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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED MARCH 31, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 1-8549
FOXMEYER HEALTH CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 25-1425889
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1220 SENLAC DRIVE, CARROLLTON, TEXAS 75006
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 214-446-4800
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
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<CAPTION>
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
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<S> <C>
Common Stock, par value $5 per share New York Stock Exchange
$5 Cumulative Convertible Preferred Stock New York Stock Exchange
$4.20 Cumulative Exchangeable Series A Preferred Stock New York Stock Exchange
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to the
Form 10-K. X
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On June 27, 1995, the aggregate value of voting stock held by non-affiliates of
the registrant was approximately $228,092,000.
On June 27, 1995, there were 16,448,761 shares of the registrant's common stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Proxy Statement for the Annual Meeting of Stockholders of the
registrant to be held on August 8, 1995 are incorporated by reference into
Part III.
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PART I
ITEM 1. BUSINESS
(A) GENERAL DEVELOPMENT OF BUSINESS
The registrant is a holding company principally involved in (i) health
care services, including the distribution of a full line of pharmaceutical
products and health and beauty aids to independent drug stores, hospitals,
alternate care facilities and chain stores, as well as providing managed care
and information-based services to health care sponsors, pharmacies and
physicians through its wholly-owned subsidiary FoxMeyer Corporation
("FoxMeyer"), and (ii) the franchising of general variety stores and the
franchising and operation of crafts stores, together with the wholesale
distribution of products to those stores, through its 67.7%-owned subsidiary,
Ben Franklin Retail Stores, Inc. ("Ben Franklin").
The registrant was incorporated in Delaware on September 27, 1982, for
the purpose of effecting a corporate restructuring of National Steel
Corporation ("NSC") and its subsidiaries in which NSC assets pertaining to the
steel industry were separated from its non-steel assets. Pursuant to the
restructuring, on September 13, 1983, NSC was merged with a subsidiary of the
registrant and the stockholders of NSC became stockholders of the registrant.
The registrant sold substantially all of its investment in NSC and related
cyclical operations by 1991. As part of its strategy to acquire distribution
businesses, the registrant had acquired FoxMeyer and Ben Franklin in March
1986. FoxMeyer has since acquired several regional wholesale pharmaceutical
distribution firms. In September 1991, FoxMeyer sold 10,350,000 new shares of
common stock in an initial public offering, thereby reducing the registrant's
ownership in FoxMeyer to 67%. Subsequently, the registrant and FoxMeyer
purchased shares of FoxMeyer in open market transactions and a tender offer
resulting in the registrant's ownership in FoxMeyer increasing to 80.5%. On
October 12, 1994, the registrant acquired, by way of merger of FoxMeyer with
and into a wholly-owned subsidiary of the registrant, all of the outstanding
shares of FoxMeyer that it did not previously own in exchange for approximately
4,981,000 shares of the registrant's common stock. These shares were issued
from treasury stock held by the registrant. As a result of this transaction,
FoxMeyer became a wholly-owned subsidiary of the registrant. In May 1992, the
registrant sold 1,800,000 of shares of common stock of Ben Franklin in a public
offering. As a result of the public offering, the exercise of Ben Franklin
stock options and the purchase by Ben Franklin of shares of its common stock on
the open market, the registrant's ownership of Ben Franklin was 67.7% at March
31, 1995.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The registrant principally operates in two segments, the health care
services segment through FoxMeyer and the wholesale and retail distribution of
crafts and variety goods by Ben Franklin.
(C) DESCRIPTION OF THE BUSINESS
The following is a description of the registrant's operating
subsidiaries:
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FOXMEYER CORPORATION
GENERAL
FoxMeyer believes it is the fourth largest wholesale drug distributor
in the United States. Through its 25 distribution centers, FoxMeyer sells a
broad line of pharmaceutical products and health and beauty aids. FoxMeyer's
geographic coverage includes the entire continental United States.
FoxMeyer's customers include independent drug stores ("Independents"),
chain drug stores and food stores with more than five store locations
("Chains") and hospitals and alternate care facilities ("Hospitals and
Alternate Care"). FoxMeyer complements its distribution activities by offering
a broad range of merchandising and marketing programs and computer-based
services, including merchandising assistance, training, product selection and
shelf allocation, advertising and promotional support, store layout, inventory
tracking and management reports. Through FoxMeyer's proprietary Health Mart(R)
franchise program, FoxMeyer offers its 797 franchisees (as of March 31, 1995)
services and benefits normally associated with a drug store chain. In
addition, FoxMeyer has developed programs designed to attract customers in
growing specialty market niches, such as home health care, long-term care and
institutional pharmacies. FoxMeyer has established itself in markets geared
toward meeting the needs of oncology, dialysis and ambulatory clinics.
FoxMeyer has also increased its efforts in developing and marketing
information-based services that will improve the quality and cost effectiveness
of health care. FoxMeyer has consolidated these initiatives into CareStream.
CareStream will provide integrated business solutions to existing FoxMeyer
customers and broaden FoxMeyer's market reach to health plans, physicians,
hospitals and retail pharmacies with products and services that improve health
care management and patient outcomes through the strategic application of
technology-based tools, connectivity software, information databases and expert
services. In addition to the prescription benefits management program that
FoxMeyer has traditionally supported, several new initiatives have been added
in fiscal 1995.
WHOLESALE DRUG DISTRIBUTION INDUSTRY
FoxMeyer believes that the wholesale drug distribution industry will
continue to grow due to increases in the average age of the United States
population, continued dependence by manufacturers of pharmaceuticals on
wholesale drug distributors, growth in the rate of introduction of new
pharmaceuticals, and additional shifts toward the use of efficient drug
therapies to replace more expensive hospital and surgical procedures. FoxMeyer
believes that the industry has been consolidating and that this consolidation
has resulted in large part from the inability of smaller distributors to
achieve economies of scale in their business and from the increasing cost to
maintain competitive parity in information technology. FoxMeyer believes this
trend toward consolidation will continue.
Federal and state governments are exploring ways to control health
care costs. Cost containment measures are being implemented or considered by
legislative bodies, governmental agencies, and other customers of health care
products. Large customers such as managed-care groups, buying groups and
hospitals are expected to account for an increasing portion of pharmaceutical
purchases. In addition, programs such as "best pricing" employed by Medicaid,
which require manufacturers to rebate to state Medicaid agencies the difference
between a company's average manufacturer's price and the best price at which
the product is sold to any customer, and "generic substitution laws," which
permit, and in some cases require, the dispensing pharmacist to substitute a
generic equivalent drug for the brand name product prescribed, are likely to be
imitated and expanded. In response to this attention, many pharmaceutical
manufacturers have indicated that they will keep their price increases in line
with anticipated levels of general consumer price inflation. FoxMeyer believes
that cost containment pressures will continue in the future and, as a result,
impose additional limitations on FoxMeyer's gross margin. Specifically,
benefits derived from FoxMeyer's inventory investment buying, and its holding
substantial quantities of inventory, are diminished with lower and less
frequent price increases. FoxMeyer's principal long-term strategies to address
this changing business environment are to efficiently manage investment
inventory levels, to continue to identify and implement programs which lower
operating expenses as a percentage of sales, to strengthen its sales and
marketing efforts aimed at new customers and to expand the availability of
value-added services to its customers. Specifically, as part of its effort to
offset the decrease in gross margin, FoxMeyer is shifting its sales mix to
higher margin over-the-counter products, health and beauty aids and general
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merchandise. FoxMeyer is also expanding its private label, generic brand and
specialty distribution programs.
Inventory. FoxMeyer maintains an active inventory of over 35,000
stock keeping units consisting principally of a full line of prescription
pharmaceutical products, health and beauty aids (including over-the-counter
medications) and, to a lesser extent, general merchandise typically found in
drug stores. At March 31, 1995 approximately 87% of FoxMeyer's inventory was
attributable to pharmaceutical products. FoxMeyer maintains a computer-based
perpetual inventory and closely monitors inventory turnover to assist its
buyers in their decisions.
Suppliers. FoxMeyer purchases pharmaceutical and other products from
a number of manufacturers. Manufacturers generally offer products to all
wholesale drug distributors on substantially similar terms. Thus, although a
number of pharmaceuticals are only available from one manufacturer (the loss of
any one of which might materially affect FoxMeyer's business), FoxMeyer does
not anticipate that it will be unable to purchase these pharmaceutical
products. FoxMeyer has agreements with many of its suppliers that generally
require FoxMeyer to maintain a certain quantity of the supplier's products in
inventory. Contracts with suppliers typically are terminable upon 30 days'
notice by either party. FoxMeyer believes that its relationships with its
suppliers are good.
Management Information Systems. FoxMeyer's distribution centers are
linked to one of FoxMeyer's three data processing centers in Wichita, Kansas,
Dallas, Texas and Eagan, Minnesota. Management information systems serve
several important functions in FoxMeyer's business. Due to the large volume of
transactions processed, the quality and reliability of the internal management
information systems and the accuracy and timeliness of the financial controls
they provide are important for maximizing profitability. FoxMeyer's management
information systems also provide for, among other things, electronic order
entry by customers, invoice preparation, purchasing and inventory tracking. In
addition, FoxMeyer's management information systems form the basis for a number
of the value-added services that FoxMeyer provides to its customers, including
marketing data, inventory replenishment, single-source billing, computer price
updating and price labels.
FoxMeyer began a migration of its core systems about three years ago
under a $60 million project that is now called "Delta". Delta is the key to
improving efficiency and offering innovative services to FoxMeyers' customers.
During fiscal 1995, on-line systems for purchasing, order processing, warehouse
management and accounting functions were started. Final implementation of all
system functions is scheduled for late calendar 1996. Delta will enable
FoxMeyer to more efficiently manage inventories by controlling stock levels,
enhancing investment buying programs and providing decision management
information to customers and suppliers. Delta will also be the key to
re-engineering business processes and improving productivity of FoxMeyer's
employees to lower operating costs.
Order Processing and Distribution. Orders are transmitted directly
from FoxMeyer's customers by electronic order entry equipment to one of
FoxMeyer's data processing centers. Orders are relayed on the same day to the
appropriate distribution center and are generally filled and delivered within
12 to 24 hours using a combination of FoxMeyer's own trucks and third-party
contract carriers. Upon receipt of a customer's order, an order selection
document is produced which identifies the products ordered, unit prices and the
method of shipment. Currently, orders are principally filled by manual
selection and packaging. FoxMeyer has a quality assurance program under which
random orders are selected for review to test order-fill accuracy. Under
FoxMeyer's warehouse automation program, FoxMeyer has installed automatic order
selection systems for its highest volume product lines in its larger
distribution centers to supplement manual order selection. Management believes
this will result in improved turnaround time, improved accuracy and cost
reductions. FoxMeyer is nearing completion of its state-of-the-art National
Distribution Center in Washington Court House, Ohio. Automated picking will
account for more than 80% of the lines ordered each day. This distribution
center incorporates 60 carousels and two 150-foot A-Frame Automatic Picking
Systems. The National Distribution Center will also use manual picking
controlled by a new warehouse management system that guides bar-coded totes
along conveyors throughout the facility. The system tracks inventory in both
primary and secondary locations to maximize fill rates. This warehouse
management system will be rolled out to other FoxMeyer distribution centers
over the next two fiscal years.
The National Distribution Center will also offer next-day air service
through Airborne Express from its hub in Wilmington, Ohio. This will allow
FoxMeyer to consolidate its back-order operations at one distribution center
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simplifying this task and reducing the level of safety-stock inventory FoxMeyer
must maintain nationwide, further reducing inventory costs.
FoxMeyer has built its distribution network on the principle of
maximizing the geographic area served. FoxMeyer opened seven new distribution
centers in fiscal 1995 in California(2), Arizona, Utah, Washington, Tennessee
and New Jersey to service a new customer, the University Hospital Consortium
("UHC"), which is expected to generate over $700 million in additional
prescription drug sales in fiscal 1996. These additional distribution centers
have also given FoxMeyer a national presence by adding centers on the West
Coast. FoxMeyer will now be better able to service national chains and
hospitals. In addition, FoxMeyer closed one of two distribution centers in
Leetsdale, Pennsylvania. FoxMeyer expects to close the Cincinnati and Solon,
Ohio distribution centers by the end of the second quarter of fiscal 1996 after
the opening of the National Distribution Center in Washington Court House,
Ohio. FoxMeyer is reviewing other possible distribution center restructurings
to reduce costs and, at the same time, provide equal or better service to
FoxMeyer's customers.
Business and Marketing Strategy. The key elements of FoxMeyer's
strategy to improve profitability, to attract and retain customers and to
expand nationwide include: (i) Focus on Quality - Delivering products quickly
and in good condition and providing consistently high quality service through a
comprehensive computerized order entry system, inventory availability, accurate
order completion procedures and efficient transportation methods; (ii) Cost
Efficient Operations - Controlling operating expenses and improving asset
utilization by establishing large distribution centers that service broad
geographic areas and supply these operations with state of the art delivery
networks, management information systems and warehouse automation; (iii)
Innovative Services - Providing value-added services such as merchandise and
marketing programs, computer based services, the Health Mart(R) franchise
program described below, health care and long-term care programs and alternate
care pharmacy programs; (iv) Local Responsiveness -Responding quickly to
customer needs and problems through a decentralized approach to operations and
(v) National Coverage - Providing national distribution for large chains and
for hospital and alternate care purchasing groups.
MANAGED CARE AND INFORMATION-BASED SERVICES
FoxMeyer has recently consolidated its managed care and
information-based services under CareStream. CareStream will provide
innovative business solutions through strategic application of technology-based
tools. CareStream includes CareStream ProAct(TM) order management, group
reporting and innovative software systems. The ProAct software product suite
contains tools used by retail and hospital-based pharmacies to lower the costs
of pharmaceutical purchases, improve inventory turns and reduce labor. The
software provides decision support functions that electronically insure best
price purchasing, improves order fulfillment with on-line inventory checking,
confirms compliance with preferred item purchases and checks compliance with
negotiated contract and group purchasing agreements.
CareStream also includes OmNex Health, Inc. ("OmNex"), the parent
company for the managed care and pharmacy benefits management unit consisting
of Health Care Pharmacy Providers, Inc. ("HCPP"), and Scrip Card Enterprises,
Inc. ("Scrip Card"). HCPP and Scrip Card offer health care providers such as
health maintenance organizations and self-insured employers a network of
approved pharmacies to fill prescriptions of plan participants. HCPP and Scrip
Card also provide on-line information services that allow access to benefit
plans, membership eligibility, drug utilization and therapeutic data. OmNex is
also the parent company of US HealthData Interchange, Inc. ("USHDI"). USHDI
provides physician management software, electronic claims processing services
which link medical providers to payers nationwide, and on-line verification of
eligibility and benefits.
In addition, CareStream includes Synercom Health Systems, ("Synercom"),
NexCare, Inc. ("NexCare") and DataNet. Synercom is a leading supplier of
pharmacy management computer systems to independent and chain pharmacies and to
long-term care facilities. Synercom's systems are used to capture and manage
patient information, process prescriptions, maintain inventories and process
on-line prescription claims. NexCare provides systems that integrate pharmacy
practice management with payer programs to manage patients more effectively and
improve health outcomes. DataNet provides an electronic link between
pharmacies and third-party providers. DataNet also collects and disseminates
drug utilization data.
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FoxMeyer has acquired a 47% interest in FoxMeyer Canada Inc.
("FoxMeyer Canada"). FoxMeyer Canada provides health care, pharmacy and
pharmacy benefit management services in Canada. FoxMeyer Canada has recently
acquired Les Ordinateurs Hypocrat Inc. which provides computer services and
telecommunication networks to most sectors of Quebec's health care system.
CUSTOMERS
FoxMeyer sells its products to a wide range of customers including
Independents, Chains and Hospitals and Alternate Care. The following table
summarizes FoxMeyer's net sales by type of customer and the percentage of net
sales represented thereby (in thousands of dollars):
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Year Ended March 31,
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1995 1994 1993
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Type of Customer Net Sales % Net Sales % Net Sales %
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<S> <C> <C> <C> <C> <C> <C>
Independents $1,683,311 35% $ 1,751,592 34% $ 1,470,623 33%
Chains (1) 1,489,011 31 1,650,990 33 1,551,574 34
Hospitals & Alternate Care 1,231,172 25 1,163,370 23 996,248 22
Other Activities (2) 418,790 9 505,494 10 486,989 11
------------ ------ ------------ ----- ------------ -----
Total $4,822,284 100% $ 5,071,446 100% $4,505,434 100%
==================================================================================================================
</TABLE>
(1) As discussed below, sales to Chains have been negatively impacted
by the bankruptcy of Phar-Mor, Inc. ("Phar-Mor").
(2) Includes bulk sales, sales by FoxMeyer's subsidiaries,
Merchandising Coordinator Services Corporation and Health Mart,
Inc. and sales by the Managed Care and Information-Based Services
businesses. See "Other Activities" below.
During fiscal 1995, total purchases by FoxMeyer's ten largest
customers were approximately $1.9 billion or 40.0% of net sales. On August 17,
1992, Phar-Mor, FoxMeyer's largest customer at that time and which accounted
for $579.0 million or approximately 12.9% of FoxMeyer's net sales for the 1993
fiscal year, filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
Phar-Mor has closed over 165 stores and announced plans for additional store
closures that would leave only 102 stores open compared to 309 stores before
its bankruptcy filing. As a result of these stores closing, sales to Phar-Mor
in fiscal 1994 and fiscal 1995 were $395.2 million or 7.8% of net sales and
$339.0 million or 7.0% of net sales, respectively.
INDEPENDENTS
FoxMeyer has traditionally placed a strong emphasis on building
long-term relationships with Independents, offering them a broad range of
value-added management support services, including in-store consulting on
merchandising, training, product selection and shelf allocation, design and
production of advertising and promotional programs and store layout.
FoxMeyer's merchandising assistance program also offers Independents
information on market conditions, updates on new products and management
reporting.
CHAINS
Sales to Chains include sales to national and regional chain drug
stores, mass merchandisers and food stores with more than five locations.
FoxMeyer believes that small regional Chain customers are similar to
Independents in their need for value-added merchandising and marketing
services. In contrast, larger regional Chains and national Chains are
principally interested in product pricing and effective geographic coverage.
HOSPITALS AND ALTERNATE CARE
Sales to Hospitals and Alternate Care include sales to hospitals,
long-term care facilities, rehabilitation hospitals
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and providers of home health care services. These customers, either
individually or through group purchasing organizations, typically negotiate
pricing arrangements directly with pharmaceutical manufacturers who agree to
supply these customers through FoxMeyer. FoxMeyer, in turn, agrees to sell at
these negotiated prices and to provide contract administration. During fiscal
1995, FoxMeyer entered into a contract for an initial three year term with UHC.
UHC, an alliance of 67 academic medical centers, has chosen FoxMeyer to serve
as the primary supplier to UHC members that participate in UHC's pharmacy
purchasing program.
OTHER ACTIVITIES
Bulk Sales. Bulk sales represent large volume orders, usually by
chain stores, hospitals and alternate care facilities, which are serviced from
the on-hand inventory stock of FoxMeyer.
Merchandise Coordinator Services Corporation ("MCSC"). MCSC, which
operates as "FoxMeyer Trading Company," purchases pharmaceutical products,
health and beauty aids and salon products in large quantities for short-term
resale. The activities of this subsidiary are to be substantially reduced in
fiscal 1996 as the low-inflation climate has limited the potential profits that
can be achieved. Some of these activities will be continued through the
distribution purchasing group.
Health Mart(R) Drug Store Franchise Program. The Health Mart drug
store franchise program offers Independents who meet certain criteria (i) the
right to use the Health Mart franchise in a given geographical territory, (ii)
standardized store layout and decor, (iii) the right to purchase from FoxMeyer
the Health Mart private label product line and (iv) a specialized Health Mart
merchandising and advertising program that includes circular and television
advertising. FoxMeyer's Health Mart franchise agreements generally provide for
a five-year term, are terminable upon 90 days notice by the franchisee and do
not require the payment of a franchise fee. Franchisees are required to carry
a representative assortment of Health Mart private label products but are not
otherwise required to purchase products from FoxMeyer.
Managed Care and Information-Based Services. See the description of
these businesses under the heading "Managed Care and Information-Based
Services" above.
COMPETITION
The wholesale drug distribution business is highly competitive, with
many distributors competing primarily on the basis of price and service.
Principally, FoxMeyer competes with national drug wholesalers, the three
largest of which are McKesson Corporation, Bergen Brunswig Corporation and
Cardinal Health, Inc. FoxMeyer also competes with numerous local and regional
drug wholesalers, manufacturers, and mail-order and specialty distributors.
FoxMeyer has several larger competitors in the managed care and
information-based services segments. Certain of FoxMeyer's current and
potential competitors have or may obtain significantly greater financial and
marketing resources than FoxMeyer. Although FoxMeyer believes that it
currently competes favorably with other wholesale drug distributors in terms of
price and service, there can be no assurance that FoxMeyer will not encounter
increased competition in the future.
SERVICE MARKS
FoxMeyer owns or holds rights to all service marks that it considers
to be necessary in the conduct of its business, including FoxMeyer(R), the
FoxMeyer logo and Health Mart(R). FoxMeyer has entered into an agreement under
which another company has the right to use the Health Mart service mark in
Pennsylvania, West Virginia, Maryland, Virginia, New Jersey, Delaware and the
District of Columbia and prohibits FoxMeyer from using the Health Mart service
mark in these areas. FoxMeyer has limited rights to use the Health Mart
service mark in Virginia.
GOVERNMENT REGULATION
FoxMeyer's business is subject to regulation under the Federal Food,
Drug, and Cosmetic Act, the Prescription Drug Marketing Act, the Controlled
Substances Act and state laws applicable to the distribution of pharmaceutical
products and controlled substances.
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The Federal Food, Drug and Cosmetic Act generally regulates such
matters as the handling, packaging, storage and labeling of drugs and cosmetics
shipped in interstate commerce. The Prescription Drug Marketing Act, which
amended the Federal Food, Drug, and Cosmetic Act, establishes certain
requirements applicable to the wholesale distribution of prescription drugs,
including the requirement that wholesale drug distributors be licensed in
accordance with federally established guidelines on storage, handling and
records maintenance by each state in which they conduct business. In addition,
because certain drugs that FoxMeyer handles are regulated under the Controlled
Substances Act (for example, those containing narcotics such as codeine or
certain stimulants or depressant medications), FoxMeyer is also subject to the
applicable provisions of that act, including specific labeling, packaging and
recordkeeping requirements and the obligation to register with the federal
government as a distributor of controlled substances. Finally, FoxMeyer is
required to maintain licenses and permits for the distribution of
pharmaceutical products and controlled substances under the laws of each state
in which it operates.
FoxMeyer is also subject to certain federal and state statutes and
regulations affecting franchising in connection with its Health Mart franchise
programs.
FoxMeyer believes it is in substantial compliance with all of the
foregoing federal and state laws and the regulations promulgated thereunder and
possesses all material permits and licenses required for the conduct of its
business.
EMPLOYEES
As of March 31, 1995, FoxMeyer employed 2,823 persons. Approximately
743 employees of FoxMeyer are represented by unions. FoxMeyer believes that
its employee relations are good.
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PROPERTIES
FoxMeyer operates the following 25 distribution centers:
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Distribution Center Owned/Leased
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<S> <C>
Little Rock, AR Owned
Tucson, AZ Leased
Hayward, CA Leased
Ontario, CA Leased
Denver, CO Leased
Jacksonville, FL Owned
Atlanta, GA Leased
Carol Stream, IL Leased
Slidell, LA Owned
Franklin, MA Leased
Eagan, MN Owned
Kansas City, MO Owned
St. Louis, MO Leased
Marlton, NJ Leased
Cincinnati, OH Owned
Solon, OH Leased
Washington Court House, OH Leased
Oklahoma City, OK Owned
Leetsdale, PA Leased
Nashville, TN Leased
San Antonio, TX Leased
West Valley City, UT Leased
Richmond, VA Leased
Kent, WA Leased
LaCrosse, WI Owned
===============================================
</TABLE>
Each distribution center is equipped with material-handling equipment
used for receiving, storing and distributing large quantities of a broad array
of products. FoxMeyer opened seven new distribution centers during the year to
primarily service UHC business. With these additional warehouses, FoxMeyer now
has a national distribution system. FoxMeyer is opening a new distribution
center in Washington Court House, Ohio during fiscal 1996. When this facility
is opened, the Cincinnati and Solon facilities will be closed. During fiscal
1995, one of two facilities in Leetsdale, Pennsylvania was closed.
FoxMeyer leases its Carrollton, Texas executive offices and owns its
Wichita, Kansas data processing center. MCSC leases warehouses in Oklahoma
City, Oklahoma. FoxMeyer leases a warehouse in Tulsa, Oklahoma which is
subleased by another party. In addition, OmNex leases facilities in Arlington,
Texas and Salt Lake City, Utah.
BEN FRANKLIN RETAIL STORES, INC.
GENERAL
Ben Franklin franchises retail variety and crafts stores under the
names Ben Franklin(R) and Ben Franklin Crafts(R) and sells variety and crafts
merchandise to its franchisees and independent selected retail outlets on a
wholesale basis. At March 31, 1995, there were 566 franchisee-owned variety
stores and 305 franchisee-owned crafts stores including 96 franchise-owned
crafts superstores. In addition, Ben Franklin owns and operates 33 Ben
Franklin Crafts superstores and has over 800 wholesale merchandise agreements
through-out the United States. Ben Franklin stores have operated for more than
70 years.
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Ben Franklin's strategy is to rapidly expand the number of franchised
and company-owned and operated Ben Franklin Crafts superstores while
maintaining its revenue base of wholesale sales to existing variety and crafts
stores. To date, the primary source of Ben Franklin's revenues has been from
wholesale sales of merchandise, with only a small percentage of revenues
attributable to franchise fees, service fees and retail sales. All Ben
Franklin Crafts superstores franchised after December 1989 are required to pay
a 2.5% royalty fee based upon net store revenues, unlike variety stores and
crafts stores predating the new franchise program. Royalty fees have not been
material to date but are expected to represent an increasing source of revenues
for Ben Franklin without a corresponding increase in costs. In addition to
generating royalty fee income, it is anticipated that the opening of additional
Ben Franklin Crafts superstores, which are larger than variety stores, will
increase wholesale merchandise sales by Ben Franklin.
In recent years, Ben Franklin's net sales have remained at
approximately the same level, which Ben Franklin believes reflects, in part,
the closing of franchisee-owned variety stores and the sluggish retail sales
environment, which have been partially offset by the opening of new larger
crafts superstores. In fiscal years 1995, 1994 and 1993, 38, 51, and 53
variety stores have closed and 49, 24 and 15 new crafts superstores have
opened, respectively. In addition, Ben Franklin has opened 19, 4, and 6
company-owned and operated crafts superstores in fiscal year 1995, 1994 and
1993, respectively. Ten of these 19 company-owned stores were purchased from
franchisees. The closing of variety stores is the result of increased
competition from national and regional retail chain stores and, to a lesser
extent, to the lack of continuity in ownership of family-owned stores. Ben
Franklin anticipates that approximately 35 to 40 additional variety stores will
close in each of the next several years and that the effect of such closing on
Ben Franklin's wholesale sales will be offset by the opening of crafts
superstores and the new merchandising agreements discussed below.
Ben Franklin believes that the opening of new franchised and
company-owned Ben Franklin Crafts superstores, and Ben Franklin's ability to
provide superior services to franchisees and to distribute merchandise on time
and at competitive prices, have positioned Ben Franklin for future growth as a
franchisor, wholesaler and retailer. In addition, Ben Franklin has signed over
700 merchandising agreements with stores formerly served by Cotter & Company
("Cotter") under the V&S Variety Stores name. Ben Franklin signed an
agreement with Cotter to supply the variety stores Cotter formerly served under
the V&S Variety Store name as well as to purchase approximately $8.6 million of
selected merchandise inventory from Cotter.
WHOLESALE DISTRIBUTION
Ben Franklin supplies variety and crafts merchandise to franchised
stores and to selected independent retailers that have entered into merchandise
supply agreements with Ben Franklin. Sales of merchandise at the wholesale
level accounted for approximately 87% of Ben Franklin's net sales during fiscal
1995. No customer or affiliated group of customers accounted for as much as 5%
of Ben Franklin's net sales during fiscal 1995.
Merchandise. Ben Franklin maintains at its distribution centers
approximately 50,000 different items. These consist of staple, seasonal and
promotional merchandise that account, in the aggregate, for approximately 60%
of net wholesale sales. Staple merchandise consists of items inventoried by
Ben Franklin and for which it receives frequent orders. Ben Franklin also
offers more than 150,000 additional items to customers by shipment directly
from suppliers, including manufacturers, for which Ben Franklin receives a fee.
During each of the last three fiscal years, sales of crafts merchandise
represented more than 50% of net sales.
Ben Franklin purchases its merchandise from approximately 5,000
suppliers, including manufacturers. Although certain suppliers, including
manufacturers, may provide a majority or all of Ben Franklin's requirements for
a particular product or product subcategory, no supplier accounted for more
than 3% of Ben Franklin's total purchases of merchandise during fiscal 1995.
Ben Franklin believes that the loss of any one or more of its suppliers would
not have a material adverse effect on Ben Franklin and that alternative sources
of merchandise are readily available at comparable prices in all product
categories. During fiscal 1995, approximately 5% of Ben Franklin's merchandise
was imported through an import service-company. Ben Franklin does not have any
long-term or exclusive contracts with suppliers except for the import service
company. Ben Franklin believes that this gives it the flexibility to adjust
its purchases to take advantage of price differentials and favorable payment
terms among competing suppliers.
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Distribution. Ben Franklin distributes merchandise in 49 states and
certain Pacific islands and operates five distribution centers located in
Seymour and Indianapolis, Indiana, New Hope, Minnesota and Ontario, California
(2). Ben Franklin generally ships merchandise from its distribution centers
using trucking supplied by third-party contract carriers, common carriers and
its own fleet. In some circumstances merchandise is distributed by direct
shipment from suppliers.
Customers include franchisees and over 800 independent retail outlets
that have merchandise supply agreements with Ben Franklin. The independent
retailers purchase merchandise from Ben Franklin on the same terms as
franchisees but are not permitted to use the Ben Franklin(R) or Ben Franklin
Crafts(R) names. Independent retailers pay Ben Franklin a $195 monthly fee,
and Ben Franklin makes available to them substantially the same services it
offers to franchisees. Merchandise supply agreements may be terminated by
either party on 60 days notice.
Customers transmit orders directly by hand-held electronic order entry
equipment to Ben Franklin's central data processing center. The orders are
relayed electronically to a distribution center. Orders are filed by manual
selection and packaging. Ben Franklin has a quality assurance program under
which random orders are selected for review to test order-fill accuracy.
Ben Franklin's distribution centers are linked to Ben Franklin's
central data processing system which provides for order entry and confirmation,
customer billing and financial reporting systems and controls and generates
warehouse documents. Ben Franklin employs state-of-the-art warehousing and
distribution technology, including radio frequency scanning, bar coding and an
automated sortation system. In order to minimize the costs of shipping and to
increase productivity, Ben Franklin uses a computerized sequencing program to
determine truck routes and the order and number of delivery stops and to
arrange backhaul shipments from suppliers after deliveries are made to
customers. In addition to merchandise shipped from Ben Franklin's distribution
centers, customers order factory shipped merchandise directly from vendors at
prices and terms negotiated by Ben Franklin.
All franchised stores purchase some merchandise from Ben Franklin,
although they are not required to make purchases by the terms of their
franchise agreements.
FRANCHISING PROGRAMS
Franchised Stores. Ben Franklin's franchise program at March 31, 1995
consisted of 566 variety stores and 305 craft stores operating in 49 states.
Of the craft stores, there were 96 franchised crafts superstores open. Variety
and crafts stores operate under the Ben Franklin(R) and Ben Franklin Crafts(R)
names. As a result of an agreement with Crafts Plus +, In., ("Crafts Plus") 45
Crafts Plus stores were converted to franchised crafts superstores. Ben
Franklin and Crafts Plus also entered into a purchase agreement requiring
Crafts Plus to purchase a substantial portion of its merchandise from Ben
Franklin. Ben Franklin also loaned Crafts Plus $5.0 million under an unsecured
subordinated note that is convertible into 49% of Craft Plus' common stock at
the option of Ben Franklin.
Variety stores sell a broad mix of merchandise including apparel,
housewares, hardware, paper products, health and beauty aids, toys, sporting
goods, stationery, party supplies, greeting cards and crafts-related products.
Variety stores generally are located in rural areas either in main-street
shopping districts or strip malls. Variety stores average approximately 7,600
square feet of selling space but may vary in size from 2,000 square feet to
40,000 square feet of selling space.
Crafts stores sell an extensive line of crafts products, including
floral products, wearable art, custom framing and framing supplies, hobby
products and models, art supplies, yarns and sewing products. Crafts stores
generally are located in larger towns, small cities and in the suburbs of large
metropolitan centers. Crafts stores vary in size from 4,000 square feet to
25,000 square feet of selling space with most stores ranging from 10,000 to
18,000 square feet.
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Crafts stores opened under the Ben Franklin Crafts franchise program
introduced in 1989 are large crafts superstores with ample and convenient
parking. Crafts superstores are designed to be anchor stores of large strip
centers located in a metropolitan or suburban area and to generate their own
traffic rather than relying on traffic created by neighboring stores. Ben
Franklin Crafts superstores typically contain 12 departments: fabrics, floral
products, framing, artist supply, soft crafts, home accents, hard crafts, party
goods, craft jewelry, hobbies and models, sewing notions, and seasonal and
promotion items. Ben Franklin Crafts superstores average approximately 15,000
square feet of selling space.
Ben Franklin Crafts superstores provide customers with a wide range of
customer services, including in-store crafts classes, a knowledgeable sales
staff and a fast, efficient and courteous customer checkout process. Signs and
displays are designed to be attractive, simple and effective. Finished crafts
projects are displayed throughout the store, providing customers with crafts
ideas and assisting customers in merchandise selection.
Services. Ben Franklin provides to its franchisees a broad range of
services. Ben Franklin offers training, merchandising, advertising,
management, marketing, insurance and accounting services and assistance in site
selection, lease negotiation and in obtaining bank financing. Ben Franklin
charges its franchisees a nominal fee for certain services. Ben Franklin
believes that new franchisees are attracted by its depth of support services
and turnkey approach. Ben Franklin uses a computer generated store layout and
design program to provide its franchisees with a graphic floor plan for a
particular store, designating the location of store fixtures, furnishings and
equipment and the types of merchandise to be located within specific areas of
the store. Ben Franklin also uses planograms (customized shelf plans) to
assist in placement of merchandise on shelves. Ben Franklin provides video
training libraries, a customized retail pricing system, a poster service, a
quarterly merchandise activity report service, advertising layouts and
assistance in developing advertising campaigns. Ben Franklin also helps store
owners adapt to the changing retail environment through a new program to update
the fixtures and "look" of their stores.
Ben Franklin, through a subsidiary, operates an insurance agency that
obtains property and casualty, general liability, disability, life and health
insurance primarily for its franchisees.
Ben Franklin has introduced a Ben Franklin Crafts magazine and the Ben
Franklin Crafts Club. These initiatives are designed to build and reward
customer loyalty.
Area Development Agreements. Ben Franklin has granted exclusive
territorial rights to open crafts superstores in certain geographic areas
delineated by Ben Franklin, subject to the opening of a specified number of
stores within the territory in accordance with a development timetable.
COMPANY-OWNED CRAFTS STORES
Ben Franklin owns and operates 33 Ben Franklin Crafts superstores
located in Chino, Corona, Highland and Victorville, California; Bangor, Maine;
Fort Wayne (2) and Goshen, Indiana; Clay, Commack, Holbrook, Middletown,
Nanuet, Queensbury, Riverhead, Schenectady and Syosset, New York; Hyannis,
Seekonk and North Dartmouth, Massachusetts; Apopko, Ocala, Ocoee and Winter
Park, Florida; Holland, Utica and Warren, Michigan; Warwick, Rhode Island and
Beaver Creek, Centerville, Huber Heights, Lima and Wooster, Ohio.
It is anticipated that 10 additional company-owned superstores will be
opened in fiscal 1996. Ben Franklin's strategy is to establish stores in
clusters to enhance economies of scale associated with advertising and delivery
expenses. In addition, new stores will be opened in new markets where Ben
Franklin believes multi-store opportunities exist.
In addition to providing a source of revenues, company-owned stores
are used as a training ground to train managers and employees of
franchisee-owned stores and as a source of ideas to test new products and
merchandising techniques and develop in-store crafts classes and displays. All
company-owned stores are operated in accordance with Ben Franklin
specifications for franchised crafts stores and make contributions to Ben
Franklin's advertising cooperative fund on the same terms as franchised stores.
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SEASONALITY
Ben Franklin's wholesale sales are lower in the first quarter due to
lower volume of shipments related to promotional and seasonal merchandise as
compared to other quarters in the fiscal year. Ben Franklin normally incurs
operating losses in the first quarter of the year. The effects of seasonality
will be enhanced by the increasing number of company-owned crafts stores whose
sales are highest in the third quarter of the fiscal year.
COMPETITION
Ben Franklin's markets and those of its franchisees are highly
competitive. Ben Franklin competes directly with other national and regional
wholesalers, direct selling manufacturers, mail-order houses and specialty
distributors on the basis of price, breadth of product lines, marketing
programs and support services. Ben Franklin's variety store franchisees
compete with national and regional retail chain stores, including Wal-Mart
Stores, Inc. and Kmart Corporation. Franchised and company-owned crafts stores
compete with national and regional retail chain crafts stores. Variety and
crafts stores compete on the basis of variety and availability of merchandise,
convenience, location, price and customer service. Competitors may have
greater financial, marketing and other resources than either Ben Franklin or
Ben Franklin's franchisees.
TRADEMARKS AND SERVICE MARKS
Ben Franklin owns numerous trademarks and service marks. Many of
these, including the Ben Franklin(R) and Ben Franklin Crafts(R) service marks,
are registered with the United States Patent and Trademark Office. Two Ben
Franklin service mark registrations with the Trademark Office expire in 2001
and 2004, and two Ben Franklin Crafts service mark registrations with the
Trademark Office expire in 2000 and 2001, all of which are renewable. Ben
Franklin believes that its service marks have significant value and are
important to its marketing efforts. Ben Franklin is not aware of any claims of
infringement or other challenges to Ben Franklin's right to use its marks in
the United States.
GOVERNMENT REGULATION
Ben Franklin is subject to federal and state laws, rules and
regulations that govern the offer and sale of franchises. Ben Franklin is also
subject to a number of state laws that regulate substantive aspects of the
franchisor- franchisee relationship. The Federal Trade Commission's Trade
Regulation Rule on Franchising (the "FTC Rule") and certain state laws require
that Ben Franklin furnish prospective franchisees with a franchise offering
circular containing information prescribed by the FTC Rule.
Ben Franklin is required to update its offering disclosure documents
to reflect the occurrence of material events. The occurrence of any such
events may from time to time require Ben Franklin to stop offering and selling
franchises until the documents are so updated.
Further, state laws that regulate the franchisor-franchisee
relationship currently exist in a substantial number of states. Such laws
regulate the franchise relationship by, for example, requiring the franchisor
to deal with its franchisees in good faith, prohibiting interference with the
right of free association among franchisees, and regulating discrimination
among franchisees in charges, royalties or fees. These laws have not precluded
Ben Franklin from seeking franchisees in any given area. Such laws may
restrict a franchisor in the termination or non-renewal of a franchise
agreement by, for example, requiring "good cause" to exist as a basis for the
termination or non-renewal, advance notice to the franchisee of the
termination, an opportunity to cure a default and repurchase of inventory or
other compensation. These provisions have not had a significant effect on Ben
Franklin's operations to date.
Ben Franklin believes it is in substantial compliance with all of the
foregoing federal and state laws and the regulations promulgated thereunder and
possesses all material permits and licenses required for the conduct of its
business.
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Ben Franklin's subsidiary that acts as an insurance agent is generally
required to be licensed in each state in which it accepts insurance premiums.
Ben Franklin believes it is duly licensed in those states in which it is
required to be so licensed.
Ben Franklin's trucking operation is subject to regulation by the
Interstate Commerce Commission and the Department of Transportation with
respect to interstate transportation and by state regulatory agencies with
respect to intrastate transportation.
EMPLOYEES
As of March 31, 1995, Ben Franklin employed 1,974 persons, of which
approximately 1,607 were permanent and 367 were seasonal employees.
Approximately 525 of Ben Franklin's employees are represented by unions. Ben
Franklin believes that its employee relations are good.
PROPERTIES
Ben Franklin owns two of its distribution centers located in New Hope,
Minnesota (284,000 square feet) and Seymour, Indiana (600,000 square feet), and
leases three distribution centers, two of which are located in Ontario,
California (183,000 and 225,000 square feet) and one in Indianapolis, Indiana
(512,000 square feet). Ben Franklin leases its executive offices located in
Carol Stream, Illinois and its data processing center in Wichita, Kansas. Ben
Franklin believes that its existing distribution centers and headquarters have
sufficient capacity to accommodate Ben Franklin's foreseeable growth except for
the Ontario distribution centers. Currently, Ben Franklin is reviewing
potential sites in the same area to insure sufficient room for future growth.
The Ontario leases expire by October 30, 1996. Ben Franklin also leases sites
for all 33 company-owned craft superstores. Ben Franklin currently leases from
landlords and subleases to franchisees 34 stores. In addition, Ben Franklin is
the lessee of two stores formerly subleased to franchisees but which currently
are not occupied. Ben Franklin owns a warehouse in Hunt Valley, Maryland, that
it subleases to the Sherwin-Williams Company.
OTHER ACTIVITIES
The registrant has made certain investments in real estate and real
estate loans primarily through limited partnerships. These limited
partnerships are controlled by wholly-owned subsidiaries of the registrant
which generally hold a 50% general partner interest in these limited
partnerships. The limited partnerships are engaged in the buying, holding,
operating and disposing of real estate, principally hotels and office
buildings, or real estate loans.
ENVIRONMENTAL REGULATION
The registrant, like many other enterprises, is subject to federal,
state and local laws and regulations governing environmental matters. Such
laws and regulations primarily affect the registrant's previously sold or
discontinued operations where the registrant retained all or part of any
environmental liabilities on conditions existing at the date of sale.
It is anticipated that compliance with statutory requirements related
to environmental quality will continue to necessitate cash outlays by the
registrant for certain former operations. The amounts of these liabilities are
difficult to estimate due to such factors as the unknown extent of the remedial
actions that may be required and, in the case of sites not owned by the
registrant, the unknown extent of the registrant's probable liability in
proportion to the probable liability of other parties. Moreover, the
registrant may have environmental liabilities that the registrant cannot in its
judgment estimate at this time and losses attributable to remediation costs may
arise at other sites. The registrant cannot now estimate the additional costs
and expenses it may incur for such environmental liabilities. While management
of the registrant 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 that additional work may need to be performed to
ascertain the ultimate liability for such sites, and further information may
ultimately change management's current assessment. See Note P to the Notes to
the Consolidated Financial Statements of the registrant contained herein.
Also, see "Item 3. Legal
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Proceedings" below for a discussion of outstanding environmental actions
involving the registrant.
EMPLOYEES
The number of persons employed by the registrant and its consolidated
subsidiaries was approximately 4,804 at March 31, 1995.
ITEM 2. PROPERTIES
All information with respect to properties owned or leased by the
registrant has been included under the description of the registrant's
businesses.
ITEM 3. LEGAL PROCEEDINGS
On March 1, 1994, the registrant and FoxMeyer announced that the
registrant had proposed a merger in which a wholly-owned subsidiary of the
registrant would be merged with and into FoxMeyer, making FoxMeyer a
wholly-owned subsidiary of the registrant.
In the announcement, the registrant initially proposed that the
holders of each share of FoxMeyer's common stock (other than the registrant)
would receive $14.75 in principal amount of a new issue of 8.75% senior notes
due 2004 to be issued by a new holding company created for the purpose of
holding a majority of FoxMeyer's outstanding shares ("Initial Offer").
The Initial Offer was subsequently changed to a share exchange merger
in which the public shareholders of FoxMeyer (other than the registrant)
received 0.904 shares of the registrant's common stock for each share of
FoxMeyer's common stock. The merger was completed on October 12, 1994 (the
"Merger"). Shortly after the announcement of the Initial Offer, class action
lawsuits were filed against the registrant, FoxMeyer and certain of FoxMeyer's
officers and directors alleging, among other things, that the defendants
breached their fiduciary duties owed to holders of shares of FoxMeyer common
stock.
The class action lawsuits, which have been consolidated, sought to
enjoin the transaction contemplated by the Initial Offer or, if consummated, to
rescind the transaction, and requested an award for money damages, attorneys'
fees and costs. In connection with the Merger, an agreement in principle
between plaintiffs and the defendants concerning the terms of the Merger and
the settlement of the class action lawsuits was reached and a Memorandum of
Understanding was executed on June 30, 1994. The Memorandum of Understanding
provides, in substance, that, subject to confirmatory discovery, plaintiffs
will enter into a settlement of the class action lawsuits, which settlement
will be subject to conditions, including, among other things, entry of a
judgment dismissing the class action lawsuits. The Memorandum of Understanding
also provides that defendants entered into such Memorandum of Understanding to,
among other things, eliminate the burden and expense of future litigation. The
proposed settlement will provide for a complete discharge, settlement and
release of, and an injunction barring, all claims, rights, causes of action,
suits, matters and issues, whether known or unknown, that have been, could have
been, or in the future might be asserted in the class action lawsuits or in any
proceedings by or on behalf of the plaintiffs. In connection with such
settlement, the corporate defendants would pay the plaintiffs' counsel fees and
expenses in an amount not to exceed $410,000, as may be awarded by the Court
to such counsel. The defendants have answered the consolidated class action
complaint, denying the material allegations therein, including allegations that
any of them committed or have threatened to commit any violations of law or
breaches of duty to the plaintiffs and asserting certain affirmative defenses.
