AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 7, 1995
REGISTRATION NO. 33-64409
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------
ECKERD CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 13-3302437
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
</TABLE>
8333 BRYAN DAIRY ROAD
LARGO, FLORIDA 34647
(813) 399-6000
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
ROBERT E. LEWIS, ESQ.
VICE PRESIDENT/GENERAL COUNSEL
8333 BRYAN DAIRY ROAD
LARGO, FLORIDA 34647
(813) 399-6000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-------------------
COPIES TO:
<TABLE>
<S> <C>
STACY J. KANTER, ESQ. MARK KESSEL, ESQ.
SKADDEN, ARPS, SLATE, MEAGHER & FLOM SHEARMAN & STERLING
919 THIRD AVENUE 599 LEXINGTON AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10022
(212) 735-3000 (212) 848-4000
</TABLE>
-------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this registration statement becomes effective.
-------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, please check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
-------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(2) OFFERING PRICE(3) REGISTRATION FEE(3)(4)
<S> <C> <C> <C> <C>
Common Stock ($.01 par value)....... 5,750,000 shares $42.25 $244,375,000 $84,268
</TABLE>
(1) Includes 750,000 shares of Common Stock that the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee.
Pursuant to Rules 457(a) and 457(c) under the Securities Act of 1933, the
registration fee applicable to the Common Stock is calculated upon the basis
of the average high and low sales prices of the Common Stock as reported on
the New York Stock Exchange Composite Tape on November 30, 1995.
(3) Of the 5,750,000 shares being registered (i) 2,875,000 shares were
registered in connection with the original filing of this registration
statement at a proposed maximum aggregate offering price of $122,906,250 and
a registration fee of $42,382 and (ii) 2,875,000 additional shares are being
registered by this filing at a proposed maximum aggregate offering price of
$121,468,750 and a registration fee of $41,886.
(4) Includes $42,382 previously paid in connection with this transaction.
-------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED DECEMBER 7, 1995
PROSPECTUS
- ----------
5,000,000 SHARES
[ECKERD CORPORATION LOGO]
COMMON STOCK
-------------------
All of the 5,000,000 shares of common stock, par value $.01 per share (the
"Common Stock"), of Eckerd Corporation (the "Company") offered hereby (the
"Offering") are being sold by certain stockholders of the Company (the "Selling
Stockholders"). See "Principal and Selling Stockholders." The Company will not
receive any proceeds from the sale of shares of Common Stock offered hereby.
The Common Stock is listed on the New York Stock Exchange ("NYSE") under the
trading symbol "ECK." On December 6, 1995, the last reported sale price of the
Common Stock on the NYSE was $43 1/4 per share. See "Price Range of Common Stock
and Dividend Policy."
FOR INFORMATION CONCERNING CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY
PROSPECTIVE INVESTORS, SEE "RISK FACTORS" COMMENCING ON PAGE 8.
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING SELLING
PUBLIC DISCOUNT(1) STOCKHOLDERS(2)
<S> <C> <C> <C>
Per Share...................... $ $ $
Total(3)....................... $ $ $
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
several Underwriters against certain liabilities under the Securities Act of
1933, as amended (the "Securities Act"). See "Underwriting."
(2) The Company has agreed to pay certain expenses of the Offering estimated at
$525,000.
(3) The Selling Stockholders have granted the Underwriters a 30-day option to
purchase up to an aggregate of 750,000 additional shares of Common Stock,
solely to cover over-allotments, if any. If all such additional shares are
purchased, the total Price to Public, Underwriting Discount and Proceeds to
Selling Stockholders will be $ , $ and $ ,
respectively. See "Underwriting."
-------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1995.
-------------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
MORGAN STANLEY & CO.
INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
-------------------
The date of this Prospectus is , 1995.
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE
<PAGE>
[ECKERD CORPORATION LOGO]
["It's right at Eckerd." logo]
[MAP OF ECKERD DRUG STORES BY STATE]
IN CONNECTION WITH THE OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
DURING THIS OFFERING, CERTAIN PERSONS AFFILIATED WITH PERSONS PARTICIPATING
IN THE DISTRIBUTION MAY ENGAGE IN TRANSACTIONS FOR THEIR OWN ACCOUNTS OR FOR THE
ACCOUNTS OF OTHERS IN THE COMMON STOCK OF THE COMPANY PURSUANT TO EXEMPTIONS
FROM RULES 10B-6, 10B-7, AND 10B-8 UNDER THE SECURITIES EXCHANGE ACT OF 1934.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements appearing elsewhere in this
Prospectus. Unless the context indicates otherwise, all references in this
Prospectus to the "Company" include Eckerd Corporation and its subsidiaries. All
references to fiscal years shall be determined with respect to the calendar year
in which the fiscal year begins. The Company's fiscal year terminates each year
on the Saturday nearest to January 31st. Unless the context indicates otherwise,
the information contained in this Prospectus assumes that the over-allotment
option granted by the Selling Stockholders to the Underwriters has not been
exercised.
THE COMPANY
Eckerd Corporation (the "Company") operates the Eckerd Drug store chain,
which is one of the largest drug store chains in the United States. At October
28, 1995, the Eckerd Drug store chain consisted of 1,704 stores in 13 states
located primarily in the Sunbelt, including 577 stores in Florida and 474 stores
in Texas. The Company's stores are concentrated in 10 of the 12 metropolitan
statistical areas in the United States with the largest percentage growth in
population from 1980 to 1990, and, according to industry sources, the Company
ranks first or second in drug store sales in 12 of the 14 major metropolitan
markets in which it operates.
The primary focus of Eckerd Drug stores is the sale of prescription and
over-the-counter drugs. During fiscal 1994, the Company filled more than 89
million prescriptions, and sales of prescriptions and over-the-counter drugs
generated approximately 61.1% of the Company's drug store sales and other
operating revenue. During the period from fiscal 1990 through fiscal 1994, the
Company's dollar volume of sales of prescription drugs increased at a compound
annual growth rate of 12.4% and during the first half of fiscal 1995, the dollar
volume of sales of prescription drugs increased by 15.8% as compared to the
first half of fiscal 1994. The Company expects that its prescription and
over-the-counter drug business will provide significant opportunities for
profitable growth primarily as a result of the continued shift to managed health
care in the United States and the aging of the American population.
The Company believes it is well positioned to take advantage of the growth
in managed health care. The Company's extensive store base within its markets,
strong third-party payor marketing program, state-of-the-art pharmacy computer
systems, and experience and reputation in the industry provide the Company with
distinct advantages over independent drug stores, small drug store chains and
mass merchandisers in attracting third-party payor sales. In fiscal 1994, sales
to third-party payors, such as insurance companies, health maintenance
organizations ("HMOs"), preferred provider organizations ("PPOs"), other managed
care providers, government agencies or private employers, represented
approximately 64.6% of the Company's total prescription drug sales, as compared
to 36.0% in fiscal 1990, and this percentage is expected to continue to
increase.
The Company also expects to benefit from the aging of the population, as
approximately 62% of the Company's drug stores are located in Florida and Texas,
two of the top three states in terms of growth in the number of persons over age
65. According to industry studies, persons over age 65 purchase twice as many
prescription drugs and 50% more over-the-counter drugs than the national
average.
In addition to prescription and over-the-counter drugs, the Company also
sells a wide variety of name brand and private label nonpharmacy merchandise,
including health and beauty aids, greeting cards and other convenience products,
such as sundries, tobacco, books, magazines, household products, seasonal
merchandise and toys. Over the last several years, the Company has introduced
convenience food mart sections in over 550 stores, offering beverages and other
convenience food items. The Company plans to add food mart departments to over
350 stores in fiscal 1995. The Company is also a leading source of photo
finishing in all of the major markets in which it operates, offering overnight
3
<PAGE>
developing in all of its stores and 1-hour Express Photo service in 510 of its
locations as of October 28, 1995. The Company is one of the top three vertically
integrated retail photo finishers in the United States. The Company believes
that photo finishing operations increase store traffic and provide for
significant incremental sales of other drug store items. The Company anticipates
opening additional Express Photo Centers over the next several years in both new
and existing store locations, with a goal of adding approximately 240 new
Express Photo Centers by 1999.
Customer service and convenience are critical in positioning the Company as
an alternative to mass merchandisers, supermarkets and other large format
retailing channels. The Company typically provides several conveniently located,
modern stores in a community. The Company's stores range in size from 8,200 to
10,800 square feet and are primarily located in high-traffic neighborhood strip
centers or free standing locations. The Company's stores are typically open
every day of the year except Christmas, with some open until midnight or 24
hours a day. The Company offers a high level of professional pharmacy service
such as the "Rx Advisor", a personalized, easy-to-read publication provided to
each prescription drug customer which advises the customer of the specific
dosages, contraindications and side effects of his or her prescription medicine.
Other customer service advantages include comfortable pharmacy waiting areas,
free health-related programs and screenings (e.g., blood pressure tests) and
drive-through pharmacy windows in most new drug stores. In addition, the Company
frequently tests new customer service features.
The Company's business strategy is focused upon maintaining a strong
pharmacy and health-related business. The Company plans to continue to implement
this strategy by:
. maintaining a high level of customer service and convenience;
. providing competitive prices on its merchandise;
. maintaining an aggressive marketing program to third-party payors;
. continuing its commitment to control costs;
. improving store productivity and profitability by continuing to assess the
need to reallocate nonpharmacy shelf space;
. expanding and improving the Company's store base; and
. continuing to invest in and upgrade information systems.
The Company was incorporated in Delaware in 1985 and acquired the former
Jack Eckerd Corporation ("Old Eckerd") in 1986 (the "Acquisition"). The
Company's principal executive offices are located at 8333 Bryan Dairy Road,
Largo, Florida 34647; telephone number (813) 399-6000.
RECENT OPERATING RESULTS
On November 28, 1995, the Company announced its operating results for the
nine-month period ended October 28, 1995. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition--Recent Operating
Results."
4
<PAGE>
THE OFFERING
Common Stock Offered by the
Selling Stockholders......... 5,000,000 shares
Total Common Stock
Outstanding.................. 34,950,857 shares (1)
NYSE Symbol.................. ECK
- ------------
(1) Based on the number of shares outstanding as of October 28, 1995. Does not
include employee stock options outstanding to purchase an aggregate of
1,656,199 shares of Common Stock at October 28, 1995, of which options to
purchase an aggregate of 302,328 shares of Common Stock were exercisable. In
addition, another 1,757,910 shares of Common Stock were reserved for
issuance pursuant to the Company's 1993 and 1995 Stock Option and Incentive
Plans.
5
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following summary historical financial data for the years and periods
presented below have been derived from the Company's consolidated financial
statements. The historical financial data for the three fiscal years ended
January 28, 1995, January 29, 1994 and January 30, 1993 have been derived from,
and should be read in conjunction with, the Company's audited consolidated
financial statements and related notes contained in the Company's Annual Report
on Form 10-K405 (the "Annual Report") incorporated by reference herein. The
historical financial data for the twenty-six week periods ended July 29, 1995
and July 30, 1994 have been derived from, and should be read in conjunction
with, the unaudited consolidated financial statements of the Company contained
in the Company's Quarterly Report on Form 10-Q for the quarter ended July 29,
1995 (the "10-Q") incorporated by reference herein which, in the opinion of
management, reflect all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the interim period financial
data. The results for the twenty-six week period ended July 29, 1995 are not
necessarily indicative of the results to be expected for the full year. The
summary pro forma statement of operations data presented below give effect to
the Insta-Care Sale (as defined) and the use of the net proceeds therefrom as if
such transaction had occurred as of the beginning of the periods presented and
for the fiscal year ended January 28, 1995 also reflect the reversal of the gain
on the Insta-Care Sale and the charge for future store closings and should be
read in conjunction with "Pro Forma Financial Data." The summary pro forma
financial data do not purport to represent what the Company's results of
operations would actually have been if the Insta-Care Sale and the use of
proceeds therefrom in fact had occurred at the beginning of the period
presented, or to project the Company's results of operations for any future
period. All information contained in the following tables should be read in
conjunction with "Management's Discussion and Analysis of Results of Operations
and Financial Condition" and the consolidated financial statements of the
Company and related notes incorporated by reference herein.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS AND PER SQUARE FOOT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating
revenue(1).......................... $2,358,318 $2,203,085 $4,549,031 $4,190,539 $3,887,027 $3,739,852 $3,456,134
Gross profit(2).................... 533,722 516,721 1,104,890 1,015,164 990,548 1,001,307 928,590
Earnings before interest expense... 91,299 83,108 180,819 157,184 135,383 147,098 111,327
Total interest expense............. 39,949 48,392 93,735 113,215 137,404 143,194 147,309
Earnings (loss) before
extraordinary items................. 42,620 32,966 78,331 41,413 (4,885) 977 (35,982)
Net earnings (loss) for the
period(3)........................... 41,599 32,966 47,808 (2,941) (4,123) 2,657 (35,982)
Net earnings (loss) available to
common shares(3)................. 41,599 32,966 47,808 (7,865) (14,938) (8,166) (46,848)
Earnings (loss) before
extraordinary items per common
share(4)............................ $ 1.30 $ 1.02 $ 2.41 $ 1.24 $ (0.59) $ (0.38) $ (1.97)
Net earnings (loss) per common
share(3)(4)......................... 1.27 1.02 1.47 (0.27) (0.56) (0.32) (1.97)
Weighted average common shares
outstanding......................... 32,855,056 32,235,137 32,431,719 29,392,805 26,573,902 25,677,103 23,793,496
OTHER OPERATING DATA:
EBITDA(5).......................... $ 130,860 $ 120,401 $ 258,613 $ 242,844 $ 229,217 $ 248,677 $ 235,687
EBITDA Margin(6)................... 5.5% 5.5% 5.7% 5.8% 5.9% 6.6% 6.8%
LIFO charge(7)..................... $ 5,992 $ 4,841 $ 10,750 $ 8,500 $ 15,000 $ 21,000 $ 23,000
Depreciation....................... 23,889 21,515 45,842 50,041 53,753 49,554 47,835
Amortization of intangibles and
expenses related to Acquisition
and other(8)........................ 15,672 15,778 31,952 35,619 40,081 52,025 77,925
Capital expenditures............... 40,169 21,739 57,246 39,327 51,389 49,410 73,243
DRUG STORE DATA:
Drug stores open at end of
period.............................. 1,666 1,714 1,735 1,718 1,696 1,675 1,673
Comparable drug store sales
growth.............................. 8.8% 8.0% 8.1% 6.1% 3.1% 5.7% 6.9%
Average sales per drug store....... $ 1,383 $ 1,252 $ 2,561 $ 2,365 $ 2,222 $ 2,142 $ 2,036
Average sales per selling floor
square foot......................... 182 159 325 302 283 272 258
Prescription sales as a percentage
of drug store sales and other
operating revenue................... 53.3% 50.5% 50.8% 48.3% 45.4% 44.0% 42.6%
Prescription and over-the-counter
sales as a percentage of drug
store sales and other operating
revenue............................. 63.7% 60.9% 61.1% 59.0% 55.9% 54.7% 52.8%
Third-party prescription sales as a
percentage of prescription
sales............................... 69.4% 63.2% 64.6% 58.0% 49.6% 43.1% 36.0%
</TABLE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
JULY 30, 1994 JAN. 28, 1995
---------------------- -----------------
<S> <C> <C>
PRO FORMA STATEMENT OF OPERATIONS DATA:(9)(10)
Total interest expense(11)................................................ $ 44,125 $ 86,987
Earnings before extraordinary items....................................... 34,375 80,395
Net earnings for the period............................................... 34,375 49,872
Net earnings available to common shares................................... 34,375 49,872
Earnings before extraordinary items per common share...................... 1.07 2.48
Net earnings per common share............................................. 1.07 1.54
Weighted average common shares outstanding................................ 32,235,137 32,431,719
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 29, 1995
-----------------------------
ACTUAL AS ADJUSTED(12)
---------- ---------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................................... $ 335,524 $ 353,484
Total assets........................................................................ 1,344,216 1,406,177
Long-term debt (including current installments)..................................... 790,558 771,600
Stockholders' equity (deficit)...................................................... (80,533) (3,225)
</TABLE>
(Footnotes on following page)
6
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Reflects reclassification of sales to employees in the twenty-six weeks
ended July 30, 1994 to conform to fiscal 1995 financial statement
presentation. Fiscal 1994, 1993, 1992, 1991 and 1990 have not been
reclassified.
(2) Gross profit represents sales and other operating revenue less cost of
sales, including store occupancy, warehousing and delivery expense.
(3) Reflects extraordinary item of $762 in fiscal 1992 and $1,680 in fiscal
1991 relating to the tax effect of utilization of net operating loss
carryforwards and extraordinary loss net of taxes of $1,021 in the
twenty-six weeks ended July 29, 1995 and $30,523 in fiscal 1994 relating to
the early retirement of indebtedness and $44,354 in fiscal 1993 relating to
the early retirement of indebtedness and preferred stock.
(4) Reflects payment of preferred stock dividends of $4,924 in fiscal 1993,
$10,815 in fiscal 1992, $10,823 in fiscal 1991 and $10,866 in fiscal 1990.
(5) EBITDA means earnings before interest, taxes, depreciation, amortization of
intangibles and expenses related to the Acquisition and other, and, for
fiscal 1990, the reversal of the inventory valuation reserve established in
fiscal 1986 in connection with the Acquisition. See "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--General--Impact of Non-Cash and Non-Recurring Charges." The
Company believes that EBITDA is an important measure of its operating
results because of the significant amount of charges resulting from the
Acquisition and other transactions which are non-cash and/or non-recurring.
However, EBITDA should not be considered in isolation or as a substitute
for net earnings and other statement of operations data prepared in
accordance with generally accepted accounting principles as a measure of
the Company's profitability or liquidity.
(6) EBITDA Margin means EBITDA as a percentage of sales and other operating
revenue.
(7) LIFO charge for fiscal 1990 is before the reversal of the inventory
valuation reserve established in fiscal 1986 in connection with the
Acquisition.
(8) Includes amortization of assets written up as a result of the Acquisition,
including goodwill, and charges due to certain performance-related
management compensation programs.
(9) The pro forma statement of operations data reflect the Insta-Care Sale and
the use of the net proceeds as if such transaction had occurred as of the
beginning of the periods presented. See "The Company--The 1994
Transactions--The Insta-Care Sale" and "Pro Forma Financial Data."
(10) For the fiscal year ended January 28, 1995, excludes $54,125 from sales and
other operating revenue for the gain on the Insta-Care Sale, $4,655 from
income taxes for the gain on the Insta-Care Sale and $48,988 from operating
and administrative expenses for the charge for future store closings.
(11) Pro forma interest expense was computed assuming a rate of 6 1/2% under the
Credit Agreement.
(12) The as adjusted balance sheet data reflect the use of the net proceeds of
approximately $82.3 million from the August Offering (as defined under "The
Company--The 1995 Transactions") which was completed on August 2, 1995.
Such net proceeds, together with approximately $54.8 million of Revolving
Loan (as defined) borrowings under the Credit Agreement (as defined under
"Description of Certain Indebtedness--The Credit Agreement") were used to
redeem all of the Company's 11 1/8% Subordinated Debentures due 2001 (the
"11 1/8% Debentures") and to finance the Florida Acquisition (as defined
under "The Company--The 1995 Transactions").
7
<PAGE>
RISK FACTORS
Prior to making an investment decision, prospective purchasers of Common
Stock should carefully consider all of the information contained in this
Prospectus, and, in particular, should evaluate the following risk factors.
SUBSTANTIAL INDEBTEDNESS
As a result of the Acquisition, the related financing and refinancings
thereof, the Company is highly leveraged. At July 29, 1995, the Company had
long-term debt (including current maturities) of $790.6 million and a
stockholders' deficit of $80.5 million. The Company may incur additional
indebtedness in the future, including (i) unused and available borrowing
commitments under the Credit Agreement of $198.7 million on July 29, 1995 and
(ii) up to an additional $150.0 million aggregate principal amount of debt
securities (the "Debt Securities") which are registered pursuant to an effective
shelf registration statement, subject in all cases to certain restrictions
contained in the Credit Agreement, the Company's 9 1/4% Senior Subordinated
Notes due 2004 (the "9 1/4% Notes") and the Company's other debt instruments.
See "--Restrictions Imposed by Terms of the Company's Indebtedness." As of
November 30, 1995, the Company had borrowed under the Credit Agreement an
additional $158.7 million and had $28.0 million of unused and available
borrowing commitments thereunder.
The ability of the Company to make cash payments to satisfy its substantial
indebtedness will depend upon its future operating performance, which is subject
to prevailing economic conditions, and to financial, business and other factors
beyond the Company's control. Based upon the Company's ability to generate cash
flow from operating activities, the available unused portion of the working
capital revolving loans under the Credit Agreement and other existing financing
sources, the Company believes that it will have the funds necessary to meet the
principal and interest payments on its debt as they become due and to operate
and expand its businesses. However, there can be no assurance that the Company
will be able to do so. If the Company is unable to generate sufficient earnings
and cash flow to meet its obligations with respect to its outstanding
indebtedness, refinancing of certain of these debt obligations or asset
dispositions might be required. In the event debt refinancing is required, there
can be no assurance that the Company can effect such refinancing on satisfactory
terms or that the refinancing will be permitted by the lenders under the Credit
Agreement, by the terms of the 9 1/4% Notes or by the other creditors of the
Company. In addition, asset dispositions may be made under circumstances which
might not be favorable to realizing the best price for such assets. Moreover,
there can be no assurance that assets can be sold promptly enough, or for
amounts sufficient to satisfy outstanding debt obligations. The Credit Agreement
and the 9 1/4% Notes contain certain restrictions on the Company's ability to
sell assets and on the use of proceeds from permitted asset sales. For
information regarding restrictions on debt refinancing and asset dispositions,
see "Description of Certain Indebtedness."
While certain transactions consummated in fiscal 1993 and 1994, such as the
IPO (as defined), the issuance of the 9 1/4% Notes and amendments to the Credit
Agreement, and certain transactions consummated in fiscal 1995, such as the
August Offering and the recent amendment to the Credit Agreement (the "1995
Credit Agreement Amendment"), have improved the Company's financial flexibility,
the substantial interest and principal payment requirements on borrowings under
the Credit Agreement, the 9 1/4% Notes and the Company's other indebtedness
could have important consequences to holders of Common Stock. See "Description
of Certain Indebtedness--The Credit Agreement." Such consequences include (i)
limiting the Company's ability to effect future financings and otherwise
restricting corporate activities, including the Company's ability to respond to
market conditions, to provide for capital expenditures or to take advantage of
acquisition opportunities and (ii) reducing the funds available to the Company
for its operations. The Credit Agreement, the 9 1/4% Notes and certain other
financing agreements impose other operating and financial restrictions on the
Company, the failure to comply with which may result in an event of default
which, if not cured or waived, would have
8
<PAGE>
material adverse effect on the Company. See "--Restrictions Imposed by Terms of
the Company's Indebtedness."
All of the Company's indebtedness under the Credit Agreement is at variable
rates of interest, causing the Company to be sensitive to prevailing interest
rates. As required by the Credit Agreement, the Company has entered into certain
interest rate protection agreements with respect to $200.0 million of its
floating rate exposure. Such interest rate protection agreements will remain in
full force and effect through August 1996. At November 30, 1995, the Company had
$633.0 million of borrowings under the Credit Agreement which are at variable
rates of interest. To the extent interest rates rise, the Company's ability to
pay principal and interest on borrowings under the Credit Agreement and its
other indebtedness could be adversely affected. See "Description of Certain
Indebtedness--The Credit Agreement."
RESTRICTIONS IMPOSED BY TERMS OF THE COMPANY'S INDEBTEDNESS
The terms and conditions of the Credit Agreement and the 9 1/4% Notes
Indenture (as defined herein) impose restrictions that affect, among other
things, the ability of the Company and its subsidiaries to incur debt, pay
dividends, make acquisitions, create liens and make capital expenditures. See
"Description of Certain Indebtedness--The Credit Agreement" and "Description of
Certain Indebtedness--The 9 1/4% Notes." The Credit Agreement also requires the
Company to satisfy certain financial covenants on a quarterly basis. The ability
of the Company to comply with such financial covenants can be affected by events
beyond the Company's control, and there can be no assurance that the Company
will achieve operating results that will comply with such covenants. A breach of
any of these covenants could result in a default under the Credit Agreement, the
9 1/4% Notes Indenture and other indebtedness of the Company. In the event of
any such default, the lenders under the Credit Agreement could elect to declare
all amounts borrowed thereunder, together with accrued interest, to be due and
payable. If the Credit Agreement indebtedness or the 9 1/4% Notes were to be
accelerated, there can be no assurance that the assets of the Company would be
sufficient to repay in full such Credit Agreement indebtedness and the other
indebtedness of the Company. See "Description of Certain Indebtedness--The
Credit Agreement."
COMPETITION
The Company operates in highly competitive industries. In addition to
traditional competition from independent drug stores and other drug store
chains, Eckerd Drug stores face competition from mass merchants (including
discounters and deep discounters), supermarkets, combination food and drug
stores, mail order distributors, hospitals and HMOs and other managed care
providers. These other formats have experienced significant growth in their
market share of the prescription and over-the-counter drug business. Many of
these competitors have greater financial resources than the Company. The Company
competes with these competitors primarily on the basis of customer service,
convenience and price. See "Business--Business Strategy--Competitive Pricing"
and "Business--Business Strategy--Competition."
PRESCRIPTION DRUG SALES AND FUTURE REGULATION
The Company relies on prescription drug sales for a significant portion of
its revenues and profits, and prescription drug sales represent a growing
segment of the Company's business. Prescription drug sales accounted for
approximately 53.3%, 50.8%, 48.3%, 45.4%, 44.0% and 42.6% of the Company's drug
store sales and other operating revenue for the first half of fiscal 1995,
fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991 and fiscal 1990,
respectively. These revenues are affected by changes within the health care
industry, including changes in programs providing for reimbursement of the cost
of prescription drugs by third-party payors, such as government and private
sources, and regulatory changes relating to the approval process for
prescription drugs. In recent years, an increasing number of
9
<PAGE>
legislative proposals have been introduced or proposed in Congress and in some
state legislatures that would effect major changes in the health care system,
either nationally or at the state level. The Company cannot predict whether any
federal or state health care reform legislation will eventually be passed, and
if so, the impact thereof on the Company's financial position or results of
operations. Health care reform, if implemented, could adversely affect the
pricing of prescription drugs or the amount of reimbursement from governmental
agencies and third-party payors, and consequently could be adverse to the
Company. However, to the extent health care reform expands the number of persons
receiving health care benefits covering the purchase of prescription drugs, it
may also result in increased purchases of such drugs and could thereby have a
favorable impact on both the Company and the retail drug industry in general.
Nevertheless, there can be no assurance that any future federal or state health
care reform legislation will not adversely affect the Company or the retail drug
store industry generally. See "Business--Regulation."
SALES TO THIRD-PARTY PAYORS
A growing percentage of the Company's prescription drug volume has been
accounted for by sales to customers who are covered by third-party payment
programs. Third-party prescription sales accounted for approximately 69.4%,
64.6%, 58.0%, 49.6%, 43.1% and 36.0% of the Company's prescription sales in the
first half of fiscal 1995, fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991
and fiscal 1990, respectively. Prescription sales to third-party payors, in
terms of both dollar volume and as a percentage of total prescription sales,
continued to increase in the first half of fiscal 1995 and the Company expects
this trend to continue. Although contracts with third-party payors may increase
the volume of prescription sales and gross profits, third-party payors typically
negotiate lower prescription prices than those on non third-party prescriptions.
Accordingly, there has been downward pressure on gross profit margins on sales
of prescription drugs which is expected to continue in future periods. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and "Business--The Drug Store Industry."
PRINCIPAL STOCKHOLDERS
Upon completion of the Offering, the Merrill Lynch Investors (as defined
under "The Company-- General") will own approximately 8.64% of the outstanding
shares of Common Stock (approximately 6.50% if the over-allotment option is
exercised in full) and the Management Investors (as defined under "The
Company--General") will own approximately 3.27% of the outstanding shares of
Common Stock. As a result of such stock ownership, if the Merrill Lynch
Investors and the Management Investors were to vote together, they will be able
to influence significantly the election of the Board of Directors of the Company
and the vote on all other matters requiring stockholder approval. In addition,
three members of the Board of Directors of the Company serve as representatives
of the Merrill Lynch Investors. The Merrill Lynch Investors are affiliates of
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"). In
addition, certain provisions of the Company's Certificate of Incorporation and
By-laws could make more difficult non-negotiated acquisitions of the Company.
These provisions include a staggered board of directors, limitation on actions
by written consent of stockholders and advance notice procedures for nominations
of directors and other stockholder proposals. See "Principal and Selling
Stockholders" and "Description of Capital Stock--Certificate of Incorporation
and By-laws."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, approximately 34,950,857 shares of Common
Stock will be outstanding. All of the 5,000,000 shares of Common Stock being
sold in the Offering, together with approximately 22,424,938 shares currently
outstanding, will be freely transferable without restriction under the
Securities Act unless held by an affiliate of the Company. The remaining
outstanding shares of Common Stock held by existing stockholders are "restricted
securities" of the Company within the
10
<PAGE>
meaning of Rule 144 under the Securities Act and may not be sold unless they are
registered under the Securities Act or sold pursuant to an exemption from
registration thereunder, including the exemption contained in Rule 144, which
contains certain volume and other resale limitations. Pursuant to Rule 144(k),
however, a person (or persons whose shares are aggregated) who is not deemed to
have been an affiliate of the Company at the time of sale and has not been an
affiliate during the three months immediately preceding the sale may sell such
shares without regard to such volume and other resale limitations of Rule 144
provided that a period of at least three years has elapsed since the later of
the date the securities were acquired from the issuer or from an affiliate of
the issuer.
The Merrill Lynch Investors, the Management Investors and the other existing
stockholders of the Company were granted rights entitling them, under specified
circumstances, to cause the Company to register for sale all or part of their
shares of Common Stock and to include such shares in any registered public
offerings of Common Stock by the Company. The Company has included the shares of
Common Stock to be sold by the Selling Stockholders in the Offering pursuant to
the exercise by such Selling Stockholders of their demand registration rights
under the Registration Rights Agreement (as defined). See "Description of
Capital Stock--Registration Rights."
Pursuant to the Registration Rights Agreement, each holder of at least 1% of
the outstanding shares of Common Stock who is a party thereto (the "1% Holders")
has agreed for a period beginning seven days before, and ending 120 days after,
the effective date of the Registration Statement of which this Prospectus is a
part, not to effect any public sale or distribution, including any sale pursuant
to Rule 144 under the Securities Act, of Common Stock or any securities
convertible into or exchangeable or exercisable for Common Stock, or any rights
or warrants to acquire Common Stock, subject to certain exceptions, without the
prior written consent of the Representatives (as defined herein) of the
Underwriters. Approximately 16.06% of the shares of Common Stock outstanding
upon consummation of the Offering will be subject to such lock-up agreement. In
addition, certain of the Merrill Lynch Investors that are limited partnerships
will be distributing an aggregate of approximately 405,641 shares of Common
Stock owned by them to their partners that have elected not to receive their pro
rata share of the proceeds of the sale of Common Stock by such partnerships (the
"Merrill Lynch Distribution"). As a condition to receiving shares of Common
Stock in the Merrill Lynch Distribution, such partners have agreed to be bound
by the same lock-up provision as the 1% Holders for a period of 120 days after
the effective date of the Registration Statement. The Merrill Lynch Distribution
is expected to occur as soon as practicable after 120 days from the effective
date of the Registration Statement, or on such earlier date consented to by the
Representatives of the Underwriters. In addition, each of the Company and the
executive officers and directors of the Company will agree, for a period of 90
days after the effective date of the Registration Statement, not to sell or
otherwise dispose of any shares of Common Stock or securities convertible into
or exchangeable or exercisable for Common Stock, or any rights or warrants to
acquire Common Stock, subject to certain exceptions, without the prior written
consent of the Representatives of the Underwriters.
No prediction can be made as to the effect, if any, that future sales of
Common Stock or the availability of Common Stock for future sale will have on
the market price of the Common Stock prevailing from time to time. Sales of
substantial amounts of Common Stock (including shares issued upon exercise of
employee stock options) in the public market, or the perception that such sales
could occur, could adversely affect prevailing market prices of the Common
Stock.
11
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
29, 1995 and as adjusted to give effect to the issuance of 2,675,000 shares of
Common Stock by the Company in the August Offering and the use of the net
proceeds therefrom. The table should be read in conjunction with "Pro Forma
Financial Data" and the Company's consolidated financial statements incorporated
by reference herein. The Company will not receive any of the proceeds from the
sale of the shares of Common Stock in the Offering.
<TABLE>
<CAPTION>
JULY 29, 1995
---------------------------
ACTUAL AS ADJUSTED(1)
--------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total long-term indebtedness (including current installments):
Credit Agreement
Term Loans................................................... $ 415,280 $415,280
Revolving Loans and Bankers' Acceptances..................... 59,000 113,786
9 1/4% Notes..................................................... 200,000 200,000
11 1/8% Debentures ($78,860 principal amount).................... 73,744 --
Variable rate demand industrial revenue bonds.................... 18,250 18,250
Other (principally notes secured by fixtures and equipment)...... 24,284 24,284
--------- --------------
Total long-term indebtedness (including current
installments).................................................... 790,558 771,600
Stockholders' equity (deficit):
Common stock................................................... 322 349
Capital in excess of par value................................. 234,636 316,931
Retained deficit............................................... (315,491) (320,505)(2)
--------- --------------
Total common stockholders' equity (deficit)................ (80,533) (3,225)
--------- --------------
Total capitalization............................................. $ 710,025 $768,375
--------- --------------
--------- --------------
</TABLE>
- ------------
(1) Reflects the use of the net proceeds of approximately $82,322 from the
August Offering and additional Revolving Loan borrowings of approximately
$54,786 to redeem all of the 11 1/8% Debentures on September 5, 1995 and to
finance the Florida Acquisition. The Company will not receive any of the
proceeds from the sale of the shares of Common Stock in the Offering.
(2) Reflects the write-off of original issue discount and deferred debt expense
of $6,040 ($5,014 on an after-tax basis) related to the redemption on
September 5, 1995 of the 11 1/8% Debentures.
12
<PAGE>
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is traded on the New York Stock Exchange ("NYSE") under the
symbol "ECK." The following table sets forth on a per share basis, for the
periods indicated, the high and low sales prices of the Common Stock as reported
on the NYSE Composite Tape. The Common Stock was not publicly traded, and no
dividends were paid on the Common Stock, prior to the IPO on August 5, 1993.
<TABLE>
<CAPTION>
PRICE RANGE
-----------------
HIGH LOW
--------------- -------------
<S> <C> <C>
FISCAL 1993:
Third Quarter (from August 6, 1993)...................................... $18 $12 3/4
Fourth Quarter........................................................... 20 3/4 13 3/4
FISCAL 1994:
First Quarter............................................................ $24 $18 1/2
Second Quarter........................................................... 25 1/4 18 1/8
Third Quarter............................................................ 31 1/2 23 1/4
Fourth Quarter........................................................... 32 25 3/8
FISCAL 1995:
First Quarter............................................................ $30 1/4 $24 1/2
Second Quarter........................................................... 34 5/8 28 3/8
Third Quarter............................................................ 42 32 5/8
Fourth Quarter (through December 6, 1995)................................ 44 1/2 38 1/8
</TABLE>
On December 6, 1995, the last sale price as reported on the NYSE was $43.25
per share.
The Company has never paid dividends on its Common Stock and does not intend
to pay dividends in the foreseeable future. The payment of dividends by the
Company is subject to restrictions under certain of its financing agreements,
including the Credit Agreement and the 9 1/4% Notes. See "Description of Certain
Indebtedness." Any determination to pay cash dividends in the future will be at
the discretion of the Company's Board of Directors and will be dependent upon
the Company's results of operations, financial condition, contractual
restrictions and other factors deemed relevant at that time by the Company's
Board of Directors.
13
<PAGE>
THE COMPANY
GENERAL
Merrill Lynch Capital Partners, Inc. ("Merrill Lynch Capital Partners")
formed the Company for the purpose of acquiring Old Eckerd in April 1986. Prior
to the Acquisition, the Company had no activities other than those connected to
the Acquisition. Merrill Lynch Capital Partners formed EDS Holdings Inc. ("EDS")
and its wholly owned subsidiary, Eckerd Holdings II, Inc. ("EH II"), to acquire
certain additional drug stores in July 1990. EH II owns certain drug stores
which were operated by the Company pursuant to a Management Agreement dated as
of July 13, 1990, as amended (the "EH II Management Agreement"). On August 12,
1993, the Company completed an initial public offering (the "IPO") in which it
issued and sold 5,175,000 shares of Common Stock for $14.00 per share. The
stockholders of the Company include (i) certain partnerships affiliated with
Merrill Lynch Capital Partners, (ii) certain other affiliates of Merrill Lynch &
Co., Inc. ("ML & Co.") ((i) and (ii), collectively, the "Merrill Lynch
Investors" or the "Selling Stockholders"), (iii) approximately 25 members of
current and former management (the "Management Investors"), (iv) the Company's
Employees' Profit Sharing Plan and (v) certain affiliates of the banks which
provided part of the financing for the Acquisition and other institutional
investors. As of October 28, 1995, the Merrill Lynch Investors owned
approximately 8,020,634 shares, or 22.95%, of the Common Stock, and the
Management Investors owned approximately 1,143,505 shares, or 3.27%, of the
Common Stock. Upon completion of the Offering, the Merrill Lynch Investors will
own approximately 8.64% of the outstanding shares of Common Stock (approximately
6.50% if the over-allotment option is exercised in full). The Management
Investors are not selling any shares of Common Stock in the Offering. See
"Principal and Selling Stockholders."
THE 1993 TRANSACTIONS
The Refinancing
On June 15, 1993, the Company consummated a series of transactions designed
to simplify its capital structure, reduce interest expense and dividend costs
and provide additional financial flexibility. The Company entered into the Old
Credit Agreement (as defined), which provided for (a) a $650.0 million term loan
facility consisting of a six-year amortizing Tranche A term loan facility of
$500.0 million (the "Tranche A Term Loans") and a seven-year amortizing Tranche
B term loan facility of $150.0 million (the "Tranche B Term Loans") and (b) a
$300.0 million six-year revolving credit facility (a portion of which was
available as a swingline loan facility and as a letter of credit and bankers'
acceptance facility). The Company also entered into a sale and leaseback
arrangement with Imaging Financial Services, Inc. (the "IFS Sale and Leaseback")
relating to approximately $35.0 million of photo processing equipment. In
addition, the Company, EDS and EH II amended the EH II Management Agreement to
provide for the payment by EH II to the Company of $40.0 million, of which
approximately $22.0 million represented payment by EH II of the management fee
and interest thereon which was accrued and previously deferred and approximately
$18.0 million represented prepayment by EH II of the management fee to be earned
by the Company in the future, which prepayment was evidenced by an unsecured
promissory note (the "EH II Note"). EH II obtained the funds necessary for such
payments from cash generated by its operations and from borrowings of
approximately $31.6 million under a new revolving credit and term loan agreement
dated as of June 7, 1993 (the "EH II Credit Agreement") (the borrowings under
the Old Credit Agreement, the consummation of the IFS Sale and Leaseback, the
amendment to the EH II Management Agreement, including Eckerd's obligations
under the EH II Note, borrowings under the EH II Credit Agreement, and the
application of the proceeds therefrom, are collectively referred to as the
"Refinancing").
The net proceeds from the Refinancing were used to pay, prepay or redeem (i)
borrowings outstanding under the Company's prior Credit Agreement, dated as of
July 13, 1990, as amended, with
14
<PAGE>
Morgan Guaranty Trust Company of New York and the other lenders party thereto
(the "1990 Credit Agreement"), which consisted of a revolving credit facility
and a term loan facility, (ii) the 11.39% Senior Notes due January 31, 1995 of
the Company at a prepayment price of 100% of the principal amount thereof plus a
make-whole amount, (iii) the 11.75% Senior Notes due April 15, 1995 of the
Company at a prepayment price of 105% of the principal amount thereof, (iv) the
Senior Secured Floating Rate Notes due April 15, 1997 of the Company at a
redemption price of 101% of the principal amount thereof, (v) the 13% Senior
Secured Fixed Rate Notes due April 15, 1997 of the Company at a redemption price
of 106.6% of the principal amount thereof, (vi) the Company's Discount
Subordinated Debentures due May 1, 2006 (the "13% Discount Debentures"), at a
redemption price of 100% of the principal amount thereof (except for the $50.0
million aggregate principal amount of 13% Discount Debentures which was
subsequently redeemed with the net proceeds from the issuance of the 9 1/4%
Notes) and (vii) the Company's 14 1/2% Cumulative Redeemable Preferred Stock
(the "14 1/2% Preferred Stock"), at a redemption price of $1,000 per share plus
a redemption premium of $48.30 per share.
The IPO and Related Transactions
On August 12, 1993, the Company consummated the IPO and certain related
transactions. Immediately prior to the consummation of the IPO, the stockholders
of EDS (which included certain of the Merrill Lynch Investors and certain of the
Management Investors) exchanged their shares of EDS common stock for shares of
Class A common stock of the Company. EDS was subsequently merged into the
Company with EH II becoming a wholly owned subsidiary of the Company, and the EH
II Management Agreement was terminated upon consummation of the IPO. In
connection with the IPO the Company also amended its Restated Certificate of
Incorporation to effect, among other things, (i) the reclassification of its
Class A common stock and Class B common stock into Common Stock at certain
specified rates, (ii) a 2-for-3 reverse stock split, (iii) the adoption of
certain provisions such as a classified board of directors and the prohibition
of stockholder action by written consent, which could make non-negotiated
acquisitions of the Company more difficult and (iv) the change of the Company's
name from "Jack Eckerd Corporation" to "Eckerd Corporation." The Company used
approximately $30.0 million of the net proceeds of the IPO to repay all
borrowings outstanding under the EH II Credit Agreement and the balance to repay
borrowings under the Old Credit Agreement consisting of Tranche A Term Loans of
$27.5 million and Tranche B Term Loans of $8.3 million.
The 9 1/4% Note Issuance
On November 2, 1993, the Company consummated the sale (the "9 1/4% Note
Issuance") of $200.0 million aggregate principal amount of the 9 1/4% Notes. The
net proceeds from the 9 1/4% Note Issuance were used to redeem (i) the remaining
$50.0 million aggregate principal amount of the 13% Discount Debentures and (ii)
$145.0 million aggregate principal amount of the 11 1/8% Debentures.
The Refinancing, the IPO and the 9 1/4% Note Issuance are collectively
referred to herein as the "1993 Transactions."
THE 1994 TRANSACTIONS
The Vision Group Sale
Effective January 30, 1994, the Company sold its operations of Eckerd
Optical centers and "Visionworks" retail optical superstores (the "Vision Group
Sale"). The Company sold the Vision Group for an amount in cash and notes
approximately equal to the book value of the related assets and no gain or loss
was recognized by the Company. The net proceeds from the Vision Group Sale were
used to reduce outstanding indebtedness under the Credit Agreement. Sales of the
Vision Group were $60.7 million in fiscal 1993, accounting for approximately
1.5% of the Company's sales and 2.2% of the Company's earnings before interest,
taxes and extraordinary items.
15
<PAGE>
The Amendment
On August 3, 1994, the Company entered into an amendment (the "Amendment")
to its then existing credit agreement (the "Old Credit Agreement" and, as
amended and restated pursuant to the Amendment for periods prior to November 29,
1995, and, as amended and restated pursuant to the Amendment and the 1995 Credit
Agreement Amendment for periods on or after November 29, 1995, the "Credit
Agreement"). The Amendment did not provide any additional proceeds to the
Company, but it did provide improved pricing and increased operating flexibility
with respect to acquisitions, capital expenditures and lease payments, with
future reductions in rates if the Company achieves certain indebtedness levels
and performance goals.
The Insta-Care Sale
On November 15, 1994, the Company consummated the sale of Insta-Care
Holdings, Inc. ("Insta-Care") to Pharmacy Corporation of America, a subsidiary
of Beverly Enterprises, Inc., for a total consideration of $112.0 million in
cash (the "Insta-Care Sale"). Insta-Care provided prescription drugs as well as
patient record and consulting services to long-term health care facilities in
New England and the Sunbelt. The net proceeds from the Insta-Care Sale, after
certain closing adjustments, were approximately $93.3 million. Such net proceeds
were used to redeem $50.0 million aggregate principal amount of 11 1/8%
Debentures in December 1994 and to repay approximately $43.3 million of
Revolving Loan borrowings under the Credit Agreement in November 1994. In fiscal
1994, sales of Insta-Care were approximately $89.0 million and earnings before
interest and income taxes were approximately $3.0 million, accounting for
approximately 2.0% of the Company's sales and 1.6% of the Company's earnings
before interest, taxes and extraordinary items. The Company recognized a gain on
the Insta-Care Sale of $49.5 million, net of income taxes of $4.6 million.
The Vision Group Sale, the Amendment and the Insta-Care Sale are
collectively referred to herein as the "1994 Transactions."
THE 1995 TRANSACTIONS
The August Offering and Florida Acquisition
On August 2, 1995, the Company consummated a public offering of 6,175,500
shares of Common Stock in the aggregate at a public offering price of $32.25 per
share (the "August Offering"). Of the shares offered, 2,675,000 shares were sold
by the Company and 3,500,500 shares were sold by the Merrill Lynch Investors.
The Company used the net proceeds of the August Offering, approximately $82.3
million, and approximately $54.8 million of Revolving Loan borrowings under the
Credit Agreement (i) to redeem all of the outstanding 11 1/8% Debentures at a
redemption price of 100% of the $78.86 million principal amount thereof and (ii)
to finance the acquisition (the "Florida Acquisition") of the assets of 108 drug
stores in Florida that were formerly owned and operated by Rite Aid of Florida,
Inc. ("Rite Aid"). Pursuant to the Florida Acquisition, the Company acquired 40
Rite Aid leased locations, which are currently being operated as Eckerd Drug
stores and the fixtures, inventory and prescription files of an additional 68
Rite Aid locations.
The 1995 Credit Agreement Amendment
On November 29, 1995, the Company entered into the 1995 Credit Agreement
Amendment, pursuant to which (i) the maximum aggregate amount of borrowings
available under the Credit Agreement was reduced to $750.0 million (with the
amount of the Term Loan facility having been decreased from $406.0 million to
$250.0 million and the amount of the Revolving Loan facility having been
increased from $350.0 million to $500.0 million), (ii) certain of the financial
and restrictive covenants were amended and (iii) the calculation of the interest
rate on borrowings was adjusted resulting in a lower interest rate being paid by
the Company.
16
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for the years and periods
presented below have been derived from the Company's consolidated financial
statements. The selected historical financial data for the three fiscal years
ended January 28, 1995, January 29, 1994 and January 30, 1993 have been derived
from, and should be read in conjunction with, the Company's audited consolidated
financial statements and related notes contained in the Annual Report
incorporated by reference herein. The historical financial data for the
twenty-six week periods ended July 29, 1995 and July 30, 1994 have been derived
from, and should be read in conjunction with, the unaudited consolidated
financial statements of the Company contained in the 10-Q incorporated by
reference herein which, in the opinion of management, reflect all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the interim period financial data. The results for the
twenty-six week period ended July 29, 1995 are not necessarily indicative of the
results to be expected for the full year. All information contained in the
following tables should be read in conjunction with "Management's Discussion and
Analysis of Results of Operations and Financial Condition" and the consolidated
financial statements of the Company and related notes incorporated by reference
herein.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales and other operating
revenue(1)........................ $2,358,318 $2,203,085 $4,549,031 $4,190,539 $3,887,027 $3,739,852 $3,456,134
Cost of sales, including store
occupancy, warehousing and
delivery expense(1)............... 1,824,596 1,686,364 3,444,141 3,175,375 2,896,479 2,738,545 2,527,544
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit(2)..................... 533,722 516,721 1,104,890 1,015,164 990,548 1,001,307 928,590
Operating and administrative
expense........................... 442,423 433,613 924,071 857,980 855,165 854,209 817,263
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings before interest expense.... 91,299 83,108 180,819 157,184 135,383 147,098 111,327
Total interest expense.............. 39,949 48,392 93,735 113,215 137,404 143,194 147,309
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before income taxes
and extraordinary items........... 51,350 34,716 87,084 43,969 (2,021) 3,904 (35,982)
Income tax provision................ 8,730 1,750 8,753 2,556 2,864 2,927 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings (loss) before extraordinary
items............................. 42,620 32,966 78,331 41,413 (4,885) 977 (35,982)
Extraordinary item--early retirement
of debt and preferred stock, net
of tax benefit.................... (1,021) -- (30,523) (44,354) -- -- --
Extraordinary item--tax effect of
utilization
of net operating loss
carryforward...................... -- -- -- -- 762 1,680 --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) for the
period(3)......................... $ 41,599 $ 32,966 $ 47,808 $ (2,941) $ (4,123) $ 2,657 $ (35,982)
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) available to
common shares(3).................. $ 41,599 $ 32,966 $ 47,808 $ (7,865) $ (14,938) $ (8,166) $ (46,848)
Earnings (loss) before extraordinary
items per common share(4)......... $ 1.30 $ 1.02 $ 2.41 $ 1.24 $ (0.59) $ (0.38) $ (1.97)
Net earnings (loss) per common
share(3)(4)....................... 1.27 1.02 1.47 (0.27) (0.56) (0.32) (1.97)
Weighted average common shares
outstanding....................... 32,855,056 32,235,137 32,431,719 29,392,805 26,573,902 25,677,103 23,793,496
OTHER OPERATING DATA:
EBITDA(5)........................... $ 130,860 $ 120,401 $ 258,613 $ 242,844 $ 229,217 $ 248,677 $ 235,687
EBITDA Margin(6).................... 5.5% 5.5% 5.7% 5.8% 5.9% 6.6% 6.8%
LIFO charge(7)...................... $ 5,992 $ 4,841 $ 10,750 $ 8,500 $ 15,000 $ 21,000 $ 23,000
Depreciation........................ 23,889 21,515 45,842 50,041 53,753 49,554 47,835
Amortization of intangibles and
expenses related to Acquisition
and other(8)...................... 15,672 15,778 31,952 35,619 40,081 52,025 77,925
Capital expenditures................ 40,169 21,739 57,246 39,327 51,389 49,410 73,243
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
----------------------- --------------------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
DRUG STORE DATA:
Drug Stores open at end of period... 1,666 1,714 1,735 1,718 1,696 1,675 1,673
Comparable drug store sales
growth............................... 8.8% 8.0% 8.1% 6.1% 3.1% 5.7% 6.9%
Average sales per drug store........ $ 1,383 $ 1,252 $ 2,561 $ 2,365 $ 2,222 $ 2,142 $ 2,036
Average sales per selling floor
square foot.......................... 182 159 325 302 283 272 258
Prescription sales as a percentage
of drug store sales and other
operating revenue.................... 53.3% 50.5% 50.8% 48.3% 45.4% 44.0% 42.6%
Prescription and over-the-counter
sales as a percentage of drug
store sales and other operating
revenue.............................. 63.7% 60.9% 61.1% 59.0% 55.9% 54.7% 52.8%
Third-party prescription sales as a
percentage of prescription
sales................................ 69.4% 63.2% 64.6% 58.0% 49.6% 43.1% 36.0%
</TABLE>
<TABLE>
<CAPTION>
AS OF
------------------------------------------------------------------------------------------
JULY 29, 1995
---------------------------
ACTUAL AS ADJUSTED(9) JAN. 28, 1995 JAN. 29, 1994 JAN. 30, 1993 FEB. 1, 1992
---------- -------------- ------------- ------------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................. $ 335,524 $ 353,484 $ 280,289 $ 306,588 $ 367,027 $ 328,617
Total assets.................... 1,344,216 1,406,177 1,342,347 1,420,137 1,418,922 1,412,249
Long-term debt (including
current installments)......... 790,558 771,600 787,013 954,891 1,048,222 1,023,106
Preferred stock................. -- -- -- -- 75,000 75,000
Stockholders' equity
(deficit)........................ (80,533) (3,225) (122,742) (179,022) (243,291) (228,353)
<CAPTION>
FEB. 2, 1991
------------
<S> <C>
BALANCE SHEET DATA:
Working capital................. $ 347,775
Total assets.................... 1,443,167
Long-term debt (including
current installments)......... 1,084,088
Preferred stock................. 75,000
Stockholders' equity
(deficit)........................ (220,187)
</TABLE>
- ------------
(1) Reflects reclassification of sales to employees in the twenty-six weeks
ended July 30, 1994 to conform to fiscal 1995 financial statement
presentation. Fiscal 1994, 1993, 1992, 1991 and 1990 have not been
reclassified.
(2) Gross profit represents sales and other operating revenue less cost of
sales, including store occupancy, warehousing and delivery expense.
(3) Reflects extraordinary item of $762 in fiscal 1992 and $1,680 in fiscal 1991
relating to the tax effect of utilization of net operating loss
carryforwards and extraordinary loss net of taxes of $1,021 in the
twenty-six weeks ended July 29, 1995 and $30,523 in fiscal 1994 relating to
the early retirement of indebtedness and $44,354 in fiscal 1993 relating to
the early retirement of indebtedness and preferred stock.
(4) Reflects payment of preferred stock dividends of $4,924 in fiscal 1993,
$10,815 in fiscal 1992, $10,823 in fiscal 1991 and $10,866 in fiscal 1990.
(5) EBITDA means earnings before interest, taxes, depreciation, amortization of
intangibles and expenses related to the Acquisition and other, and, for
fiscal 1990, the reversal of the inventory valuation reserve established in
fiscal 1986 in connection with the Acquisition. See "Management's Discussion
and Analysis of Results of Operations and Financial
Condition--General--Impact of Non-Cash and Non-Recurring Charges." The
Company believes that EBITDA is an important measure of its operating
results because of the significant amount of charges resulting from the
Acquisition and other transactions which are non-cash and/or non-recurring.
However, EBITDA should not be considered in isolation or as a substitute for
net earnings and other statement of operations data prepared in accordance
with generally accepted accounting principles as a measure of the Company's
profitability or liquidity.
(6) EBITDA Margin means EBITDA as a percentage of sales and other operating
revenue.
(7) LIFO charge for fiscal 1990 is before the reversal of the inventory
valuation reserve established in fiscal 1986 in connection with the
Acquisition.
(8) Includes amortization of assets written up as a result of the Acquisition,
including goodwill, and charges due to certain performance-related
management compensation programs.
(9) The as adjusted balance sheet data reflect the use of the net proceeds of
approximately $82.3 million from the August Offering, which was completed on
August 2, 1995. Such net proceeds, together with approximately $54.8 million
of Revolving Loan borrowings under the Credit Agreement, were used to redeem
all of the 11 1/8% Debentures and to finance the Florida Acquisition.
18
<PAGE>
PRO FORMA FINANCIAL DATA
The following unaudited pro forma financial data of the Company are based on
the historical consolidated financial statements of the Company contained in the
Annual Report and 10-Q incorporated by reference herein, adjusted to give effect
to the Insta-Care Sale and the use of the net proceeds therefrom. The unaudited
pro forma statement of operations data for the fiscal year ended January 28,
1995 and the twenty-six weeks ended July 29, 1995 give effect to the Insta-Care
Sale and the use of the net proceeds therefrom as if such transactions had
occurred as of the beginning of the periods presented and for the fiscal year
ended January 28, 1995 also reflect the reversal of the gain on the Insta-Care
Sale and the charge for future store closings. The adjustments relating to the
Insta-Care Sale and the future store closings are described in the accompanying
footnotes. The pro forma adjustments are based upon available information and
certain assumptions that management of the Company believes are reasonable. The
pro forma financial data do not purport to represent what the Company's results
of operations would actually have been if the Insta-Care Sale and the use of
proceeds therefrom in fact had occurred at the beginning of the period
presented, or to project the Company's results of operations for any future
period. The pro forma financial data should be read in conjunction with
"Management's Discussion and Analysis of Results of Operations and Financial
Condition" and the historical consolidated financial statements of the Company
and related notes incorporated by reference herein.
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED JANUARY
JULY 29, 1995 JULY 30, 1994 28, 1995
-------------- ------------------------------------------- ---------------------------
ACTUAL ACTUAL ADJUSTMENTS PRO FORMA ACTUAL ADJUSTMENTS
-------------- ---------- ----------- ---------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales and other
operating revenue...... $2,358,318 $2,203,085(1) $ (55,711)(2) $2,147,374 $4,549,031(1) $ (88,663)(2)
(54,125)(3)
-------------- ---------- ----------- ---------- ---------- -----------
Costs and expenses:
Cost of sales,
including store
occupancy,
warehousing and
delivery expense..... 1,824,596 1,686,364(1) (37,305)(2) 1,649,059 3,444,141(1) (58,766)(2)
Operating and
administrative
expenses............. 442,423 433,613 (15,608)(2) 418,005 924,071 (25,830)(2)
(48,988)(4)
-------------- ---------- ----------- ---------- ---------- -----------
Earnings before interest
expense................ 91,299 83,108 (2,798) 80,310 180,819 (9,204)
Interest expense:
Interest expense, net.. 38,881 45,001 (4,049)(5) 40,952 87,838 (6,347)(5)
Amortization of
original issue
discount and deferred
debt expense......... 1,068 3,391 (218)(6) 3,173 5,897 (401)(6)
-------------- ---------- ----------- ---------- ---------- -----------
Total interest
expense.............. 39,949 48,392 (4,267) 44,125 93,735 (6,748)
-------------- ---------- ----------- ---------- ---------- -----------
Earnings (loss) before
income taxes and
extraordinary item..... 51,350 34,716 1,469 36,185 87,084 (2,456)
Income tax provision..... 8,730 1,750 60 1,810 8,753 135
(4,655)(7)
-------------- ---------- ----------- ---------- ---------- -----------
Earnings (loss) before
extraordinary item..... 42,620 32,966 1,409 34,375 78,331 2,064
Extraordinary item--early
retirement of debt and
preferred stock........ (1,021) -- -- -- (30,523) --
-------------- ---------- ----------- ---------- ---------- -----------
Net earnings (loss) for
the period............. $ 41,599 $ 32,966 $ 1,409 $ 34,375 $ 47,808 $ 2,064
-------------- ---------- ----------- ---------- ---------- -----------
-------------- ---------- ----------- ---------- ---------- -----------
Net earnings (loss)
available to common
shares................. $ 41,599 $ 32,966 -- $ 34,375 $ 47,808 --
Earnings (loss) before
extraordinary items per
common share........... 1.30 1.02 -- 1.07 2.41 --
Net earnings (loss) per
common share........... 1.27 1.02 -- 1.07 1.47 --
Weighted average common
shares outstanding..... 32,855 32,235 -- 32,235 32,432 --
</TABLE>
PRO FORMA
----------
STATEMENT OF OPERATIONS
DATA:
Sales and other
operating revenue...... $4,406,243
----------
Costs and expenses:
Cost of sales,
including store
occupancy,
warehousing and
delivery expense..... 3,385,375
Operating and
administrative
expenses............. 849,253
----------
Earnings before interest
expense................ 171,615
Interest expense:
Interest expense, net.. 81,491
Amortization of
original issue
discount and deferred
debt expense......... 5,496
----------
Total interest
expense.............. 86,987
----------
Earnings (loss) before
income taxes and
extraordinary item..... 84,628
Income tax provision..... 4,233
----------
Earnings (loss) before
extraordinary item........ 80,395
Extraordinary item--early
retirement of debt and
preferred stock........ (30,523)
----------
Net earnings (loss) for
the period............. $ 49,872
----------
----------
Net earnings (loss)
available to common
shares............... $ 49,872
Earnings (loss) before
extraordinary items per
common share......... 2.48
Net earnings (loss) per
common share........... 1.54
Weighted average common
shares outstanding........ 32,432
(Footnotes on following page)
19
<PAGE>
(Footnotes for preceding page)
- ------------
(1) Reflects an additional $18,355 for the twenty-six weeks ended July 30, 1994
in connection with the reclassification of sales to employees to conform to
fiscal 1995 financial statement presentation. Fiscal 1994 has not been
reclassified.
(2) Reflects exclusion of Insta-Care operations.
(3) Reflects reversal of $54,125 gain on the Insta-Care Sale.
(4) Reflects reversal of $48,988 charge for future store closings. See
"Management's Discussion and Analysis of Results of Operations and Financial
Condition."
(5) Reflects the redemption of $50,000 aggregate principal amount of 11 1/8%
Debentures and repayment of Revolving Loan borrowings under the Credit
Agreement of $43,300 from the net proceeds from the Insta-Care Sale, net of
income taxes of $4,655 paid from the gain on the Insta-Care Sale and the
corresponding reduction in interest expense.
(6) Reflects the reversal of original issue discount and deferred debt expenses
related to the redemption of $50,000 of 11 1/8% Debentures.
(7) Reflects reversal of $4,655 of income taxes related to the gain on the
Insta-Care Sale.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The Company's primary source of revenues is the operation of Eckerd Drug
stores, including Eckerd Express Photo centers. Until they were sold effective
January 30, 1994 and November 15, 1994, respectively, the Company also derived
revenues from the operations of Vision Group and Insta-Care, which together
represented approximately 4.0% of the Company's sales and other operating
revenue in fiscal 1993. See "The Company--The 1994 Transactions." The following
discussion is based upon the Company's consolidated financial statements.
Impact of Non-Cash and Non-Recurring Charges
As a result of the Acquisition, the Company incurred a significant amount of
charges which are non-cash and/or non-recurring. Therefore, the Company believes
that earnings before interest and taxes after adding back such non-cash and
non-recurring Acquisition related charges (together with other non-cash charges
unrelated to the Acquisition) is an important measure of its operating results.
The following table sets forth the Company's operating results excluding such
non-cash and non-recurring charges.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED FISCAL YEAR ENDED
------------------- ----------------------------------------------------
JULY 29, JULY 30, JAN. 28, JAN. 29, JAN. 30, FEB. 1, FEB. 2,
1995 1994 1995 1994 1993 1992 1991
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings before interest, taxes and
extraordinary items................... $ 91,299 $ 83,108 $180,819 $157,184 $135,383 $147,098 $111,327
Depreciation............................ 23,889 21,515 45,842 50,041 53,753 49,554 47,835
Amortization of asset write-ups,
including goodwill.................... 15,672 15,778 31,952 35,055 38,593 46,255 56,800
Charges due to performance related
programs.............................. -- -- -- -- 1,075 4,196 20,252
Reversal of inventory valuation
reserve............................... -- -- -- -- -- -- (1,400)
Other amortization...................... -- -- -- 564 413 1,574 873
-------- -------- -------- -------- -------- -------- --------
EBITDA.................................. $130,860 $120,401 $258,613 $242,844 $229,217 $248,677 $235,687
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
Depreciation includes normal depreciation of the Company's plant and
equipment over the useful lives of such assets. Other amortization includes the
write-off of certain deferred pre-opening costs for the Company's Visionworks
Stores, which were sold pursuant to the Vision Group Sale. The non-cash and
non-recurring Acquisition related charges are discussed in more detail below.
Amortization of Asset Write-ups, Including Goodwill. As a result of the
Acquisition, the Company wrote up the carrying value of its assets by
approximately $707.5 million as of April 30, 1986 in accordance with the
purchase price method of accounting. The write-up was allocated to favorable
lease interests ($504.3 million), prescription files ($107.0 million),
inventories ($61.7 million) and the excess
21
<PAGE>
of cost over net assets acquired, or goodwill ($34.5 million). Since April 30,
1986, these assets have been amortized or written off as follows:
FISCAL YEAR AMOUNT
- -------------------------------------------------------- -------------
(IN MILLIONS)
1986.................................................. $ 108.4
1987.................................................. 143.1
1988.................................................. 50.8
1989.................................................. 46.1
1990.................................................. 56.8
1991.................................................. 46.3
1992.................................................. 38.6
1993.................................................. 35.1
1994.................................................. 32.0
-------------
$ 557.2
-------------
-------------
Most of such amortization is fully tax deductible. Amortization is expected to
be approximately $34.0 million in fiscal 1995.
