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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): July 2, 1998
HORIZON PHARMACIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 0-22403 75-2441557
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
275 W. PRINCETON DRIVE
PRINCETON, TEXAS 75407
(Address of Principal Executive Offices) (Zip Code)
(972) 736-2424
(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS.
On July 2, 1998, HORIZON Pharmacies, Inc. (the "Registrant"), entered
into a Credit Agreement with McKesson Corporation ("McKesson") pursuant to
which McKesson will provide the Registrant with a revolving loan facility in
an amount not to exceed $15,000,000 and a term loan in the original principal
amount of $3,000,000 for general corporate purposes and acquisitions
(collectively, the "Credit Facilities"). Availability of the revolving loan
facility is subject to borrowing base requirements and compliance with loan
covenants. In connection with the Credit Facilities the Registrant's
wholly-owned subsidiary, HORIZON Home Care, Inc. ("HHC"), executed a Guaranty
Agreement, and the Registrant and HHC both executed a Security Agreement in
favor of McKesson.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION.
Not applicable.
(c) EXHIBITS.
The following exhibits are filed with this report:
Exhibit No. Name of Exhibit
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10.1 Credit Agreement dated July 2, 1998 by and between
HORIZON Pharmacies, Inc. and McKesson Corporation,
filed electronically herewith. Omitted from this
Agreement, as filed, are the exhibits thereto. The
Registrant will furnish supplementally a copy of any
such omitted exhibits to the Commission upon request.
10.2 First Amendment to Credit Agreement dated as of July
20, 1998 between HORIZON Pharmacies, Inc. and McKesson
Corporation, filed electronically herewith.
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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.
REGISTRANT:
HORIZON PHARMACIES, INC.
Date: August 3, 1998 By: /s/ Ricky D. McCord
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Ricky D. McCord, President
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CONFIDENTIAL
TREATMENT
CREDIT AGREEMENT
This Credit Agreement (this "AGREEMENT") made as of July 2, 1998,
between HORIZON Pharmacies, Inc., a Delaware corporation ("BORROWER"), and
McKesson Corporation, a Delaware corporation ("MCKESSON").
W I T N E S S E T H:
WHEREAS, McKesson is a distributor of various pharmaceutical and
other products and Borrower is a retailer of such products;
WHEREAS, Borrower has requested that McKesson make available to
Borrower certain credit facilities;
WHEREAS, McKesson is willing to provide the requested credit
facilities on the terms and conditions contained herein; and
NOW, THEREFORE, the parties mutually agree as follows (capitalized
terms shall have the meanings ascribed to them in Article VIII):
ARTICLE I
THE LOANS
SECTION 1.1 THE LOANS.
(a) REVOLVING LOANS. McKesson agrees, on the terms and conditions
hereinafter set forth, to make revolving loans denominated in U.S. Dollars
(each a "REVOLVING LOAN" and, collectively, the "REVOLVING LOANS") to
Borrower from time to time on any Business Day during the period from the
Closing Date until the Revolving Loans Maturity Date, in an aggregate
principal amount up to but not exceeding at any time outstanding the
Revolving Facility Commitment; PROVIDED, HOWEVER, that immediately after
giving effect to any Revolving Loans, the aggregate principal amount of
Revolving Loans then outstanding shall not exceed the lesser of (i)
$15,000,000 and (ii) at any time, the sum of (without duplication) (A)
[redacted--Confidential Treatment] of Eligible Pharmaceutical Inventory then
in effect, PLUS (B) [redacted--Confidential Treatment] of Eligible Other
Inventory then in effect, PLUS (C) [redacted--Confidential Treatment] of
Eligible Insurer Accounts Receivable then in effect, PLUS (D)
[redacted--Confidential Treatment] Eligible Other Accounts Receivable then in
effect, PLUS (E) the Eligible Rx Files Value then in effect. Within the
foregoing limits, during such period Borrower may borrow Revolving Loans,
repay the Revolving Loans in whole or in part, and reborrow Revolving Loans,
all in accordance with the terms and conditions hereof.
1.
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(b) TERM LOAN. McKesson agrees, on the terms and conditions
thereinafter set forth, to make a term loan denominated in U.S. Dollars (the
"TERM LOAN") to Borrower at any time before the Term Loan Maturity Date in the
maximum principal amount not exceeding the Term Loan Commitment. Any amount of
the Term Loan repaid may not be reborrowed.
SECTION 1.2 BORROWING PROCEDURE. The Loans shall be made upon
written notice from Borrower to McKesson, which notice shall be received by
McKesson not later than 10:00 A.M. (California time) at least two Business
Days prior to the proposed borrowing date. Such notice of borrowing shall be
irrevocable and binding on Borrower and shall specify the proposed date of
the borrowing (which shall be a Business Day), the amount of the borrowing,
which shall be in a minimum amount of $[redacted--Confidential Treatment] and
payment instructions with respect to the funds to be made available to
Borrower. Upon fulfillment of the applicable conditions set forth in Article
IV, McKesson shall make the Loans available to Borrower in same day funds, or
such other funds as shall separately be agreed upon by Borrower and McKesson,
in accordance with the payment instructions provided to McKesson.
SECTION 1.3 EVIDENCE OF INDEBTEDNESS. As additional evidence of
the indebtedness of Borrower to McKesson resulting from the Loans made by
McKesson, Borrower shall execute and deliver to McKesson promissory notes, in
form and substance satisfactory to McKesson, dated the Closing Date, in the
principal amount of each Loan made or the Revolving Facility Commitment or
the Term Loan Commitment, as the case may be, made available by McKesson on
the Closing Date (each such promissory note, a "NOTE" and together, the
"NOTES"). McKesson shall record in its internal records the date and amount
of each Loan made, the amount of principal and interest due and payable from
time to time hereunder, each payment thereof and the resulting unpaid
principal balance of such Loan. Any such recordation shall be rebuttable
presumptive evidence of the accuracy of the information so recorded. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligations of Borrower hereunder and under any Note to
pay any amount owing with respect to any Loan.
SECTION 1.4 INTEREST. Subject to Section 1.5, Borrower shall pay
interest on the unpaid principal amount of each Loan from the date of the
Loan until the maturity thereof, at a rate per annum equal at all times to
the Base Rate PLUS [redacted--Confidential Treatment]. Accrued and unpaid
interest on each Loan shall be payable (i) monthly in arrears on the last
Business Day of each month, commencing July 31, 1998, PROVIDED that McKesson
shall calculate the monthly interest (on the assumption that the Base Rate
will not change prior to the payment date) and shall notify Borrower of the
amount due, and Borrower may postpone payment until the first Business Day
after receipt of such notice, and PROVIDED FURTHER that any adjustment due to
a change in the Base Rate after a monthly calculation is made may be made in
the next monthly payment, (ii) on the date of any prepayment of such Loan,
and (iii) at maturity.
SECTION 1.5 DEFAULT RATE OF INTEREST. In the event that any
amount of principal of or interest on any Loan, or any other amount payable
hereunder or under the Loan Documents, is not paid in full when due (whether
at stated maturity, by acceleration or otherwise), Borrower shall pay
interest on such unpaid principal, interest or other amount, from the date
such amount becomes due until the date such amount is paid in full, payable
on demand, at a rate per annum equal at all times to the higher of
[redacted--Confidential Treatment] per annum or the Base Rate PLUS
[redacted--Confidential Treatment] per annum. Additionally, and without
limiting the foregoing, during the existence of any Event of Default not
waived by McKesson, Borrower shall pay interest on the unpaid principal
amount of the Loans at a rate per annum equal at all times to the Base Rate
PLUS [redacted--Confidential Treatment] per annum.
2.
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SECTION 1.6 COMPUTATIONS. All computations of fees and interest
hereunder shall be made on the basis of a year of 360 days for the actual
number of days occurring in the period for which any such interest or fee is
payable.
SECTION 1.7 HIGHEST LAWFUL RATE. Anything herein to the contrary
notwithstanding, if during any period for which interest is computed
hereunder, the applicable interest rate, together with all fees, charges and
other payments which are treated as interest under applicable law, as
provided for herein or in any other Loan Document, would exceed the maximum
rate of interest which may be charged, contracted for, reserved, received or
collected by McKesson in connection with this Agreement under applicable law
(the "MAXIMUM RATE"), Borrower shall not be obligated to pay, and McKesson
shall not be entitled to charge, collect, receive, reserve or take, interest
in excess of the Maximum Rate, and during any such period the interest
payable hereunder shall be limited to the Maximum Rate.
ARTICLE II
REDUCTION OF COMMITMENTS;
REPAYMENT; PREPAYMENT
SECTION 2.1 EXTENSION OF TERM LOAN MATURITY DATE. Borrower may,
by written notice to McKesson at least 90 days prior to the Term Loan
Maturity Date then in effect (but no more than once in any twelve consecutive
months), request McKesson to extend the Term Loan Maturity Date for an
additional period but not beyond the final term of the Supply Agreement. So
long as there exists no Default at such time, McKesson shall extend the Term
Loan Maturity Date as set forth in such request. If such request is granted,
the Term Loan Maturity Date then in effect shall be so extended, subject to
such changed terms and payment of such fee (if any) as shall have been agreed
upon by Borrower and McKesson.
SECTION 2.2 REPAYMENT OF THE LOANS.
(a) REVOLVING LOANS. Borrower shall repay to McKesson in full on
the Revolving Loans Maturity Date the aggregate principal amount of the
Revolving Loans outstanding on such date.
(b) TERM LOAN. Borrower shall repay to McKesson the principal
amount of the Term Loan on the Term Loan Maturity Date; PROVIDED, HOWEVER
that if the Term Loan Maturity Date is extended pursuant to Section 2.1,
Borrower shall repay to McKesson the principal amount of the Term Loan in
substantially equal consecutive installments, each equal to 1/36th of the
principal amount of the Term Loan outstanding immediately prior to the
originally scheduled Term Loan Maturity Date, commencing on June 30, 2003,
with subsequent installments payable monthly on the last Business Day of each
calendar month until the earlier of payment in full of the Term Loan or the
Term Loan Maturity Date; PROVIDED FURTHER, HOWEVER, that the last such
installment shall be in the amount necessary to repay in full the unpaid
principal amount of the Term Loan.
(c) METHOD OF PAYMENT. All payments of principal and interest
shall be made in immediately available funds, unconditionally in full without
set-off, counterclaim or other
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defense, on the day when due by wire transfer to an account designated by
McKesson, or by such other means as may be acceptable to McKesson.
SECTION 2.3 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Borrower may, upon prior notice to
McKesson, prepay the outstanding amount of any or all of the Loans in whole
or in part, without premium or penalty. Any partial prepayments shall be in
a minimum amount of $[redacted--Confidential Treatment].
(b) MANDATORY PREPAYMENTS.