On September 20, 1994, counsel for plaintiffs in two of the class
action lawsuits informed counsel for the defendants that those plaintiffs (the
"Withdrawing Plaintiffs") were withdrawing from the Memorandum of Understanding
and would seek to oppose any settlement of the class action lawsuits on the
terms set forth in the Memorandum of Understanding. Plaintiffs in all of other
actions (the"Non-Withdrawing Plaintiffs") continued to engage in discovery
pursuant to the Memorandum of Understanding.
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On September 30, 1994, the Withdrawing Plaintiffs filed a motion for a
preliminary injunction seeking to enjoin the consummation of the Merger and
sought to schedule a date for a preliminary injunction hearing. That same day,
the Court denied the request to schedule a preliminary injunction hearing.
On October 11, 1994, the State of Wisconsin Investment Board ("SWIB"),
alleging that it was a shareholder of FoxMeyer, moved to intervene in the
consolidated class action lawsuits, seeking to file a complaint in intervention
challenging the Merger and defendants' conduct in connection therewith.
On December 2, 1994, SWIB withdrew its motion to intervene in the
consolidated class action lawsuits and filed a complaint entitled State of
Wisconsin Investment Board v. FoxMeyer Health Corp., et. al., in the Delaware
Chancery Court in and for New Castle County against the same persons named as
defendants in the consolidated class action lawsuits. The SWIB complaint
alleges that the defendants breached their fiduciary duties to FoxMeyer's
shareholders by agreeing to the Merger at an unfair price and at a time
designed so that the registrant could take advantage of, among other things,
an alleged substantial growth in the business of FoxMeyer. The SWIB complaint
also alleges that the proxy statement issued in connection with the Merger
failed to disclose (i) that the FoxMeyer Special Committee never examined the
basis for FoxMeyer's projections or took into account in reviewing those
projections certain increases in business expected by FoxMeyer, (ii) that
certain analyses used by Smith Barney in rendering its fairness opinion on the
Merger were flawed, and (iii) that FoxMeyer's actual performance was
substantially exceeding projections at the time of the issuance of the proxy
statement. On April 30, 1995, the SWIB actions was consolidated with the class
action lawsuits.
The registrant has recently been informed by the class action plaintiffs that
they intend to reject the Memorandum of Understanding and proceed with the
litigation. The defendants intend to contest the allegations raised by the
plaintiffs.
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 October 18, 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.
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. The Court denied the motion to
stay and reserved decision on the motion to dismiss. FoxMeyer Drug believes it
has meritorious defenses to the allegations asserted against it and is
vigorously defending itself in this action.
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On or about February 9, 1994, an action was commenced by three
Minnesota retail pharmacies in the District Court of Crow Wing County,
Minnesota, entitled Salk Drug Co., et al. v. Abbott Laboratories, et al., in
which FoxMeyer Drug Company was named as a defendant. This action is asserted
on behalf of an alleged class of retail pharmacies and alleges violations of
certain Minnesota price discrimination, conspiracy and antitrust statutes in
connection with the sale of prescription drugs in Minnesota. The complaint
seeks injunctive relief and treble damages. On March 9, 1995, FoxMeyer Drug
answered the complaint, denying liability. Also on March 9, 1995, FoxMeyer
Drug, as well as all other defendants, moved to transfer venue of this action
to Minneapolis (Hennepin County). On May 17, 1995, the court granted
defendants' motion to transfer venue and transferred this action to the
District Court of Hennepin County.
On or about March 15, 1995, an action was commenced by approximately
135 Arkansas retail pharmacies in the United States District Court for the
Eastern District of Arkansas, entitled Lawrence Adams d/b/a McSpadden Drug
Store, et al. v. Abbott Laboratories, et al., in which FoxMeyer Drug Company
was named as a defendant. This action alleges violations of the federal
antitrust laws (the Sherman and Robinson-Patson Acts) and Arkansas price
discrimination and unfair competition laws. The allegations against FoxMeyer
Drug are limited to alleged violations of the Arkansas price discrimination and
unfair competition laws. By agreement among counsel for plaintiffs and certain
defendants, this action has been stayed until June 29, 1995.
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, Minnesota and Arkansas actions)
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.
In December, the plaintiffs filed a motion to void the Agreement as
illegal and against public policy. On April 10, 1995, Plaintiffs' motion to
declare the Agreement unlawful was denied, as was Plaintiffs' motion for
reconsideration.
NATIONAL STEEL CORPORATION
In accordance with certain provisions of the Stock Purchase Agreement
and related documents dated August 27, 1984 (and as subsequently amended) (the
"Stock Purchase Agreement") between the registrant and Nippon Kokan K.K.
("NKK") whereby the registrant sold 50% of the stock of National Steel
Corporation ("NSC") to NKK, the registrant assumed primary responsibility for,
is obligated to provide funds to NSC for the payment and discharge of, and
agreed to indemnify NSC against, certain liabilities that existed at the time
of the sale. On February 3, 1993, the registrant, NII Capital Corporation, NKK
Corporation, NKK U.S.A. Corporation and NSC entered into an agreement (the
"Definitive Agreement") pursuant to which the registrant was required to pay
all liabilities, costs, expenses, attorneys' fees and disbursements incurred
with respect to environmental liabilities (collectively, "Environmental
Liabilities") for which the registrant had agreed to indemnify NSC. In
accordance with the requirements of the Definitive Agreement, the registrant
deposited with NSC a total of $10,000,000 as a prepayment of its indemnification
obligation. The Definitive Agreement provides that after January 14, 1994, NSC
will discharge Environmental Liabilities as they become due and owing after
January 14, 1994, up to the $10,000,000 amount deposited by the registrant.
In accordance with the terms of the Definitive Agreement, NSC
administering and discharging Environmental Liabilities incurred at the sites
described in paragraphs (a) through (i) below:
(a) A remedial cleanup was commenced by notice letters dated
February 1, 1985, by Region 3 of the United States Environmental Protection
Agency ("EPA") to a number of companies, including NSC,
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encouraging them to undertake immediate voluntary action with respect to the
cleanup of a certain scrap metal yard in Swissvale, Pennsylvania. EPA's
notices allege that the scrap yard is contaminated with certain hazardous
substances, including polychlorinated biphenyls (PCBs), and that a small
process building on-site is contaminated with dust containing elevated levels
of polychlorinated dibenzo-s-dioxins and dibenzofurans. On or about October
12, 1989, the United States filed a complaint in the United States District
Court for the Western District of Pennsylvania entitled United States v.
Consolidation Coal Company, et al., seeking reimbursement of EPA's response
costs as well as a declaratory judgment as to liability for future response
costs. Neither NSC nor the registrant was named a defendant in this
litigation, but the four named defendants filed a third-party complaint for
contribution against eighteen third- party defendants, including "National
Intergroup, Inc. f/k/a National Steel Corp." The registrant filed a response
to the third-party complaint denying any and all liability associated with the
site. By Order, dated May 15, 1992, the court stayed discovery only with
respect to the third-party defendants, including NSC, and ordered the
government to sample the dioxin wastes currently stored in containers at the
site in Swissvale, Pennsylvania and to determine whether a waste management
company would accept the dioxin wastes for landfilling. By Order, dated
January 21, 1993, the court approved a Stipulation of Dismissal pursuant to
which the government dismissed one of the four named defendants, USX
Corporation, from the lawsuit. Mr. Kalik and his company owned and operated
the subject scrap metal yard in Swissvale, Pennsylvania. Trial of the
government's case against the three remaining defendants was scheduled to begin
on December 6, 1993, but on December 2, 1993 the defendants reached a tentative
settlement with the government in the aggregate amount of $1.5 million (the
government's latest claim was approximately $4.5 million). The settlement is
subject to the negotiation of a consent decree acceptable to all parties and
the court's approval of the consent decree following a 30-day public comment
period. By letter, dated January 5, 1994, the defendants stated that they are
prepared to settle the third-party action for an aggregate amount of $375,000
from the eighteen third-party defendants. NSC has made a settlement offer and
believes that its share of any settlement will be less than $15,000.
(b) In September 1990, NSC received correspondence from EPA
requesting that NSC review its records and respond to information requests with
respect to the Buckeye Reclamation Site in Bridgeport, Ohio. After review of
NSC's records and information received from others, NSC has responded to EPA
indicating that some materials from NSC may have been taken to the Bridgeport,
Ohio site, but there is no indication that these materials were hazardous
substances. EPA's proposed remedial activities with respect to the site are
estimated to cost approximately $35 million. On or about September 20, 1991,
NSC and approximately 32 other potentially responsible parties ("PRPs")
received a Special Notice Letter from the EPA. The Special Notice Letter
notified the PRPs of their potential liability with respect to the site and
specifically encouraged the PRPs to perform or finance the remedial design of
the remedial action to be conducted at the site. The Special Notice Letter
also demands that the PRPs reimburse the EPA for its past costs with respect to
the site, which the EPA estimates to be approximately $925,000. In response to
the Special Notice Letter, NSC has joined a PRP group with approximately 13
other PRPs to perform collectively the remedial design pursuant to an
Administrative Order by Consent between the PRP group and the EPA which took
effect on February 10, 1992. NSC's allocated share for the remedial design
stage is 4.63%. Total costs projected for the remedial design phase are
approximately $3 million. On March 28, 1994 NSC was served with a copy of a
complaint captioned Consolidation Coal Company vs. the United States Department
of Interior, The United States Department of Environmental Protection Agency
and various other defendants, including NSC. The complaint involves claims
regarding the alleged release of hazardous substances from the Buckeye
Reclamation Landfill Site, and was filed in the United States District Court
for the Southern District of Ohio. Consolidation Coal Company seeks, among
other things, a determination of the allocation for the remedial action costs
(projected to be approximately $35 million) among the municipal and industrial
defendants. NSC and eight other industrial defendants have hired common local
counsel, have filed an answer to the complaint, and are vigorously defending
the action.
(c) By letter dated March 1, 1991, EPA notified NSC that EPA
considered NSC to be a potentially responsible party with respect to the
presence of approximately 40 deteriorating drums which may have contained
hazardous substances, which drums were discovered on property formerly owned by
NSC's Weirton Steel Division in Weirton, West Virginia. On May 2, 1991, EPA
issued an order to NSC and Weirton Steel Corporation requiring the submission
of a work plan for removal response activities at the site. By letter dated
May 6, 1991, NSC advised EPA that it intended to comply with the terms of the
order. On or about October 22, 1991, EPA approved the work plan for removal
response activities which was jointly submitted to EPA by NSC and Weirton Steel
Corporation. The registrant reimbursed Weirton Steel Corporation for
approximately $790,000 expended on the site cleanup. The first round of
17
<PAGE> 19
confirmation sampling to establish the effectiveness of the response activities
was completed in February 1992 and the results of that sampling have been
forwarded to EPA with a recommendation that no further remediation efforts at
the site are necessary. In June 1992, the EPA tentatively accepted the
findings subject to reevaluation upon submission of a final report by NSC and
Weirton Steel Corporation. NSC and Weirton Steel Corporation subsequently
received notice from EPA of satisfaction of all requirements relating to the
performance of the work plan. A final bill for EPA's oversight costs was
received and paid by Weirton Steel Corporation, with reimbursement from NSC
pursuant to the 1993 Definitive Agreement.
(d) In January 1993, NSC was notified that the West Virginia
Division of Environmental Projection ("WVDEP") had conducted an investigation
on Brown's Island, Weirton, West Virginia which was formerly owned by NSC's
Weirton Steel Division and is currently owned by Weirton Steel Corporation.
The WVDEP alleged that samples taken from four groundwater monitoring wells
located at this site contained elevated levels of contamination. WVDEP
informed Weirton Steel Corporation that additional investigation, possible
groundwater rand soil remediation, and on-site housecleaning was required at
the site. Weirton Steel Corporation has spent approximately $210,000 to date
on remediation of an emergency wastewater lagoon located on Brown's Island and
has stated that they seek reimbursement of that amount and any additional
remediation costs involving the lagoon from NSC.
(e) The New York Department of Environmental Conservation ("DEC")
has issued two Information Request letters, dated January 21, 1994 and January
8, 1995, seeking information concerning Hanna Furnace Corporation's ("HFC")
waste disposal practices. DEC's letter requested information concerning both
general waste disposal practices and those relating to the Pfohl Brothers
Landfill Site. The Landfill was operated from the 1930s to 1969 and received
both municipal and industrial wastes. HFC was a wholly-owed subsidiary of NSC
during the relevant coverage period. DEC is currently undertaking response
activities at the Landfill estimated to cost $55 million.
(f) In accordance with certain provisions of the Stock Purchase
Agreement, the registrant agreed to reimburse NSC, subject to limitations, for
certain liabilities arising under environmental laws in relation to NSC's 50%
interest (through NSC's wholly owned subsidiary, The Hanna Furnace Corporation)
in the Donner-Hanna Coke Joint Venture ("Donner-Hanna"). EPA notified
Donner-Hanna in June 1989 that it is one of a number of parties potentially
responsible for wastes present at the Hi-View Terrace site in West Seneca, New
York, and requested information with respect to this site. EPA has been
advised that Donner-Hanna's records do not indicate any involvement with the
site.
(g) NSC, Earth Sciences, Inc. and Southwire Company are general
partners in the Alumet Partnership ("Alumet"), which has been identified by the
EPA as one of approximately 260 PRPs at the Lowry Landfill Superfund Site.
Alumet presented information to the EPA in support of its position that the
material it sent to this site is not a hazardous substance. EPA has rejected
this position, and on November 15, 1993, Alumet received a demand letter from
the EPA requesting approximately $15.3 million for its past response costs
incurred as of the date of the letter. NSC believes that the same demand
letter was sent to all PRPs that sent over 300,000 gallons of waste to the
site. The owners and operators of the Lowry Landfill -- the City and County of
Denver, Waste Management of Colorado, Inc. and Chemical Waste Management, Inc.
- -- are performing the remediation activities at the site. The City and County
of Denver (the "Plaintiffs") in December 1991 filed a complaint against 40 of
the PRPs seeking reimbursement for past and future response costs incurred by
the Plaintiffs at the Lowry Landfill site. Subsequently, the Plaintiffs
reached a confidential settlement agreement with Earth Sciences, Inc. and
unsuccessfully attempted to add Alumet as a third-party defendant. In June
1993, Alumet received a settlement demand from the owners and operators of the
Lowry Landfill for response costs associated with Alumet's wastes that were not
covered by the earlier confidential settlement agreement with Earth Sciences,
Inc. On May 11, 1994, the EPA issued a Special Notice Letter to Alumet
alleging that Alumet is a PRP under CERCLA for cleanup of the Lowry Landfill
site and demanding payment of the EPA's past and future response costs. The
City and County of Denver, Waste Management of Colorado, Inc. and Chemical
Waste Management have filed a complaint against multiple entities, including
Alumet, the registrant, NSC and Southwire. The complaint alleges that Alumet,
the registrant, NSC and Southwire are liable under CERCLA for the costs of
cleaning up the Lowry Landfill Site. On November 22, 1994, Alumet received a
unilateral administrative order (the "Order") from the EPA directing recipients
of the order to perform the remedial design and remedial action at the Lowry
Landfill. EPA has determined that Alumet's percentage of the total volumetric
contribution attributed to the 27 generator respondents listed on the Order is
4.33%. Sitewide past costs are currently $48,300,000 and sitewide remedy costs
are estimated to be $93,848,000.
18
<PAGE> 20
In May of 1995, Alumet entered into a consent decree which embodies a
comprehensive and confidential settlement with EPA. The Consent Decree, if
approved by the Department of Justice, will be lodged with the court and
subject to public notice procedures.
NATIONAL ALUMINUM CORPORATION
During the fiscal year ended March 31, 1990, the registrant disposed
of the operating assets of its subsidiary, National Aluminum Corporation
("NAC"). In connection with the disposition of such assets, the registrant
retained responsibility for certain environmental matters, as follows:
(a) NAC received notification in June 1988 that NAC is considered
to be one of several hundred PRPs for the clean-up of a site known as the Diaz
Refinery in Diaz, Arkansas. On or about September 25, 1989 a complaint was
filed in the Chancery Court of Jackson County, Arkansas captioned Grantors to
the Diaz Refinery PRP Committee Site Trust, et al. v. Rheem Manufacturing
Company, et al., including NAC as a named defendant. This private litigation
by a steering committee of PRPs purports to be an action for a declaratory
judgment as to liability for the costs of cleaning the site as well as for
recovery of the costs of the clean-up. On January 24, 1990 an Order of
Dismissal was entered dismissing with prejudice NAC as a defendant and
realigning NAC as a plaintiff. NAC has joined the steering committee of PRPs
who instituted the action and is participating in site remediation activities.
(b) In the fourth quarter of 1985, the EPA notified NAC that the
EPA considered NAC to be one of a number of PRPs for the disposal of wastes at
a site in Massachusetts, known as Charles George Land Reclamation Trust
Landfill, and requested NAC to furnish certain information. In June 1989, NAC
was named as one of approximately 24 additional defendants in a cost recovery
action instituted by the United States and the Commonwealth of Massachusetts in
the United States District Court for the District of Massachusetts, entitled
U.S. v. Charles George Trucking Company, Inc., et al. The new defendants,
including NAC, instituted an action in the litigation against approximately 23
third-party defendants. The total cost of remediation at the site has been
estimated by the EPA to be approximately $55 million to $65 million. In
addition, the Commonwealth of Massachusetts is seeking natural resource
damages. The parties have negotiated a comprehensive settlement which is
embodied in a consent decree. The private parties executed the consent decree
which was subject to public notice procedures prior to execution by the
government plaintiffs. The monetary terms of the settlement embodied in the
consent decree are subject to certain confidentiality provisions. During 1994,
the district court approved the settlement and the United States Court of
Appeals for the First Circuit affirmed the approval.
(c) In December 1988, NAC received correspondence from the EPA
notifying NAC that the EPA considers it to be one of a number of PRPs for
wastes present at the Fisher-Calo Chemical and Solvent Recovery Site in
Kingsbury, Indiana. The EPA has ordered 23 of the parties (including NAC) to
undertake and complete emergency removal activities at the site. The removal
work has been substantially completed. In October 1990, the EPA sent a Special
Notice Letter to approximately 350 PRPs, including NAC, requesting the PRPs'
voluntary participation in performing or financing the remedial design/remedial
action at the site, the cost of which is estimated by the EPA to be
approximately $31 million. The Special Notice Letter also demanded payment of
the EPA's past costs at the site. The PRPs estimate that the total cost
associated with the cleanup will amount to $47 million. In August 1991, NAC
was one of approximately 52 PRPs who executed a Consent Decree to perform the
remedial design/remedial action which was lodged with the federal district
court on December 30, 1991. In addition, NAC is one of approximately 45 PRPs
who, in January 1992, agreed to institute a contribution action for the
recovery of response costs from non-participating PRPs. Pursuant to the terms
of the Consent Decree and Cost Sharing Agreement among the PRPs, NAC has paid
its allocated share of approximately $890,000. However, this figure does not
include any potential cost overruns, funding of the planned contribution action
against the non-participating PRPs, or annual administrative fees of $4,000.
(d) On October 16, 1989, the United States filed a complaint in
the United States District Court for the District of New Jersey entitled United
States v. Helen Kramer, et al., seeking reimbursement of the EPA's response
costs as well as a declaratory judgment as to liability for future response
costs with respect to the Helen Kramer Landfill Site in Mantua Township, New
Jersey. Neither NAC nor the registrant was named as a defendant in the
litigation, but 13 of the 26 named defendants have filed a third-party
complaint for contribution against 264 third-party defendants,
19
<PAGE> 21
including Denny Corporation. NAC was served with the third-party complaint as
successor to Denny Corporation on January 17, 1991. On July 8, 1991, the court
issued an order granting the third-party defendants' motion to separate the
trial of the third-party claims from the trial of the primary claims but
denying the third-party defendants' motion to stay discovery as to the
third-party claims. NAC has opted into a court-approved Settlement Process
Protocol and has prepared responses to an informal discovery questionnaire
which will form the basis of an allocation scheme among the third-party
defendants. NAC continues to participate in the settlement process and is
awaiting the completion of a draft allocation scheme, which is being prepared
by an independent third-party.
(e) In March 1991, the EPA notified NAC that the EPA considers the
former Hastings Aluminum Products Division of NAC to be one of a number of PRPs
for the presence of wastes at the Organic Chemical Site near Grandville,
Michigan and has requested NAC's voluntary participation in certain remedial
actions. In January 1992, NAC and approximately 150 other PRPs received an
Administrative Order from the EPA requiring the recipients to perform the first
phase of the remediation at the site. NAC has joined a PRP group with several
other PRPs to perform collectively the first phase of the site remediation,
which is estimated by the EPA to cost approximately $6 million. The PRPs,
including NAC, have informed the EPA that they intend to comply with the terms
of the Administrative Order.
(f) In May 1991, the EPA contacted NAC and requested information
regarding NAC's disposal of allegedly hazardous substances at the Green River
Disposal Site located in Davies County, Kentucky. NAC responded to the EPA's
request, indicating that NAC had disposed of materials at the Green River
Disposal Site, but asserting that the materials sent to the site were not
hazardous. In January 1992, the EPA notified NAC that the EPA considers NAC to
be one of a number of PRPs for contamination at the site. The EPA proposed
that NAC enter into negotiations with the Green River Coordinating Committee, a
group of PRPs performing a RI/FS pursuant to an administrative order. In March
1992, the Green River Coordinating Committee proposed an allocation formula for
funding the RI/FS, to which NAC and numerous other parties have objected. Many
of the objecting parties, including NAC, formed the Green River Review
Committee which entered into negotiations with the Coordinating Committee to
develop a more equitable allocation scheme. In February 1993, the Review
Committee entered into a settlement agreement with the Coordinating Committee,
pursuant to which the Review Committee's 18 members agreed to pay 21% of the
costs associated with the RI/FS, which are estimated to be $4.7 million. As
part of the settlement, NAC paid $40,739.00, although NAC will be required to
pay additional sums if the cost of the RI/FS exceeds the current estimate. On
June 1, 1995, EPA issued a special notice letter to NAC and numerous PRPs to
make "good faith offers" to implement the Remedial Action at the Green River
Site. In addition, the special notice letter demanded reimbursement of
approximately $800,000 in past response costs incurred by EPA to date at the
Site and designates NAC as a PRP for future response costs that may be incurred
by EPA. While, NAC has entered into informal discussions with other PRPs to
determine whether a negotiated settlement can be reached, the outcome of these
discussions is far from certain at this time. The registrant will investigate
these issues as they develop.
(g) In May of 1995 NAC received notice that it was a defendant in
a lawsuit entitled AT&T Global Information Solution Company, et al. v. Union
Tank Company, et al., filed in the United States District Court for the
Southern District of Ohio. The plaintiffs seek to recover costs they have
incurred or will incur in response to the release or threatened release of
hazardous substances from the Grandville Solvent Site in Grandville, Ohio, and
allege that NAC has liability pursuant to the provisions of CERCLA. The
plaintiffs allege that hazardous waste was disposed at the Grandville Solvent
Site by NAC's former operating plant in Caldwell, Ohio. Subsequent to the
filing of the complaint, NAC received an invitation to join the PRP group and
enter into a settlement with the EPA similar to that entered into by other
parties. Records indicate that NAC arranged for the disposal of 1800 gallons
of alleged hazardous waste at the Grandville Solvent Site. A total of 455,814
gallons of material was disposed of at the site by NAC according to the
manifest which would give NAC a percent ranking at the site of 0.3949%. If NAC
accepts the PRP group's offer of settlement, NAC would execute an
Administrative Order on Consent, Participation Agreement, and Assignment of
Claims. The complaint would then be dismissed without prejudice and NAC would
be realigned as a plaintiff in the action.
(h) Following the sale of all of the issued and outstanding
capital stock of National Luxembourg Aluminum Company S.A., a Luxembourg
Corporation ("NLAC"), to AB Electrolux, a Swedish Corporation ("AB"), pursuant
to
20
<PAGE> 22
an agreement, dated January 5, 1989 among NAC, the registrant and AB (the
"Purchase Agreement"), certain disputes arose among the parties with respect to
the accounting standards used prior to the sale. The disputes were submitted
for final resolution to the accounting firm of Price Waterhouse, which agreed
with the position asserted by the registrant and NAC. In the fall of 1990, AB
and its representatives contacted NAC and the registrant, claiming that AB was
entitled to a price reduction of approximately $7 million due to certain
alleged failures of the financial statements of NLAC to be in accordance with
the provisions of the Purchase Agreement. In light of the threat of
litigation, and with reference to the earlier decision by Price Waterhouse, NAC
and the registrant instituted National Aluminum Corporation and National
Intergroup, Inc. v. AB Electrolux, Civil Action No. 90-1749, in the United
States District Court for the Western District of Pennsylvania, which was
essentially a Petition for Order Confirming Foreign Arbitration Award based on
the International Convention of the Recognition and Enforcement of Foreign
Arbitral Orders. This matter was contested and a preliminary conference with
trial counsel was held on May 3, 1991. At the conference, the Court stated
that it would not rule on AB's motion to dismiss the petition of NAC and the
registrant for approximately six to eight months.
Subsequent to the filing of the above-referenced suit by NAC and the
registrant, AB commencedAB Electrolux v. National Aluminum Corporation and
National Intergroup, Inc., in the District Court of Luxembourg, Second Section,
alleging that the annual financial statements of NLAC as of December 31, 1988,
March 31, 1988 and March 31, 1987 were not prepared in accordance with the
Accounting Standards (as defined in the Purchase Agreement) with respect to
capitalization of interest relating to the financing of certain fixed assets,
depreciation of certain tangible fixed assets and capitalization of certain
maintenance expenses. Both NAC and the registrant have responded to the suit
by AB by denying all liability and have filed suit, in the form of claim
against KPMG Peat Marwick, the former independent certified accounting firm of
NLAC. Following a hearing before a three judge panel of a Luxembourg court,
the parties were officially advised by the court clerk in March 1994 that the
claims of AB against the registrant and NAC had been dismissed. The court
also dismissed the counterclaim of the registrant and NAC. The registrant and
NAC have received notice that AB has filed an appeal of the judgment.
NATIONAL STEEL SERVICE CENTER
By letter dated February 17, 1994, counsel for 21 Pacella Corporation
and William A. Haas wrote to the registrant, National Steel Service Center,
Inc. ("NSSC"), NSC, and other companies stating that there was reason to
believe that a release or threat of release of oil or hazardous material had
occurred at property known as 21 Pacella Park Drive in Randolph, Massachusetts,
and that the various companies receiving the letter were liable under
Massachusetts law. Counsel alleges that 21 Pacella Corporation had spend
approximately $46,000 in consulting and legal fees to date and that the future
response costs could reach or exceed $700,000. All of the issued and
outstanding common stock of NSSC was sold by the registrant to Traxxon, Inc.,
on August 5, 1986. On April 29, 1994, this firm filed a response on behalf of
the registrant rejecting all of the claims of 21 Pacella Corporation and
William A. Haas. The response denies that the registrant has any
responsibility for reimbursement for past or future response costs or any
diminution in property value. In accordance with Massachusetts law, the
registrant participated in a mediation with the claimants on February 9 and 10,
1995. The mediation did not result in a settlement. Shortly thereafter, the
registrant was served with a complaint seeking reimbursement and damages. On
March 14, 1995, the action was removed to the United States District Court for
the District of Massachusetts (21 Pacella Corp. and William A. Haas v. National
Steel Corporation and National Intergroup Inc., C.A. No. 95-10524-NG.) The
parties are subject to a discovery order and discovery is proceeding.
ENVIRONMENTAL INSURANCE LITIGATION
The registrant, NSC, NAC, NSSC and Alumet were insured under policies
purchased by NSC during the time period relevant to their involvement at the
various environmental sites described above. 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. On March 20, 1995,
National Steel Corporation, NAC and the registrant filed a lawsuit in the
Circuit Court of Hancock County, West Virginia against Continental Casualty
Co., the Insurance Company of North America and various other carriers seeking
coverage for certain environmental claims. Subsequently, on May 24, 1995,
Continental Casualty Co. filed a lawsuit in the Superior Court in Delaware
for a declaratory judgment that it owed the policy holders no coverage for
these claims. Continental Casualty Co. et al., v.
21
<PAGE> 23
National Steel Corp., et al., No. 95C-05-237 (Sup. Ct. for New Castle County,
Delaware). NSC and the registrant believe that the West Virginia court is the
most appropriate forum to resolve the dispute with the carriers and has filed
a motion and memorandum in support of that position.
OTHER
The registrant also is a party to various other lawsuits arising in
the ordinary course of business. The registrant, however, does not believe
that the outcome of these lawsuits, individually or in the aggregate, will have
a material adverse effect on its business or financial condition.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The registrant's common stock is listed for trading on the New York
Stock Exchange. At June 1, 1995, the registrant had 7,228 stockholders of
record. Information concerning the high and low market prices of the
registrant's common and preferred stock and dividends declared on such stock
for each quarter in the last two fiscal years are shown below:
GENERAL INFORMATION
STOCK PRICE FOR FISCAL 1995 AND 1994
<TABLE>
<CAPTION>
Market Price Range Dividend Declared Per Share
- ------------------------------------------------------------------------------------------------------------------
Fiscal 1995 Fiscal 1994
- ------------------------------------------------------------------------------------------------------------------
High Low High Low Fiscal 1995 Fiscal 1994
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock (Symbol: Fox)
1st Quarter . . . . . . . . . . . $18 3/4 $15 1/8 $14 7/8 $12 3/8 $ 0 $ 0
2nd Quarter. . . . . . . . . . . 18 1/2 14 5/8 13 7/8 12 1/4 0 0
3rd Quarter . . . . . . . . . . . 17 1/8 14 1/4 15 7/8 12 3/4 0 0
4th Quarter . . . . . . . . . . . 19 7/8 14 3/8 17 5/8 13 1/4 0 0
- ------------------------------------------------------------------------------------------------------------------
Preferred Stock (Symbol: FoxPr)
1st Quarter . . . . . . . . . . . $52 1/2 $49 7/8 $51 1/2 $49 3/4 $ 1.25 $ 1.25
2nd Quarter . . . . . . . . . . . 52 49 1/4 51 1/2 49 3/4 1.25 1.25
3rd Quarter . . . . . . . . . . . 50 3/4 48 1/4 50 3/4 49 1/4 1.25 1.25
4th Quarter . . . . . . . . . . . 51 1/2 49 1/4 51 3/4 50 1.25 1.25
- ------------------------------------------------------------------------------------------------------------------
Preferred Stock Series A (Symbol: FoxA)
1st Quarter . . . . . . . . . . . $36 $34 $ * $ * $ 1.05** $ *
2nd Quarter. . . . . . . . . . . 35 5/8 34 3/8 * * 1.05** *
3rd Quarter . . . . . . . . . . . 35 31 5/8 33 1/4 30 3/4 1.05** .82**
4th Quarter . . . . . . . . . . . 35 1/2 32 38 30 1/4 1.05** 1.05**
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Not publicly traded. Issued in November 1993.
** Paid in additional shares of Series A Preferred Stock.
Information with respect to restrictions on the payment of dividends
is incorporated herein by reference to Note K of the Notes to the Consolidated
Financial Statements contained herein in Item 8.
22
<PAGE> 24
ITEM 6. SELECTED FINANCIAL DATA
The following summary should be read in conjunction with the
consolidated financial statements contained herein:
FoxMeyer Health Corporation and Subsidiaries
FIVE-YEAR FINANCIAL SUMMARY AND RELATED DATA
<TABLE>
<CAPTION>
For the years ended March 31,
(Millions of dollars, except per share data) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales . . . . . . . . . . . . . . . . . . . . $5,177.1 5,409.4 $4,851.6 $3,411.3 $3,207.5
Operating costs . . . . . . . . . . . . . . . . . 5,108.7 5,358.1 4,841.5 3,373.5 3,227.1
Operating income (loss) from continuing
operations . . . . . . . . . . . . . . . . . . 68.4 51.3 10.1 37.8 (19.6)
Financing costs, net . . . . . . . . . . . . . . 25.6 22.9 14.4 17.2 30.1
National Steel Corporation . . . . . . . . . . . 5.4 5.3 (15.1) 7.5 (12.5)
Income tax provision (benefit) . . . . . . . . . 2.1 (1.2) (25.2) 8.0 (3.2)
Minority interest in results of operations
of consolidated subsidiaries . . . . . . . . . 4.5 5.4 5.2 9.5 -
Income (loss) from continuing operations before
extraordinary item and cumulative effect
of change in accounting principle . . . . . . 41.6 29.5 .6 10.6 (59.0)
Discontinued operations . . . . . . . . . . . . . - - - 25.6 (220.0)
Income (loss) before extraordinary item and
cumulative effect of change in
accounting principle . . . . . . . . . . . . . 41.6 29.5 .6 36.2 (279.0)
Extraordinary item . . . . . . . . . . . . . . . - - - (5.8) -
Cumulative effect of change in
accounting principle . . . . . . . . . . . . . - - - - (15.6)
Net income (loss) . . . . . . . . . . . . . . . . $ 41.6 $ 29.5 $ .6 $ 30.4 $ (294.6)
- ------------------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
Earnings (loss) per share:
Continuing operations . . . . . . . . . . . . $ 1.52 $ 1.10 $ (.24) $ .24 $ (2.97)
Discontinued operations . . . . . . . . . . . - - - 1.19 (10.11)
Extraordinary item . . . . . . . . . . . . . . - - - (.27) -
Cumulative effect of change in accounting
principle . . . . . . . . . . . . . . . . . . - - - - (.71)
Earnings (loss) per share . . . . . . . . . . $ 1.52 $ 1.10 $ (.24) $ 1.16 $ (13.79)
Cash dividends per share . . . . . . . . . . . . - - - - -
Average number of common shares outstanding
(in thousands) . . . . . . . . . . . . . . . . 14,827 16,931 19,967 21,444 21,763
- ------------------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION
Working capital . . . . . . . . . . . . . . . . . $ 444.5 $ 375.0 $ 373.2 $ 307.8 $ 321.5
Total assets . . . . . . . . . . . . . . . . . . 1,777.0 1,525.5 1,562.1 1,137.4 1,065.2
Capital expenditures . . . . . . . . . . . . . . 59.1 56.3 20.1 20.2 8.5
Long-term debt . . . . . . . . . . . . . . . . . 422.8 310.9 256.6 29.6 208.4
Redeemable preferred stock . . . . . . . . . . . 175.0 164.8 50.6 55.0 55.0
Stockholders' equity . . . . . . . . . . . . . . 304.2 224.8 360.1 377.6 416.1
- ------------------------------------------------------------------------------------------------------------------
KEY FINANCIAL RATIOS
Current ratio . . . . . . . . . . . . . . . . . . 1.57:1 1.59:1 1.52:1 1.71:1 1.97:1
Long-term debt as a percent of total
capitalization . . . . . . . . . . . . . . . . 46.9% 44.4% 38.5% 6.4% 30.7%
Return on average common stockholders' equity . . 15.7% 10.1% 0.2% 7.7% (53.1)%
Return on net sales . . . . . . . . . . . . . . . 0.8% 0.5% 0.0% 0.9% (9.2)%
</TABLE>
The comparability of the information presented above is affected by
acquisitions, dispositions and other transactions which are described in the
accompanying footnotes to the consolidated financial statements which should be
read in conjunction with this five-year financial summary. Comparability has
also been affected by the cumulative effect of a change in accounting principle
in 1991 related to the adoption of Statement of Financial Accounting Standards
No. 106 "Employers' Accounting For Postretirement Benefits Other Than
Pensions." Securities and Exchange Commission regulations require that
capitalization ratios also be shown with redeemable preferred stock included in
debt. On this basis, long-term debt as a percentage of total capitalization
would be 66.3%, 67.9%, 46.0%, 18.3% and 38.8%, respectively, for each of the
five years ended March 31, 1995.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
FoxMeyer Health Corporation ("FoxMeyer Health"), formerly National Intergroup,
Inc., and its subsidiaries (the "Corporation") reported significantly improved
results for the year ended March 31, 1995 as compared to the prior year.
Operating income increased to $68.4 million for the year ended March 31, 1995
from $51.3 million for the year ended March 31, 1994. Net income applicable to
common stockholders increased to $1.52 per share in 1995 from $1.10 per share
in 1994.
The Corporation conducts its business principally through two
operating units, FoxMeyer Corporation ("FoxMeyer") and Ben Franklin Retail
Stores, Inc. ("Ben Franklin"). FoxMeyer is engaged 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 managed care and electronic processing services to health care
sponsors, pharmacies and physicians. 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. An
overview of the results of the Corporation's operating subsidiaries follows.
FOXMEYER
FoxMeyer's operating income for the year ended March 31, 1995 was significantly
impacted by the write-down of its bankruptcy receivable from Phar-Mor, Inc.
("Phar-Mor"). As a result of the settlement of FoxMeyer's reclamation claim and
the proposed settlement of its unsecured claim, FoxMeyer reduced the carrying
value of its receivable from Phar-Mor to $6.0 million resulting in a $28.8
million charge for the year (including legal fees) (see Note E to the
accompanying consolidated financial statements). Excluding the write-down of
the Phar-Mor receivable, operating income decreased $3.7 million when compared
to the prior year due primarily to intense competition, start-up costs
associated with entering new lines of business, continuing charges related to
the upgrading of its management information systems, and the consolidation of
its distribution system.
In April 1994, FoxMeyer acquired Scrip Card Enterprises, Inc. ("Scrip
Card"), a company engaged in prescription benefit management services to small
and medium-sized businesses. Scrip Card expanded and enhanced FoxMeyer's
existing 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.
FoxMeyer's ownership interest in the amalgamated corporation, FoxMeyer Canada
Inc. ("FoxMeyer Canada"), is 47.1%. FoxMeyer Canada provides health care,
pharmacy and benefit management services in Canada.
In July 1994, FoxMeyer announced that it had signed an agreement for
an initial three-year term with the University Hospital Consortium ("UHC") to
serve as the primary supplier to UHC members that participate in UHC's pharmacy
purchasing program. UHC represents an alliance of 67 academic medical centers.
FoxMeyer's management anticipates that the UHC contract will generate in excess
of $700 million in additional prescription drug sales in 1996. To service the
UHC contract and expand its operations to the West Coast, FoxMeyer has opened
seven new warehouses.
On October 12, 1994, FoxMeyer which was 80.5%-owned by FoxMeyer Health
on that date, merged with and into a wholly-owned subsidiary of FoxMeyer
Health. The former stockholders of FoxMeyer received .904 shares of common
stock of FoxMeyer Health in exchange for each share of FoxMeyer common stock
(approximately 4,981,000 shares) in a tax-free reorganization.
In October 1994, FoxMeyer acquired the assets of US Health Data
Interchange, Inc. ("USHDI"). USHDI provides products and services linking
medical providers to payers nationwide, including practice management software
and services, electronic claims submission and on-line verification of
eligibility and benefits.
In February 1995, FoxMeyer acquired the assets of Synercom Healthcare
Systems, Inc. ("Synercom"), a developer of pharmacy management computer
systems.
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Synercom has installed pharmacy systems nationwide at independent and chain
pharmacies and long-term care facilities. Synercom's systems are used by
pharmacists to capture and manage patient information, process prescriptions,
maintain inventories and process on-line prescription claims.
BEN FRANKLIN
Ben Franklin's sales increased to $354.8 million in 1995 from $338.0 million in
1994. The increase was primarily the result of the increase in the number of
company-owned crafts superstores from 14 in 1994 to 33 in 1995. Operating
income increased $7.5 million to $5.4 million from a loss of $2.1 million in
the prior year. The loss in the prior year reflected a restructuring charge of
$5.3 million.
In November 1994, Ben Franklin entered into an agreement with Crafts
Plus+, Inc. ("Crafts Plus") pursuant to which 45 Crafts Plus stores will be
converted to Ben Franklin franchised stores. Crafts Plus and Ben Franklin
entered into a purchase agreement requiring Crafts Plus to purchase a
substantial portion of its merchandise from Ben Franklin. In addition, Ben
Franklin loaned Crafts Plus $5.0 million under an unsecured, subordinated note
which is convertible into 49% of Crafts Plus' common stock at the option of Ben
Franklin.
In January 1995, Ben Franklin signed an agreement with Cotter &
Company ("Cotter") in which Ben Franklin agreed to offer to supply variety
merchandise to all of the V&S Variety Stores formerly served by Cotter and to
purchase up to $8.6 million in selected merchandise from Cotter's inventory.
Over 700 V&S Variety Stores have signed merchandise supply agreements to
purchase variety merchandise from Ben Franklin.
OTHER
As part of the consideration for a 1990 sale of certain assets, a subsidiary of
the Corporation obtained the right to receive 10 annual contingent payments. In
1995, the Corporation received and otherwise settled its right to these future
contingent payments for $35.8 million and such amount is reflected in "Other
income" in the accompanying consolidated financial statements. In connection
with this settlement, the Corporation was released from its contractual
obligation to indemnify the purchaser of the assets for any environmental
clean-up costs at a former plant site.
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, including certain real estate limited
partnership activities (collectively, the "Holding Company") (in millions of
dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES
FoxMeyer . . . . . . . . . . . . . . $ 4,822.3 $ 5,071.4 $ 4,505.4
Ben Franklin . . . . . . . . . . . . 354.8 338.0 346.2
- ------------------------------------------------------------------------------------
Total net sales . . . . . . . . . . . $ 5,177.1 $ 5,409.4 $ 4,851.6
- ------------------------------------------------------------------------------------
GROSS PROFIT
FoxMeyer . . . . . . . . . . . . . . $ 280.3 $ 285.2 $ 257.1
Ben Franklin . . . . . . . . . . . . 75.7 59.8 58.9
- ------------------------------------------------------------------------------------
Total gross profit . . . . . . . . . $ 356.0 $ 345.0 $ 316.0
- ------------------------------------------------------------------------------------
OPERATING INCOME (LOSS)
FoxMeyer . . . . . . . . . . . . . . $ 31.7 $ 64.2 $ 14.0
Ben Franklin . . . . . . . . . . . . 5.4 (2.1) 4.6
Holding Company . . . . . . . . . . . 31.3 (10.8) (8.5)
- ------------------------------------------------------------------------------------
Total operating income . . . . . . . $ 68.4 $ 51.3 $ 10.1
- ------------------------------------------------------------------------------------
</TABLE>
YEAR ENDED MARCH 31, 1995 COMPARED
TO YEAR ENDED MARCH 31, 1994
FOXMEYER
Net sales decreased $249.1 million to $4,822.3 million for the year ended March
31, 1995, as compared to $5,071.4 million for the year ended March 31, 1994.
Net sales decreased across all of FoxMeyer's customer segments with the
exception of hospitals and alternate care facilities. The sales decline at
FoxMeyer was due primarily to intense competition among pharmaceutical
distributors for new customers and FoxMeyer's decision in some cases not to
lower prices to keep certain customers. Sales for the hospital customer segment
were favorably impacted by the UHC contract.
Gross profit decreased $4.9 million to $280.3 million for the year
ended March 31, 1995 as compared to $285.2 million for the year ended March 31,
1994. However, as a percentage of net sales, gross profit increased from 5.6%
to 5.8% reflecting FoxMeyer's increased margins from value-added services,
private label and generic products and managed care activities. Price
competition in the industry and the decline in the frequency and magnitude of
price increases by pharmaceutical manufacturers, which reduced FoxMeyer's
inventory investment buying opportunities, continued to exert pressure on gross
margin.
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<PAGE> 27
Operating expenses increased $18.9 million in 1995 when compared to
1994 primarily as a result of the $28.8 million write-down of the Phar-Mor
receivable and related legal fees in 1995 compared to $.2 million in 1994.
Excluding the effect of the Phar-Mor charges, operating expenses decreased $9.7
million in 1995. The reduction in expenses is a result of lower sales volume
and the implementation of cost reduction programs in 1995. The impact of these
cost reduction programs was partially offset by higher expenses related to the
expansion of FoxMeyer's managed care businesses, the opening of 7 new
distribution centers, costs associated with upgrading information systems and
the development of other business initiatives. As a percentage of net sales,
operating expenses, excluding the Phar-Mor charges, were 4.5% for each of 1995
and 1994.
Other income decreased $8.7 million in 1995 as compared to 1994. The
decrease was principally due to the increased cost of an accounts receivable
financing program as the program was in place for all of 1995 compared to five
months in 1994 and the amount of the financing increased from $125 million to
$200 million in November 1994. In addition, the prior year contained a gain on
the termination of certain operating leases. In the current year, other income
also includes gains on the sale of investments net of a loss on the write-down
of certain software.
Operating income decreased $32.5 million for the year ended March 31,
1995, as compared to the prior year. As a percentage of net sales, operating
income was .7% of net sales as compared to 1.3% in 1994. Excluding the Phar-Mor
write-down described above, operating income was 1.3% of net sales for 1995.
Management expects further pressure to be exerted on gross margin over
the next twelve months from competitive pressures, the formation of new buying
groups and the possible reduction in the number of investment buying
opportunities. FoxMeyer is aggressively pursuing several strategies that will
help to relieve this pressure over the long term. Such strategies include
significant expenditures for the development of more efficient management
information systems, the expansion of its customer base through new products
and services and the implementation of state-of-the-art warehouse facilities.
Work on the new information systems and warehouse strategies was somewhat
delayed due to the temporary diversion of resources toward opening warehouses
and otherwise administering to the new UHC contract. Realization of the
projected benefits remains dependent on successful execution of the
implementation plan and confirmation of system capabilities once the
installation is totally complete. Although management believes that these
efforts will ultimately strengthen its gross margins and lower operating costs,
management also recognizes that such activity will pose challenges for
generating profits in the short term.
BEN FRANKLIN
Net sales increased $16.8 million or 5.0% to $354.8 million for the year ended
March 31, 1995, as compared to $338.0 million for the year ended March 31,
1994. Net sales at company-owned and operated retail crafts superstores
increased $19.1 million in 1995 to $37.5 million primarily due to the four
stores opened in 1994 operating all year and to the opening of 19 additional
stores in 1995. Royalty income increased $1.0 million over the prior year to
$2.6 million as a result of the increase in the number of royalty stores from
48 to 96. Net wholesale and related sales declined $3.3 million as compared to
the prior year to $314.7 million. The decline is primarily the result of the
loss of 38 franchisee-owned variety stores during 1995. Ben Franklin expects
that 35 to 40 of its approximately 560 remaining franchisee-owned variety
stores will close in each of the next several years. Management believes the
effect of such closings on Ben Franklin's net sales will be offset by the
opening of crafts superstores and the additional business from Crafts Plus and
V&S Variety Stores.