Tax Net Operating Loss Carryforwards
As of January 28, 1995, the Company estimates that it had NOL carryforwards
of approximately $218.0 million for U.S. federal income tax purposes. These NOL
carryforwards may be utilized to reduce the Company's federal income tax
obligations in future periods and, if not so utilized, will expire in fiscal
years 2002 to 2008. See the discussion of the Company's tax NOL carryforwards in
"--Tax Net Operating Loss Carryforwards" below. In addition, the Company may be
subject to the federal alternative minimum tax ("AMT"), which is equal to 20% of
the Company's "alternative minimum taxable income" ("AMTI"), i.e., its regular
taxable income adjusted for certain preference items. As the Company generally
may utilize its NOL carryforwards (as adjusted for AMT purposes) to offset up to
90% of its AMTI, the Company generally will be subject to the AMT at an
effective rate of approximately 2% of its AMTI. After the Company utilizes all
of its NOL carryforwards, its effective tax rate will increase. Any AMT paid may
be used as a credit against the Company's regular federal income tax liability
in future taxable years.
Cost Reduction Program
In May 1992, the Company implemented a cost reduction program which, during
the three fiscal years ended January 28, 1995, January 29, 1994 and January 30,
1993, has eliminated operating expenses of over $80.0 million. The Company
continues to actively evaluate and pursue additional cost savings which can be
obtained without affecting the Company's customer service, quality or sales
growth potential. There can be no assurance, however, that any additional cost
reductions will be realized. See "Business--Business Strategy--Cost Reduction
Program."
Competitive Pricing
In May 1992, the Company commenced a program in certain selected markets
involving lowering prices on prescription drugs sold to non third-party
customers in order to enhance its market share and long term competitive
position. Such program was implemented in all of the Company's markets by
November 1992. Prescription sales to non third-party customers represented 35.4%
of the Company's fiscal 1994 prescription sales and 30.6% in the first half of
fiscal 1995. Although the program has resulted in lower gross margins, as
expected, the Company believes that it has also had the intended effect of
stimulating additional business. There can be no assurance, however, that
additional sales increases will be realized from the competitive pricing
program.
22
<PAGE>
The Company believes that its reduced prescription prices, together with the
overall value provided by the high level of customer service and convenience
offered by its drug stores, have enabled the Company to more aggressively
compete with other drug stores and have enhanced its competitive position with
other shopping formats. See "Business--Business Strategy--Competitive Pricing."
Extraordinary Items and Non-Recurring Adjustments
The Company's financial results for fiscal 1994 reflect extraordinary items
in connection with the Amendment, as well as the early repayment of debt with a
portion of the net proceeds from the Insta-Care Sale, of $28.0 million ($26.6
million on an after-tax basis) and $4.1 million ($3.9 million on an after-tax
basis), respectively, which consisted of the write-off of deferred debt expenses
and original issue discount ("OID"). In addition, the fiscal 1994 financial
results also include non-recurring adjustments of $49.5 million (net of income
taxes of $4.6 million) for the gain on the Insta-Care Sale and $49.0 million for
the charge for future store closings.
The Company's financial results for the first half of fiscal 1995 reflect an
extraordinary item in connection with the early repayment of debt which reflects
the write-off of OID and deferred debt expense of $1.31 million ($1.02 million
on an after-tax basis) for the second quarter of fiscal 1995 related to the
redemption on May 12, 1995 of 11 1/8% Debentures.
For the third quarter of fiscal 1995, the Company's financial results will
reflect an extraordinary item in connection with the early repayment of debt
which reflects the write-off of OID and deferred debt expense of $5.96 million
($5.01 million on an after-tax basis) related to the redemption of the balance
of the 11 1/8% Debentures with a portion of the net proceeds from the August
Offering and the Revolving Loan borrowings. The Company also expects that the
financial results for the fourth quarter of fiscal 1995 will reflect an
extraordinary item in connection with the 1995 Credit Agreement Amendment of
approximately $3.8 million.
RECENT OPERATING RESULTS
On November 28, 1995, the Company announced its operating results for the
nine-month period ended October 28, 1995. The Company announced that earnings
before extraordinary items were $48.2 million and sales were $3.5 billion for
the nine-month period ended October 28, 1995, compared to $35.5 million and $3.2
billion, respectively, for the comparable period of fiscal 1994. Improved sales
and operations and lower interest costs, partially offset by a higher tax rate,
contributed to the results. Comparable drug store sales (stores open for one
year or more, excluding relocated stores opened less than one year) increased
9.2% for the nine-month period ended October 28, 1995. For the nine-month period
ended October 28, 1995, pharmacy sales and non-pharmacy sales increased 16.7%
and 3.9%, respectively, over the comparable period of fiscal 1994.
Operating profit for the nine-month period ended October 28, 1995 increased
to $116.8 million from $102.8 million for the comparable period of fiscal 1994.
The LIFO inventory charge for the nine-month period ended October 28, 1995
increased to $9.8 million from $7.4 million for the comparable period of fiscal
1994.
During the quarter ended October 28, 1995, the Company recorded an
extraordinary non-cash charge of $5.0 million, net of taxes. See
"--General--Extraordinary Items and Non-Recurring Adjustments."
The foregoing results for the comparable nine-month period of fiscal 1994
have been adjusted to give pro forma effect to the Insta-Care Sale and the use
of proceeds therefrom and reflect the reclassification of sales to employees to
conform to fiscal 1995 financial statement presentation.
23
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain condensed consolidated statements of
operations data of the Company in dollars and as a percentage of sales and other
operating revenue for the periods indicated. The data for the twenty-six weeks
ended July 29, 1995 and for fiscal 1992 are presented on a historical basis, the
data for the twenty-six weeks ended July 30, 1994 and for fiscal 1994 are
presented on an adjusted basis and the data for fiscal 1993 are presented on
both an adjusted basis and a historical basis. The data for the twenty-six weeks
ended July 30, 1994 are adjusted to give pro forma effect to the Insta-Care Sale
and the use of proceeds therefrom and reflect the reclassification of sales to
employees to conform to fiscal 1995 financial statement presentation. The fiscal
1994 data are adjusted to exclude a pre-tax gain of $54.1 million (before income
taxes of $4.6 million) from the Insta-Care Sale and also to exclude a reserve of
$49.0 million for future store closings. The fiscal 1993 adjusted data exclude
the operations of Vision Group for the full fiscal year because it was sold
effective January 30, 1994, and exclude the operations of Insta-Care from
November 16, 1993 through January 29, 1994 because it was sold effective
November 15, 1994.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS ENDED FISCAL YEAR ENDED
------------------------------------- ---------------------------------------------------------
JULY 29, JULY 30, JANUARY 28, JANUARY 29, JANUARY 29,
1995 1994 1995 1994 1994
----------------- ----------------- ----------------- ----------------- -----------------
HISTORICAL ADJUSTED ADJUSTED ADJUSTED HISTORICAL
(DOLLARS IN THOUSANDS)
$ % $ % $ % $ % $ %
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales and other
operating revenue....... 2,358,318 100.0 2,147,374 100.0 4,494,906 100.0 4,108,683 100.0 4,190,539 100.0
Cost of sales and
related expenses........ 1,824,596 77.4 1,649,059 76.8 3,444,141 76.6 3,123,899 76.0 3,175,375 75.8
Gross profit............ 533,722 22.6 498,315 23.2 1,050,765 23.4 984,784 24.0 1,015,164 24.2
Operating and
administrative
expenses................ 442,423 18.8 418,005 19.5 875,083 19.5 829,654 20.2 857,980 20.5
Operating and
administrative
expenses, excluding
amortization of asset
write-ups resulting
from the acquisition
and related expenses... 426,751 18.1 402,393 18.7 843,131 18.8 794,267 19.3 822,361 19.6
Earnings before interest
and taxes............... 91,299 3.9 80,310 3.7 175,682 3.9 155,130 3.8 157,184 3.8
Total interest
expense................. 39,949 1.7 44,125 2.1 93,735 2.1 113,215 2.8 113,215 2.7
Earnings (loss) before
income taxes and
extraordinary item...... 51,350 2.2 36,185 1.7 81,947 1.8 41,915 1.0 43,969 1.0
Net earnings (loss)..... 41,599 1.8 34,375 1.6 47,326 1.1 (4,995) (.1) (2,941) (.1)
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
--------- ----- --------- ----- --------- ----- --------- ----- --------- -----
EBITDA.................. 130,860 5.5 116,680 5.4 253,476 5.6 237,512 5.8 242,844 5.8
<CAPTION>
JANUARY 30,
1993
-----------------
HISTORICAL
$ %
--------- -----
<S> <C> <C>
Sales and other
operating revenue....... 3,887,027 100.0
Cost of sales and
related expenses........ 2,896,479 74.5
Gross profit............ 990,548 25.5
Operating and
administrative
expenses................ 855,165 22.0
Operating and
administrative
expenses, excluding
amortization of asset
write-ups resulting
from the acquisition
and related expenses... 816,159 21.0
Earnings before interest
and taxes............... 135,383 3.5
Total interest
expense................. 137,404 3.5
Earnings (loss) before
income taxes and
extraordinary item...... (2,021) (.1)
Net earnings (loss)..... (4,123) (.1)
--------- -----
--------- -----
EBITDA.................. 229,217 5.9
</TABLE>
The following management's discussion and analysis is based on the
historical and as adjusted statements of operation data set forth in the above
table.
Twenty-Six Weeks Ended July 29, 1995 (historical)
compared with Twenty-Six Weeks Ended
July 30, 1994 (adjusted)
The Company's sales and other operating revenue for the first half of fiscal
1995 were $2,358.3 million, a 9.8% increase over the first half of fiscal 1994.
Comparable drug store sales (stores open for one year or more, excluding
relocated stores opened less than one year) increased 8.8% for the first half of
fiscal 1995, compared to an 8.0% increase for the first half of fiscal 1994.
Sales benefited from significant increases in prescription sales as well as by
increases in front end sales from strong Valentine and Easter selling seasons in
the first quarter and from a change in the promotional calendar in the second
quarter of fiscal 1995. Prescription sales for the first half of fiscal 1995
were $1,256.9 million, a 15.8% increase over the first half of fiscal 1994. In
addition, front end sales increased to $1,096.8 million, a 3.7% increase over
the first half of fiscal 1994. Front end sales in the first half of fiscal 1995
were positively affected primarily by increased sales of non-prescription items
in the health, greeting card, convenience food and photofinishing categories.
24
<PAGE>
Prescription sales as a percentage of drug store sales and other operating
revenue was approximately 53.3% for the first half of fiscal 1995 as compared
with approximately 50.5% for the first half of fiscal 1994. The growth in
prescription sales for the first half was primarily the result of increased
third-party prescription sales and the Company's competitive cash pricing
strategy. These strong sales were aided by a more severe cough, cold and flu
season in the first quarter of fiscal 1995 compared to the first quarter of
fiscal 1994. Third-party prescription sales increased to approximately 69.4% of
the Company's prescription sales for the first half of fiscal 1995 from
approximately 63.2% in the first half of fiscal 1994. The Company expects
prescription sales to third-party payors, in terms of both dollar volume and as
a percentage of total prescription sales, to continue to increase in fiscal 1995
and for the foreseeable future. Third-party payors typically negotiate lower
prescription prices than those on non third-party prescriptions, resulting in
decreasing gross profit margins on the Company's prescription sales. However,
contracts with third-party payors generally increase the volume of prescription
sales and gross profit dollars. See "Business--The Drug Store Industry."
Cost of sales and related expenses for the first half of fiscal 1995 were
$1,824.6 million, a 10.6% increase over the first half of fiscal 1994. As a
percentage of sales, cost of sales and related expenses were 77.4% compared to
76.8% for the first half of fiscal 1995 and 1994, respectively. The increase in
cost of sales and related expenses as a percentage of sales resulted primarily
from the continued increase in third-party prescription sales with typically
lower gross profit margins than non third-party prescription sales. The LIFO
charge was $6.0 million compared to $4.8 million for the first half of fiscal
1995 and 1994, respectively.
Operating and administrative expenses for the first half of fiscal 1995 were
$442.4 million, a 5.8% increase over the first half of fiscal 1994. As a
percentage of sales, operating and administrative expenses decreased to 18.8%
for the first half of fiscal 1995 from 19.5% for the first half of fiscal 1994.
The decrease in operating and administrative expenses as a percentage of sales
resulted primarily from operating efficiencies related to higher sales, and cost
controls which helped produce lower costs as a percentage of sales in such
expense categories as payroll and insurance. Non-cash tax deductible
amortization of intangibles included in operating and administrative expenses
for the first half of fiscal 1995 and the first half of 1994 were $15.7 million
and $15.6 million, respectively, an increase of 0.4%.
As a result of the above, earnings before interest expense and taxes and
extraordinary item increased 13.7% to $91.3 million, or 3.9% of sales, as
compared to 3.7 % of sales for the same period of the prior year.
Total interest expense was $39.9 million for the first half of fiscal 1995,
a decrease of 9.5% from the first half of fiscal 1994. The decrease was due
primarily to lower average borrowings in the first half of fiscal 1995 compared
to the first half of fiscal 1994. The average interest rate on borrowings in the
first half of fiscal 1995 and the first half of 1994 was substantially the same.
Income taxes for the first half of fiscal 1995 and the first half of 1994
were $8.7 million and $1.8 million, respectively. The effective income tax rate
of 17% in the first half of fiscal 1995 was higher than in the first half of
fiscal 1994 (5%). During the second quarter of fiscal 1995, income taxes were
adjusted to reflect the estimated 17% annual income tax rate. Income taxes
include alternative minimum and state income taxes for the Company and reflect
the utilization of net operating loss carryforwards.
As a result of the foregoing factors, the Company had net earnings before
extraordinary items for the first half of fiscal 1995 of $42.6 million, compared
to $34.4 million for the first half of fiscal 1994, an increase of $8.2 million
or 24.0%.
Fiscal Year 1994 (adjusted) compared with Fiscal Year 1993 (adjusted)
The Company's sales and other operating revenue for fiscal 1994 were $4.5
billion, a 9.4% increase over fiscal 1993. Comparable drug store sales (stores
open for one year or more) increased 8.1% during
25
<PAGE>
fiscal 1994 compared to a 6.1% increase in fiscal 1993. Sales benefited from
significant increases in drug store prescription sales and increases in front
end sales. For fiscal 1994, prescription sales were $2.2 billion, a 15.2%
increase over fiscal 1993. In addition, drug store front end sales increased to
$2.2 billion, a 4.2% increase over fiscal 1993.
Prescription sales as a percentage of drug store sales and other operating
revenue was 50.8% for fiscal 1994 compared with 48.3% for fiscal 1993. The
growth in prescription sales was primarily the result of increased third-party
prescription sales and the Company's competitive cash pricing strategy. These
sales were strong despite a lower incidence of cough and cold/flu virus during
the first and fourth quarters of fiscal 1994 compared to fiscal 1993.
Third-party prescription sales represented 64.6% and 58.0% of the Company's
prescription sales in fiscal 1994 and 1993, respectively.
Cost of sales and related expenses in fiscal 1994 were $3.4 billion, a 10.2%
increase over fiscal 1993. As a percentage of sales, cost of sales and related
expenses were 76.6% and 76.0% for fiscal 1994 and 1993, respectively. The
increase in cost of sales and related expenses as a percentage of sales resulted
primarily from the continued increase in third-party prescription sales with
typically lower gross profit margins than non third-party prescription sales.
The LIFO charge was $10.8 million in fiscal 1994 compared to $8.5 million in
fiscal 1993.
Operating and administrative expenses in fiscal 1994 were $875.1 million, a
5.5% increase over fiscal 1993. As a percentage of sales, operating and
administrative expenses were reduced to 19.5% for fiscal 1994 from 20.2% for
fiscal 1993. The decrease in operating and administrative expenses in fiscal
1994 as a percentage of sales resulted primarily from the economies of scale
related to the higher sales, and cost controls which helped produce lower costs
as a percentage of sales in such expense categories as payroll, insurance and
supplies. Additionally, non-cash tax deductible amortization of intangibles
included in operating and administrative expenses for fiscal 1994 and 1993 were
$31.9 million and $35.4 million, respectively, a decrease of 9.9%.
In the fourth quarter of fiscal 1994, the Company decided to accelerate the
closing of approximately 90 geographically dispersed, under-performing stores
over the following twelve to eighteen months, and established a $49.0 million
reserve for future store closings. These closings are in addition to the
relatively small number of stores the Company closes in the normal course of
business. The $49.0 million reserve includes approximately $27.0 million for
lease settlements and obligations, approximately $4.0 million for severance and
other expenses directly related to the store closings, and approximately $18.0
million for the write-off of impaired assets which include inventory liquidation
and the write-off of intangible and fixed assets.
As a result of the above, earnings before interest expense and income taxes
increased 13.2% to $175.7 million, or 3.9% of sales, as compared to 3.8% of
sales for the same period of the prior year.
Total interest expense was $93.7 million in fiscal 1994, a decrease of 17.2%
from fiscal 1993. The decrease was due primarily to the lower cost of debt to
the Company resulting from the 1993 Transactions and the Amendment which
provided improved pricing. In addition, the decrease in interest expense was due
to lower average borrowings in fiscal 1994, due primarily to repayments of
borrowings from net proceeds from the sale of Vision Group and Insta-Care
operations, partially offset by the numerous marketplace interest rate increases
during fiscal 1994. Amortization of original issue discount and deferred debt
expenses decreased to $5.9 million in fiscal 1994 from $7.2 million in fiscal
1993 resulting from the refinancing and early retirement of certain debt issues
in fiscal 1994 and 1993.
Income tax expense was $4.1 million and $2.6 million in fiscal 1994 and
1993, respectively. Income tax expense in both fiscal years represents
alternative minimum tax and state income taxes for the Company, and reflects the
utilization of net operating loss carryforwards.
26
<PAGE>
As a result of the foregoing factors, the Company had earnings on an
adjusted basis before extraordinary items of $77.8 million in fiscal 1994
compared to $39.4 million in fiscal 1993, an increase of $38.4 million or 97.5%
and net income of $47.3 million in fiscal 1994 compared to a net loss of $5.0
million in fiscal 1993, a $52.3 million increase.
The Company had extraordinary items of $30.5 million (net of tax benefit of
$1.6 million) and $44.4 million (net of tax benefit of $0.9 million) in fiscal
1994 and 1993, respectively. The extraordinary item in fiscal 1994 is primarily
from the write-off of deferred costs related to the Amendment of the Credit
Agreement, as well as from the early retirement of $50.0 million of the 11 1/8%
Debentures. The extraordinary item in fiscal 1993 is primarily from the
write-off of deferred costs from the early retirement of a portion of the 11
1/8% Debentures, all of the 13% Discount Debentures and the redemption of the 14
1/2% Preferred Stock.
Fiscal Year 1993 (historical) compared with Fiscal Year 1992 (historical)
The Company's competitive pricing and cost reduction programs were both
largely reflected in fiscal 1993. The Company's sales and other operating
revenue for fiscal 1993 were $4.191 billion, a 7.8% increase over fiscal 1992.
Comparable drug store sales increased 6.1% during fiscal 1993 compared to a 3.1%
increase in fiscal 1992. The increase in sales and other operating revenue was
due primarily to a $245 million increase in sales of prescription drugs.
Prescription sales as a percentage of drug store sales and other operating
revenue was approximately 48.3% for fiscal 1993 as compared with approximately
45.4% for fiscal 1992. The growth in prescription sales was primarily the result
of increased third-party prescription sales, the Company's competitive pricing
program and a high incidence of cough and cold/flu virus during the first and
fourth quarters of fiscal 1993. Third-party prescription sales represented
approximately 58.0% and 49.6% of the Company's prescription sales in fiscal 1993
and 1992, respectively.
The increase in comparable drug store sales was due primarily to the
increase in sales of prescription drugs resulting from sales related to new
third-party prescription plan contracts, the Company's competitive pricing
program, and a high incidence of cough and cold/flu virus during the first and
fourth quarters of fiscal 1993. In addition, comparable drug store sales growth
was positively affected by increased sales of non-prescription items in the
health and beauty, greeting card, convenience food and photofinishing categories
resulting from increased marketing emphasis and shelf space for these
categories, as well as increased sales of over-the-counter drugs because of the
high incidence of cough and cold/flu virus during the first and fourth quarters
of fiscal 1993. Total sales growth was positively affected by the growth in
comparable drug store sales, as well as the inclusion of 34 drug stores acquired
during the second half of fiscal 1992 and 19 drug stores acquired in the fourth
quarter of fiscal 1993.
Cost of sales and related expenses in fiscal 1993 were $3.175 billion, a
9.6% increase over fiscal 1992. As a percentage of sales, cost of sales and
related expenses were 75.8% and 74.5% for fiscal 1993 and 1992, respectively.
The competitive pricing strategy for non third-party prescription sales and the
continued increase in third-party prescription sales, which typically have lower
gross profit margins than non third-party prescription sales, partially offset
by a lower LIFO charge of $8.5 million ($15.0 million in fiscal 1992), were the
primary reasons for the increase in cost of sales and related expenses as a
percentage of sales in fiscal 1993.
Operating and administrative expenses in fiscal 1993 were $858.0 million, a
0.3% increase over fiscal 1992. As a percentage of sales, operating and
administrative expenses were reduced to 20.5% in fiscal 1993 from 22.0% for
fiscal 1992 as a result of the higher sales in fiscal 1993 and lower costs as a
percentage of sales in such expense categories as payroll, advertising,
insurance and supplies as a result of the cost reduction program initiated in
the second half of fiscal 1992. The implementation of the cost reduction program
eliminated operating expenses of approximately $70.0 million in fiscal 1993, and
the
27
<PAGE>
Company estimates that $10.0 million of such savings was recognized in fiscal
1992. Non-cash, tax deductible amortization of intangibles included in operating
and administrative expenses in fiscal 1993 and 1992 were $35.6 million and $39.0
million, respectively, a decrease of 8.7%.
As a result of the above, earnings before interest expense and income taxes
increased 16.1% to $157.2 million, or 3.8% of sales, as compared to 3.5% of
sales for the same period of the prior year.
Total interest expense was $113.2 million in fiscal 1993, a decrease of
17.6% from fiscal 1992. The decrease was due primarily to lower interest rates
in the marketplace and lower cost of debt for the Company after the Refinancing
and the 9 1/4% Note Issuance and the consummation of the IPO on August 12, 1993.
The income tax provision for fiscal 1993 and 1992 was $2.6 million and $2.9
million, respectively. The income tax provision for fiscal 1993 and 1992
represents alternative minimum tax and state income taxes.
As a result of the foregoing factors, the Company had earnings before
extraordinary items in fiscal 1993 of $41.4 million, compared with a loss of
$4.9 million in fiscal 1992, and a net loss in fiscal 1993 of $2.9 million
compared with a net loss of $4.1 million in fiscal 1992.
The Company had an extraordinary item of $44.4 million (net of an income tax
benefit of $0.9 million) in fiscal 1993, which was recognized as a result of the
early retirement of existing indebtedness and the redemption of the Company's 14
1/2% Preferred Stock in connection with the Refinancing, the IPO and the 9 1/4%
Note Issuance. In fiscal 1992, the Company had an extraordinary item of $0.8
million which represented the tax effect of the utilization of the Company's net
operating loss carryforward.
28
<PAGE>
Quarterly Results and Seasonality
The Company's sales and profits are higher during peak holiday periods and
from Christmas through Easter in selected geographic areas. Sales of
health-related products peak during seasonal outbreaks of cough and cold/flu
virus, typically during the winter and spring. Accordingly, sales and profits
are typically highest in the fourth quarter followed by the first quarter.
The following table sets forth certain unaudited quarterly operating data
for each of fiscal 1994 and 1993 and for the first and second quarters of fiscal
1995. The data presented include all adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a fair
presentation of the data shown:
<TABLE>
<CAPTION>
(IN THOUSANDS)
FISCAL 1995
-------------------------
FIRST SECOND
QUARTER QUARTER
---------- ----------
<CAPTION>
<S> <C> <C>
Sales and other operating revenue... $1,219,594 $1,138,724
Gross profit........................ 280,106 253,616
Net earnings (loss)................. 30,544 11,055
EBITDA.............................. 79,052 51,808
<CAPTION>
FISCAL 1994
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenue... $1,126,806(1) $1,057,924(1) $ 1,061,704(1) $1,302,597 $4,549,031
Gross profit........................ 270,112 246,609 239,523 348,646 1,104,890
Net earnings (loss)................. 26,945 6,021 (26,015) 40,857 47,808
EBITDA.............................. 70,544 49,795 44,147 94,127 258,613
<CAPTION>
FISCAL 1993
-------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Sales and other operating revenue... $1,055,152 $ 981,195 $ 972,675 $1,181,517 $4,190,539
Gross profit........................ 261,823 238,523 227,769 287,049 1,015,164
Net earnings (loss)................. 17,820 (30,868) (11,558) 21,665 (2,941)
EBITDA.............................. 74,433 52,005 34,725 81,681 242,844
</TABLE>
- ------------
(1) Does not reflect reclassification of sales to employees to conform to fiscal
1995 financial statement presentation. As reclassified, sales and other
operating revenue for the first, second and third quarters would equal
$1,136,195, $1,066,890, and $1,071,036, respectively.
LIQUIDITY AND CAPITAL RESOURCES
At November 30, 1995, the Company had outstanding approximately $250.0
million of Term Loans and $383.0 million of Revolving Loans under the Credit
Agreement and had $28.0 million available for Revolving Loan borrowings under
the Credit Agreement (which is net of $89.0 million of letters of credit).
Pursuant to the Credit Agreement, the Company is required to make scheduled
payments of the outstanding principal amount of Term Loans in the amount of
$50.0 million per fiscal year over the next five fiscal years. Prepayments made
pursuant to the Credit Agreement are applied pro rata among the remaining
scheduled principal payments. The term of the Credit Agreement expires on
November 29, 2000. At July 29, 1995, the Company had excess availability under
the revolving loan facility portion of the Credit Agreement and accordingly was
not required to treat the required amortization repayments as current. See
"Description of Certain Indebtedness--The Credit Agreement."
On July 29, 1995 the Company had working capital of $335.5 million and a
current ratio of 1.7 to 1 compared to $280.3 million and 1.5 to 1 at January 28,
1995. Cash flow provided by operating activities increased $57.1 million to
$62.0 million for the first half of fiscal 1995 compared to $4.9 million for the
first half of fiscal 1994. This increase was due to higher earnings for the
first half of fiscal 1995 compared to the first half of fiscal 1994 and
primarily due to the higher than normal cash payments to merchandise vendors in
the first quarter of fiscal 1994, resulting in the reduction of accounts payable
from an abnormally high balance at January 29, 1994 primarily from the timing of
vendor payment due dates. This increase was offset partially by an increase in
receivables from third-party prescription sales in fiscal 1995.
29
<PAGE>
Net cash from investing activities for the first half of fiscal 1995 and
1994 used $37.4 million and provided $3.8 million, respectively. Uses of cash
were principally for capital expenditures of $40.2 million and $21.7 million for
fiscal 1995 and 1994, respectively, for point-of-sale product scanning
equipment, additions to the Company's drug stores, and Express Photo units,
relocation of drug stores and improvements to existing stores. In addition, in
fiscal 1994, additions to property, plant and equipment were for the
installation of satellite communication equipment. In the first quarter of
fiscal 1994, a source of cash to the Company from investing activities was
provided by a partial payment for the sale of the Vision Group operations.
Capital improvements for fiscal 1995, including those to be acquired under a
deferred payment arrangement and through operating leases, which total $54.2
million for the first half of fiscal 1995, are expected to total approximately
$119.0 million on an annual basis. Funds for the cash capital expenditures are
expected to come from cash flow from operating activities and available
borrowings, if necessary.
Financing activities for the first half of fiscal 1995 used $23.8 million.
Uses of cash were primarily for the reduction of $26.5 million of bank debit
balances. Funds provided by $18.9 million of borrowings under the Credit
Agreement were primarily used to redeem $16.6 million aggregate principal amount
of 11 1/8% Debentures ($15.5 million accreted value) on May 12, 1995. Financing
activities for the first half of fiscal 1994 used $11.2 million primarily for
the reduction of $28.3 million of bank debit balances. Funds were provided by
$19.3 million of borrowings under the Credit Agreement.
On August 2, 1995, the Company completed the August Offering of 6,175,500
shares of Common Stock in the aggregate at a public offering price of $32.25 per
share. Of the shares offered, 2,675,000 shares were sold by the Company and
3,500,500 shares were sold by the Merrill Lynch Investors. The net proceeds to
the Company after the underwriting discount of $1.27 per share and other
expenses related to the August Offering was approximately $82.3 million in the
aggregate.
On September 5, 1995, the Company redeemed the remaining $78.9 million
aggregate principal amount of 11 1/8% Debentures ($73.8 million accreted value).
The Company anticipates that the combination of amortization of intangibles
and interest on debt will have a negative impact upon future earnings and, to a
lesser degree, cash flow from operating activities. The Company does not
believe, however, that the impact of such planned amortization and interest
expense upon earnings indicates a present or future impairment of liquidity.
Based upon the Company's ability to generate cash flow from operating
activities, the available unused portion of the revolving loan facility portion
under the Credit Agreement and other existing sources, the Company believes that
it will have the funds necessary to meet the principal and interest payments on
its debt as they become due and to operate and expand its business.
The payment of dividends and other distributions by the Company is subject
to restrictions under certain of the financing agreements to which the Company
is a party, including the Credit Agreement and the 9 1/4% Notes. See
"Description of Certain Indebtedness." The Company does not intend to pay
dividends on its Common Stock in the foreseeable future.
The Company adopted SFAS 109, "Accounting for Income Taxes" in the first
quarter of fiscal 1993. The adoption of SFAS 109 had no material effect on the
Company's results of operations.
In December 1990, the Financial Accounting Standards Board issued SFAS No.
106, "Employer's Accounting for Postretirement Benefits Other Than Pensions."
The implementation of SFAS No. 106 will not have any effect on the Company's
results of operations because none of the Company's employee welfare and benefit
plans provides for postretirement benefits.
TAX NET OPERATING LOSS CARRYFORWARDS
While the Company estimates that it had approximately $218 million of NOL
carryforwards for U.S. federal income tax purposes as of January 28, 1995, it
also expects that a substantial portion of such NOL carryforwards will be
utilized to offset taxable income already generated during its current taxable
year. The remaining NOL carryforwards would expire in fiscal years 2002 to 2008
if not previously utilized. Although the Company expects that the Offering will
cause an "ownership change" within the meaning of Section 382 of the Internal
Revenue Code of 1986, which would cause an annual limitation on the utilization
of its remaining NOL carryforwards, the Company does not anticipate that, taking
into account the current market value of the Common Stock, such a limitation
would have a material effect on its U.S. federal income tax liability.
30
<PAGE>
BUSINESS
The Company operates the Eckerd Drug store chain, which is one of the
largest drug store chains in the United States. At October 28, 1995, the Eckerd
Drug store chain consisted of 1,704 stores in 13 states located primarily in the
Sunbelt, including 577 stores in Florida and 474 stores in Texas. The Company's
stores are concentrated in 10 of the 12 metropolitan statistical areas in the
United States with the largest percentage growth in population from 1980 to
1990, and, according to industry sources, the Company ranks first or second in
drug store sales in 12 of the 14 major metropolitan markets in which it
operates.
THE DRUG STORE INDUSTRY
Prescription and over-the-counter medications have traditionally been sold
by independent drug stores as well as conventional drug store chains, such as
Eckerd Drug stores, and purchased by consumers with cash or credit cards.
According to Drug Store News, drug store sales in 1994 increased 6.3% from 1993
to approximately $82.9 billion, 72% of which was represented by conventional
drug store chains, such as Eckerd Drug stores. Drug store prescription sales
increased 9.2% from 1993 to approximately $41.5 billion in 1994, which
represented 50% of total drug store sales and approximately 66.7% of total
retail prescription sales. The remaining retail prescription sales were
represented by mail order ($7.1 billion), mass merchandisers ($7.0 billion) and
food/drug combo stores ($6.6 billion). The drug store industry has recently
undergone significant changes as a result of the following important trends: (i)
the increase in third-party payments for prescription drugs, (ii) the
consolidation within the drug store industry, (iii) the aging of the United
States population and (iv) the increase in competition from non-traditional
retailers of prescription and over-the-counter drugs.
During the last several years, a growing percentage of prescription drug
volume throughout the industry has been accounted for by sales to customers who
are covered by third-party payment programs ("third-party sales"). According to
IMS-America, in 1994, third-party sales represented approximately 55.3% of total
prescription drug sales in the United States, more than three times what it had
been in 1986. In a typical third-party sale, the drug store has a contract with
a third-party payor, such as an insurance company, HMO, PPO, other managed care
provider, government agency or private employer, which agrees to pay for part or
all of a customer's eligible prescription purchases. Although these third-party
sales contracts often provide a high volume of prescription sales, such sales
typically generate lower gross margins than non third-party sales due
principally to the highly competitive nature of this business and recent efforts
by third-party payors to contain costs. Larger drug store chains, such as Eckerd
Drug stores, are better able to service the growing third-party segment than
independent drug stores and smaller chains as a result of the larger chains'
more sophisticated technology systems, larger number of stores and greater
penetration within their markets.
As a result of the economies of scale from which larger drug store chains
benefit as well as the third-party payment trend, the number of independent drug
stores and smaller drug store chains has decreased as many of such retailers
have been acquired by larger drug store chains. This trend is expected to
continue because larger chains are better positioned to handle the increased
third-party sales, purchase inventory on more advantageous terms and achieve
other economies of scale with respect to their marketing, advertising,
distribution and other expenditures. The Company believes that the number of
independent drug stores and smaller drug store chains remaining in operation may
provide significant acquisition opportunities for larger drug store chains, such
as the Company.
Strong demographic trends have also contributed to changes in the drug store
industry, as the group of persons over age 50 is the fastest growing segment of
the United States population. This trend has had, and is expected to continue to
have, a marked effect on the pharmacy business in the United States because
consumer prescription and over-the-counter drug usage generally increases with
age. In 1991, persons over age 50 represented approximately 26% of the
population, although they consumed
31
<PAGE>
approximately 67% of all prescription drugs sold in the United States. This
segment is projected to increase to 29% of the population by the year 2000. The
average per capita prescription usage in the United States is approximately 6.5
prescriptions per year, which increases to approximately 7.9, 10.5 and 13.0
prescriptions filled per year for persons ages 50-59, 60-69 and over 70,
respectively. The Company's markets have large concentrations of, and are
continuing to experience significant growth in, the number of persons over age
65.
In 1994, drug store chains and independent drug stores represented
approximately 37.3% and 29.4%, respectively, of all retail prescription sales in
the United States. In response to a number of factors, including the aging of
the United States population, mass merchants (including discounters and deep
discounters), supermarkets, combination food and drug stores, mail order
distributors, hospitals, HMOs and other managed care providers have entered the
prescription industry. Supermarkets, including combination food and drug stores,
and mass merchants each represented approximately 11% of all prescription sales
in the United States in 1994. Although the Company currently faces increased
competition from these retailers, industry studies show that consumers in the
over 65 age group tend to make purchases at traditional drug stores, such as
Eckerd Drug stores, and maintain strong store loyalty.
ECKERD DRUG STORES
In 1992, the Company celebrated the 40th anniversary of the opening of the
first Eckerd Drug store. The Company has grown to its present size and developed
its leading position in the industry through both internal expansion and
acquisitions. As of October 28, 1995, the Company operated the number of Eckerd
Drug stores and Eckerd Express Photo centers indicated below in each of the
following states:
DRUG STORES
ECKERD WITH ECKERD
DRUG EXPRESS PHOTO
STORES CENTERS
------ -------------
Florida............................................... 577 243
Texas................................................. 474 137
North Carolina........................................ 176 46
Georgia............................................... 157 47
Louisiana............................................. 96 19
South Carolina........................................ 75 13
New Jersey............................................ 36 1
Tennessee............................................. 33 1
Mississippi........................................... 26 --
Oklahoma.............................................. 26 --
Alabama............................................... 16 3
Delaware.............................................. 11 --
Maryland.............................................. 1 --
------ ---
Total........................................... 1,704 510
====== ===
Over the past five years, the Company has implemented several initiatives
designed to increase the size and improve the quality and operating performance
of the Company's store base. Among such initiatives is the opening and
acquisition of new stores, the closure, divestiture or relocation of
underperforming stores and an extensive remodeling program. Since the beginning
of fiscal 1990, more than 300 Eckerd Drug stores have been opened or acquired
within the Company's existing markets, more than 200 under-performing stores
have been closed or divested, and more than 50% of the Company's remaining
stores have been remodeled. In addition, the Company has opened more than 300
Express Photo centers. The Company has also increased the degree to which
merchandise is tailored to
32
<PAGE>
specific markets, instituted a chainwide shrinkage reduction program and made a
significant investment in its management information systems. As a result of,
among other things, these actions, aggregate sales have increased from $3.46
billion in fiscal 1990 to $4.55 billion in fiscal 1994.
In fiscal 1994, the Company opened or acquired 39 drug stores, relocated 16
drug stores and closed 22 drug stores. In addition, in the fourth quarter of
fiscal 1994, the Company decided to accelerate the closing of approximately 90
geographically dispersed, under-performing stores during the period from fiscal
1995 through mid-1996, and established a $49.0 million reserve for future store
closings. As of October 28, 1995, the Company had closed 68 of such stores.
These closings are in addition to the relatively small number of stores the
Company closes in the normal course of business. See "--Business Strategy--Store
Base Strategy."
Pursuant to the Florida Acquisition, the Company acquired 40 Rite Aid leased
locations, which are being operated as Eckerd Drug stores, and the fixtures,
inventory and prescription files of an additional 68 Rite Aid locations. As a
result of the Florida Acquisition, the Company intends to close approximately 6
Eckerd Drug stores.
The following table summarizes the number of Eckerd Drug stores operated by
the Company and the sales on an aggregate and per store basis for the last five
years.
<TABLE><CAPTION>
TWENTY-SIX
WEEKS
ENDED FISCAL YEARS
JULY 29, --------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Number of Ekerd Drug
stores at beginning
of period.......... 1,735 1,718 1,696 1,675 1,673 1,630
Stores opened or
acquired........... 15 39 52 50 22 139(1)
Stores sold or
closed............. (84) (22) (30) (29) (20) (96)(2)
---------------- ---------- ---------- ---------- ---------- ----------
Number of Eckerd Drug
stores at end of
period.............. 1,666 1,735 1,718 1,696 1,675 1,673
---------------- ---------- ---------- ---------- ---------- ----------
---------------- ---------- ---------- ---------- ---------- ----------
Number with Express
Photo centers...... 503 481 413 378 321 258
Sales of Eckerd Drug
stores............. $2,353,697 $4,396,440 $4,014,094 $3,722,523 $3,594,037 $3,330,062
Average annual sales
per Eckerd Drug
store............... N/A $ 2,561 $ 2,365 $ 2,222 $ 2,142 $ 2,036
</TABLE>
- ------------
(1) Includes 96 stores acquired by, and managed on behalf of, EH II (two of
which were closed in fiscal year 1991). Excludes 127 stores acquired by EH
II that were liquidated or sold.
(2) Includes 14 Eckerd Drug stores closed as of a result of the acquisition of
drug stores by EH II.
BUSINESS STRATEGY
The Company's business strategy is focused on maintaining a strong pharmacy
and health-related business because of management's belief regarding the growth
prospects of this business. The Company will continue to implement this strategy
by:
. maintaining a high level of customer service and convenience;
. providing competitive prices on its merchandise, including prices on
prescription drugs to non third-party customers in order to enhance its
market share and long-term competitive position;
33
<PAGE>
. maintaining an aggressive marketing program to third-party payors,
such as insurance companies, HMOs, PPOs, other managed care providers,
government agencies and private employers;
. continuing its commitment to control costs;
. improving store productivity and profitability by reallocating
nonpharmacy shelf space to certain products, such as health and beauty aids
and greeting cards, and adding food marts, all of which have higher sales
and gross profit growth potential than other products and which the Company
believes increase customer traffic;
. expanding the number of stores primarily within the Company's existing
market areas, both through internal expansion and acquisitions and improving
the Company's store base by relocating and renovating certain stores and
closing under-performing stores; and
. continuing to invest in information systems to improve customer
service, reduce operating costs, provide information needed to support
management decisions and enhance the Company's competitive position with
third-party payors.
Customer Service and Convenience
The Company believes that customer service and convenience are critical in
positioning itself as the alternative to mass merchandisers, supermarkets and
other large format retailing channels. The Company will continue to emphasize
service and convenience through pharmacy support services, store location and
design, merchandising programs and operating hours geared to the needs of the
particular market.
The Company offers a high level of professional pharmacy service, which the
Company believes provides added value to its customers. The Company provides the
"Rx Advisor," a personalized easy-to-read publication, to each prescription drug
customer, which advises the customer of the specific dosages, contraindications
and side effects of his or her prescription medicine.
The Company will continue to remodel and reset its stores to provide modern,
well-identified stores, which are easily accessible to customers and will seek
to open new stores in easily accessible high traffic locations. The Company also
tailors its merchandising to provide the product mix and selection to best serve
the customers of each particular store, including beach, tourist, business and
other target groups. The Company typically provides several conveniently
located, modern stores in a community. The Company's stores range in size from
8,200 to 10,800 square feet and are located primarily in neighborhood strip
centers or free standing locations. Such stores are typically open every day of
the year except Christmas, with some open until midnight or 24 hours a day.
Other customer service advantages include comfortable pharmacy waiting
areas, free health-related programs, screenings (e.g., blood pressure tests) and
drive-through pharmacy windows in most new drug stores. In addition, the Company
is continually testing new customer service features.
Competitive Pricing
While the Company believes that it competes primarily on the basis of
customer service and convenience, price is also an important factor. The
Company's policy is to price its prescription drug products more competitively
than most other traditional drug stores in its markets. The Company believes
that this policy has enhanced its competitive position with drug stores and
other shopping formats. See "Risk Factors--Competition" and "Management's
Discussion and Analysis of Results of Operations and Financial
Condition--General--Competitive Pricing."
34
<PAGE>
Marketing to Third-Party Payors
The Company believes that the number and concentration of Eckerd Drug stores
within existing markets, the Company's experience and reputation in the drug
store industry and its computerized pharmacy system gives the Company advantages
when compared to independent drug stores, small drug store chains and mass
merchandisers in competing for the increasing amount of third-party sales.
Third-party prescription sales, which are an integral part of the Company's
drug store business, accounted for approximately 69.4%, 64.6%, 58.0%, 49.6%,
43.1% and 36.0% of the Company's prescription sales in the first half of fiscal
1995, fiscal 1994, fiscal 1993, fiscal 1992, fiscal 1991 and fiscal 1990,
respectively. The Company currently has contracts with approximately 500
third-party payors, 45 of which designate the Company as the exclusive provider
of pharmacy services. The third-party payor contracts provide for direct billing
to the third-party payor rather than the customer. The Company believes that
these third-party sales contracts provide the opportunity for increased volume
of prescription sales; however, such sales have lower gross margins than non
third-party prescription sales. See "Risk Factors--Prescription Drug Sales and
Future Regulation." The Company intends to continue to market itself
aggressively with all types of third-party payors, including insurance
companies, HMOs, PPOs, other managed care providers, government agencies and
private employers.
The Company has devoted substantial resources to this marketing effort over
the last five fiscal years. For example, Eckerd Health Services, a joint venture
formed by the Company, is developing and offering pharmacy benefit management
services to third-party payors. Eckerd Health Services provides its expertise
in, among other things, data analysis and healthcare services, to third-party
payors and presents such third-party payors with operational cost savings
opportunities. The Company also provides mail order delivery of its prescription
drugs to third-party payors. In addition, the Company's computer systems provide
on-line adjudication, which permits the Company and the third-party payor to
determine electronically, at the time of sale, eligibility of the customer,
coverage of the prescription and pricing and co-payment requirement, if any, and
automatically bills the respective plan. On-line adjudication reduces losses
from rejected claims and eliminates a portion of the Company's paperwork for
billing and collection of receivables and costs associated therewith. The
Company believes that such systems are essential to service the increasing
volume of third-party sales. During the past five years, the Company has reduced
the average number of days that receivables from third-party sales were
outstanding from 48 days at the end of fiscal 1990 to 21 days during fiscal 1994
while increasing third-party sales by 187% during the same period.
Cost Controls
The Company's continued commitment to control costs and maintain its
competitive position in the marketplace focuses on decreasing expenses without
decreasing the level of services provided in its stores. Store staffing remains
at historical levels in order to maintain a high level of customer service. The
Company continues to actively evaluate and pursue additional cost savings which
can be obtained without affecting the Company's customer service, quality or
sales growth potential. There can be no assurance, however, that any additional
cost reductions will be realized. See "Management's Discussion and Analysis of
Results of Operations and Financial Condition--General--Cost Reduction Program."
Improved Productivity and Profitability of Nonpharmacy Merchandise
The Company is continually seeking to improve store productivity and
profitability by monitoring and adjusting the mix and selection of its
nonpharmacy merchandise categories and items within each category to emphasize
merchandise that has higher sales and gross profit growth potential. Among the
over 27,000 nonpharmacy SKUs (as defined herein) typically offered in one of the
Company's stores, the Company concentrates on products that it considers
especially appropriate for a health-focused convenience-based drug store and
which the Company believes will increase customer traffic. Although these
categories may shift over time based upon consumer needs and other trends, the
Company is
35
<PAGE>
currently emphasizing health and beauty aids, greeting cards and the photo
finishing business. To implement its reorganization of nonpharmacy merchandise,
the Company reallocated nonpharmacy shelf space within all of its stores,
resulting in, among other things, substantially increased store space devoted to
greeting cards, increased emphasis on health and beauty aids, and the
introduction of convenience food mart sections in over 550 selected locations,
with plans to add 350 in fiscal 1995. In addition, store configurations have
been altered to promote increased store traffic and more closely conform to
customer preferences, as indicated in market studies conducted by the Company,
including tailoring of specific stores offerings to specific markets where
appropriate.
Store Base Strategy
The Company intends to continue to increase the size and improve the quality
and operating performance of its store base through (i) internal expansion and
acquisitions of smaller drug store chains and independent drug stores, (ii)
relocation and renovation of existing stores and (iii) closing under-performing
stores.
The Company intends to continue to expand its business through both internal
expansion and acquisitions of smaller drug store chains and independent drug
stores. Although the Company currently plans to expand Eckerd Drug stores within
the Company's existing markets, the Company also considers strategic
acquisitions in other markets. In addition to its store acquisition program, the
Company pursues the acquisition of prescription files from other pharmacies in
the Company's existing markets. Once acquired, the prescription files are
transferred to an existing Eckerd Drug store, increasing the prescription sales
volume in that store.
In determining the areas in which to open or acquire drug stores, the
Company evaluates a number of demographic considerations, including the size,
growth pattern and per capita income of the population, as well as the
competitive environment and the accessibility of a proposed site to the customer
and to the Company's warehouse and distribution facilities. The Company also
continually reviews these factors and the performance of individual stores in
determining whether to close or relocate certain stores.
The Company's goal is to open at least 40 new drug stores in fiscal 1995 and
50 new drug stores per year thereafter through fiscal 1999 (excluding
acquisitions and relocations). The cash costs associated with opening a drug
store are estimated to be approximately $490,000, which includes initial cash
inventory costs of approximately $260,000. The Company intends to use cash flow
from operations to finance the cash costs of this growth, although borrowings
may also be available to finance such growth. See "Management's Discussion and
Analysis of Results of Operations and Financial Condition-- Liquidity and
Capital Resources."
In fiscal 1995, the Company plans to relocate approximately 40 of its
existing stores, mainly from strip shopping centers to new free-standing
locations, and thereafter expects that the number of stores to be relocated per
year will be increased. In addition, the Company plans to completely remodel 80
of its stores and to perform minor renovations on 400 of its other stores in
fiscal 1995. The cash costs associated with a relocation or complete renovation
of an existing store are estimated to be approximately $170,000 and $150,000,
respectively (not including approximately $35,000 related to the costs of
installing scanning and satellite communications equipment, if necessary).
The Company also expects to close approximately 10-20 under-performing drug
stores per year in fiscal 1995 and thereafter through fiscal 1999 in order to
improve the quality of the Company's store base. As a result of the Company's
decision in the fourth quarter of fiscal 1994 to accelerate the closing of
approximately 90 under-performing stores, the number of stores to be closed may
decrease in the future.
In addition, the Company currently intends to continue to expand its
one-hour photo finishing business, with a goal of adding approximately 240 new
Express Photo centers by 1999. The Company
36
<PAGE>
believes that its long standing reputation for high quality photo finishing
programs and its advertising and marketing programs which emphasize the
Company's experience and reinforce its image as a quality photo finisher have
enabled the Company to develop and expand its Express Photo center operations.
The Company believes that its photo finishing operations provide further
opportunities for growth in its drug store business due to both the direct
contribution to sales from photo finishing and the significant additional store
traffic from such operations, which is important in generating sales of other
products. The Company selects locations for Express Photo centers based upon the
demographics of the market and intends to concentrate Express Photo center
expansion by market to enable the Company to benefit from advertising and other
operating synergies. The costs associated with opening each Eckerd Express Photo
center are estimated to be approximately $100,000 and are expected to be largely
financed through operating leases or arrangements such as the IFS Sale and
Leaseback.
Information and Technology
The Company intends to continue to invest in information systems to improve
customer service, reduce operating costs, provide information needed to support
management decisions and enhance the Company's competitive position with
third-party payors. The Company's Comp-U-Care System, installed in each pharmacy
location, provides support for the pharmacy and assists pharmacists in their
prescription processing activities, which in turn enhances the pharmacy's
ability to service customers. The system's daily transfer of information between
headquarters and each of the in-store pharmacy terminals allows central
monitoring of prescription sales activity by store and item, centralized billing
of third-party sales and daily updates to the stores' data files. The
Comp-U-Care System performs on-line adjudication of customer and claim
eligibility and reimbursement for the majority of the third-party payment plans
in which the Company participates. Because on-line adjudication reduces losses
from rejected claims and eliminates a portion of the Company's paperwork for
billing and collection of receivables and costs associated therewith, the
Company believes that it is essential to servicing the increasing volume of
third-party sales. See "-- Business Strategy--Marketing to Third-Party Payors."
The Company is in the process of implementing a four-year pharmacy systems
enhancement plan designed to provide additional support to pharmacists, meet the
increasing complexity of third-party programs and enhance the Company's
competitive position through advanced technology. As part of this plan, the
Company is currently developing its advanced Comp-U-Care 2000 System, which
began to be introduced in Eckerd Drug stores in the second half of fiscal 1995
and is scheduled to be completely implemented by the summer of 1996. The
Comp-U-Care 2000 System will improve speed and productivity in the pharmacy,
decrease customer wait time and enhance functionality, including expanded drug
utilization reviews. The Company expects that the Comp-U-Care 2000 system will
permit the transfer of information, such as prescription files, directly from
one drug store to another thereby further improving customer service by enabling
customers to fill and refill prescriptions at any Eckerd Drug store.
During fiscal 1994, the Company installed a satellite communications
network, enhanced the point-of-sale reporting system and upgraded the
merchandise buying system. The Company believes that the satellite
communications system will facilitate implementation of its pharmacy systems
enhancement plan.
As of October 28, 1995 the Company had point-of-sale product scanning
equipment in approximately 1,100 stores, which stores represent approximately
75% of the Company's total front-end sales. The Company has a goal of
implementing scanning throughout the chain by the fall of 1996. Scanning is a
system which inputs point-of-sale information by reading the universal product
code of merchandise sold with either a hand held or slot scanner to capture
information on each specific item of product, including variations in size and
color (a stock-keeping unit or "SKU"), sales data and pricing information. The
Company has developed computer systems that use the information generated from
scanning to analyze sales, gross profit, inventory levels and direct product
profitability by category, department and operating region and, in certain
instances, SKU. Such information identifies early
37
<PAGE>
trends in sales by SKU, gross profit performance and inventory position and is
also a source for measuring inventory shrinkage performances. The Company has
been expanding scanning to its higher volume stores in order to maximize
benefits and recover the related expenses more efficiently. Scanning systems
will provide more and better merchant and store level information to facilitate
inventory management, automatic re-ordering, product sales and gross profit
analysis and inventory shrinkage control. The Company believes that broader use
of scanning throughout the chain will improve customer service by decreasing
customer check-out time and improving adherence to advertised sale or
promotional prices. The Company believes the direct benefits of scanning will be
sufficient to offset the related expense.
The Company is expanding its use of electronic data interchange ("EDI")
systems with certain of its major suppliers. EDI allows for the paperless
ordering of products with immediate confirmation from the vendor on price,
delivery terms and amount of goods ordered. The Company is also experimenting
with automatic replenishment buying in connection with its warehouse and
distribution systems, which includes the computer generation of purchase orders
for certain vendors. The Company installed the merchandise receiving component
of its new warehouse management system in the Atlanta, Georgia distribution
facility and expects the entire system to be installed in Atlanta by the spring
of 1996 and in all of its distribution facilities by the end of fiscal 1996.
These systems should also allow the Company to reduce lead time on orders and
improve cash flow by reducing the amount of inventory required to be kept on
hand. EDI will be expanded as the Company expands its scanning system.
In 1993, the Company and Integrated Systems Solutions Corporation ("ISSC"),
a wholly-owned subsidiary of IBM, entered into a Systems Operations Service
Agreement pursuant to which the Company and ISSC are developing a state of the
art information systems operation to include pharmacy and point-of-sale systems
for the Company's drug stores. Under the agreement, ISSC manages the Company's
entire information systems operation and is responsible for providing technology
services to the Company, which results in, among other things, improved
productivity and significant hardware savings to the Company. ISSC is in the
process of implementing scanning, the Comp-U-Care 2000 System, and the warehouse
management system. The Systems Operations Services Agreement has a 10-year term,
and the total payments to be made by the Company thereunder are currently
expected to be approximately $440.0 million over such term. The Company believes
that this arrangement has and will continue to enable the Company to further
improve customer service, replace the Company's existing systems, reduce
operating costs and capital expenditures for hardware, obtain information needed
to support management decisions on an improved basis and increase the Company's
focus on its core business.
The Company is also developing or purchasing software with applications in
the human resources area, which would more accurately monitor personnel
performance and attendance and assist management in making personnel scheduling
decisions in an effort to increase productivity and reduce operating costs. In
addition, the Company is purchasing or developing software to expand the
merchandise and store information data base systems to enable the Company to
more efficiently manage its business and to start the initial roll out of the
warehouse management system to provide improved control and management of
inventory and personnel. The implementation of such software began in fiscal
1995 and is expected to be completed in fiscal 1996.
PRODUCTS AND SERVICES
Pharmacy
The primary focus of Eckerd Drug stores is the sale of prescription and
over-the-counter drugs. During fiscal 1994, the Company filled more than 89
million prescriptions, and sales of prescription and over-the-counter drugs
generated approximately 61.1% of the Company's drug store sales and other
operating revenue. During the period from fiscal 1990 through fiscal 1994, the
Company's dollar volume
38
<PAGE>
of sales of prescription drugs increased at a compound annual growth rate of
12.4% and during the first half of fiscal 1995, the dollar volume of sales of
prescription drugs increased by 15.8% as compared to the first half of fiscal
1994.
The Company seeks to position pharmacists as health-care professionals who
build relationships with their customers. Over the years, marketing and
advertising campaigns have been focused on reinforcing the professionalism of
the Company's pharmacists and positioning them as a key factor to high quality
pharmacy service. The Company has also instituted several health-related
programs such as health screenings, education and outreach programs, and
customer relationship programs. The Company provides the "Rx Advisor," a
personalized easy-to-read publication, to each prescription drug customer, which
advises the customer of the specific dosages, contraindications and side effects
of his or her prescription medicine.
Eckerd Drug store pharmacy departments are modern, clean and clearly
identified by attractive signs. The pharmacy areas in many of the Company's
newer and remodeled stores provide a consultation area and a waiting area with
comfortable seating, informational brochures and free blood pressure testing.
The pharmacy areas are designed to be conducive to customer service and
counseling by the pharmacists. See "--Business Strategy--Customer Service and
Convenience."
The Company believes that it is well positioned to take advantage of certain
demographic trends, including the aging of the United States population. The
Company's stores are concentrated in 10 of the 12 metropolitan statistical areas
in the United States with the largest percentage growth in population from 1980
to 1990. In addition, approximately 62% of the Company's drug stores are located
in Florida and Texas, two of the top three states experiencing the greatest
influx of persons over age 65. According to industry studies, persons over age
65 purchase twice as many prescription drugs and 50% more over-the-counter drugs
than the national average. The Company also believes that it is capable of
meeting the needs of the increasing volume of third-party prescription sales and
is aggressively marketing itself to third-party payors. See "Risk
Factors--Prescription Drug Sales and Future Regulation" and "-- Business
Strategy--Marketing to Third-Party Payors."
The Company believes that new prescription drugs and drug therapies provide
an opportunity for increased demand for prescription drugs. In addition, the
Food and Drug Administration is approving an increasing number of prescription
products for sale over the counter. Prescription drugs which are approved for
over-the-counter distribution have historically shown significantly increased
sales.
Nonpharmacy Merchandise
Eckerd Drug stores sell a wide variety of nonpharmacy merchandise, including
over-the-counter drugs, health and beauty aids, greeting cards and numerous
other convenience products. Eckerd-brand products, which are attractively priced
and provide higher margins than similar national brand products, represent a
growing segment of products offered by Eckerd Drug stores. Sales of private
label products accounted for $198.7 million of the Company's sales in fiscal
1994.
Health. Eckerd Drug stores offer a broad assortment of popular national
brands as well as private label over-the-counter drugs and other products
related to dental care, foot care, vitamins and nutritional supplements,
feminine hygiene, family planning and baby care. Eckerd Drug stores provide a
helpful environment in which consumers can obtain product information from
professional pharmacists, knowledgeable sales associates and store managers or
from literature available throughout the store.
Beauty. Eckerd Drug stores offer an assortment of popular brand name
cosmetics, fragrances and other beauty products. Management believes that Eckerd
Drug stores provide the customer with a convenient format in which to purchase
the lines of beauty products offered in its stores. Skin care products are an
increasingly important component of the beauty category due to the aging
population and growing concern about the effects of the environment on the skin.
39
<PAGE>
Greeting Cards. The greeting card department in Eckerd Drug stores offers a
wide selection of contemporary and traditional cards, gift wrap, bows and
novelties. The Company believes that the locations of its stores together with
the wide selection offered by Eckerd Drug stores enable customers to satisfy
their card and gift needs more conveniently than at traditional card stores. The
Company has recently increased the space devoted to its greeting card department
because of the profitability of such merchandise and because the Company
believes that the demand for such merchandise will increase traffic in its
stores.
Convenience Products. This merchandise category consists of an assortment of
items, including candy, food, tobacco products, books and magazines, household
products, seasonal merchandise and toys. These items are carefully positioned to
provide optimum convenience to the customer with easy access in the front part
of the store. The Company also seeks to serve its customers' needs by
specifically tailoring items in this category to meet the needs of its customers
in specific store locations, including the introduction of a food mart section
offering convenience food items such as staple grocery shelf items, staple and
chilled beverages, snack foods and specialty items, in approximately 550
locations. For example, souvenirs and select summer products are offered in
beach and tourist locations while convenience food is stressed in urban areas
and malls. The Company plans to add food mart sections to an additional 350
stores in fiscal 1995.
Photo Finishing
Another significant focus of Eckerd Drug stores is photo finishing. The
Company offers overnight photo finishing services in all Eckerd Drug stores and
operates Eckerd Express Photo centers, which are one-hour photo processing
mini-labs, in 510 Eckerd Drug stores as of October 28, 1995. Sales from photo
finishing accounted for approximately 4.9% of the Company's drug store sales in
fiscal 1994 and were the second largest component of drug store profit. The
Company believes that its photo finishing operations provide further
opportunities for growth in its drug store business because of the direct
contribution to sales from photo finishing and the significant additional store
traffic from such operations, which is important in generating sales of other
products. Photo finishing generates store traffic because it generally requires
two trips to a store--one visit to drop off the roll of film and one visit to
pick up the developed pictures.
The Company is among the top three vertically integrated retail photo
finishers in the United States and the Company believes that it is a leading
source of photo finishing in all of the major markets in which it operates. The
Company processed over 28 million rolls of film in fiscal 1994 in its own photo
labs and has several well known branded processing programs, including System
2(R) (two prints for the price of one), Ultralab 35(R) (larger size, higher
quality prints) and Express Print 60(R) (one-hour processing). The Company
believes that its branded processing programs, which emphasize quality and
service, have helped position the Company as a leader in photo finishing. The
Company currently intends to continue to expand its one-hour photo finishing
business, with a goal of adding approximately 240 new Express Photo centers by
1999.
The Company's photo departments also offer camera and photo accessories,
small electronics, batteries and audio and video tapes. The entire photo
department, including photo finishing, represented approximately 9.2% of the
Company's total drug store sales in fiscal 1994.
STORE OPERATIONS
Eckerd Drug stores are located and designed to maximize customer service and
convenience and are situated in areas of high customer traffic, typically in
neighborhood shopping centers with strong supermarket co-tenants or in
strategically located free-standing stores. Eckerd Drug stores are designed to
facilitate customer movement and feature well-stocked shelves, clearly
identified aisles and well-lit interiors to maximize product visibility.
Pharmacy departments are generally located near the back of the store to
maximize customer exposure to the store. The stores are equipped with modern
fixtures and
40
<PAGE>
equipment and most of them range in size from 8,200 to 10,800 square feet. About
85% of the floor space is selling area, with the remainder used for storeroom
and office space.
To enhance productivity per square foot and maintain consistent
merchandising, the Company utilizes centrally prepared formats for the display
and stocking of products in the Company's stores, while continuing to allow some
flexibility to store managers to modify the merchandise assortment based upon
the Company's program of tailoring merchandise offerings to the markets in which
the stores operate.
The typical Eckerd Drug store is open every day of the year except
Christmas, with store hours geared to the needs of the specific markets. A
select number of strategically located stores stay open until midnight or 24
hours a day.
Eckerd Drug stores are currently grouped under six operating regions located
in or near Orlando and Deerfield Beach, Florida; Atlanta, Georgia; Charlotte,
North Carolina; and Dallas and Houston, Texas. Each operating region is headed
by a vice president who supervises the various districts comprising the region.
Within each district, there are managers who are responsible for the drug stores
in their districts and regularly visit their stores to assure quality of service
and merchandising. District pharmacy managers supervise the pharmacy operations
in the drug stores. Each drug store is individually supervised by a manager who
receives training in the Company's merchandise offerings, customer service and
management strategy.
The Company has implemented various initiatives designed to reduce shrinkage
expense, which was approximately 2.9% for fiscal 1994 compared to an
industry-wide average (calculated using the same accounting method as the
Company) of approximately 2.8% during the same time period. These initiatives
include training and awareness programs, tailored audit programs for district
managers, hiring of internal auditors and loss prevention specialists, and
computerized exception reporting for, among other things, customer refunds,
voids and cash overages and shortages from daily register check-outs.
PURCHASING AND DISTRIBUTION
Merchandising, buying and supplier payments are generally centralized at
Company headquarters to assure consistency of marketing approach and efficiency
in supplier relations. The Company has implemented an enhanced electronic buying
system to improve inventory management and gross profit by enabling the Company
to take better advantage of quantity discounts and forward buying opportunities,
which the Company believes will lower the average cost of inventory.
Additionally, it is anticipated that this buying system and its improved
forecasting ability will improve service levels to the stores and will reduce
average inventory required in the Company's distribution centers.
