<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8549
FOXMEYER HEALTH CORPORATION
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(Exact Name of Registrant as Specified in its Charter)
DELAWARE 25-1425889
- ------------------------------------------------ -----------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1220 Senlac Drive, Carrollton, Texas 75006
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code 214-446-4800
-----------------------
NATIONAL INTERGROUP, INC.
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(Former Name or Former Address, if Changed Since Last Report)
Indicate by check mark whether the registrant (1) had filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months, and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--- ---
Number of shares of Common Stock outstanding as of November 10, 1994:
17,091,015
<PAGE> 2
PART 1. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------------------------------------------
Three Months Ended
September 30,
-----------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $1,250,427 $1,371,142
Costs and expenses
Cost of goods sold (exclusive of depreciation shown separately below) 1,164,485 1,282,663
Selling, general and administrative expenses 64,738 68,821
Depreciation and amortization 6,442 5,471
- --------------------------------------------------------------------------------------------------------------------
14,762 14,187
Other income (expense) (695) 1,257
- --------------------------------------------------------------------------------------------------------------------
Operating income 14,067 15,444
Financing costs
Interest income 957 510
Interest expense 6,402 7,186
- --------------------------------------------------------------------------------------------------------------------
Financing costs, net 5,445 6,676
- --------------------------------------------------------------------------------------------------------------------
Income before National Steel Corporation, income tax provision and
minority interest 8,622 8,768
National Steel Corporation
Net preferred dividend income 1,364 1,136
Unrealized loss on common stock investment - (6,800)
- --------------------------------------------------------------------------------------------------------------------
1,364 (5,664)
- --------------------------------------------------------------------------------------------------------------------
Income before income tax provision and minority interest 9,986 3,104
Income tax provision 1,644 1,342
- --------------------------------------------------------------------------------------------------------------------
Income before minority interest 8,342 1,762
Minority interest in net income of consolidated subsidiaries 1,672 1,616
- --------------------------------------------------------------------------------------------------------------------
Net income 6,670 146
Preferred stock dividends 4,794 1,265
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) applicable to common stockholders $ 1,876 $ (1,119)
- --------------------------------------------------------------------------------------------------------------------
Net income (loss) per share $ 0.14 $ (0.06)
====================================================================================================================
Average number of shares outstanding 12,950 19,702
====================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 3
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (In Thousands, Except Per Share Amounts)
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended
September 30,
-----------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net sales $2,507,357 $2,657,836
Costs and expenses
Cost of goods sold (exclusive of depreciation shown separately below) 2,340,035 2,490,472
Selling, general and administrative expenses 131,311 138,394
Depreciation and amortization 12,785 10,762
- --------------------------------------------------------------------------------------------------------------------
23,226 18,208
Other income 1,863 2,374
- --------------------------------------------------------------------------------------------------------------------
Operating income 25,089 20,582
Financing costs
Interest income 2,858 961
Interest expense 13,405 12,857
- --------------------------------------------------------------------------------------------------------------------
Financing costs, net 10,547 11,896
- --------------------------------------------------------------------------------------------------------------------
Income before National Steel Corporation, income tax provision
(benefit) and minority interest 14,542 8,686
National Steel Corporation
Net preferred dividend income 2,734 5,391
Unrealized loss on common stock investment - (6,800)
- --------------------------------------------------------------------------------------------------------------------
2,734 (1,409)
- --------------------------------------------------------------------------------------------------------------------
Income before income tax provision (benefit) and minority interest 17,276 7,277
Income tax provision (benefit) 1,496 (513)
- --------------------------------------------------------------------------------------------------------------------
Income before minority interest 15,780 7,790
Minority interest in net income of consolidated subsidiaries 3,882 2,387
- --------------------------------------------------------------------------------------------------------------------
Net income 11,898 5,403
Preferred stock dividends 9,495 2,530
- --------------------------------------------------------------------------------------------------------------------
Net income applicable to common stockholders $ 2,403 $ 2,873
- --------------------------------------------------------------------------------------------------------------------
Net income per share $ 0.19 $ 0.15
====================================================================================================================
Average number of shares outstanding 12,973 19,700
====================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 4
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------
September 30, March 31,
1994 1994
- --------------------------------------------------------------------------------------------------------------------
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 45,771 $ 60,987
Receivables - net 308,616 286,707
Inventories 678,964 624,574
Other current assets 52,959 37,299
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 1,086,310 1,009,567
Investment in National Steel Corporation 31,947 29,261
Property, plant and equipment 220,778 204,504
Less: Allowance for depreciation and amortization 79,163 71,060
- --------------------------------------------------------------------------------------------------------------------
141,615 133,444
OTHER ASSETS
Goodwill - net 225,628 228,141
Intangible assets - net 20,130 12,786
Pre-bankruptcy receivable from Phar-Mor, Inc. 28,758 28,758
Deferred tax asset, net of valuation allowance 47,987 47,342
Miscellaneous assets 47,654 36,171
- --------------------------------------------------------------------------------------------------------------------
370,157 353,198
- --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 1,630,029 $ 1,525,470
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 635,133 $ 532,170
Accrued liabilities 53,380 68,770
Income taxes 32,780 31,451
Long-term debt due within one year 10,434 2,158
- --------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 731,727 634,549
LONG-TERM DEBT 309,502 310,920
OTHER LIABILITIES 77,410 81,082
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES 111,248 109,331
REDEEMABLE PREFERRED STOCK 172,018 164,833
STOCKHOLDERS' EQUITY
Common stock, $5.00 par value; authorized 50,000,000 shares; issued 24,167,244
at September 30, 1994 and 23,995,744 at March 31, 1994 120,836 119,979
Capital in excess of par value 209,110 207,281
Minimum pension liability (73,797) (73,797)
Net unrealized holding gain (loss) on marketable securities 4,752 (225)
Retained earnings 175,436 173,029
- --------------------------------------------------------------------------------------------------------------------
436,337 426,267
Less: cost of common stock held in treasury - 11,504,041 shares
at September 30, 1994 and 11,125,441 shares at March 31, 1994 208,213 201,512
- --------------------------------------------------------------------------------------------------------------------
228,124 224,755
- --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,630,029 $ 1,525,470
====================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 5
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
FoxMeyer Health Corporation and Subsidiaries (Thousands of Dollars)
- --------------------------------------------------------------------------------------------------------------------
Six Months Ended
September 30,
-------------------------------
1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 11,898 $ 5,403
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED (USED) BY OPERATING ACTIVITIES:
Minority interest in net income of consolidated subsidiaries 3,882 2,387
Depreciation and amortization 12,785 10,762
Net preferred dividend income from National Steel Corporation (2,734) (5,391)
Gain on sale of investments (3,071) -
Unrealized loss on National Steel Corporation common stock investment - 6,800
Deferred tax expense (benefit) 1,496 (920)
Provision for losses on accounts receivable 1,729 1,424
Cash provided (used) by working capital items, net of acquisitions:
Receivables (18,157) (104,279)
Inventories (60,690) (107,263)
Other assets (39) (8,180)
Accounts payable and accrued liabilities 81,472 78,354
Other (2,465) 2,305
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 26,106 (118,598)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment (17,405) (11,122)
Proceeds from the sale of property, plant and equipment 1,166 174
Prepayment on long-term commitment (290) (5,096)
Acquisitions, net of cash acquired (7,922) -
Proceeds from the sale of investments 15,925 410
Purchase of investments, net of returns (30,926) (3,928)
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES (39,452) (19,562)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under term loan - (125,000)
Borrowings under revolving credit facilities 692,281 946,350
Repayments under revolving credit facilities (683,031) (906,450)
Proceeds from issuance of long-term debt 7,300 226,750
Loan origination fees - (3,671)
Repurchase of common stock (6,701) -
Other debt repayments (10,276) (467)
Dividends paid to minority interests (1,819) (771)
Dividends paid on preferred stock (2,310) (2,530)
Other financing activities 2,686 34
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (1,870) 134,245
- --------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND SHORT-TERM INVESTMENTS (15,216) (3,915)
Cash and Short-Term Investments, Beginning of Period 60,987 54,504
- --------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF PERIOD $ 45,771 $ 50,589
====================================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
<PAGE> 6
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The consolidated financial statements include the accounts of FoxMeyer Health
Corporation (formerly National Intergroup, Inc.) and its subsidiaries (the
"Corporation"), including FoxMeyer Corporation ("FoxMeyer"), an 80.5%-owned
subsidiary (see Note 8 concerning the acquisition in October 1994 of the
remaining 19.5% of FoxMeyer held by public stockholders), and Ben Franklin
Retail Stores, Inc. ("Ben Franklin"), a 67.2%-owned subsidiary. All
significant intercompany balances and transactions have been eliminated.
The accompanying condensed consolidated balance sheet of the Corporation as of
September 30, 1994, the condensed consolidated statements of operations for the
three and six months ended September 30, 1994 and 1993 and the condensed
consolidated statements of cash flows for the six months ended September 30,
1994 and 1993 are unaudited. In the opinion of management, these statements
have been prepared on the same basis as the audited consolidated financial
statements and include all adjustments necessary for the fair presentation of
financial position, results of operations and cash flows. Such adjustments were
of a normal recurring nature. The results of operations for the three and six
months ended September 30, 1994 are not necessarily indicative of the results
that may be expected for the entire year. The condensed consolidated balance
sheet as of March 31, 1994 was derived from audited financial statements but
does not include all disclosures required by generally accepted accounting
principles. Additional information is contained in the Corporation's Annual
Report on Form 10-K filed with the Securities and Exchange Commission for the
fiscal year ended March 31, 1994, which should be read in conjunction with this
quarterly report.
NOTE 2 - NET INCOME PER SHARE OF COMMON STOCK
Net income per share of common stock is based on net income after preferred
stock dividend requirements and the weighted average number of shares of common
stock outstanding during the period, after giving effect to stock options
considered to be dilutive common stock equivalents. Fully diluted net income
per share is not presented as it is substantially the same as primary earnings
per share or is anti-dilutive.
NOTE 3 - INVESTMENTS
The Corporation's investments in marketable equity securities, included in
"Other current assets", are classified as available for sale. The carrying
value and gross unrealized gains and losses are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
September 30, 1994 March 31, 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value $ 34,410 $ 15,969
Unrealized gains 6,145 348
Unrealized losses 1,650 683
- ----------------------------------------------------------------------------------------------------------
</TABLE>
For the six months ended September 30, 1994, the change in net unrealized
holding gains (losses) was a $5.0 million gain. Proceeds of $14.6 million were
received during the six months ended September 30, 1994 from the sale of
marketable equity securities resulting in gross realized gains of $0.1 million
and gross realized losses of $0.4 million. The cost of securities sold was
determined using the average cost method.
<PAGE> 7
NOTE 4- LONG-TERM DEBT
On June 22, 1994, Ben Franklin entered into a new $15.0 million revolving
credit facility (the "Ben Franklin Facility") which expires in August 1995.
The Ben Franklin Facility is unsecured and bears interest at the prime rate or
at Libor plus 2%. The Ben Franklin Facility requires that there be no borrowed
funds outstanding thereunder for at least 30 consecutive days each year.
Additional covenants prohibit the payment of dividends and require the
maintenance of a minimum tangible net worth.
On August 30, 1994, FoxMeyer extended the maturity on a $40.0 million revolving
credit facility that was to expire on that date to February 28, 1995.
NOTE 5 - SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for interest and
income taxes paid and for noncash transactions (in thousands of dollars):
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
Six months ended September 30,
-------------------------------------
1994 1993
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest paid $ 12,389 $ 4,094
Income taxes paid 1,066 998
Noncash transactions:
Payment of dividends in kind on preferred stock 6,532 -
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Corporation has retained responsibility for certain potential environmental
liabilities attributable to former operating units and as a result is subject
to federal, state or local environmental laws, rules and regulations. The laws
generally impose joint and several liability on present and former owners and
operators, transporters and generators for remediation of contaminated
properties regardless of fault. The Corporation and its subsidiaries have
received various claims and demands from governmental agencies relating to
investigations and remedial actions to address environmental clean-up costs and
in some instances have been designated as a potentially responsible party by
the Environmental Protection Agency.
The Corporation's reserves for potential environmental assessments or
remediation activities, penalties or fines that may be imposed for
non-compliance with such laws or regulations have not changed materially since
March 31, 1994. The Corporation's estimates of these costs are based on
currently available facts, existing technologies, presently enacted laws and
regulations and the professional judgment of consultants and counsel.
The amounts of these liabilities are difficult to estimate due to such factors
as the unknown extent of remedial actions that may be required and, in the case
of sites not owned by the Corporation, the unknown extent of the Corporation's
probable liability in proportion to the probable liability of other parties.
Moreover, the Corporation may have environmental liabilities that the
Corporation cannot in its judgment estimate at this time and losses
attributable to remediation costs may arise at other sites. The Corporation
cannot now estimate the additional cost and expenses it may incur for such
environmental liabilities. While management of the Corporation does not
believe the liabilities associated with such other sites will have a material
adverse effect on its financial condition or results of operations, it
recognizes additional work may have to be performed to ascertain the ultimate
liability for such sites, and further information may ultimately change
management's current assessment.
<PAGE> 8
The Corporation continues to monitor the Phar-Mor, Inc. ("Phar-Mor") bankruptcy
proceedings closely and to work with Phar-Mor through the Unsecured Creditors'
Committee as Phar-Mor attempts to reorganize and emerge from bankruptcy. The
Corporation believes the $40.0 million allowance for possible loss it recorded
in December 1992 remains a reasonable estimate of its probable loss; however,
there may be future developments, and additional information may become
available, that indicate that the estimated loss should be adjusted. The
Corporation believes that future adjustments to the allowance recorded to date,
if any, would not have a material adverse effect on the Corporation's financial
condition. However, should such adjustments be necessary, the amounts could be
material to the results of operations for the period or periods in which they
are reported.
NOTE 7 - ACQUISITIONS AND INVESTMENTS
As of April 1, 1994, FoxMeyer acquired all the outstanding stock of Scrip Card
Enterprises, Inc. ("Scrip Card") for $10.0 million. Based on Scrip Card
obtaining certain revenue targets during each of the three years ending March
31, 1997, an additional $6.0 million may be paid to the former stockholders of
Scrip Card. Scrip Card performs prescription benefit management services for
small to medium-sized businesses. The transaction was accounted for by the
purchase method of accounting. The purchase price has been allocated to the
assets and liabilities of Scrip Card in amounts equal to their fair market
values. Approximately $8.1 million of the purchase price was assigned to the
customer lists acquired in the transaction. The allocation of the purchase
price is subject to change based on evidence of fair value still to be
obtained. The results of operations of Scrip Card have been included in the
consolidated financial statements of the Corporation since its acquisition.
The unaudited pro forma combined results of operations of the Corporation and
Scrip Card for the first six months of fiscal 1994 are not presented as such
amounts are not materially different from those previously reported.
On June 28, 1994, FoxMeyer completed an amalgamation of a wholly-owned
subsidiary with Evans Health Group Limited ("Evans"). As a result of the
amalgamation and the simultaneous exercise of options for 2,000,000 shares of
Evans common stock, which options FoxMeyer had previously acquired, FoxMeyer's
ownership interest in the amalgamated corporation, FoxMeyer Canada
Inc.("FoxMeyer Canada"), is 46.0%. FoxMeyer Canada provides health care and
pharmacy services in Canada. FoxMeyer's investment in FoxMeyer Canada at
September 30, 1994 was $2.3 million and was accounted for under the equity
method of accounting. FoxMeyer has options to acquire up to 8,000,000
additional shares of common stock of FoxMeyer Canada at prices ranging from (in
Canadian dollars) $1.50 to $3.00.