Gross profit increased $15.9 million to $75.7 million for 1995 as
compared to $59.8 million in 1994. Gross profit from company-owned crafts
superstores increased $6.8 million primarily due to increased sales from 19
additional stores. Royalty income increased $1.0 million. Gross profit from
wholesale and related operations increased $8.1 million primarily as a result
of a shift in sales to higher margin items.
Operating expenses, net of other income ("net operating expenses")
increased $8.4 million. The increase was primarily the result of a $13.7
million increase in selling, general and administrative expenses in 1995 offset
by the effect of a $5.3 million restructuring charge incurred in 1994. Without
the effect of the
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<PAGE> 28
$5.3 million restructuring charge in 1994, net operating expenses as a percent
of net sales were 19.8% in 1995 as compared to 16.8% in 1994. The increase is
primarily attributable to the higher operating expenses of company-owned crafts
superstores.
Ben Franklin's operating income increased $7.5 million in 1995 as
compared to 1994. The increase in gross profit of $15.9 million was offset by
the increase in net operating expenses of $13.7 million. The remaining increase
is attributable to the $5.3 million restructuring charge incurred in the prior
year.
THE HOLDING COMPANY
Operating income for the Holding Company increased from a loss in 1994 of $10.8
million to income of $31.3 million in 1995, an increase of $42.1 million. The
increase is primarily attributable to the recognition of contingent payments of
$35.8 million in 1995 as described above. In addition, earnings for the Holding
Company's real estate operations and other investments in 1995 exceeded 1994
results.
NATIONAL STEEL CORPORATION RESULTS
The Corporation's investment in National Steel Corporation ("NSC") reflects
income of $5.4 million in 1995 compared to $5.3 million for the prior year. In
1994, the Holding Company recognized a loss on the sale of NSC common stock of
$2.4 million. In 1995, net preferred dividend income decreased $2.2 million
from the previous year primarily due to the redemption of 10,000 shares of NSC
Preferred Stock in 1994.
NET FINANCING COSTS
Net financing costs increased 11.8% to $25.6 million for the year ended March
31, 1995 from $22.9 million for the year ended March 31, 1994. Interest income
increased $.5 million in 1995 over 1994. Interest expense increased $3.2
million as compared to the prior year. Average borrowings increased from
approximately $333.5 million during 1994 to $355.7 million during 1995. The
increase in average borrowings was used primarily to fund additional working
capital, acquisitions and the purchase of property and equipment. The average
interest rate paid on these borrowings also rose during the year primarily as a
result of higher variable rates on the Corporation's revolving credit
agreements. The average borrowings for 1995 would have been higher if FoxMeyer
had not increased its accounts receivable financing agreement from $125 million
to $200 million. Under its accounts receivable financing agreement, FoxMeyer
sold an additional $75 million of its accounts receivable using the proceeds to
reduce borrowings under its revolving credit facilities. The costs associated
with the sale of accounts receivable are charged against operating income.
INCOME TAXES
The Corporation recorded an income tax provision of $2.1 million for the year
ended March 31, 1995 as compared to a benefit of $1.2 million for the year
ended March 31, 1994. The income tax provision (benefit) reflects the income
taxes related to Ben Franklin which cannot be consolidated in the Corporation's
federal income tax return. The low effective tax rate for the current year and
the benefit for the prior year were also the result of the reduction in the
deferred tax asset valuation allowance.
MINORITY INTEREST IN RESULTS OF OPERATIONS
OF CONSOLIDATED SUBSIDIARIES
The minority interest in the net income of consolidated subsidiaries was $4.5
million for the year ended March 31, 1995 as compared to $5.4 million for the
year ended March 31, 1994. The decrease was attributable to the elimination of
the minority interest in FoxMeyer resulting from the merger of FoxMeyer into a
wholly-owned subsidiary of FoxMeyer Health in October 1994 partially offset by
the increase in net income of Ben Franklin and the Corporation's real estate
limited partnerships.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends were $19.1 million for the year ended March 31, 1995,
compared to $10.8 million for the year ended March 31, 1994. The increase was
due to the exchange of approximately 6.8 million shares of common stock for 3.4
million shares of a new series of preferred stock in November, 1993 resulting
in a full year of preferred stock dividends in 1995 as compared to only five
months during 1994.
YEAR ENDED MARCH 31, 1994 COMPARED
TO YEAR ENDED MARCH 31, 1993
FOXMEYER
Net sales increased 12.6% or $566.0 million to $5,071.4 million for the year
ended March 31, 1994, as compared to $4,505.4 million for the year ended March
31, 1993. Prior year net sales did not include the results of Harris Wholesale
Company ("Harris") until its acquisition on May 7, 1992. Had Harris operations
been included in the consolidated results of operations for the entire year,
1993
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<PAGE> 29
net sales would have been approximately $84.4 million higher. The remaining
increase in net sales during 1994 of $481.6 million related to every major
customer group. The largest percentage increases were in sales to independents,
hospital and alternate care facilities and in FoxMeyer's bulk sales. Such
increases were primarily attributable to new accounts that were obtained during
1993, including Medicine Shoppe International, Omnicare, Inc., and Perry Drug
Stores, Inc. Chain sales increased slightly despite a decline of $183.8
million in sales to Phar-Mor when compared to the prior year.
Gross margin for 1994 was 5.6% as compared to 5.7% for 1993. The
decline in gross margin was the result of continuing price competition in the
industry and the decline in the frequency and magnitude of price increases by
pharmaceutical manufacturers which reduced the Corporation's ability to
generate profits from inventory investment buying.
For the year ended March 31, 1994, net operating expenses, including a
one-time gain of $3.9 million on the termination of certain operating leases,
were 4.4% of net sales. For the year ended March 31, 1993, net operating
expenses were 5.4% of net sales. In 1993, FoxMeyer recorded a $42.8 million
pre-tax charge primarily for a provision for possible loss on amounts due from
Phar-Mor. Excluding this charge, net operating expenses would have been 4.4% of
net sales for 1993. Therefore, net operating expenses as a percentage of net
sales were approximately the same for both periods exclusive of this unusual
item. While increased sales to lower cost-to-serve customers (i.e., large
buying groups and chain stores) and cost containment and reduction programs
reduced overall operating costs as a percentage of net sales, additional
expenses were incurred related to the redirection of FoxMeyer's product mix,
the realignment of distribution facilities and the expansion of complimentary
business programs.
Operating income increased $50.2 million for the year ended March 31,
1994, as compared to the prior year. As a percentage of net sales, operating
income was 1.3% as compared to .3% in 1993. The increase was primarily
attributable to the Phar-Mor charge in 1993 described above.
BEN FRANKLIN
Net sales decreased $8.2 million or 2.4% to $338.0 million for the year ended
March 31, 1994, as compared to $346.2 million for the year ended March 31,
1993. Net sales at company-owned and operated retail crafts superstores
increased $3.8 million in 1994 to $18.4 million primarily due to having the six
stores opened in 1993 operating all year and to the opening of four additional
stores in 1994. Royalty income increased $.5 million over the prior year to
$1.6 million as a result of the increase in franchisee-owned crafts superstores
to 48 at March 31, 1994 from 24 at March 31, 1993. Net warehouse sales
declined $12.5 million as compared to the prior year to $318.0 million. The
decline is the result of the loss of 51 franchisee-owned variety stores during
1994 and a generally sluggish retail sales environment.
Gross profit increased $.9 million for 1994 compared to 1993. Gross
profit from company-owned crafts superstores increased $1.2 million primarily
due to increased sales. Royalty income from franchisees increased $.5 million
in 1994. The gross profit from warehouse sales decreased $.8 million as a
result of the decrease in sales.
Net operating expenses increased $7.6 million for 1994 compared to
1993. The primary cause of the increase was a $5.3 million charge for
restructuring its wholesale distribution operations. Exclusive of this one-time
charge, net operating expenses for wholesale operations were $.8 million lower
than in the prior year. Net operating expenses related to franchising and
company-owned crafts stores rose $3.1 million primarily due to having the six
stores opened in 1993 operating all year and the addition of four new stores in
1994.
Ben Franklin's operating income decreased $6.7 million in 1994 as
compared to 1993. The decrease was primarily the result of the one-time
restructuring charge. Excluding the one-time charge, operating income from
wholesale operations were at break-even. Operating results from crafts
superstore royalty income and company-owned and operated stores were $1.4
million less than the prior year. While sales and gross profit increased for
this portion of the business, expenses rose faster thereby reducing operating
income.
THE HOLDING COMPANY
The Holding Company's operating loss for the year ended March 31, 1994 was
$10.8 million as compared to an operating loss of $8.5 million for the year
ended March 31, 1993. The operating loss for each period represents the general
and administrative costs incurred by the Holding Company.
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<PAGE> 30
NATIONAL STEEL CORPORATION RESULTS
The Corporation's investment in NSC reflects income of $5.3 million for the
current year compared to a $15.1 million loss for the prior year. The loss in
the prior year was the result of a $22.4 million write-down of the
Corporation's investment in NSC common stock to its market value at March 31,
1993. In 1994, the Corporation sold substantially all of its investment in NSC
common stock at a loss of $2.4 million. Net preferred dividend income was
approximately the same for both years.
NET FINANCING COSTS
Net financing costs increased 58.7% to $22.9 million for the year ended March
31, 1994 from $14.4 million for the year ended March 31, 1993. Interest income
increased $2.0 million in 1994 over 1993. The increase was principally due to
the interest earned on real estate loan investments made during 1994. Interest
expense increased $10.5 million as compared to the prior year. Average
borrowings increased from approximately $201.6 million during 1993 to $333.5
million during 1994. The increase in average borrowings was primarily the
result of the issuance of $198 million in senior notes by FoxMeyer and $28.8
million of convertible subordinated debentures by Ben Franklin. In addition,
average borrowings under the Corporation's various revolving credit facilities
were $23.9 million higher than in the prior year and borrowings related to real
estate investments were $17.7 million at March 31, 1994. The average interest
rate paid on these borrowings also rose during the year primarily as a result
of the higher fixed rates paid on the FoxMeyer senior notes and Ben Franklin
subordinated debentures. The average borrowings for 1994 would have been higher
if FoxMeyer had not entered into a $125 million accounts receivable financing
arrangement in October 1993. Under this arrangement, FoxMeyer sold $125 million
of its accounts receivable using the proceeds to reduce borrowings under its
revolving credit facilities. The costs associated with the sale of accounts
receivable is charged against operating income.
INCOME TAXES
The Corporation recorded an income tax benefit of $1.2 million for the year
ended March 31, 1994. The difference between the actual 1994 tax benefit and
the expected tax provision based on statutory income tax rates was principally
due to a $6.5 million reduction in the deferred tax asset valuation allowance.
Similarly, the income tax benefit of $25.2 million for the year ended
March 31, 1993 differed from the expected income tax provision based on
statutory income tax rates due principally to the $12.5 million reduction in
the deferred tax asset valuation allowance and certain other adjustments
described in Note O in the accompanying consolidated financial statements.
MINORITY INTEREST IN RESULTS OF OPERATIONS
OF CONSOLIDATED SUBSIDIARIES
In 1994, the minority interest in results of operations of consolidated
subsidiaries represented a 19.5% share of the net income of FoxMeyer, a 32.8%
share of the net loss of Ben Franklin and a 50% share of the net income of the
Corporation's investment in real estate limited partnerships. In 1993, the
minority interest in results of operations of consolidated subsidiaries
represented a 33% share of FoxMeyer's net income declining to 19.5% in November
1992 and a 32.7% share of Ben Franklin's net income since May 1992. In addition
to these changes in the number of shares of common stock held by FoxMeyer's and
Ben Franklin's public stockholders, respectively, the increase of minority
interest in results of consolidated subsidiaries was also attributable to the
minority stockholders' share of the increase in FoxMeyer's net income which was
partially offset by the minority stockholders' share of the decrease in Ben
Franklin's results of operations.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends were $10.8 million for the year ended March 31, 1994,
as compared to $5.4 million for the year ended March 31, 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 the discount recorded on this series.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used by operations (which includes working capital components) was
$30.7 million for the year ended March 31, 1995. The change in working capital
components used $180.2 million of funds. The increase in accounts payable and
accrued liabilities of $123.1 million
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<PAGE> 31
related primarily to the funding of the increase in inventories. Operating
earnings and the sale of an additional $75 million of receivables provided
$149.5 million of funds.
Cash used in investing activities was $72.2 million for the year ended
March 31, 1995. Approximately $59.1 million of funds were used to purchase
property and equipment during this period. An additional $16.1 million was used
to acquire Scrip Card and other businesses, net of cash acquired. The
Corporation made other investments in real estate and marketable securities
which used approximately $3.1 million of cash, net of proceeds from the sale of
investments, during the year ended March 31, 1995.
Financing activities provided $77.1 million of cash for the year ended
March 31, 1995. The proceeds from issuance of long-term debt and other debt
repayments were related primarily to real estate acquired by Ben Franklin and
the Corporation's real estate limited partnership activities. Net borrowings
under the Corporation's various credit facilities increased by $111.4 million
during this period. Approximately $29.0 million was used to purchase shares of
FoxMeyer Health's common stock.
Management assesses the Corporation's liquidity based on its major
business segments: FoxMeyer, Ben Franklin, and the Holding Company which
includes the Corporation's real estate limited partnership activities. 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 $15.7 million was available as of March 31, 1995 from which
future dividends may be paid to the Holding Company by FoxMeyer. Ben Franklin
is prohibited from paying 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 Holding Company.
FOXMEYER
As of March 31, 1995, FoxMeyer had borrowed $132.8 million under its $275.0
million revolving credit facility (the "FoxMeyer Facility") at an average
interest rate of 6.6%. The average and maximum amounts borrowed during the year
ended March 31, 1995 under FoxMeyer's revolving credit facilities were $89.6
million and $245.0 million, respectively. The FoxMeyer Facility expires on
December 31, 1997. Restrictions imposed by the FoxMeyer Facility require that
on the last day of any quarter, FoxMeyer's total indebtedness to capitalization
ratio, as defined therein, cannot exceed .6 to 1.0. Under the requirements of
this covenant, FoxMeyer was eligible to borrow an additional $113.1 million at
March 31, 1995.
On November 22, 1994, FoxMeyer amended its accounts receivable
financing program (the"Program") to extend the termination of the Program to
November 21, 1995 and to increase the participation interest in a defined pool
of FoxMeyer's trade receivables from $125 million to $200 million. The
additional $75 million of proceeds received from the sale of trade receivables
were used to reduce amounts outstanding under the FoxMeyer Facility.
FoxMeyer's management 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 and to fund
expected capital expenditures of $40 million in 1996. As a result of the UHC
contract and the additional seven warehouses that were 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 March 31, 1995, Ben Franklin had borrowed $18.3 million under its
revolving credit facility (the "Ben Franklin Facility"). The average and
maximum amounts borrowed under the Ben Franklin Facility during the year ended
March 31, 1995 were $11.6 million and $24.3 million, respectively.
The Ben Franklin Facility, which was amended in April 1995, provides
for a maximum borrowing capacity of $45.0 million and expires on August 1,
1996. Borrowings bear interest at the prime rate (9% at March 31, 1995) and are
secured by Ben Franklin's wholesale inventory, accounts receivable and certain
fixed assets. The Ben Franklin Facility prohibits the payment of dividends,
contains a number of covenants and conditions and requires Ben Franklin to
maintain certain financial ratios.
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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 normal
working capital needs and to fund expected capital expenditures of
approximately $6 million during 1996.
During 1994, Ben Franklin established a $5.3 million reserve for
restructuring its wholesale distribution operations. Cumulative cash and
non-cash charges were $1.9 million and $1.3 million, respectively, through
March 31, 1995. All workforce reductions have now been completed resulting in
the termination of 27 employees. The remaining balance of $2.1 million is for
expenditures to complete two warehouse relocations. These expenditures are
expected to continue into 1997.
HOLDING COMPANY
The Holding Company had cash and short-term investments of approximately $1.1
million at March 31, 1995. In addition, the Holding Company had borrowed the
maximum amount of $15.0 million available under a revolving credit facility
(the "Holding Company Facility") at an average interest rate of 8.4%. The
average amount borrowed during 1995 under the Holding Company Facility was $6.4
million. The Holding Company Facility will expire April 1, 1996. Under a $30
million revolving loan agreement with FoxMeyer (the "FoxMeyer Loan"), $27.7
million was outstanding at March 31, 1995. The Holding Company Facility and the
FoxMeyer Loan are secured by shares of the common stock of FoxMeyer. The
Holding Company Facility restricts the payment of cash dividends on the
Corporation's common stock and its Series A Preferred Stock. The Holding
Company Facility also places other limitations and restrictions on the Holding
Company including limiting the type of investments it may make and the amount
that may be expended on the repurchase of shares of common stock of the
Corporation.
The Holding Company's cash requirements include the funding of monthly
operating expenses, benefit obligations, dividend payments on the Corporation's
convertible 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. The
Corporation intends to continue to pay dividends in kind on its Series A
Preferred Stock due to the restrictions placed upon cash dividends by the
Holding Company Facility. In addition, the Holding Company intends to make
additional real estate and other investments.
The Holding Company will rely on cash on hand, dividends received on
shares of FoxMeyer common stock, payments from FoxMeyer under its tax sharing
agreements, and funds available under the FoxMeyer Loan to meet cash funding
obligations. In addition, the Holding Company received a payment in June 1995
of $25.8 million related to the settlement of contingent payments discussed
above. Funds available as dividends from FoxMeyer are limited by FoxMeyer's
debt agreements. The Holding Company does not expect any material tax sharing
payments from FoxMeyer for 1996 as a result of the expected write-down by
FoxMeyer for tax purposes of the Phar-Mor bankruptcy receivable. The Holding
Company expects to fund a substantial portion of any real estate investments
through additional non-recourse debt which management believes will be
available at reasonable rates.
As more fully described in Note U in the accompanying consolidated
financial statements, the Corporation has committed to invest up to $29 million
to obtain an indirect ownership in Phar-Mor when it emerges from bankruptcy.
Management is currently pursuing, and believes it will be able to secure, bank
financing for up to $20 million of the commitment with the remainder being
provided from the sources of cash described above.
OTHER
The Corporation maintains reserves in connection with environmental claims
primarily related to businesses that have been disposed of or discontinued (see
Note P to the accompanying consolidated financial statements). During 1995, the
Corporation was released from all potential claims at one site and paid $.4
million in claims and legal fees. The reserve for potential environmental
claims was increased by $1.2 million based on management's current estimate of
future claims and legal fees. In addition, the Corporation has a prepayment of
$10.3 million held by NSC which management believes is adequate to pay all
environmental claims which may arise from former NSC sites for which the
Corporation has agreed to indemnify NSC (see Note I to the accompanying
consolidated financial statements).
31
<PAGE> 33
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of FoxMeyer Health Corporation is responsible for the
preparation, integrity and objectivity of the consolidated financial statements
and other information included in this Annual Report. The financial statements
have been prepared in conformity with generally accepted accounting principles,
and include amounts based on management's best estimates and judgments, where
applicable.
The Corporation maintains internal accounting control systems and
procedures which provide reasonable assurance that assets are adequately
safeguarded, prescribed policies are followed and transactions are properly
recorded. Management continually monitors the internal accounting control
systems and procedures for compliance. The Corporation also maintains an
internal auditing function which evaluates and formally reports on the adequacy
and effectiveness of internal accounting controls, policies and procedures.
The Audit Committee of the Board of Directors, comprised solely of
outside directors, has an oversight role in the area of financial reporting and
internal controls. This committee meets regularly with the independent
auditors, the internal auditors and financial management to monitor the proper
discharge of each of their respective responsibilities. Both the independent
auditors and the internal auditors have unrestricted access to the Audit
Committee and periodically meet with the Audit Committee without management
present.
/s/ PETER B. MCKEE
Peter B. McKee
Senior Vice President and Chief Financial Officer
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
FoxMeyer Health Corporation
Carrollton, Texas
We have audited the accompanying consolidated balance sheets of FoxMeyer
Health Corporation (formerly National Intergroup, Inc.) and subsidiaries as of
March 31, 1995 and 1994, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended March 31,1995. Our audits also included the financial statement
schedules listed in the Index at Item 14. These financial statements and
financial statement schedules are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audit.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FoxMeyer Health Corporation
and subsidiaries at March 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedules, when considered in
relation to the basic financial statements taken as whole, present fairly in
all material respects the information set forth therein.
Deloitte & Touche LLP
Dallas, Texas
June 21, 1995
32
<PAGE> 34
FoxMeyer Health Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended March 31,
(In thousands, except per share amounts) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES . . . . . . . . . . . . . . . . . . . . . . . . $ 5,177,072 $ 5,409,379 $ 4,851,609
OPERATING COSTS
Cost of goods sold (exclusive of depreciation shown
separately below) . . . . . . . . . . . . . . . . 4,821,059 5,064,396 4,535,639
Selling, general and administrative expenses . . . . 272,537 277,823 251,647
Depreciation and amortization . . . . . . . . . . . . 25,875 21,987 18,860
Unusual item . . . . . . . . . . . . . . . . . . . . 28,767 233 41,000
- --------------------------------------------------------------------------------------------------------
28,834 44,940 4,463
Other income . . . . . . . . . . . . . . . . . . . . . . 39,578 6,390 5,626
- --------------------------------------------------------------------------------------------------------
Operating income . . . . . . . . . . . . . . . . . . . . 68,412 51,330 10,089
FINANCING COSTS
INTEREST INCOME . . . . . . . . . . . . . . . . . . . 5,055 4,511 2,544
INTEREST EXPENSE . . . . . . . . . . . . . . . . . . 30,682 27,436 16,986
- --------------------------------------------------------------------------------------------------------
FINANCING COSTS, net . . . . . . . . . . . . . . . . . . 25,627 22,925 14,442
- --------------------------------------------------------------------------------------------------------
Income (loss) before National Steel Corporation,
income tax provision (benefit) and minority interest 42,785 28,405 (4,353)
NATIONAL STEEL CORPORATION
Loss on common stock investment . . . . . . . . . . . - (2,350) (22,385)
Net preferred dividend income . . . . . . . . . . . . 5,445 7,655 7,265
- --------------------------------------------------------------------------------------------------------
5,445 5,305 (15,120)
- --------------------------------------------------------------------------------------------------------
Income before income tax provision (benefit) and
minority interest . . . . . . . . . . . . . . . . . . 48,230 33,710 (19,473)
INCOME TAX PROVISION (BENEFIT) . . . . . . . . . . . 2,114 (1,193) (25,248)
- --------------------------------------------------------------------------------------------------------
Income before minority interest . . . . . . . . . . . . . 46,116 34,903 5,775
MINORITY INTEREST IN RESULTS OF OPERATIONS OF
CONSOLIDATED SUBSIDIARIES . . . . . . . . . . . . . . 4,502 5,391 5,172
- --------------------------------------------------------------------------------------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . 41,614 29,512 603
PREFERRED STOCK DIVIDENDS . . . . . . . . . . . . . . . . 19,096 10,830 5,352
- --------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS . . . . $ 22,518 $ 18,682 $ (4,749)
- --------------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE . . . . . . . . . . . . . . . . $ 1.52 $ 1.10 $ (.24)
- --------------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING . . . . . . . 14,827 16,931 19,967
- --------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 35
FoxMeyer Health Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
(Thousands of dollars) 1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments . . . . . . . . . . . . . . . . . . . . $ 35,232 $ 60,987
Receivables, principally trade, less allowance for possible
losses of $6,510 in 1995 and $15,133 in 1994 . . . . . . . . . . . 334,250 286,707
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 820,818 624,574
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 38,394 37,299
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . 1,228,694 1,009,567
INVESTMENT IN NATIONAL STEEL CORPORATION . . . . . . . . . . . . . . . 30,163 29,261
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . . . . . . . 256,393 204,504
Less allowance for depreciation and amortization . . . . . . . . . 85,716 71,060
- --------------------------------------------------------------------------------------------------------
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . 170,677 133,444
OTHER ASSETS
Goodwill, net of accumulated amortization of $46,801
in 1995 and $40,381 in 1994 . . . . . . . . . . . . . . . . . . . . 209,749 228,141
Other intangible assets, net of accumulated amortization
of $12,856 in 1995 and $11,059 in 1994 . . . . . . . . . . . . . . 22,966 12,786
Pre-bankruptcy receivable from Phar-Mor, Inc., net
of allowance for possible loss of $62,795 in 1995
and $40,000 in 1994 . . . . . . . . . . . . . . . . . . . . . . . . 5,963 28,758
Deferred tax asset, net of valuation allowance . . . . . . . . . . . . 52,408 47,342
Miscellaneous assets . . . . . . . . . . . . . . . . . . . . . . . . . 56,376 36,171
- --------------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . 347,462 353,198
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,776,996 $ 1,525,470
- --------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 674,843 $ 532,170
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . 47,137 48,977
Salaries, wages and employee benefits . . . . . . . . . . . . . . . . . 13,635 19,793
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . 3,883 2,091
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 42,131 29,360
Long-term debt due within one year . . . . . . . . . . . . . . . . . . 2,540 2,158
- --------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . . . . . . . . . . 784,169 634,549
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 422,751 310,920
RESERVES AND OTHER LIABILITIES . . . . . . . . . . . . . . . . . . . . 70,676 81,082
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES . . . . . . . . . . . . 20,231 109,331
REDEEMABLE PREFERRED STOCK . . . . . . . . . . . . . . . . . . . . . . 175,019 164,833
COMMITMENTS AND CONTINGENCIES . . . . . . . . . . . . . . . . . . . . . - -
STOCKHOLDERS' EQUITY
Common stock $5.00 par value; authorized 50,000,000 shares;
issued: 24,167,277 shares in 1995 and 23,995,744
shares in 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . 120,836 119,979
Capital in excess of par value . . . . . . . . . . . . . . . . . . . . 209,110 207,281
Minimum pension liability . . . . . . . . . . . . . . . . . . . . . . . (75,428) (73,797)
Net unrealized holding gain (loss) on marketable
securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,374 (225)
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . 184,949 173,029
- --------------------------------------------------------------------------------------------------------
441,841 426,267
Less: cost of common stock held in treasury - 7,735,552 shares
in 1995 and 11,125,441 shares in 1994 . . . . . . . . . . . . . . . 137,691 201,512
- --------------------------------------------------------------------------------------------------------
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . 304,150 224,755
- --------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity . . . . . . . . . . . . . . $ 1,776,996 $ 1,525,470
- --------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
34
<PAGE> 36
FoxMeyer Health Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the three years ended March 31, 1995
---------------------------------------------------------------------
Net
unrealized
holding gain
Capital in Minimum (loss) on
Common excess of pension marketable Retained Treasury
(Thousands of dollars) stock par value liability securities earnings stock
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1992 . . . . . . . . . . . $119,940 $ 208,244 $ (33,474) $ - $159,096 $ (76,254)
Net income . . . . . . . . . . . . . . . . . . - - - - 603 -
Dividends declared - Convertible Preferred -
$5.00 per share . . . . . . . . . . . . . . - - - - (5,352) -
Redemption of preferred share purchase rights . - (1,024) - - - -
Purchase of treasury stock . . . . . . . . . . - - - - - (11,254)
Recognition of additional minimum pension
liability . . . . . . . . . . . . . . . . . - - (417) - - -
Other . . . . . . . . . . . . . . . . . . 2 (16) - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1993 . . . . . . . . . . . 119,942 207,204 (33,891) - 154,347 (87,508)
Net income . . . . . . . . . . . . . . . . . . - - - - 29,512 -
Dividends declared - Convertible Preferred -
$5.00 per share . . . . . . . . . . . . . . - - - - (4,950) -
Dividends declared - Series A Preferred -
paid in additional stock . . . . . . . . . - - - - (5,389) -
Exchange of Series A Preferred stock for
treasury stock . . . . . . . . . . . . . . - - - - - (114,004)
Amortization of discount on Series A Preferred - - - - (491) -
Net unrealized holding loss on marketable
securities . . . . . . . . . . . . . . . . - - - (225) - -
Recognition of additional minimum
pension liability . . . . . . . . . . . . . - - (39,906) - - -
Other . . . . . . . . . . . . . . . . . . 37 77 - - - -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1994 . . . . . . . . . . . 119,979 207,281 (73,797) (225) 173,029 (201,512)
Net income . . . . . . . . . . . . . . . . . . - - - - 41,614 -
Dividends declared - Convertible Preferred -
$5.00 per share . . . . . . . . . . . . . . - - - - (4,510) -
Dividends declared - Series A Preferred -
paid in additional stock . . . . . . . . . - - - - (13,200) -
Amortization of discount on Series A Preferred - - - - (1,386) -
Purchase of treasury stock . . . . . . . . . . - - - - - (28,953)
Treasury stock issued in FoxMeyer
Corporation merger . . . . . . . . . . . . - - - - (10,148) 90,158
Net unrealized holding gain on
marketable securities . . . . . . . . . . . - - - 2,599 - -
Recognition of additional minimum
pension liability . . . . . . . . . . . . . - - (1,631) - - -
Stock options exercised . . . . . . . . . . . . 857 1,829 - - (452) 2,616
Other . . . . . . . . . . . . . . . . . . - - - - 2 -
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 . . . . . . . . . . . $120,836 $ 209,110 $ (75,428) $ 2,374 $184,949 $ (137,691)
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
35
<PAGE> 37
FoxMeyer Health Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended March 31,
(Thousands of dollars) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 41,614 $ 29,512 $ 603
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED)
BY OPERATING ACTIVITIES:
Minority interest in results of operations of
consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . 4,502 5,391 5,172
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . 25,875 21,987 18,860
Loss on common stock of National Steel Corporation . . . . . . . . . - 2,350 22,385
Net preferred dividend income from National Steel Corporation . . . . (5,445) (7,655) (7,265)
Gain from sale of investments . . . . . . . . . . . . . . . . . . . . (10,707) (2,879) -
Gain on termination of operating leases . . . . . . . . . . . . . . . - (3,887) -
Provision for losses on accounts receivable . . . . . . . . . . . . . 20,511 1,887 46,866
Deferred income tax provision (benefit) . . . . . . . . . . . . . . . 954 (2,205) (28,603)
Cash provided (used) by working capital items, net of acquisitions:
Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (109,800) (64,589) (52,418)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (197,873) (4,430) (128,567)
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,352 (10,867) 6,636
Accounts payable and accrued liabilities . . . . . . . . . . . . . . 123,084 (67,177) 97,028
Proceeds from accounts receivable financing program . . . . . . . . . . . 75,000 125,000 -
Funds transferred to National Steel Corporation for potential
environmental liabilities . . . . . . . . . . . . . . . . . . . . . . - (10,000) -
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,747) 1,701 (653)
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES . . . . . . . . . . . . (30,680) 14,139 (19,956)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment . . . . . . . . . . . . . . (59,092) (56,322) (20,076)
Purchase of investments . . . . . . . . . . . . . . . . . . . . . . . (59,015) (26,898) -
Proceeds from the sale of investments . . . . . . . . . . . . . . . . 55,954 50,424 4,969
Proceeds from the sale of property, plant and equipment . . . . . . . 1,888 277 1,168
Acquisitions, net of cash acquired . . . . . . . . . . . . . . . . . (16,104) - (134,591)
Prepayment on long-term commitment . . . . . . . . . . . . . . . . . (290) (5,096) (7,500)
Prepayment on notes receivable and return of investment . . . . . . . 4,467 4,556 7,300
- --------------------------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES . . . . . . . . . . . . . . . . . . (72,192) (33,059) (148,730)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of common stock of a subsidiary, net of expense . - - 7,850
Redemption of preferred share purchase rights . . . . . . . . . . . . - - (1,024)
Loan origination fees . . . . . . . . . . . . . . . . . . . . . . . . (720) (5,110) (864)
Repurchase of the common stock of subsidiaries . . . . . . . . . . . (182) - (64,007)
Repurchase of the common stock of FoxMeyer Health Corporation . . . . (28,953) (1,251) (11,254)
Mandatory redemption of preferred stock . . . . . . . . . . . . . . . (4,400) (4,399) (4,412)
Proceeds from issuance of long-term debt . . . . . . . . . . . . . . 13,406 255,531 130,000
Debt repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,577) (128,773) (6,032)
Exercise of stock options . . . . . . . . . . . . . . . . . . . . . . 4,850 108 -
Borrowings under revolving credit facilities . . . . . . . . . . . . 4,641,031 1,794,450 1,293,900
Repayments under revolving credit facilities . . . . . . . . . . . . (4,529,631) (1,878,250) (1,178,400)
Dividends paid on redeemable preferred stock . . . . . . . . . . . . (4,620) (5,060) (5,462)
Dividends paid to minority interests . . . . . . . . . . . . . . . . (2,087) (1,843) (2,413)
- --------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES . . . . . . . . . . . . . . . . 77,117 25,403 157,882
- --------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments . . . . . . . (25,755) 6,483 (10,804)
Cash and short-term investments, beginning of year . . . . . . . . . . . 60,987 54,504 65,308
- --------------------------------------------------------------------------------------------------------------------
Cash and short-term investments, end of year . . . . . . . . . . . . . . $ 35,232 $ 60,987 $ 54,504
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
36
<PAGE> 38
FoxMeyer Health Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years Ended March 31, 1995
NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND
RELATED MATTERS
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of FoxMeyer Health Corporation and its majority-owned subsidiaries
(the "Corporation") (formerly, National Intergroup, Inc.) including, most
significantly, FoxMeyer Corporation ("FoxMeyer"), a wholly-owned subsidiary,
and Ben Franklin Retail Stores, Inc. ("Ben Franklin"), a 67.7%-owned
subsidiary. All significant intercompany balances and transactions have been
eliminated.
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments consist
principally of amounts held in demand deposit accounts and amounts invested in
liquid time deposit instruments having a maturity of three months or less at
the time of purchase and are recorded at cost. The Corporation had $2.2 million
of cash and short-term investments that were restricted at March 31, 1995,
primarily as collateral for letters of credit.
INVENTORIES: Inventories, consisting solely of finished goods, are valued at
the lower of cost or market. Cost for a majority of inventory is determined by
the last-in, first-out ("LIFO") cost method (see Note G). Cost for the
remainder of the inventory is determined by the first-in, first-out ("FIFO")
cost method of inventory accounting. Investments: The Corporation's investments
in marketable securities have been classified as "available for sale" and are
carried at market value. The unrealized gain or loss resulting from the
difference in market value and the cost of the securities is shown as a
component of stockholders' equity in the consolidated financial statements. The
Corporation periodically reviews its investments for which fair value is less
than cost to determine if the decline in value is other than temporary. If the
decline in value is judged to be other than temporary, the cost basis of the
security is written down to fair value. The amount of the write-down would be
included in the results of operations as a realized loss.
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES: Minority interest in
consolidated subsidiaries, and minority interest in results of operations of
consolidated subsidiaries, primarily represent the minority stockholders' or
partners' proportionate share of the equity and net income of FoxMeyer until
October 12, 1994 (see Note B), Ben Franklin and various real estate limited
partnerships (see Note C).
PROPERTY, PLANT AND EQUIPMENT: Properties are stated at cost. Differences
between amounts received and the net carrying values of properties retired or
disposed of are included in operations. The cost of maintenance and repairs is
charged against the results of operations as incurred. Depreciation of property
and equipment is provided using the straight-line method at rates designed to
distribute the cost of properties over their estimated service lives of 10 to
40 years for buildings and building improvements, 3 to 10 years for equipment
and furniture and 3 to 7 years for software. Amortization of assets under
capital leases and leasehold improvements is included in depreciation and
amortization based on the lesser of the term of the lease or the estimated
useful life of 5 to 20 years. Depreciation for income tax purposes is computed
by using both the straight-line and accelerated methods.
Property, plant and equipment consists of the following (in thousands of
dollars):
<TABLE>
<CAPTION>
March 31,
1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C>
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 11,425 $ 8,039
Buildings and building improvements . . . . . . . . . . . . . . 64,881 59,073
Leasehold improvements . . . . . . . . . . . . . . . . . . . . 27,721 24,330
Equipment and furniture . . . . . . . . . . . . . . . . . . . . 102,652 85,017
Software . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,714 28,045
-------------------------------------------------------------------------------------------
$ 256,393 $ 204,504
-------------------------------------------------------------------------------------------
</TABLE>
INTANGIBLE ASSETS: Intangible assets consist of goodwill and customer lists
arising from business combinations. Goodwill, representing the excess of the
purchase price over the estimated fair value of the net assets acquired, is
37
<PAGE> 39
being amortized using the straight-line method over the period of expected
benefit of 15 to 40 years. Customer lists are being amortized using the
straight-line method over the period of benefit, but in no instance exceeding
20 years.
The Corporation periodically reviews the appropriateness of the remaining
life of its intangible assets considering whether any events have occurred or
conditions have developed which may indicate that the remaining life or the
amortization method requires adjustment. After reviewing the appropriateness of
the remaining life and the pattern of usage of the intangible assets, the
Corporation then assesses the overall recoverability of intangible assets by
determining if the unamortized balance can be recovered through undiscounted
future operating cash flows. Absent any unfavorable findings, the Corporation
continues to amortize its intangible assets based on the existing estimated
life.
SALES: Generally, sales are recorded when goods are shipped and title passes or
when services are rendered. In addition, for large volume sales of
pharmaceuticals to major self-warehousing drug store chains, the Corporation,
through FoxMeyer, acts as an intermediary in the delivery of products from the
manufacturer directly to the customers' warehouses. These sales of $784.5
million, $904.9 million, and $888.3 million in 1995, 1994 and 1993,
respectively, are credited to the same account as their associated cost of
sales and reported on a net basis in the statements of consolidated operations.
CAPITALIZATION OF SOFTWARE COSTS: The Corporation capitalizes software
purchased in connection with major system developments as well as expenditures
related to the implementation of these systems. In addition, software that is
developed or substantially modified internally by the Corporation is also
capitalized. The capitalization of these internal projects begins when
technological feasibility has been established and ends when testing on the
project is completed. Acquisition costs plus direct expenses are capitalized.
Interest incurred on borrowed funds used during the capitalization period of
$1.3 million, $.3 million and $.3 million in 1995, 1994 and 1993, respectively,
was also capitalized. Amortization of such capitalized costs is on a
straight-line basis over the estimated life of the software which is from three
to seven years. Routine upgrades, modifications and maintenance are expensed as
incurred.
SELF-INSURANCE PROGRAMS: The Corporation is self-insured for various levels of
general liability, automobile, workers' compensation and employee medical
coverage. Provisions for claims under the self-insurance programs are
actuarially determined for both claims reported and for claims incurred but not
reported after consideration of excess loss insurance coverage limits.
CONTINGENT FEE INCOME: Included in "Other income" in 1995 was $35.8 million in
contingent fee income. As part of the consideration for a 1990 sale of certain
assets, a subsidiary of the Corporation obtained the right to receive 10 annual
contingent payments. In 1995, the Corporation received and otherwise settled
its right to these future contingent payments and accordingly recognized the
contingent fee income.
UNUSUAL ITEM: Amounts reflected as an unusual item in the consolidated
statements of operations represent the write-down of amounts due from Phar-Mor,
Inc. and related legal and other costs (see Note E).
INCOME TAXES: Deferred income taxes are provided for temporary differences
between financial statement carrying amounts and the taxable basis of assets
and liabilities using rates currently in effect.
EARNINGS (LOSS) PER SHARE: Earnings (loss) per share of common stock is based
on earnings (loss) after preferred stock dividend requirements and the weighted
average number of shares of common stock outstanding during each year after
giving effect to stock options considered to be dilutive common stock
equivalents. Fully diluted earnings per share is not presented as it is
substantially the same as primary earnings per share or is anti-dilutive, as
applicable.
RECLASSIFICATIONS: Certain reclassifications have been made to the prior year
financial statements to conform to the current year presentation.
38
<PAGE> 40
NOTE B - TRANSACTIONS IN SUBSIDIARY
COMMON STOCK
FOXMEYER CORPORATION
The Corporation and FoxMeyer purchased 4,840,000 shares of FoxMeyer common
stock during 1993 through a series of transactions. Such purchases were
accounted for using the purchase accounting method with a corresponding $11.4
million reduction in the Corporation's goodwill in FoxMeyer which reflected a
purchase price less than the fair value of assets acquired. As a result of
these transactions, the Corporation's ownership in FoxMeyer increased to 80.5%
from 67.0%.
On October 12, 1994, the Corporation acquired, by way of merger of FoxMeyer
with 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. The merger transaction was
accounted for using the purchase method of accounting with a corresponding
reduction of approximately $15.1 million in the Corporation's goodwill in
FoxMeyer which reflected a purchase price less than the fair value of assets
acquired. The reduction in goodwill will be amortized over the remaining life
of the original goodwill. The fair value of the assets acquired and liabilities
assumed is subject to change based on evidence of fair value still to be
obtained. The difference of approximately $10.1 million between the market
value of the common stock issued ($80.0 million) and the average cost of those
shares was charged to retained earnings.
Unaudited pro forma results of operations for the fiscal years ended March
31, 1995 and 1994, respectively, had the acquisition of FoxMeyer's minority
interest taken place at the beginning of the corresponding fiscal years, are as
follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Year ending March 31,
1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C>
Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,177,072 $5,409,379
Operating income . . . . . . . . . . . . . . . . . . . . . . . 68,617 51,718
Income before minority interest . . . . . . . . . . . . . . . . 46,365 35,291
Minority interest in results of operations of consolidated
subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . 2,829 129
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . 43,536 35,162
Earnings per share of common stock . . . . . . . . . . . . . . $ 1.41 $ 1.11
Average number of shares outstanding . . . . . . . . . . . . . 17,340 21,919
-------------------------------------------------------------------------------------------
</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 common stock acquired as if the acquisition
had taken place at the beginning of the fiscal year. The additional shares of
common stock issued in the merger were assumed to be outstanding for the entire
period.
BEN FRANKLIN RETAIL STORES, INC.
On May 5, 1992, Ben Franklin completed the sale to the public of 1,800,000
shares of its common stock which were owned by the Corporation. The Corporation
received net proceeds of $7.9 million. Approximately 450,000 options were
granted to Ben Franklin employees at the public offering price of $5.00. As a
result of the offering and the subsequent exercise of stock options, the
Corporation's ownership percentage in Ben Franklin was reduced to 67.2%. During
1995, a common stock buy-back program initiated by Ben Franklin increased the
Corporation's ownership percentage to 67.7%.
NOTE C - ACQUISITIONS
HARRIS WHOLESALE COMPANY
On May 7, 1992, the Corporation, through a wholly-owned subsidiary of FoxMeyer,
acquired all of the issued and outstanding shares of capital stock of Harris
Wholesale Company ("Harris"), a pharmaceutical wholesaler, for $119.9 million
in cash including repayment of Harris' bank indebtedness. The transaction was
accounted for using the purchase accounting method. The purchase price has been
allocated to the assets and liabilities of Harris in amounts equal to their
respective fair values. The excess of the purchase price over the sum of the
amounts assigned to identifiable assets acquired less liabilities assumed,
which was approximately $90.2 million, was recorded as goodwill. The goodwill
is being amortized over 40 years. The results of operations of Harris have been
included in the consolidated financial statements of the Corporation since May
8, 1992.
SCRIP CARD
On April 1, 1994, FoxMeyer acquired all of 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 provides prescription benefit management services for
small
39
<PAGE> 41
to medium-sized businesses. The transaction was accounted for using 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 results of operations of Scrip
Card have been included in the consolidated financial statements of the
Corporation since its acquisition.
DEVELOPMENT
Certain subsidiaries of the Corporation (collectively, "Development") are
controlling general partners in various real estate limited partnerships
engaged in the buying, holding, operating and disposing of real estate and real
estate loans. Development's partnerships are generally obligated to return
Development's initial investment together with a preferred rate of return on
the undistributed investment before other partners may receive distributions.
Such preferred returns are accounted for as liquidating dividends. Development
invested approximately $5.5 million in 1995 and $8.6 million in 1994 in various
real estate partnerships. The net equity investment in Development's limited
partnerships at March 31, 1995 and 1994, respectively, was $8.9 million and
$5.0 million.
OTHER
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 exercise of options for 4,400,000 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 47.1%. FoxMeyer Canada provides healthcare and pharmacy services
in Canada. FoxMeyer's investment in FoxMeyer Canada is accounted for on an
equity basis and, at March 31, 1995, was $4.9 million. The market value of the
Corporation's investment in FoxMeyer Canada at March 31, 1995 was $28.4 million
based on the closing price of the stock on the Toronto Stock Exchange. FoxMeyer
has options to acquire up to 5,600,000 additional shares of common stock of
FoxMeyer Canada at prices ranging from (in Canadian dollars) $1.50 to $3.00.
Ben Franklin acquired 10 crafts stores from former franchisees during 1995.
The acquisitions were accounted for using the purchase method of accounting.
The excess of the purchase price over the fair market value of the assets
acquired resulted in goodwill of $3.4 million.
On September 15, 1992, FoxMeyer acquired the warehouse, distribution
systems and related working capital of Snyder's Drug Stores, Inc. for
approximately $18.7 million.
No pro forma combined results of operations of the Corporation and these
acquisitions has been presented as such pro forma results are not materially
different from those previously reported.
NOTE D - ACCOUNTS RECEIVABLE FINANCING
FoxMeyer has entered into an accounts receivable financing program under which
FoxMeyer sells with limited recourse a percentage ownership interest in a
defined pool of its trade accounts receivable. Under an amendment effective
November 22, 1994, the financing program was extended to November 21, 1995, and
the amount of the financing program was increased to $200.0 million from $125.0
million. Generally, an undivided interest in new accounts receivable will be
sold daily as existing accounts receivable are collected to maintain the
participation interest at $200.0 million. Such accounts receivable sold are not
included in the accompanying balance sheets at March 31, 1995 and 1994,
respectively. An allowance for doubtful accounts has been retained on the
participation interest sold based on estimates of FoxMeyer's risk of credit
loss from its obligation under the recourse provisions. The cost of the
accounts receivable financing program is based on commercial paper rates plus
certain fees. The total cost of the program was $9.1 million and $2.2 million
for the years ended March 31, 1995 and 1994, respectively, and was charged
against "Other income" in the accompanying consolidated statements of
operations. FoxMeyer also acts as agent for the purchaser by performing
recordkeeping and collection functions on the participation interest sold. The
agreement contains certain covenants regarding the quality of the accounts
receivable portfolio, as well as other covenants which are substantially
identical to those contained in FoxMeyer's credit facilities (see Note J).