(i) At any time that the aggregate cash and cash equivalents held
by Borrower and its Subsidiaries exceeds $5,000,000, Borrower shall, within
one Business Day of Borrower's or such Subsidiary's becoming aware of such
excess, prepay the outstanding principal amount of the Revolving Loans in an
amount equal to 100% of such excess amount. Any such prepayment shall not
reduce the Revolving Facility Commitment unless requested by Borrower.
(ii) If at any time the aggregate principal amount of the
outstanding Revolving Loans shall exceed the maximum borrowing limits set
forth in Section 1.1(a), Borrower, upon becoming aware of such excess, shall
immediately prepay the outstanding principal amount of the Revolving Loans in
an amount equal to such excess.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to
McKesson, which representations and warranties shall survive the execution of
this Agreement:
SECTION 3.1 LEGAL STATUS; POWER AND AUTHORITY. Each of Borrower
and its Subsidiaries is a corporation duly organized and existing under the
laws of its state of incorporation and is qualified to do business in all
jurisdictions in which it conducts its business and has all requisite power
and authority to own its assets and carry on its business and to create,
deliver and perform its obligations under the Loan Documents. A list of all
Borrower's Subsidiaries is attached hereto as Schedule 3.1.
4.
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SECTION 3.2 NO VIOLATION. The making and performance by Borrower
and its Subsidiaries of the Loan Documents to be executed by Borrower and its
Subsidiaries in connection herewith do not contravene the terms of the
articles of incorporation or the bylaws of Borrower or its Subsidiaries and
do not violate any provision of law or administrative regulation, or result
in a breach of or constitute a material default under any agreement,
indenture or other instrument to which any of Borrower or its Subsidiaries is
a party or by which any of Borrower or its Subsidiaries may be bound.
SECTION 3.3 AUTHORIZATION. Each of the Loan Documents to which it
is a party has been duly authorized, executed and delivered, and is a valid
and binding agreement of Borrower and its Subsidiaries, as the case may be,
and the Notes to be issued hereunder by Borrower, upon their execution and
delivery in accordance with the provisions of this Agreement, will be valid
and binding obligations of Borrower enforceable against Borrower, in each
case in accordance with their respective terms.
SECTION 3.4 LITIGATION. There are no pending or threatened
actions or proceedings before any court or administrative agency which may
materially and adversely affect the financial condition or operation of
Borrower or any of its Subsidiaries other than as set forth on Schedule 3.4
hereto.
SECTION 3.5 CORRECTNESS OF FINANCIAL STATEMENTS. The financial
statements for Borrower's fiscal years ending December 31, 1996 and December
31, 1997 heretofore delivered by Borrower to McKesson present fairly the
financial condition of Borrower and have been prepared in accordance with
generally accepted accounting principles consistently applied. As of
December 31, 1997, and since such date, there has been no material adverse
change in the financial condition or operation of Borrower or any of its
Subsidiaries, nor has Borrower or any of its Subsidiaries mortgaged, pledged
or granted a security interest in or encumbered any assets or properties of
Borrower or its Subsidiaries since such date except as set forth on Schedule
3.5 hereto.
SECTION 3.6 INCOME TAX RETURNS. Borrower has delivered to
McKesson true, correct and complete copies of its federal and state tax
returns for its fiscal years ending December 31, 1996 and December 31, 1997.
None of the federal tax returns of Borrower have been audited, and Borrower
has no knowledge of any pending assessments or adjustments of its income tax
payable with respect to any year.
SECTION 3.7 NO SUBORDINATION. Neither the obligations of Borrower
under the Loan Documents nor any other obligation of Borrower to McKesson or
McKesson's other subsidiaries are subordinated in right of payment to any
other obligation of Borrower.
SECTION 3.8 TITLE TO PROPERTY. Each of Borrower and its
Subsidiaries has good and marketable title to its assets subject to no
mortgage, deed of trust, pledge, lien, security interest, charge or other
encumbrance except as disclosed in the financial statements referred to in
Section 3.5 or as set forth on Schedule 3.8 hereto.
SECTION 3.9 NO "MARGIN SECURITIES." Neither Borrower nor any of
its Subsidiaries owns any "margin securities" as such term is defined in
regulations promulgated by the Board of Governors of the Federal Reserve
System, as amended, and neither Borrower nor any of its Subsidiaries will use
any part of the proceeds of any credit extended by McKesson, directly or
indirectly, to purchase or carry any such securities or to reduce or retire
any indebtedness originally incurred to purchase any such securities within
the meaning of such regulations.
SECTION 3.10 NO RELIANCE UPON OTHER REPRESENTATIONS. Borrower has
not relied upon any statement or representation by McKesson or any of its
Affiliates or any of their respective officers, directors, agents, employees
or attorneys in executing this Agreement and the other Loan Documents, except
as expressly provided for herein or therein.
5.
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SECTION 3.11 CONSENTS. No authorization, consent, approval,
license, exemption of, or filing or registration with, any governmental
authority, or approval or consent of any other Person, is required for the
due execution, delivery or performance by Borrower of any of the Loan
Documents, except for recordings or filings in connection with the perfection
of the liens on the Collateral in favor of McKesson.
SECTION 3.12 COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of Borrower
and its Subsidiaries is in material compliance with all Environmental Laws,
whether in connection with the ownership, use, maintenance or operation of
its Premises or the conduct of any business thereon, or otherwise. Neither
Borrower, any of its Subsidiaries nor, to Borrower's knowledge, any previous
owner, tenant, occupant, user or operator of the Premises, nor any present
tenant or other present occupant, user or operator of the Premises has used,
generated, manufactured, installed, treated, released, stored or disposed of
any Hazardous Substances on, under, or at the Premises, except in material
compliance with all applicable Environmental Laws. With respect to leased
Premises, Borrower has no knowledge that Hazardous Substances have at any
time been spilled, leaked, dumped, deposited, discharged, disposed of or
released on, under, at or from the leased Premises in material violation of
any Environmental Law, or that any of the leased Premises have been used at
any time by any Person as a landfill or waste disposal site. After due and
diligent inquiry and investigation, Borrower has determined that there is no
reason to believe that Hazardous Substances have at any time been spilled,
leaked, dumped, deposited, discharged, disposed of or released on, under, at
or from the owned Premises in material violation of any Environmental Law, or
that any of the owned Premises have been used by any Person at any time as a
landfill or waste disposal site. There are no actions, suits, claims, notices
of violation, hearings, investigations or proceedings pending or, to the best
of Borrower's knowledge, threatened against or affecting Borrower or any of
its Subsidiaries or with respect to the ownership, use, maintenance and
operation of the Premises which relate to Environmental Laws or Hazardous
Substances.
SECTION 3.13 GOVERNMENTAL REGULATION. Neither Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act of
1940, the Interstate Commerce Act, any state public utilities code or any
other federal or state statute or regulation limiting its ability to incur
indebtedness.
SECTION 3.14 ERISA.
(i) Neither Borrower nor any of its ERISA Affiliates maintain or
have ever maintained a Pension Plan.
(ii) Borrower and all ERISA Affiliates have satisfied all
applicable contribution requirements under Section 412(c)(11) of the Internal
Revenue Code and have never sought a waiver under Section 412(d) of the
Internal Revenue Code;
(iii) no Termination Event has occurred and is continuing, or is
reasonably expected to occur;
6.
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(iv) there is no condition or event under which Borrower, any ERISA
Affiliate, or any Plan maintained by Borrower or any ERISA Affiliate could be
subject to any risk of material liability under ERISA or the Internal Revenue
Code, regardless of whether Borrower or any ERISA Affiliate engaged in a
transaction giving rise to the liability;
(v) neither Borrower nor any ERISA Affiliate has unfunded,
contingent liability that exceeds $[redacted--Confidential Treatment] with
respect to Plans that provide post-retirement welfare benefits; and
(vi) all Plans maintained by, or contributed to by, Borrower or
any ERISA Affiliate comply in all material respects, and have been
administered in material compliance with, the requirements of applicable law
(including, if applicable, foreign law, ERISA and the Internal Revenue Code)
and in accordance with each Plan's terms.
SECTION 3.15 TAXES. Each of Borrower and its Subsidiaries has
duly filed all tax and information returns required to be filed, and has paid
all taxes, fees, assessments and other governmental charges or levies that
have become due and payable, except to the extent such taxes or other charges
are being contested in good faith and are adequately reserved against in
accordance with GAAP.
SECTION 3.16 REPRESENTATION CERTIFICATE. The information supplied
in the Representation Certificate (as updated from time to time by at least
ten Business Days' notice to McKesson prior to any Loan) is true, correct and
complete.
ARTICLE IV
CONDITIONS PRECEDENT
SECTION 4.1 CONDITIONS PRECEDENT TO INITIAL EXTENSION OF CREDIT.
The obligation of McKesson to extend the credit provided for herein is
subject to the fulfillment of the following conditions:
(a) APPROVAL OF MCKESSON COUNSEL. All legal matters incidental to
this Agreement and the other Loan Documents shall be satisfactory to
counsel for McKesson.
(b) DELIVERY OF DOCUMENTS PRIOR TO INITIAL LOAN. Borrower shall have
delivered to McKesson, prior to the first extension of credit under this
Agreement, the following documents in form and substance satisfactory to
McKesson:
(i) this Agreement, the Notes, the Supply Agreement, the
Representation Certificate, the Security Documents and the Warrant
Documents, each duly executed by Borrower;
(ii) certified copies of the articles of incorporation, bylaws
and resolutions evidencing all necessary corporate action by Borrower
and each of its
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Subsidiaries with respect to the Loan Documents;
(iii) a certificate executed on behalf of Borrower by its
President and its Treasurer, dated as of the date of such initial
Loan, addressed to McKesson, stating that:
(1) the representations and warranties of Borrower
contained in Article III are true and correct on and as of the
date of such certificate; and
(2) no event has occurred and is continuing, or would
result from the proposed Loans, which constitutes a Default
hereunder;
(iv) an opinion of counsel of Borrower substantially in the form
of Exhibit A hereto; and
(v) all other documents reasonably required by McKesson.
(c) LIEN PERFECTION AND PRIORITY. All liens and security interests
under the Security Agreement, the Pledge Agreement and the Collateral
Assignment of Key-Man Insurance shall have been properly perfected, and
McKesson shall have received evidence satisfactory to it of the first
priority of the security interest under such Security Documents, subject
only to Permitted Liens.
(d) SATISFACTION BY MCKESSON. McKesson shall be satisfied with the
inventory, receivables, controls and systems of Borrower.
SECTION 4.2 CERTAIN CONDITIONS PRECEDENT TO ALL LOANS. The
obligation of McKesson to make any Loan shall also be subject to the
satisfaction of each of the following conditions precedent:
(a) NOTICE. Borrower shall have given its notice of borrowing as
provided in Section 1.2.
