, and (to the extent that such
interest has been collected by the Trustee and is permitted by applicable
law) upon the overdue installations of interest at the same rate as the
rate of interest or Yield to Maturity (in the case of Original Issue
Discount Securities) specified in the Securities of such series; and in
case such moneys shall be insufficient to pay in full the whole amount so
due and unpaid upon the Securities of such series, then to the payment of
such principal and interest or Yield to Maturity, without preference or
priority of principal over interest or Yield to Maturity, or of interest or
Yield to Maturity over principal, or of any installment of interest over
any other installment of interest or of any Security of such series over
any other Security of such series, ratably to the aggregate of such
principal and accrued and unpaid interest or Yield to Maturity; and
34
<PAGE>
FOURTH: To the payment of the remainder, if any, to the Issuer or any
other person lawfully entitled thereto.
SECTION 5.4 SUITS FOR ENFORCEMENT. In case an Event of Default has
occurred, has not been waived and is continuing, the Trustee may in its
discretion proceed to protect and enforce the rights vested in it by this
Indenture by such appropriate judicial proceedings as the Trustee shall deem
most effectual to protect and enforce any of such rights, either at law or in
equity or in bankruptcy or otherwise, whether for the specific enforcement of
any covenant or agreement contained in this Indenture or in aid of the exercise
of any power granted in this Indenture or to enforce any other legal or
equitable right vested in the Trustee by this Indenture or by law.
SECTION 5.5 RESTORATION OF RIGHTS ON ABANDONMENT OF PROCEEDINGS. In
case the Trustee shall have proceeded to enforce any right under this Indenture
and such proceedings shall have been discontinued or abandoned for any reason,
or shall have been determined adversely to the Trustee, then and in every such
case the Issuer and the Trustee shall be restored respectively to their former
positions and rights hereunder, and all rights, remedies and powers of the
Issuer, the Trustee and the Securityholders shall continue as though no such
proceedings had been taken.
SECTION 5.6 LIMITATIONS ON SUITS BY SECURITY HOLDERS. No Holder of
any Security of any series or of any Coupon appertaining thereto shall have any
right by virtue or by availing of any provision of this Indenture to institute
any action or proceeding at law or in equity or in bankruptcy or otherwise upon
or under or with respect to this Indenture or such Security, or for the
appointment of a trustee, receiver, liquidator, custodian or other similar
official or for any other remedy hereunder or thereunder, unless (a) such Holder
previously shall have given to the Trustee written notice of an Event of Default
with respect to Securities of such series and of the continuance thereof, as
hereinbefore provided, and (b) the Holders of not less than 25% in aggregate
principal amount of the Securities of such affected series then Outstanding
(treated as a single class) shall have made written request upon the Trustee to
institute such action or proceedings in its own name as Trustee hereunder and
shall have offered to the Trustee such reasonable indemnity as it may require
against the costs, expenses and liabilities to be incurred therein or thereby,
and (c) the Trustee for 60 days after its receipt of such notice, request and
offer of indemnity shall have failed to institute any such action or proceeding,
and (d) no direction inconsistent with such written request shall have been
given to the Trustee pursuant to Section 5.9; it being understood and intended,
and being expressly covenanted by the taker and Holder of every Security or
Coupon with every other taker and Holder and the Trustee, that no one or more
Holders of Securities of any series or Coupons appertaining to such Securities
shall have any right in any manner whatever by virtue or by availing of any
provision of this Indenture or any Security to affect, disturb or prejudice the
rights of any other such taker or Holder of Securities or Coupons appertaining
to such Securities, or to obtain or seek to obtain priority over or preference
to any other such taker or Holder or to enforce any right under this Indenture
or any Security, except in the manner herein provided and for the equal, ratable
and common benefit of all Holders of Securities of the appli-
35
<PAGE>
cable series and Coupons appertaining to such Securities. For the protection
and enforcement of the provisions of this Section, each and every Securityholder
and the Trustee shall be entitled to such relief as can be given either at law
or in equity.
SECTION 5.7 UNCONDITIONAL RIGHT OF SECURITYHOLDERS TO INSTITUTE
CERTAIN SUITS. Notwithstanding any other provision in this Indenture and any
provision of any Security, the right of any Holder of any Security or Coupon to
receive payment of the principal of and interest on such Security or Coupon on
or after the respective due dates expressed in such Security or Coupon or the
applicable redemption dates provided for in such Security, or to institute suit
for the enforcement of any such payment on or after such respective dates, shall
not be impaired or affected without the consent of such Holder.
SECTION 5.8 POWERS AND REMEDIES CUMULATIVE; DELAY OR OMISSION NOT
WAIVER OF DEFAULT. Except as provided in Section 5.6, no right or remedy herein
conferred upon or reserved to the Trustee or to the Holders of Securities or
Coupons is intended to be exclusive of any other right or remedy and every right
and remedy shall, to the extent permitted by law, be cumulative and in addition
to every other right and remedy given hereunder or now or hereafter existing at
law or in equity or otherwise. The assertion or employment of any right or
remedy hereunder, or otherwise, shall not prevent the concurrent assertion or
employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of Securities or
Coupons to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power or
shall be construed to be a waiver of any such Event of Default or an
acquiescence therein. Every power and remedy given by this Indenture, any
Security or law to the Trustee or to the Holders of Securities or Coupons may be
exercised from time to time, and as often as shall be deemed expedient, by the
Trustee or, subject to Section 5.6, by the Holders of Securities or Coupons.
SECTION 5.9 CONTROL BY HOLDERS OF SECURITIES. The Holders of a
majority in aggregate principal amount of the Securities of each series affected
(with each such series voting as a separate class) at the time Outstanding shall
have the right to direct the time, method, and place of conducting any
proceeding for any remedy available to the Trustee, or exercising any trust or
power conferred on the Trustee with respect to the Securities of such series by
this Indenture; provided, that such direction shall not be otherwise than in
accordance with law and the provisions of this Indenture and provided, further,
that (subject to the provisions of Section 6.1) the Trustee shall have the right
to decline to follow any such direction if (a) the Trustee, being advised by
counsel, shall determine that the action or proceeding so directed may not
lawfully be taken; or (b) if the Trustee by its board of directors, the
executive committee, or a trust committee of directors or Responsible Officers
of the Trustee shall determine in good faith that the action or proceedings so
directed would involve the Trustee in personal liability; or (c) if the Trustee
in good faith shall so determine that the actions or forbearances specified in
or pursuant to such direction would be unduly prejudicial to the interests of
Holders of the Securities of all affected series not joining in the giving of
said
36
<PAGE>
direction, it being understood that (subject to Section 6.1) the Trustee shall
have no duty to ascertain whether or not such actions or forbearances are unduly
prejudicial to such Holders.
Nothing in this Indenture shall impair the right of the Trustee in its
discretion to take any action deemed proper by the Trustee and which is not
inconsistent with such direction or directions by Securityholders.
SECTION 5.10 WAIVER OF PAST DEFAULTS. Prior to the declaration of
acceleration of the maturity of any Securities as provided in Section 5.1, the
Holders of a majority in aggregate principal amount of the Securities of such
series (each series voting as a separate class) at the time Outstanding with
respect to which an Event of Default shall have occurred and be continuing
(voting as a single class) may on behalf of the Holders of all such Securities
waive any past default or Event of Default described in Section 5.1 and its
consequences, except a default in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the Holder of each
Security affected. In the case of any such waiver, the Issuer, the Trustee and
the Holders of all such Securities shall be restored to their former positions
and rights hereunder, respectively, and such default shall cease to exist and be
deemed to have been cured and not to have occurred for purposes of this
Indenture; but no such waiver shall extend to any subsequent or other default or
impair any right consequent thereon.
SECTION 5.11 TRUSTEE TO GIVE NOTICE OF DEFAULT, BUT MAY WITHHOLD IN
CERTAIN CIRCUMSTANCES. The Trustee shall, within ninety days after the
occurrence of a default with respect to the Securities of any series, give
notice of all defaults with respect to that series known to the Trustee (i) if
any Unregistered Securities of that series are then Outstanding, to the Holders
thereof, by publication at least once in an Authorized Newspaper in the Borough
of Manhattan, The City of New York and at least once in an Authorized Newspaper
in London (and, if required by Section 3.9, at least once in an Authorized
Newspaper in Luxembourg) and (ii) to all Holders of Securities of such series in
the manner and to the extent provided in Section 313(c) of the Trust Indenture
Act, unless in each case such defaults shall have been cured before the mailing
or publication of such notice (the term "default" for the purpose of this
Section being hereby defined to mean any event or condition which is, or with
notice or lapse of time or both would become, an Event of Default); provided,
that, except in the case of default in the payment of the principal of or
interest on any of the Securities of such series, or in the payment of any
sinking fund installment on such series, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee, or a trust committee of directors or trustees and/or Responsible
Officers of the Trustee in good faith determines that the withholding of such
notice is in the interests of the Securityholders of such series.
SECTION 5.12 RIGHT OF COURT TO REQUIRE FILING OF UNDERTAKING TO PAY
COSTS. All parties to this Indenture agree, and each Holder of any Security or
Coupon by his acceptance thereof shall be deemed to have agreed, that any court
may in its discretion require, in any suit for the enforcement of any right or
remedy under this Indenture or in any suit against the Trustee for any action
taken, suffered or omitted by it as
37
<PAGE>
Trustee, the filing by any party litigant in such suit of an undertaking to pay
the costs of such suit, and that such court may in its discretion assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in such suit, having due regard to the merits and good faith of the
claims or defenses made by such party litigant; but the provisions of this
Section shall not apply to any suit instituted by the Trustee, to any suit
instituted by any Securityholder or group of Securityholders of any series
holding in the aggregate more than 10% in aggregate principal amount of the
Securities of such series, or, in the case of any suit relating to or arising
under clause (d) or (g) of Section 5.1 (if the suit relates to Securities of
more than one but less than all series), 10% in aggregate principal amount of
Securities then Outstanding and affected thereby, or in the case of any suit
relating to or arising under clause (d) or (g) (if the suit under clause (d) or
(g) relates to all the Securities then Outstanding), (e) or (f) of Section 5.1,
10% in aggregate principal amount of all Securities then Outstanding, or to any
suit instituted by any Securityholder for the enforcement of the payment of the
principal of or interest on any Security on or after the due date expressed in
such Security or any date fixed for redemption.
ARTICLE VI
CONCERNING THE TRUSTEE
SECTION 6.1 DUTIES AND RESPONSIBILITIES OF THE TRUSTEE; DURING
DEFAULT; PRIOR TO DEFAULT. Prior to the occurrence of an Event of Default with
respect to the Securities of a particular series and after the curing or waiving
of all Events of Default which may have occurred with respect to such series,
the Trustee undertakes to perform such duties and only such duties as are
specifically set forth in this Indenture with respect to such series of
Securities. In case an Event of Default with respect to the Securities of a
series has occurred and has not been cured or waived, the Trustee shall exercise
with respect to such series of Securities such of the rights and powers vested
in it by this Indenture with respect to such series of Securities, and use the
same degree of care and skill in their exercise, as a prudent man would exercise
or use under the circumstances in the conduct of his own affairs.
No provision of this Indenture shall be construed to relieve the
Trustee from liability for its own negligent action, its own negligent failure
to act or its own willful misconduct, except that
(a) prior to the occurrence of an Event of Default with respect to
the Securities of any series and after the curing or waiving of all such
Events of Default with respect to such series which may have occurred:
(i) the duties and obligations of the Trustee with respect to
the Securities of any series shall be determined solely by the express
provisions of this Indenture, and the Trustee shall not be liable
except for the performance of such duties and obligations as are
specifically set forth in this Indenture, and no
38
<PAGE>
implied covenants or obligations shall be read into this Indenture
against the Trustee; and
(ii) in the absence of bad faith on the part of the Trustee, the
Trustee may conclusively rely, as to the truth of the statements and
the correctness of the opinions expressed therein, upon any
statements, certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture; but in the case of
any such statements, certificates or opinions which by any provision
hereof are specifically required to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine whether
or not they conform to the requirements of this Indenture;
(b) the Trustee shall not be liable for any error of judgment made in
good faith by a Responsible Officer or Responsible Officers of the Trustee,
unless it shall be proved that the Trustee was negligent in ascertaining
the pertinent facts; and
(c) the Trustee shall not be liable with respect to any action taken
or omitted to be taken by it in good faith in accordance with the direction
of the Holders pursuant to Section 5.9 relating to the time, method and
place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred upon the Trustee, under this
Indenture.
None of the provisions contained in this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur personal financial
liability in the performance of any of its duties or in the exercise of any of
its rights or powers, if there shall be reasonable ground for believing that the
repayment of such funds or adequate indemnity against such liability is not
reasonably assured to it.
The provisions of this Section 6.1 are in furtherance of and subject
to Section 315 of the Trust Indenture Act.
SECTION 6.2 CERTAIN RIGHTS OF THE TRUSTEE. In furtherance of and
subject to the Trust Indenture Act, and subject to Section 6.1:
(a) the Trustee may rely and shall be protected in acting or
refraining from acting upon any resolution, Officer's Certificate or any
other certificate, statement, instrument, opinion, report, notice, request,
consent, order, bond, debenture, note, coupon, security or other paper or
document believed by it to be genuine and to have been signed or presented
by the proper party or parties;
(b) any request, direction, order or demand of the Issuer mentioned
herein shall be sufficiently evidenced by an Officer's Certificate (unless
other evidence in respect thereof is specifically prescribed herein or in
the terms established in respect of any
39
<PAGE>
series); and any resolution of the Board of Directors may be evidenced to
the Trustee by a copy thereof certified by the secretary or an assistant
secretary of the Issuer;
(c) the Trustee may consult with counsel and any written advice or
any Opinion of Counsel shall be full and complete authorization and
protection in respect of any action taken, suffered or omitted to be taken
by it hereunder in good faith and in reliance thereon in accordance with
such advice or Opinion of Counsel;
(d) the Trustee shall be under no obligation to exercise any of the
trusts or powers vested in it by this Indenture at the request, order or
direction of any of the Securityholders pursuant to the provisions of this
Indenture, unless such Securityholders shall have offered to the Trustee
reasonable security or indemnity against the costs, expenses and
liabilities which might be incurred therein or thereby;
(e) the Trustee shall not be liable for any action taken or omitted
by it in good faith and believed by it to be authorized or within the
discretion, rights or powers conferred upon it by this Indenture;
(f) prior to the occurrence of an Event of Default hereunder and
after the curing or waiving of all Events of Default, the Trustee shall not
be bound to make any investigation into the facts or matters stated in any
resolution, certificate, statement, instrument, opinion, report, notice,
request, consent, order, approval, appraisal, bond, debenture, note,
coupon, security, or other paper or document unless requested in writing so
to do by the Holders of not less than a majority in aggregate principal
amount of the Securities of all series affected then Outstanding; provided,
that, if the payment within a reasonable time to the Trustee of the costs,
expenses or liabilities likely to be incurred by it in the making of such
investigation is, in the opinion of the Trustee, not reasonably assured to
the Trustee by the security afforded to it by the terms of this Indenture,
the Trustee may require reasonable indemnity against such expenses or
liabilities as a condition to proceeding; the reasonable expenses of every
such investigation shall be paid by the Issuer or, if paid by the Trustee
or any predecessor trustee, shall be repaid by the Issuer upon demand; and
(g) the Trustee may execute any of the trusts or powers hereunder or
perform any duties hereunder either directly or by or through agents or
attorneys not regularly in its employ and the Trustee shall not be
responsible for any misconduct or negligence on the part of any such agent
or attorney appointed with due care by it hereunder.
SECTION 6.3 TRUSTEE NOT RESPONSIBLE FOR RECITALS, DISPOSITION OF
SECURITIES OR APPLICATION OF PROCEEDS THEREOF. The recitals contained herein
and in the Securities, except the Trustee's certificates of authentication,
shall be taken as the statements of the Issuer, and the Trustee assumes no
responsibility for the correctness of the same. The Trustee makes no
representation as to the validity or sufficiency
40
<PAGE>
of this Indenture or of the Securities or Coupons. The Trustee shall not be
accountable for the use or application by the Issuer of any of the Securities or
of the proceeds thereof.
SECTION 6.4 TRUSTEE AND AGENTS MAY HOLD SECURITIES OR COUPONS;
COLLECTIONS, ETC. The Trustee or any agent of the Issuer or of the Trustee, in
its individual or any other capacity, may become the owner or pledgee of
Securities or Coupons with the same rights it would have if it were not the
Trustee or such agent and may otherwise deal with the Issuer and receive,
collect, hold and retain collections from the Issuer with the same rights it
would have if it were not the Trustee or such agent.
SECTION 6.5 MONEYS HELD BY TRUSTEE. Subject to the provisions of
Section 10.4 hereof, all moneys received by the Trustee shall, until used or
applied as herein provided, be held in trust for the purposes for which they
were received, but need not be segregated from other funds except to the extent
required by mandatory provisions of law. Neither the Trustee nor any agent of
the Issuer or the Trustee shall be under any liability for interest on any
moneys received by it hereunder.
SECTION 6.6 COMPENSATION AND INDEMNIFICATION OF TRUSTEE AND ITS PRIOR
CLAIM. The Issuer covenants and agrees to pay to the Trustee from time to time,
and the Trustee shall be entitled to reasonable compensation (which shall not be
limited by any provision of law in regard to the compensation of a trustee of an
express trust) and the Issuer covenants and agrees to pay or reimburse the
Trustee and each predecessor trustee upon its request for all reasonable
expense, disbursements and advances incurred or made by or on behalf of it in
accordance with any of the provisions of this Indenture (including the
reasonable compensation and the expenses and disbursements of its counsel and of
all agents and other persons not regularly in its employ) except any such
expense, disbursement or advance as may arise from its negligence or bad faith.
The Issuer also covenants to indemnify the Trustee and each predecessor trustee
for, and to hold it harmless against, any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of this Indenture or the trusts hereunder
and its duties hereunder, including the costs and expenses of defending itself
against or investigating any claim of liability in the premises. The
obligations of the Issuer under this Section to compensate and indemnify the
Trustee and each predecessor trustee and to pay or reimburse the Trustee and
each predecessor trustee for expenses, disbursements and advances shall
constitute additional indebtedness hereunder and shall survive the satisfaction
and discharge of this Indenture. Such additional indebtedness shall be a senior
claim to that of the Securities upon all property and funds held or collected by
the Trustee as such, except funds held in trust for the benefit of the Holders
of particular Securities or Coupons, and the Securities are hereby subordinated
to such senior claim.
SECTION 6.7 RIGHT OF TRUSTEE TO RELY ON OFFICER'S CERTIFICATE, ETC.
Subject to Sections 6.1 and 6.2, whenever in the administration of the trusts of
this Indenture the Trustee shall deem it necessary or desirable that a matter be
proved or established prior to taking or suffering or omitting any action
hereunder, such matter (unless
41
<PAGE>
other evidence in respect thereof be herein specifically prescribed) may, in the
absence of negligence or bad faith on the part of the Trustee, be deemed to be
conclusively proved and established by an Officer's Certificate delivered to the
Trustee, and such certificate, in the absence of negligence or bad faith on the
part of the Trustee, shall be full warrant to the Trustee for any action taken,
suffered or omitted by it under the provisions of this Indenture upon the faith
thereof.
SECTION 6.8 INDENTURES NOT CREATING POTENTIAL CONFLICTING INTERESTS
FOR THE TRUSTEE. The following indentures are hereby specifically described for
the purposes of Section 310(b)(1) of the Trust Indenture Act: this Indenture
with respect to the Securities of any other series.
SECTION 6.9 QUALIFICATION OF TRUSTEE: CONFLICTING INTERESTS. The
Trustee shall comply with Section 310(b) of the Trust Indenture Act.
SECTION 6.10 PERSONS ELIGIBLE FOR APPOINTMENT AS TRUSTEE. The
Trustee for each series of Securities hereunder shall at all times be a
corporation or banking association organized and doing business under the laws
of the United States of America, any State thereof or the District of Columbia,
having a combined capital and surplus of at least $50,000,000, and which is
authorized under such laws to exercise corporate trust powers and is subject to
supervision or examination by Federal, state or District of Columbia authority.
If such corporation publishes reports of condition at least annually, pursuant
to law or to the requirements of the aforesaid supervising or examining
authority, then for the purposes of this Section, the combined capital and
surplus of such corporation shall be deemed to be its combined capital and
surplus as set forth in its most recent report of condition so published. In
case at any time the Trustee shall cease to be eligible in accordance with the
provisions of this Section, the Trustee shall resign immediately in the manner
and with the effect specified in Section 6.11.
The provisions of this Section 6.10 are in furtherance of and subject
to Section 310(a) of the Trust Indenture Act.
SECTION 6.11 RESIGNATION AND REMOVAL; APPOINTMENT OF SUCCESSOR
TRUSTEE. (a) The Trustee, or any trustee or trustees hereafter appointed, may
at any time resign with respect to one or more or all series of Securities by
giving written notice of resignation to the Issuer and (i) if any Unregistered
Securities of a series affected are then Outstanding, by giving notice of such
resignation to the Holders thereof, by publication at least once in an
Authorized Newspaper in the Borough of Manhattan, The City of New York, and at
least once in an Authorized Newspaper in London (and, if required by Section
3.9, at least once in an Authorized Newspaper in Luxembourg), (ii) if any
Unregistered Securities of a series affected are then Outstanding, by mailing
notice of such resignation to the Holders thereof who have filed their names and
addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture
Act at such addresses as were so furnished to the Trustee and (iii) by mailing
notice of such resignation to the Holders of then Outstanding Registered
Securities of each series
42
<PAGE>
affected at their addresses as they shall appear on the registry books. Upon
receiving such notice of resignation, the Issuer shall promptly appoint a
successor trustee or trustees with respect to the applicable series by written
instrument in duplicate, executed by authority of the Board of Directors, one
copy of which instrument shall be delivered to the resigning Trustee and one
copy to the successor trustee or trustees. If no successor trustee shall have
been so appointed with respect to any series and have accepted appointment
within 30 days after the mailing of such notice of resignation, the resigning
trustee may petition any court of competent jurisdiction for the appointment of
a successor trustee, or any Securityholder who has been a bona fide Holder of a
Security or Securities of the applicable series for at least six months may,
subject to the provisions of Section 5.12, on behalf of himself and all others
similarly situated, petition any such court for the appointment of a successor
trustee. Such court may thereupon, after such notice, if any, as it may deem
proper and prescribe, appoint a successor trustee.
(b) In case at any time any of the following shall occur:
(i) the Trustee shall fail to comply with the provisions of
Section 310(b) of the Trust Indenture Act with respect to any series
of Securities after written request therefor by the Issuer or by any
Securityholder who has been a bona fide Holder of a Security or
Securities of such series for at least six months; or
(ii) the Trustee shall cease to be eligible in accordance with
the provisions of Section 6.10 and Section 310(a) of the Trust
Indenture Act and shall fail to resign after written request therefor
by the Issuer or by any Securityholder; or
(iii) the Trustee shall become incapable of acting with
respect to any series of Securities, or shall be adjudged a bankrupt
or insolvent, or a receiver or liquidator of the Trustee or of its
property shall be appointed, or any public officer shall take charge
or control of the Trustee or of its property or affairs for the
purpose of rehabilitation, conservation or liquidation;
then, in any such case, the Issuer may remove the Trustee with respect to the
applicable series of Securities and appoint a successor trustee for such series
by written instrument, in duplicate, executed by order of the Board of Directors
of the Issuer, one copy of which instrument shall be delivered to the Trustee so
removed and one copy to the successor trustee, or, subject to the provisions of
Section 315(e) of the Trust Indenture Act, any Securityholder who has been a
bona fide Holder of a Security or Securities of such series for at least six
months may on behalf of himself and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor trustee with respect to such series. Such court may
thereupon, after such notice, if any, as it may deem proper and prescribe,
remove the Trustee and appoint a successor trustee.
(c) The Holders of a majority in aggregate principal amount of the
Securities of each series at the time outstanding may at any time remove
the Trustee with respect to Securities of such series and appoint a
successor trustee with respect to the Securities of
43
<PAGE>
such series by delivering to the Trustee so removed, to the successor
trustee so appointed and to the Issuer the evidence provided for in Section
7.1 of the action in that regard taken by the Securityholders.
(d) Any resignation or removal of the Trustee with respect to any
series and any appointment of a successor trustee with respect to such
series pursuant to any of the provisions of this Section 6.11 shall become
effective upon acceptance of appointment by the successor trustee as
provided in Section 6.12.
SECTION 6.12 ACCEPTANCE OF APPOINTMENT BY SUCCESSOR TRUSTEE. Any
successor trustee appointed as provided in Section 6.11 shall execute and
deliver to the Issuer and to its predecessor trustee an instrument accepting
such appointment hereunder, and thereupon the resignation or removal of the
predecessor trustee with respect to all or any applicable series shall become
effective and such successor trustee, without any further act, deed or
conveyance, shall become vested with all rights, powers, duties and obligations
with respect to such series of its predecessor hereunder, with like effect as if
originally named as trustee for such series hereunder; but, nevertheless, on the
written request of the Issuer or of the successor trustee, upon payment of its
charges then unpaid, the trustee ceasing to act shall, subject to Section 10.4,
pay over to the successor trustee all moneys at the time held by it hereunder
and shall execute and deliver an instrument transferring to such successor
trustee all such rights, powers, duties and obligations. Upon request of any
such successor trustee, the Issuer shall execute any and all instruments in
writing for more fully and certainly vesting in and confirming to such successor
trustee all such rights and powers. Any trustee ceasing to act shall,
nevertheless, retain a prior claim upon all property or funds held or collected
by such trustee to secure any amounts then due it pursuant to the provisions of
Section 6.6.
If a successor trustee is appointed with respect to the Securities of
one or more (but not all) series, the Issuer, the predecessor trustee and each
successor trustee with respect to the Securities of any applicable series shall
execute and deliver an indenture supplemental hereto which shall contain such
provisions as shall be deemed necessary or desirable to confirm that all the
rights, powers, trusts and duties of the predecessor trustee with respect to the
Securities of any series as to which the predecessor trustee is not retiring
shall continue to be vested in the predecessor trustee, and shall add to or
change any of the provisions of this Indenture as shall be necessary to provide
for or facilitate the administration of the trusts hereunder by more than one
trustee, it being understood that nothing herein or in such supplemental
indenture shall constitute such trustees co-trustees of the same trust and that
each such trustee shall be trustee of a trust or trusts under separate
indentures.
No successor trustee with respect to any series of Securities shall
accept appointment as provided in this Section 6.12 unless at the time of such
acceptance such successor trustee shall be qualified under Section 310(b) of the
Trust Indenture Act and eligible under the provisions of Section 6.10.
44
<PAGE>
Upon acceptance of appointment by any successor trustee as provided in
this Section 6.12, the Issuer shall give notice thereof (a) if any Unregistered
Securities of a series affected are then Outstanding, to the Holders thereof, by
publication of such notice at least once in an Authorized Newspaper in the
Borough of Manhattan, The City of New York and at least once in an Authorized
Newspaper in London (and, if required by Section 3.9, at least once in an
Authorized Newspaper in Luxembourg), (b) if any Unregistered Securities of a
series affected are then Outstanding, to the Holders thereof who have filed
their names and addresses with the Trustee pursuant to Section 313(c)(2) of the
Trust Indenture Act, by mailing such notice to such Holders at such addresses as
were so furnished to the Trustee (and the Trustee shall make such information
available to the Issuer for such purpose) and (c) to the Holders of Registered
Securities of each series affected, by mailing such notice to such Holders at
their addresses as they shall appear on the registry books. If the acceptance
of appointment is substantially contemporaneous with the resignation, then the
notice called for by the preceding sentence may be combined with the notice
called for by Section 6.11. If the Issuer fails to give such notice within ten
days after acceptance of appointment by the successor trustee, the successor
trustee shall cause such notice to be given at the expense of the Issuer.
SECTION 6.13 MERGER, CONVERSION, CONSOLIDATION OR SUCCESSION TO
BUSINESS OF TRUSTEE. Any corporation into which the Trustee may be merged or
converted or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which the Trustee shall be a
party, or any corporation succeeding to the corporate trust business of the
Trustee, shall be the successor of the Trustee hereunder, provided, that such
corporation shall be qualified under Section 310(b) of the Trust Indenture Act
and eligible under the provisions of Section 6.10, without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
anything herein to the contrary notwithstanding.
In case at the time such successor to the Trustee shall succeed to the
trusts created by this Indenture any of the Securities of any series shall have
been authenticated but not delivered, any such successor to the Trustee may
adopt the certificate of authentication of any predecessor trustee and deliver
such Securities so authenticated; and, in case at that time any of the
Securities of any series shall not have been authenticated, any successor to the
Trustee may authenticate such Securities either in the name of any predecessor
hereunder or in the name of the successor Trustee; and in all such cases such
certificate shall have the full force which it is anywhere in the Securities of
such series or in this Indenture provided that the certificate of the Trustee
shall have; provided, that the right to adopt the certificate of authentication
of any predecessor trustee or to authenticate Securities of any series in the
name of any predecessor trustee shall apply only to its successor or successors
by merger, conversion or consolidation.
SECTION 6.14 PREFERENTIAL COLLECTION OF CLAIMS AGAINST THE ISSUER.
The Trustee shall comply with Section 311(a) of the Trust Indenture Act,
excluding any creditor relationship listed in Section 311(b) of the Trust
Indenture Act. A Trustee who has resigned or been removed shall be subject to
Section 311(a) of the Trust Indenture Act to the extent indicated.
45
<PAGE>
SECTION 6.15 APPOINTMENT OF AUTHENTICATING AGENT. As long as any
Securities of a series remain Outstanding, the Trustee may, by an instrument in
writing, appoint with the approval of the Issuer an authenticating agent (the
"Authenticating Agent") which shall be authorized to act on behalf of the
Trustee to authenticate Securities, including Securities issued upon exchange,
registration of transfer, partial redemption or pursuant to Section 2.9.
Securities of each such series authenticated by such Authenticating Agent shall
be entitled to the benefits of this Indenture and shall be valid and obligatory
for all purposes as if authenticated by the Trustee. Whenever reference is made
in this Indenture to the authentication and delivery of Securities of any series
by the Trustee or to the Trustee's Certificate of Authentication, such
reference shall be deemed to include authentication and delivery on behalf of
the Trustee by an Authenticating Agent for such series and a Certificate of
Authentication executed on behalf of the Trustee by such Authenticating Agent.
Such Authenticating Agent shall at all times be a corporation organized and
doing business under the laws of the United States of America or of any State,
authorized under such laws to exercise corporate trust powers, having a combined
capital and surplus of at least $45,000,000 (determined as provided in Section
6.10 with respect to the Trustee) and subject to supervision or examination by
Federal or State authority.
Any corporation into which any Authenticating Agent may be merged or
converted, or with which it may be consolidated, or any corporation resulting
from any merger, conversion or consolidation to which any Authenticating Agent
shall be a party, or any corporation succeeding to the corporate agency business
of any Authenticating Agent, shall continue to be the authenticating Agent with
respect to all series of Securities for which it served as Authenticating Agent
without the execution or filing of any paper or any further act on the part of
the Trustee or such Authenticating Agent. Any Authenticating Agent may at any
time, and if it shall cease to be eligible shall, resign by giving written
notice of resignation to the Trustee and to the Issuer.
Upon receiving such a notice of resignation or upon such a
termination, or in case at any time any Authenticating Agent shall cease to be
eligible in accordance with the provisions of this Section 6.15 with respect to
one or more series of Securities, the Trustee shall upon receipt of an Issuer
Order appoint a successor Authenticating Agent and the Issuer shall provide
notice of such appointment to all Holders of Securities of such series in the
manner and to the extent provided in Section 11.4. Any successor Authenticating
Agent upon acceptance of its appointment hereunder shall become vested with all
rights, powers, duties and responsibilities of its predecessor hereunder, with
like effect as if originally named as Authenticating Agent. The Issuer agrees
to pay to the Authenticating Agent for such series from time to time reasonable
compensation. The Authenticating Agent for the Securities of any series shall
have no responsibility or liability for any action taken by it as such at the
direction of the Trustee.
Sections 6.2, 6.3, 6.4, 6.6 and 7.3 shall be applicable to any
Authenticating Agent.
46
<PAGE>
ARTICLE VII
CONCERNING THE SECURITYHOLDERS
SECTION 7.1 EVIDENCE OF ACTION TAKEN BY SECURITYHOLDERS. Any
request, demand, authorization, direction, notice, consent, waiver or other
action provided by this Indenture to be given or taken by a specified percentage
in principal amount of the Securityholders of any or all series may be embodied
in and evidenced by one or more instruments of substantially similar tenor
signed by such specified percentage of Securityholders in person or by agent
duly appointed in writing; and, except as herein otherwise expressly provided,
such action shall become effective when such instrument or instruments are
delivered to the Trustee. Proof of execution of any instrument or of a writing
appointing any such agent shall be sufficient for any purpose of this Indenture
and (subject to Sections 6.1 and 6.2) conclusive in favor of the Trustee and the
Issuer, if made in the manner provided in this Article.
SECTION 7.2 PROOF OF EXECUTION OF INSTRUMENTS AND OF HOLDING OF
SECURITIES. Subject to Sections 6.1 and 6.2, the execution of any instrument by
a Securityholder or his agent or proxy may be proved in accordance with such
reasonable rules and regulations as may be prescribed by the Trustee or in such
manner as shall be satisfactory to the Trustee. The holding or Securities shall
be proved by the Security register or by a certificate of the registrar thereof.
SECTION 7.3 HOLDERS TO BE TREATED AS OWNERS. The Issuer, the Trustee
and any agent of the Issuer or the Trustee may deem and treat the person in
whose name any Security shall be registered upon the Security register for such
series as the absolute owner of such Security (whether or not such Security
shall be overdue and notwithstanding any notation of ownership or other writing
thereon) for the purpose of receiving payment of or on account of the principal
of and, subject to the provisions of this Indenture, interest on such Security
and for all other purposes; and neither the Issuer nor the Trustee nor any agent
of the Issuer or the Trustee shall be affected by any notice to the contrary.
The Issuer, the Trustee and any agent of the Issuer or the Trustee may treat the
Holder of any Unregistered Security and the Holder of any Coupon as the absolute
owner of such Unregistered Security or Coupon (whether or not such Unregistered
Security or Coupon shall be overdue) for the purpose of receiving payment
thereof or on account thereof and for all other purposes and neither the Issuer,
the Trustee, nor any agent of the Issuer or the Trustee shall be affected by any
notice to the contrary. All such payments so made to any such person, or upon
his order, shall be valid, and, to the extent of the sum or sums so paid,
effectual to satisfy and discharge the liability for moneys payable upon any
such Unregistered Security or Coupon.
SECTION 7.4 SECURITIES OWNED BY ISSUER DEEMED NOT OUTSTANDING. In
determining whether the Holders of the requisite aggregate principal amount of
Outstanding Securities of any or all series have concurred in any request,
demand, authorization, direction, notice, consent, waiver or other action by
Securityholders under this
47
<PAGE>
Indenture, Securities which are owned by the Issuer or any other obligor on the
Securities with respect to which such determination is being made or by any
person directly or indirectly controlling or controlled by or under direct or
indirect common control with the Issuer or any other obligor on the Securities
with respect to which such determination is being made shall be disregarded and
deemed not to be Outstanding for the purpose of any such determination, except
that for the purpose of determining whether the Trustee shall be protected in
relying on any such action only Securities which the Trustee knows are so owned
shall be so disregarded. Securities so owned which have been pledged in good
faith may be regarded as Outstanding if the pledgee establishes to the
satisfaction of the Trustee the pledgee's right so to act with respect to such
Securities and that the pledgee is not the Issuer or any other obligor upon the
Securities or any person directly or indirectly controlling or controlled by or
under direct or indirect common control with the Issuer or any other obligor on
the Securities. In case of a dispute as to such right, the advice of counsel
shall be full protection in respect of any decision made by the Trustee in
accordance with such advice. Upon request of the Trustee, the Issuer shall
furnish to the Trustee promptly an Officer's Certificate listing and identifying
all Securities, if any, known by the Issuer to be owned or held by or for the
account of any of the above-described persons; and, subject to Sections 6.1 and
6.2, the Trustee shall be entitled to accept such Officer's Certificate as
conclusive evidence of the facts therein set forth and of the fact that all
Securities not listed therein are Outstanding for the purpose of any such
determination.
SECTION 7.5 RIGHT OF REVOCATION OF ACTION TAKEN. At any time prior
to (but not after) the evidencing to the Trustee, as provided in Section 7.1, of
the taking of any action by the Holders of the percentage in aggregate principal
amount of the Securities of any or all series, as the case may be, specified in
this Indenture in connection with such action, any Holder of a Security the
serial number of which is shown by the evidence to be included among the serial
numbers of the Securities the Holders of which have consented to such action
may, by filing written notice at the Corporate Trust Office and upon proof of
holding as provided in this Article, revoke such action so far as concerns such
Security. Except as aforesaid any such action taken by the Holder of any
Security shall be conclusive and binding upon such Holder and upon all future
Holders and owners of such Security and of any Securities issued in exchange or
substitution therefor or on registration of transfer thereof, irrespective of
whether or not any notation in regard thereto is made upon any such Security.
Any action taken by the Holders of the percentage in aggregate principal amount
of the Securities of any or all series, as the case may be, specified in this
Indenture in connection with such action shall be conclusively binding upon the
Issuer, the Trustee and the Holders of all the Securities affected by such
action.
ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.1 SUPPLEMENTAL INDENTURES WITHOUT CONSENT OF
SECURITYHOLDERS. The Issuer, when authorized by a resolution of its Board of
Directors (which resolution may provide general terms or parameters for such
action and may provide that
48
<PAGE>
the specific terms of such action may be determined in accordance with or
pursuant to an Issuer Order), and the Trustee may from time to time and at any
time enter into an indenture or indentures supplemental hereto for one or more
of the following purposes:
(a) to convey, transfer, assign, mortgage or pledge to the Trustee as
security for the Securities of one or more series any property or assets;
(b) to evidence the succession of another corporation to the Issuer,
or successive successions, and the assumption by the successor corporation
of the covenants, agreements and obligations of the Issuer pursuant to
Article IX;
(c) to add to the covenants of the Issuer such further covenants,
restrictions, conditions or provisions as the Issuer and the Trustee shall
consider to be for the protection of the Holders of Securities or Coupons,
and to make the occurrence, or the occurrence and continuance, of a default
in any such additional covenants, restrictions, conditions or provisions an
Event of Default permitting the enforcement of all or any of the several
remedies provided in this Indenture as herein set forth; provided, that in
respect of any such additional covenant, restriction, condition or
provision such supplemental indenture may provide for a particular period
of grace after default (which period may be shorter or longer than that
allowed in the case of other defaults) or may provide for an immediate
enforcement upon such an Event of Default or may limit the remedies
available to the Trustee upon such an Event of Default or may limit the
right of the Holders of a majority in aggregate principal amount of the
Securities of such series to waive such an Event of Default;
(d) to cure any ambiguity or to correct or supplement any provision
contained herein or in any supplemental indenture which may be defective or
inconsistent with any other provision contained herein or in any
supplemental indenture, or to make any other provisions as the Issuer may
deem necessary or desirable, provided, that no such action shall adversely
affect the interests of the Holders of the Securities or Coupons;
(e) to establish the forms or terms of Securities of any series or of
the Coupons appertaining to such Securities as permitted by Sections 2.1
and 2.3; and
(f) to evidence and provide for the acceptance of appointment
hereunder by a successor trustee with respect to the Securities of one or
more series and to add to or change any of the provisions of this Indenture
as shall be necessary to provide for or facilitate the administration of
the trusts hereunder by more than one trustee, pursuant to the requirements
of Section 6.12.
The Trustee is hereby authorized to join with the Issuer in the
execution of any such supplemental indenture, to make any further appropriate
agreements and stipulations which may be therein contained and to accept the
conveyance, transfer, assignment, mortgage or pledge of any property thereunder,
but the Trustee shall not be obligated to enter into any such
49
<PAGE>
supplemental indenture which affects the Trustee's own rights, duties or
immunities under this Indenture or otherwise.
Any supplemental indenture authorized by the provisions of this
Section may be executed without the consent of the Holders of any of the
Securities at the time outstanding, notwithstanding any of the provisions of
Section 8.2.
SECTION 8.2 SUPPLEMENTAL INDENTURES WITH CONSENT OF SECURITYHOLDERS.
With the consent (evidenced as provided in Article VII) of the Holders of not
less than a majority in aggregate principal amount of the Securities at the time
Outstanding of all series affected by such supplemental indenture (voting as one
class), the Issuer, when authorized by a resolution of its Board of Directors
(which resolution may provide general terms or parameters for such action and
may provide that the specific terms of such action may be determined in
accordance with or pursuant to an Issuer Order), and the Trustee may, from time
to time and at any time, enter into an indenture or indentures supplemental
hereto (which shall conform to the provisions of the Trust Indenture Act as in
force and effect at the date of execution thereof) for the purpose of adding any
provisions to or changing in any manner or eliminating any of the provisions of
this Indenture or of any supplemental indenture or of modifying in any manner
the rights of the Holders of the Securities of each such series or of the
Coupons appertaining to such Securities; provided, that no such supplemental
indenture shall (a) extend the final maturity of any Security, or reduce the
principal amount thereof, or reduce the rate or extend the time of payment of
interest thereon, or reduce any amount payable on redemption thereof, or make
the principal thereof (including any amount in respect of original issue
discount), or interest thereon payable in any coin or currency other than that
provided in the Securities and Coupons or in accordance with the terms thereof,
or reduce the amount of the principal of an Original Issue Discount Security
that would be due and payable upon an acceleration of the maturity thereof
pursuant to Section 5.1 or the amount thereof provable in bankruptcy pursuant to
Section 5.2, or alter the provisions of Section 11.11 or 11.12 or impair or
affect the right of any Securityholder to institute suit for the payment thereof
when due or, if the Securities provide therefor, any right of repayment at the
option of the Securityholder, in each case without the consent of the Holder of
each Security so affected, or (b) reduce the aforesaid percentage of Securities
of any series, the consent of the Holders of which is required for any such
supplemental indenture, without the consent of the Holders of each Security so
affected.
A supplemental indenture which changes or eliminates any covenant or
other provision of this Indenture which has expressly been included solely for
the benefit of one or more particular series of Securities, or which modifies
the rights of Holders of Securities of such series, or of Coupons appertaining
to such Securities, with respect to such covenant or provision, shall be deemed
not to affect the rights under this Indenture of the Holders of Securities of
any other series or of the Coupons appertaining to such Securities.
Upon the request of the Issuer, accompanied by a copy of a resolution
of the Board of Directors (which resolution may provide general terms or
parameters for such action
50
<PAGE>
and may provide that the specific terms of such action may be determined in
accordance with or pursuant to an Issuer Order) certified by the secretary or an
assistant secretary of the Issuer authorizing the execution of any such
supplemental indenture, and upon the filing with the Trustee of evidence of the
consent of the Holders of the Securities as aforesaid and other documents, if
any, required by Section 7.1, the Trustee shall join with the Issuer in the
execution of such supplemental indenture unless such supplemental indenture
affects the Trustee's own rights, duties or immunities under this Indenture or
otherwise, in which case the Trustee may in its discretion, but shall not be
obligated to, enter into such supplemental indenture.
It shall not be necessary for the consent of the Securityholders under
this Section to approve the particular form of any proposed supplemental
indenture, but it shall be sufficient if such consent shall approve the
substance thereof.
Promptly after the execution by the Issuer and the Trustee of any
supplemental indenture pursuant to the provisions of this Section, the Trustee
shall give notice thereof (i) to the Holders of then Outstanding Registered
Securities of each series affected thereby, by mailing a notice thereof by
first-class mail to such Holders at their addresses as they shall appear on the
Security register, (ii) if any Unregistered Securities of a series affected
thereby are then Outstanding, to the Holders thereof who have filed their names
and addresses with the Trustee pursuant to Section 313(c)(2) of the Trust
Indenture Act, by mailing a notice thereof by first-class mail to such Holders
at such addresses as were so furnished to the Trustee and (iii) if any
Unregistered Securities of a series affected thereby are then Outstanding, to
all Holders thereof, by publication of a notice thereof at least once in an
Authorized Newspaper in the Borough of Manhattan, The City of New York and at
least once in an Authorized Newspaper in London (and, if required by Section
3.9, at least once in an Authorized Newspaper in Luxembourg), and in each case
such notice shall set forth in general terms the substance of such supplemental
indenture. Any failure of the Issuer to give such notice, or any defect
therein, shall not, however, in any way impair or affect the validity of any
such supplemental indenture.
SECTION 8.3 EFFECT OF SUPPLEMENTAL INDENTURE. Upon the execution of
any supplemental indenture pursuant to the provisions hereof, this Indenture
shall be and be deemed to be modified and amended in accordance therewith and
the respective rights, limitations of rights, obligations, duties and immunities
under this Indenture of the Trustee, the Issuer and the Holders of Securities of
each series affected thereby shall thereafter be determined, exercised and
enforced hereunder subject in all respects to such modifications and amendments,
and all the terms and conditions of any such supplemental indenture shall be and
be deemed to be part of the terms and conditions of this Indenture for any and
all purposes.
SECTION 8.4 DOCUMENTS TO BE GIVEN TO TRUSTEE. The Trustee, subject
to the provisions of Sections 6.1 and 6.2, may receive an Officer's Certificate
and an Opinion of Counsel as conclusive evidence that any supplemental indenture
executed pursuant to this Article 8 complies with the applicable provisions of
this Indenture.
51
<PAGE>
SECTION 8.5 NOTATION ON SECURITIES IN RESPECT OF SUPPLEMENTAL
INDENTURES. Securities of any series authenticated and delivered after the
execution of any supplemental indenture pursuant to the provisions of this
Article may bear a notation in form approved by the Trustee for such series as
to any matter provided for by such supplemental indenture or as to any action
taken by Securityholders. If the Issuer or the Trustee shall so determine, new
Securities of any series so modified as to conform, in the opinion of the
Trustee and the Board of Directors, to any modification of this Indenture
contained in any such supplemental indenture may be prepared by the Issuer,
authenticated by the Trustee and delivered in exchange for the Securities of
such series then Outstanding.
ARTICLE IX
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
SECTION 9.1 ISSUER MAY CONSOLIDATE, ETC., ONLY ON CERTAIN TERMS. The
Issuer shall not consolidate with or merge into any other Person or transfer or
lease its properties and assets substantially as an entirety to any Person, and
the Issuer shall not permit any other Person to consolidate with or merge into
the Issuer, unless:
(a) either the Issuer shall be the continuing corporation, or the
successor corporation (if other than the Issuer) formed by such
consolidation or into which the Issuer is merged or to which the properties
and assets of the Issuer substantially as an entity are transferred or
leased shall be a corporation organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
shall expressly assume, by an indenture supplemental hereto, executed and
delivered to the Trustee, in form satisfactory to the Trustee, all the
obligations of the Issuer under the Securities and this Indenture; and
(b) immediately after giving effect to such transaction and treating
any indebtedness which becomes an obligation of the Issuer or a Subsidiary
as a result of such transaction as having been incurred by the Issuer or
such Subsidiary at the time of such transaction, no Event of Default, and
no event which, after notice or lapse of time or both, would become an
Event of Default, shall have happened and be continuing.
SECTION 9.2 SUCCESSOR CORPORATION SUBSTITUTED. The successor
corporation formed by such consolidation or into which the Issuer is merged or
to which such transfer or lease is made shall succeed to and be substituted for,
and may exercise every right and power of, the Issuer under this Indenture with
the same effect as if such successor corporation had been named as the Issuer
herein, and thereafter (except in the case of a lease to another Person) the
predecessor corporation shall be relieved of all obligations and covenants under
the Indenture and the Securities and, in the event of such conveyance or
transfer, any such predecessor corporation may be dissolved and liquidated.
52
<PAGE>
SECTION 9.3 OPINION OF COUNSEL TO BE GIVEN TRUSTEE. The Trustee,
subject to the provisions of Sections 6.1 and 6.2, may receive an Opinion of
Counsel as conclusive evidence that any such consolidation, merger, sale or
conveyance, and any such assumption, complies with the provisions of this
Article IX.
ARTICLE X
SATISFACTION AND DISCHARGE OF INDENTURE;
UNCLAIMED MONEYS
SECTION 10.1 SATISFACTION AND DISCHARGE OF INDENTURE.
(A) If at any time (i) the Issuer shall have paid or caused to be paid
the principal of and interest on all the Securities of any series Outstanding
hereunder and all unmatured Coupons appertaining thereto (other than Securities
of such series and Coupons appertaining thereto which have been destroyed, lost
or stolen and which have been replaced or paid as provided in Section 2.9) as
and when the same shall have become due and payable, or (ii) the Issuer shall
have delivered to the Trustee for cancellation all Securities of any series
theretofore authenticated and all unmatured Coupons appertaining thereto (other
than any Securities of such series and Coupons appertaining thereto which shall
have been destroyed, lost or stolen and which shall have been replaced or paid
as provided in Section 2.9) or (iii) in the case of any series of Securities
where the exact amount (including the currency of payment) of principal of and
interest due on which can be determined at the time of making the deposit
referred to in clause (b) below, (a) all the Securities of such series and all
unmatured Coupons appertaining thereto not theretofore delivered to the Trustee
for cancellation shall have become due and payable, or are by their terms to
become due and payable within one year or are to be called for redemption within
one year under arrangements satisfactory to the Trustee for the giving of notice
of redemption, and (b) the Issuer shall have irrevocably deposited or caused to
be deposited with the Trustee as trust funds in trust the entire amount in (i)
cash (other than moneys repaid by the Trustee or any paying agent to the Issuer
in accordance with Section 10.4), (ii) in the case of any series of Securities
the payments on which may only be made in Dollars, direct obligations of the
United States of America, backed by its full faith and credit ("U.S. Government
Obligations"), maturing as to principal and interest at such times and in such
amounts as will insure the availability of cash sufficient to pay at such
maturity or upon such redemption, as the case may be, or (iii) a combination
thereof, sufficient, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, to pay (a) the principal and interest on all
Securities of such series and Coupons appertaining thereto on each date that
such principal or interest is due and payable and (b) any mandatory sinking fund
payments on the dates on which such payments are due and payable in accordance
with the terms of the Indenture and the Securities of such series; (x) the
principal and interest on all Securities of such series and Coupons appertaining
thereto on each date that such principal or interest is due and payable and (y)
any mandatory sinking fund payments on the dates on which such payments are due
and payable in accordance with the terms of the Indenture and the Securities of
such series; and if, in any such case, the Issuer shall
53
<PAGE>
also pay or cause to be paid all other sums payable hereunder by the Issuer,
then this Indenture shall cease to be of further effect (except as to (i) rights
of registration of transfer and exchange of Securities of such Series and of
Coupons appertaining thereto and the Issuer's right of optional redemption, if
any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen
Securities or Coupons, (iii) rights of holders of Securities and Coupons
appertaining thereto to receive payments of principal thereof and interest
thereon, upon the original stated due dates therefor (but not upon
acceleration), and remaining rights of the Holders to receive mandatory sinking
fund payments, if any, (iv) any optional redemption rights of such series of
Securities to the extent to be exercised to make such call for redemption within
one year, (v) the rights, obligations, duties and immunities of the Trustee
hereunder, including those under Section 6.6, (vi) the rights of the Holders of
securities of such series and Coupons appertaining thereto as beneficiaries
hereof with respect to the property so deposited with the Trustee payable to all
or any of them, and (vii) the obligations of the Issuer under Section 3.2) and
the Trustee, on demand of the Issuer accompanied by an Officer's Certificate and
an Opinion of Counsel and at the cost and expense of the Issuer, shall execute
proper instruments acknowledging such satisfaction of and discharging this
Indenture; provided, that the rights of Holders of the Securities and Coupons to
receive amounts in respect of principal of and interest on the Securities and
Coupons held by them shall not be delayed longer than required by then-
applicable mandatory rules or policies of any securities exchange upon which the
Securities are listed. The Issuer agrees to reimburse the Trustee for any costs
or expenses thereafter reasonably and properly incurred and to compensate the
Trustee for any services thereafter reasonably and properly rendered by the
Trustee in connection with this Indenture or the Securities of such series.
(B) The following provisions shall apply to the Securities of each
series unless specifically otherwise provided in a Board Resolution, Officer's
Certificate or indenture supplemental hereto provided pursuant to Section 2.3.
In addition to discharge of the Indenture pursuant to the next preceding
paragraph, in the case of any series of Securities the exact amounts (including
the currency of payment) of principal of and interest due on which can be
determined at the time of making the deposit referred to in clause (a) below,
the Issuer shall be deemed to have paid and discharged the entire indebtedness
on all the Securities of such a series and the Coupons appertaining thereto on
the date of the deposit referred to in subparagraph (a) below, and the
provisions of this Indenture with respect to the Securities of such series and
Coupons appertaining thereto shall no longer be in effect (except as to (i)
rights of registration of transfer and exchange of Securities of such series and
of Coupons appertaining thereto and the Issuer's right of optional redemption,
if any, (ii) substitution of mutilated, defaced, destroyed, lost or stolen
Securities or Coupons, (iii) rights of Holders of Securities and Coupons
appertaining thereto to receive payments of principal thereof and interest
thereon, upon the original stated due dates therefor (but not upon
acceleration), and remaining rights of the Holders to receive mandatory sinking
fund payments, if any, (iv) any optional redemption rights of such series of
Securities to the extent to be exercised to make such call for redemption within
one year, (v) the rights, obligations, duties and immunities of the Trustee
hereunder, (vi) the rights of the Holders of Securities of such series and
Coupons appertaining thereto as beneficiaries hereof with respect to the
property so deposited with the Trustee payable to all or any
54
<PAGE>
of them and (vii) the obligations of the Issuer under Section 3.2) and the
Trustee, at the expense of the Issuer, shall at the Issuer's request, execute
proper instruments acknowledging the same, if
(a) with reference to this provision the Issuer has irrevocably
deposited or caused to be irrevocably deposited with the Trustee as trust
funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of the Securities of such series and Coupons
appertaining thereto (i) cash in an amount, or (ii) in the case of any
series of Securities the payments on which may only be made in Dollars,
U.S. Government Obligations, maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash or (iii)
a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay (A) the principal
and interest on all Securities of such series and Coupons appertaining
thereto on each date that such principal or interest is due and payable and
(b) any mandatory sinking fund payments on the dates on which such payments
are due and payable in accordance with the terms of the Indenture and the
Securities of such series;
(b) such deposit will not result in a breach or violation of, or
constitute a default under, any agreement or instrument to which the Issuer
is a party or by which it is bound;
(c) the Issuer has delivered to the Trustee an Opinion of Counsel
based on the fact that (x) the Issuer has received from, or there has been
published by, the IRS a ruling or (y) since the date hereof, there has been
a change in the applicable Federal income tax law, in either case to the
effect that, and such opinion shall confirm that, the Holders of the
Securities of such series and Coupons appertaining thereto will not
recognize income, gain or loss for United States Federal income tax
purposes as a result of such deposit, defeasance and discharge and will be
subject to United States Federal income tax on the same amount and in the
same manner and at the same times, as would have been the case if such
deposit, defeasance and discharge had not occurred; and
(d) the Issuer has delivered to the Trustee an Officer's Certificate
and an Opinion of Counsel, each stating that all conditions precedent
provided for relating to the defeasance contemplated by this provision have
been complied with.
(C) The Issuer shall be released from its obligations under Sections
3.6 and 9.1 and unless otherwise provided for in the Board Resolution, Officer's
Certificate or Indenture supplemental hereto establishing such series of
Securities, from all covenants and other obligations referred to in Section
2.3(18) or 2.3(19) with respect to such series of Securities, and any Coupons
appertaining thereto, outstanding on and after the date the conditions set forth
below are satisfied (hereinafter, "covenant defeasance"). For this purpose,
such covenant defeasance means that, with respect to the Outstanding Securities
of any series, the Issuer may omit to comply with and shall have no liability in
respect of any term, condition or limitation
55
<PAGE>
set forth in such Section, whether directly or indirectly by reason of any
reference elsewhere herein to such Section or by reason of any reference in such
Section to any other provision herein or in any other document and such omission
to comply shall not constitute an Event of Default under Section 5.1, but the
remainder of this Indenture and such Securities and Coupons shall be unaffected
thereby. The following shall be the conditions to application of this
subsection C of this Section 10.1:
(a) The Issuer has irrevocably deposited or caused to be deposited
with the Trustee as trust funds in trust for the purpose of making the
following payments, specifically pledged as security for, and dedicated
solely to, the benefit of the holders of the Securities of such series and
coupons appertaining thereto, (i) cash in an amount, or (ii) in the case of
any series of Securities the payments on which may only be made in Dollars,
U.S. Government Obligations maturing as to principal and interest at such
times and in such amounts as will insure the availability of cash or (iii)
a combination thereof, sufficient, in the opinion of a nationally
recognized firm of independent public accountants expressed in a written
certification thereof delivered to the Trustee, to pay (A) the principal
and interest on all Securities of such series and Coupons appertaining
thereof and (B) any mandatory sinking fund payments on the day on which
such payments are due and payable in accordance with the terms of the
Indenture and the Securities of such series;
(b) No Event of Default or event which with notice or lapse of time
or both would become an Event of Default with respect to the Securities
shall have occurred and be continuing on the date of such deposit;
(c) Such covenant defeasance shall not cause the Trustee to have a
conflicting interest as defined in Section 6.9 and for purposes of the
Trust Indenture Act with respect to any securities of the Issuer;
(d) Such covenant defeasance shall not result in a breach or
violation of, or constitute a default under, this Indenture or any other
agreement or instrument to which the Issuer is a party or by which it is
bound;
(e) Such covenant defeasance shall not cause any Securities then
listed on any registered national securities exchange under the Exchange
Act to be delisted;
(f) The Issuer shall have delivered to the Trustee an Officer's
Certificate and Opinion of Counsel to the effect that the Holders of the
Securities of such series and Coupons appertaining thereto will not
recognize income, gain or loss for United States Federal income tax
purposes as a result of such covenant defeasance and will be subject to
United States Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such covenant
defeasance had not occurred; and
56
<PAGE>
(g) The Issuer shall have delivered to the Trustee an Officer's
Certificate and an Opinion of Counsel, each stating that all conditions
precedent provided for relating to the covenant defeasance contemplated by
this provision have been complied with.
SECTION 10.2 APPLICATION BY TRUSTEE OF FUNDS DEPOSITED FOR PAYMENT OF
SECURITIES. Subject to Section 10.4, all moneys deposited with the Trustee
(for other trustee) pursuant to Section 10.1 shall be held in trust and applied
by it to the payment, either directly or through any paying agent (including the
Issuer acting as its own paying agent), to the Holders of the particular
Securities of such series and of Coupons appertaining thereto for the payment or
redemption of which such moneys have been deposited with the Trustee, of all
sums due and to become due thereon for principal and interest; but such money
need not be segregated from other funds except to the extent required by law.
SECTION 10.3 REPAYMENT OF MONEYS HELD BY PAYING AGENT. In
connection with the satisfaction and discharge of this Indenture with respect to
Securities of any series, all moneys then held by any paying agent under the
provisions of this Indenture with respect to such series of Securities shall,
upon demand of the Issuer, be repaid to it or paid to the Trustee and thereupon
such paying agent shall be released from all further liability with respect to
such moneys.
SECTION 10.4 RETURN OF MONEYS HELD BY TRUSTEE AND PAYING AGENT
UNCLAIMED FOR TWO YEARS. Any moneys deposited with or paid to the Trustee or
any paying agent for the payment of the principal of or interest on any Security
of any series of Coupons attached thereto and not applied but remaining
unclaimed for two years after the date upon which such principal or interest
shall have become due and payable, shall, upon the written request of the Issuer
and unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law, be repaid to the Issuer by the Trustee for
such series or such paying agent, and the Holder of the Securities of such
series and of any Coupons appertaining thereto shall, unless otherwise required
by mandatory provisions of applicable escheat or abandoned or unclaimed property
laws, thereafter look only to the Issuer for any payment which such Holder may
be entitled to collect, and all liability of the Trustee or any paying agent
with respect to such moneys shall thereupon cease; provided, that the Trustee or
such paying agent, before being required to make any such repayment with respect
to moneys deposited with it for any payment (a) in respect of Registered
Securities of any series, shall at the expense of the Issuer, mail by first-
class mail to Holders of such Securities at their addresses as they shall appear
on the Security register, and (b) in respect of Unregistered Securities of any
series, shall at the expense of the Issuer cause to the published once, in an
Authorized Newspaper in the Borough of Manhattan, The City of New York and once
in an Authorized Newspaper in London (and if required by Section 3.9, once in an
Authorized Newspaper in Luxembourg), notice, that such moneys remain and that,
after a date specified therein, which shall not be less than thirty days from
the date of such mailing or publication, any unclaimed balance of such money
then remaining will be repaid to the Issuer.
57
<PAGE>
SECTION 10.5 INDEMNITY FOR U.S. GOVERNMENT OF OBLIGATIONS. The
Issuer shall pay and indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against the U.S. Government Obligations deposited
pursuant to Section 10.1 or the principal or interest received in respect of
such obligations.
ARTICLE XI
MISCELLANEOUS PROVISIONS
SECTION 11.1 INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS OF
ISSUER EXEMPT FROM INDIVIDUAL LIABILITY. No recourse under or upon any
obligation, covenant or agreement contained in this Indenture, or in any
Security, or because of any indebtedness evidenced thereby, shall be had against
any incorporator, as such or against any past, present or future stockholder,
officer or director, as such, of the Issuer or of any successor, either directly
or through the Issuer or any successor, under any rule of law, statute or
constitutional provision or by the enforcement of any assessment or by any legal
or equitable proceeding or otherwise, all such liability being expressly waived
and released by the acceptance of the Securities and the Coupons, if any,
appertaining thereto by the Holders thereof and as part of the consideration for
the issue of the Securities and the Coupons appertaining thereto.
SECTION 11.2 PROVISIONS OF INDENTURE FOR THE SOLE BENEFIT OF PARTIES
AND HOLDERS OF SECURITIES AND COUPONS. Nothing in this Indenture, in the
Securities or in the Coupons appertaining thereto, expressed or implied, shall
give or be construed to give to any person, firm or corporation, other than the
parties thereto and their successors and the Holders of the Securities or
Coupons, if any, any legal or equitable right, remedy or claim under this
Indenture or under any covenant or provision herein contained, all such
covenants and provisions being for the sole benefit of the parties hereto and
their successors and of the Holders of the Securities or Coupons, if any.
SECTION 11.3 SUCCESSORS AND ASSIGNS OF ISSUER BOUND BY INDENTURE.
All the covenants, stipulations, promises and agreements in this Indenture
contained by or in behalf of the Issuer shall bind its successors and assigns,
whether so expressed or not.
SECTION 11.4 NOTICES AND DEMANDS ON ISSUER, TRUSTEE AND HOLDERS OF
SECURITIES AND COUPONS. Any notice or demand which by any provision of this
Indenture is required or permitted to be given or served by the Trustee or by
the Holders of Securities or Coupons, if any, to or on the Issuer may be given
or served by being deposited postage prepaid, first-class mail (except as
otherwise specifically provided herein) addressed (until another address of the
Issuer is filed by the Issuer with the Trustee) to McKesson Corporation,
McKesson Plaza, One Post Street, San Francisco, California 94104, Attention:
Secretary. Any notice, direction, request or demand by the Issuer or any Holder
of Securities or Coupons, if any, to or upon the Trustee shall be deemed to have
been sufficiently
58
<PAGE>
given or served by being deposited postage prepaid, first-class mail (except as
otherwise specifically provided herein) addressed (until another address of the
Trustee is filed by the Trustee with the Issuer) to The First National Bank of
Chicago, One First National Plaza, Suite 0126, Chicago, Illinois 60670-0126,
Attention: Corporate Trust Services Division.
Where this Indenture provides for notice to Holders of Registered
Securities, such notice shall be sufficiently given (unless otherwise herein
expressly provided) if in writing and mailed, first-class mail, postage prepaid,
to each Holder entitled thereto, at his last address as it appears in the
Security register. In any case where notice to such Holders is given by mail,
neither the failure to mail such notice, nor any defect in any notice so mailed,
to any particular Holder shall affect the sufficiency of such notice with
respect to other Holders. Where this Indenture provides for notice in any
manner, such notice may be waived in writing by the person entitled to receive
such notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case, by reason of the suspension of or irregularities in regular
mail service, it shall be impracticable to mail notice to the Issuer when such
notice is required to the given pursuant to any provision of this Indenture,
then any manner of giving such notice as shall be reasonably satisfactory to the
Trustee shall be deemed to be a sufficient giving of such notice.
SECTION 11.5 OFFICER'S CERTIFICATES AND OPINIONS OF COUNSEL;
STATEMENTS TO BE CONTAINED THEREIN. Upon any application or demand by the
Issuer to the Trustee to take any action under any of the provisions of this
Indenture, the Issuer shall furnish to the Trustee an Officer's Certificate
stating that all conditions precedent provided for in this Indenture relating to
the proposed action have been complied with and an Opinion of Counsel stating
that in the opinion of such counsel all such conditions precedent have been
complied with, except that in the case of any such application or demand as to
which the furnishing of such documents is specifically required by any provision
of this Indenture relating to such particular application or demand, no
additional certificate or opinion need be furnished.
Each certificate or opinion provided for in this Indenture and
delivered to the Trustee with respect to compliance with a condition or covenant
provided for in this Indenture shall include (a) a statement that the person
making such certificate or opinion has read such covenant or condition, (b) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based, (c) a statement that, in the opinion of such person, he has made such
examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with and (d) a statement as to whether or not, in the opinion of such
person, such condition or covenant has been complied with.
59
<PAGE>
Any certificate, statement or opinion of an officer of the Issuer may
be based, insofar as it relates to legal matters, upon a certificate or opinion
of or representations by counsel, unless such officer knows that the certificate
or opinion or representations with respect to the matters upon which his
certificate, statement or opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should know that the same are erroneous. Any
certificate, statement or opinion of counsel may be based, insofar as it relates
to factual matters or information with respect to which is in the possession of
the Issuer, upon the certificate, statement or opinion of or representations by
an officer of officers of the Issuer, unless such counsel knows that the
certificate, statement or opinion or representations with respect to the matters
upon which his certificate, statement or opinion may be based as aforesaid are
erroneous, or in the exercise of reasonable care should know that the same are
erroneous.
Any certificate, statement or opinion of an officer of the Issuer or
of counsel may be based, insofar as it relates to accounting matters, upon a
certificate or opinion of or representations by an accountant or firm of
accountants in the employ of the Issuer, unless such officer or counsel, as the
case may be, knows that the certificate or opinion of or representations with
respect to the accounting matters upon which his certificate, statement or
opinion may be based as aforesaid are erroneous, or in the exercise of
reasonable care should know that the same are erroneous.
Any certificate or opinion of any independent firm of public
accountants filed with and directed to the Trustee shall contain a statement
that such firm is independent.
SECTION 11.6 PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS. If the
date of maturity of interest on or principal of the Securities of any series or
any Coupons appertaining thereto or the date fixed for redemption or repayment
of any such Security or Coupon shall not be a Business Day, then payment of
interest or principal need not be made on such date, but may be made on the next
succeeding Business Day with the same force and effect as if made on the date of
maturity or the date fixed for redemption, and no interest shall accrue for the
period after such date.
SECTION 11.7 CONFLICT OF ANY PROVISION OF INDENTURE WITH TRUST
INDENTURE ACT. If and to the extent that any provision of this Indenture
limits, qualifies or conflicts with duties imposed by, or with another provision
(an "incorporated provision") included in this Indenture by operation of
Sections 310 to 318, inclusive, of the Trust Indenture Act, such imposed duties
or incorporated provision shall control.
SECTION 11.8 NEW YORK LAW TO GOVERN. THIS INDENTURE AND EACH
SECURITY AND COUPON SHALL BE DEEMED TO BE A CONTRACT UNDER THE LAWS OF THE STATE
OF NEW YORK, AND FOR ALL PURPOSES SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF SUCH STATE, WITHOUT REGARD TO THE CONFLICTS OF LAW PRINCIPLES THEREOF.
60
<PAGE>
SECTION 11.9 COUNTERPARTS. This Indenture may be executed in any
number of counterparts, each of which shall be an original; but such
counterparts shall together constitute but one and the same instrument.
SECTION 11.10 EFFECT OF HEADINGS. The Article and Section headings
herein and the Table of Contents are for convenience only and shall not affect
the construction hereof.
SECTION 11.11 SECURITIES IN A FOREIGN CURRENCY OR IN ECU. Unless
otherwise specified in an Officer's Certificate delivered pursuant to Section
2.3 of this Indenture with respect to a particular series of Securities,
whenever for purposes of this Indenture any action may be taken by the Holders
of a specified percentage in aggregate principal amount of Securities of all
series or all series affected by a particular action at the time Outstanding
and, at such time, there are Outstanding Securities of any series which are
denominated in a coin or currency other than Dollars (including ECUs), then the
principal amount of Securities of such series which shall be deemed to be
Outstanding for the purpose of taking such action shall be that amount of
Dollars that could be obtained for such amount at the Market Exchange Rate. For
purposes of this Section 11.11, Market Exchange Rate shall mean the noon Dollar
buying rate in The New York City for cable transfers of that currency as
published by the Federal Reserve Bank of New York; provided, in the case of
ECUs, Market Exchange Rate shall mean the rate of exchange determined by the
Commission of the European Communities (or any successor thereto) as published
in the Official Journal of the European Communities (such publication or any
successor publication, the "Journal"). If such Market Ex change Rate is not
available for any reason with respect to such currency, the Trustee shall use,
in its sole discretion and without liability on its part, such quotation of the
Federal Reserve Bank of New York or, in the case of ECUs, the rate of exchange
as published in the Journal, as of the most recent available date, or quotations
or, in the case of ECUs, rates of exchange from one or more major banks in The
City of New York or in the country of issue of the currency in question, which
for purposes of the ECU shall be Brussels, Belgium, or such other quotations or,
in the case of ECU, rates of exchange as the Trustee shall deem appropriate. The
provisions of this paragraph shall apply in determining the equivalent principal
amount in respect of Securities of a series denominated in a currency other than
Dollars in connection with any action taken by Holders of Securities pursuant to
the terms of this Indenture.
All decisions and determinations of the Trustee regarding the Market
Exchange Rate or any alternative determination provided for in the preceding
paragraph shall be in its sole discretion and shall, in the absence of manifest
error, be conclusive to the extent permitted by law for all purposes and
irrevocably binding upon the Issuer and all Holders.
SECTION 11.12 JUDGMENT CURRENCY. The Issuer agrees, to the fullest
extent that it may effectively do so under applicable law, that (a) if for the
purpose of obtaining judgment in any court it is necessary to convert the sum
due in respect of the principal of or interest on the Securities of any series
(the "Required Currency") into a currency in which a judgment will be rendered
(the "Judgment Currency"), the rate of exchange used shall be the
61
<PAGE>
rate at which in accordance with normal banking procedures the Trustee could
purchase in The City of New York the Required Currency with the Judgment
Currency on the day on which final unappealable judgment is entered, unless such
day is not a New York Banking Day, then, to the extent permitted by applicable
law, the rate of exchange used shall be the rate at which in accordance with
normal banking procedures the Trustee could purchase in The City of New York the
Required Currency with the Judgment Currency on the New York Banking Day
preceding the day on which final unappealable judgment is entered and (b) its
obligations under this Indenture to make payments in the Required Currency (i)
shall not be discharged or satisfied by any tender, or any recovery pursuant to
any judgment (whether or not entered in accordance with subsection (a)), in any
currency other than the Required Currency, except to the extent that such tender
or recovery shall result in the actual receipt, by the payee, of the full amount
of the Required Currency expressed to be payable in respect of such payments,
(ii) shall be enforceable as an alternative or additional cause of action for
the purpose of recovering in the Required Currency the amount, if any, by which
such actual receipt shall fall short of the full amount of the Required Currency
so expressed to be payable and (iii) shall not be affected by judgment being
obtained for any other sum due under this Indenture. For purposes of the
foregoing, "New York Banking Day" means any day except a Saturday, Sunday or a
legal holiday in The City of New York or a day on which banking institutions in
The City of New York are authorized or required by law or executive order to
close.
ARTICLE XII
REDEMPTION OF SECURITIES AND SINKING FUNDS
SECTION 12.1 APPLICABILITY OF ARTICLE. The provisions of this
Article shall be applicable to the Securities of any series which are redeemable
before their maturity or to any sinking fund for the retirement of Securities of
a series except as otherwise specified as contemplated by Section 2.3 for
Securities of such series.
SECTION 12.2 NOTICE OF REDEMPTION; PARTIAL REDEMPTIONS. Notice of
redemption to the Holders of Registered Securities of any series to be redeemed
as a whole or in part at the option of the Issuer shall be given by mailing
notice of such redemption by first class mail, postage prepaid, at least 30 days
and not more than 60 days prior to the date fixed for redemption to such Holders
of Securities of such series at their last addresses as they shall appear upon
the registry books. Notice of redemption to the Holders of Unregistered
Securities to be redeemed as a whole or in part, who have filed their names and
addresses with the Trustee pursuant to Section 313(c)(2) of the Trust Indenture
Act shall be given by mailing notice of such redemption, by first class mail,
postage prepaid, at least 30 days and not more than 60 prior to the date fixed
for redemption, to such Holders at such addresses as were so furnished to the
Trustee (and, in the case of any such notice given by the Issuer, the Trustee
shall make such information available to the Issuer for such purpose). Notice
of redemption to all other Holders of Unregistered Securities shall be published
in an Authorized Newspaper in the Borough of Manhattan, The City of New York and
in an Authorized Newspaper in London (and, if required by Section 3.9, in an
Authorized Newspaper in
62
<PAGE>
Luxembourg), in each case, once in each of three successive calendar weeks, the
first publication to be not less than 30 nor more than 60 days prior to the
date fixed for redemption. Any notice which is mailed in the manner herein
provided shall be conclusively presumed to have been duly given, whether or not
the Holder receives the notice. Failure to give notice by mail, or any defect
in the notice to the Holder of any Security of a series designated for
redemption as a whole or in part shall not affect the validity of the
proceedings for the redemption of such Security of such series.
The notice of redemption to each such Holder shall specify the
principal amount of each Security of such series held by such Holder to be
redeemed, the date fixed for redemp tion, the redemption price, the place or
places of payment, that payment will be made upon presentation and surrender of
such Securities and, in the case of Securities with Coupons attached thereto, of
all Coupons appertaining thereto maturing after the date fixed for redemption,
that such redemption is pursuant to the mandatory or optional sinking fund, or
both, if such be the case, that interest accrued to the date fixed for
redemption will be paid as specified in such notice and that on and after said
date interest thereon or on the portions thereof to be redeemed will cease to
accrue. In case any Security of a series is to be redeemed in part only the
notice of redemption shall state the portion of the principal amount thereof to
be redeemed and shall state that on and after the date fixed for redemption,
upon surrender of such Security, a new Security or Securities of such series in
principal amount equal to the unredeemed portion thereof will be issued.
The notice of redemption of Securities of any series to be redeemed at
the option of the Issuer shall be given by the Issuer or, at the Issuer's
request, by the Trustee in the name and at the expense of the Issuer.
On or before the redemption date specified in the notice of redemption
given as provided in this Section, the Issuer will deposit with the Trustee or
with one or more paying agents (or, if the Issuer is acting as its own paying
agent, set aside, segregate and holder in trust as provided in Section 3.4) an
amount of money sufficient to redeem on the redemption date all the Securities
of such series so called for redemption at the appropriate redemption price,
together with accrued interest to the date fixed for redemption. The Issuer
will deliver to the Trustee at least 70 days prior to the date fixed for
redemption, or such shorter period as shall be acceptable to the Trustee, an
Officer's Certificate stating the aggregate principal amount of Securities to be
redeemed. In case of a redemption at the election of the Issuer prior to the
expiration of any restriction on such redemption, the Issuer shall deliver to
the Trustee, prior to the giving of any notice of redemption to Holders pursuant
to this Section, an Officer's Certificate stating that such restriction has been
complied with.
If less than all the Securities of a series are to be redeemed, the
Trustee shall select, in such manner as it shall deemed appropriate and fair, in
its sole discretion, Securities of such series to be redeemed in whole or in
part. Securities may be redeemed in part in multiples equal to the minimum
authorized denomination for Securities of such series or any multiple thereof.
The Trustee shall promptly notify the Issuer in writing of the Securities of
63
<PAGE>
such series selected for redemption and, in the case of any Securities of such
series selected for partial redemption, the principal amount thereof to be
redeemed. For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to the redemption of Securities of any series
shall relate, in the case of any Security redeemed or to be redeemed only in
part, to the portion of the principal amount of such Security which has been or
is to be redeemed.
SECTION 12.3 PAYMENT OF SECURITIES CALLED FOR REDEMPTION. If notice
of redemption has been given as above provided, the Securities or portions of
Securities specified in such notice shall become due and payable on the date and
at the place stated in such notice at the applicable redemption price, together
with interest accrued to the date fixed for redemption, and on and after said
date (unless the Issuer shall default in the payment of such Securities at the
redemption price, together with interest accrued to said date) interest on the
Securities or portions of Securities so called for redemption shall cease to
accrue, and the unmatured Coupons, if any, appertaining thereto shall be void,
and, except as provided in Sections 6.5 and 10.4, such Securities shall cease
from and after the date fixed for redemption to be entitled to any benefit or
security under this Indenture, and the Holders thereof shall have no right in
respect of such Securities except the right to receive the redemption price
thereof and unpaid interest to the date fixed for redemption. On presentation
and surrender of such Securities at a place of payment specified in said notice,
together with all Coupons, if any, appertaining thereto maturing after the date
fixed for redemption, said Securities or the specified portions thereof shall be
paid and redeemed by the Issuer at the applicable redemption price, together
with interest accrued thereon to the date fixed for redemption; provided, that
payment of interest becoming due on or prior to the date fixed for redemption
shall be payable in the case of Securities with Coupons attached thereto, to the
Holders of the Coupons for such interest upon surrender thereof, and in the case
of Registered Securities, to the Holder of such Registered Securities registered
as such on the relevant record date, subject to the terms and provisions of
Section 2.3 and 2.7 hereof.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal shall, until paid or duly
provided for, bear interest from the date fixed for redemption at the rate of
interest or Yield to Maturity (in the case of an Original Issue Discount
Security) borne by such Security.
If any Security with Coupons attached thereto is surrendered for
redemption and is not accompanied by all appurtenant Coupons maturing after the
date fixed for redemption, the surrender of such missing Coupon or Coupons may
be waived by the Issuer and the Trustee, if there be furnished to each of them
such security or indemnity as they may require to save each of them harmless.
Upon presentation of any Security redeemed in part only, the Issuer
shall execute and the Trustee shall authenticate and deliver to or on the order
of the Holder thereof, at the expense of the Issuer, a new Security or
Securities of such series, of authorized denominations, in principal amount
equal to the unredeemed portion of the Security so presented.
64
<PAGE>
SECTION 12.4 EXCLUSION OF CERTAIN SECURITIES FROM ELIGIBILITY FOR
SELECTION FOR REDEMPTION. Securities shall be excluded from eligibility for
selection for redemption if they are identified by registration and certificate
number in an Officer's Certificate delivered to the Trustee at least 40 days
prior to the last date on which notice of redemption may be given as being owned
of record and beneficially by, and not pledged or hypothecated by, either (a)
the Issuer or (b) an entity specifically identified in such written statement as
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Issuer.
SECTION 12.5 MANDATORY AND OPTIONAL SINKING FUNDS. The minimum
amount of any sinking fund payment provided for by the terms of the Securities
of any series is herein referred to as a "mandatory sinking fund payment," and
any payment in excess of such minimum amount provided for by the terms of the
Securities of any series is herein referred to as an "optional sinking fund
payment." The date on which a sinking fund payment is to be made is herein
referred to as the "sinking fund payment date."