40
<PAGE> 42
NOTE E - PHAR-MOR, INC. RECEIVABLE
On August 17, 1992, Phar-Mor, Inc., a large deep-discount drug store chain
("Phar-Mor") filed for protection under Chapter 11 of the U.S. Bankruptcy Code.
FoxMeyer's records reflected that on the filing date it had receivables due
from Phar-Mor of approximately $68.8 million. During 1993, the Corporation
recorded a pre-tax charge to earnings of $41.0 million ($20.5 million after
taxes and minority interest or $1.02 per common share) representing a $40.0
million provision for possible loss on amounts due from Phar-Mor and a $1.0
million provision for legal and other costs related to the bankruptcy. An
additional $.2 million of associated legal costs were incurred in 1994. As a
result of Phar-Mor's submission of a Plan of Reorganization and the settlement
of FoxMeyer's reclamation claim at an amount less than FoxMeyer had submitted,
the Corporation recorded an additional pre-tax charge to earnings of $28.8
million ($17.7 million after taxes or $1.20 per common share) to reflect the
estimated value of the assets to be received by the Corporation and legal and
other costs incurred or to be incurred. In the accompanying consolidated
balance sheets, all amounts due from Phar-Mor for goods sold prior to August
17, 1992, were classified as long-term assets, net of allowances.
NOTE F - OFF-BALANCE SHEET RISK
AND CONCENTRATIONS OF CREDIT RISK
Trade receivables subject the Corporation to a concentration of credit risk
with customers in the retail and in the hospital and alternate care facility
sectors. This risk is limited due to the large number of customers comprising
the Corporation's customer base and their geographic dispersion. No one
customer accounted for more than 10% of net sales in 1995. The Corporation
performs ongoing credit evaluations of its customers' financial condition and
maintains reserves for potential credit losses. Generally, the Corporation
requires no collateral from its customers. In addition, temporary cash
investments may also subject the Corporation to a concentration of credit risk.
The Corporation places its temporary cash investments primarily with major
financial institutions and diversified money market mutual funds.
NOTE G - INVENTORIES
Inventories valued by the LIFO cost method totalled $605.2 million and $431.0
million at March 31, 1995 and 1994, respectively. If the FIFO cost method had
been used, inventories would have been $54.3 million and $65.7 million higher
than the amounts reported in the accompanying consolidated balance sheets at
March 31, 1995 and 1994, respectively. The decrease in LIFO reserves is
primarily the result of a purchase accounting adjustment of $12.8 million
resulting from the acquisition of FoxMeyer's minority interest (see Note B). In
addition, liquidation of LIFO inventories carried at lower costs prevailing in
prior years, as compared with the current cost of purchases, had the effect of
increasing net income in 1994 by $.3 million or $0.02 per share.
NOTE H - INVESTMENTS IN
MARKETABLE SECURITIES
The Corporation's investments in marketable 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>
March 31,
1995 1994
-------------------------------------------------------------------------------------------
<S> <C> <C>
Carrying value . . . . . . . . . . . . . . . . . . . . . . . . $ 18,219 $ 15,969
Unrealized gains . . . . . . . . . . . . . . . . . . . . . . . 2,509 348
Unrealized losses . . . . . . . . . . . . . . . . . . . . . . . 196 683
-------------------------------------------------------------------------------------------
</TABLE>
The gross proceeds and realized gains and losses from the sale of
marketable securities are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales . . . . . . . . . . . . . . . . . . . . . . $ 50,205 $ 44,090 -
Realized gains . . . . . . . . . . . . . . . . . . . . . . . . 8,092 314 -
Realized losses . . . . . . . . . . . . . . . . . . . . . . . . 476 2,350 -
------------------------------------------------------------------------------------------------------------
</TABLE>
The cost of securities sold was principally determined using the average
cost method.
NOTE I - INVESTMENT IN NATIONAL
STEEL CORPORATION
In January 1984, the Corporation, through its then wholly-owned subsidiary
National Steel Corporation ("NSC"), sold substantially all of the assets of the
Weirton Steel Division ("Weirton") to Weirton Steel Corporation. In connection
with the sale, NSC retained certain liabilities arising out of the operation of
Weirton prior to May 1, 1983, including certain environmental liabilities, a
note payable to the NSC pension trust (the "NSC Note") and employee benefits
for Weirton employees, which consisted principally of pension benefits for
active employees based on service prior to May 1, 1983, and pension, life and
health insurance benefits for retired employees (the "Weirton Liabilities").
41
<PAGE> 43
As a result of transactions which occurred in August 1984 and June 1990,
the Corporation sold all but 13% of its common stock investment in NSC to NKK
Corporation ("NKK"). As part of the 1984 transaction, the Corporation agreed to
provide NSC sufficient funds for payment of and to indemnify NSC against all
Weirton Liabilities and for certain environmental liabilities related to the
former operations of NSC. As part of the 1990 transaction, the Corporation also
received newly issued NSC redeemable Series B preferred stock (the "NSC
Preferred Stock") and $146.6 million in cash. The cash was transferred to NSC
in exchange for NSC releasing the Corporation from an equivalent amount of its
indemnification liability with respect to the Weirton Liabilities (the
"Released Liabilities"). The NSC Preferred Stock was valued at fair market
value at the date of the transaction, with the resulting premium in excess of
the minimum redemption value being amortized on an effective yield basis over
the life of the NSC Preferred Stock.
Under the terms of the Stock Purchase and Recapitalization Agreement (the
"Agreement") between the Corporation, NKK and NSC related to the June 1990
transaction, the Corporation has committed that all NSC Preferred Stock
dividends and redemption amounts are to be used to satisfy the Weirton
Liabilities, excluding the Released Liabilities (the "Remaining Liabilities"),
before any funds are available to the Corporation for general corporate
purposes. The Agreement further provides for an independent actuarial valuation
of the Weirton Liabilities that relate to employee benefits. If prior to or
coincident with a full redemption of the NSC Preferred Stock, the
pension-related Weirton Liabilities are determined to be fully funded, the
amount of any adjustment to the Weirton Liabilities, as determined by the
independent actuary, will increase or decrease the proceeds available to the
Corporation from the redemption of the NSC Preferred Stock.
The Remaining Liabilities have been presented in the Corporation's
consolidated balance sheets as a reduction in the carrying value of the NSC
Preferred Stock due to the requirement that the dividend and redemption
payments thereon first be used to offset these obligations. At March 31, 1995,
there were $35.9 million of Remaining Liabilities, including a $15.2 million
net pension liability, the NSC Note of $19.7 million and $1.0 million for other
benefit obligations offset against the carrying value of the NSC Preferred
Stock. At March 31, 1994, there were $39.4 million of Remaining Liabilities
offset against the carrying value of the NSC Preferred Stock.
Additionally, the Corporation has reflected its dividend income on the NSC
Preferred Stock, interest accretion and pension charges on the Remaining
Liabilities and premium amortization on the NSC Preferred Stock as a single net
amount in its consolidated statements of operations due to the requirement that
dividends and redemption payments on the NSC Preferred Stock be used first to
fund the Remaining Liabilities.
For the year ended March 31, 1993, the Corporation reduced the carrying
value of its NSC common stock to its then current market value resulting in a
loss of $22.4 million, which was included in the 1993 consolidated statement of
operations. The Corporation recognized an additional loss of $2.4 million in
connection with a January 1994 disposition of substantially all of its
remaining shares of NSC common stock. From the proceeds of the sale of the NSC
common stock owned by the Corporation, the Corporation was required to pay to
NSC $10.0 million as a prepayment for potential environmental liabilities for
which the Corporation had previously agreed to indemnify NSC. If NSC does not
expend the $10.0 million by certain dates (up to 20 years after the receipt of
such funds by NSC), the balance in the fund will be paid by NSC to the
Corporation. The Corporation continues to be obligated to indemnify NSC for all
other liabilities for which the Corporation had previously agreed to indemnify
NSC, including any environmental liabilities exceeding the $10.0 million
prepayment. NSC is currently paying 11.5% interest on the balance in the fund.
At March 31, 1995, the prepayment balance was approximately $10.3 million.
On May 4, 1993, NSC redeemed 10,000 shares of the NSC Preferred Stock owned
by the Corporation. The $67.8 million of proceeds received on the redemption
was immediately deposited in the Weirton Pension Trust to satisfy the Remaining
Liabilities. A net gain of $2.4 million was realized on the redemption. Without
the Corporation's consent, NSC cannot, prior to 1998, exercise its option to
redeem the Corporation's remaining shares of NSC Preferred Stock that are
subject to mandatory redemption in August 2000. The minimum redemption value of
the remaining NSC Preferred Stock is $58.3 million.
42
<PAGE> 44
As described above, the Corporation has agreed to provide NSC with
sufficient funds for the payment and discharge of Weirton pension benefits for
active and retired employees based on service with Weirton prior to May 1,
1983. These employee benefits are provided pursuant to the Weirton Retirement
Program sponsored by NSC. The obligation of the Corporation relating to the
Weirton Retirement Program is a contractual obligation of the Corporation, and
the Corporation does not sponsor, maintain or administer the Weirton Retirement
Program or the Weirton Pension Trust.
Pension costs for the Corporation's obligation relating to the Weirton
Retirement Program for the three years ended March 31, 1995, determined by
assuming an expected long-term rate of return on plan assets of 9.5%, 9.5% and
10.5% in 1995, 1994 and 1993, respectively, were as follows (in thousands of
dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned for the year . . . . . . . . . . . $ 177 $ 159 $ 201
Interest cost on projected benefit obligation . . . . . . . . . . 38,273 42,169 44,582
Return on plan assets . . . . . . . . . . . . . . . . . . . . . . (28,140) (34,659) (65,966)
Net amortization and deferral . . . . . . . . . . . . . . . . . . (10,751) (10,104) 25,741
-------------------------------------------------------------------------------------------------------------
Net periodic pension costs (income) . . . . . . . . . . . . . . . $ (441) $ (2,435) $ 4,558
-------------------------------------------------------------------------------------------------------------
</TABLE>
The funded status of the Weirton Retirement Program and amounts recognized
in the Corporation's consolidated balance sheets at March 31, 1995 and 1994,
utilizing a discount rate of 8.5% in 1995 and 7.9% in 1994 are set forth in the
table below (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
including vested benefits of
$465,517 and $491,534 in 1995
and 1994, respectively . . . . . . . . . . . . . . . . . . . . . . . $ 482,282 $ 512,667
Projected benefit obligation . . . . . . . . . . . . . . . . . . . . . . 482,282 512,667
Plan assets at fair market value . . . . . . . . . . . . . . . . . . . . 467,058 495,001
- -----------------------------------------------------------------------------------------------------
Projected benefit obligation in excess
of plan assets . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,224 17,666
Unrecognized transition asset . . . . . . . . . . . . . . . . . . . . . . 7,406 8,308
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . . . . . . . (82,834) (82,105)
Adjustment required to recognize
minimum liability . . . . . . . . . . . . . . . . . . . . . . . . . . 75,428 73,797
- -----------------------------------------------------------------------------------------------------
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,224 $ 17,666
- -----------------------------------------------------------------------------------------------------
</TABLE>
At March 31, 1995, the assets of the Weirton Pension Trust available to
service these obligations were comprised of approximately 71% bonds, 21% stocks
and 8% other.
NOTE J - LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
FoxMeyer Health revolving
credit facility . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 15,000 $ -
FoxMeyer senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . 198,000 198,000
Unamortized discount on FoxMeyer
senior notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . (3,506) -
FoxMeyer revolving credit facility . . . . . . . . . . . . . . . . . . . 132,800 54,700
Ben Franklin convertible subordinated
debentures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,750 28,750
Ben Franklin revolving credit facility . . . . . . . . . . . . . . . . . 18,300 -
Development notes with interest rates
ranging from 6.5% to 11.0% per
annum with various maturities . . . . . . . . . . . . . . . . . . . . 15,826 17,668
Industrial development revenue bonds
with interest rates ranging from
5.4% to 8.0% per annum with
various maturities . . . . . . . . . . . . . . . . . . . . . . . . . 1,774 2,031
Notes and mortgages with interest
rates ranging from 5.25% to 10.0%
per annum with various maturities . . . . . . . . . . . . . . . . . . 16,473 11,683
Capital lease obligations with interest
rates ranging from 9.3% to 14.0%
per annum with various maturities . . . . . . . . . . . . . . . . . . 1,874 246
- -----------------------------------------------------------------------------------------------------
425,291 313,078
Long-term debt due within one year . . . . . . . . . . . . . . . . . . . 2,540 2,158
- -----------------------------------------------------------------------------------------------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 422,751 $ 310,920
- -----------------------------------------------------------------------------------------------------
</TABLE>
The Corporation has a $15.0 million revolving credit facility (the "Credit
Facility") to be used by it for working capital and general corporate purposes.
The Credit Facility, which is secured by shares of common stock of FoxMeyer,
restricts the payment of cash dividends on the Corporation's common stock and
its Series A Preferred Stock (see Note K) and imposes limits on the repurchase
of shares of the Corporation's common stock. In addition, certain other
limitations have been placed on the Corporation by the Credit Facility that,
among other things, require the Corporation to maintain a minimum net worth and
place certain restrictions on investments, additional indebtedness and
acquisitions. The Credit Facility expires on April 1, 1996. The interest rate
is a Euro-dollar rate (as defined) plus 1.875% or the prime
43
<PAGE> 45
rate plus .25%. The average and maximum amounts outstanding under the Credit
Facility during 1995 were $6.4 million and $15.0 million, respectively. At
March 31, 1995, $15.0 million was outstanding under the Credit Facility at an
average interest rate of 8.4%.
On April 29, 1993, FoxMeyer issued $198.0 million of 7.09% senior notes due
April 15, 2005 (the "FoxMeyer Senior Notes"). The FoxMeyer Senior Notes are
payable in eight equal annual installments commencing on April 15, 1998. The
FoxMeyer Senior Notes contain certain restrictions and covenants which, among
other things, place limitations on debt, liens, investments, payment of
dividends and transactions by FoxMeyer with related parties. In addition, the
FoxMeyer Senior Notes are subject to a potential prepayment penalty based on
interest rates at the time of prepayment. The discount on the FoxMeyer Senior
Notes relates to a purchase accounting adjustment resulting from the
acquisition of FoxMeyer's minority interest in 1995 (see Note B).
At March 31, 1995, FoxMeyer maintained a $275.0 million revolving credit
facility (the "FoxMeyer Credit Facility") which expires December 31, 1997. The
FoxMeyer Credit Facility contains certain affirmative and negative covenants
including: (i) restrictions on acquisitions, mergers, consolidations and sales
of certain assets by FoxMeyer; (ii) restrictions on FoxMeyer's ability to enter
into transactions with affiliates; (iii) restrictions on FoxMeyer's ability to
incur additional indebtedness, to make capital expenditures, and to make
certain loans, advances and investments; and (iv) requirements to maintain
certain levels of net worth, interest coverage, debt service coverage, and debt
to total capitalization ratios. These covenant requirements limit FoxMeyer's
ability to pay dividends. The FoxMeyer Credit Facility provides for interest
rates based on (i) a Euro-dollar rate (as defined) plus a variable fee that
cannot exceed 1%, (ii) the prime rate or (iii) rates offered by banks that are
parties to the FoxMeyer Credit Facility. At March 31, 1995, $132.8 million was
outstanding under the FoxMeyer Credit Facility at an average interest rate of
6.6%. The average and maximum amounts borrowed under the FoxMeyer Credit
Facility during 1995 were $89.6 million and $245.0 million, respectively.
In June 1993, Ben Franklin issued $28.8 million of 7.5% convertible
subordinated debentures due June 1, 2003 (the "Ben Franklin Debentures"). The
Ben Franklin Debentures are unsecured general obligations of Ben Franklin
subordinated to all existing and future senior debt and are convertible into
the common stock of Ben Franklin at $7.75 per share. The Ben Franklin
Debentures are redeemable, at the option of Ben Franklin, in whole or in part,
on or after June 1, 1996, at redemption prices ranging from 105% of the
principal amount thereof in 1996 to 100% in 2002.
Ben Franklin entered into a new revolving credit facility during 1995 (the
"Ben Franklin Facility") which was amended in April 1995. The Ben Franklin
Facility provides for a maximum borrowing capacity of $45.0 million. The Ben
Franklin Facility expires August 1, 1996, bears interest at the prime rate and
is secured by certain inventories, receivables and fixed assets. The Ben
Franklin Facility prohibits, among other things, the payment of dividends and
requires Ben Franklin to maintain certain financial ratios. At March 31, 1995,
$18.3 million was outstanding under the Ben Franklin Facility at an interest
rate of 9.0%. The average and maximum amounts borrowed during 1995 were $11.6
million and $24.3 million, respectively.
The limited partnerships controlled by Development and included in the
consolidated financial statements have incurred certain indebtedness in
connection with the acquisition of real estate and other assets from the
Resolution Trust Corporation and other financial institutions (the "Development
Notes"). Such indebtedness is typically non-recourse and secured solely by the
underlying assets. The Development Notes bear interest at fixed and floating
rates and, generally, have balloon payments at the end of their term.
The industrial development revenue bonds, notes and mortgages represent
different issues with varying principal payments. Some of these issues bear
interest at fixed rates and others bear interest at floating rates. These
obligations are generally secured by the underlying real estate. These
mortgages include a $7.6 million obligation of Ben Franklin which bears
interest at the prime rate and matures in 2000 and a $5.3 million obligation of
Ben Franklin which bears interest at 9.5% and matures in 1999.
The Corporation has letters of credit outstanding in connection with its
insurance liabilities and product purchases of $10.6 million at March 31, 1995.
44
<PAGE> 46
Maturity and sinking fund requirements on all long-term debt of the
Corporation by fiscal year are as follows: $2.5 million in 1996; $36.7 million
in 1997; $135.4 million in 1998; $35.2 million in 1999; $30.3 million in 2000;
and $188.7 million thereafter.
At March 31, 1995, the aggregate cost of properties under capital lease
obligations amounted to $2.1 million with accumulated amortization of $.1
million. Total remaining lease payments under these obligations are as follows:
$.4 million in 1996; $.5 million in 1997; $.5 million in 1998; and $.5 million
in 1999.
NOTE K - CAPITAL STOCK
SHARE REPURCHASE: In 1992 and 1993, the Board of Directors of the Corporation
authorized common stock repurchase programs to allow the Corporation to
repurchase shares of the Corporation's common stock. During 1993 the
Corporation repurchased 890,900 shares under these repurchase programs at a
cost of $11.3 million.
In December 1993, the Corporation announced that it may purchase an
additional 1,300,000 shares of its common stock. By January 1995, the
Corporation had completed this program at a cost of $21.7 million. In January
1995, the Corporation announced another stock repurchase program to allow the
Corporation to repurchase an additional 1,000,000 shares of its common stock.
As of March 31, 1995, 437,300 shares had been repurchased at a cost of $7.2
million.
PREFERRED SHARE PURCHASE RIGHTS: By action of the Board of Directors, on June
1, 1992, all of the outstanding rights issued in connection with the
Corporation's Preferred Share Purchase Rights Plan were redeemed. Holders of
the rights received $.05 for each right outstanding on that date or a total of
approximately $1.0 million.
REDEEMABLE PREFERRED STOCK: The Corporation is authorized to issue 10,000,000
shares of preferred stock. At March 31, 1995, there were two series of
redeemable preferred stock outstanding.
At March 31, 1995 and 1994, the Corporation had 836,000 and 924,000 shares
of cumulative convertible preferred stock outstanding, respectively, at a
stated price of $50.00 per share. Each share of this preferred stock is
entitled to a cumulative annual dividend of $5.00 and is convertible into
common stock of the Corporation at a conversion price of $26.75 per share. The
Corporation has reserved 1,562,617 shares of its common stock for issuance upon
the conversion of this preferred stock. The shares are redeemable at a price of
$50.00 per share. The Corporation is required to make sinking fund payments in
each of the years from 1996 to 2002 in an amount sufficient to redeem 88,000
shares annually and 220,000 shares in 2003.
In connection with an exchange offer, on November 4, 1993, the Corporation
reacquired 6,833,505 shares of its common stock in exchange for 3,416,753
shares of newly issued $4.20 Cumulative Exchangeable Series A Preferred Stock,
par value $5.00 per share, with a liquidation preference of $40.00 (the "Series
A Preferred Stock"). Dividends on the Series A Preferred Stock are payable
quarterly. On and prior to October 15, 1996, the Corporation, at its option,
may pay dividends on the Series A Preferred Stock in cash or by means of the
issuance of such number of additional shares of Series A Preferred Stock that
have an aggregate liquidation preference equal to the amount of the dividend.
Thereafter, dividends must be paid in cash. The Credit Facility contains
covenants that prevent the Corporation from paying cash dividends on the Series
A Preferred Stock while the Credit Facility is outstanding. The Corporation is
required to redeem the Series A Preferred Stock on November 30, 2003. The
Series A Preferred Stock may be redeemed at the option of the Corporation, in
whole or in part, at any time on or after October 15, 1998 at its liquidation
preference plus unpaid dividends thereon.
The common stock accepted by the Corporation in connection with the
exchange offer is being held as treasury stock. The cost of the treasury stock
is equal to the sum of the direct expenses related to the exchange offer plus
the fair market value of the Series A Preferred Stock on the exchange date. The
difference in the Series A Preferred Stock's liquidation preference and its
market value on the exchange date is being amortized on an effective yield
basis as additional preferred stock dividends and charged to retained earnings
over the life of the Series A Preferred Stock.
At March 31, 1995 and 1994, the Corporation had 3,868,373 and 3,487,514
shares of Series A Preferred Stock outstanding, respectively. The Corporation
issued 380,859 and 70,761 additional shares of Series A Preferred Stock in lieu
of cash dividends in 1995 and 1994, respectively. In addition, 101,545
additional
45
<PAGE> 47
shares of Series A Preferred Stock were issued on April 15, 1995 in lieu of
cash dividends. This dividend was declared and charged to retained earnings in
March 1995. The charge to retained earnings for these dividends was based on
the ending market value of the Series A Preferred Stock on the ex-dividend
date. The difference in the Series A Preferred Stock's liquidation preference
and its market value on the ex-dividend date is being amortized on an effective
yield basis as additional preferred stock dividends and charged to retained
earnings over the remaining life of the Series A Preferred Stock.
In addition, the Series A Preferred Stock will be exchangeable, at the
option of the Corporation, in whole but not in part, commencing on October 15,
1996, and on any dividend payment date thereafter, for the Corporation's 101/2%
Subordinated Notes due 2003 (the "Exchange Notes") with a principal amount
equal to the aggregate liquidation value of the outstanding Series A Preferred
Stock. The Exchange Notes will mature on November 30, 2003. The Exchange Notes
may be redeemed, at the option of the Corporation, in whole or in part, at any
time on and after October 15, 1998, at a redemption price equal to the
principal amount plus any unpaid interest thereon. The payments of principal
and interest on the Exchange Notes will be subordinated to all senior
indebtedness of the Corporation. Common Stock: The Corporation has also
reserved 5,229,988 shares of its common stock for issuance under its stock
option and performance award plans (see Note L).
Certain limitations on the payment of dividends have been placed on the
Corporation through covenants under the Credit Facility (see Note J). Under
these restrictions, no dividends may be paid on the common stock of the
Corporation.
NOTE L - EMPLOYEE COMPENSATION PLANS
The Corporation maintains the 1993 Restated Stock Option and Performance Award
Plan (the "Plan"). The Plan provides for the granting of incentive options and
non-qualified options to purchase shares of the common stock of the Corporation
to certain officers and key employees of the Corporation and its subsidiaries
and for the granting of non-qualified stock options to the outside directors on
an automatic basis. The Plan also permits the granting of performance shares,
restricted shares and performance units to participants (other than outside
directors). Under the Plan, the Personnel and Compensation Committee of the
Board of Directors of the Corporation determines the price at which options are
to be granted, the period over which options are exercisable, the duration of
performance or restriction periods and performance targets over which
performance shares shall be earned. Options for an aggregate of 4,000,000
shares of the Corporation's common stock may be granted under the Plan.
As part of the merger of FoxMeyer into a wholly-owned subsidiary of the
Corporation on October 12, 1994 (see Note B), all of FoxMeyer's options
retained their original vesting schedules but became exercisable in the
Corporation's common stock. The number of the Corporation's shares covered by
the FoxMeyer options was calculated based on the conversion ratio used in the
merger. The new grant price was determined so that the product of the adjusted
number of shares and the new grant price equaled the total cost of exercising
the FoxMeyer options prior to the merger.
Options to purchase 440,000 shares of common stock at $15.00 per share were
granted in October 1991 to each of the Co-Chief Executive Officers of the
Corporation pursuant to their employment agreements. These options were
relinquished in October 1994, prior to their expiration date, in exchange for a
cash settlement equal to the difference in the market value of the common stock
on that date and $15.00 per share. The Co-Chief Executive officers of the
Corporation each have options to purchase 944,640 shares of common stock at
March 31, 1995.
The following table summarizes the information with respect to stock
options for the two years ended March 31, 1995. The table includes stock
options granted under the plans discussed above and under the Company's 1987
Restated Stock Option and Performance Award Plan, which stock options are still
exercisable. All options granted in 1995 and 1994 were at the published market
price of the Corporation's common stock on the date of grant.
46
<PAGE> 48
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Number Option Number Option
of Price Range of Price Range
Shares Per Share Shares Per Share
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year . . . . . 1,739,100 $ 12.81 - $27.50 2,041,740 $ 14.00 - $34.44
Granted . . . . . . . . . . . . . . . . 2,146,000 14.56 - 18.25 5,000 12.81
Options arising from the FoxMeyer merger . 1,104,688 10.85 - 16.39 - -
Exercised . . . . . . . . . . . . . . . . . 317,636 13.41 - 16.69 7,533 14.06 - 14.88
Canceled . . . . . . . . . . . . . . . . 1,299,164 13.41 - 27.50 300,107 12.81 - 34.44
- ----------------------------------------------------------------------------------------------------------------------
Outstanding at end of year . . . . . . . . 3,372,988 10.85 - 27.50 1,739,100 12.81 - 27.50
- ----------------------------------------------------------------------------------------------------------------------
Exercisable at end of year . . . . . . . . 1,003,807 10.85 - 27.50 1,733,100 14.00 - 27.50
Reserved for future grants . . . . . . . . 1,857,000 2,000,000
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Ben Franklin has adopted a Stock Option and Performance Award Plan (the
"Ben Franklin Plan") which authorizes the Option, Personnel and Compensation
Committee of the Ben Franklin Board of Directors to grant to key employees and
directors of Ben Franklin and the Corporation incentive and non-qualified stock
options, stock appreciation rights, performance shares, restricted shares or
performance units. Options to purchase up to 880,000 shares of Ben Franklin
common stock may be granted under the Ben Franklin Plan. Determination of
price, terms and other features of the grant are similar to the Plan. At March
31, 1995, there were 843,500 Ben Franklin options outstanding, at prices
ranging from $3.88 to $7.37 per share, of which 377,220 options were then
exercisable.
NOTE M - RETIREMENT PLANS
The Corporation and its subsidiaries have a number of retirement plans covering
substantially all employees, consisting of both defined benefit and defined
contribution plans. Pension benefits under the defined benefit plans are
generally based upon years of service or a combination of remuneration and
years of service. No current active employees of the Corporation are covered
under the defined benefit plans. The Corporation's funding policy for defined
benefit plans is to make payments to the pension trust in accordance with the
funding requirements of federal laws and regulations.
The defined contribution plans maintained by the Corporation and its
subsidiaries provide for employee contributions and matching employer
contributions as defined in the individual plans and prescribed by applicable
law.
Pension costs for the Corporation's retirement plans for the three years
ended March 31, 1995, are presented in the table below (in thousands of
dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic pension costs for defined benefit plans:
Service cost - benefits
earned for the year . . . . . . . . $ 9 $ 20 $ 29
Interest cost on projected
benefit obligation . . . . . . . . . 4,493 4,728 4,756
Return on plan assets . . . . . . . . . (2,073) (4,378) (9,115)
Net amortization and
deferral . . . . . . . . . . . . . . (3,538) (1,463) 3,750
- ------------------------------------------------------------------------------------------
Net periodic pension
income . . . . . . . . . . . . . . . (1,109) (1,093) (580)
Pension costs for defined
contribution plans . . . . . . . . . 2,019 2,026 1,645
- ------------------------------------------------------------------------------------------
Total pension costs . . . . . . . . . . $ 910 $ 933 $ 1,065
- ------------------------------------------------------------------------------------------
</TABLE>
The net periodic pension costs for defined benefit plans were determined
assuming an expected long-term rate of return on plan assets of 10% for the
three years ended March 31, 1995.
The following table sets forth the funded status of the Corporation's
defined benefit pension plans and amounts recognized in the Corporation's
consolidated balance sheets at March 31, 1995 and 1994, utilizing a weighted
average discount rate of 8.4% in 1995 and 7.9% in 1994 (in thousands of
dollars):
47
<PAGE> 49
<TABLE>
<CAPTION>
March 31, 1995 March 31, 1994
- ------------------------------------------------------------------------------------------------------------------------
Assets Accumulated Assets Accumulated
exceeding benefits exceeding benefits
accumulated exceeding accumulated exceeding
benefits assets benefits assets
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Accumulated benefit obligation including vested benefits
of $55,416 and $58,578 in 1995 and 1994, respectively $ 49,174 $ 6,242 $ 50,963 $ 7,615
Projected benefit obligation . . . . . . . . . . . . . . 49,174 6,242 50,963 7,615
Plan assets at fair market value . . . . . . . . . . . . 54,763 - 56,560 846
- ------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation less than (in excess of)
plan assets . . . . . . . . . . . . . . . . . . . . . 5,589 (6,242) 5,597 (6,769)
Unrecognized transition asset . . . . . . . . . . . . . . (1,275) - (1,458) -
Unrecognized net loss (gain) . . . . . . . . . . . . . . 913 - (326) (56)
- ------------------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost included in the
consolidated balance sheet . . . . . . . . . . . . . . . $ 5,227 $ (6,242) $ 3,813 $ (6,825)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
At March 31, 1995, the assets of the Corporation's defined benefit pension
plans were comprised of approximately 49% bonds, 37% stocks and 14% other.
NOTE N - POSTRETIREMENT BENEFITS
OTHER THAN PENSIONS
The Corporation has several plans relating to retired employees that provide
for postretirement health care and life insurance benefits. Health benefits
include major medical insurance with deductible and coinsurance provisions.
Life insurance benefits are usually for a flat benefit that decreases to age
65. Certain plans provide that retirees pay for a portion of their coverage.
The plans are not funded. The Corporation pays all benefits on a current basis.
No current active employees are covered under these plans.
The net periodic postretirement benefit cost for the three years ended
March 31, 1995 was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits earned during the year . . . . . . $ - $ - $ -
Interest cost . . . . . . . . . . . . . . . . . . . . . . 2,407 2,523 3,333
Amortization of prior service cost and net gain . . . . . (1,086) (573) (68)
- -----------------------------------------------------------------------------------------------------
Total postretirement benefit cost . . . . . . . . . . . . $ 1,321 $ 1,950 $ 3,265
- -----------------------------------------------------------------------------------------------------
</TABLE>
The following table sets forth the funded status of the Corporation's
postretirement health care and life insurance plans and amounts recognized in
the Corporation's consolidated balance sheets at March 31, 1995 and 1994
utilizing a weighted average discount rate of 8.3% for 1995 and 7.9% for 1994
(in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1995 1994
-----------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit
obligation . . . . . . . . . . . . . . . . . . . . $ 30,094 $ 31,676
Unrecognized prior service cost . . . . . . . . . . . 4,512 4,815
Unrecognized net gain . . . . . . . . . . . . . . . . 4,573 3,346
-----------------------------------------------------------------------------------
Amount of postretirement benefit
obligation included in the
consolidated balance sheet . . . . . . . . . . . . $ 39,179 $ 39,837
-----------------------------------------------------------------------------------
</TABLE>
Medical costs were assumed to increase at a rate of 11.9% during 1995 and
then to decline over a period of 29 years to a rate of 5.75%. An analysis of
this trend rate scenario shows medical costs, on a national basis, stabilizing
at 20% of Gross National Product. To demonstrate the volatility of the
valuation results based on this assumption, the impact of a 1% increase in the
cost of health care would result in a 11.7% increase in the postretirement
benefit obligation and a 19.8% increase in the postretirement benefit cost.
NOTE O - INCOME TAXES
The provision (benefit) for income taxes consisted of the following for the
three years ended March 31, 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal
Current . . . . . . . . . . . . . . . . . . . . . . . $ 527 $ - $ 3,355
Deferred . . . . . . . . . . . . . . . . . . . . . . 46 (3,025) (29,813)
State
Current . . . . . . . . . . . . . . . . . . . . . . . 633 1,012 -
Deferred . . . . . . . . . . . . . . . . . . . . . . 908 820 1,210
- ---------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . . . . . $ 2,114 $ (1,193) $ (25,248)
- ---------------------------------------------------------------------------------------------------
</TABLE>
The Corporation files a consolidated federal income tax return with its 80%
or more owned subsidiaries (the
48
<PAGE> 50
"Corporation's Affiliated Group"). Accordingly, neither Ben Franklin's
operating results since its public offering in May 1992, nor FoxMeyer's
operating results for the period from September 1991 to November 1992, during
which the Corporation's ownership was below 80%, have been included in the
Corporation's consolidated federal income tax filing. Therefore, for these
periods, any net taxable income or loss of these subsidiaries may not be offset
by the net operating loss or taxable income of the Corporation's Affiliated
Group.
The Corporation recorded a federal income tax provision of $.6 million in
1995. A federal income tax charge of $7.1 million attributable to FoxMeyer was
offset by a federal income tax benefit attributable to the current year federal
income tax net operating loss and the reduction of the valuation allowance on
deferred tax assets of the affiliates other than FoxMeyer in the Corporation's
Affiliated Group (the "Other Affiliates").
The Corporation recorded a federal income tax benefit of $3.0 million in
1994. The federal income tax benefit is attributable to Ben Franklin and is the
result of the recognition of benefits from net operating losses. A federal
income tax charge of $18.2 million attributable to FoxMeyer was entirely offset
by a federal income tax benefit attributable to the current year federal income
tax net operating loss and to a reduction of the valuation allowance on
deferred tax assets of the Other Affiliates.
The Corporation recorded a federal income tax benefit of $26.4 million in
1993. The federal income tax benefit includes a federal income tax charge of
$3.6 million attributable to income generated by FoxMeyer, a federal income tax
benefit of $6.8 million attributable to Ben Franklin and a federal income tax
benefit of $23.2 million attributable to the current year federal income tax
net operating loss and to a reduction in the valuation allowance on deferred
tax assets of the Other Affiliates.
The Corporation's current and noncurrent deferred taxes, which net to a
$10.3 million asset as of March 31, 1995, and an $18.0 million asset as of
March 31, 1994, consisted of the following temporary differences and net
operating losses, at the statutory rate, tax credits, and valuation allowance
(in thousands of dollars):
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
tax tax tax tax
assets liabilities assets liabilities
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventory methods . . . . . . . . . . . . . . . . . . . . $ - $ 48,726 $ - $ 42,555
Basis difference on acquired assets and liabilities
assumed . . . . . . . . . . . . . . . . . . . . . . . 863 - 3,683 -
Phar-Mor receivable allowance . . . . . . . . . . . . . . 22,057 - 11,972 -
Allowance for possible losses on accounts receivable . . 2,723 - 6,520 -
Other reserves . . . . . . . . . . . . . . . . . . . . . 26,053 - 29,466 -
Accrued interest . . . . . . . . . . . . . . . . . . . . - 1,494 - -
Recognition of contingent fee income . . . . . . . . . . - 10,184 -
Depreciation . . . . . . . . . . . . . . . . . . . . . . 34 3,964 - -
Tax net operating losses . . . . . . . . . . . . . . . . 81,492 - 84,721 -
Tax credits . . . . . . . . . . . . . . . . . . . . . . . 11,857 - 11,323 -
All other . . . . . . . . . . . . . . . . . . . . . . . . 224 444 486 3,979
- ------------------------------------------------------------------------------------------------------------------------
Total deferred assets and liabilities . . . . . . . . . . 145,303 64,812 148,171 46,534
Valuation allowance on deferred tax assets . . . . . . . (70,214) (83,655)
- ------------------------------------------------------------------------------------------------------------------------
Total deferred taxes . . . . . . . . . . . . . . . . . . 75,089 $ 64,812 64,516 $ 46,534
---------- ----------
Less: deferred tax liability . . . . . . . . . . . . . . (64,812) (46,534)
----------- ----------
Deferred tax asset, net . . . . . . . . . . . . . . . . . $ 10,277 $ 17,982
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The net change in the valuation allowance during 1995 was a decrease of
$13.4 million.
49
<PAGE> 51
The reasons for the difference between the total tax provision (benefit)
and the amount computed by applying the statutory federal income tax rate to
income (loss) from operations before income taxes and minority interest were as
follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate applied to
pre-tax income (loss) . . . . . . . . . . . . . . . . $ 16,881 $ 11,799 $ (6,621)
Change in deferred tax asset
valuation allowance . . . . . . . . . . . . . . . . . (13,441) (6,472) (12,530)
Corporate dividend-received
deduction . . . . . . . . . . . . . . . . . . . . . . (1,975) (2,457) (3,838)
State income taxes (net of
federal tax benefit) . . . . . . . . . . . . . . . . 1,002 1,191 798
Weirton interest expense . . . . . . . . . . . . . . . . (725) (4,420) (12,664)
Loss on disposition of
investment in NSC . . . . . . . . . . . . . . . . . . - (270) 7,611
Amortization of goodwill and
other nondeductible items . . . . . . . . . . . . . . 2,502 2,265 2,285
Tax attributes from acquisitions . . . . . . . . . . . . - (2,768) -
Capital loss . . . . . . . . . . . . . . . . . . . . . . (2,156) - -
Alternative minimum tax . . . . . . . . . . . . . . . . . 527 - -
Other items . . . . . . . . . . . . . . . . . . . . . . . (501) (61) (289)
- -----------------------------------------------------------------------------------------------------
Effective tax provision
(benefit) . . . . . . . . . . . . . . . . . . . . . . $ 2,114 $ (1,193) $ (25,248)
- -----------------------------------------------------------------------------------------------------
</TABLE>
At March 31, 1995, the Corporation had, for federal income tax purposes,
operating loss, capital loss, and investment credit carryforwards of
approximately $210.6 million, $156.4 million, and $3.7 million, respectively.
Operating loss carryforwards available for utilization in the Corporation's
consolidated income tax return expire as follows: 1997 through 2000 - $2.3
million, 2003 - $2.8 million, 2004 - $58.3 million, 2006 - $107.4 million, 2008
- - $.5 million and 2009 -$39.3 million. Operating loss carryforwards of $15.6
million attributable to FoxMeyer are limited in their utilization because they
were incurred prior to the acquisition of FoxMeyer or one of its subsidiaries
by the Corporation. Operating loss carryforwards available for utilization in
Ben Franklin's income tax returns are $19.9 million and expire in various years
from 2004 through 2009. The capital loss carryforwards available for
utilization in the Corporation's consolidated income tax return expire as
follows: 1997 - $63.9 million, 1998 - $35.9 million and 1999 - $56.6 million.
Investment credit carryforwards will expire during the years 1996 through 2002.
The Corporation also has alternative minimum tax credit carryforwards of $8.0
million, which are available to offset the future regular tax liability of the
Corporation. Alternative minimum tax credit carryforwards do not expire.
The net operating losses referred to in the preceding paragraph have not
been examined by the U.S. Internal Revenue Service and, therefore, may be
subject to adjustment. The availability of net operating loss and investment
tax credit carryforwards to reduce the Corporation's future consolidated
federal income tax liability are subject to various limitations under the
Internal Revenue Code of 1986, as amended (the "Code"), including limitations
in the availability of loss carryforwards in the event of substantial ownership
changes (as defined in the Code) in the Corporation's stock. Future events,
some of which may be beyond the Corporation's control, may cause such an
ownership change.
NOTE P - COMMITMENTS AND CONTINGENCIES
Directly or through its subsidiaries, the Corporation leases various types of
properties, primarily warehouse property, computer equipment, transportation
equipment and corporate aircraft, through noncancellable operating leases.
Certain leases contain escalation clauses, have payments that vary depending on
current interest rates and provide for renewal options generally at fair market
rates. Rental expense under operating leases totalled $21.1 million in 1995,
$21.0 million in 1994 and $20.0 million in 1993. Minimum rental payments under
operating leases with initial or remaining terms of one year or more at March
31, 1995, and for which no liability has been accrued, total $156.4 million and
payments due during the next five fiscal years are 1996 - $19.0 million; 1997 -
$18.9 million; 1998 - $26.3 million; 1999 - $23.2 million; 2000 -$25.5 million
and thereafter $43.5 million.
The Corporation has retained responsibility for certain potential
environmental liabilities attributable to former operating units and as a
result is subject to federal, state and local environmental laws, rules and
regulations including the Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended ("CERCLA"), and similar state superfund
statutes which 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
50
<PAGE> 52
relating to investigations and remedial actions to address environmental
clean-up costs and in some instances have been designated as a potentially
responsible party ("PRP") by the Environmental Protection Agency ("EPA").
At March 31, 1995, the Corporation had reserves of $2.8 million for
environmental assessments or remediation activities, penalties or fines at nine
sites that may be imposed for non-compliance with such laws or regulations.
Reserves are established when it is probable that liability for such costs will
be incurred and the amount can be reasonably estimated. The Corporation's
estimates of these costs are based upon currently available facts, existing
technology, presently enacted laws and regulations and the professional
judgment of consultants and counsel. Where the available information is
sufficient to estimate the amount of the liability, that estimate has been
used. Where the information is only sufficient to establish a range of probable
liability and no point within the range is more likely than the other, the
lower end of the range has been used. In 1994, the Corporation paid $10.0
million to NSC as a deposit to cover potential environmental claims for which
it has indemnified NSC (see Note I).
In connection with the settlement of the contingent fee contract discussed
in Note A, the Corporation was released from its contractual obligation to
indemnify the purchaser of a subsidiary's assets for any environmental clean-up
costs incurred related to the assets sold in 1990.
The amounts of reserves for environmental liabilities are difficult to
estimate due to such factors as the unknown extent of the 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 costs 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 position or results of
operations, it recognizes that additional work may need to be performed to
ascertain the ultimate liability for such sites, and further information could
ultimately change management's current assessment.
Although management believes the Corporation has valid claims, and is
actively pursuing these claims, against its insurers for coverage of certain
environmental exposures, in arriving at a reasonable estimate of the costs, the
Corporation has not assumed that any of these costs will be recoverable from
third parties. The Corporation is not aware of any site where other companies
that have been designated as a PRP by the EPA would be unable to fulfill their
portion of the obligations should they and the Corporation are found to be
jointly and severally liable.
From time to time, FoxMeyer makes advances to customers in anticipation of
future sales. At March 31, 1995, advances aggregating $16.5 million were
outstanding. In addition, FoxMeyer has guaranteed debt of certain customers to
their banks aggregating $1.0 million at March 31, 1995.
Ben Franklin, under a prepayment incentive program for franchisees,
provides merchandise credits at a rate equal to the prime rate of interest for
prepayment of inventory purchases. Ben Franklin had $7.1 million of inventory
prepayments outstanding at March 31, 1995.
FoxMeyer is a defendant in several class action lawsuits filed by
independent retail drug stores alleging that pharmaceutical manufacturers and
drug wholesalers conspired to fix prices of prescription drugs sold to retail
drug stores. The plaintiffs seek treble damages of an unspecified amount,
injunctive relief and attorney's fees. FoxMeyer has entered into a Judgment
Sharing Agreement (the "Agreement") with the manufacturer defendants in these
actions. Under the Agreement, FoxMeyer's liability will be limited to a maximum
of $1.0 million for damages in any action in which there is a judgment against
a manufacturer and wholesaler. In the event the manufacturer defendants settle,
the Agreement provides that no contribution to such settlement would be
required by FoxMeyer. In addition, FoxMeyer, along with the other five
wholesalers who are defendants in these actions, will be entitled to
reimbursement of up to $9.0 million from the manufacturer defendants for
expenses of litigating these actions. Management believes it has meritorious
defenses to the allegations asserted against it and that no
51
<PAGE> 53
material effect on the consolidated financial condition or results of
operations will result from the eventual settlement of these lawsuits.
In connection with the merger of FoxMeyer into a wholly-owned subsidiary of
the Corporation (the "Merger") (see Note B), several class action lawsuits were
filed against the Corporation, FoxMeyer and certain of FoxMeyer's officers and
directors alleging, among other things, that the defendants breached their
fiduciary duties owed to holders of FoxMeyer common stock. Subsequent to the
filing of the lawsuits, an agreement was reached, as evidenced by a Memorandum
of Understanding (the "Memorandum"), between the plaintiffs and defendants
concerning the terms of the Merger and the settlement of the class action
lawsuits. The Memorandum provides for confirmatory discovery which would lead
to a settlement of the class action lawsuits. In September 1994, two plaintiffs
in the class action lawsuits withdrew from the Memorandum. The Corporation has
been notified that the remaining plaintiffs also intend to withdraw from the
Memorandom. In December 1994, the State of Wisconsin Investment Board ("SWIB")
filed a complaint against the Corporation. The SWIB complaint alleges that the
defendants breached their fiduciary duty to FoxMeyer's shareholders by agreeing
to the Merger at an unfair price and that the proxy statement issued in
connection with the Merger failed to disclose certain important facts. On April
30, 1995, the SWIB action was consolidated with the class action lawsuits. The
Corporation believes these lawsuits are without merit and intends to contest
these allegations. Management believes the outcome of these lawsuits will not
have a material effect on the consolidated financial condition or results of
the operations of the Corporation.