(b) MATERIAL ADVERSE CHANGE. On and as of the date of such Loan,
there shall have occurred no Material Adverse Change.
(c) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the date of
such Loan, both before and after giving effect thereto and to the application
of proceeds therefrom: (i) the representations and warranties contained in
Article III and in the other Loan Documents shall be true, correct and
complete on and as of the date of such Loan as though made on and as of such
date; and (ii) no Default or Event of Default shall have occurred and be
continuing or shall result from the making of such Loan. The giving of any
notice of borrowing and the acceptance by Borrower of the proceeds of such
Loan shall be deemed a certification to McKesson that on and as of the date
of such Loan such statements are true.
(d) CERTAIN FINANCIAL TESTS. Borrower's ratio of Consolidated
EBITDA to Sales as at the last day of the fiscal quarter ended immediately
prior to the proposed Loan shall
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not be less than the ratio set forth opposite such fiscal quarter:
<TABLE>
Fiscal Quarters Ending in: Ratio
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<S> <C>
1998 [redacted--Confidential Treatment]
1999 [redacted--Confidential Treatment]
2000 [redacted--Confidential Treatment]
2001 [redacted--Confidential Treatment]
2002 [redacted--Confidential Treatment]
2003 [redacted--Confidential Treatment]
</TABLE>
(e) LITIGATION. There shall not exist any material action, suit,
investigation or proceeding, pending or threatened, in any court or before
any arbitrator or governmental authority that could affect Borrower or the
ability of Borrower to perform its obligations hereunder or under the other
Loan Documents.
(f) INCREASED COSTS AND ILLEGALITY. McKesson shall be able to
provide the Loans in compliance with all applicable laws without incurring
increased costs, unless such increased costs shall be paid by Borrower.
(g) BORROWING BASE CERTIFICATES. Together with the notice of the
borrowing of any Loan delivered pursuant to Section 1.2, Borrower shall have
delivered to McKesson a completed Borrowing Base Certificate duly executed by
the Treasurer or Chief Financial Officer of Borrower.
(h) FINANCIAL STATEMENTS. The audited financial statements then
most recently delivered to McKesson pursuant to Section 5.3(a) shall not be
qualified in any respect by the independent auditor who audited such
financial statements.
(i) CASH AND CASH EQUIVALENTS. Immediately after giving effect to
such Loan and the concurrent use of the proceeds thereof, the aggregate cash
and cash equivalents of Borrower and its Subsidiaries together would not
exceed $[redacted--Confidential Treatment].
(j) ADDITIONAL DOCUMENTS. McKesson shall have received, in form
and substance satisfactory to it, such additional approvals, opinions,
documents and other information as McKesson may reasonably request.
ARTICLE V
AFFIRMATIVE COVENANTS
Borrower covenants that until the payment in full of the Notes and
of all other Obligations, Borrower shall:
SECTION 5.1 PUNCTUAL PAYMENT. Punctually pay the principal and
interest of all Obligations at the times and place and in the manner
specified in the Loan Documents therefor.
9.
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SECTION 5.2 ACCOUNTING RECORDS; REPRESENTATIVE.
(a) Maintain adequate books and accounts in accordance with GAAP
consistently applied, and permit any representative of McKesson, at any
reasonable time, to inspect, audit and examine such books and inspect the
properties of Borrower.
(b) Provide timely notice to McKesson of all meetings of
Borrower's board of directors and allow McKesson to have a representative
attend such meetings on a non-voting basis.
SECTION 5.3 FINANCIAL STATEMENTS. Furnish to McKesson:
(a) not later than 90 days after the end of each fiscal year (or, if
later, the Permitted SEC Filing Date), an audited balance sheet, profit and
loss statement, and source and use of funds statement for the fiscal year
then ended;
(b) not later than 45 days after the end of each fiscal quarter (or,
if later, the Permitted SEC Filing Date), an unaudited balance sheet and
profit and loss statement for the fiscal quarter then ended;
(c) as soon as available but not later than the commencement of each
fiscal year of Borrower, the projections by Borrower of its operating
budget, cash flow, profit and loss and balance sheet for such fiscal year;
(d) together with any financial statements furnished under clauses
(a) or (b) of this section, a completed Compliance Certificate duly
executed by the Treasurer or Chief Financial Officer of Borrower;
(e) by the tenth day of each calendar month, a completed Borrowing
Base Certificate as of the last day of the preceding calendar month duly
executed by the Treasurer or Chief Financial Officer of Borrower;
(f) from time to time such other information as McKesson may
reasonably request.
SECTION 5.4 EXISTENCE. Preserve and maintain its existence and
all of its rights, privileges and franchises; conduct its business in an
orderly, efficient, and regular manner; and comply with the requirements of
all applicable laws, rules, regulations and orders of a governmental
authority.
SECTION 5.5 INSURANCE.
(a) Maintain and keep in force insurance of the types and in amounts
customarily carried in lines of business similar to Borrower's, including
but not limited to fire, public liability, property damage, and worker's
compensation insurance, with such companies and in such amounts
satisfactory to McKesson; and Borrower shall deliver to
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McKesson from time to time at McKesson's request schedules setting forth
all insurance then in effect;
(b) Maintain key man life insurance insuring each of Rick McCord and
Sy Shahid in favor of Borrower as beneficiary in an amount equal to
$[redacted--Confidential Treatment] for each individual, which insurance
shall be collaterally assigned to McKesson pursuant to the Security
Documents as security for the Obligations.
SECTION 5.6 FACILITIES. Keep all Borrower's properties useful or
necessary to Borrower's business in good repair and condition, and from time
to time make all necessary repairs, renewals, and replacements thereto so
that Borrower's property shall be fully and efficiently preserved and
maintained.
SECTION 5.7 TAXES AND OTHER LIABILITIES. Pay and discharge when
due any and all indebtedness, obligations, assessments, taxes real and
personal, including federal and state income taxes, except such as Borrower
may in good faith contest or as to which a bona fide dispute may exist;
PROVIDED that, as to any amount in excess of $[redacted--Confidential Treatment]
in the aggregate, adequate provision is made to the satisfaction of McKesson
for eventual payment thereof in the event that it is found that the same is
an obligation of Borrower.
SECTION 5.8 LITIGATION. Promptly give notice in writing of any
claim or litigation pending or threatened against Borrower in excess of
$[redacted--Confidential Treatment].
SECTION 5.9 FINANCIAL CONDITION. Maintain the consolidated
financial condition of Borrower and its Subsidiaries according to the
following schedules:
(a) a minimum Current Ratio of [redacted--Confidential Treatment]
as at the end of each fiscal quarter;
(b) a ratio of Consolidated EBITDA to Consolidated Interest Expense
as at the end of each fiscal quarter of not less than the ratio set forth
opposite such fiscal quarter:
<TABLE>
Fiscal Quarters Ending in: Ratio
-------------------------- -----
<S> <C>
1998 [redacted--Confidential Treatment]
1999 [redacted--Confidential Treatment]
2000 [redacted--Confidential Treatment]
2001 [redacted--Confidential Treatment]
2002 [redacted--Confidential Treatment]
2003 [redacted--Confidential Treatment]
</TABLE>
(c) a minimum Net Worth as at the end of each fiscal quarter of not
less than (i) $[redacted--Confidential Treatment] PLUS (ii) [redacted--
Confidential Treatment] of cumulative quarterly Consolidated Net Income
(but not losses) after December 31, 1997 PLUS (iii) [redacted--Confidential
Treatment] of the Net Cash Proceeds received by Borrower or any Subsidiary
from the sale or issuance of equity securities to any Person after
December 31, 1997;
(d) a maximum ratio of (i) Debt of Borrower and its Subsidiaries on a
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consolidated basis to (ii) Capital as at the end of each fiscal quarter of
not greater than [redacted--Confidential Treatment];
(e) a minimum Quick Ratio as at the end of each fiscal quarter of not
less than [redacted--Confidential Treatment].
(f) a ratio of Consolidated EBIT to Consolidated Interest Expense as
at the end of each fiscal quarter set forth below of not less than the
ratio set forth opposite such fiscal quarter:
<TABLE>
Fiscal Quarters Ending in Ratio
------------------------- -----
<S> <C>
1998 [redacted--Confidential Treatment]
1999 [redacted--Confidential Treatment]
2000 [redacted--Confidential Treatment]
2001 [redacted--Confidential Treatment]
2002 [redacted--Confidential Treatment]
2003 [redacted--Confidential Treatment]
</TABLE>
(g) a ratio of Consolidated EBITDA to Sales as at the end of each
fiscal quarter of not less than the ratio set forth opposite such fiscal
quarter:
<TABLE>
Fiscal Quarters Ending in Ratio
------------------------- -----
<S> <C>
1998 [redacted--Confidential Treatment]
1999 [redacted--Confidential Treatment]
2000 [redacted--Confidential Treatment]
2001 [redacted--Confidential Treatment]
2002 [redacted--Confidential Treatment]
2003 [redacted--Confidential Treatment]
</TABLE>
SECTION 5.10 DOCUMENTARY STAMP TAXES. Pay or reimburse McKesson
on demand for all present and future documentary stamp taxes or recordation
taxes, if any, required by any state or local authority as a condition of
filing any financing statement, security instrument or other document
covering collateral which is the subject of this Agreement or any Security
Document.
SECTION 5.11 NOTICE TO MCKESSON. Promptly give notice in writing
to McKesson of (1) the occurrence of any Default; (2) any change in name,
identity, corporate structure or jurisdiction of incorporation of Borrower;
(3) any uninsured or partially uninsured losses through fire, theft,
liability or property damage in excess of an aggregate of $[redacted--
Confidential Treatment]; (4) the creation or acquisition of any Subsidiary;
(5) the acquisition or opening of any new stores; and (6) changes in the
information set forth in the Representation Certificate.
SECTION 5.12 OBSERVATION. Provide to McKesson the right to
receive all notices of and to attend (by any of its authorized
representatives) at McKesson's expense all meetings of
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Borrower's Board of Directors and any committees thereof. Borrower shall
hold Board of Director meetings no less frequently than quarterly. McKesson
shall receive copies (reasonably promptly) of all minutes of such meetings
along with copies of any items distributed to the members of the Board of
Directors at such meeting, whether or not a representative attends such
meeting. Any information which McKesson obtains solely as a result of its
rights under this Section 5.14 and by no other means shall be treated in the
same manner, including confidentiality, as if McKesson had obtained such
information as a member of the Board of Directors of Borrower.
SECTION 5.13 REAL PROPERTY. Use its bona fide, commercially
reasonable efforts to deliver to McKesson contingent collateral assignments
of all leases of leased Premises occupied by and leased to Borrower, together
with such waivers and consents as may be reasonably necessary to permit
McKesson to continue to occupy such premises after Borrower's default under
such leases or hereunder and to permit McKesson to remove any of Borrower's
assets located in such Premises, all pursuant to documentation satisfactory
to McKesson in form and substance.