NOTE 8 - ACQUISITION OF FOXMEYER'S MINORITY INTEREST
On October 12, 1994, the Corporation acquired, by way of a merger of FoxMeyer
with and into a wholly-owned subsidiary of the Corporation, all of the
outstanding shares of FoxMeyer that it did not previously own in exchange for
approximately 4,981,000 shares of the Corporation's common stock. These shares
were issued from treasury stock held by the Corporation. As a result of this
transaction, FoxMeyer became a wholly-owned subsidiary of the Corporation. All
FoxMeyer stock options outstanding at the time of the merger, which were
exercisable for an aggregate of 1.2 million shares of FoxMeyer common stock,
were converted, under the terms of the merger, to 1.1 million options to
acquire the Corporation's common stock at prices ranging from $10.85 to $16.39
per share.
The merger transaction was accounted for by the purchase method of accounting.
The purchase price was allocated to the 19.5% of FoxMeyer acquired based on the
fair value of the assets acquired and liabilities assumed. Any difference in
the fair value of the shares issued ($80.0 million) and the assets acquired
and liabilities assumed will be an adjustment of the goodwill recorded on the
original acquisition of FoxMeyer by the Corporation in 1986 and will be
amortized over the remaining life of that goodwill. The difference in the
fair value of the shares issued and the average cost of those treasury shares
(approximately $10.1 million) will be charged to retained earnings.
<PAGE> 9
Pro forma results of operations for the six months ended September 30, 1994 and
1993, had the acquisition of FoxMeyer's minority interest taken place at the
beginning of the corresponding fiscal years are as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Six months ended September 30, 1994 1993
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income before minority interest $ 15,924 $ 7,918
Minority interest in results of operations of
consolidated subsidiaries 2,209 732
---------- ---------
Net income $ 13,715 $ 7,186
========== =========
Net income applicable to common stockholders $ 4,220 $ 4,656
========== =========
Net income per share $ .23 $ .19
========== =========
Average number of shares outstanding 18,101 24,828
========== =========
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The foregoing unaudited pro forma results of operations reflect the estimated
impact of the valuation of the assets acquired and liabilities assumed for the
19.5% of FoxMeyer acquired on October 12, 1994 as if the purchase had taken
place at the beginning of the 1995 and 1994 fiscal years, respectively. The
additional shares of common stock of the Corporation issued in the acquisition
were assumed to be outstanding for the entire periods presented. The estimated
impact of FoxMeyer stock options on the average number of shares outstanding
was calculated based on the September 30, 1994 average price per share for the
quarter then ended. These results are not necessarily indicative of the
results of operations that would have occurred had the acquisition of
FoxMeyer's 19.5% minority interest actually taken place at the beginning of the
fiscal year presented, nor are these results of operations indicative of the
future results of operations of the Corporation.
<PAGE> 10
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Effective on October 12, 1994, FoxMeyer Corporation ("FoxMeyer") merged with
and into a wholly-owned subsidiary of National Intergroup, Inc. pursuant to
which the stockholders of FoxMeyer, other than National Intergroup, Inc.,
received 0.904 shares of the common stock of National Intergroup, Inc. for each
share of FoxMeyer's common stock in a tax-free reorganization. National
Intergroup, Inc. changed its name to FoxMeyer Health Corporation subsequent to
the merger.
FoxMeyer Health Corporation and its subsidiaries (the "Corporation") reported
net income of $6.7 million and $11.9 million for the three months and six
months ended September 30, 1994, respectively. This represents an increase of
approximately $6.5 million over the net income for the same periods in the
prior year. Net income per share was $0.14 and $0.19 per share for the three
and six months ended September 30, 1994, respectively, as compared to a loss of
$0.06 and net income of $0.15 per share for the three and the six months ended
September 30, 1993, respectively. Amounts applicable to common stockholders
were significantly affected by the Corporation's November 1993 exchange offer
whereby approximately 6.8 million shares of the Corporation's common stock were
exchanged for 3.4 million shares of a new series of preferred stock. As a
result, preferred stock dividends increased from $2.5 million to $9.5 million
for the six months ended September 30, 1993 and 1994, respectively.
The Corporation conducts its business principally through two operating units,
FoxMeyer and Ben Franklin Retail Stores, Inc. ("Ben Franklin"), a 67.2%-owned
subsidiary. FoxMeyer is engaged primarily in the distribution of a full line
of pharmaceutical and health and beauty aids to independent drug stores,
hospitals, alternate care facilities and chain stores. FoxMeyer also provides
various managed care, benefit management and information-based services. Ben
Franklin is engaged in the franchising of general variety stores and the
franchising and operation of crafts stores, together with the wholesale
distribution of products to those stores.
FOXMEYER
Operating income of FoxMeyer decreased from $23.7 million for the six months
ended September 30, 1993 to $23.1 million for the six months ended September
30, 1994. While sales decreased approximately 5.9% to $2.3 billion for the six
months ended September 30, 1994, as compared to the six months ended September
30, 1993, gross profit margin improved by 0.2% when compared to the same period
in the prior year. Selling, general and administrative expenses remained
constant as a percentage of sales.
In April 1994, FoxMeyer acquired Scrip Card Enterprises, Inc. ("Scrip Card"), a
Utah company engaged in prescription benefit management services to small and
medium-sized businesses. Scrip Card was acquired for the purpose of enhancing
FoxMeyer's present prescription benefit management programs.
In June 1994, FoxMeyer entered the Canadian health care market through an
amalgamation of a wholly-owned subsidiary with Evans Health Group Limited.
Subsequent to the amalgamation, FoxMeyer's ownership interest in the
amalgamated corporation, FoxMeyer Canada Inc. ("FoxMeyer Canada"), is 46.0%.
FoxMeyer Canada provides health care, pharmacy and benefit management services
in Canada.
In July 1994, FoxMeyer announced that it had signed an agreement with the
University Hospital Consortium ("UHC") for an initial three-year term with UHC
having two one-year renewal options. UHC represents an alliance of 67 academic
medical centers. When the contract becomes fully effective in February 1995,
FoxMeyer will serve as the primary supplier to UHC members that participate in
UHC's pharmacy purchasing program. FoxMeyer's management anticipates that the
UHC contract will generate $4 to $5 billion in additional prescription drug
sales over the five-year period. FoxMeyer is currently in the process of
opening seven new warehouses in California, Arizona, Utah, Washington,
Tennessee, and Pennsylvania to service the UHC contract.
<PAGE> 11
BEN FRANKLIN
Operating income improved by 56.5% for the six months ended September 30, 1994
compared to the six months ended September 30, 1993. These results reflect an
improvement in Ben Franklin's wholesale business as a result of a shift in
sales mix to higher margin items and the timing of seasonal promotions. This
increase in operating income occurred despite a 2.0% decrease in sales between
these periods which resulted from the loss of 49 franchisee-owned stores since
September 30, 1993, net of seven company-owned crafts superstores added during
the same period.
Ben Franklin entered into franchise agreements with Crafts Plus +, Inc.,
("Crafts Plus"), a chain of approximately 45 craft stores, on November 9, 1994.
Crafts Plus is headquartered in San Antonio, Texas and has stores in Texas,
Louisiana, Missouri, Alabama and New Mexico. The stores currently operate
primarily under the Crafts, Etc. name and will be converted to Ben Franklin
crafts stores within 12 months. Also, on November 9, 1994, Ben Franklin loaned
Crafts Plus $4.9 million under a subordinated note which is convertible into
49% of Crafts Plus common stock at the option of Ben Franklin. The note is
unsecured, subordinated to senior debt and bears interest at prime plus 2%, has
a maturity date of December 31, 1999 and contains certain financial convenants.
Ben Franklin also entered into a purchase requirements agreement that requires,
among other things, that Crafts Plus purchase at least 75% of its merchandise
from Ben Franklin at prevailing prices.
RESULTS OF OPERATIONS
The following table identifies the net sales, gross profit and operating income
(loss) components attributable to the Corporation's two principal operating
units, FoxMeyer and Ben Franklin, and certain holding company, corporate office
and other miscellaneous activities (collectively, the "Holding Company") which
includes the Corporation's real estate limited partnership activities, (in
million of dollars):
<TABLE>
<CAPTION>
==============================================================================================================
Three Months Ended Six Months Ended
September 30, September 30,
- --------------------------------------------------------------------------------------------------------------
1994 1993 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales
FoxMeyer $ 1,158.2 $ 1,277.2 $ 2,340.0 $ 2,487.1
Ben Franklin 92.2 93.9 167.4 170.7
---------- --------- --------- ---------
$ 1,250.4 $ 1,371.1 $ 2,507.4 $ 2,657.8
- --------------------------------------------------------------------------------------------------------------
Gross Profit
FoxMeyer $ 67.6 $ 71.7 $ 135.2 $ 138.3
Ben Franklin 18.3 16.8 32.1 29.1
--------- --------- --------- ---------
$ 85.9 $ 88.5 $ 167.3 $ 167.4
- --------------------------------------------------------------------------------------------------------------
Operating Income (Loss)
FoxMeyer $ 12.7 $ 14.9 $ 23.1 $ 23.7
Ben Franklin 3.1 2.7 2.3 1.4
Holding Company (1.7) (2.2) (0.3) (4.5)
--------- --------- --------- ---------
$ 14.1 $ 15.4 $ 25.1 $ 20.6
==============================================================================================================
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1994 COMPARED
TO THREE MONTHS ENDED SEPTEMBER 30, 1993
FOXMEYER
Net sales decreased 9.3% or $119.0 million to $1,158.2 million for the three
months ended September 30, 1994, as compared to $1,277.2 million for the three
months ended September 30, 1993. Sales decreased across all customer segments.
The sales decline was primarily due to intense competition among pharmaceutical
distributors for new customers. A portion of the decrease in sales represents
lower sales to Phar-Mor, Inc. ("Phar-Mor") when compared to the prior year as a
result of continuing store closures by Phar-Mor. In addition, the decrease in
sales was partially due to the fact that FoxMeyer decided not to lower prices
in some cases to keep certain accounts.
<PAGE> 12
Gross margin for the second quarter of fiscal 1995 was 5.8% versus 5.6% for the
second quarter of fiscal 1994. Gross margin for warehouse operations remained
essentially unchanged when compared to the prior year. However, price
competition in the industry and the decline in inventory investment buying
opportunities continue to exert pressure on gross margin. In an attempt to
offset these margin pressures, FoxMeyer has undertaken initiatives to provide
value-added services, continues to place emphasis on private label, generic
product and every day low pricing programs and is emphasizing sales of higher
margin product lines. The 0.2% increase in gross margin was principally due to
the expansion of FoxMeyer's managed care business.
Operating expenses, net of other income (expense) ("net operating expenses"),
declined from $56.8 million to $54.9 million, yet increased from 4.4% as a
percentage of net sales for the three months ended September 30, 1993, to 4.7%
for the current quarter. Without the impact of the $1.8 million in fees
described below, net operating expenses would have been 4.6% of net sales.
While net operating expenses have decreased due to continuing efforts by
FoxMeyer's management to control and reduce costs, net sales experienced a
larger decline in the same period, resulting in the increase in net operating
expenses as a percentage of sales. Net operating expenses in the current
quarter include $1.8 million in fees associated with FoxMeyer's accounts
receivable financing program initiated in October 1993.
Operating income decreased $2.2 million to $12.7 million for the three months
ended September 30, 1994, compared to $14.9 million for the three months ended
September 30, 1993. As a percentage of net sales, operating income decreased
0.1%, which was the result of the increase in net operating expenses, net of
the increase in gross margin, as described above.
BEN FRANKLIN
Net sales decreased $1.7 million during the second quarter of fiscal 1995 as
compared to the same quarter of the prior fiscal year due primarily to a
decrease of $3.9 million in wholesale sales that was partially offset by an
increase of $2.1 million in retail sales at company-owned stores. The decrease
in wholesale sales primarily reflects a net decrease of 49 franchisee-owned
stores over the twelve months since September 30, 1993. Retail sales at
company-owned crafts superstores increased as a result of an increase in the
number of stores opened from 10 at September 30, 1993 to 17 at September 30,
1994. Royalty fees increased $0.1 million when compared to the prior year
quarter.
Gross profit increased $1.5 million to $18.3 million for the three months ended
September 30, 1994 over the three months ended September 30, 1993. Gross
margin increased to 19.8% from 17.9% for the same period in the prior year.
Such increases were attributable to a shift in wholesale sales mix to higher
margin items, the timing of seasonal promotions and increased sales at
company-owned crafts superstores attributable to opening of additional stores.
Net operating expenses increased $1.1 million to $15.2 million for the three
months ended September 30, 1994. Operating expenses related to company-owned
stores increased by $1.4 million which was partially offset by a decrease in
such expenses for wholesale operations. The increase in net operating expenses
for company-owned stores is primarily the result of the increase in the number
of stores opened.
Operating income increased $0.4 million from $2.7 million for the three months
ended September 30, 1993 to $3.1 million for the three months ended September
30, 1994. The increase in operating income results from the increase in gross
profit partially offset by the increase in net operating expenses explained
above.
HOLDING COMPANY
The Holding Company's operating loss was $2.2 million for the three months
ended September 30, 1993 as compared to a loss of $1.7 million for the three
months ended September 30, 1994. The operating loss for both periods
represented general and administrative costs incurred by the Holding Company.
The operating results of the Corporation's real estate limited partnerships
were at break even for the current quarter.
<PAGE> 13
NET FINANCING COSTS
Net financing costs decreased $1.3 million to $5.4 million for the three months
ended September 30, 1994, as compared to $6.7 million for the three months
ended September 30, 1993. Interest income increased $0.5 million principally
as a result of the income on notes receivable held by the real estate limited
partnerships. Interest expense decreased $0.8 million. While average daily
borrowings decreased $67.3 million to approximately $307.5 million for the
three months ended September 30, 1994, as compared to the three months ended
September 30, 1993, the average interest rate incurred on the debt increased
1.1% in the current quarter as compared to the prior year quarter. The
decrease in average daily borrowings was principally the result of decreases in
FoxMeyer's revolving debt outstanding as a result of the $125 million accounts
receivable financing initiated in October 1993. The increase in the average
interest rate reflects the overall increase in rates since September 1993 on
the Corporation's revolving debt and the full effect of higher rates paid on
other long-term debt issued during the last twelve months by subsidiaries of
the Corporation.
NATIONAL STEEL CORPORATION RESULTS
The net preferred income for National Steel Corporation ("NSC") was $1.4
million for the three months ended September 30, 1994, compared to a loss of
$5.7 million for the three months ended September 30, 1993. The prior year
loss was the result of a $6.8 million unrealized loss in the second quarter of
that year to record the Corporation's investment in NSC common stock at its
market value.
INCOME TAXES
The effective tax rate for the second quarter of fiscal 1995 was 16.5% as
compared to 43.2% for the prior year quarter. The provisions for both quarters
were based on an estimate of the full year tax rate at September 30, 1994 and
1993, respectively. The effective tax rate for the three months ended
September 30, 1993 was significantly higher than the current period as a result
of the Corporation not recognizing any tax benefit for the $6.8 million
unrealized loss on NSC common stock.