Approximately 85% of store merchandise is purchased centrally and
distributed, principally by Company-operated trucks, through the Company's five
centrally located distribution facilities located in or near Orlando, Florida;
Atlanta, Georgia; Charlotte, North Carolina; and Dallas and Houston, Texas. The
remainder of store merchandise, some of which is purchased at the store level,
is distributed directly to the stores.
ADVERTISING AND MARKETING
A combination of newspaper advertising and TV and radio spot commercials is
carried on throughout the year to promote sales. During the fiscal year ended
January 28, 1995, these advertising expenses totaled approximately 0.5% of the
Company's sales. The Company's concentration of stores within its markets
enables it to achieve economies of scale in its advertising and marketing
expenditures and also enables the Company to negotiate favorable rates for
advertising time and print production. From the time of the Acquisition through
fiscal 1994, the Company reduced its advertising expense as a
41
<PAGE>
percentage of sales by more than 70%. In addition, the Company has derived
additional cost savings through a rationalization of its advertising
expenditures. As part of the cost reduction program, certain advertising
expenditures related to the Company's overall corporate image were reduced in
favor of advertising efforts such as newspaper circulars. This change in
advertising strategy has resulted in increased financial support from the
Company's vendors and a more direct impact on sales. The Company believes that
its current level of advertising expenditures is appropriate to support its
existing marketing strategies.
The Company's communications and marketing programs are based upon an
ongoing commitment to consumer research. Through regular telephone surveys in
all major markets, exit interviews in its stores, and studies of various
consumer groups, the Company is able to monitor changes in customer attitudes
and shopping habits and adjust its marketing strategies accordingly.
COMPETITION
The Company's retail drug stores operate in a highly competitive industry.
The Company's drug stores compete primarily on the basis of customer service,
convenience of location and store design, price and product mix and selection.
In addition to traditional competition from independent drug stores and
other drug store chains, the Company faces competition from mass merchants
(including discounters and deep discounters), supermarkets, combination food and
drug stores, mail order distributors, hospitals and HMOs. These other formats
have experienced significant growth in their market share of the prescription
and over-the-counter drug business. Many of the Company's competitors have
greater financial resources than the Company. See "Risk Factors--Competition"
and "--The Drug Store Industry."
The Company's Express Photo centers compete with a variety of photo
processors including other mini-labs, retail stores and photo specialty stores,
primarily on the basis of quality of processing, quality and speed of service
and value.
REGULATION
All of the Company's pharmacists and its stores are required to be licensed
by the appropriate state boards of pharmacy. The Company's drug stores and its
distribution centers are also registered with the Federal Drug Enforcement
Administration. Most of the stores sell beer and wine and are subject to various
state and local liquor licensing requirements. By virtue of these license and
registration requirements, the Company is obligated to observe certain rules and
regulations, and a violation of such rules and regulations could result in a
suspension or revocation of the licenses or registrations.
The Company has a number of third-party payor contracts pursuant to which
the Company is a provider of prescription drugs. "Freedom of choice" state
statutes, pursuant to which all pharmacies would be entitled to be a provider
under such a contract, have been enacted in certain states, including Alabama,
Georgia, New Jersey, North Carolina, Louisiana, South Carolina, Tennessee and
Texas, and may be enacted in others. Although such statutes may adversely affect
certain of the Company's third-party contracts, they may also provide the
Company with opportunities regarding additional third-party contracts.
In recent years, an increasing number of legislative proposals have been
introduced or proposed in Congress and in some state legislatures that would
effect major changes in the health care system, either nationally or at the
state level. The Company cannot predict whether any federal or state health care
reform legislation will eventually be passed, and if so, the impact thereof on
the Company's financial position or results of operations. Health care reform,
if implemented, could adversely affect the pricing of prescription drugs or the
amount of reimbursement from governmental agencies and third-party payors, and
consequently could be adverse to the Company. However, to the extent health care
reform
42
<PAGE>
expands the number of persons receiving health care benefits covering the
purchase of prescription drugs, it may also result in increased purchases of
such drugs and could thereby have a favorable impact on both the Company and the
retail drug industry in general. Nevertheless, there can be no assurance that
any future federal or state health care reform legislation will not adversely
affect the Company or the retail drug store industry generally.
In 1990, Congress enacted the Omnibus Budget Reconciliation Act of 1990
("OBRA 1990"), which includes a requirement that states implement pharmaceutical
drug use review programs for Medicaid beneficiaries receiving covered
out-patient prescription drugs. The OBRA 1990 legislation states that
pharmacists must offer to discuss with each Medicaid patient "common, severe
side or adverse effects or interactions and therapeutic contraindications that
may be encountered, including their avoidance and the action required if they
occur." In order to ensure reimbursement of out-patient prescription drugs under
Medicaid, states were required, pursuant to the OBRA 1990 legislation, to
implement drug use review programs by January 1, 1993. In all states where the
Company operates (except South Carolina), the State Pharmacy Practices Acts have
expanded the OBRA requirements to include all patients receiving prescriptions
in a retail setting. Pharmacists now have a duty to warn the purchaser of a
prescription drug if the warning could reduce or negate the adverse effects of
the use of such drug.
In 1993, the state of Florida enacted health care legislation that is
applicable to state employees, small businesses with fewer than 50 employees and
Medicaid recipients. The legislation, which began to be implemented in 1994,
created 11 health care purchasing cooperatives, which will accept bids from
health care providers to provide goods and services to the cooperatives'
members. The Company expects to provide prescription drugs to the cooperatives
through its existing managed health care clients. However, the Company is unable
to predict whether its efforts will be successful or whether the Florida
legislation will have an adverse impact on the Company's financial position or
results of operations.
EMPLOYEES
As of October 28, 1995, the Company had approximately 45,000 employees, of
which 23,300 were full-time employees. The Company believes that overall
employee relations are good. None of the Company's employees are represented by
unions.
PATENTS, TRADEMARKS AND TRADENAMES
No patent, trademark, license, franchise or concession is considered to be
of material importance to the business of the Company other than the trade names
under which the Company operates its retail businesses, including the Eckerd
name. The Company also holds servicemarks for its photo finishing products,
private label products and information systems.
PROPERTIES
The Company conducts substantially all of its retail businesses from stores
located in leased premises. Substantially all of these leases will expire within
the next twenty-five years. In the normal course of business, however, it is
expected that leases will be renewed or replaced by leases on other properties.
Most of the Company's store leases provide for a fixed minimum rental together
with a percentage rental based on sales.
43
<PAGE>
The material office and distribution center properties owned or leased by
the Company at October 28, 1995 are as follows:
APPROXIMATE OWNED OR
LOCATION SQUARE FEET LEASED
- ------------------------------------------------- ----------- --------
Largo, Florida................................... 488,000 Owned(1)
Charlotte, North Carolina........................ 587,000 Owned
Garland, Texas................................... 270,000 Owned
Conroe, Texas.................................... 345,000 Owned
Orlando, Florida................................. 587,000 Leased(2)
Newnan, Georgia.................................. 244,000 Owned(3)
Hammond, Louisiana............................... 185,000 Owned(3)(4)
- ------------
(1) Includes the Company headquarters.
(2) In January 1993, the Company assumed a lease for an office and distribution
facility of approximately 587,000 square feet (lease expires 2005).
(3) Construction was financed pursuant to revenue bond issues. Because these
properties are currently leased subject to nominal purchase options with
development authorities which the Company anticipates it will exercise, they
are listed as owned by the Company.
(4) The Company closed the Hammond distribution center and subleased the former
Hammond, Louisiana office and distribution center. Such sublease will be
terminated in April 1996. The Company is marketing the Hammond property for
sale.
The Company considers that all property owned or leased is well maintained
and in good condition.
LEGAL PROCEEDINGS
In the ordinary course of its business, the Company and its subsidiaries are
parties to various legal actions which the Company believes are routine in
nature and incidental to the operation of the business of the Company and its
subsidiaries. The Company believes that the outcome of the proceedings to which
the Company and its subsidiaries currently are parties will not have a material
adverse effect upon its operations or financial condition.
44
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The name, age and office or principal occupation of the executive officers
and directors of the Company and certain information relating to their business
experience are set forth below:
<TABLE><CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Stewart Turley..................... 61 Director, Chairman of the Board and Chief Executive
Officer
Francis A. Newman.................. 47 Director, President and Chief Operating Officer
John W. Boyle...................... 66 Director
Dr. James T. Doluisio.............. 60 Director
Donald F. Dunn..................... 70 Director
Albert J. Fitzgibbons, III......... 50 Director
Margaret H. Jordan................. 52 Director
Lewis W. Lehr...................... 74 Director
Alexis P. Michas................... 37 Director
Rupinder S. Sidhu.................. 39 Director
James M. Santo..................... 54 Executive Vice President/Administration and
Secretary
Samuel G. Wright................... 45 Executive Vice President/Chief Financial Officer
Kenneth L. Flynn................... 50 Senior Vice President/Store Operations
Edward W. Kelly.................... 50 Senior Vice President/Merchandising
Richard R. Powis................... 47 Senior Vice President/Pharmacy
Martin W. Gladysz.................. 43 Vice President/Treasurer
Robert E. Lewis.................... 35 Vice President/General Counsel and Assistant
Secretary
Thomas M. Nash..................... 47 Vice President/Real Estate
N. John Simmons, Jr................ 40 Vice President/Controller
</TABLE>
The Company has announced that Mr. Turley will relinquish his position as
Chief Executive Officer at the end of fiscal 1995 while continuing in his role
as Chairman of the Board. Upon the recommendation of Mr. Turley, the Board of
Directors is expected to appoint Mr. Newman, currently the President and Chief
Operating Officer, to the position of Chief Executive Officer at its February
1996 meeting.
Mr. Turley is Chairman of the Board and Chief Executive Officer of the
Company, positions he has held since 1986. He served as President of the Company
from 1986 until July 1993. He joined Old Eckerd in 1966 and has served as Senior
Vice President (1971-1974) and President and Chief Executive Officer (1974-1975)
prior to being elected to Chairman of the Board, President and Chief Executive
Officer. He is also a director of Barnett Banks, Inc., Sprint Corporation and
Springs Industries, Inc.
Mr. Newman is President, Chief Operating Officer and a Director of the
Company, positions he has held since July 6, 1993. Prior to joining the Company,
Mr. Newman served as President, Chief Executive Officer and a director of F&M
Distributors, Inc. ("F&M"), a drug store chain, since 1986. F&M filed bankruptcy
under Chapter 11 of the United States Bankruptcy Code in December 1994. Prior to
joining F&M, he was the Executive Vice President of Household Merchandising, a
retail firm, from 1984 to 1985 and the Senior Vice President of Merchandising
for F.W. Woolworth, a retail firm, from 1980 to 1984. Mr. Newman is also a
director of FabriCenters of America, a retail firm.
Mr. Boyle retired as Vice Chairman of the Board and Chief Financial Officer
of the Company on December 31, 1994, positions he had held since February 1993.
He served as a consultant to the Company during the month of January 1995. Prior
to being Vice Chairman, he was Senior Vice
45
<PAGE>
President/Finance and Administration of the Company, a position he held for more
than five years. He joined Old Eckerd as Senior Vice President/Finance and
Administration in 1983. Prior to joining Old Eckerd, Mr. Boyle served as Vice
Chairman of the Board (1978-1980) and, thereafter, as Chairman of the Board
(1980-1983) of May Department Store Co., St. Louis, Missouri. He was a director
of Old Eckerd between 1983 and 1986.
Dr. Doluisio has been Dean of the College of Pharmacy, University of Texas,
Austin, Texas since 1973. Dr. Doluisio has served as chairman of the American
Pharmaceutical Association, the American Association of College of Pharmacy
Council of Deans, the American Association for the Advancement of Science and as
a trustee of the United States Pharmacopeia. He is also a director of COR
Therapeutics, Inc.
Mr. Dunn is retired Chairman of the Board and Chief Executive Officer of
Maas Brothers/Jordan Marsh, a division of Allied Stores Corporation, New York,
New York. In his 39-year career with Allied Stores, starting as an executive
trainee, Mr. Dunn held numerous management positions including that of executive
group manager of Allied Stores for Jordan Marsh and Maas Brothers in Florida,
Cain-Sloan in Tennessee and Joske's in Texas. Mr. Dunn is also a director of
Tech Data Corporation and Younkers, Inc.
Mr. Fitzgibbons has been a director of Merrill Lynch Capital Partners since
1988. He has been a director of Stonington Partners, Inc. ("Stonington
Partners") since August 1993; a Partner of Stonington Partners since November
1993; a partner of Merrill Lynch Capital Partners from 1993 to July 1994; an
Executive Vice President of Merrill Lynch Capital Partners from 1988 to 1993; a
Senior Vice President of Merrill Lynch Capital Partners from 1987 to 1988; a
Managing Director of the Investment Banking Division of ML & Co. from 1978 to
July 1994; and Vice President of Merrill Lynch from 1974 to 1988. He is also a
director of Borg-Warner Security Corporation, Borg-Warner Automotive, Inc.,
Dictaphone Corporation and United Artists Theatre Circuit, Inc.
Ms. Jordan has been Vice President--Health Care and Employee Services of
Southern California Edison Company since 1992. Prior thereto, she worked for
Kaiser Foundation Health Plan of Texas, Inc. for more than the preceding five
years, most recently as Vice President and Regional Manager of Texas. Ms. Jordan
also serves as a director of Epitope, Inc.
Mr. Lehr is former Chairman of the Board of 3M Company, St. Paul, Minnesota.
In his 39-year career with 3M Company, starting as an engineer, Mr. Lehr held
numerous management positions and from 1980 to March 1986, when he retired, was
Chairman of the Board and Chief Executive Officer. He also serves as a director
of Peregrine Semiconductor Corporation and various IDS Funds.
Mr. Michas has been a director of Merrill Lynch Capital Partners since 1989.
He has been a Partner of Stonington Partners since November 1993; a director of
Stonington Partners since August 1993; a partner of Merrill Lynch Capital
Partners from 1993 to July 1994; a Senior Vice President of Merrill Lynch
Capital Partners from 1989 to 1993; a Vice President of Merrill Lynch Capital
Partners from 1987 to 1989; a Managing Director of the Investment Banking
Division of ML & Co. from 1991 to July 1994; a Director of the Investment
Banking Division of ML & Co. from 1990 to 1991; and a Vice President of the
Investment Banking Division of ML & Co. from 1987 to 1989. He is also a director
of Borg-Warner Security Corporation, Borg-Warner Automotive, Inc., Blue Bird
Corporation, Dictaphone Corporation, Pathmark Stores, Inc. and Supermarkets
General Holding Corporation.
Mr. Sidhu has been a director of Merrill Lynch Capital Partners since 1988.
He has been a Special Limited Partner of Stonington Partners since August 1993;
a partner of Merrill Lynch Capital Partners from 1993 to July 1994; a Senior
Vice President of Merrill Lynch Capital Partners from 1987 to July 1994; a Vice
President of Merrill Lynch Capital Partners from 1985 to 1987; a Managing
Director of the Investment Banking Division of ML & Co. from 1989 to 1993; and a
Director of the Investment
46
<PAGE>
Banking Division of ML & Co. from 1987 to 1989. He is also a director of Clinton
Mills, Inc., First-USA, Inc., and Wherehouse Entertainment, Inc.
Mr. Santo was appointed Executive Vice President/Administration in May,
1995. Prior thereto he was appointed Senior Vice President/Administration in
February 1993 and was also Vice President/Legal Affairs of the Company, a
position he had held for more than the five years prior to 1993. In addition,
Mr. Santo was appointed Secretary of the Company effective January 1, 1992.
Mr. Wright was appointed Executive Vice President/Chief Financial Officer of
the Company in May 1995. Prior thereto he was appointed Senior Vice
President/Chief Financial Officer in February 1995 and was also Senior Vice
President/Finance from February 1993 until February 1995 and Vice President and
Controller of the Company from September 1988 until February 1993. Mr. Wright
became Vice President of the Company in June 1986. In addition, Mr. Wright had
served as Vice President of Finance of Eckerd Drug Company, formerly Old
Eckerd's principal subsidiary ("Eckerd Drug Company"), since May 1985.
Mr. Flynn was appointed Senior Vice President/Store Operations of the
Company in December 1994. Prior to joining the Company, he was Executive Vice
President with the Thrifty/Payless drug chain in Portland, Oregon from August
1993. Prior to joining Thrifty/Payless in August 1993, Mr. Flynn was employed by
Lucky Stores, Inc. for over 30 years, most recently as Senior Vice
President/Store Operations.
Mr. Kelly was appointed Senior Vice President/Merchandising in February
1993. Prior thereto he had served as Vice President of Merchandising of Eckerd
Drug Company for more than the preceding five years.
Mr. Powis was appointed Senior Vice President/Pharmacy in April 1995. Prior
to joining the Company, he was Senior Vice President Pharmacy Services for the
American Association of Retired Persons ("AARP") from September 1994. Prior to
joining AARP, Mr. Powis was employed for over 19 years by Hooks SupeRx, Inc.,
most recently as Senior Vice President Pharmacy Services.
Mr. Gladysz was appointed Vice President/Treasurer of the Company in May
1994. Prior to joining the Company, Mr. Gladysz was Executive Vice
President/Treasurer for Fortune Bancorp, a Florida banking organization, a
position he held for more than the five years prior to 1994.
Mr. Lewis was appointed Vice President/General Counsel and Assistant
Secretary of the Company in August 1994. He was a shareholder in the law firm of
Shackleford, Farrior, Stallings & Evans, P.A. in Tampa, Florida, from January
1992 to August 1994 and was an associate at that firm for more than five years
prior thereto.
Mr. Nash has been Vice President/Real Estate of the Company since August
1995. Prior to joining the Company, he served as Vice President--Real Estate at
Checker's Drive-In Restaurants, Inc. from 1993 until 1995 and at Morrison
Restaurants, Inc. from 1990 until 1993.
Mr. Simmons was appointed Vice President/Controller of the Company in August
1995. Prior to joining the Company, Mr. Simmons served as Vice President of
Finance and Chief Financial Officer of Checkers Drive-In Restaurants, Inc. from
January 1993 until August 1995. Prior thereto, he was a Partner at KPMG Peat
Marwick for more than the preceding five years.
Messrs. Turley, Boyle, Doluisio, Dunn, Fitzgibbons and Lehr have been
directors of the Company since May 1986. Mr. Sidhu became a director of the
Company in April 1988, Mr. Michas became a director of the Company in April
1990, Mr. Newman became a director in July 1993 and Ms. Jordan became a director
in September 1995.
47
<PAGE>
The Board of Directors of the Company is divided into three classes serving
staggered three-year terms. The terms of office of Messrs. Fitzgibbons, Turley
and Lehr will expire on the date of the annual meeting of stockholders of the
Company (the "Annual Meeting") in 1996, the terms of office of Messrs. Boyle,
Doluisio and Sidhu will expire on the date of the Annual Meeting in 1997 and the
terms of office of Messrs. Michas, Dunn and Newman and Ms. Jordan will expire on
the date of the Annual Meeting in 1998. Effective February 4, 1996, the annual
fee payable to members of the Board of Directors who are not employees of the
Company for their services as members of the Board will be increased from
$18,000 to $24,000.
Messrs. Doluisio, Dunn and Lehr serve as members of the Audit Committee,
Messrs. Fitzgibbons, Dunn and Lehr serve as members of the Executive
Compensation and Stock Option Committee, and Messrs. Turley, Dunn and
Fitzgibbons serve as members of the Executive Committee, of the Board of
Directors of the Company.
Messrs. Fitzgibbons, Sidhu and Michas are employees of Stonington Partners
and serve on the Board of Directors of the Company as representatives of the
Merrill Lynch Investors. In August 1993, Messrs. Fitzgibbons, Sidhu and Michas,
together with other colleagues from Merrill Lynch Capital Partners, founded
Stonington Partners. In July 1994, Messrs. Fitzgibbons, Sidhu and Michas left
the employment of Merrill Lynch, although each has continued as a director of
Merrill Lynch Capital Partners and the other companies in which certain
affiliates of Merrill Lynch have equity investments and for which they were
serving as a director in July 1994 (such other companies, the "Merrill Lynch
Affiliates"). In this connection, each of Messrs. Fitzgibbons, Sidhu and Michas
entered into a consulting agreement with Merrill Lynch Capital Partners which
provides, among other things, for his continued availability to serve on the
Board of Directors of the Company and the respective boards of directors of the
Merrill Lynch Affiliates for which he was serving as a director in July 1994
until requested to resign by Merrill Lynch Capital Partners, and for his
compensation (directly or indirectly) by Merrill Lynch Capital Partners for
serving in such director capacities and for other consulting services.
Officers of the Company serve at the discretion of the Board of Directors.
Officers are elected for a one-year term by the Board of Directors at its annual
meeting. There is no family relationship between any of the aforementioned
officers or directors of the Company.
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 28, 1995 by (i) each of the
directors of the Company, (ii) each of the named executive officers of the
Company, (iii) each person known by the Company to be the beneficial owner of
approximately five percent or more of the outstanding Common Stock, (iv) all of
the Company's directors and executive officers as a group and (v) by each
Selling Stockholder. Unless otherwise indicated, the Company believes that the
beneficial owner has sole voting and investment power over such shares. The
table does not reflect the Merrill Lynch Distribution or the possible sale of
additional shares by the Merrill Lynch Investors if the Underwriters'
over-allotment option is exercised in full.
<TABLE>
<CAPTION>
OWNERSHIP PRIOR TO OWNERSHIP AFTER
THE OFFERING THE OFFERING
-------------------------- --------------------------
SHARES OF SHARES SHARES OF
COMMON STOCK PERCENTAGE TO BE SOLD COMMON STOCK PERCENTAGE
------------ ---------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Merrill Lynch Investors
(1)........................ 8,020,634 22.95 5,000,000 3,020,634(2) 8.64(2)
Stewart Turley(3).......... 480,723 1.37 -- 480,723 1.37
Francis A. Newman (4)...... 103,350 * -- 103,350 *
John W. Boyle (5).......... 164,505 * -- 164,505 *
Dr. James T. Doluisio
(6)........................ 6,937 * -- 6,937 *
Donald F. Dunn............. 13,217 * -- 13,217 *
Albert J. Fitzgibbons, III
(7)........................ 4,717 * -- 4,717 *
Lewis W. Lehr (8).......... 9,017 * -- 9,017 *
Alexis P. Michas (7)....... 4,675 * -- 4,675 *
Rupinder S. Sidhu (7)...... 53,530 * -- 53,530 *
Robert L. Myers (9)........ 45,133 * -- 45,133 *
James M Santo (10)......... 63,053 * -- 63,053 *
Samuel G. Wright (11)...... 62,754 * -- 62,754 *
All directors and executive
officers as a group (20)
persons (12)(13)........... 1,069,224 3.04 -- 1,069,224 3.04
</TABLE>
- ------------
* Less than one percent
(1) As of October 28, 1995 shares of Common Stock beneficially owned by the
Merrill Lynch Investors were owned of record as follows: 516,748 shares by
Merrill Lynch Capital Corporation, 5,318,821 shares by Merrill Lynch
Capital Appreciation Partnership No. II, L.P., 135,311 shares by ML
Offshore LBO Partnership No. II, 140,178 shares by ML Employees LBO
Partnership No. I, L.P., 47,974 shares by Merrill Lynch KECALP L.P. 1986,
821,549 shares by Merrill Lynch Capital Appreciation Partnership No. B-IX,
L.P., 481,223 shares by ML Offshore LBO Partnership No. B-IX, 13,029 shares
by MLCP Associates L.P. No. II., 72,604 shares by Merrill Lynch KECALP L.P.
1989, 447,968 shares by ML IBK Positions, Inc., and 25,229 shares by
Merchant Banking L.P. No. IV. The address for the Merrill Lynch Investors
and each of the aforementioned record holders is c/o Merrill Lynch & Co.,
Inc., Merrill Lynch World Headquarters, South Tower, New York, New York
10080-6123.
(2) After the Merrill Lynch Distribution, the Merrill Lynch Investors will
beneficially own approximately 2,614,993 shares of Common Stock, which
would represent approximately 7.48% of the shares of Common Stock
outstanding after the Offering.
(3) Total does not reflect the 43,595 shares of Common Stock transferred by Mr.
Turley to certain family members. Mr. Turley disclaims beneficial ownership
of such shares. Total includes 16,000 shares transferred by Mr. Turley to
The Stewart Turley Foundation, Inc. Mr. Turley disclaims
(Footnotes continued on following page)
49
<PAGE>
(Footnotes continued from preceding page)
beneficial ownership of such shares. Total includes options covering 44,421
shares of Common Stock which are exercisable as of October 28, 1995 or
within 60 days thereafter.
(4) Total includes options covering 100,000 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter. Mr. Newman
has advised the Company that prior to the end of fiscal 1996 he expects to
exercise options and dispose of shares of Common Stock, as a result of
which he would receive net proceeds of up to $1.0 million.
(5) Total does not reflect 125,393 shares of Common Stock transferred to
certain irrevocable trusts established by Mr. Boyle. Mr. Boyle disclaims
beneficial ownership of such shares. Total includes options covering 40,800
shares of Common Stock which are exercisable as of October 28, 1995 or
within 60 days thereafter.
(6) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(7) Messrs. Fitzgibbons, Michas and Sidhu are directors of the Company and
Merrill Lynch Capital Partners. Until July 1994 they were officers of
Merrill Lynch Capital Partners and employees of ML & Co. Each disclaims
beneficial ownership of shares of Common Stock beneficially owned by the
Merrill Lynch Investors. The business address for Messrs. Fitzgibbons,
Michas and Sidhu is c/o Stonington Partners, 767 Fifth Avenue, 48th Floor,
New York, NY 10153.
(8) Total includes options covering 3,334 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(9) Mr. Myers resigned as Senior Vice President/Pharmacy of the Company on May
26, 1995.
(10) Total includes options covering 9,100 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(11) Total includes options covering 9,100 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
(12) The total number of all directors and executive officers as a group
includes Robert L. Myers, the former Senior Vice President/Pharmacy, who
resigned from his position on May 26, 1995.
(13) Total includes options covering 216,589 shares of Common Stock which are
exercisable as of October 28, 1995 or within 60 days thereafter.
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<PAGE>
DESCRIPTION OF CERTAIN INDEBTEDNESS
The following summaries of the principal terms of certain outstanding
indebtedness of the Company do not purport to be complete and are subject to the
detailed provisions of, and qualified in their entirety by reference to, the
respective financing agreements, copies of which have been filed or incorporated
by reference as exhibits to the Registration Statement of which this Prospectus
is a part and to which exhibits reference is hereby made. Whenever particular
provisions of such documents are referred to, such provisions are incorporated
by reference as a part of the statements made, and the statements are qualified
in their entirety by such reference.
THE CREDIT AGREEMENT
The Company is party to the Credit Agreement dated as of June 14, 1993 as
amended and restated as of November 29, 1995 (the "Credit Agreement") with the
financial institutions party thereto (the "Lenders"), Chemical Bank, a New York
banking corporation ("Chemical Bank"), NationsBank of Florida, N.A., a national
banking association ("NationsBank"), as managing agents for the Lenders (in such
capacity, each a "Managing Agent") and as swingline lenders (in such capacity,
each a "Swingline Lender"), and Chemical Bank as administrative agent for the
Lenders, the Swingline Lenders and the fronting banks with respect to letters of
credit ("Letters of Credit") and bankers' acceptances ("Bankers' Acceptances")
issued in connection with the Credit Agreement and NationsBank as documentation
agent for the Lenders, the Swingline Lenders and the Fronting Banks (the
"Documentation Agent").
The Lenders extended credit (i) on a term basis in an aggregate principal
amount not to exceed $250.0 million (the "Term Loans") and (ii) on a revolving
basis at any time and from time to time prior to November 29, 2000, in an
aggregate principal amount outstanding not in excess of $500.0 million (the
"Revolving Loans") of which up to (a) $30.0 million of such amount is available
as swingline loans (the "Swingline Loans") and (b) $155.0 million of such amount
is available as Letters of Credit and Bankers' Acceptances. At November 30,
1995, the Company had approximately $250.0 million outstanding under the Term
Loans and $383.0 million outstanding under the Revolving Loans and had unused
and available borrowing commitments under the Revolving Loans of $28.0 million
(which is net of $89.0 million of letters of credit). The term of the Credit
Agreement expires on November 29, 2000.
The Company uses the proceeds of Revolving Loan borrowings from time to time
for general corporate purposes of the Company and its subsidiaries. The proceeds
of Swingline Loans are also used for general corporate purposes of the Company
and its subsidiaries. Letters of Credit and Bankers' Acceptances are used to
support obligations of the Company and its subsidiaries incurred in the ordinary
course of business.
The obligations of the Company under the Credit Agreement are
unconditionally guaranteed by each of the active subsidiaries of the Company
(each, a "Guarantor"). In addition, the Company has pledged the capital stock of
the Guarantors, and all borrowings under the Credit Agreement are secured by a
first priority lien on all accounts, accounts receivable, equipment, inventory,
proceeds, intellectual property, and certain other property of the Company and
first priority mortgages on two distribution centers of the Company located in
Texas and the Company's headquarters located in Florida.
The Term Loans and the Revolving Loans bear interest at a rate per annum
equal to, at the Company's option, (i) the Alternate Base Rate ("ABR") (defined
in the Credit Agreement as the highest of (a) the prime rate, (b) the federal
funds effective rate plus 1/2 of 1%, and (c) the base CD rate plus 1%) or (ii)
the Adjusted LIBO rate ("LIBOR") (defined in the Credit Agreement as the product
of (a) LIBOR in effect for the applicable interest period and (b) statutory
reserves) plus, in the case of LIBOR a spread (the "LIBOR Spread") determined by
reference to the ratio of earnings before interest, taxes, depreciation and
amortization to Interest Expense (the "Ratio"). If the Ratio is (a) less than
3.5 ("Level I Ratio"), the LIBOR Spread will be 75 basis points per annum, (b)
equal to or greater
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<PAGE>
than 3.5 but less than 4.5, ("Level II Ratio"), the LIBOR Spread will be 62.5
basis points per annum or (c) equal to or greater than 4.5 ("Level III Ratio"),
the LIBOR Spread will be 50 basis points per annum; provided, however, that the
LIBOR Spread cannot be less than 62.5 basis points per annum prior to receipt by
the Lenders of the Company's financial statements for the fiscal quarter ending
October 1996 (the "October 1996 Financial Statements"); provided, further, that
if, after the receipt of the October 1996 Financial Statements, the Ratio is
greater than or equal to 4.5, no default or event of default has occurred and is
continuing and the Credit Agreement has received both a Baa3 or better rating
from Moody's Investors Service, Inc. and a BBB- or better rating from Standard &
Poors Ratings Service, the LIBOR Spread will be 37.5 basis points per annum.
Interest is computed on the basis of actual number of days elapsed over a
360-day year except when the rate is determined by reference to the prime rate,
in which case it is computed on the basis of actual number of days elapsed over
a 365- or 366-day year. The Swingline Loans bear interest at the rate applicable
to ABR Revolving Loans.
Interest on ABR borrowings are payable quarterly. Interest on LIBOR
borrowings are payable at the end of the relevant interest period (one, two,
three or six-month periods, except that with respect to six-month periods,
interest shall be payable every three months).
The Company pays the Lenders a commitment fee on the undrawn amount of the
revolving facilities determined by reference to the Ratio. If the Company has
achieved a (x) Level I Ratio, the commitment fee is 31.25 basis points per
annum, (y) if the Company achieves a Level II Ratio, the commitment fee is 25
basis points per annum or (z) if the Company achieves a Level III Ratio, the
commitment fee is 18.75 basis points per annum; provided, however, that the
commitment fee cannot be less than 25 basis points per annum until delivery to
the Lenders of the October 1996 Financial Statements. The Company also pays
Letter of Credit fees and Bankers' Acceptance fees, and has paid commitment and
other fees to the Managing Agents and the Lenders.
Principal of the Term Loans will be amortized according to a schedule which
requires amounts outstanding under the Term Loan facility to be reduced by $50.0
million per fiscal year, payable in $10.0 million installments in each of the
first three quarters and $20.0 million in the fourth quarter.
The Company is required to prepay borrowings under the Credit Agreement
with, among others, in any fiscal year, (i) the excess of the aggregate net
proceeds of dispositions of assets of the Company and its subsidiaries over
$10.0 million and (ii) the net proceeds of any incurrence of debt (other than
indebtedness permitted under the Credit Agreement). Mandatory prepayments are
to be applied (i) first, pro rata against remaining scheduled installments of
principal due in respect of Term Loans and (ii) second, to prepay Swingline
Loans and then other Revolving Loans.
The Company has the right to prepay any borrowings under the Credit
Agreement in whole or in part at any time. Optional prepayments of Term Loans
are to be applied (i) first, in the order of maturity of the scheduled
installments of principal due on the repayment dates occurring during the
twelve-month period beginning on the date of such prepayment and (ii) second,
pro rata against the remaining scheduled installments of principal due in
respect of Term Loans.
The Credit Agreement contains various restrictive covenants prohibiting the
Company and its subsidiaries from (subject to certain exceptions), (i) incurring
or permitting to exist any indebtedness, other than, among other things, (a)
certain indebtedness specified existing on the date the Company restated the
Credit Agreement, (b) indebtedness that consists of purchase money indebtedness
or capital lease obligations and is either (x) incurred by the Company in the
ordinary course of business to finance capital expenditures or (y) exists with
respect to an acquired entity if such indebtedness exists at the time of
acquisition; provided, that indebtedness described in (x) must be incurred
within 90 days after the making of the capital expenditure financed thereby, (c)
certain deferred purchase price obligations in an amount not to exceed $10.0
million, (d) reimbursement obligations in limited amounts, (e) certain
intercompany indebtedness, (f) indebtedness in respect of interest rate
protection agreements, (g) the 9 1/4% Notes, (h) subordinated indebtedness
incurred solely to redeem outstanding
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subordinated indebtedness in whole at an interest rate more favorable than that
in effect under the subordinated indebtedness being refinanced and on terms no
less favorable to the Company than those in effect under the subordinated
indebtedness being refinanced, (i) other subordinated indebtedness, provided no
material term of such subordinated indebtedness is more favorable to the lenders
of such indebtedness than the terms applicable under the 9 1/4% Notes, such
subordinated indebtedness is unsecured and not guaranteed and such subordinated
indebtedness has a maturity greater than or equal to the maturity of the Credit
Agreement; and (j) obligations of the Company and certain subsidiaries under
various stock or option purchase agreements; (ii) incurring or permitting to
exist any liens, other than, among other things, (a) certain specified liens
existing on the date the Company restated the Credit Agreement, (b) liens
existing on property or assets prior to the acquisition thereof by the Company,
(c) purchase money security interests in real property, improvements thereto or
equipment, and (d) liens on consigned goods; (iii) entering into sale and
leaseback transactions other than those specified in the Credit Agreement; (iv)
making investments, loans or advances in excess of $7.0 million in the aggregate
at any time outstanding, other than, among others, the acquisitions of entities
engaged in one or more lines of business substantially similar to those engaged
in on the date the Credit Agreement was restated, not to exceed $50.0 million in
cash in any instance or $100.0 million in any fiscal year; (v) merger,
consolidation, sale or other disposal of all or any substantial part of any
asset or any capital stock of a subsidiary, or acquisitions (including leases)
of all or any substantial part of the assets of any entity, except for, among
other things, (a) the sale of inventory in the ordinary course of business, (b)
the sale of accounts receivable on an ongoing basis; provided that the purchaser
of such receivables may at no time invest more than $125.0 million, (c) the sale
or other disposal of certain specified real estate, and (d) the sale of an
aggregate of $35.0 million of assets, provided that sales not exceed $10.0
million in any twelve-month period; (vi) declaring or paying dividends or
distributions, except for, among other things, purchases or redemptions of stock
in connection with certain existing management subscription agreements; (vii)
engaging in any transaction with any affiliate other than, subject to limited
exceptions, on arms-length terms; (viii) engaging in business activities not
reasonably related to their current business activities; (ix) subject to limited
exceptions, prepaying or redeeming indebtedness; (x) amending, waiving,
modifying or terminating certain documents, including, among others, their
respective charter documents and the terms of material indebtedness of the
Company, unless such amendment, waiver, modification or termination is not
adverse to the Lenders; and (xi) maintaining a bank account with a financial
institution other than a Lender, except as expressly specified.
The Credit Agreement requires the Company to satisfy certain financial
covenants, including, among other things, on a quarterly basis, with respect to
the four immediately preceding quarters: (i) a ratio of funded debt to earnings
before interest, taxes, depreciation and amortization; (ii) interest coverage
ratio; and (iii) fixed charge coverage ratio.
"Events of Default" under the Credit Agreement include (i) default in the
payment when due of any principal payable on the loans under the Credit
Agreement; (ii) default in the payment of any interest, fees or other amounts
payable under the Credit Agreement for a period of three business days; (iii)
the failure to comply with certain other covenants, conditions or agreements
contained in the Credit Agreement; (iv) the failure to comply with any covenant,
condition or agreement contained in the Credit Agreement related loan documents
for a period of 15 days; (v) the failure to pay any principal or interest due in
respect to any indebtedness in a principal amount in excess of $3.0 million
(after giving effect to any applicable grace period); (vi) the commencement of a
bankruptcy, insolvency, receivership or similar action by or against the Company
or any subsidiary; (vii) one or more judgments in an aggregate amount in excess
of $250,000 (to the extent not covered by insurance) rendered against the
Company or any subsidiary which shall remain undischarged for a period of 10
consecutive days; (viii) certain events under the Employee Retirement Income
Security Act of 1975; and (ix) a change in control ("Change in Control") which
shall occur, if, among other things, (a) any person or group other than Merrill
Lynch Capital Partners and its affiliates shall own shares representing more
than 30% of the ordinary voting power of the Company, and (b) certain specified
changes in the composition of the board of directors of the Company occur.
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THE 9 1/4% NOTES
The 9 1/4% Notes are senior subordinated obligations of the Company,
subordinated in right of payment to all existing and future senior debt of the
Company. The 9 1/4% Notes are redeemable at the option of the Company, in whole
or in part, at specified redemption prices, and upon a Change in Control. The 9
1/4% Notes bear interest at 9 1/4% per annum and mature on February 15, 2004.
The indenture pursuant to which the 9 1/4% Notes were issued (the "9 1/4%
Notes Indenture") contains certain covenants that, among other things, restrict
(i) the incurrence of additional indebtedness by the Company and its Restricted
Subsidiaries (as defined in the 9 1/4% Notes Indenture), (ii) the payment of
dividends on, and redemptions of, capital stock of the Company and the making of
other restricted payments, (iii) the incurrence of restrictions on the ability
of Restricted Subsidiaries to pay dividends or other payments to the Company,
(iv) the incurrence of liens, (v) transactions with affiliates, (vi) the use of
proceeds from the disposition of certain assets of the Company or the sale of
the stock of Restricted Subsidiaries, (vii) the issuance of certain guarantees
and pledges by Restricted Subsidiaries, (viii) the issuance and sale of capital
stock by Restricted Subsidiaries, (ix) the incurrence of other senior
subordinated indebtedness and (x) the ability of the Company to engage in
certain mergers or consolidations or to transfer all or substantially all of its
assets to another person.
Upon a Change in Control, (i) the Company will have the option to redeem the
9 1/4% Notes and (ii) subject to certain conditions, the Company will be
required to make an offer to purchase each holder's 9 1/4% Notes at 101% of the
principal amount thereof plus accrued interest to the date of redemption. In
addition, the Company will, under certain circumstances, be obligated to make an
offer to purchase 9 1/4% Notes in the event of Asset Sales (as defined in the 9
1/4% Notes Indenture). The Credit Agreement, however, prohibits the Company from
optionally redeeming the 9 1/4% Notes.
THE INDUSTRIAL DEVELOPMENT REVENUE BONDS
The Company has issued and outstanding $18.25 million in Variable Rate
Demand Industrial Development Revenue Refunding Bonds including $8.25 million
due March 1, 2009 and $10.0 million due May 1, 2013. The variable rate demand
industrial development revenue refunding bonds currently have an interest rate
which is a daily rate established by J.P. Morgan Securities, Inc. and is
indicative of current bid-side yields of high grade tax-exempt securities. At
the Company's option, and under certain conditions, the interest rate may be
changed to a monthly rate or a fixed rate. The bonds are secured by the related
buildings, leases and letters of credit and are guaranteed obligations of the
Company. The reimbursement agreement relating to the letters of credit
incorporates the restrictive covenants and limitations of the Credit Agreement.
THE IFS SALE AND LEASEBACK
On June 15, 1993, the Company entered into the IFS Sale and Leaseback, which
is an agreement for a sale and leaseback of certain assets related to its photo
processing business. The Company has sold certain photo processing equipment to
Imaging Financial Services, Inc., a Delaware corporation, for approximately
$35.0 million, and entered into a five-year lease with respect to such
equipment. At the end of the five years, the Company may renew the agreement or
terminate the lease and return the equipment.
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DESCRIPTION OF CAPITAL STOCK
The following summary is subject to the detailed provisions of, and is
qualified in its entirety by reference to, the Company's Restated Certificate of
Incorporation and Restated By-laws, copies of which have been incorporated by
reference as exhibits to the Registration Statement of which this Prospectus is
a part. The authorized capital stock of the Company consists of 100 million
shares of Common Stock and 20 million shares of preferred stock, par value $.01
per share.
COMMON STOCK
The Company's authorized common stock consists of 100 million shares of
Common Stock, par value $.01 per share (of which 3,518,728 shares are Non-Voting
Common Stock (Series I), par value $.01 per share). As of October 28, 1995,
there were 34,950,857 shares of Common Stock outstanding and employee stock
options outstanding to purchase an aggregate of 1,656,199 shares of Common Stock
(of which options to purchase an aggregate of 302,328 shares of Common Stock
were exercisable). In addition, another 1,757,910 shares of Common Stock were
reserved for issuance pursuant to the Company's 1993 and 1995 Stock Option and
Incentive Plans. Subject to certain conditions, shares of Common Stock held by
any Regulated Banking Stockholder (as defined in the Restated Certificate of
Incorporation) may be converted into the same number of shares of Non-Voting
Common Stock and shares of Non-Voting Common Stock held by any holder may be
converted into the same number of shares of Common Stock.
Voting Rights
Each share of Common Stock entitles the holder thereof to one vote in
elections of directors and all other matters submitted to a vote of
stockholders. The Common Stock does not have cumulative voting rights, which
means that holders of a majority of the outstanding Common Stock voting for the
election of directors can elect all directors then being elected. Each share of
Non-Voting Common Stock does not entitle the holder thereof to any vote on
matters on which the holders of Common Stock are entitled to vote, except on any
amendment, repeal or modification of any provision of the Company's Restated
Certificate of Incorporation which adversely affect the rights of the holders of
Non-Voting Common Stock or as otherwise required by law.
Dividends
Subject to the rights of any preferred stock which may be issued by the
Board of Directors, each share of Common Stock and Non-Voting Common Stock has
an equal and ratable right to receive dividends to be paid from the Company's
assets legally available therefor when, as and if declared by the Board of
Directors. The terms of the Company's outstanding indebtedness restrict the
declaration and payment of dividends on the Common Stock.
Liquidation
In the event of the dissolution, liquidation or winding up of the Company,
the holders of Common Stock and Non-Voting Common Stock are entitled to share
equally and ratably in the assets available for distribution after payments are
made to the Company's creditors and to the holders of any preferred stock of the
Company that may be outstanding at the time.
Other
The holders of shares of Common Stock and Non-Voting Common Stock have no
preemptive, subscription, redemption or conversion rights and are not liable for
further call or assessment. All of the outstanding shares of Common Stock are
fully paid and nonassessable.
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Registrar and Transfer Agent
Mellon Securities Trust Company acts as Registrar and Transfer Agent for the
Common Stock.
PREFERRED STOCK
The Company's Restated Certificate of Incorporation provides that the
Company may issue up to 20 million shares of preferred stock and the Board of
Directors of the Company is authorized, without further stockholder action, to
divide any or all shares of authorized preferred stock into series and to fix
and determine the designations, preferences and relative, participating,
optional or other special rights, and qualifications, limitations or
restrictions thereon, of any series so established, including voting powers,
dividend rights, liquidation preferences, redemption rights and conversion
privileges. As of the date of this Prospectus, the Board of Directors of the
Company has not authorized any series of preferred stock and there are no plans,
agreements or understandings for the issuance of any shares of preferred stock.
CERTIFICATE OF INCORPORATION AND BY-LAWS
Certain provisions of the Company's Restated Certificate of Incorporation
and Restated By-laws could make more difficult non-negotiated acquisitions of
the Company. The Board of Directors believes that these provisions will help to
assure the continuity and stability of the Board of Directors and the business
strategies and policies of the Company as determined by the Board of Directors.
These provisions could have the effect, however, of discouraging a third party
from making a tender offer or otherwise attempting to obtain control of the
Company even though such an attempt might be beneficial to the Company and its
stockholders.
Pursuant to the Company's Restated Certificate of Incorporation, the Board
of Directors of the Company is divided into three classes serving staggered
three-year terms. Directors can be removed from office only for cause and only
by the affirmative vote of the holders of a majority of the then-outstanding
shares of capital stock entitled to vote generally in an election of directors.
Vacancies on the Board of Directors may be filled only by the remaining
directors and not by the stockholders.
The Restated Certificate of Incorporation also provides that any action
required or permitted to be taken by the stockholders of the Company may be
effected only at an annual or special meeting of stockholders, and prohibits
stockholder action by written consent in lieu of a meeting. The Company's
Restated By-laws provide that special meetings of stockholders may be called
only by the chairman, the president or the secretary of the Company and must be
called by any such officer at the request in writing of the Board of Directors.
Stockholders may call a special meeting if the holders of not less than 50% of
all votes entitled to be cast at a special meeting send a written demand to the
Company's Secretary.
The Restated By-laws establish an advance notice procedure for the
nomination, other than by or at the direction of the Board of Directors, of
candidates for election as directors as well as for other stockholder proposals
to be considered at annual meetings of stockholders. In general, notice of
intent to nominate a director or raise business at such meetings must be
received by the Company not less than 60 nor more than 90 days prior to the
anniversary of the previous year's annual meeting, and must contain certain
specified information concerning the person to be nominated or the matters to be
brought before the meeting and concerning the stockholder submitting the
proposal.
The foregoing summary is qualified in its entirety by the provisions of the
Company's Restated Certificate of Incorporation and Restated By-laws, copies of
which have been incorporated by reference as exhibits to the Registration
Statement of which this Prospectus constitutes a part.
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LIMITATIONS ON DIRECTORS' LIABILITY
The Company's Restated Certificate of Incorporation provides that, to the
fullest extent permitted by the General Corporation Law of the State of Delaware
(the "DGCL"), directors of the Company shall not be personally liable to the
Company or its stockholders for monetary damages for breach of fiduciary duty as
a director. Section 102(7) of the DGCL, however, states that such a provision
may not eliminate or limit the liability of a director (i) for any breach of the
director's duty of loyalty to the Company or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the DGCL, relating to unlawful
dividends, distributions or the repurchase or redemption of stock or (iv) for
any transaction from which the director derives an improper personal benefit.
The Company's Restated By-laws provide that the Company shall indemnify and
hold harmless, to the fullest extent permitted by the DGCL, any person against
expenses (including attorney's fees), judgments, fines and amounts paid in
settlement, actually and reasonably incurred in connection with any threatened,
pending or completed legal proceedings in which such person is involved by
reason of the fact that he is or was a director, officer, employee or agent of
the Company (or serving in any such capacity with another business organization
at the request of the Company) if he acted in good faith and in a manner that he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, if he had no
reasonable cause to believe that his conduct was unlawful. If the legal
proceeding, however, is by or in the right of the Company, such director,
officer, employee or agent may not be indemnified in respect of any claim, issue
or matter as to which he shall have been adjudged to be liable to the Company
unless a court determines otherwise.
The Company has entered into agreements to indemnify its directors and
officers in addition to the indemnification provided for in the Restated
Certificate of Incorporation. These agreements, among other things, indemnify
the Company's directors and officers for certain expenses (including attorneys'
fees), judgments, fines and settlement amounts incurred by such person in any
action or proceeding, including any action by or in the right of the Company, on
account of services as a director or officer of the Company or as a director or
officer of any subsidiary of the Company, or as a director or officer of any
other company or enterprise to which the person provides services at the request
of the Company.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement, as amended, among the Company,
the Merrill Lynch Investors, the Management Investors and the other stockholders
of the Company who held shares immediately prior to the IPO (the "Registration
Rights Agreement"), holders of at least 25% of the Common Stock have the right
to demand registration under the Securities Act of their shares of Common Stock.
Subject to certain exceptions, the Company will be required, at its expense, to
register such shares and to include in the registration on request all other
shares owned by parties to the Registration Rights Agreement (or their permitted
transferees) who notify the Company of their request. In addition, in the event
the Company proposes to register any of its equity securities under the
Securities Act, each party to the Registration Rights Agreement (or its
permitted transferee) has the incidental right, subject to certain exceptions,
to have the shares of the Common Stock then owned by it included in such
registration. The Company has agreed that, in the event of any registration of
securities owned by a party to the Registration Rights Agreement (or permitted
transferee) in accordance with the provisions thereof, it will indemnify such
person, and certain related persons, against liabilities incurred in connection
with such registration, including liabilities arising under the Securities Act.
The Company and the Eckerd Corporation Profit Sharing Plan have also entered
into a demand registration rights agreement with terms similar to those
contained in the Registration Rights Agreement (except that such registration
rights agreement does not provide for incidental registration rights).
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The registration rights of the existing stockholders are subject to certain
limitations intended to prevent undue interference with the Company's ability to
distribute securities, including, without limitation, the provisions that (i)
demand registration rights may not be exercised within six months after the
effective date of the Company's most recent registration statement (other than
registration on Form S-4 or S-8) and (ii) the 1% Holders will not offer for
public sale any shares owned by them during the seven days before or 120 days
after the effective date of any registration statement filed pursuant to the
Registration Rights Agreement.
The Company has included the shares of Common Stock to be sold by the
Selling Stockholders in the Offering pursuant to the exercise by such Selling
Stockholders of their demand registration rights under the Registration Rights
Agreement.
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UNDERWRITING
Subject to the terms and conditions set forth in the Purchase Agreement (the
"Purchase Agreement") among the Company, the Selling Stockholders and each of
the underwriters named below (the "Underwriters"), the Selling Stockholders
severally have agreed to sell to each of the Underwriters, and each of the
Underwriters severally has agreed to purchase from the Selling Stockholders, the
number of shares of Common Stock set forth opposite its name below.
NUMBER OF
UNDERWRITERS SHARES
---------
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.................................................
CS First Boston Corporation..................................
Morgan Stanley & Co. Incorporated............................
Raymond James & Associates, Inc..............................
---------
Total........................................................ 5,000,000
---------
---------
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), CS
First Boston Corporation, Morgan Stanley & Co. Incorporated and Raymond James &
Associates, Inc. are acting as representatives (the "Representatives") of the
several Underwriters.
In the Purchase Agreement, the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock offered hereby if any of such shares are purchased. Under certain
circumstances, the commitments of the non-defaulting Underwriters may be
increased.
The Underwriters have advised the Company that they propose initially to
offer the shares to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of $ per share. The Underwriters may allow, and
such dealers may reallow, a discount not in excess of $ per share to
certain other dealers. After the Offering, the public offering price, concession
and discount may be changed.
The Selling Stockholders have granted the Underwriters an option,
exercisable for 30 days after the date of this Prospectus, to purchase up to an
aggregate of an additional 750,000 shares to cover over-allotments, if any, at
the public offering price set forth on the cover page hereof, less the
underwriting discount. The Underwriters may exercise such option only to cover
over-allotments, if any, made on the sale of the shares offered hereby. To the
extent that the Underwriters exercise such option, each Underwriter will be
obligated, subject to certain conditions, to purchase the number of shares
proportionate to such Underwriter's initial amount reflected in the foregoing
table.
For information regarding the ownership by the Merrill Lynch Investors of
Common Stock and the representation of affiliates of ML & Co. on the Board of
Directors of the Company, see "Management" and "Principal and Selling
Stockholders."
The Common Stock is listed on the NYSE under the symbol "ECK." Because the
Company is an affiliate of Merrill Lynch, one of the Underwriters, the Offering
is being conducted in accordance with the applicable provisions of Schedule E to
the By-Laws of the National Association of Securities Dealers, Inc. In
accordance with Schedule E, no NASD member participating in the distribution is
permitted to confirm sales to accounts over which it exercises discretionary
authority without prior specific written consent. In addition, under the rules
of the NYSE, Merrill Lynch is precluded from
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issuing research reports that make recommendations with respect to the Common
Stock for so long as the Company is an affiliate of Merrill Lynch.
Pursuant to the Registration Rights Agreement, each 1% Holder has agreed,
for a period beginning seven days before, and ending 120 days after, the
effective date of the Registration Statement of which this Prospectus is a part,
not to effect any public sale or distribution, including any sale pursuant to
Rule 144 under the Securities Act, of Common Stock or any securities convertible
into or exchangeable or exercisable for Common Stock, or any rights or warrants
to acquire Common Stock, subject to certain exceptions, without the prior
written consent of the Representatives of the Underwriters. See "Risk
Factors--Shares Eligible for Future Sale." Approximately 16.06% of the shares of
Common Stock outstanding upon consummation of the Offering will be subject to
such lock-up agreements. In addition, certain of the Merrill Lynch Investors
that are limited partnerships will be distributing an aggregate of approximately
405,641 shares of Common Stock pursuant to the Merrill Lynch Distribution. As a
condition to receiving shares of Common Stock in the Merrill Lynch Distribution,
such partners have agreed to be bound by the same lock-up provision as the 1%
Holders for a period of 120 days after the effective date of the Registration
Statement. The Merrill Lynch Distribution is expected to occur as soon as
practicable after 120 days from the effective date of the Registration
Statement, or on such earlier date consented to by the Representatives of the
Underwriters. In addition, each of the Company and the executive officers and
directors of the Company will agree, for a period of 90 days after the effective
date of the Registration Statement, not to sell or otherwise dispose of any
shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, or any rights or warrants to acquire Common Stock,
subject to certain exceptions, without the prior written consent of the
Representatives of the Underwriters.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters and their controlling persons against certain civil liabilities,
including liabilities under the Securities Act of 1933, as amended, and to
contribute to payments the Underwriters may be required to make in respect
thereof.
Merrill Lynch, an affiliate of the Merrill Lynch Investors, acted as one of
the representatives of the underwriters in both the Secondary Offering and the
August Offering and received underwriting commissions and related fees of
approximately $809,200 and approximately $3.0 million, respectively. In
addition, Merrill Lynch received fees of approximately $1.4 million in
connection with the financial advisory services rendered to the Company in
connection with the Insta-Care Sale. In addition to Merrill Lynch, certain of
the Underwriters acted as representatives of the Underwriters in both the
Secondary Offering and the August Offering and, from time to time, perform
investment banking and other financial services for the Company.
LEGAL MATTERS
Certain legal matters with respect to the Common Stock will be passed upon
for the Company by Skadden, Arps, Slate, Meagher & Flom, New York, New York and
Robert E. Lewis, Esq., Vice President/General Counsel of the Company. Certain
legal matters will be passed upon for the Underwriters by Shearman & Sterling,
New York, New York. Certain partners of Skadden, Arps, Slate, Meagher & Flom are
investors in the Company. Skadden, Arps, Slate, Meagher & Flom and Shearman &
Sterling occasionally act as counsel to ML & Co. and its affiliates, including
the Merrill Lynch Investors, and Skadden, Arps, Slate, Meagher & Flom
occasionally acts as counsel to the other Underwriters.
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EXPERTS
The consolidated financial statements and schedules of the Company and
subsidiaries as of January 28, 1995 and January 29, 1994, and for the years
ended January 28, 1995, January 29, 1994 and January 30, 1993, included in the
Company's Annual Report on Form 10-K405 for the period ended January 28, 1995
and incorporated herein by reference, have been incorporated by reference in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, included or incorporated by reference herein, and upon the
authority of that firm as experts in accounting and auditing.
With respect to the unaudited interim financial information of Eckerd
Corporation and subsidiaries for the thirteen week periods ended April 29, 1995
and April 30, 1994 and the thirteen and twenty-six week periods ended July 29,
1995 and July 30, 1994, incorporated by reference herein, the independent
certified public accountants have reported that they applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate reports included in the Eckerd Corporation and
subsidiaries' quarterly reports on Form 10-Q for each of the quarters ended
April 29, 1995 and July 29, 1995, and incorporated by reference herein, state
that they did not audit and they do not express an opinion on that interim
financial information. Accordingly, the degree of reliance on their reports on
such information should be restricted in light of the limited nature of the
review procedures applied. The accountants are not subject to the liability
provisions of section 11 of the Securities Act for their report on the unaudited
interim financial information because that report is not a "report" or a "part"
of the registration statement prepared or certified by the accountants within
the meaning of sections 7 and 11 of the Securities Act.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports and other information with the Securities and Exchange
Commission (the "Commission"). Such reports and other information filed by the
Company with the Commission, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549 and should also be available for inspection and
copying at the regional offices of the Commission located at Seven World Trade
Center, 13th Floor, New York, New York 10048; and at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates. Additionally,
such reports and other information concerning the Company are available for
inspection at the offices of the New York Stock Exchange located at 20 Broad
Street, New York, New York 10005, on which the Common Stock and the 9 1/4% Notes
are listed.
This Prospectus constitutes a part of a Registration Statement on Form S-3
filed by the Company with the Commission under the Securities Act. This
Prospectus omits certain of the information contained in the Registration
Statement, and reference is hereby made to the Registration Statement and to the
exhibits relating thereto for further information with respect to the Company
and the Common Stock offered hereby. Any statements contained herein concerning
the provisions of any document are not necessarily complete, and, in each
instance, reference is made to such copy filed as an exhibit to the Registration
Statement or otherwise filed with the Commission. Each such statement is
qualified in its entirety by such reference. The Registration Statement and the
exhibits thereto may be inspected without charge at the office of the Commission
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and copies
thereof may be obtained from the Commission at prescribed rates.
61
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by the Company with the Commission (File No.
1-4844) pursuant to the Exchange Act, are incorporated herein by reference and
made a part hereof:
1. The Company's Annual Report on Form 10-K405 for the fiscal year ended
January 28, 1995.
2. The Company's Quarterly Report on Form 10-Q for the quarter ended
April 29, 1995.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
July 29, 1995.
4. The Company's Current Report on Form 8-K dated November 28, 1995.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Prospectus and prior to the
termination of the offering of the shares of Common Stock offered hereby shall
be deemed to be incorporated in this Prospectus by reference and to be a part
hereof from the date of filing of such documents.
The Company will provide without charge to each person to whom a copy of
this Prospectus is delivered, on the written or oral request of any such person,
a copy of any and all of the documents incorporated herein by reference (other
than exhibits unless such exhibits are specifically incorporated herein by
reference). Requests for such copies should be directed to the Treasurer, Eckerd
Corporation, 8333 Bryan Dairy Road, Largo, Florida 34647 or by telephone at
(813) 399-6000.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein
or in any other subsequently filed document which also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Prospectus.
62
<PAGE>
- --------------------------------- ---------------------------------
- --------------------------------- ---------------------------------
NO DEALER, SALESPERSON OR ANY
OTHER INDIVIDUAL HAS BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATIONS OTHER THAN THOSE 5,000,000 SHARES
CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING
BY THIS PROSPECTUS. IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING [ECKERD CORPORATION LOGO]
BEEN AUTHORIZED BY THE COMPANY OR
THE SELLING STOCKHOLDERS OR THE
UNDERWRITERS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL, OR
A SOLICITATION OF AN OFFER TO BUY, THE
COMMON STOCK IN ANY JURISDICTION WHERE COMMON STOCK
OR TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY -------------------
CIRCUMSTANCES, CREATE ANY IMPLICATIONS
THAT THERE HAS NOT BEEN ANY CHANGE PROSPECTUS
IN THE FACTS SET FORTH IN THIS
PROSPECTUS OR IN THE AFFAIRS OF THE -------------------
COMPANY SINCE THE DATE HEREOF.
-------------------
TABLE OF CONTENTS
PAGE
----
Prospectus Summary.................... 3
Risk Factors.......................... 8
Capitalization........................ 12
Price Range of Common Stock and
Dividend Policy..................... 13
The Company........................... 14
Selected Historical Financial Data.... 17
Pro Forma Financial Data.............. 19 MERRILL LYNCH & CO.
Management's Discussion and Analysis
of Results of Operations and CS FIRST BOSTON
Financial Condition................. 21
Business.............................. 31 MORGAN STANLEY & CO.
INCORPORATED
Management............................ 45
Principal and Selling Stockholders.... 49 RAYMOND JAMES & ASSOCIATES, INC.
Description of Certain Indebtedness... 51
Description of Capital Stock.......... 55
Underwriting.......................... 59
Legal Matters......................... 60
Experts............................... 61 , 1995
Available Information................. 61
Incorporation of Certain Information
by Reference........................ 62
- -------------------------------------------- ---------------------------
- -------------------------------------------- ---------------------------
<PAGE>
APPENDIX
OF
OMITTED GRAPHIC MATERIAL
A. Graphic Material on Page 2 of Prospectus:
1. "Eckerd" logo
2. "It's right at Eckerd." logo
3. Map of number of Eckerd Drug stores by state as listed under the
caption "Business--Eckerd Drug Stores" in the Prospectus
B. Photographs on Inside Back Cover Page of Prospectus:
1. Product counter inside Eckerd Drug store
2. Eckerd Drug store exterior
3. "It's right at Eckerd." logo
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses expected to be incurred
in connection with the distribution of the securities being registered, other
than the underwriting discounts and commissions. All of the amounts shown are
estimates except for the Securities and Exchange Commission and National
Association of Securities Dealers, Inc. filing fees.
Securities and Exchange Commission filing fee................. $ 84,268
National Association of Securities Dealers, Inc. filing fee... 24,938
Blue sky fees and expenses (including counsel fees)........... 16,500
Costs of printing and engraving............................... 55,000
Legal fees and expenses....................................... 300,000
Accounting fees and expenses.................................. 20,000
Miscellaneous................................................. 24,294
--------
Total......................................................... $525,000
--------
--------
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 102(b)(7) of the Delaware General Corporation Law permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not be personally liable to the corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
payments of unlawful dividends or unlawful stock repurchases or redemptions, or
(iv) for any transaction from which the director derived an improper personal
benefit. The Registrant's Restated Certificate of Incorporation contains such a
provision.
Under Article VIII of the Registrant's Restated By-Laws as currently in
effect, as well as under Article SEVENTH of the Registrant's Restated
Certificate of Incorporation, each person who is or was a director or officer of
the Registrant, or who serves or served any other enterprise or organization at
the request of the Registrant, shall be indemnified by the Registrant to the
full extent permitted by the Delaware General Corporation Law.
Section 145 of the Delaware General Corporation Law provides that a
corporation may indemnify any person who, by reason of the fact that such person
is or was a director or officer of such corporation, is made (or threatened to
be made) a party to an action other than one brought by or on behalf of the
corporation, against reasonable expenses (including attorneys' fees), judgments,
fines and settlement payments, if such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
such corporation and, in criminal actions, in addition, had no reasonable cause
to believe his conduct was unlawful. In the case of actions on behalf of the
corporation, indemnification may extend only to reasonable expenses (including
attorneys' fees) and only if such person acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, provided that no such indemnification is permitted in respect of
any claim as to which such person is adjudged liable to such corporation except
to the extent that a court otherwise provides. To the extent that such person
has been successful in defending any action (even one on behalf of the
corporation), he is entitled to indemnification for reasonable expenses
(including attorneys' fees).