SECTION 5.14 SUBSEQUENT COLLATERAL. From time to time execute and
deliver to McKesson such additional security agreements, pledge agreements,
mortgages, collateral assignments or amendments thereto, and take such other
steps as may be reasonably requested by McKesson, in order to grant a first
priority security interest or lien to McKesson, and to perfect such security
interest or lien, in any assets of Borrower and its Subsidiaries as to which
a security interest or lien has not previously been created or perfected,
including (i) taking such steps as are outlined in Section 5.13 with regard
to any subsequently acquired premises of Borrower or its Subsidiaries and
(ii) pledging the interest of Borrower or any of its Subsidiaries in any new
Subsidiaries, joint ventures (to the extent permitted by the joint venture
document), limited liability companies or other entities.
ARTICLE VI
NEGATIVE COVENANTS
Borrower covenants that until the payment in full of the Notes and
of all other Obligations, Borrower shall not without prior written consent of
McKesson:
SECTION 6.1 USE OF PROCEEDS.
(a) Use any of the proceeds of the Term Loan and the Revolving Loans
for purposes other than
(i) for working capital and for other general corporate purposes
of Borrower; and
(ii) to finance Acquisitions.
(b) Use any part of the proceeds of any Loan, directly or indirectly,
to
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purchase or carry any "margin securities" or to reduce or retire any
indebtedness originally incurred to purchase any such securities within the
meaning of the regulations promulgated by the Board of Governors of the
Federal Reserve System, as amended.
SECTION 6.2 ENCUMBRANCES. Create, incur, assume or suffer to
exist any mortgage, pledge, encumbrance, lien, security interest or other
charge upon its assets or the assets of its Subsidiaries other than the
following ("PERMITTED LIENS"):
(a) the lien of property taxes not yet due and payable;
(b) matters disclosed by the financial statements referred to in
Section 3.5 or set forth on Schedule 3.8;
(c) mortgages or encumbrances in favor of McKesson;
(d) liens in connection with indebtedness permitted pursuant to
Section 6.9(b), (c) and (d); PROVIDED that any such lien in connection with
any such indebtedness shall not extend to any assets of Borrower other than
the assets specifically financed by such indebtedness.
SECTION 6.3 MERGER, CONSOLIDATION, ACQUISITIONS. Merge into or
consolidate with any corporation or other Person, or (except for Permitted
Acquisitions) acquire all or substantially all of the assets of any other
corporation or Person, or sell, lease, assign, transfer or otherwise dispose
of all or substantially all of its assets.
SECTION 6.4 SALE OF ASSETS. Sell, lease, assign, transfer or
otherwise dispose of its assets other than in the ordinary course of business.
SECTION 6.5 GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments in the
ordinary course of business), accommodation endorser or otherwise for the
debt or obligations of any other Person except for Permitted Guaranties.
SECTION 6.6 LOANS, ADVANCES. Make any loans, advances, or
investments in any Person, other than (a) short term investments in prime
commercial paper or certificates of deposit issued by major banks, (b) those
loans, advances, or investments disclosed on the financial statements
referred to in Section 3.5, and (c) investments constituting an Acquisition
permitted under Section 6.3.
SECTION 6.7 DIVIDENDS, DISTRIBUTIONS. Declare or pay any dividend
or other distribution either in cash, stock or other property (other than the
common stock of Borrower), or redeem, retire, purchase or otherwise acquire
any shares of any class of Borrower's stock now or hereafter outstanding.
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SECTION 6.8 CREDIT LIMIT. Exceed its credit limit for purchase of
goods from McKesson pursuant to the Supply Agreement.
SECTION 6.9 INDEBTEDNESS/CAPITAL LEASE OBLIGATIONS. Incur additional
indebtedness or capital lease obligations after the date hereof except the
following ("PERMITTED INDEBTEDNESS"):
(a) accounts payable incurred in the ordinary course of business;
(b) indebtedness not to exceed $[redacted--Confidential Treatment]
in the aggregate with respect to any one Borrower-owned store in connection
with any equipment lease or equipment purchase;
(c) purchase money indebtedness for the purchase of real estate
constituting Borrower's headquarters location and the construction of
improvements thereon and for the purchase of equipment by Borrower in the
ordinary course of business; and
(d) indebtedness of Borrower to the applicable Seller incurred as part
of the purchase price for any Acquisition.
SECTION 6.10 BOARD OF DIRECTORS. At any time after the 60th day
after the date of this Agreement, have as a member of Borrower's Board of
Directors any Person who is a director or employee of a competitor of McKesson
in the pharmaceuticals business.
ARTICLE VII
EVENTS OF DEFAULT
SECTION 7.1 Each of the following shall constitute an "Event of
Default":
(a) A default by Borrower or any of its Subsidiaries in any payment
of principal or interest or any other amount owed by Borrower or any of its
Subsidiaries to McKesson, whether under the Loan Documents, the Supply
Agreement or otherwise and, in the case of payments of interest and fees
only, such default continues for three calendar days.
(b) Any representation or warranty made by Borrower or any of its
Subsidiaries hereunder or in any other Loan Document shall prove at any
time to be incorrect in any material respect as of the time made.
(c) A default by Borrower of any covenant in Section 5.3, Section 5.9
or Section 5.11.
(d) A default by Borrower or any of its Subsidiaries in the
performance of any other term, covenant or agreement contained in the Loan
Documents or the Supply Agreement if such default is not cured within 15
calendar days from its occurrence.
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(e) Any default by Borrower or any of its Subsidiaries in the payment
of its indebtedness to any other Person when due or under the terms of any
agreement or instrument which gives the holder of such indebtedness the
right, either with the giving of notice or the passage of time or both, to
accelerate the indebtedness evidenced by the instrument or agreement if
such indebtedness equals or exceeds $[redacted--Confidential Treatment].
(f) The failure of Borrower or any of its Subsidiaries promptly to
pay and discharge (or stay or bond pending appeal) any judgment or levy of
any attachment, execution or other process against the assets of Borrower
(if such judgment, levy or other process is for an amount equal to or
greater than $[redacted--Confidential Treatment], and such judgment is
not satisfied or otherwise discharged, or such levy or other process is
not removed (or stayed or bonded pending appeal), (i) within 10 days after
the entry or levy thereof, or (ii) if earlier, at least 5 days prior to
the time of any proposed sale under the judgment or levy.
(g) Borrower or any of its Subsidiaries shall be adjudicated bankrupt
or insolvent, or shall consent to or apply for the appointment of a
receiver, trustee or liquidator of Borrower or any of its Subsidiaries or
any of its property, or shall admit in writing its inability to pay its
debts generally as they become due, or shall make a general assignment for
the benefit of creditors, or shall file a voluntary petition in bankruptcy
or a voluntary petition or an answer seeking reorganization or arrangement
in a proceeding under any bankruptcy law, or Borrower or its directors or
majority stockholders shall take action looking into the dissolution or
liquidation of Borrower, or an involuntary petition seeking any of the
relief specified in this Section 7.1(g) shall be filed against Borrower or
any of its Subsidiaries and such petition shall not be dismissed within 60
days, or any order for relief shall be entered against Borrower or any of
its Subsidiaries in any involuntary proceeding under any bankruptcy law.
(h) The failure of Borrower (including, for purposes of this
Section 7.1(h), all franchisees and all stores owned or managed by Borrower
or its Subsidiaries at the time in question) to purchase during any period
of three consecutive calendar months at least [redacted--Confidential
Treatment] of its total purchases of pharmaceuticals and health and beauty
care products from McKesson and such failure shall continue beyond any
grace period therefor under the Supply Agreement, unless such failure
results from the termination of the Supply Agreement without cause
pursuant to the terms thereof.
(i) A Change of Control.
(j) A Material Adverse Change.
(k) The death or permanent disability of Rick McCord or Sy Shahid.
SECTION 7.2 ACCELERATION. If an Event of Default shall occur, any
indebtedness of Borrower under the Loan Documents, any term therein to the
contrary notwithstanding, shall at McKesson's option and without notice, become
immediately due and payable without presentment, demand, protest or other notice
of any kind, all of which are hereby expressly waived by Borrower, and the
obligation, if any, of McKesson to make Loans or to otherwise
16.
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permit further credit hereunder or thereunder shall immediately cease and
terminate; PROVIDED, HOWEVER, that if an event described in Section 7.1(g)
shall occur, any indebtedness of Borrower under the Loan Documents shall
automatically become due and payable without any further action by McKesson.
ARTICLE VIII
DEFINITIONS
SECTION 8.1 CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall 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, membership interests, by contract,
or otherwise.
"APPROVED GOVERNMENT PLAN PAYOR" means an administrator, fiscal agent,
governmental entity, insurance company, pharmacy benefit manager or other Person
authorized to make payments for prescription drug benefits on behalf of
Medicaid, Medicare, the U.S. Department of Veterans Affairs, or any other U.S.
governmental entity that is subject to prohibitions against payment of amounts
owed to providers pursuant to an assignment or power of attorney to, or other
direct payment arrangement with, a Person other than the provider, that has been
approved (and not subsequently disapproved in writing) by McKesson in its sole
discretion.
"APPROVED PRIVATE PLAN PAYOR" means an administrator, fiscal agent,
insurance company, pharmacy benefit manager, plan sponsor or other Person
responsible for paying prescription drug benefits on behalf of prescription
benefit plans (other than an Approved Government Plan Payor) that has been
approved (and not subsequently disapproved in writing) by McKesson in its sole
discretion.
"BASE RATE" means, for any day, the rate of interest reported from
time to time in the Wall Street Journal as the "prime rate" charged by major
United States banks for commercial loans, PROVIDED that, if more than one rate
is reported for a particular day, the average of the highest and lowest rates
shall be used for such day. Each change in the interest rate on the Loans or
other obligations bearing interest at the Base Rate based on a change in the
Base Rate shall be effective as of the effective date of such change in the Base
Rate.
"BORROWER" has the meaning set forth in the preamble to this
Agreement.
"BORROWING BASE CERTIFICATE" means a certificate substantially in the
form of Exhibit B hereto, completed with the relevant information and duly
executed by the Treasurer or Chief Financial Officer of Borrower.
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"BUSINESS DAY" means a day (i) other than Saturday or Sunday and (ii)
on which commercial banks are open for business in San Francisco, California.
"CAPITAL" means, at any time, the sum of (i) Net Worth and (ii) the
long term portion of the indebtedness of Borrower and its Subsidiaries.
"CAPITAL LEASE" means a lease with respect to which the lessee is
required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"CAPITAL LEASE OBLIGATION" means, with respect to any Person and a
Capital Lease, the amount of the obligation of such Person as the lessee under
such Capital Lease which would, in accordance with GAAP, appear as a liability
on a balance sheet of such Person.