There are various other pending claims and lawsuits arising out of the
normal conduct of the Corporation's businesses. In the opinion of management,
the ultimate outcome of these claims and lawsuits will not have a material
effect on the consolidated financial condition or results of operations of the
Corporation.
NOTE Q - 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>
For the years ended March 31,
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid . . . . . . . . . . . . . . . . . . . . . . $ 27,904 $ 15,530 $ 10,831
Income taxes paid . . . . . . . . . . . . . . . . . . . . 1,325 459 2,318
Noncash transactions:
Exchange of preferred stock for common stock . . . . . - 112,753 -
Exchange of treasury stock for FoxMeyer common stock . 80,010 - -
Payment of dividends in kind on preferred stock . . . 13,200 5,389 -
Capital lease obligations incurred . . . . . . . . . 1,907 - -
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE R - BUSINESS SEGMENT DATA
The Corporation operates principally in two segments: (i) FoxMeyer - a company
engaged primarily in the distribution of a full line of pharmaceutical and
health and beauty aid products to independent drug stores, hospitals,
alternative care facilities and chain stores, as well as providing managed care
and electronic processing services to health care sponsors, pharmacies and
physicians and (ii) Ben Franklin - a company 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. In
addition, the Corporation performs certain holding company, corporate office
and other miscellaneous activities (collectively the "Holding Company"). The
activities of Development and its related limited partnerships are included in
amounts reported for the Holding Company. Such limited partnerships are engaged
in the buying, holding, operating and disposing of real estate and real estate
loans available through the Resolution Trust Corporation and other financial
institutions.
52
<PAGE> 54
Information about the Corporation's different segments for the past three
years follows (in thousands of dollars):
<TABLE>
<CAPTION>
Holding Company
FoxMeyer Ben Franklin & Eliminations Consolidated
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Sales . . . . . . . . . . . . . . . . . . . . . . . $4,822,284 $ 354,788 $ - $5,177,072
Operating income . . . . . . . . . . . . . . . . . . . . 31,754 5,353 31,305 68,412
Depreciation and amortization . . . . . . . . . . . . . . 22,112 3,585 178 25,875
Identifiable assets . . . . . . . . . . . . . . . . . . . 1,415,984 219,473 141,539 1,776,996
Capital expenditures . . . . . . . . . . . . . . . . . . 37,669 15,354 6,069 59,092
- ----------------------------------------------------------------------------------------------------------------------
1994
Sales . . . . . . . . . . . . . . . . . . . . . . . $5,071,446 $ 337,933 $ - $5,409,379
Operating income (loss) . . . . . . . . . . . . . . . . . 64,259 (2,112) (10,817) 51,330
Depreciation and amortization . . . . . . . . . . . . . . 19,630 2,610 (253) 21,987
Identifiable assets . . . . . . . . . . . . . . . . . . . 1,280,354 163,279 81,837 1,525,470
Capital expenditures . . . . . . . . . . . . . . . . . . 26,456 16,775 13,091 56,322
- ----------------------------------------------------------------------------------------------------------------------
1993
Sales . . . . . . . . . . . . . . . . . . . . . . . $4,505,434 $ 346,175 $ - $4,851,609
Operating income (loss) . . . . . . . . . . . . . . . . . 13,976 4,589 (8,476) 10,089
Depreciation and amortization . . . . . . . . . . . . . . 16,647 2,392 (179) 18,860
Identifiable assets . . . . . . . . . . . . . . . . . . . 1,333,121 128,160 100,814 1,562,095
Capital expenditures . . . . . . . . . . . . . . . . . . 17,356 2,720 - 20,076
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
The operating income of the Holding Company for 1995 reflects $35.8 million in
contingent fee income resulting from a 1990 asset sale (see Note A). The
operating income of FoxMeyer was reduced by $28.8 million in 1995 and $41.0
million in 1993 as a result of the write-down of receivables related to
Phar-Mor (see Note E). The operating income of Ben Franklin was reduced in 1994
by a $5.3 million restructuring charge.
NOTE S - ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair value of financial instruments has been determined by the
Corporation based on available market information and appropriate valuation
methodologies. However, considerable judgment is necessarily required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates are not necessarily indicative of the amounts that the
Corporation might realize in a current market exchange. The use of different
market assumptions and/or estimation methodologies may have a material effect
on the estimated fair value. The following fair values of financial instruments
have been determined at March 31, 1995 and 1994:
The carrying amounts of cash and short-term investments, accounts
receivable, accounts payable and other accrued liabilities are reasonable
estimates of their fair value.
The carrying value of notes receivable is $43.8 million and $21.5 million
at March 31, 1995 and 1994, respectively, while the estimated fair value of
these notes is $46.9 million and $26.1 million, respectively, based on the
credit worthiness of the debtors. The carrying value of long-term debt is
$425.3 million and $313.1 million at March 31, 1995 and 1994, respectively,
while the estimated fair value is $407.9 million and $304.0 million
respectively, based upon interest rates available to the Corporation for
issuance of similar debt with similar terms and remaining maturities.
The carrying value of marketable securities equals their estimated fair
value using quoted market prices.
The investment in NSC Preferred Stock is net of the Remaining Liabilities
(see Note I). The carrying value of the NSC Preferred Stock is $64.8 million
and $65.7 million at March 31, 1995 and 1994, respectively. The estimated fair
market value of the NSC Preferred Stock is approximately $70.6 million and
$74.0 million, respectively, based on NSC's other outstanding debt with similar
terms and remaining maturity. The carrying value of the Remaining
53
<PAGE> 55
Liabilities consists principally of pension liabilities and the NSC Note
bearing interest at 81/2% with a 13 year remaining amortization. The carrying
value of the NSC Note approximates its fair value at March 31, 1995 and 1994.
The fair value of the Corporation's redeemable preferred stock, based on
quoted market prices at March 31, 1995 and 1994, were $182.5 million and $169.4
million, respectively.
The fair value of the pre-bankruptcy receivable from Phar-Mor was estimated
to be $6.0 million at March 31, 1995. It was not practicable to estimate the
value of the receivable at March 31, 1994.
The carrying value of investments other than marketable securities were
estimated to be at fair value, or it was not practicable to estimate their fair
value without incurring substantial costs. The carrying value of these
investments at March 31, 1995 was $4.2 million.
The fair value estimates were based on pertinent information available to
management as of March 31, 1995 and 1994. Such amounts have not been
comprehensively revalued for purposes of these financial statements since those
dates, and current estimates of fair value may differ significantly from the
amounts presented herein.
NOTE T - QUARTERLY DATA (UNAUDITED)
The following is a tabulation of the unaudited quarterly results of operations
for the years ended March 31, 1995 and 1994 (in thousands of dollars, except
per share amounts):
<TABLE>
<CAPTION>
Quarter
- ---------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1995
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $1,256,930 $1,250,427 $1,306,148 $1,363,567
Gross profit . . . . . . . . . . . . . . . . . . . . . . 81,380 85,942 89,712 98,979
Operating income . . . . . . . . . . . . . . . . . . . . 11,022 14,067 21,094 22,229
Net income . . . . . . . . . . . . . . . . . . . . . . . 5,228 6,670 14,700 15,016
Earnings per common share . . . . . . . . . . . . . . . . 0.04 0.14 0.60 0.61
- ---------------------------------------------------------------------------------------------------------------------
1994
Net sales . . . . . . . . . . . . . . . . . . . . . . . . $1,286,694 $1,371,142 $1,396,705 $1,354,838
Gross profit . . . . . . . . . . . . . . . . . . . . . . 78,885 88,479 86,547 91,072
Operating income . . . . . . . . . . . . . . . . . . . . 5,138 15,444 12,070 18,678
Net income . . . . . . . . . . . . . . . . . . . . . . . 5,257 146 7,579 16,530
Earnings (loss) per common share . . . . . . . . . . . . 0.20 (0.06) 0.28 0.88
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The operating results for the fourth quarter of 1995 reflect a $26.4
million write-down of the bankruptcy receivable from Phar-Mor including legal
expenses (see Note E). The operating results for the fourth quarter also
included $28.8 million in contingent fee income on a contract resulting from a
1990 asset sale (see Note A) and $7.5 million in realized gains on the sale of
investments.
Per share amounts are computed independently for each quarter based on the
average number of shares outstanding during that quarter. Therefore, the sum of
the quarterly per share amounts may not equal the total for the fiscal year
because of stock or other transactions that occurred during such years (see
Note K). Note U - Subsequent Events In May 1995, the Corporation agreed to
purchase a majority interest in Haft Group/Phar-Mor L.L.C., an investor group
led by Robert Haft (the "Haft Group"). The Haft Group has an agreement with
Phar-Mor and its secured creditors to purchase approximately 31% of the new
common stock of Phar-Mor for $30 million when its bankruptcy Plan of
Reorganization is approved. Robert Haft will be the Chairman and Chief
Executive Officer of Phar-Mor and the Haft Group will name four of the seven
directors.
Note U - Subsequent Events
In May 1995, the Corporation agreed to purchase a majority interest in Haft
Group/Phar-Mor L.L.C., an investor group led by Robert Haft (the "Haft Group").
The Haft Group has an agreement with Phar-Mor and its secured creditors to
purchase approximately 31% of the new common stock of Phar-Mor for $30 million
when its bankruptcy Plan of Reorganization is approved. Robert Haft will be the
Chairman and Chief Executive Officer of Phar-Mor and the Haft Group will name
four of the seven directors.
54
<PAGE> 56
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
The information called for by Part III (Items 10,11,12 and 13) is incorporated
herein by reference to the registrant's definitive Proxy Statement for its
Annual Meeting of Stockholders which is expected to be filed with the
Securities and Exchange Commission no later than July 29, 1995.
55
<PAGE> 57
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Reference is made to the listing on page 58 of all financial
statements filed as part of this report.
(2) Financial Statement Schedules
Reference is made to the listing on page 58 of all financial
statement schedules filed as part of this report.
(3) Exhibits
Reference is made to the Exhibit Index beginning on page 67
for a list of all exhibits filed as part of this report.
(b) Reports on Form 8-K
During the three months ended March 31, 1995, the registrant
did not file any Current Reports on Form 8- K.
56
<PAGE> 58
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FoxMeyer Health Corporation
By /s/ Peter B. McKee
--------------------------
Peter B. McKee
June 28, 1995 Senior Vice President and
Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
PRINCIPAL EXECUTIVE OFFICERS:
<TABLE>
<S> <C> <C>
/s/ Abbey J. Butler
-----------------------------
Abbey J. Butler Co-Chairman of the Board and
Co-Chief Executive Officer June 28, 1995
/s/ Melvyn J. Estrin
-----------------------------
Melvyn J. Estrin Co-Chairman of the Board and
Co-Chief Executive Officer June 28, 1995
/s/ Thomas L. Anderson
-----------------------------
Thomas L. Anderson President, Chief Operating Officer and Director June 28, 1995
/s/ Peter B. McKee
-----------------------------
Peter B. McKee Senior Vice President and Chief Financial Officer
(Principal Financial Officer) June 28, 1995
/s/ Edward L. Massman
-----------------------------
Edward L. Massman Vice President and Controller June 28, 1995
(Principal Accounting Officer)
ADDITIONAL DIRECTORS:
/s/ Sheldon W. Fantle
-----------------------------
Sheldon W. Fantle Director June 28, 1995
/s/ Paul M. Finfer
-----------------------------
Paul M. Finfer Director June 28, 1995
/s/ Alfred H. Kingon
-----------------------------
Alfred H. Kingon Director June 28, 1995
/s/ William G. Tull
-----------------------------
William G. Tull Director June 28, 1995
</TABLE>
57
<PAGE> 59
ITEM 14(A) (1) AND (2) AND ITEM 14(D)
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the registrant and its
subsidiaries are included in Item 14(a):
<TABLE>
<CAPTION>
Page No. in
Form 10-K
-----------
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Operations - For the Three Years
Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Balance Sheets - March 31, 1995 and 1994 . . . . . . . . . . . . . . . . 34
Consolidated Statements of Stockholders' Equity - For the Three
Years Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Consolidated Statements of Cash Flows - For the Three Years Ended
March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Notes to Consolidated Financial Statements - For the Three
Years Ended March 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
</TABLE>
The following financial statement schedules of FoxMeyer Health Corporation and
subsidiaries are included in Item 14(d):
<TABLE>
<CAPTION>
Page No. in
Form 10-K
-----------
<S> <C>
Schedule I - Condensed Financial Information of Registrant . . . . . . . . . . . . . 59
Schedule II - Valuation and Qualifying Accounts . . . . . . . . . . . . . . . . . . . 64
Independent Auditors' Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
</TABLE>
Financial statement schedules other than those listed above have been omitted
because the required information is contained in the consolidated financial
statements and notes thereto or such information is not applicable.
58
<PAGE> 60
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation (Parent Company) (Thousands of Dollars)
================================================================================================================
March 31,
---------------------------------------
1995 1994
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments $ 477 $ 17,195
Current deferred tax asset, net of valuation allowance 852 2,104
Other current assets 1,053 1,927
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 2,382 21,226
INTERCOMPANY RECEIVABLE FROM SUBSIDIARIES 20,597 24,987
INVESTMENTS IN SUBSIDIARIES AND AFFILIATES 478,749 358,261
INVESTMENT IN NATIONAL STEEL CORPORATION 30,163 29,262
DEFERRED TAX ASSET, NET OF VALUATION ALLOWANCE 29,815 28,960
OTHER ASSETS 363 321
================================================================================================================
TOTAL ASSETS $ 562,069 $ 463,017
================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 487 $ 661
Accrued and other liabilities 7,898 7,754
- ----------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 8,385 8,415
NOTE PAYABLE TO FOXMEYER CORPORATION 27,700 28,325
LONG-TERM DEBT 15,000 -
RESERVES AND OTHER LIABILITIES 31,815 36,689
REDEEMABLE PREFERRED STOCK 175,019 164,833
STOCKHOLDERS' EQUITY
Common stock 120,836 119,979
Capital in excess of par value 209,110 207,281
Retained earnings 111,895 99,007
- ----------------------------------------------------------------------------------------------------------------
441,841 426,267
Less: cost of common stock held in treasury 137,691 201,512
- ----------------------------------------------------------------------------------------------------------------
304,150 224,755
- ----------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 562,069 $ 463,017
================================================================================================================
</TABLE>
See notes to condensed financial statements.
59
<PAGE> 61
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation (Parent Company) (Thousands of Dollars)
==============================================================================================================
For the Years Ended March 31,
------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING COSTS
Administrative and general expenses $ 9,907 $ 10,701 $ 8,684
Other income (91) - (55)
- --------------------------------------------------------------------------------------------------------------
Operating Loss (9,816) (10,701) (8,629)
FINANCING COSTS
Interest income 741 235 389
Intercompany interest expense 2,643 2,412 613
Interest expense 2,083 1,644 1,452
- --------------------------------------------------------------------------------------------------------------
Financing costs, net 3,985 3,821 1,676
- --------------------------------------------------------------------------------------------------------------
Loss before National Steel Corporation, income tax benefit and
equity in income of subsidiaries (13,801) (14,522) (10,305)
NATIONAL STEEL CORPORATION
Loss on common stock investment - (2,350) (22,385)
Net preferred dividend income 5,445 7,655 7,265
- --------------------------------------------------------------------------------------------------------------
5,445 5,305 (15,120)
- --------------------------------------------------------------------------------------------------------------
Loss before income tax benefit and equity in income of subsidiaries (8,356) (9,217) (25,425)
INCOME TAX BENEFIT 7,138 18,273 23,204
- --------------------------------------------------------------------------------------------------------------
Income (loss) before equity in income of subsidiaries (1,218) 9,056 (2,221)
EQUITY IN INCOME OF SUBSIDIARIES 42,832 20,456 2,824
- --------------------------------------------------------------------------------------------------------------
NET INCOME $ 41,614 $ 29,512 $ 603
==============================================================================================================
</TABLE>
See notes to condensed financial statements.
60
<PAGE> 62
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FoxMeyer Health Corporation (Parent Company) (Thousands of Dollars)
=======================================================================================================================
For the Years Ended March 31,
-----------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $ 41,614 $ 29,512 $ 603
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Loss on common stock of National Steel Corporation - 2,350 22,385
Net preferred dividend income from National Steel Corporation (5,445) (7,655) (7,265)
Equity in income of subsidiaries and affiliates (42,832) (20,456) (2,824)
Deferred tax benefit 397 (10,034) (23,204)
Gain on sale of marketable securities (80) - -
CASH PROVIDED (USED) BY WORKING CAPITAL ITEMS:
Receivables and other current assets 43 (658) 2,004
Accounts payable and accrued liabilities (1,540) 2,541 1,317
Net intercompany activity with subsidiaries 4,390 (14,253) 662
Funds transferred to National Steel Corporation for potential
environmental liabilities - (10,000) -
Other (2,519) (2,400) 1,768
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED BY OPERATING ACTIVITIES (5,972) (31,053) (4,554)
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of stock of a subsidiary - - 7,850
Investments in subsidiaries and affiliates (998) (179) (23,288)
Sale of marketable securities 1,029 44,672 -
Dividends received from subsidiaries and affiliates 7,971 6,353 6,001
Other - 446 -
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 8,002 51,292 (9,437)
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (4,620) (5,060) (5,462)
Mandatory redemption of preferred stock (4,400) (4,399) (4,412)
Redemption of preferred share purchase rights - - (1,024)
Note payable to FoxMeyer Corporation (625) 1,500 26,825
Loan origination fees - (512) -
Borrowings under revolving credit facilities 92,500 25,700 -
Repayments under revolving credit facilities (77,500) (25,700) -
Repurchase of treasury stock (28,953) (1,251) (11,254)
Stock options exercised 4,850 - -
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES (18,748) (9,722) 4,673
- -----------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments (16,718) 10,517 (9,318)
Cash and short-term investments, beginning of year 17,195 6,678 15,996
- -----------------------------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 477 $ 17,195 $ 6,678
=======================================================================================================================
</TABLE>
See notes to condensed financial statements.
61
<PAGE> 63
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE A - SIGNIFICANT ACCOUNTING POLICIES AND RELATED MATTERS
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments consist
principally of amounts held in demand deposit accounts and amounts invested in
liquid time deposit instruments having a maturity of three months or less at
the time of purchase and are recorded at cost.
DEFERRED TAX ASSET: The Parent Company's current and noncurrent deferred tax
assets consist almost entirely of tax net operating loss carryforwards and
reserves which were not deductible for federal income tax purposes when
accrued. The valuation allowances netted against the deferred tax assets at
March 31, 1995 and 1994 were $62.3 million and $75.8 million, respectively.
INTERCOMPANY RECEIVABLES AND NOTE PAYABLE TO FOXMEYER CORPORATION: The
intercompany receivables/payables between the Parent Company and its
subsidiaries are not evidenced by notes and do not bear interest except for the
following. The Parent Company has a $30 million revolving credit agreement
with FoxMeyer Corporation that has an interest rate that is 2% above the
subsidiary's long-term borrowing rate (9.09% at March 31, 1995) and matures
December 15, 1996. At March 31, 1995, $27.7 million was outstanding under the
agreement. The Parent Company pledged shares of FoxMeyer Corporation's common
stock as collateral for the note.
NOTE B - DIVIDENDS RECEIVED
The Parent Company received cash dividends of $8.0 million, $6.4 million, and
$6.0 million from FoxMeyer Corporation for each of the fiscal years ended March
31, 1995, 1994 and 1993, respectively. The Parent Company did not receive
dividend payments from any other subsidiary during the three years ended March
31, 1995.
NOTE C - TAX SHARING PAYMENTS
Under tax sharing agreements with its subsidiaries, the Parent Company received
the following payments for each of the three years ended March 31, 1995 (in
thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================================
1995 1994 1993
------------------------------------------------
<S> <C> <C> <C>
FoxMeyer Corporation $7,536 $ 7,664 $ 3,753
Ben Franklin Retail Stores, Inc. - - 114
------------------------------------------------
$7,536 $7,664 $3,867
========================================================================================================
</TABLE>
62
<PAGE> 64
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for interest and
income tax paid and for noncash transactions for the three year ended March 31,
1995 (in thousands of dollars):
<TABLE>
<CAPTION>
========================================================================================================
1995 1994 1993
--------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 3,285 $ 2,801 $ 475
Income taxes paid 826 13 -
Noncash transactions:
Exchange of preferred stock for common stock - 112,753 -
Exchange of treasury stock for FoxMeyer
common stock 80,010 - -
Payment of dividends in kind on preferred stock 13,200 5,389 -
========================================================================================================
</TABLE>
63
<PAGE> 65
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
====================================================================================================================================
COL A COL B COL C COL D COL E
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONS
------------------------------------
BALANCE AT CHARGED TO COSTS CHARGED TO OTHER Deductions - Balance at
DESCRIPTION BEGINNING OF PERIOD AND EXPENSES ACCOUNTS - DESCRIBE Describe End of Period
====================================================================================================================================
<S> <C> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1995
-------------------------
(Thousands of Dollars)
RESERVES DEDUCTED FROM ASSETS
Allowances for possible losses on trade
notes and accounts receivable $ 15,133 $ (2,284) (4) $ 299 (2) $ 6,638 (3) $ 6,510
Allowance for possible loss on
pre-bankruptcy receivable from
Phar-Mor, Inc. 40,000 22,795 - - 62,795
Reserve for inventory shrinkage 4,136 593 - 2,795 (1) 1,934
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 22,638 1,639 - 2,551 (5) 21,726
YEAR ENDED MARCH 31, 1994
-------------------------
(Thousands of Dollars)
RESERVES DEDUCTED FROM ASSETS
Allowances for possible losses on trade
notes and accounts receivable $ 18,841 $ 1,757 $ - $ 5,465 (3) $ 15,133
Allowance for possible loss on
pre-bankruptcy receivable from
Phar-Mor, Inc. 40,000 - - 40,000
Reserve for inventory shrinkage 3,058 1,816 - 738 (1) 4,136
RESERVES SHOWN ELSEWHERE -
Long-term reserves related to facility sales,
shutdowns and discontinued operations 21,823 628 2,023 (7) 1,836 (5) 22,638
YEAR ENDED MARCH 31, 1993
-------------------------
(Thousands of Dollars)
RESERVES DEDUCTED FROM ASSETS
Allowances for possible losses on trade
notes and accounts receivable $ 14,833 $ 6,866 $4,336 (6) $ 7,194 (3) $ 18,841
Allowance for possible loss on
pre-bankruptcy receivable from
Phar-Mor, Inc. - 40,000 - - 40,000
Reserve for inventory shrinkage 3,076 1,890 1,037 (6) 2,945 (1) 3,058
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 27,252 504 - 5,933 (5) 21,823
</TABLE>
64
<PAGE> 66
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
FOR THE THREE YEARS ENDED MARCH 31, 1995
Note 1 - Consists principally of inventory writeoffs and sales.
Note 2 - Allowance for doubtful accounts recorded under the purchase method of
accounting for companies acquired.
Note 3 - Principally relates to doubtful accounts which have been written off.
Note 4 - Reduction of allowance for doubtful accounts as a result of excess
reserves at the end of the period.
Note 5 - Principally cash disbursements related to these reserves.
Note 6 - Principally relates to reserves recorded under the purchase method of
accounting for the Harris Wholesale Company acquisition.
Note 7 - Reclassified from short-term liabilities
65
<PAGE> 67
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
2-56083, 2-91622, 2-95028, 33-16919, 33-27060, 33-27719 and 33-56097 on Form
S-8, Nos. 33-2289 and 33-37531 on Form S-3 and No. 2-45941 on Form S-16 of
FoxMeyer Health Corporation (formerly National Intergroup, Inc.) of our reports
dated June 21, 1995, which reports express an unqualified opinion appearing in
and incorporated by reference in this Annual Report on Form 10-K of FoxMeyer
Health Corporation for the year ended March 31, 1995.
Deloitte & Touche LLP
Dallas, Texas
June 28, 1995
66
<PAGE> 68
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
Exhibit
Number Description
- ------- -----------
3-A Certificate of Amendment of Restated Certificate of Incorporation of
the registrant dated October 12, 1994.*
3-B Certificate of Resolution relating to the registrant's $5 Cumulative
Convertible Preferred Stock. (Filed as Exhibit 4-B to the registrant's
Registration Statement on Form 8-B (File No. 1-8549) and incorporated
herein by reference.)
3-C Certificate of Designations, Rights and Preferences relating to the
registrant's $4.20 Cumulative Exchangeable Series A Preferred Stock.
(Filed as Exhibit 9(c)(1) to the registrant's Schedule 13E-4 Issuer
Tender Offer Statement dated October 6, 1993 and incorporated herein by
reference.)
3-D By-laws of the registrant.*
10-A National Intergroup, Inc. 1993 Stock Option and Performance Award Plan.
(Filed as Exhibit 10-A to the registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1994 and incorporated herein by
reference).
10-B National Intergroup, Inc. Director's Retirement Plan dated December 1,
1983. (Filed as Exhibit 10-A to the registrant's Annual Report on Form
10-K for the fiscal year ended March 31, 1992 and incorporated herein
by reference.)
10-C FoxMeyer Corporation Employees' Savings and Profit Sharing Program.
(Filed as Exhibit 10-D to FoxMeyer Corporation's Annual Report on Form
10-K for the fiscal year ended March 31, 1994 and incorporated herein
by reference.)
10-D FoxMeyer Corporation Long-Term Incentive Plan. (Filed as Exhibit 10-F
to FoxMeyer Corporation's Annual Report on Form 10-K for the fiscal
year ended March 31, 1994 and incorporated herein by reference.)
10-E FoxMeyer Corporation Amended and Restated Supplemental Savings Plan.
(Filed as Exhibit 10-G to FoxMeyer Corporation's Annual Report on Form
10-K for the fiscal year ended March 31, 1994 and incorporated herein
by reference.)
10-F Loan Agreement, dated as of January 13, 1994, among the registrant and
Banque Paribas, as Agent, and the Banks named therein. (Filed as
Exhibit 10-A to the registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1993 and incorporated herein by reference.)
10-G Tax Sharing Agreement, dated as of November 25, 1992, between FoxMeyer
Corporation and the registrant. (Filed as Exhibit 28(a) to FoxMeyer
Corporation's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1992 and incorporated herein by reference.)
10-H Amendment dated April 21, 1993 to the Tax Sharing Agreement, dated as
of November 25, 1992, between FoxMeyer Corporation and the registrant.
(Filed as Exhibit 10-M to FoxMeyer Corporation's Annual Report on Form
10-K for the fiscal year ended March 31, 1993 and incorporated herein
by reference.)
10-I Amended and Restated Management Agreement, dated as of January 1, 1992,
between FoxMeyer Corporation and the registrant. (Filed as Exhibit
10-A to FoxMeyer Corporation's Annual Report on Form 10-K for the
67
<PAGE> 69
fiscal year ended March 31, 1992 and incorporated herein by reference.)
10-J Stock Purchase and Recapitalization Agreement, dated as of June 26,
1990, among the registrant, NII Capital Corporation, NKK Corporation,
NKK U.S.A. Corporation and National Steel Corporation. (Filed as
Exhibit 10-AQ to the registrant's Annual Report on Form 10-K for the
fiscal year ended March 31, 1990 and incorporated herein by reference.)
10-K Amendment to Stock Purchase and Recapitalization Agreement, dated as of
July 31, 1991, among the registrant, NII Capital Corporation, NKK
Corporation, NKK U.S.A. Corporation and National Steel Corporation.
(Filed as Exhibit 2-F to National Steel Corporation's Annual Report on
Form 10-K for the fiscal year ended December 31, 1991 and incorporated
herein by reference.)
10-L Put Agreement, dated as of June 26, 1990, among NII Capital
Corporation, NKK U.S.A. Corporation and National Steel Corporation.
(Filed as Exhibit 10-AQ to the registrant's Annual Report on Form 10-K
for the fiscal year ended March 31, 1990 and incorporated herein by
reference.)
10-M Amended and Restated Weirton Liabilities Agreement, dated as of June
26, 1990, among the registrant, NII Capital Corporation and National
Steel Corporation. (Filed as Exhibit 10-AQ to the registrant's Annual
Report on Form 10-K for the fiscal year ended March 31, 1990 and
incorporated herein by reference.)
10-N Amendment to Amended and Restated Weirton Liabilities Agreement, dated
as of July 31, 1991, between the registrant, NII Capital Corporation
and National Steel Corporation. (Filed as Exhibit 10-H to National
Steel Corporation's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference.)
10-O Agreement, dated as of February 3, 1993, among the registrant, NII
Capital Corporation, NKK Corporation, NKK U.S.A. Corporation and
National Steel Corporation. (Filed as Exhibit 10.30 to National Steel
Corporation's Registration Statement on Form S-1 (File No. 33-57952)
and incorporated herein by reference.)
10-P Amended and Restated Loan Agreement, dated as of April 29, 1993, by and
among FoxMeyer Corporation, FoxMeyer Drug Company, Merchandise
Coordinator Services Corporation, Harris Wholesale Company, the Lenders
and Issuer 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. (Filed as Exhibit 10-J to FoxMeyer
Corporation's Annual Report on Form 10-K for the fiscal year ended
March 31, 1993 and incorporated herein by reference.)
10-Q First Amendment to Amended and Restated Loan Agreement, dated as of
October 18, 1993, by and among FoxMeyer Corporation, FoxMeyer Drug
Company, Merchandise Coordinator Services Corporation, Harris Wholesale
Company, the Lenders and Issuer 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. (Filed as Exhibit
10-B to FoxMeyer Corporation's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1993 and incorporated herein by reference.)
10-R Form of Note Agreement, dated as of April 15, 1993, between FoxMeyer
Corporation and each Purchaser that is a party thereto, relating to
$198,000,000 of FoxMeyer Corporation's 7.09% Senior Notes Due April 15,
2005. (Filed as Exhibit 4-A to FoxMeyer Corporation's Annual Report on
Form 10-K for the fiscal year ended March 31, 1993 and incorporated
herein by reference.)
68
<PAGE> 70
10-S Trade Receivables Purchase and Sale Agreements dated as of October 29,
1993 among FoxMeyer Corporation and, as applicable, Enterprise Funding
Corporation, Corporate Asset Funding Company, Inc., Citibank, N.A.,
Citicorp North America, Inc., individually and as agent, and
NationsBank of North Carolina, N.A., individually and as co- agent.
(Filed as Exhibit 10-A to FoxMeyer Corporation's Quarterly Report on
Form 10-Q for the quarter ended September 30, 1993 and incorporated
herein by reference.)
10-T Indenture for Ben Franklin Retail Stores, Inc. 7.5% Convertible
Subordinated Notes due June 1, 2003. (Filed as an Exhibit to Ben
Franklin Retail Stores, Inc.'s Registration Statement on Form S-1,
Registration No. 33-62632, and incorporated herein by reference.)
10-U Second Amendment to Amended and Restated Loan Agreement, dated as of
June 20, 1994, by and among FoxMeyer Corporation, FoxMeyer Drug
Company, Merchandise Coordinator Services Corporation, Harris Wholesale
Company, the Lenders and Issuer 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. (Filed as Exhibit
10-A to FoxMeyer Corporation's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1994 and incorporated herein by reference.)
10-V Second Amendment to Loan Agreement dated as of September 6, 1994 by and
among the registrant, the Banks identified therein and Banque Paribas,
as Agent for Banks. (Filed as Exhibit 10-A to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994
and incorporated herein by reference.)
10-W 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. (Filed as Exhibit 10- B to the registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994 and incorporated
herein by reference.)
10-X Amendment dated October 12, 1994 to the 1993 Stock Option and
Performance Award Plan of the registrant. (Filed as Exhibit 10-D to
the registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 and incorporated herein by reference.)
10-Y Employment Agreement dated as of August 10, 1994 between FoxMeyer
Corporation and Thomas L. Anderson. (Filed as Exhibit 10-E to the
registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994 and incorporated herein by reference.)
10-Z Third Amendment to Loan Agreement dated as of October 12, 1994 among
the registrant, the Banks identified therein and Banque Paribas, as
Agent for the Banks. (Filed as Exhibit 10-A to the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994
and incorporated herein by reference.)
10-AA Fourth Amendment to Loan Agreement dated as of December 19, 1994, among
the registrant, the Banks identified therein and Banque Paribas, as
Agent for the Banks. (Filed as Exhibit 10-B to the registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1994
and incorporated herein by reference.)
10-AB Fourth Amendment to Amended and Restated Loan Agreement, Consent and
Waiver, dated as of November 22, 1994, among FoxMeyer Corporation,
FoxMeyer Drug Company, Merchandise Coordinator Services Corporation,
Harris Wholesale Company, the Lenders and Issuer referred to 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. (Filed as Exhibit 10-C to the registrant's Quarterly Report on
Form 10-Q for the quarter ended December 31, 1994 and incorporated
herein by reference.)
69
<PAGE> 71
10-AC Second Amendment dated as of November 22, 1994 to Trade Receivables
Purchase and Sale Agreement dated as of October 29, 1993 among FoxMeyer
Corporation, Corporate Asset Funding Company, Inc., Enterprise Funding
Corporation, CitiBank, N.A., NationsBank of North Carolina, N.A.,
individually and as Co-Agent, Citicorp North America, Inc.,
individually and as agent, and the Banks listed therein. (Filed as
Exhibit 10-D to the registrant's Quarterly Report on Form 10-Q for the
quarter ended December 31, 1994 and incorporated herein by reference.)
10-AD Employment Agreement dated as of January 31, 1995 between FoxMeyer
Corporation and Peter B. McKee.*
10-AE Employment Agreement dated as of January 31, 1995 between FoxMeyer
Corporation and Kevin J. Rogan.*
10-AF Employment Agreement, dated as of February 27, 1995, between the
registrant and Abbey J. Butler.*
10-AG Employment Agreement, dated as of February 27, 1995, between the
registrant and Melvyn J. Estrin.*
10-AH Employment Agreement, dated as of February 27, 1995, between FoxMeyer
Corporation and Abbey J. Butler.*
10-AI Employment Agreement, dated as of February 27, 1995, between FoxMeyer
Corporation and Melvyn J. Estrin.*
10-AJ Employment Agreement, dated as of February 27, 1995, between Ben
Franklin Retail Stores, Inc. and Abbey J. Butler.*
10-AK Employment Agreement, dated as of February 27, 1995, between Ben
Franklin Retail Stores, Inc. and Melvyn J. Estrin.*
10-AL Amended and Restated Revolving Loan Agreement, dated as of January 1,
1995, between FoxMeyer Corporation and the registrant.*
10-AM Amended and Restated Pledge Agreement, dated as of January 1, 1995,
between FoxMeyer Corporation and the registrant.*
10-AN Fifth Amendment to Loan Agreement dated as of March 22, 1995 by and
among the registrant, the Banks identified therein and Banque Paribas,
as agent for Banks.*
10-AO Fifth Amendment to Amended and Restated Loan Agreement, dated as of
April 26, 1995, by and among FoxMeyer Corporation, FoxMeyer Drug
Company, Merchandise Coordinator Services Corporation, Harris Wholesale
Company, the Lender and Issuer Named Therein, Citicorp USA, Inc., as
Administrative Agent, and NationsBank of Texas, N.A., as Documentation
Agent.*
10-AP Third Amendment dated as of April 26, 1995 to Trade Receivables
Purchase and Sale Agreement dated as of October 29, 1993 among FoxMeyer
Corporation, Corporate Asset Funding Company, Inc., Enterprise Funding
Corporation, Citibank, N.A., NationsBank of North Carolina, N.A.,
individually and as Co-Agent, Citicorp North America, Inc.,
individually and as agent, and the Banks listed therein.*
10-AQ First Amendment to FoxMeyer Corporation Amended and Restated
Supplemental Savings Plan, dated as of January 1, 1995.*
10-AR Second Amendment to the FoxMeyer Corporation Employees' Savings and
Profit Sharing Program, dated as of March 31, 1995.*
10-AS FoxMeyer Corporation Fiscal Year 1995 Executive Incentive Compensation
Plan.*
70
<PAGE> 72
10-AT Amended and Restated Loan Agreement between Ben Franklin Retail Stores,
Inc. and subsidiaries and LaSalle National Bank
(Filed as Exhibit 10.36 to Ben Franklin Retail Stores, Inc.'s Annual
Report on Form 10-K for the fiscal year ended March 31, 1995 and
incorporated herein by reference.)
11 Statement Re: Computation of per share earnings.*
21 Subsidiaries of the registrant.*
23 Consent of Independent Auditors is included in the List of Financial
Statements and Financial Statement Schedules.
27 Financial Data Schedule.*
99 Form 11-K for calendar year 1994 for FoxMeyer Employee's Savings and
Profit Sharing Program.*
- ------------
* Filed herewith
71
<PAGE> 1
EXHIBIT 3-A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NATIONAL INTERGROUP, INC.
Under Section 242 of the General Corporation Law
The undersigned, NATIONAL INTERGROUP, INC., a corporation
organized and existing under the General Corporation Law of Delaware (the
"Corporation"), pursuant to the provisions of Section 242 of the Delaware
General Corporation Law, hereby certifies that:
FIRST: The name of the corporation is NATIONAL INTERGROUP, INC.
The name under which the Corporation was formed is National Intergroup, Inc.
SECOND: The Restated Certificate of Incorporation of this
Corporation is hereby amended as follows:
1. to change the name of National Intergroup, Inc. to "FoxMeyer
Health Corporation." The FIRST Article of the Restated Certificate of
Incorporation is hereby amended to read in its entirety as follows:
"FIRST: The name of the Corporation is FoxMeyer Health
Corporation."
IN WITNESS WHEREOF, the Corporation has caused its corporate seal
to be affixed hereto and this instrument to be signed in its name by its Vice
President and attested to by its Assistant Secretary this 12th day of October,
1994.
NATIONAL INTERGROUP, INC.
By: /s/ Peter B. McKee
------------------------------
Name: Peter B. McKee
Title: Vice President and
Chief Financial Officer
ATTEST:
By: /s/ Elizabeth T. Ching
--------------------------
Name: Elizabeth T. Ching
Title: Assistant Secretary
(CORPORATE SEAL)
<PAGE> 1
EXHIBIT 3-D
As amended through July 21, 1993
and on October 12, 1994
FOXMEYER HEALTH CORPORATION
BYLAWS
OFFICES
1. The principal office shall be in the City of Wilmington, County of
New Castle, State of Delaware, and the name of the resident agent in charge
thereof is Corporation Trust Company.
The Corporation may also have offices outside the State of Delaware
at such places as the Board of Directors may, from time to time, appoint or the
business of the Corporation may require.
SEALS
2. The corporate seal shall have inscribed thereon the name of the
Corporation, the year of its organization and the words "Corporate Seal,
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed, reproduced or otherwise.
STOCKHOLDERS' MEETINGS
3. All the meetings of the stockholders shall be held at the office of
the Corporation in the City of Wilmington, County of New Castle and State of
Delaware, or at such other places as the Board of Directors may determine.
4. The annual meeting of the stockholders shall be held on the third
Wednesday of July of each year, if not a legal holiday, and if a legal holiday,
then on the next secular day following, at 10:00 A.M. (Daylight Savings Time, if
in effect), or at such other date and time as the Board of Directors may
determine. At the annual meeting of stockholders, the stockholders shall elect
by a plurality vote, by ballot, a Board of Directors and may transact any and
all other business which may be brought before the meeting.
5. The holders of forty percent (40%) of the issued and outstanding
stock of the Corporation entitled to vote, present in person or represented by
proxy, shall constitute a quorum, except as otherwise required by the laws of
Delaware, by the Certificate of Incorporation or by these Bylaws. In the event
of lack of a quorum, the chairman of the meeting or a majority in interest of
the stockholders present in person or represented by proxy may adjourn the
meeting from time to time without notice other than an announcement at the
<PAGE> 2
meeting until a quorum shall be obtained. At any such adjournment meeting at
which there is a quorum, any business may be transacted which might have been
transacted at the meeting originally called.
6. At each meeting of the stockholders every stockholder having the
right to vote shall be entitled to vote, in person or by proxy appointed by an
instrument in writing subscribed by such stockholder and bearing a date no more
than three (3) years prior to said meeting, unless said instrument provides for
a longer period. Each stockholder shall have one vote for each share of stock
having voting power registered in his name on the books of the Corporation on
the date fixed as the record date for the determination of stockholders entitled
to vote. The vote for directors, and, upon the demand of any stockholder the
vote upon any question before the meeting, shall be by ballot. All elections
shall be had and, except as otherwise provided by law, by the Certificate of
Incorporation or by these Bylaws, all questions decided by a plurality vote. All
proxies shall be filed with the Secretary.
Notwithstanding any other provision in these Bylaws or the
Certificate of Incorporation, all proxies, consents, ballots and voting
tabulations that identify stockholders shall be kept confidential, except when
disclosure is mandated by applicable law or such disclosure with respect to a
proxy, consent, ballot or voting of a particular stockholders is expressly
requested by such stockholders. The tabulators and inspectors of election in
respect to all proxies, consents, ballots and voting with respect to the
Corporation shall be independent and not be directors, officers or employees of
the Corporation.
7. Written notice of the annual meeting of stockholders shall be mailed,
postage prepaid, at least ten (10) days prior to the meeting to each stockholder
entitled to vote thereat at such address as appears on the stock transfer books
of the Corporation.
8. Each election of directors shall be conducted by two (2) inspectors
or judges, who may or may not be stockholders, appointed by the presiding
officer of the meeting. The inspectors or judge shall be sworn to the faithful
performance of their duties and shall, in writing, certify to the returns. No
person who is a candidate for the office of director shall be an inspector or
judge.
9. A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order with the residence of each and the
number of voting shares held by each, shall be prepared by the Secretary and
filed in the office where the election is to be held at least ten (10) days
before every election, and shall at all times during the usual hours for
business and during the whole time of said election be open to the examination
of any stockholder.
10. Special meetings of the stockholders, for any purpose or purposes
unless otherwise prescribed by statute, may be called at any time by the Board
of Directors and shall be called by the Chairman of the Board, or either
Co-Chairman of the Board, as the case may be, the President or Secretary at the
request in writing of stockholders owning a majority in amount of
-2-
<PAGE> 3
the entire capital stock of the Corporation issued and outstanding and entitled
to vote thereat. Such request shall state the purpose or purposes of the
proposed meeting.
11. Business transacted at all special meetings of stockholders shall be
confined to the matters stated in the call.
12. Written notice of each special meeting of stockholders, stating the
time and place and the purpose or purposes for which the meeting is called,
shall be mailed, postage prepaid, at least ten (10) days before such meeting, to
each stockholder entitled to vote thereat at such address as appears on the
stock transfer books of the Corporation.
12A. Subject to the rights of the holders of the Corporation's preferred
stock, written notice of the intent to make a nomination at a meeting of
stockholders must be received by the Secretary of the Corporation not later than
(a) with respect to an election to be held at an annual meeting of stockholders,
45 days in advance of such meeting; and (b) with respect to an election to be
held at a special meeting of stockholders for the election of directors, the
close of business on the seventh day following the date on which notice of such
meeting is first given to stockholders. The foregoing sentence shall not be
subject to amendment, alteration or repeal by the Board of Directors. The notice
must contain (a) the name and address of the stockholder who intends to make the
nomination and of the person or persons to be nominated; (b) a representation
that the stockholder is a holder of record of the Corporation's stock entitled
to vote at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
stockholders and each nominee and any other person or persons (naming such
person or persons) pursuant to which the nominee or nominations are to be made
by the stockholder; (d) such other information regarding each nominee proposed
by such stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated, by the
Board of Directors of the Corporation; and (e) the consent of each nominee to
serve as a director of the Corporation if so elected.
DIRECTORS
13. The property and business of this Corporation shall be managed by
its Board of Directors. Directors need not be stockholders. The directors shall
be divided into three classes with the total number of directors to be allocated
among the three classes as equally as possible. The term of office of the first
class shall expire at the annual meeting next ensuring; of the second class one
year thereafter; of the third class two years thereafter; and at each annual
meeting election held after such classification and election, directors shall be
chosen for a full three-year term to succeed those whose terms expire and to
serve in such capacity until his or her successor has been duly elected and
qualified. The election of directors by classes as provided herein shall be
irrespective of the directors which any separate class of shareholders may elect
pursuant to the provisions of any resolution that may be adopted by the
directors under
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<PAGE> 4
Section 151 of the Delaware General Corporation Law and Article Fourth of this
Corporation's Restated Certificate of Incorporation in regard to the
authorization of one or more series of preferred stock.
14. The directors may hold their meetings, have one or more officers and
keep the books of the Corporation outside of Delaware at such place or places as
they may from time to time determine.
15. The Board of Directors shall have and exercise all the powers
belonging or pertaining to the Corporation as fully and in all respects and with
like effect as the stockholders in their corporate capacity could have and
exercise the same, excepting only as to such matters as by law, or the
Certificate of Incorporation or these Bylaws require the action of the
stockholders. The Board of Directors hall have the power to create such offices
and appoint such officers, in addition to those prescribed by these Bylaws, and
such other agents and officers, agents and employees, including the officers
provided for in these Bylaws; to declare and pay such dividends out of the net
earnings of the Corporation as it deems proper; to fix from time to time the
amount to be reserved as working capital; to hold in reserve such part of the
earnings as it deems proper and to invest the same in any property necessary or
property in its judgment, to carry on, improve and enlarge the business and
property of the Corporation; to incur such indebtedness, to enter into such
contracts, to acquire such property, to sell, convey, transfer, mortgage and
exchange such portions of the property of the Corporation, and generally to
conduct, manage and control the business and property of the Corporation in such
manner as the Directors, in their judgment, deem proper.
CHANGE IN NUMBER OF DIRECTORS AND VACANCIES
16. The number of Directors of the Corporation shall be fixed from time
to time by resolution of a majority of the entire Board of Directors, provided
that the number of directors of the Corporation shall not be fixed at less than
three (3), and further provided that the total number of directors shall be
divided as equally as possible among the three classes of Directors as specified
in Section 13 above. If the office of any director or directors becomes vacant
by reason by death, resignation, retirement, disqualification, removal from
office, or otherwise, a majority of the remaining directors, through less than a
quorum, shall choose a successor or successors, who shall hold office until the
next election of the class or classes for which such director or directors shall
have been chosen and until a successor or successors shall have been duly
elected and qualified. Notwithstanding any other provision of these Bylaws, and,
if authorized by the Certificate of Incorporation of the Corporation, the
affirmative vote of the holders of 80% or more of the voting power of the shares
of the then outstanding Voting Stock, voting together as a single class, shall
be required to amend or repeal, or adopt any provision inconsistent with, this
Section 16 or Section 13 of these Bylaws.