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES
The minority interest in the net income of the consolidated subsidiaries
remained relatively constant between years. This resulted from earnings of the
real estate limited partnerships which were partially offset by FoxMeyer's
lower net income in the current quarter.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends were $4.8 million for the three months ended
September 30, 1994, compared to $1.3 million for the three months ended
September 30, 1993. In November 1993, the Corporation exchanged approximately
6.8 million shares of common stock for 3.4 million shares of a new series of
preferred stock. The additional dividends represent the dividends declared on
the new series of preferred stock and the accretion of discount recorded on
this series of preferred stock.
SIX MONTHS ENDED SEPTEMBER 30, 1994 COMPARED TO
SIX MONTHS ENDED SEPTEMBER 30, 1993
FOXMEYER
Net sales decreased 5.9% or $147.1 million to $2,340.0 million for the six
months ended September 30, 1994, as compared to $2,487.1 million for the six
months ended September 30, 1993. Sales decreased across all customer segments
except for sales to hospitals and alternate care facilities. The decline is
the result of intense competition among pharmaceutical distributors for new
customers. Sales to Phar-Mor have continued to decline as Phar-Mor continued
to close stores. In addition, FoxMeyer decided not to lower prices in some
cases to keep certain accounts.
<PAGE> 14
Gross margin for the first six months of fiscal 1995 was 5.8% compared to 5.6%
in the prior year. Gross margin for warehouse operations remained at about the
same level as in the prior year. However, price competition in the industry
and the decline in inventory investment buying opportunities continue to exert
pressure on gross margin. In an attempt to offset these margin pressures,
FoxMeyer has undertaken initiatives to provide value-added services, continues
to place emphasis on private label, generic product and every day low pricing
programs and is emphasizing sales of higher margin product lines. The
0.2% increase in gross margin was principally due to the expansion of
FoxMeyer's managed care business.
Net operating expenses declined from $114.6 million to $112.1 million, yet
increased from 4.6% as a percentage of net sales for the six months ended
September 30, 1993 to 4.8% for the six months ended September 30, 1994.
Without the impact of the $3.4 million in fees described below, net operating
expenses would have been 4.6% for the six months ended September 30, 1994.
Therefore, while volume has decreased, management has been able to decrease net
operating costs to keep them in line with current sales levels. For the six
months ended September 30, 1994, net operating expenses included $3.4 million
in fees associated with FoxMeyer's accounts receivable financing program
initiated in October 1993.
Operating income decreased $0.6 million to $23.1 million for the six months
ended September 30, 1994, compared to $23.7 million for the six months ended
September 30, 1993. As a percentage of net sales, operating income remained at
approximately 1.0% of net sales.
BEN FRANKLIN
Net sales decreased $3.3 million to $167.4 million for the first six months of
fiscal 1995 as compared to the same period in fiscal 1994 when net sales were
$170.7 million. While wholesale sales declined by $6.9 million, sales
generated from company-owned crafts superstores have risen by $3.2 million.
Wholesale sales declined as the number of franchisees decreased as a result of
competition from national and regional chain stores. The decline was partially
offset by increased sales to franchised and company-owned crafts superstores as
new stores were opened. Royalty fee income increased $0.4 million.
Gross profit increased $3.0 million to $32.1 million for the six months ended
September 30, 1994 as compared to the six months ended September 30, 1993.
Gross margin increased to 19.2% from 17.0% for the same period in the prior
year. Gross profit on wholesale sales increased $1.5 million as a result of a
shift in the sales mix to higher margin items while gross profit of
company-owned crafts superstores increased $1.1 million due to an increase in
the number of stores opened from 10 to 17.
Net operating expenses increased $2.1 million to $29.8 million for the six
months ended September 30, 1994. Operating expenses related to company-owned
crafts stores increased $1.8 million primarily due to the increase in the
number of stores opened.
Operating income increased $0.9 million from $1.4 million for the six months
ended September 30, 1993 to $2.3 million for the six months ended September 30,
1994. The increase in operating income resulted from the increase in gross
profit which was partially offset by the increase in net operating expenses as
explained above.
HOLDING COMPANY
The net operating loss decreased $4.2 million to a loss of $0.3 million for the
six months ended September 30, 1994 as compared to a loss of $4.5 million for
the six months ended September 30, 1993. The improved results were primarily
attributable to the recognition of an aggregate $3.6 million gain on the sale
of properties and other transactions completed by the Corporation's real estate
limited partnerships during the first quarter of fiscal 1995.
NET FINANCING COSTS
Net financing costs decreased $1.4 million to $10.5 million for the six months
ended September 30, 1994, as compared to $11.9 million for the six months ended
September 30, 1993. Interest income increased $1.9 million principally as a
result of the income on notes receivable held by the real estate limited
partnerships. Interest expense increased $0.5 million. While average daily
borrowings decreased $9.3 million to approximately $314.8 million for the six
months ended September 30, 1994, as compared to the six months ended September
30, 1993, the average interest rate incurred on the debt increased 0.9% as
compared to the prior year. While FoxMeyer's average debt outstanding decreased
$55.4 million, primarily as a result of the accounts receivable financing
program, the average debt outstanding for Ben Franklin
<PAGE> 15
increased, primarily as a result of the issuance of convertible debt in the
prior year. Also, the average debt outstanding in the prior fiscal year did not
include debt related to the Holding Company's real estate operations. The
increase in the average interest rate reflects the overall increase in rates
since September 30, 1993 on the Corporation's revolving debt and the full
effect of higher rates paid on other long-term debt issued during the last
twelve months by subsidiaries of the Corporation.
NATIONAL STEEL CORPORATION RESULTS
The net preferred income for NSC was $2.7 million for the six months ended
September 30, 1994, compared to a loss of $1.4 million for the six months ended
September 30, 1993. The increase is principally the result of a $6.8 million
unrealized loss recorded in the second quarter of the prior year on the
Corporation's investment in NSC common stock. Offsetting this decrease was a
$2.4 million gain recognized on the redemption of 10,000 shares of the NSC
preferred stock owned by the Corporation in May 1993.
INCOME TAXES
The effective tax rate for the six months ended September 30, 1994 was 8.7% as
compared to a benefit of $.5 million or 7.0% for the six months ended September
30, 1993. The provision (benefit) for both periods were based on estimates of
the full year effective tax rate. The low effective tax rate for the current
year and the benefit for the prior year were primarily the result of the
reduction in the deferred tax asset valuation allowance.
MINORITY INTEREST IN NET INCOME OF CONSOLIDATED SUBSIDIARIES
The minority interest in the net income of the consolidated subsidiaries
increased $1.5 million. Such increase was primarily attributable to the
Corporation's real estate limited partnerships' gain of $3.6 million in the
first quarter of fiscal 1995.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends were $9.5 million for the six months ended September
30, 1994, compared to $2.5 million for the six months ended September 30, 1993.
During November 1993, the Corporation exchanged approximately 6.8 million
shares of common stock for 3.4 million shares of a new series of preferred
stock. The additional dividends represent the dividends declared on the new
series of preferred stock and the accretion of discount recorded on this series
of preferred stock.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations (which includes working capital components) was
$26.1 million for the six months ended September 30, 1994. The change in
working capital components accounted for $2.6 million of the funds provided
with operations providing the remainder. The increase in accounts payable and
accrued liabilities of $81.5 million funded the increase in accounts receivable
and inventories. The increases in accounts payable and inventories were in
line with historical purchasing patterns.
Cash used in investing activities was $39.5 million for the six months ended
September 30, 1994. Approximately $17.4 million of funds were used to purchase
property and equipment during this period. The Corporation intends to spend an
additional $32.0 million during the remainder of the fiscal year on the
purchase of property and equipment. An additional $7.9 million was used to
acquire Scrip Card, net of cash acquired. The Corporation made other
investments in real estate, marketable securities and in FoxMeyer Canada which
used approximately $15.0 million of funds, net of proceeds from the sale of
investments, during the six months ended September 30, 1994.
Financing activities used $1.9 million of funds for the six months ended
September 30, 1994. The proceeds from issuance of long-term debt and other
repayments were primarily related to the Corporation's real estate operations.
Net borrowings under the Corporation's various credit facilities increased by
approximately $9.3 million during this period.
<PAGE> 16
Management assesses the Corporation's liquidity based on its major business
segments. Each of the business segments must, for the most part, fund its own
operations and capital needs. FoxMeyer's debt agreements allow, among other
things, payments to the Holding Company under a tax sharing agreement between
the Holding Company and FoxMeyer and for dividend payments to the Holding
Company subject to certain limitations. Under the most restrictive of the
limitations, approximately $20 million was available as of September 30, 1994
from which future dividends may be paid to the Holding Company by FoxMeyer.
Ben Franklin may not pay any dividends to the Holding Company under its debt
agreements. Both Ben Franklin's and FoxMeyer's debt agreements also restrict
intercompany loans or other asset transfers with the Corporation.
FOXMEYER
As of September 30, 1994, FoxMeyer had borrowed $46.2 million under its $250.0
million of revolving credit facilities. Restrictions imposed by the revolving
credit facilities require that on the last day of any fiscal quarter,
FoxMeyer's total indebtedness to capitalization ratio, as defined in the
facilities, may not exceed 0.5 to 1.0. Under the requirements of this
covenant, FoxMeyer could have borrowed an additional $81.3 million at September
30, 1994. The average and maximum amounts borrowed during the six months ended
September 30, 1994 under FoxMeyer's revolving credit facilities were $45.7
million and $106.7 million, respectively.
FoxMeyer expects that cash flow from operations and continued maintenance of
its working capital facilities will provide adequate cash to fund seasonal
increases in inventories and receivables. As a result of the UHC contract and
the additional seven warehouses that will be opened to service that business,
as well as continuing investments in managed care businesses, it may be
necessary for FoxMeyer to expand existing lines of credit or seek alternative
financing. FoxMeyer believes that, if required, alternative financing can be
obtained at reasonable rates.
BEN FRANKLIN
As of September 30, 1994, Ben Franklin had borrowed $8.6 million under its $15
million revolving credit facility (the "Ben Franklin Facility"). On June 22,
1994, Ben Franklin entered into a new $15 million facility which expires in
August 1995. The Ben Franklin Facility is unsecured and bears interest at the
prime rate or at Libor plus 2%. The Ben Franklin Facility requires that there
be no borrowed funds outstanding thereunder for at least 30 consecutive days
each year. Additional covenants prohibit the payment of dividends and require
the maintenance of a minimum tangible net worth. The average and maximum
amounts borrowed under the Ben Franklin Facility during the six months ended
September 30, 1994 were $7.4 million and $13.8 million, respectively.
Ben Franklin is negotiating a new credit agreement under which Ben Franklin
would have a two-tier revolving line of credit of $15 million and $25 million
through August 1, 1996. The borrowings would bear interest at the prime rate
and be secured by Ben Franklin's wholesale inventory and accounts receivables.
The two-tier revolver will allow Ben Franklin to borrow $15 million from
January 1st through June 30th and $25 million from July 1st through December
31st of the calendar year. The new credit agreement will require there be no
borrowed funds outstanding for at least 30 consecutive days each year. It will
prohibit the payment of dividends, contain a number of convenants and
conditions, and require Ben Franklin to maintain certain financial ratios.
Ben Franklin's management believes that cash on hand, cash generated by
operations, borrowings under its revolving credit facility, credit from its
vendors and customer financing programs will be sufficient to fund working
capital needs, to fund the $4.9 million loan to Crafts Plus and to fund
expected capital expenditures of $4.4 million during the remainder of the
fiscal year. Ben Franklin may also use these sources of funds to repurchase up
to 1.1 million shares of Ben Franklin's common stock under a plan announced
October 5, 1994.
During fiscal 1994, Ben Franklin established a $5.3 million reserve for
restructuring its wholesale distribution operations. Approximately $0.8
million represented a non-cash write down of variety store inventories and
another $0.8 million was spent during fiscal 1994 for workforce reduction and
relocation costs. During the six months ended September 30, 1994, an
additional $1.1 million was expended on workforce reduction and relocation
costs. All workforce reductions have now been completed resulting in the
termination of 27 employees. The remaining balance of $2.6 million is for
expenditures to complete warehouse relocations. These expenditures are
expected to continue into the next fiscal year.
<PAGE> 17
HOLDING COMPANY
At September 30, 1994, the Holding Company had unrestricted cash and short-term
investments of approximately $1.1 million. In addition, the Holding Company
had $5.8 million available under a revolving credit facility (the "Credit
Facility"). The Holding Company's cash requirements include the funding of
monthly operating expenses, lease commitments, benefit obligations, dividend
payments on the Corporation's redeemable preferred stock and mandatory sinking
fund payments thereon, and cash outlays attributable to environmental
liabilities of previously owned businesses, the amounts and timing of which are
uncertain. In addition, the Holding Company used $19.1 million of funds during
the six months ended September 30, 1994, for investments.
In addition to the Credit Facility, the Corporation has a $30.0 million loan
from FoxMeyer. Both of these financing arrangements are secured by shares of
the common stock of FoxMeyer and restrict the payment of cash dividends on the
Corporation's common stock and on its Series A preferred stock. The average
and maximum amounts borrowed under the Credit Facility during the six months
ended September 30, 1994 were $1.6 million and $11.0 million, respectively.
The Holding Company will rely on cash on hand, dividends received on shares of
FoxMeyer common stock, payments from FoxMeyer under its tax sharing agreement
and funds available under the Credit Facility to meet the cash funding
obligations described above. The Holding Company may also use these sources of
funds and proceeds from sale of investments to fund its purchase of the
Corporation's common stock under a previously announced common stock buy-back
program.
OTHER MATTERS
The Corporation continues to monitor the Phar-Mor , Inc. ("Phar-Mor")
bankruptcy proceedings closely. The Corporation believes the $40 million
allowance for possible loss recorded in December 1992 remains a reasonable
estimate of its probable loss. The Corporation believes any future adjustments
to this amount, if they should be necessary, may be material to the net income
for the period or periods in which they are reported, but the adjustments, if
any, would not have a material effect on the Corporation's financial condition.
Following its annual meeting of shareholders, the Corporation's board of
directors announced that it was considering spinning off a substantial portion
of the Corporation's ownership in Ben Franklin through a distribution of a
large proportion of Ben Franklin common stock to the Corporation's common stock
shareholders.
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
With respect to the matters reported in the Corporation's Annual
Report on Form 10-K for the fiscal year ended March 31, 1994, as
supplemented by the Corporation's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1994, the following additional information
is provided:
NATIONAL STEEL CORPORATION
National Steel Corporation ("NSC"), Earth Sciences, Inc. ("ESI") and
Southwire Company ("Southwire") were the original general partners in
the Alumet Partnership ("Alumet"). In 1983, NSC assigned its
partnership interest in Alumet to the Corporation. The Environmental
Protection Agency (the "EPA") issued a Special Notice Letter on May
11, 1994 to Alumet alleging that Alumet is a potentially responsible
party under the Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") for cleanup of the Lowry Landfill Superfund
Site and demanding payment of the EPA's past and future response
costs. Alumet has responded to the Special Notice Letter, denying
liability but offering to meet with the EPA for the purpose of
discussing its participation in either the performance of the
remediation or payment of the EPA's response costs.