In lieu of making all or any part of any mandatory sinking fund
payment with respect to any series of Securities in cash, the Issuer may at its
option (a) deliver to the Trustee Securities of such series theretofore
purchased or otherwise acquired (except upon redemption pursuant to the
mandatory sinking fund) by the Issuer or receive credit for Securities of such
series (not previously so credited) theretofore purchased or otherwise acquired
(except as aforesaid) by the Issuer and delivered to the Trustee for
cancellation pursuant to Section 2.10, (b) receive credit for optional sinking
fund payments (not previously so credited) made pursuant to this Section, or (c)
receive credit for Securities of such series (not previously so credited)
redeemed by the Issuer through any optional redemption provision contained in
the terms of such series. Securities so delivered or credited shall be received
or credited by the Trustee at the sinking fund redemption price specified in
such Securities.
On or before the 60th day next preceding each sinking fund payment
date for any series, the Issuer will deliver to the Trustee an Officer's
Certificate (which need not contain the statements required by Section 11.5) (a)
specifying the portion of the mandatory sinking fund payment to be satisfied by
payment of cash and the portion to be satisfied by credit of Securities of such
series and the basis for such credit, (b) stating that none of the Securities of
such series has theretofore been so credited, (c) stating that no defaults in
the payment of interest or Events of Default with respect to such series have
occurred (which have not been waived or cured) and are continuing and (d)
stating whether or not the Issuer intends to exercise its right to make an
optional sinking fund payment with respect to such series and, if so, specifying
the amount of such optional sinking fund payment which the Issuer intends to pay
on or before the next succeeding sinking fund payment date. Any Securities of
such series to be credited and required to be delivered to the Trustee in order
for the Issuer to be entitled to credit therefor as aforesaid which have not
theretofore been delivered to the Trustee shall be delivered for cancellation
pursuant to Section 2.10 to the Trustee with such Officer's Certificate (or
reasonably promptly thereafter if acceptable to the Trustee). Such Officer's
Certificate shall be irrevocable and upon its receipt by the Trustee the Issuer
shall become unconditionally obligated to make all the cash
65
<PAGE>
payments or payments therein referred to, if any, on or before the next
succeeding sinking fund payment date. Failure of the Issuer, on or before any
such 60th day, to deliver such Officer's Certificate and Securities specified in
this paragraph, if any, shall not constitute a default but shall constitute, on
and as of such date, the irrevocable election of the Issuer (i) that the
mandatory sinking fund payment for such series due on the next succeeding
sinking fund payment date shall be paid entirely in cash without the option to
deliver or credit Securities of such series in respect thereof and (ii) that the
Issuer will make no optional sinking fund payment with respect to such series as
provided in this Section.
If the sinking fund payment or payments (mandatory or optional or
both) to be made in cash on the next succeeding sinking fund payment date plus
any unused balance of any preceding sinking fund payments made in cash shall
exceed $50,000 (or the equivalent thereof in any Foreign Currency or ECU) or a
lesser sum in Dollars (or the equivalent thereof in any Foreign Currency or ECU)
if the Issuer shall so request with respect to the Securities of any particular
series, such cash shall be applied on the next succeeding sinking fund payment
date to the redemption of Securities of such series at the sinking fund
redemption price together with accrued interest to the date fixed for
redemption. If such amount shall be $50,000 (or the equivalent thereof in any
Foreign Currency or ECU) or less and the Issuer makes no such request then it
shall be carried over until a sum in excess of $50,000 (or the equivalent
thereof in any Foreign Currency or ECU) is available. The Trustee shall select,
in the manner provided in Section 12.2, for redemption on such sinking fund
payment date a sufficient principal amount of Securities of such series to
absorb said cash, as nearly as may be, and shall (if requested in writing by the
Issuer) inform the Issuer of the serial numbers of the Securities of such series
(or portions thereof) so selected. Securities shall be excluded from
eligibility for redemption under this Section if they are identified by
registration and certificate number in an Officer's Certificate delivered to the
Trustee at least 60 days prior to the sinking fund payment date as being owned
of record and beneficially by, and not pledged or hypothecated by, either (a)
the Issuer or (b) an entity specifically identified in such Officer's
Certificate as directly or indirectly controlling or controlled by or under
direct or indirect common control with the Issuer. The Trustee, in the name and
at the expense of the Issuer (or the Issuer, if it shall so request the Trustee
in writing) shall cause notice of redemption of the Securities of such series to
be given in substantially the manner provided in Section 12.2 (and with the
effect provided in Section 12.3) for the redemption of Securities of such series
in part at the option of the Issuer. The amount of any sinking fund payments
not so applied or allocated to the redemption of Securities of such series shall
be added to the next cash sinking fund payment for such series and, together
with such payment, shall be applied in accordance with the provisions of this
Section. Any and all sinking fund moneys held on the stated maturity date of
the Securities of any particular series (or earlier, if such maturity is
accelerated), which are not held for the payment or redemption of particular
Securities of such series shall be applied, together with other moneys, if
necessary, sufficient for the purpose, to the payment of the principal of, and
interest on, the Securities of such series at maturity.
66
<PAGE>
On or before each sinking fund payment date, the Issuer shall pay to
the Trustee in cash or shall otherwise provide for the payment of all interest
accrued to the date fixed for redemption on Securities to be redeemed on the
next following sinking fund payment date.
The Trustee shall not redeem or cause to be redeemed any Securities of
a series with sinking fund moneys or give any notice of redemption of Securities
for such series by operation of the sinking fund during the continuance of a
default in payment of interest on such Securities or of any Event of Default
except that, where the giving of notice of redemption of any Securities shall
theretofore have been made, the Trustee shall redeem or cause to be redeemed
such Securities, provided that it shall have received from the Issuer a sum
sufficient for such redemption. Except as aforesaid, any moneys in the sinking
fund for such series at the time when any such default or Event of Default shall
occur, and any moneys thereafter paid into the sinking fund, shall, during the
continuance of such default or Event of Default be deemed to have been collected
under Article Five and held for the payment of all such Securities. In case
such Event of Default shall have been waived as provided in Section 5.10 or the
default cured on or before the sixtieth day preceding the sinking fund payment
date in any year, such moneys shall thereafter be applied on the next succeeding
sinking fund payment date in accordance with this Section to the redemption of
such Securities.
67
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed and attested as of the date first written above.
McKESSON CORPORATION
By: /s/ Richard H. Hawkins
---------------------------------
Name: Richard H. Hawkins
Title: Vice President and
Chief Financial Officer
Attest:
By: /s/ Lorraine Peetz
------------------
THE FIRST NATIONAL BANK OF CHICAGO,
as Trustee
By: /s/ Richard D. Manella
-----------------------------
Name: Richard D. Manella
Title: Vice President
Attest:
By: /s/ Janice Ott Rotunno
---------------------------
Assistant Vice President
Assistant Secretary
<PAGE>
EXHIBIT 10.6
MCKESSON CORPORATION
1994 STOCK OPTION AND RESTRICTED STOCK PLAN
-------------------------------------------
(As amended through March 26, 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 and members of the Board of
Directors of the Company (the "Board") who are not employed as regular salaried
officers or employees of the Company or any affiliate of the Company
("Nonemployee Directors") 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 (other than Nonemployee Directors) with grants of restricted shares
of Stock ("Restricted Stock") in accordance with the terms and conditions set
forth herein.
2. Stock Subject to the Plan.
-------------------------
(a) The 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) 4,150,000 (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 350,000 shares may be awarded as Restricted Stock (subject to
equitable adjustment as provided herein). All Future Award Shares granted to
Nonemployee Directors shall be granted pursuant to the formula provisions set
forth in Section 5(e) 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
<PAGE>
2
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.
<PAGE>
3
3. Eligibility.
-----------
Persons who shall be eligible to have granted to them awards provided
for by the Plan shall be (i) such key executives of the Company and its
affiliates as the Committee, in its sole discretion, shall designate from time
to time and (ii) Nonemployee Directors.
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-
<PAGE>
4
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 (except for options granted to
Nonemployee Directors) 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 who is not a Nonemployee
Director 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
<PAGE>
5
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.
(e) Granting of Options to Nonemployee Directors.
--------------------------------------------
Each Nonemployee Director (i) commencing his or her term on the Board
at the Company's first annual meeting of stockholders following consummation of
the Transaction or (ii) who is elected to the Board for the first time by the
stockholders of the Company at any special or annual meeting of stockholders
(other than those Nonemployee Directors who were nonemployee directors of Old
McKesson), will automatically receive, on such date, an option to purchase 5,000
shares of Stock (subject to adjustment as provided in Paragraph 2(c) above),
which option shall be immediately exercisable in full but shall expire to the
extent of 1,000 shares per year on each anniversary of the grant date unless and
until such Nonemployee Director retires from the Board, in which case the option
period shall end three years after the retirement date or until the option term
expires, whichever shall first occur, and the option shall be exercisable to the
extent of the entire unexercised portion of the option (or any lesser amount)
remaining at the date of retirement. On the date of each subsequent annual
meeting of stockholders (and, in the case of those Nonemployee Directors who
were previously nonemployee directors of Old McKesson, on the date of the
Company's first annual meeting of stockholders following consummation of the
Transaction and on the date of each subsequent annual meeting of stockholders)
each continuing Nonemployee Director will automatically receive, on such date,
an option to purchase 1,500 shares of Stock (subject to adjustment as provided
in Paragraph 2(c) above), which option shall be immediately exercisable in full.
Nonemployee Directors shall not dispose of shares of Stock received upon
exercise of any such option prior to six months from the date of grant of such
option.
Subject to the aforementioned expiration provisions, the term of each
option shall be five years. All such options shall be designated as stock
options which do not qualify under Section 422 of the Code. Subject to the
foregoing, all provisions of this Plan not inconsistent with the foregoing shall
apply to options granted to Nonemployee Directors, except that with respect to
an option granted to a Nonemployee Director, (a) any requirement for employment
with the Company or a subsidiary shall be deemed to be a
<PAGE>
6
requirement for service as a director, (b) any requirement of continuous
employment shall be deemed to be a requirement of continuous service as a
director, and (c) any reference to termination of employment shall be deemed to
mean termination of service as a director.
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
<PAGE>
7
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.
<PAGE>
8
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
<PAGE>
9
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
<PAGE>
10
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
<PAGE>
11
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.
<PAGE>
EXHIBIT 10.14
MCKESSON CORPORATION
1984 EXECUTIVE BENEFIT RETIREMENT PLAN
--------------------------------------
AS AMENDED THROUGH MAY 30, 1997
A. PURPOSE
-------
This Plan is established to enable the Company to attract and retain key
executive personnel by assisting them and their survivors in maintaining their
standards of living on the Executive's retirement or earlier death.
B. ERISA PLAN
----------
This Plan is an unfunded deferred compensation program for a select group
of highly compensated management employees of the Company. The Plan, therefore,
is generally covered by Title I of ERISA, but is exempt from Parts 2, 3, and 4
of Title I of ERISA.
C. PARTICIPATION
-------------
1. SELECTION BY THE BOARD. The Board may select, at its discretion and
----------------------
from time to time as it decides, the Key Executives who participate in this
Plan. Participation in the Plan shall be limited to those Executives of the
Company who are selected by the Board. Selection of a Key Executive to
participate in the Plan may be evidenced by the terms of his contract of
employment with the Company.
2. ADDITION AND REMOVAL OF PARTICIPANTS. The Board may, at its discretion
------------------------------------
and at any time, designate additional Executives to participate in the Plan and
remove Executives from participation in the Plan. If an Executive is removed
from participation prior to reaching age 65, he shall be entitled to receive
benefits, if any, as specified in Section D or F.
3. NOTIFICATION OF PARTICIPANTS. The Administrator shall annually notify
----------------------------
each Executive that he is a participant in the Plan and shall notify each
Executive of the estimated amount of benefits which he will receive under the
Plan on Approved Retirement.
4. RELATION TO OTHER PLANS, ETC. If an Executive participates in this
----------------------------
Plan, he shall not participate in or receive benefits under any other Company-
paid plan, program or agreement that provides Company Executives, or the
individual Executive, with retirement benefits that supplement or are in
addition to the benefits under the Retirement Plan, Profit Sharing Investment
Plan or Supplemental Profit-Sharing Investment Plan, unless otherwise
specifically approved by the Board. For example, any Executive who participates
in this Plan shall not receive any retirement benefits under the McKesson
Executive Benefit Plan or under any Supplemental Retirement Agreement or
Deferred Compensation Agreement that provides
<PAGE>
retirement benefits in addition to benefits provided under the Retirement Plan
or Profit-Sharing Investment Plan. This paragraph shall not limit an Executive's
participation in or benefits under any plan or program under which the Executive
voluntarily defers for later payment compensation otherwise currently payable to
him (such as, but not limited to, the Deferred Compensation Administration
Plan).
D. BENEFITS ON APPROVED RETIREMENT
-------------------------------
1. AMOUNT OF BENEFITS.
------------------
a. IN GENERAL. Except as otherwise provided herein, each Executive who
----------
participates in the Plan and terminates employment by reason of an Approved
Retirement shall be entitled to receive monthly payments equal to (1) reduced by
(2), as follows:
(1) The percentage of Average Final Compensation specified for the
Executive, which shall be as provided herein and no higher than sixty percent
(60%)
reduced by
(2) the Executive's Basic Retirement Benefits.
The percentage stated in clause (1) may be specified by the Board or may be
specified in the Executive's written employment contract with the Company.
Unless otherwise determined by the Board, the percentage of Average Final
Compensation specified in clause (1) shall be 20% plus 0.148% for each completed
month (1.77% per completed year) of the Executive's full-time continuous
employment with the Company, but in no event shall be higher than 60%.
b. SPECIAL RULE. The benefit of an Executive under this Section D. who
------------
is a participant in the Plan as of August 28, 1996, shall not be less than his
benefit calculated pursuant to Section F.1.a. of the Plan, without regard to any
reduction required by Section D.3. of the Plan.
c. EFFECT OF PLAN TERMINATION. If the Plan is terminated with respect to
--------------------------
any or all Executives, each affected Executive who later terminates employment
by reason of an Approved Retirement shall be entitled to receive upon such
Approved Retirement monthly payments equal to (1) the applicable percentage of
Average Final Compensation under Section D.1.a. multiplied by his Pro Rata
Percentage, reduced by (2) his Basic Retirement Benefits. For purposes of this
section, his Pro Rata Percentage and Average Final Compensation shall be
calculated by treating the date of Plan termination as the date that his
employment with the Company terminates.
d. REMOVAL FROM PARTICIPATION. If an Executive is removed from Plan
--------------------------
participation, and later terminates employment by reason of an Approved
Retirement, he shall be treated as if the Plan were terminated with respect to
him as of the date of his removal, and his benefits shall be determined under
Section D.1.b. above except that his Basic Retirement benefits reduction will be
determined as of the date of his Approved Retirement.
<PAGE>
e. CHANGE IN PERCENTAGE.
--------------------
(1) If the percentage of Average Final Compensation specified in
Section D.l.a. is reduced, the percentage applied to determine the Executive's
benefit shall be determined by averaging over his period of participation in the
Plan (and in the Executive Benefit Plan) the percentages that have been so
specified. For example, if an Executive's percentage is reduced from 60% to 50%,
and one-half of his Plan participation is at 60% and one-half at 50%, the
percentage used to determine his benefits will be 55%. (See Appendix C.)
In addition, the benefit payable under this Plan after a
reduction in such percentage shall not be less than the benefit that would have
been paid if the Plan had been terminated with respect to the Executive on the
date of such reduction.
(2) If the percentage of Average Final Compensation specified in
Section D.l.a. is increased, such increased percentage shall apply for
determining Plan benefits without averaging it with prior percentages, and all
prior Plan participation shall be treated as having been participation under
that increased percentage.
f. REDUCTION FOR BASIC RETIREMENT BENEFITS. The reduction for the
---------------------------------------
Executive's Basic Retirement Benefits shall be applied, unless otherwise
provided herein, by calculating all benefits as if they were payable in the form
of a straight life annuity beginning at the date of Approved Retirement, without
survivor benefits. There is no requirement, however, that the benefits payable
under this Plan and any other plan be paid in the same form or at the same time.
2. TIME OF PAYMENT. The benefits provided on Approved Retirement shall
---------------
commence on the first day of the month following the date of the Executive's
Approved Retirement.
3. EARLY RETIREMENT BENEFIT. If an Executive's Approved Retirement occurs
------------------------
before attaining age 62, he shall receive a reduced benefit commencing on the
first day of the month following his Approved Retirement. This benefit shall be
reduced beginning at age 62 at the same rate per year as that specified for
Retirement before Social Security Normal Retirement age under the Retirement
Plan. On Approved Retirement before age 62, the reduction for Basic Retirement
Benefits shall be applied by calculating all benefits as if they were payable in
the form of a straight life annuity at the date of Approved Retirement before
age 62, without survivor benefits, to determine the net benefit payable under
this Plan. See Appendix A for an example of this calculation.
4. NO ELECTION OF DELAYED RETIREMENT BENEFIT. An Executive may not elect
-----------------------------------------
to delay the beginning of his retirement benefits under the Plan after the time
for commencement specified in Section D.2. or D.3., as applicable.
<PAGE>
E. DEATH BENEFITS
--------------
1. DEATH AFTER APPROVED RETIREMENT. If an Executive dies after Approved
-------------------------------
Retirement, benefits shall be paid after his death only in accordance with the
Method of Payment determined under Section H. For example, if the Executive
received a straight life annuity or a lump sum, no benefits shall be paid under
this Plan after his death.
2. DEATH WHILE EMPLOYED.
--------------------
a. BENEFITS PAYABLE TO BENEFICIARY. If an Executive dies while he is
-------------------------------
employed by the Company, his beneficiary shall receive the monthly benefit that
would have been paid to such beneficiary if the Executive had terminated
employment by reason of an Approved Retirement on the last day of the month
before his death, had elected to receive his benefits in the actuarially reduced
form of a joint and 100% survivor annuity with his beneficiary as the contingent
annuitant, had begun to receive such benefits on the day prior to his death, and
died immediately thereafter. Such payment shall be calculated by first
determining the amount payable to the Executive under this Plan without
reduction for Basic Retirement Benefits (applying any early Retirement Benefit
reduction and applying the actuarial reduction for joint and 100% survivor
annuity) and only thereafter making a reduction for Basic Retirement Benefits.
The reduction for Basic Retirement Benefits in connection with the Retirement
Plan in this case shall be in the amount payable, if any, under the Retirement
Plan as a spouse allowance; if any spouse allowance is payable under the
Retirement Plan on account of the Executive, this reduction shall be made even
if the Executive's beneficiary under this Plan is not his surviving spouse. See
Appendix B for an example of this calculation.
b. AVERAGE FINAL COMPENSATION. For purposes of the calculations under
--------------------------
this Section E.2., the Executive's Average Final Compensation shall be based on
the compensation he actually earned during his employment with the Company.
c. NO DESIGNATED BENEFICIARY. If an Executive dies before Approved
-------------------------
Retirement without having designated a beneficiary, and was married on the date
of his death, his surviving spouse shall be his beneficiary, unless otherwise
provided by applicable community property or other laws or court order. If he
dies before Approved Retirement, has no surviving spouse and has not designated
a beneficiary, the present value of the benefits that would be paid to a
surviving spouse of the same age as the Executive under a joint and 100%
survivor annuity form (and under the method of calculation provided in Section
E.2.a. and b.) shall be paid to the Executive's estate in two equal amounts in
the 14 months following death. The present value of benefits shall be determined
under factors established and uniformly applied by the Administrator.
3. DESIGNATION OF BENEFICIARY. An executive may designate any natural
--------------------------
person as his beneficiary, but may not designate more than one person, or any
person that is not a natural person, without the approval of the Administrator.
Designation shall be made in writing and shall become effective only when filed
with the Administrator. Such filing must occur before the Executive's death.
An Executive may change his beneficiary, from time to time, by filing
<PAGE>
a new written designation with the Administrator. If the Executive is married,
any Beneficiary designation which does not designate the Executive's spouse to
receive at least one-half of the benefit payable on the Executive's death shall
only become effective when approved in writing by the Executive's spouse.
F. TERMINATION BEFORE APPROVED RETIREMENT
--------------------------------------
1. BASIC RULE
----------
a. TERMINATION BENEFITS. Subject to other applicable provisions in this
--------------------
Plan, an Executive who terminates employment with the Company other than on
Approved Retirement or death shall be entitled to receive, beginning at age 65,
monthly payments equal to his Termination Benefits. An Executive's Termination
Benefits are equal to 1) the applicable percentage of Average Final Compensation
under Section D.1.a., multiplied by his Pro Rata Percentage and reduced by 2)
his Basic Retirement Benefits at the later of age 65 or the date of actual
termination.
b. PLAN TERMINATION OR REMOVAL FROM PARTICIPATION. An Executive who
----------------------------------------------
terminates employment with the Company other than on Approved Retirement or
death and who has been removed from Plan participation ("removal") , or with
respect to whom the Plan has terminated prior to his termination of employment
("termination") shall be entitled to receive, beginning at age 65, monthly
payments determined under this Section F but treating his date of "removal" or
"termination", whichever is applicable, as his date of termination of employment
for purposes of calculating his Pro Rata Percentage and Average Final
Compensation.
c. REDUCTION FOR SUBSEQUENT EMPLOYER BENEFITS. Any amount payable under
------------------------------------------
Section F.1.a. or b. shall be reduced by any retirement benefit payable to the
Executive or his beneficiary on account of service rendered to another employer
after his termination of employment with the Company.
2. LIMITATIONS. No benefits shall be paid under this Section F to:
-----------
a. TERMINATION FOR CAUSE. An Executive who is terminated for cause. If
---------------------
the Executive has a written employment agreement, "cause" shall be determined in
accordance with that agreement. Otherwise, "cause" shall be determined by the
Administrator.
b. VIOLATION OF EMPLOYMENT AGREEMENT. An Executive who terminates his
---------------------------------
employment in violation of his written employment agreement (if any).
Termination is in violation of an employment agreement if termination occurs
before the end of the term of that contract and is not allowed by the agreement
(e.g., for "good reason").
c. NO VESTED INTEREST. An Executive who has no vested interest in
------------------
benefits under the Retirement Plan at the time of his termination of employment
with the Company; provided, however, that this Section F.2.c. shall not apply to
any Executive who is a participant in this Plan on September 29, 1993. An
Executive who would have such a vested interest 1) if his employment was not
terminated by the Company in violation of his employment agreement
<PAGE>
or 2) if his employment was not terminated for "good reason" under such
agreement, shall be treated as having such a vested interest.
3. PRO RATA PERCENTAGE. An Executive's Pro Rata Percentage is the higher
-------------------
of the following two percentages (but not greater than 100%). The first
percentage is determined by dividing the number of the Executive's whole months
of employment with the Company by the number of whole months from the date that
the Executive was first hired by the Company to the date that he will reach age
65 and multiplying by 100. The second percentage is determined by multiplying
4.44% by the number of his whole and partial years of completed employment with
the Company.
4. RULES OF APPLICATION.
--------------------
a. PERIODS OF EMPLOYMENT. For purposes of determining employment with
---------------------
the Company, periods that would be disregarded under the Retirement Plan on
account of breaks in service shall be disregarded under this Section.
b. BASIC RETIREMENT BENEFITS. For purposes of this Section, an
-------------------------
Executive's Basic Retirement Benefits shall be determined at the time that he
terminates employment with the Company, calculating all benefits as if they were
payable in the form of a straight life annuity beginning at the later of age 65
or the date of actual termination of employment, without survivor benefits.
c. METHOD OF PAYMENT. Benefits under this section shall be paid in the
-----------------
form provided in Section H.
d. DATE BENEFITS BEGIN. Benefits payable under this Section shall begin
-------------------
on the first day of the month following the date the Executive reaches age 65.
e. DEATH BENEFITS. For purposes of this Section:
--------------
(1) If an Executive dies after his benefits have begun, benefits
payable thereafter, if any, shall be paid in accordance with the method of
payment determined under Section H.
(2) If an Executive who has terminated employment and is entitled to
receive benefits under this Section F dies before his benefits begin, his
beneficiary shall receive the monthly benefit payable under an actuarially
reduced form of joint and 100% survivor annuity with his beneficiary as the
contingent annuitant, payable beginning on the first day of the month after the
Executive would have reached age 65. The principles of the second and third
sentences of Section E.2.a. and the principles of Section E.2.b. and of this
Section shall apply for calculating these survivor benefits.
(3) The principles of Section E.2.c. and of this Section shall apply
if there is no surviving spouse and no designation of beneficiary. The rules of
Section E.3. concerning designation of beneficiary shall apply.
<PAGE>
f. CHANGE IN PERCENTAGE. The principles of Section D.1.d. shall apply to
--------------------
benefits calculated under this Section F.
g. EXAMPLE. An Executive whose specified percentage of Average Final
-------
Compensation under Section D.1.a. is 60% who was hired at age 50, whose
employment is terminated at age 60, and who otherwise qualifies for a benefit
under this Section, will have a vested benefit beginning at age 65 of 2/3's of
60% or 40% of actual Average Final Compensation, less his Basic Retirement
Benefits.
5. OTHER AGREEMENT. If an Executive's written Employment Agreement with
---------------
the Company provides higher benefits on termination of employment before
Approved Retirement than provided under this Section F, such higher benefits
shall be paid.
6. FORFEITURE OF BENEFITS. Except as provided in this Section, and as
----------------------
provided elsewhere in this Plan with respect to Approved Retirement or death of
an Executive, an Executive or his beneficiaries shall not be entitled to any
benefits under this Plan, all obligations of the Company to the Executive and
his beneficiaries shall cease, and the Company shall have no further liability
to the Executive or any other person under this Plan.
G. SPECIAL FORFEITURE AND REPAYMENT RULES
--------------------------------------
Any other provisions of this Plan to the contrary notwithstanding, if the
Compensation Committee of the Board determines that an Executive has engaged in
any of the actions described in 3. below, the consequences set forth in 1. and
2. below shall result.
1. FORFEITURE OF BENEFITS. To the extent that the benefit that otherwise
----------------------
would be payable under this Plan exceeds the benefit, if any, that would have
been payable if the Executive's retirement had occurred on November 1, 1993,
such excess portion shall be forfeited and shall not be payable at any time
under this Plan.
2. REPAYMENT. If the Executive received a payment under this Plan at any
---------
time within six months prior to the date the Company discovered that the
Executive engaged in any action described in 3. below, the Executive, upon
written notice from the Company, shall repay to the Company in cash the excess
portion of any such payment, such excess portion to be calculated in the manner
described in 1. above.
3. The consequences described in 1. and 2. above shall apply if the
Executive, either before or after termination of employment with the Company:
a. Accepts a position as a consultant to or an employee of a business
enterprise that is in direct competition with any line of business engaged in by
the Company at the time of the termination of the Executive's employment;
b. Discloses to others, or takes or uses for his own purpose or the
purpose of others, any trade secrets, confidential information, knowledge, data
or know-how belonging to the Company and obtained by the Executive during the
term of his employment, whether or
<PAGE>
not they are the Executive's work product. Examples of such confidential
information or trade secrets include (but are not limited to) customer lists,
supplier lists, pricing and cost data, computer programs, delivery routes,
advertising plans, wage and salary data, financial information, research and
development plans, processes, equipment, product information and all other types
and categories of information as to which the Executive knows or has reason to
know that the Company intends or expects secrecy to be maintained;
c. Fails to promptly return all documents and other tangible items
belonging to the Company in the Executive's possession or control, including all
complete or partial copies, recordings, abstracts, notes or reproductions of any
kind made from or about such documents or information contained therein, upon
termination of employment, whether pursuant to an Approved Retirement or
otherwise;
d. Fails to provide the Company with at least thirty (30) days' written
notice prior to directly or indirectly engaging in, becoming employed by, or
rendering services, advice or assistance to any business in competition with the
Company. As used herein, "business in competition" means any person,
organization or enterprise which is engaged in or is about to become engaged in
any line of business engaged in by the Company at the time of the termination of
the Executive's employment with the Company;
e. Fails to inform any new employer, before accepting employment, of the
terms of this section and of the Executive's continuing obligation to maintain
the confidentiality of the trade secrets and other confidential information
belonging to the Company and obtained by the Executive during the term of his
employment with the Company;
f. Induces or attempts to induce, directly or indirectly, any of the
Company's customers, employees, representatives or consultants to terminate,
discontinue or cease working with or for the Company, or to breach any contract
with the Company, in order to work with or for, or enter into a contract with,
the Executive or any third party; or
g. Engages in conduct which is not in good faith and which disrupts,
damages, impairs or interferes with the business, reputation or employees of the
Company.
The Compensation Committee of the Board shall determine in its sole
discretion whether the Executive has engaged in any of the acts set forth in (a)
through (g) above, and its determination shall be conclusive and binding on all
interested persons.
Any provision of this section which is determined by a court of competent
jurisdiction to be invalid or unenforceable shall be construed or limited in a
manner that is valid and enforceable and that comes closest to the business
objectives intended by such invalid or unenforceable provision, without
invalidating or rendering unenforceable the remaining provisions of this
section.
<PAGE>
H. METHOD OF PAYMENT
-----------------
1. NORMAL FORM. The Normal Form of Benefit under this Plan shall be a
-----------
straight life annuity of monthly payments over the lifetime of the Executive,
with payments ceasing on the first day of the month in which the Executive dies.
2. JOINT AND SURVIVOR ANNUITY. If the Executive is married at the time
--------------------------
benefits become payable, then, unless he has elected otherwise (as described
below), his benefits shall be paid in the actuarially reduced form of a joint
and 50% survivor annuity payable to him and his spouse. With the approval of
the Administrator, the Executive may elect, in writing, not to receive this form
of benefit, but any such election which provides a benefit for a beneficiary
other than his spouse must be approved in writing by his spouse to be effective.
Such election shall become effective when filed with the Administrator and must
be filed before the Executive's termination of employment with the Company.
3. LUMP SUM DISTRIBUTION. An Executive whose employment terminates by
---------------------
reason of an Approved Retirement on or after June 1, 1997, may elect to have the
actuarial equivalent value of his benefits paid in the form of a lump sum
distribution in cash, where actuarial equivalence is determined using (i) the
interest rate prescribed by the Pension Benefit Guaranty Corporation for
purposes of determining the present value of a lump sum distribution on plan
termination for the month in which the Executive makes the lump sum distribution
election and (ii) the mortality table in use under the Retirement Plan on the
date the Executive makes the lump sum distribution election. An election of a
lump sum form of distribution must be made at least twelve months prior to the
Executive's Approved Retirement (except that an election made prior to January
1, 1997 shall be effective as to any Approved Retirement occurring during
calendar year 1997) and shall be void and of no effect if either of the
following occurs: (a) the Executive's employment with the Company does not
terminate within 24 months after the date on which the Executive made the
election of a lump sum form of distribution; or (b) the Executive makes a new
election under this Section H.3. at least twelve months after the date of the
Executive's previous election under this Section H.3.
An Executive who is married at the time benefits become payable under this
Section H.3. may not receive a lump sum form of distribution unless the
Executive's spouse approves of the election in writing.
An Executive may elect a lump sum form of distribution less than twelve
months prior to his Approved Retirement, but in such event the amount of the
lump sum distribution shall be reduced by ten percent.
4. ADDITIONAL FORMS OF BENEFITS. With the approval of the Administrator,
----------------------------
the Executive may elect to receive his benefits in one of the actuarially
equivalent benefit forms permitted under the Retirement Plan or such other form
as may be approved by the Administrator. If the Executive is married, any such
election must be approved in writing by
<PAGE>
his spouse to be effective, if it would provide the spouse with a benefit less
than that provided under Section H.2.
I. SOURCE OF PAYMENT
-----------------
The benefits paid under this Plan shall be paid from the general funds of
the Company, and the Executive and his beneficiaries shall be no more than
unsecured general creditors of the Company with no special or prior right to any
assets of the Company for payment of any obligations hereunder. Nothing
contained in this Plan shall be deemed to create a trust of any kind for the
benefit of the Executive or any beneficiary, or create any fiduciary
relationship between the Company and the Executive or any beneficiary with
respect to any assets of the Company.
J. WITHHOLDING
-----------
The Executive and any beneficiary shall make appropriate arrangements with
the Company for the satisfaction of any federal, state or local income tax
withholding requirements and social security or other employee tax requirements
applicable to 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.
K. ADMINISTRATION OF THE PLAN
--------------------------
1. IN GENERAL. The Plan shall be administered by the Vice President,
----------
Human Resources of the Company under the direction of the Compensation Committee
of the Board. If the Vice President, Human Resources, is an Executive
participating in the Plan, then any discretionary action taken as Administrator
which directly affects him as Executive shall be specifically approved by the
Compensation Committee. The Compensation Committee shall have the ultimate
responsibility to interpret the Plan and shall adopt such rules and regulations
for carrying out the Plan as it may deem necessary or appropriate. Decisions of
the Compensation Committee shall be final and binding on all parties who have an
interest in the Plan.
2. ELECTIONS AND NOTICES. All elections and notices made by an Executive
---------------------
under this Plan shall be in writing and filed with the Administrator.
3. ACTION BY BOARD OF DIRECTORS. The Board may act under this Plan in
----------------------------
accordance with its normal procedures and practices, including but not limited
to delegation of its authority to act under the Plan.
4. PLAN YEAR. The Plan Year is the calendar year.
---------
<PAGE>
L. AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
The Board may at any time amend, alter, modify or terminate the Plan. This
Plan shall be treated as a plan covered by Section 301 of the Retirement Equity
Act for purposes of amendment and termination.
The Compensation Committee of the Board may amend this Plan to make
technical and correcting changes and to make other changes that do not
materially increase the cost of the Plan to the Company or materially change its
design.
M. NO ASSIGNMENT
-------------
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, garnishment or
executions to the fullest extent allowed by law.
N. DEFINITIONS
-----------
For purposes of the Plan, the following terms shall have the meanings
indicated:
1. "Administrator" shall mean the person specified in Section K.
2. "Approved Retirement" shall mean (i) any termination of employment with
the Company after attainment of age 62; (ii) any involuntary termination of
employment after both attainment of age 55 and completion of 15 years of service
(as determined under the Retirement Plan); or (iii) any other termination of
employment before (i) or (ii) above with the approval of the Board.
Notwithstanding the foregoing, "Approved Retirement" shall not include
any termination for cause, which shall be determined as provided in Section
F.2.a. hereof.
3. "Average Final Compensation" shall mean: one-fifth of the sum of the
base salary and annual bonuses under the Management Incentive Plan ("MIP") and
the Performance Award Plan for Key Executives ("PAPKE") or any successor or
replacement plans (including base salary and annual bonuses voluntarily deferred
under a cash or deferred plan or any other tax qualified or non-qualified salary
deferral plan such as the Deferred Compensation Administration Plan) earned by
an Executive for the 5 consecutive years of full-time continuous employment with
the Company which (a) fall within the 15-year period ending on the first day of
the month following his termination of service with the Company and (b) produce
the highest such sum. If the Executive has had less than five years of full
time continuous employment, Average Final Compensation shall be base salary and
annual bonuses, including amounts voluntarily deferred under the plans described
in the previous sentence, for the entire period of such employment with the
Company, divided by the number of whole and partial years of service.
<PAGE>
4. "Basic Retirement Benefits" shall mean the monthly annuity benefit
payable under the Retirement Plan and a hypothetical monthly annuity benefit
payable to the Executive under the Profit-Sharing Investment Plan as follows:
a. Benefits from the Executive's interest in the Retirement Plan shall
be calculated on a straight life annuity basis payable (i) to the Executive in
the event of normal retirement, retirement after age 65, early retirement, or
termination allowance as defined in the Retirement Plan, or (ii) as a spouse
allowance in the event of the Executive's death before Approved Retirement
(Section E.2.) or before benefits begin (Section F.4.e.).
b. The hypothetical annuity benefit payable under the Profit-Sharing
Investment Plan shall be calculated by first determining the value of each share
credited to the Executive's Retirement Share Plan account under that Plan as of
the date it was credited and applying an annual rate of twelve percent to such
value from the date such share was credited to such account to the date the
Executive's benefit under this Plan is to commence. The aggregate value of all
of the shares credited to the Executive's Retirement Share Plan account so
determined shall then be converted to a straight life annuity using the factors
for determining actuarial equivalence set forth in Section H.3.
5. "Board" shall mean the Board of Directors of McKesson Corporation, a
Delaware corporation.
6. "Company" shall mean McKesson Corporation, a Delaware Corporation, and
any member of its controlled group as defined by Section 414(b) and 414(c) of
the Internal Revenue Code of 1986, as amended.
7. "ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
8. "Executive" shall mean an employee of the Company selected to
participate in this Plan.
9. "Normal Form of Benefit" is that form described in Section G.l.
10. The "Pro Rata Percentage" is defined in Section F.3.
11. "Retirement Plan" shall mean the McKesson Corporation Retirement Plan.
12. "Profit-Sharing Investment Plan" shall mean the McKesson Corporation
Profit-Sharing Investment Plan.
13. "Termination Benefits" is defined in Section F.l.a.
<PAGE>
O. MISCELLANEOUS
-------------
1. FIDUCIARY INSURANCE. The Company may purchase insurance for its
-------------------
directors, officers, employees and agents to cover potential liability arising
from their acts and omissions concerning this Plan.
2. APPLICABLE LAW; SEVERABILITY. The Plan hereby created shall be construed,
----------------------------
administered, and governed in all respects in accordance with ERISA and the laws
of the State of California to the extent the latter are not preempted by ERISA.
If any provision of this instrument shall be held by a court of competent
jurisdiction to be invalid or unenforceable, the remaining provisions hereof
shall continue to be fully effective.
3. EFFECTIVE DATE. This Third Amendment and Restatement is effective as
--------------
of October 27, 1993.
4. NO RIGHT TO CONTINUED EMPLOYMENT. Each executive selected to participate
--------------------------------
in the Plan is deemed by the Company to be a bona fide executive or in a high
policy making position for purposes of the Age Discrimination in Employment Act
and state laws of similar effect. Accordingly, the terms of the Plan shall not
confer any legal rights upon any Executive to continued employment or employment
past age 65, nor shall the Plan interfere with the rights of the Company to
discharge any Executive or to treat him without regard to the effect which that
treatment might have upon him as a participant in the Plan.
Executed as of August 28, 1996, in the City and County of San Francisco,
State of California.
McKESSON CORPORATION
By __________________________________
William A. Armstrong
Vice President, Human Resources
and Administration
<PAGE>
MCKESSON CORPORATION
1984 EXECUTIVE BENEFIT RETIREMENT PLAN
APPENDIX A
----------
SAMPLE CALCULATION
EARLY RETIREMENT
----------------
Executive retires at age 59, 3 years early
Final Average Compensation: $250,000
Percentage of Average Final Compensation
specified under the Plan: 60%
Income Objective
(60% x $250,000) $150,000
LESS: Early Retirement Reduction
(0.003 per month x 36 months = 10.8%) (16,200)
Adjusted Objective $133,800
LESS: Single Life Value of Retirement
Plan Benefit and Annuitized Value of
Retirement Share Plan (38,000)
--------
Annual Single Life EBRP Benefit $ 95,800
NOTE: Retirement Plan benefits are governed by the terms of that
Plan, and incorporate the appropriate reduction for early
retirement. As intended, the 1984 EBRP provides a retirement
income that, when added to income from the Retirement Plan,
provides the executive with retirement income equal to the
adjusted objective.
<PAGE>
MCKESSON CORPORATION
1984 EXECUTIVE BENEFIT RETIREMENT PLAN
APPENDIX B
----------
SAMPLE CALCULATION
SURVIVOR BENEFIT
----------------
Death age 57
Final Average Compensation: $175,000
Percentage of Average Final Compensation
specified under the Plan: 60%
Income Objective
(60% x $175,000) $105,000
LESS: Early Retirement Reduction
(0.003 per month x 60 months = 18%) (18,900)
--------
Subtotal $ 86,100
Application of 100% J&S Factor 80%
--------
Adjusted Objective $ 68,880
LESS: Retirement Plan Spouse Allowance
and Annuitized Value of Retirement
Share Plan (25,000)
--------
Annual EBRP Survivor Benefit $ 43,880
NOTE: As intended, the 1984 EBRP Survivor Benefit provides a
supplement to the Retirement Plan so that the total of
these two sources of Company provided benefits equals
the survivor's adjusted income objective. This method
would apply even if the Retirement Plan Spouse
Allowance were paid to a minor child, and the 1984
EBRP benefit were paid to the spouse.
<PAGE>
MCKESSON CORPORATION
1984 EXECUTIVE BENEFIT RETIREMENT PLAN
APPENDIX C
----------
EFFECTS OF AMENDING PLAN TO ELIMINATE REDUCTION
FOR PROFIT-SHARING INVESTMENT PLAN BENEFITS AND TO
REDUCE THE MAXIMUM AVERAGE COMPENSATION
PERCENTAGE TO 60%
1. AMENDMENT NOT TREATED AS REDUCTION OR INCREASE OF PERCENT OF AVERAGE FINAL
COMPENSATION
The amendment to the Plan as of December 2, 1987 to eliminate the reduction
for benefits from the Profit-Sharing Investment Plan and to reduce the maximum
Average Final Compensation percentage to 60% from 65% is not treated as a
reduction or increase of the percentage of Average Final Compensation under
Section D.1.d. of the Plan. This is the case because the change in the
percentage is coupled with the reduction in the offset and is intended to
provide a better overall benefit to Plan participants.
2. MAINTENANCE OF EXISTING BENEFITS
The amendment to the Plan of December 2, 1987 shall not operate to reduce
the benefit accrued as of that date by any person who is a Plan participant.
Therefore, any Executive who participated in the Plan on December 2, 1987 and
who otherwise is or becomes entitled to benefits under the Plan shall receive
the higher of: 1) the benefits which he had earned and to which he is entitled
under the Plan calculated on December 2, 1987 immediately before the Plan was
amended and taking into account the value of his vested benefit as of that date
under the Profit-Sharing Investment Plan, and 2) the benefits to which he is
entitled under the Plan as amended.
FOR EXAMPLE: Assume that Appendix A shows the benefits to which an Executive
- -----------
who participates in the Plan on December 2, 1987 is entitled immediately after
the Plan's amendment (an Annual Single Life EBRP benefit of $95,800). Under the
Plan on December 2, 1987, before amendment his benefits would be calculated as
follows:
Executive retires at age 62, 3 years early
Final Average Compensation: $ 250,000
Percentage of Average Final Compensation
specified under the Plan: 65%
Income Objective
(65% x $250,000) $ 162,500
<PAGE>
LESS: Early Retirement Reduction
(0.003 per month x 36 months = 10.8%) (17,550)
---------
Adjusted Objective $ 144,950
LESS: Single Life Value of Retirement
Plan Benefit and Annuitized Value of
Retirement Share Plan (38,000)
---------
Single Life Annuity from Company
contributed funds in PSIP (45,000)
---------
Annual Single Life EBRP Benefit $ 61,950
For this individual, the EBRP benefit from the Plan immediately after the Plan
amendment is higher than the benefit provided before amendment. Since he is
entitled to the higher of the two, his benefit under the Plan would be $95,800.
<PAGE>
EXHIBIT 10.26
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made effective as of May 20, 1996 by and between
McKESSON CORPORATION (the "Company"), a Delaware corporation with its principal
office at One Post Street, San Francisco, California, and
______________("Executive").
R E C I T A L S
- - - - - - - -
A. The Company, in its business, develops and uses certain trade
secrets, customer lists and other confidential information and data
("Confidential Information"). Such Confidential Information will necessarily be
communicated to or acquired by Executive by virtue of his employment with the
Company, and the Company has spent time, effort and money to develop such
Confidential Information and to promote and increase its goodwill; and
B. The Company desires to retain the services of, and employ,
Executive on its own behalf and on behalf of its affiliated companies for the
period provided in this Agreement and, in so doing, to protect its Confidential
Information and goodwill, and Executive is willing to accept employment by the
Company on a full-time basis for such period, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereto agree as follows:
1. Employment. Subject to the terms and conditions of this
----------
Employment Agreement, the Company agrees to employ Executive, and Executive
agrees to accept employment from, and remain in the employ of, the Company for
the period stated in Paragraph 3 hereof.
2. Position and Responsibilities. During the period of his
-----------------------------
employment hereunder, Executive agrees to serve the Company, and the Company
shall employ Executive, as President and Chief Operating Officer, or in such
other senior corporate executive capacity or capacities as may be specified from
time to time by the Chief Executive Officer of the Company.
3. Term and Duties.
---------------
(a) Term of Employment. The period of Executive's employment under
------------------
this Agreement shall be deemed to have commenced on the date of this Agreement
and shall continue until May 20, 1999.
(b) Duties. During the period of his employment hereunder and
------
except for illness, reasonable vacation periods, and reasonable leaves of
absence, Executive shall devote his best efforts and all his business time,
attention, skill and efforts to the business and affairs of the Company and its
affiliated companies, as such business and affairs now exist and as they may be
hereafter changed or added to, under and pursuant to the general direction of
the Board of Directors of the Company; provided, however, that, with the
-------- -------
approval of the Chief Executive Officer of the Company (or if Executive becomes
Chief Executive Officer, then with approval of the Board of Directors),
Executive may serve, or continue to serve, on the boards of directors of, hold
any other offices or positions in, companies or organizations which, in such
officer's judgment, will not present any conflict of interest with the Company
or any of its subsidiaries or affiliates or divisions, or materially affect the
performance of Executive's duties pursuant to this Agreement. The Company shall
retain full direction and control of the means and methods by which Executive
performs the services for which he is employed hereunder. The services which
are to be employed by Executive hereunder are to be rendered in the State
<PAGE>
of California, or in such other place or places in the United States or
elsewhere as may be determined from time to time by the Board of Directors of
the Company, but are to be rendered primarily at the Company's principal place
of business in San Francisco, California. Unless and until otherwise agreed
between the Company and the Executive, the Executive shall be at liberty to
maintain his residence in the San Francisco Bay Area, State of California, and
whenever absent therefrom on account of the performance of services under this
Agreement, shall be reimbursed for all expenses reasonably incurred by him in
the performance of his duties.
4. Compensation and Reimbursement of Expenses;
------------------------------------------
Other Benefits;
--------------
(a) Compensation. During the period of employment under this
------------
Agreement, Executive shall be paid a salary, in biweekly installments, at the
rate of Five Hundred Thousand Dollars ($500,000.00)per year, or such higher
salary as may be from time to time approved by the Board of Directors (or any
duly authorized Committee thereof) of the Company (any such higher salary so
approved to be thereafter the minimum salary payable to Executive during the
remainder of the term hereof), plus such additional incentive compensation, if
any, as may be voted to him yearly by the Board of Directors (or any duly
authorized committee thereof). Executive shall also receive an automobile
allowance from Company of One Thousand Dollars ($1000) per month during the term
of this Agreement.
(b) Reimbursement of Expenses. The Company shall pay or reimburse
-------------------------
Executive, in accordance with its normal policies and practices, for all
reasonable travel and other expenses incurred by Executive in performing his
obligations under this Agreement. The Company further agrees to furnish
Executive with such assistance and accommodations as shall be suitable to the
character of Executive's position with the Company and adequate for the
performance of his duties hereunder.
(c) Other Benefits. During the period of employment under this
--------------
Agreement, Executive shall be entitled to receive all other benefits of
employment generally available to other members of the Company's management and
those benefits for which key executives are or shall become eligible, when and
as he becomes eligible therefor, including without limitation, group health and
life insurance benefits, short and long-term disability plans and participation
in the Company's Profit-Sharing Investment Plan, Retirement Plan, Executive
Medical Plan, Management Incentive Plan (commencing with the fiscal year
beginning April 1, 1996), Long Term Incentive Plan, Executive Benefit Retirement
Plan, Executive Survivor Benefits Plan, and Restricted Stock and Stock Option
Plan, and the Company agrees that none of such benefits shall be altered in any
manner in such a way as to reduce any then existing entitlement of Executive
thereunder.
(d) EBRP and ESBP Designations. Subject to the terms of the
--------------------------
respective Plans, Executive is hereby designated as a participant in the
Executive Benefit Retirement Plan (as amended and restated), with an Income
Objective on Approved Retirement of that percentage of Average Final
Compensation determined under Section D.1 of such Plan (unless and until the
Board of Directors of the Company at any time, or from time to time, designates
a different percentage of Average Final Compensation as an Income Objective),
and Executive is designated as a participant in the Executive Survivor Benefits
Plan.
5. Initial Incentive Grants. Executive shall receive the following
------------------------
initial incentive awards specified in subparagraphs (a) through (c) below:
(a) Stock Options. Subject to the terms and conditions of Company's
-------------
1994 Stock Option and Restricted Stock Plan (the "Plan"), Executive shall
receive an initial grant of 200,000 stock options, which options shall vest in
installments of twenty-five percent (25%) per year commencing on the first
anniversary of the date of grant.
<PAGE>
(b) Restricted Stock. Subject to the terms and conditions of the
----------------
Plan, Executive shall receive an initial grant of 20,000 shares of Company's
restricted stock. The restrictions with respect to ten thousand (10,000) shares
of said stock shall lapse on the fourth (4th) anniversary of the date of grant;
the restrictions on the balance of the shares shall lapse on the fifth
anniversary of the date of grant.
(c) LTIP Cash Award. Executive is hereby designated as a
---------------
participant in Company's Long Term Incentive Plan. Subject to the terms of the
Plan, Executive's annual target award is thirty percent (30%) of salary.
Executive shall be eligible for a full award for the incentive period ending
March 31, 1997. Executive acknowledges that payment of any and all awards under
the Plan are subject to achievement by the Company of the financial targets
specified pursuant thereto.
6. Housing Assistance.
------------------
Company shall reimburse Executive, in accordance with its existing
policies, for the following reasonable expenses incurred in connection with
purchase of suitable housing in the San Francisco Bay Area: real estate
brokerage fees, pest control inspections, furniture storage fees, title
insurance and escrow fees and moving costs (including temporary living expenses,
if any, while in transit). In addition, Company shall reimburse Executive in an
amount up to one-half month's salary for non-receipted, miscellaneous moving
expenses. Company shall further reimburse Executive for any reasonable amounts
he must repay his previous employer for moving expenses paid to, or on behalf
of, Executive by such employer in connection with Executive's relocation for his
prior position.
7. Benefits Payable Upon Disability or Death.
-----------------------------------------
(a) If Executive shall be prevented during the term of this
Agreement from properly performing services hereunder by reason of illness or
other physical or mental incapacity, the Company shall continue to pay Executive
his then current salary hereunder during the period of his disability; provided,
however, that if Executive is disabled for a continuous period exceeding twelve
(12) calendar months, then the Company's obligations hereunder shall cease and
terminate.
(b) In the event of the death of Executive during the term of this
Agreement, Executive's salary payable hereunder shall continue to be paid to
Executive's surviving spouse, or if there is no spouse surviving, then to
Executive's designee or representative (as the case may be) through the six-
month period following the end of the calendar month in which death occurs.
Thereafter, all of Company's obligations hereunder shall cease and terminate.
(c) The provisions of this Paragraph 7 shall not affect any rights
of Executive's heirs, administrators, executors, legatees, beneficiaries or
assigns under the Company's Profit-Sharing Investment Plan, Retirement Plan,
Executive Benefit Retirement Plan, Long Term Incentive Plan, Executive Survivor
Benefits Plan, any Stock Purchase, Restricted Stock and Stock Option Plan, or
any other employee benefit plan of the Company, and any such rights shall be
governed by the terms of the respective plans.
8. Obligations of Executive
------------------------
During and After Employment.
---------------------------
(a) Executive agrees that during the term of his employment under
this Agreement, he will engage in no other business activities, directly or
indirectly, which are or may be competitive with or which might place him in a
competing position to that of the Company, or any affiliated company, without
the prior written consent of the Chief Executive Officer of the Company (or if
Executive becomes Chief Executive Officer, then without the prior written
consent of the Board of Directors).
<PAGE>
(b) Executive acknowledges and agrees that (i) during the course of
his employment Executive will have produced and/or have access to Confidential
Information, records, notebooks, data, formulae, specifications, trade secrets,
customer lists and secret inventions and processes of Company and its affiliated
companies, and (ii) the unauthorized use or sale of any of such confidential or
proprietary information at any time would constitute unfair competition with
Company. Executive promises and agrees not to engage in any unfair competition
with Company either during or after the term of this Agreement. Therefore,
during and subsequent to his employment by Company, or by an affiliated company,
Executive agrees to hold in confidence and not, directly or indirectly,
disclose, use, copy or make lists of any such information, except to the extent
expressly authorized by Company in writing. All records, files, drawings,
documents, equipment, and the like, or copies thereof, relating to Company's
business, or the business of an affiliated company, which Executive shall
prepare, or use, or come into contact with, shall be and remain the sole
property of Company, or of an affiliated company, and shall not be removed
(except to allow Executive to perform his responsibilities hereunder while
traveling for business purposes or otherwise working away from his office) from
the Company's or the affiliated company's premises without its prior written
consent, and shall be promptly returned to Company upon termination of
employment with Company and its affiliated companies. This paragraph 8(b) shall
survive the termination or expiration of this Agreement.
9. Termination.
-----------
(a) For Cause. Notwithstanding anything herein to the contrary, the
---------
Company may, without liability, terminate Executive's employment hereunder for
cause at any time upon written notice from the Board of Directors (or any duly
authorized Committee thereof) specifying such cause, and thereafter the
Company's obligations hereunder shall cease and terminate; provided, however,
-------- -------
that such written notice shall not be delivered until after the Board of
Directors (or any duly authorized Committee thereof) shall have given Executive
written notice specifying the conduct alleged to have constituted such cause and
Executive has failed to cure such conduct, if curable, within fifteen (15) days
following receipt of such notice. As used herein, the term "cause" shall mean
(i) Executive's misconduct, habitual neglect, dishonesty or other knowing and
material violation of Company's policies and procedures in effect from time to
time, or (ii) actions (or failures to act) by Executive in bad faith and to the
detriment of Company or any affiliated company, or (iii) a material breach by
Executive of one or more terms of this Agreement.
(b) Other than for Cause: Performance, Reorganization.
-------------------------------------------------
Notwithstanding anything herein to the contrary, Company may also terminate
Executive's employment (without regard to any general or specific policies of
Company relating to the employment or termination of its employees) should (i)
Executive fail to perform his duties hereunder in a manner satisfactory to the
Chief Executive Officer of Company (or if Executive becomes Chief Executive
Officer, then satisfactory to the Board of Directors), provided that Executive
shall first be given written notice of such unsatisfactory performance and a
period of ninety (90) days to improve such performance to a level deemed
acceptable to the Chairman and Chief Executive Officer (or to the Board of
Directors if Executive becomes Chief Executive Officer) or, (ii) Executive's
position be eliminated as a result of a reorganization or restructuring of
Company or its affiliated companies.
(c) Obligations of Company on Termination of Employment. If Company
---------------------------------------- ----------
terminates Executive's employment pursuant to subparagraph 9(a) above, then all
of Company's obligations hereunder shall immediately cease and terminate.
Executive shall thereupon have no further right or entitlement to additional
salary, incentive compensation payments or awards, or any perquisites from
Company whatsoever, and Executive's rights, if any, under Company's employee and
executive benefit plans shall be determined solely in accordance with the
express terms of the respective plans;
(i) If Company terminates Executive's employment pursuant to
subparagraph 9(b) above, then, notwithstanding anything herein (or in any of
Company's benefit,
<PAGE>
incentive or severance plans) to the contrary and in complete satisfaction and
discharge of all of its obligations to Executive hereunder, Company shall (i)
continue Executive's then base salary, without increase, for the remainder of
the term of this Agreement, provided, however that Company's obligation to make
-------- -------
such salary payments shall be reduced by any compensation received by Executive
from a subsequent employer during such term, (ii) consider Executive for a bonus
under the terms of Company's Management Incentive Plan for the fiscal year in
which termination occurs (but not for any subsequent year) provided that any
such bonus, if earned, shall be prorated to reflect the portion of the year for
which Executive was actively employed, (iii) continue Executive's automobile
allowance and Executive Medical Plan benefits until the earlier of the
expiration date of this Agreement or the effective date of Executive's coverage
under a subsequent employer's plan or policy, (iv) continue the accrual and
vesting of Executive's rights, benefits and existing awards for the remainder of
the term of this Agreement for purposes of the Executive Benefit Retirement
Plan, Executive Survivor Benefit Plan, and the Stock Option and Restricted Stock
Plan, provided, however, that (unless the Board of Directors, or any duly
-------- -------
authorized Committee, in its sole discretion, determines otherwise) Executive
shall in no event receive or be entitled either to additional grants or awards
subsequent to the date of termination, or "Approved Retirement" status, under
the foregoing plans, (v) continue Executive's participation in the Company's
Long Term Incentive Plan for the remainder of the term of this Agreement
(prorating performance periods as of the expiration date of the Agreement),
provided, that Executive shall not participate in any way whatsoever in any
- -------- ----
performance period commencing subsequent to the date of termination, and (vi)
terminate Executive's participation in Company's tax-qualified pension and
profit-sharing plans, pursuant to the terms of the respective plans, as of the
date of Executive's termination of employment.
(ii) Company and Executive agree that if Executive resigns or
otherwise voluntarily leaves his employment with Company prior to the expiration
of this Agreement (other than for Good Reason as defined in the Termination
Agreement between the parties of even date herewith), Company shall be under no
further obligation to make any additional payments or provide any benefits
hereunder. Notwithstanding anything to the contrary contained in the
immediately preceding sentence however, Company agrees that Executive may, in
his sole discretion, elect to resign from Company's employment at any time
between the period commencing January 1, 1998 and ending on the expiration date
of this Agreement (i.e., May 20, 1999). In such event, executive's resignation
---
shall, solely for purposes of delineating Company's obligations to Executive
hereunder, be deemed to be a termination pursuant to Paragraph 9(b) above.
Executive shall thereupon be entitled to receive from Company the greater of (i)
those benefits to which he would otherwise be entitled pursuant to the Company's
then existing Severance Policy for Executive Employees (in the absence of this
Employment Agreement and assuming said Policy would then be applicable to
Executive), or (ii) the compensation and benefits provided in Paragraph 9 (c)
(i), for the remaining term of this Agreement; provided, however, that Executive
-------- -------
shall receive incentive awards (calculated pursuant to the respective terms of
the Company's Management Incentive Plan and Long Term Incentive Plan) for each
of Company's fiscal years ending within the term of this Agreement (i.e., March
---
31, 1998 and March 31, 1999), and such incentive awards shall not be pro-rated
in any manner.
10. General Provisions.
------------------
(a) Executive's rights and obligations under this Agreement shall
not be transferable by assignment or otherwise, nor shall Executive's rights be
subject to encumbrance or subject to the claims of Company's creditors. Nothing
in this Agreement shall prevent the consolidation of Company with, or its merger
into, any other corporation, or the sale by Company of all or substantially all
of its properties or assets; and this Agreement shall inure to the benefit of,
be binding upon and be enforceable by, any successor surviving or resulting
corporation, or other entity to which such assets shall be transferred. This
Agreement shall not be terminated by the voluntary or involuntary dissolution of
the Company.
(b) This Agreement (together with the Termination Agreement between
the parties of even date herewith) and the rights of Executive with respect to
the benefits of
<PAGE>
employment referred to in Paragraph 4(c) constitute the entire agreement between
the parties hereto in respect of the employment of Executive by Company. This
Agreement supersedes and replaces all prior oral and written agreements,
understandings, commitments, and practices between the parties, including but
not limited to Company's letter to Executive dated March 28, 1996.
(c) Any dispute, controversy or claim arising under or in connection
with this Agreement, or the breach hereof, shall be settled exclusively by
arbitration in accordance with the Rules of the American Arbitration Association
then in effect. Judgment upon the award rendered by the arbitrator may be
entered in any court of competent jurisdiction. Any arbitration held pursuant
to this paragraph in connection with any termination of Executive's employment
shall take place in San Francisco, California at the earliest possible date. If
any proceeding is necessary to enforce or interpret the terms of this Agreement,
or to recover damages for breach thereof, the prevailing party shall be entitled
to reasonable attorneys fees and necessary costs and disbursements, not to
exceed in the aggregate one percent (1%) of the net worth of the other party, in
addition to any other relief to which he or it may be entitled.
(d) The provisions of this Agreement shall be regarded as divisible,
and if any of said provisions or any part thereof are declared invalid or
unenforceable by a court of competent jurisdiction, the validity and
enforceability of the remainder of such provisions or parts thereof and the
applicability thereof shall not be affected thereby.
(e) This Agreement may not be amended or modified except by a
written instrument executed by Company and Executive.
(f) This Agreement and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the parties have executed this Employment Agreement as of
the date first above written.
McKESSON CORPORATION
A Delaware Corporation
By_______________________
Vice President
ATTEST:
________________________ _________________________
Secretary Executive
By the Authority of the
Compensation Committee
of the Board of Directors
of McKesson Corporation
on April 24, 1996.
<PAGE>
EXHIBIT 10.31
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, dated as of January 27, 1997, is made by and between
McKesson Corporation, a Delaware corporation (the "Company"), with its principal
office at One Post Street, San Francisco, California, and ______________
("Executive").
RECITALS
A. Pursuant to that certain Agreement and Plan of Merger, dated as of
January 28, 1997 (the "Merger Agreement"), by and among the Company, a wholly-
owned subsidiary of the Company ("Sub"), and General Medical Inc. ("GMI"), the
Company is to acquire GMI through the merger of Sub with and into GMI (the
"Merger").
B. The Company (including its subsidiaries and affiliates), in its
business, develops and uses certain trade secrets, customer lists and other
confidential information and data (as hereinafter defined, "Confidential
Information"). Such Confidential Information will necessarily be communicated to
or acquired by Executive by virtue of his employment with the Company, and the
Company has spent time, effort and money to develop or acquire such Confidential
Information and to promote and increase its goodwill.
C. The Company desires to assure the services and employment of Executive
on its own behalf and on behalf of its affiliated companies for the period
provided in this Agreement, and in so doing, to protect its Confidential
Information and goodwill, and Executive is willing to be employed by the Company
on a full-time basis for such period, upon the terms and conditions hereinafter
set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the parties hereto agree as follows:
1. EMPLOYMENT.
-----------
The Company agrees to employ Executive, and Executive agrees to be employed
by the Company, for the period stated in Paragraph 3 hereof and upon the
other terms and conditions herein provided.
2. POSITION AND RESPONSIBILITIES.
-----------------------------
During the period of his employment hereunder, Executive agrees to serve
the Company as a Vice President of the Company and Chairman, President and
Chief Executive Officer of GMI or in such other capacity or capacities,
generally consistent with Executive's level of experience and
<PAGE>
expertise, as may be specified from time to time by the President of the
Company.
3. TERM AND DUTIES.
----------------
a. TERM OF EMPLOYMENT. The term of Executive's employment under this
-------------------
Agreement shall be a period of two (2) years commencing at the
Effective Time of the Merger (as defined in the Merger Agreement).
This Agreement shall be null and void in the event the Merger is not
consummated.
b. DUTIES. During the period of his employment hereunder and except for
-------
illness, reasonable vacation periods, and leaves of absence (in each
case, consistent with Company policy as it exists from time to time),
Executive shall devote his best efforts and all his business time,
attention, skill and efforts to the business and affairs of the
Company and its affiliated companies, as such business and affairs now
exist and as they may be hereafter changed or added to, under and
pursuant to the general direction of the President of the Company. The
Company shall retain full direction and control of the means and
methods by which Executive performs the services for which he is
employed hereunder. Executive agrees to comply with all rules,
regulations and instruments established or issued by the Company.
Executive further agrees that during the term of this Agreement,
Executive shall not, directly or indirectly, engage in any business or
activity which would detract from Executive's ability to apply his
best efforts to the performance of his duties hereunder. Executive
agrees that he shall not usurp any corporate opportunities of the
Company.
4. COMPENSATION AND REIMBURSEMENT OF EXPENSES: OTHER BENEFITS.
-----------------------------------------------------------
a. COMPENSATION. During the period of employment under this Agreement,
-------------
Executive shall be paid a base salary at the rate of Four Hundred
Thousand Dollars ($400,000) per year, or such higher salary as may
from time to time be approved by the Board of Directors or any duly
authorized committee thereof (any such higher salary so approved to be
thereafter the minimum salary payable to Executive during the
remainder of the term hereof), and such additional incentive
compensation, if any, as may be voted to him by the Board of
Directors. Executive's salary shall be paid in bi-weekly installments.
Executive will be eligible to participate in the Company's Management
Incentive Plan (the "MIP"). This plan provides for potential incentive
awards to participants based on the Company's financial performance
against plan, and on individual performance. Executive's individual
target award under
<PAGE>
the MIP shall be fifty percent (50%) of base salary. Executive will be
eligible for a full MIP award for the Company's fiscal year beginning
April 1, 1997.
b. REIMBURSEMENT OF EXPENSES. The Company shall pay or reimburse
-------------------------
Executive for all reasonable travel and other expenses incurred by
Executive in performing his obligations under this Agreement. The
Company further agrees to furnish Executive with such assistance and
accommodations as shall be, in the judgment of the Company, suitable
to the character of Executive's position with the Company and adequate
for the performance of his duties hereunder.
c. OTHER BENEFITS. During the period of employment under this Agreement,
--------------
Executive shall be entitled to receive all other benefits of
employment generally available to other members of the Company's
management and those benefits for which key executives are or shall
become eligible pursuant to the Company's Executive Benefit Plan when
and as he becomes eligible therefor, including, without limitation,
participation in the Company's Executive Medical Plan, Life Insurance
Plan, the MIP and the 1994 Stock Option and Restricted Stock Plan (the
"Stock Plan"), in accordance with the terms of those plans.
d. INITIAL INCENTIVE GRANT. Subject to the terms and conditions of the
-----------------------
Stock Plan, Executive shall receive an initial grant of six thousand
(6,000) shares of Company Restricted Stock (as defined in the Stock
Plan), the restrictions on which shall lapse on the second anniversary
of the date of grant.
5. BENEFITS PAYABLE UPON DISABILITY OR DEATH.
-----------------------------------------
a. If Executive shall be prevented during the term of this Agreement from
properly performing services hereunder by reason of illness or other
physical or mental incapacity, the Company shall continue to pay
Executive his then current salary hereunder during the period of his
disability; provided, however, that if Executive is disabled for a
-------- -------
continuous period exceeding six (6) calendar months, then the
Company's obligations hereunder shall cease and terminate at the end
of the sixth calendar month following the month in which the
disability first occurred.
b. In the event of the death of Executive during the term of this
Agreement, Executive's salary payable hereunder shall continue to be
paid to Executive's surviving spouse, or if there is no spouse
surviving, then to Executive's designee or representative (as the case
may
<PAGE>
be) through the six-month period following the end of the calendar
month in which death occurs.
c. The provisions of this Paragraph 5 shall not affect the entitlement of
Executive's heirs, executors, administrators, legatees, beneficiaries
or assigns under the MIP or the Stock Plan, or any other employee
benefit plan of the Company.
6. OBLIGATIONS OF EXECUTIVE DURING AND AFTER EMPLOYMENT.
----------------------------------------------------
a. No Competition. Executive acknowledges and agrees that he has and will
---------------
have knowledge and access to Confidential Information (as defined in
Paragraph 6b hereof) and responsibilities relating to all aspects of
the business operations of the Company in all of the territories and
geographical areas covered by the Company's business operations.
Executive further acknowledges and agrees that this knowledge
qualifies Executive as a potentially formidable competitor throughout
the territories and geographical areas covered by the Company's
business operations.
Executive agrees that during the term of his employment under this
Agreement, and for a period of one (1) year following Executive's
Termination of Employment with the Company for any reason or for a
period ending one (1) year after the date of entry by a court of
competent jurisdiction of a final judgment enforcing the no
competition provision of this Agreement, whichever is later, he will
not, within the territories and the geographical areas covered by the
Company's business operations, own, participate, engage or have any
interest in, directly or indirectly, any person, firm, partnership,
joint venture, corporation, or business (whether as an owner,
employee, officer, director, agent, creditor, security holder or other
investor, or consultant or in any other capacity which calls for the
rendering of personal services, advice, acts of management, operation
or control) which is competitive with the Company's or any affiliated
company's medical and surgical supplies and wholesale pharmaceutical
distribution businesses (including, without limitation, competitive
with any products or services sold, investigated, developed or
otherwise pursued by the Company or any affiliated company in such
businesses at the time of Executive's Termination of Employment with
the Company). For purposes of this Paragraph 6, "Executive's
Termination of Employment with the Company" shall mean the latest of
(i) the date on which the Company terminates Executive's employment
for cause under Paragraph 7a hereof, (ii) the date on which Executive
resigns or otherwise voluntarily leaves his employment with the
Company, and (iii) the date on
<PAGE>
which any salary continuation payments to Executive under Paragraph 7c
hereof cease.
b. UNAUTHORIZED USE OF CONFIDENTIAL INFORMATION. Executive acknowledges
---------------------------------------------
and agrees that (i) during the course of his employment with the
Company, Executive has or will have produced and/or has had or will
have access to Confidential Information, as hereinafter defined, and
(ii) the unauthorized use or disclosure of any such Confidential
Information at any time would constitute unfair competition with the
Company. Executive promises and agrees not to engage in any unfair
competition with the Company either during or after the term of this
Agreement. Therefore, during and subsequent to his employment with the
Company, or by an affiliated company, Executive agrees to hold in
confidence the Company's Confidential Information and not, directly or
indirectly, disclose, publish, or otherwise make available to the
public or to any individual, firm or corporation, or use, copy or make
lists of any of the Company's Confidential Information, other than on
behalf of the Company, except to the extent expressly authorized by
the Company in writing. Executive further agrees that all Confidential
Information, together with all records, files, drawings, document,
equipment, and the like, or copies thereof, relating to the Company's
business, or the business of an affiliated company, which Executive
shall prepare, or use, or come into contact with, shall be and remain
the sole property of the Company, or of an affiliated company, and
shall not be removed (except to allow Executive to perform his
responsibilities hereunder while traveling for business purposes or
otherwise working away from his office) from the Company's or the
affiliated company's premises without its prior written consent, and
shall be promptly returned to the Company upon termination of
employment with the Company and its affiliated companies. This
Paragraph 6b shall survive the termination or expiration of this
Agreement.
c. CONFIDENTIAL INFORMATION DEFINED. For purposes of this Agreement,
---------------------------------
"Confidential Information" means all information (whether or not
reduced to written, electronic, magnetic or other tangible form)
acquired in any way by Executive during the course of his employment
the Company concerning the products, projects, activities, business or
affairs of the Company or its customers, including, without
limitation, (i) all information concerning trade secrets of the
Company, including computer programs, system documentation, special
hardware, product hardware, related software development, manuals,
formulae, processes, methods, machines, compositions, ideas,
improvements or inventions of the Company and
<PAGE>
its affiliated companies, (ii) all sales and financial information
concerning the Company, (iii) all customer and supplier lists, (iv)
all information concerning products or projects under development or
marketing plans for any of those products or projects, and (v) all
information in any way concerning the products, projects, activities,
business or affairs of customers of the Company which was furnished to
him by the Company or any of its agents or customers or otherwise
discovered by him during his employment; provided, however, that
-------- -------
Confidential Information does not include information which (A)
becomes available to the public other than as a result of disclosure
by Executive in violation of this Agreement, (B) was available to him
on a non-confidential basis outside of his employment with the
Company, or (C) becomes available to him on a non-confidential basis
from a source other than the Company or any of its agents, creditors,
suppliers, lessors, lessees or customers.
d. WORK MADE FOR HIRE. Executive recognizes and understands that his
------------------
duties at GMI have included and at the Company may continue to include
the preparation of materials, including computer software and other
written or graphic materials, and that any such materials conceived or
written by him were done and shall continue to be done as "work made
for hire" as defined and used in the Copyright Act of 1976, 17 USC 1
et seq. In the event of publication of such materials, Employee
understands that since the work is a "work made for hire, " the
Company will solely retain and own all rights in all materials,
including the right to copyright.
e. DISCLOSURE OF DISCOVERIES. IDEAS AND INVENTIONS. Executive warrants
------------------------------------------------
and represents that he has listed and described on the attached
Exhibit A every discovery, idea and invention (1) in which he has any
right, title or interest, and (2) which was made or conceived wholly
or in part prior to the commencement of his employment with the
Company and not assigned to the Company. (Employee understands and
acknowledges that it is in his interest to establish that a discovery,
idea, or invention was made prior to the commencement of his
employment with the Company.) Employee covenants and agrees to notify
the Company in writing before he makes any disclosure or performs or
causes to be performed any work for or on behalf of the Company which
appears to present a conflict with the rights claimed in Exhibit A or
with any other rights, duties or obligations outside the scope of this
Agreement. In the event that Executive fails to provide the Company
with such notice, the Company shall be released from any claim by
Executive or by anyone in
<PAGE>
privity with him against the Company with respect to the use of any
such discovery, idea or invention in any work or the product of any
work which he performs or causes to be performed on behalf of the
Company.
f. DISCLOSURE OF OTHER DISCOVERIES. IDEAS AND INVENTIONS/ASSIGNMENT OF
-------------------------------------------------------------------
PATENTS. Executive shall disclose promptly to the Company, its
-------
successors or assigns any and all works, inventions, discoveries and
improvements authored, conceived or made by Executive during the
period of employment and related to the business or activities of the
Company, solely or jointly with others, which is related to the lines
of business, work or investigations of the Company at the time of such
discovery, idea or invention or which results from, or is suggested
by, any work which Executive may do for or on behalf of the Company,
and hereby assigns and agrees to assign all his interest therein to
the Company or its nominee. Whenever requested to do so by the
Company, Executive shall execute any and all applications, assignments
or other instruments which the Company shall deem necessary to apply
for and obtain Letters Patent or Copyrights of the United States or
any foreign country or to otherwise protect the interest therein and
shall assist the Company in every proper way (entirely at the
Company's expense, including reimbursement to him for all expense and
loss of income) to obtain such patents and copyrights and to enforce
them. Such obligations shall continue beyond the termination of
employment with respect to works, inventions, discoveries and
improvements authored, conceived or made by Executive during the
period of employment, and shall be binding upon Employee's assigns,
executors, administrators and other legal representatives. All such
works, inventions, discoveries and improvements shall remain the sole
and exclusive property of the Company, whether patentable or not.
g. Nonsolicitation. Executive recognizes and acknowledges that it is
----------------
essential for the proper protection of the business of the Company
that Executive be restrained for a reasonable period following the
termination of Executive's employment with the Company from: (1)
soliciting or inducing any employee of the Company to leave the employ
of the Company; (2) hiring or attempting to hire any employee of the
Company; and (3) soliciting the trade of or trading with the customers
of the Company for any competitive business purpose. Accordingly,
Executive agrees that during the term of his employment under this
Agreement, and for a period of two (2) years following Executive's
Termination of Employment with the Company for any reason, Executive
shall not, directly or indirectly, (i) hire, solicit,
<PAGE>
aid in or encourage the hiring and/or solicitation of, contract with
for employment consulting, or any other purpose which is competitive
to the Company's business operation, aid in or encourage such
contracting, or induce or encourage to leave the employment of the
Company, any employee of the Company; (ii) hire, solicit, aid in or
encourage the hiring and/or solicitation of, contract with for
employment, consulting or any other purpose which is competitive to
the Company's business operations, aid in or encourage such
contracting or induce or encourage to hire or cause to be hired, any
individual who has left the employment of the Company within one (1)
year prior to Executive's Termination of Employment with the Company;
or (iii) solicit, aid in or encourage the solicitation of, contract
with, aid in or encourage the contracting with, service, or contact
any person or entity which is, or was, within three (3) years prior to
Executive's Termination of Employment with the Company, a customer or
client of the Company for the purpose of offering or selling a product
or service competitive with any of such businesses.
h. Remedy for Breach. Executive acknowledges and agrees that the Company
-----------------
would be irreparably harmed if he violated any of the covenants in
this Agreement or if any of these covenants were not specifically
enforced. Executive further agrees that in the event of a breach or
threatened breach of any of the covenants contained in this Agreement,
including, without limitation, Paragraph 6 hereof, the Company shall
have the right, if it so chooses, to obtain relief in any court of
competent jurisdiction to enjoin Executive from breaching or further
breaching such provisions of this Agreement, to obtain specific
performance of this Agreement, to obtain monetary compensation for
damages sustained as a result of breaches of this Agreement, and to
recover the attorneys' fees and costs and expenses incurred by the
Company as a result of Executive's breach or threatened breach of this
Agreement.
i. COMPANY DEFINED. For purposes of clarity, the term "Company" as used
---------------
in this Paragraph 6 shall specifically be deemed to include GMI and
its subsidiaries.
7. TERMINATION.
-----------
a. For Cause. Notwithstanding anything herein to the contrary, the
---------
Company may, without liability, terminate Executive's employment
hereunder for cause at any time immediately upon written notice from
the President of the Company or his designee specifying such cause. As
<PAGE>
used herein, the term "cause" shall mean (i) Executive's willful
misconduct, dishonesty, or other knowing and material violation of the
Company's policies and procedures in effect from time to time,
following a written warning to cease or otherwise remedy such
violation, (ii) actions (or failures to act) by Executive in bad faith
and to the detriment of the Company, (iii) any breach or threatened
breach of Paragraph 6 hereof, or (iv) a material breach by Executive
of one or more terms of this Agreement, other than Paragraph 6 hereof,
which breach Executive has not cured within thirty (30) days of his
receipt of written notice from the Company of such breach; provided,
--------
however, that the term "cause" shall not mean Executive's refusal to
--------
relocate beyond a distance of thirty (30) miles at the request of the
Company.
b. OTHER THAN FOR CAUSE; PERFORMANCE; REORGANIZATION. Notwithstanding
--------------------------------------------------
anything herein to the contrary, the Company may also terminate
Executive's employment (without regard to any general or specific
policies of the Company relating to the employment or termination of
its employees) should (i) Executive fail to perform his duties
hereunder in a manner satisfactory to the President of the Company,
provided that Executive shall first be given written notice of such
unsatisfactory performance and a period of thirty (30) days to improve
such performance to a level deemed acceptable to the President of the
Company or, (ii) Executive's position be eliminated as a result of a
reorganization or restructuring of the Company or its affiliated
companies.
c. OBLIGATIONS OF COMPANY ON TERMINATION OF EMPLOYMENT. If the Company
---------------------------------------------------
terminates Executive's employment pursuant to Paragraph 7a hereof,
then all of the Company's obligations hereunder shall immediately
cease and terminate. Executive shall thereupon have no further right
or entitlement to additional salary, incentive compensation payments
or awards, or any perquisites from the Company whatsoever, and
Executive's rights, if any, under the Company's employee and
management benefit plans shall be determined solely in accordance with
the express terms of the respective plans.
If the Company terminates Executive's employment pursuant to Paragraph
7b hereof, then, notwithstanding anything herein (or in any of the
Company's benefit or incentive plans) to the contrary and in complete
satisfaction and discharge of all of its obligations to Executive
hereunder, the Company shall (i) continue Executive's then base
salary, without increase, for the longest of (x) three (3) months, (y)
such period set forth in Company policy and (z) the remainder of the
<PAGE>
term of this Agreement; provided, however, that the Company's
-------- -------
obligation to make such salary payments shall be reduced by any
compensation received by Executive from a subsequent employer during
such term, and (ii) consider Executive for a bonus under the terms of
the MIP for the fiscal year in which termination occurs (but not for
any subsequent year); provided, further, that any such bonus, if
-------- --------
earned, shall be pro-rated to reflect the portion of the year for
which Executive was actively employed.
The Company and Executive agree that if Executive resigns or otherwise
voluntarily leaves his employment with the Company prior to expiration
of this Agreement, the Company shall be under no further obligation to
make any additional payments or provide any benefits hereunder.
Executive acknowledges and agrees that all of his obligations under
Paragraph 6 hereof shall continue in full force and effect subsequent
to any of the above-described terminations of his employment with the
Company.