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<PAGE> 5
COMMITTEES
17. The Board of Directors may, by resolution, establish an Executive
Committee which shall consist of not less than two (2) members of the Board of
Directors. The Executive Committee shall consist of the Co-Chairmen of the Board
and such other members of the Board of Directors as may be appointed by such
resolution. Subject to the limitations imposed by the laws of Delaware, the
Certificate of Incorporation, these Bylaws or a resolution of the Board of
Directors, the Executive Committee shall have the authority to exercise all of
the powers of the Board of Directors in the management and business affairs of
the Company. The Executive Committee shall keep regular minutes of its
proceedings and report the same to the Board when required.
18. The Board of Directors may, by resolution, designate such additional
standing committees or special committees of the Board of Directors as it may,
from time to time, deem appropriate.
COMPENSATION OF DIRECTORS
19. Directors shall be compensated for their services in such manner as
the Board of Directors may determine, and in addition to such allowance they
shall be reimbursed for necessary traveling expenses incurred in attending the
meetings away from their respective homes. The Corporation shall not enter into
or extend any agreements or arrangements pursuant to which compensation would be
paid to any director, officer or employee of the Corporation contingent upon a
change of control, merger or acquisition of the Corporation, without the
affirmative vote of a majority of the issued and outstanding stock of the
Corporation entitled to vote.
20. Members of the Executive Committee or other special or standing
committees shall also be compensated in such manner as the Board of Directors
may determine.
MEETINGS OF THE BOARD
21. The newly elected Board may meet, at the place of holding and
immediately following the annual meeting of the stockholders at which they are
elected, for the purpose of organization, election of officers and transacting
such other business as shall be brought before the meeting, and no notice of
such meeting shall be necessary to the newly elected directors in order legally
to constitute the meeting, provided a majority of the whole Board shall be
present, or they may meet at such place and time as shall be fixed by the
Chairman of the Board or the majority of the Directors on like notice as
hereinafter provided for the calling of special meetings of the Board.
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<PAGE> 6
22. Regular meetings of the Board may be held without notice at such
time and place as shall from time to time be determined by the Board. Special
meetings of the Board may be called by the Chairman of the Board, or either of
the Co-Chairmen of the Board, as the case may be, on five (5) days' notice to
each Director by mail or on two (2) days' notice to each Director by telephone
or telegram. Special meetings shall be called by the Chairman of the Board, or
either of the Co-Chairmen of the Board, as the case may be, the President or
Secretary in like manner and on like notice on the written request of as
majority of the Directors.
23. At all meetings of the Board the presence of a majority of the
Directors shall be necessary and sufficient to constitute a quorum for the
transaction and sufficient to constitute a quorum for the transaction of
business and, except as may be otherwise specifically provided by law or by the
Certificate of Incorporation or by these Bylaws, the act of a majority of the
Directors present or any meeting at which there is a quorum shall be the act of
the Board of Directors.
OFFICERS
24. The officers of the Corporation shall be chosen by the Board of
Directors at the first meeting of the Board after each annual meeting of
stockholders and shall be a Chairman of the Board, or two Co-Chairmen of the
Board who shall be members of the Board, a Chief Executive Officer, who need not
be a member of the Board and a President, who shall be a member of the Board,
and a Secretary, who need not be a member of the Board. The Board of Directors
may also choose one or more Vice Chairmen, such number of Vice Presidents as it
shall deem necessary, a Treasurer, a Controller and such number of Assistant
Secretaries, Assistant Treasurer and Assistant Controllers as it shall deem
necessary, who shall hold their offices for such terms and shall have such
authority, exercise such powers and perform such duties as shall be determined
from time to time by the Board. Any number of officers may be held by the same
person.
25. The officers of the Corporation shall hold office until their
successors are chosen and qualify in their stead. Any officer, agent or employee
of the Corporation may be removed or suspended at any time by the affirmative
vote of a majority of the whole Board of Directors. If the office or any officer
or officers becomes vacant for any reason, the vacancy shall be filled by the
Board of Directors.
DUTIES AND POWERS OF OFFICERS AND DIRECTORS
THE CHAIRMAN OF THE BOARD
26. The Chairman of the Board, or the Co-Chairmen of the Board, as the
case may be, shall preside at all meetings of the stockholders and of the Board
of Directors. Under the direction of the Board of Directors, the Chief Executive
Officer of the Corporation shall have
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<PAGE> 7
the general management and control, subject to the approval of the Board of
Directors, of the business and property of the Corporation; shall direct all
officers, employees and agents of the Corporation; shall see that all orders and
resolutions of the Board of Directors are carried into effect; and shall perform
all such other duties and exercise all such other powers as are usually incident
and pertain to the chief executive officer of a corporation as well as such
other duties and powers as the Board of Directors may from time to time
prescribed. He may, from time to time, delegate to any other officer or officers
any of his duties or powers.
27. Either of the Co-Chairmen of the Board, in the absence of the other,
shall perform the duties of the Chairman of the Board and shall perform such
other duties as the Board of Directors may prescribe.
THE PRESIDENT
28. The President, in the absence or disability of both of the
Co-Chairmen of the Board, shall preside at all meetings of the stockholders and
of the Board of Directors and perform the duties and exercise the powers of the
Chairman of the Board, exception only such powers and duties as the Chairman of
the Board or the Co-Chairmen of the Board, as the case may be, shall delegate to
other officers, and he shall perform such other duties as the Board of Directors
shall prescribed.
VICE PRESIDENTS
29. In the absence or disability of the President, the Vice President
designated by the Board of Directors shall, under the direction of the Board,
perform the duties and exercise the powers of the President. Such Vice President
shall perform such other duties as the Board of Directors shall from time to
time prescribe.
THE SECRETARY AND ASSISTANT SECRETARIES
30. The Secretary shall attend all sessions of the Board of Directors
and all meetings of the stockholders and record all votes and the proceedings of
the meetings of the stockholders and Directors in a book to be kept for that
purpose; and shall perform like duties for the Executive Committee and other
standing committees when required. He shall give, or cause to be given, notice
of all meetings of the stockholders and of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors. He
shall keep in safe custody the seal of the Corporation and when authorized by
the Board of Directors or the Executive Committee affix the same to any
instrument requiring it, and when so affixed it shall be attested by his
signature. He shall be sworn to the faithful discharge of his duty.
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<PAGE> 8
31. The Assistant Secretaries shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary, and
shall perform such other duties as the Board of Directors shall prescribed.
DUTIES OF OFFICERS MAY BE DELEGATED
32. In case of the absence of any officer of the Corporation, or for any
other reason the Board of Directors may deem sufficient, the Board may delegate,
for the time being, the powers or duties, or any of them, of such officer or any
other officer, or to any director, provided a majority of the entire Board of
Directors concur therein.
CERTIFICATES OF STOCK
33. The certificates for shares of capital stock of the Corporation
shall be numbered and shall be entered in the books of the Corporation as they
are issued. They shall exhibit the holder's name and number of shares and shall
be signed by the Chairman of the Board, or either of the Co-Chairmen of the
Board, as the case may be, or the President or a Vice President and by the
Treasurer or the Secretary or an Assistant Secretary. Any or all of the
signatures on the certificates may be a facsimile.
34. The form of the stock certificates of the Corporation shall be such
as shall be prescribed and adopted by the Board of Directors from time to time.
35. All certificates for shares of capital stock of the Corporation
shall be registered by a Registrar, selected by the Board of Directors and
certificates shall not be valid unless countersigned by such Registrar, which
signature of the Registrar may be a facsimile.
TRANSFERS OF STOCK
36. Transfers of capital stock shall be made on the books of the
Corporation only by the stockholder named in the certificate, in person or by
duly authorized attorney. No transfer shall be made unless and until the
certificate previously issued for the share or shares to be transferred shall
have been properly endorsed and surrendered for cancellation. All certificates
shall be issued and all transfers shall be made by a Transfer Agent selected by
the Board of Directors and certificates shall not be valid unless countersigned
by such Transfer Agent, which signature of the Transfer Agent may be a
facsimile.
37. In order that the Corporation may determine the stockholders
entitled to notice of or to vote at any meeting of the stockholders or any
adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
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<PAGE> 9
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty (60) days nor less than ten (10) days before
the date of such meeting, more than sixty (60) days prior to any other action,
and in such case only such stockholders as shall be stockholders of record on
the date so fixed shall be entitled to such notice of, and to vote at such
meeting, or to express consent to corporate action in writing without a meeting,
or to receive payment of such dividend or other distribution or allotment of
rights, or to exercise any rights in respect of any change, conversion or
exchange of stock, as the case may be, notwithstanding any transfer of any stock
on the books of the Corporation after any such record date fixed as aforesaid.
REGISTERED STOCKHOLDERS
38. The Corporation shall be entitled to treat the holder of record of
any share or shares of its capital stock as the absolute owner thereof for all
purposes and shall not be bound to recognize any equitable or other interest in
or claim to such shares on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by the laws of
the State of Delaware.
LOST CERTIFICATES
39. Any person requesting a certificate or evidence of stock to be
issued in place of one lost or destroyed shall be required to make an affidavit
of affirmation as to the loss or destruction in such manner as the Board of
Directors may require, and to give the Corporation and its Transfer Agents and
Registrars a bond in such sum, as they may require to indemnify the Corporation
and its Transfer Agents and Registrars against any claim that may be made
against them or either of them on account of the alleged loss of any such
certificate, and the Board of Directors, being satisfied as to the loss or
destruction of the missing certificate shall have power to order and direct a
new certificate of the same tenor and for the same number of shares as the one
alleged to be lost or destroyed to be issued in lieu thereof, provided however,
that a new certificate may be issued without requiring any bond when, in the
judgment of the Board of Directors, it is proper to do so. The Board shall have
authority to make a general arrangement with its Transfer Agents and Registrars
to provide an open penalty bond of indemnity without the necessity of individual
bonds in each case and evidence of such loss or destruction may be presented to
the Transfer Agents and Registrars.
INSPECTION OF BOOKS
40. No stockholder shall have the right to inspect any account nor book
or document of the Corporation except as conferred by the laws of the State of
Delaware.
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<PAGE> 10
FISCAL YEAR
41. The fiscal year shall begin the first day of April in each year.
DIVIDENDS
42. Dividends upon the capital stock of the Corporation, subject to the
provision of the Certificate of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property, or in shares of the capital stock.
NOTICES
43. Whenever under the provisions of these Bylaws notice is required to
be given to any Director, officer or stockholder, it shall not be construed to
mean personal notice, but such notice may be given in writing, by mail, postage
prepaid, addressed to such stockholder, officer or Director at such address as
appears on the books of the Corporation, or in default of other address, to such
Director, officer or stockholder, at the General Post Office in the City of
Wilmington, Delaware and such notice shall be deemed to be given at the time
when the same shall be thus mailed. Whenever any notice whatsoever is required
to be given under the provisions of these Bylaws, or under the provisions of the
statutes of the State of Delaware, a waiver thereof in writing, signed by the
stockholder, Director or officer entitled to said notice, whether before or
after the time stated therein, shall be deemed equivalent thereto.
AMENDMENTS
44. The Board of Directors, by a majority vote of the entire Board of
Directors, may amend, alter or repeal these Bylaws but any such action of the
Board of Directors shall be subject to amendment or repeal by a majority vote of
the stockholders at any annual meeting or at any special meeting called for such
purposes. The stockholders may adopt a Bylaw or Bylaws by a majority vote at any
annual meeting or at any special meeting called for such purposes. The
stockholders may adopt a Bylaw or Bylaws by a majority vote at any such annual
or special meeting and any Bylaw so adopted may contain the provision that it is
not subject to amendment or repeal by the Board of Directors.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
45. The Corporation shall indemnify its Directors and officers against
all reasonable expense incurred by them in defending claims made or suits
brought against them as Directors or officers and against all liability in such
suits, except in such cases as involve gross negligence
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<PAGE> 11
or willful misconduct in the performance of their duties. Such indemnification
shall extend to the payment of judgments against the Directors and officers and
the reimbursement of amounts paid in settlement of such claims or actions, and
may apply to judgments in favor of the corporation or amounts paid in settlement
to the Corporation. Such indemnification shall also extend to the payment of
counsel fees and expenses of officers and directors in suits against them where
successfully defended by such officers and Directors; or where unsuccessfully
defended, if the claim or action does not arise from the gross negligence or
willful misconduct of such officers or directors. The Corporation shall also
make payment to its Directors and officers of expenses incurred by them in
defending such claims made or suits brought in advance of the disposition of
such action, suit or proceeding. Such rights of indemnification and advancement
of expenses shall not be exclusive of any right to which any Director or officer
may be entitled as a matter of law and shall extend to the estates of deceased
Directors or officers.
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EXHIBIT 10-AD
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
January 31, 1995, is entered into by and between FoxMeyer Corporation, a
Delaware corporation (the "COMPANY"), and Peter B. McKee ("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 January 31,
1997 (the "TERM OF EMPLOYMENT").
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Senior Vice President and Chief Financial Officer of the
Company. Executive shall have such duties, responsibilities and authority as
may, from time to time, be assigned to Executive by the President or Chief
Executive Officers of the Company.
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 $17,083.33 (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 President and Chief Executive
Officers 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 Executive's life insurance,
accidental death and dismemberment, long-term
<PAGE> 2
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 eighteen
(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 President or Chief Executive
Officers in carrying out his duties or responsibilities hereunder;
(iii) the failure by Executive to substantially perform his
duties and responsibilities hereunder and the failure by Executive
to improve his performance to a satisfactory level within sixty
(60) days after receipt by Executive of written notice of such
unsatisfactory performance;
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<PAGE> 3
(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:
(1) 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)
eighteen (18) months.
(2) 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.
(3) 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 fifty percent (50%) of the then
outstanding shares of common stock of the Company or FoxMeyer Health
Corporation, or (ii) the sale, transfer or other disposition, in one or more
related transactions, by the Company or FoxMeyer Health Corporation of all or
substantially all of the assets of the Company or FoxMeyer Health Corporation to
an unaffiliated party, (A) any termination of Executive's employment for any
reason (other than death, Disability or the acts referred to in Sections
5(c)(iv) and (v)) and (B) any material reduction of Executive's duties,
responsibilities and authority shall be deemed to constitute a Termination
Without Cause hereunder, provided, however, in the case of material reduction of
Executive's duties responsibilities and authority,
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<PAGE> 4
Executive's rights contained in Section 5(d)(1)(2) and (3) shall only vest if
Executive is employed by the Company or one of its affiliated companies or its
successor three (3) months after the change in control or sale of assets.
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 five percent (5%) stockholder or partner of a
corporation or partnership of other business enterprise engaged inany line of
business in which the Company (FoxMeyer Corporation) is actively engaged in
including without limitation, pharmaceutical wholesaling, pharmaceutical mail
order, prescription benefit management, pharmaceutical group purchasing and the
pharmaceutical data business, 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
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<PAGE> 5
date. Reference to the Company in Sections 6 and 7 above shall be deemed to
include FoxMeyer Health Corporation 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.
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.
- 5 -
<PAGE> 6
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 & Administration
b. if to Executive:
Peter B. McKee
2925 Purdue Street
Dallas, Texas 75225
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.
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.
- 6 -
<PAGE> 7
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: /s/ Melvyn J. Estrin
-------------------------------------
Abbey J. Butler or Melvyn J. Estrin
Co-Chief Executive Officer
/s/ Peter B. McKee
-----------------------------------------
Peter B. McKee
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<PAGE> 1
EXHIBIT 10-AE
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
January 31, 1995, is entered into by and between FoxMeyer Corporation, a
Delaware corporation (the "COMPANY"), and Kevin J. Rogan ("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 January 31,
1997 (the "TERM OF EMPLOYMENT").
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Senior Vice President and General Counsel of the Company.
Executive shall have such duties, responsibilities and authority as may, from
time to time, be assigned to Executive by the President or Chief Executive
Officers of the Company.
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 $15,000.00 (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 President and Chief Executive
Officers 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 Executive's life insurance,
accidental death and dismemberment, long-term
<PAGE> 2
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 eighteen
(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 President or Chief
Executive Officers in carrying out his duties or
responsibilities hereunder;
(iii) the failure by Executive to substantially perform
his duties and responsibilities hereunder and the failure by
Executive to improve his performance to a satisfactory level
within sixty (60) days after receipt by Executive of written
notice of such unsatisfactory performance;
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<PAGE> 3
(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:
(1) 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)
eighteen (18) months.
(2) 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.
(3) 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 fifty percent (50%) of the then
outstanding shares of common stock of the Company or FoxMeyer Health
Corporation, or (ii) the sale, transfer or other disposition, in one or more
related transactions, by the Company or FoxMeyer Health Corporation of all or
substantially all of the assets of the Company or FoxMeyer Health Corporation to
an unaffiliated party, (A) any termination of Executive's employment for any
reason (other than death, Disability or the acts referred to in Sections
5(c)(iv) and (v)) and (B) any material reduction of Executive's duties,
responsibilities and authority shall be deemed to constitute a Termination
Without Cause hereunder, provided, however, in the case of material reduction of
Executive's duties responsibilities and authority,
- 3 -
<PAGE> 4
Executive's rights contained in Section 5(d)(1)(2) and (3) shall only vest if
Executive is employed by the Company or one of its affiliated companies or its
successor three (3) months after the change in control or sale of assets.
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 five percent (5%) stockholder or partner of a
corporation or partnership of other business enterprise engaged inany line of
business in which the Company (FoxMeyer Corporation) is actively engaged in
including without limitation, pharmaceutical wholesaling, pharmaceutical mail
order, prescription benefit management, pharmaceutical group purchasing and the
pharmaceutical data business, 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
- 4 -
<PAGE> 5
date. Reference to the Company in Sections 6 and 7 above shall be deemed to
include FoxMeyer Health Corporation 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.
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.
- 5 -
<PAGE> 6
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 &
Administration
b. if to Executive:
Kevin J. Rogan
3605 Rosedale Avenue
Dallas, Texas 75205
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.
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.
- 6 -
<PAGE> 7
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: Melvyn J. Estrin
-----------------------------------
Abbey J. Butler or Melvyn J. Estrin
Co-Chief Executive Officer
Kevin J. Rogan
---------------------------------------
Kevin J. Rogan
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<PAGE> 1
EXHIBIT 10-AF
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 27, 1995, is entered into by and between FoxMeyer Health Corporation, a
Delaware corporation (the "COMPANY") and Abbey J. Butler ("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 January 31,
1998 (the "TERM OF EMPLOYMENT"). Notwithstanding the foregoing, the term of this
Agreement shall be extended by one (1) month for each month that expires under
this Agreement.
3. Position and Responsibilities. The Company hereby employs Executive
to serve as Co-Chairman and Co-Chief Executive Officer of the Company. Executive
shall have such duties related to the strategic business operations and general
management of the Company.
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 $29,166.67 (the same, as it may be adjusted from time to
time, is collectively 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
<PAGE> 2
the Company may not reduce the benefits provided to Executive pursuant
to Executive's life insurance, accidental death and dismemberment,
long-term disability and business travel accident insurance during the
term of this Agreement.
c. The Company shall reimburse the Executive for any and all
reasonable expenses incurred by the Executive in connection with the
performance of his duties hereunder, subject to such supporting
evidence thereof as may be reasonably required by the Company.
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, the Executive's estate shall be entitled to receive the
full amount of any Monthly Base Salary and cash bonus awards which otherwise
would have been earned by Executive during the full term of this Agreement.
b. Termination Upon Disability. The Company shall have the right to
terminate this Agreement upon the "Total and Permanent Disability" of Executive
by providing ten (10) days written notice to Executive. "TOTAL AND PERMANENT
DISABILITY" shall mean the Executive is unable to perform the duties of his
position due to a medically demonstrable physical or mental condition which is
expected to be permanent and continuous during the remainder of the Executive's
life. In the event of termination upon Total and Permanent Disability, Executive
shall be entitled to receive the full amount of any Monthly Base Salary and cash
bonus awards which otherwise would have been earned by Executive during the full
term of this Agreement (reduced by any amounts payable to Executive as
disability benefits under any Company plan).
c. Termination With Just Cause. "TERMINATION WITH JUST CAUSE" by the
Company shall mean termination of the Executive's employment due to the
Executive's:
(i) willful misconduct or gross negligence in the performance of his
duties hereunder;
(ii) intentional neglect of his duties hereunder;
(iii) commission of any act or material misconduct which is
injurious to the Company, including the misappropriation of funds,
the disclosure of trade secrets or other confidential or proprietary
information in violation of Section 7 of this Agreement;
(iv) deliberate and intentional refusal to perform his duties and
obligations hereunder; or
- 2 -
<PAGE> 3
(v) the Executive's conviction, which is final, of a crime involving
an act or acts of dishonesty or moral turpitude.
PROVIDED, HOWEVER, that in the case of the events specified in
subparagraphs (i) through (iv) above, termination shall be within
the definition of "termination with just cause" only in the event
that the Company has advised the Executive in writing of the acts
set forth and the Executive has failed to remedy the situation
giving rise to termination within sixty (60) days following such
notice.
In any event, the Company shall by written notice to the Executive,
specify the event relied upon for Termination With Just Cause, pursuant
to any of the foregoing provisions, and the Executive's employment
hereunder shall be deemed terminated as of the date of such notice, in
the case of Subsection (v) above and sixty (60) days after such notice,
in the event of the Executive's failure to remedy the situations
delineated in Subsections (i) through (iv) above.
In no event shall a Termination with Just Cause be deemed to have
occurred if the employment of the Executive is terminated because his
position is eliminated for any reason.
"TERMINATION WITH JUST CAUSE BY THE EXECUTIVE" shall mean
termination by the Executive in the event that the Executive is
removed, without his consent as either the Co-Chairman of the Board of
the Company or as its Co-Chief Executive Officer.
This Agreement may be terminated with just cause by the Company (as
defined in Subsection 5(c) hereof), in which case the Executive shall
be entitled to his Monthly Base Salary earned through the date of
termination and any cash bonus awards previously earned but not paid.
d. Termination Without Just Cause.
If the Executive's employment with the Company is terminated by the
Company for reasons other than those set forth in Subsection 5(c)
hereof or if there is a Termination with Just Cause by the
Executive, then:
(1) the Executive shall be entitled to receive the full amount
of any Monthly Base Salary and cash bonus awards which
otherwise would have been earned by him during the full term
of this Agreement or for a twenty-four (24) month period,
whichever is longer. The computation of the cash bonus
awards will be determined in the same manner that they would
have been computed by the Company prior to Executive's
termination or any new Company bonus plan,
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<PAGE> 4
whichever is greater, but in no event will that amount be
less than the highest amount paid in the prior three (3)
years;
(2) all rights of the Executive under any benefit plan or
arrangement, which have not vested, shall be deemed to have
vested as of the date of such termination, and the Company
shall cause all benefits vested and deemed to be vested
thereunder to be paid to the Executive pursuant thereto;
(3) all rights of the Executive under any other stock option
plan or arrangement, which have not yet vested thereunder,
shall be deemed to have vested as of the date of such
termination and the Executive shall be entitled to exercise
any such options pursuant to the terms thereof; and
(4) for the period applicable, 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 Just Cause hereunder, it is hereby
agreed that following (i) the acquisition by any person or entity or
affiliated group of persons or entities of more than fifty percent
(50%) of the then outstanding shares of common stock of the Company or
(ii) the sale, transfer or other disposition, in one or more related
transactions, by the Company of all or substantially all of the assets
of the Company to an unaffiliated party, shall be considered
Termination Without Just Cause.
6. Corporate Indemnification.
The Executive, in connection with the performance of his duties as an
officer and director of the Company, shall be indemnified to the fullest extent
provided under the laws of the State of Delaware and the Certificate of
Incorporation and By-Laws of the Company, and shall be provided the directors'
and officers' insurance maintained by the Company.
7. 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 pharmaceutical warehousing and wholesaling business in
the United States to retailers, hospitals and institutions, 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
- 4 -
<PAGE> 5
techniques and information, customer lists, and operational methods and
confidential and proprietary information relating to the Company's
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions (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 7 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.
8. 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 five percent (5%) stockholder or partner of a
corporation or partnership of other business enterprise engaged in the
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions and (ii) directly or indirectly, hire or
seek to hire for purposes of competing in the pharmaceutical warehousing and
wholesaling business in the United States to retailers, hospitals and
institutions 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.
9. Remedies. In the event that Executive breaches any of the provisions
of Sections 7 or 8 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.
- 5 -
<PAGE> 6
10. Legal Construction. The parties hereto agree that if at any time it
shall be determined that the restrictions contained in Section 8 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.
11. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Sections 7 or 8 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.
12. Attorneys' Fees. In the event there is litigation between the
Company and Executive concerning this Agreement, the Company agrees to pay
Executive's attorneys' fees and other litigation costs on an "as incurred"
basis. Executive will reimburse to the Company such fees and costs if the
Company prevails on all issues in the litigation.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
- 6 -
<PAGE> 7
18. 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.
19. 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 Health Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention:Sandra K. Stevens
Vice President - Human Resources & Administration
b. if to Executive:
Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, New York 11978
20. 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.
21. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
22. 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.
23. 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.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
FoxMeyer Health Corporation
By: /s/ Thomas L. Anderson
----------------------------------
Thomas L. Anderson
President
/s/ Abbey J. Butler
----------------------------------
Abbey J. Butler
- 8 -
<PAGE> 1
EXHIBIT 10-AG
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 27, 1995, is entered into by and between FoxMeyer Health Corporation, a
Delaware corporation (the "COMPANY") and Melvyn J. Estrin ("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 January 31,
1998 (the "TERM OF EMPLOYMENT"). Notwithstanding the foregoing, the term of this
Agreement shall be extended by one (1) month for each month that expires under
this Agreement.
3. Position and Responsibilities. The Company hereby employs Executive
to serve as Co-Chairman and Co-Chief Executive Officer of the Company. Executive
shall have such duties related to the strategic business operations and general
management of the Company.
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 $29,166.67 (the same, as it may be adjusted from time to
time, is collectively 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 prerequisites 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.
c. The Company shall reimburse the Executive for any and all
reasonable expenses incurred by the Executive in connection with the
performance of his duties hereunder, subject to such supporting
evidence thereof as may be reasonably required by the Company.
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, the Executive's estate shall be entitled to
receive the full amount of any Monthly Base Salary and cash bonus awards which
otherwise would have been earned by Executive during the full term of this
Agreement.
b. Termination Upon Disability. The Company shall have the right
to terminate this Agreement upon the "Total and Permanent Disability" of
Executive by providing ten (10) days written notice to Executive. "TOTAL AND
PERMANENT DISABILITY" shall mean the Executive is unable to perform the duties
of his position due to a medically demonstrable physical or mental condition
which is expected to be permanent and continuous during the remainder of the
Executive's life. In the event of termination upon Total and Permanent
Disability, Executive shall be entitled to receive the full amount of any
Monthly Base Salary and cash bonus awards which otherwise would have been earned
by Executive during the full term of this Agreement (reduced by any amounts
payable to Executive as disability benefits under any Company plan).
c. Termination With Just Cause. "TERMINATION WITH JUST CAUSE" by
the Company shall mean termination of the Executive's employment due to the
Executive's:
(i) willful misconduct or gross negligence in the performance
of his duties hereunder;
(ii) intentional neglect of his duties hereunder;
(iii) commission of any act or material misconduct which is
injurious to the Company, including the misappropriation of
funds, the disclosure of trade secrets or other confidential or
proprietary information in violation of Section 7 of this
Agreement;
(iv) deliberate and intentional refusal to perform his duties
and obligations hereunder; or
- 2 -
<PAGE> 3
(v) the Executive's conviction, which is final, of a crime
involving an act or acts of dishonesty or moral turpitude.
PROVIDED, HOWEVER, that in the case of the events specified in
subparagraphs (i) through (iv) above, termination shall be within
the definition of "termination with just cause" only in the event
that the Company has advised the Executive in writing of the acts
set forth and the Executive has failed to remedy the situation
giving rise to termination within sixty (60) days following such
notice.
In any event, the Company shall by written notice to the
Executive, specify the event relied upon for Termination With Just
Cause, pursuant to any of the foregoing provisions, and the Executive's
employment hereunder shall be deemed terminated as of the date of such
notice, in the case of Subsection (v) above and sixty (60) days after
such notice, in the event of the Executive's failure to remedy the
situations delineated in Subsections (i) through (iv) above.
In no event shall a Termination with Just Cause be deemed to have
occurred if the employment of the Executive is terminated because his
position is eliminated for any reason.
"TERMINATION WITH JUST CAUSE BY THE EXECUTIVE" shall mean
termination by the Executive in the event that the Executive is
removed, without his consent as either the Co-Chairman of the Board of
the Company or as its Co-Chief Executive Officer.
This Agreement may be terminated with just cause by the Company
(as defined in Subsection 5(c) hereof), in which case the Executive
shall be entitled to his Monthly Base Salary earned through the date of
termination and any cash bonus awards previously earned but not paid.
d. Termination Without Just Cause.
If the Executive's employment with the Company is terminated
by the Company for reasons other than those set forth in
Subsection 5(c) hereof or if there is a Termination with Just
Cause by the Executive, then:
(1) the Executive shall be entitled to receive the full
amount of any Monthly Base Salary and cash bonus awards
which otherwise would have been earned by him during
the full term of this Agreement or for a twenty-four
(24) month period, whichever is longer. The computation
of the cash bonus awards will be determined in the same
manner that they would have been computed by the
Company prior to Executive's termination or any new
Company bonus plan,
- 3 -
<PAGE> 4
whichever is greater, but in no event will that amount
be less than the highest amount paid in the prior three
(3) years;
(2) all rights of the Executive under any benefit plan or
arrangement which have not vested shall be deemed to
have vested as of the date of such termination, and the
Company shall cause all benefits vested and deemed to
be vested thereunder to be paid to the Executive
pursuant thereto;
(3) all rights of the Executive under any other stock
option plan or arrangement which have not yet vested
thereunder shall be deemed to have vested as of the
date of such termination and the Executive shall be
entitled to exercise any such options pursuant to the
terms thereof; and
(4) for the period applicable, 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 Just Cause hereunder, it is hereby
agreed that following (i) the acquisition by any person or entity or
affiliated group of persons or entities of more than fifty percent
(50%) of the then outstanding shares of common stock of the Company or
(ii) the sale, transfer or other disposition, in one or more related
transactions, by the Company of all or substantially all of the assets
of the Company to an unaffiliated party, shall be considered
Termination Without Just Cause.
6. Corporate Indemnification.
The Executive, in connection with the performance of his duties as an
officer and director of the Company, shall be indemnified to the fullest extent
provided under the laws of the State of Delaware and the Certificate of
Incorporation and By-Laws of the Company, and shall be provided the directors'
and officers' insurance maintained by the Company.
7. 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 pharmaceutical warehousing and wholesaling business in the
United States to retailers, hospitals and institutions, 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
- 4 -
<PAGE> 5
techniques and information, customer lists, and operational methods and
confidential and proprietary information relating to the Company's
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions (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 7 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.
8. 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 five percent (5%) stockholder or partner of a
corporation or partnership of other business enterprise engaged in the
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions and (ii) directly or indirectly, hire or
seek to hire for purposes of competing in the pharmaceutical warehousing and
wholesaling business in the United States to retailers, hospitals and
institutions 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.
9. Remedies. In the event that Executive breaches any of the provisions
of Sections 7 or 8 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.
- 5 -
<PAGE> 6
10. Legal Construction. The parties hereto agree that if at any time it
shall be determined that the restrictions contained in Section 8 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.
11. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Sections 7 or 8 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.
12. Attorneys' Fees. In the event there is litigation between the
Company and Executive concerning this Agreement, the Company agrees to pay
Executive's attorneys' fees and other litigation costs on an "as incurred"
basis. Executive will reimburse to the Company such fees and costs if the
Company prevails on all issues in the litigation.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
- 6 -
<PAGE> 7
18. 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.
19. 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 Health Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: Sandra K. Stevens
Vice President - Human Resources & Administration
b. if to Executive:
Melvyn J. Estrin
6508 Kenhill Road
Bethesda, Maryland 20817
20. 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.
21. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
22. 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.
23. 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.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
FoxMeyer Health Corporation
By: /s/ Thomas L. Anderson
--------------------------------
Thomas L. Anderson
President
Melvyn J. Estrin
--------------------------------
Melvyn J. Estrin
- 8 -
<PAGE> 1
EXHIBIT 10-AH
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 27, 1995, is entered into by and between FoxMeyer Corporation, a
Delaware corporation (the "COMPANY"), and Abbey J. Butler ("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 January 31,
1998 (the "TERM OF EMPLOYMENT"). Notwithstanding the foregoing, the term of
this Agreement shall be extended by one (1) month for each month that expires
under this Agreement.
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Co-Chairman and Co-Chief Executive Officer of the
Company. Executive shall have such duties related to the strategic business
operations and general management of the Company.
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 $33,333.33 (the same, as it may be
adjusted from time to time, is collectively 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 prerequisites enjoyed by
other senior officers of the Company as presently in effect or as they
may be modified from time to time, provided tha 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.
c. The Company shall reimburse the Executive for any and
all reasonable expenses incurred by the Executive in connection with
the performance of his duties hereunder, subject to such supporting
evidence thereof as may be reasonably required by the Company.
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, the Executive's estate shall be entitled
to receive the full amount of any Monthly Base Salary and cash bonus awards
which otherwise would have been earned by Executive during the full term of
this Agreement.
b. Termination Upon Disability. The Company shall have
the right to terminate this Agreement upon the "Total and Permanent Disability"
of Executive by providing ten (10) days written notice to Executive. "TOTAL
AND PERMANENT DISABILITY" shall mean the Executive is unable to perform the
duties of his position due to a medically demonstrable physical or mental
condition which is expected to be permanent and continuous during the remainder
of the Executive's life. In the event of termination upon Total and Permanent
Disability, Executive shall be entitled to receive the full amount of any
Monthly Base Salary and cash bonus awards which otherwise would have been
earned by Executive during the full term of this Agreement (reduced by any
amounts payable to Executive as disability benefits under any Company plan).
c. Termination With Just Cause. "TERMINATION WITH JUST
CAUSE" by the Company shall mean termination of the Executive's employment due
to the Executive's:
(i) willful misconduct or gross negligence in the
performance of his duties hereunder;
(ii) intentional neglect of his duties hereunder;
(iii commission of any act or material misconduct which
is injurious to the Company, including the misappropriation of
funds, the disclosure of trade secrets or other confidential
or proprietary information in violation of Section 7 of this
Agreement;
(iv) deliberate and intentional refusal to perform his
duties and obligations hereunder; or
- 2 -
<PAGE> 3
(v) the Executive's conviction, which is final, of a
crime involving an act or acts of dishonesty or moral
turpitude.
PROVIDED, HOWEVER, that in the case of the events specified in
subparagraphs (i) through (iv) above, termination shall be
within the definition of "termination with just cause" only in
the event that the Company has advised the Executive in
writing of the acts set forth and the Executive has failed to
remedy the situation giving rise to termination within sixty
(60) days following such notice.
In any event, the Company shall by written notice to the
Executive, specify the event relied upon for Termination With Just
Cause, pursuant to any of the foregoing provisions, and the
Executive's employment hereunder shall be deemed terminated as of the
date of such notice, in the case of Subsection (v) above and sixty
(60) days after such notice, in the event of the Executive's failure
to remedy the situations delineated in Subsections (i) through (iv)
above.
In no event shall a Termination with Just Cause be deemed to
have occurred if the employment of the Executive is terminated because
his position is eliminated for any reason.
"TERMINATION WITH JUST CAUSE BY THE EXECUTIVE" shall mean
termination by the Executive in the event that the Executive is
removed, without his consent as either the Co-Chairman of the Board of
the Company or as its Co-Chief Executive Officer.
This Agreement may be terminated with just cause by the
Company (as defined in Subsection 5(c) hereof), in which case the
Executive shall be entitled to his Monthly Base Salary earned through
the date of termination and any cash bonus awards previously earned
but not paid.
d. Termination Without Just Cause.
If the Executive's employment with the Company is
terminated by the Company for reasons other than
those set forth in Subsection 5(c) hereof or if there
is a Termination with Just Cause by the Executive,
then:
(1) the Executive shall be entitled to
receive the full amount of any
Monthly Base Salary and cash bonus
awards which otherwise would have
been earned by him during the full
term of this Agreement or for an
twenty-four (24) month period,
whichever is longer. The
computation of the cash bonus awards
will be determined in the same
manner that they would have been
computed by the Company prior to
Executive's termination or any new
Company bonus plan,
- 3 -
<PAGE> 4
whichever is greater, but in no event
will that amount be less than the
highest amount paid in the prior
three (3) years;
(2) all rights of the Executive under
any benefit plan or arrangement
which have not vested shall be
deemed to have vested as of the date
of such termination, and the Company
shall cause all benefits vested and
deemed to be vested thereunder to be
paid to the Executive pursuant
thereto;
(3) all rights of the Executive under
any other stock option plan or
arrangement which have not yet
vested thereunder shall be deemed to
have vested as of the date of such
termination and the Executive shall
be entitled to exercise any such
options pursuant to the terms
thereof; and
(4) for the period applicable, 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 Just Cause hereunder, it is
hereby agreed that following (i) the acquisition by any person or
entity or affiliated group of persons or entities of more than fifty
percent (50%) of the then outstanding shares of common stock of
FoxMeyer Health Corporation, Inc. or (ii) the sale, transfer or other
disposition, in one or more related transactions, by the FoxMeyer
Health Corporation of all or substantially all of the assets of the
FoxMeyer Health Corporation to an unaffiliated party, shall be
considered Termination Without Just Cause.
6. Corporate Indemnification.
The Executive, in connection with the performance of his duties as an
officer and director of the Company, shall be indemnified to the fullest extent
provided under the laws of the State of Delaware and the Certificate of
Incorporation and By-Laws of the Company, and shall be provided the directors'
and officers' insurance maintained by the Company.
7. 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 pharmaceutical warehousing and
wholesaling business in the United States to retailers, hospitals and
institutions without limitation, the Company's existing and contemplated
products and services, trade secrets, know-how, business and financial
- 4 -
<PAGE> 5
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's
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions (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 7 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.
8. 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 five percent (5%) stockholder or partner of a
corporation or partnership of other business enterprise engaged in the
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions and (ii) directly or indirectly, hire or
seek to hire for purposes of competing in the pharmaceutical warehousing and
wholesaling business in the United States to retailers, hospitals and
institutions 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.
9. Remedies. In the event that Executive breaches any of the
provisions of Sections 7 or 8 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.
- 5 -
<PAGE> 6
10. Legal Construction. The parties hereto agree that if at any
time it shall be determined that the restrictions contained in Section 8 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.
11. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Sections 7 or 8 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.
12. Attorneys' Fees. In the event there is litigation between the
Company and Executive concerning this Agreement, the Company agrees to pay
Executive's attorneys' fees and other litigation costs on an "as incurred"
basis. Executive will reimburse to the Company such fees and costs if the
Company prevails on all issues in the litigation.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
- 6 -
<PAGE> 7
18. 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.
19. 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 &
Administration
b. if to Executive:
Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, New York 11978
20. 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.
21. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
22. 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.
23. 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.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
FoxMeyer Corporation
By: /s/ Thomas L. Anderson
--------------------------
Thomas L. Anderson
President
/s/ Abbey J. Butler
--------------------------
Abbey J. Butler
- 8 -
<PAGE> 1
EXHIBIT 10-AI
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 27, 1995, is entered into by and between FoxMeyer Corporation, a
Delaware corporation (the "COMPANY"), and Melvyn J. Estrin ("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 January 31,
1998 (the "TERM OF EMPLOYMENT"). Notwithstanding the foregoing, the term of
this Agreement shall be extended by one (1) month for each month that expires
under this Agreement.
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Co-Chairman and Co-Chief Executive Officer of the Company.
Executive shall have such duties related to the strategic business operations
and general management of the Company.
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 $33,333.33 (the same, as it may be
adjusted from time to time, is collectively 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.
c. The Company shall reimburse the Executive for any and
all reasonable expenses incurred by the Executive in connection with
the performance of his duties hereunder, subject to such supporting
evidence thereof as may be reasonably required by the Company.
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, the Executive's estate shall be entitled to
receive the full amount of any Monthly Base Salary and cash bonus awards which
otherwise would have been earned by Executive during the full term of this
Agreement.
b. Termination Upon Disability. The Company shall have
the right to terminate this Agreement upon the "Total and Permanent Disability"
of Executive by providing ten (10) days written notice to Executive. "TOTAL AND
PERMANENT DISABILITY" shall mean the Executive is unable to perform the duties
of his position due to a medically demonstrable physical or mental condition
which is expected to be permanent and continuous during the remainder of the
Executive's life. In the event of termination upon Total and Permanent
Disability, Executive shall be entitled to receive the full amount of any
Monthly Base Salary and cash bonus awards which otherwise would have been earned
by Executive during the full term of this Agreement (reduced by any amounts
payable to Executive as disability benefits under any Company plan).
c. Termination With Just Cause. "TERMINATION WITH JUST
CAUSE" by the Company shall mean termination of the Executive's employment due
to the Executive's:
(i) willful misconduct or gross negligence in the
performance of his duties hereunder;
(ii) intentional neglect of his duties hereunder;
(iii) commission of any act or material misconduct which is
injurious to the Company, including the misappropriation of
funds, the disclosure of trade secrets or other confidential or
proprietary information in violation of Section 7 of this
Agreement;
(iv) deliberate and intentional refusal to perform his
duties and obligations hereunder; or
- 2 -
<PAGE> 3
(v) the Executive's conviction, which is final, of a crime
involving an act or acts of dishonesty or moral turpitude.
PROVIDED, HOWEVER, that in the case of the events specified in
subparagraphs (i) through (iv) above, termination shall be
within the definition of "termination with just cause" only in
the event that the Company has advised the Executive in writing
of the acts set forth and the Executive has failed to remedy
the situation giving rise to termination within sixty (60) days
following such notice.
In any event, the Company shall by written notice to the
Executive, specify the event relied upon for Termination With Just
Cause, pursuant to any of the foregoing provisions, and the Executive's
employment hereunder shall be deemed terminated as of the date of such
notice, in the case of Subsection (v) above and sixty (60) days after
such notice, in the event of the Executive's failure to remedy the
situations delineated in Subsections (i) through (iv) above.
In no event shall a Termination with Just Cause be deemed to
have occurred if the employment of the Executive is terminated because
his position is eliminated for any reason.
"TERMINATION WITH JUST CAUSE BY THE EXECUTIVE" shall mean
termination by the Executive in the event that the Executive is
removed, without his consent as either the Co-Chairman of the Board of
the Company or as its Co-Chief Executive Officer.
This Agreement may be terminated with just cause by the Company
(as defined in Subsection 5(c) hereof), in which case the Executive
shall be entitled to his Monthly Base Salary earned through the date of
termination and any cash bonus awards previously earned but not paid.
d. Termination Without Just Cause.
If the Executive's employment with the Company is
terminated by the Company for reasons other than those
set forth in Subsection 5(c) hereof or if there is a
Termination with Just Cause by the Executive, then:
(1) the Executive shall be entitled to
receive the full amount of any
Monthly Base Salary and cash bonus
awards which otherwise would have
been earned by him during the full
term of this Agreement or for an
twenty-four (24) month period,
whichever is longer. The computation
of the cash bonus awards will be
determined in the same manner that
they would have been computed by the
Company prior to Executive's
termination or any new Company bonus
plan,
- 3 -
<PAGE> 4
whichever is greater, but in no event
will that amount be less than the
highest amount paid in the prior
three (3) years;
(2) all rights of the Executive under any
benefit plan or arrangement which
have not vested shall be deemed to
have vested as of the date of such
termination, and the Company shall
cause all benefits vested and deemed
to be vested thereunder to be paid to
the Executive pursuant thereto;
(3) all rights of the Executive under any
other stock option plan or
arrangement which have not yet vested
thereunder shall be deemed to have
vested as of the date of such
termination and the Executive shall
be entitled to exercise any such
options pursuant to the terms
thereof; and
(4) for the period applicable, 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 Just Cause hereunder, it is
hereby agreed that following (i) the acquisition by any person or
entity or affiliated group of persons or entities of more than fifty
percent (50%) of the then outstanding shares of common stock of
FoxMeyer Health Corporation, Inc. or (ii) the sale, transfer or other
disposition, in one or more related transactions, by the FoxMeyer
Health Corporation of all or substantially all of the assets of the
FoxMeyer Health Corporation to an unaffiliated party, shall be
considered Termination Without Just Cause.
6. Corporate Indemnification.
The Executive, in connection with the performance of his duties as an
officer and director of the Company, shall be indemnified to the fullest extent
provided under the laws of the State of Delaware and the Certificate of
Incorporation and By-Laws of the Company, and shall be provided the directors'
and officers' insurance maintained by the Company.
7. 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 pharmaceutical warehousing and
wholesaling business in the United States to retailers, hospitals and
institutions, without limitation, the Company's existing and
contemplated products and services, trade secrets, know-how, business and
financial
- 4 -
<PAGE> 5
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's
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions (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 7 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.
8. 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 five percent (5%) stockholder or partner of a
corporation or partnership of other business enterprise engaged in the
pharmaceutical warehousing and wholesaling business in the United States to
retailers, hospitals and institutions and (ii) directly or indirectly, hire or
seek to hire for purposes of competing in the pharmaceutical warehousing and
wholesaling business in the United States to retailers, hospitals and
institutions 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.
9. Remedies. In the event that Executive breaches any of the
provisions of Sections 7 or 8 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.
- 5 -
<PAGE> 6
10. Legal Construction. The parties hereto agree that if at any
time it shall be determined that the restrictions contained in Section 8 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.
11. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Sections 7 or 8 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.