On July 6, 1994, the City and County of Denver, Waste Management of
Colorado, Inc. and Chemical Waste Management, Inc. served Alumet and
Southwire with a complaint alleging that Alumet, the Corporation,
Southwire and NSC, as well as other parties, are liable for the cost
of cleaning up the Lowry Landfill. The complaint has not yet been
served on the Corporation. On August 15, 1994, Alumet answered the
complaint, denying liability and raising a number of affirmative
defenses and counter claims. A Scheduling Order was entered on
October 17, 1994 and discovery is beginning.
During the time period relevant to Alumet's involvement at the Lowry
Landfill, Alumet and its partners were insured under policies of
insurance purchased by NSC. Alumet has asserted claims against these
policies, but to date no insurer has agreed to defend or indemnify
Alumet or its partners against the Lowry Landfill claims. On August
9, 1994, Alumet commenced a lawsuit in Colorado, Alumet Partnership v.
Continental Casualty Co., No. 94-CV-1728 (Colo. Dist. Ct., Arapahoe
County), against three insurers seeking a declaratory judgment that
Alumet is entitled to coverage for the Lowry Landfill claims and
damages for breach of contract.
FOXMEYER CORPORATION
Foxmeyer Drug Company ("Foxmeyer Drug"), a wholly-owned subsidiary of
Foxmeyer, is a defendant in several class action suits originally
filed in late 1993 by independent retail drug stores in the U.S.
District Court for the Southern District of New York. By order of the
judicial panel on multidistrict litigation dated February 4, 1994, all
related actions pending in various federal courts on the subject
matter were consolidated and coordinated for pretrial purposes in the
U.S. District Court for the Northern District of Illinois. Foxmeyer
drug was not named as a defendant in any other of the pending actions.
thereafter, on or about March 9, 1994, a consolidated and amended
class action complaint titled in re brand name prescription drugs
antitrust litigation (the "Amended Complaint") was filed consolidating
all pending class actions, including those in which Foxmeyer Drug was
a named defendant. The amended complaint alleges, on behalf of a
purported class of retail pharmacies, that the pharmaceutical
manufacturers and drug wholesalers conspired to fix the prices of
prescription drugs sold to retail drug stores. Plaintiffs seek treble
damages of an unspecified amount, injunctive relief and attorneys'
fees.
On April 26, 1994, all drug wholesalers named as defendants in the
amended complaint moved for summary judgment. On September 13, 1994,
the court denied the motion for summary judgment, permitting
plaintiffs to go forward with discovery. The wholesaler defendants,
including Foxmeyer Drug, expect that they will renew their motion for
summary judgment after discovery has been completed. Foxmeyer Drug
believes that it has meritorious defenses to the allegations asserted
against it and is vigorously defending itself in this litigation.
<PAGE> 19
On or about July 29, 1994, an action was commenced by five Wisconsin
retail pharmacies in the circuit court of Dane County, Wisconsin, in
which Foxmeyer Drug was named as a defendant (K-S Pharmacies, Inc. et
al. v. Abbott Laboratories, et al.). this action, asserted on behalf
of an alleged class of retail pharmacies, alleges violations of
certain Wisconsin price discrimination, conspiracy and antitrust
statutes in connection with the sale of prescription drugs in
wisconsin. The complaint seeks injunctive relief and treble damages.
On October 3, 1994, Foxmeyer Drug, as well as other defendants, filed
a motion to stay this action, a motion to dismiss or, in the
alternative, for a more definite statement, which motions are
scheduled to be argued on November 29, 1994. Foxmeyer Drug believes
it has meritorious defenses to the allegations asserted against it and
is vigorously defending itself in this action.
Effective on October 26, 1994, Foxmeyer Drug entered into a judgment
sharing agreement (the "agreement") with the manufacturer defendants
in these actions. Under the terms of the agreement, Foxmeyer Drug's
liability for damages in any action (including the Wisconsin action)
in which there is a judgment against a manufacturer and wholesaler
will be limited to a maximum of $1 million. in the event the
manufacturer defendants settle, the agreement provides that no
contribution to such settlement would be required of Foxmeyer Drug.
also pursuant to the agreement, Foxmeyer Drug, along with the other
wholesalers who are defendants in the federal actions, will be
entitled to reimbursement from the manufacturer defendants for its
expenses of litigating these actions. The manufacturers have agreed
to reimburse up to an aggregate amount of $9 million in wholesaler
expenses, to be allocated among the six wholesaler defendants in
approximate accord with relative expenses actually incurred. Foxmeyer
Drug, in turn, released such antitrust claims as it might have had
against any of the manufacturers based on the conduct alleged in the
actions.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Corporation held its 1994 annual meeting of stockholders
on October 12, 1994 (the "Annual Meeting").
(b) At the Annual Meeting, the following individuals were elected
as directors of the Corporation, each to serve until the
annual meeting of stockholders to be held in 1997:
Thomas L. Anderson
Sheldon W. Fantle
The terms of office of the following directors of the
Corporation continued after the Annual Meeting:
Abbey J. Butler
Melvyn J. Estrin
Paul M. Finfer
Alfred H. Kingon
William G. Tull
(c) The following is a brief description of each matter voted upon
at the Annual Meeting, and the number of votes cast for,
against or withheld, the number of abstentions and broker
nonvotes as to each such matter, including a separate
tabulation with respect to each nominee for office:
(a) Election of Directors:
<TABLE>
<CAPTION>
For Withheld
<S> <C> <C>
Thomas L. Anderson 11,290,002 482,534
Sheldon W. Fantle 11,283,116 489,420
</TABLE>
<PAGE> 20
(b) Approval of the Agreement and Plan of Merger among
FoxMeyer Corporation, the Corporation and FoxMeyer
Acquisition Corp.:
<TABLE>
<S> <C>
For: 9,859,484
Against: 420,636
Abstentions: 42,607
Broker Nonvotes: 1,449,809
</TABLE>
(c) Approval of an amendment to the Corporation's
Restated Certificate of Incorporation to increase the
number of authorized shares of preferred stock of the
Corporation from 10,000,000 to 20,000,000:
<TABLE>
<S> <C>
For: 7,375,746
Against: 2,821,019
Abstentions: 65,952
Broker Nonvotes: 1,509,819
</TABLE>
(d) Approval of an amendment to the Corporation's
Restated Certificate of Incorporation to change the
Corporation's name to "FoxMeyer Health Corporation":
<TABLE>
<S> <C>
For: 9,914,571
Against: 293,306
Abstentions: 56,531
Broker Nonvotes: 1,508,128
</TABLE>
(e) Approval of an amendment to the Corporation's 1993
Stock Option and Performance Award Plan to increase
by 2,000,000 the number of shares of common stock
authorized for issuance thereunder:
<TABLE>
<S> <C>
For: 7,233,022
Against: 2,964,466
Abstentions: 65,137
Broker Nonvotes: 1,509,911
</TABLE>
(f) Approval of an amendment to the Corporation's 1993
Stock Option and Performance Award Plan to allow
grants thereunder to individuals not regularly
employed by the Corporation who serve as directors of
any subsidiary corporation of the Corporation, at the
discretion of the committee administering the Plan:
<TABLE>
<S> <C>
For: 10,068,205
Against: 1,637,611
Abstentions: 66,716
Broker Nonvotes: 4
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10-A Second Amendment to Loan Agreement dated as of
September 6, 1994 by and among the Corporation, the
Banks identified therein and Banque Paribas, as Agent
for Banks.
10-B Third Amendment to Amended and Restated Loan
Agreement, Consent and Waiver, dated as of August 26,
1994, by and among FoxMeyer Corporation, FoxMeyer
Drug Company, Merchandise Coordinator Services
Corporation, Harris Wholesale Company, the Lenders
and Issuers named therein, Citicorp USA, Inc., as
Administrative Agent for the Lenders, and NationsBank
of Texas, N.A. and Banque Paribas, as Co-Agents for
the Lenders.
<PAGE> 21
10-C Third Amendment to Credit Agreement, Consent and
Waiver, dated as of August 30, 1994, by and among
FoxMeyer Corporation, FoxMeyer Drug Company,
Merchandise Coordinator Services Corporation, Harris
Wholesale Company, the Banks named therein and
Continental Bank, as agent for the Banks.
10-D Amendment dated October 12, 1994 to the 1993 Stock
Option and Performance Award Plan of the Corporation.
10-E Employment Agreement dated as of August 10, 1994
between FoxMeyer Corporation and Thomas L. Anderson.
11 Computation of earnings per share of common stock.
27 Financial Data Schedule.
(b) Reports on Form 8-K
The Corporation did not file any current reports on Form 8-K
during the three months ended September 30, 1994.
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Corporation has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FOXMEYER HEALTH CORPORATION
By: /s/ Edward L. Massman
-----------------------------
Edward L. Massman
Vice President and Controller
(Chief Accounting Officer)
Date: November 14, 1994
<PAGE> 23
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
10-A Second Amendment to Loan Agreement dated as of
September 6, 1994 by and among the Corporation, the
Banks identified therein and Banque Paribas, as Agent
for Banks.
10-B Third Amendment to Amended and Restated Loan
Agreement, Consent and Waiver, dated as of August 26,
1994, by and among FoxMeyer Corporation, FoxMeyer
Drug Company, Merchandise Coordinator Services
Corporation, Harris Wholesale Company, the Lenders
and Issuers named therein, Citicorp USA, Inc., as
Administrative Agent for the Lenders, and NationsBank
of Texas, N.A. and Banque Paribas, as Co-Agents for
the Lenders.
10-C Third Amendment to Credit Agreement, Consent and
Waiver, dated as of August 30, 1994, by and among
FoxMeyer Corporation, FoxMeyer Drug Company,
Merchandise Coordinator Services Corporation, Harris
Wholesale Company, the Banks named therein and
Continental Bank, as agent for the Banks.
10-D Amendment dated October 12, 1994 to the 1993 Stock
Option and Performance Award Plan of the Corporation.
10-E Employment Agreement dated as of August 10, 1994
between FoxMeyer Corporation and Thomas L. Anderson.
11 Computation of earnings per share of common stock.
27 Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10-A
SECOND AMENDMENT TO LOAN AGREEMENT
This Second Amendment to Loan Agreement (this "Amendment") is made and
entered into as of September 6, 1994, by and among NATIONAL INTERGROUP, INC.
("Borrower"), a Delaware corporation, the Banks identified on the signature
pages hereof ("Banks") and BANQUE PARIBAS, a bank organized under the laws of
the Republic of France, as Agent for Banks ("Agent").
A. Pursuant to that certain Loan Agreement dated as of January
13, 1994, by and among Borrower, Banks and Agent (as amended by that certain
First Amendment to Loan Agreement dated as of January 13, 1994, the
"Agreement"), Banks agreed to provide to Borrower a revolving credit and letter
of credit facility in the maximum aggregate principal amount of $15,000,000.
B. The collateral securing the Obligations (as such term is
defined in the Agreement) presently includes 3,725,000 shares of common stock
of FoxMeyer Corporation owned by Borrower. Borrower presently owns in excess
of 80% of the total number of shares of common stock of FoxMeyer Corporation
issued and outstanding.
C. Borrower and FoxMeyer Corporation have announced their
intention that FoxMeyer Corporation shall become a wholly-owned subsidiary of
Borrower pursuant to a merger of FoxMeyer Corporation with and into a
wholly-owned subsidiary of Borrower.
D. Borrower, Agent and Banks desire to amend the Agreement in
several respects in contemplation of such merger and in contemplation of other
transactions involving Borrower.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
ARTICLE I
DEFINITION OF TERMS
1.1 Terms Defined. Unless otherwise defined in this Amendment,
each capitalized term used in this Amendment has the meaning given to such term
in the Agreement as amended by this Amendment.
ARTICLE II
AMENDMENTS
2.1 Definition of "Borrowing Base". The definition of the term
"Borrowing Base" in Section 1.2 of the Agreement is hereby amended, effective
as of the Merger Effective Date, to read in its entirety as follows:
<PAGE> 2
"Borrowing Base. Means, as of the date of any determination
by Agent, an amount equal to the sum of (a) the Collateral Value of
the FoxMeyer Stock pledged as Collateral in compliance with this
Agreement in which Agent, on behalf of Banks, has a first priority
Lien as security for the Obligations plus (b) forty-nine and
nine-tenths percent (49.9%) of the fair market value of the Margin
Stock pledged as Collateral in compliance with this Agreement (if any)
in which Agent, on behalf of Banks, has a first priority Lien as
security for the Obligations, which fair market value shall be equal
to the closing sale price of such stock on the immediately preceding
Business Day, as appearing on any regularly published reporting or
quotation service;provided, however, that if, at any time, any Margin
Stock so pledged (if any) does not appear on any regularly published
reporting or quotation service, Borrower and Agent shall negotiate in
good faith to reach an agreement regarding the method of determining
the fair market value of such stock (taking into consideration
marketability, transfer restrictions and all other relevant factors),
in which case such fair market value shall be determined as so agreed
or, in the absence of an agreement, shall be determined in good faith
by Agent."
2.2 Definition of "Borrowing Base Deficiency". The definition of
the term "Borrowing Base Deficiency" in Section 1.2 of the Agreement is hereby
amended, effective as of the Merger Effective Date, to read in its entirety as
follows:
"Borrowing Base Deficiency. Means, as of the date of any
determination, the amount, if any, by which (a) the product of (i)
four multiplied by (ii) the Aggregate Commitment, exceeds (b) the
Borrowing Base in effect on such date."
2.3 Definition of "Collateral Value". The following new term and
definition thereof are hereby added, effective as of the Merger Effective Date,
to Section 1.2 of the Agreement, which term shall appear in alphabetical order
and shall mean as follows:
"Collateral Value. Means, as it relates to the shares of
FoxMeyer Stock pledged as Collateral in compliance with this Agreement
in which Agent, on behalf of Banks, has a first priority Lien as
security for the Obligations and as of the date of any determination
by Agent, the product of (a) the quotient of (i) the number of such
shares of FoxMeyer Stock so pledged divided by (ii) the number of
shares of FoxMeyer Stock issued and outstanding, multiplied by (b) the
product of (i) five multiplied by (ii) the EBITDA of FoxMeyer for the
twelve-month period ended on the last day of the fiscal quarter of
FoxMeyer then most recently ended."
2.4 Definition of "EBITDA". The following new term and definition
thereof are hereby added, effective as of the Merger Effective Date, to Section
1.2 of the Agreement, which term shall appear in alphabetical order and shall
mean as follows:
"EBITDA. Means, with respect to FoxMeyer and its consolidated
subsidiaries and for any period, the sum of (a) income (or deficit)
before provision for income taxes for such period (excluding (i)
extraordinary gains and losses and (ii) to the extent not already
deducted, income attributable to minority interests in subsidiaries
for such
2
<PAGE> 3
period), plus (b) interest expense for such period, plus (c)
depreciation and amortization for such period."
2.5 Definition of "FoxMeyer". The definition of the term
"FoxMeyer" in Section 1.2 of the Agreement is hereby amended to read in its
entirety as follows:
"FoxMeyer. Means FoxMeyer Corporation, a Delaware
corporation; provided, however, that upon and after the Merger
Effective Date, such term shall mean the corporation surviving the
FoxMeyer Merger, which surviving corporation shall be a Delaware
corporation named `FoxMeyer Corporation'".
2.6 Definition of "FoxMeyer Merger". The following new term and
definition thereof are hereby added to Section 1.2 of the Agreement, which term
shall appear in alphabetical order and shall mean as follows:
"FoxMeyer Merger. Means that certain merger of FoxMeyer
Corporation with and into FoxMeyer Acquisition Corp. pursuant to and
as provided in that certain Agreement and Plan of Merger dated as of
June 30, 1994, among Borrower, FoxMeyer Acquisition Corp. and FoxMeyer
Corporation."