8. GENERAL PROVISIONS.
-------------------
a. Executive's rights and obligations under this Agreement shall not be
transferable by him by assignment or otherwise, nor shall Executive's
rights be subject to encumbrance or subject to the claims of the
Company's creditors. Nothing in this Agreement shall prevent the
consolidation of the Company with, or its merger into, any other
corporation, or the sale by the Company of all or substantially all of
its properties or assets; and this Agreement shall inure to the
benefit of, be binding upon and be enforceable by, any successor,
surviving or resulting corporation, or other entity to which such
assets shall be transferred. This Agreement shall not be terminated by
the voluntary or involuntary dissolution of the Company.
b. This Agreement and the rights of Executive with respect to the
benefits of employment referred to in Paragraph 4c hereof constitute
the entire agreement between the parties hereto in respect of the
employment of Executive by the Company. This Agreement supersedes and
replaces all prior oral and written agreements, understandings,
commitments, and practices between Executive and either GMI or the
Company; provided, however, that nothing herein shall relieve
--------- --------
Executive from his obligation to repay any borrowings from the Company
pursuant to the terms and conditions of such borrowings.
<PAGE>
c. The provisions of this Agreement and parts thereof shall be regarded
as divisible, and if any of said provisions or any part thereof are
declared invalid or unenforceable by a court of competent
jurisdiction, the validity and enforceability of the remainder of such
provisions or parts thereof and the application thereof shall not be
affected thereby.
d. This Agreement may not be amended or modified except by a written
instrument executed by the Company and Executive.
e. This Agreement and the rights and obligations hereunder shall be
governed by and construed in accordance with the laws of the
Commonwealth of Virginia. The parties agree that any dispute related
to or involving this Agreement will be litigated in a state or federal
court of competent jurisdiction in the Commonwealth of Virginia.
f. If this Agreement is executed after the commencement of Executive's
employment with the Company, Executive acknowledges and agrees that
this Agreement is supported by new, additional consideration, the
receipt and adequacy of which are hereby acknowledged by Executive.
g. In the event that any of the provisions of this Agreement are
determined by a court of competent jurisdiction to be contrary to any
applicable statute, law, rule or regulations, or to be or any reason
unenforceable as written, Executive expressly agrees that such court
may modify this Agreement or any of its terms so as to permit the
enforcement thereof as thus modified. In the event that any of the
provisions of this Agreement should ever be deemed to exceed the time,
geographic area, or activity limitations permitted by applicable law,
the parties agree that such provisions should be and are reformed to
the maximum time, geographic area and activity limitations permitted
by applicable law, and the parties expressly authorize a court having
jurisdiction to reform the provisions to the maximum time, geographic
area and activity limitations permitted by applicable law.
McKESSON CORPORATION
______________________
By:
Title:
______________________
ATTEST
_____________________
Name:
<PAGE>
EXHIBIT A
The following is the entire list of discoveries, ideas and inventions (1)
in which I claim any right, title and interest and (2) which were conceived
wholly or in part prior to the commencement of my employment with the Company
and not assigned to the Company.
(List every discovery, idea and invention by TITLE ONLY and by the dates of
documents describing them. DO NOT DISCLOSE THE SUBJECT MATTER IN DETAIL. If
not applicable, write "NONE.")
TITLE DOCUMENT AND DATE THEREOF
DESCRIBING THE DISCOVERY, IDEA
OR INVENTION
_________________________________
Signed
Date
<PAGE>
EXHIBIT 10.32
CONSULTING AGREEMENT
--------------------
THIS CONSULTING AGREEMENT, dated as of March 28, 1997, is by and
between McKESSON CORPORATION, a Delaware Corporation, with its principal office
at One Post Street, San Francisco, California (the "Company") and
( ).
R E C I T A L S
- - - - - - - -
A. currently holds the positions of Chairman
and Chief Executive Officer of Company;
B. Company and now desire to alter their relationship
to allow to (i) relinquish the position of Chief Executive
Officer, (ii) retire as an executive officer and employee of Company, but (iii)
continue to serve Company in the capacity of non-executive Chairman.
C. The Company recognizes the value of services and
has determined that it is in its best interests that, upon his retirement,
be available to provide such consulting and advisory services to Company
as may be requested by Company from time to time, and is willing
to make such services available to Company, on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants herein contained, the parties hereto agree as follows:
1. Engagement. Subject to the terms and conditions of this
----------
Agreement, the Company agrees to retain and agrees to
serve the Company for the period stated in Paragraph 2 hereof.
2. Term and Duties. (a) The period of engagement
---------------
pursuant to this Agreement shall commence on July 1, 1997 and continue until
July 31, 1998, (the "Term") provided, however, that prior to April 1, 1998 the
--------- -------
parties may agree to extend the Term by mutual agreement.
(b) During the Term, agrees to continue to serve (i) as a
member of the Board of Directors of Company, and (ii) at the pleasure of the
Board of Directors, as Chairman of the Board of Directors of Company, and shall
render to Company such consulting
<PAGE>
and advisory services and perform such special assignments in connection with
the business of Company as may be requested from time to time by the Board of
Directors or the Chief Executive Officer of Company (the "Services"). Company
and agree that the performance of the Services by is
intended to require approximately twenty-five percent (25%) of
normal business hours (assuming full-time employment) and agrees
and undertakes to devote such amount of time to the performance of the Services.
3. Compensation and Reimbursements of Expenses
-------------------------------------------
(a) Compensation. During the Term, shall be paid an
------------
annual retainer of Two Hundred Fifty Thousand Dollars ($ 250,000.00) in equal
quarterly installments in advance. shall also be considered for an
additional payment following the conclusion of Company's fiscal year ending
March 30, 1998, which payment will be calculated on the same basis as if
had continued to participate in Company's Management Incentive Plan with a
target bonus of sixty percent (60%) of his annual retainer.
(b) Reimbursement of Expenses. The Company shall pay or reimburse
--------------------------
, in accordance with its normal policies and practices, for all
reasonable and documented travel and other expenses incurred by in
performing the services contemplated by this Agreement. Company further agrees
to furnish with such assistance and accommodations as shall be
suitable to the character of position with the Company and adequate
for the performance of his duties hereunder including, but not limited to,
office space, secretarial support, suitable transportation and membership in
various luncheon clubs.
(c) Other Benefits. Nothing contained in this Agreement shall affect
--------------
the benefits available now or in the future to as a retired
employee or as a director of the Company; provided, however, that so long as
-------- -------
is receiving payments pursuant to Paragraph 3(a) above, he shall
not receive a retainer or fees for service as a non-employee director of the
Company.
4. Payments Upon Disability or Death.
---------------------------------
(a) If shall be prevented during the term of this
Agreement from properly performing services hereunder by reason of illness or
other physical or mental incapacity (as determined by the Company in the
exercise of its reasonable judgment), the Company shall continue to pay
during the period of his disability; provided, however, that if is
-------- -------
disabled for a continuous period exceeding three (3) calendar months, then all
of the Company's obligations hereunder shall cease and terminate.
<PAGE>
(b) In the event of the death of during the term of this
Agreement, all of Company's obligations hereunder shall cease and terminate.
5. Conflict of Interest. Nothing contained in this Agreement shall
--------------------
be deemed to preclude from engaging in other professional endeavors
or employment not inconsistent with the terms of this Agreement.
hereby represents that he is not, nor during the Term will he become, bound by
any agreements, commitments or obligations, nor involved with any professional
endeavors, which restrict or may restrict his ability to perform the Services.
shall adhere to the conflict of interest policy promulgated by
Company and shall direct to Company any business opportunities in the fields
in which Company or its direct or indirect subsidiaries ("Affiliates") operate.
6. Independent Contractor. It is expressly understood and agreed
----------------------
that, in rendering the Services, is an independent contractor and
is not an employee or agent of Company and shall have sole discretion to
determine the time, manner and other details of rendering the Services. Company
shall not have the right to control the manner and detail of the performance of
the Services and, subject to such regulations as Company may from time to time
promulgate, shall exercise independent judgment as to such
performance. shall be responsible for all federal, state and
local taxes of every kind in connection with payments hereunder, provided that
Company may withhold such amounts if and as required by any applicable taxing
authority.
7. Non-Competition and Non-Solicitation. covenants
------------------------------------
and agrees that during the Term and for a period of two years following the
termination of this Agreement, he will not directly or indirectly without the
prior written approval of Company:
(a) consult with, advise or otherwise participate, render services to
or engage in any business similar to, or which competes with, the business now
or then being conducted by Company or any of its Affiliates, or have any
interest (other than an interest of 1% or less of the stock of a publicly traded
corporation) or involvement in any such business, whether as an agent, employee,
advisor, creditor, proprietor, partner, stockholder, officer, director or
otherwise;
(b) solicit from any present or past customer, client or vendor of
Company or any of its Affiliates any business similar to that now or then being
conducted by Company or any of its Affiliates;
(c) request or advise any present or future customer, client or
vendor of Company or any of its Affiliates to withdraw, curtail or cancel its
business dealings with Company or any of its Affiliates; or
<PAGE>
(d) solicit, suggest or encourage any present or future employee of
Company or any of its Affiliates to leave such employ for any reason whatsoever.
Should any portion of this Section 7 be deemed unenforceable because
of its scope, duration or territory, and only in such event, then the parties
consent and agree to such limitation on scope, duration or territory as may be
finally adjudicated as enforceable in such jurisdiction by a court of competent
jurisdiction after exhaustion of all appeals, to give this Section 7 its maximum
permissible scope, duration and territory. It is hereby agreed that each breach
of this Section 7 is a distinct and material breach of this Agreement and that
solely a monetary remedy will be inadequate, impractical and extremely difficult
to prove, and that each such breach will cause Company irreparable harm. It is
further agreed that, in addition to any and all remedies available at law or
equity (including monetary damages and Company's right to cease payments under
this Agreement), Company shall be entitled to temporary and permanent injunctive
relief to enforce the provisions of this Section 7 without the necessity of
proving actual damages. Company may pursue any of the remedies described in
this Section 7 concurrently or consecutively in any order as to any such breach
or violation, and the pursuit of one of such remedies at any time will not be
deemed an election of remedies or waiver of the right to pursue any of the other
of such remedies.
8. Notices. All notices given or made pursuant hereto shall be in
-------
writing and shall be deemed to have been given or made if in writing and
delivered personally or sent by registered or certified mail (postage prepaid,
return receipt requested), Federal Express or equivalent courier service (by
next day service), or facsimile transmission to the parties at the following
addresses:
To at his home address shown in the records of
Company.
To Company at: McKesson Corporation
1 Post Street
San Francisco, CA 94104
Attention: General Counsel
Telecopier No. (415) 983-8826
or to such other address as shall be furnished by either party by like notice to
the other. Such notice or communication shall be deemed to have been given or
made (i) if personally delivered, on the date so delivered, (ii) if sent by
registered or certified mail, on the third business day after mailing, (iii) if
sent by Federal Express or equivalent courier service, on the next business day
following delivery to the courier service within its business hours provided for
next day delivery, or (iv) if sent by facsimile transmission, on the date of
confirmation.
<PAGE>
9. General Provisions.
------------------
(a) This Agreement shall be binding upon the parties hereto, their
heirs, personal representatives, successors, transferees and assigns; provided
that may not assign any of his rights, duties, or obligations
hereunder.
(b) This Agreement contains the entire agreement between the parties
in respect of the consulting engagement of by Company. This
Agreement supersedes and replaces all prior oral and written agreements,
understandings, commitments, and practices between the parties.
(c) This Agreement may not be amended or modified except by a
written instrument executed by and Company.
(d) This Agreement shall be governed by, and interpreted and enforced
in accordance with, the substantive laws of the State of California.
(e) No waiver of any of the provisions of this Agreement shall
constitute a continuing waiver of such provision or a waiver of any other
provision hereof. No waiver shall be binding unless executed in writing by the
party making the waiver.
In witness whereof, the parties have executed this Consulting
Agreement as of the date first above written.
McKesson Corporation
A Delaware Corporation
by _____________________
Attest: Vice President
____________________________
Secretary _________________________
By the Authority of
the Board of Directors
of McKesson Corporation
on ____________, 1997.
<PAGE>
EXHIBIT 10.37
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
---------
August 31, 1995, is entered into by and among McKesson Corporation, a Delaware
corporation (the "Company"), Medis Health and Pharmaceutical Services Inc., an
-------
Ontario corporation and indirect wholly-owned subsidiary of the Company
("Medis"), the several financial institutions party to the Credit Agreement (the
-----
"Banks"), Bank of America Canada, as administrative agent with respect to the
-----
Tranche B Canadian Loans and the Bankers' Acceptance Facility (the "Canadian
--------
Administrative Agent"), Chemical Bank, as co-agent for the Banks (the "Co-
- -------------------- ---
Agent"), and Bank of America National Trust and Savings Association, as agent
- -----
for the Banks (the "Agent").
-----
RECITALS
--------
A. The Company, Medis, Banks, Canadian Administrative Agent, Co-Agent and
Agent are parties to a Credit Agreement dated as of March 31, 1995 (the "Credit
------
Agreement") pursuant to which the Banks have extended certain credit facilities
- ---------
to the Company and Medis.
B. The obligations of Medis under the Loan Documents are guaranteed by the
Company pursuant to a Guaranty dated as of March 31, 1995 by the Company in
favor of the Agent and the Banks (the "Guaranty").
--------
C. The obligations of the Company under the Credit Agreement, the Guaranty
and the other Loan Documents are secured by that certain Pledge and Security
Agreement dated as of March 31, 1995 among the Company and the Agent (the
"Company Pledge Agreement").
- -------------------------
D. The Company has requested that the Agent terminate the Company Pledge
Agreement and that certain Custodial Agreement Acknowledgement dated as of March
31, 1995 among the Company, Bank of America National Trust and Savings
Association, as Custodian (the "Company Custodial Agreement Acknowledgment"),
------------------------------------------
and the Agent and that the Banks agree to certain amendments of the Credit
Agreement.
E. The Banks are willing to amend the Credit Agreement and authorize the
Agent to terminate the Company Pledge Agreement and the Company Custodial
Agreement Acknowledgment, subject to the terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings, if any, assigned to them in the Credit
Agreement, as applicable.
2. Amendments to Credit Agreement.
------------------------------
1
<PAGE>
(a) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Approved Custodian" by amending and restating such defined term in
its entirety as follows:
"'Approved Custodian' means BofA, in its capacity as the initial
------------------
custodian under the Custodial Agreement and its successors and assigns, any
Bank (or any Affiliate of a Bank), The Bank of New York, as successor-by-
assignment to BofA (provided that BofA shall have assigned to The Bank of
New York BofA's rights as Custodian under the Custodial Agreement and the
Custodial Agreement Acknowledgement, and The Bank of New York shall have
assumed the obligations of BofA as Custodian under such documents pursuant
to an assignment and assumption agreement in form and substance
satisfactory to the Agent and the Majority Banks) and any other Persons
that may be approved in writing as additional or successor custodians by
the Company, the Agent and Majority Banks."
(b) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Collateral" by amending and restating such defined term in its
entirety as follows:
"'Collateral' means all property and interests in property and
----------
proceeds thereof now owned or hereafter acquired by Macfor that becomes
subject to a Lien in favor of the Banks, or the Agent on behalf of the
Banks, whether under this Agreement, the Pledge Agreement or any other
Collateral Document; which Collateral shall not include any deposit in a
Tranche B Canadian Bank."
(c) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Collateral Documents" by amending and restating such defined term
in its entirety as follows:
"'Collateral Documents' means, collectively, (a) the Pledge Agreement,
--------------------
the Custodial Agreement (other than provisions that do not relate to
Collateral or any other Collateral Document), the Custodial Agreement
Acknowledgement, and all other security agreements and other similar
agreements between the Company or Macfor and the Banks or the Agent for its
benefit and the benefit of the Banks now or hereafter delivered to the
Banks or the Agent pursuant to or in connection with the transactions
contemplated hereby, and all financing statements (or comparable documents
now or hereafter filed in accordance with the Uniform Commercial Code or
comparable law) against the Company or Macfor as debtor in favor of the
Banks or the Agent for its benefit and the benefit of the Banks as secured
party, and (b) any amendments, supplements, modifications, renewals,
replacements, consolidations, substitutions and extensions of any of the
foregoing.
(d) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Custodial Agreement" by amending and restating such defined term
in its entirety as follows:
2
<PAGE>
"'Custodial Agreement' means the Custody Agreement dated as of August
-------------------
14, 1995 between Macfor and BofA in its capacity as Custodian and any other
custodial agreement with an Approved Custodian, substantially in the form
of such Custody Agreement or in such other form as may be approved by
Majority Banks, which may be in effect from time to time."
(e) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Custodial Agreement Acknowledgement" by amending and restating
such defined term in its entirety as follows:
"'Custodial Agreement Acknowledgement' means a Custodial Agreement
-----------------------------------
Acknowledgement substantially in the form of Exhibit J and any other
custodial agreement acknowledgement among Macfor, the Agent and the
Custodian substantially in the form of Exhibit J or in such other form as
may be approved by the Majority Banks, which may be in effect from time to
time."
(f) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Custodian" by amending and restating such defined term in its
entirety as follows:
"'Custodian' means BofA, in its capacity as the initial Custodian
---------
under the Custodial Agreement and Custodial Agreement Acknowledgement, and
any other Approved Custodian under the Custodial Agreement and Custodial
Agreement Acknowledgement (including any successor Custodial Agreement and
Custodial Agreement Acknowledgement) appointed in accordance with the terms
hereof and the Pledge Agreement. The parties hereto acknowledge that there
may be more than one Custodian from time to time."
(g) Section 1.01 of the Credit Agreement shall be amended by adding
the following new defined term in the appropriate alphabetical order:
"'Macfor' means Macfor International Finance Company, a Delaware
------
corporation and a Wholly-Owned Subsidiary of the Company."
(h) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Majority Banks" by amending and restating such defined term in its
entirety as follows:
"'Majority Banks' means at any time (i) Banks then holding more than
--------------
50% of the then aggregate unpaid principal amount of the Loans, or (ii) if
no such principal amount is then outstanding, Banks then having more than
50% of the Commitments. For purposes of clarification of clause (ii) of
this definition only, the Tranche B Banks shall include only the Tranche B
Domestic Banks."
(i) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Projected Market Value" by amending
3
<PAGE>
and restating such defined term in its entirety as follows:
"'Projected Market Value' means the Market Value of the Collateral
----------------------
that the Company intends to pledge or cause Macfor to pledge under the
Pledge Agreement to secure the Commitments and the Loans (if any) for the
succeeding calendar quarter as set forth in a Notice of Election of
Projected Market Value."
(j) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Qualifying Collateral" by amending and restating such term in its
entirety as follows:
"'Qualifying Collateral' means Collateral as to which a first priority
---------------------
Lien, subject to no other Liens (except the Lien in favor of the Custodian
that secures the obligations of the Company or Macfor to the Custodian
under the Custodial Agreement that is equal and ratable with the Lien of
the Agent and the Lien in favor of the Custodian that secures the
obligations of the Company or Macfor to the Custodian other than under the
Custodial Agreement that is junior to the Lien of the Agent), exists in
favor of the Agent for the benefit of the Agents and the Banks pursuant to
the Collateral Documents, and of a type as to which the Company has
furnished or caused to be furnished an opinion of counsel (which counsel
shall be satisfactory to the Agent) addressed to the Agent and the Banks,
in the form of Exhibit D-3 or otherwise satisfactory to the Agent and
Majority Banks and opining that a perfected Lien exists or will exist in
favor of the Agent for the benefit of the Banks, and consisting of (a) cash
held in a segregated deposit account with the Agent or with the Custodian
contemplated under the Custodial Agreement and the Custodial Agreement
Acknowledgement, (b) securities issued by the United States Government or
(c) securities directly and unconditionally guaranteed by the United States
Government; provided, however, that if the Company proposes to pledge
-------- -------
Collateral of the type described in clause (b) or (c) above, such
Collateral shall not constitute Qualifying Collateral unless and until the
Company has furnished or caused to be furnished to the Agent, with
sufficient copies for each Bank, a certificate of the Company signed by a
Responsible Officer to the effect that such Collateral constitutes
Collateral of such type and such other evidence, certificates or opinions
as the Agent may, at the request of any Bank, reasonably request; and
provided, further, that if any Bank shall have notified the Agent that
-------- -------
under any Capital Adequacy Regulation then in effect with respect to such
Bank, assets secured by such Collateral do not have a risk category with a
risk weight of 20%, such Collateral shall not be Qualifying Collateral as
to that Bank, and the provisions of subsection 3.03(c) shall apply to such
Bank.
(k) Subsection 5.12 of the Credit Agreement shall be amended in its
entirety as follows:
"(a) The provisions of each of the Collateral
4
<PAGE>
Documents are effective to create in favor of the Agent for its benefit and
the benefit of the Banks, a legal, valid and enforceable first priority
security interest in all right, title and interest of the Company (in the
case of Collateral pledged pursuant to Collateral Documents to which the
Company is a party) or Macfor (in the case of Collateral pledged pursuant
to Collateral Documents to which Macfor is a party) in the Collateral
described therein to the extent that Collateral is pledged thereunder from
time to time subject only to the equal and ratable Lien of the Custodian
and the junior Lien of the Custodian under the Custodial Agreement; and
financing statements have been filed in the offices in accordance with the
Pledge Agreement.
(b) All representations and warranties of the Company and Macfor
contained in the Collateral Documents are true and correct."
(l) The following shall be added as a new Section 5.13 of the Credit
Agreement:
"5.13. Ownership of Macfor. Macfor is a Wholly-Owned Subsidiary of
-------------------
the Company."
(m) Subsection 8.01(d) of the Credit Agreement shall be amended and
restated in its entirety as follows:
"(d) Other Defaults. Either Borrower or Macfor (to the extent that
--------------
Macfor is a party thereto) fails to perform or observe any other term or
covenant contained in this Agreement or any other Loan Document, and such
default shall continue unremedied for a period of 20 days after the earlier
of (i) in the case of any provision in Article V or VI, the date upon which
a Responsible Officer knew of such failure or (ii) the date upon which
written notice thereof is given to the Company by the Agent or any Bank;
or"
(n) The following shall be added at the end of Section 10.01 of the
Credit Agreement: "For purposes of clarification, for the purpose of any waiver,
amendment or consent covering the matters referred to in subsections (a) through
(f) of this Section 10.01 and given or entered into at any time that no
principal amount of Loans is then outstanding, the Tranche B Banks shall include
only the Tranche B Domestic Banks. "
(o) Exhibit I to the Credit Agreement shall be amended and restated
in its entirety in the form of Exhibit A attached hereto.
(p) Exhibit J to the Credit Agreement shall be amended and restated
in its entirety in the form of Exhibit B attached hereto.
3. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Agent and the Banks as follows:
(a) No Event of Default has occurred and is
5
<PAGE>
continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Company contained in
the Credit Agreement and of Macfor in the Collateral Documents to which it is a
party are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of August 31,
--------------
1995 (the "Effective Date"), provided that each of the following conditions
-------------- --------
precedent is satisfied on or before September 6, 1995:
(a) The Agent has received from the Company and each of the Banks a
duly executed original (or, if elected by the Agent, an executed facsimile copy)
of this Amendment.
(b) A Pledge Agreement, Custodial Agreement, and Custodial Agreement
Acknowledgement executed by Macfor and each other party thereto, and a UCC
Financing Statement covering the Collateral pledged thereunder executed by
Macfor in proper form for filing with the Secretary of State of the State of
California.
(c) A certificate of the Secretary or Assistant Secretary of Macfor,
certifying the names and true signatures of
6
<PAGE>
the officers of Macfor authorized to execute, deliver and perform, all Loan
Documents to be delivered by it hereunder.
(d) The articles or certificate of incorporation and the bylaws of
Macfor as in effect on the Effective Date, certified by the Secretary or
Assistant Secretary of Macfor as of the Effective Date.
(e) an opinion of Ivan D. Meyerson, Vice President and General
Counsel of the Company, addressed to the Agent and the Banks, substantially in
the form of Exhibit C.
5. Termination of Company Pledge Agreement. The Company, the Agent and
---------------------------------------
the Banks hereby agree that as of the Effective Date, subject to the
satisfaction of the conditions precedent set forth in Section 4 hereof, the
Company Pledge Agreement and the Company Custodial Agreement Acknowledgement
shall be terminated and of no further force and effect and the liens granted
thereunder shall be released. Subject to the occurrence of the Effective Date
and the satisfaction of the conditions precedent set forth in Section 4 hereof,
the Banks authorize the Agent to deliver to the Company, and the Agent agrees to
so deliver, a UCC-3 Termination Statement terminating the UCC Financing
Statement given by the Company in connection with such Pledge Agreement.
6. Post-Closing Deliveries. The Company shall furnish to the Agent below
-----------------------
the following on or before the dates indicated below:
(a) On or before September 8, 1995, (i) copies of the resolutions
of the board of directors of Macfor authorizing the transactions contemplated
under the Collateral Documents to which Macfor is a party, certified as of a
recent date by the Secretary or an Assistant Secretary of Macfor; (ii) a good
standing and tax good standing certificate for Macfor from the Secretary of
State of the State of Delaware, dated as of a recent date.
(b) On or before September 30, 1995, certified copies of Requests for
Information or Copies, dated a date reasonably near such date, listing all
effective financing statements in the State of California which name the Macfor
as debtor, together with copies of such financing statements.
7. Reservation of Rights. The Company acknowledges and agrees that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
8. Guarantor Acknowledgement and Consent. The Company, in its capacity
-------------------------------------
as Guarantor under the Guaranty, acknowledges and consents to the execution,
delivery and performance hereof by the parties hereto and reaffirms and agrees
that the Guaranty is in full force and effect, without defense, offset or
counterclaim.
7
<PAGE>
9. Miscellaneous.
-------------
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement, as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a party
hereto shall bind such party with the same force and effect as the delivery of a
hard copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all reasonable costs and expenses (including allocated costs of in-
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment and the documents related
hereto.
8
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
MCKESSON CORPORATION
By: __________________________
Title: _______________________
MEDIS HEALTH AND
PHARMACEUTICAL SERVICES INC.
By: _________________________
Title: ______________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By: _________________________
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: _________________________
Title: Vice President
BANK OF AMERICA CANADA, as a
Bank
By: _________________________
Title: ______________________
CHEMICAL BANK
By: _________________________
Title: ______________________
9
<PAGE>
CHEMICAL BANK OF CANADA
By: _________________________
Title: ______________________
THE CHASE MANHATTAN BANK N.A.
By: ______________________
Title: ___________________
THE CHASE MANHATTAN BANK OF
CANADA
By: ______________________
Title: ___________________
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________
Title: ______________________
MORGAN BANK OF CANADA
By: ________________________
Title: _____________________
FIRST INTERSTATE BANK OF
CALIFORNIA
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
10
<PAGE>
ABN AMRO BANK N.V.
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
ABN AMRO BANK CANADA
MONTREAL BRANCH
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
THE FIRST NATIONAL BANK OF
CHICAGO
By: _________________________
Title: ______________________
TORONTO DOMINION (TEXAS), INC.
By: _________________________
Title: ______________________
THE TORONTO-DOMINION BANK
By: _________________________
Title: ______________________
11
<PAGE>
Acknowledged as of this 31st day of August, 1995
BANK OF AMERICA CANADA,
as Canadian Administrative Agent
By: _______________________________
Title: ____________________________
12
<PAGE>
EXHIBIT 10.38
SECOND AMENDMENT TO CREDIT AGREEMENT
THIS SECOND AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
---------
April 10, 1996, is entered into by and among McKesson Corporation, a Delaware
corporation (the "Company"), Medis Health and Pharmaceutical Services Inc., an
-------
Ontario corporation and indirect wholly-owned subsidiary of the Company
("Medis"), the several financial institutions party to the Credit Agreement (the
-----
"Banks"), Bank of America Canada, as administrative agent with respect to the
-----
Tranche B Canadian Loans and the Bankers' Acceptance Facility (the "Canadian
--------
Administrative Agent"), The Chase Manhattan Bank, N.A., as co-agent for the
- --------------------
Banks (the "Co-Agent"), and Bank of America National Trust and Savings
--------
Association, as agent for the Banks (the "Agent").
-----
RECITALS
--------
A. The Company, Medis, Banks, Canadian Administrative Agent, Chemical
Bank, as co-agent, and Agent are parties to a Credit Agreement dated as of March
31, 1995, as amended by a First Amendment to Credit Agreement dated as of August
31, 1995 (as so amended, the "Credit Agreement") pursuant to which the Banks
----------------
have extended certain credit facilities to the Company and Medis.
B. The obligations of Medis under the Loan Documents are guaranteed by the
Company pursuant to a Guaranty dated as of March 31, 1995 by the Company in
favor of the Agent and the Banks (the "Guaranty").
--------
C. The obligations of the Company under the Credit Agreement, the Guaranty
and the other Loan Documents are secured by that certain Pledge and Security
Agreement dated as of August 31, 1995 among MacFor International Finance
Company, a Delaware corporation and a Wholly-Owned Subsidiary of the Company
("MacFor"), and the Agent (the "Pledge Agreement").
- -------- ----------------
D. The Company has requested that the Banks agree to certain amendments of
the Credit Agreement.
E. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings, if any, assigned to them in the Credit
Agreement, as applicable.
1
<PAGE>
2. Amendments to Credit Agreement.
------------------------------
(a) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Approved Custodian" by amending and restating such defined term in
its entirety as follows:
"'Approved Custodian' means BofA, in its capacity as the initial
------------------
custodian under the Custodial Agreement and its successors and assigns, any
Bank (or any Affiliate of a Bank), The Bank of New York, as successor-by-
assignment to BofA, and any other Persons that may be approved in writing
as additional or successor custodians by the Company, the Agent and
Majority Banks."
(b) Section 1.01 of the Credit Agreement shall be amended at the
defined term "Revolving Termination Date" by replacing the date "March 31, 2000"
with the date "July 31, 2001".
(c) Schedule 2.01 to the Credit Agreement shall be amended and
restated in its entirety in the form of Schedule 2.01 attached hereto.
3. Representations and Warranties. The Company hereby represents and
------------------------------
warrants to the Agent and the Banks as follows:
(a) No Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by the Company of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligations of the Company,
enforceable against it in accordance with its respective terms, without defense,
counterclaim or offset.
(c) All representations and warranties of the Company contained in
the Credit Agreement and of Macfor in the Collateral Documents to which it is a
party are true and correct.
(d) The Company is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of April 10,
--------------
1996 (the "Effective Date"), provided that each of the following conditions
-------------- --------
precedent is satisfied:
(a) The Agent has received from the Company and each of the Banks a
duly executed original (or, if elected by the
2
<PAGE>
Agent, an executed facsimile copy) of this Amendment, together with a duly
executed MacFor Acknowledgment and Consent in the form attached hereto (the
"Consent").
-------
(b) The Agent has received from the Company and MacFor a copy of a
resolution passed by the board of directors of such corporation, certified by
the Secretary or an Assistant Secretary of such corporation as being in full
force and effect on the date hereof, authorizing the execution, delivery and
performance of this Amendment or the Consent, as applicable.
5. Reservation of Rights. The Company acknowledges and agrees that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Guarantor Acknowledgement and Consent. The Company, in its capacity
-------------------------------------
as Guarantor under the Guaranty, acknowledges and consents to the execution,
delivery and performance hereof by the parties hereto and reaffirms and agrees
that the Guaranty is in full force and effect, without defense, offset or
counterclaim.
7. Miscellaneous.
-------------
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein to such Credit Agreement shall henceforth refer to
the Credit Agreement, as amended by this Amendment. This Amendment shall be
deemed incorporated into, and a part of, the Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a party
hereto shall bind such party with the same force and effect as the delivery of a
hard copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall
3
<PAGE>
not diminish the binding effect of receipt of the facsimile transmitted executed
original of such document of the party whose hard copy page was not received by
the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all reasonable costs and expenses (including allocated costs of in-
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment and the documents related
hereto.
(h) From and after the Effective Date, neither of Chemical Bank or
Chemical Bank of Canada shall be a Bank under the Credit Agreement and neither
shall have any further Commitment thereunder and Chemical Bank shall no longer
be co-agent under the Credit Agreement; provided, that the provisions of Article
--------
III and Sections 10.04 and 10.05 of the Credit Agreement shall continue to inure
to the benefit of Chemical Bank and Chemical Bank of Canada to the extent
relating to the time prior to the Effective Date.
(i) From and after the Effective Date, The Chase Manhattan Bank, N.A.
shall be Co-Agent under the Credit Agreement. Except as set forth in the second
sentence of Section 9.09 of the Credit Agreement, the Co-Agent shall not have
any duties or other obligations in its capacity as Co-Agent under the Credit
Agreement.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
MCKESSON CORPORATION
By: __________________________
Title: _______________________
MEDIS HEALTH AND
PHARMACEUTICAL SERVICES INC.
By: _________________________
Title: ______________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By: _________________________
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: _________________________
Title: Vice President
BANK OF AMERICA CANADA, as a
Bank
By: _________________________
Title: ______________________
5
<PAGE>
THE CHASE MANHATTAN BANK N.A.,
as a Bank and as Co-Agent
By: ______________________
Title: ___________________
THE CHASE MANHATTAN BANK OF CANADA
By: ______________________
Title: ___________________
CHEMICAL BANK
By: _________________________
Title: ______________________
CHEMICAL BANK OF CANADA
By: _________________________
Title: ______________________
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________
Title: ______________________
MORGAN BANK OF CANADA
By: ________________________
Title: _____________________
6
<PAGE>
FIRST INTERSTATE BANK OF
CALIFORNIA
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
ABN AMRO BANK N.V.
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
ABN AMRO BANK CANADA
MONTREAL BRANCH
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
THE FIRST NATIONAL BANK OF
CHICAGO
By: _________________________
Title: ______________________
7
<PAGE>
TORONTO DOMINION (TEXAS), INC.
By: _________________________
Title: ______________________
THE TORONTO-DOMINION BANK
By: _________________________
Title: ______________________
Acknowledged as of April 10, 1996
BANK OF AMERICA CANADA,
as Canadian Administrative Agent
By: _______________________________
Title: ____________________________
8
<PAGE>
MACFOR ACKNOWLEDGMENT
AND CONSENT
------------------------
The undersigned hereby (i) acknowledges and consents to the execution,
delivery and performance by Company of the foregoing Second Amendment to Credit
Agreement (the "Amendment"), and (ii) reaffirms and agrees that the Pledge
---------
Agreement and all other documents and agreements executed and delivered by the
undersigned to the Agent and the Banks in connection with the Credit Agreement
and the other Loan Documents are in full force and effect, without defense,
offset or counterclaim. (Capitalized terms used herein have the meanings
specified in the Amendment.)
MACFOR INTERNATIONAL FINANCE
COMPANY
Dated: April 10, 1996 By:____________________________
Title: ________________________
9
<PAGE>
SCHEDULE 2.01
-------------
COMMITMENTS/PRO RATA SHARES/AFFILIATE BANKS
-------------------------------------------
<TABLE>
<CAPTION>
A. Tranche A Banks
---------------
Tranche A Tranche A
Bank Commitment Pro Rata Share Commitment Pro Rata Share
- ---- ------------ -------------- ---------- --------------
<S> <C> <C> <C> <C>
Bank of America $ 55,000,000 22.000000000% $ 33,846,155 19.340660000%
National Trust
and Savings
Association
The Chase $ 50,000,000 20.000000000% $ 30,769,231 17.582417714%
Manhattan Bank
N.A.
Morgan Guaranty $ 30,000,000 12.000000000% $ 18,461,538 10.549450286%
Trust Company of
New York
First Interstate $ 25,000,000 10.000000000% $ 25,000,000 14.285714286%
Bank of
California
ABN AMRO Bank $ 30,000,000 12.000000000% $ 18,461,538 10.549450286%
N.V.
The First $ 30,000,000 12.000000000% $ 30,000,000 17.142857143%
National Bank of
Chicago
Toronto Dominion $ 30,000,000 12.000000000% $ 18,461,538 10.549450286%
(Texas), Inc.
Total: $250,000,000 100% $175,000,000 100%
</TABLE>
Schedule
2.01
<PAGE>
<TABLE>
<CAPTION>
B. Tranche B Banks
---------------
Tranche B
Commitment of
Bank and Tranche B
Affiliate Domestic Canadian Affiliate Pro
Bank Bank Bank Bank Bank Combined Rata Share
- ---- ----------- ----------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
Bank of Bank of Bank of Bank of $21,153,845 28.205126667%
America America America America
National Canada National Canada
Trust & Trust &
Savings Savings
Association Association
The Chase The Chase The Chase The Chase $19,230,769 25.641025333%
Manhattan Manhattan Manhattan Manhattan
Bank N.A. Bank of Bank N.A. Bank of
Canada Canada
Morgan Morgan Bank Morgan Morgan Bank $11,538,462 15.384616000%
Guaranty of Canada Guaranty of Canada
Trust Company Trust Company
of New York of New York
ABN AMRO Bank ABN AMRO ABN AMRO Bank ABN AMRO $11,538,462 15.384616000%
N.V. Bank N.V. Bank
Canada Canada
Toronto The Toronto- Toronto The Toronto- $11,538,462 15.384616000%
Dominion Dominion Bank Dominion Dominion Bank
Texas, (Inc.) Texas, (Inc.)
Total: $75,000,000 100%
</TABLE>
<PAGE>
EXHIBIT 10.39
THIRD AMENDMENT TO CREDIT AGREEMENT
THIS THIRD AMENDMENT TO CREDIT AGREEMENT (the "Amendment"), dated as of
---------
November 4, 1996, is entered into by and among McKesson Corporation, a Delaware
corporation (the "Company"), Medis Health and Pharmaceutical Services Inc., an
-------
Ontario corporation and indirect wholly-owned subsidiary of the Company
("Medis"), the several financial institutions party to the Credit Agreement (the
-----
"Banks"), Bank of America Canada, as administrative agent with respect to the
-----
Tranche B Canadian Loans and the Bankers' Acceptance Facility (the "Canadian
--------
Administrative Agent"), The Chase Manhattan Bank, as co-agent for the Banks (the
- --------------------
"Co-Agent"), and Bank of America National Trust and Savings Association, as
--------
agent for the Banks (the "Agent").
-----
RECITALS
--------
A. The Company, Banks, Canadian Administrative Agent, the Co-Agent and
Agent are parties to a Credit Agreement dated as of March 31, 1995, as amended
by a First Amendment to Credit Agreement dated as of August 31, 1995 and a
Second Amendment to Credit Agreement dated as of April 10, 1996 (as so amended,
the "Credit Agreement") pursuant to which the Banks have extended certain credit
----------------
facilities to the Company and Medis (the "Borrowers").
---------
B. The obligations of Medis under the Loan Documents are guaranteed by the
Company pursuant to a Guaranty dated as of March 31, 1995 by the Company in
favor of the Agent and the Banks (the "Guaranty").
--------
C. The obligations of the Company under the Credit Agreement, the Guaranty
and the other Loan Documents are secured by that certain Pledge and Security
Agreement dated as of August 31, 1995 among MacFor International Finance
Company, a Delaware corporation and a Wholly-Owned Subsidiary of the Company
("MacFor"), and the Agent (the "Pledge Agreement").
------ ----------------
D. The Borrowers have requested that the Banks agree to certain amendments
of the Credit Agreement.
E. The Banks are willing to amend the Credit Agreement, subject to the
terms and conditions of this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as follows:
1. Defined Terms. Unless otherwise defined herein, capitalized terms used
-------------
herein shall have the meanings, if any, assigned to them in the Credit
Agreement, as applicable.
1
<PAGE>
2. Amendments to Credit Agreement.
------------------------------
(a) The following defined terms in Section 1.01 of the Credit
Agreement shall be restated in their entirety to read as follows:
"Applicable Facility Fee Margin" means, on any date (subject to
------------------------------
clauses (b) through (d) of the definition of "Applicable Rating Level"),
the applicable margin set forth below based on the Applicable Rating Level
on such date:
Applicable
Rating Level Margin
------------ ------
Level I 0.0700%
Level II 0.1250%
Level III 0.1750%
"Applicable Margin" means, on any date and with respect to each Loan
-----------------
or Bankers' Acceptance (subject to clauses (b) through (d) of the
definition of "Applicable Rating Level"), the applicable margin set forth
below based on the Type of Loan or, in the case of Bankers' Acceptances,
under the heading Bankers' Acceptances and the Applicable Rating Level on
such date:
<TABLE>
<CAPTION>
Applicable Offshore Rate CD Rate Bankers'
Rating Level Loans Loans Acceptances
- -------------- -------------- -------- ------------
<S> <C> <C> <C>
Level I 0.1300% 0.2550% 0.1300%
Level II 0.2000% 0.3250% 0.2000%
Level III 0.2750% 0.4000% 0.2750%
</TABLE>
(b) Section 7.01 of the Credit Agreement shall be amended by:
(i) deleting the word "and" at the end of subsection (h)
thereof;
(ii) relettering subsection (i) thereof as subsection (j); and
(iii) inserting the following as new subsection (i) thereof in
appropriate alphabetical order:
(i) Liens on inventory, proceeds thereof and replacement inventory
securing debt to GE Capital Corporation, incurred in connection with
the acquisition by the Company of certain assets of FoxMeyer
Corporation and its Affiliates, in an aggregate principal amount
outstanding at any time not to exceed $400,000,000; provided that such
Liens shall have been released on or before the date which is 45 days
after the incurrence of such debt and shall no
2
<PAGE>
longer constitute Permitted Liens after such date; and
3. Representations and Warranties. Each Borrower represents and warrants
------------------------------
(which representations and warranties in the case of Medis, shall be limited to
Medis and its Subsidiaries and other facts and circumstances known to Medis and
its Subsidiaries) to the Agent and the Banks as follows:
(a) No Event of Default has occurred and is continuing.
(b) The execution, delivery and performance by each Borrower of this
Amendment have been duly authorized by all necessary corporate and other action
and do not and will not require any registration with, consent or approval of,
notice to or action by, any Person (including any Governmental Authority) in
order to be effective and enforceable. The Credit Agreement, as amended by this
Amendment, constitutes the legal, valid and binding obligations of each
Borrower, enforceable against it in accordance with its respective terms,
without defense, counterclaim or offset.
(c) All representations and warranties of each Borrower contained in
the Credit Agreement and of Macfor in the Collateral Documents to which it is a
party are true and correct.
(d) Each Borrower is entering into this Amendment on the basis of its
own investigation and for its own reasons, without reliance upon the Agent and
the Banks or any other Person.
4. Effective Date. This Amendment will become effective as of the date
--------------
first above written (the "Effective Date"), provided that the Agent has received
-------------- --------
from the Borrowers and the Banks a duly executed original (or, if elected by the
Agent, an executed facsimile copy) of this Amendment, together with a duly
executed MacFor Acknowledgment and Consent in the form attached hereto.
5. Reservation of Rights. The Borrowers acknowledge and agree that the
---------------------
execution and delivery by the Agent and the Banks of this Amendment shall not be
deemed to create a course of dealing or otherwise obligate the Agent or the
Banks to forbear or execute similar amendments under the same or similar
circumstances in the future.
6. Guarantor Acknowledgement and Consent. The Company, in its capacity
-------------------------------------
as Guarantor under the Guaranty, acknowledges and consents to the execution,
delivery and performance hereof by the parties hereto and reaffirms and agrees
that the Guaranty is in full force and effect, without defense, offset or
counterclaim.
3
<PAGE>
7. Miscellaneous.
-------------
(a) Except as herein expressly amended, all terms, covenants and
provisions of the Credit Agreement are and shall remain in full force and effect
and all references therein and in the other Loan Documents to such Credit
Agreement shall henceforth refer to the Credit Agreement, as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
(b) This Amendment shall be binding upon and inure to the benefit of
the parties hereto and thereto and their respective successors and assigns. No
third party beneficiaries are intended in connection with this Amendment.
(c) This Amendment shall be governed by and construed in accordance
with the law of the State of California.
(d) This Amendment may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts together
shall constitute but one and the same instrument. Each of the parties hereto
understands and agrees that this document (and any other document required
herein) may be delivered by any party thereto either in the form of an executed
original or an executed original sent by facsimile transmission to be followed
promptly by mailing of a hard copy original, and that receipt by the Agent of a
facsimile transmitted document purportedly bearing the signature of a party
hereto shall bind such party with the same force and effect as the delivery of a
hard copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) This Amendment, together with the Credit Agreement, contains the
entire and exclusive agreement of the parties hereto with reference to the
matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of Section 10.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Company covenants to pay to or reimburse the Agent, upon
demand, for all reasonable costs and expenses (including allocated costs of in-
house counsel) incurred in connection with the development, preparation,
negotiation, execution and delivery of this Amendment and the documents related
hereto.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered
this Amendment as of the date first above written.
MCKESSON CORPORATION
By: __________________________
Title: _______________________
MEDIS HEALTH AND
PHARMACEUTICAL SERVICES INC.
By: _________________________
Title: ______________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Agent
By: _________________________
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a
Bank
By: _________________________
Title: Vice President
BANK OF AMERICA CANADA, as a
Bank
By: _________________________
Title: ______________________
5
<PAGE>
THE CHASE MANHATTAN BANK, as a Bank and as
Co-Agent
By: ______________________
Title: ___________________
THE CHASE MANHATTAN BANK OF
CANADA
By: ______________________
Title: ___________________
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________
Title: ______________________
MORGAN BANK OF CANADA
By: ________________________
Title: _____________________
WELLS FARGO BANK, N.A.
(SUCCESSOR TO FIRST INTERSTATE
BANK OF CALIFORNIA)
By: _________________________
Title: ______________________
ABN AMRO BANK N.V.
------------------
By: ABN AMRO North America,
Inc., as agent
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
6
<PAGE>
ABN AMRO BANK CANADA
MONTREAL BRANCH
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
THE FIRST NATIONAL BANK OF
CHICAGO
By: _________________________
Title: ______________________
TORONTO DOMINION (TEXAS), INC.
By: _________________________
Title: ______________________
THE TORONTO-DOMINION BANK
By: _________________________
Title: ______________________
Acknowledged as of November 4, 1996
BANK OF AMERICA CANADA,
as Canadian Administrative Agent
By: _______________________________
Title: ____________________________
7
<PAGE>
MACFOR ACKNOWLEDGMENT
AND CONSENT
------------------------
The undersigned hereby (i) acknowledges and consents to the execution,
delivery and performance by Company of the foregoing Third Amendment to Credit
Agreement (the "Amendment"), and (ii) reaffirms and agrees that the Pledge
---------
Agreement and all other documents and agreements executed and delivered by the
undersigned to the Agent and the Banks in connection with the Credit Agreement
and the other Loan Documents are in full force and effect, without defense,
offset or counterclaim. (Capitalized terms used herein have the meanings
specified in the Amendment.)
MACFOR INTERNATIONAL FINANCE
COMPANY
Dated: November 4, 1996 By:____________________________
Title: ________________________
8
<PAGE>
EXHIBIT 10.40
[FORM OF] PLEDGE AGREEMENT
--------------------------
This PLEDGE AND SECURITY AGREEMENT (this "Agreement") is entered into as of
---------
August 31, 1995 among Macfor International Finance Company, a Delaware
corporation (the "Pledgor"), and Bank of America National Trust and Savings
-------
Association, as agent (in such capacity, the "Agent") for the several financial
-----
institutions (the "Banks") from time to time party to the Credit Agreement (as
-----
hereinafter defined).
RECITALS
--------
A. The Agent, Chemical Bank, as Co-Agent, Bank of America Canada, as
Canadian Administrative Agent, and the Banks have entered into a Credit
Agreement dated as of March 31, 1995, as amended by that certain First Amendment
to Credit Agreement dated as of August 31, 1995 (the "First Amendment") (as so
---------------
amended, the "Credit Agreement") with McKesson Corporation, a Delaware
----------------
corporation (the "Company") and Medis Health and Pharmaceutical Services Inc.
-------
("Medis") pursuant to which the Banks have made certain commitments, subject to
- -------
the terms and conditions set forth in the Credit Agreement, to extend certain
credit facilities to the Company and to Medis.
B. The Company owns all of the stock of Pledgor.
C. Pledgor may, from time to time, but is not required to, pledge
Collateral (as hereinafter defined) pursuant to the terms of this Agreement.
D. It is a condition precedent to the effectiveness of the First Amendment
that the Pledgor shall have executed and delivered to the Agent and the Banks
this Agreement.
E. It is in the best interest of the Pledgor to execute this Agreement as
the Pledgor will derive substantial direct and indirect benefits from the Loans
made from time to time to the Company by the Banks pursuant to the Credit
Agreement.
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS AND REFERENCES
--------------------------
1.01 General Definitions. All capitalized terms used in this
-------------------
Agreement (including in the recitals hereof) and not otherwise defined herein
shall have the meanings assigned to them in the Credit Agreement. As used in
this Agreement, the following terms shall have the following meanings:
"Applicable CFR Sections" has the meaning specified in Section
-----------------------
6.04(b)
"Approved Custodian" has the meaning specified in the Credit
------------------
Agreement.
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in New York City or San Francisco are authorized
or required by law to close.
"CFR" means the United States Code of Federal Regulations, as from
---
time to time amended.
"Collateral" means (a) the Collateral Accounts, (b) all amounts on
----------
deposit from time to time in the Collateral Accounts, (c) all Investments,
including all securities (whether certificated or uncertificated), instruments,
accounts, general intangibles and deposits representing or evidencing any
Investments, (d) all interest, dividends, cash, instruments, securities and
other property from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of the Collateral (other than such
interest, dividends, cash, instruments, securities and other property deposited
into an account designated by the Pledgor that is not a Collateral Account in
accordance with Section 3.03(c)), (e) all of the Pledgor's right, title and
interest in, to and under the Custodial Agreement (as, and only to the extent it
refers or applies to the Collateral Accounts), and (f) to the extent not covered
by clauses (a) through (e) above, all Proceeds of any or all of the foregoing
Collateral.
"Collateral Accounts" means the Restricted Custodial Account and any
-------------------
other accounts in which Investments may be held or registered.
"Custodial Agreement" means the Custody Agreement dated August 14,
-------------------
1995 between BofA, in its capacity as Custodian and the Pledgor and any
successor or other Custodial Agreement permitted under the terms of this
Agreement and the Credit Agreement.
"Custodial Agreement Acknowledgment" means the Custodial Agreement
----------------------------------
Acknowledgment among the Pledgor, the Custodian and Agent substantially in the
form of Exhibit J annexed to the
2
<PAGE>
Credit Agreement and any other Custodial Agreement Acknowledgment approved by
Majority Banks.
"Custodian" means BofA, in its capacity as custodian under the
---------
Custodial Agreement and any successor custodian or custodians under a Custodial
Agreement permitted under the terms of this Agreement and the Credit Agreement.
"Designated Collateral" has the meaning specified in Section 3.05.
---------------------
"Eligible Collateral" means, as of any Valuation Day, cash and
-------------------
Eligible Investments on deposit in the Restricted Custodial Account as of such
day.
"Eligible Investments" means U.S. Government Securities.
--------------------
"Investments" means those investments, if any, made by the Custodian
-----------
upon direction from the Pledgor or Agent, as the case may be, with amounts on
deposit in the Restricted Custodial Account pursuant to Article III of the
Custodial Agreement Acknowledgment.
"Lowest Quarterly Market Value" has the meaning specified in
-----------------------------
Section 3.04(c).
"Market Value" means, with respect to the Eligible Collateral on any
------------
Valuation Day, a dollar value determined as follows:
(a) cash shall be valued at its face amount on such Valuation Day;
and
(b) an Eligible Investment shall be valued pursuant to the
Custodian's standard and customary pricing sources for such Eligible Investment
which it believes to be reliable.
"Proceeds" means whatever is receivable or received from or upon the
--------
sale, lease, license, collection, use, exchange or other disposition, whether
voluntary or involuntary, of any Collateral, including "proceeds" as defined at
UCC Section 9306, any and all proceeds of any insurance, indemnity, warranty or
guaranty payable to or for the account of the Pledgor from time to time with
respect to any of the Collateral, any and all payments (in any form whatsoever)
made or due and payable to the Pledgor from time to time in connection with any
requisition, confiscation, condemnation, seizure or forfeiture of all or any
part of the Collateral by any Governmental Authority (or any Person acting under
color of Governmental Authority), any and all other amounts from time to time
paid or payable under or in connection with any of the Collateral or for or on
account of any damage or injury to or conversion of any Collateral by any
Person, any and all other tangible or intangible property received upon the sale
or disposition of Collateral, and all proceeds of proceeds.
3
<PAGE>
"Restricted Custodial Account" means account No. 197427561 (Ref:
----------------------------
Macfor International Finance Collateral Account) established and maintained with
the Custodian pursuant to the Custodial Agreement that is pledged to Agent on
behalf of Banks pursuant to the terms hereof.
"Secured Obligations" means all obligations and liabilities of every
-------------------
nature of the Company now or hereafter existing under or arising out of or in
connection with the Credit Agreement, the Guaranty and the other Loan Documents
and all extensions or renewals thereof, whether for principal, interest
(including interest that, but for the filing of a petition in bankruptcy with
respect to the Company, would accrue on such obligations), fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from the Agent or any Bank as a
preference, fraudulent transfer or otherwise, and all obligations of every
nature of the Pledgor now or hereafter existing under this Agreement.
"Solvent" means, as to any Person at any time, that (a) the fair value
-------
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(31) of the Bankruptcy Code and, in the alternative, for purposes of the
California Uniform Fraudulent Transfer Act or any other similar law applicable
to such Person; (b) the present fair saleable value of the property of such
Person is not less than the amount that will be required to pay the probable
liability of such Person on its debts as they become absolute and matured; (c)
such Person is able to realize upon its property and pay its debts and other
liabilities (including disputed, contingent and unliquidated liabilities) as
they mature in the normal course of business; (d) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature; and (e) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital.
"UCC" means the Uniform Commercial Code as the same may, from time to
---
time, be in effect in the State of California; provided, however, in the event
-------- -------
that, by reason of mandatory provisions of law, any or all of the attachment,
perfection or priority of the security interest in any Collateral is governed by
the Uniform Commercial Code as in effect in a jurisdiction other than the State
of California, the term "UCC" shall mean the Uniform Commercial Code as in
effect in such other jurisdiction
4
<PAGE>
for purposes of the provisions hereof relating to such attachment, perfection or
priority and for purposes of definitions related to such provisions.
"U.S. Government Securities" means securities issued or directly and
--------------------------
unconditionally guaranteed as to interest and principal by the United States
Government or its agencies identified specifically by type on Schedule A to the
----------
Custodial Agreement Acknowledgment, as supplemented from time to time in
accordance with the Custodial Agreement Acknowledgment.
"Valuation Day" has the meaning specified in subsection 3.04(a).
-------------
"Valuation Report" has the meaning specified in subsection 3.04(b).
----------------
"Valuation Summary" has the meaning specified in subsection 3.04(c).
-----------------
1.02 Other Interpretive Provisions. (a) The meanings of defined
-----------------------------
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including"; the words
"to" and "until" each mean "to but excluding", and the word "through" means "to
and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of this Agreement, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
5
<PAGE>
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement is the result of negotiations among and have been
reviewed by counsel to the Agent, the Company, the Pledgor and the Custodian and
is the product of all parties. Accordingly, it shall not be construed against
the Banks or the Agent merely because of the Agent's or Banks' involvement in
its preparation.
ARTICLE II
PLEDGE OF SECURITY FOR SECURED OBLIGATIONS
------------------------------------------
2.01 Grant of Security Interest. The Pledgor hereby pledges and
--------------------------
assigns to the Agent, and hereby grants to the Agent (for itself and on behalf
of and for the Canadian Administrative Agent and the ratable benefit of the
Banks) a security interest in, all of the Pledgor's right, title and interest in
and to the Collateral as collateral security for the prompt payment or
performance in full when due, whether at stated maturity, by required
prepayment, declaration, acceleration, demand or otherwise (including the
payment of amounts that would become due but for the operation of the automatic
stay under Section 362(a) of the United States Bankruptcy Code, 11 U.S.C.
362(a)), of all Secured Obligations.
2.02 Financing Statements, Etc. The Pledgor shall execute and
--------------------------
deliver to the Agent, at any time and from time to time, all financing
statements for filing in California and such other jurisdictions as may be
designated by the Agent, continuation statements, termination statements,
notices, and all other documents and instruments (the "Financing Statements")
--------------------
which the Agent may reasonably request, in form satisfactory to the Agent, and
the Pledgor hereby agrees to, and authorizes the Agent to, take such other steps
as shall be requested by the Agent to perfect and continue perfected, maintain
the priority of or provide notice of the pledge of and security interest in the
Collateral and to accomplish the purposes of this Agreement.
2.03 Delivery of Payments and Other Distributions. Upon the
--------------------------------------------
occurrence and during the continuation of an Event of Default, if the Pledgor
shall become entitled to receive or shall receive in connection with the
Collateral any payment or other distribution, the Pledgor shall accept such
payment or distribution as the agent for the Agent, shall hold it in trust for
the benefit of the Agent, shall segregate it from other property or funds of the
Pledgor, and shall deliver all such payments and distributions, in the exact
form received, forthwith to or for the account of the Agent, at the address and
to the Person or Persons to be designated by the Agent, with any necessary
endorsements and other instruments of transfer or assignment, all in form and
substance satisfactory to the Agent,
6
<PAGE>
as the Agent shall request, to be held by the Agent subject to the terms hereof,
as part of the Collateral.
2.04 Continuing Security Interest. The Pledgor agrees that this
----------------------------
Agreement shall create a continuing security interest in and pledge of the
Collateral which shall remain in effect until terminated in accordance with
Article VIII.
ARTICLE III
ESTABLISHMENT AND OPERATION OF COLLATERAL ACCOUNTS;
---------------------------------------------------
VALUATION AND RELEASE OF COLLATERAL
-----------------------------------
3.01 Restricted Custodial Account. The Pledgor has established with
----------------------------
the Custodian the Restricted Custodial Account and from time to time may deposit
Collateral therein all of which is and will be held and applied in accordance
with this Agreement, the Custodial Agreement and the Custodial Agreement
Acknowledgment.
3.02 Operation of Collateral Accounts.
--------------------------------
(a) The Restricted Custodial Account shall be operated, and all
Investments shall be purchased and registered or held (as applicable), in
accordance with the terms of the Custodial Agreement and the Custodial Agreement
Acknowledgment.
(b) The Agent shall be fully protected and shall suffer no liability
in acting in accordance with any instructions reasonably believed by it to have
been given by the Pledgor with respect to any aspect of the operation of the
Collateral Accounts (including any such instructions relating to any Investments
of any amounts on deposit therein).
(c) Anything contained herein to the contrary notwithstanding, the
Collateral Accounts shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.
3.03 Investment of Amounts In the Collateral Accounts.
------------------------------------------------
(a) Cash held by the Custodian in the Restricted Custodial Account
shall not be invested or reinvested except as provided in this Article III and
in the Custodial Agreement Acknowledgement.
(b) So long as no Event of Default shall have occurred and be
continuing, Pledgor may direct the purchase and sale of Investments on deposit
in the Restricted Custodial Account in accordance with Article III of the
Custodial Agreement Acknowledgement. At any time after the occurrence and during
the continuance of an Event of Default, Agent may provide written
7
<PAGE>
notice to the Custodian suspending the Pledgor's right to direct the investment
of funds on deposit in the Restricted Custodial Account; provided that, if the
Agent has so notified the Custodian and such Event of Default shall no longer be
continuing, then, upon request of the Pledgor, the Agent shall provide written
notice to the Custodian revoking such suspension.
(c) Subject to the Agent's rights under clause (d), any interest, cash
dividends or other cash distributions received by the Custodian in respect of
any Investments (other than proceeds from the sale of Investments) shall be
transferred in accordance with Section 4 of the Custodial Agreement or to any
other account designated by the Pledgor. Any distribution of property other
than cash in respect of any Investment shall be held in the Restricted Custodial
Account and the net proceeds of any sale or payment of any Investments shall be
held in a Collateral Account pending investment.
(d) The Pledgor agrees that the Agent may sell or cause the sale of
any Investment and, if appropriate, instruct the Custodian to transfer the
proceeds of such sale or any other cash on deposit in the Restricted Custodial
Account to an account designated by the Agent, in either case (i) if such sale
or transfer is necessary to permit the Agent to perform its duties under this
Agreement or the Credit Agreement and (ii) as otherwise provided in Section
6.04.
3.04 Valuation of Collateral.
-----------------------
(a) On or prior to the fifth Business Day after (1) the last Business
Day of each calendar month, (2) the next Business Day after any day on which
Collateral is released from the Custodial Account pursuant to Section 3.05
hereof and (3) the Business Day immediately preceding any day on which
Collateral is added to the Custodial Account pursuant to Section 3.06 hereof,
the Pledgor shall cause the Custodian to, as provided in the Custodial Agreement
Acknowledgment:
(i) determine the Market Value of all Eligible Collateral which
was held in the Restricted Custodial Account as of the close of business on such
(1) last Business Day of the calendar month, (2) next Business Day after the day
on which Collateral is released or (3) Business Day immediately preceding the
day on which Collateral is added, as the case may be, (each such day, a
"Valuation Day"); and
-------------
(ii) prepare a valuation report stating the Market Value of the
Eligible Collateral and any cash held in the Restricted Custodial Account as of
the close of business on each such Valuation Day ("Valuation Report").
----------------
(b) On or prior to the fifth Business Day after each Valuation Day
referred to in subsection 3.04(a)(i)(1), the Pledgor shall cause the Custodian
to deliver by facsimile transmission to the Agent and the Pledgor the Valuation
Report,
8
<PAGE>
and, for any other Valuation Day, upon request of the Agent, the Pledger
shall cause the Custodian to deliver by facsimile transmission to the Agent the
related Valuation Report.
(c) The Agent may conclusively rely on each Valuation Report. The
Agent shall deliver to each Bank as soon as available, but on or before the
tenth day of each calendar quarter, and to the Pledgor along with each statement
of fees and interest due under the Credit Agreement, a quarterly statement
("Valuation Summary") showing the lowest Market Value of the Eligible Collateral
on a Valuation Day during such quarter or, in the case of a quarter in which the
Closing Date occurs or the Commitments have been terminated, showing the lowest
Market Value of the Eligible Collateral on a Valuation Day during such calendar
quarter during which the Commitments were in effect ("Lowest Quarterly Market
-----------------------
Value"), and the Market Value of the Eligible Collateral on each such Valuation
- -----
Day during such calendar quarter. The Lowest Quarterly Market Value so
determined by the Agent shall be final, conclusive and binding on all parties in
the absence of manifest error.
3.05 Release of Collateral. (a) The Pledgor may, at any time and
---------------------
from time to time (x) if any Loans or Bankers' Acceptances are outstanding, on
one Business Day prior written notice to the Custodian and the Agent and (y) if
no Loans or Bankers' Acceptances are outstanding, upon written notice to the
Custodian and the Agent, request that the Custodian release Collateral as
designated by the Pledgor from the Restricted Custodial Account ("Designated
----------
Collateral") (which notice shall describe the Designated Collateral in detail);
- ----------
provided that there shall not have occurred and be continuing a Default or an
Event of Default on the date that the Pledgor requests a release of Designated
Collateral, or on the date that all or any portion of the Designated Collateral
is released; and
(b) Provided that the foregoing conditions shall have been satisfied,
the Pledgor shall be entitled to a release of the Designated Collateral. At any
time after the occurrence and during the continuance of a Default or an Event of
Default (or if a Default or Event of Default would occur on the date that the
Designated Collateral is to be released) the Agent may provide written notice to
the Custodian suspending the Pledgor's right to release Collateral from the
Restricted Custodial Account; provided that, if the Agent has so notified the
Custodian and such Default or Event of Default shall no longer be continuing,
then, upon request of the Pledgor, the Agent shall provide written notice to the
Custodian rescinding such suspension.
3.06 Additions of Collateral. The Pledgor may at any time and from
-----------------------
time to time pledge additional Collateral pursuant hereto by depositing cash or
other Collateral in the Restricted Custodial Account and in the event Pledgor
deposits any additional Collateral, Pledgor shall notify the Agent in writing
(which notice shall describe the additional Collateral in detail) and cause the
Custodian to prepare and deliver a Valuation Report
9
<PAGE>
as of the related Valuation Day as contemplated pursuant to Section 3.04(a)(3).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
------------------------------
The Pledgor represents and warrants as follows:
(a) The Pledgor is (or at the time of transfer thereof to the Agent or
the Custodian will be) the legal and beneficial owner of the Collateral from
time to time transferred by the Pledgor to the Agent or to the Custodian, as
agent for the Agent, free and clear of any Lien except for the security interest
created by this Agreement and the security interest created by the Custodial
Agreement. No dispute, right of set-off, recoupment, counterclaim or defense
exists with respect to all or any part of the Collateral and no effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any recording office except such as may
have been filed in favor of the Agent relating to this Agreement.
(b) No approval, consent, exemption, authorization or other action by,
or no notice to, or filing with, any Governmental Authority is necessary or
required in connection with (i) the grant by the Pledgor of the security
interest granted hereby, or (ii) the perfection of or the exercise by the Agent
or the Custodian of its rights and remedies hereunder or under the Custodial
Agreement (except as may have been taken by or at the direction of the Pledgor).
(c) The pledge and assignment of the Collateral pursuant to this
Agreement and the Custodial Agreement creates a valid and perfected first
priority security interest in the Collateral, securing the payment of the
Secured Obligations.
(d) Unless otherwise notified by the Pledgor pursuant to Section 5.04,
Pledgor's chief executive office and principal place of business, and all books
and records concerning the Collateral are located at One Post Street, San
Francisco, California.
(e) All information heretofore, herein or hereafter supplied to the
Agent or the Custodian by or on behalf of the Pledgor with respect to the
Collateral is accurate and complete in all material respects.
(f) The Pledgor (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its incorporation;
(ii) has the power and authority and all governmental licenses, authorizations,
consents and approvals to own its assets, carry on its business and to execute,
deliver, and perform its obligations under this
10
<PAGE>
Agreement and any other Loan Document to which it is a party; (iii) is duly
qualified as a foreign corporation and is licensed and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification or license;
(iv) is in compliance with all Requirements of Law; except, in each case
referred to in clause (iii) or clause (iv), to the extent that the failure to do
so could not reasonably be expected to have a Material Adverse Effect.
(g) The execution, delivery and performance by the Pledgor of this
Agreement and each other Loan Document to which it is a party, have been duly
authorized by all necessary corporate action, and do not and will not: (i)
contravene the terms of any of the Pledgor's Organization Documents; (ii)
conflict with or result in any breach or contravention of, or the creation of
any Lien under, any document evidencing any Contractual Obligation to which the
Pledgor is a party or any order, injunction, writ or decree of any Governmental
Authority to which the Pledgor or its property is subject; or (iii) violate any
Requirement of Law.
(h) The Pledgor is, as of the date of this Agreement, and will be, at
all times that Collateral is on deposit in the Restricted Custodial Account,
Solvent.
ARTICLE V
COVENANTS OF PLEDGOR
--------------------
5.01 Delivery of Collateral. All documents, certificates,
----------------------
instruments and writings, if any, evidencing any Collateral pledged concurrently
herewith shall be delivered to the Agent or the Custodian on or prior to the
execution and delivery of this Agreement. All other documents, certificates,
instruments and writings, if any, hereafter evidencing Collateral or
constituting Collateral shall be delivered to the Agent or the Custodian
promptly upon the pledge thereof by the Pledgor. All such documents,
certificates, instruments and writings, if any, shall be held by Custodian on
behalf of the Agent pursuant to the terms of the Custodial Agreement. The
Pledgor will not cause or permit any document, instrument, or certificate
constituting or evidencing Collateral to at any time be in the actual or
constructive possession or control of any Person other than the Agent or a
bailee selected by the Agent (including Custodian) who is holding such
Collateral for the benefit of Agent.
5.02 Further Assurances. The Pledgor agrees that from time to time,
------------------
at the expense of the Pledgor, the Pledgor will promptly execute and deliver all
further instruments and documents, and take all further action, that may be
necessary or desirable, or that the Agent may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Agent to exercise and enforce
11
<PAGE>
its rights and remedies hereunder or under the other Collateral Documents with
respect to any Collateral. Without limiting the generality of the foregoing, the
Pledgor will: (i) execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices, as may be necessary
or desirable, or as the Agent may reasonably request, in order to perfect and
preserve the security interest granted or purported to be granted hereby and
(ii) at the Agent's reasonable request, appear in and defend any action or
proceeding that may adversely affect the Pledgor's title to or the Agent's
security interest in all or any part of the Collateral constituting cash or
Eligible Investments; provided that Pledgor shall not be obligated to make such
appearance or defense relating to actions or proceedings challenging security
interests junior to the security interest of the Agent or to the extent the
Pledgor shall provide evidence satisfactory to the Agent that the Pledgor does
not intend for such Collateral to constitute Qualifying Collateral (as defined
in the Credit Agreement).
5.03 Transfers and other Liens. Subject to Sections 3.03(d) and
-------------------------
3.05, the Pledgor agrees that it will not (a) sell, assign (by operation of law
or otherwise) or otherwise dispose of any of the Collateral or (b) create or
suffer to exist any Lien upon or with respect to any of the Collateral, or file
or record any financing statement with respect to the Collateral or otherwise
identify the Collateral as being subject to a pledge or security interest,
except for the security interest under this Agreement and the Custodial
Agreement.
5.04 Chief Executive Office. The Pledgor will (a) keep all books and
----------------------
records pertaining to the Collateral at the location set forth in Article IV (or
such other location as to which Pledgor shall notify Agent pursuant to
subsection 5.04(b)(ii)) and (b) within 30 days after such change) give written
notice to the Agent of any changes in (i) the Pledgor's corporate name, any
tradenames or trade styles or any fictitious business names, or (ii) any such
location where books and records pertaining to the Collateral are kept, or the
location of the Pledgor's chief executive office and principal place of
business.
5.05 Impairment of Security Interest. Subject to the terms of this
-------------------------------
Agreement and the Custodial Agreement Acknowledgement, including Sections 3.03
and 3.05, the Pledgor will not take or fail to take any action which would
impair the enforceability of the Agent's security interest in any Collateral.
5.06 Voting. Subject to the terms of this Agreement and the
------
Custodial Agreement Acknowledgement, including Sections 3.03 and 3.05, the
Pledgor will not cast any vote, give or grant any consent, waiver or
ratification or take any action with respect to the Collateral which would have
the effect of impairing the position or interest of the Agent or the Banks in
respect of the Collateral or would be inconsistent with or
12
<PAGE>
violate any provision of this Agreement or any other Loan Documents.
5.07 Inspection of Collateral and Information. The Pledgor will keep
----------------------------------------
adequate records concerning the Collateral and will permit the Agent, any Bank
and their respective representatives to inspect the Pledgor's books and records
concerning the Collateral on the same terms and conditions as set forth in
Section 6.08 of the Credit Agreement. The Pledgor will furnish to the Agent any
information which the Agent may from time to time request at the request of any
Bank concerning any covenant, provision or representation contained herein or
any other matter in connection with the Collateral.
ARTICLE VI
REMEDIES, POWERS AND AUTHORIZATIONS
-----------------------------------
6.01. Agent Appointed Attorney-in-Fact. The Pledgor hereby
--------------------------------
irrevocably appoints the Agent (and any of the Agent's officers, employees or
agents designated by the Agent) as the Pledgor's attorney-in-fact, with full
authority in the place and stead of the Pledgor and in the name of the Pledgor,
the Agent or otherwise, from time to time in the Agent's discretion upon the
occurrence and during the continuation of an Event of Default during any period
when Collateral shall have been pledged to Agent hereunder to take any action
and to execute any instrument that the Agent may deem necessary or advisable to
accomplish the purposes of this Agreement or the Custodial Agreement, including
(a) to file one or more financing or continuation statements, or amendments
thereto, relative to all or any part of the Collateral without the signature of
the Pledgor and (b) to ask, demand, collect, sue for, recover, compound, receive
and give acquittance and receipts for moneys due and to become due under or in
respect of any of the Collateral, (c) to receive, endorse and collect any
instruments or other Investments made payable to the Pledgor representing any
dividend, principal or interest payment or other distribution in respect of the
Collateral or any part thereof and to give full discharge for the same and (d)
to file any claims or take any action or institute any proceedings the Agent may
deem necessary or desirable for the collection of any of the Collateral or
otherwise to enforce the rights of the Agent with respect to any of the
Collateral.
6.02. Agent May Perform. If the Pledgor fails to perform any
-----------------
agreement contained herein, the Agent may (but shall have no obligation to)
itself perform, or cause performance of, such agreement, and the expenses of the
Agent incurred in connection therewith shall be payable by the Pledgor in
accordance with Section 7.02.
6.03. Standard of Care. The powers conferred on the Agent hereunder
----------------
are solely to protect its interest in the Collateral and shall not impose any
duty upon it to exercise any
13
<PAGE>
such powers. Except for the exercise of reasonable care in the custody of any
Collateral in its possession and the accounting for moneys actually received by
it hereunder, the Agent, acting in its capacity as Agent, shall have no duty as
to any Collateral, it being understood that the Agent shall have no
responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relating to any
Collateral, whether or not the Agent has or is deemed to have knowledge of such
matters, (b) taking any necessary steps (other than steps taken in accordance
with the standard of care set forth above to maintain possession of the
Collateral) to preserve rights against any parties with respect to any
Collateral, (c) taking any necessary steps to collect or realize upon the
Secured Obligations or any guarantee therefor, or any part thereof, or any of
the Collateral, (d) initiating any action to protect the Collateral against the
possibility of a decline in market value, (e) any loss resulting from
Investments made, held or sold pursuant to Article III, except for a loss
resulting from the Agent's gross negligence or willful misconduct in complying
with Article III, or (f) determining (i) the correctness of any statement or
calculation made by the Pledgor in any written or telex (tested or otherwise)
instructions or (ii) whether any deposit in the Collateral Accounts is proper.
The Agent shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which the Agent accords its own property
of like kind. In addition to the foregoing and without limiting the generality
thereof, the Agent shall not be responsible for any actions or omissions of the
Custodian.
6.04. Remedies.
--------
(a) If any Event of Default shall have occurred and be continuing, the
Agent may (i) sell any of the Collateral, (ii) transfer any or all of the
Collateral constituting cash to an account designated by the Agent or transfer
any or all of the Collateral to an account established in the Agent's name
(whether at the Agent or the Custodian or otherwise), or (iii) register title to
any Collateral in the name of the Agent or one of its nominees or agents,
without reference to any interest of the Pledgor.
(b) If any Event of Default shall have occurred and be continuing, the
Agent may exercise in respect of the Collateral, in addition to all other rights
and remedies provided for herein or otherwise available to it, all the rights
and remedies of a secured party on default under the Uniform Commercial Code as
in effect in any relevant jurisdiction (the "Code") (whether or not the Code
----
applies to the affected Collateral), under 31 CFR (S)(S) 306.115 through 306.122
(herein called the "Applicable CFR Sections"), and the Agent may also in its
sole discretion sell the Collateral or any part thereof in one or more parcels
at public or private sale, at any exchange or broker's board or at any of the
Agent's offices or elsewhere, for cash, on credit or
14
<PAGE>
for future delivery, at such time or times and at such price or prices and upon
such other terms as the Agent may deem commercially reasonable, irrespective of
the impact of any such sales on the market price of the Collateral. Each
purchaser at any such sale shall hold the property sold absolutely free from any
claim or right on the part of the Pledgor, and the Pledgor hereby waives (to the
extent permitted by applicable law) all rights of redemption, stay and/or
appraisal which it now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted. The Agent shall not be
obligated to make any sale of Collateral regardless of notice of sale having
been given. The Agent may adjourn any public or private sale from time to time
by announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned. The
Pledgor hereby waives any claims against the Agent arising by reason of the fact
that the price at which any Collateral may have been sold at such a private sale
was less than the price which might have been obtained at a public sale, even if
(in the case of U.S. Government Securities) the Agent accepts the first offer
received and does not offer such Collateral to more than one offeree.
(c) The Pledgor hereby agrees that the Collateral is of a type
customarily sold on recognized markets and, accordingly, that no notice to any
Person is required prior to any sale of any of the Collateral pursuant to the
terms of this Agreement; provided that, without prejudice to the foregoing, the
Pledgor agrees that, to the extent notice of any such sale shall be required by
law, at least five days' notice to the Pledgor of the time and place of any
public sale or the time after which any private sale is to be made shall
constitute reasonable notification.
(d) If the proceeds of any sale or other disposition of the Collateral
are insufficient to pay all the Secured Obligations, the Pledgor shall be
liable for the deficiency and the fees of any attorneys employed by the Agent to
collect such deficiency.
6.05. Application of Proceeds. If any Event of Default shall have
-----------------------
occurred and be continuing, all cash held by the Agent as Collateral and all
proceeds received by the Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral may, in the discretion
of the Agent, be held by the Agent as Collateral for, and/or then, or at any
other time thereafter, applied in full or in part by the Agent against, the
Secured Obligations in the following order of priority:
FIRST: To the payment of all costs and expenses of such sale,
collection or other realization, including reasonable compensation to the
Agent and its agents and counsel, and all other expenses, liabilities and
advances made or incurred by the Agent in connection therewith, and
15
<PAGE>
all amounts for which the Agent is entitled to indemnification hereunder
and all advances made by the Agent hereunder for the account of the
Pledgor, and to the payment of all costs and expenses paid or incurred by
the Agent in connection with the exercise of any right or remedy hereunder,
all in accordance with Section 7.02;
SECOND: To the payment of all other Secured Obligations (for the
ratable benefit of the holders thereof) in such order as the Agent shall
elect; and
THIRD: To the payment to or upon the order of the Pledgor, or to
whosoever may be lawfully entitled to receive the same or as a court of
competent jurisdiction may direct, of any surplus then remaining from such
proceeds.
ARTICLE VII
INDEMNIFICATION AND EXPENSES
----------------------------
7.01 Indemnification. The Pledgor agrees to indemnify the Agent and
---------------
each Bank from and against any and all claims, losses and liabilities of any
kind or nature whatsoever which may at any time be imposed on, incurred by or
asserted against the Agent or a Bank as a result of any claim or threatened
claim by a Person not a party to this Agreement or by the Pledgor or the Company
(except for claims by the Pledgor or the Company against the Agent or a Bank
that are successful on the merits as determined by a court of competent
jurisdiction) in any way relating to, growing out of or resulting from this
Agreement and the transactions contemplated hereby (including enforcement of
this Agreement), except to the extent such claims, losses or liabilities result
from the Agent's or such Bank's gross negligence or willful misconduct as
finally determined by a court of competent jurisdiction.
7.02 Expenses. The Pledgor shall pay to the Agent upon demand the
--------
amount of any and all costs and expenses, including the reasonable fees and
expenses of its counsel and of any experts and agents, that the Agent may incur
in connection with (a) the administration of this Agreement, (b) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (c) the exercise or enforcement of any
of the rights of the Agent hereunder, (d) the failure by the Pledgor to perform
or observe any of the provisions hereof.
ARTICLE VIII
CONTINUING SECURITY INTEREST; TRANSFER OF SECURED OBLIGATIONS
-------------------------------------------------------------
This Agreement shall create a continuing security interest in the
Collateral and shall (a) remain in full force and
16
<PAGE>
effect until the indefeasible payment in full of the Secured Obligations and the
cancellation or termination of the Commitments, (b) be binding upon the Pledgor,
its successors and assigns, and (c) inure, together with the rights and remedies
of the Agent hereunder, to the benefit of the Agent and its successors,
transferees and assigns. Without limiting the generality of the foregoing clause
(c), but subject to the provisions of Section 10.08 of the Credit Agreement, any
Bank may assign or otherwise transfer any Secured Obligations held by it to any
other Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to the Banks herein or otherwise. Upon the
indefeasible payment in full of all Secured Obligations and the cancellation or
termination of the Commitments, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to the Pledgor. Upon any
such termination the Agent will, at the Pledgor's expense, execute and deliver
to the Pledgor such documents as the Pledgor shall reasonably request to
evidence such termination (including the notice described in Article VIII of the
Custodial Agreement Acknowledgment) and the Pledgor shall be entitled to the
return, upon its request and at its expense, against receipt and without
recourse to the Agent, of such of the Collateral as shall not have been sold or
otherwise applied pursuant to the terms hereof. Notwithstanding anything to the
contrary contained in this Agreement, it is agreed and understood that under the
terms and provisions of the Credit Agreement, the Pledgor is not required to
pledge any Collateral to Agent; provided that if the Pledgor pledges Collateral
to Agent the Pledgor and the Collateral shall be subject to this Agreement. This
Article VIII shall not limit the rights of the Pledgor under Section 3.03(d) or
Section 3.06.