"CHANGE OF CONTROL" means (a) the acquisition by any "person" or
"group" (as such terms are used in Section 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934, as amended) of beneficial ownership (within the meaning of
Rule 13d-3 of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended) (other than Ricky D. McCord, Charlie K. Herr,
Sy S. Shahid, Robert D. Mueller and John Stogner) of [redacted--Confidential
Treatment] or more of the outstanding shares of voting stock of Borrower, or
(b) during any period of 12 consecutive calendar months, commencing on the
date of this Agreement, the ceasing of those individuals (the "CONTINUING
DIRECTORS") who (i) were directors of Borrower on the first day of each such
period or (ii) subsequently became directors of Borrower and whose initial
election or initial nomination for election subsequent to that date was
approved by a majority of the Continuing Directors then on the board of
directors of Borrower, to constitute a majority of the board of directors of
Borrower.
"CLOSING DATE" means the date on which all conditions precedent set
forth in Section 4.1 are satisfied or waived by McKesson.
"COLLATERAL" means the property described in the Security Documents,
and all other property now existing or hereafter acquired which may at any time
be or become subject to a lien in favor of McKesson pursuant to the Security
Documents or otherwise, securing the payment and performance of the Obligations.
"COLLATERAL ASSIGNMENT OF KEY-MAN INSURANCE" means the Collateral
Assignment of Key-Man Insurance in substantially the form of Exhibit C.
"COMPLIANCE CERTIFICATE" means a certificate substantially in the form
of Exhibit D hereto, completed with the relevant information and duly executed
by the Treasurer or Chief Financial Officer of Borrower.
"CONSOLIDATED EBIT" means, for any period, Consolidated Net Income
PLUS (a) Consolidated Interest Expense PLUS (b) income tax expense, in each case
which were deducted in determining Consolidated Net Income, determined on a
consolidated basis for Borrower and its Subsidiaries in accordance with GAAP.
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"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
PLUS (a) Consolidated Interest Expense PLUS (b) income tax expense PLUS
(c) depreciation expense, amortization expense and other non-cash expenses, in
each case which were deducted in determining Consolidated Net Income, determined
on a consolidated basis for Borrower and its Subsidiaries in accordance with
GAAP.
"CONSOLIDATED INTEREST EXPENSE" means, for any period, interest
expense (including that attributable to capital leases and [redacted--
Confidential Treatment] of the discount fees paid in connection with the
factoring of third-party on-line adjudicated claim receivables) of Borrower
and its Subsidiaries on a consolidated basis, including all commissions,
discounts and other fees and charges owed with respect to standby letters of
credit, as determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the net income of
Borrower and its Subsidiaries on a consolidated basis for such period taken as a
single accounting period, as determined in accordance with GAAP; PROVIDED,
HOWEVER, that there shall be excluded therefrom the net income of any Subsidiary
to the extent that the declaration or payment of dividends or similar
distributions by such Subsidiary is not at the time permitted by operation of
the terms of its charter or by any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such Subsidiary.
"CURRENT ASSETS" means, at any time, the total assets of Borrower and
its Subsidiaries which would be shown as current assets on a consolidated
balance sheet of Borrower and its Subsidiaries prepared in accordance with GAAP
at such time.
"CURRENT LIABILITIES" means, at any time, the total liabilities of
Borrower and its Subsidiaries which would be shown as current liabilities on a
consolidated balance sheet of Borrower and its Subsidiaries prepared in
accordance with GAAP at such time, but excluding as current liabilities Current
Maturities of Funded Debt.
"CURRENT MATURITIES OF FUNDED DEBT" means, at any time and with
respect to any item of Funded Debt, the portion of such Funded Debt outstanding
at such time which by the terms of such Funded Debt or the terms of any
instrument or agreement relating thereto is due on demand or within one year
from such time (whether by sinking fund, other required prepayment or final
payment at maturity) and is not directly or indirectly renewable, extendible or
refundable at the option of the obligor under an agreement or firm commitment in
effect at such time to a date one year or more from such time.
"CURRENT RATIO" means, as of the time of determination, the ratio of
Current Assets to Current Liabilities, in each case determined at such time.
For purposes of determining Borrower's compliance with Section 5.9(a), amounts
financed by McKesson PaySystems shall be added back to Current Assets in
calculating the Current Ratio.
"DEBT" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money;
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(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including, without limitation, all liabilities
created or arising under any conditional sale or other title retention
agreement with respect to any such property);
(c) its Capital Lease Obligations;
(d) all liabilities for borrowed money secured by any lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities); and
(e) any guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (d) hereof.
Debt of any Person shall include all obligations of such Person of the character
described in clauses (a) through (e) to the extent such Person remains legally
liable in respect thereof notwithstanding that any such obligation is deemed to
be extinguished under GAAP.
"DEFAULT" means any condition, event or act which, with the giving of
notice or the lapse of time or both, would constitute an Event of Default.
"ELIGIBLE INSURER ACCOUNTS RECEIVABLE" means the aggregate dollar
value of Borrower's accounts receivable arising out of sales in the ordinary
course of Borrower's business which (i) are owing to Borrower by an Approved
Government Plan Payor or an Approved Private Plan Payor, (ii) conform to the
warranties contained in the Security Agreement and (iii) at all times continue
to be acceptable to McKesson in its reasonable judgment, but, without limiting
the foregoing, excluding:
(a) accounts receivable for which Borrower's right to receive payment
has not been fully earned by performance or is contingent upon the
fulfillment of any condition whatsoever or which otherwise do not arise
from a bona fide completed transaction;
(b) accounts receivable against which there are asserted any
defenses, counterclaims, discounts (other than normal trade discounts
granted in the ordinary course of business) or offsets of any nature
(including, without limitation, any of the foregoing which may be asserted
by a Subsidiary or Affiliate of a Person for licensing royalties or
otherwise), whether well-founded or otherwise, but only to the extent of
such defense, counterclaim, discount or offset;
(c) accounts receivable that do not comply with all applicable legal
requirements, including all laws, rules, regulations and orders of any
governmental authority;
(d) accounts receivable which represent a prepayment or progress
payment or arising out of the placement of goods on consignment, guaranteed
sale or other arrangement by reason of which the payment by the accounts
receivable obligor may be conditional or contingent;
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(e) accounts receivable which are not owned by Borrower free and
clear of all liens and rights of others (other than the liens in favor of
McKesson);
(f) accounts receivable in which McKesson shall not have a valid,
enforceable and perfected first priority lien;
(g) accounts receivable owing by any officer, director, employee,
agent, partner, Subsidiary or Affiliate of Borrower;
(h) accounts receivable that are 60 days (or in the case of accounts
receivable from Medicare and Medicaid, 120 days) or more past due;
(i) that portion of accounts receivable owing by any single accounts
receivable obligor and its Affiliates which exceeds [redacted--Confidential
Treatment] of the aggregate amount of accounts receivable owing to Borrower
by all accounts receivable obligors;
(j) accounts receivable owing by any accounts receivable obligor who
is the subject of a bankruptcy or other insolvency proceeding;
(k) accounts receivable which are evidenced by a promissory note or
other instrument;
(l) accounts receivable with respect to which the terms or conditions
prohibit or restrict assignment or collection rights;
(m) accounts receivable owing by any accounts receivable obligor who
resides or who is located in New Jersey, Minnesota or Indiana (or any other
state with any law materially impairing the collectibility or
enforceability of accounts receivable), unless Borrower has filed a Notice
of Business Activities Report, or taken other appropriate action, with the
appropriate office or agency of the states of New Jersey, Minnesota,
Indiana or such other state, as applicable, for the then current year
(except if Borrower is exempt from such requirement);
(n) any accounts receivable owing by any accounts receivable obligor
who is not a resident of or located in the United States; and
(o) accounts receivable with respect to which McKesson, in its
reasonable discretion, deems the creditworthiness or financial condition of
the accounts receivable obligor to be unsatisfactory or the prospect of
payment or performance to be impaired, and other accounts receivable which,
in McKesson's reasonable discretion, are otherwise ineligible.
"ELIGIBLE OTHER ACCOUNTS RECEIVABLE" means the aggregate dollar value
of Borrower's accounts receivable arising out of sales in the ordinary course of
Borrower's business (other than Eligible Insurer Accounts Receivable) which (i)
conform to the warranties contained in the Security Agreement and (ii) at all
times continue to be acceptable to McKesson in its
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reasonable judgment, but, without limiting the foregoing, excluding:
(a) accounts receivable for which Borrower's right to receive payment
has not been fully earned by performance or is contingent upon the
fulfillment of any condition whatsoever or which otherwise do not arise
from a bona fide completed transaction;
(b) accounts receivable against which there are asserted any
defenses, counterclaims, discounts (other than normal trade discounts
granted in the ordinary course of business) or offsets of any nature
(including, without limitation, any of the foregoing which may be asserted
by a Subsidiary or Affiliate of a Person for licensing royalties or
otherwise), whether well-founded or otherwise, but only to the extent of
such defense, counterclaim, discount or offset;
(c) accounts receivable that do not comply with all applicable legal
requirements, including all laws, rules, regulations and orders of any
governmental authority;
(d) accounts receivable which represent a prepayment or progress
payment or arising out of the placement of goods on consignment, guaranteed
sale or other arrangement by reason of which the payment by the accounts
receivable obligor may be conditional or contingent;
(e) accounts receivable which are not owned by Borrower free and
clear of all liens and rights of others (other than the liens in favor of
McKesson);
(f) accounts receivable in which McKesson shall not have a valid,
enforceable and perfected first priority lien;
(g) accounts receivable owing by any officer, director, employee,
agent, partner, Subsidiary or Affiliate of Borrower;
(h) accounts receivable that are 60 days (or in the case of accounts
receivable from Medicare and Medicaid, 120 days) or more past due;
(i) that portion of accounts receivable owing by any single accounts
receivable obligor and its Affiliates which exceeds [redacted--Confidential
Treatment] of the aggregate amount of accounts receivable owing to Borrower
by all accounts receivable obligors;
(j) accounts receivable owing by any accounts receivable obligor who
is the subject of a bankruptcy or other insolvency proceeding;
(k) accounts receivable which are evidenced by a promissory note or
other instrument;
(l) accounts receivable with respect to which the terms or conditions
prohibit or restrict assignment or collection rights;
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(m) accounts receivable owing by any accounts receivable obligor who
resides or who is located in New Jersey, Minnesota or Indiana (or any other
state with any law materially impairing the collectibility or
enforceability of accounts receivable), unless Borrower has filed a Notice
of Business Activities Report, or taken other appropriate action, with the
appropriate office or agency of the states of New Jersey, Minnesota,
Indiana or such other state, as applicable, for the then current year
(except if Borrower is exempt from such requirement);
(n) any accounts receivable owing by any accounts receivable obligor
who is not a resident of or located in the United States;
(o) accounts receivable owing (i) by the United States or any
department, agency or instrumentality thereof or (ii) by a state or any
department, agency, instrumentality or political subdivision thereof,
unless in the case of accounts receivable described in the preceding
sub-clause (i), McKesson has agreed to the contrary in writing and
Borrower has complied with the Federal Assignment of Claims Act with
respect to such accounts receivable;
(p) accounts receivable arising from the sale of retail pharmacy
products which are due more than 30 days after the original invoice date
and accounts receivable arising from the sale of durable medical equipment
which are due more than 90 days after the original invoice date; and
(q) accounts receivable with respect to which McKesson, in its
reasonable discretion, deems the creditworthiness or financial condition of
the accounts receivable obligor to be unsatisfactory or the prospect of
payment or performance to be impaired, and other accounts receivable which,
in McKesson's reasonable discretion, are otherwise ineligible.