2.7 Definition of "Merger Effective Date". The following new
term and definition thereof are hereby added to Section 1.2 of the Agreement,
which term shall appear in alphabetical order and shall mean as follows:
"Merger Effective Date. Means the effective date of
consummation of the FoxMeyer Merger."
2.8 Minimum Required Number of Shares of FoxMeyer Stock Pledged.
The following new term and definition thereof are hereby added, effective as of
the Merger Effective Date, to Section 1.2 of the Agreement, which term shall
appear in alphabetical order and shall mean as follows:
"Minimum Required Number. Means, in reference to the required
minimum number of shares of FoxMeyer Stock to be pledged as security
for the Obligations on and after the Merger Effective Date in
compliance withSection 3.1(a), the smallest whole number, calculated
as of the last day of the fiscal quarter of Borrower immediately
preceding the Merger Effective Date, that shall result in the
Collateral Value of the shares of FoxMeyer Stock so pledged as of the
Merger Effective Date being equal to or greater than $60,000,000."
2.9 Borrowing Base. Section 2.1(b) of the Agreement is hereby
amended, effective as of the Merger Effective Date, to read in its entirety as
follows:
"(b) Borrowing Base. Notwithstanding anything to the
contrary contained in Section 2.1(a) or elsewhere in this Agreement,
no Bank shall be obligated, pursuant to
3
<PAGE> 4
Section 2.1(a) or otherwise, to make any Advance to or for the account
of Borrower or to issue, or participate in the issuance of, any Letter
of Credit for the account of Borrower or to amend, renew or extend any
Letter of Credit, and Borrower shall not be entitled to borrow or
cause the issuance, amendment, renewal or extension of any Letter of
Credit, pursuant toSection 2.1(a) or otherwise if, either immediately
before or after giving full effect to the requested Advance by such
Bank and all other Banks or the requested Letter of Credit or the
amendment, renewal or extension thereof, as the case may be, a
Borrowing Base Deficiency shall exist."
2.10 Borrowing Base Deficiency. Section 2.5(b) of the Agreement is
hereby amended, effective as of the Merger Effective Date, to read in its
entirety as follows:
"(b) Mandatory Prepayment; Borrowing Base Deficiency.
Upon any determination by Agent that a Borrowing Base Deficiency
exists, Borrower shall comply with the provisions ofSection 2.11(d)
and, in the event of any reduction (or termination) of the Commitments
and the Aggregate Commitment as a result thereof, Borrower shall,
concurrently with such reduction (or termination), prepay the
outstanding principal amount of the Loans and/or, if and to the extent
that the principal of the Loans is paid in full, reduce the Letter of
Credit Outstandings, by an amount sufficient to ensure that the sum of
the aggregate outstanding principal amount of all Loans plus the
aggregate Letter of Credit Outstandings does not exceed the Aggregate
Commitment as so reduced (or terminated)."
2.11 Mandatory Reduction or Termination of Commitments. A new
Section 2.11(d) is hereby added, effective as of the Merger Effective Date, to
Section 2.11 of the Agreement, which Section 2.11(d) shall read in its entirety
as follows:
"(d) Mandatory Reduction of Termination of Commitments.
If, upon any determination of the Borrowing Base in accordance
withSection 2.2, Agent determines that a Borrowing Base Deficiency
exists, then Agent shall promptly give notice of such Borrowing Base
Deficiency to Borrower and Borrower shall, within seven Business Days
following such notice, wholly eliminate the Borrowing Base Deficiency
by doing any one or more of the following: (i) reducing the
Commitments and the Aggregate Commitment, (ii) pledging, pursuant to
documentation in form and substance satisfactory to Agent but
substantially identical to the Pledge and Security Agreement delivered
pursuant toSection 3.1(a), additional shares of FoxMeyer Stock and/or,
subject to the prior written consent of Agent and Required Banks
(which consent may or may not be granted in their sole discretion) and
compliance with this Agreement, Margin Stock having sufficient
Collateral Value and/or fair market value, respectively, provided,
however, that none of such additional shares of FoxMeyer Stock or
shares of Margin Stock pledged may be subject to any restrictions on
resale or other transfer restrictions (except as may be approved by
Agent and Majority Banks), and/or (iii) submitting evidence reasonably
satisfactory to Agent which establishes that the Collateral Value of
the FoxMeyer Stock and/or fair market value of the Margin Stock
pledged as Collateral (if any) has increased by a sufficient amount."
4
<PAGE> 5
2.12 Security Agreement. Section 3.1(a) of the Agreement is hereby
amended, effective as of the Merger Effective Date, to read in its entirety as
follows:
"(a) Security Agreement. A Pledge and Security
Agreement (including an amendment thereto if requested by
Agent) in form and substance satisfactory to Agent and Banks,
together with financing statements, stock certificates and
stock powers relating thereto properly executed or endorsed,
covering, inter alia, (i) the Minimum Required Number of
shares of FoxMeyer Stock owned by Borrower or such greater
number of shares of FoxMeyer Stock owned by Borrower as may,
from time to time, be issued and outstanding and pledged by
Borrower pursuant to such Pledge and Security Agreement, and
(ii) any and all proceeds of, and dividends paid or payable
with respect to, such shares of FoxMeyer Stock and any and all
additional shares of FoxMeyer Stock issued on account of or
with respect to such shares of FoxMeyer Stock referred to in
clause (i) preceding (whether as a result of any stock split
or stock dividend or otherwise). In the event that additional
shares of FoxMeyer Stock and/or other Margin Stock are pledged
pursuant to and in compliance with Section 2.5(b), each such
pledge shall be undertaken in compliance with Regulation U and
Borrower shall execute and/or deliver to Agent all agreements,
documents, instruments and certificates as Agent may
reasonably request in connection therewith."
2.13 Borrowing Base Certificate and Borrowing Base. Section 4.2(e)
of the Agreement is hereby amended, effective as of the Merger Effective Date,
to read in its entirety as follows:
"(e) Borrowing Base Certificate and Borrowing Base. Agent
shall have received, in connection with each Loan Request Certificate
and L/C Request Certificate to be delivered to Agent pursuant to
Section 4.2(d), a Borrowing Base Certificate, appropriately completed,
dated as of the date of the making of the requested Advance or the
issuance of the requested Letter of Credit (as the case may be) and
containing information concerning (i) the Collateral Value of the
FoxMeyer Stock and (ii) the fair market value of the Margin Stock (if
any) then constituting Collateral based upon the closing sale price of
such Margin Stock on the Business Day immediately preceding such
requested advance or issuance date, all in reasonable detail and
certified as to accuracy by a Financial Officer by Borrower. Both
immediately before and after giving full effect to the requested
Advance by Banks and/or to the requested issuance, amendment, renewal
or extension of a Letter of Credit, as the case may be, there shall
not exist any Borrowing Base Deficiency."
2.14 Ownership and Consolidation of Major Subsidiaries, Etc.
Section 6.1(l) of the Agreement is hereby amended, effective as of the Merger
Effective Date, to read in its entirety as follows:
(l) Ownership and Consolidation of Major Subsidiaries,
Etc. Borrower shall own, beneficially and of record, 100% of the
total number of shares of FoxMeyer Stock issued and outstanding from
time to time. Borrower shall ensure, and shall cause
5
<PAGE> 6
FoxMeyer to ensure, that FoxMeyer shall own, beneficially and of
record, 100% of the shares of capital stock of FoxMeyer Drug Company
issued and outstanding from time to time and that (unless Harris is
merged with and into FoxMeyer Drug Company) FoxMeyer Drug Company
shall own, beneficially and of record, 100% of the shares of capital
stock of Harris issued and outstanding from time to time. Borrower
shall, from time to time, take all actions as may be necessary or
appropriate to ensure that FoxMeyer is consolidated with Borrower for
income tax and financial reporting purposes. In the event that any
shareholder or director of Borrower votes or evidences its, his or her
intention to vote to allow, authorize or permit any amendment,
modification or change of the type described in the second sentence
ofSection 6.2(m), Borrower shall, as a shareholder of FoxMeyer by the
voting of its shares of FoxMeyer and otherwise, use its best efforts
to prevent, reverse or otherwise eliminate the effects (as the case
may be) of any such amendment, modification or change."
2.15 Restricted Payments. Section 6.2(c) of the Agreement is
hereby amended to read in its entirety as follows:
"(c) Restricted Payments. Borrower shall not make any
Restricted Payments; provided, however, that Borrower may, subject to
the proviso set forth below, (i) pay, in the ordinary course of its
business, dividends on its 1,011,970 presently (as of the Closing
Date) issued and outstanding shares of $5 Cumulative Convertible
Preferred Stock in accordance with its presently (as of the Closing
Date) existing preferred stock dividend obligations, (ii) redeem its
1,011,970 presently (as of the Closing Date) issued and outstanding
shares of $5 Cumulative Convertible Preferred Stock consistent with
the present (as of the Closing Date) redemption schedule therefor as
set forth onSchedule 2, (iii) purchase its presently (as of the
Closing Date) issued and outstanding shares of common stock for cash
if and to the extent that (but only if and to the extent that), at the
time of any such purchase and after giving effect thereto, (A) the
remainder of Borrower's cashminus the aggregate principal amount of
all Loans and Letter of Credit Outstandings equals or exceeds
$2,000,000, or (B) the aggregate amount of such purchases during the
term of this Agreement does not exceed $18,000,000, (iv) purchase its
presently (as of the Closing Date) issued and outstanding shares of
common stock in exchange for PIK Securities issued by Borrower, (v)
redeem its 3,416,753 presently (as of the Closing Date) issued and
outstanding shares of $4.20 Cumulative Exchangeable Series A Preferred
Stock, and the 1,221,250 additional shares of such preferred stock
that are issuable as dividends thereon through the Maturity Date, in
exchange for PIK Securities to be issued by Borrower, (vi) make
payments required to be paid by Borrower pursuant to the Tax Sharing
Agreement as it presently (as of the Closing Date) exists or as it may
hereafter be amended with the prior written consent of Majority Banks
(which consent shall not be unreasonably withheld, conditioned or
delayed) and (vii) dividend in kind to the shareholders of Borrower,
at any time prior to December 31, 1994, the capital stock of Ben
Franklin presently (as of the Closing Date) owned by Borrower;
provided, further, however, that no such Restricted Payments may be
declared, paid or made or may occur at any time when a Default or an
Event of Default exists or would exist after giving effect thereto."
6
<PAGE> 7
2.16 Mergers and Dissolutions. Section 6.2(f) of the Agreement is
hereby amended to read in its entirety as follows:
"Mergers and Dissolutions. Neither Borrower nor FoxMeyer
shall (i) merge or consolidate with any Person or (ii) be dissolved or
liquidated, except that (A) Consolidated Subsidiaries other than
FoxMeyer may be merged with and into Borrower so long as Borrower
shall be the entity surviving such merger and (B) FoxMeyer may merge
with and into FoxMeyer Acquisition Corp. pursuant to the FoxMeyer
Merger."
2.17 Borrowing Base Certificates. Section 6.3(a) of the Agreement
is hereby amended, effective as of the Merger Effective Date, to read in its
entirety as follows:
"(a) Borrowing Base Certificates. Within 50 days after
the end of each fiscal quarter and, at all times during which any
Margin Stock is pledged as Collateral, on the last Business Day of
each week, a Borrowing Base Certificate, appropriately completed and
calculated as of the end of such fiscal quarter or such last Business
Day (as applicable) (and, with respect to the FoxMeyer Stock pledged
as Collateral, calculated on the basis of the Collateral Value of such
stock and, with respect to any Margin Stock pledged as Collateral,
calculated on the basis of the closing sale price per share as
appearing on any regularly published reporting or quotation service),
all in reasonable detail and certified as to accuracy by a Financial
Officer of Borrower. Borrower shall also furnish to Agent the
Borrowing Base Certificates required pursuant to Section 4.2(e)."
2.18 Events of Default. A new Section 8.1(n) is hereby added to
the Agreement as an additional Event of Default, which Section 8.1(n) shall
read in its entirety as follows:
"(n) Minimum Market Capitalization. The aggregate fair
market value of the shares of common stock and preferred stock of NII
(calculated on the basis of the closing sale price per share as
appearing on any regularly published reporting or quotation service)
shall at any time be less than $325,000,000."
2.19 Borrowing Base Certificate. Exhibit B of the Agreement (the
form of Borrowing Base Certificate) is hereby amended and restated to read as
set forth on Second Amendment Exhibit A attached hereto.
ARTICLE III
CONDITIONS PRECEDENT
3.1 Conditions Precedent. The effectiveness of this Amendment is
subject to each of the following conditions precedent:
7
<PAGE> 8
(a) Agent's receipt of a certified copy of the
resolutions of the Board of Directors of Borrower authorizing this
Amendment.
(b) Agent's receipt of a legal opinion from counsel to
Borrower addressed to Agent and Required Banks, in form and substance
satisfactory to Agent, relating to this Amendment and to such other
matters as Agent may reasonably request;
(c) With respect to the amendment set forth in Section
2.16 of this Amendment, (i) Borrower's execution and/or delivery of
(A) an amendment to the Pledge and Security Agreement referred to
inSection 3.1(a), (B) an amendment to the existing financing statement
and/or an additional financing statement (as Agent may request)
relating to such Pledge and Security Agreement (and the Collateral
covered thereby) as amended, each in form and substance satisfactory
to Agent and Required Banks, and (C) any and all other agreements,
documents and instruments as Agent or Required Banks may request
relating to the Liens on the Collateral securing the Obligations, (ii)
Agent's receipt of a legal opinion from counsel to Borrower addressed
to Agent and Required Banks, in form and substance satisfactory to
Agent, relating to such amended Pledge and Security Agreement and to
such other matters as Agent may reasonably request, and (iii) Agent
and Required Banks shall be satisfied that the Liens on the Collateral
(including, without limitation, the Minimum Required Number of shares
of FoxMeyer Stock) shall be fully perfected and of first priority
(and, notwithstanding anything to the contrary contained in this
Amendment, such amendment set forth in Section 2.16 of this Amendment
shall not be effective unless and until each of the conditions
precedent set forth in thisSection 3.1(c) are satisfied).
(d) To the extent that any amendment in Article II of
this Amendment is stated as being effective as of the Merger Effective
Date, the consummation of the FoxMeyer Merger (and, notwithstanding
anything to the contrary contained in this Amendment, no amendment set
forth in Article II of this Amendment which is effective as of the
Merger Effective Date shall be effective unless and until the FoxMeyer
Merger is consummated).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties. Borrower hereby represents
and warrants to Agent and Banks that, as of the date of and after giving effect
to this Amendment, (a) all representations and warranties set forth in Article
V of the Agreement are true and correct as if made again on and as of such date
(except to the extent that such representations and warranties were expressly,
in the Agreement, made only in reference to a specific date), (b) no Default or
Event of Default has occurred and is continuing, (c) the Agreement (as amended
by this Amendment) and the other Loan Documents are and remain legal, valid,
binding and enforceable obligations of Borrower, (d) the FoxMeyer Merger will
be a tax-free reorganization for federal income tax purposes, (e) except as set
forth on Schedule 1 hereto, there is no claim or cause of action currently
pending relating to the FoxMeyer Merger, (f) the Memorandum of
8
<PAGE> 9
Understanding dated as of June 30, 1994, between Abbey & Ellis and Wechsler
Skirnick Harwood Halebian & Effer, Borrower, FoxMeyer Acquisition Corp. and
FoxMeyer Corporation (the "Memorandum of Understanding" is in full force and
effect, (g) the Agreement and Plan of Merger dated as of June 30, 1994, among
Borrower, FoxMeyer Acquisition Corp. and FoxMeyer Corporation complies with the
terms and provisions of the Memorandum of Understanding and (h) no Material
Adverse Effect could result from the claims and causes of action set forth on
Schedule 1 if the same were not settled as contemplated by the Memorandum of
Understanding.