ARTICLE IX
AGENT AS AGENT
--------------
9.01 The Agent has been appointed to act as the Agent hereunder by the
Banks. The Agent shall be obligated, and shall have the right hereunder, to make
demands, to give notices, to exercise or refrain from exercising any rights, and
to take or refrain from taking any action (including the release or substitution
of Collateral), solely in accordance with this Agreement and the Credit
Agreement.
9.02 The Agent shall at all times be the same Person that is the Agent
under the Credit Agreement. Written notice of resignation by the Agent pursuant
to Section 9.09 of the Credit Agreement shall also constitute notice of
resignation as the Agent under this Agreement; removal of the Agent pursuant to
Section 9.09 of the Credit Agreement shall also constitute removal as the Agent
under this Agreement; and appointment of a successor Agent pursuant to Section
9.09 of the Credit Agreement shall also constitute appointment of a successor
Agent under this Agreement. Upon the acceptance of any appointment as the Agent
17
<PAGE>
under Section 9.09 of the Credit Agreement by a successor Agent, that successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Agent under this Agreement, and
the retiring or removed Agent under this Agreement shall promptly (i) transfer
to such successor Agent all records and other documents necessary or appropriate
in connection with the performance of the duties of the successor Agent under
this Agreement, and (ii) execute and deliver to such successor Agent such
amendments to financing statements, and take such other actions, as may be
necessary or appropriate in connection with the assignment to such successor
Agent of the security interests created hereunder, whereupon such retiring or
removed Agent shall be discharged from its duties and obligations under this
Agreement. After any retiring or removed Agent's resignation or removal
hereunder as the Agent, the provisions of this Agreement shall inure to its
benefit as to any actions taken or omitted to be taken by it under this
Agreement while it was the Agent hereunder.
9.03 In connection with the release of any Collateral under this
Agreement, the Custodial Agreement Acknowledgement or the Custodial Agreement,
the Agent may conclusively assume that no Default or Event of Default has
occurred and continues unless it has received written notice from the Pledgor or
any Bank to the contrary. The Agent may conclusively rely on each Valuation
Report and the Market Value of the Collateral contained therein, and shall have
no duty or obligation to verify the contents of any Valuation Report (including
the Market Values contained therein) or to independently determine the Market
Value of any Collateral.
ARTICLE X
MISCELLANEOUS
-------------
10.01 Amendments. No amendment or waiver of any provision of this
----------
Agreement and no consent with respect to any departure by the Pledgor therefrom,
shall be effective unless the same shall be in writing and signed by the Agent
and the Pledgor, and then any such waiver or consent shall be effective only in
the specific instance and for the specific purpose for which given.
10.02 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Pledgor may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent.
10.03 Governing Law and Jurisdiction.
------------------------------
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF CALIFORNIA WITHOUT REFERENCE TO PRINCIPLES OF
CONFLICTS OF LAWS, EXCEPT AS REQUIRED
18
<PAGE>
BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF
THE LIENS HEREUNDER IN RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A
JURISDICTION OTHER THAN CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR
THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE PLEDGOR, THE AGENT AND THE BANKS CONSENTS, FOR ITSELF AND
IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.
EACH OF THE PLEDGOR AND THE AGENT FOR AND ON BEHALF OF ITSELF AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
--------------------
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE PLEDGOR AND THE AGENT FOR
AND ON BEHALF OF ITSELF AND THE BANKS EACH WAIVES PERSONAL SERVICE OF ANY
SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
10.04 Certain Authorizations and Waivers. (a) The Pledgor authorizes the
----------------------------------
Agent and each Bank, without notice or demand and without affecting its
liability or the security interests granted hereunder, from time to time (i) to
renew, compromise, extend, accelerate or otherwise change the time for payment,
or otherwise change the terms, of the Secured Obligations, including increase or
decrease of the rate of interest thereon, or otherwise change the terms of the
Credit Agreement or any other Loan Document; (ii) to receive and hold other
security for the payment of the Secured Obligations and exchange, enforce,
waive, release, fail to perfect, sell, or otherwise dispose of any such
security; (iii) to apply such security and direct the order or manner of sale
thereof as the Agent, or any Bank, as the case may be, in its or their
discretion may determine; and (iv) to release or substitute any one or more of
any endorsers or guarantors of the Secured Obligations. The Pledgor further
agrees the performance or occurrence of any of the acts or events described in
clauses (i), (ii), (iii), and (iv) above with respect to indebtedness or other
obligations of the Company, other than the Secured Obligations, to the Agent or
any Bank, shall not affect the liability of the Pledgor or the security
interests granted hereunder.
(b) The Pledgor waives any right to require the Agent or any Bank (i)
to proceed against the Company or any other Person; (ii) to proceed against or
exhaust any other security for the Secured Obligations or any other indebtedness
of the Company to the Agent or any Bank; or (iii) to pursue any other remedy in
the Agent's or any such Bank's power whatsoever.
(c) The Pledgor waives any defense arising by reason of any
disability or other defense of the Company, or the cessation from any cause
whatsoever of the liability of the Company, whether consensual or arising by
operation of law or any
19
<PAGE>
bankruptcy, insolvency or debtor relief proceeding, or from any other cause, or
any claim that the Pledgor's obligations exceed or are more burdensome than
those of the Company. The Pledgor waives any benefit of, and any right to
participate in, any other security or guaranty now or hereafter held by the
Agent or any Bank securing the Secured Obligations.
(d) The Pledgor waives all presentments, demands for performance,
notices of nonperformance, protests, notices of protest, notices of dishonor and
notices of acceptance of this Agreement and of the existence, creation, or
incurring of new or additional Secured Obligations or any other indebtedness of
Company to the Agent or any Bank.
(e) The Pledgor acknowledges and agrees that it shall have the sole
responsibility for obtaining from the Company such information concerning the
Company's financial condition or business operations as the Pledgor may require,
and that neither the Agent nor any Bank has any duty at any time to disclose to
the Pledgor any information relating to the business operations or financial
condition of the Company.
(f) It is not necessary for the Agent or any Bank to inquire into the
powers of the Company or of the officers, directors, partners or agents acting
or purporting to act on its behalf, and any Secured Obligations made or created
in reliance upon the professed exercise of such powers shall be secured hereby.
10.05 Waiver of Jury Trial. THE PLEDGOR AND THE AGENT FOR AND ON BEHALF
--------------------
OF ITSELF AND THE BANKS EACH WAIVES THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE PLEDGOR AND THE
AGENT FOR AND ON BEHALF OF ITSELF AND THE BANKS EACH AGREES THAT ANY SUCH CLAIM
OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS
WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT.
10.06 Notices; Written Instructions.
-----------------------------
(a) All written instructions, notices, requests and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by facsimile shall be followed promptly by delivery of a hard copy
original thereof)
20
<PAGE>
and mailed, faxed or delivered, to the address or facsimile number specified for
notices below; or to such other address as shall be designated by any party in a
written notice to the other parties.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery.
Address of the Agent:
--------------------
Bank of America National Trust and
Savings Association
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Ivo Bakovic
Vice President
Agency Management
Services #5596
Facsimile Number: (415) 622-4894
Address of the Pledgor:
----------------------
Macfor International Finance Company
c/o McKesson Corporation
One Post Street
San Francisco, CA 94104
Attention: Alan Pearce
Facsimile: (415) 983-8464
10.07 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.08 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Agent, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies of the parties provided herein are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law.
10.09 Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the
21
<PAGE>
legality or enforceability of the remaining provisions of this Agreement or any
instrument or agreement required hereunder.
10.10 No Third Parties Benefited. This Agreement is made and entered into
--------------------------
for the sole protection and legal benefit of the Agent, the Pledgor and the
Banks for which the Agent acts as agent, and their permitted successors and
assigns, and no other person shall be a direct or indirect beneficiary of, or
have any direct or indirect cause of action or claim in connection with, this
Agreement.
10.11 Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding among the Pledgor and the Agent and supersedes all prior or
contemporaneous agreements and understandings of such parties, verbal or
written, relating to the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
day and year first written above.
MACFOR INTERNATIONAL FINANCE COMPANY
By:__________________________________
Its:_________________________________
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Agent
By:__________________________________
Its:_________________________________
22
<PAGE>
EXHIBIT 10.41
CUSTODY AGREEMENT
-----------------
CUSTODY AGREEMENT, dated as of August 14, 1995, between BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION, a national banking association (the
"Bank"), and MACFOR INTERNATIONAL FINANCE COMPANY, a corporation organized under
the laws of ______________ (the "Customer").
W I T N E S S E T H :
WHEREAS, the Customer desires to establish a custody account with the Bank
to hold and maintain securities (collectively, "Securities"), and distributions
with respect to such Securities, and other property, including, without
limitation, cash owned or held by the Customer (Securities and such other
property are hereinafter collectively referred to as the "Property"); and
WHEREAS, the Bank agrees to establish a custody account and to hold and to
maintain the Property in the custody account on the terms and conditions herein
set forth.
NOW, THEREFORE, in consideration of the premises and of the agreements
hereinafter set forth, the Bank and the Customer hereby agree as follows:
1. APPOINTMENT AND ACCEPTANCE; DELIVERY.
------------------------------------
The Customer hereby appoints the Bank as custodian to hold the Property and
the Bank agrees to act as custodian upon the terms and conditions hereinafter
provided. The Customer will deliver, or will cause to be delivered, the
Property to the Bank, and the Bank shall safekeep such Property as custodian for
the Customer. The Bank shall not be responsible for any Property of the
Customer which is not delivered to the Bank or an Authorized Entity (as defined
in Section 5).
2. PERFORMANCE BY THE BANK.
-----------------------
(a) Segregation and Identification of Property; Investment Services.
---------------------------------------------------------------
The Bank shall provide the Customer with a separate custodial account (the
"Account") and will segregate on its books and records as belonging to the
Customer all Property held by the Bank on behalf of the Customer. Except as
otherwise provided herein, the Bank will not allow the Property to be commingled
with the Bank's own assets. Except as specifically provided in Section 4, the
Bank shall not provide investment services under this Agreement. In performing
its duties hereunder, the Bank shall not be acting in any fiduciary capacity
whatsoever.
-1-
<PAGE>
(b) Settlement of Securities Transactions. Settlement of all
-------------------------------------
purchases and sales of Securities and other transactions processed by the Bank
relating to the Account shall be made as set forth in this Section. On the
settlement date, and provided that the Bank has received timely, accurate and
complete instructions from an Authorized Person (as defined in Section 6(a)),
the Bank shall (i) with respect to the purchase of Securities, debit the Account
for the purchase amount of such Securities (plus any accrued interest or other
charges applicable to such purchase) and credit the Account with the purchased
Securities; and (ii) with respect to the sale of Securities, credit the Account
with the sale proceeds of such Securities (plus any accrued interest or other
proceeds applicable to such sale) and debit the Account for the sold Securities.
In the event that any settlement transaction fails to settle within a
reasonable period as determined in the Bank's sole discretion, or Securities
delivered by the Bank are returned by the recipient, the Bank may, at any time
(i) reverse any credits to the Account, (ii) charge the Customer for the amount
credited to the Account, or (iii) exercise a right of setoff against returned or
unpaid Securities (including, without limitation, the right to liquidate such
Securities), and the Customer shall be liable to the Bank for any insufficiency;
provided, however, that prior to taking any of the actions described in this
sentence, the Bank shall first attempt, as soon as practicable, to verbally
notify the Customer of such failure to settle or return of securities, and shall
also attempt to provide the Customer with a reasonable opportunity to remedy the
situation.
The Bank shall deliver Securities sold or receive Securities purchased in
such manner as an Authorized Person may direct; provided, however, that an
-------- -------
Authorized Person must authorize free deliveries of Securities in an original
writing or by other method approved by the Bank in its sole discretion. The
Bank shall notify the Customer promptly of any failure to receive or deliver
Securities. The Bank shall not be obligated to make an advance or loan to the
Customer in connection with settlement of securities transactions, or to
otherwise comply with any instructions of an Authorized Person that result in a
debit balance in the Account. If, however, the Bank in its sole discretion
makes an advance or loan to the Customer, or as a result of complying with an
Authorized Person's instructions the Account has a debit balance, the Bank shall
be entitled to charge interest on any such advance, loan or debit balance at a
rate the Bank customarily charges for similar advances.
(c) Receipt of Income. The Bank shall receive and credit to the
-----------------
Account all income and other distributions due or payable on Securities held in
the Account in bearer form or in the
-2-
<PAGE>
name of the Bank, an Authorized Entity or nominee of either. Provided that all
Obligations (as defined in Section 9) have been paid to the Bank, the Bank shall
distribute such amounts, net of any applicable withholding or other taxes, in
accordance with Exhibit A attached hereto. If the Bank credits the Account with
distributions payable with respect to Securities and said distributions are not
actually received by the Bank within ten (10) days, the Bank may debit the
Account at any time thereafter and shall notify the Customer of such debit.
Except for claims made in the ordinary course, the Bank shall not be obligated
to take any action relating to receipt of income or other distribution,
including without limitation to institute legal proceedings, to seek allowance
of a proof of claim in insolvency proceedings, to provide notice of default, to
secure payment of any distributions on the Customer's behalf or any similar
actions.
(d) Voting. Neither the Bank nor any Authorized Entity nor any
------
nominee thereof shall vote any Securities or authorize the voting of any
Securities or give any consent or take any other action with respect thereto,
except as otherwise provided herein. Either the Bank or an Authorized Entity
will promptly transmit to the Customer all financial reports, stockholder
communications and notices from issuers of Securities in the Account, and all
notices, proxies and proxy soliciting materials with respect to such Securities,
in each case to the extent sufficient copies are actually received by the Bank
or an Authorized Entity in time for forwarding to the Customer. In the case of
Securities registered in the name of the Bank, any Authorized Entity or any
nominee thereof, proxies will be executed by the registered holder prior to
transmittal to the Customer, but the manner in which Securities are to be voted
will not be indicated.
The Customer agrees that, if an Authorized Person gives an instruction to
the Bank for the voting of Securities less than seven (7) days prior to the last
permissible date for receipt of such vote by the issuer of such Securities, the
Bank will use reasonable efforts to effect the instruction, but the Customer
shall indemnify, defend and hold the Bank harmless from any adverse consequences
if it is unable to do so.
(e) Corporate Action; Notice to the Bank. The Bank shall monitor only
------------------------------------
those reporting services and publications listed on Exhibit B attached hereto,
as may be amended by the Bank from time to time in its sole discretion
("Publications"), and shall use reasonable efforts to notify the Customer of the
declaration, record and payment dates of any distributions, calls or other
capital changes, or information requiring special action, in each case only to
the extent such information is contained in the Publications and relates to
those Securities which are held in the name of the Bank, an Authorized Entity,
or a nominee of either
-3-
<PAGE>
pursuant to this Agreement. The Bank shall not be responsible to monitor
information that is published prior to the Bank receiving a Security into the
Account. The Bank shall forward to the Customer all written information
(including, without limitation, pendency of calls and maturities and expirations
of rights, offers for tender or exchange) actually received from issuers of
Securities held in the Account.
If the Customer determines to take any action with respect to any tender,
exchange or other transaction relating to Securities, or if warrants, options,
tenders, puts, calls or other securities or instruments relating to Property in
the Account have fixed expiration dates or other dates by which certain actions
must be taken in connection therewith (whether or not such dates are known to
the Bank or the Customer), the Customer understands and agrees that in order for
the Bank to act, the Bank must receive an Authorized Person's written or fax
instructions no later than three (3) business days prior to the last scheduled
date to act with respect thereto (or such earlier date as the Bank may notify
the Customer). IF THE BANK DOES NOT ACTUALLY RECEIVE AN AUTHORIZED PERSON'S
INSTRUCTIONS BY SUCH DATE, SUCH INSTRUMENTS SHALL EXPIRE OR SUCH ACTIONS SHALL
FAIL TO BE TAKEN, IN EACH CASE WITHOUT LIABILITY TO THE BANK, AND THE CUSTOMER
HEREBY WAIVES ANY CLAIMS AGAINST THE BANK IN CONNECTION THEREWITH. EXCEPT AS
SPECIFICALLY SET FORTH IN THIS SECTION 2(E) REGARDING MONITORING PUBLICATIONS,
THE BANK SHALL HAVE NO DUTY TO NOTIFY THE CUSTOMER OF ANY ACTIONS WHICH MAY OR
MUST BE TAKEN IN CONNECTION WITH SECURITIES OR OTHER INSTRUMENTS RELATED THERETO
OR THE TIME PERIODS FOR TAKING SUCH ACTIONS. THE BANK HAS NO OBLIGATION TO
EXAMINE THE CONTENTS OF ANY SECURITY FOR ANY PURPOSES WHATSOEVER.
(f) Partial Redemption. In the event that any Securities registered
------------------
in the name of the Bank, an Authorized Entity or a nominee of either are called
for partial redemption by the issuer of such Securities, the Bank or any
Authorized Entity may allot, or cause to be allotted, the called portion to the
beneficial holders of such class of Security in any manner that the Bank or the
Authorized Entity deems to be fair and equitable.
(g) Fractional Interests. Whenever a fractional interest resulting
--------------------
from a rights issue, stock dividend, stock split or for any other reason is
received with respect to Securities in the Account, the Bank is authorized and
directed to sell such fractional interest on behalf of the Customer, unless
notified to the contrary by an Authorized Person.
(h) Authority of the Bank. The Bank and any Authorized Entity are
---------------------
each directed to accept and open on the Customer's behalf all mail or
communications received by it or directed in its care. The Bank or an
Authorized Entity may make, execute and
-4-
<PAGE>
deliver for, on behalf of and in its name as nominee of the Customer, any
declarations, affidavits or certificates of ownership which are necessary or
appropriate to perform the Bank's obligations pursuant to this Agreement.
(i) No Implied Duties. The Bank shall be responsible for the
-----------------
performance of only such duties as are specifically set forth herein and no
implied duties or responsibilities shall be read into this Agreement.
3. REGISTRATION; DISCLOSURE.
------------------------
Securities held hereunder shall be registered in the name of the Bank, or
any Authorized Entity, or a nominee of the Bank or any Authorized Entity, and
the Customer shall be informed immediately upon request of all such
registrations.
Securities in registered form will be transferred into such names or
registrations as an Authorized Person may instruct. Notwithstanding any other
provision in this Agreement to the contrary, in the event that any Securities
held hereunder are registered in a name other than that of the Bank, an
Authorized Entity or any nominee thereof, the Bank shall be responsible solely
for the safekeeping of such Securities and shall not be responsible to receive
income, forward notices or to take any other action with respect to such
Securities.
The Customer is a Respondent Bank (Defined as any bank, association or
other entity that exercises fiduciary powers and deposits securities for
safekeeping with another bank, association or other entity that exercises
fiduciary powers. The term "entity that exercises fiduciary powers" means any
entity that holds securities in nominee name or otherwise on behalf of a
beneficial owner.)
[_] YES [X] NO
If "NO", check one of the boxes in the next paragraph.
The Customer hereby elects to [_] object [_] not object to the disclosure
of its name, address and share position to those companies requesting such
information from the owners of their securities for certain corporate
communication purposes as permitted under Rule 14b-2 of the Securities and
Exchange Commission. IF ONE OF THE FOREGOING BOXES IS NOT CHECKED, THE BANK WILL
ASSUME THAT THE CUSTOMER DOES NOT OBJECT TO SUCH DISCLOSURE AND HAS AUTHORIZED
THE BANK TO RELEASE ITS NAME, ADDRESS AND SHARE POSITION TO REQUESTING
COMPANIES.
-5-
<PAGE>
4. CASH ACCOUNT.
------------
The Customer hereby directs the Bank as follows with respect to any
available cash in the Account:
[_] invest and reinvest available cash in shares of one of the following
Pacific Horizon share portfolios of the Pacific Horizon Funds (a "Fund") and
redeem shares of such Fund to meet the cash requirements of the Account. The
Customer acknowledges receipt of a prospectus relating to the Fund and initially
selects the
[_] Treasury Fund portfolio
[_] Prime Fund portfolio; or
[X] forward available cash to MACFOR corporate account at the Bank,
account #_______________.
If the Customer has directed the Bank to invest available cash in a Fund,
then the Customer agrees to and acknowledges the following:
(a) From time to time, the Bank or an affiliate acts in a variety of
capacities with respect to the Funds. Such capacity may include, among others,
investment advisor, custodian, shareholder service agent, special management
services or fund accountant. Such services are provided to the Fund and the
Fund pays the Bank or the affiliate a fee for each service. The services
provided by the Bank or the affiliate, and the fees paid to the Bank or the
affiliate, are more completely identified and described in the prospectus. The
investment advisory agreement and the fees paid thereunder can be increased only
by shareholder vote. The Board of Directors of the Fund can from time to time
employ the Bank or an affiliate to provide services, and modify the nature of
the services and the fees paid for such services. To the extent permitted by
applicable law, the Fund may purchase securities or investments from or through
the Bank or its affiliates and may engage in repurchase transactions with the
Bank or its affiliates.
(b) The Customer assumes the obligation and retains the right to vote
all shares of the Fund held by the Bank for the benefit of the Account.
(c) The Bank shall forward, in a timely manner, all proxies and other
shareholder materials and communications relating to the Fund to the Customer.
(d) Transactions in the Fund will be reported only in the Bank's
regular periodic accounting.
-6-
<PAGE>
(e) The Customer may change Funds by written notice from an Authorized
Person to the Bank.
(f) The Customer has read the prospectus of the Fund, including the
description of the multiple class structure where applicable, and has
independently made the determination to direct the Bank to invest all available
cash in the Account in the Fund. All Fund investments and share redemptions are
subject to the rules of the Fund, which may be revised from time to time.
THE FUNDS ARE NOT DEPOSITS AND INVESTMENTS IN THE FUNDS ARE NOT
GUARANTEED BY, AND ARE NOT OBLIGATIONS OF, BANKAMERICA CORPORATION, THE BANK, OR
THEIR AFFILIATES, AND ARE NOT INSURED BY AN AGENCY OR INSTRUMENTALITY OF THE
UNITED STATES SUCH AS THE FEDERAL DEPOSIT INSURANCE CORPORATION. INVESTMENTS IN
MUTUAL FUNDS INVOLVE INVESTMENT RISKS, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL.
In the event the Bank is unable to invest available cash in a Fund for
any reason, the Customer may choose to have the Bank invest such cash in one of
the following accounts by checking the applicable box:
[_] money market deposit account; or
[_] savings account.
Notwithstanding the foregoing, the Bank shall have no duty or obligation to
invest cash in either of the foregoing accounts, but will notify the Customer in
the event of such investment.
5. AUTHORIZED ENTITIES.
-------------------
The Bank may use such service providers, nominees, correspondents and
subcustodians, including affiliates, and is authorized to utilize the services
of the Federal Reserve Banks and such regulated clearing agents and securities
depositories, domestic and foreign (all such entities herein referred to
collectively as "Authorized Entities"), as is necessary or appropriate to carry
out the Bank's duties under this Agreement, except that the Bank agrees not to
use any Authorized Entity as to which the Customer has reasonably objected in
writing, provided that the Customer must permit the Bank a reasonable amount of
time to make arrangements to use a different Authorized Entity, if necessary.
The Bank shall not be liable for any claim, liability, loss, damage or expense
incurred by the Customer arising out of any act or omission of an Authorized
Entity, except such claim, liability, loss, damage or expense arising out of the
negligence or willful misconduct of an Authorized Entity that is an affiliate of
the Bank.
-7-
<PAGE>
6. INSTRUCTIONS; AUTHORIZED PERSONS.
--------------------------------
For purposes of this Agreement, all instructions given to the Bank on
behalf of the Customer must be given by an Authorized Person, or by a person
reasonably believed by the Bank to be an Authorized Person, and in accordance
with this Section 6.
(a) Authorized Persons. The person(s) authorized by the Customer to
------------------
give instructions (whether written, telephonic, fax, electronic, or by other
means) to the Bank (an "Authorized Person") shall be named in resolutions,
minutes, ordinances or similar instruments satisfactory to the Bank, of the
Board of Directors or other governing body applicable to the Customer
("Governing Body") and certified to the Bank from time to time by the Customer's
duly authorized officers or employees in an Officer's Certificate (the
"Certificate") substantially in the form attached hereto as Exhibit C or in a
manner otherwise acceptable to the Bank. Prior to giving any instructions to
the Bank, the Customer will provide the Bank with an original executed
Certificate and an original executed Incumbency and Signature Certificate
substantially in the form attached hereto as Exhibit D or in a manner otherwise
acceptable to the Bank. The Bank has no obligation to comply with any
instructions from the Customer prior to the Bank's receipt of such documents.
The Bank shall not be required to comply with any instruction of an Authorized
Person, given in any manner, which may subject the Bank to any liability or
expense, or to prosecute or defend any action, unless indemnified in manner and
amount satisfactory to it.
(b) Written Instructions. All written instructions of the Customer to
--------------------
the Bank (including faxed instructions) shall be signed and dated by an
Authorized Person. The Bank is directed to rely and act upon written
instructions bearing or purporting to bear the original, photocopied or
facsimile signature of an Authorized Person identified in the Certificate.
(c) Telephonic, Fax and Electronic Instructions. Except as otherwise
-------------------------------------------
provided herein, an Authorized Person may give, and the Bank may rely upon,
telephonic, fax and electronic instructions. An Authorized Person is
responsible to verify that the Bank received a fax transmission or electronic
message in legible form. If there is any inconsistency between the Customer's
records concerning any telephonic, fax or electronic instruction and the Bank's
records relating to the same, the Bank's records shall control. The Bank
reserves the right to require that telephonic instructions be confirmed by an
Authorized Person in writing. The Bank may not act on telephonic or fax
acknowledgements or telephonic, fax or electronic message transmissions if, for
any reason whatsoever, the Bank's equipment or facilities are not in good
working order. The Bank agrees to
-8-
<PAGE>
exercise reasonable care to maintain its equipment and facilities in good
working order.
THE CUSTOMER UNDERSTANDS THAT WHEN IT USES AND RELIES UPON THE TELEPHONE,
FAX TRANSMISSIONS AND ELECTRONIC MESSAGE TRANSMISSIONS AS CONTEMPLATED HEREIN,
ANY SECURITY MEASURES MAY BE INSUFFICIENT TO GUARD AGAINST FRAUD AND THE
CUSTOMER SPECIFICALLY WAIVES ANY CLAIMS THE CUSTOMER MAY HAVE AGAINST THE BANK
FOR LOSSES ARISING FROM THE FAILURE OF ANY SECURITY MEASURES THAT ARE CAUSED
DIRECTLY OR INDIRECTLY AS A CONSEQUENCE OF THE CUSTOMER'S USE OF AND RELIANCE
UPON THE TELEPHONE, FAX TRANSMISSIONS AND ELECTRONIC MESSAGE TRANSMISSIONS AS
CONTEMPLATED IN THIS AGREEMENT. THE CUSTOMER, AND NOT THE BANK, SHALL BE
RESPONSIBLE FOR THE USE, SECURITY AND CONFIDENTIALITY OF THE TELEPHONIC, FAX AND
ELECTRONIC METHOD OF TRANSMISSION. THE BANK SHALL BE PROTECTED, AND THE
CUSTOMER SHALL INDEMNIFY, DEFEND AND HOLD THE BANK HARMLESS AND WITHOUT
LIABILITY, FOR ACTING UPON TELEPHONIC, FAX AND ELECTRONIC INSTRUCTIONS AND
TRANSMISSIONS WHICH THE BANK REASONABLY BELIEVED HAD BEEN GIVEN BY AN AUTHORIZED
PERSON.
(d) Electronic Securities Trade Directives. The Bank may rely and act
--------------------------------------
upon instructions to deliver and receive Securities ("Securities Trade
Directives") which the Bank receives through any electronic transmission system
approved by the Bank, and the Bank shall be protected in acting upon such
electronic message requests transmitted with proper testing or other
authentication pursuant to terms and conditions specified by the Bank. If the
Customer elects to use such electronic transmission system, the Bank is also
directed to rely and act upon any instructions received by it through a terminal
device, provided that such instructions are accompanied by code words which the
--------
Bank has furnished to one or more Authorized Persons, and which the Bank has not
been notified by an Authorized Person to cease to recognize, regardless whether
such instructions shall in fact have been given by an Authorized Person. The
Customer shall in all cases be responsible for the accuracy and completeness of
the Securities Trade Directives.
The Bank shall be protected in acting upon Securities Trade Directives
which the Bank receives through the Institutional Delivery System established by
the Depository Trust Company ("DTC"), and which are acknowledged (either orally,
electronically, in writing or by fax) by an Authorized Person. Such
acknowledgement will be deemed the Bank's instruction to affirm and process such
Directive with DTC. The Bank shall also be protected in acting upon and
processing Securities Trade Directives given to the Bank by DTC if such
Directives are made by a financial institution named by the Customer as
authorized to act on its behalf. The authorization of the financial
institution, and any
-9-
<PAGE>
modification thereto, must be delivered to the Bank by an Authorized Person
orally, electronically, in writing or by fax.
If any Securities Trade Directive needs to be corrected or canceled, an
Authorized Person will advise the appropriate counterparty of the corrective
action to be taken and the Bank shall not be liable for actions taken or not
taken by the Bank in connection with the failure of such counterparty to act
upon the Authorized Person's advice in a timely manner.
The Bank shall not be liable for a good faith refusal to honor any
Securities Trade Directive and shall not be held responsible or liable to the
Customer for any loss or claim arising from circumstances (including delays)
which are beyond the control of the Bank.
(e) Funds Transfers. Notwithstanding anything contained herein, if
---------------
the Customer elects to transmit instructions to the Bank, whether
electronically, orally, in writing or by facsimile, directing the Bank to send a
"funds transfer" (as defined in Division 11 of the California Uniform Commercial
Code), an Authorized Person shall first execute and deliver to the Bank its
applicable Funds Transfer Agreement (the "Transfer Agreement"), as may be
amended by the Bank from time to time. The Bank's current form of Transfer
Agreement for oral and facsimile instructions is attached hereto as Exhibit E.
The Bank shall not be obligated to comply with any instruction of an Authorized
Person to transfer funds until the Bank has received the applicable original
executed Transfer Agreement. In the event of any inconsistency between this
Agreement and the Transfer Agreement relating to the transfer of funds, the
Transfer Agreement shall control.
7. STATEMENTS.
----------
The Bank shall furnish periodic statements in the usual form for accounts
of this type and shall deliver the same to the Customer or to any representative
designated by the Customer. If the Customer does not notify the Bank in writing
of any objections to such statements within thirty (30) days of the Customer's
receipt thereof, such statements shall be conclusively deemed to be approved by
the Customer.
8. LIMITATIONS ON LIABILITY AND INDEMNIFICATION.
--------------------------------------------
The Customer shall release, indemnify, defend and hold harmless the Bank,
BankAmerica Corporation, and each of their respective officers, directors,
affiliates, subsidiaries, employees and nominees (collectively, the
"Indemnified Parties"), from any claim (including third party claims),
liability, loss, damage or expense (including accountants' fees and inside and
outside counsel
-10-
<PAGE>
expenses and disbursements of the Indemnified Parties and/or any third party
claimant) of any nature, directly or indirectly arising out of or relating to
any act or omission under this Agreement (including, without limitation, those
acts or omissions relating to an Indemnified Party acting as record holder of
Securities held in the Account), except for any claim, liability, loss, damage
or expense arising out of an Indemnified Party's negligence or willful
misconduct. In no event shall an Indemnified Party be liable for special,
consequential, punitive or similar damages.
The Bank may, with respect to matters arising hereunder, apply for and
obtain the advice and opinion of counsel to the Customer or of its own inside
and outside counsel, at the expense of the Customer (upon the Customer's
approval of such expense, which approval shall not be unreasonably withheld, and
provided such expense shall be reasonable), and the Bank shall be fully
protected with respect to anything done or omitted by it in conformity with such
advice or opinion. The Bank need not maintain any insurance for the benefit of
the Customer.
The Bank employs one or more nationally recognized pricing services,
financial periodicals and publications to ascribe market values to some or all
of the Property. The Customer acknowledges that these ascribed values may not
equal the actual market value of the Property and that neither the Bank nor any
vendor from whom the Bank receives pricing information ("Vendor"), guarantees
their accuracy. The Customer agrees to release, indemnify, defend and hold the
Bank and its Vendors harmless against any risk, loss, claim, liability, demand,
damage or expense resulting from and/or related to the ascribed value of the
Property, including without limitation, claims made against the Customer by any
third party.
Notwithstanding anything herein to the contrary,
(a) The Bank will be under no duty or obligation to inquire into, and
shall not be liable for:
(i) the legality of any instruction given by an Authorized Person
or by a person reasonably believed by the Bank to be an Authorized Person, the
legality of any purchase or sale of any Property or the propriety of the amount
for which such Property is purchased or sold; and
(ii) the validity of the issuance of any Securities purchased or
the genuineness of any certificate evidencing Securities purchased.
(b) All receipts of funds or other property paid or distributed in
respect of Securities in the Account shall be made at the risk of the Customer.
The Bank shall have no liability for
-11-
<PAGE>
any loss occasioned by delay in the actual receipt of notice by the Bank or an
Authorized Entity of any payment, redemption or other transaction regarding
Securities in the Account in respect of which the Bank has been instructed to
take action as provided herein.
(c) The Bank shall not be liable for any action taken or omitted to
be taken in reliance upon instructions given in accordance with Section 6 by an
Authorized Person or by a person reasonably believed by the Bank to be an
Authorized Person, or upon any certified copy of any resolution or similar
instrument of the Customer's Governing Body. The Bank may rely on the
genuineness of any such documents which it may reasonably believe to be validly
executed.
9. FEES AND EXPENSES; LIEN, OFFSET RIGHTS AND SECURITY INTEREST.
------------------------------------------------------------
The fees payable to the Bank for the services rendered under this Agreement
and any reimbursement of expenses incurred by the Bank in connection with the
performance of such services shall be provided for in a fee schedule attached
hereto as Exhibit F. Exhibit F may be amended from time to time by the Bank on
60 days' prior written notice to the Customer.
The Customer hereby grants to the Bank a continuing lien and pledge on, and
security interest in, and right of offset against, any Property (including all
distributions, proceeds and substitutions thereof and rights relating thereto),
whether now owned or hereafter acquired, at any time held by or within the
control of the Bank, an Authorized Entity or a nominee for the benefit of the
Customer or in which the Customer may have an interest or held by or for the
Customer by a financial intermediary and identified to the Bank or known to the
Bank to be so held, in each case for the purpose of securing all obligations of
any kind of the Customer to the Bank including, without limitation, payment of
fees, expenses, overdrafts (including intra-day and overnight), advances
(including interest thereon and related costs), indemnification and any other
amounts which may be or become due from the Customer to the Bank (collectively,
the "Obligations"). Upon the Customer's failure to pay any Obligation when due,
the Bank may immediately exercise its rights hereunder, including without
limitation, the right to (i) apply any cash or cash equivalents in the Account
(or any account established under Section 4) to the payment of such Obligation,
(ii) sell any Security for which the Bank has not received payment, (iii) hold
such Security to maturity for the Bank's own account, or (iv) sell any other
Property in the Account in order to reimburse the Bank for any Obligation,
provided the Bank has given the Customer at least five (5) days prior written
notice of such failure to pay, during which five-day period the Customer shall
have the
-12-
<PAGE>
opportunity to pay such Obligation(s). The Customer represents and warrants
that the Bank shall have a first lien on all Property in the Account. In
addition to any other rights granted to it hereunder or otherwise available at
law or in equity, the Bank shall have all the rights and remedies of a secured
party under the California Uniform Commercial Code. The Customer shall execute
and deliver to the Bank upon request all documents necessary to more fully
evidence, establish, perfect and/or maintain, in all applicable jurisdictions,
the Bank's lien, offset rights and security interest granted herein. THE
CUSTOMER HEREBY WAIVES THE BENEFIT OF ANY AND ALL LAWS, REGULATIONS OR RULINGS
RESTRICTING OR PROHIBITING THE BANK'S EXERCISE OF ITS LIEN, SECURITY INTEREST
AND/OR OFFSET RIGHTS DESCRIBED HEREIN.
The Bank need not remove any Property from the Bank's lien (whether during
the term or upon the termination of this Agreement), including transferring
Securities to an account free from the Bank's lien or by effecting the delivery
of Securities free of payment, if after giving effect to such instructions any
Obligations would remain unpaid.
10. TERMINATION; SURVIVAL OF PROVISIONS.
-----------------------------------
Either party may terminate this Agreement upon thirty (30) days' prior
written notice to the other, sent by registered or certified mail, provided that
--------
any termination by the Customer shall specify the name of the person to whom the
Bank shall deliver the Property in the Account. If notice of termination is
given by the Bank, the Customer shall, within thirty (30) days following the
giving of such notice, specify the names of the persons to whom the Bank shall
deliver the Property in the Account. In either case the Bank will deliver the
Property to the person so specified, after deducting therefrom all Obligations.
If within thirty (30) days following the giving of a notice of termination by
the Bank, the Bank does not receive from the Customer the name of the person to
whom the Bank shall deliver the Property in the Account, the Bank, at its
election, may deliver the Property (less all Obligations) to a bank or trust
company that provides custodian services in the State of California to be held
and disposed of pursuant to the provisions of this Agreement, or may, at the
Customer's expense, petition a court of proper jurisdiction for direction as to
the disposition of the Property, or may continue to hold such Property until
receipt of the Customer's instruction concerning the disposition of the
Property. Notwithstanding the termination of this Agreement, all limitations of
liability and indemnifications provided herein (including without limitation
those contained in Sections 5, 6 and 8), and liabilities relating to unpaid
Obligations, shall survive and remain in full force and effect.
-13-
<PAGE>
11. NOTICES AND MISCELLANEOUS.
-------------------------
All notices hereunder, except for those which are subject to the Transfer
Agreement or are transmitted through the Bank's Reporting System or other
electronic system approved by the Bank (which must be delivered in accordance
with the Bank's authorized procedures), shall be in writing and shall be deemed
to have been duly given (i) if personally delivered or by courier service, upon
receipt; or (ii) if faxed, upon confirmation of a properly completed
transmission by the sender's fax machine; or (iii) if mailed, upon the third
business day following mailing by the United States mail, postage prepaid; or
(iv) if delivered by certified or registered mail, upon the date indicated on
the return receipt; and in each case addressed to the parties at the following
addresses or at such other addresses as shall be specified in writing and in
accordance with this Section:
If to the Bank: Bank of America NT&SA
1455 Market Street, 16th Floor
San Francisco, CA 94103
Attn: Rick Hawkins
Phone No: (415) 622-1224
Fax No: (415) 622-5167
If to the Customer: MACFOR International Finance Company
One Post Street
San Francisco, CA 94104
Attn: ____________________
Phone No: ________________
Fax No: __________________
This Agreement may not be amended except by a writing signed by each party
hereto. This Agreement may be executed in several counterparts, each of which
shall be an original, but all of which shall constitute one and the same
instrument. This Agreement contains the entire agreement between the Customer
and the Bank relating to custody of the Property and supersedes all prior
agreements, letters, sales and solicitation materials, understandings and
instruments relating to this subject. The invalidity, illegality or
unenforceability of any provisions of this Agreement shall in no way affect the
validity, legality or enforceability of any other provision; and if any
provision is held to be unenforceable as a matter of law, the other provisions
shall not be affected thereby and shall remain in full force and effect. The
captions included in this Agreement are included only for the convenience of the
parties and in no way define or limit any of the provisions hereof or otherwise
affect their construction or effect.
-14-
<PAGE>
12. CHOICE OF LAW.
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of California, without giving effect to conflict of laws
principles thereof.
13. SUCCESSORS.
----------
This Agreement is binding on the parties and their respective legal
successors and assigns.
14. FORCE MAJEURE.
-------------
Neither party shall be liable or deemed to be in default hereunder for any
failure or delay in performance of any duty in whole or in part arising out of
or caused by circumstances beyond its control including, without limitation,
acts of God, interruption, delay in, or loss (partial or complete) of electrical
power or of computer (hardware or software) or communication services; act of
civil or military authority; sabotage; war or other government action; civil
disturbance or riot; strike or other industrial dispute; national emergency;
epidemic; flood, earthquake, fire, or other catastrophe; government, judicial,
or self regulatory organization order, rule, or regulation; energy or natural
resource difficulty or shortage; and inability to obtain or timely to obtain
materials, equipment, or transportation.
15. ARBITRATION.
-----------
(a) Mandatory Arbitration. Any controversy or claim between or among
---------------------
the parties arising out of or relating to this Agreement or any agreements or
instruments relating hereto or delivered in connection herewith, and any claim
based on or arising from an alleged tort, shall at the request of any party be
determined by arbitration. The arbitration shall be conducted in accordance
with the United States Arbitration Act (Title 9, U.S. Code), notwithstanding any
choice of law provision in this Agreement, and under the Commercial Rules of the
American Arbitration Association ("AAA"). The arbitrator(s) shall give effect
to statutes of limitation in determining any claim. Any controversy concerning
whether an issue is arbitrable shall be determined by the arbitrator(s).
Judgment upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of a provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief.
-15-
<PAGE>
(b) Judicial Reference. At the request of any party, a controversy
------------------
or claim which is not submitted to arbitration as provided in subsection (a)
shall be determined by a reference in accordance with California Code of Civil
Procedure Section 638 et seq. If such an election is made, the parties shall
-- ---
designate to the court a referee or referees selected under the auspices of the
AAA in the same manner as arbitrators are selected in AAA-sponsored proceedings.
The presiding referee of the panel, or the referee if there is a single referee,
shall be an active attorney or retired judge. Judgment upon the award rendered
by such referee or referees shall be entered in the court in which such
proceeding was commenced in accordance with California Code of Civil Procedure
Sections 644 and 645.
(c) Provisional Remedies, Self-Help and Foreclosures. No provision
------------------------------------------------
of this Section shall limit the right of any party to this Agreement to exercise
self-help remedies such as offset, lien rights, foreclosures against or sale of
any real or personal property collateral or security, or obtaining provisional
or ancillary remedies from a court of competent jurisdiction before, after, or
during the pendency of any arbitration or other proceeding. The exercise of a
remedy does not waive the right of either party to resort to arbitration or
reference.
(d) Attorneys' Fees and Expenses. In the event a legal action or
----------------------------
arbitration proceeding is commenced in connection with the enforcement of this
Agreement or any instrument or agreement required under this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees (including fees
for in-house counsel at the rate then used for in-house billing purposes), costs
and necessary disbursements incurred in connection with such action or
proceeding, as determined by the court or arbitrator.
16. ASSIGNMENT.
----------
The Bank may assign its rights and obligations hereunder, in whole or in
part, to any affiliate or to a company succeeding to the interest of the Bank by
reason of merger, sale, reorganization or other transfer.
17. TAX INFORMATION.
---------------
By its execution of this Agreement, the Customer hereby certifies, under
penalty of perjury, as follows:
(a) the taxpayer information provided herein is true, complete and
correct; and
(b) the Customer's taxpayer identification number is
________________________________; and
-16-
<PAGE>
(c) [CHECK THE APPLICABLE BOX]
[_] the Customer has been notified by the Internal Revenue Service
that it is subject to backup withholding because of under reporting of interest
or dividends on its tax return; OR
[_] the Customer is an entity that is exempt from reporting and backup
withholding; OR
[_] the Customer is not subject to backup withholding as a result of
failure to report all interest or dividends or the Internal Revenue Service has
notified the Customer that it is no longer subject to backup withholding.
Exempt Foreign Person(s)/Foreign Entity
[_] all account owners are Exempt Foreign Person(s) or the account is
for a Foreign Entity. All account owners must sign this Agreement and place
their permanent foreign address at Section 11 of this Agreement.
Is income associated with this account effectively connected with the
conduct of a trade or business in the United States? [_] Yes [_] No
Is the Customer a foreign governmental entity, international
organization or a foreign central bank?
[_] Yes [_] No
18. EXHIBITS.
--------
Prior to the Bank taking any action under this Agreement, the Customer
shall execute and deliver to the Bank documents in the form of Exhibits C, D,
and E (as applicable) attached hereto, containing no variations except those
necessary in Exhibits C and D to indicate the Customer's appropriate business
entity, and except as may be otherwise acceptable to the Bank. The Bank has no
obligation to take any actions under this Agreement until it has actually
received such original executed documents.
-17-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Custody
Agreement to be executed by its duly authorized officers.
BANK OF AMERICA NATIONAL MACFOR INTERNATIONAL
TRUST AND SAVINGS ASSOCIATION FINANCE COMPANY
By:___________________________ By:___________________________
Print Name: __________________ Print Name: __________________
Title:________________________ Title:________________________
By:___________________________ By:___________________________
Print Name: __________________ Print Name: __________________
Title:________________________ Title:________________________
-18-
<PAGE>
DISTRIBUTION OF INCOME
----------------------
The Bank has established the following general policies relating to the
crediting of income:
<TABLE>
<CAPTION>
Security Income Credited
-------- ---------------
<S> <C>
All instruments held on deposit at Payable date
a Federal Reserve Bank (T-Bonds, T-
Notes, FNMA, FHLMC, agencies, etc.)
GNMA II's held on deposit at PTC Payable date
Equities, corporate bonds, Payable date + 1
municipal bonds, GNMA I, registered
CD's
Floating, variable and adjustable Upon receipt
rates, private placements, CMO,
early redemptions, called bonds,
euro-bonds
</TABLE>
Proceeds from maturing Securities, regardless of type, are credited on maturity
date. The final interest payment for these Securities are credited in
accordance with the above.
Stock splits are posted on ex-dividend date. Split shares are not available for
sale settlements until credited to the Bank's DTC Participant account, generally
within one week of payable date.
THESE POLICIES MAY BE REVISED BY THE BANK FROM TIME TO TIME IN ITS SOLE
DISCRETION AND ON EITHER A GENERAL OR A CASE-BY-CASE BASIS. UPON REQUEST, THE
BANK SHALL PROVIDE THE CUSTOMER WITH ITS THEN CURRENT POLICIES RELATING TO
DISTRIBUTION OF INCOME.
EXHIBIT A
<PAGE>
LIST OF PUBLICATIONS
--------------------
The Bank examines daily (except as noted below) the following financial
information reporting services, publications and notifications for capital
change information:
- XCITEK
- Direct Company and Agent Notifications to Nominee Name
- The Depository Trust Company Notifications
- J.J. Kinney Information Systems (reviewed weekly)
- Financial Information, Inc.
- Los Angeles Times
- Wall Street Journal (Western Edition)
These reporting services and publications may be revised at any time by the Bank
in its sole discretion. Upon request, the Bank will provide the Customer with a
list of its then current reporting services and publications.
EXHIBIT B
<PAGE>
EXHIBIT 10.42
CUSTODIAL AGREEMENT ACKNOWLEDGMENT
----------------------------------
This CUSTODIAL AGREEMENT ACKNOWLEDGMENT (this "Agreement") is entered
---------
into as of August 31, 1995 among Macfor International Finance Company, a
Delaware corporation (the "Company"), Bank of America National Trust and Savings
-------
Association, a national banking association (the "Custodian") in its capacity as
---------
Custodian under the Custodial Agreement (as hereinafter defined), and Bank of
America National Trust and Savings Association, as agent (in such capacity, the
"Agent") for the several financial institutions (the "Banks") from time to time
----- -----
party to the Credit Agreement (as hereinafter defined).
RECITALS
--------
A. The Company and the Custodian have entered into a Custody
Agreement dated as of August 14, 1995 (the "Custodial Agreement") pursuant to
which, among other things, the Custodian has established the Restricted
Custodial Account (as hereinafter defined) on behalf of the Company to hold and
maintain certain securities, distributions with respect thereto and other
property.
B. The Agent and the Banks have entered into a Credit Agreement
dated as of March 31, 1995 with McKesson Corporation (the owner of 100% of the
stock of the Company) ("McKesson"), Medis Health and Pharmaceutical Services
Inc. ("Medis"), Chemical Bank, as Co-Agent, and Bank of America Canada, as
Canadian Administrative Agent, as amended by that certain First Amendment to
Credit Agreement dated as of August 31, 1995 (as so amended, and as further
amended, restated, extended, renewed or supplemented from time to time, the
"Credit Agreement"), pursuant to which the Banks have made certain commitments,
----------------
subject to the terms and conditions set forth in the Credit Agreement, to extend
certain credit facilities to McKesson and Medis.
C. Pursuant to the terms of the Credit Agreement the Company and
the Agent have entered into a Pledge and Security Agreement dated as of August
31, 1995 (the "Pledge Agreement") pursuant to which the Company has granted a
----------------
security interest in favor of the Agent in the Collateral (as defined in the
Pledge Agreement), including, without limitation, the Restricted Custodial
Account and the securities and other property therein.
D. The Agent has required that the Company and the Custodian enter
into this Agreement to, among other things, set forth the terms on which the
Custodian shall operate the Restricted Custodial Account and hold the
Collateral.
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties agree as follows:
1
<PAGE>
ARTICLE I
DEFINITIONS AND REFERENCES
--------------------------
1.01 General Definitions. All capitalized terms used in this
-------------------
Agreement (including in the recitals hereof) and not otherwise defined herein
shall have the meanings assigned to them in the Pledge Agreement. As used in
this Agreement, the following terms shall have the following meanings:
"Business Day" means any day other than a Saturday, Sunday or other day on
------------
which commercial banks in New York City or San Francisco are authorized or
required by law to close.
"CFR" means the United States Code of Federal Regulations, as from time to
---
time amended.
"Investments" means those investments, if any, made by the Custodian upon
-----------
direction from the Company or the Agent, as the case may be, with amounts on
deposit in the Restricted Custodial Account pursuant to Article III.
"Person" means an individual, partnership, corporation, business trust,
------
joint stock company, trust, unincorporated association, or governmental
authority.
"U.S. Government Securities" means securities issued or directly and
--------------------------
unconditionally guaranteed as to interest and principal by the United States
Government or its agencies identified specifically by type on Schedule A, as
----------
supplemented from time to time in accordance with subsection 3.01(f).
1.02 Other Interpretive Provisions. (a) The meanings of defined terms are
-----------------------------
equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings,
however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding", and the word "through"
means "to and including."
2
<PAGE>
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of this Agreement, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the interpretation of this Agreement.
(f) This Agreement is the result of negotiations among and have been
reviewed by counsel to the Agent, the Company and the Custodian and is the
product of all parties. Accordingly, it shall not be construed against the
Banks or the Agent merely because of the Agent's or Banks' involvement in its
preparation.
ARTICLE II
OPERATION OF RESTRICTED CUSTODIAL ACCOUNT
-----------------------------------------
2.01 Restricted Custodial Account. The Company hereby authorizes and
----------------------------
directs the Custodian to maintain at its office at 1455 Market Street, San
Francisco, CA 94103, as a restricted account in the name of the Company but
pledged to and under the dominion and control of the Agent as provided herein,
an investment account designated as Account No. 197427561 (Ref: "Macfor
International Finance Collateral Account") (the "Restricted Custodial Account").
2.02 Operation of Restricted Custodial Account. (a) The Restricted
-----------------------------------------
Custodial Account shall be operated, and all Investments shall be purchased and
registered or held (as applicable), in accordance with the terms of the
Custodial Agreement except as specifically set forth in this Agreement.
(b) Anything contained herein to the contrary notwithstanding, the
Restricted Custodial Account shall be subject to such applicable laws, and such
applicable regulations of the Board of Governors of the Federal Reserve System
and of any other appropriate banking or governmental authority, as may now or
hereafter be in effect.
(c) The Custodian shall send the Agent and the Company written account
statements with respect to the Restricted Custodial Account upon the written
request of the Agent.
3
<PAGE>
(d) The obligations and liabilities of the Company and the Custodian
with respect to the Restricted Custodial Account shall be governed by the
Custodial Agreement, except as specifically provided otherwise in this
Agreement.
ARTICLE III
PERMITTED INVESTMENTS OF AMOUNTS
IN THE RESTRICTED CUSTODIAL ACCOUNT
-----------------------------------
3.01 Permitted Investments. (a) Cash held by the Custodian in the
---------------------
Restricted Custodial Account shall not be (i) invested or reinvested or (ii)
transferred from the Restricted Custodial Account, in either case except as
provided in this Article III.
(b) So long as the Custodian shall not have received written notice
from the Agent suspending the Company's right to direct the investment of funds
on deposit in the Restricted Custodial Account, the Custodian shall, in
accordance with the Company's instructions with respect to the purchase and sale
of Investments, given to the Custodian from time to time in accordance with the
Custodial Agreement, make such purchase or sale of Investments, in the
Custodian's name and as custodian under this Agreement and the Custodial
Agreement. If the Custodian has received notice from the Agent suspending the
Company's right to direct such investments under this subsection 3.01(b), such
suspension of the Company's rights may be reversed by a subsequent written
notice by the Agent to the Custodian to that effect.
(c) Promptly upon the purchase of any Investment, the Custodian shall
take all steps that it customarily takes in the ordinary course of its business
to ensure that such Investment is transferred on its books to the Company,
subject to a first priority security interest in favor of the Agent, and to
ensure that such Investment is held in the Restricted Custodial Account.
Without limiting the generality of the foregoing, the Custodian shall promptly
identify in its records, by book entry or otherwise, that the Restricted
Custodial Account and any Investments therein belong to the Company, subject to
a first priority security interest in favor of the Agent.
(d) Anything contained herein or in the Custodial Agreement to the
contrary notwithstanding, the Custodian shall, if and as directed in writing by
the Agent, (i) transfer any or all of the Collateral constituting cash to an
account designated by the Agent or transfer any or all of the Collateral to an
account established in the Agent's name (whether at the Agent or the Custodian
or otherwise), (ii) otherwise deal with the Collateral as directed by the Agent
in writing; provided, that, as between the Agent and the Company, the terms of
the Pledge Agreement shall control such directions of the Agent.
4
<PAGE>
(e) Subject to Section 3.01(d), any interest, cash dividends or other
cash distributions received in respect of any Investments (other than proceeds
from the sale of an Investment) shall be promptly transferred in accordance with
the provisions of the Custodial Agreement or to an account designated by the
Company. Any distribution of property other than cash in respect of any
Investment shall be held in the Restricted Custodial Account and the net
proceeds of any sale or payment of any Investments shall be held in the
Restricted Custodial Account pending investment subject to the Company's rights
under Section 3.06 of the Pledge Agreement.
(f) The Company and the Agent may, from time to time, supplement
Schedule A by written instructions signed by both of them. The Agent may
- ----------
condition its execution of such written instructions upon receiving such
opinions of counsel with respect to perfection of its security interest in
investments named in such supplement as it may require.
(g) Custodian shall hold all Investments in U.S. Government
Securities directly or through a Federal Reserve Bank of the United States.
3.02 Transfer of Collateral. In the event that the Company delivers a
----------------------
notice to release Designated Collateral pursuant to Section 3.05 of the Pledge
Agreement and the Custodian shall not have received a notice from the Agent
suspending the Company's right to release Collateral as provided in Section
3.05(b) of the Pledge Agreement by 9:00 a.m. (San Francisco time) on the date
specified for the release of the Designated Collateral in the Company's notice,
the Custodian shall be entitled to transfer Collateral designated by the Company
from the Restricted Custodial Account in accordance with the Company's written
instructions.
ARTICLE IV
VALUATION OF COLLATERAL; REPORTS BY THE CUSTODIAN
-------------------------------------------------
4.01 Valuation of Collateral. The Custodian shall determine the Market
-----------------------
Value of all Eligible Collateral and deliver Valuation Reports to the Agent as
provided in Section 3.04 of the Pledge Agreement. The Company and the Agent each
acknowledge that the Custodian employs one or more nationally recognized pricing
services, financial periodicals and publications to ascribe market values to
some or all of the Collateral. The Company and the Agent each acknowledge that
these ascribed values may not equal the actual market value of the Collateral
and that neither the Custodian nor any vendor from whom the Custodian receives
pricing information, guarantees their accuracy.
5
<PAGE>
ARTICLE V
ACKNOWLEDGEMENT OF SECURITY INTEREST
IN FAVOR OF AGENT; WAIVER OF SET-OFF
------------------------------------
(a) The Custodian hereby confirms that it has received a copy of the
Pledge Agreement and acknowledges the security interest granted by the Company
in favor of the Agent in the Collateral.
(b) The Custodian hereby further acknowledges that it holds the
Restricted Custodial Account, and all other Collateral registered to or held
therein, for the benefit of, and subject to such security interest in favor of,
the Agent. The Custodian shall, by book entry or otherwise, identify the
Restricted Custodial Account, and all other Collateral registered to or held
therein, as being subject to such security interest in favor of the Agent.
(c) The Company, the Custodian and the Agent hereby agree that in the
event any dispute arises with respect to the payment, ownership or right to
possession of the Restricted Custodial Account or any other Collateral
registered to or held therein, the Custodian shall take such actions and shall
refrain from taking such actions with respect thereto as may be directed by the
Agent, regardless of the rights of the Company under the Custodial Agreement.
This paragraph (c) shall not affect or limit the Company's rights or remedies
against the Agent if the Agent directs the Custodian to take any action which
the Agent is not entitled to direct or take under the Credit Agreement or the
other Loan Documents.
(d) The Custodian shall not exercise any right of set-off, banker's
lien, counterclaim or similar right against any of the Collateral; provided that
--------
the Custodian may deduct, from (i) the Collateral, or otherwise from the
Restricted Custodial Account, any amount necessary to settle any security
transaction related thereto, in accordance with the Custodial Agreement, and
(ii) any payments or cash distributions on or with respect to any Investments,
any usual and ordinary transaction and administration fees payable in connection
with the administration and operation of the Restricted Custodial Account.
Notwithstanding anything herein, in the Credit Agreement, in the Pledge
Agreement or any related documents to the contrary, the Agent and the Company
hereby agree that the continuing lien and pledge on, and security interest in,
the Collateral granted to the Custodian by the Company pursuant to the Custodial
Agreement shall be equal to the security interest of the Agent but only to the
extent that such lien, pledge and security interest of the Custodian secures the
obligations of the Company to the Custodian under the Custodial Agreement and
that such lien, pledge and security interest of the Custodian shall be junior to
the security interest of the Agent to the extent such lien, pledge and security
interest secures obligations of the Company to the
6
<PAGE>
Custodian other than those arising under the Custodial Agreement.
ARTICLE VI
EXCULPATION AND INDEMNIFICATION OF CUSTODIAN
--------------------------------------------
6.01 Custodian's Duties. The Custodian's duties hereunder are only those
------------------
specifically provided herein and no implied duties shall be read into this
Agreement, and the Custodian shall incur no liability whatsoever for any actions
or omissions hereunder except for any such liability arising out of or in
connection with the Custodian's gross negligence or willful misconduct. The
Custodian shall be fully protected and shall suffer no liability in acting in
accordance with any written instructions reasonably believed by it to have been
given (a) by the Agent with respect to any aspect of the operation of the
Restricted Custodial Account (including any such instructions relating to any
investments of any amounts on deposit therein) or (b) by the Company, to the
extent provided in Section 3.01, with respect to any investments of any amounts
on deposit in the Restricted Custodial Account or in Section 3.02, with respect
to the transfer of Collateral. The Custodian shall have no obligation to
determine whether or not an Event of Default under the Credit Agreement shall
have occurred. The Custodian shall not be liable or deemed to be in default
hereunder for any failure or delay in performance of any duty in whole or in
part arising out of or caused by circumstances beyond its control including,
without limitation, acts of God, interruption, delay in, or loss (partial or
complete) of electrical power or of computer (hardware or software) or
communication services; act of civil or military authority; sabotage, war or
other government action; civil disturbance or riot; strike or other industrial
dispute; national emergency; epidemic; flood, earthquake, fire, or other
catastrophe; government, judicial, or self-regulatory organization order, rule,
or regulation; energy or natural resource difficulty or shortage; and inability
to obtain or timely to obtain materials, equipment, or transportation.
6.02 Indemnification. The Company agrees to indemnify the Custodian from
---------------
and against any and all claims, losses, liabilities and expenses (including
reasonable attorneys' fees and expenses and the reasonable allocated charges of
internal counsel) in any way relating to, growing out of or resulting from this
Agreement or the performance of its obligations hereunder, except to the extent
arising out of or in connection with the Custodian's gross negligence or willful
misconduct. The Custodian agrees to indemnify the Company, the Agent and the
Banks from and against any and all claims, losses, liabilities and expenses
(including reasonable attorneys' fees and expenses and the reasonable allocated
charges of internal counsel) in any way relating to, growing out of or resulting
from any actions taken by the Custodian under this Agreement amounting to gross
7
<PAGE>
negligence or willful misconduct of the Custodian or its officers or employees,
except for consequential damages caused thereby. The Agent, for itself and on
behalf of the Banks, agrees to indemnify the Custodian from and against any and
all claims, losses, liabilities and expenses (including reasonable attorneys'
fees and expenses and the reasonable allocated charges of internal counsel) in
any way relating to, growing out of or resulting from any actions taken by the
Agent or its officers or employees under this Agreement or the Pledge Agreement
amounting to negligence or willful misconduct, except for consequential damages
caused thereby. The Company agrees to release, indemnify and defend against, and
each of the Company and the Agent, for itself and on behalf of the Banks, agrees
to hold the Custodian harmless against, any risk, loss, claim, liability,
demand, damage or expense resulting from and/or related to the ascribed market
value of the Collateral, including without limitation, claims made against the
Company or the Agent by any third party. The provisions of this Article shall
survive termination of this Agreement.
ARTICLE VII
REPRESENTATIONS AND WARRANTIES BY THE CUSTODIAN
-----------------------------------------------
The Custodian hereby represents and warrants to the Company and the Agent
as follows:
(a) The Custodian has all necessary corporate power and authority to
enter into and perform this Agreement.
(b) The execution, delivery and performance of this Agreement by the
Custodian have been duly authorized by all necessary corporate action on the
part of the Custodian. This Agreement constitutes the valid, legal and binding
agreement of the Custodian, enforceable in accordance with its terms.
(c) The Custodian is (i) a national banking association and (ii)
eligible to maintain custodial book entry accounts with a Federal Reserve Bank
under Sections 306.115 through 306.122 of Title 31 of the CFR. In the ordinary
course of its business, the Custodian accepts for deposit items similar to the
Eligible Investments as a service for its customers, and maintains securities
accounts in the names of such customers reflecting ownership of or interests in
such items. The Custodian is a "financial intermediary" (as that term is
defined in Section 8-313 of the Uniform Commercial Code as in effect in the
State of California) and is acting in such capacity for purposes of this
Agreement.
(d) At the time any Collateral is valued in any Valuation Report, the
Custodian's Custody Unit located at the address set forth in Section 10.05(b)
will not have received, acknowledged or accepted any notice, order, registration
or other
8
<PAGE>
document which purports to constitute any pledge, claim, security interest,
lien, encumbrance or adverse claim of any kind with respect to such Collateral,
other than the pledge and security interest in favor of the Agent pursuant to
the Pledge Agreement, or been served with legal process with respect to such
Collateral. The Custodian has not sold, transferred, assigned, pledged or
granted, and after the date hereof the Custodian will not, except as specified
in Article III, paragraph (d) of Article V or subsection 9.03(d), sell,
transfer, assign, pledge or grant a security interest in, the Collateral, or any
part thereof, to any Person, including the Federal Reserve Bank of New York, any
other Federal Reserve Bank, the United States Treasury or any other transferee
or pledgee eligible to maintain a book-entry account in its name with a Federal
Reserve Bank.
ARTICLE VIII
TERMINATION
-----------
This Agreement shall terminate, and all rights to the Restricted
Custodial Account and all other Collateral registered to or held therein shall
revert to the Company, upon the Custodian's receipt of written notice, signed by
an authorized officer of the Agent, that the Pledge Agreement has terminated.
ARTICLE IX
RESIGNATION AND REMOVAL OF THE CUSTODIAN
----------------------------------------
9.01 Removal. The Custodian may be removed at any time by written notice
-------
given by the Agent to the Custodian and the Company, but such removal shall not
become effective until a successor Custodian shall have been appointed in
accordance with Section 9.03 and shall have accepted such appointment in
writing.
9.02 Resignation. The Custodian may resign at any time by giving not less
-----------
than thirty days' written notice to the Agent and the Company, but such
resignation shall not become effective until a successor Custodian shall have
been appointed in accordance with Section 9.03 and shall have accepted such
appointment in writing. If an instrument of acceptance by a successor Custodian
shall not have been delivered to the resigning Custodian within thirty days
after the giving of any such notice of resignation, the resigning Custodian may,
at the expense of the Company, petition any court of competent jurisdiction for
the appointment of a successor Custodian.
9.03 Successor Custodian. (a) If the Custodian resigns or is removed
-------------------
hereunder or becomes incapable of acting or is adjudged a bankrupt or insolvent,
or if a receiver, liquidator or conservator of the Custodian, or of its
property, shall be appointed, or if any public officer shall take charge or
control
9
<PAGE>
of the Custodian, or of its property or affairs, the Company may appoint an
Approved Custodian as successor hereunder or, with the consent of the Agent and
Majority Banks, may appoint another entity complying with Section 9.03(b) as
successor hereunder.
(b) Any Custodian appointed under the provisions of Section 9.03(a) in
succession to the Custodian shall be either (i) an Approved Custodian or (ii) a
bank or trust company or banking association in good standing having capital
stock and surplus aggregating at least $1,000,000,000, which, in the case of
either (i) or (ii), shall be authorized by law to perform all the duties imposed
upon it by this Agreement and able to make the representations contained in
subsections (a), (b) and (c) of Article VII.
(c) Any company into which the Custodian may be merged or converted or
with which it may be consolidated or any company resulting from any merger,
conversion or consolidation to which it shall be a party, or any company to
which the Custodian may sell or transfer all or substantially all of its custody
business shall be the successor to the Custodian hereunder without the execution
or filing of any paper or the performance of any further act, if and only if
such company shall be either (i) an Approved Custodian or (ii) a bank or trust
company or banking association in good standing having capital stock and surplus
aggregating at least $1,000,000,000, which, in the case of either (i) or (ii),
shall be authorized by law to perform all the duties imposed upon it by this
Agreement and able to make the representations contained in clauses (a), (b) and
(c) of Article VII.
(d) Upon the appointment of a successor Custodian and its acceptance
of such appointment and upon payment of all Obligations (as defined in the
Custodial Agreement) and all fees and expenses owed to the Custodian hereunder,
the resigning or removed Custodian shall transfer all items of Collateral held
by it to such successor (which items of Collateral shall be deposited in a new
Restricted Custodial Account established and maintained by such successor) and
the original Custodian shall deliver a certificate in the form of Exhibit A with
---------
respect to all Collateral so transferred. Following such appointment all
references herein to the Custodian shall be deemed a reference to such
successor; provided that the provisions of Article VI hereof and of Section 8 of
--------
the Custodial Agreement shall continue to inure to the benefit of the resigning
or removed Custodian with respect to any actions taken or omitted to be taken by
it under this Agreement while it was the Custodian hereunder.
10
<PAGE>
ARTICLE X
MISCELLANEOUS
-------------
10.01 Amendments; Conflicts With Custodial Agreement. No amendment or
----------------------------------------------
waiver of any provision of this Agreement or the Custodial Agreement and no
consent with respect to any departure by the Company or the Custodian therefrom,
shall be effective unless the same shall be in writing and signed by the Agent,
the Company, and the Custodian, and then any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. In the event of a conflict between the terms of this Agreement and the
terms of the Custodial Agreement, the terms of this Agreement shall prevail.
10.02 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that neither the Company nor the Custodian
(except as provided in Section 9.03(c)) may assign or transfer any of its rights
or obligations under this Agreement without the prior written consent of each of
the other parties hereto.
10.03 Governing Law. (a) THIS AGREEMENT SHALL BE GOVERNED BY, AND
-------------
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF CALIFORNIA WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS, EXCEPT AS REQUIRED BY MANDATORY
PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR PERFECTION OF THE LIENS
HEREUNDER IN RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION
OTHER THAN CALIFORNIA.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA OR OF THE UNITED STATES FOR
THE NORTHERN DISTRICT OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, EACH OF THE COMPANY, THE AGENT (FOR ITSELF AND ON BEHALF OF THE
BANKS) AND THE CUSTODIAN CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO
THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT
(FOR ITSELF AND ON BEHALF OF THE BANKS) AND THE CUSTODIAN IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
--------------------
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT (FOR ITSELF
AND ON BEHALF OF THE BANKS) AND THE CUSTODIAN EACH WAIVES PERSONAL SERVICE OF
ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS
PERMITTED BY CALIFORNIA LAW.
10.04 Waiver of Jury Trial. THE COMPANY, THE AGENT (FOR ITSELF AND ON
--------------------
BEHALF OF THE BANKS) AND THE CUSTODIAN EACH WAIVES THEIR RESPECTIVE RIGHTS TO A
TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN
11
<PAGE>
ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT
CLAIMS, OR OTHERWISE. THE COMPANY, THE AGENT (FOR ITSELF AND ON BEHALF OF THE
BANKS) AND THE CUSTODIAN EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING,
THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS
WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER
PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY PROVISION HEREOF. THIS WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS AGREEMENT.
10.05 Notices; Written Instructions.
-----------------------------
(a) All written instructions, notices, requests and other
communications shall be in writing (including, unless the context expressly
otherwise provides, by facsimile transmission, provided that any matter
transmitted by facsimile shall be followed promptly by delivery of a hard copy
original thereof) and mailed, faxed or delivered, to the address or facsimile
number specified for notices below; or to such other address as shall be
designated by any party in a written notice to the other parties.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery.
Address of the Agent:
--------------------
Bank of America National Trust and
Savings Association
1455 Market Street, 12th Floor
San Francisco, CA 94103
Attention: Ivo Bakovic
Vice President
Agency Management Services #5596
Facsimile Number: (415) 622-4894
Address of the Company:
----------------------
Macfor International Finance Company
c/o McKesson Corporation
One Post Street
San Francisco, CA 94104
Attention: Alan Pearce
Facsimile: (415) 983-8464
12
<PAGE>
Address of the Custodian:
------------------------
Bank of America National Trust and
Savings Association
1455 Market Street, 16th Floor
San Francisco, CA 94103
Attention: Rick Hawkins
Facsimile: (415) 622-5167
10.06 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.07 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Agent, any right, remedy, power or privilege
hereunder shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, remedy, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies of the parties provided herein are cumulative
and are in addition to, and not exclusive of, any rights or remedies provided by
law.
10.08 Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.09 No Third Parties Benefited. This Agreement is made and entered into
--------------------------
for the sole protection and legal benefit of the Custodian, the Company, the
Agent, and the Banks for which the Agent acts as the Agent, and their permitted
successors and assigns, and no other Person shall be a direct or indirect
beneficiary of, or have any direct or indirect cause of action or claim in
connection with, this Agreement.
10.10 Entire Agreement. This Agreement embodies the entire agreement and
----------------
understanding among the Custodian, on one hand, and the Company and the Agent,
on the other, and supersedes all prior or contemporaneous agreements and
understandings of such parties, verbal or written, relating to the subject
matter hereof.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the day
and year first above written.
The Company: MACFOR INTERNATIONAL FINANCE COMPANY
By:________________________________
Its:_______________________________
The Agent: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By:________________________________
Its:_______________________________
The Custodian: BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:________________________________
Its:_______________________________
By:________________________________
Its:_______________________________
14
<PAGE>
Schedule A
----------
U.S. GOVERNMENT SECURITIES
- --------------------------
United States Treasury Bills
United States Treasury Bonds
United States Treasury Notes
1
<PAGE>
EXHIBIT A
RE: ____________ Restricted Custodial Account
CERTIFICATION OF THE CUSTODIAN UPON TRANSFER
Reference is made to the Custodial Agreement Acknowledgment dated as of
August 31, 1995 (the "Agreement") among Macfor International Finance Company
(the "Company"), Bank of America National Trust and Savings Association (the
"Custodian") and Bank of America National Trust and Savings Association, as
Agent ("Agent"). Terms which are defined in the Agreement are used herein with
the meanings given them in the Agreement.
Pursuant to the terms of the Agreement, the Custodian hereby represents and
warrants to the Agent that:
(a) The person signing this instrument on behalf of the Custodian is the
duly elected, qualified and acting officer of the Custodian as indicated below
such officer's signature hereto, having all necessary authority to act for the
Custodian in making the certification herein contained.
(b) The Collateral described below represents all Collateral contained in
the Restricted Custodial Account:
[Investments to be described here by Issuer, Par Amount, Coupon and
Maturity; other Collateral to be described by dollar amount and type]
(c) The representations and warranties of the Custodian set forth in
Article VII of the Agreement are true and correct on and as of the date hereof
with respect to all Collateral, with the same effect as though such
representations and warranties had been made on and as of the date hereof.
(d) Except to the extent waived in writing by the Agent, the Custodian has
performed and complied with all agreements and conditions in the Agreement
required to be performed or complied with by the Custodian on or before the date
hereof.
A-1
<PAGE>
In accordance with the instructions of the Company and the Agent, the
Custodian agrees to transfer all Collateral immediately after its execution of
this Certificate to account number __________ at [the successor custodian].
IN WITNESS WHEREOF, this instrument is executed as
of ____________________, ________.
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:______________________________
Name: ________________________
Title: _______________________
A-2
<PAGE>
EXHIBIT 10.43
================================================================================
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
DATED AS OF NOVEMBER 4, 1996
AMONG
McKESSON CORPORATION,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
AS AGENT,
THE CHASE MANHATTAN BANK,
AS CO-AGENT,
AND
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO
ARRANGED BY
BA SECURITIES, INC.
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<S> <C>
ARTICLE I
DEFINITIONS.................................... 1
1.01 Certain Defined Terms................................................... 1
1.02 Other Interpretive Provisions........................................... 16
1.03 Accounting Principles................................................... 17
ARTICLE II
THE CREDITS................................... 17
2.01 Amounts and Terms of Commitments........................................ 17
2.02 Loan Accounts........................................................... 18
2.03 Procedure for Borrowing................................................. 18
2.04 Conversion and Continuation Elections................................... 19
2.05 Voluntary Termination or Reduction of Commitments....................... 20
2.06 Optional Prepayments.................................................... 21
2.07 Repayment............................................................... 21
2.08 Interest................................................................ 21
2.09 Fees.................................................................... 22
(a) Arrangement, Agency Fees........................................... 22
(b) Facility Fees...................................................... 22
2.10 Computation of Fees and Interest........................................ 22
2.11 Payments by the Company................................................. 23
2.12 Payments by the Banks to the Agent...................................... 24
2.13 Sharing of Payments, Etc................................................ 24
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY....................... 25
3.01 Taxes................................................................... 25
3.02 Illegality.............................................................. 26
3.03 Increased Costs and Reduction of Return................................. 27
3.04 Funding Losses.......................................................... 28
3.05 Inability to Determine Rates............................................ 29
3.06 Certificates of Banks................................................... 29
3.07 Survival................................................................ 29
ARTICLE IV
CONDITIONS PRECEDENT ............................... 29
4.01 Conditions of Initial Loans............................................. 29
(a) Credit Agreement................................................... 30
(b) Resolutions; Incumbency............................................ 30
(c) Organization Documents; Good Standing.............................. 30
(d) Legal Opinion...................................................... 30
(e) Payment of Fees.................................................... 30
(f) Company Certificates............................................... 30
(g) Other Documents.................................................... 31
4.02 Conditions to All Borrowings............................................ 31
(a) Notice of Borrowing or Conversion/Continuation..................... 31
(b) Continuation of Representations and Warranties..................... 31
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
(c) No Existing Default............................................ 31
ARTICLE V
REPRESENTATIONS AND WARRANTIES........................... 31
5.01 Corporate Existence and Power........................................... 32
5.02 Corporate Authorization; No Contravention............................... 32
5.03 Governmental Authorization.............................................. 32
5.04 Binding Effect.......................................................... 32
5.05 Litigation.............................................................. 33
5.06 No Default.............................................................. 33
5.07 Use of Proceeds; Margin Regulations..................................... 33
5.08 Financial Condition..................................................... 33
5.09 Regulated Entities...................................................... 34
5.10 No Burdensome Restrictions.............................................. 34
5.11 Subsidiaries and Certain Liens As of the Closing Date................... 34
ARTICLE VI
AFFIRMATIVE COVENANTS............................... 34
6.01 Financial Statements.................................................... 34
6.02 Certificates; Other Information......................................... 35
6.03 Notices................................................................. 36
6.04 Preservation of Corporate Existence, Etc................................ 36
6.05 Insurance............................................................... 36
6.06 Payment of Taxes........................................................ 37
6.07 Compliance with Laws.................................................... 37
6.08 Inspection of Property and Books and Records............................ 37
6.09 Use of Proceeds......................................................... 37
ARTICLE VII
NEGATIVE COVENANTS................................. 38
7.01 Limitation on Liens..................................................... 38
7.02 Consolidations and Mergers.............................................. 39
7.03 Use of Proceeds......................................................... 39
7.04 Maximum Debt to Capitalization Ratio.................................... 40
ARTICLE VIII
EVENTS OF DEFAULT................................. 40
8.01 Event of Default........................................................ 40
(a) Non-Payment.................................................... 40
(b) Representation or Warranty..................................... 40
(c) Specific Defaults.............................................. 40
(d) Other Defaults................................................. 40
(e) Cross-Default.................................................. 41
(f) Insolvency; Voluntary Proceedings.............................. 41
(g) Involuntary Proceedings........................................ 41
(h) ERISA.......................................................... 42
8.02 Remedies................................................................ 42
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Section Page
<S> <C>
8.03 Rights Not Exclusive.................................................... 42
ARTICLE IX
THE AGENT..................................... 43
9.01 Appointment and Authorization........................................... 43
9.02 Delegation of Duties.................................................... 43
9.03 Liability of Agent...................................................... 43
9.04 Reliance by the Agent................................................... 43
9.05 Notice of Default....................................................... 44
9.06 Credit Decision......................................................... 44
9.07 Indemnification of Agent................................................ 45
9.08 Agent in Individual Capacity............................................ 45
9.09 Successor Agent......................................................... 46
9.10 Withholding Tax......................................................... 46
9.11 Co-Agent................................................................ 48
ARTICLE X
MISCELLANEOUS................................... 48
10.01 Amendments and Waivers................................................. 48
10.02 Notices................................................................ 49
10.03 No Waiver; Cumulative Remedies......................................... 49
10.04 Costs and Expenses..................................................... 50
10.05 Company Indemnification................................................ 50
10.06 Payments Set Aside..................................................... 51
10.07 Successors and Assigns................................................. 51
10.08 Assignments, Participations, etc....................................... 51
10.09 Confidentiality........................................................ 53
10.10 Set-off................................................................ 54
10.11 Notification of Addresses, Lending Offices, Etc........................ 54
10.12 Counterparts........................................................... 55
10.13 Severability........................................................... 55
10.14 No Third Parties Benefited............................................. 55
10.15 Governing Law and Jurisdiction; Language............................... 55
10.16 Waiver of Jury Trial................................................... 55
10.17 Entire Agreement....................................................... 56
</TABLE>
iii
<PAGE>
McKesson Corporation
List of Schedules and Exhibits to Credit Agreement
SCHEDULES
Schedule 2.01 Commitments
Schedule 5.11 Subsidiaries and Liens Securing Indebtedness for Borrowed
Money
Schedule 10.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D Form of Legal Opinion of Company's Counsel
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Promissory Note
iv
<PAGE>
CREDIT AGREEMENT
----------------
This CREDIT AGREEMENT is entered into as of November 4, 1996, among
McKesson Corporation, a Delaware corporation (the "Company"), the several
-------
financial institutions from time to time party to this Agreement (collectively,
the "Banks"; individually, a "Bank"), The Chase Manhattan Bank, as co-agent for
----- ----
the Banks, and Bank of America National Trust and Savings Association, as agent
for the Banks.
WHEREAS, the Banks have agreed to make available to the Company a revolving
credit facility upon the terms and conditions set forth in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions and
covenants contained herein, the parties agree as follows:
ARTICLE I
DEFINITIONS
-----------
1.01 Certain Defined Terms. As used in this Agreement and the other Loan
---------------------
Documents, the following terms have the following meanings:
"Affiliate" means, as to any Person, any other Person which, directly
---------
or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another
Person if the controlling Person possesses, directly or indirectly, the
power to direct or cause the direction of the management and policies of
the other Person, whether through the ownership of voting securities, by
contract, or otherwise.