"ELIGIBLE OTHER INVENTORY" means the gross dollar value (valued at the
lower of cost or market value, on a first-in-first-out basis) of the inventory
of over-the-counter medicine and health and beauty care products and durable
medical equipment of Borrower (other than Eligible Pharmaceutical Inventory)
which conforms to the warranties contained in the Security Agreement and which
at all times continues to be acceptable to McKesson in its reasonable judgment,
but, without limiting the foregoing, excluding:
(a) any supplies (other than raw materials);
(b) goods returned by customers (other than goods returned in the
ordinary course of business representing unsold inventory which remains
marketable at cost or greater);
(c) goods rejected by customers;
(d) goods to be returned to suppliers;
(e) stale, obsolete or unsalable inventory;
23.
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(f) inventory not owned solely by Borrower or as to which Borrower
does not have good, valid, and marketable title;
(g) inventory not located at one of the locations set forth in Section
2 of the Representation Certificate or not located at a location as to
which all necessary UCC financing statements in favor of McKesson have been
filed and continued;
(h) Non-Access Agreement Inventory;
(i) inventory not subject to a valid and perfected first priority
security interest in favor of McKesson;
(j) goods in transit; and
(k) inventory subject to a lien in favor of any third Person, bill and
hold goods, defective goods, or inventory acquired on consignment;
LESS (y) any reserves required by McKesson in its reasonable judgment for
special order goods and market value declines.
"ELIGIBLE PHARMACEUTICAL INVENTORY" means (x) the gross dollar value
(valued at the lower of cost or market value, on a first-in-first-out basis) of
the inventory of pharmaceutical products of Borrower which conforms to the
warranties contained in Security Agreement and which at all times continues to
be acceptable to McKesson in its reasonable judgment, but, without limiting the
foregoing, excluding:
(a) any supplies (other than raw materials);
(b) goods returned by customers (other than goods returned in the
ordinary course of business representing unsold inventory which remains
marketable at cost or greater);
(c) goods rejected by customers;
(d) goods to be returned to suppliers;
(e) stale, obsolete or unsalable inventory;
(f) inventory not owned solely by Borrower or as to which Borrower
does not have good, valid, and marketable title;
(g) inventory not located at one of the locations set forth in Section
2 of the Representation Certificate or not located at a location as to
which all necessary UCC financing statements in favor of McKesson have been
filed and continued;
(h) Non-Access Agreement Inventory;
(i) inventory not subject to a valid and perfected first priority
security interest in
24.
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favor of McKesson;
(j) goods in transit; and
(k) inventory subject to a lien in favor of any third Person, bill and
hold goods, defective goods, or inventory acquired on consignment;
LESS (y) any reserves required by McKesson in its reasonable judgment for
special order goods and market value declines.
"ELIGIBLE RX FILES VALUE" means the product of (a) $[redacted--
Confidential Treatment] multiplied by (b) the number derived by dividing the
prior 12 months Rx Sales (including Rx Sales of acquired stores) by 30.
"ENVIRONMENTAL LAWS" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directives, requests, licenses, authorizations and
permits of, and agreements with (including consent decrees), any governmental
authorities, in each case relating to or imposing liability or standards of
conduct concerning public health, safety and environmental protection matters,
including the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, the Clean Air Act, the Federal Water Pollution Control Act of 1972,
the Solid Waste Disposal Act, the Federal Resource Conservation and Recovery
Act, the Toxic Substances Control Act, the Emergency Planning and Community
Right-to-Know Act, the California Hazardous Waste Control Law, the California
Solid Waste Management, Resource Recovery and Recycling Act, the California
Water Code and the California Health and Safety Code.
"ERISA" means the Employee Retirement Income Security Act of 1974,
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is under common control with Borrower within the meaning of
Section 4001(a)(14) of ERISA and Sections 414(b), (c) and (m) of the Internal
Revenue Code.
"EVENT OF DEFAULT" has the meaning set forth in Section 7.1.
"FUNDED DEBT" means, with respect to any Person, all indebtedness for
borrowed money of such Person which by its terms or by the terms of any
instrument or agreement relating thereto matures, or which is otherwise payable
or unpaid, one year or more from, or is directly or indirectly renewable or
extendible at the option of the obligor in respect thereof to a date one year or
more from (including, without limitation, an option of such obligor under a
revolving credit or similar agreement obligating the lender or lenders to extend
credit over a period of one year or more), the date of the creation thereof.
"GAAP" means generally accepted accounting principles in the United
States as in effect from time to time.
25.
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"HAZARDOUS SUBSTANCES" means any toxic or hazardous substances,
materials, wastes, contaminants or pollutants, including asbestos, PCBs,
petroleum products and byproducts, and any substances defined or listed as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances" (or similarly identified), regulated under or forming the basis for
liability under any applicable Environmental Law.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986,
including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"LOAN DOCUMENT" means this Agreement, the Notes, the Security
Documents, the Warrant Documents and all other certificates, documents,
agreement and instruments delivered to the Bank under or in connection with this
Agreement.
"LOANS" means the Revolving Loans and the Term Loan.
"MATERIAL ADVERSE CHANGE" means a material adverse change (i) in the
business, assets, operations, condition (financial or otherwise) or prospects of
Borrower since December 31, 1997 or (ii) in the facts and information regarding
Borrower as represented prior to the Closing Date.
"MATURITY DATE" means with respect to any tranche of Loans, the Term
Loan Maturity Date or the Revolving Loans Maturity Date, as the case may be.
"MCKESSON" has the meaning set forth in the preamble to this
Agreement.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined in
Sections 3(37) and 4001(a)(3) of ERISA.
"NET CASH PROCEEDS" means, when used in respect of any sale, transfer
or other disposition of assets or the issuance of any debt or equity securities
of Borrower or any Subsidiary, the gross proceeds received by Borrower or such
Subsidiary from such sale, transfer or other disposition or issuance less (i)
all direct costs and expenses incurred or to be incurred in connection therewith
and payable to Persons other than any Affiliate of Borrower, and (ii) in the
case of a sale of assets, all federal, state, local and foreign taxes assessed
or to be assessed in connection therewith and the payment of any encumbrances
(senior to liens or security interests in favor of McKesson) on the assets
disposed of.
"NET WORTH" means, at any time,
(a) the total assets of Borrower and its Subsidiaries which would be
shown as assets on a consolidated balance sheet of Borrower and its Subsidiaries
as of such time prepared in accordance with GAAP, after eliminating all amounts
properly attributable to minority interests, if any, in the stock and surplus of
Subsidiaries, MINUS
(b) the total liabilities of Borrower and its Subsidiaries which
would be shown as liabilities on a consolidated balance sheet of Borrower and
its Subsidiaries as of such time prepared in accordance with GAAP.
26.
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"NON-ACCESS AGREEMENT INVENTORY" means inventory (i) not located on
property owned by Borrower and (ii) not subject to a collateral access agreement
in favor of McKesson executed by the mortgagee, lessor, warehouseman or other
third party, as the case may be, or not segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises; PROVIDED
THAT, notwithstanding the lack of collateral access agreements from the relevant
mortgagees, lessors, warehousemen or other third parties as to particular
premises, there may be excluded from Non-Access Agreement Inventory up to
[redacted--Confidential Treatment] of inventory located at premises not owned
by Borrower if such inventory is segregated or otherwise separately
identifiable from goods of others, if any, stored on the premises.
"NOTE" means any promissory note executed in connection with the
Revolving Loans or the Term Loan.
"OBLIGATIONS" means the indebtedness, liabilities and other
obligations of Borrower to McKesson under or in connection with the Loan
Documents, including but not limited to the Loans, all interest accrued thereon
and all fees and other amounts payable under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PENSION PLAN" means any employee pension benefit plan covered by
Title IV of ERISA (other than a Multiemployer Plan) that is maintained for
employees of Borrower or any ERISA Affiliate or with regard to which Borrower or
an ERISA Affiliate is a contributing sponsor within the meaning of Sections
4001(a)(13) or 4069 of ERISA.
"PERMITTED ACQUISITION" means the acquisition by Borrower of a retail
pharmacy or pharmacies, durable medical equipment and/or home medical equipment
operations, intravenous infusion operations, home healthcare agencies, closed
door institutional pharmacies, mail order pharmacies and other pharmaceutical
and healthcare related businesses (including in each case, at Borrower's option,
the Rx Files thereof) from an unaffiliated Person or Persons so long as such
business is located in the United States.
"PERMITTED GUARANTY" means any guaranty of the indebtedness of a
Seller with regard to assets acquired by Borrower in an Acquisition.
"PERMITTED INDEBTEDNESS" has the meaning specified in Section 6.9.
"PERMITTED LIENS" has the meaning specified in Section 6.2.
"PERMITTED SEC FILING DATE" means, so long as Borrower has any
securities registered under Section 12 (or is required to file reports under
Section 15(d)) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), the last date on which Borrower may file with the Securities and Exchange
Commission its annual or quarterly financial statements, as the case may be,
without violation of the 1934 Act or the rules and regulations promulgated
thereunder.
27.
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"PERSON" means an individual, corporation, limited liability company,
partnership, joint venture, trust, unincorporated organization or any other
entity of whatever nature or any governmental agency or authority.
"PLAN" means any employee pension benefit plan as defined in Section
3(2) of ERISA (including any Multiemployer Plan) and any employee welfare
benefit plan, as defined in Section 3(1) of ERISA (including any plan providing
benefits to former employees or their survivors).
"PLEDGE AGREEMENT" means the Pledge Agreement in substantially the
form of Exhibit E executed by Borrower in favor of McKesson, as it may be
amended from time to time in writing.
"PREMISES" means any and all real property, including all buildings
and improvements now or hereafter located thereon and all appurtenances thereto,
now or hereafter owned, leased, occupied or used by Borrower and its
Subsidiaries.