ARTICLE V
MISCELLANEOUS
5.1 GOVERNING LAW. THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS
SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
TEXAS AND APPLICABLE U.S. FEDERAL LAWS.
5.2 Counterparts. This Amendment may be executed in any number of
counterparts, all of which when taken together shall constitute one agreement,
and any of the parties hereto may execute this Amendment by signing any such
counterpart.
5.3 NO ORAL AGREEMENTS. THIS AMENDMENT, TOGETHER WITH THE
AGREEMENT AND THE OTHER LOAN DOCUMENTS AS WRITTEN, REPRESENT THE FINAL
AGREEMENTS BETWEEN AND AMONG THE PARTIES HERETO AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A) BORROWER AND (B)
AGENT OR ANY BANK.
5.4 Agreement Remains in Effect; No Waiver. Except as expressly
provided in Article II of this Amendment, all terms and provisions of the
Agreement shall remain unchanged and in full force and effect and are hereby
ratified and confirmed. No waiver by Agent or any Bank of any Default or Event
of Default shall be deemed to be a waiver of any other Default or Event of
Default. No delay or omission by Agent or any Bank in exercising any power,
right or remedy shall impair such power, right or remedy or be construed as a
waiver thereof or an acquiescence therein, and no single or partial exercise of
any such power, right or remedy shall preclude other or further exercise
thereof or the exercise of any other power, right or remedy under the
Agreement, the Loan Documents or otherwise.
5.5 Payment of Costs, Fees and Expenses. Borrower shall promptly
pay any and all costs, fees and expenses paid or incurred by Agent incident to
this Amendment (including, without limitation, the fees and expenses of counsel
to Agent).
9
<PAGE> 10
5.6 Covenants Relating to Settlement of Claims. Borrower shall
(a) comply with the terms and provisions of the Memorandum of Understanding and
(b) use its reasonable efforts to settle all claims and causes of action
relating to the Fox Meyer Merger (as defined in the Agreement as amended by
this Amendment) in a reasonably prompt fashion and consistent with the terms
and provisions of the Memorandum of Understanding.
IN WITNESS WHEREOF, Borrower, Agent and Banks have caused this
Amendment to be executed and delivered by their duly authorized officers
effective as of the date first above written.
BORROWER:
NATIONAL INTERGROUP, INC.
By:______________________________
Name:____________________________
Title:___________________________
AGENT:
BANQUE PARIBAS, as Agent for Banks
By:______________________________
Name:____________________________
Title:___________________________
By:______________________________
Name:____________________________
Title:___________________________
BANQUE PARIBAS
By:______________________________
Name:____________________________
Title:___________________________
By:______________________________
Name:____________________________
10
<PAGE> 11
Title:_________________________
CREDIT LYONNAIS NEW YORK BRANCH
By:____________________________
Name:__________________________
Title:_________________________
11
<PAGE> 1
EXHIBIT 10-B
THIRD AMENDMENT TO AMENDED AND
RESTATED LOAN AGREEMENT, CONSENT AND WAIVER
THIS THIRD AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT, CONSENT
AND WAIVER (this "Third Amendment") is dated as of August 26, 1994, among (i)
FOXMEYER CORPORATION, a Delaware corporation ("Borrower"), (ii) FOXMEYER DRUG
COMPANY, a Kansas corporation, MERCHANDISE COORDINATOR SERVICES CORPORATION, a
Delaware corporation, and HARRIS WHOLESALE COMPANY, a Delaware corporation (the
"Operating Subsidiaries"), (iii) the LENDERS and ISSUER referred to therein,
and (iv) CITICORP USA, INC., a Delaware corporation, as Administrative Agent
("Administrative Agent"), and NATIONSBANK OF TEXAS, N.A., a bank organized
under the laws of the United States, and BANQUE PARIBAS, a bank organized under
the laws of the Republic of France, as Co-Agents ("Co- Agents").
WITNESSETH:
WHEREAS, Borrower, Operating Subsidiaries, Lenders and Issuer, and
Administrative Agent and Co-Agents entered into an Amended and Restated Loan
Agreement dated as of April 29, 1993, as amended as of October 18, 1993 and
June 20, 1994 (the "Loan Agreement");
WHEREAS, Borrower has requested (i) a consent of the Lenders to the
merger (the "Merger") of Borrower with and into FoxMeyer Acquisition Corp., a
Delaware corporation (the "Successor"), a newly formed, wholly owned subsidiary
of National Intergroup, Inc. ("NII"), pursuant to an Agreement and Plan of
Merger, dated as of June 30, 1994 (the "Merger Agreement"), among NII, the
Successor and Borrower and (ii) the waiver by the Lenders of certain provisions
of the Loan Agreement required to effect the Merger;
WHEREAS, Borrower has also requested that the ability of Borrower to
make certain equity acquisitions and investments be increased through an
amendment to the Loan Agreement;
<PAGE> 2
WHEREAS, the Lenders, Issuer, and Administrative Agent and Co-Agents
have agreed to provide such consent and waiver and make such amendment, all
upon the terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Definitions. Unless otherwise defined herein, terms are
used herein as defined in the Loan Agreement.
Section 2. Consents and Waiver. On the basis of the information
concerning the Merger set forth in the preliminary Prospectus/Proxy Statement
of NII and Borrower filed with the Securities and Exchange Commission on July
15, 1994 (the "Proxy Statement"), and subject to the satisfaction of the
conditions provided in Section 5(a) hereof, Agent, the Co-Agents, the Lenders
and Issuer hereby (a) consent to the Merger and agree, in this specific
instance, to waive the provisions of Sections 5.13, 6.1(b), 6.2(m), 6.2(q) and
6.2(y) of the Loan Agreement to the extent, and only to the extent, that such
sections prohibit the Merger and (b) consent, pursuant to Section 9.6(a) of the
Loan Agreement, to the assignment of the Loan Agreement and the other Loan
Papers from Borrower to the Successor resulting by operation of law from the
Merger. The foregoing consents and waiver shall not, and are not intended to,
relieve the Successor of its obligations under Section 6.2(y) of the Loan
Agreement as successor to Borrower, including without limitation its
obligations to maintain the separate existence of it and its Subsidiaries and
the separate conduct of the affairs of it and its Subsidiaries, from and after
the Merger. Borrower acknowledges that the consents and waiver granted in this
Section 2 extend only to the requirements of the Loan Agreement set forth in
this Section 2 and shall not be deemed to extend to any other or additional
state of facts or circumstances or any other covenant, obligation,
representation or warranty of any party under the Loan Agreement or the other
Loan Papers.
Section 3. References. From and after the effective date of the
Merger and the effectiveness of the consent, waiver and amendment provided in
Section 2 of this Third Amendment, all references to Borrower in the Loan
Agreement and the other Loan Papers shall be deemed to be references to the
Successor, and the Successor shall succeed to, and be substituted for, and may
exercise every right of, Borrower under the Loan Agreement and the other Loan
Papers for all purposes of the Loan Agreement and the other Loan Papers.
- 2 -
<PAGE> 3
Section 4. Amendment of Section 6.2. Subject to the satisfaction of the
conditions provided in Section 5(b) hereof:
(a) Section 6.2(k) of the Loan Agreement is hereby
amended by deleting the amount "$20,000,000" and inserting in place
thereof the amount "$25,000,000"; and
(b) Section 6.2(l) of the Loan Agreement is hereby
amended by deleting the amount "$9,000,000" and inserting in place
thereof the amount "$25,000,000."
Section 5. Effectiveness of Consent, Waiver and Amendment.
(a) The consents, waiver and the amendment effected by
Sections 2 and 3 of this Third Amendment shall be effective upon
satisfaction of the following, in a manner acceptable to
Administrative Agent:
(i) All of the Lenders, Issuer, Administrative
Agent and Co-Agents shall have executed and delivered this
Third Amendment.
(ii) All of the Guarantors shall have executed and
delivered the Consent and Agreement attached to this Third
Amendment.
(iii) The Successor shall have executed and
delivered an instrument of assumption and agreement, assuming
all of the obligations of Borrower under, and agreeing to be
bound by and perform all of the provisions applicable to
Borrower of, the Loan Agreement and the other Loan Papers as
the successor to Borrower pursuant to the Merger, together
with endorsements of the Notes, all in form and substance
satisfactory to Administrative Agent;
- 3 -
<PAGE> 4
(iv) The Successor shall have delivered to
Administrative Agent the instruments and other documents
concerning the Successor as was required of Borrower pursuant
to Sections 4.1(c), (d) and (f) of the Loan Agreement.
(v) Administrative Agent shall have received (A)
a favorable legal opinion of Weil, Gotshal & Manges, counsel
to the Successor, substantially to the effect (1) provided in
Exhibit J to the Loan Agreement, (2) that the Merger has
become effective in accordance with Delaware law and (3) as to
such other matters as Administrative Agent may request, and
(B) a favorable legal opinion of Gibson, Dunn & Crutcher,
counsel to the Agent, all in form and substance satisfactory
to Administrative Agent.
(vi) (A) the Merger shall have become effective on
or before December 31, 1994, in accordance with the Merger
Agreement and the Proxy Statement (without the substitution of
any other Subsidiary of NII for the Successor or any waiver of
or other departure from the material terms or conditions
thereof, except to reflect the elimination of consents
referenced therein that are not required), in compliance with
all applicable laws and regulations and with all required
approvals and consents having been obtained (without any
material conditions or the imposition of or agreement to any
material obligations), (B) Administrative Agent shall have
received complete copies of the Merger Agreement (including
the schedules thereto) and the Proxy Statement (including the
final form thereof and any supplements thereto) and (C)
Administrative Agent shall have received a certificate from
the Chief Financial Officer of Borrower certifying the
fulfillment of the conditions of this clause (vi).
(vii) The representations and warranties provided
in Article V of the Loan Agreement shall be true and correct
with respect to the Successor on the effective date of the
Merger (immediately after giving effect to the Merger and the
waiver of Section 5.13 of the Loan Agreement to the extent
contemplated by Section 2 hereof) as if made on such date
(except to the extent that such representations and warranties
are expressly by their terms made only as of another specific
date), and no Potential Default or Event of Default shall have
occurred or be continuing on the effective date of the Merger
(before and after giving effect to the Merger).
- 4 -
<PAGE> 5
(viii) Administrative Agent shall have received such
other documents, instruments, and certificates as it shall
deem necessary or appropriate in connection with this Third
Amendment and the transactions contemplated hereby.
(b) The amendments effected by Section 4 of this Third
Amendment shall be effective upon satisfaction of the following, in a
manner acceptable to Administrative Agent:
(i) The Required Lenders, Issuer, Administrative
Agent and Co-Agents shall have executed and delivered this
Third Amendment.
(ii) All of the Guarantors shall have executed and
delivered the Consent and Agreement attached to this Third
Amendment.
Section 6. Representations and Warranties. Borrower represents and
warrants that the Proxy Statement does not contain any misstatement of a
material fact or omit the statement of a material fact necessary to make the
statements contained therein not misleading. Borrower also represents and
warrants, and each Operating Subsidiary as to matters relating to such
Operating Subsidiary represents and warrants, that this Third Amendment has
been duly authorized, executed and delivered by Borrower and the Operating
Subsidiaries and constitutes the legal, valid, and binding obligations of
Borrower and the Operating Subsidiaries, enforceable in accordance with its
terms (subject as to enforcement of remedies to any applicable bankruptcy,
reorganization, moratorium, or similar laws or principles of equity affecting
the enforcement of creditors' rights generally). Borrower further represents
and warrants that (a) there exists no Potential Default or Event of Default on
the date hereof, (b) the representations and warranties set forth in Article V
of the Loan Agreement are true and correct on the date hereof (except to the
extent that such representations or warranties are expressly by their terms
made only as of another specific date), and (c) Borrower and the Operating
Subsidiaries have complied with all agreements and conditions to be complied
with by it under the Loan Agreement and other Loan Papers by the date hereof.
- 5 -
<PAGE> 6
Section 7. Entire Agreement; Ratification. This Third Amendment
embodies the entire agreement of the parties and supersedes any prior
agreements or understandings with respect to the subject matter hereof. Except
as modified or supplemented hereby, the Loan Agreement and all other Loan
Papers shall continue in full force and effect.
SECTION 8. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE
U.S. FEDERAL LAWS.
Section 9. Counterparts. This Third Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument. In making proof hereof, it shall not be necessary to
produce or account for any counterpart other than one signed by the party
against which enforcement is sought.
SECTION 10. NO ORAL AGREEMENTS. THIS THIRD AMENDMENT, TOGETHER WITH
THE LOAN AGREEMENT AND THE OTHER LOAN PAPERS, CONSTITUTES A "LOAN AGREEMENT"
FOR THE PURPOSES OF SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE,
AND REPRESENTS THE FINAL AGREEMENT BETWEEN AND AMONG THE PARTIES HERETO AND MAY
NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN (A)
BORROWER OR ANY OPERATING SUBSIDIARY AND (B) ADMINISTRATIVE AGENT, ANY
CO-AGENT, ANY LENDER OR ISSUER.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, this Third Amendment to Amended and Restated Loan
Agreement, Consent and Waiver is executed as of the date first set forth above.
FOXMEYER CORPORATION
By_________________________________
Title:
FOXMEYER DRUG COMPANY
By_________________________________
Title:
- 7 -
<PAGE> 8
MERCHANDISE COORDINATOR
SERVICES CORPORATION
By_________________________________
Title:
HARRIS WHOLESALE COMPANY
By_________________________________
Title:
- 8 -
<PAGE> 9
CITICORP USA, INC., individually and
as Administrative Agent
By_________________________________
Title:
NATIONSBANK OF TEXAS, N.A.,
individually and as Co-Agent
By_________________________________
Title:
- 9 -
<PAGE> 10
BANQUE PARIBAS, individually
and as Co-Agent
By_________________________________
Title:
By_________________________________
Title:
CITIBANK, N.A., as Issuer
(and not a Lender)
- 10 -
<PAGE> 11
By_________________________________
Title:
FIRST BANK NATIONAL ASSOCIATION
By_________________________________
Title:
THE BOATMEN'S NATIONAL BANK
OF ST. LOUIS
By_________________________________
Title:
- 11 -
<PAGE> 12
CONTINENTAL BANK
By_________________________________
Title:
FIRST INTERSTATE BANK OF TEXAS, N.A.
By_________________________________
Title:
- 12 -
<PAGE> 13
CREDIT SUISSE
By_________________________________
Title:
By_________________________________
Title:
- 13 -
<PAGE> 14
PNC BANK, N.A.
By_________________________________
Title:
- 14 -
<PAGE> 15
CONSENT AND AGREEMENT
The undersigned, being all of the Guarantors (as defined in the Loan
Agreement), hereby consent and agree to the foregoing Third Amendment and
hereby confirm their respective obligations under their respective Guaranty
Agreements (as defined in the Loan Agreement), which shall remain in full force
and effect.