The indemnification provided for by the Delaware General Corporation Law is
not exclusive of any other rights of indemnification, and a corporation may
maintain insurance against liabilities for which indemnification is not
expressly provided by the Delaware General Corporation Law. The Registrant
II-1
<PAGE>
has entered into agreements to indemnify its directors and officers in addition
to the indemnification provided for in the Restated Certificate of
Incorporation. These agreements, among other things, indemnify the Registrant's
directors and officers for certain expenses (including attorneys' fees),
judgments, fines and settlement amounts incurred by such person in any action or
proceeding, including any action by or in the right of the Registrant, on
account of services as a director or officer of the Registrant or as a director
or officer of any subsidiary of the Registrant, or as a director or officer of
any other company or enterprise to which the person provides services at the
request of the Registrant.
The Registrant maintains a liability insurance policy providing coverage for
its directors and officers in an amount up to an aggregate limit of $10,000,000
per policy year.
The designees of the Merrill Lynch Investors who serve on the Company's
board of directors also have certain rights to indemnification by ML & Co. and
the Merrill Lynch Investors for liabilities incurred in connection with actions
taken by them in their capacity as directors of the Company.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits:
<TABLE>
<C> <S>
1.1 --Form of Purchase Agreement among the Registrant, the Selling Stockholders
and the Underwriters.*
3.1(i) --Restated Certificate of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.1(i) to the Registration Statement on Form S-3 of
the Registrant (No. 33-50223)).*
3.1(ii) --Amended and Restated By-laws of the Registrant (incorporated by reference
to Exhibit 3.2(ii) to the Registration Statement on Form S-3 of the
Registrant (No. 33-50223)).*
4.1 --Form of certificate for the Registrant's Common Stock, par value $.01 per
share (incorporated by reference to Exhibit 4.1 to the Registration
Statement on Form S-2 of the Registrant (No. 33-64906)).*
4.2 --Credit Agreement dated as of June 14, 1993, as amended and restated as of
August 3, 1994 (the "Credit Agreement") among the Registrant, the financial
institutions party thereto, Chemical Bank, NationsBank of Florida, N.A., as
managing agents for the Lenders and as swingline lenders and Chemical Bank
as administrative agent for the lenders, the swingline lenders and the
fronting banks (incorporated by reference to Exhibit 10.1 of the Form 10-Q
of the Registrant dated July 30, 1994 (File No. 1-4844)).*
4.3 --Indenture dated as of November 1, 1993 between the Registrant and State
Street Bank and Trust Company of Connecticut, National Association, as
Trustee (incorporated by reference to Exhibits 4.01 and 4.02 of the Form
8-K of the Registrant dated October 26, 1993 (File No. 1-4844)).*
4.4 --Amendment Agreement dated as of November 29, 1995 to the Credit Agreement.
5.1 --Opinion and consent of Robert E. Lewis, Esq.
15.1 --Letter of KPMG Peat Marwick LLP dated December 6, 1995 re Unaudited Interim
Financial Information.
23.1 --Consent of KPMG Peat Marwick LLP dated December 6, 1995.
23.2 --Consent of Robert E. Lewis, Esq. as to the validity of the Common Stock
being registered (included in Exhibit 5.1 hereto).
24.1 --Power of Attorney.*
</TABLE>
- ------------
* Previously filed.
II-2
<PAGE>
ITEM 17. UNDERTAKINGS
1. The undersigned Registrant hereby undertakes that:
(a) For purposes of determining any liability under the Securities Act,
the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(b) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
2. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by Registrant
of expenses incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment No. 1 to
the Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the city of Largo, State of Florida on December 7,
1995.
ECKERD CORPORATION
By: /s/ SAMUEL G. WRIGHT
...............................
Samuel G. Wright
Executive Vice President/Chief
Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities and on the date indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ----------------------------------- ----------------------------------- -----------------
<S> <C> <C>
/s/ STEWART TURLEY Chairman of the Board and Chief December 7, 1995
................................... Executive Officer
Stewart Turley
/s/ FRANCIS A. NEWMAN President, Chief Operating Officer December 7, 1995
................................... and Director
Francis A. Newman
* Director December 7, 1995
...................................
John W. Boyle
/s/ SAMUEL G. WRIGHT Executive Vice President/Chief December 7, 1995
................................... Financial Officer
Samuel G. Wright
* Director December 7, 1995
...................................
James T. Doluisio
* Director December 7, 1995
...................................
Donald F. Dunn
* Director December 7, 1995
...................................
Albert J. Fitzgibbons, III
* Director December 7, 1995
...................................
Margaret H. Jordan
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C>
* Director December 7, 1995
...................................
Lewis W. Lehr
* Director December 7, 1995
...................................
Rupinder S. Sidhu
* Director December 7, 1995
...................................
Alexis P. Michas
</TABLE>
*By /s/ ROBERT E. LEWIS
...............................
Robert E. Lewis
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
1.1 --Form of Purchase Agreement among the Registrant, the Selling Stockholders and the
Underwriters.*
3.1(i) --Restated Certificate of Incorporation of the Registrant (incorporated by reference
to Exhibit 3.1(i) to the Registration Statement on Form S-3 of the Registrant (No.
33-50223)).*
3.1(ii) --Amended and Restated By-laws of the Registrant (incorporated by reference to
Exhibit 3.2(ii) to the Registration Statement on Form S-3 of the Registrant (No.
33-50223)).*
4.1 --Form of certificate for the Registrant's Common Stock, par value $.01 per share
(incorporated by reference to Exhibit 4.1 to the Registration Statement on Form S-2
of the Registrant (No. 33-64906)).*
4.2 --Credit Agreement dated as of June 14, 1993, as amended and restated as of August 3,
1994 (the "Credit Agreement") among the Registrant, the financial institutions
party thereto, Chemical Bank, NationsBank of Florida, N.A., as managing agents for
the Lenders and as swingline lenders and Chemical Bank as administrative agent for
the Lenders, the swingline lenders and the fronting banks (incorporated by
reference to Exhibit 10.1 of the Form 10-Q of the Registrant dated July 30, 1994
(File No. 1-4844)).*
4.3 --Indenture dated as of November 1, 1993 between Registrant and State Street and
Trust Company of Connecticut, National Association, as Trustee (incorporated by
reference to Exhibits 4.01 and 4.02 of the Form 8-K of the Registrant dated October
26, 1993 (File No. 1-4844)).*
4.4 --Amendment Agreement dated as of November 29, 1995 to the Credit Agreement.
5.1 --Opinion and consent of Robert E. Lewis, Esq.
15.1 --Letter of KPMG Peat Marwick LLP dated December 6, 1995 re Unaudited Interim
Financial Information.
23.1 --Consent of KPMG Peat Marwick LLP dated December 6, 1995.
23.2 --Consent of Robert E. Lewis, Esq. as to the validity of the Common Stock being
registered (included in Exhibit 5.1 hereto).
24.1 --Power of Attorney.*
</TABLE>
- ------------
* Previously filed.
Exhibit 4.4
Conformed Copy
AMENDMENT AGREEMENT dated as of November 29, 1995, among
ECKERD CORPORATION, a Delaware corporation, as borrower
(the "Borrower"); the lenders listed on the signature pages
hereto under the captions "Assigning Lenders" (the "Assigning
Lenders"), "Continuing Lenders" (the "Continuing Lenders") and
"Assignee Lenders" (the "Assignee Lenders", and, together with
the Continuing Lenders, the "Lenders"); CHEMICAL BANK, a New York
banking corporation ("Chemical Bank"), and NATIONSBANK OF
FLORIDA, N.A., a national banking association ("NationsBank"), as
managing agents for the Lenders (in such capacity, each a
"Managing Agent") and as swingline lenders (in such capacity,
each a "Swingline Lender"); NationsBank, as documentation agent
(in such capacity, the "Documentation Agent") for the Lenders,
the Swingline Lenders and the Fronting Banks; and Chemical Bank,
as administrative agent and collateral agent (in such respective
capacities, the "Administrative Agent" and the "Collateral
Agent") for the Lenders, the Swingline Lenders and the Fronting
Banks (as defined below).
A. The Borrower, the Assigning Lenders, the Continuing Lenders, the
Managing Agents, the Swingline Lenders and the Administrative Agent are parties
to the Credit Agreement dated as of June 14, 1993, as amended and restated as of
August 3, 1994, as amended (the "Credit Agreement").
B. The Assigning Lenders and certain Continuing Lenders wish to assign all
or a portion of their interests in (a) the outstanding Loans and (b) the
outstanding Letters of Credit and Bankers' Acceptances under the Credit
Agreement to the Assignee Lenders and certain other Continuing Lenders, and the
Assignee Lenders and Continuing Lenders are willing to accept such assignments.
C. The Borrower has requested, and the other parties hereto have agreed,
upon the terms and subject to the conditions set forth or referred to herein,
that the Credit Agreement be amended and restated (the "Restatement") upon the
effectiveness of the assignments referred to in paragraph B above (a) to
decrease the credit facilities thereunder to an aggregate amount of $750,000,000
and (b) to give effect to certain other changes.
D. Accordingly, in consideration of the mutual agreements herein contained
and other good and valuable consideration, the sufficiency and receipt of which
are hereby acknowledged, the parties hereto hereby agree as follows:
SECTION 1. Defined Terms. Capitalized terms used and not defined herein
shall have the meanings assigned to such terms in the Credit Agreement dated as
of June 14, 1993, as amended and restated as of November 29, 1995, attached as
Exhibit A hereto (the "Restated Credit Agreement").
SECTION 2. Restatement Closing. The transactions provided for in
Sections 3, 4 and 6 hereof shall be consummated at a closing to be held on the
Restatement Date (as defined in the Restated Credit Agreement) at the offices of
Cravath, Swaine & Moore, 825 Eighth Avenue, New York, N.Y., or at such other
time and place as the parties shall agree. The Borrower shall give written
notice proposing a date as the Restatement Date at least two Business Days prior
thereto to the Administrative Agent, which shall send copies to the Assigning
Lenders, Continuing Lenders and Assignee Lenders, at their addresses for notices
set forth in the Credit Agreement, in the case of the Assigning Lenders, and the
Restated Credit Agreement, in the case of the Lenders. The Borrower shall also
provide the notice that would be required
<PAGE>
2
pursuant to Section 2.03 of the Restated Credit Agreement if the same were then
effective for Loans to be made on the Restatement Date.
SECTION 3. Assignment. (a) On and as of the Restatement Date, subject to
the conditions set forth in Section 7 hereof, each of the Assigning Lenders,
Continuing Lenders and Assignee Lenders shall sell, assign and transfer or
purchase, as the case may be, such interests in (i) the Revolving Credit
Commitments (as defined in the Credit Agreement), (ii) the outstanding Revolving
Loans (as defined in the Credit Agreement), (iii) the outstanding Term Loans (as
defined in the Credit Agreement) and (iv) participations in the Existing Standby
Letters of Credit, Existing Trade Letters of Credit, Existing Clean Bankers'
Acceptances and Existing Trade Bankers' Acceptances, in each case as shall be
necessary in order that, after giving effect to all such assignments and
purchases, the Revolving Credit Commitments, the Revolving Loans, the Term Loans
and the participations in Existing Standby Letters of Credit, Existing Trade
Letters of Credit, Existing Clean Bankers' Acceptances and Existing Trade
Bankers' Acceptances will be held by the Continuing Lenders and Assignee Lenders
ratably in accordance with their (i) Revolving Credit Commitments (with respect
to assigned and purchased Revolving Credit Commitments, Revolving Loans and
participations in Existing Standby Letters of Credit, Existing Trade Letters of
Credit, Existing Clean Bankers' Acceptances and Existing Trade Bankers'
Acceptances) and (ii) Term Loan Commitments (with respect to assigned and
purchased Term Loans), in each case as set forth in Schedule 2.01 to the
Restated Credit Agreement. Each Lender purchasing interests of any type under
this Section 3 shall be deemed to have purchased such interests from each
Assigning Lender and Continuing Lender selling interests of such type ratably in
accordance with the amounts of such interests sold by them. The assignments and
purchases provided for in this Section 3 shall be without recourse, warranty or
representation, except that each assigning Lender shall be deemed to have
represented that it is the legal and beneficial owner of the interests assigned
by it and that such interests are free and clear of any adverse claim arising by
reason of any action (or failure to take action) on the part of such assigning
Lender, and the purchase price for each such assignment and purchase shall equal
the principal amount of the Loans purchased. Concurrently with the effectiveness
of the assignments and purchases provided for above, (x) the Assigning Lenders
shall cease to be parties to the Credit Agreement and shall be released from all
further obligations thereunder and shall have no further rights to or interest
in any of the collateral subject to the Liens created under the Security
Documents (as defined in the Credit Agreement) or to be created under the
Security Documents and (y) any outstanding Notes payable to a Assigning Lender
shall cease to evidence such Lender's Loans and shall be deemed cancelled by
agreement hereby; provided, however, that the Assigning Lenders shall continue
to be entitled to the benefits of Sections 2.14, 2.16, 2.20 and 10.05 of the
Credit Agreement as in effect immediately prior to the Restatement Date.
(b) On the Restatement Date, (i) each Assignee Lender and each Continuing
Lender that is purchasing interests in the Revolving Commitments and the
outstanding Loans pursuant to paragraph (a) above shall pay the purchase price
for the interests purchased by it pursuant to such paragraph (a) by wire
transfer of immediately available funds to the Administrative Agent in New York,
New York, not later than 12:00 noon, New York City time, and (ii) the
Administrative Agent shall distribute to each Assigning Lender and each
Continuing Lender that is assigning interests in outstanding Loans pursuant to
paragraph (a) above, out of the amounts received by the Administrative Agent
from each Assignee Lender and Continuing Lender pursuant to clause (i) of this
paragraph (b), the purchase price for the interests assigned by it pursuant to
such paragraph (a) by wire transfer of immediately available funds not later
than 3:00 p.m., New York City time.
(c) Each of the parties hereto hereby consents to the assignments and
purchases provided for in paragraphs (a) and (b) above and agrees that (i) each
Assignee Lender and each Continuing Lender that is purchasing interests in the
Revolving Credit Commitments and the outstanding Loans pursuant to
<PAGE>
3
paragraph (a) above are assignees of the Assigning Lenders and certain
Continuing Lenders permitted under Section 10.04 of the Credit Agreement and
(ii) each Assignee Lender and each Continuing Lender shall have all the rights
and obligations of a Lender under the Restated Credit Agreement with respect to
the interests purchased by it pursuant to such paragraphs. The Borrower further
agrees that if any Lender shall default in the payment of any amount due from it
under paragraph (b) above, the Borrower shall promptly pay the defaulted amount
to the Administrative Agent (for distribution in accordance with paragraph (b)
above) by wire transfer of immediately available funds, together with interest
on such amount at the Alternate Base Rate from and including the Restatement
Date to but excluding the date of payment. Upon any such payment by the Borrower
and the corresponding payment by the Administrative Agent pursuant to
paragraph (b) immediately above, (i) the Borrower shall be subrogated to all
rights of the assigning Lender against the defaulting Lender and (ii) the
Borrower shall have the right, at the defaulting Lender's expense and upon
notice to the defaulting Lender and to the Administrative Agent, to transfer and
assign without recourse (in accordance with and subject to the restrictions
contained in Section 10.04 of the Restated Credit Agreement), on behalf of such
defaulting Lender, all such defaulting Lender's interests, rights and
obligations under the Restated Credit Agreement to another financial institution
that shall assume such interests, rights and obligations, without any further
act by such defaulting Lender being required in connection therewith, provided
that (A) no such assignment shall conflict with any law, rule or regulation or
order of any Governmental Authority, (B) the assignee shall pay to the
defaulting Lender, in immediately available funds on the date of such
assignment, the outstanding principal of and interest accrued to the date of
payment on the Loans made or deemed made by such defaulting Lender under the
Restated Credit Agreement, if any, and all other amounts accrued for such
defaulting Lender's account or owed to it under the Restated Credit Agreement
and (C) if the defaulting Lender shall not have reimbursed the Borrower for the
defaulted amount paid by the Borrower pursuant to paragraph (b) above, the
assignee shall pay to the Borrower, in immediately available funds on the date
of such assignment, the amount of and interest accrued to but excluding the
dates of payment on, such defaulted amount.
SECTION 4. Amendment and Restatement of the Credit Agreement. (a) The
Borrower, the Assignee Lenders, the Continuing Lenders, the Managing Agents, the
Fronting Banks, the Administrative Agent, the Swingline Lenders, the
Documentation Agent and the Collateral Agent agree that the Credit Agreement
(including all Schedules thereto but excluding Exhibits, which remain unchanged)
is hereby amended and restated, effective as of the Restatement Date, to read
in its entirety as set forth in Exhibit A hereto. As used in the Restated Credit
Agreement, the terms "Agreement", "this Agreement", "herein", "hereinafter",
"hereto", "hereof" and words of similar import shall, unless the context
otherwise requires, mean the Credit Agreement as amended and restated by this
Amendment Agreement.
(b) On the Restatement Date, upon the effectiveness of the Restatement, (i)
each Revolving Loan outstanding under the Credit Agreement shall be deemed to be
a Revolving Loan under the Restated Credit Agreement, (ii) each Swingline Loan
outstanding under the Credit Agreement shall be deemed to be a Swingline Loan
under the Restated Credit Agreement, (iii) each Term Loan outstanding under the
Credit Agreement shall be deemed to be a Term Loan under the Restated Credit
Agreement, (iv) each Existing Standby Letter of Credit shall be deemed to be a
Standby Letter of Credit issued under the Restated Credit Agreement, (v) each
Existing Trade Letter of Credit shall be deemed to be a Trade Letter of Credit
issued under the Restated Credit Agreement, (vi) each Existing Clean Bankers'
Acceptance shall be deemed to be a Clean Bankers' Acceptance issued under the
Restated Credit Agreement and (vii) each Existing Trade Bankers' Acceptance
shall be deemed to be a Trade Bankers' Acceptance issued under the Restated
Credit Agreement, and the Revolving Credit Commitments, Term Loan Commitments
and LC/BA Commitment shall be adjusted accordingly.
<PAGE>
4
(c) On the Restatement Date, upon the effectiveness of the Restatement and
subject to the terms and conditions thereof, the Assignee Lenders and the
Continuing Lenders shall undertake the transactions provided for in Sections 3,
4 and 6 hereof in accordance with Section 2 hereof.
(d) Schedule I hereto sets forth the principal amount and type of each Loan
held by each Lender on the Restatement Date, after giving effect to the
transactions contemplated by Sections 3 and 4 above.
SECTION 5. Representations and Warranties. The Borrower hereby makes to
each of the other parties hereto, on the date hereof and on the Restatement
Date, each of the representations and warranties contained in Article IV of the
Restated Credit Agreement, and each of such representations and warranties is
hereby incorporated by reference herein.
SECTION 6. Fees; Interest. (a) On the Restatement Date, simultaneously with
the making of the assignments provided for in Section 3, the Borrower shall pay
in immediately available funds (i) to the Administrative Agent, for the accounts
of the Assigning Lenders and Continuing Lenders, the fees payable pursuant to
subsection 2.05 of the Credit Agreement that have accrued for the period from
the last date such fees were paid to but excluding the Restatement Date and (ii)
for the account of the Administrative Agent and the Lenders entitled thereto,
the Fees referred to in 5.02(f) of the Restated Credit Agreement. The fees
described in this Section 6 shall be payable in immediately available funds.
Once paid, such fees shall not be refundable under any circumstances.
(b) On the Restatement Date, simultaneously with the making of the
assignments provided for in Section 3, (i) the Borrower shall pay in immediately
available funds to the Administrative Agent, for the accounts of the Assigning
Lenders and the Continuing Lenders, all unpaid interest accrued to but excluding
the Restatement Date on the Revolving Loans, the Swingline Loans and Term Loans
(as defined in the Credit Agreement) of each such Lender and (ii) the
Administrative Agent shall distribute to each Assigning Lender and each
Continuing Lender the amounts received by the Administrative Agent from the
Borrower pursuant to clause (i) of this paragraph (b) by wire transfer of
immediately available funds not later than 3:00 p.m., New York City time.
SECTION 7. Conditions. The obligation of each Continuing Lender and each
Assignee Lender to purchase the assignments provided for in Section 3 hereof,
and the obligation of each Lender to make the Loans to be made by it on the
Restatement Date shall be conditioned upon the Lenders' receipt of a
certificate, dated the Restatement Date and signed by a Financial Officer of the
Borrower, confirming compliance with the conditions precedent set forth in
Section 5.02 and in paragraphs (b) and (c) of Section 5.01 of the Restated
Credit Agreement.
SECTION 8. Expenses. The Borrower agrees to pay the reasonable fees,
disbursements and other charges of counsel to the Managing Agents, the
Administrative Agent and the Collateral Agent (including local counsel),
incurred in connection with the preparation of this Amendment Agreement, the
Restated Credit Agreement and the other documents contemplated hereby or thereby
(whether or not the transactions hereby or thereby contemplated shall be
consummated). The provisions of this Section 8 shall survive and remain
operative and in full force and effect regardless of whether or not the
transactions contemplated hereby are consummated.
SECTION 9. Applicable Law. THIS AMENDMENT AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
<PAGE>
5
SECTION 10. No Novation. Neither this Amendment Agreement nor the
execution, delivery or effectiveness of the Restated Credit Agreement shall
extinguish the obligations for the payment of money outstanding under the Credit
Agreement or discharge or release the Lien or priority of any security
agreement, any pledge agreement or any other security therefor. Nothing herein
contained shall be construed as a substitution or novation of the Obligations
outstanding under the Credit Agreement or instruments securing the same, which
shall remain in full force and effect, except as modified hereby or by
instruments executed concurrently herewith. Nothing expressed or implied in this
Amendment Agreement, the Restated Credit Agreement or any other document
contemplated hereby or thereby shall be construed as a release or other
discharge of the Borrower under the Credit Agreement or any Guarantor under the
Guarantee Agreement or any Security Document (as such terms are defined in the
Credit Agreement) from any of its obligations and liabilities thereunder. Each
of the Credit Agreement and the Security Documents shall remain in full force
and effect, until and except as modified hereby or in connection herewith.
Notwithstanding any provision of this Amendment Agreement or the Restated Credit
Agreement, the provisions of Section 10.05 of the Credit Agreement, including
all defined terms used therein, will continue to be effective as to all matters
arising out of or in any way related to facts or events existing or occurring
prior to the Restatement Date.
SECTION 11. Notices. All notices hereunder shall be given in accordance
with the provisions of Section 10.01 of the Restated Credit Agreement and in the
case of the Assigning Lenders to the addresses referred to in subsection 10.01
of the Credit Agreement.
SECTION 12. Counterparts. This Amendment Agreement may be executed in two
or more counterparts, each of which when taken together shall constitute but one
contract, and shall become effective as provided in Section 14 hereof.
SECTION 13. Headings. The headings of this Amendment Agreement are for
convenience of reference only, are not part of this Amendment Agreement and are
not to be taken into consideration in interpreting this Amendment Agreement.
SECTION 14. Effectiveness; Amendment. This Amendment Agreement shall become
effective when copies hereof that, when taken together, bear the signatures of
each of the parties hereto shall have been received by the Administrative Agent
and by the Borrower. The Restatement Date shall not occur until all the
conditions precedent set forth in Section 7 have been met. This Amendment
Agreement may not be amended nor may any provision hereof be waived except
pursuant to a writing signed by each of the parties hereto.
SECTION 15. Survival. Without limiting the provisions of Section 8 hereof,
the representations and warranties in Section 5 hereof and the provisions of
Section 6 hereof shall survive and remain operative and in full force and effect
notwithstanding the consummation of the transactions to be consummated on the
Restatement Date and the effectiveness or termination of the Restated Credit
Agreement.
<PAGE>
6
IN WITNESS WHEREOF, the parties hereto have caused this Amendment Agreement
to be duly executed by their duly authorized officers, all as of the date and
year first above written.
ECKERD CORPORATION,
by
/s/ Martin W. Gladysz
------------------------------------
Name: Martin W. Gladysz
Title: Vice President-Treasurer
CHEMICAL BANK, individually and as Administrative
Agent, Collateral Agent, Managing Agent and
Swingline Lender,
by
/s/ Neil H. Boylan
---------------------------------------
Name: Neil H. Boylan
Title: Vice President
NATIONSBANK OF FLORIDA, N.A., individually and as
Managing Agent and Swingline Lender,
by
/s/ Miles C. Dearden
--------------------------------------
Name: Miles C. Dearden
Title: Vice President
Assigning Lenders:
------------------
BANK OF IRELAND,
by
/s/ Roger M. Burns
--------------------------------------
Name: Roger M. Burns
Title: Vice President
BANK OF SCOTLAND,
by
/s/ Elizabeth Wilson
--------------------------------------
Name: Elizabeth Wilson
Title: Vice President and Branch Manager
<PAGE>
7
BANK POLSKA OPIEKI,
by
/s/ Hussein B. El-Tawil
-------------------------------------
Name: Hussein B. El-Tawil
Title: Vice President
BANKERS TRUST,
by
/s/ Rosemary F. Dunne
-------------------------------------
Name: Rosemary F. Dunne
Title: Vice President
FIRST AMERICAN BANK,
by
/s/ Russell S. Rogers
------------------------------------------
Name: Russell S. Rogers
Title: Vice President
GENERAL ELECTRIC CAPITAL CORPORATION,
by
/s/ Elaine L. Moore
---------------------------------------
Name: Elaine L. Moore
Title: Senior Vice President as Duly
Authorized
GIROCREDIT BANK,
by
/s/ Richard F. Stone
----------------------------------------
Name: Richard F. Stone
Title: First Vice President
IMPERIAL BANK
by
/s/ Ray Vadalma
----------------------------------------
Name: Ray Vadalma
Title: Senior Vice President
<PAGE>
8
MCI CAPITAL INC.,
by
/s/ Tatsuya Kuroyanagi
-------------------------------------
Name: Tatsuya Kuroyanagi
Title: Executive Vice President
NATIONAL CITY BANK,
by
/s/ Diego Tobon
-----------------------------------------
Name: Diego Tobon
Title: Vice President
PEARL STREET, L.P.,
by
/s/ John E. Urban
------------------------------------------
Name: John E. Urban
Title: Authorized Signer
PROSPECT STREET SENIOR PORTFOLIO, L.P.,
by PROSPECT STREET SENIOR LOAN
CORP., as Managing General Partner,
by
/s/ Dana E. Erikson
------------------------------
Name: Dana E. Erikson
Title: Vice President
RESTRUCTURED OBLIGATIONS BACKED BY
SENIOR ASSETS B.V.,
by its Managing Director
ABN TRUSTCOMPANY (NEDERLAND) B.V.,
by
/s/ R. G. M. Verhoef
--------------------------------------
Name: R. G. M. Verhoef
Title: Proxyholder
by
/s/ P. H. A. van Hooijdonk
----------------------------------
Name: P. H. A. van Hooijdonk
Title: Proxyholder
<PAGE>
9
SHAWMUT NATIONAL BANK OF CONNECTICUT, N.A.,
by
/s/ Anne E. Dorsey
----------------------------------------
Name: Anne E. Dorsey
Title: Director
STICHTING RESTRUCTURED OBLIGATIONS
BACKED BY SENIOR ASSETS 2 (ROSA 2),
by its Managing Director
ABN TRUSTCOMPANY (NEDERLAND) B.V.,
by
/s/ R. G. M. Verhoef
--------------------------------------
Name: R. G. M. Verhoef
Title: Proxyholder
by
/s/ P. H. A. van Hooijdonk
----------------------------------
Name: P. H. A. van Hooijdonk
Title: Proxyholder
UNITED BANK OF KUWAIT,
by
/s/ Kam Tugnait
---------------------------------------
Name: Kam Tugnait
Title: Credit Administration Officer
by
/s/ M. Chambers
---------------------------------------
Name: M. Chambers
Title: Credit Administration Officer
VAN KAMPEN AMERICAN CAPITAL, PRIME RATE
INCOME TRUST,
by
/s/ Kathleen A. Zarn
-------------------------------------
Name: Kathleen A Zarn
Title: Vice President
<PAGE>
10
VIA BANQUE,
by
----------------------------------------
Name:
Title:
Continuing Lenders:
-------------------
ABN AMRO BANK N.V.,
by
/s/ David Suttles
-----------------------------------------
Name: David Suttles
Title: Group Vice President
by
/s/ Michiel van Cranenburgh
---------------------------------
Name: Michiel van Cranenburgh
Title: Assistant Vice President
THE BANK OF TOKYO TRUST COMPANY,
by
/s/ Adane Dessie
----------------------------------------
Name: Adane Dessie
Title: Vice President
BANQUE FRANCAISE DU COMMERCE EXTERIEUR,
by
/s/ Iain A. Whyte
--------------------------------------
Name: Iain A. Whyte
Title: Assistant Vice President
by
/s/ Mark A. Harrington
----------------------------------
Name: Mark A. Harrington
Title: Vice President & Regional Manager
BANQUE PARIBAS, BANQUE PARIBAS,
by by
/s/ Ann C. Pifer /s/ Duane P. Helkowski
-------------------------- ----------------------------------
Name: Ann C. Pifer Name: Duane P. Helkowski
Title: Vice President Title: Assistant Vice Presdient
<PAGE>
11
COMPAGNIE FINANCIERE DE CIC ET DE L'UNION
EUROPEENNE,
by
/s/ Brian O'Leary
---------------------------------------
Name: Brian O'Leary
Title: Vice President
by
/s/ Marcus Edward
--------------------------------------
Name: Marcus Edward
Title: Vice President
CREDIT LYONNAIS CAYMAN ISLAND BRANCH,
by
/s/ David M. Cawrse
-------------------------------------
Name: David M. Cawrse
Title: Authorized Signature
FIRST INTERSTATE BANK OF TEXAS N.A.,
by
/s/ Valerie B. Carlson
--------------------------------------
Name: Valerie B. Carlson
Title: Vice President
THE FIRST NATIONAL BANK OF BOSTON,
by
/s/ William C. Purinton
------------------------------------
Name: William C. Purinton
Title: Vice President
THE FIRST NATIONAL BANK OF CHICAGO,
by
/s/ Ted Wozniak
--------------------------------------
Name: Ted Wozniak
Title: Managing Director
FLEET BANK OF MASSACHUSETTS, N.A.,
by
/s/ Thomas J. Bullard
--------------------------------------
Name: Thomas J. Bullard
Title: Vice President
<PAGE>
12
THE FUJI BANK, LIMITED,
by
/s/ Katsunori Nozawa
-------------------------------------
Name: Katsunori Nozawa
Title: Vice President & Manager
HIBERNIA NATIONAL BANK,
by
/s/ Troy J. Villafarra
----------------------------------------
Name: Troy J. Villafarra
Title: Vice President
THE LONG-TERM CREDIT BANK OF JAPAN,
LIMITED, NEW YORK BRANCH,
by
/s/ John J. Sullivan
-----------------------------------------
Name: John J. Sullivan
Title: Joint General Manager
MELLON BANK, N.A.,
by
/s/ Deborah K. Breslof
------------------------------------
Name: Deborah K. Breslof
Title: Vice President
THE MITSUBISHI BANK, LIMITED,
by
/s/ Frank H. Madden
-----------------------------------
Name: Frank H. Madden
Title:
MITSUBISHI TRUST AND BANKING CORPORATION,
by
/s/ Patricia Loret de Mola
----------------------------------
Name: Patricia Loret de Mola
Title: Senior Vice President
<PAGE>
13
NATIONAL CANADA FINANCE CORP.,
by
/s/ Michael S. Bloomenfeld
--------------------------------
Name: Michael S. Bloomenfeld
Title: Vice President
NATWEST BANK N.A.,
by
/s/ Pauline McHugh
-----------------------------------
Name: Pauline McHugh
Title: Vice President
THE NIPPON CREDIT BANK, LTD.,
by
/s/ Yasuhide Yahiro
------------------------------------
Name: Yasuhide Yahiro
Title: Assistant Vice President
THE SAKURA BANK, LIMITED,
by
/s/ Hiroyasu Imanishi
------------------------------------
Name: Hiroyasu Imanishi
Title: V.P. & Senior Manager
SOCIETE GENERALE,
by
/s/ Ralph Saheb
----------------------------------------
Name: Ralph Saheb
Title: Vice President
UNION BANK OF FINLAND LTD. GRAND CAYMAN BRANCH,
by
/s/ Frank Maffei
-----------------------------------------
Name: Frank Maffei
Title: Assistant Vice President
by
/s/ Andrew Carstensen
-------------------------------------
Name: Andrew Carstensen
Title: Vice President
<PAGE>
14
UNION BANK OF SWITZERLAND, UNION BANK OF SWITZERLAND,
NEW YORK BRANCH, NEW YORK BRANCH,
by by
/s/ Robert W. Casey, Jr. /s/ Laurent J. Chaix
----------------------------- ----------------------------
Name: Robert W. Casey, Jr. Name: Laurent J. Chaix
Title: Vice President Title: Vice President
UNITED STATES NATIONAL BANK OF OREGON,
by
/s/ Stephen Mitchell
---------------------------------------
Name: Stephen Mitchell
Title: Vice President
WELLS FARGO BANK, N.A.,
by
/s/ Peter W. Clark
---------------------------------------
Name: Peter W. Clark
Title: Assistant Vice President
THE YASUDA TRUST & BANKING COMPANY,
LIMITED, NEW YORK BRANCH,
by
/s/ Makoto Tagawa
-------------------------------------
Name: Makoto Tagawa
Title: Deputy General Manager
Assignee Lenders:
-----------------
THE BANK OF NEW YORK,
by
/s/ Paula M. DiPonzio
-------------------------------------
Name: Paula M. DiPonzio
Title: Vice President
THE BANK OF NOVA SCOTIA,
by
/s/ Frank F. Sandler
----------------------------------------
Name: Frank F. Sandler
Title: Relationship Manager
<PAGE>
15
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B. A., "RABOBANK
NEDERLAND", NEW YORK BRANCH,
by
/s/ Betty H. Mills
-----------------------------------------
Name: Betty H. Mills
Title: Vice President
by
/s/ Ian Reece
-------------------------------------------
Name: Ian Reece
Title: Vice President & Manager
FIRST UNION NATIONAL BANK OF FLORIDA,
by
/s/ Ralph L. Kelly
---------------------------------------
Name: Ralph L. Kelly
Title: Vice President
KREDIETBANK N.V., KREDIETBANK N.V.,
by by
/s/ Robert Snauffer /s/ Tod R. Angus
------------------------ ----------------------------------
Name: Robert Snauffer Name: Tod R. Angus
Title: Vice President Title: Vice President
PNC BANK, KENTUCKY, INC.,
by
/s/ Mark Wheeler
---------------------------------------
Name: Mark Wheeler
Title: Senior Vice President
THE SUMITOMO BANK, LIMITED, ATLANTA
AGENCY,
by
/s/ Hiroyuki Ueda
---------------------------------------
Name: Hiroyuki Ueda
Title: Joint General Manager
<PAGE>
16
SUNTRUST BANK, TAMPA BAY,
by
/s/ Brigitta A. Lawton
--------------------------------------
Name: Brigitta A. Lawton
Title: Vice President
THE TOKAI BANK, LIMITED, ATLANTA AGENCY,
by
/s/ Nobuo Minamikawa
----------------------------------
Name: Nobuo Minamikawa
Title: Deputy General Manager
<PAGE>
================================================================================
- --------------------------------------------------------------------------------
Exhibit A
$750,000,000
CREDIT AGREEMENT
Dated as of November 29, 1995,
among
ECKERD CORPORATION,
THE LENDERS NAMED HEREIN,
CHEMICAL BANK
and
NATIONSBANK OF FLORIDA, N.A.,
as Managing Agents and Swingline Lenders,
CHEMICAL BANK,
as Administrative Agent, and
NATIONSBANK OF FLORIDA, N.A.,
as Documentation Agent.
================================================================================
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
Page
----
Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.01. Defined Terms . . . . . . . . . . 1
SECTION 1.02. Terms Generally . . . . . . . . . . 22
ARTICLE II
The Credits . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 2.01 Commitments . . . . . . . . . . . . 22
SECTION 2.02. Loans . . . . . . . . . . . . . . . 22
SECTION 2.03. Notice of Borrowings . . . . . . . 25
SECTION 2.04. Notes; Repayment of Loans . . . . . 25
SECTION 2.05. Fees . . . . . . . . . . . . . . . 25
SECTION 2.06. Interest on Loans . . . . . . . . . 26
SECTION 2.07. Default Interest . . . . . . . . . 27
SECTION 2.08. Alternate Rate of Interest . . . . 27
SECTION 2.09. Termination, Reduction and
Extension of Commitments . . . . 27
SECTION 2.10. Conversion and Continuation of
Term Borrowings . . . . . . . . . 28
SECTION 2.11. Repayment of Term Borrowings . . . 29
SECTION 2.12. Optional Prepayments . . . . . . . 30
SECTION 2.13. Mandatory Prepayments . . . . . . . 30
SECTION 2.14. Reserve Requirements; Change in
Circumstances; Increased Costs . 32
SECTION 2.15. Change in Legality . . . . . . . . 34
SECTION 2.16. Indemnity . . . . . . . . . . . . . 34
SECTION 2.17. Pro Rata Treatment . . . . . . . . 35
SECTION 2.18. Sharing of Setoffs . . . . . . . . 36
SECTION 2.19. Payments . . . . . . . . . . . . . 36
SECTION 2.20. Taxes . . . . . . . . . . . . . . . 37
SECTION 2.21. Assignment of Commitments under
Certain Circumstances . . . . . . 40
SECTION 2.22. Swingline Loans . . . . . . . . . . 40
ARTICLE III
LETTERS OF CREDIT; BANKERS' ACCEPTANCES . . . . . . . . . . 41
SECTION 3.01 Issuance of Letters of Credit . . . 41
SECTION 3.02 Origination of Bankers'
Acceptances . . . . . . . . . . . 42
SECTION 3.03. Participations; Unconditional
Obligations . . . . . . . . . . . 44
SECTION 3.04. LC/BA Fee . . . . . . . . . . . . . 44
SECTION 3.05. Agreement To Repay LC Disbursements
<PAGE>
and BA Disbursements . . . . . . 45
SECTION 3.06. Letter of Credit Operations . . . . 46
SECTION 3.07. Cash Collaterization . . . . . . . 46
SECTION 3.08. Termination of LC/BA Commitment . . 47
SECTION 3.09. Fronting Bank Fees . . . . . . . . 47
SECTION 3.10. Resignation or Removal of a
Fronting Bank . . . . . . . . . . 47
ARTICLE IV
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . 48
SECTION 4.01 Organization; Powers . . . . . . . 48
SECTION 4.02. Authorization . . . . . . . . . . . 48
SECTION 4.03. Enforceability . . . . . . . . . . 48
SECTION 4.04. Governmental Approvals . . . . . . 49
SECTION 4.05. Financial Statements . . . . . . . 49
SECTION 4.06. No Material Adverse Change . . . . 49
SECTION 4.07. Title to Properties; Possession
Under Leases . . . . . . . . . . 49
SECTION 4.08. Subsidiaries . . . . . . . . . . . 49
SECTION 4.09. Litigation; Compliance with Laws . 49
SECTION 4.10. Agreements . . . . . . . . . . . . 50
SECTION 4.11. Federal Reserve Regulations . . . . 50
SECTION 4.12. Investment Company Act; Public
Utility Holding Company Act . . . 50
SECTION 4.13. Use of Proceeds . . . . . . . . . . 50
SECTION 4.14. Tax Returns . . . . . . . . . . . . 50
SECTION 4.15. No Material Misstatements . . . . . 50
SECTION 4.16. Employee Benefit Plans . . . . . . 51
SECTION 4.17. Environmental and Safety Matters . 51
SECTION 4.18. Solvency . . . . . . . . . . . . . 51
SECTION 4.19. Labor Agreements . . . . . . . . . 52
SECTION 4.20. Security Documents . . . . . . . . 52
SECTION 4.21. Labor Matters . . . . . . . . . . . 53
SECTION 4.22. Location of Real Property; Location
of Leased Premises . . . . . . . 53
ARTICLE V
CONDITIONS OF LENDING AND ISSUANCE OF LETTERS OF CREDIT . . 53
SECTION 5.01. All Credit Events . . . . . . . . . 53
SECTION 5.02. First Borrowing . . . . . . . . . . 54
ARTICLE VI
AFFIRMATIVE COVENANTS . . . . . . 57
<PAGE>
3
Page
----
SECTION 6.01. Existence; Businesses and
Properties . . . . . . . . . . . 57
SECTION 6.02. Insurance . . . . . . . . . . . . . 57
SECTION 6.03. Obligations and Taxes . . . . . . . 58
SECTION 6.04. Financial Statements, Reports, etc. 58
SECTION 6.05. Litigation and each Other Notices . 60
SECTION 6.06. ERISA . . . . . . . . . . . . . . . 60
SECTION 6.07. Maintaining Records; Access to
Properties and Inspections . . . 61
SECTION 6.08. Use of Proceeds . . . . . . . . . . 61
SECTION 6.09. Fiscal Year . . . . . . . . . . . . 61
SECTION 6.10. Further Assurances . . . . . . . . 61
SECTION 6.11. Material Contracts . . . . . . . . 62
SECTION 6.12. Compliance with Law . . . . . . . 62
ARTICLE VII
NEGATVIE COVENANTS . . . . . . . . . . . . . . . . . . . . . 64
SECTION 7.01. Indebtedness . . . . . . . . . . . 63
SECTION 7.02. Liens . . . . . . . . . . . . . . . 64
SECTION 7.03. Sale and Leaseback Transactions . . 66
SECTION 7.04. Investments, Loans and Advances . . 66
SECTION 7.05. Mergers, Consolidations, Sales of
Assets and Acquisitions . . . . . 67
SECTION 7.06. Dividends and Distributions . . . . 68
SECTION 7.07. Transactions with Affiliates . . . 69
SECTION 7.08. Business of Borrower and
Subsidiaries . . . . . . . . . . 69
SECTION 7.09. Limitations on Debt Prepayments . . 69
SECTION 7.10. Amendment of Certain Documents . . 70
SECTION 7.11. Funded Debt to EBITDA . . . . . . . 71
SECTION 7.12. Interest Coverage Ratio . . . . . . 71
SECTION 7.13. Fixed Charge Coverage Ratio . . . . 73
SECTION 7.14. Bank Accounts . . . . . . . . . . . 73
ARTICLE VIII
EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE IX
THE ADMINISTRATIVE AGENT, THE MANAGING AGENTS AND THE
FRONTING BANKS . . . . . . . . . . . . . . . . . . . . . 75
ARTICLE X
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . 77
<PAGE>
4
Page
----
SECTION 10.01. Notices . . . . . . . . . . . . . 77
SECTION 10.02. Survival of Agreement . . . . . . . 78
SECTION 10.03. Binding Effect . . . . . . . . . . 79
SECTION 10.04. Successors and Assigns . . . . . . 79
SECTION 10.05. Expenses; Indemnity. . . . . . . . 82
SECTION 10.06. Right of Setoff . . . . . . . . . . 83
SECTION 10.07. Applicable Law . . . . . . . . . . 83
SECTION 10.08. Waivers; Amendment . . . . . . . . 83
SECTION 10.09. Interest Rate Limitation . . . . . 84
SECTION 10.10. Entire Agreement . . . . . . . . . 84
SECTION 10.11. Waiver of Jury Trial . . . . . . . 85
SECTION 10.12. Severability . . . . . . . . . . . 85
SECTION 10.13. Counterparts . . . . . . . . . . . 85
SECTION 10.14. Headings . . . . . . . . . . . . . 85
SECTION 10.15. Confidentiality . . . . . . . . . . 85
SECTION 10.16. Jurisdiction; Consent to Service
of Process . . . . . . . . . . . 86
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . 86
EXHIBITS
- --------
Exhibit A-1 Form of Revolving Credit Note
Exhibit A-2 Form of Tranche A Term Note
Exhibit A-3 Form of Tranche B Term Note
Exhibit A-4 Form of Swingline Note
Exhibit B Form of Assignment and Acceptance
Exhibit C Administrative Questionnaire
Exhibit D Form of Borrowing Base Certificate
Exhibit E Form of Guarantee Agreement
Exhibit F Form of Indemnity, Subrogation and
Contribution Agreement
Exhibit G Form of Pledge Agreement
Exhibit H Form of Security Agreement
Exhibit I Form of Mortgage
Exhibit J Form of Trademark Security Agreement
Exhibit K Form of Bankers' Acceptance Request
Exhibit L Form of Revolving Credit Extension Notice
Exhibit M-1 Form of Opinion of Robert Lewis, Esq.
Exhibit M-2 Form of Opinion of Skadden, Arps, Slate,
Meagher & Flom
Exhibit M-3 Form of Opinion of Local Counsel
SCHEDULES
- ---------
Schedule 1.01(a) Existing Letters of Credit and Bankers'
Acceptances
Schedule 1.01(b) Mortgaged Properties
Schedule 1.01(c) Photolab Business Sale Locations
Schedule 2.01 Commitments and Lender Addresses
<PAGE>
5
Page
----
Schedule 2.06(c) ABR Spread
Schedule 2.06(d) LIBOR Spread
Schedule 4.08 Subsidiaries
Schedule 4.09 Litigation
Schedule 4.17 Environmental Matters
Schedule 4.19 Labor Agreements
Schedule 4.20(b) UCC Filing Offices
Schedule 4.20(c) Mortgage Filing Offices
Schedule 4.20(d) Trademark Filing Offices
Schedule 4.20(e) Location of Bank Accounts
Schedule 4.22(a) Owned Real Property
Schedule 4.22(b) Leased Real Property
Schedule 6.10(c) Local Counsel Listing
Schedule 7.01 Indebtedness
Schedule 7.02(a) Liens on Property
Schedule 7.02(n) Subleased Properties
Schedule 7.04 Investments
Schedule 7.07 Permitted Affiliate Transactions
<PAGE>
EXECUTION COPY
CREDIT AGREEMENT dated as of June 14, 1993, as amended and
restated as of November 29, 1995, among ECKERD CORPORATION, a
Delaware corporation, as borrower (the "Borrower"); the financial
institutions party hereto (the "Lenders"); CHEMICAL BANK, a New
York banking corporation ("Chemical Bank"), and NATIONSBANK OF
FLORIDA, N.A., a national banking association ("NationsBank"), as
managing agents for the Lenders (in such capacity, each a
"Managing Agent") and as swingline lenders (in such capacity,
each a "Swingline Lender"); Chemical Bank, as administrative
agent (in such capacity, the "Administrative Agent") for the
Lenders, the Swingline Lenders and the Fronting Banks (as defined
below); and NationsBank, as documentation agent (the
"Documentation Agent") for the Lenders, the Swingline Lenders and
the Fronting Banks.
The Borrower has requested (a) the Lenders and the Swingline Lenders
to extend credit in order to enable the Borrower, on the terms and subject
to the conditions of this Agreement, to borrow (i) on a term basis, Term
Loans (such term and each other capitalized term used herein but not
defined herein having the meanings given to such terms in Article I) in an
aggregate principal amount not to exceed $250,000,000, (ii) on a revolving
basis, at any time and from time to time prior to the Revolving Credit
Maturity Date, an aggregate principal amount at any time outstanding not in
excess of the excess of (A) $500,000,000 over (B) the sum of (I) the
aggregate principal amount of the Swingline Loans outstanding at such time
and (II) the LC/BA Exposure at such time and (iii) on a revolving basis, at
any time and from time to time prior to the Revolving Credit Maturity Date,
Swingline Loans in an aggregate principal amount at any time outstanding
not to exceed $30,000,000 and (b) on the terms and subject to the
conditions of this Agreement, the Fronting Banks to issue Letters of Credit
and originate Bankers' Acceptances in an aggregate face amount at any time
outstanding not in excess of $155,000,000.
On the Restatement Date, (a) (i) Term Borrowings and (ii) Revolving
Credit Borrowings not in excess of $[ ] shall be used solely to
continue or convert all outstanding term loans and (b) the proceeds of any
additional Revolving Credit Borrowings shall be used solely to continue or
convert all outstanding revolving loans.
The proceeds of Revolving Credit Borrowings following the Restatement
Date will be used for the general corporate purposes of the Borrower and
the Subsidiaries. The proceeds of the Swingline Loans will also be used for
the general corporate purposes of the Borrower and the Subsidiaries.
Letters of Credit and Bankers' Acceptances will be used to support
obligations of the Borrower and the Subsidiaries incurred in the ordinary
course of business of the Borrower and the Subsidiaries.
Accordingly, the Borrower, the Lenders, the Managing Agents, the
Administrative Agent, the Primary Fronting Bank, the Documentation Agent
and the Swingline Lenders agree as follows:
ARTICLE I
Definitions
SECTION 1.01. Defined Terms. As used in this Agreement, the following
terms shall have the meanings specified below:
"ABR Borrowing" shall mean a Borrowing comprised of ABR Loans.
<PAGE>
2
"ABR Loan" shall mean any ABR Term Loan or ABR Revolving Loan.
"ABR Revolving Loan" shall mean any Revolving Loan bearing interest at
a rate determined by reference to the Alternate Base Rate in accordance
with the provisions of Article II.
"ABR Term Loan" shall mean any Term Loan bearing interest at a rate
determined by reference to the Alternate Base Rate in accordance with the
provisions of Article II.
"Acquired Entity" shall mean, with respect to any Acquisition, (a) the
Person to be purchased or otherwise acquired in such Acquisition or (b) the
assets to be purchased, leased or otherwise acquired in such Acquisition,
as applicable.
"Acquisition" shall mean (a) any purchase or other acquisition, in one
transaction or a series of related transactions, of all the common stock of
any Person or (b) any purchase, lease or other acquisition, in one
transaction or a series of related transactions, of all or part of the
assets of any Person; provided, however, that the term "Acquisition" shall
not include the purchase or acquisition of, or any expenditure towards the
purchase or acquisition of, (i) inventory acquired in the ordinary course
of business for resale to customers or (ii) (A) prescription files so long
as the aggregate amount expended in any fiscal year to acquire prescription
files does not exceed $5,000,000, (B) inventory acquired for resale to
customers or (C) Capital Expenditures unless, in the case of clause (ii),
such purchase, acquisition or expenditure is made in connection with the
acquisition of (x) all the common stock of any on-going business, (y) all
or substantially all the assets of any on-going business or (z) all or
substantially all the assets of one or more drugstores.
"Acquisition-Related Sale" shall mean the sale, transfer or other
disposition by the Borrower or any of its Subsidiaries, not in the ordinary
course of business, of inventory, equipment, vehicles or other assets or
properties (a) acquired in an Acquisition consummated not earlier than
six months prior to such sale, transfer or other disposition and (b) the
reason for the liquidation of which is that such assets are not reasonably
necessary for, or related to, the business conducted by the Borrower.
"Adjusted LIBO Rate" shall mean, with respect to any Eurodollar
Borrowing for any Interest Period, an interest rate per annum (rounded
upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a)
the LIBO Rate in effect for such Interest Period and (b) Statutory
Reserves. For purposes hereof, the term "LIBO Rate" shall mean the average
of the respective rates per annum at which dollar deposits approximately
equal in principal amount to each Reference Lender's portion of such Eur-
odollar Borrowing and for a maturity comparable to such Interest Period are
offered to the principal London office of such Reference Lender in
immediately available funds in the London interbank market at approximately
11:00 a.m., London time, two Business Days prior to the commencement of
such Interest Period.
"Administrative Fees" shall have the meaning assigned to such term in
Section 2.05(b).
"Administrative Questionnaire" shall mean an Administrative
Questionnaire in the form of Exhibit C.
"Affiliate" shall mean, when used with respect to a specified Person,
another Person that directly, or indirectly through one or more
intermediaries, Controls or is Controlled by or is under common Control
with the person specified.
<PAGE>
3
"Alternate Base Rate" shall mean, for any day, a rate per annum
(rounded upwards, if necessary, to the next 1/16 of 1%) equal to the
greatest of (a) the Prime Rate in effect on such day, (b) the Base CD Rate
in effect on such day plus 1% and (c) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof, the term "Prime
Rate" shall mean the rate of interest per annum publicly announced from
time to time by the Administrative Agent as its prime rate in effect at its
principal office in New York City; each change in the Prime Rate shall be
effective on the date such change is publicly announced as being effective.
The term "Base CD Rate" shall mean the sum of (a) the product of (i) the
Three-Month Secondary CD Rate and (ii) Statutory Reserves and (b) the
Assessment Rate. The term "Three-Month Secondary CD Rate" shall mean, for
any day, the secondary market rate for three-month certificates of deposit
reported as being in effect on such day (or, if such day shall not be a
Business Day, the next preceding Business Day) by the Board through the
public information telephone line of the Federal Reserve Bank of New York
(which rate will, under the current practices of the Board, be published in
Federal Reserve Statistical Release H.15(519) during the week following
such day) or, if such rate shall not be so reported on such day or such
next preceding Business Day, the average of the secondary market quotations
for three-month certificates of deposit of major money center banks in
New York City received at approximately 10:00 a.m., New York City time, on
such day (or, if such day shall not be a Business Day, on the next
preceding Business Day) by the Administrative Agent from three New York
City negotiable certificate of deposit dealers of recognized standing
selected by it. If for any reason the Administrative Agent shall have
determined (which determination shall be conclusive absent manifest error)
that it is unable to ascertain the Base CD Rate or the Federal Funds
Effective Rate or both for any reason, including the inability or failure
of the Administrative Agent to obtain sufficient quotations in accordance
with the terms thereof, the Alternate Base Rate shall be determined without
regard to clause (b) or (c), or both, of the first sentence of this
definition, as appropriate, until the circumstances giving rise to such
inability no longer exist. Any change in the Alternate Base Rate due to a
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate shall be effective on the effective date of such
change in the Prime Rate, the Three-Month Secondary CD Rate or the Federal
Funds Effective Rate, respectively.
"Applicable Percentage" of any Participating Lender shall mean the
percentage of the aggregate Revolving Credit Commitments represented by
such Participating Lender's Revolving Credit Commitment.
"Applicable Rate Percentage" shall mean on any date, with respect to
the Commitment Fee or LIBOR Spread, as the case may be, the lowest
applicable percentage set forth in the table below based upon the Interest
Coverage Ratio for the four-fiscal-quarter period ending on the last day of
the immediately preceding fiscal quarter for which the certificate referred
to in the next succeeding paragraph has been received by the Administrative
Agent, as set forth in the following table; provided, however, that the
Applicable Rate Percentages in respect of the Commitment Fee and the LIBOR
Spread for the period from and including the Restatement Date to but
excluding the date of receipt by the Lenders of the Borrower's financial
statements for the fiscal quarter ending November 2, 1996, shall not be
less than the Applicable Rate Percentages specified for Level II in the
table below:
<PAGE>
4
COMMITMENT FEE/LIBOR SPREAD
(Basis Points Per Annum)
Interest Coverage Ratio Commitment Fee LIBOR Spread
----------------------- -------------- ------------
- --------------------------------------------------------------------------------
Level I
-------
Less than 3.50:1 31.25 75.00
- --------------------------------------------------------------------------------
Level II
--------
Less than 4.50:1 but
greater than or equal to 3.50:1 25.00 62.50
- --------------------------------------------------------------------------------
Level III
---------
Greater than or equal to 4.50:1 18.75 50.00
================================================================================
For purposes of the foregoing, (a) any change in the Applicable Rate
Percentages based on the Interest Coverage Ratio shall be effective for all
purposes on and after the date of receipt by the Administrative Agent of
the certificate described in Section 6.04(c) for the most recently ended
fiscal quarter and (b) notwithstanding the foregoing provision of
clause (a), no reduction in the above Applicable Rate Percentages shall be
effective if any Event of Default or Default shall exist and be continuing.
Any change in the LIBOR Spread due to a change in the applicable Level
shall apply to all Eurodollar Loans made on or after the commencement of
the period commencing on the effective date of such change in applicable
Level and ending on the date immediately preceding the effective date of
the next such change in applicable Level.
Notwithstanding the foregoing, (a) at any time during which the
Borrower has failed to deliver the certificate described in Section 6.04(c)
in accordance with the provisions thereof, (i) the LIBOR Spread shall be
deemed to be that of Level I with respect to Eurodollar Loans made on and
after the date on which the failure to deliver such certificate occurred
until such date as the Administrative Agent shall receive such certificate
in accordance with the provisions of Section 6.04(c), which change in the
LIBOR Spread shall become effective with respect to Eurodollar Loans made
on and after the date on which such certificate was received, and (ii) the
Commitment Fee shall be deemed to be that of Level I until such time as the
Administrative Agent shall receive such certificate in accordance with the
provisions of Section 6.04(c) and (b) if at any time from and after the
date of receipt by the Administrative Agent of the certificate described in
Section 6.04(c) for the fiscal quarter ended November 2, 1996, (i) no
Default or Event of Default has occurred and is continuing, (ii) the
Interest Coverage Ratio is greater than or equal to 4.50:1 and (iii) the
Facilities are rated both (A) Baa3 or better in the case of Moody's and
(B) BBB- or better in the case of S&P, the LIBOR Spread shall be 37.50
basis points per annum.
"Assessment Rate" shall mean for any date the annual rate (rounded
upwards, if necessary, to the next 1/100 of 1%) most recently estimated by
the Administrative Agent as the then-current net annual assessment rate
that will be employed in determining amounts payable by the Administrative
Agent to the Federal Deposit Insurance Corporation (or any successor) for
insurance by such Corporation (or such successor) of time deposits made in
dollars at the Administrative Agent's domestic offices.
<PAGE>
5
"Assignment and Acceptance" shall mean an assignment and acceptance
entered into by a Lender and an assignee, and accepted by the
Administrative Agent, in the form of Exhibit B or such other form as shall
be approved by the Administrative Agent.
"BA Disbursement" shall mean, with respect to any Bankers' Acceptance,
any payment of the face amount of such Bankers' Acceptance made by the
Primary Fronting Bank to the holder thereof upon the maturity thereof.
"BA Discount Rate" shall mean, with respect to any Bankers'
Acceptance, the current quoted discount rate for bankers' acceptances of
the Primary Fronting Bank on the date of the origination of such Bankers'
Acceptance for bankers' acceptances in an amount substantially equal to the
face amount of such Bankers' Acceptance and having the same maturity as
such Bankers' Acceptance.
"BA Documents" shall mean, with respect to any Bankers' Acceptance,
such documents and agreements as the Primary Fronting Bank may reasonably
require in connection with the creation of such Bankers' Acceptance.
"BA Exposure" shall mean, at any time, the sum of (a) the maximum
aggregate amount that is, or at any time thereafter may become, payable by
the Primary Fronting Bank under all Bankers' Acceptances then outstanding
and (b) the aggregate amount of BA Disbursements for which the Primary
Fronting Bank or the Lenders, as the case may be, have not been reimbursed
by the Borrower at such time.
"Bankers' Acceptance" shall mean a bill of exchange or draft
denominated in dollars (a) drawn (i) in the case of a Clean Bankers'
Acceptance, by the Borrower, (ii) in the case of a Trade Banker's
Acceptance, in the name of the beneficiary of the related Trade Letter of
Credit and (iii) in each case, in the ordinary course of the Borrower's
business and accepted by the Primary Fronting Bank on the Primary Fronting
Bank's form of draft in effect from time to time, (b) in the case of a
Clean Bankers' Acceptance, for a face amount of $1,000,000 or any integral
multiple of $250,000 in excess thereof and (c) for a term (i) in the case
of a Clean Bankers' Acceptance, of not less than 30 days or more than
120 days and (ii) in the case of a Trade Bankers' Acceptance, of not less
than 20 or more than 120 days.
"Bankers' Acceptance Request" shall mean a request made pursuant to
Section 3.02 in the form of Exhibit K.
"Board" shall mean the Board of Governors of the Federal Reserve
System of the United States.
"Borrowing" shall mean a group of Loans of a single Type made by the
Lenders on a single date and as to which a single Interest Period is in
effect.
"Business Day" shall mean any day (other than a Saturday, Sunday or
legal holiday in the State of New York) on which banks are open for
business in New York City; provided, however, that, when used in connection
with a Eurodollar Loan, the term "Business Day" shall also exclude any day
on which banks are not open for dealings in dollar deposits in the London
interbank market.
"Capital Expenditures" shall mean, for any period, the sum of all
amounts that would, in accordance with GAAP, be included as additions to
property, plant and equipment and other capital expenditures on a con-
solidated statement of cash flows for the Borrower and the Subsidiaries
during such period (including the amount of assets leased under any Capital
Lease Obligation). Notwithstanding the foregoing, the term "Capital
Expenditures" shall not include capital expenditures in respect of the
reinvestment
<PAGE>
6
of insurance proceeds and condemnation proceeds received by the Borrower or
any Subsidiary in connection with the disposition of the Borrower's or such
Subsidiary's assets or properties in the nature of a casualty or
condemnation, if (as contemplated in the definition of the term "Prepayment
Event") such reinvestment (including, in the case of insurance proceeds,
reinvestment in the form of restoration or replacement of damaged property)
shall have resulted in the event giving rise to the receipt of such amounts
not being considered a "Prepayment Event" as contemplated in the definition
of such term.
"Capital Lease Obligations" of any person shall mean the obligations
of such person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such person under
GAAP and, for the purposes of this Agreement, the amount of such
obligations at any time shall be the capitalized amount thereof at such
time determined in accordance with GAAP.
A "Change in Control" shall be deemed to have occurred if (a) any
Person or group (within the meaning of Rule 13d-5 of the Securities and
Exchange Commission as in effect on the date hereof) other than Merrill
Lynch Capital Partners, Inc., a Delaware corporation, and its Affiliates
shall own directly or indirectly, beneficially or of record, shares
representing more than 30% of the aggregate ordinary voting power
represented by the issued and outstanding capital stock of the Borrower;
(b) a change in the membership of the board of directors of the Borrower
shall occur at any time during any twelve-month period such that, following
such change, at least 30% of the members of the board of directors were not
members of the board of directors at the beginning of such twelve-month
period (but only if the election of such new members of the board of
directors was not approved by a majority of the directors who were either
sitting at the beginning of such twelve-month period or elected to the
board of directors during such twelve-month period with the approval of a
majority of the directors who were sitting at the beginning of such twelve-
month period); or (c) any Person or group other than Merrill Lynch Capital
Partners, Inc. and its Affiliates shall otherwise directly or indirectly
Control the Borrower.
"Change in Liquidity From Receivables Programs" shall mean, for any
period, the net change from the first day of such period to the last day of
such period in accounts receivable of the Borrower resulting from the sale
of such accounts receivable by the Borrower and receipt by the Borrower of
the cash proceeds of such sale pursuant to Permitted Receivables Purchase
Agreements, calculated in accordance with GAAP applied on a basis
consistent with the Borrower's audited consolidated financial statements
for the fiscal year ended January 28, 1995.
"Clean Bankers' Acceptance" shall mean (a) each Bankers' Acceptance
that is not a Trade Bankers' Acceptance and (b) each Existing Clean
Bankers' Acceptance; each Clean Bankers' Acceptance (other than an Existing
Clean Bankers' Acceptance) shall be originated by the Primary Fronting Bank
in accordance with Section 3.02(c).
"Code" shall mean the Internal Revenue Code of 1986, or any successor
statute thereto, as the same may be amended from time to time.
"Collateral" shall mean all the "Collateral" as defined in any
Security Document and shall also include the Lockbox Collateral and the
Mortgaged Properties.
"Collateral Agent" shall mean Chemical Bank, as Collateral Agent under
the Security Documents, the Guarantee Agreement and the Indemnity,
Subrogation and Contribution Agreement.
<PAGE>
7
"Commitment" shall mean, with respect to each Lender, such Lender's
Term Loan Commitment and Revolving Credit Commitment.
"Commitment Fee" shall have the meaning assigned to such term in
Section 2.05(a).
"Common Stock" shall mean the Voting Common Stock and the Non-Voting
Common Stock.
"Confidential Information Memorandum" shall mean the Confidential
Information Memorandum of the Borrower dated October 1995.
"Consideration" shall mean, with respect to any Acquisition, the
aggregate consideration to be paid by the Borrower or any Subsidiary in
connection with such Acquisition, including (a) any Indebtedness assumed or
incurred by the Borrower or any Subsidiary in connection with such
Acquisition and (b) any shares of the Borrower's capital stock or other
equity securities, or any obligations convertible into or exchangeable for
(or giving any Person a right, option or warrant to acquire) such
securities or such convertible or exchangeable obligations, in each case
issued by the Borrower in connection with such Acquisition.