12. Attorneys' Fees. In the event that there is litigation between
the Company and Executive concerning this Agreement, the Company agrees to pay
Executive's attorneys' fees and other litigation costs on an "as incurred"
basis. Executive will reimburse to the Company such fees and costs if the
Company prevails on all issues in the litigation.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
- 6 -
<PAGE> 7
18. 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.
19. 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 &
Administration
b. if to Executive:
Melvyn J. Estrin
6508 Kenhill Road
Bethesda, Maryland 20817
20. 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.
21. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
22. 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.
23. 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.
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date and year first above written.
FoxMeyer Corporation
By: /s/ Thomas L. Anderson
---------------------------
Thomas L. Anderson
President
/s/ Melvyn J. Estrin
---------------------------
Melvyn J. Estrin
- 8 -
<PAGE> 1
EXHIBIT 10-AJ
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 27, 1995, is entered into by and between Ben Franklin Retail Stores,
Inc., a Delaware corporation (the "COMPANY") and Abbey J. Butler ("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 January 31,
1998 (the "TERM OF EMPLOYMENT"). Notwithstanding the foregoing, the term of
this Agreement shall be extended by one (1) month for each month that expires
under this Agreement.
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Co-Chairman of the Company. Executive shall have such
duties related to the strategic business operations and general management of
the Company.
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 $9,000.00 (the same, as it may be adjusted from
time to time, is collectively 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.
c. The Company shall reimburse the Executive for any and all
reasonable expenses incurred by the Executive in connection with the
performance of his duties hereunder, subject to such supporting evidence
thereof as may be reasonably required by the Company.
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, the Executive's estate shall be entitled to
receive the full amount of any Monthly Base Salary and cash bonus awards which
otherwise would have been earned by Executive during the full term of this
Agreement.
b. Termination Upon Disability. The Company shall have the
right to terminate this Agreement upon the "Total and Permanent Disability" of
Executive by providing ten (10) days written notice to Executive. "TOTAL AND
PERMANENT DISABILITY" shall mean the Executive is unable to perform the duties
of his position due to a medically demonstrable physical or mental condition
which is expected to be permanent and continuous during the remainder of the
Executive's life. In the event of termination upon Total and Permanent
Disability, Executive shall be entitled to receive the full amount of any
Monthly Base Salary and cash bonus awards which otherwise would have been earned
by Executive during the full term of this Agreement (reduced by any amounts
payable to Executive as disability benefits under any Company plan).
c. Termination With Just Cause. "TERMINATION WITH JUST CAUSE"
by the Company shall mean termination of the Executive's employment due to the
Executive's:
(i) willful misconduct or gross negligence in the performance of
his duties hereunder;
(ii) intentional neglect of his duties hereunder;
(iii) commission of any act or material misconduct which is
injurious to the Company, including the misappropriation of funds,
the disclosure of trade secrets or other confidential or
proprietary information in violation of Section 7 of this
Agreement;
(iv) deliberate and intentional refusal to perform his duties and
obligations hereunder; or
- 2 -
<PAGE> 3
(v) the Executive's conviction, which is final, of a crime
involving an act or acts of dishonesty or moral turpitude.
PROVIDED, HOWEVER, that in the case of the events specified in
subparagraphs (i) through (iv) above, termination shall be within
the definition of "termination with just cause" only in the event
that the Company has advised the Executive in writing of the acts
set forth and the Executive has failed to remedy the situation
giving rise to termination within sixty (60) days following such
notice.
In any event, the Company shall by written notice to the Executive,
specify the event relied upon for Termination With Just Cause, pursuant
to any of the foregoing provisions, and the Executive's employment
hereunder shall be deemed terminated as of the date of such notice, in
the case of Subsection (v) above and sixty (60) days after such notice,
in the event of the Executive's failure to remedy the situations
delineated in Subsections (i) through (iv) above.
In no event shall a Termination with Just Cause be deemed to have
occurred if the employment of the Executive is terminated because his
position is eliminated for any reason.
"TERMINATION WITH JUST CAUSE BY THE EXECUTIVE" shall mean
termination by the Executive in the event that the Executive is removed,
without his consent as the Co-Chairman of the Board of the Company.
This Agreement may be terminated with just cause by the Company (as
defined in Subsection 5(c) hereof), in which case the Executive shall be
entitled to his Monthly Base Salary earned through the date of
termination and any cash bonus awards previously earned but not paid.
d. Termination Without Just Cause.
If the Executive's employment with the Company is terminated
by the Company for reasons other than those set forth in
Subsection 5(c) hereof or if there is a Termination with Just
Cause by the Executive, then:
(1) the Executive shall be entitled to receive the
full amount of any Monthly Base Salary and cash
bonus awards which otherwise would have been
earned by him during the full term of this
Agreement or for a twenty-four (24) month period,
whichever is longer. The computation of the cash
bonus awards will be determined in the same
manner that they would have been computed by the
Company prior to Executive's termination or any
new Company bonus plan,
- 3 -
<PAGE> 4
whichever is greater, but in no event will that
amount be less than the highest amount paid in
the prior three (3) years;
(2) all rights of the Executive under any benefit
plan or arrangement, which have not vested, shall
be deemed to have vested as of the date of such
termination, and the Company shall cause all
benefits vested and deemed to be vested
thereunder to be paid to the Executive pursuant
thereto;
(3) to the extent provided for in any stock option
plan or other arrangement, all rights of the
Executive, which have not yet vested thereunder,
shall be deemed to have vested as of the date of
such termination and the Executive shall be
entitled to exercise any such options pursuant to
the terms thereof; and
(4) for the period applicable, 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 Just Cause hereunder, it is hereby
agreed that following (i) the acquisition by any person or entity or
affiliated group of persons or entities of more than fifty percent (50%)
of the then outstanding shares of common stock of the Company or (ii)
the sale, transfer or other disposition, in one or more related
transactions, by the Company of all or substantially all of the assets
of the Company to an unaffiliated party, shall be considered Termination
Without Just Cause.
6. Corporate Indemnification.
The Executive, in connection with the performance of his duties as an
officer and director of the Company, shall be indemnified to the fullest extent
provided under the laws of the State of Delaware and the Certificate of
Incorporation and By-Laws of the Company, and shall be provided the directors'
and officers' insurance maintained by the Company.
7. 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 variety and craft business on a full
store basis, without limitation, the Company's existing and
- 4 -
<PAGE> 5
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
variety and craft business on a full store basis of 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 7 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.
8. Noncompetition. Executive agrees that during the term of this
Agreement and for two years thereafter, Executive shall not in the United States
(i) become involved, directly or indirectly, as a director, officer, employee,
consultant, agent, representative, more than five percent (5%) stockholder or
partner of a corporation or partnership of other business enterprise engaged in
the variety and craft business on a full store basis and (ii) directly or
indirectly, hire or seek to hire for purposes of competing in the variety and
craft business on a full store basis 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.
9. Remedies. In the event that Executive breaches any of the
provisions of Sections 7 or 8 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.
- 5 -
<PAGE> 6
10. Legal Construction. The parties hereto agree that if at any time
it shall be determined that the restrictions contained in Section 8 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.
11. Injunctive Relief. Notwithstanding anything contained in this
Agreement to the contrary, in the event of a breach of the provisions of
Sections 7 or 8 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.
12. Attorneys' Fees. In the event there is litigation between the
Company and Executive concerning this Agreement, the Company agrees to pay
Executive's attorneys' fees and other litigation costs on an "as incurred"
basis. Executive will reimburse to the Company such fees and costs if the
Company prevails on all issues in the litigation.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
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<PAGE> 7
18. 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.
19. 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:
Ben Franklin Retail Stores, Inc.
500 East North Avenue
Carol Stream, Illinois 60188
Attention: Richard T. Krubeck
Senior Vice President and General Counsel
b. if to Executive:
Abbey J. Butler
207 Dune Road, Box 137
Westhampton Beach, NY 11978
20. 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.
21. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
22. Governing Law. This Agreement and all performance hereunder shall
be governed by and construed in accordance with the laws of the State of
Illinois without regard to the principles of conflict of laws thereof.
23. 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.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
Ben Franklin Retail Stores, Inc.
By:
-----------------------------------
John B. Menzer
-----------------------------------
Abbey J. Butler
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<PAGE> 1
EXHIBIT 10-AK
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 27, 1995, is entered into by and between Ben Franklin Retail Stores,
Inc., a Delaware corporation (the "COMPANY") and Melvyn J. Estrin ("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 January 31,
1998 (the "TERM OF EMPLOYMENT"). Notwithstanding the foregoing, the term of
this Agreement shall be extended by one (1) month for each month that expires
under this Agreement.
3. Position and Responsibilities . The Company hereby employs
Executive to serve as Co-Chairman of the Company. Executive shall have such
duties related to the strategic business operations and general management of
the Company.
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 $9,000.00 (the same, as it may be
adjusted from time to time, is collectively 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.
c. The Company shall reimburse the Executive for any and
all reasonable expenses incurred by the Executive in connection with
the performance of his duties hereunder, subject to such supporting
evidence thereof as may be reasonably required by the Company.
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, the Executive's estate shall be entitled to
receive the full amount of any Monthly Base Salary and cash bonus awards which
otherwise would have been earned by Executive during the full term of this
Agreement.
b. Termination Upon Disability . The Company shall have
the right to terminate this Agreement upon the "Total and Permanent Disability"
of Executive by providing ten (10) days written notice to Executive. "TOTAL AND
PERMANENT DISABILITY" shall mean the Executive is unable to perform the duties
of his position due to a medically demonstrable physical or mental condition
which is expected to be permanent and continuous during the remainder of the
Executive's life. In the event of termination upon Total and Permanent
Disability, Executive shall be entitled to receive the full amount of any
Monthly Base Salary and cash bonus awards which otherwise would have been earned
by Executive during the full term of this Agreement (reduced by any amounts
payable to Executive as disability benefits under any Company plan).
c. Termination With Just Cause . "TERMINATION WITH JUST
CAUSE" by the Company shall mean termination of the Executive's employment due
to the Executive's:
(i) willful misconduct or gross negligence in the
performance of his duties hereunder;
(ii) intentional neglect of his duties hereunder;
(iii) commission of any act or material misconduct which is
injurious to the Company, including the misappropriation of
funds, the disclosure of trade secrets or other confidential or
proprietary information in violation of Section 7 of this
Agreement;
(iv) deliberate and intentional refusal to perform his
duties and obligations hereunder; or
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<PAGE> 3
(v) the Executive's conviction, which is final, of a crime
involving an act or acts of dishonesty or moral turpitude.
PROVIDED, HOWEVER, that in the case of the events specified
in subparagraphs (i) through (iv) above, termination shall be
within the definition of "termination with just cause" only in
the event that the Company has advised the Executive in writing
of the acts set forth and the Executive has failed to remedy
the situation giving rise to termination within sixty (60) days
following such notice.
In any event, the Company shall by written notice to the
Executive, specify the event relied upon for Termination With Just
Cause, pursuant to any of the foregoing provisions, and the Executive's
employment hereunder shall be deemed terminated as of the date of such
notice, in the case of Subsection (v) above and sixty (60) days after
such notice, in the event of the Executive's failure to remedy the
situations delineated in Subsections (i) through (iv) above.
In no event shall a Termination with Just Cause be deemed to
have occurred if the employment of the Executive is terminated because
his position is eliminated for any reason.
"TERMINATION WITH JUST CAUSE BY THE EXECUTIVE" shall mean
termination by the Executive in the event that the Executive is
removed, without his consent as the Co-Chairman of the Board of the
Company.
This Agreement may be terminated with just cause by the Company
(as defined in Subsection 5(c) hereof), in which case the Executive
shall be entitled to his Monthly Base Salary earned through the date of
termination and any cash bonus awards previously earned but not paid.
d. Termination Without Just Cause .
If the Executive's employment with the Company is
terminated by the Company for reasons other than those
set forth in Subsection 5(c) hereof or if there is a
Termination with Just Cause by the Executive, then:
(1) the Executive shall be entitled to
receive the full amount of any
Monthly Base Salary and cash bonus
awards which otherwise would have
been earned by him during the full
term of this Agreement or for a
twenty-four (24) month period,
whichever is longer. The computation
of the cash bonus awards will be
determined in the same manner that
they would have been computed by the
Company prior to Executive's
termination or any new Company bonus
plan,
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<PAGE> 4
whichever is greater, but in no event
will that amount be less than the
highest amount paid in the prior
three (3) years;
(2) all rights of the Executive under any
benefit plan or arrangement, which
have not vested, shall be deemed to
have vested as of the date of such
termination, and the Company shall
cause all benefits vested and deemed
to be vested thereunder to be paid to
the Executive pursuant thereto;
(3) to the extent provided for in any
stock option plan or other
arrangement, all rights of the
Executive, which have not yet vested
thereunder, shall be deemed to have
vested as of the date of such
termination and the Executive shall
be entitled to exercise any such
options pursuant to the terms
thereof; and
(4) for the period applicable, 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 Just Cause hereunder, it is
hereby agreed that following (i) the acquisition by any person or
entity or affiliated group of persons or entities of more than fifty
percent (50%) of the then outstanding shares of common stock of the
Company or (ii) the sale, transfer or other disposition, in one or more
related transactions, by the Company of all or substantially all of the
assets of the Company to an unaffiliated party, shall be considered
Termination Without Just Cause.
6. Corporate Indemnification .
The Executive, in connection with the performance of his duties as an
officer and director of the Company, shall be indemnified to the fullest extent
provided under the laws of the State of Delaware and the Certificate of
Incorporation and By-Laws of the Company, and shall be provided the directors'
and officers' insurance maintained by the Company.
7. 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 variety and craft business on a full
store basis, without limitation, the Company's existing and
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<PAGE> 5
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
variety and craft business on a full store basis of 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 7 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.
8. Noncompetition. Executive agrees that during the term of
this Agreement and for two years thereafter, Executive shall not in the United
States (i) become involved, directly or indirectly, as a director, officer,
employee, consultant, agent, representative, more than five percent (5%)
stockholder or partner of a corporation or partnership of other business
enterprise engaged in the variety and craft business on a full store basis and
(ii) directly or indirectly, hire or seek to hire for purposes of competing in
the variety and craft business on a full store basis 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.
9. Remedies. In the event that Executive breaches any of the
provisions of Sections 7 or 8 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.
- 5 -
<PAGE> 6
10. Legal Construction. The parties hereto agree that if at any
time it shall be determined that the restrictions contained in Section 8 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.
11. Injunctive Relief. Notwithstanding anything contained in
this Agreement to the contrary, in the event of a breach of the provisions of
Sections 7 or 8 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.
12. Attorneys' Fees. In the event there is litigation between
the Company and Executive concerning this Agreement, the Company agrees to pay
Executive's attorneys' fees and other litigation costs on an "as incurred"
basis. Executive will reimburse to the Company such fees and costs if the
Company prevails on all issues in the litigation.
13. 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.
14. 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.
15. 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.
16. 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.
17. 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.
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<PAGE> 7
18. 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.
19. 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:
Ben Franklin Retail Stores, Inc.
500 East North Avenue
Carol Stream, Illinois 60188
Attention: Richard T. Krubeck
Senior Vice President and General
Counsel
b. if to Executive:
Melvyn J. Estrin
6508 Kenhill Road
Bethesda, Maryland 20817
20. 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.
21. Amendments. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
22. Governing Law. This Agreement and all performance hereunder
shall be governed by and construed in accordance with the laws of the State of
Illinois without regard to the principles of conflict of laws thereof.
23. 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.
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<PAGE> 8
IN WITNESS WHEREOF, the parties have executed this Agreement on
the date and year first above written.
Ben Franklin Retail Stores, Inc.
By:
--------------------------
John B. Menzer
--------------------------
Melvyn J. Estrin
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<PAGE> 1
EXHIBIT 10-AL
AMENDED AND RESTATED
REVOLVING LOAN AGREEMENT
This Amended and Restated Revolving Loan Agreement ("Agreement"),
dated as of January 1, 1995, is entered into by and between FoxMeyer
Corporation, a Delaware corporation formerly known as FoxMeyer Acquisition Corp.
("Lender"), and FoxMeyer Health Corporation, a Delaware corporation formerly
known as National Intergroup, Inc. ("Borrower").
WHEREAS, Borrower and Lender are parties to a Loan Agreement dated
as of November 25, 1992, as amended by letter agreements dated April 21, 1993,
September 30, 1993 and December 17, 1993 (as amended, the "Original Agreement"),
pursuant to which Lender made a secured term loan to Borrower; and
WHEREAS, Borrower and Lender desire to amend and restate the
Original Agreement on the following terms and conditions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Borrower and Lender
agree to amend the Original Agreement and restate it in its entirety to read as
follows:
ARTICLE I
Amount and Terms of Credit
1.1. Revolving Loan. Upon the terms and subject to the conditions set
forth in this Agreement, Lender agrees to make loans (the "Loan" or "Loans") to
Borrower at any time and from time to time before December 15, 1996 (the
"Termination Date") and in accordance with Section 1.2 hereof, not to exceed at
any one time outstanding from Borrower $30,000,000 (the "Commitment"). Borrower
shall have the right to borrow, repay and reborrow up to the amount of the
Commitment. The Loans shall be evidenced by, and shall bear interest and be
payable as provided in, the note of Borrower of even date herewith (the "Note").
1.2. Making of the Loans. Each Loan shall be made by Lender (a) within
four business days (or such shorter period as Lender may permit) after the date
of receipt by Lender of a completed and executed certificate ("Loan Request
Certificate") substantially in the form of Exhibit A hereto, and (b) by wire
transfer of immediately available funds to such account, and in such amount, as
Borrower specifies in the Loan Request Certificate; provided, however, that no
Loan shall be made in principal amount of less than $100,000.
<PAGE> 2
1.3 Loan Maturity. The principal amount of the Note, together with all
accrued and unpaid interest thereon, shall be due and payable in full on the
Termination Date. Notwithstanding anything to the contrary contained herein,
Lender may declare any or all of the entire unpaid principal amount of the Note,
together with all accrued and unpaid interest thereon, immediately due and
payable if payment of any or all of the amounts due from Lender under the
Amended and Restated Loan Agreement (as amended, restated, extended or renewed,
the "FoxMeyer Loan Agreement") dated as of April 29, 1993 by and among FoxMeyer
Corporation, Citicorp USA, Inc., as agent, NationsBank of Texas, N.A., as
co-agent, and the other lenders party thereto, is accelerated for any reason
whatsoever.
1.4. Use of Proceeds. Borrower shall use all proceeds of the Loans for
working capital requirements or general corporate purposes of Borrower.
Notwithstanding the foregoing, Borrower shall not use any proceeds of the Loans
(i) to retire, repurchase, redeem, or otherwise acquire shares of its capital
stock or (ii) to acquire any margin security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934, as amended, in
contravention of Regulation G, T, U, or X issued by the Board of Governors of
the Federal Reserve System.
1.5. Interest.
(a) Borrower shall pay interest to Lender on the aggregate
outstanding principal amount of the Loans at a rate (the "Rate") per annum equal
to the sum of 2.0% plus the annual effective interest rate in effect on the
first day of each calendar quarter commencing on January 1, 1993, under (i) the
Note Agreements dated as of April 15, 1993 between Lender and each purchaser
party thereto with respect to Lender's $198,000,000 7.09% Senior Notes Due April
15, 2005, or (ii) if such 7.09% Senior Notes are no longer outstanding, the loan
having the longest term maturity date under Lender's then existing credit
facilities. Such interest shall be calculated based on the daily aggregate
outstanding principal amount of the Loans and on a 360-day year, for actual days
elapsed.
(b) Borrower shall pay interest at the Rate on the Loans
quarterly in arrears on the second to last business day of each March, June,
September, and December.
(c) Notwithstanding anything to the contrary set forth in this
Agreement or in the Note, if at any time before payment in full of the Loans,
the Rate exceeds the highest rate of interest permissible under any law which a
court of competent jurisdiction shall, in a final determination, deem applicable
hereto (the "Maximum Lawful Rate"), then in such event and so long as the
Maximum Lawful Rate would be so exceeded, the rate of interest payable hereunder
with respect to the affected Note shall be equal
2
<PAGE> 3
to the Maximum Lawful Rate; provided, however, that if at any time thereafter
the Rate is less than the Maximum Lawful Rate, Borrower shall continue to pay
interest hereunder with respect to the affected Note at the Maximum Lawful Rate
until such time as the total interest received by Lender on the Loans is equal
to the total interest which Lender would have received if the Rate had been in
effect at all times. Thereafter, the interest rate payable hereunder shall be at
the Rate unless and until the Rate again exceeds the Maximum Lawful Rate, in
which event this Section 1.5(c) shall again apply. In no event shall the total
interest received by Lender pursuant to the terms hereof exceed the amount of
interest that would have been due hereunder if interest had been payable at the
Maximum Lawful Rate. Lender hereby notifies and discloses to Borrower that, for
purposes of Tex. Rev. Civ. Stat. Ann. art. 5069-1.04, as it may be amended from
time to time, the applicable rate ceiling shall be the "indicated rate" ceiling
from time-to-time in effect as limited by art. 5069-1.04(b); provided, however,
that, to the extent permitted by applicable law, Lender shall have the right to
change the applicable ceiling rate from time to time in accordance with
applicable law.
1.6. Receipt of Payments. Borrower shall make each payment under this
Agreement on the day when due by wire transfer of immediately available funds to
such account as Lender specifies to Borrower.
1.7. Indemnity. Borrower shall indemnify Lender and hold Lender
harmless from and against any and all suits, actions, proceedings, claims,
damages, losses, liabilities, and expenses (including, without limitation,
reasonable attorneys' fees and disbursements, including those incurred upon any
appeal) which may be instituted or asserted against or incurred by Lender as the
result of (a) entering into this Agreement, the Pledge Agreement dated as of
January 1, 1995 between Lender and Borrower, or the Note (collectively, the
"Loan Documents") or extending credit hereunder; provided, however, that
Borrower shall not be liable for such indemnification to Lender to the extent
that any such suit, action, proceeding, claim, damage, loss, liability or
expense results from Lender's gross negligence or wilful misconduct; or (b) any
breach by Borrower of any representation, warranty, or covenant made by Borrower
in this Agreement.
1.8. Taxes. Borrower agrees to pay present or future stamp or
documentary taxes or any other excise taxes, charges, or other similar imposts
that arise from any payment made hereunder or under the Note or from the
execution, sale, transfer, delivery, or registration of, or otherwise with
respect to, the Loan Documents or any other agreements or instruments
contemplated thereby. Borrower shall indemnify Lender and hold Lender harmless
from and against any and all such taxes whether or not such taxes were properly
or legally asserted. Such indemnification shall be made within 30 days from the
date Lender makes written demand therefor.
3
<PAGE> 4
ARTICLE II
Security
2.1. To secure the prompt and complete payment and performance by
Borrower of the Loan, Borrower has executed and delivered the Pledge Agreement
between Lender and Borrower dated as of January 1, 1995 (the "Pledge
Agreement").
ARTICLE III
Conditions Precedent
The obligations of Lender hereunder to make Loans are subject to the
fulfillment, on or before the making of each Loan, of each of the following
conditions (all or any of which may be waived in whole or in part by Lender).
3.1. Loan Request Certificate. Borrower shall have completed, executed,
and delivered a Loan Request Certificate.
3.2. Representations and Warranties. All of the representations and
warranties made by Borrower in this Agreement and the Pledge Agreement shall be
true in all material respects as of the date of each Loan advance as though such
representations and warranties were made on and as of such date, except to the
extent that any such representation or warranty expressly relates to a specified
date.
3.3. Event of Default. No event shall have occurred and be continuing,
or would occur as a result of a Loan advance, that constitutes or would
constitute (with or without notice or lapse of time or both) an Event of Default
(as hereinafter defined).
3.4. Loan Amount. The aggregate principal amount of all Loans advanced
(including the principal amount of the Loan being requested) shall not exceed
$30,000,000.
3.5. Regulation G. Borrower shall have completed and executed such
forms as may be required under Regulation G issued by the Board of Governors of
the Federal Reserve System to permit the transactions contemplated hereby.
ARTICLE IV
Representations and Warranties of Borrower
Borrower hereby represents and warrants to Lender as follows:
4
<PAGE> 5
4.1. Organization. Borrower is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Delaware and is
duly qualified to do business as a foreign corporation and is in good standing
in each jurisdiction in which the ownership or use of its assets or properties,
or the conduct or nature of its business, makes such qualification necessary.
4.2. Authority. Borrower has full corporate power and authority to
enter into the Loan Documents and to perform its obligations thereunder. The
execution, delivery and compliance by Borrower with the terms of the Loan
Documents and the performance by Borrower of its obligations thereunder have
been duly and validly authorized by all necessary corporate action on the part
of Borrower. The Loan Documents have been duly and validly executed and
delivered by Borrower, and constitute legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their respective terms
except to the extent that (a) enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer, or
similar laws now or hereafter in effect relating to or limiting creditors'
rights generally and (b) the remedy of specific performance and injunctive and
other forms of equitable relief are subject to certain equitable defenses and to
the discretion of the court before which any proceeding therefor may be brought.
4.3. No Conflicting Agreements. Neither the execution and delivery by
Borrower of any Loan Document nor the performance by Borrower of its obligations
under any Loan Document will:
(a) violate any law, writ, judgment, order, injunction, or decree
applicable to Borrower or any of its assets or properties (including without
limitation Regulation G, T, U, or X issued by the Board of Governors of the
Federal Reserve System);
(b) conflict with or result in or constitute a violation under
the articles of incorporation or bylaws of Borrower;
(c) result in the creation or imposition of any lien or other
encumbrance upon Borrower or any of its assets or properties (except pursuant to
the Pledge Agreement) or conflict with or result in or constitute a violation,
breach, or default under, or give to any person or entity any right of
termination, cancellation, acceleration, or modification in or with respect to,
any agreement to which Borrower is a party or by which any of its assets or
properties may be bound; or
(d) require Borrower to obtain any consent, approval, or action
of, or make any filing with or give any notice to, any person or entity.
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<PAGE> 6
4.4. Compliance with Laws. Borrower is not in violation (or with or
without notice or lapse of time or both, would be in violation) of any law,
writ, judgment, order, injunction, or decree applicable to its business,
operations, or affairs which violation would have a material adverse effect on
the business, operations, or financial condition of Borrower.
4.5. Financial Statements. Borrower has previously delivered to Lender
a true and complete copy of Borrower's quarterly report on Form 10-Q for the
quarter ended December 31, 1994 as filed with the Securities and Exchange
Commission. All financial statements contained in such report were prepared in
accordance with generally accepted accounting principles, consistently applied
("GAAP"), and fairly present the financial position of the entities covered
thereby as of the date thereof and the results of operations of the entities
covered thereby for and during each of the periods covered thereby.
4.6. No Undisclosed Liabilities. Except as disclosed in the balance
sheet of Borrower contained in Borrower's quarterly report on Form 10-Q for the
quarter ended December 31, 1994, as of December 31, 1994, Borrower had no
liabilities required by GAAP to be disclosed on the face of the balance sheet of
Borrower or in the footnotes related thereto. Since December 31, 1994, Borrower
has not incurred any material liabilities required by GAAP to be disclosed on
the face of the balance sheet of Borrower or in the footnotes related thereto
other than in the ordinary course of business.
4.7. Taxes. Borrower has filed all tax returns required to have been
filed and has paid all taxes shown to be due and payable on such returns,
including interest and penalties, and all other taxes which are payable by it,
to the extent the same have become due and payable and are not being contested
in good faith, except for such tax returns or taxes which the failure to file or
pay would not have a material adverse effect on the business, operations, or
financial condition of Borrower. Borrower is not aware of any proposed tax
assessment against it, and all tax liabilities of Borrower are adequately
provided for in accordance with GAAP. No income tax liability of Borrower has
been asserted by the Internal Revenue Service for taxes in excess of those
already paid, except as is being contested by Borrower in good faith.
4.8. Benefit Plans. Schedule 1 hereto sets forth as of October 20, 1992
all "employee benefit plans," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), with respect to
which Borrower or any other person or entity which is a member of a "controlled
group" including, or under common control with, Borrower within the meaning of
Sections 414(b) and (c) of the Internal Revenue Code of 1986, as amended (the
"Code") ("Group Member"), has any direct,
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<PAGE> 7
indirect, or contingent liability (other than any such plans maintained,
sponsored, or contributed to by Lender or by any subsidiary of Lender ("Lender
Subsidiary") of which Lender owns 80% or more of the common stock) ("Benefit
Plans"). Each such Benefit Plan has been maintained at all times in compliance,
in all material respects, with its provisions and applicable law, including
without limitation, compliance with the applicable provisions of ERISA
(including without limitation such provisions of ERISA as could cause or
increase the direct, indirect, or contingent liability of any Group Member with
respect to such Benefit Plan). Except for the Benefit Plans listed on Schedule
1 hereto that are identified either as a "multiemployer plan" or a
"single-employer plan," as those terms are defined in Section 3(35) of ERISA,
none of the Benefit Plans is subject to the provisions of Title IV of ERISA.
None of the Benefit Plans is an "employee stock ownership plan" as defined in
Section 4975(e)(7) of the Code. Except as set forth on Schedule 1 hereto, no
Group Member has provided, or agreed to provide, medical benefits to any former
employee or dependent of such employee for periods subsequent to the severance
of such employee's employment, other than as specifically required under Section
4980B of the Code. There has been no material prohibited transaction (within
the meaning of Section 406 of ERISA or Section 4975 of the code) with respect to
any Benefit Plan. With respect to those Benefit Plans identified on Schedule 1
hereto which, as of the close of their respective plan years next preceding
October 20, 1992, have accrued liabilities in excess of the fair market value of
their assets, the remainder of (a) the aggregate accrued liabilities of all such
Benefit Plans determined as of the end of their respective plan years next
preceding October 20, 1992, minus (b) the aggregate fair market value of the
assets of all such Benefit Plans as of the end of such respective plan years,
did not exceed $500,000. There has been no material increase in the amount of
the accrued liabilities, or decrease in the fair market value of the assets, of
the Benefit Plans since the close of its plan year next preceding October 20,
1992.
4.9. Material Changes. Since December 31, 1994:
(a) there has not been, occurred, or arisen any change in, or any
event (including without limitation any damage, destruction, or loss, whether or
not covered by insurance), condition, circumstance, or development of any
character that, individually or in the aggregate, has or may reasonably be
expected to have a material adverse effect on the business, operations, or
financial condition of Borrower; and
(b) Borrower has conducted its business, operations, and affairs
solely in the ordinary course of business and consistent with past practice.
7
<PAGE> 8
4.10. Margin Regulations. Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (within
the meaning of Regulation G or U issued by the Board of Governors of the Federal
Reserve System).
ARTICLE V
Affirmative Covenants
Borrower hereby agrees that, so long as there is any principal amount
outstanding under the Note, Borrower will comply with the covenants of this
Article V, except to the extent that Lender may otherwise consent in writing.
5.1. Financial Statements.
(a) As promptly as practicable after the end of each fiscal
quarter of this Agreement, Borrower will deliver to Lender true and complete
copies of the unaudited consolidated balance sheet of Borrower and its
consolidated subsidiaries as of the end of each such fiscal quarter and the
related consolidated statement of operations of Borrower and its consolidated
subsidiaries for the quarter then ending, together with any notes thereto.
(b) As promptly as practicable after the end of each fiscal year
of this Agreement, Borrower will deliver to Lender true and complete copies of
the audited consolidated balance sheet of Borrower and its consolidated
subsidiaries as of the end of each such year and the related consolidated
statements of operations, stockholders' equity, and changes in financial
position of Borrower and its consolidated subsidiaries for the year then ending,
together with the notes thereto and the unqualified auditor's report thereon.
Each such financial statement will be prepared in accordance with GAAP and will
fairly present the consolidated financial position of the entities covered
thereby as of the date thereof and the consolidated results of operations (and
stockholders' equity and changes in financial position, as the case may be) of
the entities covered thereby for and during each of the periods covered thereby.
5.2. Conduct of Business; Compliance with Laws. Borrower shall (a)
conduct its business only in the ordinary course of business and consistent with
past practice, and (b) comply, in all material respects, with all laws, writs,
judgments, orders, injunctions, or decrees applicable to its business,
operations, or affairs.
5.3. Payment of Obligations. Borrower shall (a) pay and discharge all
its indebtedness, including without limitation its obligations under the Loans,
as and when due and payable, and (b) take all actions necessary to prevent the
occurrence of an
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<PAGE> 9
Event of Default or default or breach under any agreement relating to such
indebtedness.
5.4. Benefit Plans.
(a) Borrower shall make, or cause to be made, prompt payment of
all material contributions required to be made to meet applicable minimum
funding standards and contributions required under the terms of each Benefit
Plan and related contractual obligation.
(b) Borrower shall furnish (promptly after such failure) to
Lender notice of any failure of Borrower or any Group Member (other than Lender
and any Lender Subsidiary) to make a required installment or any other required
payment under Section 412 of the Code on or before the due date for such
installment or payment which would give rise to the assessment of a lien under
Section 302 of ERISA.
(c) Borrower shall furnish (promptly after knowledge) to Lender
notice of the occurrence of any event or condition which has the result that any
representation or warranty contained in Section 4.8 hereof or Section 5.12 of
the FoxMeyer Loan Agreement ceases to be true. Such notice shall specify the
nature of such event or condition and, to the extent such event or condition
would be reasonably expected to have a material adverse effect on the business,
operations, or financial condition of Borrower, include a description of the
action that Borrower or any Group Member (other than Lender and any Lender
Subsidiary) is taking or proposing to take with respect to such event or
condition and, when known, any action taken by the Internal Revenue Service or
the Department of Labor with respect thereto.
5.5 Taxes.
(a) Borrower shall pay, before any penalty or interest thereon,
all taxes of whatever form (including without limitation, all "Taxes" as such
term is defined in the Tax Sharing Agreement ("Tax Sharing Agreement") dated
November 25, 1992, as amended, among Lender, Borrower, and Borrower's other
consolidated subsidiaries) imposed upon Borrower by any applicable law, rule, or
regulation; provided, however, that Borrower shall not be required to pay any
such taxes if and to the extent that (i) the amount, applicability, or validity
thereof is currently (at the time in question) being contested in good faith by
appropriate action promptly initiated and diligently conducted and (ii) Borrower
shall have set aside on its books reasonable cash reserves (segregated to the
extent required by GAAP) that are adequate for the payment of such taxes; and
provided, further, however, that all such taxes shall in any event be paid by
Borrower forthwith upon the commencement of any proceedings to foreclose any
lien which may have attached as security therefor.
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<PAGE> 10
(b) Borrower shall promptly notify Lender of any taxes or claims
of a material nature contested by Borrower and the circumstances relating
thereto, in detail reasonably satisfactory to Lender.
ARTICLE VI
Negative Covenants
Borrower hereby agrees that, so long as there is any principal amount
outstanding under the Note, Borrower will comply with the covenants of this
Article VI, except to the extent that Lender may otherwise consent in writing.
6.1. Benefit Plans.
(a) Borrower shall refrain from taking, and shall cause each
Group Member (other than Lender and any Lender Subsidiary) to refrain from
taking, any action that will cause any representation or warranty contained in
Section 4.8 hereof or Section 5.12 of the FoxMeyer Loan Agreement to not be true
(except to the extent that such representation or warranty is expressly made
only in reference to a specific prior date).
(b) Borrower shall refrain from amending or modifying any Benefit
Plan which would have the effect of materially increasing (or creating) the
positive remainder, if any, of (i) the accrued liabilities of such Benefit
Plans, minus (ii) the fair market value of the assets of such Benefit Plans.
(c) Borrower shall refrain from adopting, and shall cause each
Group Member (other than Lender and any Lender Subsidiary) to refrain from
adopting, any Benefit Plan which has accrued liabilities materially exceeding
the fair market value of its assets as of the date of adoption.
6.2. Certain Actions. Borrower shall refrain from taking or failing to
take, and shall cause each Group Member to refrain from taking or failing to
take, any action that is permitted by the FoxMeyer Loan Agreement if such action
or omission would result in a breach of Section 6.1(e) or 6.2(p) of the FoxMeyer
Loan Agreement.
ARTICLE VII
Events of Default
7.1. Events of Default. An "Event of Default" shall exist if any one or
more of the following shall occur:
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<PAGE> 11
(a) Borrower shall fail to make any payment of principal or
interest with respect to the Loans on or before the date that such payment is
due and such failure has not been cured within 90 days after such failure;
(b) Borrower shall default on any indebtedness of Borrower for
borrowed money aggregating more than $5,000,000 (other than the Loans) and such
default has not been cured within 90 days after such default;
(c) Borrower shall fail to observe or perform any material
covenant or agreement contained in Article V or Article VI of this Agreement or
contained in the Pledge Agreement and such failure has not been cured within 60
days after such failure;
(d) any representation or warranty made by Borrower in this
Agreement or the Pledge Agreement shall be untrue in any material respect as of
the date when made or deemed made and such representation or warranty has not
been made true within 60 days after becoming untrue;
(e) any lien or security interest granted or purported to be
granted to Lender in the Pledge Agreement shall be invalid or unenforceable or
is not or ceases to be a perfected first priority lien, in favor of Lender,
against the asset pledged thereunder and such invalidity, unenforceability, or
cessation has not been cured within 60 days after occurrence;
(f) the dissolution, merger or consolidation of Borrower;
(g) the appointment of a receiver or conservator for all or part
of Borrower's assets and such receiver or conservator is not dismissed within 60
days after such appointment;
(h) any assignment for the benefit of creditors or any
commencement of any proceeding under any bankruptcy or insolvency law by or
against Borrower and, if such proceeding is commenced by any person or entity
other than Borrower, such proceeding is not dismissed within 60 days after the
entry or filing thereof;
(i) any levy on or any seizure or attachment of the collateral
pledged pursuant to the Pledge Agreement or any part thereof;
(j) the occurrence of any event, act, omission, rule, regulation,
statute or law (i) preventing Borrower from enforcing Lender's obligations to
make payments under the Tax Sharing Agreement, (ii) preventing Lender from being
eligible to be included in the consolidated federal income tax return for the
affiliated group of which Borrower is the common parent, or (iii) materially
limiting the use or availability of the net
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<PAGE> 12
operating losses of Borrower and its affiliates (other than Lender and its
affiliates) and the effect of such occurrence has not been cured within 90 days
after such occurrence; or
(k) (i) the occurrence of a "reportable event" described in
Section 4043(b)(1), (5), (6) or (9) of ERISA with respect to any Benefit Plan
(except that, with respect to a "multiemployer plan" as defined in Section
4001(a)(3) of ERISA, Borrower must have knowledge of such reportable event),
(ii) the occurrence or commencement of any proceeding that may reasonably be
expected to result in the termination of a Benefit Plan subject to the
provisions of Title IV of ERISA, or (iii) the incurrence of a withdrawal
liability under Section 4063, 4064 or 4201 of ERISA, provided that, in each of
clauses (i), (ii), and (iii) above, the aggregate liability incurred by Borrower
and any Group Member (other than Lender and any Lender Subsidiary) as a result
of such event or events, individually or collectively, shall exceed $1,000,000.
7.2 Rights Upon Default. If an Event of Default occurs, Lender may, in
its sole discretion, take any one or more of the following actions:
(a) without demand or notice of any nature whatsoever, declare
all or part of the outstanding principal amount of the Note immediately due and
payable (whereupon such amount shall be immediately due and payable);
(b) terminate its commitment to make further Loans;
(c) foreclose any or all liens in favor of Lender and otherwise
realize upon any and all rights that Lender may have in and to the collateral
pledged pursuant to the Pledge Agreement;
(d) if such Event of Default consists of the failure of Borrower
to make any payment of principal or interest with respect to the Loans on or
before the date that such payment is due, Lender may, without limiting any other
rights it may have under the law, reduce any amount that Lender owes (at the
time of such Event of Default) to Borrower under the Tax Sharing Agreement by an
amount not to exceed the amount of such payment provided and to the extent that
such reduction is not prohibited by the provisions of any loan agreement in
effect to which Borrower is a party (as a borrower) and has loans outstanding;
or
(e) exercise any and all other rights and remedies that Lender
may have under the Loan Documents or under applicable law.
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<PAGE> 13
ARTICLE VIII
Miscellaneous
8.1. Survival of Provisions.
(a) All representations and warranties made by Borrower in this
Agreement shall survive the execution and delivery of the Loan Documents, and
shall remain in full force and effect thereafter, until the repayment in full of
the Loans.
(b) All covenants and agreements made by Borrower in this
Agreement to be performed after the date hereof shall survive the date hereof,
and shall remain in full force and effect thereafter, until the expiration of
the terms or periods respectfully specified therein or (if there is no such
specified term or period) until the repayment in full of the Loans.
8.2. Expenses. Except as otherwise specifically provided in this
Agreement, each party hereto will pay its own expenses incurred or to be
incurred by it in negotiating this Agreement and in performing its obligations
under this Agreement.
8.3 Notices. Any notice or communication given pursuant to this
Agreement must be in writing and (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c) delivered by
overnight express, or (d) sent by registered or certified mail, postage prepaid,
as follows:
(i) If to Borrower:
FoxMeyer Health Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: John G. Murray
Facsimile number: 214/446-4221
(ii) If to Lender:
FoxMeyer Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: Kevin J. Rogan, Esq.
Facsimile number: 214/446-4295
All notices and other communications required or permitted under this Agreement
that are addressed as provided in this Section 8.3 will (A) if delivered
personally or by overnight express, be deemed given upon delivery; (B) if
delivered by telefacsimile or similar facsimile transmission, be deemed given
when
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electronically confirmed; and (C) if sent by registered or certified mail, be
deemed given when received. Any party from time to time may change its address
for the purpose of notices to that party by giving notice in accordance with
this Section 8.3 specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
8.4. Entire Agreement. This Agreement, together with the exhibits and
schedules hereto, constitutes the entire agreement between the parties hereto
with respect to the subject matter hereof and supersedes all prior
communications, agreements, understandings, representations, and warranties,
whether oral or written, between the parties hereto with respect to the subject
matter hereof, including without limitation the Original Agreement. There are
no oral or written agreements, understandings, representations, or warranties
between the parties hereto with respect to the subject matter hereof other than
those set forth in this Agreement.
8.5. Assignment and Amendment of Agreement. This Agreement will be
binding upon the parties hereto and their respective successors and permitted
assignees. Neither this Agreement, any part hereof, nor any right or obligation
hereunder may be assigned by any party hereto without the prior written consent
of the other party hereto (and any attempt to do so will be void). Neither
Lender nor Borrower will amend or modify any provision of this Agreement in
violation of Section 6.2(w) of the FoxMeyer Loan Agreement.
8.6. Governing Law. This Agreement will be governed by and construed
and enforced in accordance with the laws of the State of Texas (without regard
to the principles of conflicts of law) applicable to a contract executed and to
be performed in such state. The parties hereto agree that, except for Section
15.10(b) thereof, the provisions of Article 5069-15.01 et seq. of the Revised
Civil Statutes of Texas, 1925, as amended (regulating certain revolving credit
loans and revolving triparty accounts) shall not apply to the Loans or any Loan
Document.
8.7. No Third Party Rights. Except as set forth in the next sentence,
this Agreement is not intended and may not be construed to create any rights
(including third party beneficiary rights) in any parties other than Lender,
Borrower, and their respective successors and permitted assignees. The parties
hereto acknowledge and agree that the lenders that are parties to the FoxMeyer
Loan Agreement are third party beneficiaries with respect to the obligations of
the parties hereto contained in Section 8.5 hereof.
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<PAGE> 15
8.8. Incorporation of Exhibits. The exhibits attached hereto are hereby
incorporated into this Agreement and will be deemed a part hereof as if set
forth herein in full. In the event of any conflict between the provisions of
this Agreement and any such exhibit, the provisions of this Agreement will
control.
8.9. Headings, Gender, etc. The headings used in this Agreement have
been inserted for convenience and do not constitute matter to be construed or
interpreted in connection with this Agreement. Unless the context of this
Agreement otherwise requires, (a) words of any gender will be deemed to include
each other gender, (b) words using the singular or plural number also will
include the plural or singular number, respectively, (c) the terms "hereof,"
"herein," "hereby," "hereunder," "hereto," and derivative or similar words will
refer to this entire Agreement, (d) the terms "Article" or "Section" will refer
to the specified Article or Section of this Agreement, (e) the term "in the
ordinary course of business and consistent with past practice" will mean in the
ordinary course of the business, operations, and affairs of the person or entity
specified, in each case, consistent with past practices of such business,
operations, and affairs and consistent with all applicable laws, and (f) the
conjunction "or" will denote any one or more, or any combination or all, of the
specified items or matters involved in the applicable list.
8.10. Waiver and Remedies. Any term or condition of this Agreement may
be waived at any time by the party that is entitled to the benefit thereof. Any
such waiver will be in writing and will be executed by such party. A waiver on
one occasion will not be deemed to be a waiver of the same or any other breach
on a future occasion. All remedies, either under this Agreement or by law or
otherwise afforded, will be cumulative and not alternative.
8.11. Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (a) such provision will be fully
severable, (b) this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part hereof, (c) the
remaining provisions of this Agreement will remain in full force and effect and
will not be affected by the illegal, invalid, or unenforceable provision or by
its severance herefrom, and (d) in lieu of such illegal, invalid, or
unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid, and enforceable provision as similar in terms to such
illegal, invalid, or unenforceable provision as may be possible.
8.12. Further Assurances. Borrower shall, at any time and from time to
time upon the request of Lender, execute and deliver
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<PAGE> 16
such further documents and take such further actions as Lender may reasonably
request to effect the purposes of this Agreement (including without limitation
in connection with compliance with Regulation G issued by the Board of Governors
of the Federal Reserve System).
8.13. Counterparts. This Agreement may be executed simultaneously in one
or more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
IN WITNESS WHEREOF, each party hereto has duly executed and
delivered this Agreement effective as of January 1, 1995.
FOXMEYER CORPORATION
By: /s/ Peter B. McKee
----------------------------------
Name: Peter B. McKee
Title: Senior Vice President and
Chief Financial Officer
FOXMEYER HEALTH CORPORATION
By: /s/ John G. Murray
----------------------------------
Name: John G. Murray
Title: Assistant Treasurer
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SCHEDULE 1 - BENEFIT PLANS
National Intergroup, Inc. Retirement Plan (001)
The Retirement Savings Plan for Salaried Employees of National Intergroup, Inc.