"Agent" means BofA in its capacity as agent for the Banks hereunder,
-----
and any successor agent arising under Section 9.09.
"Agent-Related Persons" means the Agent and any successor agent
---------------------
arising under Section 9.09, together with their respective Affiliates
(including, in the case of BofA, the Arranger), and the officers,
directors, employees, agents and attorneys-in-fact of such Persons and
Affiliates.
"Agent's Payment Office" means the address for payments set forth on
----------------------
Schedule 10.02 in relation to the Agent, or such other address as the Agent
--------------
may from time to time specify.
"Agreement" means this Credit Agreement.
---------
"Applicable Margin" means
-----------------
1
<PAGE>
(i) with respect to CD Rate Loans, 0.2750%; and
(ii) with respect to Offshore Rate Loans, 0.1500%.
"Arranger" means BA Securities, Inc., a Delaware corporation.
--------
"Assessment Rate" has the meaning specified in the definition of "CD
---------------
Rate."
"Assignee" has the meaning specified in subsection 10.08(a).
--------
"Attorney Costs" means and includes all reasonable fees and
--------------
disbursements of any law firm or other external counsel, the allocated
reasonable cost of internal legal services and all reasonable disbursements
of internal counsel; provided that no fees or disbursements shall qualify
--------
as Attorney Costs unless written evidence substantiating such fees and
disbursements is available to the Company upon request.
"Bank" has the meaning specified in the introductory clause hereto.
----
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of 1978 (11
---------------
U.S.C. (S)101, et seq.).
-------
"Base Rate" means, for any day, the higher of: (a) 0.50% per annum
---------
above the Federal Funds Rate in effect for that day; and (b) the rate of
interest in effect for such day as publicly announced from time to time by
BofA in San Francisco, California, as its "reference rate." (The "reference
rate" is a rate set by BofA based upon various factors including BofA's
costs and desired return, general economic conditions and other factors,
and is used as a reference point for pricing some loans, which may be
priced at, above, or below such announced rate.) Any change in the
reference rate announced by BofA shall take effect at the opening of
business on the day specified in the public announcement of such change.
"Base Rate Loan" means a Loan that bears interest based on the Base
--------------
Rate.
"BofA" means Bank of America National Trust and Savings Association, a
----
national banking association.
"Borrowing" means a borrowing hereunder consisting of Loans of the
---------
same Type made to the Company on the same day by the Banks under Article
II, and, other than in the case of Base Rate Loans, having the same
Interest Period.
"Borrowing Date" means any date on which a Borrowing occurs under
--------------
Section 2.03.
2
<PAGE>
"Business Day" means any day other than a Saturday, Sunday or other
------------
day on which commercial banks in New York City, Chicago or San Francisco
are authorized or required by law to close and, if the applicable Business
Day relates to any Offshore Rate Loan, means such a day on which dealings
are carried on in the applicable offshore dollar interbank market.
"Capital Adequacy Regulation" means any guideline, request or
---------------------------
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each
case, regarding capital adequacy of any bank or of any corporation
controlling a bank.
"CD Rate" means, for any Interest Period with respect to CD Rate Loans
-------
comprising part of the same Borrowing, the rate of interest (rounded upward
to the next 1/100th of 1%) determined as follows:
CD Rate = Certificate of Deposit Rate + Assessment
---------------------------
1.00 - Reserve Percentage Rate
Where:
"Assessment Rate" means, for any day of such Interest Period, the
---------------
rate determined by the Agent as equal to the annual assessment rate in
effect on such day payable to the FDIC by a member of the Bank
Insurance Fund that is classified as adequately capitalized and within
supervisory subgroup "A" (or a comparable successor assessment risk
classification within the meaning of 12 C.F.R. (S)327.3) for insuring
time deposits at offices of such member in the United States; or, in
the event that the FDIC shall at any time hereafter cease to assess
time deposits based upon such classifications or successor
classifications, equal to the maximum annual assessment rate in effect
on such day that is payable to the FDIC by commercial banks (whether
or not applicable to any particular Bank) for insuring time deposits
at offices of such banks in the United States.
"Certificate of Deposit Rate" means the rate of interest per
---------------------------
annum determined by the Agent to be the arithmetic mean (rounded
upward to the next 1/100th of 1%) of the rates notified to the Agent
by each Reference Bank as the rates of interest bid by two or more
certificate of deposit dealers of recognized standing selected by such
Reference Bank for the purchase at face value of dollar certificates
of deposit issued by major United States banks, for a maturity
comparable to such Interest Period and in the approximate amount of
the CD Rate Loan to be made by
3
<PAGE>
such Reference Bank, at the time selected by such Reference Bank on
the first day of such Interest Period.
"Reserve Percentage" means, for any day of such Interest Period,
------------------
the maximum reserve percentage (expressed as a decimal, rounded upward
to the next 1/100th of 1%), as determined by the Agent, in effect on
such day (including any ordinary, marginal, emergency, supplemental,
special and other reserve percentages), prescribed by the FRB for
determining the maximum reserves to be maintained by member banks of
the Federal Reserve System with deposits exceeding $1,000,000,000 for
new non-personal time deposits for a period comparable to such
Interest Period and in an amount of $100,000 or more.
The CD Rate shall be adjusted, as to all CD Rate Loans then
outstanding, automatically as of the effective date of any change in the
Assessment Rate or the Reserve Percentage.
"CD Rate Loan" means a Loan that bears interest based on the CD Rate.
------------
"Certificate of Deposit Rate" has the meaning specified in the
---------------------------
definition of "CD Rate."
-------
"Closing Date" means the date on which all conditions precedent set
------------
forth in Section 4.01 are satisfied or waived by all Banks (or, in the case
of subsection 4.01(e), waived by the Person entitled to receive such
payment).
"Co-Agent" means The Chase Manhattan Bank in its capacity as co-agent
--------
for the Banks hereunder.
"Code" means the Internal Revenue Code of 1986, and regulations
----
promulgated thereunder.
"Commitment", as to each Bank, has the meaning specified in Section
----------
2.01, and "Commitments" means the aggregate amount of the Commitments for
-----------
each Bank in effect on such date.
"Company" has the meaning specified in the introductory clause hereto.
-------
"Compliance Certificate" means a certificate substantially in the form
----------------------
of Exhibit C.
"Contingent Obligation" means, as to any Person, any direct or
---------------------
indirect liability of that Person, whether or not contingent, with or
without recourse, (a) with respect to any Indebtedness, lease, dividend,
letter of credit or other obligation (the "primary obligations") of another
4
<PAGE>
Person (the "primary obligor"), including any obligation of that Person (i)
to purchase, repurchase or otherwise acquire such primary obligations or
any security therefor, (ii) to advance or provide funds for the payment or
discharge of any such primary obligation, or to maintain working capital or
equity capital of the primary obligor or otherwise to maintain the net
worth or solvency or any balance sheet item, level of income or financial
condition of the primary obligor, (iii) to purchase property, securities or
services primarily for the purpose of assuring the owner of any such
primary obligation of the ability of the primary obligor to make payment of
such primary obligation, or (iv) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof
(each, a "Guaranty Obligation"); (b) with respect to any Surety Instrument
-------------------
issued for the account of that Person or as to which that Person is
otherwise liable for reimbursement of drawings or payments; (c) to purchase
any materials, supplies or other property from, or to obtain the services
of, another Person if the relevant contract or other related document or
obligation requires that payment for such materials, supplies or other
property, or for such services, shall be made regardless of whether
delivery of such materials, supplies or other property is ever made or
tendered, or such services are ever performed or tendered, or (d) in
respect of any Swap Contract. The amount of any Contingent Obligation
shall, in the case of Guaranty Obligations, be deemed equal to the stated
or determinable amount of the primary obligation in respect of which such
Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, and in the
case of other Contingent Obligations, shall be equal to the maximum
reasonably anticipated liability in respect thereof.
"Contractual Obligation" means, as to any Person, any provision of any
----------------------
security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or
agreement to which such Person is a party or by which it or any of its
property is bound.
"Conversion/Continuation Date" means any date on which, under Section
----------------------------
2.04, the Company (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Default" means any event or circumstance which, with the giving of
-------
notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Dollars", "dollars" and "$" each mean lawful money of
------- ------- -
5
<PAGE>
the United States.
"Eligible Assignee" means (i) a commercial bank organized under the
-----------------
laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (ii) a commercial bank
organized under the laws of any other country which is a member of the
OECD, or a political subdivision of any such country, and having a combined
capital and surplus of at least $100,000,000, provided that such bank is
acting through a branch or agency located in the United States; and (iii) a
Person that is primarily engaged in the business of commercial banking and
that is (A) a Subsidiary of a Bank, (B) a Subsidiary of a Person of which a
Bank is a Subsidiary, or (C) a Person of which a Bank is a Subsidiary.
"Employee Benefit Plan" means any "employee benefit plan" as defined
---------------------
in Section 3(3) of ERISA which is, or was at any time, maintained or
contributed to by the Company or any of its ERISA Affiliates.
"Environmental Laws" means all federal, state, or local laws,
------------------
statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests,
licenses, authorizations and permits of, and agreements with, any
Governmental Authorities, in each case relating to environmental, health,
safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, and
-----
regulations promulgated thereunder.
"ERISA Affiliate", as applied to any Person, means (i) any corporation
---------------
which is, or was at any time, a member of a controlled group of
corporations within the meaning of Section 414(b) of the Code of which that
Person is, or was at any time, a member; (ii) any trade or business
(whether or not incorporated) which is, or was at any time, a member of a
group of trades or businesses under common control within the meaning of
Section 414(c) of the Code of which that Person is, or was at any time, a
member; and (iii) any member of an affiliated service group within the
meaning of Section 414(m) or (o) of the Code of which that Person, any
corporation described in clause (i) above or any trade or business
described in clause (ii) above is, or was at any time, a member; provided
that an ERISA Affiliate shall not include a Person that was a member, as
referenced in clause (i), (ii) or (iii) above if the Company or any of its
Subsidiaries would not have any liability in connection with an ERISA Event
with respect to such Person.
"ERISA Event" means (i) a "reportable event" within the meaning of
-----------
Section 4043 of ERISA and the regulations issued thereunder with respect to
any Pension Plan
6
<PAGE>
(excluding those for which the provision for 30-day notice to the PBGC has
been waived by regulation); (ii) the failure to meet the minimum funding
standard of Section 412 of the Code with respect to any Pension Plan
(whether or not waived in accordance with Section 412(d) of the Code) or
the failure to make by its due date a required installment under Section
412(m) of the Code with respect to any Pension Plan or the failure to make
any required contribution to a Multiemployer Plan; (iii) the provision by
the administrator of any Pension Plan pursuant to Section 4041(a)(2) of
ERISA of a notice of intent to terminate such plan in a distress
termination described in Section 4041(c) of ERISA; (iv) the withdrawal by
the Company or any of its ERISA Affiliates from any Pension Plan with two
or more contributing sponsors or the termination of any such Pension Plan
resulting in liability pursuant to Sections 4063 or 4064 of ERISA; (v) the
institution by the PBGC of proceedings to terminate any Pension Plan, or
the occurrence of any event or condition which might constitute grounds
under ERISA for the termination of, or the appointment of a trustee to
administer, any Pension Plan; (vi) the imposition of liability on the
Company or any of its ERISA Affiliates pursuant to Section 4062(e) or 4069
of ERISA or by reason of the application of Section 4212(c) of ERISA; (vii)
the withdrawal by the Company or any of its ERISA Affiliates in a complete
or partial withdrawal (within the meaning of Sections 4203 and 4205 of
ERISA) from any Multiemployer Plan if there is any potential liability
therefor, or the receipt by the Company or any of its ERISA Affiliates of
notice from any Multiemployer Plan that it is in reorganization or
insolvency pursuant to Section 4241 or 4245 of ERISA, or that it intends to
terminate or has terminated under Section 4041A or 4042 of ERISA; (viii)
the occurrence of an act or omission which could give rise to the
imposition on the Company or any of its ERISA Affiliates of fines,
penalties, taxes or related charges under Chapter 43 of the Code or under
Section 409 or 502(c), (i) or (l) or 4071 of ERISA in respect of any
Employee Benefit Plan; (ix) the assertion of a material claim (other than
routine claims for benefits) against any Employee Benefit Plan other than a
Multiemployer Plan or the assets thereof, or against the Company or any of
its ERISA Affiliates in connection with any such Employee Benefit Plan; (x)
receipt from the Internal Revenue Service of notice of the failure of any
Pension Plan (or any other Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code) to qualify under Section 401(a) of the
Code, or the failure of any trust forming part of any Pension Plan to
qualify for exemption from taxation under Section 501(a) of the Code; or
(xi) the imposition of a Lien pursuant to Section 401(a)(29) or 412(n) of
the Code or pursuant to ERISA with respect to any Pension Plan.
"Eurodollar Reserve Percentage" has the meaning
-----------------------------
7
<PAGE>
specified in the definition of "Offshore Rate."
"Event of Default" means any of the events or circumstances specified
----------------
in Section 8.01.
"Exchange Act" means the Securities and Exchange Act of 1934, and
------------
regulations promulgated thereunder.
"FDIC" means the Federal Deposit Insurance Corporation, and any
----
Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in the
------------------
weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including
any such successor, "H.15(519)") on the preceding Business Day opposite the
caption "Federal Funds (Effective)"; or, if for any relevant day such rate
is not so published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Agent of the rates for
the last transaction in overnight Federal funds arranged prior to 9:00 a.m.
(New York City time) on that day by each of three leading brokers of
Federal funds transactions in New York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.09(a).
----------
"FRB" means the Board of Governors of the Federal Reserve System, and
---
any Governmental Authority succeeding to any of its principal functions.
"GAAP" means generally accepted accounting principles set forth from
----
time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants
and statements and pronouncements of the Financial Accounting Standards
Board (or agencies with similar functions of comparable stature and
authority within the U.S. accounting profession), which are applicable to
the circumstances as of the date of determination; provided that with
respect to Subsidiaries not organized in the United States, "GAAP" means
generally accepted accounting principles in accordance with agencies with
similar function of comparable stature and authority within the accounting
profession in the relevant jurisdiction.
"Governmental Authority" means any nation or government, any state or
----------------------
other political subdivision thereof, any central bank (or similar monetary
or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled,
8
<PAGE>
through stock or capital ownership or otherwise, by any of the foregoing.
"Guaranty Obligation" has the meaning specified in the definition of
-------------------
"Contingent Obligation".
"Indebtedness" of any Person means, without duplication, (a) all
------------
indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all non-contingent reimbursement or payment obligations with
respect to Surety Instruments; provided that this clause (c) shall not
include up to $10,000,000 of non-contingent reimbursement or payment
obligations with respect to Surety Instruments that do not support
indebtedness for borrowed money to the extent that no default has occurred
with respect to the payment thereof; (d) all obligations evidenced by
notes, bonds, debentures or similar instruments, including obligations so
evidenced incurred in connection with the acquisition of property, assets
or businesses; (e) all indebtedness created or arising under any
conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person
(even though the rights and remedies of the seller or bank under such
agreement in the event of default are limited to repossession or sale of
such property); (f) all obligations with respect to capital leases; (g) all
net obligations with respect to Swap Contracts; and (h) all indebtedness
referred to in clauses (a) through (g) above secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise,
to be secured by) any Lien upon or in property (including accounts and
contracts rights) owned by such Person, even though such Person has not
assumed or become liable for the payment of such Indebtedness.
"Indemnified Liabilities" has the meaning specified in Section 10.05.
-----------------------
"Indemnified Person" has the meaning specified in Section 10.05.
------------------
"Independent Auditor" has the meaning specified in subsection 6.01(a).
-------------------
"Ineligible Securities" has the meaning specified in subsection
---------------------
7.03(b).
"Insolvency Proceeding" means (a) any case, action or proceeding
---------------------
before any court or other Governmental Authority relating to bankruptcy,
reorganization, insolvency, liquidation, receivership, dissolution,
winding-up or relief of debtors, or (b) any general assignment for the
9
<PAGE>
benefit of creditors, composition, marshalling of assets for creditors, or
other similar arrangement in respect of its creditors generally or any
substantial portion of its creditors; undertaken under U.S. Federal, state
or foreign law, including the Bankruptcy Code.
"Interest Payment Date" means, as to any Loan other than a Base Rate
---------------------
Loan, the last day of each Interest Period applicable to such Loan and, as
to any Base Rate Loan, the last Business Day of each calendar quarter and
each date such Loan is converted into another Type of Loan; provided,
--------
however, that if any Interest Period for a CD Rate Loan or Offshore Rate
-------
Loan exceeds 90 days or three months, respectively, the date that falls 90
days or three months (as the case may be) after the beginning of such
Interest Period and after each Interest Payment Date thereafter is also an
Interest Payment Date.
"Interest Period" means, (a) as to any Offshore Rate Loan, the period
---------------
commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as an Offshore Rate Loan, and ending on the date one, two, three
or six months thereafter as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation; and (b) as to any CD Rate
Loan, the period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or
continued as a CD Rate Loan, and ending 30, 60, 90 or 180 days thereafter,
as selected by the Company in its Notice of Borrowing or Notice of
Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended to the
following Business Day unless, in the case of an Offshore Rate Loan,
the result of such extension would be to carry such Interest Period
into another calendar month, in which event such Interest Period shall
end on the preceding Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan
that begins on the last Business Day of a calendar month (or on a day
for which there is no numerically corresponding day in the calendar
month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period;
and
(iii) no Interest Period for any Loan shall extend beyond the
Revolving Termination Date.
"IRS" means the Internal Revenue Service, and any
---
10
<PAGE>
Governmental Authority succeeding to any of its principal functions under
the Code.
"Lending Office" means, as to any Bank, the office or offices of such
--------------
Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 10.02, or such
--------------
other office or offices as such Bank may from time to time notify the
Company and the Agent.
"LIBOR" has the meaning specified in the definition of the "Offshore
-----
Rate."
"Lien" means any security interest, mortgage, deed of trust, pledge,
----
hypothecation, assignment, charge or deposit arrangement, encumbrance, lien
(statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention
agreement, the interest of a lessor under a capital lease, any financing
lease having substantially the same economic effect as any of the
foregoing, or the filing of any financing statement naming the owner of the
asset to which such lien relates as debtor, under the Uniform Commercial
Code or any comparable law) and any contingent or other agreement to
provide any of the foregoing, but not including the interest of a lessor
under an operating lease.
"Loan" means an extension of credit by a Bank to the Company under
----
Article II, and may be a Base Rate Loan, CD Rate Loan or an Offshore Rate
Loan (each, a "Type" of Loan).
----
"Loan Documents" means this Agreement, any Notes, the Fee Letter and
--------------
all other documents delivered to the Agent or any Bank in connection
herewith.
"Majority Banks" means at any time Banks then holding more than 50% of
--------------
the then aggregate unpaid principal amount of the Loans, or, if no such
principal amount is then outstanding, Banks then having more than 50% of
the Commitments.
"Margin Stock" means "margin stock" as such term is defined in
------------
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change in, or a
-----------------------
material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole or any Material Subsidiary; (b) a material
impairment of the ability of the Company to perform under any Loan Document
and to avoid any Event of Default; or (c) a material adverse effect upon
the legality, validity,
11
<PAGE>
binding effect or enforceability against the Company of any Loan Document.
"Material Subsidiary" means, at any time, (i) Medis and (ii) any other
-------------------
Subsidiary having at such time 10% or more of Company's consolidated total
(gross) revenues for the preceding four fiscal quarter period, as of the
last day of the preceding fiscal quarter based upon the Company's most
recent annual or quarterly financial statements delivered to the Agent
under Section 6.01.
"Medis" means Medis Health and Pharmaceutical Services, Inc., an
-----
Ontario corporation.
"Multiemployer Plan" means a "multiemployer plan", as defined in
------------------
Section 3(37) of ERISA, to which the Company or any of its ERISA Affiliates
is contributing, or ever has contributed, or to which the Company or any of
its ERISA Affiliates has, or ever has had, an obligation to contribute.
"Net Worth" means the sum of the capital stock and additional paid in
---------
capital plus retained earnings (or minus accumulated deficits) of the
Company and its Subsidiaries determined on a consolidated basis in
conformity with GAAP on such date.
"Note" means a promissory note executed by the Company in favor of a
----
Bank pursuant to subsection 2.02(b), substantially in the form of Exhibit
F.
"Notice of Borrowing" means a notice substantially in the form of
-------------------
Exhibit A.
"Notice of Conversion/Continuation" means a notice substantially in
---------------------------------
the form of Exhibit B.
"Obligations" means all advances, debts, liabilities, obligations,
-----------
covenants and duties arising under any Loan Document owing by the Company
to any Bank, any Agent, or any Indemnified Person, whether direct or
indirect (including those acquired by assignment), absolute or contingent,
due or to become due, now existing or hereafter arising.
"OECD" means the Organization for Economic Cooperation and
----
Development.
"Offshore Rate" means, for any Interest Period, with respect to
-------------
Offshore Rate Loans comprising part of the same Borrowing, the rate of
interest per annum (rounded upward to the next 1/100th of 1%) determined by
the Agent as follows:
12
<PAGE>
Offshore Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
-----------------------------
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on such
day (whether or not applicable to any Bank) under regulations issued
from time to time by the FRB for determining the maximum reserve
requirement (including any emergency, supplemental or other marginal
reserve requirement) with respect to Eurocurrency funding (currently
referred to as "Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined by the
-----
Agent to be the arithmetic mean (rounded upward to the next 1/16th of
1%) of the rates of interest per annum notified to the Agent by each
Reference Bank as the rate of interest at which dollar deposits in the
approximate amount of the amount of the Loan to be made or continued
as, or converted into, an Offshore Rate Loan by such Reference Bank
and having a maturity comparable to such Interest Period would be
offered to major banks in the London interbank market at their request
at approximately 11:00 a.m. (London time) two Business Days prior to
the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all Offshore
Rate Loans then outstanding as of the effective date of any change in the
Eurodollar Reserve Percentage.
"Offshore Rate Loan" means a Loan that bears interest based on the
------------------
Offshore Rate.
"Organization Documents" means, for any corporation, the certificate
----------------------
or articles of incorporation, the bylaws, any certificate of determination
or instrument relating to the rights of preferred shareholders of such
corporation, any shareholder rights agreement, and all applicable
resolutions of the board of directors (or any committee thereof) of such
corporation.
"Other Taxes" means any present or future stamp or documentary taxes
-----------
or any other excise or property taxes, charges or similar levies which
arise from any payment made hereunder or from the execution, delivery or
registration of, or otherwise with respect to, this Agreement or any other
Loan Documents.
"Participant" has the meaning specified in subsection 10.08(d).
-----------
13
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation, or any
----
Governmental Authority succeeding to any of its principal functions under
ERISA.
"Pension Plan" means any Employee Benefit Plan, other than a
------------
Multiemployer Plan, which is subject to Section 412 of the Code or Section
302 of ERISA.
"Permitted Liens" has the meaning specified in Section 7.01.
---------------
"Person" means an individual, partnership, corporation, business
------
trust, limited liability company, joint stock company, trust,
unincorporated association, joint venture or other organization or
Governmental Authority.
"Pro Rata Share" means, as to any Bank at any time, the percentage
--------------
equivalent (expressed as a decimal, rounded to the ninth decimal place) at
such time of such Bank's Commitment divided by the combined Commitments of
all Banks.
"Reference Banks" means BofA and The Chase Manhattan Bank.
---------------
"Requirement of Law" means, as to any Person, any law (statutory or
------------------
common), treaty, rule or regulation or determination of an arbitrator or of
a Governmental Authority, in each case applicable to or binding upon the
Person or any of its property or to which the Person or any of its property
is subject, including but not limited to any Environmental Law.
"Reserve Percentage" has the meaning specified in the definition of
------------------
"CD Rate."
"Responsible Officer" means the chief executive officer, the president
-------------------
or any vice president of the Company; and, with respect to compliance with
financial covenants, the chief financial officer or the treasurer of the
Company.
"Revolving Termination Date" means the earlier to occur of:
--------------------------
(a) November 3, 1997; and
(b) the date on which the Commitments terminate in accordance
with the provisions of this Agreement.
"SEC" means the Securities and Exchange Commission, or any
---
Governmental Authority succeeding to any of its principal functions.
14
<PAGE>
"Subsidiary" of a Person means any corporation, association,
----------
partnership, limited liability company, joint venture or other business
entity of which more than 50% of the voting stock or other equity interests
(in the case of Persons other than corporations), is owned or controlled
directly or indirectly by the Person, or one or more of the Subsidiaries of
the Person, or a combination thereof. Unless the context otherwise clearly
requires, references herein to a "Subsidiary" refer to a Subsidiary of the
Company.
"Surety Instruments" means all letters of credit (including standby
------------------
and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Swap Contract" means any agreement (including any master agreement
-------------
and any agreement, whether or not in writing, relating to any single
transaction) that is an interest rate swap agreement, basis swap, forward
rate agreement, commodity swap, commodity option, equity or equity index
swap or option, bond option, interest rate option, forward foreign exchange
agreement, rate cap, collar or floor agreement, currency swap agreement,
cross-currency rate swap agreement, swaption, currency option or any other,
similar agreement (including any option to enter into any of the
foregoing).
"Taxes" means any and all present or future taxes, levies, imposts,
-----
deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Bank and the Agent, respectively,
such taxes (including, without limitation, income taxes, capital taxes,
minimum taxes, branch taxes, capital gains taxes or franchise taxes) (i) as
are imposed on or measured by each Bank's or the Agent's, as the case may
be, net income or taxable capital by the jurisdiction (or any political
subdivision thereof) under the laws of which such Bank or the Agent, as the
case may be, is organized or in respect of which it is a resident or within
which it maintains the actual lending office or (ii) to the extent
attributable to a permanent establishment or fixed base located in any
jurisdiction (or any political subdivision thereof) identified in (i)
hereof.
"Total Capitalization" means, on any date, the sum of (a) Total Debt
--------------------
and (b) the Net Worth on such date.
"Total Debt" means, on any date, all Indebtedness of the Company and
----------
its Subsidiaries determined on a consolidated basis on such date.
"Type" has the meaning specified in the definition of "Loan."
----
15
<PAGE>
"Unfunded Pension Liability" means the excess of a Plan's benefit
--------------------------
liabilities under Section 4001(a)(16) of ERISA, over the current value of
that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the
applicable plan year.
"United States" and "U.S." each means the United States of America.
------------- ----
"Wholly-Owned Subsidiary" means any corporation in which (other than
-----------------------
directors' qualifying shares required by law) 100% of the capital stock of
each class having ordinary voting power, and 100% of the capital stock of
every other class, in each case, at the time as of which any determination
is being made, is owned, beneficially and of record, by the Company, or by
one or more of the other Wholly-Owned Subsidiaries, or both.
1.02 Other Interpretive Provisions. (a) The meanings of defined terms
-----------------------------
are equally applicable to the singular and plural forms of the defined terms.
(b) The words "hereof", "herein", "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other
writings, however evidenced.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including";
the words "to" and "until" each mean "to but excluding", and the word
"through" means "to and including."
(d) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto, but
only to the extent such amendments and other modifications are not prohibited by
the terms of any Loan Document, and (ii) references to any statute or regulation
are to be construed as including all statutory and regulatory provisions
consolidating, amending, replacing, supplementing or interpreting the statute or
regulation.
(e) The captions and headings of this Agreement are for convenience of
reference only and shall not affect the
16
<PAGE>
interpretation of this Agreement.
(f) This Agreement and the other Loan Documents may use several
different limitations, tests or measurements to regulate the same or similar
matters. All such limitations, tests and measurements are cumulative and shall
each be performed in accordance with their terms.
(g) This Agreement and the other Loan Documents are the result of
negotiations among and have been reviewed by counsel to the Agent, the Company
and the other parties, and are the products of all parties. Accordingly, they
shall not be construed against the Banks or the Agent merely because of the
Agent's or Banks' involvement in their preparation.
1.03 Accounting Principles. (a) Unless the context otherwise clearly
---------------------
requires, all accounting terms not expressly defined herein shall be construed,
and all financial computations required under this Agreement shall be made, in
accordance with GAAP, consistently applied.
(b) If any changes in accounting principles from those used in the
preparation of the financial statements referred to in Section 5.08 hereafter
occasioned by the promulgation of rules, regulations, pronouncements and
opinions by or required by the Financial Accounting Standards Board or the
American Institute of Certified Public Accountants (or successors thereto or
agencies with similar functions) result in a change in the method of calculation
of financial covenants, standards or terms found in Articles I, VI and VII
hereof, the parties hereto agree to enter into negotiations in order to amend
such provisions so as to equitably reflect such changes with the desired result
that the criteria for evaluating the Company's financial condition shall be the
same after such changes as if such changes had not been made.
(c) References herein to "fiscal year" and "fiscal quarter" refer to
such fiscal periods of the Company.
ARTICLE II
THE CREDITS
-----------
2.01 Amounts and Terms of Commitments. Each Bank severally agrees, on and
--------------------------------
subject to the terms and conditions set forth herein, to make Loans to the
Company from time to time as requested by the Company in accordance with
Sections 2.03 and 10.02 on any Business Day during the period from the Closing
Date to the Revolving Termination Date, in an aggregate amount not to exceed at
any time outstanding the amount set forth opposite its name on Schedule 2.01
-------------
(such amount, as the same may be reduced under Section 2.05 or as a result of
one or more assignments under Section 10.08, the Bank's "Commitment"); provided,
---------- --------
however, that, after giving effect to any Borrowing,
- -------
17
<PAGE>
the aggregate principal amount of all outstanding Loans to the Company shall not
at any time exceed the combined Commitments. Within the limits of each Bank's
Commitment, and subject to the other terms and conditions hereof, the Company
may borrow under this Section 2.01, prepay under Section 2.06 and reborrow under
this Section 2.01.
2.02 Loan Accounts. (a) The Loans made by each Bank shall be evidenced
-------------
by one or more loan accounts or records maintained by such Bank in the ordinary
course of business. The loan accounts or records maintained by the Agent and
each Bank shall be conclusive absent manifest error of the amount of the Loans
made by the Banks to the Company and the interest and payments thereon. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Company hereunder to pay any amount owing
with respect to the Loans made to the Company.
(b) Upon the request of any Bank made through the Agent, the Loans
made by such Bank to the Company may be evidenced by one or more Notes, instead
of loan accounts. Each such Bank shall endorse on the schedules annexed to its
Note(s) the date, amount and maturity of each Loan made by it and the amount of
each payment of principal made by the Company with respect thereto. Each such
Bank is irrevocably authorized by the Company to endorse its Note(s) and each
Bank's record shall be conclusive absent manifest error; provided, however, that
-------- -------
the failure of a Bank to make, or an error in making, a notation thereon with
respect to any Loan shall not limit or otherwise affect the obligations of the
Company hereunder or under any such Note to such Bank.
2.03 Procedure for Borrowing. (a) Each Borrowing shall be made upon the
-----------------------
Company's irrevocable written notice delivered to the Agent in the form of a
Notice of Borrowing (which notice must be received by the Agent prior to 9:00
a.m. (San Francisco time) (i) three Business Days prior to the requested
Borrowing Date, in the case of Offshore Rate Loans; (ii) two Business Days prior
to the requested Borrowing Date, in the case of CD Rate Loans; and (iii) on the
requested Borrowing Date, in the case of Base Rate Loans, specifying:
(A) the amount of the Borrowing, which shall be in an aggregate
minimum amount of $10,000,000 or any multiple of $1,000,000 in excess
thereof;
(B) the requested Borrowing Date, which shall be a Business Day;
(C) the Type of Loans comprising the Borrowing; and
(D) the duration of the Interest Period applicable to such Loans
included in such notice. If the Notice of Borrowing fails to specify the
duration of the
18
<PAGE>
Interest Period for any Borrowing comprised of CD Rate Loans or Offshore
Rate Loans, such Interest Period shall be 90 days or three months,
respectively.
(b) The Agent will promptly notify each Bank of its receipt of any
Notice of Borrowing and of the amount of such Bank's Pro Rata Share of that
Borrowing.
(c) Each Bank will make the amount of its Pro Rata Share of each
Borrowing available to the Agent for the account of the Company at the Agent's
Payment Office on the Borrowing Date requested by the Company in funds
immediately available to the Agent by 11:00 a.m. (San Francisco time). The
proceeds of all such Loans will then be made available to the Company on the
Borrowing Date by the Agent at such office by crediting the account of the
Company on the books of BofA with the aggregate of the amounts made available to
the Agent by the Banks and in like funds as received by the Agent.
(e) After giving effect to any Borrowing, there may not be more than
five different Interest Periods in effect.
2.04 Conversion and Continuation Elections. (a) The Company may in
-------------------------------------
respect of its outstanding Loans, upon irrevocable written notice to the Agent
in accordance with subsection 2.04(c):
(i) elect, as of any Business Day, in the case of Base Rate
Loans, or as of the last day of the applicable Interest Period, in the case
of any other Type of Loans, to convert any such Loans (or any part thereof
in an amount not less than $10,000,000, or that is in an integral multiple
of $1,000,000 in excess thereof) into Loans of any other Type; or
(ii) elect, as of the last day of the applicable Interest Period,
to continue any Loans having Interest Periods expiring on such day (or any
part thereof in an amount not less than $10,000,000, or that is in an
integral multiple of $1,000,000 in excess thereof);
provided, that if at any time the aggregate amount of CD Rate Loans or Offshore
- --------
Rate Loans in respect of any Borrowing is reduced, by payment, prepayment, or
conversion of part thereof to be less than $10,000,000, such CD Rate Loans or
Offshore Rate Loans shall automatically convert into Base Rate Loans, and on and
after such date the right of the Company to continue such Loans as, and convert
such Loans into, Offshore Rate Loans or CD Rate Loans, as the case may be, shall
terminate.
(b) The Company shall deliver a Notice of Conversion/Continuation to
be received by the Agent not later than 9:00 a.m. (San Francisco time) (i) three
Business Days in advance of the Conversion/Continuation Date, if the Loans are
to be converted into or continued as Offshore Rate Loans; (ii) two
19
<PAGE>
Business Days in advance of the Conversion/Continuation Date, if the Loans are
to be converted into or continued as CD Rate Loans; and (iii) on the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or renewed;
(C) the Type of Loans resulting from the proposed conversion or
continuation; and
(D) other than in the case of conversions into Base Rate Loans,
the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to CD
Rate Loans or Offshore Rate Loans the Company has failed to select in a timely
manner a new Interest Period to be applicable to such CD Rate Loans or Offshore
Rate Loans, as the case may be, or if any Default or Event of Default then
exists, the Company shall be deemed to have elected to convert such CD Rate
Loans or Offshore Rate Loans into Base Rate Loans effective as of the expiration
date of such Interest Period.
(d) The Agent will promptly notify each Bank of its receipt of a
Notice of Conversion/Continuation, or, if no timely notice is provided by the
Company, the Agent will promptly notify each Bank of the details of any
automatic conversion. All conversions and continuations shall be made ratably
according to the respective outstanding principal amounts of the Loans held by
each Bank with respect to which the notice was given.
(e) Unless the Majority Banks otherwise agree, during the existence of
a Default or Event of Default, the Company may not elect to have a Loan
converted into or continued as an Offshore Rate Loan or a CD Rate Loan.
(f) After giving effect to any conversion or continuation of Loans,
there may not be more than five different Interest Periods in effect.
2.05 Voluntary Termination or Reduction of Commitments. The Company may,
-------------------------------------------------
upon not less than three Business Days' prior notice to the Agent, terminate or
permanently reduce the Commitments, provided that any such permanent reduction
shall be in an aggregate minimum amount of $10,000,000 or any multiple of
$1,000,000 in excess thereof; unless, after giving effect thereto and to any
------
prepayments of Loans made on the effective date thereof, the then-outstanding
principal amount of the Loans would exceed the amount of the combined
Commitments then in effect. Once reduced in accordance with this Section, the
Commitments may not be increased. Any reduction of the
20
<PAGE>
Commitments shall be applied to each Bank according to its Pro Rata Share. All
accrued commitment fees to, but not including, the effective date of any
reduction or termination of Commitments shall be paid on the effective date of
such reduction or termination.
2.06 Optional Prepayments. Subject to Section 3.04, the Company may, at
--------------------
any time or from time to time, upon irrevocable notice to the Agent by no later
than 9:00 a.m. (San Francisco time) (i) no less than three Business Days prior
to the date specified for prepayment in the case of Offshore Rate Loans (ii) no
less than two Business Days prior to the date specified for prepayment in the
case of CD Rate Loans; (iii) on the date specified for prepayment in the case of
Base Rate Loans, ratably prepay Loans in whole or in part, in minimum amounts of
$10,000,000 or any multiple of $1,000,000 in excess thereof. Any notice of
prepayment shall specify the date and amount of such prepayment and the Type(s)
of Loans to be prepaid. The Agent will promptly notify each Bank of its receipt
of any such notice, and of such Bank's Pro Rata Share of such prepayment. If
such notice is given by the Company, the Company shall make such prepayment and
the payment amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to Section 3.04.
2.07 Repayment. The Company shall repay to the Agent for payment to the
---------
Banks on the Revolving Termination Date the aggregate principal amount of Loans
outstanding on such date.
2.08 Interest. (a) Each Loan shall bear interest on the outstanding
--------
principal amount thereof from the applicable Borrowing Date as follows:
(i) if a Base Rate Loan, then at a rate per annum equal to the
Base Rate;
(ii) if a CD Rate Loan, then at a rate per annum equal to the CD
Rate plus the Applicable Margin; and
----
(iii) if an Offshore Rate Loan, then at a rate per annum equal
to the Offshore Rate plus the Applicable Margin.
----
(b) Interest on each Loan shall be paid in arrears on each Interest
Payment Date. Interest shall also be paid on the date of any prepayment of Loans
under Section 2.06 for the portion of the Loans so prepaid and upon payment
(including prepayment) in full thereof and, during the existence of any Event of
Default, interest shall be paid on demand of the Agent at the request or with
the consent of the Majority Banks.
(c) Notwithstanding subsection (a) of this Section, if any amount of
principal of or interest on any Loan, or any other amount payable hereunder or
under any other Loan Document
21
<PAGE>
is not paid in full when due (whether at stated maturity, by acceleration,
demand or otherwise), the Company agrees to pay interest on such unpaid
principal or other amount, from the date such amount becomes due until the date
such amount is paid in full, and after as well as before entry of judgment
thereon to the extent permitted by law, payable on demand, at a fluctuating rate
per annum equal to the Base Rate plus 1%.
----
(d) Anything herein to the contrary notwithstanding, the obligations
of the Company to any Bank hereunder shall be subject to the limitation that
payments of interest shall not be required for any period for which interest is
computed hereunder, to the extent (but only to the extent) that contracting for
or receiving such payment by such Bank would be contrary to the provisions of
any law applicable to such Bank limiting the highest rate of interest that may
be lawfully contracted for, charged or received by such Bank, and in such event
the Company shall pay such Bank interest at the highest rate permitted by
applicable law.
2.09 Fees. (a) Arrangement, Agency Fees. The Company shall pay an
---- ------------------------
arrangement fee to the Arranger for the Arranger's own account, and shall pay an
agency fee to the Agent for the Agent's own account, as required by the letter
agreement ("Fee Letter") between the Company and the Arranger and Agent dated
----------
October 16, 1996.
(b) Facility Fees. The Company shall pay to the Agent for the
-------------
account of each Bank a facility fee equal to 0.0500% per annum times the full
amount of such Bank's Commitment, computed on a quarterly basis in arrears on
the last Business Day of each calendar quarter, and payable on the later of the
fifth Business Day following the end of each calendar quarter or the fifth
Business Day after the Company has received from the Agent a notice setting
forth the amount of such fee. Such facility fee shall accrue from the Closing
Date to the Revolving Termination Date and shall be due and payable quarterly in
arrears on the date specified above following the end of each calendar quarter
through the Revolving Termination Date, with the final payment to be made on the
Revolving Termination Date; provided that, in connection with any reduction or
-------- ----
termination of Commitments under Section 2.05, the accrued facility fee
calculated for the period ending on such date shall also be paid on the date of
such reduction or termination, with the following quarterly payment being
calculated on the basis of the period from such reduction or termination date to
such quarterly payment date. The facility fee provided in this subsection shall
accrue at all times after the Closing Date, including at any time during which
one or more conditions in Article IV are not met.
2.10 Computation of Fees and Interest. (a) All computations of interest
--------------------------------
for Base Rate Loans when the Base Rate is determined by BofA's "reference rate"
shall be made on the basis of a year of 365 or 366 days, as the case may be, and
22
<PAGE>
actual days elapsed. All other computations of fees and interest shall be made
on the basis of a 360-day year and actual days elapsed (which results in more
interest being paid than if computed on the basis of a 365-day year). Interest
and fees shall accrue during each period during which interest or such fees are
computed from the first day thereof to the last day thereof.
(b) Each determination of an interest rate by the Agent shall be
conclusive and binding on the Company and the Banks in the absence of manifest
error.
(c) If any Reference Bank's Commitment terminates (other than on
termination of all the Commitments), or for any reason whatsoever the Reference
Bank ceases to be a Bank hereunder, that Reference Bank shall thereupon cease to
be a Reference Bank, and the Offshore Rate and CD Rate shall be determined on
the basis of the rates as notified by the remaining Reference Banks.
(d) Each Reference Bank shall use its best efforts to furnish
quotations of rates to the Agent as contemplated hereby. If any of the
Reference Banks fails to supply such rates to the Agent upon its request, the
rate of interest shall be determined on the basis of the quotations of the
remaining Reference Banks.
2.11 Payments by the Company. (a) All payments to be made by the Company
-----------------------
shall be made without set-off, recoupment or counterclaim. Except as otherwise
expressly provided herein, all payments by the Company shall be made to the
Agent for the account of the Banks at the Agent's Payment Office. Such payments
shall be made in immediately available funds and no later than 12:00 noon (San
Francisco time) on the date specified herein. The Agent will promptly distribute
to each Bank its Pro Rata Share (or other applicable share as expressly provided
herein) of such payment in like funds as received. Any payment received by the
Agent later than 12:00 noon (San Francisco time) shall be deemed to have been
received on the following Business Day and any applicable interest or fee shall
continue to accrue.
(b) Subject to the provisions set forth in the definition of "Interest
Period" herein, whenever any payment is due on a day other than a Business Day,
such payment shall be made on the following Business Day, and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be.
(c) Unless the Agent receives notice from the Company prior to the
date on which any payment is due to the Banks that the Company will not make
such payment in full as and when required, the Agent may assume that the Company
has made such payment in full to the Agent on such date in immediately available
funds and the Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due
23
<PAGE>
such Bank. If and to the extent the Company has not made such payment in full
to the Agent, each Bank shall repay to the Agent on demand such amount
distributed to such Bank, together with interest thereon at the Federal Funds
Rate, for each day from the date such amount is distributed to such Bank until
the date repaid.
2.12 Payments by the Banks to the Agent. (a) Unless the Agent receives
----------------------------------
notice from a Bank at least one Business Day prior to the date of any Borrowing,
that such Bank will not make available as and when required hereunder to the
Agent for the account of the Company the amount of that Bank's Pro Rata Share of
the Borrowing, the Agent may assume that each Bank has made such amount
available to the Agent in immediately available funds on the Borrowing Date and
the Agent may (but shall not be so required), in reliance upon such assumption,
make available to the Company on such date a corresponding amount. If and to the
extent any Bank shall not have made its full amount available to the Agent in
immediately available funds and the Agent in such circumstances has made
available to the Company such amount, that Bank shall on the Business Day
following such Borrowing Date make such amount available to the Agent, together
with interest at the Federal Funds Rate for each day during such period. A
notice of the Agent submitted to any Bank with respect to amounts owing under
this subsection (a) shall be conclusive, absent manifest error. If such amount
is so made available, such payment to the Agent shall constitute such Bank's
Loan on the date of Borrowing for all purposes of this Agreement. If such amount
is not made available to the Agent on the Business Day following the Borrowing
Date, the Agent will notify the Company of such failure to fund and, upon demand
by the Agent, the Company shall pay such amount to the Agent for the Agent's
account, together with interest thereon for each day elapsed since the date of
such Borrowing, at a rate per annum equal to the interest rate applicable at the
time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any Borrowing Date
shall not relieve any other Bank of any obligation hereunder to make a Loan on
such Borrowing Date, but no Bank shall be responsible for the failure of any
other Bank to make the Loan to be made by such other Bank on any Borrowing Date.
2.13 Sharing of Payments, Etc. If, other than as expressly provided
-------------------------
elsewhere herein, any Bank shall obtain on account of the Loans made by it any
payment (whether voluntary, involuntary, through the exercise of any right of
set-off, or otherwise) in excess of its Pro Rata Share, such Bank shall
immediately (a) notify the Agent of such fact, and (b) purchase from the other
Banks such participations in the Loans made by them to the Company as shall be
necessary to cause such purchasing Bank to share the excess payment pro rata
with each of them; provided, however, that if all or any portion of such excess
-------- -------
payment is thereafter recovered from the purchasing Bank,
24
<PAGE>
such purchase shall to that extent be rescinded and each other Bank shall repay
to the purchasing Bank the purchase price paid therefor, together with an amount
equal to such paying Bank's ratable share (according to the proportion of (i)
the amount of such paying Bank's required repayment to (ii) the total amount so
recovered from the purchasing Bank) of any interest or other amount paid or
payable by the purchasing Bank in respect of the total amount so recovered. The
Company agrees that any Bank so purchasing a participation from another Bank
may, to the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off, but subject to Section 10.10) with respect to
such participation as fully as if such Bank were the direct creditor of the
Company in the amount of such participation. The Agent will keep records (which
shall be conclusive and binding in the absence of manifest error) of
participations purchased under this Section and will in each case notify the
Banks following any such purchases or repayments.
ARTICLE III
TAXES, YIELD PROTECTION AND ILLEGALITY
--------------------------------------
3.01 Taxes. (a) Any and all payments by the Company to each Bank or the
-----
Agent under this Agreement and any other Loan Document shall be made free and
clear of, and without deduction or withholding for any Taxes. In addition, the
Company shall pay all Other Taxes.
(b) The Company agrees to indemnify and hold harmless each Bank and
the Agent for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section)
paid by the Bank or the Agent and any liability (including penalties, interest,
additions to tax and expenses) arising therefrom or with respect thereto,
whether or not such Taxes or Other Taxes were correctly or legally asserted.
Payment under this indemnification shall be made within 30 days after the date
the Bank or the Agent makes written demand therefor.
(c) If the Company shall be required by law to deduct or withhold any
Taxes or Other Taxes from or in respect of any sum payable hereunder to any Bank
or the Agent, then:
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions
and withholdings applicable to additional sums payable under this Section)
such Bank or the Agent, as the case may be, receives an amount equal to the
sum it would have received had no such deductions or withholdings been
made;
(ii) the Company shall make such deductions and withholdings;
25
<PAGE>
(iii) the Company shall pay the full amount deducted or withheld
to the relevant taxing authority or other authority in accordance with
applicable law; and
(iv) the Company shall also pay to such Bank or Agent at the
time the sum payable is paid, all additional amounts which the Bank or
Agent specifies as necessary to preserve the after-tax yield the Bank or
Agent would have received if such Taxes or Other Taxes had not been
imposed.
(d) Within 30 days after the date of any payment by the Company of
Taxes or Other Taxes, the Company shall furnish the Agent the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to the Agent.
(e) If the Company is required to pay additional amounts to any Bank
or the Agent pursuant to this Section 3.01, then such Bank shall use reasonable
efforts (consistent with legal and regulatory restrictions) to take such actions
as are necessary to minimize the Company's obligations under this Article III,
including without limitation, changing the jurisdiction of its Lending Office so
as to eliminate any such additional payment by the Company which may thereafter
accrue, if such actions in the sole judgment of such Bank are not otherwise
disadvantageous to such Bank.
(f) Notwithstanding anything to the contrary in this Section 3.01, the
Company shall not be required to compensate an Assignee or Participant of a Loan
for withholding taxes, if at the time of such assignment (i) the assigning Bank
was not subject to withholding taxes in respect of any amount in respect of the
Loans and (ii) the Assignee or Participant was subject to withholding taxes at
the time of such assignment in respect of such amount.
(g) Without prejudice to the survival of any other agreement of the
Company hereunder, the agreements and obligations of the Company contained in
this Section 3.01 shall survive the payment in full of principal and interest
hereunder and under any instrument delivered hereunder.
3.02 Illegality. (a) If any Bank determines that the introduction of any
----------
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by the Bank to the Company through
the Agent, any obligation of that Bank to make Offshore Rate Loans shall be
suspended until the Bank notifies the Agent and the Company that the
circumstances giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to
26
<PAGE>
maintain any Offshore Rate Loan, the Company shall, upon its receipt of notice
of such fact and demand from such Bank (with a copy to the Agent), either, (i)
convert in full such Offshore Rate Loans into Loans of another Type or (ii)
prepay in full such Offshore Rate Loans of that Bank then outstanding, together
with interest accrued thereon (in the case of a prepayment) and amounts required
under Section 3.04, either on the last day of the Interest Period thereof, if
the Bank may lawfully continue to maintain such Offshore Rate Loans to such day,
or immediately, if the Bank may not lawfully continue to maintain such Offshore
Rate Loan. If the Company prepays any Offshore Rate Loan as provided in the
preceding sentence, then concurrently with such prepayment, the Company shall
borrow from the affected Bank, in the amount of such repayment, a Base Rate
Loan.
3.03 Increased Costs and Reduction of Return. (a) If any Bank determines
----------------------------------------
that, due to either (i) the introduction of or any change in or in the
interpretation of any law or regulation (other than any change by way of
imposition of or increase in reserve requirements included in the calculation of
the CD Rate or the Offshore Rate or in respect of the assessment rate payable by
any Bank to the FDIC for insuring U.S. deposits or any change introduced prior
to the Closing Date) or (ii) the compliance by that Bank with any guideline or
request from any central bank or other Governmental Authority (whether or not
having the force of law) (other than any guideline or request introduced prior
to the Closing Date), there shall be any increase in the cost to such Bank of
agreeing to make or making, funding or maintaining any Offshore Rate Loans or CD
Rate Loans, then the Company shall be liable for, and shall from time to time,
upon demand (with a copy of such demand to be sent to the Agent), pay to the
Agent for the account of such Bank, additional amounts as are sufficient to
compensate such Bank for such increased costs; provided that no Bank shall be
--------
entitled to obtain compensation with respect to any period prior to six (6)
months prior to making such demand.
(b) If any Bank shall have determined that (i) the introduction of any
Capital Adequacy Regulation, (ii) any change in any Capital Adequacy Regulation,
(iii) any change in the interpretation or administration of any Capital Adequacy
Regulation by any central bank or other Governmental Authority charged with the
interpretation or administration thereof, or (iv) compliance by the Bank (or its
Lending Office) or any corporation controlling the Bank with any Capital
Adequacy Regulation, in any such case, after the Closing Date, affects or would
affect the amount of capital required or expected to be maintained by the Bank
or any corporation controlling the Bank and (taking into consideration such
Bank's or such corporation's policies with respect to capital adequacy and such
Bank's desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to the Company through the
Agent, the Company shall
27
<PAGE>
pay to the Bank, from time to time as specified by the Bank, additional amounts
sufficient to compensate the Bank for such increase; provided no Bank shall be
--------
entitled to receive additional amounts with respect to any period prior to six
(6) months prior to making such demand.
(c) If any Bank requests compensation from the Company under
subsection 3.03(a) or 3.03(b), the Company shall have the right, with the
assistance of the Agent, to seek one or more Eligible Assignees (which may be
one or more of the Banks) reasonably satisfactory to the Agent and the Company
to purchase the Loans and assume the Commitment of such Bank, and the Company,
the Agent, such Bank, and such Eligible Assignee(s) shall execute and deliver an
appropriately completed Assignment and Acceptance pursuant to Section 10.08
hereof to effect the assignment of rights to and the assumption of obligations
by such Eligible Assignee(s); provided that such requesting Bank shall be
--------
entitled to compensation under Section 3.03 for any costs incurred by it prior
to its replacement.
3.04 Funding Losses. The Company shall reimburse each Bank and hold each
--------------
Bank harmless from any loss or expense which the Bank may sustain or incur as a
consequence of:
(a) the failure of the Company to make on a timely basis any payment
of principal of any Offshore Rate Loan or CD Rate Loan;
(b) the failure of the Company to borrow, continue or convert a Loan
after the Company has given (or is deemed to have given) a Notice of Borrowing
or a Notice of Conversion/Continuation;
(c) the failure of the Company to make any prepayment in accordance
with any notice delivered under Section 2.06;
(d) the prepayment or other payment (including after acceleration
thereof) of an Offshore Rate Loan or a CD Rate Loan on a day that is not the
last day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.04 of any Offshore Rate
Loan or CD Rate Loan to a Base Rate Loan on a day that is not the last day of
the relevant Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds obtained by such Bank to maintain its Offshore Rate Loans or CD Rate
Loans or from fees payable by such Bank to terminate the deposits from which
such funds were obtained or from charges relating to any Loans. For purposes of
calculating amounts payable by the Company to the Banks under this Section and
under subsection 3.03(a), (i) each Offshore Rate Loan made by a Bank (and each
related reserve, special deposit or similar requirement) shall be conclusively
deemed to have been funded at the LIBOR used in determining the Offshore
28
<PAGE>
Rate for such Offshore Rate Loan by a matching deposit or other borrowing in the
interbank eurodollar market for a comparable amount and for a comparable period,
whether or not such Offshore Rate Loan is in fact so funded, and (ii) each CD
Rate Loan made by a Bank (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at the Certificate
of Deposit Rate used in determining the CD Rate for such CD Rate Loan by the
issuance of its certificate of deposit in a comparable amount and for a
comparable period, whether or not such CD Rate Loan is in fact so funded.
3.05 Inability to Determine Rates. If the Agent determines that for any
----------------------------
reason adequate and reasonable means do not exist for determining the Offshore
Rate or the CD Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan or CD Rate Loan, or that the Offshore Rate or the CD Rate
applicable pursuant to subsection 2.08(a) for any requested Interest Period with
respect to a proposed Offshore Rate Loan or CD Rate Loan does not adequately and
fairly reflect the cost to the Banks of funding such Loan, the Agent will
promptly so notify the Company and each Bank. Thereafter, the obligation of the
Banks to make or maintain CD Rate Loans or Offshore Rate Loans, as the case may
be, hereunder shall be suspended until the Agent revokes such notice in writing.
Upon receipt of such notice, the Company may revoke any Notice of Borrowing or
Notice of Conversion/Continuation previously submitted by the Company. If the
Company does not revoke such Notice, the Banks shall make, convert or continue
the Loans, as proposed by the Company, in the amount specified in the applicable
notice submitted by the Company, but such Loans shall be made, converted or
continued as Base Rate Loans instead of CD Rate Loans or Offshore Rate Loans, as
the case may be.
3.06 Certificates of Banks. Any Bank claiming reimbursement or
---------------------
compensation under this Article III shall deliver to the Company (with a copy to
the Agent) a certificate setting forth in reasonable detail the amount payable
to the Bank hereunder and such certificate shall be conclusive and binding on
the Company in the absence of manifest error.
3.07 Survival. The agreements and obligations of the Company in this
--------
Article III shall survive the payment of all other Obligations.
ARTICLE IV
CONDITIONS PRECEDENT
--------------------
4.01 Conditions of Initial Loans. The obligation of each Bank to make its
---------------------------
initial Loan hereunder is subject to the condition that the Agent have received
on or before the Closing Date all of the following, in form and substance
satisfactory to the Agent and each Bank, and in sufficient copies for each Bank:
29
<PAGE>
(a) Credit Agreement. This Agreement executed by each party hereto
----------------
and, if requested by any Bank, the Note(s) requested by such Bank executed by
the Company;
(b) Resolutions; Incumbency.
-----------------------
(i) Copies of the resolutions of the board of directors of the
Company authorizing the transactions contemplated hereby, certified as of
the Closing Date by the Secretary or an Assistant Secretary of the Company;
and
(ii) A certificate of the Secretary or Assistant Secretary of
the Company, certifying the names and true signatures of the officers of
the Company authorized to execute, deliver and perform, as applicable, this
Agreement, and all other Loan Documents to be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the following
-------------------------------------
documents:
(i) the articles or certificate of incorporation and the bylaws
of the Company as in effect on the Closing Date, certified by the Secretary
or Assistant Secretary of the Company as of the Closing Date; and
(ii) a good standing and tax good standing certificate for the
Company from the applicable Secretary of State (or similar, applicable
Governmental Authority) of the States of Delaware and California dated as
of a recent date;
(d) Legal Opinion. An opinion of Ivan D. Meyerson, Vice President and
-------------
General Counsel of the Company, addressed to the Agent and the Banks,
substantially in the form of Exhibit D;
(e) Payment of Fees. Evidence of payment by the Company of all
---------------
accrued and unpaid fees, costs and expenses to the extent then due and payable
on the Closing Date, together with Attorney Costs of BofA to the extent invoiced
prior to or on the Closing Date, including any such costs, fees and expenses
arising under or referenced in Sections 2.09 and 10.04;
(f) Company Certificates. A certificate signed by a Responsible
--------------------
Officer of Company, dated as of the Closing Date, stating that:
(i) the representations and warranties contained in Article V
and the other Loan Documents are true and correct on and as of such date,
as though made on and as of such date;
(ii) no Default or Event of Default exists or would result from
the initial Borrowing;
30
<PAGE>
(iii) there has occurred since March 31, 1996, no event or
circumstance that has resulted or could reasonably be expected to result in
a Material Adverse Effect; and
(iv) designating the Closing Date; and
(g) Other Documents. Such other approvals, opinions, documents or
---------------
materials as the Agent or any Bank may reasonably request.
4.02 Conditions to All Borrowings. The obligation of each Bank to make
----------------------------
any Loan to be made by it (including its initial Loan) or to continue or convert
any Loan under Section 2.04 is subject to the satisfaction of the following
conditions precedent on the relevant Borrowing Date or Conversion/Continuation
Date:
(a) Notice of Borrowing or Conversion/Continuation. The Agent shall
----------------------------------------------
have received (with, in the case of the initial Loan only, a copy for each Bank)
a Notice of Borrowing or a Notice of Conversion/Continuation, as applicable;
(b) Continuation of Representations and Warranties. The
----------------------------------------------
representations and warranties in Article V and the other Loan Documents shall
be true and correct on and as of such Borrowing Date or Conversion/Continuation
Date with the same effect as if made on and as of such Borrowing Date or
Conversion/Continuation Date (except to the extent such representations and
warranties expressly refer to an earlier date, in which case they shall be true
and correct as of such earlier date); and
(c) No Existing Default. No Default or Event of Default shall exist
-------------------
or shall result from such Borrowing or continuation or conversion.
Each Notice of Borrowing and Notice of Conversion/Continuation submitted by the
Company hereunder shall constitute a representation and warranty by the Company,
as of the date of each such notice and as of each Borrowing Date or
Conversion/Continuation Date, as applicable, that the conditions in Section 4.02
are satisfied.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
The Company represents and warrants to the Agent and each Bank that:
31
<PAGE>
5.01 Corporate Existence and Power. The Company and each of its
-----------------------------
Subsidiaries:
(a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or formation;
(b) has the power and authority and all required governmental
licenses, authorizations, consents and approvals to own its assets, carry on its
business and to execute, deliver, and perform its obligations under the Loan
Documents;
(c) is duly qualified as a foreign corporation and is licensed and in
good standing under the laws of each jurisdiction where its ownership, lease or
operation of property or the conduct of its business requires such qualification
or license; and
(d) is in compliance with all Requirements of Law;
except, with respect to Subsidiaries of the Company other than Material
Subsidiaries, to the extent that the failure to do so could not reasonably be
expected to have a Material Adverse Effect, and, with respect to the Company and
its Material Subsidiaries in each case referred to in clause (c) or clause (d),
to the extent that the failure to do so could not reasonably be expected to have
a Material Adverse Effect.
5.02 Corporate Authorization; No Contravention. The execution, delivery
-----------------------------------------
and performance by the Company of this Agreement and each other Loan Document to
which the Company is party, have been duly authorized by all necessary corporate
action, and do not and will not:
(a) contravene the terms of any of the Company's Organization
Documents;
(b) conflict with or result in any breach or contravention of, or the
creation of any Lien under, any document evidencing any Contractual Obligation
to which the Company is a party or any order, injunction, writ or decree of any
Governmental Authority to which the Company or its property is subject; or
(c) violate any Requirement of Law.
5.03 Governmental Authorization. No approval, consent, exemption,
--------------------------
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company of
the Agreement or any other Loan Document.
5.04 Binding Effect. This Agreement and each other Loan Document to which
--------------
the Company is a party constitute the legal,
32
<PAGE>
valid and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except as enforceability may be limited
by applicable bankruptcy, insolvency, or similar laws affecting the enforcement
of creditors' rights generally or by equitable principles relating to
enforceability.
5.05 Litigation. There are no actions, suits, proceedings, claims or
----------
disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, or its Subsidiaries or any of their respective
properties which:
(a) purport to affect or pertain to this Agreement or any other Loan
Document, or any of the transactions contemplated hereby or thereby; or
(b) if determined adversely to the Company or its Subsidiaries, would
reasonably be expected to have a Material Adverse Effect as of the Closing Date.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin or
restrain the execution, delivery or performance of this Agreement or any other
Loan Document, or directing that the transactions provided for herein or therein
not be consummated as herein or therein provided.
5.06 No Default. No Default or Event of Default exists or would result
----------
from the incurring of any Obligations by the Company. As of the Closing Date,
neither the Company nor any Subsidiary is in default under or with respect to
any Contractual Obligation in any respect which, individually or together with
all such defaults, could reasonably be expected to have a Material Adverse
Effect as of the Closing Date, or that would, if such default had occurred after
the Closing Date, create an Event of Default under subsection 8.01(e).
5.07 Use of Proceeds; Margin Regulations. The proceeds of the Loans are
-----------------------------------
to be used solely for the purposes set forth in Section 6.09. Neither the
Company nor any Subsidiary is generally engaged in the business of purchasing or
selling Margin Stock or extending credit for the purpose of purchasing or
carrying Margin Stock.
5.08 Financial Condition. (a) The (i) audited consolidated financial
-------------------
statements of the Company and its Subsidiaries dated March 31, 1996, and the
related consolidated statements of income or operations, shareholders' equity
and cash flows for the fiscal year ended on that date and (ii) unaudited
consolidated financial statements of the Company and its Subsidiaries dated June
30, 1996, and the related consolidated statements of income or operations,
shareholders' equity and cash flows for the three months ended on that date:
33
<PAGE>
(A) were prepared in accordance with GAAP consistently applied
throughout the period covered thereby, except as otherwise expressly noted
therein, subject in the case of the unaudited statements to ordinary, good
faith year end audit adjustments;
(B) fairly present the financial condition of the Company and its
Subsidiaries as of the date thereof and results of operations for the
period covered thereby; and
(C) show all material indebtedness and other liabilities, direct
or contingent, of the Company and its consolidated Subsidiaries as of the
date thereof required to be shown in accordance with GAAP.
(b) As of the Closing Date, since March 31, 1996, there has been no
Material Adverse Effect.
5.09 Regulated Entities. None of the Company, any Person controlling the
------------------
Company, or any Subsidiary, is an "Investment Company" within the meaning of the
Investment Company Act of 1940. The Company is not subject to regulation under
the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Interstate Commerce Act, any state public utilities code, or any other Federal,
state or other statute or regulation limiting its ability to incur Indebtedness.
5.10 No Burdensome Restrictions. Neither the Company nor any Subsidiary
--------------------------
is a party to or bound by any Contractual Obligation, or subject to any
restriction in any Organization Document, or any Requirement of Law, which could
reasonably be expected to have a Material Adverse Effect.
5.11 Subsidiaries and Certain Liens As of the Closing Date. As of the
-----------------------------------------------------
Closing Date, the Company has no corporate Subsidiaries other than those
specifically disclosed in part (a) of Schedule 5.11 hereto. As of the Closing
-------------
Date, part (b) of Schedule 5.11 describes all outstanding Indebtedness of the
-------------
Company and its Subsidiaries for borrowed money in excess of $10,000,000 that is
secured by a Lien existing on property of the Company or any of its
Subsidiaries.
ARTICLE VI
AFFIRMATIVE COVENANTS
---------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation (other than Obligations under Section 10.05 that remain
contingent after termination of the Commitments and payment of all other
Obligations) shall remain unpaid or unsatisfied, unless the Majority Banks waive
compliance in writing:
6.01 Financial Statements. The Company shall deliver to
--------------------
34
<PAGE>
the Agent, in form and detail satisfactory to the Agent and the Majority Banks,
with sufficient copies for each Bank:
(a) as soon as available, but not later than 90 days after the end of
each fiscal year (commencing with the fiscal year ended March 31, 1997), a copy
of the audited consolidated balance sheet of the Company and its Subsidiaries as
at the end of such year and the related consolidated statements of income or
operations, shareholders' equity and cash flows for such year, setting forth in
each case in comparative form the figures for the previous fiscal year, and
accompanied by the opinion of Deloitte & Touche or another nationally-recognized
independent public accounting firm ("Independent Auditor") which report shall
-------------------
state that such consolidated financial statements present fairly the financial
position for the periods indicated in conformity with GAAP applied on a basis
consistent with prior years. Such opinion shall not be qualified or limited
because of a restricted or limited examination by the Independent Auditor of any
material portion of the Company's or any Subsidiary's records; and
(b) as soon as available, but not later than 60 days after the end of
each of the first three fiscal quarters of each fiscal year (commencing with the
fiscal quarter ended September 30, 1996), a copy of the unaudited consolidated
balance sheet of the Company and its Subsidiaries as at the end of such quarter
and the related consolidated statements of income or operations, shareholders'
equity and cash flows for the period commencing on the first day and ending on
the last day of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of operations of the
Company and the Subsidiaries (which certification may be part of the related
Compliance Certificate delivered pursuant to Section 6.02(a)).
6.02 Certificates; Other Information. The Company shall furnish to the
-------------------------------
Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial statements
referred to in subsections 6.01(a) and (b), a Compliance Certificate executed by
a Responsible Officer of the Company;
(b) promptly, copies of all financial statements and reports that the
Company sends to its shareholders, and copies of all financial statements and
regular, periodical or special reports (including Forms 10K, 10Q and 8K) that
the Company or any Subsidiary may make to, or file with, the SEC; and
(c) promptly, such additional information regarding the business,
financial or corporate affairs of the Company or any Subsidiary, as the Agent,
at the request of any Bank, may from time to time reasonably request.
35
<PAGE>
6.03 Notices. The Company shall notify the Agent and each Bank:
-------
(a) promptly, upon such occurrence, of the occurrence of any Default
or Event of Default, and of the occurrence or existence of any event or
circumstance that foreseeably will become a Default or Event of Default;
(b) promptly, upon such occurrence, of any matter that has resulted or
may result in a Material Adverse Effect;
(c) promptly upon any Responsible Officer of Company obtaining
knowledge thereof of (i) the institution of, or non-frivolous threat of, any
action, suit, proceeding (whether administrative, judicial or otherwise),
governmental investigation of arbitration against or affecting the Company or
any of its Subsidiaries or any property of the Company or any of its
Subsidiaries (collectively "PROCEEDINGS") not previously disclosed in writing by
the Company to the Banks or (ii) any material development in any Proceeding
that, in the case of clause (i) or (ii) above, (1) if adversely determined, has
a reasonable possibility of giving rise to a Material Adverse Effect; or (2)
seeks to enjoin or otherwise prevent the consummation of, or to recover any
damages or obtain relief as a result of, the transactions contemplated hereby,
together with such other information as may be reasonably available to Company
that the Agent requests to enable the Agent and the Banks to evaluate such
matters.
(d) of any material change in accounting policies or financial
reporting practices by the Company or any of its consolidated Subsidiaries,
including but not limited to any change that has any effect on the calculation
of any financial covenant in this Agreement.
6.04 Preservation of Corporate Existence, Etc. The Company shall, and
----------------------------------------
shall cause its Material Subsidiaries to:
(a) preserve and maintain in full force and effect its corporate
existence and good standing under the laws of their respective states or
jurisdictions of incorporation except, in the case of any Material Subsidiary
(other than Medis), in connection with transactions permitted by Section 7.02;
and
(b) preserve and maintain in full force and effect all governmental
rights, privileges, qualifications, permits, licenses and franchises necessary
in the normal conduct of its business except in connection with transactions
permitted by Section 7.02 or except to the extent that the failure to do so
could not reasonably be expected to have a Material Adverse Effect.
6.05 Insurance. The Company shall maintain, and shall cause its Material
---------
Subsidiaries to maintain, with financially
36
<PAGE>
sound and reputable insurers, insurance (including self-insurance) with respect
to its properties and business against loss or damage of the kinds customarily
insured against by Persons engaged in the same or similar business, of such
types and in such amounts as the Company reasonably deems prudent from time to
time.
6.06 Payment of Taxes. The Company shall, and shall cause each of its
----------------
Material Subsidiaries to, pay and discharge as the same shall become due and
payable, all tax liabilities, assessments and governmental charges or levies
upon it or its properties or assets (other than obligations that a Responsible
Officer is not aware of or are of a nominal amount), unless the same are being
contested in good faith by appropriate proceedings and adequate reserves in
accordance with GAAP are being maintained by the Company or such Subsidiary.
6.07 Compliance with Laws. The Company shall comply, and shall cause each
--------------------
of its Subsidiaries to comply, in all material respects with all material
Requirements of Law of any Governmental Authority having jurisdiction over it or
its business (including the Federal Fair Labor Standards Act), except such as
may be contested in good faith or as to which a bona fide dispute may exist.
6.08 Inspection of Property and Books and Records. The Company shall
--------------------------------------------
maintain and shall cause each of its Material Subsidiaries to maintain in all
material respects proper books of record and account, in which full, true and
correct entries in conformity with GAAP consistently applied shall be made of
all financial transactions and matters involving the assets and business of the
Company and such Subsidiary. The Company shall permit, and shall cause each of
its Subsidiaries to permit, representatives and independent contractors of the
Agent or any Bank to visit and inspect any of their respective properties, to
examine their respective corporate, financial and operating records, and make
copies thereof or abstracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective directors, officers, and independent
public accountants, at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; provided, however, when an Event of Default exists the Agent or any
-------- -------
Bank may do any of the foregoing at the reasonable expense of the Company at any
time during normal business hours and without advance notice.
6.09 Use of Proceeds. The Company shall use the proceeds of the Loans for
---------------
general corporate purposes not in contravention of any Requirement of Law or of
any Loan Document.
37
<PAGE>
ARTICLE VII
NEGATIVE COVENANTS
------------------
So long as any Bank shall have any Commitment hereunder, or any Loan or
other Obligation (other than Obligations under Section 10.05 that remain
contingent after termination of the Commitments and payment of all other
Obligations) shall remain unpaid or unsatisfied, unless the Majority Banks waive
compliance in writing:
7.01 Limitation on Liens. The Company shall not, and shall not suffer or
-------------------
permit any of its Subsidiaries to directly or indirectly, make, create, incur,
assume or suffer to exist any Lien upon or with respect to any part of its
property, whether now owned or hereafter acquired, other than the following
("Permitted Liens"):
---------------
(a) any Lien existing on property of the Company or any Subsidiary on
the Closing Date securing Indebtedness outstanding on such date;
(b) any Lien created under any Loan Document;
(c) Liens for taxes, fees, assessments or other governmental charges
which are not delinquent or remain payable without penalty, or to the extent
that non-payment thereof is permitted by Section 6.07;
(d) carriers', warehousemen's, mechanics', landlords', materialmen's,
repairmen's or other similar Liens arising in the ordinary course of business
which are not delinquent or remain payable without penalty;
(e) Liens (other than any Lien imposed by ERISA) consisting of pledges
or deposits required in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other social security
legislation;
(f) Liens on the property of the Company or its Subsidiary securing
(i) the non-delinquent performance of bids, trade contracts (other than for
borrowed money), leases, statutory obligations, (ii) contingent obligations on
surety and appeal bonds, and (iii) other non-delinquent obligations of a like
nature; in each case, incurred in the ordinary course of business, provided all
such Liens in the aggregate would not (even if enforced) cause a Material
Adverse Effect;
(g) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount, and which do not in any case
materially detract from the value of the property subject thereto or interfere
with the ordinary conduct of the businesses of the Company and its Subsidiaries;
38
<PAGE>
(h) Liens arising solely by virtue of any statutory or common law
provision relating to banker's liens, rights of set-off or similar rights and
remedies as to deposit accounts or other funds maintained with a creditor
depository institution; provided that (i) such deposit account is not a
--------
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
(i) Liens on inventory, proceeds thereof and replacement inventory
securing debt to GE Capital Corporation, incurred in connection with the
acquisition by the Company of certain assets of FoxMeyer Corporation and its
Affiliates, in an aggregate principal amount outstanding at any time not to
exceed $400,000,000; provided that such Liens shall have been released on or
before the date which is 45 days after the incurrence of such debt and shall no
longer constitute Permitted Liens after such date; and
(j) Any other Liens (other than any Lien imposed by ERISA or any Lien
for taxes, fees, assessments or other governmental charges that is not expressly
permitted under Section 7.01(c)); provided that the aggregate amount of all
--------
Permitted Liens does not exceed at any time 25% of Net Worth.
7.02 Consolidations and Mergers. The Company shall not, and shall not
--------------------------
suffer or permit any of its Material Subsidiaries to, directly or indirectly,
merge, consolidate with or into, or convey, transfer, lease or otherwise dispose
of (whether in one transaction or in a series of transactions) all or
substantially all of its assets (whether now owned or hereafter acquired) to or
in favor of any Person, except:
(a) any Subsidiary may merge with the Company, provided that the
Company shall be the continuing or surviving corporation, or with any one or
more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation;
(b) any Subsidiary may sell all or substantially all of its assets
(upon voluntary liquidation or otherwise) to the Company or another Wholly-Owned
Subsidiary; and
(c) the Company may merge with another Person provided that the
Company shall be the continuing or surviving corporation and no Default or Event
of Default is in effect immediately prior to or on the date of or would result
from such merger.
7.03 Use of Proceeds. (a) The Company shall not, and shall not suffer or
---------------
permit any of its Subsidiaries to, use any portion of the Loan proceeds,
directly or indirectly, (i) to
39
<PAGE>
purchase or carry Margin Stock, (ii) to repay or otherwise refinance
indebtedness of the Company or others incurred to purchase or carry Margin
Stock, (iii) to extend credit for the purpose of purchasing or carrying any
Margin Stock, or (iv) to acquire any security in any transaction that is subject
to Section 13 or 14 of the Exchange Act.
(b) The Company shall not, directly or indirectly, use any portion of
the Loan proceeds (i) knowingly to purchase Ineligible Securities from the
Arranger during any period in which the Arranger makes a market in such
Ineligible Securities, (ii) knowingly to purchase during the underwriting or
placement period Ineligible Securities being underwritten or privately placed by
the Arranger, or (iii) to make payments of principal or interest on Ineligible
Securities underwritten or privately placed by the Arranger and issued by or for
the benefit of the Company or any Affiliate of the Company. The Arranger is a
registered broker-dealer and permitted to underwrite and deal in certain
Ineligible Securities; and "Ineligible Securities" means securities which may
---------------------
not be underwritten or dealt in by member banks of the Federal Reserve System
under Section 16 of the Banking Act of 1933 (12 U.S.C. (S) 24, Seventh), as
amended.
7.04 Maximum Debt to Capitalization Ratio. The Company shall not permit
------------------------------------
the ratio of Total Debt to Total Capitalization as at the last day of any
calendar month to exceed 0.565 to 1.00.
ARTICLE VIII
EVENTS OF DEFAULT
-----------------
8.01 Event of Default. Any of the following shall constitute an "Event of
---------------- --------
Default":
- -------
(a) Non-Payment. The Company fails to pay, (i) when and as required
-----------
to be paid herein, any amount of principal of any Loan, or (ii) within 5 days
after the same becomes due, any interest, fee or any other amount payable by the
Company hereunder or under any other Loan Document; or
(b) Representation or Warranty. Any representation or warranty by the
--------------------------
Company or any Subsidiary made or deemed made herein, in any other Loan
Document, or which is contained in any certificate, document or financial or
other statement by the Company, any Subsidiary, or any Responsible Officer,
furnished at any time under this Agreement, or in or under any other Loan
Document, is incorrect in any material respect on or as of the date made or
deemed made; or
(c) Specific Defaults. The Company fails to perform or observe any
-----------------
term, covenant or agreement contained in Section 6.04(a) or in Article VII; or
(d) Other Defaults. The Company fails to perform or
--------------
40
<PAGE>
observe any other term or covenant contained in this Agreement or any other Loan
Document, and such default shall continue unremedied for a period of 20 days
after the earlier of (i) in the case of any provision in Article V or VI, the
date upon which a Responsible Officer knew of such failure or (ii) the date upon
which written notice thereof is given to the Company by the Agent or any Bank;
or
(e) Cross-Default. The Company or any Subsidiary (i) fails to make
-------------
any payment in respect of any Indebtedness or Contingent Obligation having an
aggregate principal amount (including undrawn committed or available amounts and
including amounts owing to all creditors under any combined or syndicated credit
arrangement) of more than $10,000,000 when due (whether by scheduled maturity,
required prepayment, acceleration, demand, or otherwise) and such failure
continues after the applicable grace or notice period, if any, specified in the
relevant document on the date of such failure; or (ii) fails to perform or
observe any other condition or covenant, or any other event shall occur or
condition exist, under any agreement or instrument relating to any Indebtedness
or Contingent Obligation having an aggregate principal amount (including undrawn
committed or available amounts and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of more than $10,000,000,
if the effect of such failure, event or condition is to cause such Indebtedness
to be declared to be due and payable prior to its stated maturity, or such
Contingent Obligation to become payable or cash collateral in respect thereof to
be demanded; or
(f) Insolvency; Voluntary Proceedings. The Company or any Material
---------------------------------
Subsidiary (i) ceases or fails to be solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary Insolvency
-----------------------
Proceeding is commenced or filed against Company or any Material Subsidiary, or
any writ, judgment, warrant of attachment, execution or similar process, is
issued or levied against a substantial part of Company's or any Material
Subsidiary's properties, and any such proceeding or petition shall not be
dismissed, or such writ, judgment, warrant of attachment, execution or similar
process shall not be released, vacated or fully bonded within 60 days after
commencement, filing or levy; (ii) the Company or any Material Subsidiary admits
the material allegations of a petition against it in any Insolvency Proceeding,
or an order for relief (or similar order under non-U.S. law) is ordered in any
Insolvency Proceeding; or (iii) the Company or any Material Subsidiary
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
41
<PAGE>
liquidator, mortgagee in possession (or agent therefor), or other similar Person
for itself or a substantial portion of its property or business; or
(h) ERISA. There shall occur one or more ERISA Events which
-----
individually or in the aggregate results in or might reasonably be expected to
result in liability of the Company or any of its Subsidiaries in excess of
$25,000,000 during the term of this Agreement; or there shall exist an amount of
unfunded benefit liabilities (as defined in Section 4001(a)(18) of ERISA),
individually or in the aggregate for all Pension Plans (excluding for purposes
of such computation any Pension Plans with respect to which assets exceed
benefit liabilities), which exceeds 5% of Net Worth.
8.02 Remedies. If any Event of Default occurs, the Agent shall, at the
--------
request of, or may, with the consent of, the Majority Banks,
(a) declare the commitment of each Bank to make Loans to be
terminated, whereupon such commitments shall be terminated;
(b) declare the unpaid principal amount of all outstanding Loans, all
interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest or other notice of any kind, all of which
are hereby expressly waived by the Company; and
(c) exercise on behalf of itself and the Banks all rights and remedies
available to it and the Banks under the Loan Documents or applicable law;
provided, however, that upon the occurrence of any event specified in subsection
- -------- -------
(f) or (g) of Section 8.01 (in the case of clause (i) of subsection (g) upon the
expiration of the 60-day period mentioned therein), the obligation of each Bank
to make Loans shall automatically terminate and the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Agent or any
Bank.