"Control" shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
person, whether through the ownership of voting securities, by contract or
otherwise, and the terms "Controlling" and "Controlled" shall have meanings
correlative thereto.
"Credit Event" shall have the meaning assigned to such term in
Article V.
"Default" shall mean any event or condition that upon notice, lapse of
time or both would constitute an Event of Default.
"Default Rate" shall have the meaning assigned to such term in
Section 2.07.
"dollars" or "$" shall mean lawful money of the United States.
"EBITDA" with respect to any Person for any period shall mean (a) the
sum of (i) Net Income of such Person for such period, (ii) all Federal,
state, local and foreign taxes deducted in determining such Net Income,
(iii) interest expense deducted in determining such Net Income and
(iv) depreciation, amortization and other noncash charges deducted in
determining such Net Income, less (b) any noncash income included in
determining such Net Income.
"Equipment Agency Arrangements" shall mean arrangements between the
Borrower and one or more equipment lessors (the "Equipment Lessors")
pursuant to which (a) the Borrower, acting as the Equipment Lessor's agent
or otherwise, orders and/or pays for equipment to be used in the Borrower's
business, (b) the Equipment Lessor reimburses the Borrower for any such
payment and (c) the Equipment Lessor leases such equipment to the Borrower.
"Equipment Lessor" shall have the meaning assigned to such term in the
definition of the term "Equipment Agency Arrangements".
<PAGE>
8
"Equity Issuance" shall mean any issuance or sale by the Borrower of
any shares of its capital stock or other equity securities, or any
obligations convertible into or exchangeable for (or giving any Person a
right, option or warrant to acquire) such securities or such convertible or
exchangeable obligations, other than (a) sales or issuances of Common Stock
to management or key employees of the Borrower or any of its Subsidiaries
under any employee stock option or stock purchase plan or any employee or
executive bonus plan in existence from time to time, not to exceed in the
aggregate $10,000,000 in any fiscal year or (b) issuances or sales of any
securities by any Subsidiary to a Subsidiary that is a Guarantor or to the
Borrower or by the Borrower to any Subsidiary that is a Guarantor.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, or any successor statute, as the same may be amended from time to
time.
"ERISA Affiliate" shall mean any trade or business (whether or not
incorporated) that is a member of a group of which the Borrower is a member
and which is treated as a single employer under Section 414 of the Code.
"Eurodollar Borrowing" shall mean a Borrowing comprised of Eurodollar
Loans.
"Eurodollar Loan" shall mean any Eurodollar Term Loan or Eurodollar
Revolving Loan.
"Eurodollar Revolving Loan" shall mean any Revolving Loan bearing
interest at a rate determined by reference to the Adjusted LIBO Rate in
accordance with the provisions of Article II.
"Eurodollar Term Loan" shall mean any Term Loan bearing interest at a
rate determined by reference to the Adjusted LIBO Rate in accordance with
the provisions of Article II.
"Event of Default" shall have the meaning assigned to such term in
Article VIII.
"Existing Clean Bankers' Acceptance" shall mean each bill of exchange
or draft denominated in dollars that (a) was drawn by the Borrower in the
ordinary course of the Borrower's business, (b) was accepted by
NationsBank, (c) is outstanding on the Restatement Date and (d) is listed
in part I of Schedule 1.01(a).
"Existing Standby Letter of Credit" shall mean each standby letter of
credit that (a) was issued by NationsBank for the account of the Borrower,
(b) is outstanding on the Restatement Date and (c) is listed in part II of
Schedule 1.01(a).
"Existing Trade Bankers' Acceptance" shall mean each bill of exchange
or draft denominated in dollars that (a) was drawn by the beneficiary of a
related commercial documentary letter of credit in the ordinary course of
the Borrower's business, (b) was accepted by NationsBank, (c) is
outstanding on the Restatement Date and (d) is listed in part III of
Schedule 1.01(a).
"Existing Trade Letter of Credit" shall mean each commercial
documentary letter of credit that (a) was issued by NationsBank for the
account of the Borrower, (b) is outstanding on the Restatement Date and
(c) is listed in part IV of Schedule 1.01(a).
"Facilities" shall mean, collectively, the Term Facility and the
Revolving Facility.
<PAGE>
9
"Federal Funds Effective Rate" shall mean, for any day, the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal funds brokers, as
published on the next succeeding Business Day by the Federal Reserve Bank
of New York or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for the day of such
transactions received by the Administrative Agent from three Federal funds
brokers of recognized standing selected by it.
"Fees" shall mean the Administrative Fees, the Commitment Fees, the
LC/BA Fees, the fees specified in Section 2.05(c) and the fees specified in
Section 3.09.
"Financial Officer" of any corporation shall mean the chief financial
officer, principal accounting officer, Treasurer or Controller of such
corporation.
"Fixed Charge Coverage Ratio" shall mean, for any period, the ratio of
(a) EBITDA of the Borrower and the Subsidiaries, determined on a
consolidated basis in accordance with GAAP, for such period plus Lease
Expense (but only to the extent of the amount of such Lease Expense that
was deducted in calculating such EBITDA) for such period less Capital
Expenditures for such period to (b) the sum of (i) Interest Expense for
such period, (ii) cash income taxes paid by the Borrower and the
Subsidiaries on a consolidated basis during such period, (iii) Lease
Expense for such period, (iv) the Term Loan Repayment Amounts scheduled to
be paid during such period and (v) scheduled payments during such period of
the principal of permitted Indebtedness of the Borrower and the
Subsidiaries other than the Loans.
"Fronting Banks" shall mean (a) with respect to Letters of Credit
(other than IRB Letters of Credit) and Bankers' Acceptances, the Primary
Fronting Bank, and (b) with respect to IRB Letters of Credit, the IRB
Fronting Bank.
"Funded Debt" shall mean all Indebtedness of the Borrower and the
Subsidiaries, determined on a consolidated basis in accordance with GAAP,
excluding Indebtedness described in clause (i) of the definition of such
term.
"Funded Debt to EBITDA Ratio" shall mean, with respect to any fiscal
period, the ratio of (a) Funded Debt on the last day of such period to
(b) EBITDA of the Borrower and the Subsidiaries, determined on a
consolidated basis in accordance with GAAP, for such period.
"Funding I Lease" shall mean (a) the sale and master operating
leaseback of 72 store premises pursuant to the Lease Agreement dated as of
January 15, 1987, as amended to the date hereof, among JEC Funding, Inc.,
as lessor, and the Borrower as lessee, and (b) the documents related
thereto.
"Funding II Lease" shall mean (a) the capital lease of store premises
pursuant to the Lease Agreement dated as of March 31, 1989, among JEC
Facilities Funding II, Inc., as lessor, and the Borrower, as lessee, and
(b) the documents related thereto.
"GAAP" shall mean generally accepted accounting principles in the
United States.
"Governmental Authority" shall mean any Federal, state, local or
foreign court or governmental agency, authority, instrumentality or
regulatory body.
"Guarantee" of or by any Person shall mean any obligation, contingent
or otherwise (whether or not denominated as a guarantee), of such person
guaranteeing any Indebtedness of any other person (the
<PAGE>
10
"primary obligor") in any manner, whether directly or indirectly, and
including any obligation of such person, direct or indirect, (a) to
purchase or pay (or advance or supply funds for the purchase or payment of)
such Indebtedness or to purchase (or to advance or supply funds for the
purchase of) any security for the payment of such Indebtedness, (b) to
purchase property, securities or services for the purpose of assuring the
owner of such Indebtedness of the payment of such Indebtedness or (c) to
maintain working capital, equity capital or other financial statement
condition or liquidity of the primary obligor so as to enable the primary
obligor to pay such Indebtedness; provided, however, that the term
"Guarantee" shall not include endorsements for collection or deposit, in
either case in the ordinary course of business.
"Guarantee Agreement" shall mean the Guarantee Agreement dated as of
June 14, 1993, as amended and restated as of August 3, 1994, and as such
agreement may be further amended or modified from time to time, among the
Guarantors and the Collateral Agent.
"Guarantor" shall mean each Subsidiary that shall be one of the
initial parties to the Guarantee Agreement and any other Person that shall
become a Guarantor pursuant to Section 6.10 or clause (q) of Article VIII.
"Hammond Sale" shall mean the sale, assignment, transfer or other
disposition, in whatever form, by the Borrower or any of its Subsidiaries,
of their interest in the distribution facility located in Hammond,
Louisiana, and the associated repayment or redemption of the industrial
revenue bonds used to finance the construction of such facility.
"IFS Sale and Leaseback" shall mean the sale and leaseback transaction
consummated by the Borrower on June 15, 1993, whereby the Borrower sold
certain photographic processing equipment to Imaging Financial Services,
Inc., a Delaware corporation, and entered into a lease in respect of such
equipment.
"Inactive Subsidiary" shall mean any subsidiary of the Borrower that
(a) has assets with a total market value not in excess of $1,000 and
(b) has not conducted any business or other operations during the prior 12-
month period.
"Indebtedness" of any Person shall mean, without duplication, (a) all
obligations of such Person for borrowed money or with respect to deposits
or advances of any kind other than deposits or advances in the ordinary
course of business, (b) all obligations of such person evidenced by bonds,
debentures, notes or similar instruments, (c) all obligations of such
Person upon which interest charges are customarily paid, (d) all
obligations of such Person under conditional sale or other title retention
agreements relating to assets purchased by such Person, (e) all obligations
of such Person issued or assumed as the deferred purchase price of property
or services (excluding trade accounts payable and accrued expenses arising
in the ordinary course of business), (f) all Indebtedness of others secured
by (or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on property owned or
acquired by such Person, whether or not the obligations secured thereby
have been assumed by such Person, (g) all Guarantees by such Person of
Indebtedness of others, (h) all Capital Lease Obligations of such Person,
(i) all obligations of such Person in respect of interest rate protection
agreements, foreign currency exchange agreements or other interest or
exchange rate hedging arrangements and (j) all obligations of such Person
as an account party to reimburse any bank or any other Person in respect of
letters of credit or bankers' acceptances. The Indebtedness of any Person
shall include the Indebtedness of any partnership in which such Person is a
general partner.
<PAGE>
11
"Indemnity, Subrogation and Contribution Agreement" shall mean the
Indemnity, Subrogation and Contribution Agreement dated as of June 14,
1993, as amended and restated as of August 3, 1994, and as such agreement
may be further amended or modified from time to time, among the Guarantors
and the Collateral Agent.
"Institutional Investors" shall mean the Institutional Investors that
purchased class A stock and cumulative redeemable preferred stock pursuant
to the Investor Stock Subscription Agreements.
"Interest Coverage Ratio" shall mean, for any period, the ratio of (a)
EBITDA of the Borrower and the Subsidiaries, determined on a consolidated
basis in accordance with GAAP, for such period to (b) Interest Expense for
such period.
"Interest Expense" shall mean, for any period, the gross interest
expense of the Borrower and the Subsidiaries for such period determined on
a consolidated basis in accordance with GAAP, excluding any fees and
expenses payable or amortized during such period by the Borrower in connec-
tion with the Transactions. For purposes of the foregoing, gross interest
expense shall be determined after giving effect to any net payments made or
received by the Borrower with respect to Rate Protection Agreements.
"Interest Payment Date" shall mean (a) with respect to any Loan, the
last day of the Interest Period applicable to the Borrowing of which such
Loan is a part, (b) with respect to any Swingline Loan, the last day of the
Interest Period applicable to such Swingline Loan and (c) with respect to
any Eurodollar Borrowing with an Interest Period of more than three months'
duration, each day that would have been an Interest Payment Date had
successive Interest Periods of three months' duration been applicable to
such Borrowing and, in addition, the date of any refinancing or conversion
of such Borrowing with or to a Borrowing of a different Type, provided that
upon any conversion of an ABR Borrowing to a Eurodollar Borrowing on a day
other than the last day of the Interest Period with respect to such ABR
Borrowing, the Interest Payment Date for such ABR Borrowing shall be the
last day of such Interest Period.
"Interest Period" shall mean (a) as to any Eurodollar Borrowing, the
period commencing on the date of such Borrowing or on the last day of the
immediately preceding Interest Period applicable to such Borrowing, as the
case may be, and ending on the numerically corresponding day (or, if there
is no numerically corresponding day, on the last day) in the calendar month
that is 1, 2, 3 or 6 months thereafter, as the Borrower may elect, (b) as
to any ABR Borrowing, the period commencing on the date of such Borrowing
or on the last day of the immediately preceding Interest Period applicable
to such Borrowing, as the case may be, and ending on the earliest of
(i) the next succeeding March 31, June 30, September 30 or December 31,
(ii) the Revolving Credit Maturity Date or the Term Loan Maturity Date, as
applicable, and (iii) the date such Borrowing is converted to a Borrowing
of a different Type in accordance with Section 2.10 or repaid or prepaid in
accordance with Section 2.11, 2.12 or 2.13, and (c) as to any Swingline
Loan, the period commencing on the date such Swingline Loan is made or on
the last day of the immediately preceding Interest Period applicable to
such Swingline Loan, as the case may be, and ending on the earliest of
(i) the next succeeding March 31, June 30, September 30 or December 31,
(ii) the Revolving Credit Maturity Date and (iii) any date on which the
Swingline Lenders require the Lenders to purchase all or any portion of
such Swingline Loan pursuant to Section 2.22(c); provided, however, that,
if any Interest Period would end on a day other than a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
unless, in the case of a Eurodollar Borrowing only, such next succeeding
Business Day would fall in the next calendar month, in which case such
Interest Period shall end on the next preceding Business Day. Interest
shall accrue from and including the first day of an Interest Period to but
excluding the last day of such Interest Period.
<PAGE>
12
"Investor Stock Subscription Agreements" shall mean (a) the
Subscription Agreement dated as of April 30, 1986, among the Borrower, the
financial institutions identified therein, the Merrill Lynch Affiliate
Investors and the Institutional Investors and (b) the Subscription
Agreement dated as of April 30, 1986, between the Borrower and Morgan
Capital Corporation, as such Subscription Agreements may from time to time
be amended or modified in accordance with Section 7.10.
"IRB Fronting Bank" shall mean any Lender designated as such by
written notice to the Administrative Agent from the Borrower, which
designation shall be effective upon receipt by the Managing Agents of an
instrument, in form and substance satisfactory to the Managing Agents,
whereby such Lender assumes the obligations of the IRB Fronting Bank
hereunder.
"IRB Letter of Credit" shall mean any Standby Letter of Credit issued
by the IRB Fronting Bank in accordance with (a) Section 5.4 of the Lease
Agreement dated as of November 1, 1986, between The Industrial Development
Board of the City of Hammond, Inc. and the Borrower or (b) Section 5.4 of
the Lease Agreement dated as of December 1, 1986, between Development
Authority of Coweta County and the Borrower, and any extensions and
replacements thereof, as such Standby Letter of Credit may from time to
time be amended, supplemented or modified.
"LC/BA Commitment" shall mean at any time an amount equal to the
lesser of (a) $155,000,000, as the same may be reduced from time to time
pursuant to Section 3.08, and (b) the Revolving Credit Commitment at such
time. The LC/BA Commitment shall automatically and permanently terminate on
the LC/BA Maturity Date.
"LC/BA Exposure" shall mean, at any time of determination, the sum of
(a) the Trade LC Exposure, (b) the Standby LC Exposure and (c) the BA
Exposure at such time.
"LC/BA Fee" shall have the meaning given such term in Section 3.04.
"LC/BA Maturity Date" shall mean the fifth Business Day prior to the
Revolving Credit Maturity Date.
"LC Disbursement" shall mean any payment or disbursement made by a
Fronting Bank under or pursuant to a Letter of Credit.
"Lease Expense" shall mean, for any period, with respect to any
operating leases of the Borrower and the Subsidiaries, all amounts paid or
accrued during such period under such operating leases (whether or not
constituting rental expense) by the Borrower and the Subsidiaries on a
consolidated basis.
"Leasehold Mortgage" shall mean any Mortgage that is a leasehold
mortgage.
"Letter of Credit Application" shall mean a commercial or standby
letter of credit application, as applicable, in the relevant Fronting
Bank's customary form, as such form may be modified from time to time by
such Fronting Bank.
"Letters of Credit" shall mean Trade Letters of Credit and Standby
Letters of Credit.
"LIBOR Spread" shall have the meaning specified in the definition of
the term "Applicable Rate Percentage".
<PAGE>
13
"Lien" shall mean, with respect to any asset, (a) any mortgage, deed
of trust, lien, pledge, assignments for security (whether collateral or
otherwise), hypothecation, encumbrance, lease, sublease, charge or security
interest in or on such asset, (b) the interest of a vendor or a lessor
under any conditional sale agreement, capital lease or title retention
agreement relating to such asset and (c) in the case of securities, any
purchase option, call or similar right of a third party with respect to
such securities.
"Life Care" shall mean Life Care Medical Products, Inc., a Florida
corporation.
"Life Care Sale" shall mean either the sale, assignment, transfer or
other disposition of the Borrower's interest in, or the liquidation,
dissolution and/or winding up of, Life Care; provided, however, that no
such transaction shall be deemed to constitute a "Life Care Sale" if, at
any time after the Restatement Date and prior to the consummation of such
transaction, the Borrower or any Subsidiary shall have transferred any
assets to Life Care other than in the ordinary course of business.
"Loan Documents" shall mean this Agreement, the Notes, the Letters of
Credit, the Bankers' Acceptances, the BA Documents, the Security Documents,
the Guarantee Agreement and the Indemnity, Subrogation and Contribution
Agreement.
"Loans" shall mean the Revolving Loans and the Term Loans.
"Lockbox Agreements" shall mean any lockbox agreements among the
Borrower, the Collateral Agent and a Sub-Agent (as defined in each Lockbox
Agreement), substantially in the form of Annex 1 to the Security Agreement.
"Lockbox Collateral" shall have the meaning assigned to such term in
each of the Lockbox Agreements.
"Management Investors" shall mean the officers of the Borrower who
purchased Class A Stock and Class B Stock pursuant to the Management
Subscription Agreement.
"Management Subscription Agreement" shall mean, collectively, (a) the
Management Subscription Agreement dated as of April 30, 1986, (b) the
Management Subscription Agreement dated as of June 30, 1987, and (c) the
Management Subscription Agreement dated as of November 1, 1987, in each
case, among the Borrower and the Management Investors and pursuant to which
the Management Investors purchased Class A Stock and Class B Stock, as such
agreements may from time to time be amended or modified in accordance with
Section 7.10.
"Margin Stock" shall have the meaning given such term under
Regulation U.
"Material Adverse Effect" shall mean (a) a materially adverse effect
on the business, assets, operations, prospects or condition, financial or
otherwise, or the material agreements of the Borrower and the Subsidiaries,
taken as a whole, (b) material impairment of the ability of the Borrower or
any Subsidiary to perform any of its obligations under any Loan Document to
which it is or will be a party or (c) material impairment of the rights of
or benefits available to the Administrative Agent, the Fronting Banks, the
Collateral Agent or the Lenders under any Loan Document.
"Merrill Lynch Affiliate Investors" shall mean the Affiliates of
Merrill Lynch & Co., Inc. on April 30, 1986, who purchased class A stock
and cumulative redeemable preferred stock pursuant to the Investor Stock
Subscription Agreements.
<PAGE>
14
"Mortgaged Properties" shall mean the owned real properties of the
Borrower specified on Schedule 1.01(b).
"Moody's" shall mean Moody's Investors Service, Inc.
"Mortgages" shall mean the mortgages, deeds of trust, leasehold
mortgages, assignments of leases and rents (including the Assignments of
Leases and Rents), modifications and other security documents relating to
the Mortgaged Properties delivered to the Collateral Agent or pursuant to
the provisions of this Agreement, each (except in the case of any Leasehold
Mortgage) substantially in the form of Exhibit I.
"Multiemployer Plan" shall mean a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate
(other than one considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Code) is making or accruing an
obligation to make contributions, or has within any of the preceding five
plan years made or accrued an obligation to make contributions.
"Net Income" with respect to any Person for any period shall mean the
aggregate net income (or net deficit) of such Person and its subsidiaries
determined on a consolidated basis for such period, which shall be equal to
gross revenues for such Person and its subsidiaries determined on a
consolidated basis during such period less the aggregate for such Person
and its subsidiaries determined on a consolidated basis during such period
of, without duplication, (a) cost of goods sold, (b) interest expense,
(c) operating expenses, (d) selling, general and administrative expenses,
(e) taxes, (f) depreciation, depletion and amortization of properties and
(g) any other items that are treated as expense under GAAP, all computed in
accordance with GAAP; provided, however, that the term "Net Income" shall
exclude (i) gains and losses from the sale of assets other than in the
ordinary course of business and (ii) any write-up in the value of any
asset.
"Net Proceeds" shall mean, with respect to any Prepayment Event or any
Equity Issuance, (a) the gross proceeds (including, if applicable, insur-
ance proceeds, condemnation awards and payments from time to time in
respect of installment obligations) received by or on behalf of the
Borrower or any of its Subsidiaries in respect of such Prepayment Event or
such Equity Issuance, less (b) the sum of (i) in the case of a Prepayment
Event under clause (a) or (b) of the definition thereof, the amount, if
any, of all taxes (other than income taxes) payable by the Borrower or any
of its Subsidiaries in connection with such Prepayment Event and the
Borrower's good-faith best estimate of the amount of all income taxes
payable in connection with such Prepayment Event (to the extent that such
amount shall have been set aside for the purpose of paying such income
taxes), (ii) in the case of a Prepayment Event under clause (a) of the
definition thereof, (A) the amount of any reasonable reserve established in
accordance with GAAP against any liabilities associated with the assets
sold or disposed of and retained by the Borrower or any of its
Subsidiaries, provided that the amount of any subsequent reduction of such
reserve (other than in connection with a payment in respect of any such
liability) shall be deemed to be Net Proceeds of a Prepayment Event
occurring on the date of such reduction, and (B) the amount applied to
repay any Indebtedness (other than the Loans and the Swingline Loans) to
the extent such Indebtedness is required by its terms to be repaid as a
result of such Prepayment Event and (iii) reasonable and customary fees,
commissions and expenses and other costs paid by the Borrower or any of its
Subsidiaries in connection with such Prepayment Event or Equity Issuance
(other than those payable to the Borrower or any subsidiary of the
Borrower), in each case only to the extent not already deducted in arriving
at the amount referred to in clause (a) above.
"9-1/4% Senior Subordinated Note Indenture" shall mean the Senior
Subordinated Note Indenture dated as of November 1, 1993, between the
Borrower and State Street Bank and Trust Company of
<PAGE>
15
Connecticut, National Association , as trustee, as such Senior Subordinated
Note Indenture may from time to time be amended or modified in accordance
with Section 7.10.
"9-1/4% Senior Subordinated Notes" shall mean the 9-1/4% Senior
Subordinated Notes of the Borrower, as such 9-1/4% Senior Subordinated
Notes may from time to time be amended or modified in accordance with
Section 7.10.
"Non-Voting Common Stock" shall mean the Borrower's Non-Voting Common
Stock (Series I), par value $.01 per share.
"Notes" shall mean the Term Notes, the Revolving Credit Notes and the
Swingline Notes.
"Obligations" shall mean all obligations defined as "Obligations" in
the Guarantee Agreement and the Security Documents.
"Outstanding Bankers' Acceptances" shall mean at any time the Bankers'
Acceptances outstanding at such time.
"Outstanding Clean Bankers' Acceptances" shall mean at any time the
Clean Bankers' Acceptances outstanding at such time.
"Outstanding Letters of Credit" shall mean at any time the Letters of
Credit outstanding at such time.
"Outstanding Standby Letters of Credit" shall mean at any time the
Standby Letters of Credit outstanding at such time.
"Outstanding Trade Bankers' Acceptances" shall mean at any time the
Trade Bankers' Acceptances outstanding at such time.
"Outstanding Trade Letters of Credit" shall mean at any time the Trade
Letters of Credit outstanding at such time.
"Participating Lender" shall mean at any time any Lender with a
Revolving Credit Commitment at such time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"Perfection Certificate" shall mean the Perfection Certificate,
substantially in the form of Annex 2 to the Security Agreement, prepared by
the Borrower.
"Permitted Acquisition" shall mean (a) any Acquisition by the Borrower
or any of its Subsidiaries of any Acquired Entity engaged in one or more
lines of business substantially similar to those in which the Borrower or
any Subsidiary is principally engaged as of the Restatement Date, so long
as (i) the cash Consideration to be paid by the Borrower or any Subsidiary
in connection with such Acquisition does not exceed $50,000,000 and (ii)
the sum of (A) the Consideration to be paid by the Borrower or any
Subsidiary in connection with such Acquisition and (B) the aggregate
Consideration paid by the Borrower or any Subsidiary in connection with all
prior Permitted Acquisitions that were consummated in the fiscal year in
<PAGE>
16
which such Acquisition will occur does not exceed $100,000,000 and (b) the
Acquisition of issued shares in ETB, Inc., a Texas corporation, not already
owned by the Borrower or its Subsidiares, provided that the Consideration
to be paid by the Borrower or any Subsidiary in connection with such
Acquisition does not exceed $25,000 and (c) the Acquisition of issued
shares in Life Care Medical Products, Inc. not already owned by the
Borrower, provided that the cash Consideration to be paid by the Borrower
in connection with such Acquisition does not exceed $20,000 and such
Acquisition was made in contemplation of a subsequent Life Care Sale.
"Permitted Investments" shall mean:
(a) direct obligations of, or obligations the principal of and
interest on which are unconditionally guaranteed by, the United States
of America (or by any agency thereof to the extent such obligations
are backed by the full faith and credit of the United States of
America), in each case maturing within six months from the date of
acquisition thereof by the Borrower or any Subsidiary;
(b) without limiting the provisions of paragraph (d) below,
investments in commercial paper maturing within six months from the
date of acquisition thereof by the Borrower or any Subsidiary and
having, at such date of acquisition, a credit rating of A1 from S&P or
P1 from Moody's;
(c) investments in certificates of deposit, bankers' acceptances
and time deposits maturing within six months from the date of
acquisition thereof by the Borrower or any Subsidiary issued or
guaranteed by or placed with, and money market deposit accounts issued
or offered by, (i) any domestic office of either Managing Agent or
(ii) any domestic office of any other commercial bank of recognized
standing organized under the laws of the United States of America or
any state thereof which is rated (or the senior debt securities of the
holding company of such commercial bank are rated) in one of the three
highest grades by S&P or Moody's, or another nationally recognized
rating agency if neither of such two named rating agencies shall rate
such bank;
(d) investments in commercial paper maturing within six months
from the date of acquisition thereof by the Borrower or any Subsidiary
and issued by (i) the holding company of either Managing Agent or
(ii) the holding company of any other commercial bank of recognized
standing organized under the laws of the United States of America or
any state thereof that has commercial paper rated in one of the three
highest grades by S&P or Moody's, or another nationally recognized
rating agency if neither of such two named rating agencies shall rate
such bank;
(e) repurchase agreements maturing within six months from the
date of acquisition thereof by the Borrower or a Subsidiary with
(i) any Lender (of Affiliate thereof), (ii) any bank or trust company
referred to in paragraph (c) or (d) above or (iii) Broadway National
Bank, in each case, for, and fully collateralized by a perfected
security interest in, underlying securities of the type referred to in
paragraph (a) above, provided that, in the case of any such repurchase
agreements with Broadway National Bank, the aggregate amount of the
repurchase obligations thereunder shall not at any time exceed
$2,000,000.
(f) investments in Merrill Lynch Institutional Fund, Merrill
Lynch Government Fund, Merrill Lynch Treasury Fund, Merrill Lynch
Institutional Tax-Exempt Fund, American Express Daily Dividends Fund
and American Express Government and Agencies Fund.
<PAGE>
17
(g) other investment instruments approved in writing by the
Required Lenders and offered by financial institutions that have a
combined capital and surplus and undivided profits of not less than
$250,000,000.
"Permitted Receivables Purchase Agreements" shall mean, collectively,
(a) the Receivables Purchase Agreement dated as of January 26, 1995, as
amended as of March 31, 1995, and as the expiration date thereof may be
extended from time to time, between the Borrower and Three Rivers Funding
Corporation, a Delaware corporation, providing for the transfer to Three
Rivers Funding Corporation of an undivided interest in a pool of Third
Party Receivables, (b) any agreement providing for the transfer by the
Borrower of Third Party Receivables that is entered into with the prior
written consent of the Required Lenders and (c) any other agreements
providing for the transfer by the Borrower of Third Party Receivables in a
transaction that the Borrower believes to be a true sale transaction (based
on the opinion of Borrower's counsel), on terms determined by the Borrower
in good faith to be no less favorable to the Borrower and the Lenders than
the receivables purchase agreement described in clause (a) above, in each
case if and to the extent permitted by Section 7.05(e).
"Person" shall mean any natural person, corporation, business trust,
joint venture, association, company, partnership or government, or any
agency or political subdivision thereof.
"Photolab Business Sale" shall mean the sale, assignment, transfer,
lease, sub-lease or any other disposition, in any form whatsoever, of the
Borrower's main photographic film processing business and related assets
(including the equipment leased pursuant to the IFS Sale and Leaseback) as
set forth on Schedule 1.01(c).
"Plan" shall mean any pension plan (other than a Multiemployer Plan)
subject to the provisions of Title IV of ERISA or Section 412 of the Code
that is maintained for employees of the Borrower or any ERISA Affiliate.
"Pledge Agreement" shall mean the Pledge Agreement dated as of
June 14, 1993, as amended and restated as of August 3, 1994, and as such
agreement may be further amended or modified from time to time, among the
Borrower, the Guarantors and the Collateral Agent.
"Prepayment Account" shall have the meaning assigned to such term in
Section 2.13(f).
"Prepayment Event" shall mean (a) any sale, transfer or other
disposition of any business units, assets or other properties of the
Borrower or any of its Subsidiaries (including dispositions in the nature
of casualties (to the extent covered by insurance) or condemnations),
(b) any sale and leaseback of any asset or the mortgaging of any real
property other than pursuant to a Mortgage (or a modification thereof) by
the Borrower or any of its Subsidiaries or (c) the issuance or incurrence
by the Borrower or any of its Subsidiaries of any Indebtedness (other than
any indebtedness that the Borrower or any Subsidiary is permitted to incur
pursuant to Section 7.01 (other than Section 7.01(k)), or the issuance or
sale by the Borrower or any of its Subsidiaries of any debt securities or
any obligations convertible into or exchangeable for, or giving any person
or entity any right, option or warrant to acquire from the Borrower or any
of its Subsidiaries any Indebtedness (other than any indebtedness that the
Borrower or any Subsidiary is permitted to incur pursuant to Section 7.01
(other than Section 7.01(k)), or any such debt securities or
<PAGE>
18
any such convertible or exchangeable obligations. Notwithstanding the fore-
going, the term "Prepayment Event" shall not include:
(i) sales, transfers and other dispositions of business units,
assets and other properties on commercially reasonable terms permitted
pursuant to Section 7.05(a) with Net Proceeds not exceeding in the
aggregate $10,000,000 in any fiscal year, provided that at any time
when the Net Proceeds of any such sale, transfer and other disposi-
tion, together with the aggregate Net Proceeds of all other such
sales, transfers and other dispositions during the same fiscal year,
shall exceed $10,000,000 in any fiscal year, a "Prepayment Event"
shall be deemed to have occurred, and the resultant prepayment in
connection with such Prepayment Event shall equal the amount by which
the aggregate Net Proceeds of such sales, transfers and dispositions
exceeds $10,000,000;
(ii) sales of inventory, used or surplus equipment, vehicles and
other assets in the ordinary course of business and Acquisition-
Related Sales;
(iii) the receipt of insurance or condemnation proceeds in
respect of the loss, damage, destruction or taking of any asset of the
Borrower or any such Subsidiary, provided that (A) the aggregate
amount of insurance or condemnation proceeds received by the Borrower
and the Subsidiaries in connection with the event that resulted in the
loss, damage, destruction or taking of such asset are less than
$5,000,000, (B) such proceeds are reinvested in equipment, vehicles or
other assets (other than inventory that does not replace lost,
damaged, destroyed or taken inventory) used in the Borrower's princi-
pal lines of business within 180 days after the receipt thereof,
(C) if such proceeds are equal to or exceed $1,000,000, the Borrower,
pending such reinvestment, promptly applies such proceeds towards the
payment of Swingline Loans or Revolving Loans or deposits such pro-
ceeds so received and unreinvested in a cash collateral account
established with the Collateral Agent for the benefit of the Secured
Parties and (D) at the time such proceeds are received by the Borrower
or any of its Subsidiaries, no Default or Event of Default shall have
occurred and be continuing;
(iv) the Life Care Sale, the Hammond Sale or the
Photolab Business Sale; provided, however, that to the extent that the
Borrower receives Net Proceeds in cash in excess of $35,000,000 in
respect of the Photolab Business Sale, a "Prepayment Event" shall be
deemed to have occurred and the resultant prepayment in connection
with such Prepayment Event shall equal 50% of the amount by which such
cash Net Proceeds exceed $35,000,000.
(v) sales, transfers or other dispositions to Equipment Lessors of
equipment purchased by the Borrower, as agent for such Equipment
Lessor, pursuant to Equipment Agency Arrangements.
"Primary Fronting Bank" shall mean NationsBank.
"Rate Protection Agreements" shall mean interest rate cap agreements,
interest rate swap agreements and other agreements or arrangements entered
into by the Borrower to provide protection to the Borrower against
fluctuations in interest rates.
"Receivables Subsidiary" means any bankruptcy-remote subsidiary of the
Borrower created for the purpose of purchasing accounts receivable from the
Borrower and the Subsidiaries pursuant to a Permitted Receivables Purchase
Agreement.
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19
"Reference Lenders" shall mean the principal London offices of the
Managing Agents and, as long as it is a Lender, Union Bank of Switzerland.
"Register" shall have the meaning given such term in Section 10.04(d).
"Regulation G" shall mean Regulation G of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation U" shall mean Regulation U of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Regulation X" shall mean Regulation X of the Board as from time to
time in effect and all official rulings and interpretations thereunder or
thereof.
"Reportable Event" shall mean any reportable event as defined in
Section 4043(b) of ERISA or the regulations issued thereunder with respect
to a Plan (other than a Plan maintained by an ERISA Affiliate that is
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Code).
"Required Lenders" shall mean, at any time, Lenders holding Loans, a
share of the used LC/BA Commitments and unused Commitments representing
greater than 50% of the sum of (a) the aggregate principal amount of the
Loans at such time, (b) the LC/BA Exposure at such time and (c) the
aggregate unused Commitments at such time.
"Responsible Officer" of any corporation shall mean any executive
officer or Financial Officer of such corporation and any other officer or
similar official thereof responsible for the administration of the obliga-
tions of such corporation in respect of this Agreement.
"Restatement Date" shall mean the date of the execution of this
Agreement.
"Revolving Credit Borrowing" shall mean a Borrowing comprised of
Revolving Loans.
"Revolving Credit Commitment" shall mean, with respect to each Lender,
the commitment of such Lender to make Revolving Loans hereunder as set
forth in clause (b) of Section 2.01, as the same may be reduced from time
to time pursuant to Section 2.09.
"Revolving Credit Maturity Date" shall mean November 29, 2000.
"Revolving Credit Note" shall mean a promissory note of the Borrower,
substantially in the form of Exhibit A-1, evidencing Revolving Loans.
"Revolving Credit Utilization" shall mean, at any time of
determination, the sum of (a) the aggregate principal amount of Revolving
Loans outstanding at such time, (b) the aggregate principal amount of
Swingline Loans outstanding at such time and (c) the LC/BA Exposure at such
time.
"Revolving Facility" shall mean the aggregate of the Lenders'
Revolving Credit Commitments.
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20
"Revolving Loans" shall mean the revolving loans made by the Lenders
to the Borrower pursuant to clause (b) of Section 2.01. Each Revolving Loan
shall be a Eurodollar Revolving Loan or an ABR Revolving Loan.
"Secured Parties" shall have the meaning assigned to such term in the
Security Agreement.
"Security Agreement" shall mean the Security Agreement dated as of
June 14, 1993, as amended and restated as of August 3, 1994, and as such
agreement may be further amended or modified from time to time, among the
Borrower, the Guarantors and the Collateral Agent.
"Security Documents" shall mean the Mortgages (including the
Assignment of Leases and Rents (as defined in each Mortgage) and any lease-
hold mortgage), the Security Agreement, the Pledge Agreement, the Lockbox
Agreements, the Trademark Security Agreement and each of the security
agreements, mortgages and other instruments and documents executed and
delivered pursuant to any of the foregoing or pursuant to Section 6.10.
"S&P" shall mean Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc.
"Standby LC Exposure" shall mean, at any time of determination, the
sum of (a) the aggregate undrawn amount of all Standby Letters of Credit
outstanding at such time and (b) the aggregate amount that has been drawn
under any Standby Letters of Credit but for which the Fronting Banks or the
Lenders, as the case may be, have not been reimbursed by the Borrower at
such time.
"Standby Letter of Credit" shall mean (a) each irrevocable letter of
credit issued pursuant to Section 3.01(a) under which a Fronting Bank
agrees to make payments for the account of the Borrower, on behalf of the
Borrower, in respect of obligations of the Borrower incurred pursuant to
contracts made or performances undertaken or to be undertaken or like
matters relating to contracts to which the Borrower is or proposes to
become a party in the ordinary course of the Borrower's business and
(b) each Existing Standby Letter of Credit.
"Statutory Reserves" shall mean a fraction (expressed as a decimal),
the numerator of which is the number one and the denominator of which is
the number one minus the aggregate of the maximum applicable reserve per-
centages, including any marginal, special, emergency or supplemental
reserves (expressed as a decimal) established by the Board and any other
banking authority to which the Administrative Agent is subject (a) with
respect to the Base CD Rate (as such term is used in the definition of the
term "Alternate Base Rate") for new negotiable nonpersonal time deposits in
dollars of over $100,000 with maturities approximately equal to three
months and (b) with respect to the Adjusted LIBO Rate, for Eurocurrency
Liabilities (as defined in Regulation D of the Board). Such reserve
percentages shall include those imposed pursuant to Regulation D of the
Board. Eurodollar Loans shall be deemed to constitute Eurocurrency
Liabilities and to be subject to such reserve requirements without benefit
of or credit for proration, exemptions or offsets that may be available
from time to time to any Lender under such Regulation D. Statutory Reserves
shall be adjusted automatically on and as of the effective date of any
change in any reserve percentage.
"Stockholders' Agreement" shall mean the Stockholders' Agreement dated
as of April 30, 1986, among the Borrower, the Management Investors, the
Institutional Investors and the Merrill Lynch Affiliate Investors, as such
Stockholders' Agreement may be amended or modified from time to time in
accordance with Section 7.10.
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21
"Subordinated Indebtedness" shall mean, collectively, the 9-1/4%
Senior Subordinated Notes and any Indebtedness incurred pursuant to Section
7.01(j) or 7.01(k).
"subsidiary" shall mean, with respect to any Person (herein referred
to as the "parent"), any corporation, partnership, association or other
business entity (a) of which securities or other ownership interests repre-
senting more than 50% of the equity or more than 50% of the ordinary voting
power or more than 50% of the general partnership interests are, at the
time any determination is being made, owned, controlled or held or (b) that
is, at the time any determination is made, otherwise Controlled by the
parent or one or more subsidiaries of the parent or by the parent and one
or more subsidiaries of the parent.
"Subsidiary" shall mean any subsidiary of the Borrower other than an
Inactive Subsidiary.
"Swingline Commitment Percentage" shall mean (a) in the case of
Chemical Bank in its capacity as a Swingline Lender, 50% and (b) in the
case of NationsBank in its capacity as a Swingline Lender, 50%.
"Swingline Loans" shall mean the swingline loans made by the Swingline
Lenders pursuant to Section 2.22.
"Swingline Note" shall mean a promissory note of the Borrower,
substantially in the form of Exhibit A-3, evidencing the Swingline Loans.
"Term Borrowing" shall mean a Borrowing comprised of Term Loans.
"Term Facility" shall mean the aggregate amount of the Lenders' Term
Loan Commitments.
"Term Loan Commitment" shall mean, with respect to each Lender, the
commitment of such Lender to make Term Loans hereunder as set forth in
clause (a) of Section 2.01, as the same may be reduced from time to time
pursuant to Section 2.09.
"Term Loan Maturity Date" shall mean November 29, 2000.
"Term Loan Repayment Amounts" shall have the meaning set forth in
Section 2.11(a)(i).
"Term Loan Repayment Date" shall have the meaning set forth in
Section 2.11(a)(i).
"Term Loans" shall mean the term loans made by the Lenders to the
Borrower pursuant to clause (a) of Section 2.01. Each Term Loan shall be
either a Eurodollar Term Loan or an ABR Term Loan.
"Term Note" shall mean a promissory note of the Borrower substantially
in the form of Exhibit A-2, evidencing Term Loans.
"Third Party Receivables" shall mean the Accounts (as defined in the
Security Agreement) owing to the Borrower arising from the sale by the
Borrower of goods or services in the ordinary course of the pharmaceutical
business of the Borrower and with respect to which the obligor is a Person
other than the Person to whom such goods or services were sold.
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22
"Trade BA Exposure" shall mean, at any time, the sum of (a) the
maximum aggregate amount that is, or at any time thereafter may become,
payable by the Fronting Bank under all Trade Bankers' Acceptances then
outstanding and (b) the aggregate amount of BA Disbursements in respect of
Trade Bankers' Acceptances for which the Primary Fronting Bank or the
Lenders, as the case may be, have not been reimbursed by the Borrower at
such time.
"Trade Bankers' Acceptance" shall mean (a) a Bankers' Acceptance
originated by the Primary Fronting Bank upon the presentation to the
Primary Fronting Bank of a time draft for payment under a Trade Letter of
Credit by a beneficiary thereof and (b) each Existing Trade Bankers'
Acceptance; each origination of a Trade Bankers' Acceptance (other than an
Existing Trade Bankers' Acceptance) shall be in accordance with
Section 3.02(e).
"Trade LC Exposure" shall mean, at any time of determination, the sum
of (a) the aggregate undrawn amount of all Trade Letters of Credit
outstanding at such time and (b) the aggregate amount that has been drawn
under any Trade Letters of Credit but for which the Primary Fronting Bank
or the Lenders, as the case may be, have not been reimbursed by the
Borrower at such time.
"Trade Letter of Credit" shall mean (a) each commercial documentary
letter of credit issued by the Primary Fronting Bank for the account of the
Borrower pursuant to Section 3.01(a) for the purchase of goods in the
ordinary course of business and (b) each Existing Trade Letter of Credit.
"Trademark Security Agreement" shall mean the Trademark Security
Agreement dated as of June 14, 1993, as amended and restated as of August
3, 1994, and as such agreement may be further amended or modified from time
to time, among the Borrower, the Guarantors and the Collateral Agent.
"Transactions" shall have the meaning assigned to such term in
Section 4.02.
"Type", when used in respect of any Loan or Borrowing, shall refer to
the Rate by reference to which interest on such Loan or on the Loans
comprising such Borrowing is determined. For purposes hereof, the term
"Rate" shall include the Adjusted LIBO Rate and the Alternate Base Rate.
"Voting Common Stock" shall mean the Borrowers' Common Stock, par
value $.01 per share.
"Withdrawal Liability" shall mean liability to a Multiemployer Plan as
a result of a complete or partial withdrawal from such Multiemployer Plan,
as such terms are defined in Part I of Subtitle E of Title IV of ERISA.
SECTION 1.02. Terms Generally. The definitions in Section 1.01 shall
apply equally to both the singular and plural forms of the terms defined.
Whenever the context may require, any pronoun shall include the
corresponding masculine, feminine and neuter forms. The words "include",
"includes" and "including" shall be deemed to be followed by the phrase
"without limitation". All references herein to Articles, Sections, Exhibits
and Schedules shall be deemed to be references to Articles and Sections of,
and Exhibits and Schedules to, this Agreement unless the context shall
otherwise require. Unless otherwise specified herein, all accounting terms
used herein shall be interpreted, all accounting determinations hereunder
shall be made and all financial statements required to be delivered here-
under shall be prepared in accordance with GAAP as in effect from time to
time, applied on a basis consistent with the application used in the
financial statements referred to in Section 4.05; provided, however, that,
for purposes of determining compliance with any covenant set forth in
Article VII, all accounting terms used herein shall be interpreted and all
accounting determinations hereunder shall be made in accordance
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23
with GAAP as in effect on the date of this Agreement applied on a basis
consistent with the application used in the financial statements referred
to in Section 4.05.
ARTICLE II
The Credits
SECTION 2.01. Commitments. On the terms and subject to the conditions
and relying upon the representations and warranties herein set forth:
(a) each Lender having a Term Loan Commitment agrees severally and not
jointly that it has made Term Loans to the Borrower in the aggregate
principal amount of its Term Loan Commitment, in each case as set forth
opposite such Lender's name on Schedule 2.01, and
(b) each Lender having a Revolving Credit Commitment agrees severally
and not jointly to make Revolving Loans to the Borrower, at any time and
from time to time on or after the Restatement Date and prior to the earlier
of the Revolving Credit Maturity Date and the termination of the Revolving
Credit Commitment of such Lender in accordance with the terms hereof, in an
aggregate principal amount at any time outstanding not to exceed (after
giving effect to all Revolving Credit Loans repaid, and all reimbursements
of LC Disbursements and BA Disbursements made, concurrently with the making
of any Revolving Credit Loans) an amount equal to the difference between
(i) the Revolving Credit Commitment set forth opposite such Lender's name
on Schedule 2.01, as the same may be reduced from time to time pursuant to
Section 2.09, and (ii) such Lender's Applicable Percentage of the sum of
(A) the aggregate principal amount of Swingline Loans outstanding at such
time and (B) the LC/BA Exposure at such time. Within the limits set forth
in the preceding sentence, the Borrower may borrow, pay or prepay and
reborrow Revolving Loans on or after the Restatement Date and prior to the
Revolving Credit Maturity Date, on the terms and subject to the conditions
and limitations set forth herein. Amounts paid or prepaid in respect of
Term Loans may not be reborrowed.
SECTION 2.02. Loans. (a) Each Loan shall be made as part of a
Borrowing consisting of Loans made by the Lenders ratably in accordance
with their respective Term Loan Commitments or Revolving Credit Commit-
ments, as the case may be; provided, however, that the failure of any
Lender to make any Loan shall not in itself relieve any other Lender of its
obligation to lend hereunder (it being understood, however, that no Lender
shall be responsible for the failure of any other Lender to make any Loan
required to be made by such other Lender). Each Revolving Credit Borrowing
shall be in an aggregate principal amount that is an integral multiple of
$1,000,000 and not less than $5,000,000 (or an aggregate principal amount
equal to the remaining balance of the Revolving Credit Commitments).
(b) Each Borrowing shall be comprised entirely of ABR Loans or
Eurodollar Loans, as the Borrower may request pursuant to Section 2.03.
Each Lender may at its option fulfill its Commitment with respect to any
Eurodollar Loan by causing any domestic or foreign branch or Affiliate of
such Lender to make such Loan, provided that any exercise of such option
shall not affect the obligation of the Borrower to repay such Loan in
accordance with the terms of this Agreement and the applicable Note.
Borrowings of more than one Type may be outstanding at the same time;
provided, however, that the Borrower shall not be entitled to request any
Borrowing that, if made, would result in an aggregate of more than six
separate Eurodollar Loans of any Lender being outstanding hereunder at any
one time. For purposes of the foregoing, Loans having different Interest
Periods, regardless of whether they commence on the same date, shall be
considered separate Loans.
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24
(c) Subject to paragraph (e) below, each Lender shall make a Loan in
the amount of its pro rata portion, as determined under Section 2.17, of
each Borrowing hereunder on the proposed date thereof by wire transfer of
immediately available funds to the Administrative Agent in New York, New
York, not later than 12:00 noon, New York City time, and the Administrative
Agent shall by 3:00 p.m., New York City time, credit the amounts so
received to the general deposit account of the Borrower or, if a Borrowing
shall not occur on such date because any condition precedent herein
specified shall not have been met, return the amounts so received to the
respective Lenders. Unless the Administrative Agent shall have received
notice from a Lender prior to the date of any Borrowing that such Lender
will not make available to the Administrative Agent such Lender's portion
of such Borrowing, the Administrative Agent may assume that such Lender has
made such portion available to the Administrative Agent on the date of such
Borrowing in accordance with this paragraph (c) and the Administrative
Agent may, in reliance upon such assumption, make available to the Borrower
on such date a corresponding amount. If and to the extent that such Lender
shall not have made such portion available to the Administrative Agent,
such Lender and the Borrower severally agree to repay to the Administrative
Agent forthwith on demand such corresponding amount together with interest
thereon, for each day from the date such amount is made available to the
Borrower until the date such amount is repaid to the Administrative Agent
at (i) in the case of the Borrower, the interest rate applicable at the
time to the Loans comprising such Borrowing and (ii) in the case of such
Lender, the Federal Funds Effective Rate. If such Lender shall repay to the
Administrative Agent such corresponding amount, such amount shall
constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement.
(d) Notwithstanding any other provision of this Agreement, the
Borrower shall not be entitled to request any Revolving Credit Borrowing if
the Interest Period requested with respect thereto would end after the
Revolving Credit Maturity Date.
(e) The Borrower may refinance all or any part of any Revolving Credit
Borrowing with a Revolving Credit Borrowing of the same or a different
Type, subject to the conditions and limitations set forth in this Agree-
ment. Any Revolving Credit Borrowing or part thereof so refinanced shall be
deemed to be repaid or prepaid in accordance with Section 2.04 or 2.12, as
applicable, with the proceeds of a new Revolving Credit Borrowing, and the
proceeds of the new Revolving Credit Borrowing, to the extent they do not
exceed the principal amount of the Revolving Credit Borrowing being
refinanced, shall not be paid by the Lenders to the Administrative Agent or
by the Administrative Agent to the Borrower pursuant to paragraph (c)
above.
(f) If a Fronting Bank has not received from the Borrower the payment
required by Section 3.05(a) within two hours after the Borrower shall have
received notice from such Fronting Bank that payment of a draft presented
under any Letter of Credit will be made or, if the Borrower shall have
received such notice later than 10:00 a.m., New York City time, on any
Business Day, not later than 10:00 a.m., New York City time, on the
immediately following Business Day, as provided in Section 3.05(a), such
Fronting Bank will promptly notify the Administrative Agent of the LC
Disbursement and the Administrative Agent will promptly notify each
Participating Lender of such LC Disbursement and its Applicable Percentage
thereof. Each Participating Lender will pay to the Administrative Agent not
later than 4:00 p.m., New York City time, on such date (or, if the
Participating Lenders shall have received such notice later than 2:00 p.m.,
New York City time, on such date, not later than 10:00 a.m., New York City
time, on the immediately following Business Day) an amount equal to such
Participating Lender's Applicable Percentage of such LC Disbursement (it
being understood that such amount shall constitute an ABR Revolving Loan of
such Participating Lender), and the Administrative Agent will promptly pay
such amount to such Fronting Bank. The Administrative Agent will promptly
remit to each Participating Lender its Applicable Percentage of any amounts
<PAGE>
25
subsequently received by the Administrative Agent from the Borrower in
respect of such LC Disbursement. If any Lender shall not have made its
Applicable Percentage of such LC Disbursement available to such Fronting
Bank as provided above, such Lender agrees to pay interest on such amount,
for each day from and including the date such amount is required to be paid
in accordance with this subsection to but excluding the date an amount
equal to such amount is paid to the Administrative Agent for prompt payment
to such Fronting Bank at, for the first such day, the Federal Funds
Effective Rate, and for each day thereafter, the Alternate Base Rate.
(g) If the Primary Fronting Bank has not received from the Borrower
the payment required by Section 3.05(b) by 1:00 p.m., New York City time,
on the stated maturity date of any Bankers' Acceptance (or if such stated
maturity date falls on a day that is not a Business Day, on the next
succeeding Business Day), as provided in Section 3.05(b), the Primary
Fronting Bank will promptly notify the Administrative Agent of the
BA Disbursement and the Administrative Agent will promptly notify each
Participating Lender of such BA Disbursement and its Applicable Percentage.
Each Participating Lender will pay to the Administrative Agent not later
than 4:00 p.m., New York City time, on such date (or, if the Participating
Lenders shall have received such notice later than 2:00 p.m., New York City
time, on such date, not later than 10:00 a.m., New York City time, on the
immediately following Business Day) an amount equal to such Participating
Lender's Applicable Percentage of such BA Disbursement (it being understood
that such amount shall constitute an ABR Revolving Loan of such
Participating Lender), and the Administrative Agent will promptly pay such
amount to the Primary Fronting Bank. The Administrative Agent will promptly
remit to each Participating Lender its Applicable Percentage of any amounts
subsequently received by the Administrative Agent from the Borrower in
respect of such BA Disbursement. If any Lender shall not have made its
Applicable Percentage of such BA Disbursement available to the Primary
Fronting Bank as provided above, such Lender agrees to pay interest on such
amount, for each day from and including the date such amount is required to
be paid in accordance with this subsection to but excluding the date an
amount equal to such amount is paid to the Administrative Agent for prompt
payment to the Primary Fronting Bank at, for the first such day, the
Federal Funds Effective Rate, and for each day thereafter, the Alternate
Base Rate.
(h) Notwithstanding any other provision of this Agreement, all
Borrowings made on the Restatement Date and during the period ending
30 days thereafter shall be made as (i) Eurodollar Borrowings with Interest
Periods of one month's duration or (ii) ABR Borrowings.
SECTION 2.03. Notice of Borrowings. The Borrower shall give the
Administrative Agent written or telecopy notice (or telephone notice
promptly confirmed in writing or by telecopy) (a) in the case of a Euro-
dollar Borrowing, not later than 11:00 a.m., New York City time, three
Business Days before a proposed borrowing and (b) in the case of an ABR
Borrowing, not later than 12:00 noon, New York City time, one Business Day
before a proposed borrowing. Such notice shall be irrevocable and shall in
each case refer to this Agreement and specify (a) whether the Borrowing
then being requested is to be a Term Borrowing or a Revolving Credit
Borrowing, and whether such Borrowing is to be a Eurodollar Borrowing or an
ABR Borrowing; (b) the date of such Borrowing (which shall be a Business
Day) and the amount thereof; and (c) if such Borrowing is to be a Euro-
dollar Borrowing, the Interest Period with respect thereto. If no election
as to the Type of Borrowing is specified in any such notice, then the
requested Borrowing shall be an ABR Borrowing. If no Interest Period with
respect to any Eurodollar Borrowing is specified in any such notice, then
the Borrower shall be deemed to have selected an Interest Period of one
month's duration. If the Borrower shall not have given notice in accordance
with this Section 2.03 of its election to refinance a Revolving Credit
Borrowing prior to the end of the Interest Period in effect for such
Borrowing (unless such Borrowing is repaid at the end of such Interest
Period), then the Borrower shall be deemed to have given notice of an
election to refinance
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26
such Borrowing with an ABR Borrowing. The Administrative Agent shall
promptly advise the Lenders of any notice given pursuant to this
Section 2.03 and of each Lender's portion of the requested Borrowing.
SECTION 2.04. Notes; Repayment of Loans. The Revolving Loans made by
each Lender having a Revolving Credit Commitment, the Term Loans made by
each Lender having a Term Loan Commitment and the Swingline Loans made by
the Swingline Lenders, shall be evidenced by a Revolving Credit Note, a
Term Note and a Swingline Note, respectively, duly executed on behalf of
the Borrower, dated the Restatement Date, in substantially the form
attached hereto as Exhibits A-1, A-2 and A-3, respectively, with the blanks
appropriately filled, (a) payable in the case of each Lender to the order
of such Lender or registered assigns in a principal amount equal to (i) the
Revolving Credit Commitment of such Lender, in the case of its Revolving
Credit Note or (ii) the Term Loan Commitment of such Lender, in the case of
its Term Note, and (b) payable in the case of each Swingline Lender to the
order of such Swingline Lender in the principal amount of such Swingline
Lender's Swingline Commitment Percentage of $30,000,000, in the case of its
Swingline Note. The outstanding principal balance of each Loan or Swingline
Loan, as evidenced by such a Note, shall be payable (a) in the case of a
Revolving Loan or Swingline Loan, on the last day of the Interest Period
applicable to such Loan and on the Revolving Credit Maturity Date and
(b) in the case of a Term Loan, as provided in Section 2.11(a)(i). Each
Note shall bear interest from and including the Restatement Date on the
outstanding principal balance thereof as set forth in Section 2.06. Each
Lender and each Swingline Lender shall, and each hereby is, authorized by
the Borrower to, endorse on the schedule attached to each Note delivered to
it (or on a continuation of such schedule attached to such Note and made a
part thereof), or otherwise to record in its internal records, an appro-
priate notation evidencing the date and amount of each Loan from such
Lender, or Swingline Loan from such Swingline Lender, each payment and pre-
payment of principal of any such Loan or Swingline Loan, each payment of
interest on any such Loan or Swingline Loan and the other information
provided for on such schedule; provided, however, that the failure of any
Lender or either Swingline Lender to make such a notation or any error
therein shall not affect the obligation of the Borrower to repay the Loans
made by such Lender, or the Swingline Loans made by such Swingline Lender,
in accordance with the terms of this Agreement and the applicable Notes.
SECTION 2.05. Fees. (a) The Borrower agrees to pay to each Lender,
through the Administrative Agent, on the Restatement Date and on the second
Business Day following the last day of March, June, September and December
in each year and on each date on which any of the Commitments of such
Lender shall expire or be terminated as provided herein, a commitment fee
(a "Commitment Fee") at a rate per annum equal to the Applicable Rate
Percentage from time to time in effect on the average daily unused amount
of the Commitments of such Lender during the preceding quarter (or other
period commencing with the Restatement Date, as applicable, or ending with
the date on which any of such Commitments of such Lender shall expire or be
terminated). The Commitment Fee due to each Lender shall commence to accrue
from and including the Restatement Date and shall cease to accrue on, but
excluding, the date on which such Commitments of such Lender shall expire
or be terminated as provided herein. For purposes of calculating Commitment
Fees, any portion of the Revolving Credit Commitments unavailable due to
(i) outstanding Swingline Loans shall be deemed to be unused amounts of the
Commitments and (ii) the face amount of outstanding Letters of Credit and
Bankers' Acceptances shall be deemed to be used amounts. All Commitment
Fees shall be computed on the basis of the actual number of days elapsed in
a year of 360 days.
(b) The Borrower agrees to pay to the Administrative Agent, for its
own account, administration fees (the "Administrative Fees") at the time
and in the amounts agreed upon in the fee
<PAGE>
27
letter agreement dated April 5, 1993, between the Borrower and the Managing
Agents, as modified by the fee letter agreement dated October 31, 1995,
between the Borrower and the Managing Agents.
(c) The Borrower agrees to pay to the Administrative Agent, for
payment to the Managing Agents and the other Lenders (to the extent
applicable), on the Restatement Date the fees specified in the fee letter
agreement dated October 31, 1995, between the Borrower and the Managing
Agents, and the Administrative Agent shall pay to each Lender on the
Restatement Date that portion of such fees as is owing to such Lender.
(d) The Borrower agrees to pay to each Fronting Bank, for its own
account, the fees specified in Section 3.09.
(e) All Fees (other than the fees payable to the Fronting Banks under
Section 3.09) shall be paid on the dates due, in immediately available
funds, to the Administrative Agent for distribution, if and as appropriate,
among the Lenders. Once paid, none of the Fees shall be refundable under
any circumstances (other than corrections of error in payment).
SECTION 2.06. Interest on Loans. (a) Subject to the provisions of
Section 2.07, the Loans comprising each ABR Borrowing shall bear interest
(computed on the basis of the actual number of days elapsed over a year of
365 or 366 days, as the case may be, when the Alternate Base Rate is
determined by reference to the Prime Rate and over a year of 360 days at
all other times) at a rate per annum equal to the Alternate Base Rate.
Swingline Loans shall bear interest at the rate applicable to ABR Loans.
(b) Subject to the provisions of Section 2.07, the Loans comprising
each Eurodollar Borrowing shall bear interest (computed on the basis of the
actual number of days elapsed over a year of 360 days) at a rate per annum
equal to the Adjusted LIBO Rate for the Interest Period in effect for such
Borrowing plus the LIBOR Spread in effect on the first day of such Interest
Period.
(c) Interest on each Loan and each Swingline Loan shall be payable on
the Interest Payment Dates applicable to such Loan or Swingline Loan, as
the case may be, except as otherwise provided in this Agreement. The LIBOR
Spread for each Interest Period or day within an Interest Period, as the
case may be, shall be determined by the Administrative Agent, and such
determination shall be presumptively correct absent manifest error.
SECTION 2.07. Default Interest. If the Borrower shall default in the
payment of the principal of or interest on any Loan or Swingline Loan or
any other amount becoming due hereunder or under any Security Document, by
acceleration or otherwise, the Borrower shall on demand from time to time
pay interest, to the extent permitted by law, on such defaulted amount up
to (but not including) the date of actual payment (after as well as before
judgment) at a rate per annum (the "Default Rate") (computed on the basis
of the actual number of days elapsed over a year of 360 days) equal to
(a) in the case of any ABR Loan, any Swingline Loan or any other amount,
the rate that would be applicable under Section 2.06 to a Term Loan that is
an ABR Loan, plus 2% per annum, and (b) in the case of any Eurodollar Loan,
the rate that would be applicable under Section 2.06 to a Term Loan that is
a Eurodollar Loan, plus 2% per annum.
SECTION 2.08. Alternate Rate of Interest. In the event, and on each
occasion, that on the day two Business Days prior to the commencement of
any Interest Period for a Eurodollar Borrowing the Administrative Agent
shall have determined that dollar deposits in the principal amounts of the
Loans
<PAGE>
28
comprising such Borrowing are not generally available in the London
interbank market, or that the rates at which such dollar deposits are being
offered will not adequately and fairly reflect the cost to at least 20% of
the Lenders of making or maintaining their Eurodollar Loans during such
Interest Period, or that reasonable means do not exist for ascertaining the
Adjusted LIBO Rate, the Administrative Agent shall, as soon as practicable
thereafter, give written or telecopy notice of such determination to the
Borrower and the Lenders. In the event of any such determination, any
request by the Borrower for a Eurodollar Borrowing pursuant to Section 2.03
or 2.10 shall, until the Administrative Agent shall have advised the
Borrower and the Lenders that the circumstances giving rise to such notice
no longer exist (which the Administrative Agent shall be required promptly
to do upon such circumstances ceasing to exist), be deemed to be a request
for an ABR Borrowing. Each determination by the Administrative Agent
hereunder shall be conclusive absent manifest error.
SECTION 2.09. Termination, Reduction and Extension of Commitments. (a)
The Term Loan Commitments shall be automatically terminated at 5:00 p.m.,
New York City time, on the Restatement Date. The Revolving Credit
Commitments and the LC/BA Commitment shall be automatically terminated at
5:00 p.m., New York City time, on the Revolving Credit Maturity Date and
the LC/BA Maturity Date, respectively.
(b) Upon at least three Business Days' prior irrevocable written or
telecopy notice to the Administrative Agent, the Borrower may at any time
in whole permanently terminate, or from time to time in part permanently
reduce, the Commitments; provided, however, that (i) each partial reduction
of the Commitments shall be in an integral multiple of $1,000,000 and in a
minimum principal amount of $5,000,000 and (ii) the Borrower shall not be
permitted to terminate or reduce the Revolving Credit Commitments if, as
the result of such termination or reduction, (A) the LC/BA Commitment would
exceed the aggregate remaining Revolving Credit Commitments or (B) the
Revolving Credit Utilization would exceed the aggregate remaining Revolving
Credit Commitments. The LC/BA Commitment may be voluntarily terminated or
reduced by the Borrower as provided in Section 3.08.