"QUICK RATIO" means, as of the time of determination, the ratio of
(i) cash PLUS accounts receivable of Borrower and its Subsidiaries determined on
a consolidated basis in accordance with GAAP to (ii) Current Liabilities. For
purposes of determining Borrower's compliance with Section 5.9(e), amounts
financed by McKesson PaySystems shall be added back to accounts receivable in
calculating the Quick Ratio.
"REPRESENTATION CERTIFICATE" means the Representations and Warranty
Certificate in substantially the form of Exhibit F as updated from time to time
pursuant to Section 5.11.
"REVOLVING FACILITY COMMITMENT" means $15,000,000; PROVIDED that if
utilization of the Revolving Facility Commitment exceeds
[redacted--Confidential Treatment], then the parties may agree to increase
the amount of the Revolving Facility Commitment.
"REVOLVING LOANS" has the meaning set forth in Section 1.1(a).
"REVOLVING LOANS MATURITY DATE" means the fifth anniversary of the
date of this Agreement.
"RX SALES" means Sales of prescription medicines.
"SALES" means, for any period, the gross sales of Borrower and its
Subsidiaries on a consolidated basis for such period;
"SECURITY AGREEMENT" means the Security Agreement in substantially the
form of Exhibit G executed by Borrower and its Subsidiaries in favor of
McKesson, as it may be amended from time to time in writing.
"SECURITY DOCUMENTS" means the Security Agreement, the Subsidiary
Guaranty, the Pledge Agreement, the Collateral Assignment of Key-Man
Insurance, any other agreement
28.
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"SECURITY DOCUMENTS" means the Security Agreement, the Subsidiary
Guaranty, the Pledge Agreement, the Collateral Assignment of Key-Man Insurance,
any other agreement providing McKesson with security for the Obligations, and
any financing statements, assignments, notices or other documents required under
the foregoing.
"SELLER" means, with respect to any Acquisition, the Person or Persons
which sells assets or stock to Borrower in the Acquisition.
"SUBSIDIARY" means, in respect of any Person, any corporation,
association, partnership, joint venture or other business entity of which more
than [redacted--Confidential Treatment] of the voting stock or other equity
interest is owned directly or indirectly by such Person or by one or more of
the other Subsidiaries of such Person or a combination thereof.
"SUBSIDIARY GUARANTY" means the Guaranty in substantially the form of
Exhibit H executed by Borrower's Subsidiaries in favor of McKesson, as it may be
amended from time to time in writing.
"SUPPLY AGREEMENT" means that certain Wholesale Supply Agreement
between McKesson and Borrower dated of even date herewith, as it may be amended
from time to time in writing.
"TERM LOAN COMMITMENT" means $5,000,000.
"TERM LOAN" has the meaning set forth in Section 1.1(b).
"TERM LOAN MATURITY DATE" means, unless extended pursuant to Section
2.1, the fifth anniversary of the date of this Agreement, and, if extended
pursuant to Section 2.1, the date to which the scheduled maturity date of the
Term Loan has been extended.
"TERMINATION EVENT" means any of the following:
(i) with respect to a Pension Plan, a reportable event described in
Section 4043 of ERISA and the regulations issued thereunder (other than a
reportable event not subject to the provisions for 30-day notice to the PBGC
under such regulations);
(ii) the withdrawal of Borrower or an ERISA Affiliate from a Plan
during a plan year in which the withdrawing employer was a "substantial
employer" as defined in Section 4001(a)(2) or 4062(e) of ERISA;
29.
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(iii) the taking of any actions (including the filing of a notice of
intent to terminate) by Borrower, an ERISA Affiliate, the PBGC, a Plan
Administrator, or any other Person to terminate a Pension Plan or the treatment
of a Plan amendment as a termination of a Pension Plan under Section 4041 of
ERISA;
(iv) any other event or condition which might constitute grounds
under Section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Pension Plan; or
(v) the complete or partial withdrawal of Borrower or an ERISA
Affiliate from a Multiemployer Plan.
"WARRANT DOCUMENTS" means that certain Warrant Purchase Agreement
substantially in the form of Exhibit I hereto executed and delivered by Borrower
in favor of McKesson and the exhibits thereto and the warrants issued or to be
issued thereunder, as they may be amended from time to time in writing.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 WAIVER. No delay or failure of McKesson, or any holder
of any of the Notes, in exercising any right, power or privilege hereunder or
under any other Loan Document shall affect such right, power or privilege; nor
shall any single or partial exercise thereof or any abandonment or
discontinuance of steps to enforce such a right, power or privilege constitute a
waiver thereof. The rights and remedies of McKesson hereunder are cumulative
and not exclusive. Any waiver, permit, consent or approval of any kind by
McKesson, or any holder of any of the Notes, of any breach or default hereunder
or under any other Loan Document, or any such waiver of any provisions or
conditions hereof or thereof, must be in writing and signed by McKesson and
shall be effective only to the extent set forth in such writing.
SECTION 9.2 NOTICES. Any notice under this Agreement and under any
other Loan Document shall be deemed sufficiently given and served for all
purposes if and when given by telegram, telex, facsimile or by mail deposited in
the United States mail, postage and all other charges prepaid, addressed as
follows:
(a) If to Borrower:
HORIZON Pharmacies, Inc.
275 W. Princeton Drive
Princeton, TX 75407
Attn: Chief Financial Officer
Facsimile: 972-736-2588
with a copy to:
J. Mark Lovelace, Esq.
Phillips McFall McCaffrey McVay & Murrah, P.C.
One Leadership Square, Twelfth Floor
211 North Robinson
Oklahoma City, OK 73102
Facsimile: (405) 235-4133
30.
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(b) If to McKesson:
McKesson Corporation
One Post Street
San Francisco, California 94104
Attn: Assistant Treasurer
Facsimile: (415) 983-8464
or to such other address of which a party may notify the other party in writing.
SECTION 9.3 FEES, ETC. Borrower will reimburse McKesson for all
costs, out-of-pocket expenses and reasonable attorneys' fees expended or
incurred by McKesson in preparation of or enforcing (or attempted enforcement
of) the Loan Documents, in actions for declaratory relief in any way related to
the Loan Documents, or in collecting any sum which becomes due to McKesson under
the Loan Documents, subject, however, to a cap on attorneys' fees expended or
incurred by McKesson of $[redacted--Confidential Treatment] PLUS [redacted--
Confidential Treatment] of any such attorneys' fees in excess of $[redacted--
Confidential Treatment] for the negotiation and preparation of the Loan
Documents.
SECTION 9.4 INDEMNITY. Borrower agrees to indemnify and hold
harmless McKesson and its Affiliates and officers, directors, employees, agents,
attorneys and advisors for all claims, damages, losses, liabilities and expenses
(including, without limitation, reasonable fees and disbursements of counsel)
incurred by any of them in connection with this Agreement and the other Loan
Documents, except to the extent such claims, damages, losses, liabilities and
expenses are caused by such party's gross negligence or willful misconduct.
SECTION 9.5 PAYMENTS ON SATURDAY, ETC. Whenever any payment to be
made under any of the Loan Documents shall be stated to be due on a Saturday,
Sunday or a public holiday, such payment may be made on the next succeeding
Business Day and such extension of time shall in such case be included in
computing interest, if any, in connection with such payment.
SECTION 9.6 GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with and governed by the laws of the State of California
and each party to this Agreement hereby consents and submits itself to the
jurisdiction of the courts of said state and the courts of the United States of
America located in said state in any action arising out of or connected with
this Agreement.
SECTION 9.7 ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of Borrower, McKesson, and their respective heirs,
executors, successors and assigns; provided that Borrower may not transfer its
rights or obligations under this Agreement or any other Loan Document without
the prior written consent of McKesson. Borrower agrees that McKesson may sell
or otherwise assign, or grant participations in, all or any portion of the Loans
and its rights under the Loan Documents and in that connection may provide to
prospective and actual assignees and participants any and all information
concerning Borrower that is available to McKesson.
SECTION 9.8 ENTIRE AGREEMENT. THIS AGREEMENT, THE OTHER
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LOAN DOCUMENTS AND THE SUPPLY AGREEMENT CONTAIN THE ENTIRE AGREEMENT OF THE
PARTIES AND SUPERSEDE ALL PRIOR AGREEMENTS OR UNDERSTANDINGS, ORAL OR
WRITTEN, WITH RESPECT TO ANY RELATIONSHIP BETWEEN BORROWER AND McKESSON
WHETHER RELATING TO FINANCING, CREDIT ARRANGEMENTS, SALE OF PRODUCTS OR
OTHERWISE.
SECTION 9.9 MISCELLANEOUS. This Agreement may be changed only by an
agreement in writing signed by the party against whom enforcement of any waiver,
amendment, extension or discharge is sought. This Agreement may be signed in
counterparts, all of which shall be taken together as a single instrument. If
any term, covenant, condition or provision of this Agreement or the application
thereof to any Person or circumstances shall, to any extent, be invalid or
unenforceable, then the remainder of this Agreement, or the application of such
term or provision to Persons or circumstances other than those as to which it is
held invalid or unenforceable, shall not be affected thereby and each term,
covenant, condition and provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
SECTION 9.10 LIMITATION ON LIABILITY. No claim shall be made by
Borrower or its Subsidiaries or affiliates against McKesson or any of its
affiliates or related persons for any special, indirect, exemplary,
consequential or punitive damages in respect of any breach or wrongful conduct
(whether or not the claim therefor is based on contract, tort or duty imposed by
law), in connection with, arising out of or in any way related to the
transactions contemplated by the Loan Documents or any act or omission or event
occurring in connection therewith; and Borrower hereby waives, releases and
agrees not to sue upon any such claim for any such damages, whether or not
accrued and whether or not known or suspected to exist in its favor.
[rest of page intentionally left blank]
32.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed on the day and year first above written.
HORIZON PHARMACIES, INC. McKESSON CORPORATION
By By
---------------------------- -------------------------------
Title Title
------------------------- ----------------------------
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CONFIDENTIAL
TREATMENT
FIRST AMENDMENT
TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this "AMENDMENT") is
dated as of July 20, 1998 between HORIZON Pharmacies, Inc., a Delaware
corporation ("BORROWER"), and McKesson Corporation, a Delaware corporation
("MCKESSON").
RECITALS
WHEREAS, Borrower and McKesson are parties to that certain Credit
Agreement dated as of July 2, 1998 (the "CREDIT AGREEMENT"). Capitalized
terms used herein without definition shall have the same meanings herein as
set forth in the Credit Agreement.
WHEREAS, Borrower has requested that McKesson consent to the
amendment of certain financial covenants and other provisions set forth in
the Credit Agreement, and McKesson is willing to do so upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties hereto
agree as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. Section 3.8 of the Credit Agreement is amended by adding the
following at the end thereof:
The liens evidenced by UCC financing statements 19982007955
(Colorado), 960619011 (New Mexico), 745176 (Nebraska), 056721
(Oklahoma), 9700050771 (Texas), 9800006753 (Texas) and 9800053614
(Texas) are all in connection with indebtedness permitted by Section
6.9(d).