8.03 Rights Not Exclusive. The rights provided for in this Agreement and
--------------------
the other Loan Documents are cumulative and are not exclusive of any other
rights, powers, privileges or remedies provided by law or in equity, or under
any other instrument, document or agreement now existing or hereafter arising.
42
<PAGE>
ARTICLE IX
THE AGENT
---------
9.01 Appointment and Authorization. Each Bank hereby irrevocably (subject
-----------------------------
to Section 9.09) appoints, designates and authorizes the Agent to take such
action on its behalf under the provisions of this Agreement and each other Loan
Document and to exercise such powers and perform such duties as are expressly
delegated to it by the terms of this Agreement or any other Loan Document,
together with such powers as are reasonably incidental thereto. Notwithstanding
any provision to the contrary contained elsewhere in this Agreement or in any
other Loan Document, the Agent shall not have any duties or responsibilities,
except those expressly set forth herein, nor shall the Agent have or be deemed
to have any fiduciary relationship with any Bank, and no implied covenants,
functions, responsibilities, duties, obligations or liabilities shall be read
into this Agreement or any other Loan Document or otherwise exist against the
Agent.
9.02 Delegation of Duties. The Agent may execute any of its duties under
--------------------
this Agreement or any other Loan Document by or through agents, employees or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
9.03 Liability of Agent. None of the Agent-Related Persons shall (a) be
------------------
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful misconduct),
or (b) be responsible in any manner to any of the Banks for any recital,
statement, representation or warranty made by the Company or any Subsidiary or
Affiliate of the Company, or any officer thereof, contained in this Agreement or
in any other Loan Document, or in any certificate, report, statement or other
document referred to or provided for in, or received by the Agent under or in
connection with, this Agreement or any other Loan Document, or the validity,
effectiveness, genuineness, enforceability or sufficiency of this Agreement or
any other Loan Document, or for any failure of the Company or any other party to
any Loan Document to perform its obligations hereunder or thereunder. No Agent-
Related Person shall be under any obligation to any Bank to ascertain or to
inquire as to the observance or performance of any of the agreements contained
in, or conditions of, this Agreement or any other Loan Document, or to inspect
the properties, books or records of the Company or any of the Company's
Subsidiaries or Affiliates.
9.04 Reliance by the Agent. (a) The Agent shall be entitled to rely, and
---------------------
shall be fully protected in relying, upon
43
<PAGE>
any writing, resolution, notice, consent, certificate, affidavit, letter,
telegram, facsimile, telex or telephone message, statement or other document or
conversation believed by it to be genuine and correct and to have been signed,
sent or made by the proper Person or Persons, and upon advice and statements of
legal counsel (including counsel to the Company), independent accountants and
other experts selected with reasonable care by it. The Agent shall be fully
justified in failing or refusing to take any action under this Agreement or any
other Loan Document unless it shall first receive such advice or concurrence of
the Majority Banks as it deems appropriate and, if it so requests, it shall
first be indemnified to its satisfaction by the Banks against any and all
liability and expense which may be incurred by it by reason of taking or
continuing to take any such action. The Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement or any
other Loan Document in accordance with a request or consent of the Majority
Banks and such request and any action taken or failure to act pursuant thereto
shall be binding upon all of the Banks.
(b) For purposes of determining compliance with the conditions
specified in Section 4.01, each Bank that has executed this Agreement shall be
deemed to have consented to, approved or accepted or to be satisfied with, each
document or other matter either sent by the Agent to such Bank for consent,
approval, acceptance or satisfaction, or required thereunder to be consented to
or approved by or acceptable or satisfactory to the Bank.
9.05 Notice of Default. The Agent shall not be deemed to have knowledge
-----------------
or notice of the occurrence of any Default or Event of Default, except with
respect to defaults in the payment of principal, interest and fees required to
be paid to it for the account of the Banks, unless it shall have received
written notice from a Bank or the Company referring to this Agreement,
describing such Default or Event of Default and stating that such notice is a
"notice of default". The Agent will notify the Banks of its receipt of any such
notice. The Agent shall take such action with respect to such Default or Event
of Default as may be requested by the Majority Banks in accordance with Article
VIII; provided, however, that unless and until the Agent has received any such
-------- -------
request, the Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable or in the best interest of the Banks.
9.06 Credit Decision. Each Bank acknowledges that none of the Agent-
---------------
Related Persons has made any representation or warranty to it, and that no act
by the Agent hereinafter taken, including any review of the affairs of the
Company and its Subsidiaries, shall be deemed to constitute any representation
or warranty by any Agent-Related Person to any Bank. Each Bank represents to
the Agent that it has, independently and without reliance upon any Agent-Related
Person and based on such
44
<PAGE>
documents and information as it has deemed appropriate, made its own appraisal
of and investigation into the business, prospects, operations, property,
financial and other condition and creditworthiness of the Company and its
Subsidiaries, and all applicable bank regulatory laws relating to the
transactions contemplated hereby, and made its own decision to enter into this
Agreement and to extend credit to the Company hereunder. Each Bank also
represents that it will, independently and without reliance upon any Agent-
Related Person and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Agreement and the other
Loan Documents, and to make such investigations as it deems necessary to inform
itself as to the business, prospects, operations, property, financial and other
condition and creditworthiness of the Company. Except for notices, reports and
other documents expressly herein required to be furnished to the Banks by the
Agent, the Agent shall not have any duty or responsibility to provide any Bank
with any credit or other information concerning the business, prospects,
operations, property, financial and other condition or creditworthiness of the
Company which may come into the possession of any of the Agent-Related Persons.
9.07 Indemnification of Agent. Whether or not the transactions
------------------------
contemplated hereby are consummated, the Banks shall indemnify upon demand the
Agent-Related Persons (to the extent not reimbursed by or on behalf of the
Company and without limiting the obligation of the Company to do so), pro rata,
from and against any and all Indemnified Liabilities and any other liability,
obligation, loss, damage, penalty, action, judgment, suit, cost, charge, expense
or disbursement (including Attorney's Costs) that would be an Indemnified
Liability but for the fact that it relates or arises out of a claim or
threatened claim by the Company or other Person party to this Agreement;
Agreement; provided, however, that no Bank shall be liable for the payment to
-------- -------
the Agent-Related Persons of any portion of such Indemnified Liabilities
resulting solely from such Person's gross negligence or willful misconduct.
Without limitation of the foregoing, each Bank shall reimburse the Agent upon
demand for its ratable share of any costs or out-of-pocket expenses (including
Attorney Costs) incurred by it in connection with the preparation, execution,
delivery, administration, modification, amendment or enforcement (whether
through negotiations, legal proceedings or otherwise) of, or legal advice in
respect of rights or responsibilities under, this Agreement, any other Loan
Document, or any document contemplated by or referred to herein, to the extent
that it is not reimbursed for such expenses by or on behalf of the Company. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent.
9.08 Agent in Individual Capacity. BofA and any of its Affiliates may
----------------------------
make loans to, issue letters of credit for the account of, accept deposits from,
acquire equity interests in
45
<PAGE>
and generally engage in any kind of banking, trust, financial advisory,
underwriting or other business with the Company and its Subsidiaries and
Affiliates as though BofA were not the Agent hereunder and without notice to or
consent of the Banks. The Banks acknowledge that, pursuant to such activities,
BofA or any of its Affiliates may receive information regarding the Company or
its Affiliates (including information that may be subject to confidentiality
obligations in favor of the Company or such Subsidiary) and acknowledge that the
Agent shall not be under any obligation to provide such information to them.
With respect to its Loans, BofA shall have the same rights and powers under this
Agreement as any other Bank and may exercise the same as though it were not the
Agent. The terms "Bank" and "Banks" include BofA in its individual capacity.
9.09 Successor Agent. The Agent may, and at the request of the Majority
---------------
Banks shall, resign as the Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, then the Co-Agent shall become the Agent.
If the Co-Agent resigns as Agent, then the Majority Banks shall appoint from
among the Banks a successor agent for the Banks which successor agent shall be
approved by the Company. If no successor agent is appointed prior to the
effective date of the resignation of the Agent, the Agent may appoint, after
consulting with the Banks and the Company, a successor agent from among the
Banks. Upon the acceptance of its appointment as successor agent hereunder,
such successor agent shall succeed to all the rights, powers and duties of the
retiring Agent and the term "Agent" shall mean such successor agent and the
retiring agent's appointment, powers and duties as Agent shall be terminated.
After any retiring agent's resignation hereunder as Agent, the provisions of
this Article IX and Sections 10.04 and 10.05 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent under this
Agreement. If no successor agent has accepted appointment as Agent by the date
which is 30 days following a retiring agent's notice of resignation, the
retiring agent's resignation shall nevertheless thereupon become effective and
the Banks shall perform all of the duties of the Agent hereunder until such
time, if any, as the Majority Banks appoint a successor agent as provided for
above.
9.10 Withholding Tax. (a) If any Bank is a "foreign corporation,
---------------
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent, to deliver to
the Agent:
(i) if such Bank claims an exemption from, or a reduction of,
withholding tax under a United States tax treaty, properly completed IRS
Forms 1001 and W-8 before the payment of any interest in the first calendar
year and before the payment of any interest in each third succeeding
calendar year during which interest may be paid under this
46
<PAGE>
Agreement;
(ii) if such Bank claims that interest paid under this Agreement
is exempt from United States withholding tax because it is effectively
connected with a United States trade or business of such Bank, two properly
completed and executed copies of IRS Form 4224 before the payment of any
interest is due in the first taxable year of such Bank and in each
succeeding taxable year of such Bank during which interest may be paid
under this Agreement, and IRS Form W-9; and
(iii) such other form or forms as may be required under the Code
or other laws of the United States as a condition to exemption from, or
reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of, withholding
tax under a United States tax treaty by providing IRS Form 1001 and such Bank
sells, assigns, grants a participation in, or otherwise transfers all or part of
the Obligations of the Company to such Bank, such Bank agrees to notify the
Agent of the percentage amount in which it is no longer the beneficial owner of
Obligations of the Company to such Bank. To the extent of such percentage
amount, the Agent will treat such Bank's IRS Form 1001 as no longer valid.
(c) If any Bank claiming exemption from United States withholding tax
by filing IRS Form 4224 with the Agent sells, assigns, grants a participation
in, or otherwise transfers all or part of the Obligations of the Company to such
Bank, such Bank agrees to undertake sole responsibility for complying with the
withholding tax requirements imposed by Sections 1441 and 1442 of the Code.
(d) If any Bank is entitled to a reduction in the applicable
withholding tax, the Agent may withhold from any interest payment to such Bank
an amount equivalent to the applicable withholding tax after taking into account
such reduction. If the forms or other documentation required by subsection (a)
of this Section are not delivered to the Agent, then the Agent may withhold from
any interest payment to such Bank not providing such forms or other
documentation an amount equivalent to the applicable withholding tax.
(e) If the IRS or any other Governmental Authority of the United
States or other jurisdiction asserts a claim that the Agent did not properly
withhold tax from amounts paid to or for the account of any Bank (because the
appropriate form was not delivered, was not properly executed, or because such
Bank failed to notify the Agent of a change in circumstances which
47
<PAGE>
rendered the exemption from, or reduction of, withholding tax ineffective, or
for any other reason) such Bank shall indemnify the Agent fully for all amounts
paid, directly or indirectly, by the Agent as tax or otherwise, including
penalties and interest, and including any taxes imposed by any jurisdiction on
the amounts payable to the Agent under this Section, together with all costs and
expenses (including Attorney Costs). The obligation of the Banks under this
subsection shall survive the payment of all Obligations and the resignation or
replacement of the Agent.
9.11 Co-Agent. Except as set forth in the second sentence of Section
--------
9.09, the Co-Agent shall not have any duties or other obligations in its
capacity as Co-Agent hereunder.
ARTICLE X
MISCELLANEOUS
-------------
10.01 Amendments and Waivers. No amendment or waiver of any provision of
----------------------
this Agreement or any other Loan Document, and no consent with respect to any
departure by the Company therefrom, shall be effective unless the same shall be
in writing and signed by the Majority Banks (or by the Agent at the written
request of the Majority Banks) and the Company and acknowledged by the Agent,
and then any such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given; provided, however, that
-------- -------
no such waiver, amendment, or consent shall, unless in writing and signed by all
the Banks, the Company and acknowledged by the Agent, do any of the following:
(a) increase or extend the Commitment of any Bank (or reinstate any
Commitment terminated pursuant to Section 8.02);
(b) postpone or delay any date fixed by this Agreement or any other
Loan Document for any payment of principal, interest, fees or other amounts due
to the Banks (or any of them) hereunder or under any other Loan Document;
(c) reduce the principal of, or the rate of interest specified herein
on any Loan, or (subject to clause (ii) below) any fees or other amounts payable
hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the aggregate
unpaid principal amount of the Loans which is required for the Banks or any of
them to take any action hereunder; or
(e) amend this Section, or Section 2.13, or any provision herein
providing for consent or other action by all Banks;
48
<PAGE>
and, provided, further, that (i) no amendment, waiver or consent shall, unless
-------- -------
in writing and signed by the Agent, in addition to the Majority Banks or all the
Banks, as the case may be, affect the rights or duties of the Agent under this
Agreement or any other Loan Document, and (ii) the Fee Letter may be amended, or
rights or privileges thereunder waived, in a writing executed by the parties
thereto.
10.02 Notices. (a) All notices, requests and other communications
-------
required or permitted hereunder shall be in writing, except as otherwise
expressly set forth herein (including, unless the context expressly otherwise
provides, by facsimile transmission, provided that any matter transmitted by the
Company by facsimile (i) shall be immediately confirmed by a telephone call to
the recipient at the number specified on Schedule 10.02, and (ii) shall be
--------------
followed promptly by delivery of a hard copy original thereof), and mailed,
faxed or delivered, to the address or facsimile number specified for notices on
Schedule 10.02; or, as directed to the Company or the Agent, to such other
- --------------
address as shall be designated by such party in a written notice to the other
parties, and as directed to any other party, at such other address as shall be
designated by such party in a written notice to the Company and the Agent.
(b) All such notices, requests and communications shall, when
transmitted by overnight delivery, or faxed, be effective when delivered for
overnight (next-day) delivery, or transmitted in legible form by facsimile
machine, respectively, or if mailed, upon the third Business Day after the date
deposited into the U.S. mail, or if delivered, upon delivery; except that
notices pursuant to Article II or IX shall not be effective until actually
received by the Agent.
(c) Any agreement of the Agent and the Banks herein to receive certain
notices by telephone or facsimile is solely for the convenience and at the
request of the Company. The Agent and the Banks shall be entitled to rely on the
authority of any Person purporting to be a Person authorized by the Company to
give such notice and the Agent and the Banks shall not have any liability to the
Company or other Person on account of any action taken or not taken by the Agent
or the Banks in reliance upon such telephonic or facsimile notice. The
obligation the Company to repay the Loans shall not be affected in any way or to
any extent by any failure by the Agent and the Banks to receive written
confirmation of any telephonic or facsimile notice or the receipt by the Agent
and the Banks of a confirmation which is at variance with the terms understood
by the Agent and the Banks to be contained in the telephonic or facsimile
notice.
10.03 No Waiver; Cumulative Remedies. No failure to exercise and no delay
------------------------------
in exercising, on the part of the Agent or any Bank, any right, remedy, power or
privilege hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right, remedy, power or privilege hereunder
49
<PAGE>
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies of the parties
provided herein and in the other Loan Documents are cumulative and are in
addition to, and not exclusive of, any rights or remedies provided by law.
10.04 Costs and Expenses. The Company shall:
------------------
(a) whether or not the transactions contemplated hereby are
consummated, pay or reimburse all Agent-Related Persons (including BofA in its
capacity as Agent) within five Business Days after demand (subject to subsection
4.01(e)) for all reasonable costs and expenses incurred by such Agent-Related
Persons (including BofA in its capacity as Agent) reasonably required in
connection with the development, preparation, negotiation, delivery,
administration and execution of, and any amendment, supplement, waiver or
modification to (in each case, whether or not consummated), this Agreement, any
Loan Document and any other documents prepared in connection herewith or
therewith, and the consummation of the transactions contemplated hereby and
thereby including reasonable Attorney Costs incurred by such Agent-Related
Persons (including BofA in its capacity as Agent) with respect thereto; provided
that any costs and expenses incurred under this subsection 10.04(a) prior to the
Closing Date shall be limited to the out-of-pocket costs and expenses of the
Agent and the Arranger, including reasonable Attorneys Costs incurred by the
Agent; and
(b) pay or reimburse all Agent-Related Persons and each Bank within
five Business Days after demand (subject to subsection 4.01(e)) for all costs
and expenses (including Attorney Costs) incurred by them in connection with the
enforcement, attempted enforcement, or preservation of any rights or remedies
under this Agreement or any other Loan Document during the existence of an Event
of Default or after acceleration of the Loans (including in connection with any
"workout" or restructuring regarding the Loans, and including in any Insolvency
Proceeding or appellate proceeding).
10.05 Company Indemnification. Whether or not the transactions
-----------------------
contemplated hereby are consummated, the Company shall indemnify and hold the
Agent-Related Persons, and each Bank and each of its respective officers,
directors, employees, counsel, agents and attorneys-in-fact (each, an
"Indemnified Person") harmless from and against any and all liabilities,
- -------------------
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans and the termination, resignation or replacement of the
Agent or replacement of any Bank) be imposed on, incurred by or asserted against
any such Person as a result of any claim or threatened claim by a Person not
party to this Agreement or by the Company (except for claims by the Company or
against any Agent or a Bank that are successful on the merits as determined by a
court of
50
<PAGE>
competent jurisdiction), in any case in any way relating to or arising out of
this Agreement or any document contemplated by or referred to herein, or the
transactions contemplated hereby, or any action taken or omitted by any such
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or the use of the proceeds thereof, whether or not any Indemnified
Person is a party thereto (all the foregoing, collectively, the "Indemnified
-----------
Liabilities"); provided that the Company shall have no obligation hereunder to
- ----------- --------
any Indemnified Person with respect to Indemnified Liabilities to the extent
resulting from the gross negligence or willful misconduct of such Indemnified
Person. The agreements in this Section shall survive payment of all other
Obligations; provided further that this Section 10.05 shall not be construed to
expand the obligations of the Company to make payments to the Banks in the
circumstances required under subsections 3.01, 3.02, 3.03, 3.04 or 3.05, it
being understood and agreed that such subsections shall govern the rights and
obligations of the Company and the Banks as to matters set forth therein, or to
require the Company to compensate a Bank for any Indemnified Liability relating
to its cost of funds for any Borrowing.
10.06 Payments Set Aside. To the extent that the Company makes a payment
------------------
to the Agent or the Banks, or the Agent or the Banks exercise their right of
set-off, and such payment or the proceeds of such set-off or any part thereof
are subsequently invalidated, declared to be fraudulent or preferential, set
aside or required (including pursuant to any settlement entered into by the
Agent or such Bank in its discretion) to be repaid to a trustee, receiver or any
other party, in connection with any Insolvency Proceeding or otherwise, then (a)
to the extent of such recovery the obligation or part thereof originally
intended to be satisfied shall be revived and continued in full force and effect
as if such payment had not been made or such set-off had not occurred, and (b)
each Bank severally agrees to pay to the Agent upon demand its pro rata share of
any amount so recovered from or repaid by the Agent.
10.07 Successors and Assigns. The provisions of this Agreement shall be
----------------------
binding upon and inure to the benefit of the parties hereto and their respective
successors and assigns, except that the Company may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Agent and each Bank.
10.08 Assignments, Participations, etc. (a) Any Bank may, with the
---------------------------------
written consent of the Company at all times other than during the existence of
an Event of Default and the Agent, which consent of the Agent shall not be
unreasonably withheld, at any time assign and delegate to one or more Eligible
Assignees (provided that no written consent of the Company or the Agent shall be
required in connection with any assignment
51
<PAGE>
and delegation by a Bank to an Eligible Assignee that is an Affiliate of such
Bank) (each an "Assignee") all, or any ratable part of all, of the Loans, the
--------
Commitment and the other rights and obligations of such Bank hereunder, in a
minimum amount of $10,000,000 or any multiple of $5,000,000 in excess thereof,
or, if less, the amount of the Commitment of such Bank; provided, however, that
-------- -------
the Company and the Agent may continue to deal solely and directly with such
Bank in connection with the interest so assigned to an Assignee until (i)
written notice of such assignment, together with payment instructions, addresses
and related information with respect to the Assignee, shall have been given to
the Company and the Agent by such Bank and the Assignee; (ii) such Bank and its
Assignee shall have delivered to the Company and the Agent an Assignment and
Acceptance substantially in the form of Exhibit E ("Assignment and Acceptance")
-------------------------
with such changes thereto as the Agent and the Company may approve together with
any Note or Notes subject to such assignment and (iii) the assignor Bank or
Assignee has paid to the Agent a processing fee in the amount of $3,500.
(b) From and after the date that the Agent notifies the assignor Bank
that it has received (and provided its consent and received the Company's
consent with respect to) an executed Assignment and Acceptance and payment of
the above-referenced processing fee, (i) the Assignee thereunder shall be a
party hereto and, to the extent that rights and obligations hereunder have been
assigned to it pursuant to such Assignment and Acceptance, shall have the rights
and obligations of a Bank under the Loan Documents, and (ii) the assignor Bank
shall, to the extent that rights and obligations hereunder and under the other
Loan Documents have been assigned by it pursuant to such Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Loan Documents.
(c) If the assignor Bank had received any Notes, within five Business
Days after its receipt of notice by the Agent that it has received an executed
Assignment and Acceptance and payment of the processing fee, (and provided that
the Company and the Agent have consented to such assignment in accordance with
subsection 10.08(a)), the Company shall execute and deliver to the Agent, new
Notes evidencing such Assignee's assigned Loans and, if the assignor Bank has
retained a portion of its Loans, replacement Notes in the principal amount of
the Loans retained by the assignor Bank (such Notes to be in exchange for, but
not in payment of, the Notes held by such Bank). Immediately upon each
Assignee's becoming a party to this Agreement in accordance with Section
10.08(b)(i), this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce the Commitment of the assigning Bank pro
---
tanto.
- -----
(d) Any Bank may, with the written consent of the Company at all times
other than during the existence of an Event
52
<PAGE>
of Default and the Agent, which consent of the Agent shall not be unreasonably
withheld, at any time sell to one or more Eligible Assignees (provided that no
written consent of the Company or the Agent shall be required in connection with
any participation by a Bank to an Eligible Assignee that is an Affiliate of such
Bank) (a "Participant") participating interests in any Loans, the Commitment of
-----------
that Bank and the other interests of that Bank (the "originating Bank")
hereunder and under the other Loan Documents; provided, however, that (i) the
-------- -------
originating Bank's obligations under this Agreement shall remain unchanged, (ii)
the originating Bank shall remain solely responsible for the performance of such
obligations, (iii) the Company and the Agent shall continue to deal solely and
directly with the originating Bank in connection with the originating Bank's
rights and obligations under this Agreement and the other Loan Documents, and
(iv) no Bank shall transfer or grant any participating interest under which the
Participant has rights to approve any amendment to, or any consent or waiver
with respect to, this Agreement or any other Loan Document, except to the extent
such amendment, consent or waiver would require unanimous consent of the Banks
as described in the first proviso to Section 10.01. In the case of any such
----- -------
participation, the Participant shall not have any rights under this Agreement,
or any of the other Loan Documents, and all amounts payable by the Company
hereunder shall be determined as if such Bank had not sold such participation;
except that, if amounts outstanding under this Agreement are due and unpaid, or
shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing under
this Agreement to the same extent as if the amount of its participating interest
were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this Agreement, any Bank
may at any time create a security interest in, or pledge, all or any portion of
its rights under and interest in this Agreement and any Notes held by it in
favor of any Federal Reserve Bank in accordance with Regulation A of the FRB or
U.S. Treasury Regulation 31 CFR (S)203.14, and such Federal Reserve Bank may
enforce such pledge or security interest in any manner permitted under
applicable law.
10.09 Confidentiality. The Agent and each Bank agrees to take and to
---------------
cause its Affiliates (including the Agent-Related Persons) to take normal and
reasonable precautions and exercise due care to maintain the confidentiality of
all information identified as "confidential" or "secret" by the Company and
provided to it by the Company or any Subsidiary, or by the Agent on the
Company's or Subsidiary's behalf, under this Agreement or any other Loan
Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with the Company or any
53
<PAGE>
Subsidiary, except to the extent such information (i) was or becomes generally
available to the public other than as a result of disclosure by any of the Agent
or such Bank, or (ii) was or becomes available on a non-confidential basis from
a source other than the Company, provided that such source is not bound by a
confidentiality agreement with the Company known to the Agent or such Bank;
provided, however, that the Agent and any Bank may disclose such information (A)
- -------- -------
at the request or pursuant to any requirement of any Governmental Authority to
which the Agent or any Bank is subject or in connection with an examination of
such Bank by any such authority; (B) pursuant to subpoena or other court
process; (C) when required to do so in accordance with the provisions of any
applicable Requirement of Law; (D) to the extent reasonably required in
connection with the exercise of any remedy hereunder or under any other Loan
Document; (E) to such Bank's independent auditors and other professional
advisors and to the Agent or any other Bank; (F) to any Participant or Assignee,
actual or potential, provided that such Person agrees in writing to keep such
information confidential to the same extent required of the Banks hereunder; (G)
as to the Agent or any Bank or its Affiliate, as expressly permitted under the
terms of any other document or agreement regarding confidentiality to which the
Company or any Subsidiary is party or is deemed party with such Bank or such
Affiliate; and (H) to its Affiliates; provided, further, that to the extent
-------- -------
permitted by applicable law or regulation, the Agent and each Bank agree to
notify the Company prior to (if reasonably practicable) or concurrently with its
disclosure of such information to any third party pursuant to clauses (B), (C),
or (F).
10.10 Set-off. In addition to any rights and remedies of the Banks
-------
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Company, any such notice being waived by the Company to the
fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of the Company against any and all Obligations owing to such Bank,
now or hereafter existing, irrespective of whether or not the Agent or such Bank
shall have made demand under this Agreement or any Loan Document and although
such Obligations may be contingent or unmatured. Each Bank agrees promptly to
notify the Company and the Agent after any such set-off and application made by
such Bank; provided, however, that the failure to give such notice shall not
-------- -------
affect the validity of such set-off and application.
10.11 Notification of Addresses, Lending Offices, Etc. Each Bank shall
------------------------------------------------
notify the Agent in writing of any changes in the address to which notices to
the Bank should be directed, of addresses of any Lending Office, of payment
instructions in respect of all payments to be made to it hereunder and of such
other administrative information as the Agent shall reasonably
54
<PAGE>
request.
10.12 Counterparts. This Agreement may be executed in any number of
------------
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
10.13 Severability. The illegality or unenforceability of any provision
------------
of this Agreement or any instrument or agreement required hereunder shall not in
any way affect or impair the legality or enforceability of the remaining
provisions of this Agreement or any instrument or agreement required hereunder.
10.14 No Third Parties Benefited. This Agreement is made and entered into
--------------------------
for the sole protection and legal benefit of the Company, the Banks, the Agent
and the Agent-Related Persons, and their permitted successors and assigns, and
no other Person shall be a direct or indirect legal beneficiary of, or have any
direct or indirect cause of action or claim in connection with, this Agreement
or any of the other Loan Documents.
10.15 Governing Law and Jurisdiction; Language. (a) THIS AGREEMENT AND
----------------------------------------
THE NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF CALIFORNIA WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAWS.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR
ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF CALIFORNIA
OR OF THE UNITED STATES FOR THE NORTHERN DISTRICT OF CALIFORNIA, AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE COMPANY, THE AGENT AND THE
BANKS CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE COMPANY, THE AGENT AND THE BANKS
IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE
OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER
--------------------
HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT
OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. THE COMPANY, THE AGENT AND
THE BANKS EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY CALIFORNIA LAW.
10.16 Waiver of Jury Trial. THE COMPANY, THE BANKS AND THE AGENT EACH
--------------------
WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN
DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION,
PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST
ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR ASSIGNEE, WHETHER
WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY, THE
BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE
TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
55
<PAGE>
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO
A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION,
COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE
THE VALIDITY OR ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR
ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS.
10.17 Entire Agreement. This Agreement, together with the other Loan
----------------
Documents, embodies the entire agreement and understanding among the Company,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
56
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered in San Francisco by their proper and duly authorized
officers as of the day and year first above written.
McKESSON CORPORATION
By: ______________________
Title: ___________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Agent
By: _________________________
Title: ______________________
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as a Bank
By: _________________________
Title: ______________________
THE CHASE MANHATTAN BANK, as Co-
Agent and as a Bank
By: ______________________
Title: ___________________
ABN AMRO BANK N.V.
By: ABN AMRO North America, Inc.,
as agent
By: _________________________
Title: ______________________
By: _________________________
Title: ______________________
S-1
<PAGE>
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK
By: _________________________
Title: ______________________
THE FIRST NATIONAL BANK OF CHICAGO
By: _________________________
Title: ______________________
TORONTO DOMINION (TEXAS), INC.
By: _________________________
Title: ______________________
WELLS FARGO BANK, N.A.
By: _________________________
Title: ______________________
S-2
<PAGE>
EXHIBIT 10.44
February 21, 1997
McKesson Corporation
One Post Street
San Francisco, CA 94194
Attention: Alan M. Pearce,
Assistant Treasurer
Dear Alan:
Bank of America National Trust and Savings Association (the "Bank") is
pleased to make available to McKesson Corporation, a Delaware corporation (the
"Company") the following revolving credit facility, subject to the following
terms and conditions (terms not defined herein have the meanings assigned to
them on Attachment 1 hereto):
I. Commitment:
----------
The Bank agrees, on and subject to the terms and conditions set forth
herein, to make loans to the Company (each such loan, a "Loan") from time
----
to time on any Business Day during the period from the Closing Date to the
Revolving Termination Date, in an aggregate amount not to exceed at any
time outstanding U.S. $525,000,000 (the "Commitment"). This is a revolving
----------
credit facility and, within the limits of the Commitment and subject to the
other terms and conditions hereof, the Company may borrow under this
Agreement, prepay under Section II(F) and reborrow under this Agreement.
II. Availability; Repayment; Etc.:
-----------------------------
A. Each Loan shall be made upon the Company's irrevocable written notice
delivered to the Bank (which notice must be received by the Bank prior
to 9:00 a.m. (San Francisco time) one Business Day prior to the
requested borrowing date for Base Rate Loans or three Business Days
prior to the requested borrowing date for Offshore Rate Loans),
specifying (i) whether the requested Loan will be a Base Rate Loan or an
Offshore Rate Loan (each, a "type" of Loan); (ii) the amount of the
----
Loan, which shall be in a minimum amount of $10,000,000 or any integral
multiple of $1,000,000 in excess thereof; and (iii) the requested
borrowing date, which shall be a Business Day.
B. At the Company's option, each Loan shall bear interest (i) based on the
Offshore Rate (referred to as an "Offshore Rate Loan") with an Interest
------------------
Period of one, two or three months (subject to the limitations in the
definition of Interest Period) or such period shorter than one month or
longer than three months as the Company may request and the Bank may
agree to in a particular instance in its sole discretion, or (ii) based
on the Base Rate (referred to as a "Base Rate Loan").
--------------
<PAGE>
C. Interest on any Offshore Rate Loan shall be payable on the last day of
each Interest Period applicable to such Loan and on the Revolving
Termination Date; provided that if any Interest Period for an Offshore
--------
Rate Loan exceeds three months, interest on such Loan shall also be
payable on the date that falls three months after the beginning of such
Interest Period. Interest on any Base Rate Loan shall be payable on the
last Business Day of any calendar quarter and on the Revolving
Termination Date.
D. At the Company's option, upon its irrevocable written notice delivered
to the Bank (which notice must be received by the Bank prior to 9:00
a.m. (San Francisco time) one Business Day prior to the requested
conversion date for conversion into Base Rate Loans, or three Business
Days prior to the requested conversion/continuation date for conversion
into or continuation as Offshore Rate Loans), the Company may elect on
the last day of any Interest Period applicable to an Offshore Rate Loan,
or on any Business Day in the case of a Base Rate Loan, to convert any
such Loan into a Base Rate Loan or Offshore Rate Loan, as applicable,
or, on the last day of the applicable Interest Period, to continue an
Offshore Rate Loan. Such prior written notice shall describe the
Business Day of the proposed conversion or continuation, the portion of
the Loans to be converted or continued (which shall be not less than
$10,000,000 or any integral multiple of $1,000,000 in excess thereof),
the type of Loans resulting from such conversion or continuation and, if
applicable, the duration of the requested Interest Period (subject to
the limitations contained in the definition of Interest Period). If the
Company fails to give a notice of conversion or continuation or an Event
of Default then exists, Offshore Rate Loans shall be automatically
converted to Base Rate Loans at the end of the applicable Interest
Period.
E. The Loans shall be evidenced by one or more loan accounts or records
maintained by the Bank in the ordinary course of business. Any failure
to record any Loan or any error in doing so shall not, however, limit or
otherwise affect the obligation of the Company hereunder to pay any
amount owing with respect to the Loans or otherwise owing hereunder or
under any note given in connection herewith. In addition, the Bank may
at any time, in its discretion, require the Company to sign one or more
promissory notes as further evidence of such indebtedness.
F. Subject to Section VI(C), the Company may, at any time or from time to
time, upon its irrevocable notice delivered to the Bank (which must be
received by the Bank no later than 9:00 a.m. (San Francisco time) three
Business Days prior to the proposed prepayment date, in the case of a
prepayment of Offshore Rate Loans, or one Business Day prior to the
proposed prepayment date, in the case of a prepayment of Base Rate
Loans), prepay Loans in whole or in part, in minimum amounts of
$10,000,000 or any integral multiple of $1,000,000 in excess thereof.
Such notice of prepayment shall specify the date and amount of such
prepayment and the type(s) of Loans to be prepaid. If such notice is
given by the Company, the Company shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the
date specified therein, together with accrued interest to each such date
on the amount prepaid and any amounts required pursuant to Section
VI(C).
G. The Company may, upon not less than five Business Days' prior notice to
the Bank, terminate the Commitment, or permanently reduce the Commitment
by a minimum amount of $10,000,000, or any integral multiple of
$1,000,000 in excess thereof; unless, after giving effect thereto and to
------
any prepayments of Loans made on the effective date thereof, the then-
outstanding principal amount of the Loans would
-2-
<PAGE>
exceed the amount of the Commitment then in effect. Once reduced in
accordance with this Section II(G), the Commitment may not be increased.
H. The Company shall repay to the Bank on the Revolving Termination Date
the aggregate principal amount of all Loans outstanding on such date.
III. Pricing:
-------
A. Each Loan shall bear interest at a rate per annum equal to the Offshore
Rate or the Base Rate, as the case may be, plus the Applicable Margin.
----
B. The Company shall pay to the Bank a facility fee equal to 0.04% per
annum times the amount of the Commitment (regardless of usage), computed
on a quarterly basis in arrears on the last Business Day of each
calendar quarter. Such facility fee shall accrue from the Closing Date
to the Revolving Termination Date and shall be due and payable quarterly
in arrears on the last Business Day of each calendar quarter, with the
final payment to be made on the Revolving Termination Date. The facility
fee provided in this subsection shall accrue at all times after the
Closing Date, including at any time during which one or more conditions
in Section IV are not met.
C. The Company shall pay a non-refundable upfront fee for this facility in
the amount of $65,000, payable on the Closing Date.
D. All interest based on the Bank's reference rate (as defined in the
definition of Base Rate) shall be calculated on the basis of a 365/366
day year and actual days elapsed. All other interest and fees shall be
calculated on the basis of a year of 360 days and actual days elapsed
which results in greater interest and higher fees than if a 365 day year
were used.
E. Any amount not paid when due shall bear interest at a rate per annum
equal to the sum of the Base Rate plus 1%.
IV. Conditions for use of Facility:
------------------------------
A. The obligation of the Bank to make its initial Loan hereunder is subject
to the condition that the Bank has received on or before the Closing
Date all of the following, in form and substance satisfactory to the
Bank:
(i) Agreement. This Agreement, executed by the Company;
---------
(ii) Resolutions; Incumbency. (a) Copies of the resolutions of the
-----------------------
board of directors of the Company authorizing the transactions
contemplated hereby, certified as of the Closing Date by the
Secretary or an Assistant Secretary of the Company; and (b) a
certificate of the Secretary or an Assistant Secretary of the
Company certifying the names and true signatures of the officers
of the Company authorized to execute, deliver and perform, as
applicable, this Agreement, and all other documents to be
delivered by it hereunder;
(iii) Organization Documents; Good Standing. Each of the following
-------------------------------------
documents: (a) a certificate from the Secretary or Assistant
Secretary of the Company as of the Closing Date certifying that
the restated certificate of incorporation and the bylaws of the
Company delivered to the Bank in connection with the 364-day
Syndicated Credit Agreement are in full force and effect and
unamended (except as set forth in such certificate, in which case
such amendments shall be attached thereto) as of the Closing Date;
and (b) a good standing and tax
-3-
<PAGE>
good standing certificate for the Company from the applicable
Secretary of State (or similar, applicable governmental authority)
of the States of Delaware and California dated as of a recent
date;
(iv) Legal Opinion. A favorable opinion of counsel to the Company,
-------------
addressed to the Bank, with respect to such legal matters relating
hereto as the Bank may reasonably request;
(v) Payment of Fees. Evidence of payment by the Company of all accrued
---------------
and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, including the fee referenced in
Section III(C);
(vi) Officer's Certificate. A certificate from a responsible officer of
---------------------
the Company certifying that:
(a) the representations and warranties in Section V are true and
correct on and as of the Closing Date with the same effect as if
made on and as of the Closing Date (except to the extent such
representations and warranties expressly refer to an earlier date,
in which case they shall be true and correct as of such earlier
date);
(b) no event which, with the giving of notice or passage of time,
or both, would constitute an Event of Default (a "Default") or
-------
Event of Default exists or will result from the execution and
delivery of this Agreement; and
(c) there has occurred since March 31, 1996, no Material Adverse
Effect;
(vii) Consummation of Acquisition. Evidence satisfactory to the Bank
---------------------------
that the acquisition of General Medical Inc. has occurred or will
occur on the Closing Date, including such approvals, opinions,
certificates or materials related to such acquisition as the Bank
may reasonably request;
(viii) Other Documents. Such other approvals, opinions, documents or
---------------
materials as the Bank may reasonably request; and
(ix) Closing Date. The Closing Date shall have occurred on or before
------------
March 31, 1997.
B. Conditions to All Loans. The obligation of the Bank to make any Loan
-----------------------
(including the initial Loan) or to continue or convert any Loan under
Section II(D) is subject to the satisfaction of the following conditions
precedent on the relevant borrowing date or conversion/continuation
date:
(i) Notice of Borrowing or Conversion/Continuation. The Bank shall
----------------------------------------------
have received a notice of borrowing or a notice of
conversion/continuation, as applicable;
(ii) Continuation of Representations and Warranties. The
----------------------------------------------
representations and warranties in Section V shall be true and
correct on and as of such borrowing date or
conversion/continuation date with the same effect as if made on
and as of such borrowing date or conversion/continuation date
(except to the extent such representations and warranties
expressly refer to an earlier date, in which case they shall be
true and correct as of such earlier date); and
(iii) No Existing Default. No Default or Event of Default shall exist
-------------------
or shall result from such Loan or continuation or conversion.
-4-
<PAGE>
Each notice of borrowing and notice of conversion/continuation
submitted by the Company hereunder shall constitute a representation
and warranty by the Company hereunder, as of the date of each such
notice and as of each borrowing date or conversion/continuation date,
as applicable, that the conditions in Section IV(B) are satisfied.
V. Representations and Warranties. Each of the representations and
------------------------------
warranties set forth in Article V (other than in Section 5.07 thereof)
of the 364-day Syndicated Credit Agreement are incorporated herein by
reference as if fully set forth herein, without giving effect to any
termination of the 364-day Syndicated Credit Agreement and the Company
hereby makes such representations and warranties to the Bank. The
Company further represents and warrants to the Bank that the proceeds
of the Loans are to be used solely for purposes of financing the
acquisition of General Medical Inc. and working capital purposes
related to such acquisition, and no part of the proceeds of any Loan
will be used to purchase or carry any margin stock or to extend credit
to others for the purpose of purchasing or carrying any margin stock
or for any purpose which violates, or would be inconsistent with, the
provisions of Regulations G, U, T and X of the Board of Governors of
the Federal Reserve System.
VI. Covenants. Until the Commitment has terminated and all indebtedness of
---------
Company hereunder and under any note or other document or instrument
given in connection herewith to the Bank has been paid in full, the
Company agrees that it shall:
A. Comply with all of the covenants set forth in Articles VI (other
than in Section 6.09 thereof) and VII of the 364-day Syndicated
Credit Agreement, which are incorporated herein by reference as if
fully set forth herein (without giving effect to any termination of
the 364-day Syndicated Credit Agreement).
B. Reimburse or compensate Bank, upon demand, for all costs incurred,
losses suffered or payments made by the Bank which are applied or
allocated by the Bank to the transactions contemplated herein (all
as determined by the Bank in its sole and absolute discretion) by
reason of:
(i) Any and all present or future reserve, deposit, capital
adequacy or similar requirements against (or against any
class of or change in or in the amount of) assets or
liabilities of, or extensions of credit by, the Bank; and
(ii) Compliance by the Bank with any direction, requirements or
request from any regulatory authority, whether or not having
the force of law.
C. Reimburse the Bank and hold the Bank harmless from any loss or
expense which the Bank may sustain or incur as a consequence of:
(a) the failure of the Company to make on a timely basis any
payment of principal of any Loan; (b) the failure of the Company to
borrow, continue or convert any Loan after the Company has given a
notice of borrowing; (c) the failure of the Company to make any
prepayment in accordance with any notice delivered under Section
II(F); (d) the prepayment or other payment (including after
acceleration thereof) of an Offshore Rate Loan on a day that is not
the last day of the relevant Interest Period; or (e) the automatic
conversion under Section II(D) of any Offshore Rate Loan to a Base
Rate Loan on a day that is not the last day of the relevant
Interest Period.
D. Not deduct any foreign taxes from any payments it makes to the
Bank, if any payments to the Bank under this Agreement are made
from outside the United States and, if any such taxes are imposed
on any payments made by the Company (including payments under this
Section), shall pay the taxes and will also pay to the
-5-
<PAGE>
Bank, at the time interest is paid, any additional amount which the
Bank specifies as necessary to preserve the after-tax yield the
Bank would have received if such taxes had not been imposed. The
Company will confirm that it has paid the taxes by giving the Bank
official tax receipts (or notarized copies) within 30 days after
the due date.
E. Use the proceeds of the Loans solely for the purposes of financing
the acquisition of General Medical Inc. and working capital
purposes related to such acquisition and not in contravention of
any requirement of law or of the provisions of this Agreement.
F. The agreements of the Company in Sections VI(B),(C) and (D) above
shall survive termination of the Commitment and payment of all
other obligations of the Company hereunder or under any other
document or agreement given in connection herewith.
VII. Default. If any of the following events ("Events of Default") shall
-------
occur:
A. The Company fails to pay, (i) when and as required to be paid
herein, any amount of principal of any Loan, or (ii) within five
days after the same becomes due, any interest, fee or any other
amount payable hereunder or under any other document or agreement
given in connection herewith; or
B. Any representation or warranty made or deemed made by the Company
to the Bank in this Agreement or any other documents or agreements
given in connection herewith is false or incorrect in any material
respect on or as of the date made or deemed made;
C. The Company shall fail to perform or observe any of its covenants
contained in Sections 6.04(a) or Article VII of the 364-day
Syndicated Credit Agreement, as incorporated herein by reference
pursuant to Section VI(A) hereof;
D. The Company shall fail in any material respect to perform or
observe any term, covenant or agreement contained in Section VI(A)
of this Agreement on its part to be performed or observed (other
than those referred to in Section VII(C) above) and any such
failure shall remain unremedied for 20 days after the earlier of
(i) in the case of any provision in Article V or VI of the 364-day
Syndicated Credit Agreement, as incorporated herein by reference
pursuant to Section VI(A) hereof, the date upon which a Responsible
Officer knew of such failure or (ii) the date upon which written
notice thereof is given to the Company by the Bank;
E. The Company fails to comply in any material respect with any other
condition, covenant or obligation contained herein or in any other
documents or agreements given in connection herewith (other than
those referred to in Section VII(C) and (D) above), and any such
failure shall remain unremedied for 20 days after written notice
thereof shall have been given to the Company by the Bank; or
F. An Event of Default occurs under the 364-day Syndicated Credit
Agreement; provided that if the 364-day Syndicated Credit Agreement
is terminated, the Events of Default set forth in Section 8.01(e)
through (h) of the 364-day Syndicated Credit Agreement shall be
incorporated herein by reference as though fully set forth herein;
THEN, the Bank may (i) declare any Commitment by the Bank to extend
additional credit hereunder to be terminated, whereupon any such
Commitment shall be terminated, and (ii) declare all sums outstanding
hereunder or under any instrument executed in connection herewith to
be immediately due and payable together with all interest thereon,
-6-
<PAGE>
all without notice of default, presentment or demand for payment,
protest or notice of nonpayment or dishonor, or other notices or
demands of any kind or character, all of which are hereby expressly
waived; provided, however, that upon the occurrence of any event
-------- -------
specified in subsection (f) or (g) of Section 8.01 (in the case of
clause (i) of subsection (g) upon the expiration of the 60-day period
mentioned therein) of the 364-day Syndicated Credit Agreement, any
Commitment by the Bank to extend additional credit hereunder shall
automatically terminate, and all sums outstanding hereunder or under
any instrument executed in connection herewith shall become
immediately due and payable together with all interest thereon, all
without notice of default, presentment or demand for payment, protest
or notice of nonpayment or dishonor, or other notices or demands of
any kind or character, all of which are hereby expressly waived.
VIII. Miscellaneous.
-------------
A. The Company shall pay the Bank, on demand, all out-of-pocket expenses
and Attorney Costs incurred by Bank in connection with the development,
preparation, delivery, administration and execution of, and any
amendment, supplement, waiver or modification to (in each case, whether
or not consummated), and the enforcement of this Agreement and any
instruments or agreements executed in connection with this Agreement.
B. This Agreement shall be governed by and construed in accordance with the
laws of the State of California, to the jurisdiction of whose courts,
both state and federal all signatories hereto submit.
C. Except as may be specifically provided herein, this Agreement supersedes
all prior agreements and oral negotiations with respect to the subject
matter of this Agreement. This Agreement is not assignable by the
Company without the prior written consent of the Bank, and is not
assignable by the Bank except as provided in Section VIII(E).
D. Whether or not the transactions contemplated hereby are consummated, the
Company shall indemnify, defend and hold the Bank and each of its
officers, directors, employees, counsel, agents and attorneys-in-fact
(each, an "Indemnified Person") harmless from and against any and all
------------------
liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, charges, expenses and disbursements (including
Attorney Costs) of any kind or nature whatsoever which may at any time
(including at any time following repayment of the Loans) be imposed on,
incurred by or asserted against any such person in any way relating to
or arising out of this Agreement or any document contemplated by or
referred to herein, or the transactions contemplated hereby, or the
acquisition of General Medical Inc. and any transaction related thereto
or any action taken or omitted by any such person under or in connection
with any of the foregoing, including with respect to any investigation,
litigation or proceeding (including any insolvency proceeding or
appellate proceeding) related to or arising out of this Agreement or the
Loans or the use of the proceeds thereof, whether or not any Indemnified
Person is a party thereto (all the foregoing, collectively, the
"Indemnified Liabilities"); provided, that the Company shall have no
----------------------- --------
obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting solely from the gross negligence or
willful misconduct of such Indemnified Person. The agreements in this
Section VIII(D) shall survive termination of the Commitment and payment
of all other obligations of the Company hereunder or under any other
document or agreement given in connection herewith.
-7-
<PAGE>
E. (i) The Bank may at any time and from time to time, with the prior
written consent of the Company, at all times other than during the
existence of an Event of Default, which consent shall not be
unreasonably withheld (provided, that no consent of the Company
--------
shall be required in connection with any assignment and delegation
by the Bank to an affiliate of the Bank), assign and delegate to
one or more commercial banks (each an "Assignee") all, or any part
--------
of all, of the Loans, the Commitment and the other rights and
obligations of the Bank hereunder, in a minimum amount of
$10,000,000; provided, however, that the Company may continue to
-------- -------
deal solely and directly with the Bank in connection with the
interest so assigned to an Assignee until written notice of such
assignment, together with payment instructions, addresses and
related information with respect to the Assignee, shall have been
given to the Company by the Bank and the Assignee.
(ii) The Bank may at any time and from time to time, with the prior
written consent of the Company, at all times other than during the
existence of an Event of Default, which consent shall not be
unreasonably withheld (provided, that no consent of the Company
--------
shall be required in connection with any sale of a participating
interest by the Bank to an affiliate of the Bank) sell to one or
more financial institutions (a "Participant") participating
-----------
interests in any Loans, the Commitment and the other interests of
the Bank hereunder and under the other loan documents.
(iii) Notwithstanding any other provision in this Agreement, the Bank
may at any time create a security interest in, or pledge, all or
any portion of its rights under and interest in this Agreement in
favor of any Federal Reserve Bank in accordance with Regulation A
of the Board of Governors of the Federal Reserve System or 31 U.S.
Treasury Regulation CFR (S)203.14, and such Federal Reserve Bank
may enforce such pledge or security interest in any manner
permitted under applicable law.
F. All payments to Bank shall be made by wire transfer to its Global
Payments Operations, 1850 Gateway Ave., Concord, California 94520 in
same day funds; for credit to Incoming Money Transfer Account #12331-
83980, ABA #121-000-358; Ref: McKesson Corporation.
G. No delay or omission by Bank to exercise any right under this Agreement
or under any document related hereto shall impair such right, nor shall
it be construed as a waiver thereof. No waiver of any breach or default
shall be deemed a waiver of any subsequent breach or default. Any
waiver, consent or approval under this Agreement must be in writing to
be effective.
H. Section headings in this Agreement are for reference only and shall not
affect the interpretation of any provision of this Agreement. Any
defined terms, schedules or exhibits referenced in provisions of the
364-day Syndicated Credit Agreement which are incorporated herein by
reference shall be incorporated herein as well (without giving effect to
any termination of such 364-day Syndicated Credit Agreement). Provisions
of the 364-day Syndicated Credit Agreement which are incorporated herein
by reference shall be deemed to include the following interpretive
changes: (i) references to "this Agreement" or "the Agreement" shall be
deemed to be references to this Agreement and references to "Notes" or
"Note" shall be deemed to be references to any note given in connection
herewith; (ii) references to the "Agent", the "Banks", the "Majority
Banks" or to any "Bank" or any combination thereof shall be deemed to be
references to the Bank; (iii) references to the "Closing
-8-
<PAGE>
Date" shall be deemed to be references to the Closing Date hereunder;
(iv) references to a "Material Adverse Effect" shall be deemed to be
references to a Material Adverse Effect as defined herein; and (v)
references to an "Event of Default" or "Default" shall be deemed to be
references to such events under the 364-day Syndicated Credit Agreement
or hereunder.
I. THE COMPANY AND THE BANK EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL
BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR
RELATED TO THIS AGREEMENT, THE OTHER DOCUMENTS GIVEN IN CONNECTION
HEREWITH, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY, WHETHER WITH RESPECT TO CONTRACT
CLAIMS, TORT CLAIMS, OR OTHERWISE. THE COMPANY AND THE BANK EACH AGREE
THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL
WITHOUT A JURY.
J. This letter may be signed in counterparts, and by each party on separate
counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
-9-
<PAGE>
Please indicate your acceptance of the foregoing terms and conditions by
signing and returning a copy of this letter to my attention no later than March
31, 1997.
Sincerely yours,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By:_____________________________
Name:___________________________
Title:__________________________
Agreed and Accepted:
MCKESSON CORPORATION
By:___________________________
Name:_________________________
Title:________________________
By:___________________________
Name:_________________________
Title:________________________
Date: ________________, 1997
-10-
<PAGE>
ATTACHMENT 1
------------
Agreement: means this letter loan agreement, as it may be modified, amended,
- --------- or supplemented from time to time.
Applicable
- ----------
Margin: means (i) with respect to Offshore Rate Loans, 0.11% per annum,
- ------ and (ii) with respect to Base Rate Loans, 0.00% per annum.
Attorney
- --------
Costs: means and includes all fees and disbursements of any law firm or
- ----- other external counsel, the allocated cost of internal legal
services and all disbursements of internal counsel.
Base
- ----
Rate: means, for any day, the higher of: (a) 0.50% per annum above the
- ---- latest Federal Funds Rate, which means, for any day, the rate set
forth in the weekly statistical release designated as H.15(519),
or any successor publication, published by the Federal Reserve
Bank of New York (including any such successor, "H.15(519)") on
the preceding Business Day opposite the caption "Federal Funds
(Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such
day will be the arithmetic mean as determined by the Bank of the
rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of
three leading brokers of Federal funds transactions in New York
City selected by the Bank; and (b) the rate of interest in effect
for such day as publicly announced from time to time by the Bank
in San Francisco, California, as its "reference rate." (The
"reference rate" is a rate set by the Bank based upon various
factors including the Bank's costs and desired return, general
economic conditions and other factors, and is used as a reference
point for pricing some loans, which may be priced at, above, or
below such announced rate.) Any change in the reference rate
announced by the Bank shall take effect at the opening of business
on the day specified in the public announcement of such change.
Business Day: means any day other than a Saturday, Sunday or other day on which
- ------------ commercial banks in San Francisco are authorized or required by
law to close and, if the applicable such Business Day relates to
an Offshore Rate Loan, also means such a day on which dealings are
carried on in the applicable offshore dollar interbank market.
Closing
- -------
Date: means the date on which all conditions precedent set forth in
- ---- Section IV(A) are satisfied or waived by the Bank.
Interest
- --------
Period: means, (a) as to any Offshore Rate Loan, the period commencing on
- ------ the borrowing date of such Loan or on the date on which the Loan
is converted into or continued as an Offshore Rate Loan, and
ending on the date one, two
<PAGE>
or three months thereafter as selected by the Company in its
notice of borrowing or notice of conversion/continuation and (b)
as to any Offshore Rate Loan, the period commencing on the
borrowing date of such Loan or on the date on which the Loan is
converted into or continued as such type of Loan, such period
shorter than one month or longer than three months as the Company
may request and the Bank may agree to in a particular instance in
its sole discretion; provided, that:
--------------
(i) if any Interest Period would otherwise end on a day that is
not a Business Day, that Interest Period shall be extended
to the following Business Day unless, in the case of an
Offshore Rate Loan, the result of such extension would be to
carry such Interest Period into another calendar month, in
which event such Interest Period shall end on the preceding
Business Day;
(ii) any Interest Period pertaining to an Offshore Rate Loan that
begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in
the calendar month at the end of such Interest Period) shall
end on the last Business Day of the calendar month at the
end of such Interest Period; and
(iii) no Interest Period for any loan shall extend beyond the
Revolving Termination Date as determined by subsection (a)
of the definition of that term.
Material
- --------
Adverse
- -------
Effect: means (a) a material adverse change in, or a material adverse
- ------ effect upon, the operations, business, properties, condition
(financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole or any Material Subsidiary; (b) a
material impairment of the ability of the Company to perform under
this Agreement or any document related hereto and to avoid any
Event of Default; or (c) a material adverse effect upon the
legality, validity, binding effect or enforceability against the
Company of this Agreement or any document or agreement given in
connection herewith.
Offshore
- --------
Rate: means, for any Interest Period, with respect to an Offshore Rate
- ---- Loan, the rate of interest per annum (rounded upward to the next
1/16th of 1%) determined by the Bank as follows:
Offshore Rate= LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"Eurodollar Reserve Percentage" means for any day for any
-----------------------------
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1%) in effect on
such day (whether or not applicable to the Bank) under regulations
issued from time to time by the Board of Governors of the Federal
Reserve System for determining the maximum reserve requirement
(including any emergency, supplemental or other marginal
-2-
<PAGE>
reserve requirement) with respect to Eurocurrency funding
(currently referred to as "Eurocurrency liabilities"); and
"LIBOR" means the rate of interest per annum determined by
-----
the Bank as the rate of interest at which dollar deposits in the
approximate amount of the Loan to be made or continued as, or
converted into, an Offshore Rate Loan and having a maturity
comparable to such Interest Period would be offered by the Bank
to major banks in the London interbank market at their request at
approximately 11:00 a.m. (London time) two Business Days prior to
the commencement of such Interest Period.
The Offshore Rate shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of
any change in the Eurodollar Reserve Percentage.
Revolving
- ---------
Termination
- -----------
Date: means the earlier to occur of (a) the date which is 180 days
- ---- after Closing Date, and (b) the date on which the Commitment
terminates in accordance with the provisions of this Agreement.
364-day
- -------
Syndicated
- ----------
Credit
- ------
Agreement: means the Credit Agreement dated as of November 4, 1996 among the
- --------- Company, the financial institutions party thereto, The Chase
Manhattan Bank, as Co-Agent, and Bank of America National Trust
and Savings Association, as Agent, as the same may be amended,
modified, supplemented, extended, or restated, or as the terms
thereof may be modified or waived by any amendment, modification,
supplement, extension, restatement or waiver.
-3-
<PAGE>
EXHIBIT 11
McKESSON CORPORATION - CONSOLIDATED
COMPUTATION OF EARNINGS PER COMMON SHARE
FOR THE FIVE YEARS ENDED MARCH 31
(in thousands except per share amounts)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
FULLY DILUTED EARNINGS PER SHARE
Income (loss) after taxes from continuing operations $ 5,149 $120,695 $(150,068) $ 69,229 $ 66,771
Dividends requirements - convertible preferred
securities of subsidiary trust 665 - - - -
Interest charges on convertible debentures - net of tax - - - 18 1,352
Contribution adjustment - Series B ESOP convertible
preferred stock/(1)/ - - (1,836) (3,706) (3,758)
-------- -------- --------- -------- --------
5,814 120,695 (151,904) 65,541 64,365
Discontinued operations 8,583 14,738 (23,074) 55,161 47,964
Discontinued operations -
Gain on sale/donation of Armor All stock 120,178 - 996 32,666 -
Gain on sale of PCS - - 576,656 - -
Extraordinary item - - - (4,186) -
Cumulative effects of accounting changes - - - (16,660) -
-------- -------- --------- -------- --------
Total $134,575 $135,433 $ 402,674 $132,522 $112,329
======== ======== ========= ======== ========
Fully diluted shares
Common shares outstanding/(2)/ 44,827 46,740 43,568 40,943 40,025
Convertible securities - dilutive 283 - 1,882 3,160 4,783
-------- -------- --------- -------- --------
Total 45,110 46,740 45,450 44,103 44,808
======== ======== ========= ======== ========
Fully diluted earnings per share
Continuing operations $ 0.13 $ 2.59 $ (3.34) $ 1.49 $ 1.44
Discontinued operations 0.19 0.31 (0.51) 1.25 1.07
Discontinued operations -
Gain on sale/donation of Armor All stock 2.66 - 0.02 0.74 -
Gain on sale of PCS - - 12.69 - -
Extraordinary item - - - (0.10) -
Cumulative effects of accounting changes - - - (0.38) -
-------- -------- --------- -------- --------
Total $ 2.98 $ 2.90 $ 8.86 $ 3.00 $ 2.51
======== ======== ========= ======== ========
PRIMARY EARNINGS PER SHARE
Income (loss) after taxes from continuing operations $ 5,149 $120,695 $(150,068) $ 69,229 $ 66,771
Dividend requirements - convertible preferred stock - - (3,501) (7,052) (7,010)
-------- -------- --------- -------- --------
5,149 120,695 (153,569) 62,177 59,761
Discontinued operations 8,583 14,738 (23,074) 55,161 47,964
Discontinued operations -
Gain on sale/donation of Armor All stock 120,178 - 996 32,666 -
Gain on sale of PCS - - 576,656 - -
Extraordinary item - - - (4,186) -
Cumulative effects of accounting changes - - - (16,660) -
-------- -------- --------- -------- --------
Total $133,910 $135,433 $ 401,009 $129,158 $107,725
======== ======== ========= ======== ========
Common shares outstanding 44,544 46,646 43,568 40,789 40,025
======== ======== ========= ======== ========
Primary earnings per share
Continuing operations $ 0.12 $ 2.59 $ (3.52) $ 1.53 $ 1.49
Discontinued operations 0.19 0.31 (0.53) 1.35 1.20
Discontinued operations -
Gain on sale/donation of Armor All stock 2.70 - 0.02 0.80 -
Gain on sale of PCS - - 13.23 - -
Extraordinary item - - - (0.10) -
Cumulative effects of accounting changes - - - (0.41) -
-------- -------- --------- -------- --------
Total $ 3.01 $ 2.90 $ 9.20 $ 3.17 $ 2.69
======== ======== ========= ======== ========
</TABLE>
(1) Represents the assumed additional ESOP contribution expense that the
Company would have incurred if the Series B ESOP convertible preferred
stock had been converted at the beginning of the period presented.
(2) Common shares outstanding have been computed by adding the monthly average
(beginning of the month plus end of the month divided by 2), dividing the
aggregate by 12 and adjusting this total for dilutive stock options using
the treasury stock method.
24
<PAGE>
EXHIBIT 13
McKESSON
[PHOTO APPEARS HERE]
97
ANNUAL REPORT
<PAGE>
OUR MISSION IS TO BE
THE WORLD LEADER
IN HEALTH CARE SUPPLY
MANAGEMENT BY
ADVANCING THE SUCCESS
OF OUR PARTNERS
CONTENTS
2 Letter to Shareholders
6 Essay on Operations
20 Six-Year Highlights
21 Six-Year Highlights Reporting Segments
22 Financial Review
29 Financial Statements
34 Notes to Consolidated Financial Statements
50 Statement of Management's Responsibility
50 Independent Auditors' Report
51 Directors and Officers
52 Shareholder Information
53 Investor Perspective
<PAGE>
-----------------
McKESSON OVERVIEW
-----------------
CORPORATE PROFILE
- --------------------------------------------------------------------------------
[MAP OF UNITED STATES APPEARS HERE]
. McKesson Customer Operations
. McKesson General Medical
. Medis Health and Pharmaceutical Services
. Nadro
McKesson Corporation, a Fortune 100 company, is the largest health care supply
management company in North America through its U.S. Health Care businesses; its
Canadian subsidiary, Medis Health and Pharmaceutical Services; and its interest
in Mexico's Nadro. With its acquisition of General Medical, the largest
multimarket distributor of medical-surgical supplies, McKesson has further
extended its leadership in health care supply management. The corporation also
owns McKesson Water Products Company, one of the nation's largest distributors
of bottled drinking water.
McKESSON CORPORATION
- --------------------------------------------------------------------------------
U.S. HEALTH CARE
Pharmaceutical and Retail Services
McKesson Health Systems
Customer Operations
McKesson General Medical Corp.
Zee Medical, Inc.
INTERNATIONAL HEALTH CARE
Canada -- Medis Health and Pharmaceutical Services, Inc.
Mexico -- Nadro, S.A. de C. V.
(22.7% holding)
McKESSON WATER PRODUCTS COMPANY
Sparkletts(R)
Alhambra(R)
Crystal(TM)
McKESSON'S GROWING INFLUENCE ALONG THE HEALTH CARE SUPPLY CHAIN
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
MANUFACTURERS
Helping pharmaceutical and medical-surgical supply manufacturers get their
valuable products to market -- rapidly, reliably, and universally
[PHOTO APPEARS HERE]
UTILIZATION MANAGEMENT
Using cost-effective decision support systems to help health care providers
choose appropriate pharmaceuticals and supplies
[PHOTO APPEARS HERE]
PACKAGING
Providing appropriate dose sizes tracked by barcode information to enhance
distribution safety and efficiency
[PHOTO APPEARS HERE]
PRESCRIBING
Making pharmaceutical and medical supply information available
to help physicians and pharmacists make the best clinical decisions for their
patients
[PHOTO APPEARS HERE]
LOGISTICS
Offering a full range of pharmaceutical and medical-surgical supplies at
industry-leading standards of availability, accuracy, and efficiency
<PAGE>
U.S. HEALTH CARE
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
PHARMACEUTICAL AND RETAIL SERVICES
Offering innovative marketing and retail services to improve the flow of
pharmaceuticals from manufacturer to patient
. Pharmaceutical marketing services
. OmniLink(SM) pharmacy connectivity software
. Valu-Rite(R), Valu-Rite/CareMax(SM), and
Health Mart(R) retail networks
. Healthcare Delivery Systems, Inc.
. McKesson BioServices Corporation
. McKesson Pharmacy Systems
[PHOTO APPEARS HERE]
McKESSON HEALTH SYSTEMS
Serving the pharmaceutical distribution and supply management needs of health
care institutions
. Automated Healthcare, Inc. -- R\\x\\OBOT(TM),AcuScan-R\\x\\(TM), and
Connect-R\\x\\(TM)
. MedPath(SM)
. Multum Information Services, Inc.
(25% holding)
[PHOTO APPEARS HERE]
CUSTOMER OPERATIONS
Providing retail and national account sales, service, and network operations
that support McKesson customers nationwide
. National distribution center network
. Drohan Data Center
. National Customer Service Center
[PHOTO APPEARS HERE]
McKESSON GENERAL MEDICAL
Leading the industry in medical-surgical supply management across the continuum
of care
. Acute care -- hospitals, surgicenters
. Primary care -- physicians, clinics, and physician practice management
companies
. Extended care -- nursing homes, rehabilitative and home care
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
DISPENSING
Promoting pharmacy success through a full suite of retail marketing programs and
advanced pharmacy management systems
[PHOTO APPEARS HERE]
PAYMENT
Improving transaction accuracy and supporting retail pharmacy profitability
through online access to managed care networks
[PHOTO APPEARS HERE]
COMPLIANCE
Providing retail Patient Care Enhancing Programs and specialized distribution to
improve patient compliance with prescribed therapies
[PHOTO APPEARS HERE]
HEALTH CARE DATA
Gathering detailed information on utilization of pharmaceutical and medical-
surgical materials throughout the supply chain
[PHOTO APPEARS HERE]
SHARED SAVINGS
Using McKesson's financial strength, information technology, and wide industry
relationships to share managed-care risks and benefits with our partners
<PAGE>
--------------------
FINANCIAL HIGHLIGHTS
--------------------
Dollars in millions, except per share amounts
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATIONS
Revenues $12,886.7 $9,953.7 $9,438.7
Health Care Services Operating Profit/(1)/ 232.8 206.1 183.4
Water Products Operating Profit/(1)/ 41.6 39.6 31.8
Net Income 133.9 135.4 404.5
FINANCIAL STRENGTH
Working Capital $ 1,123.9 $ 820.5 $ 879.0
Total Assets 5,172.8 3,360.2 3,260.2
Stockholders' Equity 1,260.8 1,064.6 1,013.5
Capital Employed 2,440.8 1,462.9 1,438.6
PERFORMANCE MEASURES
Return on Average Equity 14% 13% 50%
Fully Diluted Earnings per Share
Continuing operations
Before unusual items $ 2.56 $ 2.59 $ 1.89
Unusual items (2.43) - (5.23)
----------- --------- --------
Total 0.13 2.59 (3.34)
Discontinued operations 0.19 0.31 (0.51)
Discontinued operations -
Gain on sale/donation of Armor All stock 2.66 - 0.02
Gain on sale of PCS - - 12.69
----------- --------- --------
Total $ 2.98 $ 2.90 $ 8.86
=========== ========= ========
Dividends per Common Share $ 1.00 $ 1.00 $ 1.34
Shares Outstanding (fully diluted) 45.1 46.7 45.5
</TABLE>
---------------------
HEALTH CARE SERVICES
OPERATING PROFIT/(1)/
---------------------
Dollars in millions
[BAR GRAPH APPEARS HERE]
95 $183.4
96 $206.1
97 $232.8
--------
REVENUES
--------
Dollars in billions
[BAR GRAPH APPEARS HERE]
95 $9.4
96 $10.0
97 $12.9
----------------
CAPITAL EMPLOYED
----------------
Dollars in billions
[BAR GRAPH APPEARS HERE]
95 $1.4
96 $1.5
97 $2.4
/(1)/Excluding unusual items.
<PAGE>
-------------------
TO OUR SHAREHOLDERS
-------------------
McKesson's strategic commitment to the health care industry entered its third
year in fiscal 1997. In last year's annual report, we outlined our excitement
about the opportunities in this vital sector of the economy and our initial
steps to create value, building on our core pharmaceutical distribution
business. Here we review significant progress made in 1997 toward our goal of
becoming the world's leading health care supply management company.
We reiterate our commitment to enhance shareholder value. As measured by
share-price rise and multiple expansion in fiscal 1997, the marketplace has
already begun to recognize and reward McKesson as it focuses on health care. In
this report we'll discuss the specifics of the past year and the reasons why we
believe we will consistently meet -- or exceed -- investor expectations in the
years ahead.
In fiscal 1997 we continued the process of senior management succession begun
in 1996. From April 1, 1997, Alan Seelenfreund will serve as Chairman of the
Board of Directors of McKesson, while Mark A. Pulido becomes Chief Executive
Officer as well as President. Alongside this joint letter, each of us presents
his personal perspective on this transition and the corporation's achievements
and prospects.
---------------------------
INCREASED SHAREHOLDER VALUE
---------------------------
Five-Year Cumulative Total Return
[LINE GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
McKesson Corporation $100 $143 $196 $482 $624 $795
S&P Index 100 115 117 136 179 215
Value Line Health Care
Sector Index 100 84 81 112 160 197
</TABLE>
AFFIRMING McKESSON'S HEALTH CARE MISSION
During fiscal 1997, McKesson management made its mission clear:
McKesson Corporation will become
the world leader in health care supply management
by advancing the success of our partners.
This mission statement is the foundation of our strategy, asset portfolio
decisions, investment priorities, and return expectations, and guides the way we
conduct our business.
Leading the World in Health Care
Supply Management
Health care supply -- pharmaceuticals, biotechnological agents, and medical-
surgical equipment and supplies -- presents a remarkable growth opportunity
and, with the information it generates, a complex management challenge
worldwide.
Health care growth is assured, driven by demand from aging populations.
Technological innovation drives new products and processes that enhance the
quality of care. At the same time, the U.S. and other societies are increasingly
facing the need to manage the dynamics of health care growth, so that the
benefits health care brings are not swamped by its cost.
The supply businesses within health care are surprisingly large. About $80
billion, or 8 percent of total U.S. health care expenditures, is spent on
pharmaceuticals, from the latest breakthrough drugs to cost-effective quality
2
<PAGE>
generics. Another $30 billion goes for medical-surgical supplies, from high-tech
surgical implants to clinic disposables.
Based on these strong fundamentals, McKesson's mission is to become the world
leader in managing the supply chain within health care. What will this entail?
First, the scale and capability to carry out increasingly complex logistics
processes. In the U.S. market, for example, some 30,000 different dispensing
units of prescription pharmaceuticals flow from over 500 manufacturers to 50,000
retail outlets, 6,300 hospitals, 15,000 nursing homes, and 200,000 clinics. Only
a distributor with continental scale and unquestioned financial resources can
supply these vital drugs reliably. McKesson, at a U.S. pharmaceutical annual
revenue run-rate exceeding $13 billion, leads the industry in distribution scope
and credibility. McKesson supply management has further room to grow share, from
volume now delivered directly from manufacturers or through small distributors
lacking the scope and systems needed in today's demanding marketplace.
Second, an information technology platform to manage supply cost and
utilization, while improving the quality of health care. True control over the
health care supply chain requires influence over key decisions, when and where
they are made. Guiding customers through their supply choices, and costs, is
tough enough. Helping our partners manage supply utilization while
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
So many changes have occurred during my 22-year career at McKesson that it is
difficult to single out the most influential. But I take special satisfaction in
four major milestones attained over the eight years I've served as chief
executive officer.
First, McKesson's recognition of the role that pharmacy benefit management
companies would play in pharmaceutical cost management, which led to the long
nurture and eventual sale of our PCS subsidiary in fiscal 1995 for $4 billion.
This transaction indelibly established our commitment to shareholder value. Its
proceeds provided the basis for our future corporate development, and our
employee shareholders participated significantly in the rewards.
Second, I am convinced McKesson will prosper in concentrating on health care
supply management, and I am proud to have led the company in that direction. Our
distribution experience and information technology skills are legacies we can
capitalize upon in a dynamic industry that needs them badly. As a result,
McKesson has every opportunity to set the pace, globally, in health care supply
management.
Third, as both CFO and CEO I have tried to reinforce McKesson's strong balance
sheet and promote employee ownership. To augment our business scope and reach,
we take a disciplined approach to investment analysis, capital allocation, and
return on investment. Our own employees, who through the Employee Stock
Ownership Plan and option plans now have an interest in over 32 percent of our
equity, rely upon our integrity as prudent stewards of capital.
Finally, I am most pleased with the quality of our senior management team and
the support of our board, and am especially happy that Mark Pulido has joined
us. His background at McKesson and as a pharmacist, his health care
experience--including medical-surgical distribution and pharmaceutical
manufacturing --and his exceptional personal and leadership skills make him the
ideal choice to guide McKesson at this point in our evolution.
I've never been more confident in McKesson's future and look forward
enthusiastically to the success of its mission.
Alan Seelenfreund
3
<PAGE>
enhancing health care quality, at the individual patient and physician level,
across many episodes and sites of care, will be an even greater challenge.
The information systems required to meet the challenge of managing the health
care supply chain are formidable. McKesson, long known for distribution systems
innovation, already leads the industry in applied information technology -- and
we'll extend that strength to supply management across all locations within the
health care continuum.
Third, broad supply services accommodating increasingly sophisticated
customers. For patients, health care is all about quality. Improving quality in
the supply arena will inevitably require managing both pharmaceuticals and
medical-surgical supplies. The industry will demand a comprehensive approach,
superseding traditional product-line fragmentation and accommodating the
evolving needs of integrated health care providers.
McKesson seized the opportunity to create broad-based supply management in
1997, acquiring General Medical Inc., the only national, multimarket medical-
surgical supply company in the U.S. General Medical has added distinctive
capabilities to our existing strength in pharmaceutical and biotechnological
distribution. Combined with our Canadian and Mexican holdings, McKesson now
stands in the first rank of health care supply management companies worldwide.
Advancing the Success of Our Partners
For 164 years, McKesson has prospered as our business partners have succeeded:
.Our pharmacist, physician, and nurse partners, who care for patients
.The manufacturers who create critical pharmaceuticals and supplies
.The communities in which we operate and whose welfare we promote
- --------------------------------------------------------------------------------
[PHOTO APPEARS HERE]
Returning to McKesson, where both my father and I worked in the past, has been
both familiar and excitingly new. McKesson is poised to capture a wealth of
opportunity, and I am delighted to have the privilege of helping to shape its
future.
I was attracted back by many factors. McKesson's reputation for integrity and
customer service rests on the quality of its people. I find our employees'
values are as solid as I knew them to be in my early career, but supplemented by
new skills, new colleagues, and a competitive spirit that we'll encourage as we
go forward.
Equally important is McKesson's potential as a focused health care company. My
business experience makes me certain that focus and speed will create a powerful
competitive advantage for us. I endorse the conviction that we will prosper by
advancing the success of our health care partners.
My managerial philosophy requires clear communication of intentions and
reliable fulfillment of expectations. We will do what we say we'll do. I'll lead
our company in both communication and performance, with the strong support of
McKesson's board and management team.
Finally, in returning to McKesson, I want to acknowledge the gratitude and
respect we all owe to Alan Seelenfreund. He has overseen the most profound
strategic shifts in the company's modern history. He has been the architect of
our corporate restructuring. I am very proud to succeed him.
Mark A. Pulido
4
<PAGE>
.Our employees, who devote themselves to providing unparalleled service
.Our shareholders, who entrust us with the capital to make a fundamental
contribution to the health care industry, and for whom we strive to provide a
superior return.
Our belief that success is mutual defines the way we conduct our business. We
fulfill our commitments. We insist on quality. We treat people with dignity and
consideration, and we do what's right.
FOCUSING STRATEGY AND REDEPLOYING CORPORATE ASSETS
Our two-part corporate strategy directly supports our mission:
.McKesson is and will remain the distributor of choice, recognized as first in
our core business, and will continue to increase market share in a financially
responsible manner.
.McKesson will lead in developing health care supply management services to
meet customer needs, capturing growth opportunities in the market and
improving our margins.
Accomplishing this ambitious strategy will require sustained focus throughout
the corporation. We realigned assets during fiscal 1997 through an unprecedented
series of acquisitions and divestitures, in order to establish a clear platform
at McKesson for market-leading performance and margin expansion. We also
completed the redeployment of the $600 million cash proceeds retained by the
company from the fiscal 1995 sale of PCS Health Systems, Inc., to Eli Lilly and
Company, with further investments in information technology, automated
logistics, managed care, retail electronic connectivity, and customer service
programs.
We have continued strengthening our senior management team -- the best
qualified in the industry. They, and a wide group of other McKesson managers,
hold significant equity and have incentives to pursue our strategy with
intensity. Our philosophy is that employees should be stockholders. The 23
percent of our common stock held by the Employee Stock Ownership Plan places
McKesson among the top 10 publicly held U.S. corporations in terms of employee
ownership.
COMMUNICATING OUR INTENTIONS AND SHOWING RESULTS
McKesson has been a good investment. Shareholders who purchased $100 of McKesson
stock in May 1992 hold a security worth $800 as of May 1997 -- outpacing the S&P
500 significantly, both before and after the PCS transaction.
To reinforce this trend and set clear expectations for McKesson's performance,
we have stepped up the frequency and scope of our communications with the
investor community. Quarterly and major-event analyst conference calls, frequent
discussions with major shareholders, and increased participation in industry
forums reinforce McKesson's mission, strategy implementation, and disciplined
approach to capital deployment.
We look ahead with confidence to fulfilling the expectations we have set, and
to the success of all partners in our mutual enterprise.
/s/ Alan Seelenfreund
Alan Seelenfreund
Chairman of the Board
/s/ Mark A. Pulido
Mark A. Pulido
President and Chief Executive Officer
5
<PAGE>
[ARTWORK APPEARS HERE]
IMPLEMENTING
McKESSON'S STRATEGY
<PAGE>
1997 WAS A YEAR OF FOCUS FOR McKESSON, AS WE REDEPLOYED ASSETS, GAINED SHARE AS
DISTRIBUTOR OF CHOICE, AND ACCELERATED DEVELOPMENT OF HEALTH CARE SUPPLY
MANAGEMENT SERVICES.
- --------------------------------------------------------------------------------
ASSET REDEPLOYMENT
Three major acquisitions and two divestitures in 1997 provide clear testimony to
McKesson's focus on its health care mission.
General Medical Inc., acquired in February 1997, broadens McKesson's business
scope. As the nation's leading medical-surgical supply distributor across the
continuum of health care sites, McKesson General Medical will enable the
corporation to provide a full range of health care supply management services to
national and regional integrated health networks. The acquisition also presents
McKesson with many cross-selling opportunities to institutions in conjunction
with pharmaceutical distribution and value-added information services.
- --------------------------------------------------------------------------------
------------------------
McKESSON REVENUE PROFILE
------------------------
Dollars in billions
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
FY96 FY97 Run-Rate*
---- ---- --------
<S> <C> <C> <C>
U.S. Pharmaceutical
Distribution & Services $ 8.2 $10.9 $13.5
McKesson General Medical none 0.2 1.7
International Health Care 1.5 1.5 1.5
McKesson Water Products 0.3 0.3 0.3
----- ----- -----
Total $10.0 $12.9 $17.0
===== ===== =====
</TABLE>
*Based on FY97 Fourth-Quarter Revenue Run-Rates
The health care distribution business of FoxMeyer Corporation, formerly the
fourth-largest U.S. pharmaceutical distributor, was acquired in November 1996.
Its valued customer base significantly enlarges McKesson's revenue, while the
integration of its distribution facilities will help establish our cost
structure as the new industry standard.