(c) The Revolving Credit Commitments shall be permanently reduced by
the amount of any mandatory prepayments applied to Swingline Loans or
Revolving Credit Borrowings pursuant to clause (ii) of Section 2.13(c).
(d) Each reduction in the Commitments hereunder shall be made ratably
among the applicable Lenders in accordance with their respective applicable
Commitments. The Borrower shall pay to the Administrative Agent for the
account of the applicable Lenders, on the date of each termination or
reduction, the Commitment Fees on the amount of the Commitments so termi-
nated or reduced accrued to, but excluding, the date of such termination or
reduction.
(e) Nothing in this Section 2.09 shall prejudice any rights that the
Borrower may have against any Lender that fails to lend as required
hereunder prior to the date of termination of any Commitment.
SECTION 2.10. Conversion and Continuation of Term Borrowings. The
Borrower shall have the right at any time upon prior irrevocable notice to
the Administrative Agent (i) not later than 12:00 noon, New York City time,
one Business Day prior to conversion, to convert any Eurodollar Term
Borrowing into an ABR Term Borrowing, (ii) not later than 11:00 a.m., New
York City time, three Business Days prior to conversion or continuation, to
convert any ABR Term Borrowing into a Eurodollar Term Borrowing or to
continue any Eurodollar Term Borrowing as a Eurodollar Term Borrowing for
an additional Interest Period and (iii) not later than 11:00 a.m., New York
City time,
<PAGE>
29
three Business Days prior to conversion, to convert the Interest Period
with respect to any Eurodollar Term Borrowing to another permissible
Interest Period, subject in each case to the following:
(a) each conversion or continuation shall be made pro rata among
the Lenders in accordance with the respective principal amounts of the
Loans comprising the converted or continued Term Borrowing;
(b) if less than all the outstanding principal amount of any Term
Borrowing shall be converted or continued, the aggregate principal
amount of such Term Borrowing converted or continued shall be an
integral multiple of $1,000,000 and not less than $5,000,000;
(c) each conversion shall be effected by each Lender by applying
the proceeds of the new Term Loan of such Lender resulting from such
conversion to the Term Loan (or portion thereof) of such Lender being
converted, and accrued interest on a Term Loan (or portion thereof)
being converted shall be paid by the Borrower at the time of
conversion;
(d) if any Eurodollar Term Borrowing is converted at a time other
than the end of the Interest Period applicable thereto, the Borrower
shall pay, upon demand, any amounts due to the Lenders pursuant to
Section 2.16;
(e) any portion of a Term Borrowing maturing or required to be
repaid in less than one month may not be converted into or continued
as a Eurodollar Term Borrowing;
(f) any portion of a Eurodollar Term Borrowing that cannot be
converted into or continued as a Eurodollar Term Borrowing by reason
of subparagraph (e) above shall be automatically converted at the end
of the Interest Period in effect for such Borrowing into an ABR Term
Borrowing; and
(g) no Interest Period may be selected for any Eurodollar Term
Borrowing that would end later than a Term Loan Repayment Date
occurring on or after the first day of such Interest Period if, after
giving effect to such selection, the aggregate outstanding amount of
(i) the Eurodollar Term Borrowings with Interest Periods ending on or
prior to such Term Loan Repayment Date and (ii) ABR Term Borrowings
would not be at least equal to the principal amount of Term Borrowings
to be paid on such Term Loan Repayment Date.
Each notice pursuant to this Section 2.10 shall be irrevocable and
shall refer to this Agreement and specify (i) the identity and amount of
the Term Borrowing that the Borrower requests be converted or continued,
(ii) whether such Term Borrowing is to be converted to or continued as a
Eurodollar Term Borrowing or an ABR Term Borrowing, (iii) if such notice
requests a conversion, the date of such conversion (which shall be a
Business Day) and (iv) if such Term Borrowing is to be converted to or
continued as a Eurodollar Term Borrowing, the Interest Period with respect
thereto. If no Interest Period is specified in any such notice with respect
to any conversion to or continuation as a Eurodollar Term Borrowing, the
Borrower shall be deemed to have selected an Interest Period of one month's
duration. The Administrative Agent shall advise the other Lenders of any
notice given pursuant to this Section 2.10 and of each Lender's portion of
any converted or continued Term Borrowing. If the Borrower shall not have
given notice in accordance with this Section 2.10 to continue any Term
Borrowing into a subsequent Interest Period (and shall not otherwise have
given notice in accordance with this Section 2.10 to convert such Term
Borrowing), such Term Borrowing shall, at the end of the Interest Period
<PAGE>
30
applicable thereto (unless repaid pursuant to the terms hereof),
automatically be continued into a new Interest Period as an ABR Term
Borrowing.
SECTION 2.11. Repayment of Term Borrowings. (a) (i) The Borrower shall
pay to the Administrative Agent, for the account of the Lenders, on the
Business Day next succeeding the dates set forth below (each such date
being a "Term Loan Repayment Date"), a principal amount of the Term Loans
(such amount, as adjusted from time to time pursuant to Sections 2.12(b)
and 2.13(h), being called the "Term Loan Repayment Amount") equal to the
amount set forth below for such date, together in each case with accrued
and unpaid interest on the principal amount to be paid to but excluding the
date of such payment:
Date Amount
---- ------
February 3, 1996 20,000,000
May 4, 1996 10,000,000
August 3, 1996 10,000,000
November 2, 1996 10,000,000
February 1, 1997 20,000,000
May 3, 1997 10,000,000
August 2, 1997 10,000,000
November 1, 1997 10,000,000
January 31, 1998 20,000,000
May 2, 1998 10,000,000
August 1, 1998 10,000,000
October 31, 1998 10,000,000
January 30, 1999 20,000,000
May 1, 1999 10,000,000
July 31, 1999 10,000,000
October 30, 1999 10,000,000
January 29, 2000 20,000,000
April 29, 2000 10,000,000
July 29, 2000 10,000,000
Term Loan Maturity Date 10,000,000
On each Term Loan Repayment Date, the Administrative Agent shall apply the
Term Loan Repayment Amount paid to the Administrative Agent to pay the Term
Loans.
(b) To the extent not previously paid, all Term Loans shall be due and
payable on the Term Loan Maturity Date, together with accrued and unpaid
interest on the principal amount to be paid to but excluding the date of
payment.
(c) All repayments pursuant to this Section 2.11 shall be subject to
Section 2.16, but shall otherwise be without premium or penalty.
SECTION 2.12. Optional Prepayments. (a) The Borrower shall have the
right at any time and from time to time to prepay any Borrowing in whole or
in part, upon written or telecopy notice (or telephone notice promptly
confirmed by written or telecopy notice) delivered to the Administrative
Agent (i) at least three Business Days prior to the date designated for
such prepayment, in the case of any prepayment of a Eurodollar Borrowing,
or (ii) by 11:00 a.m., New York City time, on the date
<PAGE>
31
designated for such prepayment in the case of any prepayment of an ABR
Borrowing; provided, however, that each partial payment shall be in an
amount that is an integral multiple of $1,000,000 and not less than
$10,000,000.
(b) Optional prepayments of Term Loans made by the Borrower pursuant
to paragraph (a) above shall (i) first, be applied in the order of maturity
against the scheduled installments of principal of Term Loans due on Term
Loan Repayment Dates occurring during the twelve-month period commencing on
the date of such prepayment and (ii) second, be applied pro rata against
the remaining scheduled installments of principal due in respect of Term
Loans under Section 2.11(a)(i).
(c) Each notice of prepayment shall specify the amount to be prepaid,
the prepayment date, whether the related prepayment relates to a Revolving
Credit Borrowing or a Term Borrowing and the principal amount of each
Revolving Credit Borrowing (or portion thereof) to be prepaid or of each
Term Borrowing (or portion thereof) to be prepaid, shall be irrevocable and
shall commit the Borrower to prepay such obligations by the amount
specified therein on the date specified therein. All prepayments under this
Section 2.12 shall be accompanied by accrued interest on the principal
amount being prepaid to but excluding the date of the payment.
(d) No optional prepayment of Term Loans made by the Borrower pursuant
to this Section 2.12 shall reduce the Borrower's obligation to make
mandatory prepayments pursuant to paragraph (b) of Section 2.13.
SECTION 2.13. Mandatory Prepayments. (a) On the date of any
termination or reduction of the Revolving Credit Commitments pursuant to
Section 2.09, the Borrower shall pay or prepay so much of the then-
outstanding Swingline Loans and the then-outstanding Revolving Credit Bor-
rowings as shall be necessary in order that (i) the aggregate principal
amount of the Swingline Loans and Revolving Loans outstanding at such time
will not exceed (ii) the aggregate Revolving Credit Commitments (after
giving effect to such termination or reduction and after giving effect to
each deemed reduction to the Revolving Credit Commitments in connection
with the making of a Swingline Loan) less the aggregate LC/BA Exposure at
such time.
(b) In the event and on each occasion that a Prepayment Event occurs,
the Borrower shall substantially simultaneously with (and in any event not
later than the Business Day next following) the occurrence of such Pre-
payment Event, apply an amount equal to 100% of the Net Proceeds therefrom
to prepay outstanding Loans and Swingline Loans in accordance with Sec-
tion 2.13(c).
(c) Mandatory prepayments of outstanding obligations under this
Agreement made by the Borrower pursuant to paragraph (b) above (i) first,
shall be applied pro rata against the remaining scheduled installments of
principal due in respect of Term Loans under Section 2.11(a)(i) and
(ii) second, shall be applied to prepay Swingline Loans and then Revolving
Credit Borrowings.
(d) During (i) the period commencing on the Restatement Date and
ending on the first anniversary thereof and (ii) each 12-month period
thereafter, the Borrower shall repay Revolving Loans and Swingline Loans in
an amount necessary to cause the aggregate principal amount of outstanding
Revolving Loans and Swingline Loans to be less than or equal to
$300,000,000 for a period of 30 consecutive days.
(e) The Borrower shall deliver to the Administrative Agent, (i) at the
time of each prepayment required under paragraph (b) of this Section 2.13,
a certificate signed by a Financial Officer of the Bor-
<PAGE>
32
rower setting forth in reasonable detail the calculation of the amount of
such prepayment and (ii) at least three Business Days prior to the time of
each prepayment required under this Section 2.13 (if known at such time), a
notice of such prepayment. Each required notice of prepayment shall specify
the prepayment date, the Type of each Loan being prepaid and the principal
amount of each Loan or Swingline Loan (or portion thereof) to be prepaid,
shall be irrevocable and shall commit the Borrower to prepay such Loans by
the amount stated therein on the date stated therein. All prepayments of
Borrowings and Swingline Loans under this Section 2.13 shall be subject to
Section 2.16, but shall otherwise be without premium or penalty. All pre-
payments of Borrowings and Swingline Loans under this Section 2.13 shall be
accompanied by accrued interest on the principal amount being prepaid to
but excluding the date of payment.
(f) Net Proceeds and such other amounts to be applied pursuant to this
Section 2.13 to the prepayment of Term Loans and Revolving Credit Loans
shall be applied, as applicable, first to reduce outstanding ABR Term Loans
and ABR Revolving Credit Loans. Any amounts remaining after each such
application shall, at the option of the Borrower, be applied to prepay
Eurodollar Term Loans or Eurodollar Revolving Credit Loans, as the case may
be, immediately and/or shall be deposited in the Prepayment Account (as
defined below). The Administrative Agent shall apply any cash deposited in
the Prepayment Account (i) allocable to Term Loans to prepay Eurodollar
Term Loans and (ii) allocable to Revolving Credit Loans to prepay Euro-
dollar Revolving Credit Loans, in each case on the last day of their
respective Interest Periods (or, at the direction of the Borrower, on any
earlier date) until all outstanding Term Loans or Revolving Credit Loans,
as the case may be, have been prepaid or until all the allocable cash on
deposit with respect to such Loans has been exhausted. For purposes of this
Agreement, the term "Prepayment Account" shall mean an account established
by the Borrower with the Administrative Agent and over which the
Administrative Agent shall have exclusive dominion and control, including
the exclusive right of withdrawal for application in accordance with this
paragraph (h). The Administrative Agent will, at the request of the
Borrower, invest amounts on deposit in the Prepayment Account in Permitted
Investments maturing prior to the last day of the applicable Interest
Periods of the Eurodollar Term Borrowings or Eurodollar Revolving Credit
Borrowings to be prepaid, as the case may be; provided, however, that
(i) the Administrative Agent shall not be required to make any investment
that, in its sole judgment, would require or cause the Administrative Agent
to be in, or would result in any, violation of any law, statute, rule or
regulation and (ii) the Administrative Agent shall have no obligation to
invest amounts on deposit in the Prepayment Account if a Default or Event
of Default shall have occurred and be continuing. The Borrower shall indem-
nify the Administrative Agent for any losses relating to the investments so
that the amount available to prepay Eurodollar Borrowings on the last day
of the applicable Interest Periods is not less than the amount that would
have been available had no investments been made pursuant thereto. Other
than any interest earned on such investments, the Prepayment Account shall
not bear interest. Interest or profits, if any, on such investments shall
be deposited in the Prepayment Account and reinvested as specified above.
If the maturity of the Loans has been accelerated pursuant to Article VIII,
the Administrative Agent may, in its sole discretion, apply all amounts on
deposit in the Prepayment Account to satisfy any of the Obligations. The
Borrower hereby grants to the Administrative Agent, for its benefit and the
benefit of the Fronting Banks, the Swingline Lenders and the Lenders, to
secure the Obligations a security interest in the Prepayment Account.
SECTION 2.14. Reserve Requirements; Change in Circumstances; Increased
Costs. (a) Notwithstanding any other provision herein, if after the date of
this Agreement any change in applicable law or regulation or in the
interpretation or administration thereof by any governmental authority
charged with the interpretation or administration thereof (whether or not
having the force of law) shall change the basis of taxation of payments to
any Lender or either Swingline Lender or Fronting Bank of the
<PAGE>
33
principal of or interest on any Eurodollar Loan made by such Lender or any
Letter of Credit or Bankers' Acceptance reimbursement obligations, Fees or
other amounts payable hereunder (other than changes in respect of income
and franchise taxes imposed on such Lender, Swingline Lender or Fronting
Bank by the jurisdiction in which such Lender, Swingline Lender or Fronting
Bank is organized or has its principal office or by any political
subdivision or taxing authority thereof or therein), or shall impose,
modify or deem applicable any reserve, special deposit or similar
requirement against assets of, deposits with or for the account of or
credit extended by such Lender, Swingline Lender or Fronting Bank (except
any such reserve requirement that is reflected in the Adjusted LIBO Rate or
in the Alternate Base Rate) or shall impose on such Lender, Swingline
Lender or Fronting Bank or the London interbank market any other condition
affecting this Agreement or Eurodollar Loans made by such Lender, and the
result of any of the foregoing shall be to increase the cost to such Lender
of making or maintaining any Eurodollar Loan or to reduce the amount of any
sum received or receivable by such Lender, Swingline Lender or Fronting
Bank hereunder or under the Notes (whether of principal, interest or other-
wise) by an amount deemed by such Lender, Swingline Lender or Fronting Bank
to be material, then the Borrower will pay to such Lender, Swingline Lender
or Fronting Bank following receipt of a certificate of such Lender,
Swingline Lender or Fronting Bank to such effect in accordance with
Section 2.14(d) such additional amount or amounts as will compensate such
Lender, Swingline Lender or Fronting Bank on an after-tax basis for such
additional costs incurred or reduction suffered.
(b) If any Lender or either Swingline Lender or Fronting Bank shall
have determined that the applicability of any law, rule, regulation,
agreement or guideline adopted pursuant to or arising out of the July 1988
report of the Basle Committee on Banking Regulations and Supervisory Prac-
tices entitled "International Convergence of Capital Measurement and
Capital Standards", or the adoption after the date hereof of any other law,
rule, regulation, agreement or guideline regarding capital adequacy, or any
change in any of the foregoing or in the interpretation or administration
of any of the foregoing by any governmental authority, central bank or
comparable agency charged with the interpretation or administration
thereof, or compliance by any Lender (or any lending office of such Lender)
or either Swingline Lender or Fronting Bank or any Lender's or either
Swingline Lender's or Fronting Bank's holding company with any request or
directive regarding capital adequacy issued under any law, rule, regulation
or guideline (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect
of reducing the rate of return on such Lender's, Swingline Lender's or
Fronting Bank's capital or on the capital of such Lender's, Swingline
Lender's or Fronting Bank's holding company, if any, as a consequence of
this Agreement or the Loans made by such Lender, the Swingline Loans made
by such Swingline Lender or the Letters of Credit or the Bankers'
Acceptances issued by such Fronting Bank pursuant hereto to a level below
that which such Lender, Swingline Lender or Fronting Bank or such Lender's,
Swingline Lender's or Fronting Bank's holding company could have achieved
but for such applicability, adoption, change or compliance (taking into
consideration such Lender's, Swingline Lender's or Fronting Bank's policies
and the policies of such Lender's, Swingline Lender's or Fronting Bank's
holding company with respect to capital adequacy) by an amount deemed by
such Lender, Swingline Lender or Fronting Bank to be material, then from
time to time the Borrower shall pay to such Lender, Swingline Lender or
Fronting Bank following receipt of a certificate of such Lender, Swingline
Lender or Fronting Bank to such effect in accordance with Section 2.14(d)
such additional amount or amounts as will compensate such Lender, Swingline
Lender or Fronting Bank or such Lender's, such Swingline Lender's or
Fronting Bank's holding company on an after-tax basis for any such
reduction suffered. Notwithstanding any other provision in this
paragraph (b), none of any Lender, either Swingline Lender or either
Fronting Bank shall be entitled to demand compensation pursuant to this
paragraph (b) if it shall not be the general practice of such Lender,
Swingline Lender or Fronting Bank, as applicable, to demand such compensa-
tion in similar circumstances under comparable provisions of other
comparable credit agreements.
<PAGE>
34
(c) The Borrower agrees that, in the event that any Bankers'
Acceptance originated (or to be originated) shall not, in the reasonable
opinion of the Managing Agents, meet all requirements for "eligible"
bankers' acceptances (as determined in accordance with paragraph 7 of
Section 13 of the Federal Reserve Act (12 U.S.C. Sec.372)), the Borrower
shall, upon demand by the Managing Agents, pay to the Administrative Agent
for the account of the Participating Lenders such additional amount or
amounts sufficient to compensate the Participating Lenders for any
increased costs resulting therefrom (including costs resulting from any
reserve requirement, premium liability to the Federal Deposit Insurance
Corporation or a higher discount rate).
(d) A certificate of each Lender, Swingline Lender or Fronting Bank
setting forth such amount or amounts as shall be necessary to compensate
such Lender, Swingline Lender or Fronting Bank or its holding company as
specified in paragraph (a), (b) or (c) above, as the case may be, and
setting forth in reasonable detail an explanation of the basis of
requesting such compensation in accordance with paragraph (a), (b) or (c)
above, including calculations in reasonable detail, shall be delivered to
the Borrower and shall be conclusive absent manifest error. The Borrower
shall pay each Lender, Swingline Lender or Fronting Bank the amount shown
as due on any such certificate delivered by it within 10 days after its
receipt of the same.
(e) Failure on the part of any Lender or either Swingline Lender or
Fronting Bank to demand compensation for any increased costs or reduction
in amounts received or receivable or reduction in return on capital with
respect to any period shall not constitute a waiver of such Lender's,
Swingline Lender's or Fronting Bank's right to demand compensation with
respect to such period or any other period, except that none of any Lender,
either Swingline Lender or Fronting Bank shall be entitled to compensation
under this Section 2.14 for any costs incurred or reduction suffered with
respect to any date unless such Lender, Swingline Lender or Fronting Bank,
as applicable, shall have notified the Borrower that it will demand
compensation for such costs or reductions under paragraph (d) above, not
more than six months after the later of (i) such date and (ii) the date on
which such Lender, Swingline Lender or Fronting Bank, as applicable, shall
have become aware of such costs or reductions. The protection of this
Section 2.14 shall be available to each Lender, Swingline Lender or
Fronting Bank regardless of any possible contention of the invalidity or
inapplicability of the law, rule, regulation, guideline or other change or
condition that shall have occurred or been imposed.
(f) Each Lender, Fronting Bank and Swingline Lender will, at the
request of the Borrower, designate a different lending office if such
designation (i) will avoid the need for, or minimize the amount of, any
compensation to which such Lender is entitled pursuant to this Section 2.14
and (ii) will not, in the sole judgment of such Lender, be otherwise
disadvantageous to such Lender.
(g) Without prejudice to the survival of any other provision of this
Agreement, the provisions of this Section 2.14 shall survive any
termination of this Agreement.
SECTION 2.15. Change in Legality. (a) Notwithstanding any other
provision herein, if after the date hereof any change in any law or
regulation or in the interpretation thereof by any governmental authority
charged with the administration or interpretation thereof shall make it
unlawful for any Lender to make or maintain any Eurodollar Loan or to give
effect to its obligations as contemplated hereby with respect to any
Eurodollar Loan, then, by written notice to the Borrower and to the
Administrative Agent, such Lender may:
(i) declare that Eurodollar Loans will not thereafter be made by
such Lender hereunder, whereupon any request by the Borrower for a
Eurodollar Borrowing shall, as to such
<PAGE>
35
Lender only, be deemed a request for an ABR Loan unless such
declaration shall be subsequently withdrawn; and
(ii) require that all outstanding Eurodollar Loans made by it be
converted to ABR Loans, in which event all such Eurodollar Loans shall
be automatically converted to ABR Loans as of the effective date of
such notice as provided in paragraph (b) below.
In the event any Lender shall exercise its rights under subparagraph (i) or
(ii) above, all payments and prepayments of principal that would otherwise
have been applied to repay the Eurodollar Loans that would have been made
by such Lender or the converted Eurodollar Loans of such Lender shall
instead be applied to repay the ABR Loans made by such Lender in lieu of,
or resulting from the conversion of, such Eurodollar Loans.
(b) For purposes of this Section 2.15, a notice to the Borrower by any
Lender shall be effective as to each Eurodollar Loan, if lawful, on the
last day of the Interest Period currently applicable to such Eurodollar
Loan; in all other cases such notice shall be effective on the date of
receipt by the Borrower.
SECTION 2.16. Indemnity. The Borrower shall indemnify each Lender
against any loss or expense that such Lender may sustain or incur as a
consequence of (a) any failure by the Borrower to fulfill on the date of
any Borrowing hereunder the applicable conditions set forth in Article V,
(b) any failure by the Borrower to borrow or to refinance, convert or
continue any Loan hereunder after irrevocable notice of such borrowing,
refinancing, conversion or continuation has been given pursuant to
Section 2.03 or 2.10, (c) any payment, prepayment or conversion of a Euro-
dollar Loan required by any other provision of this Agreement or otherwise
(other than pursuant to Section 2.15) made or deemed made on a date other
than the last day of the Interest Period applicable thereto, (d) any
default in payment or prepayment of the principal amount of any Loan or any
part thereof or interest accrued thereon, as and when due and payable (at
the due date thereof, whether by scheduled maturity, acceleration,
irrevocable notice of prepayment or otherwise) or (e) the occurrence of any
Event of Default, including, in each such case, any loss or reasonable
expense sustained or incurred or to be sustained or incurred in liquidating
or employing deposits from third parties acquired to effect or maintain
such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable
expense shall be equal to the sum of (a) such Lender's actual costs and
expenses incurred (other than any lost profits) in connection with, or by
reason of, any of the foregoing events and (b) an amount equal to the
excess, if any, as reasonably determined by such Lender of (i) its cost of
obtaining the funds for the Loan being paid, prepaid, converted or not
borrowed, converted or continued (assumed to be the Adjusted LIBO Rate
applicable thereto) for the period from and including the date of such
payment, prepayment, conversion or failure to borrow, convert or continue
to but excluding the last day of the Interest Period for such Loan (or, in
the case of a failure to borrow, convert or continue, the Interest Period
for such Loan that would have commenced on the date of such failure) over
(ii) the amount of interest (as reasonably determined by such Lender) that
would be realized by such Lender in reemploying the funds so paid, prepaid,
converted or not borrowed, converted or continued for such period or
Interest Period, as the case may be. A certificate of any Lender setting
forth any amount or amounts, including calculations in reasonable detail,
that such Lender is entitled to receive pursuant to this Section 2.16 shall
be delivered to the Borrower and shall be conclusive absent manifest error.
Without prejudice to the survival of any other provision of this Agreement,
the provisions of this Section 2.16 shall survive any termination of this
Agreement.
SECTION 2.17. Pro Rata Treatment. (a) Except as required under
Section 2.15, each Borrowing, each payment or prepayment of principal of
any Borrowing, each payment of interest on the
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36
Loans, each payment of the Commitment Fees, each payment of the LC/BA Fees,
each reduction of the Term Loan Commitments or the Revolving Credit
Commitments and each refinancing of any Borrowing with, conversion of any
Borrowing to or continuation of any Borrowing as a Borrowing of any Type
shall be allocated pro rata among the Lenders in accordance with their
respective applicable Commitments (or, if such Commitments shall have
expired or been terminated, in accordance with the respective principal
amounts of their outstanding Loans). Each Lender agrees that in computing
such Lender's portion of any Borrowing to be made hereunder, the
Administrative Agent may, in its discretion, round each Lender's percentage
of such Borrowing, computed in accordance with Section 2.01, to the next
higher or lower whole dollar amount.
(b) Notwithstanding any other provisions of this Agreement and the
Security Documents, if at any time the Administrative Agent (or the
Collateral Agent) receives any amounts under the Mortgage in respect of the
Mortgaged Property located in Florida (which Mortgage omits as a secured
obligation the Revolving Loans and all other amounts due in respect
thereof), then such amounts shall not be applied to the payment of
outstanding obligations in respect of the Revolving Loans.
It is the
intent of the Lenders, however, that each of the Lenders shall share in the
aggregate proceeds of the Collateral on a pro rata basis as provided in
paragraph (a) above. Accordingly, if the proceeds in respect of the above-
described Florida Mortgage are not allocated to outstanding obligations in
respect of the Revolving Loans due to their omission as secured obligations
under such Mortgage, the Administrative Agent shall, to the extent it deems
necessary, allocate and reallocate the proceeds of the other Collateral to
ensure that each Lender receives its pro rata share of the proceeds of all
the Collateral. If after giving effect to the allocations described in the
preceding sentence any Lender shall have received less than its pro rata
share of the aggregate proceeds of all the Collateral due to the exclusion
of the Revolving Loans as secured obligations under the above-described
Florida Mortgage, each Lender that received more than its pro rata share of
the aggregate proceeds of all the Collateral agrees to deliver to the
Administrative Agent, for reallocation to the Lenders that received less
than their pro rata share of the proceeds of all the Collateral, the excess
of the aggregate amount received by such Lender in respect of the proceeds
of all the Collateral over the amount that would otherwise have been such
Lender's pro rata share of the proceeds of all the Collateral had such
Mortgage included the Revolving Loans as a secured obligation.
SECTION 2.18. Sharing of Setoffs. Each Lender agrees that if it shall,
through the exercise of a right of banker's lien, setoff or counterclaim
against the Borrower, or pursuant to a secured claim under Section 506 of
Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, obtain payment (voluntary or involuntary) in respect of
any Loan or Loans or LC/BA Exposure as a result of which the unpaid
principal portion of its Loans or its LC/BA Exposure shall be
proportionately less than the unpaid principal portion of the Loans of any
other Lender or any other Lender's LC/BA Exposure, such Lender shall be
deemed simultaneously to have purchased from such other Lender at face
value, and shall promptly pay to such other Lender the purchase price for,
a participation in the Loans of such other Lender or the LC/BA Exposure of
such other Lender, so that the aggregate unpaid principal amount of the
Loans, LC/BA Exposure and participations in Loans and LC/BA Exposure held
by each Lender shall be in the same proportion to the aggregate unpaid
principal amount of all Loans and LC/BA Exposure then outstanding as the
principal amount of such Lender's Loans and LC/BA Exposure prior to such
exercise of banker's lien, setoff or counterclaim or other event was to the
principal amount of all Loans and LC/BA Exposure outstanding prior to such
exercise of banker's lien, setoff or counterclaim or other event; provided,
however, that, if any such purchase or purchases or adjustments shall be
made pursuant to this Section 2.18 and the payment giving rise thereto
shall thereafter be recovered, such purchase or purchases or adjustments
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37
shall be rescinded to the extent of such recovery and the purchase price or
prices or adjustment restored without interest. The Borrower expressly
consents to the foregoing arrangements and agrees that any Lender holding a
participation in a Loan or LC/BA Exposure deemed to have been so purchased
may exercise any and all rights of banker's lien, setoff or counterclaim
with respect to any and all moneys owing by the Borrower to such Lender by
reason thereof as fully as if such Lender had made a Loan directly to the
Borrower in the amount of such participation.
SECTION 2.19. Payments. (a) Except as provided in Sections 2.05(d) and
3.05(a) and (b), the Borrower shall make each payment (including principal
of or interest on any Loan or Swingline Loan or any Fees or other amounts)
hereunder and under any other Loan Document not later than 12:00 noon, New
York City time, on the date when due in dollars. Each such payment (other
than (i) the payments specified in Sections 3.05(a) and (b) and
Section 3.09, which shall be paid directly to the applicable Fronting Bank
and (ii) principal of and interest on Swingline Loans, which shall be paid
directly to the Swingline Lenders) shall be made to the Administrative
Agent at its office at 270 Park Avenue, New York, New York. Payments made
directly to the Fronting Banks shall be made to such account of the
applicable Fronting Bank as such Fronting Bank shall specify by notice to
the Borrower. Payments made directly to the Swingline Lenders shall be made
to the applicable Swingline Lender in the manner specified in such
Swingline Lender's Swingline Note. Any payments received by the
Administrative Agent, either Fronting Bank or either Swingline Lender after
the specified time for receipt of such payment shall be deemed to have been
received on the next Business Day. The Administrative Agent shall
distribute to the applicable Lenders all payments received by the
Administrative Agent for their respective accounts, promptly following
receipt thereof.
(b) Whenever any payment (including principal of or interest on any
Borrowing or any Fees or other amounts) hereunder or under any other Loan
Document shall become due, or otherwise would occur, on a day that is not a
Business Day, such payment may be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the
computation of interest or Fees, if applicable.
SECTION 2.20. Taxes. (a) Any and all payments by the Borrower
hereunder shall be made, in accordance with Section 2.19, free and clear of
and without deduction for any and all current or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding taxes imposed on the net income of the
Administrative Agent, either Fronting Bank or Swingline Lender or any
Lender (or any transferee or assignee thereof, including a participation
holder (any such entity being called a "Transferee")) and franchise taxes
imposed on the Administrative Agent, either Fronting Bank or Swingline
Lender or any Lender (or Transferee) by the United States or any
jurisdiction under the laws of which the Administrative Agent, such
Fronting Bank, such Swingline Lender or any such Lender (or Transferee) is
organized or has its principal office or lending office or any political
subdivision or taxing authority thereof or therein (all such nonexcluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities
being hereinafter referred to as "Taxes"). If any Taxes are required to be
deducted from or in respect of any sum payable hereunder to any Lender (or
any Transferee), the Administrative Agent or either Swingline Lender or
Fronting Bank, (i) the sum payable shall be increased by the amount
necessary so that after making all required deductions (including
deductions applicable to additional sums payable under this Section 2.20)
such Lender (or Transferee), the Administrative Agent or such Swingline
Lender or Fronting Bank (as the case may be) shall receive an amount equal
to the sum it would have received had no such deductions been made,
(ii) the Borrower shall make such deductions and (iii) the Borrower shall
pay the full amount deducted to the relevant taxing authority or other
Governmental Authority in accordance with applicable law; provided,
however, that no Transferee of any Lender shall be entitled to receive any
greater payment under
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38
this paragraph (a) than such Lender would have been entitled to receive
with respect to the rights assigned, participated or otherwise transferred
unless (x) such assignment, participation or transfer shall have been made
at a time when the circumstances (including a Change of Law as defined in
paragraph 2.20(f) below) giving rise to such greater payment did not exist
or had not yet occurred or (y) such assignment, participation or transfer
shall have been at the request of the Borrower.
(b) In addition, the Borrower agrees to pay any current or future
stamp, intangible or documentary taxes or any other excise or property
taxes, charges or similar levies (including, without limitation, mortgage
recording taxes and similar fees) that arise from any payment made
hereunder or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement, any Assignment and Acceptance entered into
at the request of the Borrower or any other Loan Document (hereinafter
referred to as "Other Taxes").
(c) The Borrower will indemnify each Lender (or Transferee), the
Administrative Agent and each Swingline Lender and Fronting Bank for the
full amount of Taxes and Other Taxes (including any Taxes or Other Taxes on
amounts payable under this Section 2.20) paid by such Lender (or
Transferee), the Administrative Agent or such Swingline Lender or Fronting
Bank, as the case may be, and any liability (including penalties, interest
and reasonable expenses) arising therefrom or with respect thereto, whether
or not such Taxes or Other Taxes were correctly or legally asserted by the
relevant taxing authority or other Governmental Authority; provided,
however, that the Borrower shall not indemnify any Lender (or Transferee),
the Administrative Agent or either Swingline Lender or Fronting Bank for
Taxes, penalties, additions to tax, interest and expenses arising as a
result of its own wilful misconduct or gross negligence. Such indemnifi-
cation shall be made within 30 days after the date any Lender (or
Transferee), the Administrative Agent, either Swingline Lender or Fronting
Bank, as the case may be, makes written demand therefor and provides the
Borrower with either a copy of any assessment thereof from the relevant
taxing authority (deleting any confidential information contained therein)
or proof of payment of a tax for which the Borrower is liable hereunder. If
a Lender (or Transferee), the Administrative Agent or a Swingline Lender or
a Fronting Bank shall become aware that it is entitled to receive a refund
(including interest and penalties, if any) in respect of Taxes or Other
Taxes as to which it has been indemnified by the Borrower pursuant to this
Section 2.20, it shall promptly notify in writing the Borrower of the
availability of such refund (including interest and penalties, if any) and
shall, within 30 days after receipt of a request by the Borrower, apply for
such refund at the Borrower's expense. If any Lender (or Transferee), the
Administrative Agent or either Swingline Lender or Fronting Bank receives a
refund (including interest and penalties, if any) in respect of any Taxes
or Other Taxes as to which it has been indemnified by the Borrower pursuant
to this Section 2.20, it shall promptly notify the Borrower of such refund
and shall, within 15 days of receipt, repay such refund (to the extent of
amounts that have been paid by the Borrower under this Section 2.20 with
respect to such refund and not previously reimbursed) to the Borrower, net
of all reasonable out-of-pocket expenses of such Lender, the Administrative
Agent or such Swingline Lender or Fronting Bank and without any interest
(other than the interest, if any, included in such refund), provided that
the Borrower, upon the request of such Lender (or Transferee), the
Administrative Agent or such Swingline Lender or Fronting Bank, agrees to
return such refund (plus penalties, interest or other charges) to such
Lender (or Transferee), the Administrative Agent or such Swingline Lender
or Fronting Bank in the event such Lender (or Transferee), the
Administrative Agent, such Swingline Lender or Fronting Bank is required to
repay such refund. The Borrower shall return such refund within 30 days
after such Lender (or Transferee), the Administrative Agent or such
Swingline Lender or Fronting Bank provides the Borrower with a copy of the
notice or assessment from the relevant taxing authority (deleting any
confidential information contained therein) requiring repayment of such
refund. Nothing contained in this paragraph (c) shall require any Lender
(or Transferee), the Administrative Agent or either Swingline
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39
Lender or Fronting Bank to make available any of its tax returns (or any
other information relating to its taxes that it deems to be confidential).
(d) Within 30 days after the date of any payment of Taxes or Other
Taxes withheld by the Borrower in respect of any payment to any Lender (or
Transferee), the Administrative Agent or either Swingline Lender or
Fronting Bank, the Borrower will furnish to the Administrative Agent, at
its address referred to in Section 10.01, the original or a certified copy
of a receipt evidencing payment thereof or other evidence reasonably
satisfactory to such Lender (or Transferee), the Administrative Agent or
such Swingline Lender or Fronting Bank, as the case may be.
(e) Without prejudice to the survival of any other agreement contained
herein, the agreements and obligations contained in this Section 2.20 shall
survive the payment in full of the principal of and interest on all Loans
made under any Loan Document until the expiration of the relevant statute
of limitations.
(f) Each of the Administrative Agent, the Fronting Banks, the
Swingline Lenders and any Lender (or Transferee) that is not incorporated
or otherwise formed under the laws of the United States of America or a
state thereof (a "Non-U.S. Person") agrees that, on or prior to the
Restatement Date or, if later, the date it becomes a Lender (or
Transferee), the Administrative Agent, a Fronting Bank or a Swingline
Lender hereunder, it will deliver to each of the Borrower and the
Administrative Agent one duly completed copy of United States Internal
Revenue Service Form 1001 or 4224, or, in the case of Lenders (or
Transferee) exempt from United States Federal withholding tax pursuant to
Sections 871(h) or 881(c) of the Code, Form W-8, or any successor
applicable form (a "Form 1001, 4224 or W-8"), as the case may be,
certifying in each case that such Lender (or Transferee), the
Administrative Agent or such Fronting Bank or Swingline Lender is entitled
to receive payments hereunder payable to it without deduction or
withholding of any United States Federal income taxes, or subject to a
reduced rate thereof. Each of the Administrative Agent, either Fronting
Bank or Swingline Lender or any Lender (or Transferee) that delivers to the
Borrower and the Administrative Agent a Form 1001, 4224 or W-8 pursuant to
the immediately preceding sentence further undertakes to deliver to the
Borrower and the Administrative Agent further copies of such Form 1001,
4224 or W-8, as the case may be, or other manner of certification
reasonably satisfactory to the Borrower on or before the date that any such
form or certification expires or becomes obsolete or of the occurrence of
any event requiring a change in the most recent form or certification
previously delivered by it to the Borrower or the Administrative Agent, and
such extensions or renewals thereof as may reasonably be requested by the
Borrower or the Administrative Agent, certifying that such Administrative
Agent, Fronting Bank, Swingline Lender or Lender (or Transferee), as the
case may be, is entitled to receive payments hereunder without deduction or
withholding of any United States Federal income taxes, or subject to a
reduced rate thereof. If at any time there has occurred, on or prior to the
date on which any delivery of such Form 1001, 4224 or W-8, as the case may
be, would otherwise be required, any change in law, rule, regulation,
treaty, convention or directive, or any change in the interpretation or
application of any thereof ("Change of Law"), that renders all such forms
inapplicable or which would prevent such Administrative Agent, Fronting
Bank, Swingline Lender or Lender (or Transferee), as the case may be, from
duly completing and delivering any such form or certification with respect
to it, such Administrative Agent, Fronting Bank, Swingline Lender or Lender
(or Transferee), as the case may be, shall advise the Borrower that it
shall be subject to withholding of United States Federal income tax at the
full statutory rate. A Non-U.S. Person shall be required to furnish a
Form 1001, 4224 or W-8 only if it is entitled to claim an exemption from or
a reduced rate of withholding. Each of the Administrative Agent, the
Fronting Banks, the Swingline Lenders and any Lender that is a Non-U.S.
Person and that is a party hereto as of the Restatement Date hereby
represents and warrants that, as of the Restatement Date, payments made to
it hereunder are
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40
exempt from withholding of United States Federal income taxes (i) because
such payments are effectively connected with a United States trade or
business conducted by such Non-U.S. Person; (ii) pursuant to the terms of
an income tax treaty between the United States and such Non-U.S. Person's
country of residence; or (iii) because such payments are portfolio interest
exempt pursuant to Sections 871(h) or 881(c) of the Code. Notwithstanding
any provision of paragraph (a) above to the contrary, the Borrower shall
not have any obligation to pay any Taxes or Other Taxes or to indemnify any
Lender (or Transferee), the Administrative Agent, or either Swingline
Lender or Fronting Bank for such Taxes or Other Taxes pursuant to
Section 2.20 to the extent that such Taxes or Other Taxes result from
(i) the failure of any Lender (or Transferee), the Administrative Agent, or
either Fronting Bank or Swingline Bank to comply with its obligations
pursuant to this paragraph (f) or (ii) any representation made on
Form 1001, 4224 or W-8 or successor applicable form or certification by the
Lender (or Transferee), the Administrative Agent, the Fronting Bank, or the
Swingline Bank incurring such Taxes or Other Taxes proving to have been
incorrect, false or misleading in any material respect when so made or
deemed to be made.
(g) Any of the Administrative Agent, a Fronting Bank, a Swingline
Lender or any Lender (or Transferee) claiming any additional amounts
payable pursuant to this Section 2.20 shall use reasonable efforts
(consistent with legal and regulatory restrictions) (including reasonable
efforts to change the jurisdiction of its applicable lending office) to
avoid the need for or reduce the amount of any such additional amounts that
may thereafter accrue, provided that such efforts would not, in the sole
determination of such Lender (or Transferee), Administrative Agent,
Fronting Bank or Swingline Lender, as the case may be, be otherwise
disadvantageous to such Lender (or Transferee), the Administrative Agent or
such Fronting Bank or Swingline Lender.
(h) In the event any Lender (or Transferee) changes its applicable
lending office as provided in Section 2.14(f), such Lender (or Transferee)
shall not be entitled to receive any greater payment under this
Section 2.20 than such Lender (or Transferee) would have been entitled to
receive had such change not occurred, unless (i) such greater payment
arises as a result of a Change in Law occurring after the date of such
change in applicable lending office or (ii) such change in applicable
lending office shall have been made at the request of the Borrower.
SECTION 2.21. Assignment of Commitments under Certain Circumstances.
In the event that any Lender shall have delivered a notice or certificate
pursuant to Section 2.14, or the Borrower shall be required to make
additional payments to any Lender under Section 2.20 (or would be required
to make such additional payments with respect to the interest payment that
would be made on the next succeeding Interest Payment Date), the Borrower
shall have the right, but not the obligation, at its own expense, upon
notice to such Lender and the Managing Agents, to replace such Lender with
an assignee (in accordance with and subject to the restrictions contained
in Section 10.04(b)), and such Lender hereby agrees to transfer and assign
without recourse (in accordance with and subject to the restrictions
contained in Section 10.04(b)) all its interests, rights and obligations
under this Agreement to such assignee; provided, however, that (a) no such
assignment shall conflict with any law or any rule, regulation or order of
any Governmental Authority, (b) such assignee shall pay to the affected
Lender in immediately available funds on the date of such assignment the
principal of the Loans made by such Lender hereunder and (c) the Borrower
shall pay to the affected Lender in immediately available funds on the date
of such assignment the interest accrued to the date of payment on the Loans
made by such Lender hereunder and all other amounts accrued for such
Lender's account or owed to it hereunder.
SECTION 2.22. Swingline Loans. (a) On the terms and subject to the
conditions and relying upon the representations and warranties herein set
forth, each Swingline Lender agrees severally and not
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41
jointly, at any time and from time to time from and including the
Restatement Date to but excluding the earlier of the Revolving Credit
Maturity Date and the termination of the Revolving Credit Commitments, in
accordance with the terms hereof, to make Swingline Loans to the Borrower
in an aggregate principal amount at any time outstanding not to exceed such
Swingline Lender's Swingline Commitment Percentage of the lesser of
(i) $30,000,000 and (ii) the difference between (A) the aggregate Revolving
Credit Commitments, as the same may have been reduced from time to time
pursuant to Section 2.09, at such time and (B) the sum of (I) the aggregate
principal amount of Revolving Loans outstanding at such time and (II) the
LC/BA Exposure at such time. Each Swingline Loan will be made by the
Swingline Lenders ratably in accordance with their respective Swingline
Commitment Percentages (it being understood that neither Swingline Lender
shall be responsible for the failure of the other Swingline Lender to make
any Swingline Loan required to be made by such other Swingline Lender).
Each Swingline Loan shall be in a principal amount that is an integral
multiple of $500,000. Each Swingline Lender shall make its portion of each
Swingline Loan available to the Borrower by means of a credit to the
general deposit account of the Borrower with such Swingline Lender by
3:00 p.m. on the date such Swingline Loan is requested to be made pursuant
to paragraph (b) below. Within the limits set forth in the first sentence
of this paragraph, the Borrower may borrow, pay or prepay and reborrow
Swingline Loans on or after the Restatement Date and prior to the Revolving
Credit Maturity Date on the terms and subject to the conditions and
limitations set forth herein.
(b) The Borrower shall give the Administrative Agent telephonic,
written or telecopy notice (in the case of telephonic notice, such notice
shall be promptly confirmed by telecopy) not later than 12:00 noon,
New York City time, on the day of a proposed borrowing. Such notice shall
be delivered on a Business Day, shall be irrevocable and shall refer to
this Agreement and shall specify the requested date (which shall be a
Business Day) and amount of such Swingline Loan. The Administrative Agent
shall promptly advise the Swingline Lenders of any notice received from the
Borrower pursuant to this paragraph (b).
(c) The Swingline Lenders may by written or telecopy notice given to
the Administrative Agent not later than 10:00 a.m., New York City time, on
any Business Day require the Lenders to purchase all or any portion of the
Swingline loans outstanding. Such notice shall specify the aggregate amount
of Swingline Loans to be purchased and the Administrative Agent shall
promptly upon receipt of such notice give notice to each Lender, specifying
in such notice to each Lender such Lender's pro rata percentage (based on
the percentage that such Lender's Revolving Credit Commitment bears to the
aggregate amount of the Revolving Credit Commitments on the date of such
notice) of such Swingline Loan or Swingline Loans. Each Lender shall pay to
the Administrative Agent, not later than 2:00 p.m., New York City time, on
the date of such notice, such Lender's pro rata percentage (determined as
aforesaid) of the principal amount of such Swingline Loan or Swingline
Loans. Each such payment shall for all purposes hereunder be deemed to be
an ABR Revolving Loan (it being understood that (i) each Lender's
obligation to make such payment is absolute and unconditional and shall not
be affected by any event or circumstance whatsoever, including the
occurrence of any Default or Event of Default hereunder or the failure of
any condition precedent set forth in Article V to be satisfied, and
(ii) each such payment shall be made without any offset, abatement, with-
holding or reduction whatsoever). The Administrative Agent shall promptly
advise the Borrower of any notice received from the Swingline Lenders
pursuant to this paragraph (c).
(d) The Borrower may prepay any Swingline Loan in whole or in part at
any time without premium or penalty, provided that the Borrower shall have
given the Administrative Agent written or telecopy notice (or telephone
notice promptly confirmed in writing or by telecopy) of such prepayment not
later than 11:30 a.m., New York City time, on the Business Day designated
by the Borrower for
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42
such prepayment. Each payment of principal of or interest on or any other
amount in respect of Swingline Loans shall be allocated, as between the
Swingline Lenders, pro rata in accordance with their respective Swingline
Commitment Percentages.
ARTICLE III
Letters of Credit; Bankers' Acceptances
SECTION 3.01. Issuance of Letters of Credit. (a) Each Fronting Bank
agrees, upon the receipt of an appropriately completed and properly
authorized Letter of Credit Application of such Fronting Bank, in a form
and containing terms and conditions that are reasonably acceptable to such
Fronting Bank and consistent with the terms hereof, and on the terms and
subject to the conditions hereinafter set forth, to issue Letters of Credit
for the account of the Borrower, at any time and from time to time on and
after the Restatement Date until the earlier of (i) the LC/BA Maturity Date
and (ii) the termination of the LC/BA Commitment in accordance with the
terms hereof; provided, however, that (A) the IRB Fronting Bank shall not
issue any Letter of Credit other than an IRB Letter of Credit and (B) any
Letter of Credit shall be issued only if, and each request by the Borrower
for the issuance of any Letter of Credit shall be deemed a representation
and warranty of the Borrower that, immediately following the issuance of
any such Letter of Credit, (I) the LC/BA Exposure at such time shall not
exceed the LC/BA Commitment in effect at such time, (II) the Revolving
Credit Utilization at such time shall not exceed the aggregate Revolving
Credit Commitments at such time, (III) the Standby LC Exposure at such time
shall not exceed $105,000,000 and (IV) the sum of (x) the Trade LC Exposure
at such time and (y) the BA Exposure at such time shall not exceed
$50,000,000.
(b) No Letter of Credit shall be issued with a stated expiration date
later than the earlier of (i) the close of business on the LC/BA Maturity
Date and (ii) the close of business on the date that is (x) 270 days after
the date of issuance of such Letter of Credit, in the case of a Trade
Letter of Credit, (y) 12 months after the date of issuance of such Letter
of Credit, in the case of a Standby Letter of Credit (other than an IRB
Letter of Credit) and (z) 12 months and five days after the date of
issuance of such Letter of Credit, in the case of an IRB Letter of Credit.
Each Letter of Credit shall provide for payments of drawings in dollars.
(c) Each Trade Letter of Credit shall, among other things, provide for
the payment of sight drafts when presented for honor thereunder, or of time
drafts with a maturity date occurring not later than the earlier of (i) 120
days after the presentation thereof and (ii) the LC/BA Maturity Date, in
each case in accordance with the terms thereof and when accompanied by the
required documents or when such documents are presented to the Fronting
Bank.
(d) Each Standby Letter of Credit may, in the absolute discretion of
the Fronting Bank that issued such Standby Letter of Credit, include a
provision whereby such Standby Letter of Credit shall be renewed
automatically for additional consecutive periods of 12 months or less (but
not beyond the LC/BA Maturity Date) unless such Fronting Bank notifies the
beneficiary thereof at least 60 days prior to the then-applicable expiry
date that such Standby Letter of Credit will not be renewed.
(e) The Borrower may request the extension or renewal of a Standby
Letter of Credit that is not automatically renewed in accordance with the
terms contained therein by giving written notice to the Fronting Bank that
issued such Standby Letter of Credit at least three Business Days prior to
the then-current expiry date of such Standby Letter of Credit (provided
that such Fronting Bank may
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43
accommodate requests on shorter notice in its sole discretion). If no
Default or Event of Default has occurred and is continuing, such Fronting
Bank shall promptly issue such extension or renewal; provided, however,
that such Fronting Bank shall have no obligation to extend or renew any
Standby Letter of Credit (i) for a period in excess of 12 months or (ii) to
an expiry date beyond the LC/BA Maturity Date.
(f) Each request for the issuance of a Letter of Credit shall be made
on reasonable prior electronic, written or facsimile authenticated Letter
of Credit Application from the Borrower to a Fronting Bank specifying
whether such Letter of Credit is to be a Trade Letter of Credit or a
Standby Letter of Credit (and if such Letter of Credit is to be a Standby
Letter of Credit, the date on which such Standby Letter of Credit is to be
issued), the date on which such Letter of Credit is to expire, the amount
of such Letter of Credit, the name and address of the beneficiary of such
Letter of Credit and such other information as may be necessary or
desirable to complete such Letter of Credit. The Primary Fronting Bank will
provide the Administrative Agent on the first Business Day of each week (or
on a more frequent basis if reasonably requested by the Administrative
Agent) a statement setting forth the aggregate face amount of the
Outstanding Standby Letters of Credit issued by it and the aggregate face
amount of the Outstanding Trade Letters of Credit for each day since the
end of the period covered by the prior such statement, together with such
other information regarding the Outstanding Letters of Credit as may be
reasonably requested by the Administrative Agent.
SECTION 3.02. Origination of Bankers' Acceptances. (a) The Primary
Fronting Bank agrees, on the terms and subject to the conditions set forth
herein and in any BA Document, to originate Clean Bankers' Acceptances, in
a form reasonably acceptable to the Managing Agents and the Primary
Fronting Bank, appropriately completed, at any time and from time to time
on and after the Restatement Date until the earlier of (i) the 30th day
preceding the LC/BA Maturity Date and (ii) the termination of the
LC/BA Commitment in accordance with the terms hereof; provided, however,
that any Clean Bankers' Acceptance shall be originated by the Primary
Fronting Bank only if, and each request by the Borrower for the origination
of any Clean Bankers' Acceptance shall be deemed a representation and
warranty of the Borrower that, immediately following the origination of
such Clean Bankers' Acceptance, (A) the LC/BA Exposure at such time shall
not exceed the LC/BA Commitment in effect at such time, (B) the Revolving
Credit Utilization at such time shall not exceed the aggregate Revolving
Credit Commitments at such time, (C) the BA Exposure (exclusive of BA
Exposure attributable to outstanding Trade Bankers' Acceptances) at such
time shall not exceed $25,000,000 and (D) the sum of (I) the Trade LC
Exposure at such time and (II) the BA Exposure at such time shall not
exceed $50,000,000.
(b) No Bankers' Acceptance shall be originated with a stated maturity
date later than the earlier of (i) the close of business on the LC/BA
Maturity Date and (ii) the close of business on the date that is 120 days
after the origination of such Bankers' Acceptance. Each Banker's Acceptance
shall comply with any related BA Documents and shall be executed on behalf
of the Borrower, in the case of a Clean Bankers' Acceptance, or the
beneficiary of a Trade Letter of Credit, in the case of a Trade Bankers'
Acceptance, and presented to the Primary Fronting Bank pursuant to such
procedures as are provided for in any such BA Documents or otherwise
provided or required by the Primary Fronting Bank. The stated maturity date
of each Clean Bankers' Acceptance shall be a Business Day. Notwithstanding
any other provision of this Agreement to the contrary, (i) the Primary
Fronting Bank shall not be obligated to originate any Clean Bankers'
Acceptance (A) that is not "eligible" pursuant to paragraph 7 of Section 13
of the Federal Reserve Act (12 U.S.C. Sec.372), as in effect from time to
time, (B) if the origination thereof would cause the Primary Fronting Bank
to exceed the maximum amount of outstanding bankers' acceptances permitted
by applicable law or (C) if, in the reasonable opinion of the Fronting
Bank,
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44
general conditions in the public market for re-discounting bankers'
acceptances render it economically disadvantageous to do so.
(c) To request a Clean Bankers' Acceptance, the Borrower shall hand
deliver, telex or telecopy to the Primary Fronting Bank a duly completed
Bankers' Acceptance Request not later than 10:00 a.m., New York City time,
on the requested date of the origination of such Clean Bankers' Acceptance,
which Bankers' Acceptance Request shall be accompanied by such documents as
are specified therein and in any related BA Documents. The Primary Fronting
Bank will provide the Administrative Agent on the first Business Day of
each week (or on a more frequent basis if reasonably requested by the
Administrative Agent) a statement setting forth the aggregate face amount
of the Outstanding Clean Bankers' Acceptances and the aggregate face amount
of the Outstanding Trade Bankers' Acceptances for each day since the end of
the period covered by the prior such statement, together with such other
information regarding the Outstanding Bankers' Acceptances as may be
reasonably requested by the Administrative Agent.
(d) Upon the origination by the Primary Fronting Bank of a Clean
Bankers' Acceptance, the Primary Fronting Bank shall discount such Clean
Bankers' Acceptance by deducting from the face amount thereof a discount
equal to the sum of (i) the BA Discount Rate then in effect and (ii) an
origination fee in an amount equal to 3/16 of 1% per annum (computed on the
basis of the actual number of days until payment under such Clean Bankers'
Acceptance is due over a year of 360 days) on the face amount of such Clean
Bankers' Acceptance, and the Primary Fronting Bank shall make the net
amount available in immediately available funds to the Borrower. The
Primary Fronting Bank shall retain for its account from the amount so
deducted the origination fee referred in clause (ii) above. The Primary
Fronting Bank may retain or re-discount, at its election, any Clean
Bankers' Acceptance and the amount received by the Primary Fronting Bank
upon payment thereof at maturity or the amounts received upon re-
discounting shall be solely for the account of the Primary Fronting Bank.
(e) Promptly after it shall have ascertained that any time draft and
any accompanying documents presented under a Trade Letter of Credit appear
to be in conformity with the terms and conditions of such Trade Letter of
Credit, the Primary Fronting Bank shall accept such draft and thereby
originate a Trade Bankers' Acceptance. The Primary Fronting Bank may
discount any Trade Bankers' Acceptance at the request of the holder thereof
and the amount received by the Primary Fronting Bank upon discounting shall
be solely for the account of the Primary Fronting Bank.
SECTION 3.03. Participations; Unconditional Obligations. (a) By the
issuance of a Letter of Credit or the origination of a Bankers' Acceptance
and without any further action on the part of the Fronting Bank that issued
such Letter of Credit or originated such Bankers' Acceptance or the
Participating Lenders in respect thereof, such Fronting Bank hereby grants
to each Participating Lender, and each Participating Lender hereby agrees
to acquire from such Fronting Bank, a participation in such Letter of
Credit or Bankers' Acceptance, as the case may be, equal to such
Participating Lender's Applicable Percentage of the face amount of such
Letter of Credit or Bankers' Acceptance, as the case may be, effective upon
the issuance of such Letter of Credit or Bankers' Acceptance. In
consideration and in furtherance of the foregoing, each Participating
Lender hereby absolutely and unconditionally agrees to pay to the
Administrative Agent, on behalf of the applicable Fronting Bank, in
accordance with Section 2.02(f), in the case of participations in Letters
of Credit, and Section 2.02(g), in the case of participations in Bankers'
Acceptances, such Participating Lender's Applicable Percentage of each LC
Disbursement or BA Disbursement, as the case may be, made by such Fronting
Bank; provided, however, that the Participating Lenders shall not be
obligated to make any such payment to such Fronting Bank with respect to
any wrongful payment or disbursement made under any Letter of Credit
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45
or any Bankers' Acceptance as a result of the gross negligence or wilful
misconduct of such Fronting Bank.
(b) Each Participating Lender acknowledges and agrees that its
obligation to acquire participations pursuant to paragraph (a) above in
respect of Letters of Credit and Bankers' Acceptances is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including the occurrence and continuance of an Event of Default or Default
hereunder, and that each such payment shall be made without any offset,
abatement, withholding or reduction whatsoever.
SECTION 3.04. LC/BA Fee. The Borrower agrees to pay to the
Administrative Agent for the account of the Participating Lenders for each
calendar quarter (or shorter period commencing with the date hereof or
ending with the first date on which the LC/BA Commitment shall have expired
or been terminated and there shall be no Outstanding Letters of Credit or
Outstanding Bankers' Acceptances) a fee (the "LC/BA Fee") on the average
daily amount of the aggregate Outstanding Letters of Credit and Outstanding
Bankers' Acceptances during such quarter or shorter period at a rate per
annum equal to (a) in the case of Standby Letters of Credit, the weighted
average LIBOR Spread applicable to Eurodollar Revolving Loans during such
period and (b) in the case of Trade Letters of Credit and Outstanding
Bankers' Acceptances, the weighted average LIBOR Spread applicable to
Eurodollar Revolving Loans during such period minus 3/16 of 1%. The LC/BA
Fee shall be computed on the basis of the actual number of days elapsed
over a year of 360 days. The Administrative Agent agrees to disburse to
each Participating Lender its pro rata portion of such LC/BA Fee promptly
upon receipt. The LC/BA Fee shall be paid in arrears on the last Business
Day of March, June, September and December of each year and on the LC/BA
Maturity Date (or the first date on which the LC/BA Commitment shall have
expired or been terminated and there shall be no Outstanding Letters of
Credit or Outstanding Bankers' Acceptances, if earlier), commencing on the
first such date following the Restatement Date. Once paid, the LC/BA Fee
shall not be refundable in any circumstances (other than corrections of
error in payment).
SECTION 3.05. Agreement To Repay LC Disbursements and BA
Disbursements. (a) If either Fronting Bank shall pay any draft presented
under a Letter of Credit, the Borrower shall pay to such Fronting Bank an
amount equal to the amount of such draft not later than two hours after the
Borrower shall have received notice from such Fronting Bank that payment of
such draft will be made or, if the Borrower shall have received such notice
later than 10:00 a.m., New York City time, on any Business Day, not later
than 10:00 a.m., New York City time, on the immediately following Business
Day. In the event that after the payment of any such amount to such
Fronting Bank, such Fronting Bank shall not pay, and shall no longer be
obligated to pay, such amount in respect of such draft, such Fronting Bank
shall return to the Borrower any such unpaid amount, together with interest
thereon accrued at the Federal Funds Effective Rate then in effect from and
including the date such amount was paid by the Borrower to such Fronting
Bank to but excluding the date such amount was repaid by such Fronting Bank
to the Borrower.
(b) On the stated maturity date of each Bankers' Acceptance (or if
such stated maturity date falls on a day that is not a Business Day, on the
next succeeding Business Day), the Borrower shall pay to the Primary
Fronting Bank, not later than 1:00 p.m., New York City time, an amount
equal to the face amount of such Bankers' Acceptance. In the event that,
after the payment to the Primary Fronting Bank of any such amount referred
to above, the Primary Fronting Bank shall not pay, and shall no longer be
obligated to pay, such amount in respect of such Bankers' Acceptance, the
Primary Fronting Bank shall return to the Borrower any such unpaid amount,
together with interest thereon accrued at the Federal Funds Effective Rate
then in effect from and including the date such amount was paid by the
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46
Borrower to the Primary Fronting Bank to but excluding the date such amount
was repaid by the Primary Fronting Bank to the Borrower.
(c) The Borrower's obligation to repay the Fronting Banks for LC
Disbursements and BA Disbursements made by the Fronting Banks under the
Outstanding Letters of Credit and the Outstanding Bankers' Acceptances,
respectively, shall be absolute, unconditional and irrevocable under any
and all circumstances and irrespective of:
(i) any lack of validity or enforceability of any Letter of
Credit or Bankers' Acceptance;
(ii) the existence of any claim, setoff, defense or other right
that the Borrower or any other person may at any time have against the
beneficiary under any Letter of Credit, the holder of any Bankers'
Acceptance, either Fronting Bank, the Administrative Agent, any Lender
or any other Person (other than the defense of payment in accordance
with the terms of this Agreement or a defense based on the gross
negligence or wilful misconduct of a Fronting Bank) or any other
person in connection with this Agreement or any other agreement or
transaction;
(iii) any draft or other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in
any respect or any statement therein being untrue or inaccurate in any
respect, provided that payment by a Fronting Bank under such Letter of
Credit against presentation of such draft or document shall not have
constituted gross negligence or wilful misconduct of such Fronting
Bank;
(iv) payment by a Fronting Bank under a Letter of Credit against
presentation of a draft or other document that does not comply with
the terms of such Letter of Credit, provided that such payment shall
not have constituted gross negligence or wilful misconduct of such
Fronting Bank; and
(v) any other circumstance or event whatsoever, whether or not
similar to any of the foregoing, provided that such other circumstance
or event shall not have been the result of gross negligence or wilful
misconduct of a Fronting Bank.
It is understood that in making any payment under a Letter of Credit
(i) a Fronting Bank's exclusive reliance on the documents presented to it
under such Letter of Credit as to any and all matters set forth therein,
including reliance on the amount of any draft presented under such Letter
of Credit, whether or not the amount due to the beneficiary equals the
amount of such draft and whether or not any document presented pursuant to
such Letter of Credit proves to be insufficient in any respect, if such
document on its face appears to be in order, and whether or not any other
statement or any other document presented pursuant to such Letter of Credit
proves to be forged or invalid or any statement therein proves to be
inaccurate or untrue in any respect whatsoever, and (ii) any noncompliance
in any immaterial respect of the documents presented under a Letter of
Credit with the terms thereof shall, in each case, not be deemed wilful
misconduct or gross negligence of a Fronting Bank.
SECTION 3.06. Letter of Credit Operations. Each Fronting Bank shall,
within a reasonable time after its receipt thereof, examine all documents
purporting to represent a demand for payment under an Outstanding Letter of
Credit to ascertain that the same appear on their face to be in conformity
with the terms and conditions of such Outstanding Letter of Credit. Each
Fronting Bank shall as promptly as possible give electronic or facsimile
notification or telephonic notification,
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47
promptly confirmed by electronic or facsimile notice, to the Borrower of
such demand for payment and of the determination by such Fronting Bank as
to whether such demand for payment was in conformity with such terms and
conditions, and shall as promptly as possible give prior telephonic
notification to the Borrower of the determination by such Fronting Bank as
to whether such demand for payment was in accordance with the terms and
conditions of such Outstanding Letter of Credit and whether such Fronting
Bank has made or will make a LC Disbursement thereunder, provided that the
failure to give such notice shall not relieve the Borrower of its
obligation to reimburse such Fronting Bank with respect to any such LC
Disbursement.