FOXMEYER DRUG COMPANY, a Kansas corporation
DRXCARE, INC.
HEALTH CARE PHARMACY PROVIDERS, INC.
HEALTH MART, INC.
FOXMEYER DRUG COMPANY, a Delaware corporation
IV PARTNERS, INC.
FOXMEYER REALTY COMPANY
FOXMEYER SOFTWARE, INC.
HEALTHCARE TRANSPORTATION SYSTEM, INC.
MERCHANDISE COORDINATOR SERVICES CORPORATION
CAROL STREAM HOLDINGS, INC.
HARRIS WHOLESALE COMPANY
By:___________________________________
Title:
- 15 -
<PAGE> 1
EXHIBIT 10-C
THIRD AMENDMENT TO
CREDIT AGREEMENT, CONSENT AND WAIVER
THIS THIRD AMENDMENT TO CREDIT AGREEMENT, CONSENT AND WAIVER dated as
of August 30, 1994 (this "Third Amendment") is entered into among FOXMEYER
CORPORATION, a Delaware corporation (the "Company"), (ii) FOXMEYER DRUG
COMPANY, a Kansas corporation, MERCHANDISE COORDINATOR SERVICES CORPORATION, a
Delaware corporation, and HARRIS WHOLESALE COMPANY, a Delaware corporation (the
"Operating Subsidiaries"), (iii) certain financial institutions (the "Banks")
and CONTINENTAL BANK, as agent for the Banks (in such capacity, the "Agent").
WITNESSETH:
WHEREAS, the Company, the Operating Subsidiaries, the Banks and the
Agent entered into a Credit Agreement, dated as of August 30, 1993, as amended
by (i) that certain First Amendment to Credit Agreement, dated as of October
18, 1993, and (ii) that certain Second Amendment to Amended and Restated Loan
Agreement, dated as of June 20, 1994, among the Company, the Operating
Subsidiaries, Citicorp USA, Inc., as administrative agent, and Nationsbank of
Texas, N.A. and Banque Paribas, as co-agents, certain provisions of which
automatically amended the original credit agreement (as amended by the First
Amendment) pursuant to Section 14.1 of the original credit agreement (as so
amended, the "Credit Agreement");
WHEREAS, the Company has requested a waiver of certain provisions of
the Credit Agreement required to effect the merger (the "Merger") of the
Company with and into FoxMeyer Acquisition Corp., a Delaware corporation (the
"Successor"), a newly formed, wholly owned subsidiary of National Intergroup,
Inc., ("NII"), pursuant to an Agreement and Plan of Merger, dated as of June
30, 1994 (the "Merger Agreement") among NII, the Successor and the Company;
WHEREAS, by that certain Third Amendment to Amended and Restated Loan
Agreement (the "Citicorp Third Amendment"), dated on or about August 30, 1994,
a copy of which is attached hereto as Exhibit A, amending the Citicorp Credit
Agreement, certain provisions of the Credit Agreement will be automatically
amended upon approval in writing by lenders under the Citicorp Credit Agreement
and Banks holding in the aggregate at least 66 2/3% of the "Commitments" (as
defined in the Citicorp Credit Agreement) and the Commitments taken as a whole.
<PAGE> 2
WHEREAS, the Company has requested that the Termination Date be
extended until February 28, 1995, and that the commitment fee and interest rate
for Loans each be reduced; and
WHEREAS, the Banks executing this Third Amendment and the Agent have
agreed to provide such waivers and consents and make such amendments upon the
terms and conditions set forth below;
NOW, THEREFORE, for valuable consideration hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. Definitions. Unless otherwise defined herein,
terms are used herein as defined in the Credit Agreement.
Section 2. Amendments. The Credit Agreement is hereby
amended as follows:
(a) the definition of "Termination Date" at Section 1.2 of the
Credit Agreement is hereby amended to read in its entirety as follows:
"`Termination Date' means February 28, 1994 or such other
date on which the Commitments shall terminate pursuant to
Section 6 or 12.";
(b) Section 4.1 is hereby amended to read in its entirety as
follows:
"4.1. Interest Rates. The Company promises to pay
interest on the unpaid principal amount of each Loan for the
period commencing on the date of such Loan until such Loan is
paid in full, as follows:
(a) at all times while such Loan is a Floating
Rate Loan, at a rate per annum equal to the Alternate
Reference Rate from time to time in effect; and
(b) at all times while such Loan is a Eurodollar
Loan, at a rate per annum equal to the sum of the Eurodollar
Rate (Reserve Adjusted) applicable to each Interest Period for
such Eurodollar Loan plus 0.875%."; and
(c) the commitment fee of "3/8 of 1% per annum" set forth in
the third line of Section 5.1 is hereby replaced with "1/4 of 1% per
annum".
Section 3. Consents and Waiver. On the basis of the information
concerning the Merger set forth in the preliminary Prospectus/Proxy Statement
of NII and the Company filed with the
- 2 -
<PAGE> 3
Securities Exchange Commission on July 15, 1994 (the "Proxy Statement"), and
subject to the satisfaction of the conditions provided in Section 5 hereof, the
Agent and the Banks hereby (a) consent to the Merger and agree, in this
specific instance, to waive the provisions of Section 9.13 of the Credit
Agreement and (b) consent to the amendments to the Citicorp Agreement, as set
forth in the Citicorp Third Amendment. The Company acknowledges that the
consents and waiver granted in this Section 3 extend only to the requirements
of the Credit Agreement set forth in this Section 3 and shall not be deemed to
extend to any other or additional state of facts or circumstances or any other
covenant, obligation, representation or warranty of any party under the Credit
Agreement or the other Loan Documents.
Section 4. References. From and after the effective date
of the Merger and the effectiveness of the amendment, consents and waiver
provided in Section 3 of this Third Amendment, all references to the Company in
the Credit Agreement and the other Loan Documents shall be deemed to be
references to the Successor, and the Successor shall succeed to, and be
substituted for, and may exercise every right of, the Company under the Credit
Agreement and the other Loan Documents for all purposes of the Credit Agreement
and the other Loan Documents.
Section 5. Effectiveness of Third Amendment; Conditions to
Consent and Amendment.
(a) The consents, waiver and the amendment effected by Section
2 of this Third Amendment shall be effective upon satisfaction of the
following, in a manner acceptable to Agent:
(i) All of the Banks and the Agent shall have
executed and delivered counterparts of this Third Amendment.
(ii) All of the Guarantors shall have executed and
delivered the Consent and Agreement attached to this Third
Amendment.
(b) The consents, waiver and amendment effected by Sections 3
and 4 of this Third Amendment shall be effective upon the satisfaction
of the following, in a manner acceptable to the Agent:
(i) The Required Banks (and such additional Banks as
shall be necessary under Section 14.1(b) of the Credit
Agreement) shall have executed and delivered counterparts of
this Third Amendment.
- 3 -
<PAGE> 4
(ii) All of the Guarantors shall have executed and
delivered the Consent and Agreement attached to this Third
Amendment.
(iii) The Successor shall have executed and delivered an
instrument of assumption and agreement, assuming all of the
obligations of the Company under, and agreeing to be bound by
and perform all of the provisions applicable to the Company
of, the Credit Agreement and other Loan Documents as the
successor to the Company pursuant to the Merger, together with
endorsements of the Notes, all in form and substance
satisfactory to Agent.
(iv) The Successor shall have delivered to Agent the
instruments and other documents concerning the Successor as
was required of the Company pursuant to Sections 11.1.3 and
11.1.4 of the Credit Agreement.
(v) The Agent shall have received a favorable legal
opinion of Weil, Gotshal & Manges, counsel to the Successor,
substantially to the effect (1) provided in Exhibit E to the
Credit Agreement, and (2) that the Merger has become effective
in accordance with Delaware law.
(vi) (a) The Merger shall have become effective on or
before December 31, 1994, in accordance with the Merger
Agreement and the Proxy Statement (without the substitution of
any other Subsidiary of NII for the Successor or any waiver of
or other departure from the material terms or conditions
thereof, except to reflect the elimination of consents
referenced therein that are not required), in compliance with
all applicable laws and regulations and with all required
approvals and consents having been obtained (without any
material conditions or the imposition of or agreement to any
material obligations), (b) the Agent shall have received
complete copies of the Merger Agreement (including the
schedules thereto) and the Proxy Statement (including the
final form thereof and any supplements thereto) and (c) the
Agent shall have received a certificate from the Chief
Financial Officer of the Company certifying the fulfillment of
the conditions of this clause (vi).
(vii) The representations and warranties provided in
Article IX of the Credit Agreement shall be true and correct
with respect to the Successor on the effective date of the
Merger (immediately after giving effect to the Merger and the
waiver of Section 9.13 of the Credit
- 4 -
<PAGE> 5
Agreement to the extent contemplated by Section 3 hereof) as
if made on such date (except to the extent that such
representations and warranties are expressly by their terms
made only as of another specific date), and no Unmatured Event
of Default or Event of Default shall have occurred or be
continuing on the effective date of the Merger (before and
after giving effect to the Merger).
(viii) The Agent shall have received such other
documents, instruments, and certificates as it shall deem
necessary or appropriate in connection with this Third
Amendment and the transactions contemplated hereby.
Section 6. Representations and Warranties. The Company
represents and warrants that the Proxy Statement does not contain any
misstatement of a material fact or omit the statement of a material fact
necessary to make the statements contained therein not misleading. The Company
also represents and warrants, and each Operating Subsidiary as to matters
relating to such Operating Subsidiary represents and warrants, that this Third
Amendment has been duly authorized, executed and delivered by the Company and
the Operating Subsidiaries and constitutes the legal, valid, and binding
obligations of the Company and the Operating Subsidiaries, enforceable in
accordance with its terms (subject as to enforcement of remedies to any
applicable bankruptcy, reorganization, moratorium, or similar laws or
principles of equity affecting the enforcement of creditors' rights generally).
The Company further represents and warrants that (a) there exists no Event of
Default or Unmatured Event of Default on the date hereof (before and after
giving effect to the transactions contemplated hereby), (b) the representations
and warranties set forth in Section 9 of the Credit Agreement are true and
correct on the date hereof (except to the extent that such representations or
warranties are expressly by their terms made only as of another specific date
or are expressly waived hereunder), and (c) the Company and the Operating
Subsidiaries have complied with all agreements and conditions to be complied
with by any of them under the Credit Agreement and other Loan Documents by the
date hereof.
Section 7. Entire Agreement; Ratification. This Third
Amendment embodies the entire agreement of the parties and supersedes any prior
agreements or understandings with respect to the subject matter hereof. Except
as modified or supplemented hereby, the Credit Agreement and all other Loan
Documents shall continue in full force and effect. From and after the date of
effectiveness of the amendment, consents and waiver provided in Sections 2, 3
and 4 of this Third Amendment, all references in the Credit Agreement and any
of the other Loan Documents to the
- 5 -
<PAGE> 6
Credit Agreement shall be deemed to be references to the Credit Agreement as
amended hereby.
SECTION 8. GOVERNING LAW. THIS THIRD AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ILLINOIS AND
APPLICABLE U.S. FEDERAL LAWS.
Section 9. Counterparts. This Third Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one and
the same instrument. In making proof hereof, it shall not be necessary to
produce or account for any counterpart other than one signed by the party
against which enforcement is sought.
SECTION 10. NO ORAL AGREEMENTS. TO THE EXTENT, IF ANY, THAT TEXAS LAW
MAY APPLY, THIS THIRD AMENDMENT, TOGETHER WITH THE CREDIT AGREEMENT AND THE
OTHER LOAN DOCUMENTS, CONSTITUTES A "LOAN AGREEMENT" FOR THE PURPOSES OF
SECTION 26.02(A) OF THE TEXAS BUSINESS AND COMMERCE CODE, AND REPRESENTS THE
FINAL AGREEMENT BETWEEN AND AMONG THE PARTIES HERETO AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL
AGREEMENTS OF THE PARTIES.
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the Company, Operating Subsidiaries, the Agent and
the Banks have caused this Third Amendment to be executed and delivered by
their duly authorized officers effective as of the date first above written.
COMPANY:
FOXMEYER CORPORATION
By: _________________________
Name: Michael C. Kearney
Title: Vice President and
Treasurer
OPERATING SUBSIDIARIES:
FOXMEYER DRUG COMPANY
By: _________________________
Name: Michael C. Kearney
Title: Vice President and
Treasurer
MERCHANDISE COORDINATOR SERVICES
CORPORATION
By: __________________________
Name: Michael C. Kearney
Title: Vice President and
Treasurer
HARRIS WHOLESALE COMPANY
By: __________________________
Name: Michael C. Kearney
Title: Vice President and
Treasurer
- 7 -
<PAGE> 8
AGENT AND BANKS:
CONTINENTAL BANK, individually and
as Agent
By: ___________________________
Name:___________________________
Title:__________________________
FUJI BANK, LTD.
By:_____________________________
Name:___________________________
Title:__________________________
THE BANK OF TOKYO, LTD.
By:_____________________________
Name:___________________________
Title:__________________________
- 8 -
<PAGE> 9
CONSENT AND AGREEMENT
The undersigned, being all of the Guarantors (as defined in the Credit
Agreement), hereby consent and agree to the foregoing Third Amendment to the
Credit Agreement and hereby confirm their respective obligations under their
respective Guaranty Agreements (as defined in the Credit Agreement), which
shall remain in full force and effect.
FOXMEYER DRUG COMPANY, a Kansas
corporation
DRXCARE, INC.
HEALTH MART, INC.
FOXMEYER DRUG COMPANY, a Delaware
corporation
IV PARTNERS, INC.
FOXMEYER REALTY COMPANY
FOXMEYER SOFTWARE, INC.
HEALTHCARE TRANSPORTATION SYSTEM, INC.
MERCHANDISE COORDINATOR SERVICES
CORPORATION
CAROL STREAM HOLDINGS, INC.
HARRIS WHOLESALE COMPANY
By __________________________________
Title:
- 9 -
<PAGE> 1
EXHIBIT 10-D
AMENDMENT
TO THE
1993 STOCK OPTION AND PERFORMANCE AWARD PLAN
OF
NATIONAL INTERGROUP, INC.
Amendment, dated October 12, 1994, to the 1993 Stock Option
and Performance Award Plan (the "Plan") of National Intergroup, Inc. (the
"Company"). Capitalized terms used herein and not defined herein shall have
the meanings ascribed thereto in the Plan.
WHEREAS, the Board of Directors of the Company believes that
the aggregate number of shares of the Company's common stock, par value $5 per
share, available for the granting of options under the Plan should be increased
in order to continue to give the Board of Directors flexibility in compensating
directors, officers and key employees of the Company;
NOW, THEREFORE, subject to the approval of the stockholders of
the Company as set forth in Section 2 hereof, the Plan is hereby amended as
follows:
1. The first sentence of Section 3 of the Plan is hereby amended
to read in its entirety as follows:
"Subject to adjustments provided in Section 11, the maximum
aggregate number of shares of common stock of the Company which may
be granted for all purposes under the Plan shall be 4,000,000 shares."