Automated Healthcare, Inc. (AHI), acquired in April 1996, is the nation's
premier manufacturer of automated pharmacy systems. Based on robotic and barcode
technology, AHI's R\\x\\OBOT/TM/ automated pharmacy station significantly
reduces the cost of picking drugs for patient-ready orders, while virtually
eliminating dispensing errors. The new AcuScan-R\\x\\/TM/ product from AHI scans
patient, drug, and nurse identification at the point of drug administration,
automating information for the Medical Administration Record and reducing
nursing labor costs. Using the new Connect-R\\x\\/TM/ interface, the AHI suite
of robotic and information technology products captures data and monitors
pharmaceutical usage from the warehouse to the patient's bedside.
Further concentrating the corporate portfolio on health care, McKesson
divested its holdings in Armor All Products Corporation and Millbrook
Distribution Services, Inc., recording an after-tax aggregate gain of $120
million.
7
<PAGE>
EXCELLING IN HEALTH CARE DISTRIBUTION
With an estimated 23 percent share of the market, and at an annual run-rate
exceeding $13 billion, McKesson stands out as the clear leader in U.S.
pharmaceutical distribution. And with some 20 percent of pharmaceutical dollar
volume still sold directly from manufacturers to providers, there is room to
grow.
Being the best in the world at our core business -- providing the right
product at the right place at the right time at the right price for pharmacist,
physician, nurse, and patient -- is the overriding goal at McKesson. To attain
that goal, McKesson operates sophisticated distribution and information networks
of continental scope, dedicated to premier customer service.
Every workday, McKesson handles more than one million transactions,
representing over $65 million worth of pharmaceuticals and medical-surgical
supplies. Approximately 9,500 warehouse personnel and drivers, salespeople,
information technology experts, and customer service representatives work on the
front lines in McKesson's distribution and processing centers. Their sole
purpose is to serve customers distinctively well.
McKesson invests in service -- whether it's the extra inventory needed for the
cough-and-cold season or advanced laptop information systems equipping our
representatives to counsel customers at their own locations. We invest in
intensive training for telephone customer service support. We continually
improve our information and financial support capabilities -- from our 80,000-
square-foot, state-of-the-art information technology center in Sacramento to the
ongoing extensive upgrades of systems at Medis in Canada and at McKesson General
Medical.
-------------------
U.S. PHARMACEUTICAL
DISTRIBUTION MARKET
-------------------
Calendar Year 1997 (Estimate)
In percent
100%=$72 billion*
[PIE CHART APPEARS HERE]
McKesson -- 23% AAS -- 10%
BBC -- 20% BDY -- 8%
CAH -- 19% Others -- 20%
*Total wholesale market including bulk
sales to customers' warehouses
SOURCE: SALOMON BROTHERS
- --------------------------------------------------------------------------------
Extraordinary service is the result. McKesson stands at the forefront of the
industry, with customer-approval ratings consistently at the highest levels.
Operational sophistication makes all this possible, supported by continuous
quality improvement in both the warehouse and the marketplace. Acumax/(R)/Plus,
McKesson's proprietary warehouse management system, is now installed in 24
pharmaceutical distribution centers across the U.S. Handheld radio-frequency
scanning units enable distribution center personnel to check goods as they are
received from the manufacturer, to determine the status and location of
inventory in real time, and to monitor details of customer orders as they are
picked -- all with unprecedented accuracy and reliability.
To make McKesson more competitive, we have continued our disciplined program
of internal cost reduction. In particular, we have
8
<PAGE>
begun to consolidate the McKesson and FoxMeyer distribution networks
aggressively. When this project is completed in calendar 1998, the resulting
customer density and efficiencies will define the best full-service cost
structure in the industry.
Underlying all the statistics is the extraordinary dedication of McKesson
employees. McKesson distribution professionals perform hundreds of exacting
tasks around the clock to ensure the integrity and efficiency of the supply flow
and to maintain McKesson's performance as distributor of choice.
ADVANCING HEALTH CARE SUPPLY MANAGEMENT
McKesson's supply management strategy has a clear goal: helping our business
partners control health care costs while enhancing health care quality.
Under yesterday's permissive health care financing approach, few worried about
supply-chain inefficiencies or excessive resource use. Now, however, health care
providers have inherited spiraling utilization of drugs and supplies, while
facing stringent managed care reimbursement rules. They have mounds of data but,
typically, slim factual support in deciding how to balance cost and clinical
quality in the best interests of the patient. Meanwhile, research-based
pharmaceutical and medical-surgical supply manufacturers also have a huge stake
in distribution and supply management. With tens of billions invested annually
in lengthy research and development and regulatory approval processes, it is
imperative for manufacturers to assure the availability of their cost-effective,
high-value products to their physician and pharmacist customers.
Resolving the balance between quality and appropriate cost requires an end-to-
end perspective on pharmaceutical and medical-surgical product flow. The key to
effective supply management -- and fiscal integrity under managed care -- is the
ability to gather and use timely information to influence key decision points
along the supply chain, when and where decisions are made.
McKesson, in partnership with provider customers, is developing decision
support services to help customers determine which products to choose, from whom
to buy, how much to pay, and how much to use.
For example, through McKesson's software and consulting services our hospital
pharmacist partners can:
.Oversee health care supply procurement by item and by site of care
.Manage costs of health care supply transactions using accurate contract terms
.Interface with McKesson's warehouse and on-site automated dispensing systems
to optimize inventory
.Coordinate procurement and dispensing with clinical decisions of physician
committees
.Comply with managed care requirements and monitor their impact
.Take managed care risk responsibly.
McKesson brings the skills and credibility to create value-added services such
as these, advancing our partners' success while capturing the extraordinary
growth opportunity in managing health care supply information.
9
<PAGE>
[ARTWORK APPEARS HERE]
PERFORMING FOR OUR
RETAIL PARTNERS
<PAGE>
McKESSON IS THE UNDISPUTED LEADER IN PHARMACEUTICAL DISTRIBUTION TO U.S. AND
CANADIAN RETAIL PHARMACIES. McKESSON PROGRAMS SET THE PACE FOR SERVICE ACROSS
ALL RETAIL CUSTOMER SEGMENTS.
- --------------------------------------------------------------------------------
LEADING AN EXPANDING INDUSTRY
McKesson is particularly strong in distribution to the retail segment: we are
first in serving independent retail pharmacies -- and first in share of retail
chain pharmacies as well. While gaining significant revenue momentum in fiscal
1997, we balanced our retail customer base among independent community
pharmacies and multisite chain retailers, including fast-growing pharmacy
outlets in food stores and mass merchandisers.
The reason for McKesson's leading position is straightforward. Through
superior performance as the distributor of choice and through advanced
information technology, we help our retail partners succeed at their business --
serving physicians and patients.
SUPPORTING RETAILERS THROUGH OMNILINK
OmniLink(SM) is a revolutionary, centralized pharmacy information technology
introduced by McKesson in fiscal 1996 to support retail pharmacies in both the
independent and chain segments. A software application located on the
information pathway between the pharmacy and third-party health care payor,
OmniLink intercepts electronic script payment transactions and checks them for
accuracy. This powerful information management tool helps pharmacists comply
with the complicated requirements of managed care formularies and reimbursement
procedures, increasing pharmacy profitability by providing transaction and
payment audit trails.
More than 1,800 pharmacies have installed OmniLink, which captures savings by
automatically attending to the administrative demands of managed care
transactions. In real time, OmniLink confirms thousands of price updates and
clarifies the managed care stipulations governing the drugs pharmacists
dispense. The value to community pharmacy is significant. As Robert Bliss of
Penn Family Pharmacy in Pennsauken, N.J., says, "I used to get drug price
updates only once a month. Now it's daily, so I know OmniLink is making me
money."
McKesson documents savings from OmniLink in a monthly, customized OmniLink
- --------------------------------------------------------------------------------
-------------------------
McKESSON CUSTOMER PROFILE
-------------------------
In percent
[BAR CHART APPEARS HERE]
<TABLE>
<CAPTION>
100%=$2.2 billion 100%=$3.4 billion
FY96 4Q FY97 4Q
------- -------
<S> <C> <C>
Institutions 26% 32%
Chains 34% 31%
Independents 40% 37%
</TABLE>
11
<PAGE>
Value Report(TM), summarizing interventions performed and the additional profit
the store realized from them.
We plan to increase value to retail pharmacies by continually adding new
services and information to OmniLink. OmniLink(SM) Financial Services (OLFS) is
the latest of these innovations. OLFS offers automated reconciliation and pre-
funding of receivables, significantly reducing the pharmacist's working capital
needs by improving managed care cash flow.
CHOOSING HOW TO AFFILIATE WITH MCKESSON
McKesson tailors its retail service offerings closely to the particular needs of
customers in each retail segment. A good example is the wide choice of
affiliation offered to independent pharmacy customers of McKesson.
Valu-Rite(R) is McKesson's 5,200-member voluntary association of independent
pharmacies -- the largest such organization in the country. Valu-Rite brings its
members the benefits of a "virtual chain," including private-label products,
special purchasing programs, and in-store merchandising of over-the-counter
products -- while affording the maximum degree of autonomy to the independent
pharmacist.
-------------------------
OMNILINK USER BASE GROWTH
-------------------------
Total Units Installed
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FY97 FY97 FY98
Q1 Q4 Estimated
<S> <C> <C>
800 1800 2600
</TABLE>
Health Mart(R) is McKesson's franchise program, offering services similar to
those of Valu-Rite along with the benefits of tighter organizational affiliation
with McKesson. The proprietors of approximately 650 pharmacies nationwide are
affiliated with Health Mart.
Since its launch last year, our new Valu-Rite/CareMax(SM) program has
contracted with more than 3,100 independent pharmacies. Using OmniLink
technology, CareMax improves efficiency, accuracy, and profitability in today's
complex dispensing environment, which encompasses hundreds of payment plans.
Through CareMax Patient Care Enhancing Programs, Valu-Rite/CareMax pharmacists
build a practice beyond the traditional dispensing pharmacist role. Finally,
CareMax helps community pharmacists compete in the demanding environment of
managed care, gaining program members access to managed care prescription volume
and simplifying the administrative burdens of third-party payment. Through
McKesson, Valu-Rite/CareMax members speak with a single voice through a single
contract to managed care payors -- a profile that large managed care
organizations demand in order to do business, and one that independents have
been largely unable to fulfill before joining CareMax.
The results have been outstanding for pharmacists. As Jerry Deom of Lincoln
Trail Pharmacy, Radcliff, Ky., says, "CareMax and OmniLink are the best programs
in the industry to keep us competitive in the world of managed care."
12
<PAGE>
LINKING MANUFACTURER TO RETAILER
McKesson's Pharmaceutical and Retail Services group is organized to enhance the
flow of products from manufacturers to retailers through advanced marketing and
information services.
In fiscal 1997, McKesson introduced the first in a new series of Patient Care
Enhancing Programs for retail pharmacies, to generate prescription refill
reminders automatically. Through OmniLink, pharmacists remind patients to refill
physician-authorized prescriptions. The program supports compliance with the
drug therapy ordered by the patient's physician. In addition, patients can
receive important information about their therapy and health, which can
positively affect outcomes and lead to enhanced pharmaceutical care.
McKesson's Select Generics/(SM)/ program offers pharmacists approximately
1,350 of the most-used generic prescription products, on a competitive market
basis. Select Generics features only pharmaceuticals from the highest quality,
most reliable pharmaceutical manufacturers. Automatically administered through
McKesson's order-entry system, Select Generics helps retail pharmacists comply
with managed care mandates for generic substitution, while assuring them of
clinical integrity and cost parity with competition. Select Generics
manufacturers gain the advantages of predictably greater volume -- a winning
proposition for McKesson's partners at both ends of the pharmaceutical product
chain.
Marketplace response to Select Generics has been overwhelming. Some 5,900
stores have signed onto Select Generics, agreeing to high degrees of program
compliance in return for the quality and economic benefits of the program.
SERVICES TO
MANUFACTURERS
Manufacturers are critical to the health care supply chain -- and key partners
for McKesson.
McKesson's Healthcare Delivery Systems, Inc. (HDS) unit performs an entire
suite of specialized logistics and patient services for manufacturers, from
patient registers through reimbursement support and patient assistance programs.
Pioneering the integrated distribution of Berlex's biotech drug Betaseron(R) to
the population with multiple sclerosis, HDS has put together an organization
that directly links the ends of the pharmaceutical chain -- patients and
manufacturers. Because of its capability in patient identification and
reimbursement counseling, HDS can function as a marketing organization for the
newer biotech firms and deliver targeted marketing support services nationwide
for major pharmaceutical companies.
A good example is HDS's TrialScript/(SM)/ program, which enables
manufacturers to support pharmaceutical sampling by physicians in the clinic
through electronically controlled vouchers. Filled at a retail pharmacy,
vouchers eliminate the need for wasteful sample inventory, while enabling
McKesson to track drug usage and volume -- vital marketing information for
manufacturer-sponsors -- with unprecedented detail and accuracy.
The combined industry-leading size of McKesson's retail and institutional
customer base is a major attraction to manufacturers seeking to expand market
access. Our Patient Care Enhancing Programs permit manufacturers committed to
high quality and reliable patient care to partner closely with McKesson. With
its value-added programs and services, McKesson reaches the customer base of
clinical pharmacists who are dedicated to patient-centered fulfillment of
managed care standards and who are best positioned to prosper in an evolving
managed care environment.
13
<PAGE>
[ART APPEARS HERE]
SETTING INSTITUTIONAL
SERVICE STANDARDS
<PAGE>
SUPPLYING $5.4 BILLION ANNUALLY IN PHARMACEUTICAL AND MEDICAL-SURGICAL PRODUCTS
TO INSTITUTIONS, MCKESSON IS DEVELOPING INNOVATIVE SUPPLY MANAGEMENT SERVICES
FOR THE EVOLVING HEALTH CARE SYSTEM.
================================================================================
MCKESSON A MAJOR SUPPLIER
TO INSTITUTIONS
Institutional providers -- physicians, nurses, and clinical pharmacists --
account for more than 35 percent of all pharmaceutical demand, and use nearly
all medical-surgical supplies. McKesson has moved rapidly to address the needs
of the fastest-growing institutional market segments -- integrated health
networks, physicians, clinics, home health and long-term care providers -- in
addition to those of acute-care hospitals nationwide. In fiscal 1997, McKesson
established itself as a key partner for health care institutions, gaining
sizable market share.
Integrated health networks of regional and national scope are particularly
influential in redefining the shape of health care. McKesson Health Systems
(MHS), our institutional division, has paid special attention to integrated
health networks, growing its share of this market segment in fiscal 1997. MHS is
also actively serving the nation's institutional group purchasing organizations.
In addition, accelerated by the rise of integrated health networks, more and
more care is being provided in lower-cost settings that supplement traditional
hospital acute care, such as cost-effective physician office visits or services
at recuperative, rehabilitation, chronic, and geriatric facilities. MHS is
concentrating on these "alternate sites" -- and is already leading the industry
in serving institutional pharmacies, which supply pharmaceuticals to extended-
care providers. Addressing a similar service opportunity in the physician
sector, McKesson General Medical has significant and growing market share in
medical-surgical supply to physicians, clinics, and physician practice
management companies. With McKesson General Medical, we have a substantial
opportunity to improve the management of pharmaceutical supply to physicians as
well.
CREATING ADVANCED
LOGISTICS SERVICES
Just as it does for our retail customers, McKesson's national distribution
network meets the logistics needs of institutions with tailored services --
including daily hospital
================================================================================
----------------------------
INSTITUTIONAL REVENUE GROWTH
----------------------------
Dollars in billions
[BAR GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
FY96 FY97 Run-Rate*
<S> <C> <C> <C>
McKesson Health Systems (pharmaceuticals) $1.7 $2.5 $3.7
McKesson General Medical (medical-sugical supplies) none $0.2 $1.7
Total $1.7 $2.7 $5.4
</TABLE>
*BASED ON FY97 FOURTH-QUARTER REVENUE RUN-RATES
15
<PAGE>
McKESSON GENERAL MEDICAL
Customers, employees, and the public markets have enthusiastically endorsed
McKesson's acquisition of General Medical Inc. of Richmond, Va. -- a transaction
that has created opportunities to extend our services and increase value for
McKesson shareholders.
A NEW BUSINESS FOR MCKESSON
Growing at a five-year compound rate of 20 percent, McKesson General Medical
participates in the attractive $30 billion medical-surgical supply industry.
McKesson General Medical is the only nationwide distributor of medical-
surgical supplies serving the three major market segments that cover the full
continuum of health care:
.Acute care -- encompassing hospitals
and outpatient surgicenters
.Primary care -- serving physicians in
their offices, the growing sector of
multispecialty clinics, and physician
practice management companies
.Extended care -- including nursing
homes, rehabilitation facilities, and
home health care.
McKesson General Medical's capabilities broaden the corporation's market and
customer base, leveraging logistics skills, information technology, and
marketing expertise. McKesson General Medical will operate as an integral
subsidiary, taking full advantage of opportunities to create a pharmaceutical
offering in collaboration with McKesson Health Systems, but also maintaining the
service standards and economic value that the seasoned McKesson General Medical
management and sales team has worked diligently to establish.
EXTENDING SUPPLY MANAGEMENT
McKesson General Medical significantly advances the corporate mission to develop
health care supply management services. This is because McKesson Health Systems
and McKesson General Medical together address the full spectrum of supply needs
throughout the continuum of care. Integrating fast-growing alternate sites into
the care system will require both market familiarity and new levels of
sophistication in information technology -- precisely the combination of skills
brought about through the acquisition.
------------
CUSTOMER MIX
------------
General Medical
100% = $1.7 billion
[PIE CHART APPEARS HERE]
Acute Care - $1.0 Billion
Primary Care - $490 Million
Extended Care - $170 Million
Integrated health networks (IHNs) are natural customers for the comprehensive
distribution capabilities of the combined companies. With its specialized sales
force dedicated to serving IHN accounts, McKesson General Medical complements
strong growth in this customer segment at McKesson Health Systems.
McKesson supply management systems will set the industry standard for
innovative supply management support services to IHNs. An excellent example is
Optima(TM), McKesson General Medical's fee-based materials services program in
acute care. In place at more than 60 customer sites, Optima services have a
documented track record of lowering medical-surgical inventory, freight, and
administrative handling costs -- while improving supply efficiency for acute-
care customers.
McKesson General Medical's strength in the physician and clinic segment
deserves special attention. Employing 500 sales professionals serving more than
50,000 primary care accounts, McKesson General Medical brings experience,
reputation, and scale to the $9 billion physician market. More than 80 percent
of supply volume to physicians is currently served by small distributors,
offering opportunities for cost-effective industry-segment consolidation.
16
<PAGE>
As the health care system of tomorrow takes shape, McKesson General Medical
will implement a clear strategy:
.Build on national presence and
McKesson affiliation, providing
manufacturers with single-source
access to all segments in health care,
especially IHNs
.Provide sales and marketing expertise
for manufacturers, particularly in the
highly fragmented non-hospital market,
which is difficult for them to reach
.Emphasize growth in fast-growing,
alternate-site accounts, accelerating
supply management innovation
.Reduce customers' product costs
through efficient distribution and
targeted use of information technology
.Establish clear leadership in the primary
and extended care segments through
acquisition as well as internal growth.
================================================================================
--------------------
STRONG MARGIN GROWTH
--------------------
General Medical
In percent*
[BAR GRAPH APPEARS HERE]
12/95 -- 3.1%
3/96 -- 3.4%
6/96 -- 3.4%
9/96 -- 4.3%
12/96 -- 4.9%
*EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION, AND AMORTIZATION
================================================================================
delivery and emergency orders around the clock -- assuring order quality through
AcumaxPlus, our proprietary warehouse management system.
Beyond the basics, MHS is developing a suite of advanced logistics services
to meet the complex challenges of new multifacility institutional customers.
For health care networks with several hospital or clinic sites, MHS offers
its Central Pharmacy program. Central Pharmacy uses a single, optimally located
facility -- either the customer's or McKesson's -- to receive hospital pharmacy
orders, prepare patient-ready doses, and track inventory. Developed in close
conjunction with integrated health network partners, Central Pharmacy provides
cost-effective, cooperative pharmacy centralization, while avoiding customer
concerns about conventional pharmacy outsourcing and loss of clinical control.
More than 60 large hospitals nationwide are already taking advantage of the
RxOBOT, a unique automated pharmacy station developed by McKesson's subsidiary,
Automated Healthcare, Inc. (AHI). The RxOBOT uses robotic dispensing technology
to select pharmaceuticals for individual patients in unit-dose, barcoded
packaging. The RxOBOT's exceptional picking speed supplies drugs in a fraction
of the time manual methods require, lowering the cost of pharmacy
administration. In fiscal 1997, AHI introduced a flexible robotic unit suitable
in scale for smaller hospitals -- an innovation that more than triples potential
market size for the RxOBOT.
RxOBOT's unparalleled accuracy also directly contributes to the quality of
care. Recent studies published in leading medical
17
<PAGE>
journals estimate that 10 percent of hospital patients are at risk for an
"adverse drug event" due to prescription administration error. The RxOBOT meets
this safety challenge through its barcode and information-database technology,
which virtually eliminates dispensing errors from the pharmacy.
McKesson is taking automated medication administration to the bedside with
its AcuScan-Rx units, showcased in fiscal 1997. Fully compatible with both
RxOBOT and hospital customers' pharmacy information systems, AcuScan-Rx's
handheld, barcode-scanning technology verifies that the nurse has provided the
right drug to the right patient in the right dose. Additionally, AcuScan-Rx
automates the Medical Administration Record, reducing paperwork and lowering
nursing time and cost.
CREATING HEALTH CARE SUPPLY MANAGEMENT
McKesson information technology leads to savings that sustain hard-pressed
customers in today's competitive institutional health care environment. McKesson
supply management services add value by leveraging automation and information
technology -- promoting our customers' success while providing solid financial
results for McKesson.
An estimated $3 to $7 billion in cost-saving opportunities exist in hospital
pharmaceutical administration, resulting from high pharmacy and nursing labor
costs as well as the lack of formulary and purchase contract compliance. In
direct response to this opportunity, McKesson's coordinated software and
consulting services have been designed as a cost-management tool for hospital
pharmacists, as well as physicians sharing managed care risk for pharmaceutical
costs.
By facilitating analysis of drug supply alternatives and pharmaceutical
utilization, McKesson helps medical professionals work effectively to balance
drug cost and quality. Integrated with the pharmaceutical ordering process,
McKesson's supply management services enable pharmacists to administer
formularies and improve purchasing-contract compliance throughout multifacility
networks. These services also make it possible for pharmacists and physicians to
develop and test drug utilization standards suitable for their own institutions,
monitoring actual experience compared to desired goals.
Best-in-class distribution services, advanced logistics, integrated
information and utilization management -- these form the core of the MHS program
to provide health care supply solutions for our customers. Customer demand for
these new offerings accelerated in fiscal 1997, bringing our annualized run-rate
as of the fourth quarter to $5.4 billion.
18
<PAGE>
-----------------------
McKESSON WATER PRODUCTS
-----------------------
MCKESSON WATER PRODUCTS COMPANY, THE THIRD-LARGEST U.S. PROVIDER OF PURE
DRINKING WATER, IS GROWING GEOGRAPHICALLY UNDER ITS SPARKLETTS, ALHAMBRA, AND
CRYSTAL BRANDS.
================================================================================
In fiscal 1997, McKesson Water Products Company (MWPC) demonstrated share growth
in both its core direct delivery and grocery products businesses while
continuing steady profit improvement. With its Sparkletts(R), Alhambra(R), and
Crystal(TM) brand names, MWPC sells to more than 530,000 home and office
customers in California, Arizona, Texas, Oklahoma, Nevada, New Mexico, and
Washington.
BUILDING THE HOME DELIVERY BASE
McKesson Water Products' production capabilities lead the U.S. in quality. In
fiscal 1997, MWPC became the first U.S. bottled water company accredited by the
Geneva-based International Standards Organization (ISO) for unparalleled
excellence in quality-assurance systems. With ISO 9001 certification as the
industry quality leader, MWPC is positioned to accelerate future growth, as
municipal water systems around the country come under greater scrutiny.
In addition to all-important product quality, economic success in direct
bottled water delivery depends on customer service and retention. MWPC enjoyed
another strong year in these areas, improving more than 10 percent in customer
retention while achieving the highest customer satisfaction scores in the
company's history. These achievements reflect continual improvement in MWPC
service-response systems, as well as management's fundamental commitment to
excellence in both production and distribution.
GROWING GROCERY SHARE
Packaged water in retail stores -- both bulk water and designer lines -- is the
fastest-growing beverage category nationally. Across its market areas, MWPC
grocery revenue in fiscal 1997 grew 20 percent, due to greater brand presence,
share of shelf, and display activity.
MWPC's network of production facilities in the western U.S. positions the
company to continue vigorous growth in retail. In fiscal 1997, seven grocery-
product line extensions were launched in the key California market, leveraging
prior-year capital spending to increase production and warehousing capacity and
enabling entry into new distribution channels. A 50,000-square-foot bottling
plant went into production in Houston in April 1997, while dedicated grocery
production facilities in Anaheim, Calif., and Dallas will be completed by the
end of calendar 1997. In addition, the Aqua-Vend(R) product line was divested in
March 1997 to support further plant and geographic expansion.
With sustained focus on superior product quality and service excellence,
Sparkletts, Alhambra, and Crystal are increasingly recognized as brands at the
forefront of the growth of the bottled water category.
19
<PAGE>
-------------------
SIX-YEAR HIGHLIGHTS
-------------------
Dollars in millions except per share amounts
<TABLE>
<CAPTION>
Years ended March 31 1997/(1)/ 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
CONSOLIDATED OPERATIONS/(2)/
Revenues/(3)/ $12,886.7 $9,953.7 $ 9,438.7 $8,520.8 $7,991.8 $7,219.1
Percent change 29.5% 5.5% 10.8% 6.6% 10.7% 27.9%
Gross profit/(4)/ 1,037.3 915.5 808.2/(4)/ 783.6 777.2 723.3
Percent of revenues 8.0% 9.2% 8.6% 9.2% 9.7% 10.0%
Operating profit 127.4/(5)/ 245.7 90.6/(6)/ 202.6 200.3 129.2/(7)/
Percent change (48.1)% 171.2% (55.3)% 1.1% 55.0% (30.6)%
Percent of revenues 1.0% 2.5% 1.0% 2.4% 2.5% 1.8%
Operating margin (deficit)/(8)/ 92.8/(5)/ 241.3 (9.0)/(9)/ 153.6/(10)/ 156.5 79.3/(11)/
Percent of revenues 0.7% 2.4% (0.1)% 1.8% 2.0% 1.1%
Interest expense 55.7 44.4 44.5 39.3 47.5 52.9
Income (loss) before taxes on income and
dividends on preferred securities of
subsidiary trust 37.1/(5)/ 196.9 (53.5)/(9)/ 114.3/(10)/ 109.0 26.4/(11)/
Taxes on income 31.3 76.2 96.6/(12)/ 45.0 42.2 10.9
Effective tax rate 84.4% 38.7% - 39.4% 38.7% 41.3%
Dividends on preferred securities of
subsidiary trust 0.7 - - - - -
Income (loss) after taxes
Continuing operations 5.1/(5)/ 120.7 (150.1)/(9,12)/ 69.3/(10)/ 66.8 15.5/(11)/
Discontinued operations 128.8/(13)/ 14.7 554.6/(14)/ 87.8/(15)/ 47.9 16.8/(16)/
Extraordinary item -- debt extinguishment - - - (4.2) - -
Cumulative effects of accounting changes - - - (16.7) - (110.5)
Net income (loss) 133.9 135.4 404.5 136.2 114.7 (78.2)
Average stockholders' equity 990.6 1,043.3 808.3 623.1 581.5 593.3
Return on equity/(17)/ 13.5% 13.0% 50.0% 21.9% 19.7% (13.2)%
Common dividends declared 43.3 44.7 56.5 66.9 64.0 61.8
Fully diluted earnings (loss) per
common share
Continuing operations $ 0.13 $ 2.59 $ (3.34) $ 1.49 $ 1.44 $ 0.22
Discontinued operations 2.85 0.31 12.20 1.99 1.07 0.43
Extraordinary item - - - (0.10) - -
Cumulative effects of accounting changes - - - (0.38) - (2.85)
Total 2.98 2.90 8.86 3.00 2.51 (2.20)
FINANCIAL POSITION/(2)/
Customer receivables $ 1,180.4 $ 631.7 $ 635.6 $ 615.3 $ 605.3 $ 566.4
Days of sales/(18)/ 25.8 22.9 24.2 26.0 27.3 28.2
Inventories -- LIFO cost 2,259.5 1,317.0 1,081.9 900.5 777.1 746.2
Inventories -- FIFO cost 2,538.6 1,602.5 1,376.2 1,204.3 1,090.9 1,042.1
Days of sales/(18)/ 60.7 63.8 57.4 56.0 54.4 57.8
Drafts and accounts payable 2,065.4 1,343.2 1,229.8 1,061.5 999.9 910.2
Days of sales/(18)/ 49.4 53.5 51.3 49.4 49.9 50.4
Current assets 3,761.1 2,463.0 2,464.2 1,627.9 1,490.0 1,487.4
Current liabilities 2,637.2 1,642.5 1,585.2 1,326.5 1,298.6 1,196.4
Working capital 1,123.9 820.5 879.0 301.4 191.4 291.0
Percent of revenues/(18)/ 6.8% 8.2% 9.3% 3.6% 2.4% 4.0%
Property, plant and equipment -- net 373.6 356.0 341.6 345.7 334.2 333.8
Percent of revenues/(18)/ 2.3% 3.6% 3.6% 4.1% 4.2% 4.6%
Capital expenditures 76.9 73.6 76.4 68.1 49.0 67.1
Total assets 5,172.8 3,360.2 3,260.2 2,676.6 2,458.4 2,439.1
Total debt/(19)/ 985.2 398.3 425.1 499.0 397.6 543.9
Stockholders' equity 1,260.8 1,064.6 1,013.5 678.6 619.4 554.5
Capital employed/(20)/ 2,440.8 1,462.9 1,438.6 1,177.6 1,017.0 1,098.4
Ratio of net debt to capital
employed/(21)/ 34.2% - - 39.1% 34.1% 42.1%
Average capital employed/(20)/ 1,903.1 1,527.6 1,326.1 1,081.8 1,056.9 1,148.7
Turnover/(22)/ 6.8 6.5 7.1 7.9 7.6 6.3
Fully diluted shares 45.1 46.7 45.5 44.1 44.8 38.8/(23)/
Common shares outstanding at 3/31 45.8 44.8 44.4 40.6 40.6 38.9
Dividends per common share 1.00 1.00 1.34 1.66 1.60 1.60
Cash distribution from PCS
Transaction per common share - - 76.00/(24)/ - - -
Book value per common share/(25)/ 27.53 23.76 22.83 16.38 14.99 13.97
Market price
High 68 1/4 55 5/8 109 1/4 68 1/2 47 1/8 40 1/8
Low 41 1/8 37 1/4 30 1/8 38 5/8 30 1/4 32
At year end 64 51 1/4 40 3/8 59 1/2 44 3/4 32 5/8
</TABLE>
20
<PAGE>
--------------------------------------
SIX-YEAR HIGHLIGHTS REPORTING SEGMENTS
--------------------------------------
Dollars in millions
<TABLE>
<CAPTION>
Years ended March 31 1997/(1)/ 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
HEALTH CARE SERVICES
Revenues/(3)/ $12,591.8 $9,656.7 $9,177.7 $8,274.7 $7,753.4 $6,976.9
Percent change 30.4% 5.2% 10.9% 6.7% 11.1% 29.2%
Operating profit 92.8/(26)/ 206.1 76.1/(27)/ 165.6 169.9 105.1/(28)/
Percent of revenues 0.7%/(26)/ 2.1% 0.8%/(27)/ 2.0% 2.2% 1.5%/(28)/
Average capital employed/(29)/ 1,527.8 1,043.5 989.5 836.9 663.3 722.7
Turnover/(22)/ 8.2 9.3 9.3 9.9 11.7 9.7
Return/(30)/ 6.1% 19.8% 7.7% 19.8% 25.6% 14.5%
Segment assets 4,648.2 2,525.3 2,148.6 1,951.6 1,759.5 1,699.2
Capital expenditures 41.9 43.5 44.4 34.4 24.5 38.3
Depreciation 40.3 33.9 30.2 23.1 20.2 20.4
Amortization of intangibles 6.3 6.9 7.0 6.9 6.1 7.0
WATER PRODUCTS
Revenues $ 275.1 $ 259.3 $ 246.0 $ 240.3 $ 229.6 $ 232.8
Percent change 6.1% 5.4% 2.4% 4.7% (1.4)% (1.6)%
Operating profit 34.6/(31)/ 39.6 14.5/(32)/ 37.0 30.4 24.1
Percent of revenues 12.6%/(31)/ 15.3% 5.9%/(32)/ 15.4% 13.2% 10.4%
Average capital employed/(29)/ 118.9 114.2 122.7 119.4 107.9 104.4
Turnover/(22)/ 2.3 2.3 2.0 2.0 2.1 2.2
Return/(30)/ 29.1% 34.7% 11.8% 31.0% 28.2% 23.1%
Segment assets 144.6 142.0 142.3 150.4 135.7 132.6
Capital expenditures 32.3 24.8 26.3 28.7 20.6 25.9
Depreciation 22.7 21.4 20.3 18.3 16.8 15.9
Amortization of intangibles 0.1 0.1 0.2 - - -
CORPORATE
Revenues $ 19.8 $ 37.7 $ 15.0 $ 5.8 $ 8.8 $ 9.4
Expenses (42.8) (35.5) (112.7)/(33)/ (50.0)/(34)/ (49.4) (56.8)
Average capital employed/(29)/ 256.4 369.9 213.9 125.5 285.7 321.6
Total assets* 380.0 692.9 969.3 574.6 563.2 607.3
Capital expenditures 2.7 5.3 5.7 5.0 3.9 2.9
Depreciation 2.4 1.9 1.4 6.2 9.9 10.1
*Total assets include:
Cash and cash equivalents
and marketable securities 229.8/(35)/ 456.2 670.4 62.7 77.5 140.0
Net assets of discontinued
operations in other assets/(36)/ - 125.7 88.2 353.9 333.3 287.2
</TABLE>
/(1)/Includes the results of the FoxMeyer business from the acquisition date of
November 8, 1996 and of General Medical Inc. from the acquisition date of
February 21, 1997.
/(2)/Restated to reflect the Armor All and Millbrook segments as discontinued
operations.
/(3)/Reflects the reclassification of sales and cost of sales associated with
sales to customers' warehouses and includes only the gross margin on such
sales in revenues.
/(4)/Revenues less cost of sales, in fiscal 1995 includes $35.9 million of
charges for restructuring, asset impairment and other operating items, 0.4%
of revenues.
/(5)/Includes $98.8 million in charges for restructuring, asset impairment, and
other operating items and $48.2 million for the write-off of in-process
technology related to the acquisition of Automated Healthcare, Inc., 1.1%
of revenues in the aggregate, $109.5 million after tax.
/(6)/Includes $124.6 million in charges for restructuring, asset impairment, and
other operating items, 1.3% of revenues.
/(7)/Net of restructuring charges of $65.1 million, 0.9% of revenues.
/(8)/Income (loss) from continuing operations before interest expense, taxes on
income and dividends on preferred securities of subsidiary trust.
/(9)/Includes $59.4 million of compensation costs related to the PCS Transaction
and $139.5 million of charges for restructuring, asset impairment, and
other operating items, representing 2.1% of revenues in the aggregate,
$130.6 million after-tax.
/(10)/Includes a loss on the termination of interest rate swap arrangements of
$13.4 million, $8.2 million after-tax.
/(11)/Net of restructuring charges of $65.1 million, 0.9% of revenues, $41.0
million after-tax.
/(12)/Includes $107.0 million of income tax expense related to the sale of PCS.
/(13)/Includes gain on sale of Armor All of $120.2 million after-tax.
/(14)/Includes gain on sale of PCS of $576.7 million after-tax, write-down of
the Company's investment in Millbrook of $72.8 million after-tax, and $1.0
million of income after-tax from a donation of Armor All stock to the
McKesson Foundation.
/(15)/Includes $32.7 million after-tax relating to a gain on the sale and
donation of Armor All stock.
/(16)/Net of restructuring charges of $15.8 million after-tax related to
Millbrook.
/(17)/Based on net income.
/(18)/Based on year-end balances and sales or cost of sales assuming major
acquisitions occurred at beginning of year. With respect to the FoxMeyer
acquisition, assumes annualized retained revenues of $3.4 billion.
/(19)/Total debt includes all interest-bearing debt and capitalized lease
obligations. Amounts related to deferred compensation have been
reclassified as other current and non-current liabilities.
/(20)/Capital employed consists of total debt, convertible preferred securities
of subsidiary trust, and stockholders' equity.
/(21)/Ratio computed as net debt (total debt less cash and cash equivalents and
marketable securities) to net capital employed (capital employed less cash
and cash equivalents and marketable securities).
/(22)/Revenues divided by average capital employed.
/(23)/Excludes convertible securities which were anti-dilutive.
/(24)/Received by shareholders directly from Eli Lilly and Company.
/(25)/Stockholders'equity less preferred stock plus portion of ESOP notes and
guarantee related to the Series B ESOP preferred stock divided by year-end
common shares outstanding.
/(26)/Includes $91.8 million in charges for restructuring, asset impairment, and
other operating items and $48.2 million for the write-off of in-process
technology related to the acquisition of Automated Healthcare, Inc., 1.1%
of revenues in the aggregate.
/(27)/Includes $107.3 million of charges for restructuring, asset impairment,
and other operating items, 1.2% of revenues.
/(28)/Net of restructuring charges of $69.7 million, 1.0% of revenues.
/(29)/Net assets of the segment.
/(30)/Operating profit divided by average capital employed.
/(31)/Includes $7.0 million of charges for asset impairment, 2.5% of revenues.
/(32)/Includes $17.3 million of charges for restructuring, asset impairment, and
other operating items, 7.0% of revenues.
/(33)/Includes $74.3 million of expense related to compensation costs associated
with the PCS Transaction and charges for restructuring, asset impairment,
and other operating items.
/(34)/Includes a loss on the termination of interest rate swap arrangements of
$13.4 million.
/(35)/Includes $109.8 million which is restricted and held in trust as exchange
property in connection with the Company's outstanding exchangeable
debentures.
/(36)/Includes the net assets of the Armor All, Millbrook and PCS segments prior
to their respective disposition dates.
21
<PAGE>
----------------
FINANCIAL REVIEW
----------------
In line with the Company's stated focus on health care supply management, the
Company continued to invest in fiscal 1997 in the roll-out of its retail and
institutional strategic initiatives, employed capital of $1.2 billion into
strategic acquisitions and divested certain non-core businesses. As a result of
these actions, the Company has improved the balance of its customer mix in
Health Care Services, has positioned itself to significantly reduce operating
expense ratios over the next two years as the acquired FoxMeyer Corporation's
pharmaceutical distribution business ("FoxMeyer") is integrated into existing
operations, and has assumed the leadership position in health care supply
distribution to institutions.
The acquisitions significantly increased the Company's revenue and capital
base. Pro forma revenues, reflecting the full-year effect of the acquisitions
(for the FoxMeyer acquisition, pro forma revenues reflect an estimated $3.4
billion of retained annualized sales), increased to $16.5 billion from $10.0
billion in fiscal 1996 while the capital base at March 31, 1997, increased to
$2.4 billion from $1.5 billion at March 31, 1996. The acquisitions were financed
through a combination of cash from operations, proceeds from divestitures, term
debt, and the issuance of common stock. This mix of financing allowed the
Company to end the year with a net debt-to-capital ratio of 34% and significant
debt capacity to fund future growth.
With the divestitures, the Company now operates in two business segments:
Health Care Services and Water Products. Strong results were reported in fiscal
1997 in the U.S. Health Care business, reflecting internal revenue growth of 17%
and an improvement in the base operating profit margin.
SIGNIFICANT FISCAL 1997 TRANSACTIONS CONSISTED OF THE FOLLOWING:
Acquisitions
In April 1996, the Company acquired Automated Healthcare, Inc. ("AHI"), for
$61.4 million in cash and the assumption of $3.2 million of employee stock
incentives. AHI designs, manufactures, sells, and installs automated
pharmaceutical dispensing equipment for use by health care institutions. The
acquisition was accounted for under the purchase method. Goodwill relating to
the acquisition of approximately $13.4 million is being amortized on a straight-
line basis over ten years. A $48.2 million charge was recorded to write off the
portion of the purchase price allocated to technology for which technological
feasibility had not been established as of the acquisition date. Existing
technology was valued at $0.4 million and is being amortized on a straight-line
basis over three years.
In November 1996, the Company acquired FoxMeyer for approximately $598
million, pursuant to an expedited auction process in the FoxMeyer Corporation
bankruptcy proceeding in Wilmington, Delaware. The Company paid approximately
$23 million in cash to the debtors, paid off approximately $500 million in
secured debt, and assumed an additional $75 million in other liabilities. The
Company utilized proceeds from commercial paper issuances and a note payable to
a bank to fund the transaction. The note payable was repaid prior to March 31,
1997, with cash flow from operations and proceeds from divestitures (see
"Divestitures" section below). The Company acquired assets consisting primarily
of accounts receivable and inventories of $650 million, customer contracts, and
fixed assets. This acquisition was accounted for under the purchase method. At
the time of the acquisition, FoxMeyer was receiving very little trade credit
from suppliers. Normal trade credit was restored subsequent to the acquisition,
resulting in a reduction in the investment associated with the retained FoxMeyer
customer base to approximately $400 million at March 31, 1997. The excess of the
fair value of the net assets acquired over the purchase price, after reducing to
zero the carrying value of long-term assets which are expected to be retained
for use by the Company, was approximately $50 million (negative goodwill).
Negative goodwill is being amortized on a straight-line basis over a five-year
period.
In February 1997, the Company acquired General Medical Inc. ("General
Medical") for approximately $775 million, including the issuance of 2.8 million
shares of the Company's common stock and the assumption of approximately $428
million in debt. General Medical is the nation's leading supplier of medical-
surgical supplies to the full range of alternate-site health care facilities,
including physicians and clinics, long-term care and home-care sites, and is the
third largest distributor of medical-surgical supplies to hospitals. The
acquisition was accounted for under the purchase method. The excess of the
purchase price over the fair value of the net assets acquired was approximately
$600 million and is being amortized on a straight-line basis over 40 years.
Divestitures
In December 1996, the Company sold its 55% equity interest in Armor All Products
Corporation ("Armor All") to The Clorox Company for $221.9 million and
recognized an after-tax gain of $120.2 million.
In March 1997, the Company sold its service merchandising unit, Millbrook
Distribution Services, Inc. ("Millbrook"), to R.A.B. Holdings, Inc. The after-
tax proceeds on the sale approximated Millbrook's book value.
The Armor All and Millbrook segments have been classified as discontinued
operations for all periods presented.
22
<PAGE>
In March 1997, the Company sold its Aqua-Vend vended water business ("Aqua-
Vend"), a unit of the Water Products segment. The after-tax proceeds on the sale
approximated its book value, after giving effect to the $7.0 million pre-tax
provision for the impairment of Aqua-Vend assets recorded in the third quarter
of fiscal 1997.
RESULTS OF OPERATIONS
Fiscal 1997 net income was $133.9 million or $2.98 per fully diluted share.
Income from continuing operations was $5.1 million, which included $109.5
million of after-tax charges associated with the integration and rationalization
of the FoxMeyer and McKesson distribution operations, systems, program offerings
and administrative functions, the write-off of purchased in-process technology,
and other operating items. Income from discontinued operations was $128.8
million, including the $120.2 million gain on the sale of Armor All.
Fiscal 1996 net income was $135.4 million, or $2.90 per share, which included
earnings from continuing operations of $120.7 million and earnings from
discontinued operations of $14.7 million.
Fiscal 1995 net income was $404.5 million or $8.86 per share. The Company
recorded a loss from continuing operations of $150.1 million, which included
$237.6 million of after-tax expenses associated with the sale of PCS (the "PCS
Transaction;" see Note 3, "Sale of the PCS Business," on page 37 of the
accompanying financial statements) and initiatives taken by the Company to
enhance the productivity of its Health Care Services and Water Products
businesses. Net income also included $554.6 million from discontinued
operations, including a gain on the PCS Transaction of $576.7 million.
The results of continuing operations are detailed in the table below.
<TABLE>
<CAPTION>
Years Ended March 31
--------------------------------------------------------------
1997 1996 1995
------------------- ------------------ -------------------
In millions Pre-tax After-tax Pre-tax After-tax Pre-tax After-tax
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from Continuing Operations
Before unusual items and dividends
on preferred securities of subsidiary trust $ 184.1 $ 115.3 $196.9 $120.7 $ 145.4 $ 87.5
Dividends on preferred securities of
subsidiary trust (0.7)
------- ------- ------ ------ ------- -------
Before unusual items 184.1 114.6 196.9 120.7 145.4 87.5
Unusual items(1)
Compensation costs related to the
PCS Transaction (59.4) (45.3)
Income tax expense related to the
PCS Transaction (107.0)
Charges for restructuring, asset impairment,
purchased in-process technology, and
other operating items (147.0) (109.5) (139.5) (85.3)
------- ------- ------ ------ ------- -------
Income (Loss) from Continuing Operations $ 37.1 $ 5.1 $196.9 $120.7 $ (53.5) $(150.1)
======= ======= ====== ====== ======= =======
</TABLE>
(1)For the purposes of discussing the results of operations, these items are
referred to as "unusual items" in the Financial Review, as management
believes that these items either represent one-time occurrences and/or events
that are not related to normal, ongoing operations, or represent charges that
are in excess of normal/historical operating amounts.
- --------------------------------------------------------------------------------
Fiscal 1997
Fiscal 1997 income from continuing operations, before unusual items, was $114.6
million, a 5% decrease from the prior year's income from continuing operations
of $120.7 million. Fiscal 1997 results were negatively impacted by the
anticipated temporary dilutive effect of the FoxMeyer and AHI acquisitions and
investments in strategic initiatives geared toward enhancing our competitive
position in the institutional and retail markets and to improving productivity
through automated logistics. Management expects the acquisitions and investments
to be accretive to earnings in fiscal 1998.
UNUSUAL ITEMS
Included in the $147.0 million of unusual items in fiscal 1997 are $67.4 million
of charges associated primarily with the acquisition of FoxMeyer. The FoxMeyer
acquisition resulted in a significant increase in sales volume, a substantial
change in the Company's customer mix (primarily a large increase in
institutional customers), and overlapping, duplicate, and "similar purpose"
assets. This required management to reassess the Company's operations,
distribution center network, and business strategies, including program
offerings. The Company developed a plan to optimize the network configuration
from the combined distribution centers of the Company and those acquired in the
transaction,
23
<PAGE>
which will result in the consolidation and closure of approximately 22
distribution centers, workforce reductions, and disposal of excess, duplicate
assets. Management has also reassessed strategies and program offerings for
expanding certain customer segments in light of the larger and more diverse
customer base and has identified certain programs and investments that will no
longer be pursued as originally contemplated. Other duplicate, common purpose
assets including administrative facilities, software and other equipment have
been reviewed to identify the optimum mix for the combined companies. This has
resulted in the impairment in the value of certain assets which will not
ultimately be retained or utilized as originally intended. The foregoing was
reflected in the valuation of the FoxMeyer assets acquired, and liabilities
assumed, and resulted in a $67.4 million pre-tax charge with respect to the
affected assets of the Company. Also included in the fiscal 1997 unusual items
was a $48.2 million charge to write off the portion of the purchase price of AHI
allocated to purchased in-process technology for which feasibility had not been
established as of the acquisition date, and charges of $15.1 million and $16.3
million for receivable reserves and other operating items, respectively.
Fiscal 1996
Fiscal 1996 income from continuing operations was $120.7 million, an increase of
38% over the prior year's income from continuing operations (before unusual
items) of $87.5 million, reflecting increased profits in Health Care Services
and Water Products, as well as additional interest income.
Fiscal 1995
On November 21, 1994, the Company and Eli Lilly completed the PCS Transaction
whereby Eli Lilly effectively acquired the Company's pharmaceutical benefits
management business which consisted primarily of PCS Health Systems, Inc., and
Clinical Pharmaceuticals, Inc., both wholly owned subsidiaries of the Company.
Of the approximately $4 billion of proceeds from this transaction, approximately
$600 million was paid to the Company. An additional $24 million of the $4
billion consideration was received from Eli Lilly to fund deferred vested stock
option payments. The remainder of the $4 billion was paid directly to
shareholders of the Company by Eli Lilly.
UNUSUAL ITEMS
The $59.4 million of pre-tax compensation costs related to the PCS Transaction
consists of $23.6 million associated with an allocation of cash and shares to
ESOP plan participants resulting from a paydown of ESOP debt by the ESOP trust,
and $35.8 million associated with the Company's vested stock options and other
compensation programs.
The $107.0 million of income tax expense resulted from the distribution of
the Company's common stock to effect the PCS Transaction.
The $139.5 million pre-tax charge for restructuring, asset impairment and
other operating items resulted, in part, from the initiation by the Company's
management of several measures designed to streamline operations and improve
productivity in the Company's Health Care Services and Water Products segments.
These measures included consolidation of certain facilities, workforce
reductions, and divestiture of under-performing assets. The charge included
write-downs of assets to be disposed of to fair value less costs to sell,
impairment losses on capitalized software due to changes in technology,
severance for announced workforce reductions, write-downs of inventory
associated with the discontinuation of certain product lines, and receivables
reserves related to facility closures and to a reassessment of credit risks in
the Health Care Services segment. The assets to be disposed of were associated
with facility consolidations in the Health Care Services segment and surplus
properties held by the Company.
BUSINESS SEGMENTS
Health Care Services is the Company's primary business and includes the U.S.
pharmaceutical, health care products, and medical-surgical supplies distribution
businesses. U.S. Health Care operations also include marketing and other support
services to drug manufacturers, a manufacturer of automated pharmaceutical-
dispensing systems for hospitals, and a distributor of first-aid products and
supplies to industrial and commercial customers. Health Care Services also
includes the Company's international pharmaceutical distribution business
(consisting of the Company's Canadian operations and an equity interest in a
Mexican distribution business).
McKesson Water Products is engaged in the processing, delivery, and sale of
bottled drinking water to homes and businesses in California, Arizona, Nevada,
Oklahoma, Washington, New Mexico, and Texas. It also sells packaged water
through retail stores.
REVENUE GROWTH
In fiscal 1997, revenues increased $2.9 billion or 29% to $12.9 billion. The
following table identifies the components of revenue growth over the past three
fiscal years:
<TABLE>
<CAPTION>
Years Ended March 31
--------------------------
1997 1996 1995
- -------------------------------------------------------------
<S> <C> <C> <C>
Existing business 14% 5% 11%
Growth from acquired businesses 15 - -
-- -- --
Total revenue growth 29% 5% 11%
== == ==
</TABLE>
Revenue from existing business in the Health Care Services segment increased
by $1.4 billion or 14% in
24
<PAGE>
fiscal 1997 compared with increases of 5% and 11%, respectively in fiscal 1996
and 1995. Internal growth in U.S. Health Care Services was 17% reflecting retail
chain growth of 28%, institutional growth of 19% and increased sales to
independent pharmacies of 10%. The fiscal 1997 growth was volume related,
reflecting growth from existing customers and revenue from new customers.
International revenues were flat reflecting the phased transition of a major
customer to self-warehousing at Medis Health and Pharmaceutical Services
("Medis") in Canada. Revenues from acquired businesses were $1.5 billion and
relate primarily to the FoxMeyer and General Medical acquisitions. The Company
retained an estimated $3.4 billion of annualized sales from customers of the
former FoxMeyer business.
The growth in fiscal 1996 Health Care Services revenue represents volume
growth from existing customers. The growth in fiscal 1996 was dampened by the
loss of a high-volume customer at the beginning of the fiscal year in the U.S.
Health Care business. All customer segments (independent, retail chain, and
institutional) recorded revenue increases, with significant contributions from
the Valu-Rite and proprietary generic drug programs.
The practice in the Health Care Services distribution business is to pass on
to customers published price changes from suppliers. In each of fiscal 1997,
1996, and 1995, prices declined on many generic pharmaceutical products sold by
the Health Care Services business. These price declines were offset, in part, by
moderate inflation on other product lines, which resulted in almost no net price
changes in each year.
Water Products revenues increased 6% in fiscal 1997 to $275.1 million and 5%
to $259.3 million in fiscal 1996. The increases in both years resulted from
higher packaged water sales to the grocery trade and moderate growth in the
direct-delivery business, mitigated by decreases in sales of vended water.
Fiscal 1997 revenues included $16.0 million from the Aqua-Vend vended water
business that was sold in March 1997.
Corporate revenues in fiscal 1997 decreased $17.9 million to $19.8 million
primarily due to decreased interest income as a result of lower balances in cash
and marketable securities available for sale. Corporate revenues in fiscal 1996
increased $22.7 million to $37.7 million primarily due to increased interest
income from higher cash and investment balances due to a full-year impact of the
proceeds from the PCS Transaction.
OPERATING PROFIT
Operating profit before unusual items for the Company increased 12% to $274.4
million in fiscal 1997 and in fiscal 1996 increased 14% to $245.7 million from
$215.2 million, due primarily to increases in the Health Care Services segment.
Health Care Services operating profit before unusual items rose 13% to $232.8
million in fiscal 1997, reflecting the increase in revenues and a six basis
point operating profit margin improvement in the base U.S. Health Care business.
Continued reductions in selling margins in U.S. Health Care were more than
offset by product management efforts under the Company's proprietary generic
pharmaceutical program and other inventory programs, as well as operating
expense efficiencies. The rate of growth was moderated by the effects of the
acquisitions and dilution from internal strategic initiatives. In addition,
international operating profits were lower due to the previously discussed loss
of a major customer by Medis and lower margins on the replacement business and
costs associated with the consolidation of distribution centers and
administrative functions. Operating profit for Health Care Services included
charges of $140.0 million for unusual items in fiscal 1997.
Health Care Services operating profit before unusual items rose 12% to $206.1
million in fiscal 1996. Operating profit for Health Care Services in fiscal 1995
included charges of $107.3 million for unusual items. Selling margin declines in
U.S. Health Care were offset by product management efforts and productivity
improvements. Fiscal 1996 operating profits also included the start-up and
research and development costs of strategic initiatives. These costs were offset
by a pre-tax gain of $11.2 million on the sale of the Company's interest in a
Central American pharmaceutical manufacturer for $36.1 million.
The Company uses the last-in, first-out (LIFO) method of accounting for
inventories, which results in cost of sales that more closely reflect
replacement cost than other accounting methods, thereby mitigating the effects
of inflation and deflation on operating profit. The practice in the Health Care
Services distribution business is to pass published price changes from suppliers
on to customers. Manufacturers generally provide the Company with price
protection, which prevents inventory losses from manufacturer price decreases.
As previously discussed, price declines on many generic pharmaceutical products
in the Health Care Services segment in each of the fiscal years ending March 31,
1997, 1996, and 1995 moderated the effects of inflation in other product
categories, which resulted in minimal overall price changes in those fiscal
years.
Water Products operating profit before unusual items increased 5% to $41.6
million in fiscal 1997 reflecting the 6% sales increase offset, in part, by
expenses associated with the continuing geographic expansion into Texas and the
Pacific Northwest. Operating profit for Water
25
<PAGE>
Products included $7.0 million of unusual items in fiscal 1997 related to a
write-down of assets of its Aqua-Vend unit. Water Products operating profit
before unusual items increased 25% to $39.6 million in fiscal 1996 from $31.8
million in fiscal 1995 because of moderate sales growth and lower overall
operating costs due, in part, to ongoing programs to improve customer service,
which have reduced customer turnover expenses and increased productivity. Fiscal
1995 operating profit included charges for unusual items of $17.3 million.
Corporate expenses in fiscal 1997 increased $7.3 million to $42.8 million
primarily reflecting favorable adjustments to certain incentive programs in the
prior year. Corporate expenses in fiscal 1995 included charges of $74.3 million
for unusual items.
The following table summarizes operating profit as a percentage of revenues
by segment:
<TABLE>
<CAPTION>
As a Percent of Revenue
-------------------------------
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Health Care Services 0.7%/(1)/ 2.1% 0.8%/(3)/
Water Products 12.6/(2)/ 15.3 5.9/(4)/
</TABLE>
/(1)/ Excluding fiscal 1997 unusual items, the percentage is 1.8%.
/(2)/ Excluding fiscal 1997 unusual items, the percentage is 15.1%.
/(3)/ Excluding fiscal 1995 unusual items, the percentage is 2.0%.
/(4)/ Excluding fiscal 1995 unusual items, the percentage is 12.9%.
- --------------------------------------------------------------------------
The decline in the Health Care Services operating profit margin before unusual
items in fiscal 1997 reflects the previously discussed effects of the
acquisitions, internal strategic initiatives, and lower international margins
due to a change in customer mix and costs associated with distribution center
and administrative consolidations. These declines were offset, in part, by a six
basis point improvement in operating profit margins in the U.S. Health Care base
business reflecting productivity improvements. Absent the effects of the
acquisitions and strategic initiatives, the Health Care Services operating
profit before unusual items was 2.1% in fiscal 1997, unchanged from the prior
year.
The following table identifies the operating margin (income before interest
expense, taxes on income and dividends on preferred securities of subsidiary
trust as a percent of revenues) components for the past three years.
<TABLE>
<CAPTION>
1997 1996 1995
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit margin(1) 8.0% 9.2% 8.6%/(3)/
Operating expenses 7.3/(2)/ 6.8 8.7/(3)/
--- --- ---
Operating margin (deficit) 0.7%/(2)/ 2.4% (0.1)%/(3)/
=== === ===
</TABLE>
/(1)/ Revenues less cost of sales.
/(2)/ Excluding fiscal 1997 unusual items, operating expenses
are 6.2% and the operating margin is 1.8%, respectively.
/(3)/ Excluding fiscal 1995 unusual items, the gross profit
margin is 8.9%, operating expenses are 6.9% and the
operating margin is 2.0%.
- ------------------------------------------------------------
The decline in the operating margin in fiscal 1997 (excluding unusual items)
reflects duplicate costs associated with the FoxMeyer acquisition that are
expected to steadily decline as the Company consolidates and closes distribution
centers and administrative facilities. Seven out of the targeted 22 distribution
centers were closed through March 31, 1997. In addition, the margin was
negatively impacted in the current year by the previously discussed internal
strategic initiatives and lower international margins.
The operating margin excluding unusual items increased to 2.4% in fiscal 1996
from 2.0% in fiscal 1995 due to successful cost control efforts in the Health
Care Services and Water Products segments.
INTERNATIONAL OPERATIONS
International operations accounted for 12%, 16%, and 15% of fiscal 1997, 1996,
and 1995 consolidated operating profits before unusual items, and 5%, 7%, and 7%
of consolidated assets at March 31, 1997, 1996, and 1995, respectively.
International operations are subject to certain opportunities and risks,
including currency fluctuations. The Company monitors its operations and adopts
strategies responsive to changes in the economic and political environment in
each of the countries in which it operates.
WORKING CAPITAL
Operating working capital (receivables and FIFO inventories net of related
payables) as a percentage of revenues was 10.3%, 9.4%, and 8.5% at March 31,
1997, 1996, and 1995, respectively. The calculation is based on year-end
balances and assuming major acquisitions occurred at the beginning of the year
(FoxMeyer revenues have been adjusted to reflect an estimated $3.4 billion of
retained annualized sales). Excluding the effect of the FoxMeyer acquisition,
the operating working capital ratio was 9.1% at March 31, 1997. Operating
working capital associated with the FoxMeyer acquisition is expected to decline
as a percentage of revenues as facilities are consolidated over the next two
years.
CASH FLOW AND LIQUIDITY
Cash and cash equivalents and marketable securities (primarily U.S. Treasury
securities with maturities of one year or less) were $230 million, $456 million,
and $670 million at March 31, 1997, 1996 and 1995, respectively. The March 31,
1997 balance includes $109.8 million from the sale of Armor All, which is
restricted and held in trust as exchange property in connection with the
Company's exchangeable debentures. Approximately $12 million of this balance was
released in April 1997 following the repurchase by the Company of a portion of
the debentures in March 1997. The fiscal 1995 balance reflects the proceeds
received by the Company from the PCS Transaction.
26
<PAGE>
Cash Flow from Operations for
Capital Expenditures and Dividends
The following table summarizes the excess (deficit) of cash flow from operations
over capital expenditures and dividends:
<TABLE>
<CAPTION>
Years Ended March 31
-------------------------------
Dollars in millions 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net cash provided (used) by
continuing operations
Income (loss) after taxes from
continuing operations $ 5 $ 121 $(150)
Depreciation 65 57 52
Amortization of intangibles 6 7 7
Gain on sale of subsidiary - (11) -
Other noncash charges 148 49 190
Working capital changes 3 (212) 57
----- ----- -----
Total 227 11 156
Capital expenditures (77) (74) (76)
----- ----- -----
Excess (deficit) 150 (63) 80
Net cash provided (used) by
discontinued operations 11 (7) 43
Dividends paid (43) (44) (70)
----- ----- -----
Net excess (deficit) $ 118 $(114) $ 53
===== ===== =====
</TABLE>
Cash flow from continuing operations reflects the cash earnings of the
Company's continuing businesses and the effects of the changes in working
capital. Working capital changes in fiscal 1997 were favorably impacted by the
previously discussed restoration of trade credit from suppliers on FoxMeyer
related purchases following the acquisition. Fiscal 1997 and 1995 noncash
charges reflect the unusual items discussed earlier. Working capital in fiscal
1996 was impacted by a $136 million increase in inventories net of related
payables to obtain favorable purchase terms on certain items from vendors and
the payment in fiscal 1996 of PCS Transaction liabilities.
Capital expenditures for the fiscal years ended March 31, 1997, 1996, and
1995 for the Health Care Services segment were $42 million, $44 million, and $44
million, respectively, and for the Water Products segment were $32 million, $25
million, and $26 million, respectively.
The decrease in dividends paid during fiscal 1996 reflects the conversion
during 1995 of preferred stock in connection with the PCS Transaction
(converting the associated dividend requirements to the lower common stock
dividend) and the change in the annual common stock dividend from $1.68 per
share to $1.00 per share following the PCS Transaction.
Other Financing Activities
During fiscal 1997 and 1996, the Company repurchased 3.4 million and 1.35
million of its common shares for $156 million and $63 million, respectively, as
part of a 7.0 million share repurchase program. Authorization to repurchase 2.25
million shares remains outstanding; however, the program was placed on hold in
January 1997. In February 1997, the Company issued approximately 2.8 million
common shares in conjunction with the General Medical acquisition.
In February 1997, the Company, through a wholly owned subsidiary trust,
issued $200 million of trust convertible preferred securities to fund internal
growth. These securities are convertible into approximately 2.7 million common
shares, yield a 5% dividend and are callable by the Company beginning in March
2000 at 103.5% of par.
In March 1997, the Company issued $525 million of fixed-rate debt to term out
the financing of the General Medical transaction including the refinancing of
higher cost debt assumed in the acquisition. The reduction in long-term debt in
fiscal 1996 reflects scheduled debt repayments.
The Company has $400 million of available credit under domestic committed
revolving credit lines. As a result of the Company's investment grade credit
rating (S&P A, Duff & Phelps A, and Moody's A3), management believes the Company
has access to additional private credit sources and to public capital markets at
favorable terms. Funds necessary for future debt maturities and other cash
requirements of the Company are expected to be met by existing cash balances,
cash flow from operations, existing credit sources, and other available debt
capacity.
CAPITALIZATION
The Company's capitalization was as follows:
<TABLE>
<CAPTION>
March 31
---------------------------
Dollars in millions 1997 1996 1995
- --------------------------------------------------------------------
<S> <C> <C> <C>
Short-term borrowings $ 100 $ 7 $ 22
Term debt 725 211 223
Exchangeable debt 160 180 180
------ ------ ------
Total debt 985 398 425
Convertible preferred securities
of subsidiary trust 195 - -
Stockholders' equity 1,261 1,065 1,014
------ ------ ------
Total capitalization $2,441 $1,463 $1,439
====== ====== ======
Debt-to-capital ratio at March 31 40.4% 27.2% 29.5%
Average interest rate during year
Total debt 5.9% 6.2% 6.2%
Short-term borrowings 5.7% 7.3% 6.2%
Other debt 6.1% 6.0% 6.2%
</TABLE>
The increase in the debt-to-capital ratio in fiscal 1997 primarily reflects
the increase in debt to fund internal growth, acquisitions, and share
repurchases. The decreases in the debt-to-capital ratio in fiscal 1996 resulted
primarily from the increase in stockholders' equity from the PCS Transaction,
scheduled debt reductions, and repayments of short-term borrowings and other
debt.
Average fully diluted shares were 45.1 million in fiscal 1997, 46.7 million
in fiscal 1996, and 45.5 million in fiscal 1995. Common shares outstanding
increased to 45.8 million at March 31, 1997 from 44.8 million at March 31, 1996,
27
<PAGE>
primarily due to shares issued in connection with the acquisition of General
Medical and issuance of shares under employee plans, in excess of the shares
repurchased during the year. Common shares outstanding increased to 44.8 million
at March 31, 1996, from 44.4 million at March 31, 1995, due primarily to
issuance of shares under employee plans, in excess of shares repurchased during
the year.
The Company enters fiscal 1998 with approximately 50.3 million fully diluted
shares inclusive of the shares issued in the General Medical transaction and the
assumed conversion of the trust convertible preferred securities.
CAPITAL EMPLOYED
Capital employed (net assets) by segment was:
<TABLE>
<CAPTION>
Years Ended March 31
-----------------------------
Dollars in millions 1997 1996 1995
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Health Care Services $2,439 $1,149 $ 898
Water Products 108 110 110
------ ------ ------
Total Operations 2,547 1,259 1,008
Corporate
Cash, cash equivalents and
marketable securities 230 456 670
Discontinued operations - 126 88
Other (336) (378) (327)
------ ------ ------
Total capital employed $2,441 $1,463 $1,439
====== ====== ======
Return on average
capital employed(1)
Health Care Services 6.1%(2) 19.8% 7.7%(3)
Water Products 29.1(2) 34.7 11.8(3)
Total consolidated operations(4) 4.9(5) 15.8 (0.7)(5)
Return on average
stockholders' equity 13.5%(6) 13.0% 50.0%(6)
</TABLE>
(1) Operating profit divided by average capital employed.
(2) Excluding fiscal 1997 unusual items from operating profit, Health Care
Services is 15.2% and Water Products is 35.0%.
(3) Excluding fiscal 1995 unusual items from operating profit, Health Care
Services is 18.5% and Water Products is 25.9%.
(4) Income from continuing operations before taxes, interest expense and
dividends on preferred securities of subsidiary trust divided by average
capital employed.
(5) Excluding fiscal 1997 and 1995 unusual items, consolidated return is 12.6%
and 14.3% in fiscal 1997 and 1995, respectively.
(6) Net income includes $120.2 million gain on sale of Armor All in fiscal 1997
and $576.7 million gain on sale of PCS in fiscal 1995.
- --------------------------------------------------------------------------------
The increase in capital employed in Health Care Services in fiscal 1997
reflects the acquisitions and the increased investment spending for retail and
institutional strategic initiatives. The decreases in the returns on average
capital employed before unusual items in the Health Care Services segment to
15.2% in fiscal 1997 from 19.8% in fiscal 1996 and in total consolidated
operations to 12.6% in fiscal 1997 from 15.8% in fiscal 1996 are due primarily
to the previously discussed effects of the acquisitions and strategic
initiatives. The increase in capital employed in Health Care Services in fiscal
1996 reflects the increased investment spending for retail and institutional
strategic initiatives and the additional inventory investment.
ENVIRONMENTAL MATTERS
The Company's continuing operations do not require ongoing material expenditures
to comply with federal, state, and local environmental laws and regulations.
However, in connection with the disposition of its chemical operations in fiscal
1987, the Company retained responsibility for certain environmental obligations.
In addition, the Company is a party to a number of proceedings brought under the
Comprehensive Environmental Response, Compensation and Liability Act, (commonly
known as "Superfund"), and other federal and state environmental statutes
primarily involving sites associated with the operation of the Company's former
chemical distribution businesses. Increases (decreases) to reserves for these
environmental matters, primarily recorded within discontinued operations,
amounted to $(1.5) million and $3.4 million in fiscal 1996 and 1995,
respectively. There were no adjustments made to the reserves in fiscal 1997. The
increase in fiscal 1995 primarily resulted from a governmental directive to do
additional remedial work at a former operating site in Syracuse, N.Y. Management
does not believe that changes in the remediation cost estimates in future
periods, or the ultimate resolution of the Company's environmental matters, will
have a material impact on the Company's consolidated financial position; see
Note 17, "Other Commitments and Contingent Liabilities," on pages 46 to 48 of
the accompanying financial statements.
INCOME TAXES
The tax rate on income from continuing operations (excluding fiscal 1997 and
1995 unusual items) was 37.4% in fiscal 1997, 38.7% in fiscal 1996, and 39.8% in
fiscal 1995.
NEW ACCOUNTING PRONOUNCEMENTS
See Note 1 "Significant Accounting Policies" on pages 34 and 35 of the
accompanying financial statements.
FORWARD-LOOKING STATEMENTS
Certain of the matters discussed herein may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (such as the speed of integration of the acquired businesses and the impact
of continued intense competition) 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.
28
<PAGE>
STATEMENTS OF CONSOLIDATED INCOME
In millions except per share amounts
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES (NOTE 1) $12,886.7 $9,953.7 $9,438.7
--------- -------- --------
COSTS AND EXPENSES (NOTE 4)
Cost of sales 11,849.4 9,038.2 8,630.5
Selling 139.8 114.0 116.5
Distribution 354.7 327.4 316.4
Administrative 450.0 232.8 384.3
Interest 55.7 44.4 44.5
--------- -------- --------
Total 12,849.6 9,756.8 9,492.2
--------- -------- --------
INCOME (LOSS) BEFORE TAXES ON INCOME
AND DIVIDENDS ON PREFERRED SECURITIES
OF SUBSIDIARY TRUST 37.1 196.9 (53.5)
Taxes on income (Note 14) 31.3 76.2 96.6
--------- -------- --------
Income (loss) before dividends on
preferred securities of subsidiary trust 5.8 120.7 (150.1)
Dividends on preferred securities
of subsidiary trust, net of $0.4 tax
benefit (Note 10) (0.7) - -
--------- -------- --------
INCOME (LOSS) AFTER TAXES
Continuing operations 5.1 120.7 (150.1)
Discontinued operations (Notes 2 and 8) 8.6 14.7 (23.1)
Discontinued operations (Notes 2, 8 and 17) -
Gain on sale/donation of Armor All stock 120.2 - 1.0
Gain on sale of PCS - - 576.7
--------- -------- --------
Net Income $ 133.9 $ 135.4 $ 404.5
========= ======== ========
EARNINGS (LOSS) PER COMMON SHARE
Fully diluted
Continuing operations $ 0.13 $ 2.59 $ (3.34)
Discontinued operations 0.19 0.31 (.51)
Discontinued operations -
Gain on sale/donation of Armor All stock 2.66 - 0.02
Gain on sale of PCS - - 12.69
--------- -------- --------
Total $ 2.98 $ 2.90 $ 8.86
========= ======== ========
Primary
Continuing operations $ 0.12 $ 2.59 $ (3.52)
Discontinued operations 0.19 0.31 (0.53)
Discontinued operations -
Gain on sale/donation of Armor All stock 2.70 - 0.02
Gain on sale of PCS - - 13.23
--------- -------- --------
Total $ 3.01 $ 2.90 $ 9.20
========= ======== ========
SHARES ON WHICH EARNINGS (LOSS)
PER COMMON SHARE WERE BASED
Fully diluted 45.1 46.7 45.5
Primary 44.5 46.6 43.6
</TABLE>
See Financial Notes
29
<PAGE>
CONSOLIDATED BALANCE SHEETS
In millions, except par value
<TABLE>
<CAPTION>
March 31 1997 1996 1995
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 124.8 $ 260.8 $ 363.1
Marketable securities available for sale
(Note 1) 105.0 195.4 307.3
Receivables (Note 6) 1,224.5 672.8 651.7
Inventories (Note 7) 2,259.5 1,317.0 1,081.9
Prepaid expenses (Note 14) 47.3 17.0 60.2
-------- -------- --------
Total current assets 3,761.1 2,463.0 2,464.2
-------- -------- --------
Land 38.0 36.1 38.0
Buildings 208.5 205.8 199.9
Machinery and equipment 532.8 471.8 435.4
-------- -------- --------
Total property, plant, and equipment 779.3 713.7 673.3
Accumulated depreciation (405.7) (357.7) (331.7)
-------- -------- --------
Net property, plant, and equipment 373.6 356.0 341.6
Goodwill and other intangibles 736.2 183.7 172.4
Net assets of discontinued operations
(Notes 8 and 17) - 125.7 88.2
Other assets (Notes 14 and 15) 301.9 231.8 193.8
-------- -------- --------
Total assets $5,172.8 $3,360.2 $3,260.2
======== ======== ========
LIABILITIES
Drafts payable $ 210.7 $ 194.0 $ 160.1
Accounts payable - trade 1,854.7 1,149.2 1,069.7
Short-term borrowings 100.0 6.6 21.7
Current portion of long-term debt (Note 9) 60.3 21.1 11.7
Salaries and wages 52.9 26.3 33.5
Taxes 80.0 92.2 138.9
Interest and dividends 21.3 19.0 19.3
Other 257.3 134.1 130.3
-------- -------- --------
Total current liabilities 2,637.2 1,642.5 1,585.2
-------- -------- --------
Postretirement obligations and other
noncurrent liabilities (Note 15) 255.1 282.5 269.8
-------- -------- --------
Long-term debt (Note 9) 824.9 370.6 391.7
-------- -------- --------
McKesson - obligated mandatorily redeemable
preferred securities of subsidiary grantor
trust whose sole assets are junior
subordinated debentures of McKesson (Note 10) 194.8 - -
-------- -------- --------
STOCKHOLDERS' EQUITY
Common stock (200.0 shares authorized, 46.4, 45.5
and 44.4 issued as of March 31, 1997, 1996
and 1995, respectively; par value of $.01) 0.4 0.4 0.4
Additional paid-in capital 408.2 332.0 319.8
Other capital (19.2) (36.2) (4.1)
Retained earnings 1,062.6 968.9 875.9
Accumulated translation adjustment (44.6) (49.7) (51.6)
ESOP notes and guarantee (118.3) (122.5) (126.4)
Treasury shares, at cost (28.3) (28.3) (0.5)
-------- -------- --------
Stockholders' equity (Note 13) 1,260.8 1,064.6 1,013.5
-------- -------- --------
Total liabilities and stockholders' equity $5,172.8 $3,360.2 $3,260.2
======== ======== ========
</TABLE>
See Financial Notes
30
<PAGE>
STATEMENTS OF CONSOLIDATED CASH FLOWS
In millions
<TABLE>
<CAPTION>
Years ended March 31 1997 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) after taxes from continuing
operations $ 5.1 $ 120.7 $ (150.1)
Adjustments to reconcile to net cash provided by
operating activities:
Depreciation 65.4 57.2 51.9
Amortization of intangibles 6.4 7.0 7.2
Provision for bad debts 23.0 13.7 49.0
Deferred taxes on income (1.6) 42.9 (80.4)
Gain on sale of subsidiary - (11.2) -
Other noncash (Notes 2 and 4) 125.0 (7.4) 220.9
--------- -------- --------
Total 223.3 222.9 98.5
--------- -------- --------
Effects of changes in
Receivables (129.5) - (76.1)
Inventories (332.6) (239.6) (213.7)
Accounts and drafts payable 521.0 103.9 167.2
Taxes (39.0) (13.1) 115.3
Other (16.6) (62.9) 64.5
--------- -------- --------
Total 3.3 (211.7) 57.2
--------- -------- --------
Net cash provided by continuing operations 226.6 11.2 155.7
Discontinued operations (Notes 2, 3 and 8) 11.5 (7.4) 43.4
--------- -------- --------
Net cash provided by operating activities 238.1 3.8 199.1
--------- -------- --------
INVESTING ACTIVITIES
Purchases of marketable securities (103.1) (130.6) (324.0)
Maturities of marketable securities 198.2 244.8 19.9
Property acquisitions (76.9) (73.6) (76.4)
Properties sold 3.6 6.7 4.3
Proceeds from sale of subsidiaries (Notes 2 and 3) 300.7 36.1 568.5
Acquisitions of businesses, less cash and
short-term investments acquired (Note 2) (1,209.5) (33.5) (0.7)
Investing activities of discontinued operations (4.2) (4.4) (24.5)
Other (Note 15) (73.0) (49.5) (2.9)
--------- -------- --------
Net cash provided (used) by investing
activities (964.2) (4.0) 164.2
--------- -------- --------
FINANCING ACTIVITIES (Notes 9, 10 and 13)
Proceeds from issuance of debt 1,118.2 0.6 29.8
Proceeds from issuance of preferred
trust securities, net of issuance costs 195.1 - -
Repayment of debt (551.9) (19.1) (50.9)
Capital stock transactions
Issuances 27.4 19.2 13.5
Share repurchases (155.7) (62.7) (3.1)
ESOP note payments 4.2 3.9 13.6
Dividends paid (43.3) (44.2) (69.9)
Financing activities of discontinued operations 0.1 0.2 4.1
Other (4.0) - -
--------- -------- --------
Net cash provided (used) by financing
activities 590.1 (102.1) (62.9)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (136.0) (102.3) 300.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 260.8 363.1 62.7
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 124.8 $ 260.8 $ 363.1
========= ======== ========
</TABLE>
See Financial Notes
31
<PAGE>
- --------------------------------------------------------------------------------
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Shares in thousands, dollars in millions
<TABLE>
<CAPTION>
Preferred Stocks Common Stock
------------------- ------------------
Years ended March 31, 1997, 1996, and 1995 Shares Amount Shares Amount
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, MARCH 31, 1994 2,883 $ 125.3 44,583 $ 89.2
Issuances of shares under employee plans (Note 13) 538 0.1
Purchase of shares (Note 13) (2,883) (125.3) (733) (1.5)
Change in par value of common stock from
$2.00 to $.01 per share (Note 13) (87.4)
ESOP note payments
Distribution of net assets of PCS
Other
Translation adjustment
Unrealized gains on marketable securities
Net income
Cash dividends declared
Preferred stock (Series A, $.90 per share)
Preferred stock (Series B ESOP, $1.8098 per share)
Common, $1.34 per share
- -------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1995 - - 44,388 0.4
Issuances of shares under employee plans (Note 13) 1,062
Purchase of shares (Note 13)
ESOP note payments
Other (Note 15)
Translation adjustment
Unrealized gains on marketable securities
Net income
Cash dividends declared
Common, $1.00 per share
- -------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1996 - - 45,450 0.4
Issuances of shares under employee plans (Note 13) 102
Purchase of shares (Note 13)
ESOP note payments
Other (Note 15)
Translation adjustment
Unrealized gains on marketable securities
Net income
Acquisition of General Medical (Note 2) 845
Cash dividends declared
Common, $1.00 per share
- -------------------------------------------------------------------------------------------------
BALANCES, MARCH 31, 1997 - $ - 46,397 $ 0.4
====== ======== ====== =======
</TABLE>
See Financial Notes
32
<PAGE>
<TABLE>
<CAPTION>
Additional Accumulated ESOP Treasury
Paid-in Other Retained Translation Notes and ----------------------- Stockholders'
Capital Capital Earnings Adjustment Guarantee Common Shares Amount Equity
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 174.4 $ (9.5) $ 610.3 $ (22.3) $ (165.1) (3,978) $ (123.7) $ 678.6
11.1 1.4 118 4.5 17.1
5.1 3,846 118.7 (3.0)
87.4 -
26.9 38.7 65.6
(80.1) (80.1)
14.9 2.1 2.7 19.7
(29.3) (29.3)
1.9 1.9
404.5 404.5
(0.1) (0.1)
(4.9) (4.9)
(56.5) (56.5)
- ----------------------------------------------------------------------------------------------------------
319.8 (4.1) 875.9 (51.6) (126.4) (14) (0.5) $1,013.5
(10.6) (4.0) 761 34.9 20.3
(1,349) (62.7) (62.7)
3.9 3.9
22.8 (27.3) 2.3 (2.2)
1.9 1.9
(0.8) (0.8)
135.4 135.4
(44.7) (44.7)
- ----------------------------------------------------------------------------------------------------------
332.0 (36.2) 968.9 (49.7) (122.5) (602) (28.3) $1,064.6
(25.2) (7.5) 1,434 66.0 33.3
(3,390) (155.7) (155.7)
4.2 4.2
18.4 25.6 3.1 47.1
5.1 5.1
(1.1) (1.1)
133.9 133.9
83.0 1,946 89.7 172.7
(43.3) (43.3)
- ----------------------------------------------------------------------------------------------------------
$ 408.2 $ (19.2) $ 1,062.6 $ (44.6) $ (118.3) (612) $ (28.3) $1,260.8
======== ======= ========== ======= ======== ====== ======== ========
</TABLE>
33
<PAGE>
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements of McKesson Corporation ("the
Company" or "McKesson") include the financial statements of all majority-owned
companies, except those classified as discontinued operations. All significant
intercorporate amounts have been eliminated. Certain prior year amounts have
been reclassified to conform to the current year presentation.