SECTION 3.07. Cash Collateralization. If any Event of Default shall
occur and be continuing, the Borrower shall on the Business Day it receives
notice from the Administrative Agent or the Required Lenders (or, if the
maturity of the Loans has been accelerated, Participating Lenders holding
participations in Outstanding Letters of Credit and Outstanding Bankers'
Acceptances representing greater than 50% of the aggregate undrawn amount
of all Outstanding Letters of Credit and the aggregate amount of
Outstanding Bankers' Acceptances) therefor, deposit in an account with the
Collateral Agent, for the benefit of the Participating Lenders, an amount
in cash equal to the LC/BA Exposure as of such date. Such deposit shall be
held by the Collateral Agent as collateral for the payment and performance
of the Obligations. The Collateral Agent shall have exclusive dominion and
control, including the exclusive right of withdrawal, over such account.
Other than any interest earned on the investment of such deposits in
Permitted Investments, which investments shall be made at the option and
sole discretion of the Collateral Agent, such deposits shall not bear
interest. Interest or profits, if any, on such investments shall accumulate
in such account. Moneys in such account shall (a) automatically be applied
by the Administrative Agent to reimburse the Fronting Banks on a pro rata
basis for LC Disbursements and BA Disbursements, (b) be held for the
satisfaction of the reimbursement obligations of the Borrower for the
LC/BA Exposure at such time and (c) if the maturity of the Loans has been
accelerated (but subject to the consent of Participating Lenders holding
participations in Outstanding Letters of Credit and Outstanding Bankers'
Acceptances representing greater than 50% of the aggregate undrawn amount
of all Outstanding Letters of Credit and the aggregate amount of all
Outstanding Bankers' Acceptances), be applied to satisfy the Obligations.
If the Borrower is required to provide an amount of cash collateral
hereunder as a result of the occurrence of an Event of Default, such amount
(to the extent not applied as aforesaid) shall be returned to the Borrower
within three Business Days after all Events of Default have been cured or
waived.
SECTION 3.08. Termination of LC/BA Commitment. The Borrower may
permanently terminate, or from time to time in part permanently reduce, the
LC/BA Commitment, in each case upon at least three Business Days' prior
written or facsimile notice to the Administrative Agent and the Fronting
Banks, provided that, after giving effect to such termination or reduction,
the LC/BA Commitment shall not be less than the LC/BA Exposure at such time
or greater than the available Revolving Credit Commitments at such time.
SECTION 3.09. Fronting Bank Fees. (a) The Borrower shall pay to each
Fronting Bank, for its own account, such commissions, issuance fees,
transfer fees and other fees and charges in connection with the issuance or
administration of each Letter of Credit as the Borrower and such Fronting
Bank shall agree upon.
(b) The Borrower shall pay to each Fronting Bank, for its own account,
(i) a fronting fee on the average daily aggregate maximum amount available
to be drawn (assuming compliance with all conditions to drawing) under all
Outstanding Letters of Credit issued by such Fronting Bank and (ii)
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without duplication of the amounts payable pursuant to Section 3.02(d)(ii),
an origination fee on the average daily aggregate face amount of all
Outstanding Bankers' Acceptances originated by such Fronting Bank, at the
rate of 3/16 of 1% per annum, payable in arrears on the second Business Day
following the last day of March, June, September and December of each year
and on the LC/BA Maturity Date. Such fronting and origination fees shall be
computed on the basis of the actual number of days elapsed over a year of
360 days.
SECTION 3.10. Resignation or Removal of a Fronting Bank. (a) A
Fronting Bank may resign at any time by giving 180 days' prior written
notice to the Administrative Agent, the Lenders and the Borrower, and may
be removed at any time by the Borrower by notice to such Fronting Bank, the
Administrative Agent and the Lenders. Upon any such resignation or removal,
the Borrower shall (within 180 days after such notice of resignation or
removal) either (i) appoint a Lender (with the consent of such Lender) as
successor or (ii) terminate the unutilized LC/BA Commitment; provided,
however, that, if the Borrower elects to terminate the unutilized LC/BA
Commitment, the Borrower may at any time thereafter that the Revolving
Credit Commitments are in effect reinstate the LC/BA Commitment, by notice
to the Administrative Agent and the Lenders, in connection with the
appointment of a Lender as successor Fronting Bank. Subject to
paragraph (b) below, upon the acceptance of any appointment as a Fronting
Bank hereunder by a successor Fronting Bank, such successor shall succeed
to and become vested with all the interests, rights and obligations of the
retiring Fronting Bank and the retiring Fronting Bank shall be discharged
from its obligations to issue additional Letters of Credit and originate
additional Bankers' Acceptances hereunder. At the time such removal or
resignation shall become effective, the Borrower shall pay all accrued and
unpaid fees pursuant to Section 2.05(d). The acceptance of any appointment
as a Fronting Bank hereunder by a successor Lender shall be evidenced by an
agreement entered into by such successor, in a form satisfactory to the
Borrower and the Administrative Agent, and, from and after the effective
date of such agreement, (i) such successor Lender shall have all the rights
and obligations of the previous Fronting Bank under this Agreement and the
other Loan Documents and (ii) references herein and in the other Loan
Documents to a "Fronting Bank" shall be deemed to refer to such successor
or to any previous Fronting Bank, or to such successor and all previous
Fronting Banks, as the context shall require.
(b) After the resignation or removal of a Fronting Bank hereunder, the
retiring Fronting Bank shall remain a party hereto and shall continue to
have all the rights and obligations of a Fronting Bank under this Agreement
and the other Loan Documents with respect to Letters of Credit issued by it
or Bankers' Acceptances originated by it prior to such resignation or
removal, but shall not be required to issue additional Letters of Credit or
originate additional Bankers' Acceptances.
ARTICLE IV
Representations and Warranties
The Borrower represents and warrants to each of the Lenders, the
Administrative Agent, the Managing Agents, the Swingline Lenders and the
Fronting Banks that:
SECTION 4.01. Organization; Powers. Each of the Borrower and the
Guarantors (a) is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization,
(b) has all requisite power and authority to own its property and assets
and to carry on its business as now conducted, (c) is qualified to do
business in every jurisdiction where such qualification is required by the
nature of its business, the character and location of its property,
business or
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49
customers, or the ownership or leasing of its properties, except for such
jurisdictions in which the failure so to qualify, in the aggregate, could
not reasonably be expected to have a Material Adverse Effect, and (d) has
the corporate power and authority to execute, deliver and perform its
obligations under each of the Loan Documents and each other agreement or
instrument contemplated thereby to which it is or will be a party and, in
the case of Borrower, to borrow hereunder. Each Subsidiary is a Guarantor.
SECTION 4.02. Authorization. The execution, delivery and performance
by each of the Borrower and the Guarantors of each of the Loan Documents to
which it is a party, the Borrowings hereunder, the issuance of the Letters
of Credit, the origination of the Bankers' Acceptances, the use of the
proceeds of the Loans, the Swingline Loans, the Letters of Credit and the
Bankers' Acceptances, the creation of the security interests contemplated
by the Security Documents and the other transactions contemplated by the
Loan Documents (all the foregoing, collectively, the "Transactions")
(a) have been duly authorized by all requisite corporate and, if required,
stockholder action and (b) will not (i) violate (A) any provision of law,
statute, rule or regulation, other than any law, statute, rule or
regulation, the violation of which will not result in a Material Adverse
Effect, or of the Certificate of Incorporation or other constitutive
documents or By-laws of the Borrower or any Subsidiary, (B) any order of
any Governmental Authority or (C) any provision of any material indenture,
agreement or other instrument to which the Borrower or any Subsidiary is a
party or by which any of them or any of their property is or may be bound,
(ii) constitute (alone or with notice or lapse of time or both) a default
under any such indenture, agreement or other instrument or (iii) result in
the creation or imposition of any Lien (other than any Lien created under
the Security Documents) upon or with respect to any property or assets now
owned or hereafter acquired by the Borrower or any Subsidiary.
SECTION 4.03. Enforceability. This Agreement has been duly executed
and delivered by the Borrower and constitutes, and each other Loan Document
when executed and delivered by the Borrower and each Guarantor party
thereto will constitute, a legal, valid and binding obligation of the
Borrower and the Guarantors, as applicable, enforceable against each of
them in accordance with its terms (a) except as the enforceability thereof
may be limited by bankruptcy, insolvency or similar laws affecting
creditors' rights generally and (b) subject to general principles of
equity.
SECTION 4.04. Governmental Approvals. No action, consent or approval
of, registration or filing with or any other action by any Governmental
Authority is or will be required in connection with the Transactions,
except for (a) the filing of UCC financing statements and filings with the
United States Patent and Trademark Office to perfect the security interests
that can be perfected by such filings and (b) such actions, consents,
approvals, registrations and filings as have been made or obtained and are
in full force and effect.
SECTION 4.05. Financial Statements. The Borrower has heretofore
furnished to the Lenders its consolidated balance sheets and statements of
operations, stockholders' equity and cash flows (a) as of and for the
fiscal years ended January 28, 1995, January 29, 1994, and January 30,
1993, audited by and accompanied by the opinion of KPMG Peat Marwick,
independent auditors. Such financial statements present fairly the
financial condition and results of operations of the Borrower and its
consolidated Subsidiaries as of such dates and for such periods. Such
balance sheets and the notes thereto disclose all material liabilities,
direct or contingent, of the Borrower and its consolidated Subsidiaries as
of the dates thereof. Such financial statements were prepared in accordance
with GAAP applied on a consistent basis.
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50
SECTION 4.06. No Material Adverse Change. There has been no material
adverse change in the business, assets, operations, properties, financial
condition, results of operations or prospects of the Borrower and the
Subsidiaries, taken as a whole, since January 28, 1995.
SECTION 4.07. Title to Properties; Possession Under Leases. (a) Each
of the Borrower and the Subsidiaries has good and marketable title to, or
valid leasehold interests in, all its material properties and assets,
except for minor defects in title that do not interfere in any material
respect with its ability to conduct its business as currently conducted.
All such title to, or leasehold interest in, material properties and assets
are free and clear of Liens, other than Liens expressly permitted by
Section 7.02 and Liens with respect to which the Collateral Agent has
received on or prior to the Restatement Date duly executed releases and
termination statements in connection therewith.
(b) Each of the Borrower and the Subsidiaries has complied with all
obligations under all material leases to which it is a party. Each of the
Borrower and the Subsidiaries enjoys peaceful and undisturbed possession
under all such material leases necessary in any material respect for the
operation of their respective properties and assets taken as a whole.
SECTION 4.08. Subsidiaries. Schedule 4.08 sets forth as of the
Restatement Date a list of all the Subsidiaries and the percentage
ownership interest of the Borrower and any other Subsidiary therein.
SECTION 4.09. Litigation; Compliance with Laws. (a) Except as set
forth on Schedule 4.09, there are not any actions, suits or proceedings at
law or in equity or by or before any Governmental Authority now pending or,
to the knowledge of the Borrower, threatened against or affecting the
Borrower or any Subsidiary or any business or property of any such person
(i) that involve any Loan Document or the Transactions or (ii) as to which
there is a reasonable possibility of an adverse determination and which, if
adversely determined, could reasonably be expected to, individually or in
the aggregate, result in a Material Adverse Effect.
(b) Neither the Borrower nor any of the Subsidiaries, nor any of their
respective material properties or assets, is (i) in violation of, nor will
the continued operation of their material properties and assets as
currently conducted violate, any law, rule, regulation or statute
(including any zoning, building, environmental and safety law, ordinance,
code or approval or any building permits) or any restrictions of record or
agreements affecting the Mortgaged Properties or (ii) in default with
respect to any judgment, writ, injunction, decree or order of any
Governmental Authority, where such violation or default could reasonably be
expected to result in a Material Adverse Effect. Neither the issuance of
the Letters of Credit nor the origination of the Bankers' Acceptances will
violate any applicable law or regulation or violate or be prohibited by any
judgment, writ, injunction, decree or order of any Governmental Authority.
SECTION 4.10. Agreements. Neither the Borrower nor any of the
Subsidiaries is in default under any provision of any indenture or other
agreement or instrument evidencing Indebtedness, or any other material
agreement or instrument to which it is a party or by which it or any of its
properties or assets are or may be bound, where such default could
reasonably be expected to result in a Material Adverse Effect.
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51
SECTION 4.11. Federal Reserve Regulations. (a) Neither the Borrower
nor any Subsidiary is engaged principally, or as one of its important
activities, in the business of extending credit for the purpose of
purchasing or carrying Margin Stock.
(b) No part of the proceeds of any Letter of Credit or Bankers'
Acceptance or any Loan or Swingline Loan will be used, whether directly or
indirectly, and whether immediately, incidentally or ultimately, (i) to
purchase or carry Margin Stock or to extend credit to others for the
purpose of purchasing or carrying Margin Stock or to refund indebtedness
originally incurred for such purpose or (ii) for any purpose that entails a
violation of, or is inconsistent with, the provisions of the Regulations of
the Board, including Regulation G, U or X.
SECTION 4.12. Investment Company Act; Public Utility Holding Company
Act. Neither the Borrower nor any Subsidiary (a) is an "investment company"
as defined in, or is subject to regulation under, the Investment Company
Act of 1940 or (b) is a "holding company" as defined in, or is subject to
regulation under, the Public Utility Holding Company Act of 1935.
SECTION 4.13. Use of Proceeds. The Borrower will use the Letters of
Credit and the Bankers' Acceptances and the proceeds of the Loans and any
Swingline Loans only for the purposes specified in the preamble to this
Agreement.
SECTION 4.14. Tax Returns. Each of the Borrower and the Subsidiaries
has filed or caused to be filed all Federal, state and local income and
other material tax returns required to have been filed by it or with
respect to it and has paid or caused to be paid all taxes shown to be due
and payable on such returns or on any assessments received by it or with
respect to it, except taxes that are being contested in good faith by
appropriate proceedings and for which the Borrower has set aside on its
books adequate reserves in accordance with GAAP.
SECTION 4.15. No Material Misstatements. The information provided by
or on behalf of the Borrower and contained in the Confidential Information
Memorandum (including all attachments and exhibits thereto), as supple-
mented, and as supplemented further by information heretofore provided in
writing by or on behalf of the Borrower to the Lenders and any other
materials, documents and information that the Borrower or any of its
Affiliates may have furnished to the Lenders, was (other than with respect
to information as to Persons other than the Borrower and the Subsidiaries),
as of the date of such Confidential Information Memorandum, the dates
otherwise specified therein or the dates upon which such information was
provided in writing, accurate in all material respects and, taken as a
whole, does not contain any untrue statement of a material fact or omit to
state any material fact necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading, provided
that to the extent any such information therein was based upon or
constitutes a forecast or projection, the Borrower represents only that it
acted in good faith and utilized reasonable assumptions, due and careful
consideration and the information actually known to Responsible Officers at
the time in the preparation of such information.
SECTION 4.16. Employee Benefit Plans. Each of the Borrower and its
ERISA Affiliates is in compliance in all material respects with the
applicable provisions of ERISA and the regulations thereunder. No
Reportable Event has occurred in respect of any Plan of the Borrower, any
Subsidiary or, to the Borrower's knowledge after due inquiry, any other
ERISA Affiliate, and the present value of all benefit liabilities under
each Plan (based on those assumptions used to fund such Plan) did not, as
of the last annual valuation date applicable thereto, exceed by more than
$500,000 the value of the assets of such Plan. Neither the Borrower nor any
ERISA Affiliate has incurred any Withdrawal Liability that
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52
could result in a Material Adverse Effect. Neither the Borrower nor any
ERISA Affiliate has received any notification that any Multiemployer Plan
is in reorganization or has been terminated within the meaning of Title IV
of ERISA and, to the Borrower's knowledge after due inquiry, no
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated where such reorganization or termination has resulted or could
reasonably be expected to result, through increases in the contributions
required to be made to such Plan or otherwise, in a Material Adverse
Effect.
SECTION 4.17. Environmental and Safety Matters. Except as set forth
in Schedule 4.17, the Borrower and each Subsidiary has complied in all
respects with all Federal, state, local and other statutes, ordinances,
orders, judgments, rulings and regulations relating to environmental
pollution or to environmental regulation or control or to employee health
or safety, except where the failure to do so would not reasonably be
expected to, individually or in the aggregate, result in a Material Adverse
Effect. Except as set forth in Schedule 4.17, neither the Borrower nor any
Subsidiary has received notice of any material failure so to comply. Except
as set forth in Schedule 4.17, the Borrower's and the Subsidiaries'
facilities do not manage any hazardous wastes, hazardous substances,
hazardous materials, toxic substances, toxic pollutants or substances
similarly denominated, as those terms or similar terms are used in the
Resource Conservation and Recovery Act, the Comprehensive Environmental
Response Compensation and Liability Act, as amended by the Superfund
Amendment and Reauthorization Act, the Hazardous Materials Transportation
Act, the Toxic Substance Control Act, the Clean Air Act, as amended, the
Clean Water Act, the Occupational Health and Safety Act or any other
applicable law relating to environmental pollution or employee health and
safety, in violation in any respect of any law or any regulations
promulgated pursuant thereto, except where the failure to do so would not
reasonably be expected to, individually or in the aggregate, result in a
Material Adverse Effect. Except as set forth in Schedule 4.17, the Borrower
is aware of no events, conditions or circumstances involving environmental
pollution or contamination or employee health or safety that could
reasonably be expected to result in Material Adverse Effect.
SECTION 4.18. Solvency. After giving effect to the Transactions to
occur on the Restatement Date, (a) the fair salable value of the assets of
the Borrower and the Subsidiaries, on a consolidated basis, will exceed the
amount that will be required to be paid on or in respect of the existing
debts and other liabilities (including contingent liabilities) of the
Borrower and the Subsidiaries, on a consolidated basis, as they mature,
(b) the assets of the Borrower and the Subsidiaries, on a consolidated
basis, will not constitute unreasonably small capital to carry out their
businesses as conducted or as proposed to be conducted, including the
capital needs of the Borrower and the Subsidiaries, on a consolidated basis
(taking into account the particular capital requirements of the businesses
conducted by such entities and the projected capital requirements and
capital availability of such businesses) and (c) the Borrower does not
intend to, or intend to permit any of the Subsidiaries to, and does not
believe that it or any Subsidiary will, incur debts beyond its ability to
pay such debts as they mature (taking into account the timing and amounts
of cash to be received by it or any such Subsidiary and the amounts to be
payable on or in respect of its obligations).
SECTION 4.19. Labor Agreements. Except as set forth on Schedule 4.19,
as of the Restatement Date there are no collective bargaining agreements or
other labor agreements covering any of the employees of the Borrower or any
Subsidiary.
SECTION 4.20. Security Documents. (a) The Pledge Agreement creates in
favor of the Collateral Agent, for the ratable benefit of the Secured Par-
ties, a legal, valid and enforceable security interest in the Collateral
(as defined in the Pledge Agreement) and proceeds thereof and constitutes a
fully perfected first priority Lien on, and security interest in, all
right, title and interest of the Borrower or the
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53
Guarantors party thereto, as applicable, in such Collateral and the
proceeds thereof, in each case prior and superior in right to any other
Person.
(b) The Security Agreement creates in favor of the Collateral Agent,
for the ratable benefit of the Secured Parties, a legal, valid and
enforceable security interest in the Collateral (as defined in the Security
Agreement) and proceeds thereof, and, on the basis of financing statements
in appropriate form filed in the offices specified on Schedule 4.20(b), the
Lien created under the Security Agreement constitutes a fully perfected
Lien on, and security interest in, all right, title and interest of the
Borrower and the Guarantors, as applicable, in such Collateral and the
proceeds thereof (except insofar as the perfection of a Lien on, and
security interest in, such Collateral is obtained as described in
paragraph (d) below), in each case prior and superior in right to any other
Person, other than with respect to Liens expressly permitted by Sec-
tion 7.02.
(c) The Mortgages create in favor of the Collateral Agent, for the
ratable benefit of the Secured Parties, a legal, valid and enforceable Lien
on all of Borrower's right, title and interest in and to the Mortgaged
Properties thereunder and the proceeds thereof, and, on the basis of the
Mortgages filed in the offices specified on Schedule 4.20(c), the Mortgages
constitute a fully perfected Lien on, and security interest in, all right,
title and interest of the Borrower in such Mortgaged Properties and the
proceeds thereof, in each case prior and superior in right to any other
Person, other than with respect to the rights of Persons pursuant to Liens
expressly permitted by Section 7.02.
(d) The Trademark Security Agreement creates in favor of the Collateral
Agent, for the ratable benefit of the Secured Parties, a legal, valid and
enforceable security interest in the Collateral (as defined in the Trade-
mark Security Agreement) and the proceeds thereof, and, on the basis of the
recordation of such Trademark Security Agreement with the United States
Patent and Trademark Office and the financing statements in appropriate
form filed in the offices specified on Schedule 4.20(d), the Liens created
under the Trademark Security Agreement constitute a fully perfected Lien
on, and security interest in, all right title and interest of the Borrower
in the Collateral and the proceeds thereof in which a security interest may
be perfected by filing in the United States and its territories and
possessions, in each case prior and superior in right to any other person,
other than with respect to Liens expressly permitted by Section 7.02;
provided, however, that subsequent recordings in the United States Patent
and Trademark Office may be necessary to perfect a Lien in registered
trademarks and trademark applications acquired by the Borrower after the
date hereof.
(e) As of the Restatement Date, Schedule 4.20(e) accurately sets forth
each post office box and bank account to which any customers of the
Borrower or any Subsidiary have been instructed to transmit payments on
account of goods or services purchased from the Borrower or any Subsidiary.
SECTION 4.21. Labor Matters. As of the Restatement Date, there are no
strikes, lockouts or slowdowns against the Borrower or any Subsidiary
pending or, to the Borrower's knowledge, threatened. The hours worked by
and payment made to employees of the Borrower have not been in violation of
the Fair Labor Standards Act or any other applicable Federal, state, local
or foreign law dealing with such matters, where such violations could
reasonably be expected to result in a Material Adverse Effect. The
consummation of the Transactions will not give rise to a right of
termination or right of renegotiation on the part of any union under any
collective bargaining agreement to which the Borrower or any Subsidiary is
a party or by which the Borrower or any Subsidiary is bound on the
Restatement Date.
SECTION 4.22. Location of Real Property; Location of Leased Premises.
(a) Schedule 4.22(a) sets forth completely and correctly as of the
Restatement Date all material real property owned by the
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54
Borrower or any Subsidiary, the addressees thereof and the county or
counties in which such properties are situated. The Borrower owns in fee
all the real property set forth on Schedule 4.22(a).
(b) Schedule 4.22(b) lists completely and correctly as of the
Restatement Date all material real property leased by the Borrower or any
Subsidiary, the addresses thereof and the county or counties in which such
properties are situated. The Borrower has a valid lease in all the real
property set forth on Schedule 4.22(b).
ARTICLE V
Conditions of Lending and Issuance of Letters of Credit
The obligations of the Lenders to make Loans hereunder, the obligation
of the Swingline Lenders to make Swingline Loans hereunder and the
obligation of the Fronting Banks to issue any Letter of Credit or originate
any Clean Bankers' Acceptance (each, a "Credit Event") hereunder are
subject to the satisfaction of the following conditions:
SECTION 5.01. All Credit Events. On the date of each Credit Event,
other than any Revolving Credit Loan made pursuant to Section 2.02(f) and
(g):
(a) The Administrative Agent and, where applicable, the Primary
Fronting Bank, the IRB Fronting Bank or the Swingline Lenders shall
have received a notice of such Credit Event as required by Sec-
tion 2.03, Section 3.01(f), Section 3.02(c) and Section 2.22(b),
respectively.
(b) The representations and warranties set forth in Article IV
hereof shall be true and correct in all material respects on and as of
the date of such Credit Event with the same effect as though made on
and as of such date, except to the extent that such representations
and warranties expressly relate to an earlier date.
(c) At the time of and immediately after such Credit Event no
Event of Default or Default shall have occurred and be continuing.
Each Credit Event shall be deemed to constitute a representation and
warranty by the Borrower on the date of such Credit Event as to the matters
specified in paragraphs (b) and (c) of this Section 5.01. Neither
(a) continuations and conversions of outstanding Term Borrowings pursuant
to Section 2.10 nor (b) Revolving Credit Borrowings pursuant to
Section 2.02(e) in which Revolving Credit Loans are refinanced without any
increase in the aggregate principal amount of Revolving Credit Loans
outstanding shall be deemed to be Borrowings for the purpose of this
Section 5.01.
SECTION 5.02. First Borrowing. On the Restatement Date:
(a) Each Lender and each Swingline Lender shall have received, as
applicable, a duly executed Revolving Credit Note, Term Note and
Swingline Note, in each case complying with the provisions of
Section 2.04.
(b) The Managing Agents shall have received a written opinion of
(i) Robert Lewis, Esq., Corporate Counsel of the Borrower, to the
effect set forth in Exhibit M-1 and (ii) Skadden, Arps, Slate,
Meagher & Flom, counsel for the Borrower and the Guarantors, to
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55
the effect set forth in Exhibit M-2, in each case (A) dated the
Restatement Date, (B) addressed to the Administrative Agent, the
Managing Agents, the Fronting Banks, the Lenders, the Swingline
Lenders and the Collateral Agent and (C) covering such matters inci-
dental to the Loan Documents and the Transactions as the Managing
Agents shall request. The Borrower hereby instructs each such counsel
to deliver its opinion to the Administrative Agent.
(c) All legal matters incident to this Agreement and the
Borrowings hereunder shall be satisfactory to the Lenders and their
counsel and to Cravath, Swaine & Moore, counsel for the Managing
Agents.
(d) The Managing Agents shall have received (i) a copy of the
certificate of incorporation, including all amendments thereto, of the
Borrower and each Guarantor, certified as of a recent date by the
Secretary of State of the state of its organization, and a certificate
as to the good standing of the Borrower and each Guarantor as of a
recent date, from such Secretary of State; (ii) a certificate of the
Secretary or Assistant Secretary of the Borrower and each Guarantor
dated the Restatement Date and certifying (A) that attached thereto is
a true and complete copy of the by-laws of the Borrower or such
Guarantor, as the case may be, as in effect on the Restatement Date
and at all times since a date prior to the date of the resolutions
described in clause (B) below, (B) that attached thereto is a true and
complete copy of resolutions duly adopted by the Board of Directors of
the Borrower or such Guarantor, as the case may be, authorizing the
execution, delivery and performance of this Agreement and any other
agreement to which they are a party that is reasonably required by the
Managing Agents on the Restatement Date, and that such resolutions
have not been modified, rescinded or amended and are in full force and
effect as of the Restatement Date, (C) that the certificate of
incorporation of the Borrower or such Guarantor, as the case may be,
has not been amended since the date of the last amendment thereto
shown on the certificate of good standing furnished pursuant to clause
(i) above and (D) as to the incumbency and specimen signature of each
officer executing any Loan Document or any other document delivered in
connection herewith on behalf of the Borrower or such Guarantor, as
the case may be; (iii) a certificate of another officer as to the
incumbency and specimen signature of the Secretary or Assistant
Secretary executing the certificate pursuant to (ii) above; and
(iv) such other documents as the Lenders or their counsel or Cravath,
Swaine & Moore, counsel for the Managing Agents, may reasonably
request.
(e) The Managing Agents shall have received a certificate, dated
the Restatement Date and signed by a Financial Officer of the
Borrower, confirming compliance with the conditions precedent set
forth in paragraphs (b) and (c) of Section 5.01.
(f) The Administrative Agent shall have received all Fees and
other amounts due and payable on or prior to the Restatement Date.
(g) The Collateral Agent shall have received an acknowledgement
signed by the Borrower and each of its Subsidiaries stating that:
(i) the Guarantee Agreement has been duly executed by the
Guarantors and delivered to the Collateral Agent, and is in full
force and effect;
(ii) the Indemnity, Subrogation and Contribution Agreement
has been duly executed by the Guarantors and the Collateral
Agent, and is in full force and effect;
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56
(iii) the Pledge Agreement has been duly executed by the
Borrower, the Guarantors and the Collateral Agent and is in full
force and effect, all the outstanding capital stock of each of
the Subsidiaries has been duly and validly pledged thereunder to
the Collateral Agent for the ratable benefit of the Secured
Parties and certificates representing such shares, accompanied by
stock powers endorsed in blank, have been delivered into the
actual possession of the Collateral Agent;
(iv) each of the Security Agreement, the Trademark Security
Agreement and any Lockbox Agreement in existence as of the
Restatement Date has been duly executed by the Borrower, the
Guarantors parties thereto and the Collateral Agent and is in
full force and effect, and each document (including each Uniform
Commercial Code financing statement) required by law or
reasonably requested by the Agent to be filed, registered or
recorded in order to create in favor of the Collateral Agent for
the benefit of the Secured Parties a valid and perfected first-
priority security interest in or lien on the Collateral (subject
to any Lien expressly permitted by Section 7.02) described in
each of such agreements has been delivered to the Collateral
Agent and has been duly filed, registered or recorded; and
(v) (A) each of the Security Documents, in form and
substance satisfactory to the Lenders, relating to each of the
Mortgaged Properties (including each Mortgage and each Assignment
of Leases and Rents (as defined in each Mortgage)) has been duly
executed by the parties thereto and delivered to the Collateral
Agent and is in full force and effect, (B) none of such Mortgaged
Properties is subject to any Lien other than those permitted
under Section 7.02, (C) each of such Security Documents has been
filed and recorded in the recording office as specified on
Schedule 4.20(b) (or a lender's title insurance policy, in form
and substance acceptable to the Managing Agents, insuring such
Security Document as a first lien on such Mortgaged Property
(subject to any Lien expressly permitted by Section 7.02) has
been received by the Managing Agents).
(h) The terms and conditions of any Indebtedness of the Borrower
or any Subsidiary that will remain outstanding on the Restatement Date
shall be reasonably satisfactory to the Lenders in all respects.
(i) After giving effect to the Transactions on the Restatement
Date, the Borrower shall have no Indebtedness other than
(i) Indebtedness under the Loan Documents, (ii) Indebtedness evidenced
by the 9-1/4% Senior Subordinated Notes and (iii) other liabilities
reasonably satisfactory to the Required Lenders and Indebtedness
permitted under Section 7.01.
(j) The Lenders shall be reasonably satisfied in all respects
with the tax and litigation position and the contingent tax and other
material liabilities of the Borrower and the Subsidiaries and plans of
the Borrower with respect thereto.
(k) The Managing Agents shall be reasonably satisfied as to the
amount and nature of any environmental or employee health and safety
exposures to which the Borrower or any Subsidiary may be subject and
the plans of the Borrower with respect thereto.
(l) All requisite Governmental Authorities and third parties
shall have approved or consented to the Transactions and the other
transactions contemplated hereby to the extent
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57
required, all applicable appeal periods shall have expired and there
shall be no governmental or judicial action, actual or threatened,
that has or would have a reasonable likelihood of restraining,
preventing or imposing burdensome conditions on the transactions
contemplated hereby.
(m) There shall be no litigation or administrative proceedings or
other legal or regulatory developments (including but not limited to
any governmental policy or initiative relating to healthcare), actual
or overtly threatened, that, in the reasonable judgment of the
Lenders, involve a reasonable possibility of a material adverse effect
on the business, assets, operations, condition (financial or
otherwise), liabilities, prospects or material agreements of the
Borrower or any Subsidiary or the ability of the Borrower or any
Subsidiary to perform its obligations under Loan Documents, or the
ability of the parties to consummate the Transactions or the validity
or enforceability of any of the Loan Documents or the rights, remedies
and benefits available to the Administrative Agent, the Managing
Agents, the Fronting Banks, the Swingline Lender, the Collateral Agent
and the Lenders under the Loan Documents or which would be materially
inconsistent with the assumptions underlying the projections contained
in the Confidential Information Memorandum.
(n) The Lenders shall be satisfied that the consummation of the
Transactions will not (i) violate any applicable law, statute, rule or
regulation or (ii) conflict with, or result in a default or event of
default under, (A) any indenture relating to any existing Indebtedness
of the Borrower or any Subsidiary or (B) any other material agreement
of the Borrower or any Subsidiary.
(o) The Lenders shall have received evidence satisfactory to them
that there has been no material adverse change in the condition
(financial or otherwise), operations, business, assets, liabilities,
prospects or material agreements of the Borrower and the Subsidiaries
taken as a whole since January 28, 1995.
ARTICLE VI
Affirmative Covenants
The Borrower covenants and agrees with each Lender, the Administrative
Agent and each Managing Agent, Fronting Bank and Swingline Lender that, so
long as this Agreement shall remain in effect, the LC/BA Exposure shall not
equal zero or the principal of or interest on any Loan or Swingline Loan or
any LC Disbursement, BA Disbursement, Fees or any other expenses or amounts
payable under any Loan Document shall be unpaid, unless the Required
Lenders shall otherwise consent in writing, the Borrower will, and will
cause each of the Subsidiaries (other than any Receivables Subsidiary) to:
SECTION 6.01. Existence; Businesses and Properties. (a) Do or cause to
be done all things necessary to preserve, renew and keep in full force and
effect its legal existence, except as otherwise permitted under
Section 7.05.
(b) Do or cause to be done all things necessary to preserve, renew and
keep in full force the rights, licenses, permits, trademarks, trade names,
privileges and franchises necessary or desirable in the normal conduct of
its business, except for any trademarks, trade names or franchises that are
not material to the business of the Borrower and the Subsidiaries taken as
a whole; maintain and operate such business in substantially the manner in
which it is currently conducted and operated; comply with
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58
all applicable laws, rules, regulations and statutes affecting the
Mortgaged Properties (including any zoning, building, environmental and
safety law, ordinance, code or approval or any building permits or any
restrictions of record or agreements affecting the Mortgaged Properties)
and decrees and orders of any Governmental Authority having jurisdiction
with respect thereto, except where noncompliance would not reasonably be
expected to have a material adverse effect on the value, use or operation
of any of the Mortgaged Properties; and at all times keep all property
useful and necessary in its business in good, working order and condition
to the extent required by sound business practices.
SECTION 6.02. Insurance. Keep its insurable properties adequately
insured at all times by financially sound and reputable insurers; maintain
such other insurance, to such extent and against such risks, including fire
and other risks insured against by extended coverage, as is customary with
companies of established repute in the same general area engaged in the
same or similar businesses, including public liability insurance against
claims for personal injury or death or property damage occurring upon, in,
about or in connection with the use of any properties owned, occupied or
controlled by it or the use of any products sold by it; and maintain such
other insurance as may be required by law and with respect to the Mortgaged
Properties, as set forth in the Mortgages.
SECTION 6.03. Obligations and Taxes. Pay and discharge promptly when
due all lawful taxes, assessments and governmental charges or levies
imposed upon it or upon or in respect of its property or assets, as well as
all lawful claims for labor, materials and supplies or otherwise that, if
unpaid, might give rise to a Lien upon such properties or any part thereof;
provided, however, that such payment and discharge shall not be required
with respect to any such obligation, tax, assessment, charge, levy or claim
so long as the validity or amount thereof shall be contested in good faith
by appropriate proceedings and the Borrower shall have set aside on its
books, in accordance with GAAP, adequate reserves with respect thereto and
such contest operates to suspend enforcement of a Lien and, in the case of
a Mortgaged Property, there is no material risk of forfeiture of such
property.
SECTION 6.04. Financial Statements, Reports, etc. In the case of the
Borrower, furnish to the Administrative Agent and each Lender:
(a) within 90 days after the end of each fiscal year, its
consolidated balance sheets and related statements of operations,
stockholders' equity and cash flows, showing the financial condition
of the Borrower and its consolidated subsidiaries as of the close of
such fiscal year and the results of its operations and the operations
of such subsidiaries during such year, all audited by KPMG Peat
Marwick or other independent auditors of recognized national standing
acceptable to the Required Lenders and accompanied by an opinion of
such accountants (which shall not be qualified in any material
respect) to the effect that such consolidated financial statements
fairly present the financial condition and results of operations of
the Borrower on a consolidated basis in accordance with GAAP
consistently applied;
(b) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its consolidated balance sheets
and related statements of operations, stockholders' equity and cash
flows, showing the financial condition of the Borrower and its
consolidated subsidiaries as of the close of such fiscal quarter and
the results of its operations and the operations of such subsidiaries
during such fiscal quarter and the then elapsed portion of the fiscal
year;
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59
(c) concurrently with any delivery of financial statements under
paragraph (a) or (b) above, a certificate of the accounting firm or
Financial Officer opining on or certifying such statements (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal
interpretations) (i) certifying that, after due investigation and
reasonable inquiry, no Event of Default or Default has occurred or, if
such an Event of Default or Default has occurred, specifying the
nature and extent thereof and any corrective action taken or proposed
to be taken with respect thereto and (ii) setting forth computations
in reasonable detail satisfactory to the Administrative Agent
demonstrating compliance with the covenants contained in
Sections 7.11, 7.12 and 7.13.
(d) concurrently with any delivery of financial statements under
paragraph (a) above, a certificate of a Financial Officer setting
forth in reasonable detail the calculation of Change in Liquidity From
Receivables Programs for the fiscal year of the Borrower covered by
such financial statements;
(e) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
(other than (i) the exhibits to registration statements and (ii) any
registration statements on Form S-8 or its equivalent) filed by it
with the Securities and Exchange Commission, or any governmental
authority succeeding to any of or all the functions of said
Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be;
(f) promptly following the preparation thereof, copies of each
management letter prepared by the Borrower's auditors (together with
any response thereto prepared by the Borrower);
(g) as soon as available, and in any event no later than 90 days
after (i) February 3, 1996, and (ii) the end of each fiscal year
through January 29, 2000, thereafter, one set of projected
consolidated balance sheets of the Borrower and its consolidated
subsidiaries as of the end of the following fiscal year and each of
the next four succeeding fiscal years, and the related consolidated
statements of projected cash flow, projected changes in financial
position and projected income for each of such five fiscal years, and,
as soon as available, significant revisions, if any, of such
projections with respect to any such fiscal year, such set of
statements to be prepared on a basis consistent with the statements
delivered pursuant to paragraph (k) below, and such statement to be
based, and to be certified by a Financial Officer of the Borrower as
being based on reasonable estimates, information and assumptions at
the time, and all such statements to be in reasonable detail;
(h) promptly, from time to time, such other information regarding
the operations, business affairs and financial condition of the
Borrower, or compliance with the terms of any Loan Document, as the
Administrative Agent, the Managing Agents, either Fronting Bank or
Swingline Lender or any Lender may reasonably request;
(i) promptly, a copy of any amendment or waiver of any provisions
of any agreement referenced in Section 7.10, or any other amendment or
waiver of any provisions of any agreement to the extent that such
amendment or waiver is required hereunder to be furnished to the
Administrative Agent, either Fronting Bank or any Lender;
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60
(j) a copy of all notices (other than regarding any scheduled or
mandatory repayments), certificates, financial statements and reports,
as and when delivered by or on behalf of the Borrower to the holders
of any Subordinated Indebtedness (except to the extent any such
notice, certificate, financial statement or report is otherwise
required to be delivered pursuant to this Agreement); and
(k) within 30 days after the end of each month for which such a
report was prepared, a copy of the monthly report to the Board of
Directors of the Borrower comparing the actual results of operations
to the projected results of operations of the Borrower and its
consolidated subsidiaries for such month and the portion of the fiscal
year then ended, including management's discussion and analysis with
respect to such actual results of operations and any revisions by
management of its projections for the next succeeding month and for
the remainder of the then-current fiscal year.
SECTION 6.05. Litigation and Other Notices. Furnish to the
Administrative Agent, each Fronting Bank and Swingline Lender, the
Collateral Agent and each Lender prompt written notice of the following:
(a) any Event of Default or Default, specifying the nature and
extent thereof and the corrective action (if any) proposed to be taken
with respect thereto;
(b) the filing or commencement of, or any notice to the Borrower
or any Subsidiary of the intention of any person to file or commence,
any action, suit or proceeding, whether at law or in equity or by or
before any Governmental Authority, against the Borrower or any
subsidiary thereof that, if adversely determined, could reasonably be
expected to result in a Material Adverse Effect;
(c) any development that has resulted in, or could reasonably be
anticipated to result in, a Material Adverse Effect; and
(d) any transaction, event or development that results in the
Borrower or any Subsidiary owning a parcel (or adjoining parcels) of
real property that (i) is not a Mortgaged Property and (ii) has a fair
market value in excess of $3,000,000.
SECTION 6.06. ERISA. (a) Comply in all material respects with the
applicable provisions of ERISA and (b) furnish to the Administrative Agent,
the Managing Agents, each Fronting Bank, Swingline Lender and Lender (i) as
soon as possible after, and in any event within 30 days after any Respon-
sible Officer of the Borrower or any ERISA Affiliate either knows or has
reason to know that, any Reportable Event has occurred that alone or
together with any other Reportable Event could reasonably be expected to
result in liability of the Borrower to the PBGC in an aggregate amount
exceeding $1,000,000, (A) a copy of the notice of such event required to be
given to the PBGC or, if notice is not so required, a statement of an
officer of the Borrower having responsibility over its employee benefits (a
"Benefits Officer") setting forth in reasonable detail the nature of such
event and the action proposed to be taken with respect thereto and (B) as
soon as practicable after the reasonable request of the Lender following
receipt of such copy of such notice, a like statement, (ii) promptly after
receipt thereof, a copy of any notice the Borrower or any ERISA Affiliate
may receive from the PBGC relating to the intention of the PBGC to
terminate any Plan or Plans (other than a Plan maintained by an ERISA
Affiliate that is considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of
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61
Section 414 of the Code) or to appoint a trustee to administer any Plan or
Plans, (iii) within 10 days after the due date for filing with the PBGC
pursuant to Section 412(n) of the Code of a notice of failure to make a
required installment or other payment with respect to a Plan, a copy of
such notice, and, as soon as practicable after the reasonable request of
the Lender, a statement of a Benefits Officer setting forth in reasonable
detail the nature of such failure and the action proposed to be taken with
respect thereto and (iv) promptly and in any event within 30 days after
receipt thereof by the Borrower or any ERISA Affiliate from the sponsor of
a Multiemployer Plan, a copy of each notice received by the Borrower or any
ERISA Affiliate concerning (A) the imposition of Withdrawal Liability or
(B) a determination that a Multiemployer Plan is, or is expected to be,
terminated or in reorganization, in each case within the meaning of
Title IV of ERISA.
SECTION 6.07. Maintaining Records; Access to Properties and
Inspections. Maintain all financial records in accordance with GAAP and
permit any representatives designated by the Administrative Agent, the
Managing Agents, either Fronting Bank or Swingline Lender, the Collateral
Agent or any Lender to visit and inspect the financial records and the
properties of the Borrower at reasonable times and upon reasonable notice
and as often as reasonably requested and to make extracts from and copies
of such financial records, and permit any representatives designated by the
Administrative Agent, the Managing Agents, either Fronting Bank or
Swingline Lender, the Collateral Agent or any Lender to discuss at such
reasonable times and at such reasonable intervals as may be reasonably
requested the affairs, finances and condition of the Borrower or any
properties of Borrower with the officers thereof and independent accoun-
tants therefor.
SECTION 6.08. Use of Proceeds. Use the proceeds of the Letters of
Credit, the Bankers' Acceptances and the Loans only for the purposes set
forth in the preamble to this Agreement.
SECTION 6.09. Fiscal Year. Cause its fiscal year to end on a date
other than the Saturday nearest to January 31 in each year without the
prior written consent of the Managing Agents, which consent shall not be
unreasonably withheld.
SECTION 6.10. Further Assurances. (a) Execute any and all further
documents, financing statements, agreements and instruments, and take all
further action (including filing Uniform Commercial Code and other financ-
ing statements, mortgages and deeds of trust) that may be required under
applicable law, or which the Required Lenders, the Administrative Agent,
either Managing Agent or the Collateral Agent may reasonably request, in
order to effectuate the transactions contemplated by the Loan Documents and
in order to grant, preserve, protect and perfect the validity and first
priority of the security interests created or intended to be created by the
Security Documents. In addition, from time to time, the Borrower, at its
cost and expense, will promptly secure the Obligations by pledging or
creating, or causing to be pledged or created, perfected security interests
with respect to such of its assets and properties as the Administrative
Agent, either Managing Agent or the Required Lenders shall designate (it
being understood that it is the intent of the parties that the Obligations
shall be secured by, among other things, substantially all the assets of
the Borrower and the Subsidiaries (including real and other properties
(other than leasehold interests of the Borrower and the Subsidiaries
relating to retail stores) acquired subsequent to the Restatement Date)).
Such security interests and Liens will be created under the Security Docu-
ments and other security agreements, mortgages, deeds of trust and other
instruments and documents in form and substance satisfactory to the
Required Lenders, and the Borrower shall deliver or cause to be delivered
to the Lenders all such instruments and documents (including legal opin-
ions, title insurance policies and lien searches) as the Required Lenders
shall reasonably request to evidence compliance with this Section 6.10;
provided, however, that the Lenders shall not be entitled to receive
landlord waivers in connection with security interests granted the
Collateral Agent in assets
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62
located on property leased by the Borrower or any Guarantor. The Borrower
agrees to provide such evidence as the Required Lenders shall reasonably
request as to the perfection and priority status of each such security
interest and Lien.
(b) Cause each Subsidiary created or acquired by it from time to time,
and each Inactive Subsidiary prior to becoming a Subsidiary, to undertake
the obligation of and to become a Guarantor hereunder and a party to the
Security Documents pursuant to one or more instruments or agreements
satisfactory in form and substance to the Collateral Agent.
(c) Within 90 days after the Restatement Date, (i) deliver to the
Managing Agents a written opinion of each local counsel listed on Schedule
6.10(c) to the effect set forth in Exhibit M-3, (A) dated the Restatement
Date, (B) addressed to the Administrative Agent, the Managing Agents, the
Fronting Banks, the Lenders, the Swingline Lenders and the Collateral Agent
and (C) covering such matters incidental to the Loan Documents and the
Transactions as the Managing Agents shall request or (ii) deliver such duly
executed Security Documents relating to each of the Mortgaged Properties
encumbering the Borrower's interest in such premises as the Managing Agents
may request, together with (A) a lender's title insurance policy, insuring
such Security Document as a first lien on such Mortgaged Property (subject
to any Lien expressly permitted by Section 7.02), (B) a survey, (C)
evidence of each filing and recordation in the recording office as
specified in Schedule 4.20(b) and (D) local counsel opinion as set forth in
clause (i) above, in each case, in form and substance acceptable to the
Managing Agents.
SECTION 6.11. Material Contracts. Maintain in full force and effect
(including exercising any available renewal option), and without amendment
or modification, all its material contracts unless the failure so to
maintain such contracts (or the amendments or modifications thereto),
individually or in the aggregate, would not have a Material Adverse Effect,
and promptly notify each Lender of each failure to comply with this
Section 6.11.
SECTION 6.12. Compliance with Law. Comply with the requirements of all
applicable laws, rules, regulations, court orders and decrees, and orders
of any Governmental Authority that are applicable to it or to any of its
properties, except where noncompliance would not reasonably be expected to
result in a Material Adverse Effect.
ARTICLE VII
Negative Covenants
The Borrower covenants and agrees with each Lender, the Administrative
Agent and each Managing Agent, Fronting Bank and Swingline Lender that, so
long as this Agreement shall remain in effect, the LC/BA Exposure shall not
equal zero or the principal of or interest on any Loan or Swingline Loan or
any LC Disbursement, BA Disbursement, Fees or any other expenses or amounts
payable under
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63
any Loan Document shall be unpaid, unless the Required Lenders shall
otherwise consent in writing, the Borrower will not, and will not cause or
permit any of the Subsidiaries (other than any Receivables Subsidiary) to:
SECTION 7.01. Indebtedness. Incur, create, assume or permit to exist
any Indebtedness, except:
(a) Indebtedness existing on the date hereof and set forth on
Schedule 7.01 (and any extensions, renewals or replacements of such
Indebtedness to the extent that such Indebtedness is not at any time
increased);
(b) in the case of the Borrower, Indebtedness represented by the
Notes and reimbursement obligations in respect of the Letters of
Credit and Bankers' Acceptances;
(c) in the case of each Guarantor, its guarantee of the
Obligations pursuant to the Guarantee Agreement;
(d) (i) in the case of the Borrower, Indebtedness consisting of
purchase money Indebtedness or Capital Lease Obligations incurred in
the ordinary course of business after the Restatement Date to finance
Capital Expenditures and (ii) in the case of the Borrower or any
Subsidiary, Indebtedness consisting of purchase money Indebtedness or
Capital Lease Obligations in existence with respect to any Acquired
Entity at the time such Acquired Entity is acquired by the Borrower or
any Subsidiary; provided, however, that in the case of Indebtedness
incurred pursuant to clause (i) above, such Indebtedness shall be
incurred within 90 days after the making of the Capital Expenditures
financed thereby;
(e) Indebtedness consisting of obligations of the Borrower to
make deferred purchase price payments in connection with any Permitted
Acquisition or the Borrower's purchase from time to time of the assets
of pharmacy businesses; provided, however, that the aggregate
principal amount of all Indebtedness incurred pursuant to this
paragraph (e) shall not exceed $10,000,000 at any time outstanding;
(f) reimbursement obligations incurred by the Borrower or any
Subsidiary in connection with letters of credit and bankers'
acceptances, provided that (i) such reimbursement obligations are
unsecured and (ii) the sum of (A) the aggregate undrawn face amount of
such outstanding letters of credit, (B) the aggregate face amount of
drafts drawn under such letters of credit and paid or accepted by the
issuers thereof and unreimbursed and (C) the aggregate face amount of
such outstanding bankers' acceptances shall not exceed $10,000,000 at
any time;
(g) in the case of the Borrower, Indebtedness to any wholly owned
Subsidiary and, in the case of any Subsidiary, Indebtedness to the
Borrower or any wholly owned Subsidiary, provided that any such
Indebtedness is evidenced by an intercompany note duly and validly
pledged to the Collateral Agent for the benefit of the Secured Parties
under the Pledge Agreement;
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64
(h) in the case of the Borrower, Indebtedness evidenced by the 9-1/4%
Senior Subordinated Notes;
(i) in the case of the Borrower, Rate Protection Agreements on
terms and with parties reasonably acceptable to the Managing Agents;
(j) in the case of the Borrower, Indebtedness that is subordinate
to the Obligations and the proceeds of which are used solely to
redeem, repay or repurchase any then-outstanding Subordinated
Indebtedness; provided, however, that (i) the weighted average
interest rate applicable to such Indebtedness must be less than or
equal to the interest rate applicable to the Subordinated Indebtedness
being redeemed, repaid or repurchased, (ii) no material terms
applicable to such Indebtedness (including the subordination
provisions thereof) shall be more favorable to the refinancing lenders
(as determined by the Borrower in good faith) than the terms that are
applicable to the holders of the Subordinated Indebtedness being
redeemed, repaid or repurchased, (iii) the weighted average life to
maturity of such Indebtedness shall be greater than or equal to the
weighted average life to maturity of the Subordinated Indebtedness
being redeemed, repaid or repurchased and the first scheduled prin-
cipal payment in respect of such Indebtedness shall not be earlier
than the first scheduled principal payment in respect of the
Subordinated Indebtedness being redeemed, repaid or repurchased
(iv) such Indebtedness shall be unsecured and shall not be guaranteed
by any Person in any respect, (v) the principal amount of such
Indebtedness shall be equal to the principal amount then outstanding
of the Subordinated Indebtedness then being redeemed or repurchased
and (vi) such Indebtedness may not be incurred if at the time of such
refinancing a Default or Event of Default has occurred and is
continuing or would result therefrom;
(k) in the case of the Borrower, other Indebtedness that is
subordinate to the Obligations; provided, however, that (i) no
material terms applicable to such Indebtedness (including the
subordination provisions thereof) shall be more favorable to the
lenders providing such Indebtedness (as determined by the Borrower in
good faith) than the terms that are applicable to the holders of the
9-1/4% Senior Subordinated Notes, (ii) the weighted average life to
maturity of such Indebtedness shall be greater than or equal to the
weighted average life to maturity of the Facilities, and the first
scheduled principal payment in respect of such Indebtedness shall not
be earlier than the Term Loan Maturity Date, (iii) such Indebtedness
shall be unsecured and shall not be guaranteed by any Person in any
respect and (iv) such Indebtedness may not be incurred if at the time
of such refinancing a Default or Event of Default has occurred and is
continuing or would result therefrom;
(l) Indebtedness of the Borrower incurred in connection with the
purchase or redemption pursuant to the Management Subscription
Agreement of shares of Common Stock held by the Management Investors
as provided in Section 7.06(b); and
(m) Indebtedness of the Borrower to insurance companies borrowed
against existing life insurance policies maintained by the Borrower
under the Borrower's Executive Supplemental Benefit Plan, the proceeds
of which Indebtedness are used to pay the annual insurance premiums on
such policies and the interest due under such policies with respect to
the Indebtedness permitted under this paragraph (m), provided that the
Borrower shall not incur such Indebtedness for the payment of premiums
in any given year in excess of $750,000 in the aggregate, and provided
further that the aggregate amount of Indebtedness permitted under this
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65
paragraph (m) shall not at any time exceed the then-current aggregate
cash surrender value of such policies.
SECTION 7.02. Liens. Create, incur, assume or permit to exist any Lien
on any property or assets (including stock or other securities of any
Person) now owned or hereafter acquired by it or on any income or revenues
or rights in respect of any thereof, except:
(a) Liens on property or assets of the Borrower existing on the
date hereof and set forth on Schedule 7.02(a), provided that, subject
to paragraph (j) below, such Liens shall secure only those obligations
that they secure on the date hereof;
(b) any Lien existing on any property or asset prior to the
acquisition thereof by the Borrower or any Subsidiary, provided that
(i) such Lien is not created in contemplation of or in connection with
such acquisition, (ii) such Lien does not apply to any other property
or assets of the Borrower or any Subsidiary and (iii) such Lien does
not (A) materially interfere with the use, occupancy and operation of
any property or (B) materially reduce the fair market value of such
property but for such Lien;
(c) Liens for taxes, assessments or charges not yet due or which
are being contested in compliance with Section 6.03;
(d) carriers', warehousemen's, mechanics', materialmen's, repair-
men's, vendors', workmen's, operators', landlord's or other like Liens
arising in the ordinary course of business and securing obligations
that are not due and payable or are being contested in compliance with
Section 6.03;
(e) pledges or deposits made in the ordinary course of business
in compliance with workmen's compensation, unemployment insurance and
other social security laws or regulations;
(f) pledges and deposits to secure the performance of bids, trade
contracts (other than for Indebtedness), leases, licenses, statutory
obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of
business;
(g) leases or subleases or other similar encumbrances incurred in
the ordinary course of business or minor imperfections in title that,
in the aggregate, are not material in amount and do not materially
detract from the value of the property subject thereto or interfere
with the ordinary conduct of the business of the Borrower or any of
its Subsidiaries;
(h) purchase money security interests in real property,
improvements thereto or equipment hereafter acquired (or, in the case
of improvements, constructed) by the Borrower or any Subsidiary (or,
in the case of an Acquired Entity, in existence at the time such
Acquired Entity is acquired by the Borrower or any Subsidiary),
provided that (i) such security interests secure Indebtedness
permitted by Section 7.01(d), (ii) such security interests are
incurred, and the Indebtedness secured thereby is created, within
90 days after such acquisition (or construction), (iii) the
Indebtedness secured thereby does not exceed 80% of the lesser of the
cost or the fair market value of such real property, improvements or
equipment at the time of such acquisition (or construction) and
(iv) such security interests do not apply to any other
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66
property or assets of the Borrower or any Subsidiary; provided,
however, that clauses (ii) and (iii) shall not apply to any security
interests created or Indebtedness incurred by any Acquired Entity
prior to the date such Acquired Entity is acquired by the Borrower or
any Subsidiary;
(i) Liens incurred in connection with Capital Lease Obligations
permitted by Section 7.01(d);
(j) any Lien arising out of the refinancing, extension, renewal
or refunding of any Indebtedness secured by any Lien permitted under
paragraphs (a) through (i) above, provided that such Indebtedness is
not increased and is not secured by any additional assets;
(k) Liens arising pursuant to one or more orders of attachment,
distraint or similar legal process issued in connection with one or
more court proceedings (which may or may not be related) so long as
the execution or other enforcement thereof is effectively stayed and
the claims secured thereby do not exceed $2,000,000 in the aggregate
and are being contested in good faith by appropriate proceedings;
(l) Liens in respect of goods consigned to the Borrower or any
Subsidiary in the ordinary course of business, including, but not
limited to (i) goods consisting of lamps, light bulbs and related
products consigned to the Borrower and all accounts receivable,
contract rights, chattel paper and any other right to payment arising
from the sale of said inventory, (ii) goods consisting of packaged
vitamins, minerals, nutritional supplements and related products
bearing the "Your Life" brand name and packaged natural vitamins
bearing the Eckerd private label consigned to the Borrower,
(iii) videotapes, display racks and related equipment consigned to the
Borrower, (iv) goods consisting of hosiery, pantyhose and related
products bearing the trade name "L'eggs" and display racks and related
equipment consigned to the Borrower and (v) any pharmaceuticals
consigned to the Borrower;
(m) Liens on equipment consisting of an Equipment Lessor's right
to acquire such equipment under an Equipment Agency Arrangement;
(n) a collateral assignment by the Borrower, to the lessor under
the Funding II Lease, of subleases by the Borrower, as sublessor, to
Visionworks, Inc., as sublessee, of the properties listed on
Schedule 7.02(n); and
(o) any Lien created under the Loan Documents.
SECTION 7.03. Sale and Leaseback Transactions. Enter into any
arrangement, directly or indirectly, with any person whereby it shall sell
or transfer any property, real or personal, used or useful in its business,
whether now owned or hereafter acquired, and thereafter rent or lease such
property or other property that it intends to use for substantially the
same purpose or purposes as the property being sold or transferred;
provided, however, that the foregoing shall not prohibit (a) the IFS Sale
and Leaseback or the renewal, modification, extension or replacement of the
Funding I Lease or the Funding II Lease so long as the terms of the Funding
I Lease or the Funding II Lease, as applicable, after giving effect to such
renewal, modification, extension or replacement shall be no less favorable
to the Borrower (as determined by the Borrower in good faith) than the
then-existing terms of such lease or (b) transactions effected pursuant to
the Equipment Agency Agreements.
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67
SECTION 7.04. Investments, Loans and Advances. Purchase, hold or
acquire any capital stock, evidences of indebtedness or other securities
of, make or permit to exist any loans or advances to, or make or permit to
exist any investment or any other interest in, any other Person, except:
(a) investments existing on the date hereof and set forth on
Schedule 7.04;
(b) Permitted Investments;
(c) the Borrower's and any Subsidiary's equity investments in any
Subsidiary, the Borrower's and any Subsidiary's equity investments in
any Inactive Subsidiary as of the date hereof and loans or advances by
the Borrower to Subsidiaries to the extent such loans or advances are
permitted by Section 7.01(g);
(d) loans or advances by any Subsidiary to the Borrower or other
Subsidiaries to the extent such loans or advances are permitted by
Section 7.01(g);
(e) deposits permitted under Section 7.02(f);
(f) investments constituting all the capital stock of any
Acquired Entity acquired in connection with any Permitted Acquisition
so long as such capital stock is duly and validly pledged to the
Collateral Agent for the benefit of the Secured Parties under the
Pledge Agreement;
(g) loans or advances to employees of the Borrower or any
Subsidiary not in excess of $1,000,000 in the aggregate at any time
outstanding;
(h) guarantees by the Borrower of obligations of any Subsidiary
in the ordinary course of business;
(i) advances consisting of payments by the Borrower on behalf of
Equipment Lessors in respect of the purchase price of equipment under
Equipment Agency Agreements not in excess of $6,000,000 in the
aggregate at any time outstanding;
(j) all Guarantees permitted by Section 7.01 hereof; and
(k) investments not otherwise permitted above so long as the
amount of all such investments does not exceed $7,000,000 in the
aggregate at any time outstanding.
SECTION 7.05. Mergers, Consolidations, Sales of Assets and
Acquisitions. Merge into or consolidate with any other Person, or permit
any other Person to merge into or consolidate with it, or sell, transfer,
assign, lease, sublease or otherwise dispose of (in one transaction or in a
series of transactions) all or any substantial part of any asset (whether
now owned or hereafter acquired) or any capital stock of any Subsidiary, or
purchase, lease or otherwise acquire (in one transaction or a series
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68
of transactions) all or any substantial part of the assets of any other
Person (other than in connection with an acquisition of the stock, or all
or substantially all the assets, of any Person whose assets consist solely
of equipment or real estate that do constitute an independent business
organization); provided, however, that the foregoing shall not prohibit:
(a) sales, transfers and other dispositions of used or surplus
equipment, vehicles and other assets in the ordinary course of
business;
(b) sales of inventory in the ordinary course of business;
(c) if at the time thereof and immediately after giving effect
thereto no Event of Default or Default shall have occurred and be
continuing (i) any wholly owned Subsidiary or Acquired Entity may
merge into the Borrower in a transaction in which the Borrower is the
surviving corporation and (ii) any wholly owned Subsidiary or Acquired
Entity may merge into or consolidate with any other wholly owned
Subsidiary or Acquired Entity in a transaction in which the surviving
entity is a wholly owned Subsidiary and no person other than the
Borrower or a wholly owned Subsidiary receives any consideration;
(d) sales of assets after the Restatement Date so long as (i) the
aggregate Net Proceeds of all such sales does not exceed $35,000,000
(of which sales with Net Proceeds of no more than $10,000,000 may be
made in any twelve-month period) and (ii) prior to the consummation of
each such sale, a Financial Officer of the Borrower certifies to the
Collateral Agent on behalf of the Secured Parties that such sale is at
a price equal to or greater than the then fair market value of such
asset;
(e) sales of Third Party Receivables pursuant to a Permitted
Receivables Purchase Agreement, provided that the aggregate net
investment in such Third Party Receivables of the purchaser thereof
shall not at any time exceed $125,000,000;
(f) the purchase or other acquisition of any assets acquired in
connection with any Permitted Acquisitions;
(g) the lease or sublease of all or part of any interest,
including a leasehold interest, of the Borrower or any Subsidiary in
real property or the assignment of any lease of real property of the
Borrower or any Subsidiary, provided that (i) such lease, sublease or
assignment is on commercially reasonable terms, (ii) such lease or
sublease could not and will not be characterized by the lessor or
lessee thereunder as a capital lease under GAAP, (iii) the leasing or
subleasing of such real property or the assignment of such lease shall
not have an adverse material effect, individually or in the aggregate,
upon the conduct of the Borrower's or any Subsidiary's business or the
value or use of the real property encumbered by such lease or
sublease, (iv) in the case of a lease in respect of any real property
owned by the Borrower or any Subsidiary (other than a retail store and
the distribution center located in Clearwater, Florida), the lease
shall be of an immaterial portion of such real property and (v) in the
case of a lease or sublease in respect of a retail store, the decision
to lease or sublease such retail store is made on a basis that is
consistent with the practices of the Borrower or such Subsidiary prior
to the date hereof with respect to the leasing or subleasing of retail
stores;
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(h) sales of equipment to Equipment Lessors pursuant to the
Equipment Agency Arrangements; and
(i) Acquisition-Related Sales, the Life Care Sale, the Hammond
Sale and the Photolab Business Sale.