2. Section 4 of the Plan is hereby amended to read in its
entirety as follows:
Grants under the Plan (i) may be made, pursuant to Sections 6,
8 and 9, to key employees, officers and directors (but not to any
director who is not an employee) of the Company, or any subsidiary
corporation thereof, who are regularly employed on a salaried basis
and who are so employed on the date of such grant (the "Officer and
Key Employee Participants"), (ii) shall be made, subject to and in
accordance with Section 7, to individuals not regularly employed by
the Company who serve as directors of the Company (the "Outside
Director Participants"), and (iii) shall be made to individuals not
regularly employed by NII who serve as directors of any subsidiary
corporation of the Corporation, at the discretion of the Committee
administering the Plan.
3. This Amendment shall become effective on the date first
approved by the affirmative vote of the holders of a majority of
<PAGE> 2
the shares of common stock of the Company voting at a meeting of the Company's
stockholders.
IN WITNESS WHEREOF, the Company hereby executes this Amendment
on the date first above written.
NATIONAL INTERGROUP, INC.
By:____________________________________
Name: Peter B. McKee
Title: Vice President and
Chief Financial Officer
2
<PAGE> 1
EXHIBIT 10-E
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
August 10, 1994, is entered into by and between FoxMeyer Corporation, a
Delaware corporation (the "COMPANY"), and Thomas L. Anderson ("EXECUTIVE").
RECITALS
A. The Company desires to employ Executive on certain terms and
conditions.
B. Executive desires to be employed by the Company on such terms and
conditions.
NOW, THEREFORE, in consideration of the mutual covenants and
conditions contained herein the parties do hereby mutually agree as follows:
1. Employment. The Company hereby agrees to employ Executive and
Executive hereby agrees to be employed by the Company on the terms and subject
to the conditions of this Agreement.
2. Term of Employment. This Agreement shall, subject to Section
5 hereof, remain in effect from the date of this Agreement through August 9,
1997 (the "TERM OF EMPLOYMENT").
3. Position and Responsibilities. The Company hereby employs
Executive to serve as President of the Company. Executive shall have such
duties, responsibilities and authority as may, from time to time, be assigned
to Executive by the Chief Executive Officers of the Company or by the Board of
Directors of the Company (the "BOARD OF DIRECTORS").
4. Compensation. As compensation for all services to be
performed by Executive under this Agreement, the Company shall compensate
Executive as follows:
a. Base Salary. The Company shall pay Executive a
minimum monthly base salary of $33,333.34 (the same, as it may be
adjusted from time to time, is referred to herein as the "MONTHLY BASE
SALARY"). During the term of this Agreement, the Board of Directors
shall review Executive's Monthly Base Salary periodically to determine
whether such salary shall be adjusted in accordance with the duties
and responsibilities of Executive and his performance thereof, but no
adjustment shall reduce Executive's base salary below the minimum
Monthly Base Salary set forth above.
b. Benefits, Incentives and Perquisites. Executive
shall be entitled to participate in the incentive, stock option and
employee benefit plans of the Company and the perquisites enjoyed by
other senior officers of the Company as presently in effect or as they
may be modified from time to time, provided that the Company may not
reduce the benefits provided to Executive pursuant to
<PAGE> 2
Executive's life insurance, accidental death and dismemberment,
long-term disability and business travel accident insurance during the
term of this Agreement.
5. Termination. This Agreement may be terminated upon the
following terms:
a. Termination Upon Death. In the event of Executive's
death during the Term of Employment, this Agreement shall terminate
immediately.
b. Termination Upon Disability. The Company shall have
the right to terminate this Agreement upon the "Disability" of Executive by
providing ten (10) days written notice to Executive. "DISABILITY" as used in
this section shall mean any illness or any impairment of mind or body that (i)
renders it impossible or impracticable for Executive to perform his duties and
responsibilities hereunder for a continuous period of at least six (6) months
or (ii) is likely to prevent Executive from performing his duties and
responsibilities hereunder for more than nine (9) months during any 18-month
period, each as determined in good faith by a physician selected by the Board
of Directors. The Company's selection of a physician shall be subject to
Executive's approval, which shall not be unreasonably withheld. Any refusal
without reasonable cause by Executive to submit to a medical examination for
the purpose of certifying Disability under this section shall be deemed to
constitute conclusive evidence of Executive's Disability. In the event of
termination upon Disability, Executive shall continue to receive the Monthly
Base Salary in effect at the time of termination (reduced by any amounts
payable to Executive as disability benefits under any Company plan, social
security or otherwise) for the remainder of the Term of Employment.
c. Termination for Cause. The Company shall have the
right to terminate this Agreement, and have no further obligation to Executive
under this Agreement, for "Cause" after giving written notice of termination to
Executive. "CAUSE" as used in this section shall mean:
(i) willful misconduct or gross negligence in the
performance by Executive of his duties and responsibilities
hereunder;
(ii) the intentional failure by Executive to
follow any reasonable directive of the Company's Chief
Executive Officers or the Board of Directors in carrying out
his duties or responsibilities hereunder;
(iii) the willful and continued failure by
Executive to substantially perform his duties and
responsibilities hereunder after receipt by him of written
notice thereof from the Chief Executive
- 2 -
<PAGE> 3
Officers of the Company and Executive has been provided with
thirty (30) days to respond to such written notice;
(iv) the theft or misappropriation of funds or the
disclosure of trade secrets or other confidential or
proprietary information in violation of Section 6 of this
Agreement; or
(v) the conviction of Executive for (A) a crime
involving an act or acts of dishonesty or moral turpitude or
(B) a felony.
d. Termination without Cause. The Company shall have
the right to terminate Executive's employment at any time without Cause
("TERMINATION WITHOUT CAUSE"), upon thirty (30) days written notice. In the
event of the Termination Without Cause of Executive's employment and provided
that Executive complies with Sections 6 and 7 hereof, the Company agrees to
provide Executive with:
(a) monthly severance payments equivalent to Executive's
Monthly Base Salary on the effective date of
Termination Without Cause for a period equal to the
longer of (i) the remaining Term of Employment under
this Agreement or (ii) two years.
(b) Individual outplacement counseling, to be paid for by
the Company, with a party mutually acceptable to
Executive and the Company, to begin within six (6)
months from the date of such Termination Without
Cause.
(c) For the period applicable under subparagraph (a)
above, medical and dental benefits coverage, less any
amount that Executive is required to pay to receive
such medical and dental coverage had termination of
his employment not occurred.
Without in any way limiting the generality of what may be deemed to constitute
a Termination Without Cause hereunder, it is hereby agreed that following (i)
the acquisition by any person or entity or affiliated group of persons or
entities (other than Abbey J. Butler, Melvyn J. Estrin or entities affiliated
with either of them) of more than 50% of the then outstanding shares of common
stock of the Company or the Company's parent, National Intergroup, Inc., or
(ii) the sale, transfer or other disposition, in one or more related
transactions, by the Company or National Intergroup, Inc. of all or
substantially all of the assets of the Company or National Intergroup, Inc. to
an unaffiliated party, (A) any termination of Executive's employment for any
reason (other than death or Disability) and (B) any material reduction of
Executive's duties,
- 3 -
<PAGE> 4
responsibilities and authority shall be deemed to constitute a Termination
Without Cause hereunder.
6. Nondisclosure.
a. Executive acknowledges that during the course of the
performance of his services for the Company he will acquire confidential
information with respect to the Company's business operations, including,
without limitation, the Company's existing and contemplated products and
services, trade secrets, know-how, business and financial methods or practices,
plans, prices and pricing policies, strategies, marketing and selling
techniques and information, customer lists, and operational methods and
confidential and proprietary information relating to the Company
(collectively, the "CONFIDENTIAL INFORMATION"). Executive agrees that during
the term of this Agreement and thereafter, Executive shall not divulge any
Confidential Information to any person, directly or indirectly, except to the
Company, its directors, officers, agents and representatives and its
subsidiaries and affiliated companies, or as may reasonably be necessary in
connection with his duties on behalf of the Company or unless required by law.
b. Executive acknowledges that all documents, written
information, records, data, computer information and material, tapes, film,
maps and other material of any kind relating to Confidential Information,
including, without limitation, memoranda, notes, sketches, records, reports,
manuals, business plans and notebooks (collectively, "MATERIALS") in
Executive's possession or under his control during the term of his employment
hereunder are and shall remain the property of the Company and agrees that if
his relationship with Company is terminated (for whatever reason), he shall not
take with him but shall leave with the Company all Materials and any copies
thereof or, if such Materials are not on the premises of the Company, he shall
return the same to the Company immediately upon his termination.
c. This Section 6 shall survive any termination of this
Agreement and shall continue to bind Executive in accordance with its terms.
The existence of any claim or cause of action by Executive against the Company
whether predicated on this Agreement or otherwise, shall not constitute a
defense to the Company's enforcement of the covenants contained in this
Agreement.
7. Noncompetition. Executive agrees that during the term of this
Agreement and for two years thereafter, Executive shall not (i) become
involved, directly or indirectly, as a director, officer, employee, consultant,
agent, representative, more than 5% stockholder or partner of a corporation or
partnership of other business enterprise engaged in any line of business in
which the Company is actively engaged or at the time of termination of
Executive's employment or has under active consideration at that time and (ii)
directly or indirectly, hire or seek to hire in any capacity any person who was
an employee of the Company on the date of termination of Executive's employment
or within ninety (90) days prior to such date.
- 4 -
<PAGE> 5
Reference to the Company in section 6 and 7 above shall be deemed to include
National Intergroup Inc. and it's majority-owned subsidiaries.
8. Remedies. In the event that Executive breaches any of the
provisions of Sections 6 or 7 above, in addition to any legal rights and
remedies that the Company may have to enforce the provisions of this Agreement,
the Company shall have no further obligations to Executive under this
Agreement. In the event of such a breach, Executive agrees that any and all
proceeds, funds, payments and proprietary interests of every kind and
description arising from, or attributable to, such breach shall be the sole and
exclusive property of the Company and the Company shall be entitled to recover
any additional actual damages incurred as a result of such breach.
9. Legal Construction. The parties hereto agree that if at any
time it shall be determined that the restrictions contained in Section 7 are
unreasonable as to time or scope, or both, by any court of competent
jurisdiction, the Company shall be entitled to enforce this Agreement for such
period of time and such scope as may be determined to be reasonable by any such
court.
10. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Sections 6 or 7 above, the Company shall, in addition to any other remedies
available under law, be entitled to an injunction enjoining Executive or any
person or persons acting for or with Executive in any capacity whatsoever from
violating any of the terms thereof.
11. Severability. If any provision of this Agreement shall for
any reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other provision
of this Agreement, but this Agreement shall be construed as if such invalid,
illegal or unenforceable provision was never contained herein and the remaining
provisions of this Agreement shall remain in full force and effect.
12. Waiver and Limitation. Any waiver by either party of a
provision or a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any other provision or subsequent breach of any
provision hereof.
13. Taxes. Executive shall be responsible for the payment of all
individual taxes on all amounts paid or benefits provided to him under this
Agreement. All compensation paid to Executive shall be subject to any
withholdings as from time to time may be required to be made pursuant to law,
government regulations or order, or by agreement with, or consent of,
Executive.
- 5 -
<PAGE> 6
14. No Funding. The right of Executive under this Agreement shall
be that of a general creditor of the Company and Executive shall have no
preferred claims on, or any beneficial ownership in, the assets of the Company.
15. Entire Agreement. This Agreement, and the agreements,
documents and compensation, incentive and option plans referred to herein,
contain the entire agreement between the parties hereto relating to the subject
matter hereof and supersede any and all other prior or contemporaneous
employment, compensation, incentive or retirement agreements, either oral or in
writing, between the parties.
16. Binding Effect; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective heirs,
legatees, legal representatives, successors and assigns. Executive may not
assign any of his rights or responsibilities under this Agreement.
17. Notices. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered
personally, mailed by certified mail (return receipt requested) or sent by
overnight delivery service, cable, telegram, facsimile transmission or telex to
the parties at the following addresses or at such other addresses as shall be
specified by the parties by like notice:
a. if to the Company:
FoxMeyer Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: Sandra K. Stevens
Vice President - Human Resources
b. if to Executive:
Thomas L. Anderson
#4 Spyglass Court
Frisco, Texas 75034
18. Headings. Section and subsection headings used in this
Agreement have been inserted solely for convenience of reference and do not
constitute a part of this Agreement and are not intended to affect the
interpretation of any provision of this Agreement.
19. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
- 6 -
<PAGE> 7
20. Governing Law. This Agreement and all performance hereunder
shall be governed by and construed in accordance with the laws of the State of
Texas without regard to the principles of conflict of laws thereof.
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
FoxMeyer Corporation
By:__________________________________
Abbey J. Butler
Co-Chief Executive Officer
__________________________________
Thomas L. Anderson
- 7 -
<PAGE> 1
EXHIBIT 11
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE OF COMMON STOCK
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended September 30, Ended September 30,
--------------------------- ----------------------------
1994 1993 1994 1993
--------------------------- ----------------------------
<S> <C> <C> <C> <C>
Primary
- -------
Earnings
Income from operations $ 6,670 $ 146 $ 11,898 $ 5,403
Deduct dividends on preferred shares 4,794 1,265 9,495 2,530
--------------------------- ----------------------------
Net income (loss) applicable to common
stockholders $ 1,876 $ (1,119) $ 2,403 $ 2,873
=========================== ============================
Shares
Weighted average number of common shares
outstanding 12,950 19,702 12,973 19,700
=========================== ============================
Net income (loss) $ .1449 $ (.0568) $ .1852 $ .1458
=========================== ============================
Assuming Full Dilution
- ----------------------
Earnings
Income from operations $ 6,670 $ 146 $ 11,898 $ 5,403
Dividends on preferred shares (conversion of
preferred shares would be anti-dilutive) 4,794 1,265 9,495 2,530
--------------------------- ----------------------------
Net income applicable to common stockholders $ 1,876 $ (1,119) $ 2,403 $ 2,873
=========================== ============================
Shares
Weighted average number of common shares
outstanding 12,950 19,702 12,973 19,700
Conversion of preferred stock (anti-dilutive) - - - -
Assuming conversion of National Steel Corporation
4 5/8% convertible debentures* - 67 20 67
Additional dilutive effect of outstanding options
(as determined by application of the treasury
stock method) 1 - 4 -
--------------------------- ----------------------------
Weighted average number of common shares
outstanding as adjusted 12,951 19,769 12,997 19,767
=========================== ============================
Net income** $ .1449 $ (.0566) $ .1849 $ .1453
=========================== ============================
</TABLE>
* The debentures are convertible into the common stock of FoxMeyer Health
Corporation.
** This calculation is submitted in accordance with Regulation S-K Item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 45,771
<SECURITIES> 34,410
<RECEIVABLES> 321,189
<ALLOWANCES> 12,573
<INVENTORY> 678,964
<CURRENT-ASSETS> 1,086,310
<PP&E> 220,778
<DEPRECIATION> 79,163
<TOTAL-ASSETS> 1,630,029
<CURRENT-LIABILITIES> 731,727
<BONDS> 309,502
<COMMON> 120,836
172,018
0
<OTHER-SE> 107,288
<TOTAL-LIABILITY-AND-EQUITY> 1,630,029
<SALES> 2,507,357
<TOTAL-REVENUES> 2,507,357
<CGS> 2,340,035
<TOTAL-COSTS> 2,340,035
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,729
<INTEREST-EXPENSE> 13,405
<INCOME-PRETAX> 17,276
<INCOME-TAX> 1,496
<INCOME-CONTINUING> 15,780
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,898
<EPS-PRIMARY> 0.19
<EPS-DILUTED> 0.19
</TABLE>