Within the U.S. and Canada, McKesson is the largest wholesale distributor
of ethical and proprietary drugs, medical-surgical supplies, and health and
beauty care products. The Company is also engaged in the processing and sale of
bottled drinking water to homes and businesses and packaged water through retail
stores. The principal markets for the drug, medical-surgical supplies, and
health and beauty care distribution businesses are chain and independent drug
stores, hospitals, alternate care sites, food stores, and mass merchandisers.
The preparation of financial statements in conformity with generally
accepted accounting principles requires that management make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities as of the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents include all highly liquid debt instruments purchased
with a maturity of three months or less at the date of acquisition.
Marketable Securities Available for Sale are carried at fair value and the net
unrealized gains and losses computed in marking these securities to market have
been reported within stockholders' equity. At March 31, 1997, the fair value
approximated the amortized cost of these securities. The investments mature on
various dates through fiscal 1998.
Inventories consist of merchandise held for resale and are stated at the lower
of cost or market. The majority of the cost of domestic inventories is
determined on the last-in, first-out (LIFO) method. International inventories
are stated at average cost.
Property, Plant, and Equipment is stated at cost and depreciated on the
straight-line method at rates designed to distribute the cost of properties over
estimated service lives.
Capitalized Software included in other assets reflects costs related to
internally developed or purchased software for projects in excess of $1.0
million that are capitalized and amortized on a straight-line basis over periods
not exceeding seven years.
Goodwill and Other Intangibles are amortized on a straight-line basis over
periods estimated to be benefited, generally 3 to 40 years. Negative goodwill
(see Note 2) is being amortized over a five-year period. Accumulated
amortization balances were $61.2 million, $54.8 million, and $47.8 million at
March 31, 1997, 1996, and 1995, respectively. The Company periodically assesses
the recoverability of the carrying value of its goodwill based on a review of
projected undiscounted cash flows of the related operating entities. These cash
flows are prepared and reviewed by management in connection with the Company's
annual long-range planning process.
Insurance Programs. Under the Company's insurance programs, coverage is obtained
for catastrophic exposures as well as those risks required to be insured by law
or contract. It is the policy of the Company to retain a significant portion of
certain losses related primarily to workers' compensation, physical loss to
property, business interruption resulting from such loss, and comprehensive
general, product, and vehicle liability. Provisions for losses expected under
these programs are recorded based upon the Company's estimates of the aggregate
liability for claims incurred. Such estimates utilize certain actuarial
assumptions followed in the insurance industry.
Revenue Recognition. Revenue is recognized when products are shipped or services
are provided to customers. In addition, for large volume sales of
pharmaceuticals to major self-warehousing drugstore chains, the Company acts as
an intermediary in the order and subsequent delivery of products directly from
the manufacturer to the customers' warehouses. These sales of $2.8 billion in
1997, $3.0 billion in 1996, and $2.9 billion in 1995 are reported net of
associated cost of sales as revenues in the consolidated statements of income.
Included in revenues is interest income of $14.5 million, $37.8 million, and
$18.4 million in fiscal 1997, 1996, and 1995, respectively.
Income Taxes. The Company accounts for income taxes under the liability method
in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109,
"Accounting for Income Taxes;" see Note 14.
Earnings (Loss) per Common Share. Primary earnings (loss) per share are
calculated by dividing net income less preferred dividends by the weighted
average shares outstanding adjusted for the dilutive effect of stock options.
Fully diluted earnings (loss) per share reflect the dilutive effect of stock
options and assume the conversion of the convertible preferred securities and
related earnings adjustments.
34
<PAGE>
Foreign Currency Translation. Assets and liabilities of the Company's foreign
affiliates are translated at current exchange rates, while revenue and expenses
are translated at average rates prevailing during the year. Translation
adjustments are reported as a component of stockholders' equity.
Accounting Changes. In fiscal 1997, the Company adopted SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of," which requires review of the carrying value of long-lived
assets and certain intangibles for impairment when events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable; see Note 4 for charges the Company recorded in fiscal 1997 related
to the impairment of assets.
In fiscal 1997, the Company adopted the disclosure requirements of SFAS No.
123, "Accounting for Stock-Based Compensation," which provides for the
disclosure of pro forma net earnings and net earnings per share as if the fair
value method were used to account for stock-based employee compensation plans.
The Company has elected to continue to use the intrinsic value method to account
for stock-based compensation plans in accordance with Accounting Principles
Board Opinion ("APBO") No. 25, "Accounting for Stock Issued to Employees;" see
Note 13.
In fiscal 1997, the Company adopted SFAS No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities," which
provides accounting and reporting standards for transfers and servicing of
financial assets sold to third parties; see Note 5.
New Accounting Pronouncements. In February 1997, the Financial Accounting
Standards Board issued SFAS No. 128, "Earnings per Share." The Company is
required to adopt SFAS 128 in 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:
<TABLE>
<CAPTION>
Years ended March 31
------------------------------------
1997 1996 1995
<S> <C> <C> <C>
- --------------------------------------------------------------------------------
Net Income Per Share
Basic $3.13 $3.05 $9.55
Diluted 3.01 2.91 8.86
</TABLE>
NOTE 2: ACQUISITIONS,
INVESTMENTS, AND DIVESTITURES
On February 21, 1997, the Company acquired General Medical Inc. ("General
Medical") for approximately $775 million including the issuance of approximately
2.8 million shares of the Company's common stock and the assumption of
approximately $428 million in debt. Payment of $30 million of the purchase price
has been withheld pending the outcome of a contingency. General Medical is a
multi-market distributor of medical-surgical supplies to acute-care, physician-
care, and extended-care markets. This acquisition has been accounted for under
the purchase method and the results of operations of General Medical have been
included in the consolidated financial statements since the date of acquisition.
The valuation of the General Medical net assets acquired included the
recognition of liabilities totaling $7.9 million related to closures of
duplicate facilities and involuntary termination and relocation benefits, of
which $7.3 million remained outstanding as of March 31, 1997. The excess of the
purchase price over the fair value of the net assets acquired of approximately
$600 million is being amortized on a straight-line basis over 40 years. The
purchase price allocations are based on preliminary estimates and may be subject
to revision.
On November 8, 1996, the Company acquired FoxMeyer Corporation's
pharmaceutical distribution business ("FoxMeyer"), pursuant to an expedited
auction process in the FoxMeyer Corporation bankruptcy proceeding in Wilmington,
Delaware. Through an amended sale agreement, the Company paid approximately $23
million in cash to the debtors, paid off approximately $500 million in secured
debt, and assumed an additional $75 million in other liabilities. The Company
utilized proceeds from commercial paper issuances and a note payable to a bank
to fund the transaction. The note payable to a bank was repaid prior to March
31, 1997, with cash flow from operations and proceeds from divestitures. The
Company acquired assets consisting primarily of accounts receivable and
inventories of approximately $650 million, customer contracts and fixed assets.
This acquisition was accounted for under the purchase method.
As further discussed in Note 4, as a result of the FoxMeyer acquisition,
management has assessed strategies and program offerings and initiated a plan to
optimize the network configuration from the combined distribution centers of the
Company and those acquired. This plan has been reflected in the valuation of the
FoxMeyer net assets acquired. Liabilities of $37.6 million were recognized for
costs associated with closures of duplicate distribution centers and workforce
reductions of which $21.9 million remained
35
<PAGE>
outstanding as of March 31, 1997. The plan to consolidate the FoxMeyer business
is expected to be completed over the next two years. The excess of the fair
value of net assets acquired over the purchase price, after reducing to zero the
carrying value of long-term assets which are expected to be retained for use by
the Company, was approximately $50 million (negative goodwill). The purchase
price allocations are based on preliminary estimates and may be subject to
revision. The negative goodwill is being amortized on a straight-line basis over
five years.
The following unaudited pro forma information has been prepared assuming
FoxMeyer and General Medical had been acquired as of the beginning of fiscal
1997 and fiscal 1996:
<TABLE>
<CAPTION>
March 31
-------------------------
In millions, except per share amounts 1997 1996
- ---------------------------------------------------------------------------
<S> <C> <C>
Revenues $17,398.8 $16,992.8
Net income (loss) (269.3) 79.3
Earnings (loss) per share
Fully diluted (5.92) 1.60
Primary (5.92) 1.61
</TABLE>
The unaudited pro forma information above is not indicative of the
consolidated financial position or results of operations of the Company as they
may be in the future or as they might have been had the General Medical and
FoxMeyer acquisitions been effected on the assumed dates. For instance, due to
FoxMeyer's bankruptcy filing on August 27, 1996, and the resulting deterioration
in its operations through November 8, 1996, FoxMeyer experienced a decline in
its sales base, wrote off its goodwill and other intangibles totaling $207.9
million, and established substantial accounts receivable and inventory reserves
and an additional valuation allowance for deferred tax assets aggregating $153.4
million during the period from April 1, 1996, to November 8, 1996.
In April 1996, the Company acquired Automated Healthcare, Inc. ("AHI") for
$61.4 million in cash and the assumption of $3.2 million of employee stock
incentives. AHI designs, manufactures, sells, and installs automated
pharmaceutical dispensing equipment for use by health care institutions. The
acquisition was accounted for as a purchase and accordingly, AHI's results are
included in the consolidated financial statements since the date of acquisition.
The results of operations of AHI were not material in relation to the Company's
consolidated results of operations. The goodwill related to the acquisition of
approximately $13.4 million is being amortized on a straight-line basis over a
ten-year period. 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 alternative uses. Existing technology was valued at $0.4 million
and is being amortized on a straight-line basis over a three-year period. The
Company utilized a discounted cash flow methodology by product line to value in-
process and existing technologies as of the acquisition date. The resulting
valuations represent management's best estimate of the respective fair values as
of that date. As of the acquisition date, further costs necessary to develop the
purchased technologies into commercially viable products were approximately $3.4
million, based on current estimates. Such costs are expected to be incurred
through fiscal 1998 and are associated with the following activities:
engineering required to advance the design of products to the point that they
meet specific functional and economic requirements and are ready for
manufacture, prototype development, and product testing.
In fiscal 1996 the Company made a $20 million acquisition in the Health
Care Services segment. The acquired company provides support services to
commercial, non-profit, and governmental organizations engaged in pharmaceutical
and biomedical development. The Company also acquired interests in two companies
engaged in the development of new technology-based initiatives to enhance the
Health Care Services segment's competitive position.
On March 31, 1997, the Company sold its service merchandising unit,
Millbrook Distribution Services, Inc. ("Millbrook"), to R.A.B. Holdings, Inc.
The after-tax proceeds on the sale approximated Millbrook's book value.
In March 1997, the Company sold its Aqua-Vend vended water business ("Aqua-
Vend"), a unit of the Water Products segment. The after-tax proceeds on the sale
approximated Aqua-Vend's book value, after giving effect to the $7.0 million
pre-tax provision for impairment of its assets in the third quarter of fiscal
1997; see Note 4.
On December 31, 1996, the Company sold its 55% equity interest in Armor All
Products Corporation ("Armor All") to The Clorox Company for $221.9 million and
recognized an after-tax gain of $120.2 million. At closing, after-tax proceeds
of $109.8 million replaced the 6.9 million Armor All shares held in trust as
exchange property for the Company's $180 million exchangeable subordinated
debentures; see Note 9.
All of the net assets and results of operations of both Armor All and
Millbrook have been reclassified as discontinued operations. Prior year amounts
have been restated.
In fiscal 1996, the Company sold its interest in a Central American
pharmaceutical manufacturer for $36.1 million, resulting in a gain of $11.2
million.
36
<PAGE>
NOTE 3: SALE OF THE PCS BUSINESS
On July 10, 1994, the Company entered into an Agreement and Plan of Merger and a
Reorganization and a Distribution Agreement ("Merger Agreement" and
"Distribution Agreement," respectively) providing for the acquisition by Eli
Lilly and Company ("Eli Lilly") of McKesson's pharmaceutical benefits management
business ("PCS"), which was primarily operated by PCS Health Systems, Inc. and
Clinical Pharmaceuticals, Inc., both of which were wholly owned subsidiaries of
McKesson, for approximately $4 billion.
As required by the Merger Agreement, on July 15, 1994, ECO Acquisition
Corporation ("ECO"), a subsidiary of Eli Lilly, commenced a cash tender offer to
purchase from McKesson shareholders all outstanding shares of McKesson Common
Stock (the "Shares") at a price of $76.00 per Share (the "Offer"). The Offer was
completed on November 21, 1994 and McKesson and ECO merged (the "Merger").
Simultaneous with the completion of the Offer and pursuant to the terms of
the Distribution Agreement, McKesson (i) transferred all of its assets and
liabilities, other than those related to PCS, to SP Ventures, Inc., a newly
formed corporation ("New McKesson") and (ii) declared a dividend of one share of
common stock of New McKesson, par value of $.01 per share, for each Share held
of record as of November 19, 1994 (collectively, the "Spin-Off"). After giving
effect to the Spin-Off and the completion of the Offer, the current businesses
of McKesson (other than PCS) are being continued through New McKesson. As a
result of the Offer, Merger, and Spin-Off (collectively, the "PCS Transaction"),
each existing McKesson shareholder received a cash payment of $76.00 per Share
(representing the proceeds from the sale of PCS) and one share of common stock
of New McKesson representing their continuing interest in the retained
businesses.
For financial statement purposes, New McKesson is the continuing entity and
has retained the name McKesson Corporation. The accompanying financial
statements reflect PCS as a discontinued operation.
Approximately $600 million of the $4 billion consideration paid by Eli
Lilly was received by the Company. An additional $24 million of the $4 billion
consideration was received from Eli Lilly to fund deferred vested stock option
payments. The remainder of the $4 billion was paid directly to shareholders of
the Company by Eli Lilly. In fiscal 1995, the Company recorded a gain on the
sale of PCS of $576.7 million, after transaction costs and other expenses.
NOTE 4: CHARGES AND GAINS IN
CONTINUING OPERATIONS
Fiscal 1997
The acquisition of the assets and operations of FoxMeyer (see Note 2) resulted
in a significant increase in sales volume, a substantial change in the customer
mix (primarily a large increase in institutional customers), and overlapping,
duplicate, and "similar purpose" assets. This required management to reassess
the Company's operations, distribution center network and business strategies,
including program offerings. A plan was developed to optimize the network
configuration from the combined distribution centers of the Company and those
acquired in the transaction which will result in the consolidation and closure
of approximately 22 distribution centers, workforce reductions, and disposal of
excess, duplicate assets. Management has also reassessed strategies and program
offerings for expanding certain customer segments in light of the larger and
more diverse customer base, and identified certain programs and investments,
which will no longer be pursued as originally contemplated. Other duplicate,
common purpose assets including administrative facilities, software, and other
equipment have been reviewed to identify the optimum mix for the combined
companies. This has resulted in the impairment in the value of certain assets,
which will not ultimately be retained or utilized as originally intended. The
foregoing has been reflected in the valuation of the FoxMeyer assets acquired,
and liabilities assumed (see Note 2), and in the charges discussed below with
respect to the affected assets of the Company.
The charges resulting from the impairment of assets of the Company as a
result of the integration and rationalization of the Company's distribution
operations, systems, strategies, and program offerings and administrative
functions and for certain operating items are recorded in selling, distribution,
and administration expenses and are summarized below (in millions):
<TABLE>
<S> <C>
Development costs and investments associated
with program offerings which will no longer
be pursued as originally contemplated $28.0
Computer software which will no longer be
utilized or for which the development program
has ceased 29.3
Cost of facilities closures - primarily write-down
of assets which will no longer be utilized and will
be disposed of 10.1
Receivables reserves 15.1
Other operating items 16.3
-----
$98.8
=====
</TABLE>
37
<PAGE>
The disposition of properties in connection with facilities closures is
expected to occur over the next three years. Substantially all of the charges
represent the write-down of existing balances and are, accordingly, noncash.
Balances remaining from a prior restructuring in fiscal 1995 for facilities
closures were considered in connection with the revised facilities plan after
the FoxMeyer transaction, resulting in an additional provision of $2.9 million.
There were no significant changes in estimates or recharacterization of other
amounts from the prior restructuring reserves. Also included in the charge for
facilities closures is $7.2 million associated with the Company's Canadian
operation, which is restructuring its distribution operations and network
following a significant change in its customer mix.
The charge related to receivable reserves results from management's
reevaluation of the U.S. Health Care business' estimated exposures for bad
debts, disputed amounts, customer allowances, and rebates.
Other operating items include a provision by the Water Products business of
$7.0 million for the impairment of assets in its vended water business. Other
operating items of the U.S. Health Care business consist of $2.8 million of
incremental costs incurred during a strike at a distribution center, $1.5
million for the termination of a marketing program and certain distributor
relationships, and $5.0 million of other charges.
Fiscal 1995
The loss from continuing operations in fiscal 1995 includes $59.4 million ($45.3
million after-tax) of compensation costs related to the PCS Transaction, $107.0
million of income tax expense related to the distribution of New McKesson common
stock to McKesson shareholders subsequent to the transfer of assets and
liabilities from McKesson to New McKesson to effect the PCS Transaction, and
$139.5 million ($85.3 million after-tax) of charges for restructuring, asset
impairment, and other operating items.
The $59.4 million of compensation expense related to the PCS Transaction in
continuing operations (classified in administrative expense) consists of $23.6
million associated with an allocation of cash and shares to ESOP plan
participants resulting from a paydown of ESOP debt by the ESOP trust and $35.8
million associated with the Company's vested stock options and other
compensation programs.
The $139.5 million of charges for restructuring, asset impairment, and
other operating items in continuing operations ($35.9 million included in cost
of sales and $103.6 million included in administrative expense) resulted, in
part, from the initiation by the Company's management of several measures
designed to streamline operations and improve productivity in the Company's
distribution and Water Products businesses. These measures included
consolidation of certain facilities, workforce reductions, and divestiture of
under-performing assets. Charges for other operating items consist primarily of
write-downs of assets to be disposed of to fair value less costs to sell,
impairment losses on capitalized software due to changes in technology,
severance for an announced company-wide workforce reduction of approximately 350
individuals, write-downs of inventory associated with the discontinuation of
certain product lines, and receivable reserves related to facility closures and
to a reassessment of credit risks in the Company's Health Care Services
businesses. The assets to be disposed of are associated with facility
consolidations in the Health Care Services and Water Products businesses and
surplus properties held by the Company. Balances remaining in the asset reserves
were re-evaluated in connection with the fiscal 1997 charges.
The charges (substantially all noncash with the exception of severance) for
restructuring, asset impairment, and other operating items included in
continuing operations in fiscal 1995 are as follows:
<TABLE>
<CAPTION>
In millions
- --------------------------------------------------------------------------------
<S> <C>
Costs associated with facility closures and surplus
properties - primarily write-downs of assets
to be disposed of $ 27.6
Severance costs for announced workforce reductions 11.5
Asset write-downs resulting from changed business conditions:
Facilities and equipment 2.4
Software 24.7
Discontinuation of product lines 20.5
Receivable reserves 32.2
Other operating items 20.6
------
Total $139.5
======
</TABLE>
Summary of Reserve Balances
The remaining balances outstanding for the combined reserves at
March 31, 1997, and 1996 are as follows:
<TABLE>
<CAPTION>
March 31
------------------
In millions 1997 1996
- -------------------------------------------------------------------------
<S> <C> <C>
Costs of facilities closures and surplus
properties - primarily write-down
of assets which will be disposed of $ 27.8 $13.1
Severance costs for announced
workforce reductions - 2.0
Discontinuation of product lines 6.1 14.3
Receivable reserves 7.7 0.6
Other operating items 6.5 2.2
------ -----
Total $ 48.1 $32.2
====== =====
</TABLE>
38
<PAGE>
The write-downs associated with assets to be disposed of and asset
impairments due to changed business conditions were based primarily on
independent appraisals. Charges to the restructuring reserve in fiscal 1997,
1996, and 1995 have consisted primarily of asset write-offs (substantially all
of which are noncash) and cash payments for severance of $2.0 million, $5.2
million, and $4.3 million in fiscal 1997, 1996, and 1995, respectively.
NOTE 5: OFF-BALANCE SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
Trade receivables subject the Company to a concentration of credit risk with
customers in the retail sector. This risk is spread over a large number of
geographically dispersed customers.
At March 31, 1997, the Company sold $154.6 million of trade receivables at
amounts approximating their fair value to a bank in accordance with SFAS No.
125, "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities."
Proceeds received by the Company on sales of accounts receivable with
recourse to the Company for certain uncollectible amounts totaled $105 million
and $47 million in 1996 and 1995, respectively.
<TABLE>
<CAPTION>
NOTE 6: RECEIVABLES
March 31
--------------------------
In millions 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Customer accounts $1,180.4 $ 631.7 $ 635.6
Other 88.0 79.2 65.4
-------- -------- --------
Total 1,268.4 710.9 701.0
Allowances (43.9) (38.1) (49.3)
-------- -------- --------
Net $1,224.5 $ 672.8 $ 651.7
======== ======== ========
The allowances are for uncollectible accounts, discounts, returns, and
other adjustments.
NOTE 7: INVENTORIES
March 31
--------------------------
In millions 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Inventories before LIFO cost adjustment
(approximates replacement cost) $2,538.6 $1,602.5 $1,376.2
LIFO cost adjustment (279.1) (285.5) (294.3)
-------- -------- --------
Total $2,259.5 $1,317.0 $1,081.9
======== ======== ========
</TABLE>
The LIFO method was used to value approximately 84% of the inventories at March
31, 1997, and 90% of the inventories at March 31, 1996, and 1995.
NOTE 8: DISCONTINUED OPERATIONS
The net assets (liabilities) of discontinued operations at March 31 were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Total assets $2.5 $275.5 $309.6
Total liabilities (5.8) (149.8) (221.4)
----- ------- ------
Net assets (liabilities) $(3.3) $ 125.7 $ 88.2
===== ======= ======
</TABLE>
At March 31, 1997, net liabilities of discontinued operations were included
in other current liabilities. Assets consist primarily of land held for sale and
investments in affiliates. Liabilities consist primarily of other accrued
liabilities.
At March 31, 1996, and 1995, assets of discontinued operations consisted
primarily of cash; receivables; inventory; property, plant, and equipment; and
goodwill of Armor All and Millbrook. Liabilities of discontinued operations
consist primarily of accounts payable and other accrued liabilities of Armor All
and Millbrook.
Results of discontinued operations were as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $592.1 $749.6 $999.9
====== ====== ======
Discontinued operations before taxes $ 17.2 $ 31.7 $ 20.2
Provision for taxes on income (5.6) (13.7) (32.3)
Minority interest in Armor All (3.0) (3.3) (11.0)
------ ------ ------
Discontinued operations 8.6 14.7 (23.1)
------ ------ ------
Gain on sale/donation of
Armor All stock 154.5 - (2.0)
Tax benefit (expense) (34.3) - 3.0
------ ------ ------
Net gain on sale/donation
of Armor All stock 120.2 - 1.0
------ ------ ------
Gain on sale of PCS - - 571.8
Tax benefit - - 4.9
------ ------ ------
Net gain on sale of PCS - - 576.7
------ ------ ------
Total $128.8 $ 14.7 $554.6
====== ====== ======
</TABLE>
Discontinued operations in fiscal 1997 of $8.6 million after-tax includes
$3.7 million and $4.9 million after-tax from the operations of Armor All and
Millbrook, respectively.
Discontinued operations in fiscal 1996 of $14.7 million after-tax includes
$4.3 million and $10.4 million after-tax from the operations of Armor All and
Millbrook, respectively.
The after-tax loss from discontinued operations in fiscal 1995 of $23.1
million includes $19.4 million and $13.9 million in after-tax profits from the
operations of PCS and Armor All, respectively, and a $58.0 million loss after-
tax from Millbrook. Millbrook's results include approximately $72.8 million
after-tax of charges related to the write-down of the Company's investment as a
result of significant changes in this segment's customer base and marketplace.
Results also include $1.6 million after-tax profit from
39
<PAGE>
settlements recovered in insurance litigation related to environmental matters
associated with the former operations of the Company's chemical businesses,
which were divested in fiscal 1987, net of adjustments to environmental
reserves. The gain on donation of Armor All stock of $1 million after-tax in
fiscal 1995 is related to contributions to the McKesson Foundation.
<TABLE>
<CAPTION>
NOTE 9: LONG-TERM DEBT
March 31
--------------------------
In millions 1997 1996 1995
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
ESOP related debt $118.3 $122.5 $126.4
4.50% exchangeable subordinated
debentures due 2004 160.4 180.0 180.0
8.625% Notes due 1998 49.0 49.0 49.0
8.75% Notes due 1997 - 10.0 10.0
6.60% Notes due 2000 175.0 - -
6.875% Notes due 2002 175.0 - -
7.65% Debentures due 2027 175.0 - -
3.45% to 7.47% IDRBs due
through 2012 21.4 20.0 25.6
Capital lease obligations
(averaging 8.5%) 4.2 4.4 4.7
Other, 6.5% to 12.125%, due
through 2021 6.9 5.8 7.7
------ ------ ------
Total 885.2 391.7 403.4
Less current portion 60.3 21.1 11.7
------ ------ ------
Total $824.9 $370.6 $391.7
====== ====== ======
</TABLE>
The Company has a revolving credit agreement with seven U.S. banks and their
Canadian affiliates whereby the banks commit $250 million borrowing availability
at the reference rate (8.5% at March 31, 1997) or money market-based rates. The
agreement expires in fiscal 2002. The agreement permits the Company's wholly
owned Canadian subsidiary, Medis, to borrow the Canadian dollar equivalent of up
to $75 million (as part of the $250 million arrangement) at the Canadian prime
rate or Canadian money market-based rates. The agreement contains limitations on
additional indebtedness. Compensating balances are not required. The Company has
additional available liquidity for general working capital purposes in the form
of a 364-day facility with the same U.S. banks whereby the banks commit to
provide an additional $250 million. At March 31, 1997, the Company had
outstanding $100 million of commercial paper borrowings supported by these
agreements and $400 million of unused borrowing capacity.
Total interest payments were $53.6 million, $47.5 million, and $45.3 million
in fiscal 1997, 1996, and 1995, respectively.
ESOP-related debt (see Note 15) is payable to banks and insurance companies,
bears interest at rates ranging from 8.6% fixed rate to approximately 80% of the
prime or LIBOR +0.4% and is due in installments through 2009.
In connection with the 4.5% exchangeable subordinated debentures, the March
31, 1997, cash and cash equivalents and marketable securities balances include
$13.2 million and $96.6 million, respectively, held in trust as exchange
property for $180 million principal amount of debentures. In March 1997, the
Company repurchased $19.6 million of the exchangeable subordinated debentures.
The restricted portion of the marketable securities related to this purchase was
released in April 1997.
In fiscal 1997, the Company issued fixed-rate, unsecured, unsubordinated
debt totaling $525.0 million. The 6.6% notes mature on March 1, 2000, the 6.875%
notes mature on March 1, 2002, and the 7.65% debentures mature on March 1, 2027.
Interest only is payable semi-annually on all three issuances.
Certain debt agreements require that the Company's total debt not exceed
56.5% of total capitalization (total debt plus equity). At March 31, 1997, the
Company was in compliance with its debt covenants.
Aggregate annual payments on long-term debt and capitalized lease
obligations (see Note 11) for the years ending March 31 are:
<TABLE>
<CAPTION>
Long-Term Capital
In millions Debt Leases Total
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 60.0 $0.3 $ 60.3
1999 10.1 0.3 10.4
2000 185.4 0.3 185.7
2001 11.0 0.4 11.4
2002 186.8 0.4 187.2
Later years 427.7 2.5 430.2
------ ---- ------
Total $881.0 $4.2 $885.2
====== ==== ======
</TABLE>
NOTE 10: CONVERTIBLE PREFERRED SECURITIES
In February 1997, a wholly owned subsidiary trust of the Company issued 4
million preferred shares, which are convertible at the holder's option into
McKesson common stock. Holders of the securities are entitled to cumulative cash
distributions at an annual rate of 5% of the liquidation amount of $50 per
security. Each security is convertible at the rate of .6709 shares of McKesson
common stock, subject to adjustment in certain circumstances. These securities
are callable by the Company at 103.5% of par beginning in March 2000. The sole
assets of the subsidiary trust consist of Convertible Junior Subordinated
Debentures of the Company with an aggregate principal amount equal to the
aggregate liquidation amount of the securities. The securities will be redeemed
upon repayment of the convertible
40
<PAGE>
debentures. The Convertible 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 par.
NOTE 11: LEASE OBLIGATIONS
The Company leases facilities and equipment under both capital and operating
leases. Net assets held under capital leases included in property, plant, and
equipment were $3.0 million, $3.3 million, and $3.5 million at March 31, 1997,
1996, and 1995, respectively. Amortization of capital leases is included in
depreciation expense.
As of March 31, 1997, future minimum lease payments and sublease rentals in
years ending March 31 are:
<TABLE>
<CAPTION>
Non- Non-
cancelable cancelable
Operating Sublease Capital
In millions Leases Rentals Leases
- --------------------------------------------------------------------------
<S> <C> <C> <C>
1998 $ 35.0 $ (3.0) $0.6
1999 29.3 (2.3) 0.6
2000 23.1 (1.8) 0.6
2001 19.7 (1.3) 0.6
2002 15.4 (1.2) 0.6
Later years 43.4 (2.0) 3.5
------ ------- ----
Total minimum lease payments $165.9 $(11.6) 6.5
====== =======
Less amounts representing interest 2.3
----
Present value of minimum
lease payments $4.2
====
</TABLE>
Rental expense was $33.7 million, $26.1 million, and $24.9 million in fiscal
1997, 1996, and 1995, respectively.
Most real property leases contain renewal options and provisions requiring
the Company to pay property taxes and operating expenses in excess of base-
period amounts.
NOTE 12: FAIR VALUE OF
FINANCIAL INSTRUMENTS
At March 31, 1997, the carrying amounts and estimated fair values of the
Company's financial instruments, as determined under SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments," were as follows:
<TABLE>
<CAPTION>
Carrying Estimated
In millions Amount Fair Value
- ------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $124.8 $124.8
Marketable securities 105.0 105.0
Short-term borrowings 100.0 100.0
Long-term debt, including current portion 885.2 866.3
</TABLE>
The estimated fair values were determined as follows:
Cash and cash equivalents and short-term borrowings: carrying amounts
approximate fair value.
Marketable securities and long-term debt: quoted market prices or market
comparables.
NOTE 13: STOCKHOLDERS' EQUITY
At March 31, 1997, 1996, and 1995, the Company was authorized to issue
100,000,000 shares of series preferred stock ($.01 par value) of which none were
outstanding and 200,000,000 shares of common stock ($.01 par value) of which
approximately 45,785,000 shares, 44,848,000 shares, and 44,374,000 shares were
outstanding net of treasury stock, respectively. At March 31, 1994, there were
120,000,000 shares of common stock ($2.00 par value) authorized of which
approximately 40,605,000 were outstanding, net of treasury stock and two issues
of preferred stock authorized and outstanding. Prior to November 21, 1994, and
in connection with the PCS Transaction, all of the outstanding shares of
preferred stock were converted into either common stock or cash.
Noncash conversions of preferred stock to common stock totaled $123.5
million in fiscal 1995. Other noncash transactions impacting stockholders'
equity in fiscal 1995 included the $23.6 million paydown of ESOP debt by the
ESOP Trust and $80.1 million of net assets of PCS distributed in connection with
the PCS Transaction and charged to retained earnings.
The Company's stock-based compensation plan, the 1994 Stock Option and
Restricted Stock Plan (the "Stock Option Plan") provides grants of nonqualified
stock options to employees and non-employee directors of McKesson. Under the
Stock Option Plan, options are granted at prices not less than the fair market
value of the stock on the date of grant. The options generally vest over four
years and expire 10 years after the grant date. Under the Stock Option Plan, the
Company is authorized to grant up to 10.0 million shares, including 9.8 million
for options as of March 31, 1997.
41
<PAGE>
The following is a summary of options outstanding at March 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------------------------- -----------------------------
Weighted-
Number Average Number
of Options Remaining Weighted- of Options Weighted-
Range of Outstanding Contractual Life Average Exercisable Average
Exercise Prices at Year End (in Years) Exercise at Year End Exercise Price
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.16 to $10.38 472,316 4.89 $ 9.11 432,066 $ 9.75
$10.64 to $12.88 1,002,144 5.71 12.83 995,777 12.83
$13.17 to $16.67 847,747 6.78 16.63 545,402 16.64
$21.12 to $35.00 617,834 7.69 33.92 263,019 34.38
$36.88 to $50.00 1,006,367 8.65 48.35 198,151 48.83
$50.50 to $63.88 1,484,150 9.83 56.43 5,625 51.35
--------- ---------
5,430,558 7.70 34.00 2,440,040 18.47
========= =========
</TABLE>
Expiration dates range from July 27, 1997, to March 26, 2007.
The following is a summary of changes in the options for the Stock Option Plan:
<TABLE>
<CAPTION>
1997 1996 1995
---------------------- -------------------- --------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 4,970,403 $22.61 6,127,161 $ 15.96 3,205,025 $41.92
Assumed through acquisition 62,549 2.16 - - - -
Granted 1,732,974 54.72 884,200 49.53 828,150 37.12
Exercised (1,159,646) 14.98 (1,762,447) 12.67 (651,651) 19.20
Canceled (175,722) 30.52 (278,511) 23.29 (229,072) 27.61
PCS options/(1)/ - - - - (497,650) 48.30
Repricing of options due to PCS Transaction/(2)/ - - - - 3,472,359 41.74
--------- -------- ---------
Outstanding at year end 5,430,558 34.00 4,970,403 22.61 6,127,161 15.96
========= ========= =========
Exercisable at year end 2,440,040 $18.47 2,209,460 $ 14.55 2,188,196 $11.94
========= ========= =========
</TABLE>
/(1)/ PCS employees that held McKesson options received directly from Eli Lilly
cash and restricted stock for all vested and unvested options,
respectively, at the time of the PCS Transaction.
/(2)/ Exercisable options held by an employee of the Company at the time of the
PCS Transaction were split into two separately exercisable options, one
for shares of McKesson common stock and one for shares of New McKesson
common stock. The options were repriced such that the aggregate intrinsic
value of the two separately exercisable options remained the same as the
value of the corresponding original exercisable option. Upon the
completion of the PCS Transaction, each adjusted McKesson option was
canceled in exchange for a cash amount, paid by Eli Lilly, equal to the
difference between $76 and the adjusted exercise price of such option. All
non-exercisable options held by an employee of the Company at the time of
the PCS Transaction were repriced at an exchange ratio of 3.3967 New
McKesson options to one McKesson option. The exercise price of each New
McKesson option is equal to the exercise price per share of the original
McKesson option divided by 3.3967.
- --------------------------------------------------------------------------------
Pursuant to SFAS 128, the Company has elected to account for its stock-based
compensation plan under APBO 25, "Accounting for Stock Issued to Employees."
Accordingly, no compensation cost has been recognized in the consolidated
financial statements for the Stock Option Plan. Had compensation cost for the
Stock Option Plan been recognized based on the fair value at the grant dates for
awards under those plans, consistent with the provision of SFAS No. 123, net
income and earnings per share would have been as indicated in the following
table. Since pro forma compensation cost relates to all periods over which the
awards vest, the initial impact on pro forma net income may not be
representative of compensation cost in subsequent years, when the effect of
amortization of multiple awards would be reflected.
<TABLE>
<CAPTION>
Years Ended March 31
--------------------
In millions, except per share amount 1997 1996
- -----------------------------------------------------------------------------
<S> <C> <C>
Net income
As reported $133.9 $135.4
Pro forma 130.0 134.9
Earnings per common share - fully diluted
As reported 2.98 2.90
Pro forma 2.91 2.90
Earnings per common share - primary
As reported 3.01 2.90
Pro forma 2.94 2.90
</TABLE>
Fair values of the options were estimated at the date of grant using the Black-
Scholes option pricing model with the following weighted-average assumptions:
<TABLE>
<CAPTION>
March 31
--------------
1997 1996
- ----------------------------------------------------------------------------
<S> <C> <C>
Expected stock price volatility 25.6% 25.6%
Expected dividend yield 1.5% 1.5%
Risk-free interest rate 6.2% 5.2%
Expected life (in years) 5 5
</TABLE>
42
<PAGE>
The weighted average grant date fair values of the options granted during
1997 and 1996 were $14.12 and $11.31 per share, respectively.
NOTE 14: TAXES ON INCOME
The provision for income taxes related to continuing operations consists of the
following:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ----------------------------------------------------------------
Current
<S> <C> <C> <C>
Federal $26.6 $23.3 $137.3
State and local 2.9 5.0 30.4
Foreign 3.4 5.0 9.3
----- ----- ------
Total current 32.9 33.3 177.0
----- ----- ------
Deferred
Federal (3.2) 27.2 (65.6)
State 2.2 7.5 (13.5)
Foreign (0.6) 8.2 (1.3)
----- ----- ------
Total deferred (1.6) 42.9 (80.4)
----- ----- ------
Total provision $31.3 $76.2 $ 96.6
===== ===== ======
</TABLE>
Deferred income taxes arise from temporary differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements. Foreign pre-tax earnings were $12.1 million, $26.2 million, and
$25.3 million in fiscal 1997, 1996 and 1995, respectively.
The reconciliation between the Company's effective tax rate on income from
continuing operations and the statutory Federal income tax rate follows:
<TABLE>
<CAPTION>
1997 1996 1995
- ----------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate 35.0% 35.0% 35.0%
State and local income taxes net
of federal tax benefit 9.1 4.1 (20.4)
Nondeductible charge for the
write-off of in-process technology 45.5 - -
Nontaxable income - life insurance (7.0) (0.9) 1.3
Nondeductible amortization 5.3 1.1 (5.5)
Dividends paid deduction -
ESOP allocated shares (2.5) (0.5) 3.3
Basis difference on debentures (65.7)
Tax expense on corporate
restructuring to effect the
PCS Transaction (111.4)
Nondeductible compensation
costs related to the
PCS Transaction (15.4)
Nondeductible restructuring charges (1.0)
Other - net (1.0) (0.1) (0.8)
---- ---- ------
Effective tax rate 84.4% 38.7% (180.6)%
==== ==== ======
</TABLE>
Income tax payments were $76 million, $97 million, and $69 million in
fiscal 1997, 1996, and 1995, respectively.
As of March 31, the deferred tax balances consisted of the following:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ----------------------------------------------------------------
Assets
<S> <C> <C> <C>
Nondeductible accruals for
environmental obligations $ 10.6 $ 11.9 $ 15.9
Receivable reserves 17.6 13.8 12.2
Compensation and benefit-
related accruals 16.5 16.1 15.8
Loss and credit carryforwards 9.4 - -
Costs associated with duplicate
facility closures and
workforce reductions
related to acquired businesses 11.7 - -
Other 17.6 5.8 10.6
------- ----- -----
Current 83.4 47.6 54.5
------- ----- -----
Nondeductible accruals for:
Postretirement and post-
employment plans 76.2 76.6 81.6
Deferred compensation 33.0 29.0 26.4
Costs associated with facility
closures, surplus, properties
and asset write-downs 11.1 10.4 8.6
Retirement plan - 6.0 -
Systems development costs 11.8 - -
Loss and credit carryforwards 1.7 9.7 -
Other 15.3 17.0 13.0
------- ------ ------
Noncurrent 149.1 148.7 129.6
------- ------- ------
Total $ 232.5 $ 196.3 $184.1
======= ======= ======
Liabilities
Basis differences for inventory
valuation $ (70.1) $ (38.8) $ (5.0)
Other (5.2) (5.9) (2.8)
------- ------ -----
Current (75.3) (44.7) (7.8)
------- ------ -----
Accelerated depreciation (38.2) (43.6) (35.9)
Systems development costs - (14.5) (5.2)
Retirement plan (8.5) - (12.2)
Other (10.7) (9.9) (5.8)
------- ------- ------
Noncurrent (57.4) (68.0) (59.1)
------- ------- ------
Total $(132.7) $(112.7) $(66.9)
======= ======= ======
Total net current (included in
prepaid expenses) $ 8.1 $ 2.9 $ 46.7
======= ======= ======
Total net noncurrent (included
in other assets) $ 91.7 $ 80.7 $ 70.5
======= ======= ======
</TABLE>
NOTE 15: POSTRETIREMENT AND
POSTEMPLOYMENT BENEFITS
Pension Plans
Substantially all full-time employees of the Company are covered under either
the Company-sponsored defined benefit retirement plan or by bargaining unit
sponsored multi-employer plans. The benefits for Company-sponsored plans are
based primarily on age of employees at date
43
<PAGE>
of retirement, years of service and employees' pay during the five years prior
to retirement.
Net pension expense for the Company-sponsored defined benefit retirement
plan and executive supplemental retirement plan consisted of the following:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- -----------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 5.4 $ 5.3 $ 6.7
Interest cost on projected
benefit obligation 23.6 23.7 22.4
Return on assets
Actual (income) loss (35.5) (51.6) 3.2
Deferred gain (loss) 12.1 31.2 (25.9)
Amortization of unrecognized
gain and prior service costs 5.9 4.5 5.0
Amortization of unrecognized
net transition asset (2.5) (2.5) (2.5)
Curtailment loss 0.4 - -
------ ------ ------
Net pension expense $ 9.4 $ 10.6 $ 8.9
====== ====== ======
</TABLE>
At December 31, 1996, the Company recognized a $400,000 curtailment loss
resulting from a plan amendment that froze all plan benefits based on each
employee's plan compensation and creditable service accrued to that date. On
January 1, 1997, the Company amended the ESOP to provide future additional
benefits in place of a portion of those benefits previously provided by the
pension plan.
Assets of the plans are measured on a calendar year basis. The funded
status of the company-sponsored defined benefit retirement plan at December 31,
was as follows:
<TABLE>
<CAPTION>
In millions 1996 1995 1994
- -----------------------------------------------------------------
<S> <C> <C> <C>
Actuarial present value of
benefit obligations -
Vested benefits $246.0 $249.8 $204.0
Nonvested benefits 13.9 14.1 11.0
------ ------ ------
Accumulated benefit obligation 259.9 263.9 215.0
Effect of assumed increase in
future compensation levels - 20.7 20.9
------ ------ ------
Projected benefit obligation for
services rendered to date 259.9 284.6 235.9
Assets of plan at fair value 262.3 248.9 218.8
------ ------ ------
Excess (shortfall) of assets over
projected benefit obligation 2.4 (35.7) (17.1)
Unrecognized prior service cost
and net loss from experience
different from that assumed 22.1 67.1 56.7
Unrecognized net transition asset,
recognized straight-line
through 1998 (3.1) (6.0) (8.8)
Adjustment required to recognize
minimum liability - (40.4) -
------ ------ ------
Pension asset (liability) included in
other assets (noncurrent
liabilities) $ 21.4 $(15.0) $ 30.8
====== ====== ======
</TABLE>
The projected unit credit method is utilized for measuring net periodic
pension cost over the employees' service life. Costs are funded based on the
recommendations of independent actuaries. The projected benefit obligations for
Company-sponsored plans were determined using a discount rate of 7.75% at
December 31, 1996, 7.25% at December 31, 1995, and 8.75% at December 31, 1994,
and an assumed increase in future compensation levels of 4.0% at December 31,
1995, and 5.0% at December 31, 1994. The expected long-term rate of return on
assets used to determine pension expense was 9.75% for all periods. The
adjustment required to recognize the minimum liability at December 31, 1995 was
charged to other equity, net of tax, and was reversed at December 31, 1996.
The assets of the plan consist primarily of listed common stocks and bonds
for which fair value is determined based on quoted market prices.
The projected benefit obligation for the Company's executive supplemental
retirement plan at December 31, 1996, was $39.7 million of which $37.3 million
(the accumulated benefit obligation) is recognized as a liability on the
consolidated balance sheet.
Profit-Sharing Investment Plan
Retirement benefits for employees not covered by collective bargaining
arrangements include a supplementary contributory profit sharing investment plan
("PSIP"). The leveraged ESOP portion of the PSIP has purchased an aggregate of
9.3 million shares of common stock since inception and 2.85 million shares of
convertible preferred stock from the Company. The convertible preferred stock
was converted into common stock in connection with the PCS Transaction. These
purchases have been financed by 10- to 20-year loans from or guaranteed by the
Company. The Company's related receivables from the ESOP have been
44
<PAGE>
classified as a reduction of stockholders' equity. The loans will be repaid by
the ESOP from common dividends on shares not yet allocated to participants,
interest earnings on cash balances not yet allocated to participants, common
dividends on certain allocated shares and future Company cash contributions. The
ESOP loan maturities and rates are identical to the terms of related Company
borrowings; see Note 9.
After-tax ESOP expense (income), including interest expense on ESOP debt,
was $2.3 million, $(0.2) million, and $4.0 million in fiscal 1997, 1996, and
1995, respectively. Additional tax benefits received on dividends paid on
unallocated shares of $3.1 million, $2.2 million, and $2.7 million in fiscal
1997, 1996, and 1995, respectively, have been credited directly to retained
earnings in accordance with SFAS 109.
Contribution expense for the PSIP in fiscal 1997, 1996, and 1995 was all
ESOP related and is reflected in the amounts above. In fiscal 1997 and 1996
approximately 501,000 and 457,000 shares, respectively, were allocated to plan
participants. In fiscal 1995, 693,000 shares and $8.9 million of cash were
allocated to plan participants.
In fiscal 1996, the ESOP Trust completed the purchase of 5.2 million
Company shares for $212 million with the remaining proceeds received on the
unallocated shares tendered in connection with the PCS Transaction; see Note 3.
In fiscal 1995, one-time compensation costs related to the PCS Transaction were
recorded that included $23.6 million associated with an allocation of $31.1
million of cash and 409,000 shares to ESOP plan participants resulting from a
paydown of ESOP debt by the ESOP Trust with a portion of the proceeds received
on the unallocated shares tendered under the Offer.
Through March 31, 1997, 5.3 million common shares have been allocated to
plan participants. At March 31, 1997, 6.8 million common shares in the ESOP
Trust had not been allocated to plan participants.
Health Care and Life Insurance
In addition to providing pension benefits, the Company provides health care and
life insurance benefits for certain retired employees. The Company's policy is
to fund these benefits as claims are paid. The benefits have been reduced
significantly for those employees retiring after December 31, 1990. In 1989, the
Company implemented the preferred stock ESOP to provide funds at retirement that
could be used for medical costs or health care coverage.
Expenses for postretirement health care and life insurance benefits
consisted of the following:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 1.1 $ 1.1 $ 1.2
Interest cost on projected
benefit obligation 9.4 11.4 10.5
Amortization of unrecognized
gain and prior service costs (5.5) (9.3) (7.6)
----- ----- -----
Total $ 5.0 $ 3.2 $ 4.1
===== ===== =====
</TABLE>
Payments for postretirement health care and life insurance benefits
amounted to $13.3 million, $10.9 million, and $11.5 million in fiscal 1997,
1996, and 1995, respectively.
The funded status and amounts recognized in the consolidated balance sheet
for postretirement health care and life insurance benefits at March 31, were as
follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ------------------------------------------------------------------
<S> <C> <C> <C>
Accumulated postretirement
benefit obligations:
Retirees $110.6 $122.2 $118.6
Active plan participants 12.3 17.9 16.7
------ ------ ------
Total 122.9 140.1 135.3
Unrecognized prior service cost
and accumulated net gain 24.2 14.8 27.3
------ ------ ------
Accrued postretirement
benefit obligation $147.1 $154.9 $162.6
====== ====== ======
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation is 6.0% for 1997, gradually declining to 5.0%
in 1999 and thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the trend rate by one
percentage point would increase the accumulated postretirement health care and
life insurance obligation as of March 31, 1997, by $7.3 million and the related
fiscal 1997 aggregate service and interest costs by $0.7 million. The discount
rate used in determining the accumulated postretirement benefit obligation was
7.75% at March 31, 1997, 7.25% at March 31, 1996, and 8.75% at March 31, 1995.
45
<PAGE>
NOTE 16: SEGMENTS OF BUSINESS
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues
Health Care Services/(1)/ $12,591.8 $9,656.7 $9,177.7
Water Products 275.1 259.3 246.0
Corporate 19.8 37.7 15.0
--------- -------- --------
Total $12,886.7 $9,953.7 $9,438.7
========= ======== ========
Operating Profit
Health Care Services/(2)/ $ 92.8/(3)/ $ 206.1 $ 76.1/(4)/
Water Products 34.6/(3)/ 39.6 14.5/(4)/
--------- -------- --------
Total 127.4 245.7 90.6
Interest - net/(5)/ (47.5) (13.3) (31.4)
Corporate (42.8) (35.5) (112.7)/(4)/
--------- -------- --------
Income (loss) before
taxes on income $ 37.1 $ 196.9 $ (53.5)
========= ======== ========
Segment Assets - at year end
Health Care Services $ 4,648.2 $2,525.3 $2,148.6
Water Products 144.6 142.0 142.3
--------- -------- --------
Total 4,792.8 2,667.3 2,290.9
Corporate
Cash, cash equivalents and
marketable securities 229.8 456.2 670.4
Net assets of discontinued
operations - 125.7 88.2
Other 150.2 111.0 210.7
--------- -------- --------
Total $ 5,172.8 $3,360.2 $3,260.2
========= ======== ========
Depreciation and Amortization
Health Care Services $ 46.6 $ 40.8 $ 37.2
Water Products 22.8 21.5 20.5
Corporate 2.4 1.9 1.4
--------- -------- --------
Total $ 71.8 $ 64.2 $ 59.1
========= ======== ========
Capital Expenditures
Health Care Services $ 41.9 $ 43.5 $ 44.4
Water Products 32.3 24.8 26.3
Corporate 2.7 5.3 5.7
--------- -------- --------
Total $ 76.9 $ 73.6 $ 76.4
========= ======== ========
</TABLE>
/(1)/ Reflects the reclassification of sales and cost of sales associated with
sales to customers' warehouses and includes only the gross margin on such
sales in revenues.
/(2)/ Includes $11.4 million, $12.2 million, and $8.9 million of pre-tax
earnings from an equity investment in fiscal 1997, 1996, and 1995,
respectively.
/(3)/ Health Care Services and Water Products amounts include charges for
restructuring, asset impairment, write-off of in-process purchased
technology and other operating items of $140.0 million and $7.0 million,
respectively.
/(4)/ Health Care Services and Water Products amounts in fiscal 1995 include
charges for restructuring, asset impairment, and other operating items of
$107.3 million and $17.3 million, respectively. Corporate includes $74.3
million of expense related to compensation costs associated with the PCS
Transaction, charges for restructuring, asset impairment, and other
operating items.
/(5)/ Interest expense is shown net of corporate interest income.
- --------------------------------------------------------------------------------
The Health Care Services segment includes the Company's U.S.
pharmaceutical, health care products and medical-surgical supplies distribution
businesses. U.S. Health Care operations also include marketing and other support
services to pharmaceutical manufacturers, a manufacturer of automated
pharmaceutical dispensing systems for hospitals and a distributor of first-aid
products and supplies to industrial and commercial customers. Health Care
Services also includes the Company's international distribution operations
(including Canada and an equity interest in a Mexican distribution business).
The Water Products segment is engaged in the processing, delivery, and sale
of bottled drinking water to homes and businesses and the sale of packaged water
to retail stores.
Information as to the Company's foreign operations was as follows:
<TABLE>
<CAPTION>
In millions 1997 1996 1995
- ------------------------------------------------------------
<S> <C> <C> <C>
Revenues/(1)/
U.S. $11,374.2 $8,429.5 $8,080.4
International 1,512.5 1,524.2 1,358.3
--------- -------- --------
Total $12,886.7 $9,953.7 $9,438.7
========= ======== ========
Operating Profit
U.S. 102.3 $ 207.5 $ 64.8
International 25.1 38.2 25.8
--------- -------- --------
Total 127.4/(2)/ $ 245.7 $ 90.6/(3)/
========= ======== ========
Assets, at year end
U.S. $ 4,935.4 $3,130.9 $3,024.2
International 237.4 229.3 236.0
--------- -------- --------
Total $ 5,172.8 $3,360.2 $3,260.2
========= ======== ========
</TABLE>
/(1)/ Reflects the reclassification of sales and cost of sales associated with
sales to customers' warehouses and includes only the gross margin on such
sales in revenues.
/(2)/ Includes $147.0 million in charges for restructuring, asset impairment,
and other operating items.
/(3)/ Includes $124.6 million in charges for restructuring, asset impairment,
and other operating items.
- ------------------------------------------------------------
NOTE 17: OTHER COMMITMENTS AND
CONTINGENT LIABILITIES
In addition to commitments and obligations in the ordinary course of business,
the Company is subject to various claims, other pending and potential legal
actions for product liability and other damages, investigations relating to
governmental laws and regulations, and other matters arising out of the normal
conduct of the Company's business.
The Company currently is a defendant in seven civil actions filed since
late 1993 by retail pharmacies. The first proceeding, Feitelberg v. Abbott
Laboratories, is pending in the Superior Court for the State of California
(County of San Francisco) and is now referred to as Coordinated Proceeding
Special Title, Pharmaceutical Cases I, II, and III. The second proceeding, HJB,
Inc. v. Abbott Laboratories (now known as MDL 997), is pending in the U.S.
District Court for the Northern District of Illinois. The third proceeding,
46
<PAGE>
K-S Pharmacies, Inc. v. Abbott Laboratories, is pending in the Circuit Court of
Wisconsin for Dane County. A fourth action, Adams v. Abbott Laboratories, was
filed in the U.S. District Court for the Eastern District of Arkansas. A fifth
action, Salk Drug Co. v. Abbott Laboratories, was filed in the District Court of
Minnesota, Fourth Judicial District. A sixth action was filed in California
Superior Court for San Francisco County, Horton v. Abbott Laboratories, et al.,
has been consolidated with Coordinated Proceeding Special Title, Pharmaceutical
Cases I, II and III. A seventh case, Durrett v. Upjohn Co., was served on
McKesson in 1996. These actions were brought as purported class actions on
behalf of all other similarly-situated retail pharmacies. A class has been
certified in Feitelberg and in MDL 997. There are numerous other defendants in
these actions including pharmaceutical manufacturers, a pharmaceutical mail
order firm, and several other wholesale distributors. These cases allege, in
essence, that the defendants have unlawfully conspired together and agreed to
fix the prices of brand name pharmaceuticals sold to plaintiffs at artificially
high, discriminatory, and non-competitive levels, all in violation of various
state and federal antitrust laws. Some of the plaintiffs specifically contend
that the wholesaler and manufacturer defendants are engaged in a conspiracy to
fix prices charged to plaintiffs and members of the purported classes
(independent and chain retail drug stores) above the price levels charged to
mail order pharmacies, HMOs and other institutional buyers. The California cases
allege, among other things, violation of California antitrust law. In MDL 997,
plaintiffs allege that defendants' actions constitute price fixing in violation
of the Sherman Act. In the K-S Pharmacies, Inc., Salk Drug and Durrett
complaints, plaintiffs allege violation of Wisconsin, Minnesota, and Alabama
antitrust laws, respectively. In each of the complaints, except Adams,
plaintiffs seek certification as a class and remedies in the form of injunctive
relief, unquantified monetary damages (trebled as provided by law), and
attorneys fees and costs. In addition, the California cases seek restitution. In
MDL 997, plaintiffs have appealed the court's ruling granting the motion for
summary judgment filed by the Company and other wholesaler defendants. In K-S
Pharmacies, the court dismissed the Company and other wholesaler defendants with
prejudice and plaintiffs have appealed. In Durrett, the court denied the
wholesalers' motion to dismiss. The Company believes it has meritorious defenses
to the allegations made against it and intends to vigorously defend itself in
all of these cases.
In addition, the Company has entered into a judgment sharing agreement with
certain pharmaceutical manufacturer defendants, which provides generally that
the Company (together with the other wholesale distributor defendants) will be
held harmless by such pharmaceutical manufacturer defendants and will be
indemnified against the costs of adverse judgments, if any, against the
wholesaler and manufacturers in these or similar actions, in excess of $1
million in the aggregate per wholesale distributor defendant.
In December 1996, a purported stockholder class action entitled Vogel vs.
Armstrong, et al., was filed in the Court of Chancery of the State of Delaware
against the Company, Armor All Products Corporation ("Armor All"), then current
members of Armor All's Board of Directors, and The Clorox Company ("Clorox").
The complaint alleges that (i) the Company and Armor All's directors breached
their fiduciary duties to Armor All's public shareholders by entering into an
agreement to sell Armor All for an insufficient price, (ii) the Company and the
Armor All directors, contrary to their fiduciary duties, consummated the sale in
order to favor the Company over the public shareholders of Armor All, and (iii)
Clorox, in purchasing the shares of Armor All, aided and abetted those breaches
of fiduciary duty. Plaintiff seeks rescission, compensatory damages, interest,
and attorneys fees and costs. The Company has filed a motion to dismiss the
complaint, believes it has meritorious defenses to the allegations made against
it, and intends to vigorously defend the litigation.
In January 1997, the Company and 12 pharmaceutical manufacturers (the
"Manufacturer Defendants") were named as defendants in the matter of FoxMeyer
Health Corporation vs. McKesson Corporation, et al., filed in the District Court
in Dallas County, Texas. In its complaint, Plaintiff (the parent corporation of
FoxMeyer Drug Company and FoxMeyer Corporation collectively, "FoxMeyer
Corporation") alleges that, among other things, the Company (i) defrauded
Plaintiff, (ii) competed unfairly and tortiously interfered with FoxMeyer
Corporation's business operations, and (iii) conspired with the Manufacturer
Defendants, all in order to destroy FoxMeyer Corporation's business, restrain
trade and monopolize the marketplace, and allow the Company to purchase that
business at a distressed price. Plaintiff seeks relief against all defendants in
the form of compensatory damages of at least $400 million, punitive damages,
attorneys fees and costs. The Company has answered the complaint, denying the
allegations, and removed the case to federal bankruptcy court in Dallas. A
motion to transfer the case to bankruptcy court in Delaware is pending.
47
<PAGE>
The Company believes it has meritorious defenses to the allegations made against
it and intends to vigorously defend the litigation.
In July 1995, a purported class action was filed in the Supreme Court of
the State of New York against General Medical Corp., Inc., and several other
defendants by Richard A. Bernstein, Chairman and President of Rabco Health
Services, Inc. and Chairman of General Medical at the time of its leveraged
buyout in 1993. Plaintiff alleges a conspiracy to orchestrate the buyout of
plaintiff's interest in Rabco at an unfairly low price. Plaintiff alleges common
law fraud, breach of fiduciary duty and inducing breach of fiduciary duty.
Plaintiff 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 an appeal by plaintiff is pending. The Company believes that
it has meritorious defenses to the allegations made against it and intends to
vigorously defend the action.
Primarily as a result of the operation of its former chemical businesses,
which were divested in fiscal 1987, the Company is involved in various matters
pursuant to environmental laws and regulations:
The Company has received claims and demands from governmental agencies
relating to investigative and remedial actions purportedly required to address
environmental conditions alleged to exist at five sites where the Company (or
entities acquired by the Company) formerly conducted operations; and the
Company, by administrative order or otherwise, has agreed to take certain
actions at those sites, including soil and groundwater remediation.
The current estimate (determined by the Company's environmental staff, in
consultation with outside environmental specialists and counsel) of the upper
limit of the Company's range of reasonably possible remediation costs for these
five sites is approximately $22 million, net of $5 million which third parties
have agreed to pay in settlement or which the Company expects, based either on
agreements or nonrefundable contributions which are ongoing, to be contributed
by third parties. The $22 million is expected to be paid out between April 1997
and March 2028 and is included in the Company's recorded environmental reserves
at March 31, 1997.
In addition, the Company has been designated as a potentially responsible
party (PRP) by the U.S. Environmental Protection Agency under the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended (the
"Superfund" law), for environmental assessment and cleanup costs as the result
of the Company's alleged disposal of hazardous substances at 22 Superfund sites.
With respect to each of these Superfund sites, numerous other PRPs have
similarly been designated and, while the current state of the law potentially
imposes joint and several liability upon PRPs, as a practical matter costs of
these sites are typically shared with other PRPs. The Company's estimated
liability at those 22 Superfund sites is approximately $2 million, net of $4
million which insurance companies, and $3 million which another PRP, are
expected or have agreed to contribute to the Company's allocated share. The
aggregate settlements and costs paid by the Company in Superfund matters to date
has not been significant. The $2 million is included in the Company's recorded
environmental reserves at March 31, 1997.
The potential costs to the Company related to environmental matters is
uncertain due to such factors as: the unknown magnitude of possible pollution
and cleanup costs; the complexity and evolving nature of governmental laws and
regulations and their interpretations; the timing, varying costs and
effectiveness of alternative cleanup technologies; the determination of the
Company's liability in proportion to other PRPs; and the extent, if any, to
which such costs are recoverable from insurance or other parties.
Management believes, based on current knowledge and the advice of the
Company's counsel, that the outcome of the litigation and governmental
proceedings discussed in this note will not have a material adverse effect on
the Company.
48
<PAGE>
NOTE 18: QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth Fiscal
In millions except per share amounts Quarter Quarter Quarter Quarter Year
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Revenues/(1)/ $2,670.6 $2,730.9 $3,486.6 $3,998.6 $12,886.7
Gross profit 231.9 231.0 243.8 330.6 1,037.3
Income (loss) after taxes
Continuing operations (21.4)/(2)/ 25.8 (36.1)/(3)/ 36.8 5.1
Discontinued operations 3.3 2.3 2.1 0.9 8.6
Discontinued operations -
Gain on sale of Armor All - - 120.2 - 120.2
-------- -------- -------- -------- ---------
Total $ (18.1) $ 28.1 $ 86.2 $ 37.7 $ 133.9
======== ======== ======== ======== =========
Earnings (loss) per common share
Fully diluted
Continuing operations $ (0.49) $ 0.59 $ (0.82) $ 0.81 $ 0.13
Discontinued operations 0.08 0.05 0.05 0.02 0.19
Discontinued operations -
Gain on sale of Armor All - - 2.70 - 2.66
-------- -------- -------- -------- ---------
Total $ (0.41) $ 0.64 $ 1.93 $ 0.83 $ 2.98
======== ======== ======== ======== =========
Primary
Continuing operations $ (0.49) $ 0.59 $ (0.83) $ 0.81 $ 0.12
Discontinued operations 0.08 0.05 0.06 0.02 0.19
Discontinued operations -
Gain on sale of Armor All - - 2.71 - 2.70
-------- -------- -------- -------- ---------
Total $ (0.41) $ 0.64 $ 1.94 $ 0.83 $ 3.01
======== ======== ======== ======== =========
Cash dividends per share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 1.00
======== ======== ======== ======== =========
Market prices per common share
High $ 51 1/4 $ 48 1/8 $ 56 3/4 $ 68 1/4 $ 68 1/4
Low 44 1/8 41 1/8 45 3/4 52 1/8 41 1/8
FISCAL 1996
Revenues/(1)/ $2,388.3 $2,402.6 $2,581.1 $2,581.7 $ 9,953.7
Gross profit 221.2 229.3 226.2 238.8 915.5
Income after taxes
Continuing operations 28.0 28.2 28.7 35.8 120.7
Discontinued operations 4.8 3.5 4.2 2.2 14.7
-------- -------- -------- -------- ---------
Total $ 32.8 $ 31.7 $ 32.9 $ 38.0 $ 135.4
======== ======== ======== ======== =========
Earnings per common share
Fully diluted
Continuing operations $ 0.60 $ 0.61 $ 0.61 $ 0.77 $ 2.59
Discontinued operations 0.10 0.07 0.09 0.05 0.31
-------- -------- -------- -------- ---------
Total $ 0.70 $ 0.68 $ 0.70 $ 0.82 $ 2.90
======== ======== ======== ======== =========
Primary
Continuing operations $ 0.60 $ 0.61 $ 0.61 $ 0.77 $ 2.59
Discontinued operations 0.10 0.07 0.09 0.05 0.31
-------- -------- -------- -------- ---------
Total $ 0.70 $ 0.68 $ 0.70 $ 0.82 $ 2.90
======== ======== ======== ======== =========
Cash dividends per share $ 0.25 $ 0.25 $ 0.25 $ 0.25 $ 1.00
======== ======== ======== ======== =========
Market prices per common share
High $ 47 3/8 $ 46 5/8 $ 53 1/4 $ 55 5/8 $ 55 5/8
Low 37 1/4 42 5/8 44 7/8 46 1/2 37 1/4
</TABLE>
/(1)/ Reflects the reclassification of sales and cost of sales associated with
sales to customers' warehouses and includes only the gross margin on such
sales in revenues.
/(2)/ Includes a charge for $48.2 million to write off purchased in-process
technology.
/(3)/ Includes $61.3 million in after-tax charges for restructuring, asset
impairment, and other operating items.
49
<PAGE>
----------------------------------------
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
----------------------------------------
Management is responsible for the preparation and accuracy of the consolidated
financial statements and other information included in this report. The
financial statements have been prepared in conformity with generally accepted
accounting principles using, where appropriate, management's best estimates and
judgments.
In meeting its responsibility for the reliability of the financial
statements, management has developed and relies on the Company's system of
internal accounting control. The system is designed to provide reasonable
assurance that assets are safeguarded and that transactions are executed as
authorized and are properly recorded. The system is augmented by written
policies and procedures and an internal audit department.
The Board of Directors reviews the financial statements and reporting
practices of the Company through its Audit Committee, which is composed entirely
of directors who are not officers or employees of the Company. The committee
meets regularly with the independent auditors, internal auditors, and management
to discuss audit scope and results and to consider internal control and
financial reporting matters. Both the independent and internal auditors have
direct unrestricted access to the Audit Committee. The entire Board of Directors
reviews the Company's financial performance and financial plan.
/s/ Mark A. Pulido
Mark A. Pulido
President and Chief Executive Officer
/s/ Richard H. Hawkins
Richard H. Hawkins
Vice President and Chief Financial Officer
----------------------------
INDEPENDENT AUDITORS' REPORT
----------------------------
THE STOCKHOLDERS AND BOARD OF DIRECTORS OF MCKESSON CORPORATION:
We have audited the accompanying consolidated balance sheets of McKesson
Corporation and subsidiaries as of March 31, 1997, 1996, and 1995, and the
related statements of consolidated income, consolidated stockholders' equity,
and consolidated cash flows for the years then ended. These financial statements
are the responsibility of the Corporation's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of McKesson Corporation and
subsidiaries at March 31, 1997, 1996, and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Deloitte & Touche LLP
San Francisco, California
May 16, 1997
50
<PAGE>
----------------------
DIRECTORS AND OFFICERS
----------------------
<TABLE>
<CAPTION>
BOARD OF DIRECTORS PRINCIPAL EXECUTIVES
<S> <C> <C> <C>
Alan Seelenfreund, 60 Mark A. Pulido, 44 Alan Seelenfreund, 60 Mark A. Pulido, 44
Chairman of the Board, President and Chairman of the Board/1/ President and
McKesson Corporation Chief Executive Officer, Chief Executive Officer/1/
McKesson Corporation
Mary G. F. Bitterman, 53 CORPORATE OFFICERS
President and Carl E. Reichardt, 65
Chief Executive Officer, Chairman of the Board, William A. Armstrong, 56 Nancy A. Miller, 53
KQED, Inc. Retired, Vice President Vice President and
Wells Fargo & Company Human Resources and Corporate Secretary
Tully M. Friedman, 55 Administration
Chairman and Jane E. Shaw, 58 Steven B. Nielsen, 49
Chief Executive Officer, Founder, The Stable Michael T. Dalby, 51 Vice President and
Tully M. Friedman & Network; Vice President Chairman and
Company, LLC Former President and Strategic Planning Chief Executive Officer,
Chief Operating Officer, McKesson General
John M. Pietruski, 64 ALZA Corporation John H. Hammergren, 38 Medical Corp.
Chairman of the Board, Vice President and
Texas Biotechnology Robert H. Waterman, Jr., 60 President, McKesson Charles A. Norris, 51
Corporation; Chairman, The Waterman Health Systems Vice President and
Chairman and Chief Group, Inc. President, McKesson Water
Executive Officer, Retired, Richard H. Hawkins, 47 Products Company
Sterling Drug, Inc. /1/ Elected May 30, 1997. Vice President and
Chief Financial Officer Alan M. Pearce, 48
David S. Pottruck, 48 Treasurer/2/
President and David L. Mahoney, 42
Chief Operating Officer, Vice President and Carmine J. Villani, 54
The Charles Schwab President, Pharmaceutical Vice President and
Corporation/1/ and Retail Services Chief Information Officer
Mark T. Majeske, 39 Heidi E. Yodowitz, 43
Vice President and Controller
President, Customer
Operations /1/ From April 1, 1997, Alan
Seelenfreund will serve
Ivan D. Meyerson, 52 as Chairman of the Board
Vice President and of Directors of McKesson,
General Counsel while Mark A. Pulido
becomes Chief Executive
Officer as well as
President.
/2/ Elected May 30, 1997.
</TABLE>
COMMITTEES OF THE BOARD AND WHAT THEY DO
To assist the Board of Directors in carrying out its responsibilities, the board
has established five standing committees. The responsibilities and membership
of the committees are as follows:
The Audit Committee recommends the selection of independent auditors and
monitors their activities. The committee reviews the annual audited financial
statements and the Form 10-K annual report; consults with internal and external
auditors and management on internal financial control procedures; and reviews on
an ongoing basis implementation and compliance with the Corporate Code of
Conduct. The committee consists of Jane Shaw, chair; Mary Bitterman; Carl
Reichardt; and Robert Waterman.
The Compensation Committee oversees the pension, incentive and stock option
plans for senior and mid-level managers, establishes investment policies and
selects managers of the retirement funds. The committee also recommends
compensation of the chief executive officer and approves compensation and terms
of employment of other principal officers. The committee consists of John
Pietruski, chair; Tully Friedman; Carl Reichardt; and Jane Shaw.
The Executive Committee is authorized to exercise most of the powers of the
board when it is not in session. The committee is chaired by Alan Seelenfreund
and also includes Tully Friedman, John Pietruski, Jane Shaw, and Robert
Waterman.
The Finance Committee reviews long-range financial policies and annual
financial plans with management and provides advice and counsel to management on
all significant financial matters. Members of the committee are Tully Friedman,
chair; Mary Bitterman; Carl Reichardt; and Alan Seelenfreund.
The Committee on Directors and Corporate Governance considers and
recommends nominees for election to the board; reviews and makes recommendations
concerning the size and composition of the board, criteria for election to the
board, the structure and membership of board committees and director
compensation and benefits; and oversees matters of corporate governance. Members
of the committee are Robert Waterman, chair; Tully Friedman; John Pietruski; and
Jane Shaw.
51
<PAGE>
-----------------------
SHAREHOLDER INFORMATION
-----------------------
COMMON STOCK
McKesson common stock is listed on the New York Stock Exchange and the Pacific
Exchange (ticker symbol MCK) and is quoted in the daily stock tables carried by
most newspapers.
VISIT MCKESSON'S HOME PAGE
Internet browsers may visit McKesson Corporation's home page on the World Wide
Web at http://www.mckesson.com
INFORMATION AVAILABLE FROM FIRST CHICAGO
First Chicago Trust Co. of New York, P.O. Box 2500, Jersey City, N.J. 07303-
2500, acts as transfer agent, registrar, dividend-paying agent and dividend
reinvestment plan agent for McKesson stock and maintains all stockholder records
for the corporation. For information about McKesson stock or to request
replacement of lost dividend checks, stock certificates or 1099s, stockholders
may call First Chicago's Telephone Response Center at (201) 324-1644, weekdays
8:30 a.m. to 7:00 p.m., EST. First Chicago also has an Internet address --
[email protected] -- that stockholders may use 24 hours a day to request account
information. First Chicago will acknowledge and respond to electronic
communications through the Internet. For more information, call First Chicago's
Telephone Response Center.
DIVIDENDS
Dividends are generally paid on the first business day of January, April, July,
and October to stockholders of record on the first business day of the preceding
month. You may have your dividend check deposited directly into your checking or
savings account. For more information, or to request an enrollment form, call
First Chicago at (800) 870-2340, Monday through Friday, 8:00 a.m. - 10:00 p.m.,
EST, or Saturday, 8:00 a.m. - 3:30 p.m., EST.
DIVIDEND REINVESTMENT PLAN
McKesson's Dividend Reinvestment Plan offers stockholders the opportunity to
reinvest dividends in common stock and to purchase additional common stock
without paying brokerage commissions or other service fees, and to have their
stock certificates held in safekeeping. For more information or to request an
enrollment form, call First Chicago's Telephone Response Center at
(201) 324-1644.
ANNUAL REPORT ON FORM 10-K
Stockholders may obtain, without charge, a copy of McKesson's annual report on
Form 10-K to the Securities and Exchange Commission, excluding certain exhibits,
by writing to: Investor Relations, Box K, McKesson Corporation, One Post Street,
San Francisco, CA 94104; (800) 826-9360.
ANNUAL MEETING TO BE HELD JULY 30
McKesson's annual meeting of stockholders will be held at 10:00 a.m., PDT, on
Wednesday, July 30, 1997, in the Colonial Room at The Westin St. Francis Hotel,
335 Powell St., San Francisco.
MCKESSON NEWS RELEASES
The company makes news releases available at no charge through the McKesson
NewsOnDemand fax service. To immediately receive an index of available releases,
call 1-800-344-6495 and press 2.
ANALYST COVERAGE OF MCKESSON
. A.G. Edwards & Sons, Inc.
. Alex. Brown & Sons, Inc.
. Bear, Stearns & Co., Inc.
. Cleary Gull Reiland & McDevitt, Inc.
. Donaldson, Lufkin & Jenrette Securities Corporation
. Goldman Sachs & Co.
. Monness, Crespi, Hardt & Co., Inc.
. Morgan Stanley & Co., Inc.
. Salomon Brothers, Inc.
. Value Line Securities, Inc.
. Wheat First Butcher Singer, Inc.
52
<PAGE>
--------------------
INVESTOR PERSPECTIVE
--------------------
An Investor's View of McKesson
As the largest health care supply management company in North America, McKesson
is simultaneously increasing its business scope and its value as an investment.
Capturing the benefits of scale and technological sophistication through
acquisition and internal development, McKesson has deployed its strong balance
sheet to gain share and move into the lead in an industry with robust growth
prospects. In turn, these fundamental economic strengths support investor
confidence in McKesson's ability to meet Wall Street expectations.
During fiscal 1997, the stock market enthusiastically endorsed McKesson's
intensified health care focus, including its acquisitions and divestitures, as
well as the increased frequency of our investor communications program. The
direct result has been a tripling of reports published by Wall Street brokerage
firms that cover the company's progress. Increased coverage leads to increased
demand. Both reflect a very positive environment for current and future McKesson
shareholders.
- --------------------------------------------------------------------------------
"WE BELIEVE THAT MANAGEMENT IS TRANSFORMING THE COMPANY INTO A MORE COMPETITIVE
HEALTHCARE COMPANY AND THAT GROWTH WILL ACCELERATE IN THE 1998-2000 TIME FRAME."
David Risinger, Morgan Stanley & Co., Inc.
- --------------------------------------------------------------------------------
McKesson financial targets have been clarified for investors. In support of
our mission, we intend to achieve 20 percent growth in earnings per share,
return on equity in excess of 15 percent, and a debt-to-total-capital ratio of
between 40 and 50 percent.
As McKesson's profile changes, its shareholder base is growing and changing
in response. New owners are matching McKesson's aggressive financial targets
with their own portfolio goals. That process, begun in fiscal 1997, has
significantly increased the number of money market managers monitoring
McKesson's performance and prospects. The share-price and multiple expansion
experienced by McKesson common stock during fiscal 1997 are creating an
institutional investor base oriented to growth.
"WE REMAIN EXTREMELY BULLISH ON THE OUTLOOK FOR McKESSON SHARES AND FEEL THAT
THE COMPANY IS MAKING ALL THE PROPER STRATEGIC MOVES IT NEEDS TO CONTINUE TO BE
A LEADER IN ALL ASPECTS OF HEALTH CARE SUPPLY MANAGEMENT."
John Ford, Bear, Stearns & Co. Inc.
- --------------------------------------------------------------------------------
----------------------------
SHAREHOLDER INVESTMENT STYLE
----------------------------
McKesson Investor Base*
In percent
[PIE GRAPH APPEARS HERE]
Growth - 26% Classic Value - 32%
Aggressive Growth - 4% Balanced - 2%
Income - 2% Growth at Any
Value/Income -11% Reasonable Price - 23%
*AT FISCAL YEAR END - 1997
- --------------------------------------------------------------------------------
"KEY INDUSTRY PLAYERS ARE BROADENING THEIR FOCUS IN AN ATTEMPT TO EXPAND CHANNEL
INFLUENCE. McKESSON CORP. SEEKS TO GAIN A CLEAR MARKET-SHARE LEADERSHIP ROLE
WITH ITS ACQUISITIONS, AS THEY WILL PROVIDE THE COMPANY WITH A BIGGER RETAIL
BUYING BASE."
Larry Marsh, Salomon Brothers, Inc.
53
<PAGE>
- --------------------------------------------------------------------------------
[LOGO OF McKESSON APPEARS HERE]
McKESSON CORPORATION One Post Street San Francisco, CA 94104
Telephone: 415-983-8300
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
There is no parent of the Company. The following is a listing of the
significant subsidiaries of the Company, or if indented, subsidiaries of the
Company under which they are listed:
<TABLE>
<CAPTION>
Jurisdiction of
Organization
---------------
<S> <C>
McKesson Water Products Company...................... California
Medis Health and Pharmaceutical Services Inc......... Canada
General Medical Inc.................................. Delaware
GM Holdings, Inc................................... Delaware
McKesson General Medical Corp.................... Virginia
</TABLE>
25
<PAGE>
EXHIBIT 23
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in McKesson Corporation
Registration Statement Nos. 33-86536, 333-611, 333-2871 and 333-21931 on Form
S-8 and Registration Statement Nos. 333-26103 and 333-26443 on Form S-3 of our
reports dated May 16, 1997 incorporated by reference in, and appearing in, this
Annual Report on Form 10-K of McKesson Corporation for the year ended March 31,
1997.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
San Francisco, California
June 16, 1997
26
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000927653
<NAME> MCKESSON
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 124,800
<SECURITIES> 105,000
<RECEIVABLES> 1,268,400
<ALLOWANCES> 43,900
<INVENTORY> 2,259,500
<CURRENT-ASSETS> 3,761,100
<PP&E> 779,300
<DEPRECIATION> 405,700
<TOTAL-ASSETS> 5,172,800
<CURRENT-LIABILITIES> 2,637,200
<BONDS> 824,900
0
0
<COMMON> 400
<OTHER-SE> 1,260,400
<TOTAL-LIABILITY-AND-EQUITY> 5,172,800
<SALES> 12,886,700
<TOTAL-REVENUES> 12,886,700
<CGS> 11,849,400
<TOTAL-COSTS> 11,849,400
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 55,700
<INCOME-PRETAX> 37,100
<INCOME-TAX> 31,300
<INCOME-CONTINUING> 5,100
<DISCONTINUED> 128,800
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,900
<EPS-PRIMARY> 3.01
<EPS-DILUTED> 2.98
</TABLE>