B. Section 5.14 of the Credit Agreement is amended to read in full
as follows:
SUBSEQUENT COLLATERAL. From time to time execute and deliver to
McKesson such additional security agreements, pledge agreements,
mortgages, collateral assignments or amendments thereto, and take such
other steps as may be reasonably requested by McKesson, in order to
grant a first priority security interest or lien to McKesson, and to
perfect such security interest or lien, in any assets of Borrower and
its Subsidiaries as to which a security interest or lien has not
previously been created or perfected, including (i) taking such steps
as are outlined in Section 5.13 with regard to any subsequently
acquired leased Premises of Borrower or its Subsidiaries, (ii)
pledging the interest of Borrower or any of its Subsidiaries in any
new Subsidiaries, joint ventures (to the extent permitted by the
<PAGE>
joint venture document), limited liability companies or other entities,
and (iii) mortgaging any fee simple interests in real property owned or
subsequently acquired by Borrower or its Subsidiaries, but only if the
equity of Borrower and its Subsidiaries therein equal or exceeds
$100,000 per contiguous parcel or parcels. For purposes of the
preceding clause (iii), the three parcels owned by Borrower as of July
2, 1998 in Princeton, Texas shall be deemed to be three separate, not
contiguous parcels. As to any mortgage on a fee simple interest in
real property, Borrower shall pay (or reimburse McKesson) up to $250
per parcel for the cost of title insurance or lesser assurance as to
title and the recordation and priority of McKesson's mortgage;
PROVIDED that, before acquiring any fee simple interest in real
property, Borrower shall give McKesson at least 10 Business Days'
prior notice of such acquisition so that, if McKesson is to obtain a
mortgage on such real property, it can do so concurrently with
Borrower's acquisition of the real property and obtain the benefit of
any lower premium for a lender's title insurance policy, and PROVIDED
FURTHER that McKesson may not require at Borrower's expense any
greater level of title insurance than Borrower obtains as an owner.
McKesson shall have the right, no more than once in any consecutive
twelve-month period for each parcel or real property, to obtain an
appraisal of such real property to determine the value of the equity
of Borrower and its Subsidiaries in such parcel, and the cost of any
such appraisal shall be shared equally between Borrower and McKesson.
C. Clause (d) of Section 6.2 of the Credit Agreement is amended
to read in full as follows:
(d) liens in connection with indebtedness permitted pursuant to
Section 6.9(b), (c), (d) and (e); PROVIDED that any such lien in connection
with any such indebtedness shall not extend to any assets of Borrower other
than the assets specifically financed by such indebtedness; and
D. A new clause (e) shall be added to Section 6.2 of the Credit
Agreement to read in full as follows:
(e) liens in favor of the landlord of the premises located at
4000 Villanova, Dallas, Texas PROVIDED that such lien is subordinated
to any lien in favor of McKesson.
E. Section 6.9 of the Credit Agreement is amended to read in full
as follows:
INDEBTEDNESS/CAPITAL LEASE OBLIGATIONS. Incur additional
indebtedness or capital lease obligations after the date hereof except
the following ("PERMITTED INDEBTEDNESS"):
2
<PAGE>
(a) accounts payable incurred in the ordinary course of business;
(b) indebtedness not to exceed $[redacted--confidential treatment]
in the aggregate with respect to any one Borrower-owned store in connection
with any equipment lease or equipment purchase;
(c) purchase money indebtedness for the purchase of real estate
constituting Borrower's headquarters location and the construction of
improvements thereon and for the purchase of equipment by Borrower in the
ordinary course of business;
(d) indebtedness of Borrower to the applicable Seller incurred as part
of the purchase price for any Permitted Acquisition; and
(e) indebtedness of Borrower, other than as permitted by preceding
clauses (a) through (d) of this Section 6.9 but not to exceed $[redacted--
confidential treatment] in the aggregate at any one time, incurred in
connection with the acquisition of real estate on which a store or stores
of Borrower or its Subsidiaries is or will be located.
F. A new Section 9.11 shall be added to the Credit Agreement to
read in full as follows:
SECTION 9.11 CONFIDENTIALITY. (a) McKesson shall hold all
non-public information relating to the Borrower and its Subsidiaries
obtained by it under this Agreement in accordance with its customary
procedures for handling confidential information of this nature,
except for: (i) disclosure to its Affiliates or to its counsel or to
any agent or advisor acting on its behalf in connection with the
negotiation, execution or performance of the Loan Documents; (ii)
disclosure as reasonably required in connection with a transfer to a
prospective assignee or participant of all or part of its Loans or any
participation therein; (iii) disclosure as may be required or
requested by any governmental authority or representative thereof
(including pursuant to any applicable federal or state securities
laws) or pursuant to legal process; (iv) disclosure to any Person and
in any proceeding necessary in McKesson's judgment to protect its
interests in connection with any claim or dispute involving McKesson;
and (v) any other disclosure with the prior written consent of the
Borrower. In no event shall McKesson be obligated or required to
return any materials furnished by the Borrower or its Subsidiaries.
Notwithstanding the foregoing, such obligation of confidentiality
shall not apply if the information or substantially similar
information (A) is rightfully received by McKesson from a Person other
than the Borrower or any of its Affiliates without McKesson being
under an obligation to such Person not to disclose such information,
or (B) is or becomes part of the public domain.
(b) Borrower and its Subsidiaries shall hold all non-public
information relating to this Agreement in accordance with its customary
procedures for handling confidential information of this nature, except
for: (i) disclosure to its Affiliates or to its
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counsel or to any agent or advisor acting on its behalf in connection
with the negotiation, execution or performance of the Loan Documents;
(ii) disclosure as reasonably required in connection with negotiations
with a prospective acquirer of Borrower or substantially all of
Borrower's assets or a prospective merger partner; (iii) disclosure as
may be required or requested by any governmental authority or
representative thereof (including pursuant to any applicable federal
or state securities laws) or pursuant to legal process; (iv)
disclosure to any Person and in any proceeding necessary in Borrower's
judgment to protect its interests in connection with any claim or
dispute involving Borrower; and (v) any other disclosure with the
prior written consent of the McKesson. In no event shall Borrower be
obligated or required to return any materials furnished by McKesson or
its Subsidiaries. Notwithstanding the foregoing, such obligation of
confidentiality shall not apply if the information or substantially
similar information is or becomes part of the public domain.
SECTION 2. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the first date (the "FIRST
AMENDMENT DATE") on or before July 28, 1998 upon which the following
conditions have been satisfied:
(i) Borrower and McKesson shall have delivered to one another duly
executed counterparts of this Amendment; and
(ii) all the representations and warranties in Section 3 shall be
true and correct as of the date of this Amendment.
(iii) no Default shall have occurred and be continuing on the date
of this Amendment or will result from the consummation of this Amendment
(after giving effect to this Amendment).
When and if this Amendment becomes effective, the amendments set forth in
Section 1 shall be deemed effective as of July 2, 1998.
SECTION 3. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce McKesson to enter into this Amendment and to amend
the Credit Agreement in the manner provided herein, Borrower represents and
warrants to McKesson that the following statements are true, correct and
complete:
A CORPORATE POWER AND AUTHORITY. Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out
the transactions contemplated by, and perform its obligations under, the
Credit Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
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B AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Borrower.
C NO CONFLICT. The execution and delivery by Borrower of this
Amendment does not and will not contravene (i) any law or any governmental
rule or regulation applicable to Borrower or any of its Subsidiaries, (ii)
the Certificate of Incorporation or Bylaws of Borrower, (iii) any order,
judgment or decree of any court or other agency of government binding on
Borrower or any of its Subsidiaries or (iv) any material agreement or
instrument binding on Borrower or any of its Subsidiaries.
D GOVERNMENTAL CONSENTS. The execution and delivery by Borrower
of this Amendment and the performance by Borrower of the Amended Agreement do
not and will not require any registration with, consent or approval of, or
notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
E BINDING OBLIGATION. This Amendment and the Amended Agreement
have been duly executed and delivered by Borrower and are the binding
obligations of Borrower, enforceable against Borrower in accordance with
their respective terms, except in each case as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws of general application and equitable principles relating
to or affecting creditors' rights.
F INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article III of
the Credit Agreement are and will be true, correct and complete in all
material respects on and as of the date of this Amendment to the same extent
as though made on and as of such date, except to the extent such
representations and warranties specifically relate to an earlier date, in
which case they were true, correct and complete in all material respects on
and as of such earlier date.
G ABSENCE OF DEFAULT. No event has occurred and is continuing as
of the date of this Amendment or will result from the consummation of the
transactions contemplated by this Amendment that would constitute a Default
or an Event of Default (as determined after giving effect to the amendments
made by this Amendment).
SECTION 4. MISCELLANEOUS
A REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN AGREEMENTS.
(i) On and after the First Amendment Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit
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Agreement", "thereunder", "thereof" or words of like import referring to the
Credit Agreement shall mean and be a reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect
and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of
McKesson under, the Credit Agreement or any of the other Loan Documents nor
to create any course of dealing or otherwise obligate McKesson to forebear or
execute similar amendments or any waiver in similar circumstances in the
future.
B COSTS AND EXPENSES. The Company covenants to pay to or
reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and
reasonable attorneys' fees expended or incurred by McKesson in connection
with the development, preparation, negotiation, execution and delivery of
this Amendment and the documents and transactions contemplated hereby.
C HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not
constitute a part of this Amendment for any other purpose or be given any
substantive effect.
D APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE
OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
E COUNTERPARTS. 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 a party of a facsimile transmitted document purportedly
bearing the signature of the other party shall bind the other party with the
same force and effect as the delivery of a hard copy original. Any failure
by a party 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 other party.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
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HORIZON PHARMACIES, INC.
By:
-------------------------
Title
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McKESSON CORPORATION
By:
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Title
-------------------------
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR
The undersigned in its capacity as a guarantor under that certain
Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i)
acknowledges and consents to the execution, delivery and performance by
Borrower of the foregoing First Amendment to Credit Agreement (the
"Amendment"), (ii) acknowledges that the undersigned's consent is being
sought purely as a protective measure and understands that the terms of the
Credit Agreement dated as of July 2, 1998 may be amended without prior notice
to or consent of the undersigned and without discharging or otherwise
affecting the liability of the undersigned under the Guaranty, and (iii)
reaffirms that it will continue to be bound by all of the provisions of the
Guaranty and that such Guaranty will remain in full force and effect
notwithstanding the execution and delivery by Borrower of the First Amendment
referred to above.
HORIZON HOME CARE, INC.
By
-------------------------
Its
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