SECTION 7.06. Dividends and Distributions. Declare or pay, directly or
indirectly, any dividend or make any other distribution on any shares of
the Borrower's capital stock (except dividends payable solely in shares of
such capital stock or rights to acquire shares of such capital stock) (by
reduction of capital or otherwise), whether in cash, property, securities
or a combination thereof, with respect to any shares of its capital stock
or directly or indirectly redeem, purchase, retire or otherwise acquire for
value (or permit any Subsidiary to purchase or acquire) any shares of any
class of its capital stock or set aside any amount for any such purpose,
except that:
(a) any Subsidiary may declare and pay dividends or make other
distributions to the Borrower; and
(b) the Borrower may (i) purchase or redeem shares of Common
Stock held by the Management Investors under the circumstances and at
the prices specified in the Management Subscription Agreement or the
Borrower's restated certificate of incorporation or purchase or redeem
up to 540,000 shares of Common Stock under a long-term incentive or
other employee benefit plan to the extent permitted by applicable law
(provided in each case that the aggregate number of shares of Common
Stock purchased or redeemed during the twelve-month period commencing
on April 12, 1994, or any subsequent April 12 shall not exceed 4% of
the shares of Common Stock outstanding on such date) and (ii) purchase
up to 240,000 shares of Common Stock from employees of the Borrower or
any Subsidiary in accordance with the terms of Sections III.E and
III.F of the Borrower's restated certificate of incorporation,
provided that the aggregate amount of all payments made pursuant to
clause (i) and (ii) above (other than any such payments made in
respect of amounts shown as accruals on the Borrower's consolidated
balance sheet as of April 30, 1994) shall not exceed $10,000,000.
SECTION 7.07. Transactions with Affiliates. Sell or transfer any
property or assets to, or purchase or acquire any property or assets from,
or otherwise engage in any other transactions with, any of its Affiliates,
except that the Borrower or any Subsidiary may engage in any of the fore-
going transactions in the ordinary course of business at prices and on
terms and conditions no less favorable to the Borrower or such Subsidiary,
as the case may be, than could be obtained on an arm's-length basis from
unrelated third parties; provided, however, that the foregoing shall not
restrict the transactions contemplated by the Funding I Lease and the
Funding II Lease and, as long as no Default or Event of Default shall have
occurred and be continuing, the following transactions:
(a) any transaction listed on Schedule 7.07;
(b) any transaction with an Affiliate expressly permitted by this
Agreement (including transactions expressly permitted by Section 7.01,
7.04, 7.05 or 7.06);
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(c) the Borrower or any Subsidiary may participate in, or effect
any transaction in connection with, any joint enterprise or other
joint arrangement with any Affiliate if the Borrower or such
Subsidiary participates in the ordinary course of its business and on
a basis no less advantageous than the basis on which such Affiliate
participates; and
(d) the Borrower may make payments or provide compensation for
investment banking services rendered by any Affiliate if such services
are rendered in the ordinary course of such Affiliate's business and
if the amount of any such payment or compensation is comparable to the
amount that would be charged if such services were performed by a
Person not an Affiliate.
SECTION 7.08. Business of Borrower and Subsidiaries. (a) Engage at any
time in any business or business activity other than the business currently
conducted by it and the Subsidiaries and business activities reasonably
related thereto.
(b) In the case of any Subsidiary, fail to be a Guarantor or a party
to any Security Document.
SECTION 7.09. Limitations on Debt Prepayments. (a) Optionally prepay,
repurchase or redeem or otherwise defease or segregate funds with respect
to any Indebtedness for borrowed money of the Borrower; provided, however,
that the foregoing shall not prevent the Borrower from (i) making any
payment pursuant to Section 2.12 or 2.13 or (ii) redeeming or repurchasing
any then-outstanding Subordinated Indebtedness with Indebtedness incurred
pursuant to Section 7.01(j) (it being understood that, following any such
redemption or repurchase under this clause (ii), this Section 7.09 shall
apply to the Indebtedness incurred in connection with any such
refinancing), (iii) redeeming or repurchasing any then-outstanding
Subordinated Indebtedness with the Net Proceeds of any Equity Issuance or
(iv) consummating the Hammond Sale.
(b) Permit any amendment, waiver or modification to the terms of any
Subordinated Indebtedness, or any indenture relating to, or other agreement
of the Borrower entered into in connection with, any Subordinated
Indebtedness, if the effect of such amendment or modification is to impose
additional or increased scheduled or mandatory repayment, retirement,
repurchase or redemption obligations in respect of such Indebtedness or to
require any scheduled or mandatory payment to be made in respect of such
Indebtedness prior to the date that such payment would otherwise be due;
provided, however, that the foregoing shall not prevent any amendment,
waiver or modification to the terms of any such Subordinated Indebtedness
or indenture if such Subordinated Indebtedness as so amended, waived or
modified could have been issued by the Borrower pursuant to
Section 7.01(k).
SECTION 7.10. Amendment of Certain Documents. Permit any termination
of, or any amendment, waiver or modification to, (a) the Certificate of
Incorporation of the Borrower or any Subsidiary, (b) the By-laws of the
Borrower or any Subsidiary, (c) the Management Subscription Agreement,
(d) the Stockholders' Agreement, (e) the Investor Stock Subscription
Agreements, (f) any Subordinated Indebtedness or (g) the indenture
relating to any Subordinated Indebtedness unless any such termination,
amendment, waiver or modification is not adverse in any respect to the
Lenders. Without limiting the generality of the foregoing, with respect to
the documents specified in clauses (f) and (g) of the immediately preceding
sentence, it is understood that any increase in the interest, fees or other
amounts payable in connection therewith, or any amendment that imposes
additional covenants or events of default or makes more restrictive the
covenants or events of default contained therein, shall require the consent
of the Required Lenders.
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SECTION 7.11. Funded Debt to EBITDA Ratio. Permit the Funded Debt to
EBITDA Ratio of the Borrower for any period of four consecutive fiscal
quarters ending on the last day of or during the period indicated below to
be greater than the ratio set forth opposite such period:
From and Including: To and Including: Ratio:
------------------- ----------------- ------
October 28, 1995 November 2, 1996 3.50
November 3, 1996 November 1, 1997 3.00
November 2, 1997 October 31, 1998 2.50
November 1, 1998 October 30, 1999 2.00
October 31, 1999 November 29, 2000 2.00
SECTION 7.12. Interest Coverage Ratio. Permit the Interest Coverage
Ratio on the last day of any period of four consecutive fiscal quarters
ending on any day prior to the Term Loan Maturity Date to be less than 3.00
to 1.00.
SECTION 7.13. Fixed Charge Coverage Ratio. Permit the Fixed Charge
Coverage Ratio on the last day of any period of four consecutive fiscal
quarters ending on the last day of or during any period indicated below
(or, if shorter than four consecutive fiscal quarters, any period beginning
on October 29, 1995 and ending on the last day of or during such period) to
be less than the ratio set forth opposite such period:
From and Including: To and Including: Ratio:
------------------- ----------------- ------
October 28, 1995 November 2, 1996 1.000
November 3, 1996 November 1, 1997 1.025
November 2, 1997 October 31, 1998 1.050
November 1, 1998 October 30, 1999 1.100
October 31, 1999 November 29, 2000 1.100
SECTION 7.14. Bank Accounts. Establish or maintain a bank account or
similar account with any financial institution that is not a Lender, other
than (a) a bank account used exclusively by one or more drug stores or
other retail stores of the Borrower or any Subsidiary in which an aggregate
amount is on deposit not in excess of the amount reasonably required to
finance the working capital requirements of the depositor, (b) a collection
account used exclusively in connection with a Permitted Receivables
Purchase Agreement and (c) bank accounts of the Borrower or any Subsidiary
maintained with Barnett Bank of Pinellas County and Wachovia Bank of N.C.,
N.A., in which an aggregate amount is on deposit not in excess of
$4,000,000.
ARTICLE VIII
Events of Default
In case of the happening of any of the following events ("Events of
Default"):
(a) any representation or warranty made or deemed made in any
Loan Document, or any representation, warranty, statement or
information contained in any report, certificate, financial statement
or other instrument furnished pursuant to any Loan Document, shall
prove
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72
to have been false or misleading in any material respect when so made,
deemed made or furnished;
(b) default shall be made in the payment of any principal of any
Loan or Swingline Loan or LC Disbursement or BA Disbursement when and
as the same shall become due and payable, whether at the due date
thereof or at a date fixed for prepayment thereof or by acceleration
thereof or otherwise;
(c) default shall be made in the payment of any interest on any
Loan or Swingline Loan or any Fee or any other amount (other than an
amount referred to in paragraph (b) above) due under any Loan
Document, when and as the same shall become due and payable, and such
default shall continue unremedied for a period of three Business Days;
(d) default shall be made in the due observance or performance by
the Borrower of any covenant, condition or agreement contained in Sec-
tion 2.13(b), 6.01(a), 6.05(a), 6.08 or in Article VII;
(e) default shall be made in the due observance or performance by
the Borrower or any Subsidiary of any covenant, condition or agreement
contained in any Loan Document (other than those defaults specified in
paragraph (b), (c) or (d) above) and, except as may be otherwise
provided in the applicable Mortgage, if any, such default shall
continue unremedied for a period of 15 days after written notice
thereof from the Administrative Agent or any Lender to the Borrower;
(f) the Borrower or any Subsidiary shall (i) fail to pay any
principal or interest, regardless of amount, due in respect of any
Indebtedness in a principal amount in excess of $3,000,000, when and
as the same shall become due and payable (after giving effect to any
applicable grace period), or (ii) fail to observe or perform any other
term, covenant, condition or agreement contained in any agreement or
instrument evidencing or governing any such Indebtedness (after giving
effect to any applicable grace period) if the effect of any failure
referred to in this clause (ii) is to cause, or to permit the holder
or holders of such Indebtedness or a trustee on its or their behalf to
cause, such Indebtedness to become due prior to its stated maturity;
(g) an involuntary proceeding shall be commenced or an
involuntary petition shall be filed in a court of competent
jurisdiction seeking (i) relief in respect of the Borrower or any
Subsidiary, or of a substantial part of the property or assets of the
Borrower or a Subsidiary, under Title 11 of the United States Code, as
now constituted or hereafter amended, or any other Federal or state
bankruptcy, insolvency, receivership or similar law, (ii) the
appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary
(other than Life Care) or for a substantial part of the property or
assets of the Borrower or any Subsidiary (other than Life Care) or
(iii) the winding-up or liquidation of the Borrower or a Subsidiary
(other than Life Care); and such proceeding or petition shall continue
undismissed for 60 days or an order or decree approving or ordering
any of the foregoing shall be entered;
(h) the Borrower or any Subsidiary shall (i) voluntarily commence
any proceeding or file any petition seeking relief under Title 11 of
the United States Code, as now constituted or hereafter amended, or
any other Federal or state bankruptcy, insolvency, receivership or
similar
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73
law, (ii) consent to the institution of, or fail to contest in a
timely and appropriate manner, any proceeding or the filing of any
petition described in paragraph (h) above, (iii) apply for or consent
to the appointment of a receiver, trustee, custodian, sequestrator,
conservator or similar official for the Borrower or any Subsidiary or
for a substantial part of the property or assets of the Borrower or
any Subsidiary, (iv) file an answer admitting the material allegations
of a petition filed against it in any such proceeding, (v) make a
general assignment for the benefit of creditors, (vi) become unable,
admit in writing its inability or fail generally to pay its debts as
they become due or (vii) take any action for the purpose of effecting
any of the foregoing;
(i) one or more judgments for the payment of money in an
aggregate amount in excess of $250,000 (to the extent not covered by
insurance) shall be rendered against the Borrower, any Subsidiary or
any combination thereof and the same shall remain undischarged for a
period of ten consecutive days during which execution shall not be
effectively stayed, or any action shall be legally taken by a judgment
creditor to levy upon assets or properties of the Borrower or any
Subsidiary to enforce any such judgment;
(j) a Reportable Event or Reportable Events, or a failure to make
a required installment or other payment (within the meaning of
Section 412(n)(l) of the Code), shall have occurred with respect to
any Plan or Plans that reasonably could be expected to result in a
Material Adverse Effect and, within 30 days after the reporting of any
such Reportable Event to the Administrative Agent pursuant to Section
6.06(b)(i)(A) or after the receipt by the Agent of the statement
required pursuant to Section 6.06(b)(iii), the Administrative Agent
shall have notified the Borrower in writing that (i) the Required
Lenders have reasonably determined that, on the basis of such Report-
able Event or Reportable Events or the failure to make a required
payment, there are reasonable grounds (A) for the termination of such
Plan or Plans by the PBGC, (B) for the appointment by the appropriate
United States District Court of a trustee to administer such Plan or
Plans or (C) for the imposition of a lien in favor of a Plan and
(ii) as a result thereof an Event of Default exists hereunder; or a
trustee shall be appointed by a United States District Court to admin-
ister any such Plan or Plans; or the PBGC shall institute proceedings
to terminate any Plan or Plans;
(k) (i) the Borrower or any ERISA Affiliate shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such Multiemployer Plan, (ii) the Borrower or
such ERISA Affiliate does not have reasonable grounds for contesting
such Withdrawal Liability or is not in fact contesting such Withdrawal
Liability in a timely and appropriate manner and (iii) the amount of
the Withdrawal Liability specified in such notice, when aggregated
with all other amounts required to be paid to Multiemployer Plans in
connection with Withdrawal Liabilities (determined as of the date or
dates of such notification), either (A) is $500,000 or more or (B) is
less than $500,000 and any payment due as a result of such liability
remains unpaid 30 days after such payment is due;
(l) the Borrower or any ERISA Affiliate shall have been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is
in reorganization or is being terminated, within the meaning of
Title IV of ERISA, if solely as a result of such reorganization or
termination the aggregate annual contributions of the Borrower and its
ERISA Affiliates to all Multiemployer Plans that are then in
reorganization or have been or are being terminated have been or will
be increased over the amounts required to be contributed to such
Multiemployer Plans for their most recently completed plan years by an
amount exceeding $500,000;
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74
(m) there shall have occurred a Change in Control;
(n) any material security interest purported to be created by any
Security Document shall cease to be, or shall be asserted by the
Borrower or any Guarantor not to be, a valid, perfected, first
priority (except as otherwise expressly provided in this Agreement or
such Security Document) security interest in the securities, assets or
properties covered thereby, except to the extent that any such loss of
perfection or priority results from the failure of the Collateral
Agent to maintain possession of certificates representing securities
pledged under the Pledge Agreement or otherwise take any action within
its control (including the filing of UCC continuation statements);
(o) any Loan Document shall not be for any reason, or shall be
asserted by the Borrower or any Guarantor party thereto not to be, in
full force and effect and enforceable in all material respects in
accordance with its terms;
(p) the Obligations and the guarantee thereof pursuant to the
Guarantee Agreement shall cease to constitute, or shall be asserted by
the Borrower not to constitute, senior indebtedness under the
subordination provisions of any Subordinated Indebtedness or such sub-
ordination provisions shall be invalidated or otherwise cease to be a
legal, valid and binding obligation of the parties thereto,
enforceable in accordance with its terms; or
(q) any Person shall (i) become the owner or holder of record of
all the common equity securities of the Borrower and (ii) fail, prior
to or simultaneously with obtaining such shares, to (A) become a
Guarantor of the Obligations and (B) pledge all such common equity
securities to the Collateral Agent for the benefit of the Secured
Parties, in each case pursuant to one or more instruments or
agreements reasonably satisfactory in form and substance to the
Collateral Agent;
then, and in every such event (other than an event with respect to the
Borrower or any Subsidiary described in paragraph (g) or (h) above), and at
any time thereafter during the continuance of such event, the
Administrative Agent may and, at the request of the Required Lenders,
shall, by notice to the Borrower, take any of or all the following actions,
at the same or different times: (i) terminate forthwith the Commitments and
the LC/BA Commitment, (ii) declare the Loans and the Swingline Loans then
outstanding to be forthwith due and payable in whole or in part, whereupon
the principal of the Loans and the Swingline Loans so declared to be due
and payable, together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of the Borrower accrued hereunder and under
any other Loan Document, shall become forthwith due and payable, without
presentment, demand, protest or any other notice of any kind, all of which
are hereby expressly waived by the Borrower, anything contained herein or
in any other Loan Document to the contrary notwithstanding, (iii) require
cash collateral as contemplated by Section 3.07 and (iv) exercise any reme-
dies available under any Loan Document or otherwise; and in any event with
respect to the Borrower or any Subsidiary described in paragraph (g) or (h)
above, the Commitments and the LC/BA Commitment shall automatically
terminate and the principal of the Loans and the Swingline Loans then
outstanding, together with accrued interest thereon and any unpaid accrued
Fees and all other liabilities of the Borrower accrued hereunder and under
any other Loan Document, shall automatically become due and payable,
without presentment, demand, protest or any other notice of any kind, all
of which are hereby expressly waived by the Borrower, anything contained
herein or in any other Loan Document to the contrary notwithstanding.
<PAGE>
75
ARTICLE IX
The Administrative Agent, the Managing
Agents and the Fronting Banks
In order to expedite the transactions contemplated by this Agreement,
(a) Chemical Bank is hereby appointed to act as Administrative Agent on
behalf of the Fronting Banks, the Swingline Lenders and the Lenders and
(b) Chemical Bank and NationsBank are hereby appointed to act as Managing
Agents on behalf of the Lenders (the Administrative Agent, the Managing
Agents and the Collateral Agent for purposes of this Article are
collectively referred to as the "Agents"). Each of the Lenders, each
subsequent holder of any Note by its acceptance thereof, the Fronting Banks
and the Swingline Lenders hereby irrevocably authorize each Agent to take
such actions on their behalf and to exercise such powers as are
specifically delegated to such Agent by the terms and provisions hereof and
of the other Loan Documents, together with such actions and powers as are
reasonably incidental thereto. The Administrative Agent is hereby expressly
authorized by the Lenders, the Fronting Banks and the Swingline Lenders,
without hereby limiting any implied authority, (a) to receive all Loan
Documents on the Restatement Date, including the Notes, (b) to receive on
behalf of the Lenders, the Fronting Banks and the Swingline Lenders all
payments of principal of and interest on the Loans, all the Swingline
Loans, all payments in respect of BA Disbursements and LC Disbursements and
all other amounts due to the Lenders, the Fronting Banks and the Swingline
Lenders hereunder, and promptly to distribute to each Lender, Fronting Bank
and Swingline Lender its proper share of each payment so received, (c) to
give notice on behalf of each of the Lenders to the Borrower of any Event
of Default specified in this Agreement of which the Administrative Agent
has actual knowledge acquired in connection with its agency hereunder and
(d) to distribute to each Lender, Fronting Bank and Swingline Bank copies
of all notices, financial statements and other materials delivered by the
Borrower pursuant to this Agreement as received by the Administrative Agent
(including notices of an occurrence of any Event of Default).
None of the Agents nor either Fronting Bank nor any of their
respective directors, officers, employees or agents shall be liable as such
for any action taken or omitted by any of them except for its, his or her
own gross negligence or wilful misconduct, or be responsible for any
statement, warranty or representation herein or the contents of any
document delivered in connection herewith, or be required to ascertain or
to make any inquiry concerning the performance or observance by the Bor-
rower or any Guarantor of any of the terms, conditions, covenants or
agreements contained in any Loan Document. The Agents shall not be
responsible to the Lenders or the holders of the Notes or the Fronting
Banks or the Swingline Lenders for the due execution, genuineness,
validity, enforceability or effectiveness of this Agreement, the Notes or
any other Loan Documents or other instruments or agreements. The
Administrative Agent may deem and treat the payee of any Note as the owner
thereof for all purposes hereof until it shall have received from the payee
of such Note notice, given as provided herein, of the transfer thereof in
compliance with Section 10.04. The Administrative Agent shall in all cases
be fully protected in acting, or refraining from acting, in accordance with
written instructions signed by the Required Lenders (and a Fronting Bank,
with respect to Letters of Credit and Bankers' Acceptances) and, except as
otherwise specifically provided herein, such instructions and any action or
inaction pursuant thereto shall be binding on all the Lenders, each
subsequent holder of any Note, the Fronting Banks and the Swingline
Lenders. The Administrative Agent shall, in the absence of knowledge to the
contrary, be entitled to rely on any instrument or document believed by it
in good faith to be genuine and correct and to have been signed or sent by
the proper person or persons. None of the Agents nor either Fronting Bank
nor any of their respective directors, officers, employees or agents shall
have any responsibility to the Borrower on account of the failure of or
delay in performance or breach by any Lender (or, in the case of the
Agents, by the Fronting Bank or either Swingline
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76
Lender) of any of its obligations hereunder or to any Lender (or, in the
case of the Agents, the Fronting Banks or Swingline Lenders) on account of
the failure of or delay in performance or breach by any other Lender (or,
in the case of the Agents, the Fronting Banks or the Swingline Lenders) or
the Borrower or any Guarantor of any of their respective obligations here-
under or under any other Loan Document or in connection herewith or there-
with. Each Agent and Fronting Bank may execute any and all duties hereunder
by or through agents or employees and shall be entitled to rely upon the
advice of legal counsel selected by either of them with respect to all
matters arising hereunder and shall not be liable for any action taken or
suffered in good faith by either of them in accordance with the advice of
such counsel.
The Lenders, the Fronting Banks and the Swingline Lenders hereby
acknowledge that none of the Agents nor either Fronting Bank shall be under
any duty to take any discretionary action permitted to be taken by it
pursuant to the provisions of this Agreement unless it shall be requested
in writing to do so by the Required Lenders.
Subject to the appointment and acceptance of a successor Agent as
provided below, any Agent may resign at any time by notifying the Lenders,
the Fronting Banks, the Swingline Lenders and the Borrower. Upon any such
resignation, the Required Lenders shall have the right to appoint a
successor. If no successor shall have been so appointed by the Required
Lenders and shall have accepted such appointment within 30 days after the
retiring Agent gives notice of its resignation, then the retiring Agent
may, on behalf of the Lenders and the Fronting Bank, appoint a successor
Agent, which shall be a bank with an office in New York, New York, having a
combined capital and surplus of at least $500,000,000 or an Affiliate of
any such bank. Upon the acceptance of any appointment as Agent hereunder by
a successor bank, such successor shall succeed to and become vested with
all the rights, powers, privileges and duties of the retiring Agent and the
retiring Agent shall be discharged from its duties and obligations
hereunder. After any Agent's resignation hereunder, the provisions of this
Article and Section 10.05 shall continue in effect for its benefit in
respect of any actions taken or omitted to be taken by it while it was
acting as Agent.
With respect to the Loans made by it hereunder and the Notes issued to
it, each Agent and Fronting Bank, in its individual capacity and not as
Agent or Fronting Bank, as the case may be, shall have the same rights and
powers as any other Lender and may exercise the same as though it were not
an Agent or a Fronting Bank, as the case may be, and each Agent and its
Affiliates and each Fronting Bank and its Affiliates may accept deposits
from, lend money to and generally engage in any kind of business with the
Borrower or any Subsidiary or other Affiliate thereof as if it were not an
Agent or a Fronting Bank, as the case may be.
Each Lender, Fronting Bank and Swingline Lender recognizes that
applicable laws, rules, regulations or guidelines of Governmental
Authorities may require the Administrative Agent to determine whether the
transactions contemplated hereby should be classified as "highly leveraged"
or assigned any similar or successor classification and that such
determination may be binding upon the other Lenders, the Fronting Banks and
the Swingline Lenders. Each Lender, Fronting Bank and Swingline Lender
understands that any such determination shall be made solely by the
Administrative Agent based upon such factors (which may include the
Administrative Agent's internal policies and prevailing market practices)
as the Administrative Agent shall deem relevant and agrees that the
Administrative Agent shall have no liability for the consequences of any
such determination.
Each Lender agrees (a) to reimburse each Agent and Fronting Bank, on
demand, in the amount of such Lender's pro rata share (based on its Commit-
ment hereunder) of any expenses incurred for the
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77
benefit of the Lenders by such Agent or Fronting Bank, including counsel
fees and compensation of agents paid for services rendered on behalf of the
Lenders, that shall not have been reimbursed by the Borrower and (b) to
indemnify and hold harmless each Agent and Fronting Bank and any of their
respective directors, officers, employees or agents, on demand, in the
amount of such pro rata share, from and against any and all liabilities,
taxes, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever that may
be imposed on, incurred by or asserted against it in its capacity as an
Agent or a Fronting Bank, as the case may be, or any of them in any way
relating to or arising out of this Agreement or any other Loan Document or
any action taken or omitted by it or any of them under this Agreement or
any other Loan Document, to the extent the same shall not have been reim-
bursed by the Borrower, provided that (i) no Lender shall be liable to any
Agent or a Fronting Bank for any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or wilful misconduct of
such Agent or Fronting Bank, as the case may be, or any of their respective
directors, officers, employees or agents and (ii) Lenders that do not have
Revolving Credit Commitments (other than through the termination thereof)
shall be under no obligation to reimburse or indemnify the Fronting Banks
under clauses (a) and (b) above.
Each Lender acknowledges that it has, independently and without reli-
ance upon the Agents, any other Lender, the Fronting Banks or the Swingline
Lenders and based on such documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender also acknowledges that it will, independently and
without reliance upon the Agents, any other Lender, the Fronting Banks or
the Swingline Lenders and based on such documents and information as it
shall from time to time deem appropriate, continue to make its own
decisions in taking or not taking action under or based upon this Agreement
or any other Loan Document, any related agreement or any document furnished
hereunder or thereunder.
ARTICLE X
Miscellaneous
SECTION 10.01. Notices. Except as otherwise expressly permitted
herein, notices and other communications provided for herein shall be in
writing and shall be delivered by hand or overnight courier service, mailed
or sent by telex, graphic scanning or other telegraphic communications
equipment of the sending party, as follows:
(a) If to the Borrower, at 8333 Bryan Dairy Road, Largo, Florida
34647, Attention of Chief Financial Officer (Telecopy No. (813) 399-
6359).
(b) If to the Administrative Agent or Chemical Bank, as Swingline
Lender or Managing Agent, at 270 Park Avenue, 9th Floor, New York, New
York 10017, Attention of Neil Boylan (Telecopy No. (212) 270-2625);
with a copy to Chemical Bank Agency Services Corporation, Grand
Central Tower, 140 East 45th Street, New York, New York 10017,
Attention of Hilma Gabbidon (Telecopy No. (212) 622-0854).
(c) If to NationsBank, as Swingline Lender, Primary Fronting
Bank, Documentation Agent or Managing Agent, at 400 North Ashley
Drive, Tampa, Florida 33602, Attention of Joseph J. Troy (Telecopy
No. (813) 224-5948).
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78
(d) If to the IRB Fronting Bank, at its address (or telecopy
number) set forth on Schedule 2.01 or in the Assignment and Acceptance
pursuant to which such Lender shall have become a party hereto.
(e) If to a Lender, at its address (or telecopy number) set forth
on Schedule 2.01 or in the Assignment and Acceptance pursuant to which
such Lender shall have become a party hereto.
All notices and other communications given to any party hereto in
accordance with the provisions of this Agreement shall be deemed to have
been given on the date of receipt if delivered by hand or overnight courier
service or sent by telex, telecopy or other telegraphic communications
equipment of the sender, or on the date five Business Days after dispatch
by certified or registered mail if mailed, in each case delivered, sent or
mailed (properly addressed) to such party as provided in this Section 10.01
or in accordance with the latest unrevoked direction from such party given
in accordance with this Section 10.01. The Administrative Agent shall
deliver to the Borrower a copy of each Administrative Questionnaire
received by it.
SECTION 10.02. Survival of Agreement. All covenants, agreements,
representations and warranties made by the Borrower herein and the Borrower
and the Guarantors in the certificates or other instruments prepared or
delivered in connection with or pursuant to this Agreement or any other
Loan Document shall be considered to have been relied upon by the Lenders,
the Fronting Banks and the Swingline Lenders and shall survive the making
by the Lenders of the Loans, the making by the Swingline Lenders of the
Swingline Loans, the issuance of Letters of Credit by the Fronting Banks
and the origination of the Bankers' Acceptances by the Primary Fronting
Bank, and the execution and delivery to the Lenders and the Swingline
Lenders of the Notes evidencing such loans, regardless of any investigation
made by the Lenders, the Fronting Banks and the Swingline Lenders or on
their behalf, and shall continue in full force and effect as long as the
principal of or any accrued interest on any Loan or Swingline Loan or any
Fee or any other amount payable under this Agreement or any other Loan
Document is outstanding and unpaid or any Letter of Credit or Bankers'
Acceptance is outstanding and so long as the Commitments and the LC/BA
Commitment have not been terminated.
SECTION 10.03. Binding Effect. This Agreement shall become effective
when it shall have been executed by the Borrower, the Administrative Agent,
the Managing Agents, the Fronting Banks and the Swingline Lenders and when
the Administrative Agent shall have received copies hereof that, when taken
together, bear the signatures of each Lender, and thereafter shall be
binding upon and inure to the benefit of the Borrower, the Administrative
Agent, the Managing Agents, the Fronting Banks, the Swingline Lenders and
each Lender and their respective successors and assigns, except that the
Borrower shall not have the right to assign its rights hereunder or any
interest herein without the prior consent of all the Lenders (and any
attempted assignment by the Borrower shall be void).
SECTION 10.04. Successors and Assigns. (a) Whenever in this Agreement
any of the parties hereto is referred to, such reference shall be deemed to
include the successors and assigns of such party; and all covenants,
promises and agreements by or on behalf of the Borrower, the Managing
Agents, the Administrative Agent, the Fronting Banks, the Swingline Lenders
or the Lenders that are contained in this Agreement shall bind and inure to
the benefit of their respective successors and assigns.
(b) Each Lender may assign to one or more assignees all or a portion
of its interests, rights and obligations under this Agreement (including
all or a portion of its Commitments and LC/BA
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79
Commitment, the outstanding Letters of Credit and Bankers' Acceptances and
the Loans at the time owing to it and the Notes held by it); provided, how-
ever, that (i) except in the case of an assignment to a Lender or an
Affiliate of a Lender, each of the Administrative Agent and the Borrower
(and in the case of an assignment of a Lender's Revolving Credit
Commitment, the Swingline Lenders and the Fronting Banks) must give its
prior written consent to such assignment (which consent shall not be
unreasonably withheld); provided, however, the consent of the Borrower
shall not be required if a Default or an Event of Default under paragraph
(b) or (c) of Article VIII has occurred and is continuing on the date of
the Assignment and Acceptance, (ii) if the assignee shall not be a Lender
or an Affiliate of a Lender, the amount of the Commitment of the assigning
Lender subject to each such assignment (determined as of the date the
Assignment and Acceptance with respect to such assignment is delivered to
the Administrative Agent) shall not be less than $5,000,000 (or an amount
equal to the remaining balance of the Commitments), (iii) the parties to
each such assignment shall execute and deliver to the Administrative Agent
an Assignment and Acceptance, together with the Note or Notes subject to
such assignment and, unless the assigning Lender is a Managing Agent and
the Assignment and Acceptance with respect to such assignment is delivered
to the Administrative Agent on or prior to the date that is 90 days after
the Restatement Date, a processing and recordation fee of $3,500 and
(iv) the assignee, if it shall not be a Lender, shall deliver to the
Administrative Agent an Administrative Questionnaire. Upon acceptance and
recording pursuant to paragraph (e) of this Section 10.04, from and after
the effective date specified in each Assignment and Acceptance, which
effective date shall be at least five Business Days after the execution
thereof, (i) the assignee thereunder shall be a party hereto and, to the
extent of the interest assigned by such Assignment and Acceptance, have the
rights and obligations of a Lender under this Agreement and (ii) the
assigning Lender thereunder shall, to the extent of the interest assigned
by such Assignment and Acceptance, be released from its obligations under
this Agreement (and, in the case of an Assignment and Acceptance covering
all or the remaining portion of an assigning Lender's rights and
obligations under this Agreement, such Lender shall cease to be a party
hereto but shall continue to be entitled to the benefits of Sections 10.05
and, with respect only to liabilities of the Borrower thereunder to such
Lender that have accrued or otherwise arise by reason of circumstances or
events prior to the assignment of its rights and obligations hereunder,
Sections 2.14, 2.16 and 2.20, as well as to any Fees accrued for its
account and not yet paid).
(c) By executing and delivering an Assignment and Acceptance, the
assigning Lender thereunder and the assignee thereunder shall be deemed to
confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Lender warrants that it is the legal and bene-
ficial owner of the interest being assigned thereby free and clear of any
adverse claim and that its Commitments and LC/BA Commitment, and the
outstanding balances of its Term Loans and Revolving Credit Loans, in each
case without giving effect to assignments thereof that have not become
effective, are as set forth in such Assignment and Acceptance; (ii) except
as set forth in clause (i) above, such assigning Lender makes no
representation or warranty and assumes no responsibility with respect to
any statements, warranties or representations made in or in connection with
this Agreement, or the execution, legality, validity, enforceability, gen-
uineness, sufficiency or value of this Agreement, any other Loan Document
or any other instrument or document furnished pursuant hereto, or the
financial condition of the Borrower or the performance or observance by the
Borrower of any of its obligations under this Agreement or the Borrower or
any Guarantor under any other Loan Document or any other instrument or
document furnished pursuant hereto; (iii) such assignee represents and
warrants that it is legally authorized to enter into such Assignment and
Acceptance; (iv) such assignee confirms that it has received a copy of this
Agreement, together with copies of the most recent financial statements
delivered pursuant to Section 6.04 and such other documents and information
as it has deemed appropriate to make its own credit analysis and decision
to enter into such Assignment and Acceptance; (v) such assignee will
independently and without reliance upon the Administrative Agent, such
assigning
<PAGE>
80
Lender or any other Lender and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Agreement; (vi) such
assignee appoints and authorizes the Administrative Agent and the Managing
Agents to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Administrative Agent
and the Managing Agents by the terms hereof, together with such powers as
are reasonably incidental thereto; and (vii) such assignee agrees that it
will perform in accordance with their terms all the obligations that by the
terms of this Agreement are required to be performed by it as a Lender.
(d) The Administrative Agent, acting for this purpose as agent for the
Borrower, shall maintain at one of its offices in The City of New York a
copy of each Assignment and Acceptance delivered to it and a register for
the recordation of the names and addresses of the Lenders, and the Com-
mitments and LC/BA Commitment of, and principal amount of the Loans owing
to, each Lender pursuant to the terms hereof from time to time (the
"Register"). The entries in the Register shall be conclusive in the absence
of manifest error and the Borrower, the Administrative Agent, the Fronting
Banks, the Swingline Lenders and the Lenders shall treat each person whose
name is recorded in the Register pursuant to the terms hereof as a Lender
hereunder for all purposes of this Agreement, notwithstanding notice to the
contrary. The Register shall be available for inspection by the Borrower,
the Fronting Banks, the Swingline Lenders and any Lender, at any reasonable
time and from time to time upon reasonable prior notice.
(e) Upon its receipt of a duly completed Assignment and Acceptance
executed by an assigning Lender and an assignee together with the Note or
Notes subject to such assignment, an Administrative Questionnaire completed
in respect of the assignee (unless the assignee shall already be a Lender
hereunder), the processing and recordation fee referred to in paragraph (b)
above and the written consent of the Administrative Agent and the Borrower
(and if required under paragraph (b) above, the Swingline Lenders and the
Fronting Banks) to such assignment, the Administrative Agent shall (i)
accept such Assignment and Acceptance, (ii) record the information con-
tained therein in the Register and (iii) give prompt notice thereof to the
Lenders, the Fronting Banks and the Swingline Lenders. No assignment shall
be effective unless it has been recorded in the Register as provided in
this paragraph (e). Within five Business Days after receipt of notice, the
Borrower, at its own expense, shall execute and deliver to the
Administrative Agent, in exchange for the surrendered Note or Notes, a new
Note or Notes payable to such assignee or registered assigns in a principal
amount equal to the applicable Commitment assumed by it pursuant to such
Assignment and Acceptance and, if the assigning Lender has retained a Com-
mitment, a new Note payable to such assigning Lender or registered assigns
in a principal amount equal to the applicable Commitment retained by it;
provided, however, that any such Note or Notes shall comply with
Section 2.04. Such new Note or Notes shall be in an aggregate principal
amount equal to the aggregate principal amount of such surrendered Note;
such new Notes shall be dated the date of the surrendered Notes that they
replace and shall otherwise be in substantially the form of Exhibit A-1,
A-2 or A-3, as appropriate. Notes that are replaced with substitute Notes
shall be returned to the Borrower.
(f) Each Lender may without the consent of the Borrower, the
Administrative Agent, the Fronting Banks or the Swingline Lenders sell
participations to one or more banks or other entities in all or a portion
of its rights and obligations under this Agreement (including all or a por-
tion of its Commitments and the Loans owing to it and the Notes held by
it); provided, however, that (i) such Lender's obligations under this
Agreement shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obliga-
tions, (iii) the participating banks or other entities shall be entitled to
the benefit of the cost protection provisions contained in Sections 2.14,
2.16 and 2.20 to the same extent as if they were Lenders, provided that the
Borrower
<PAGE>
81
shall not be required to reimburse the participating lenders or other
entities pursuant to Section 2.14, 2.16 or 2.20 in an amount in excess of
the amount that would have been payable thereunder to such Lender had such
Lender not sold such participation and (iv) the Borrower, the
Administrative Agent, the Managing Agents, the Fronting Banks, the Swing-
line Lenders and the other Lenders shall continue to deal solely and
directly with such Lender in connection with such Lender's rights and
obligations under this Agreement, and such Lender shall retain the sole
right to enforce the obligations of the Borrower relating to the Loans,
LC Disbursements or BA Disbursements and to approve any amendment,
modification or waiver of any provision of this Agreement (provided that
the participating bank or other entity may be provided with the right to
approve amendments, modifications or waivers affecting it with respect to
(A) any decrease in the Fees payable hereunder with respect to Loans in
which the participating bank or other entity has purchased a participation,
(B) any change in the amount of principal of, or decrease in the rate at
which interest is payable, on the Loans in which the participating bank or
other entity has purchased a participation, (C) any extension of the final
scheduled maturity of any Loan in which the participating bank or other
entity has purchased a participation or (D) any release of all or
substantially all the Collateral).
(g) In the event that S&P, Moody's and Thompson's BankWatch (or
InsuranceWatch Ratings Service, in the case of Lenders that are insurance
companies (or Best's Insurance Reports, if such insurance company is not
rated by InsuranceWatch Ratings Service)) shall, after the date that any
Lender with a Revolving Credit Commitment becomes a Lender, downgrade the
long-term certificate of deposit ratings of such Lender, and the resulting
ratings shall be below BBB-, Baa3 and C (or BB, in the case of a Lender
that is an insurance company (or B, in the case of an insurance company not
rated by InsuranceWatch Ratings Service)), then each Fronting Bank shall
have the right, but not the obligation, at its own expense, upon notice to
such Lender and the Administrative Agent, to replace (or to request the
Borrower to use its reasonable efforts to replace) such Lender with an
assignee (in accordance with and subject to the restrictions contained in
Section 9.04(b)), and such Lender hereby agrees to transfer and assign
without recourse (in accordance with and subject to the restrictions
contained in Section 9.04(b)) all its interests, rights and obligations in
respect of its Revolving Credit Commitment to such assignee; provided, how-
ever, that (i) no such assignment shall conflict with any law, rule and
regulation or order of any Governmental Authority and (ii) such Fronting
Bank or such assignee, as the case may be, shall pay to such Lender in
immediately available funds on the date of such assignment the principal of
and interest accrued to the date of payment on the Loans made by such
Lender hereunder and all other amounts accrued for such Lender's account or
owed to it hereunder.
(h) Notwithstanding the limitations set forth in paragraph (b) above,
any Lender may at any time assign all or any portion of its rights under
this Agreement and the Notes issued to it to a Federal Reserve Bank without
the prior written consent of the Borrower or the Administrative Agent,
provided that no such assignment shall release a Lender from any of its
obligations hereunder.
(i) The Borrower shall not assign or delegate any of its rights or
duties hereunder without the prior written consent of the Administrative
Agent, the Managing Agents, the Fronting Banks, the Swingline Lenders and
each Lender. Except as provided in Section 3.10 and Section 2.22,
respectively, neither Fronting Bank or Swingline Lender may assign or
delegate any of its respective rights and duties hereunder without the
prior written consent of the Borrower and Managing Agents (and any
attempted assignment by the Borrower shall be void).
SECTION 10.05. Expenses; Indemnity. (a) The Borrower agrees to pay all
out-of-pocket expenses incurred by the Administrative Agent, the Managing
Agents, the Fronting Banks, the Swingline Lenders and the Collateral Agent
in connection with the preparation of this Agreement and the other
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82
Loan Documents or in connection with any amendments, modifications or
waivers of the provisions hereof or thereof (whether or not the
transactions hereby contemplated shall be consummated) or incurred by the
Administrative Agent, the Managing Agents, the Fronting Banks, the
Swingline Lenders, the Collateral Agent or any Lender in connection with
the enforcement or protection of their rights in connection with this
Agreement and the other Loan Documents or in connection with the Loans made
or the Notes or Letters of Credit issued or Bankers' Acceptances originated
hereunder, including the reasonable fees, other charges and disbursements
of Cravath, Swaine & Moore, counsel for the Administrative Agent, the
Managing Agents, the Collateral Agent, the Swingline Banks and the Fronting
Banks (which fees, other charges and disbursements will be set forth in
accordance with the Borrower's standard billing policy), and, in connection
with any such enforcement or protection, the reasonable fees, other charges
and disbursements of any other counsel for the Administrative Agent, the
Managing Agents, the Fronting Banks, the Swingline Lenders, the Collateral
Agent or any Lender. The Borrower further agrees that it shall indemnify
the Administrative Agent, the Managing Agents, the Fronting Banks, the
Swingline Lenders, the Collateral Agent, the Lenders from and hold them
harmless against any documentary taxes, assessments or similar charges made
by any Governmental Authority by reason of the execution and delivery of
this Agreement or any of the other Loan Documents.
(b) The Borrower agrees to indemnify the Administrative Agent, the
Collateral Agent and each Fronting Bank, Swingline Lender and Lender and
each of their respective directors, officers, employees and agents (each
such person being called an "Indemnitee") against, and to hold each
Indemnitee harmless from, any and all losses, claims, damages, liabilities
and related expenses, including reasonable counsel fees, charges and
disbursements, incurred by or asserted against any Indemnitee arising out
of, in any way connected with, or as a result of (i) the execution or
delivery of this Agreement or any other Loan Document or any agreement or
instrument contemplated hereby or thereby, the performance by the parties
hereby or thereto of their respective obligations hereunder or thereunder
or the consummation of the Transactions and the other transactions con-
templated hereby or thereby, (ii) the use of the Letters of Credit or the
Bankers' Acceptances or the proceeds of the Loans, the Swingline Loans and
the Bankers' Acceptances or (iii) any claim, litigation, investigation or
proceeding relating to any of the foregoing, whether or not any Indemnitee
is a party thereto, provided that such indemnity shall not, as to any
Indemnitee, be available to the extent that such losses, claims, damages,
liabilities or related expenses have resulted from the gross negligence or
wilful misconduct of such Indemnitee.
(c) The provisions of this Section 10.05 shall remain operative and in
full force and effect regardless of the expiration of the term of this
Agreement, the consummation of the transactions contemplated hereby, the
repayment of any of the Loans or the Swingline Loans, the invalidity or
unenforceability of any term or provision of this Agreement or any other
Loan Document, or any investigation made by or on behalf of the
Administrative Agent, the Managing Agents, the Fronting Banks, the Collat-
eral Agent, the Swingline Lenders or any Lender. All amounts due under this
Section 10.05 shall be payable on written demand therefor.
SECTION 10.06. Right of Setoff. If an Event of Default shall have
occurred and be continuing, and the Administrative Agent shall have
declared, or the Required Lenders shall have requested the Administrative
Agent to declare, the Loans and the Swingline Loans immediately due and
payable pursuant to Article VIII, each Lender is hereby authorized at any
time and from time to time, to the fullest extent permitted by applicable
law, to set off and apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at
any time owing by such Lender to or for the credit or the account of the
Borrower against any of and all the obligations of such entity now or here-
after existing under this Agreement and other Loan Documents held by such
Lender, irrespective of whether such Lender shall have made any demand
under this Agreement or such other
<PAGE>
83
Loan Document and although such obligations may be unmatured. The rights of
each Lender under this Section 10.06 are in addition to other rights and
remedies (including other rights of setoff) that such Lender may have.
SECTION 10.07. Applicable Law. THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS (OTHER THAN THE MORTGAGES) SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK.
SECTION 10.08. Waivers; Amendment. (a) No failure or delay on the part
of the Administrative Agent, either Managing Agent, Fronting Bank or
Swingline Lender, the Collateral Agent or any Lender in exercising any
power or right hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right or power, or any abandonment
or discontinuance of steps to enforce such a right or power, preclude any
other or further exercise thereof or the exercise of any other right or
power. The rights and remedies of the Administrative Agent, the Managing
Agents, the Fronting Banks, the Swingline Lenders, the Collateral Agent and
the Lenders hereunder and under the other Loan Documents are cumulative and
are not exclusive of any rights or remedies that they would otherwise have.
No waiver of any provision of this Agreement or any other Loan Document or
consent to any departure by the Borrower therefrom shall in any event be
effective unless the same shall be permitted by paragraph (b) below, and
then such waiver or consent shall be effective only in the specific
instance and for the purpose for which given. No notice or demand on the
Borrower in any case shall entitle the Borrower to any other or further
notice or demand in similar or other circumstances. Each holder of a Note
shall be bound by any amendment, modification, waiver or consent authorized
as provided herein, whether or not such Note shall have been marked to
indicate such amendment, modification, waiver or consent.
(b) Neither this Agreement or any of the other Loan Documents nor any
provision hereof or thereof may be waived, amended or modified except,
(i) in the case of this Agreement, pursuant to an agreement or agreements
in writing entered into by the Borrower and the Required Lenders, (ii) in
the case of the Guarantee Agreement and the Indemnity, Subrogation and
Contribution Agreement, pursuant to an agreement or agreements in writing
entered into by the Guarantors and the Collateral Agent and consented to by
the Required Lenders, (iii) in the case of any of the Security Documents,
pursuant to an agreement or agreements in writing entered into by the Bor-
rower and the Collateral Agent and consented to by the Required Lenders,
(iv) in the case of a Letter of Credit, pursuant to an agreement or
agreements entered into by the Borrower and the relevant Fronting Bank or
(v) in the case of any Note, pursuant to an agreement or agreements entered
into by the Borrower and the holder of such Note and consented to by the
Required Lenders; provided, however, that no such agreement shall
(A) change the principal amount of, or extend the final scheduled maturity
of, any principal of or interest on, any Loan, or forgive any such payment
or any part thereof, or reduce the rate of interest on any Loan, without
the prior written consent of each holder of a Note affected thereby,
(B) increase the Commitment or the LC/BA Commitment or reduce the Fees of
any Lender without the prior written consent of such Lender, (C) amend or
modify the provisions of Section 2.17, the provisions of this
Section 10.08(b) or the definition of the term "Required Lenders" without
the prior written consent of each Lender, (D) reduce any Term Loan
Repayment amount or extend any Term Loan Repayment Date (other than the
Term Loan Maturity Date), in each case without the prior written consent of
Lenders holding Term Loans representing at least 75% of the aggregate
outstanding principal amount of the Term Loans or (E) release any material
Collateral under any Security Document or under such Security Document,
except as expressly permitted thereby or hereby, without the prior written
consent of each Lender, provided further that no such agreement shall
amend, modify or otherwise affect the rights or duties of the
Administrative Agent, the Managing Agents, the Fronting Banks or the
Swingline Lenders hereunder
<PAGE>
84
without the prior written consent of the Administrative Agent, the Managing
Agents, the Fronting Banks or the Swingline Lenders, as the case may be.
Each Lender and each holder of a Note shall be bound by any modification or
amendment authorized by this Section 10.08 regardless of whether its Note
shall have been marked to make reference thereto, and any consent by any
Lender or holder of a Note pursuant to this Section 10.08 shall bind any
person subsequently acquiring a Note from it, regardless of whether such
Note shall have been so marked.
SECTION 10.09. Interest Rate Limitation. Notwithstanding anything
herein or in the Notes to the contrary, if at any time the applicable
interest rate, together with all fees and charges that are treated as
interest under applicable law (collectively, the "Charges"), as provided
for herein or in any other document executed in connection herewith, or
otherwise contracted for, charged, received, taken or reserved by any
Lender or either Swingline Lender, shall exceed the maximum lawful rate
(the "Maximum Rate") that may be contracted for, charged, taken, received
or reserved by such Lender or such Swingline Lender in accordance with
applicable law, the rate of interest payable under the Note held by such
Lender or such Swingline Lender, together with all Charges payable to such
Lender or such Swingline Lender, shall be limited to the Maximum Rate.
SECTION 10.10. Entire Agreement. This Agreement and the other Loan
Documents and the fee letter referred to in Section 2.05(c) constitute the
entire contract between the parties relative to the subject matter hereof.
Any previous agreement among the parties with respect to the subject matter
hereof is superseded by this Agreement and the other Loan Documents.
Nothing in this Agreement or in the other Loan Documents, expressed or
implied, is intended to confer upon any party other than the parties hereto
and thereto any rights, remedies, obligations or liabilities under or by
reason of this Agreement or the other Loan Documents.
SECTION 10.11. Waiver of Jury Trial. Each party hereto hereby waives,
to the fullest extent permitted by applicable law, any right it may have to
a trial by jury in respect of any litigation directly or indirectly arising
out of, under or in connection with this Agreement or any of the other Loan
Documents. Each party hereto (a) certifies that no representative, agent or
attorney of any other party has represented, expressly or otherwise, that
such other party would not, in the event of litigation, seek to enforce the
foregoing waiver and (b) acknowledges that it and the other parties hereto
have been induced to enter into this Agreement and the other Loan
Documents, as applicable, by, among other things, the mutual waivers and
certifications in this Section 10.11.
SECTION 10.12. Severability. In the event any one or more of the
provisions contained in this Agreement or in any other Loan Document should
be held invalid, illegal or unenforceable in any respect, the validity,
legality and enforceability of the remaining provisions contained herein
and therein shall not in any way be affected or impaired thereby. The
parties shall endeavor in good-faith negotiations to replace the invalid,
illegal or unenforceable provisions with valid provisions, the economic
effect of which comes as close as possible to that of the invalid, illegal
or unenforceable provisions.
SECTION 10.13. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original but all of
which when taken together shall constitute but one contract, and shall
become effective as provided in Section 10.03.
SECTION 10.14. Headings. Article and Section headings and the Table of
Contents used herein are for convenience of reference only, are not part of
this Agreement and are not to affect the construction of, or to be taken
into consideration in interpreting, this Agreement.
<PAGE>
85
SECTION 10.15. Confidentiality. (a) Each Lender agrees not to disclose
to any Person the Information (as defined below) without the prior written
consent of the Borrower, which consent shall not be unreasonably withheld,
except that any Lender shall be permitted to disclose Information (i) to
its officers, directors, employees, agents and representatives; (ii) to the
extent required by applicable laws and regulations or by any subpoena or
similar legal process, or requested by any bank regulatory authority; (iii)
to the extent such Information (A) becomes publicly available other than as
a result of a breach of this Agreement, (B) becomes available to such
Lender on a non-confidential basis from a source other than the Borrower or
its Affiliates or (C) was available to such Lender on a non-confidential
basis prior to its disclosure to such Lender by the Borrower or its
Affiliates; (iv) to any actual or prospective assignee of, or prospective
purchaser of a participation in, the rights of such Lender hereunder, in
each case subject to paragraph (c) below; or (v) in connection with any
suit, action or proceeding relating to the enforcement of rights hereunder
or under any other Loan Document or in connection with the transactions
contemplated hereby. As used in this Section 10.15, as to any Lender, the
"Information" shall mean the Confidential Information Memorandum and any
other materials, documents and information that the Borrower or any of its
Affiliates may have furnished or may hereafter furnish to any Lender in
connection with this Agreement.
(b) Each Lender agrees that it will use the Information only for
purposes related to the transactions contemplated hereby and by the other
Loan Documents, provided that (i) if the conditions referred to in any of
subclauses (A) through (C) of clause (iii) of paragraph (a) above are met,
such Lender may otherwise use the Information and (ii) if such Lender is
otherwise a creditor of the Borrower, such Lender may use the Information
in connection with its other credits to the Borrower.
(c) Each Lender agrees that it will not disclose any of the
Information to any actual or prospective assignee of such Lender or
participant in any rights of such Lender under this Agreement unless such
actual or prospective assignee or participant first executes and delivers
to such Lender a confidentiality letter containing substantially the
undertakings set forth in this Section 10.15.
SECTION 10.16. Jurisdiction; Consent to Service of Process. (a) The
Borrower hereby irrevocably and unconditionally submits, for itself and its
property, to the nonexclusive jurisdiction of any New York State court or
Federal court of the United States of America sitting in New York City, and
any appellate court from any thereof, in any action or proceeding arising
out of or relating to this Agreement or the other Loan Documents, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of
any such action or proceeding may be heard and determined in such New York
State or, to the extent permitted by law, in such Federal court. Each of
the parties hereto agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions
by suit on the judgment or in any other manner provided by law. Nothing in
this Agreement shall affect any right that any Lender may otherwise have to
bring any action or proceeding relating to this Agreement or the other Loan
Documents against the Borrower or its properties in the courts of any
jurisdiction.
(b) The Borrower hereby irrevocably and unconditionally waives, to the
fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this agreement or the other Loan
Documents in any New York State or Federal court. Each of the parties
hereto hereby irrevocably waives, to the fullest extent permitted by law,
the defense of an inconvenient forum to the maintenance of such action or
proceeding in any such court.
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86
(c) Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 10.01. Nothing in
this Agreement will affect the right of any party to this Agreement to
serve process in any other manner permitted by law.
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87
IN WITNESS WHEREOF, the Borrower, the Administrative Agent, the
Managing Agents, the Swingline Lenders and the Lenders have caused this
Agreement to be duly executed by their respective authorized officers as of
the day and year first above written.
ECKERD CORPORATION,
by
-------------------------
Name:
Title:
CHEMICAL BANK, individually
and as Administrative Agent,
Managing Agent and Swingline
Lender,
by
-------------------------
Name:
Title:
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88
NATIONSBANK OF FLORIDA, N.A.,
individually and as Managing
Agent, Swingline Lender,
Primary Fronting Bank and
Documentation Agent,
by
-------------------------
Name:
Title:
ABN-AMRO BANK, N.V.,
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
THE BANK OF NEW YORK,
by
-------------------------
Name:
Title:
THE BANK OF NOVA SCOTIA,
by
-------------------------
Name:
Title:
THE BANK OF TOKYO,
by
-------------------------
Name:
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR,EXTERIEUR,
<PAGE>
89
by
-------------------------
Name:
Title:
BANQUE PARIBAS,
by
-------------------------
Name:
Title:
COMPAGNIE FINANCIERE DE CIC ET DE
L'UNION EUROPEENNE,
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
CREDIT LYONNAIS CAYMAN ISLAND
BRANCH,
by
-------------------------
Name:
Title:
FIRST INTERSTATE BANK OF TEXAS
N.A.,
by
-------------------------
Name:
Title:
<PAGE>
90
THE FIRST NATIONAL BANK OF BOSTON,
by
-------------------------
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO,
by
-------------------------
Name:
Title:
Title:
FIRST UNION NATIONAL BANK OF
FLORIDA,
by
-------------------------
Name:
Title:
FLEET BANK OF MASSACHUSETTS, N.A.,
by
-------------------------
Name:
Title:
THE FUJI BANK, LIMITED,
by
-------------------------
Name:
Title:
HIBERNIA NATIONAL BANK,
by
-------------------------
Name:
Title:
KREDIETBANK N.V.
<PAGE>
91
by
-------------------------
Name:
Title:
by
-------------------------
Name:
Title:
THE LONG-TERM CREDIT BANK OF
JAPAN, LIMITED, NEW YORK
BRANCH,
by
-------------------------
Name:
Title:
MELLON BANK, N.A.,
by
-------------------------
Name:
Title:
THE MITSUBISH BANK, LIMITED,
by
-------------------------
Name:
Title:
THE MITSUBISHI TRUST AND
BANKING CORPORATION,
by
-------------------------
Name:
Title:
NATIONAL CANADA FINANCE CORP.,
<PAGE>
92
by
-------------------------
Name:
Title:
NATWEST BANK N.A.,
by
-------------------------
Name:
Title:
THE NIPPON CREDIT BANK, LTD.,
by
-------------------------
Name:
Title:
PNC BANK, KENTUCKY, INC.,
by
-------------------------
Name:
Title:
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK
B.A., "RABOBANK NEDERLAND",
NEW YORK BRANCH,
by
-------------------------
Name:
Title:
THE SAKURA BANK, LIMITED,
by
-------------------------
Name:
Title:
SOCIETE GENERALE,
<PAGE>
93
by
-------------------------
Name:
Title:
THE SUMITOMO BANK, LIMITED,
ATLANTA AGENCY,
by
-------------------------
Name:
Title:
SUNTRUST BANK, TAMPA BAY,
by
-------------------------
Name:
Title:
THE TOKAI BANK, LIMITED,
ATLANTA AGENCY,
by
-------------------------
Name:
Title:
UNION BANK OF FINLAND LTD.,
GRAND CAYMAN BRANCH,
by
-------------------------
Name:
Title:
UNION BANK OF SWITZERLAND,
NEW YORK BRANCH,NEW YORK
BRANCH,
by
-------------------------
Name:
Title:
<PAGE>
94
UNITED STATES NATIONAL BANK OF
OREGON,
by
-------------------------
Name:
Title:
WELLS FARGO BANK, N.A.,
by
-------------------------
Name:
Title:
THE YASUDA TRUST & BANKING
COMPANY, LIMITED, NEW YORK
BRANCH,
by
-------------------------
Name:
Title:
Robert E. Lewis
Vice President/General Counsel
(813) 399-6129
December 7, 1995
Eckerd Corporation
8333 Bryan Dairy Road
Largo, FL 34647
Ladies and Gentlemen:
I am Vice President/General Counsel of Eckerd Corporation, a Delaware
corporation (the "Company"). I am providing the opinion set forth herein in
connection with the preparation of a registration statement on Form S-3 (No.
33-64409) filed with the Securities and Exchange Commission (the
"Commission") on November 17, 1995, as amended by Amendment No. 1 thereto
being filed by the Company with the Commission on the date hereof (as so
amended, the "Registration Statement").
The Registration Statement relates to the registration by the Company
under the Securities Act of 1933, as amended (the "Act"), of up to 5,750,000
shares of Common Stock of the Company, par value $.01 per share (the "Common
Stock"), and the sale of (i) 5,000,000 shares of Common Stock (the "Firm
Shares") by certain stockholders of the Company (the "Selling Stockholders")
and (ii) up to 750,000 shares of Common Stock subject to an option given to
the Underwriters (as defined below) by the Selling Stockholders solely to
cover over-allotments, if necessary (the "Option Shares" and, together with
the Firm Shares and any shares to be sold by the Selling Stockholders which
are registered on a registration statement filed by the Company pursuant to
Rule 462(b) of the General Rules and Regulations under the Act, the
"Shares"), to the public through a syndicate of underwriters in a firm
commitment public offering pursuant to a Purchase Agreement (the "Purchase
Agreement") in the form filed as Exhibit 1.1 to the Registration Statement,
to be entered into by and among the Company, the Selling Stockholders and
Merrill Lynch and Co., CS First Boston Corporation, Morgan Stanley & Co.,
Incorporated and Raymond James & Associates, Inc., acting severally on behalf
of themselves and the several Underwriters named therein (the
"Underwriters").
This opinion is being delivered in accordance with the requirements of
Item 601(b)(5) of Regulation S-K under the Act.
In connection with this opinion, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of (i) the Registration
Statement; (ii) the form of the Purchase Agreement; (iii) the Company's
Restated Certificate of Incorporation, as in effect as of the respective
issue dates of the Shares and as of the date hereof; (iv) the Company's
Amended and Restated By-laws, as in effect as of the respective issue dates
of the Shares and as of the date hereof; (v) the resolutions of the Board of
Directors of the Company relating to among other things, the issuance of the
Shares and the registration of the Shares under the Act; (vi) the form of a
specimen certificate representing the Shares; and (vii) such other documents
as I have deemed necessary or appropriate as a basis for the opinions set
forth below. I have also examined originals or copies, certified or
otherwise identified to my satisfaction, of such records of the company and
such agreements, certificates of public officials, certificates of officers
or other representatives of the Company and others, and such other documents,
certificates and records as I have deemed necessary or appropriate as a basis
for the opinion set forth herein.
In my examination, I have assumed the legal capacity of all natural
persons, the genuineness of signatures, the authenticity of all documents
submitted to me as originals, the conformity to original documents submitted
to me as certified or photostatic copies and the authenticity of the
originals of such latter documents. In making my examination of documents
executed by parties other than the Company, I have assumed that such parties
<PAGE>
Page 2
December 7, 1995
had the power, corporate or other, to enter into and perform all obligations
thereunder and have also assumed the due authorization by all requisite
action, corporate or other, and the execution and delivery by such parties of
such documents and the validity and binding effect thereof. As to any facts
material to the opinions expressed herein which were not independently
established or verified, I have relied upon oral or written statements and
representations of officers and other representatives of the Company and
others.
I am admitted to practice law in the State of Florida and I do not
purport to be an expert on any law other than the laws of the State of
Florida and the laws of the United States of America. Insofar as the
opinions contained herein relate to the general corporate law of the State of
Delaware, I have made such investigation of such laws as I have deemed
necessary as a basis for such opinions.
Based upon and subject to the foregoing and assuming (i) the conformity
of the certificates representing the Shares to the form of the specimen
thereof examined by me and the due execution and delivery of such
certificates, and (ii) that the Company has received the full consideration
for the Shares, I am of the opinion that the Shares are duly authorized,
validly issued, fully paid and nonassessable.
<PAGE>
Page 3
December 7, 1995
I hereby consent to the use of my name in the Registration Statement
under the caption "Legal Matters" and to the filing of this opinion as an
Exhibit to the Registration Statement. I further consent to the
incorporation of this opinion by reference as an exhibit to any registration
statement relating to the offering which is filed pursuant to Rule 462(b) of
the General Rules and Regulations under the Act and to the use of my name
under the caption "Legal Matters" in the prospectus included in or
incorporated by reference in any such registration statement. In giving such
consent, I do not admit that I came within the category of persons whose
consent is required under Section 7 of the Act or the rules and regulations
of the Commission thereunder.
Very truly yours,
/s/ Robert E. Lewis
-----------------------------
Robert E. Lewis
Vice President/General Counsel
Eckerd Corporation
EXHIBIT 15.1
Eckerd Corporation
8333 Bryan Dairy Road
Largo, Florida 34647
Gentlemen:
Re: Registration Statement on Form S-3 of Eckerd Corporation
With respect to the subject registration statement, we acknowledge our awareness
of the incorporation by reference therein of our reports dated June 10, 1995 and
September 7, 1995 related to our reviews of interim financial information.
Pursuant to Rule 436(c) under the Securities Act of 1933 (the "Act"), such
reports are not considered a part of a registration statement prepared or
certified by an accountant or a report prepared or certified by an accountant
within the meaning of sections 7 and 11 of the Act.
Very truly yours,
KPMG Peat Marwick LLP
Tampa, Florida
December 6, 1995
EXHIBIT 23.1
CONSENT OF CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors:
Eckerd Corporation and Subsidiaries:
We consent to the use of our audit report dated March 20, 1995 on the
consolidated financial statements of Eckerd Corporation and Subsidiaries
included in its Annual Report on Form 10-K 405 as of January 28, 1995 and
January 29, 1994 and the fiscal years ended January 28, 1995, January 29, 1994
and January 30, 1993, incorporated by reference into the Prospectus (the
"Prospectus"), which forms a part of the Registration Statement on Form S-3 of
the Company originally filed on the date hereof, and to the reference to this
firm under the heading "Experts" in the Prospectus.
Our report refers to a change in accounting policy related to the timing of the
recognition of closed store obligations.
KPMG Peat Marwick LLP
Tampa, Florida
December 6, 1995