(002)
Pension Plan for Hourly Employees of Salisbury and Sommerville Plants of
Republic Foil, Inc. (046)
National Steel Products Company Hourly Pension Plan (057)
National Intergroup, Inc. Pension Plan for Former Hourly Employees of NSSC
Houston Facility (063)
Retirement Savings Plan for Salaried Employees of National Aluminum Corporation
(067)
Program of Health Insurance for Eligible Hourly Retirees and Surviving Spouses
of National Steel Products Company (601)
Basic Life Insurance for Eligible Salaried Employees of National Intergroup,
Inc. (623)
Supplemental Life Insurance for Eligible Salaried Employees of National
Intergroup, Inc. (624)
Personal Accident Insurance for Eligible Salaried Employees of National
Intergroup, Inc. (625)
Long Term Disability Program for Eligible Salaried Employees of National
Intergroup, Inc. (626)
Program of Hospital and Related Benefits, Physicians' Services, Major Medical
and Dental Benefits for Eligible Salaried Employees of National Intergroup, Inc.
(627)
Travel Accident Insurance for Eligible Salaried Employees of National
Intergroup, Inc. (628)
Program of Health Insurance for Eligible Salaried Retirees and Surviving Spouses
of National Steel Products Company (629)
Program of Hospital, Physicians' Services and Major Medical Expense Benefits for
Eligible Pensioners and Surviving Spouses (under age 65) of National Intergroup,
Inc. (633)
Program of Hospital, Physicians' Services and Major Medical Expense Benefits for
Eligible Pensioners and Surviving Spouses (age 65 and older) of National
Intergroup, Inc. (634)
<PAGE> 18
Comprehensive Major Medical Plan for Eligible Pensioners and Surviving Spouses
of National Intergroup, Inc. (635) 1
Program of Retirement Life Insurance for Eligible Retirees of National
Intergroup, Inc. (638)2
National Intergroup, Inc. Special Severance Plan (639)
Weirton Liabilities Agreement Between National Intergroup, Inc. and Nippon
Kokkan K.K.
------------------
1. This plan provided medical coverage to retirees of National Intergroup,
Inc. and National Aluminum Corporation.
2. This plan provides life insurance coverage to retirees of National
Intergroup, Inc., National Aluminum Corporation and National Steel Products
Company.
<PAGE> 1
EXHIBIT 10-AM
AMENDED AND RESTATED PLEDGE AGREEMENT
THIS AMENDED AND RESTATED PLEDGE AGREEMENT ("Pledge Agreement"),
dated as of January 1, 1995, is made and entered into by and between FoxMeyer
Corporation, a Delaware corporation (the "Secured Party"), and FoxMeyer Health
Corporation, a Delaware corporation (the "Pledgor").
WHEREAS, the Secured Party and the Pledgor have entered into an
Amended and Restated Revolving Loan Agreement dated as of January 1, 1995 (the
"Loan Agreement"), pursuant to which the Secured Party has agreed to make Loans
(as defined in the Loan Agreement) to the Pledgor;
WHEREAS, as a condition to making the Loans, the Secured Party has
required the Pledgor to execute and deliver this Pledge Agreement to secure the
obligations of the Pledgor under the Loans;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Defined Terms. The following terms shall have the following
meanings unless otherwise defined:
"Collateral" includes
a. the shares of common stock of the Secured Party described in
Exhibit "A" hereto (the "Pledged Securities") and any and all rights
thereto and interests therein;
b. any and all substitutions, replacements, accessions
attachments, or revisions to the Pledged Securities or such rights
thereto or interests therein; and
c. any and all proceeds arising from or by virtue of the sale or
other disposition or collection of the Collateral described in clause
(a) or (b) preceding.
"Event of Default" shall have the meaning ascribed to it in the Loan
Agreement.
"Obligations" means all indebtedness, liabilities and obligations of the
Pledgor to the Secured Party, whether matured or unmatured, whether for
principal, interest, fees, expenses or otherwise, arising out of or in
connection with this Pledge Agreement, the Loan Agreement, the Loans or the Note
(as defined in the Loan Agreement).
<PAGE> 2
2. Grant of Security Interest.
a. As collateral security for the prompt and complete payment and
performance when due of all the Obligations, the Pledgor hereby pledges to the
Secured Party the Collateral and grants to the Secured Party liens on and
security interests (collectively, "Security Interests") on and in the
Collateral. The Pledgor hereby delivers the Pledged Securities to the Secured
Party, accompanied by a stock power in the form of Exhibit "B" hereto duly
executed in blank.
b. If the Pledgor shall become entitled to receive or shall receive,
in connection with any of the Collateral, any:
(1) stock certificate, including without limitation any
certificate representing a stock dividend or in connection with any
increase or reduction of capital, reclassification, merger,
consolidation, sale of assets, combination of shares, stock split,
spin-off or split-off; or
(2) option, warrant or right, whether as an addition to or in
substitution or exchange for any of the Collateral or otherwise;
then the Pledgor shall accept the same as the agent of the Secured Party, in
trust for the Secured Party, and shall deliver them forthwith to the Secured
Party in the exact form received, together with, as applicable, the Pledgor's
endorsement or (when necessary or appropriate) stock powers or other assignments
duly executed in blank, to be held by the Secured Party (subject to the terms
hereof) as part of the Collateral.
c. The Secured Party, at any time and from time to time at its option,
may have any or all of the Pledged Securities registered in the Secured Party's
name. If such registration is effected prior to the occurrence of an Event of
Default, the Pledgor shall nevertheless retain the right to vote the shares of
Pledged Securities and, for those purposes, the Secured Party shall execute and
deliver to the Pledgor all necessary proxies. Upon the occurrence of an Event of
Default and upon receipt by Pledgor of written notice from Secured Party,
whether or not the Pledged Securities shall have been registered in the name of
the Secured Party, the Secured Party shall have, with respect to the Pledged
Securities, the right to exercise all rights (including without limitation the
right to vote the Pledged Securities) and all conversion, exchange, subscription
or other rights, privileges or options pertaining thereto as if the Secured
Party were the absolute owner thereof, including without limitation the right,
if any, to exchange any or all of the Pledged Securities upon the merger,
consolidation, reorganization, recapitalization or other readjustment of the
issuer thereof, or upon the exercise by such issuer of any right, privilege or
option pertaining to any of the
2
<PAGE> 3
Pledged Securities, and, in connection therewith, to deliver any of the Pledged
Securities to any committee, depository, transfer agent, registrar or other
designated agency upon such terms and conditions as it may determine, all
without liability except to account for property actually received by the
Secured Party. Notwithstanding the foregoing, (i) the Secured Party shall have
no duty to exercise any of the rights, privileges, or options that it may
acquire pursuant to this Section 2(c) and shall not be responsible for any
failure to do so or any delay in so doing, and (ii) the Secured Party may
relinquish by written notice to the Pledgor, either partially or completely in
accordance with any terms or conditions the Secured Party may set forth in such
notice, any or all rights, privileges or options the Secured Party may acquire
pursuant to this Section 2(c).
d. Unless an Event of Default shall have occurred and be continuing,
the Pledgor shall be entitled, if not prohibited by any other applicable
agreement, to receive for the Pledgor's own use any cash dividends paid on the
Pledged Securities. Upon the occurrence of an Event of Default, the Secured
Party may require any such cash dividends to be delivered to the Secured Party
as additional security hereunder or applied toward the satisfaction of the
Obligations.
3. Remedies and Rights Upon Default.
a. Upon and after the occurrence of an Event of Default, the Secured
Party may, without demand of performance or other demand, advertisement or
notice of any kind (except the notice specified below of time and place of
public or private sale) to or upon the Pledgor or any other person (all of which
are, to the extent permitted by law, hereby expressly waived), forthwith realize
upon the Collateral or any part thereof and may forthwith, or agree to, sell or
otherwise dispose of and deliver the Collateral or any part thereof or interest
therein, in one or more parcels at a public or private sale or sales, at any
exchange or broker's board or at any of the Secured Party's offices or
elsewhere, at such prices and on such terms (including without limitation
requiring that any purchaser of all or any part of the Pledged Securities
purchase the shares constituting the Pledged Securities for investment and
without any intention to make a distribution thereof) as the Secured Party may
deem advisable, for cash or on credit, or for future delivery without assumption
of any credit risk, with the right to the Secured Party or any purchaser to
purchase upon any such sale the whole or any part of the Collateral, free of any
right or equity of redemption in the Pledgor, which right and equity are hereby
expressly waived and released.
b. The proceeds of any such disposition or other action by the Secured
Party shall be applied as follows:
3
<PAGE> 4
(1) first, to the costs and expenses (including reasonable
attorneys' fees and expenses) incurred in connection with or incidental to such
disposition or in any way relating to the rights of the Secured Party hereunder;
(2) second, to the satisfaction of the Obligations arising out of
or in connection with this Pledge Agreement or the Loans;
(3) third, to the payment of any other amounts required by
applicable law (including without limitation Section 9-504(1)(c) of the Texas
Uniform Commercial Code ("Code")); and
(4) fourth, to the Pledgor to the extent of any surplus proceeds.
c. The Secured Party need not give more than five days' notice of the
time and place of any public sale or of the time after which a private sale may
take place, which notice the Pledgor hereby deems reasonable.
4. Representations and Warranties of Pledgor. The Pledgor represents
and warrants as follows:
a. The Pledgor is the legal and beneficial owner of all the
Collateral.
b. All the Pledged Securities have been duly and validly issued, are
fully paid and nonassessable, and are owned by the Pledgor free of any claim,
lien, security interest, or other encumbrance on such securities or the proceeds
thereof, except for the Security Interests granted hereunder.
c. The Security Interests are first and prior security interests in
and to all the Collateral.
d. No dispute, right of setoff, counterclaim, or defense exists with
respect to all or any part of the Collateral. The delivery at any time by the
Pledgor to the Secured Party of Collateral shall constitute a representation and
warranty by the Pledgor under this Pledge Agreement that, with respect to such
Collateral and each item thereof, the matters heretofore warranted in this
Section 4 are true and complete.
5. Covenants of Pledgor. The Pledgor hereby covenants as follows:
a. Until all the Obligations have been satisfied in full, the Pledgor
will not sell, convey, or otherwise dispose of any of the Collateral or any
interest therein or create, incur, or permit to exist any pledge, mortgage,
lien, charge, claim, security interest, or other encumbrance whatsoever in or
with respect to any
4
<PAGE> 5
of the Collateral or the proceeds thereof, other than the Security Interests
granted herein.
b. The Pledgor will, at Pledgor's expense, defend the Secured Party's
right, title, special property, and Security Interests in and to the Collateral
against the claims of any person, firm, corporation, or other entity.
6. Registration Statement.
a. If the Secured Party shall elect to exercise its right to sell or
otherwise dispose of all or any part of the Pledged Securities, and if, in the
opinion of counsel for the Secured Party, it is necessary (i) to have the
Pledged Securities (or that portion thereof to be sold) registered under the
Securities Act of 1933, as amended (the "Securities Act"), or under other
applicable securities laws, or (ii) for filings or notices to be made or
delivered under applicable securities laws, the Pledgor will cooperate with the
Secured Party in (A) registering the Pledged Securities or such portion thereof
under the Securities Act and other applicable laws and (B) making or delivering
such filings or notices.
b. The Pledgor acknowledges that a breach of the covenant contained in
Section 6(a) above may cause irreparable injury to the Secured Party; that the
Secured Party will have no adequate remedy at law with respect to such breach;
and, as a consequence, that the Pledgor's covenant in Section 6(a) above shall
be specifically enforceable against the Pledgor. The Pledgor hereby expressly
waives, to the extent permitted by law, and shall not assert, any defenses
against an action for specific performance of such covenants, except for a
defense that no Event of Default has occurred.
c. Notwithstanding the foregoing, the Pledgor recognizes that the
Secured Party may be unable to effect a public sale of all or a part of the
Pledged Securities and may be compelled to resort to one or more private sales
to a restricted group of purchasers. The Pledgor acknowledges that any such
private sales may be at prices and on terms less favorable to the Secured Party
than those of public sales, and agrees that such private sales shall be deemed
to have been made in a commercially reasonable manner and that the Secured Party
has no obligation to delay the sale of any Pledged Securities to permit the
Pledged Securities to be registered for public sale under the Securities Act or
other applicable laws.
7. Notices Concerning Collateral. The Pledgor will promptly deliver
to the Secured Party all written notices, and will promptly give the Secured
Party written notice of any other notices, received by the Pledgor with respect
to any of the Collateral.
5
<PAGE> 6
8. Further Assurances. The Pledgor shall, at any time and from time
to time upon the request of the Secured Party, execute and deliver such further
documents and take such further actions as the Secured Party may reasonably
request to effect the purposes of this Pledge Agreement, including without
limitation delivering to the Secured Party upon the occurrence of an Event of
Default irrevocable proxies with respect to the Pledged Securities in form
satisfactory to the Secured Party. Until receipt thereof, this Pledge Agreement
shall constitute the Pledgor's proxy to the Secured Party to vote (in the Event
of Default) all shares of Pledged Securities then registered in the Pledgor's
name.
9. Termination. Upon the satisfaction in full of all the Obligations,
this Pledge Agreement shall terminate and the Secured Party shall deliver to the
Pledgor, at the Pledgor's expense, such of the Collateral as shall not have been
sold or otherwise applied pursuant to this Pledge Agreement.
10. Limitation on the Secured Party's Duty in Respect of Collateral.
a. Beyond the exercise of reasonable care to assure the safe custody
of the Collateral while held hereunder, the Secured Party shall have no duty or
liability to preserve rights pertaining thereto and shall be relieved of all
responsibility for the Collateral upon surrendering them or tendering surrender
of them to the Pledgor.
b. No course of dealing between the Pledgor and the Secured Party
shall operate as a waiver of any right, power, or privilege of the Secured Party
hereunder. Neither the failure to exercise nor the delay in exercising any
right, power, or privilege of the Secured Party hereunder shall operate as a
waiver of such right, power, or privilege or any other right, power, or
privilege of the Secured Party hereunder. No single or partial exercise of any
right, power, or privilege of the Secured Party hereunder shall preclude any
other or further exercise of such right, power, or privilege or the exercise of
any other right, power, or privilege of the Secured Party hereunder.
c. The rights and remedies provided herein or in the Loan Agreement,
or in any other agreement, instrument, or document delivered in connection with
the Loan Agreement are cumulative, are in addition to, and are not exclusive of
any rights or remedies provided by law, including without limitation the rights
and remedies of a secured party under the Code.
11. Severability. The provisions of this Pledge Agreement are
severable, and if any clause or provision hereof shall be held invalid or
unenforceable in whole or in part in any jurisdiction, then such invalidity or
unenforceability shall affect only such clause or provision or part thereof in
such jurisdiction and shall
6
<PAGE> 7
not in any manner affect such clause or provision in any other jurisdiction or
any other clause or provision in this Pledge Agreement in any jurisdiction.
12. Notices. Except as otherwise provided herein, any notice or
communication given pursuant to this Pledge Agreement must be in writing and (a)
delivered personally, (b) sent by telefacsimile or other similar facsimile
transmission, (c) delivered by overnight express, or (d) sent by registered or
certified mail, postage prepaid, as follows:
(i) If to Pledgor:
FoxMeyer Health Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: John G. Murray
Facsimile number: 214/446-4221
(ii) If to Secured Party:
FoxMeyer Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: Kevin J. Rogan, Esq.
Facsimile number: 214/446-4295
All notices and other communications required or permitted under this Pledge
Agreement that are addressed as provided in this Section 12 will (A) if
delivered personally or by overnight express, be deemed given upon delivery; (B)
if delivered by facsimile or similar facsimile transmission, be deemed given
when electronically confirmed; and (C) if sent by registered or certified mail,
be deemed given when received. Any party from time to time may change its
address for the purpose of notices to it by giving notice in accordance with
this Section 12 specifying a new address, but no such notice will be deemed to
have been given until it is actually received by the party sought to be charged
with the contents thereof.
13. Successors and Assigns. This Pledge Agreement shall inure to the
benefit of and shall be binding upon the successors and assigns of the parties
hereto. The rights, powers, and interests held by the Secured Party hereunder
(including without limitation to require the Pledged Securities to be registered
in the Secured Party's name), together with the Collateral, may be transferred
and assigned by the Secured Party, in whole or in part, at such time and upon
such terms as the Secured Party may deem advisable.
14. Governing Law. This Pledge Agreement shall be governed by and
construed and enforced in accordance with the laws of Texas
7
<PAGE> 8
(without regard to the principles of conflicts of law embodied therein)
applicable to contracts executed and performable in such state.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Pledge Agreement as of January 1, 1995.
SECURED PARTY:
FOXMEYER CORPORATION
By: /S/ Peter B. McKee
-------------------------------------
Name: Peter B. McKee
Title: Senior Vice President and
Chief Financial Officer
PLEDGOR:
FOXMEYER HEALTH CORPORATION
By: /s/ John G. Murray
------------------------------------
Name: John G. Murray
Title: Assistant Treasurer
8
<PAGE> 9
Exhibit "A"
PLEDGED SECURITIES
<TABLE>
<CAPTION>
Issuer Certificate No. No. of Shares
- ------ --------------- -------------
<S> <C> <C>
FoxMeyer Corporation Fox 160
----
</TABLE>
9
<PAGE> 1
EXHIBIT 10-AN
FIFTH AMENDMENT TO LOAN AGREEMENTr
This FIFTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into as of March 22, 1995, by and among FOXMEYER HEALTH CORPORATION
(f/k/a 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 (i)
First Amendment to Loan Agreement dated as of January 13, 1994, (ii) Second
Amendment to Loan Agreement dated as of September 6, 1994, (iii) Third Amendment
Agreement dated as of October 12, 1994 and (iv) Fourth Amendment to Loan
Agreement dated as of December 19, 1994 (as the same may be amended, renewed,
extended, restated or otherwise modified from time to time, 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 indebtedness of Borrower to the Banks pursuant to the Agreement
is evidenced by (i) a Promissory Note dated February 22, 1994, in the maximum
original principal amount of $10,000,000 made by Borrower and payable to the
order of Banque Paribas, and (ii) a Promissory Note dated February 22, 1994, in
the maximum original principal amount of $5,000,000 made by Borrower and payable
to the order of Credit Lyonnais New York Branch (as amended, renewed, extended,
restated, replaced or supplemented from time to time, whether by one or more
other promissory notes or otherwise and whether payable to the Banks identified
above or their successors or assigns, the "Notes").
C. Borrower has, effective as of October 12, 1994, changed its name
from "National Intergroup, Inc." to "FoxMeyer Health Corporation."
D. The Obligations (as such term is defined in the Agreement) are
secured by security interests evidenced and created by that certain Amended and
Restated Pledge and Security Agreement dated as of October 12, 1994, by and
between Borrower and Agent (the "Original Security Agreement") (as amended by
that certain First Amendment to Amended and Restated Pledge and Security
Agreement of even date herewith (the "Pledge Amendment"), as the same may be
further amended, renewed, extended, restated or otherwise modified from time to
time, the "Security Agreement") presently covering, in part, 150 shares of
common stock of FoxMeyer Corporation ("FoxMeyer"), which, as a result of a
reduction from 28,200,000 to 1,000 in the number of shares of common stock that
FoxMeyer is authorized to issue, are concurrently herewith being issued in
replacement of the 4,000,000 shares of FoxMeyer owned by Borrower and pledged to
Agent pursuant to the Original Security Agreement.
E. Borrower, Agent and Banks now desire to amend the Agreement as
herein set forth.
<PAGE> 2
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:
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).
2. Amendment to Section 1.2 of the Agreement. Effective as of the
date hereof, the definition of the term "Minimum Required Number" in Section 1.2
of the Agreement is amended and restated to read in its entirety 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, the greater of (a) 150 shares or (b) the smallest whole
number, calculated as of December 31, 1994, that shall result in the
Collateral Value of the shares of FoxMeyer Stock so pledged as being
equal to or greater than $60,000,000."
3. Effect of this Amendment. The Loan Documents (including, without
limitation, the Agreement as amended by this Amendment) shall remain in full
force and effect except that any reference in any Loan Documents to the
Agreement shall be deemed to refer the Agreement as amended by this Amendment.
4. Conditions Precedent. The effectiveness of this Amendment is
subject to the satisfaction of the following conditions precedent:
(a) Agent shall have received all of the following, each dated
(unless otherwise indicated) the date of this Amendment, in form and
substance satisfactory to Agent:
(i) Borrower Resolutions. Resolutions of the Board
of Directors of Borrower certified by its Secretary or an Assistant
Secretary which authorize the execution, delivery and performance by
Borrower of this Amendment and the other Loan Documents to which
Borrower is or is to be a party hereunder;
(ii) FoxMeyer Resolutions. Resolutions of the Board
of Directors of FoxMeyer certified by its Secretary or an Assistant
Secretary which authorize the reverse stock split described in Recital D
hereto;
(iii) Certificate of Incorporation. A certified copy
of the amendment to the certificate of incorporation of FoxMeyer
evidencing the reverse stock split described in Recital D hereto;
2
<PAGE> 3
(iv) Opinion of Counsel. A favorable opinion of legal
counsel to Borrower and FoxMeyer as to (A) the authorization, execution
and delivery of this Amendment and the Pledge Amendment and (B) such
other matters as Agent may reasonably request, including, without
limitation, the following:
(1) Borrower is duly organized, validly existing and
in good standing under the laws of the State of
Delaware.
(2) The execution, delivery and performance by
Borrower of the Amendment, the Pledge Amendment and the other
Loan Documents to which Borrower is a party and the
transactions thereunder have been duly authorized by all
necessary action on the part of Borrower and do not and will
not violate the articles of incorporation or bylaws of
Borrower or the provisions of any law or any rule, regulation
or order of any governmental authority and do not and will
not result in a breach or violation of, or constitute a
default under, or require any consent or result in the
creation of any lien, charge or encumbrance upon any of
Borrower's properties, revenues or assets under, any
agreement, instrument or document to which Borrower is a
party or by which Borrower or any of its properties may be
bound.
(3) The Amendment, the Pledge Amendment and the other
Loan Documents to which Borrower is a party have been duly
executed and delivered by Borrower and constitute the legal,
valid and binding obligations of Borrower enforceable against
Borrower in accordance with their respective terms, except as
the enforceability thereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to the enforcement of creditors' rights generally.
(4) There are no legal or arbitral proceedings, and
no proceedings by or before any governmental or regulatory
authority or agency, pending or, to our knowledge, threatened
against or affecting Borrower or any properties or rights of
Borrower, which if adversely determined, would have a
material adverse effect on the financial condition or
operations of Borrower.
(5) No authorization, consent, approval, license,
filing or registration with any governmental or regulatory
authority or agency is required in connection with the
execution, delivery or performance of Borrower of the
Amendment or the other Loan Documents thereunder to which
Borrower is a party.
3
<PAGE> 4
(6) The 150 shares of common stock of FoxMeyer
pledged pursuant to the Security Agreement are validly
issued, fully paid and nonassessable and represent a
specified percentage of the total number of shares of capital
stock of FoxMeyer issued and outstanding, such shares are
validly pledged pursuant to the Security Agreement and such
shares are not subject to any restrictions on transfers
except as expressly stated on the reverse side of the stock
certificate evidencing such shares.
(v) Stock Certificate. The stock certificate
representing the 150 shares of common stock of FoxMeyer pledged
pursuant to the Security Agreement;
(vi) Stock Power. A stock power executed in blank
with respect to the stock certificate representing the 150 shares of
common stock of FoxMeyer pledged pursuant to the Security Agreement;
and
(vii) Additional Information. Agent shall have
received such additional documents, instruments and information as
Agent or its legal counsel, Jenkens & Gilchrist, a Professional
Corporation, may request.
(b) The representations and warranties contained herein and in
all other Loan Documents, as amended hereby, shall be true and correct
as of the date hereof as if made on the date hereof;
(c) No Event of Default shall have occurred and be continuing
and no event or condition shall have occurred that with the giving of
notice or lapse of time or both would be an Event of Default; and
(d) All corporate proceedings taken in connection with the
transactions contemplated by this Amendment, the Pledge Amendment and
all other agreements, documents, instruments executed and/or delivered
pursuant hereto and all legal matters incident thereto, shall be
satisfactory to Agent and its legal counsel, Jenkens & Gilchrist, a
Professional Corporation.
5. 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 the
Agreement and in the Security 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, and (c) the Agreement, the Notes, the Security Agreement and the
other Loan Documents (as amended by this Amendment) are and remain legal, valid,
binding and enforceable obligations of Borrower.
4
<PAGE> 5
6. 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.
7. 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.
8. 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.
9. Agreement Remains in Effect; No Waiver. Except as expressly
provided herein, all terms and provisions of the Loan Documents 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.
10. 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).
5
<PAGE> 6
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:
FOXMEYER HEALTH CORPORATION,
(f/k/a National Intergroup, Inc.)
By: /s/
---------------------------------------
Name: John G.
-------------------------------------
Title: Assistant Treasurer
------------------------------------
AGENT:
BANQUE PARIBAS, as Agent for Banks
By: /s/ Kenneth E. Moore, Jr.
---------------------------------------
Name: KENNETH E. MOORE, JR.
-------------------------------------
Title: Vice President
-------------------------------------
By: /s/ Pierre Jean de Filippis
----------------------------------------
Name: PIERRE JEAN de FILIPPIS
--------------------------------------
Title: General Manager
-------------------------------------
6
<PAGE> 7
BANKS:
BANQUE PARIBAS
By: /s/ Kenneth E. Moore, Jr.
-----------------------------------------
Name: KENNETH E. MOORE, JR.
---------------------------------------
Title: Vice President
--------------------------------------
By: /s/ Pierre Jean De Filippis
-----------------------------------------
Name: PIERRE-JEAN de FILIPPIS
---------------------------------------
Title: General Manger
--------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Robert Ivosevich
-----------------------------------------
Name: ROBERT IVOSEVICH
---------------------------------------
Title: Senior Vice President
--------------------------------------
7
`
<PAGE> 1
EXHIBIT 10-AO
FIFTH AMENDMENT TO
AMENDED AND RESTATED LOAN AGREEMENT
THIS FIFTH AMENDMENT TO AMENDED AND RESTATED LOAN AGREEMENT (this
"Fifth Amendment") is dated as of April 26, 1995, 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. as Documentation Agent
("Documentation Agent").
WITNESSETH:
WHEREAS, FoxMeyer Corporation ("Old FoxMeyer"), Operating
Subsidiaries, Lenders and Issuer, and Administrative Agent and NationsBank of
Texas, N.A. and Banque Paribas, as Co-Agents, entered into an Amended and
Restated Loan Agreement dated as of April 29, 1993, as amended as of October
18, 1993, June 20, 1994 and August 26, 1994 (the "Amended and Restated Loan
Agreement"); on October 12, 1994, Old FoxMeyer was merged into Borrower and
Borrower succeeded to and assumed all of Old FoxMeyer's rights and obligations
under the Amended and Restated Loan Agreement; and Borrower, Operating
Subsidiaries, Lenders and Issuer, and Administrative Agent and Documentation
Agent entered into the Fourth Amendment to Amended and Restated Loan Agreement
dated as of November 22, 1994 (the Amended and Restated Loan Agreement, as so
amended, being herein referred to as the "Loan Agreement");
WHEREAS, Borrower has requested certain amendments to the Loan
Agreement;
WHEREAS, the Required Lenders, Issuer, Administrative Agent and
Documentation Agent have agreed to such amendments, 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. AMENDMENT OF SECTION 1.2. Section 1.2 of the Loan
Agreement is hereby amended by:
<PAGE> 2
(a) amending the definition of "Applicable Coverage
Ratio" to read in its entirety as follows:
Applicable Coverage Ratio. Means, as of any date,
the ratio of (a)(i) EBIT, plus (ii) amortization and
depreciation expense, plus (iii) the Development Cost Interest
Coverage Ratio Adjustment Amount, plus (iv) the Phar-Mor
Interest Coverage Ratio Adjustment Amount, of Borrower and the
Consolidated Subsidiaries for the 12 month period ended on
such date, to (b) Interest Expense, plus interest income then
being currently received (to the extent such income is netted
against interest charges in the definition of "Interest
Expense"), for such 12 month period.
(b) amending the definition of "Applicable Leverage
Ratio" to read in its entirety as follows:
Applicable Leverage Ratio. Means, as of any date,
the ratio of (i) the sum of (A) all consolidated Indebtedness
of Borrower and the Consolidated Subsidiaries (other than
obligations under any Interest Rate Protection Agreements and
Permitted Indebtedness referred to in clause (d) of the
definition thereof) as of such date (or in the case of up to
$6,000,000 in principal amount of Permitted Indebtedness
consisting of industrial development revenue bonds and notes
and mortgages, as of the end of the calendar month that
includes such date) plus (B) the aggregate amount paid by
purchasers of Receivables (and property of account debtors
securing such Receivables) or interests therein under the
Revolving Receivables Purchase Program to be recovered from
Receivables (and such property) outstanding as of such date to
(ii) the sum of (A) all consolidated Indebtedness of Borrower
and the Consolidated Subsidiaries (other than obligations
under any Interest Rate Protection Agreements and Permitted
Indebtedness referred to in clause (d) of the definition
thereof) as of such date (or in the case of up to $6,000,000
in principal amount of Permitted Indebtedness consisting of
industrial development revenue bonds and notes and mortgages,
as of the end of the calendar month that includes such date)
plus (B) the aggregate amount paid by purchasers of
Receivables (and property of account debtors securing such
Receivables) or interests therein under the Revolving
Receivables Purchase Program to be recovered from Receivables
(and such property) outstanding as of such date plus (C)
consolidated
2
<PAGE> 3
Net Worth of Borrower and the Consolidated Subsidiaries as of
the end of the calendar month that includes such date plus (D)
the amount of the Push Down Accounting Adjustment as of the
end of the calendar month that includes such date.
(c) amending the definition of "Consolidated Subsidiary"
to read in its entirety as follows:
Consolidated Subsidiary. Means, as of any date, any
Subsidiary of Borrower included as of such date in the
consolidated financial statements of Borrower prepared in
accordance with GAAP, and "Consolidated Subsidiaries" means
all of such Subsidiaries; provided that if FoxMeyer Canada
shall at any time be a Subsidiary of Borrower, FoxMeyer Canada
shall be deemed not to be a Consolidated Subsidiary so long as
the following conditions are satisfied: (a) neither Borrower
nor any of its Consolidated Subsidiaries shall have any
obligation or liability, contingent or otherwise, for the
Indebtedness or other obligations of FoxMeyer Canada other
than Borrower's obligations as co-lessee under the FMC
Operating Leases; (b) the aggregate amount of all expenditures
for equity investments in, and all loans or advances to,
FoxMeyer Canada ("FMC Investments"), in addition to the
$5,181,102 expended as of March 31, 1995, shall not exceed
$4,600,000; and (c) no FMC Investment shall be made if a
Potential Default or Event of Default then exists or would
exist. For the purposes of Sections 1.2, 6.2, and 6.3, the
assets, liabilities and results of operations of, and any
equity in, FoxMeyer Canada shall, to the extent not already
excluded by the terms of such Sections, be excluded from all
financial definitions, calculations, determinations and
presentations, except as provided in the definition of "Net
Worth" and except as required by Exhibit M hereto.
(d) amending the definition of "GAAP" to read in its
entirety as follows:
GAAP. Means generally accepted accounting
principles, applied on a consistent basis with Borrower's most
recent audited Financial Statements existing as of the
Restatement Date; and the requirement that such principles be
applied on a consistent basis means that the accounting
principles in a current period are comparable in all material
respects to those applied in a preceding period, with any
exceptions thereto noted; provided
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<PAGE> 4
that for the purpose of the Push Down Accounting Adjustment,
GAAP shall include the applicable requirements of Regulation
S-X of the Securities and Exchange Commission.
(e) amending the definition of "Net Worth" to read in its
entirety as follows:
Net Worth. Means, as of the date of any
determination, the remainder of (a) the total stockholder's
equity (including capital stock, additional paid-in capital
and retained earnings after deducting treasury stock) which
would appear on a consolidated balance sheet of Borrower and
the Consolidated Subsidiaries prepared as of such date in
accordance with GAAP, minus (b) to the extent not deducted
therefrom, the aggregate amount of all Redeemable Capital
Stock, minus (c) the aggregate amount of gain from the sale of
capital assets, gain from any write-up of assets and any other
non-operating or extraordinary gain reflected in total
stockholder's equity shown on such balance sheet; provided,
however, that:
(i) for purposes of the references to
Net Worth in the Solvency Certificate referred to in
Section 4.1(h) or required to be delivered on the
Fourth Amendment Date and the minimum Net Worth
requirement of each Operating Subsidiary set forth in
the second sentence of Section 6.2(e), Net Worth
shall be determined without subtraction of the items
described in clause (c) above and based upon the
financial condition of such Operating Subsidiary
only; and
(ii) for purposes of the ratio calculated
pursuant to Section 6.2(i) and the Applicable
Leverage Ratio, Net Worth shall be determined without
subtraction of the items described in clause (c)
above.
Notwithstanding the foregoing, in determining Net Worth, the
aggregate amount of the equity investment in, and the
principal amount of loans or advances to, FoxMeyer Canada by
Borrower and the Consolidated Subsidiaries shall be accounted
for in accordance with the equity method of accounting
(whether or not FoxMeyer Canada would, in accordance with
GAAP, be required to be accounted for on a consolidated
basis), except that the amount so accounted for shall not be
increased (or decreased) by the amount
4
<PAGE> 5
of any income (or loss) of FoxMeyer Canada after March 31,
1995. It is acknowledged that as of March 31, 1995, the
amount so accounted for is $4,912,128, representing the
remaining portion of the equity investment in FoxMeyer Canada
as of such date. In no event shall the amount so accounted
for in respect of FoxMeyer Canada exceed $9,512,128.
(f) amending the definitions of "Phar-Mor Debt Service
Coverage Ratio Adjustment Amount," "Phar-Mor Interest Coverage Ratio
Adjustment Amount" and "Phar-Mor Net Worth Adjustment Amount" by
deleting the amount "$50,000,000" therein and inserting in place
thereof the amount "$70,000,000."
(g) inserting the following definitions (in appropriate
alphabetical order):
FoxMeyer Canada. Means FoxMeyer Canada, Inc., an
Ontario corporation (formerly called Evans Health Group
Limited).
FMC Operating Leases. Means the operating or capital
leases between HP Finance and Central Capital Corp., as
lessors, and FoxMeyer Canada and Borrower, as co-lessees,
covering certain computer equipment, as in effect on March 31,
1995.
Push Down Accounting Adjustment. Means the decrease
in stockholders equity of Borrower and the Consolidated
Subsidiaries resulting from the application under GAAP of
purchase accounting to the extent required as a result of
Borrower's becoming a wholly owned Subsidiary of NII in
connection with NII's repurchase of the common stock of
Borrower, which decrease shall not exceed $22,000,000.
Service Fee Adjustment Amount . Means, for any
period, the service fee income currently received in cash from
customers of Borrower and the Consolidated Subsidiaries (but
only to the extent that such income can, in accordance with
GAAP, be included in interest income but has been included as
an offset to operating expense in the Financial Statements of
Borrower and the Consolidated Subsidiaries) during such period.
SECTION 3. AMENDMENT OF SECTION 2.2(d). Section 2.2(d) of the Loan
Agreement is hereby amended by deleting the text thereof in its entirety and
inserting in place thereof the following:
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<PAGE> 6
(d) Money Market Auction.
(i) On any Business Day, Borrower may
request a B Borrowing under this Section 2.2(d) by
telephone notice to Lenders and Administrative Agent,
referring to this Section 2.2(d) and specifying the
aggregate amount of the proposed B Borrowing, the
date of the proposed B Borrowing and the maturity
date for repayment of the B Advance to be made as
part of such B Borrowing (which maturity date shall
be a date occurring not less than one nor more than
29 days after the date of such B Borrowing, but not
later than the Termination Date). Borrower shall not
notify a Lender of such proposed B Borrowing if
Borrower and Administrative Agent shall have received
notice from such Lender that it elects not to be so
notified.
(ii) Each Lender so notified may, if, in
its sole discretion, it elects to do so, irrevocably
offer to make one or more B Advances to Borrower as
part of such proposed B Borrowing at a fixed rate of
interest (and, if different from that requested by
Borrower, a maturity date or maturity dates therefor
not less than one nor more than 29 days after the
date of such B Borrowing) specified by such Lender in
its sole discretion (but in no event at a rate in
excess of the Maximum Lawful Rate), by telephone
notice to Borrower (which shall give prompt telephone
notice thereof to Administrative Agent), on the date
of such proposed B Borrowing, of the minimum amount
and maximum amount of each B Advance which such
Lender would be willing to make as part of such
proposed B Borrowing (which amounts may, subject to
the proviso to the first sentence of Section 2.2(a),
exceed such Lender's Commitment), the rate of
interest and maturity date or maturity dates therefor
and the time after which any acceptance of such offer
shall not be effective. If any Lender so notified
shall elect not to make such an offer, such Lender
shall so notify Borrower by telephone on such date,
and such Lender shall not be obligated to, and shall
not, make any B Advance as part of such B Borrowing;
provided that the failure by any Lender to give such
notice shall not cause such Lender to be obligated to
make
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<PAGE> 7
any B Advance as part of such proposed B Borrowing.
(iii) Borrower shall, in turn, on the date
of such proposed B Borrowing, either:
(x) cancel such B Borrowing by
giving the Lenders so notified and Administrative
Agent notice to that effect, or
(y) before the respective times
for acceptance thereof specified in paragraph (ii)
above shall have expired, accept one or more of the
offers made by any Lender or Lenders pursuant to
paragraph (ii) above, in its sole discretion, by
giving notice (which may be by telephone, confirmed
immediately by telecopier or telefax and in writing)
to such Lender or Lenders and Administrative Agent of
the maturity date or maturity dates specified pursuant
to paragraph (i) or (ii) above, as the case may be,
the rate of interest specified pursuant to paragraph
(ii) above and the amount of each B Advance (which
amount shall be equal to or greater than the minimum
amount, and equal to or less than the maximum amount,
notified to Borrower by such Lender or Lenders for
such B Advance pursuant to paragraph (ii) above) to be
made by each Lender as part of such B Borrowing, and
reject any remaining offers made by Lenders pursuant
to paragraph (ii) above by giving the Lenders so
notified and Administrative Agent notice to that
effect.
(iv) If Borrower notifies the Lenders so
notified and Administrative Agent that such B
Borrowing is canceled pursuant to paragraph (iii)(x)
above, such B Borrowing shall not be made.
(v) If Borrower accepts one or more of
the offers made by any Lender or Lenders pursuant to
paragraph (iii)(y) above, Borrower shall be deemed to
have provided such Lender or Lenders with the
certifications set forth in paragraphs (c) through
(g) of the form of B Borrowing Notice as of the date
of the B Borrowing, and Administrative Agent shall in
turn promptly notify each Lender that is to make a B
Advance as part of such B Borrowing as to whether
such B Borrowing conforms to the requirements of
Section 2.2(a). Upon
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<PAGE> 8
fulfillment of the applicable conditions set forth in
Article IV, each Lender that is to make a B Advance
as part of such B Borrowing shall, before 3:00 P.M.
(New York, New York time) on the date of such B
Borrowing (provided such Lender shall have received
the confirmation by telecopy or telefax required by
paragraph (iii)(y) above, any required B Note and a
favorable notice from Administrative Agent pursuant
to the preceding sentence), make available to
Borrower such Lender's portion of such B Borrowing,
in same day funds, by credit to such bank account as
Borrower may designate. Promptly after each B
Borrowing, Administrative Agent will notify each
Lender of the amount of the B Borrowing, the
consequent B Reduction and the dates upon which such
B Reduction commenced and will terminate.
SECTION 4. AMENDMENT OF SECTION 5.13. Section 5.13 of the Loan
Agreement is hereby amended by deleting the parenthetical phrase in the last
sentence thereof and inserting in place thereof "(other than the Subsidiaries of
Borrower)."
SECTION 5. AMENDMENT OF SECTION 5.16. Section 5.16 of the Loan
Agreement is hereby amended by (a) deleting the phrase "Consolidated
Subsidiaries" in subsection (a) thereof and inserting in place thereof the
phrase "Subsidiaries of Borrower;" (b) deleting the word "Consolidated" each
time it appears in subsection (b) thereof; and (c) deleting the word
"Consolidated" the second place it appears in subsection (c) thereof.
SECTION 6. AMENDMENT OF SECTION 6.1. Section 6.1 of the Loan
Agreement is hereby amended by (a) deleting the phrase "Consolidated Subsidiary"
in subsection (e) thereof and inserting in place thereof the phrase "Subsidiary
of Borrower"; (b)(i) deleting the phrases "Consolidated Subsidiary" and
"Consolidated Subsidiaries" in subsection (f) thereof and inserting in place
thereof the phrase "Subsidiary of Borrower" or "Subsidiaries of Borrower", as
appropriate, and (ii) deleting the word "Consolidated" before the words
"Subsidiary's Assets" therein.
SECTION 7. AMENDMENT OF SECTION 6.2(E). Section 6.2(e) of the Loan
Agreement is hereby amended by (a) deleting the word "and" in clause (C) of the
second sentence thereof and inserting a comma in place thereof, and (b) adding
the following to the end of the second sentence thereof:
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<PAGE> 9
and minus (E) the amount of Push Down Accounting Adjustment
made (or plus the amount thereof reversed) during such fiscal
quarter.
SECTION 8. AMENDMENT OF SECTION 6.2(f). Section 6.2(f) of the Loan
Agreement is hereby amended by deleting the text thereof in its entirety and
inserting in place thereof the following:
(f) Interest Coverage Ratio. Borrower shall not,
on the last day of any fiscal quarter of Borrower, permit the
ratio of (i)(A) EBIT plus (B) the Phar-Mor Interest Coverage
Ratio Adjustment Amount plus (C) the Development Cost Interest
Coverage Ratio Adjustment Amount, less (D) the Service Fee
Adjustment Amount to (ii) Interest Expense, plus Preferred
Dividends, less the Service Fee Adjustment Amount, in each
case for the 12 month period ending on such day to be less
than the ratio set forth below for the applicable period:
<TABLE>
<CAPTION>
Last Day of
Applicable Period Ratio
----------------- -----
<S> <C>
9/30/93 3.30 to 1.00
12/31/93 3.30 to 1.00
3/31/94 3.30 to 1.00
6/30/94 3.40 to 1.00
9/30/94 3.40 to 1.00
12/31/94 3.40 to 1.00
3/31/95 3.40 to 1.00
6/30/95 3.40 to 1.00
9/30/95 3.20 to 1.00
12/31/95 3.00 to 1.00
3/31/96 3.00 to 1.00
6/30/96 and 3.40 to 1.00
thereafter
</TABLE>
SECTION 9. AMENDMENT OF SECTION 6.2(i). Section 6.2(i) of the Loan
Agreement is hereby amended by inserting the following between the words "date"
and "to" in clause (C) of subsection (ii) thereof:
plus (D) the amount of the Push Down Accounting Adjustment as
of such date
SECTION 10. AMENDMENT OF SECTION 6.2(j). Section 6.2(j) of the Loan
Agreement is hereby amended by deleting the amount "$50,000,000" therein and
inserting in place thereof the amount "$70,000,000."
SECTION 11. AMENDMENT OF SECTION 6.2(k). Section 6.2(k) of the Loan
Agreement is hereby amended by deleting the text
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<PAGE> 10
thereof in its entirety and inserting in place thereof the following:
(k) Acquisitions. Except as may result from the
mergers permitted pursuant to Section 6.2(m), neither Borrower
nor any Operating Subsidiary shall, and Borrower shall not
permit any Consolidated Subsidiary to, acquire all or
substantially all of the Assets of any other Person or of a
division or other business unit thereof or Securities
representing more than fifty percent (50%) of the Securities
of any class of any other Person; provided, however, that (i)
any Operating Subsidiary may purchase Inventory in bulk and
purchase or lease the warehouses where such Inventory is
located upon terms that are fair and reasonable to such
purchaser, (ii) Borrower or any Operating Subsidiary may
acquire all or substantially all of the Assets of any other
Consolidated Subsidiary other than FoxMeyer Drug Company,
(iii) Borrower, any Operating Subsidiary or any Healthcare
Connect Subsidiary may acquire all or substantially all of the
Assets of any other Person or of a division or other business
units thereof (a "Business") or Securities representing more
than fifty percent (50%) of the equity Securities of any
Person, provided that (A) such Business or Person becomes a
Consolidated Subsidiary or such Person is FoxMeyer Canada, (B)
such Business or Person is Solvent before giving effect to
such acquisition, (C) neither Borrower nor any Consolidated
Subsidiary becomes, and (except in the case of FoxMeyer
Canada) neither such Person is nor the Assets or operations of
such Person are, or could reasonably be expected to be subject
to any material loss contingency required by GAAP to be
disclosed in the financial statements of such Person and (D)
the aggregate purchase price for all such acquisitions of
Businesses or equity Securities (other than Securities of
FoxMeyer Canada) pursuant to this clause (iii) during any
fiscal year of Borrower may not exceed $25,000,000 (exclusive,
in the case of the acquisition of a Business or all of the
equity Securities of any other Person, of amounts properly
allocable to working capital in accordance with GAAP), and
provided further that this clause (iii) shall not permit the
acquisition of any Securities of (A) NII, (B) Centaur Partners
IV, (C) any Affiliate of any of the foregoing (other than
Borrower, a Consolidated Subsidiary or FoxMeyer Canada) or (D)
FoxMeyer Canada if such acquisition would cause the limit
provided in clause (b) of the proviso in the definition of
Consolidated Subsidiary
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<PAGE> 11
to be exceeded, and (iv) Borrower may acquire Receivables from
any Consolidated Subsidiary for sale under the terms of the
Revolving Receivables Purchase Program. For the purposes of
clause (iii) above, payments made pursuant to an earn-out or
similar contingent payment arrangement shall be deemed
included in the purchase price for an acquisition for the
fiscal year as to which such payments have accrued and are
payable.
SECTION 12. AMENDMENT OF SECTION 6.2(l). Section 6.2(l) of the Loan
Agreement is hereby amended by (a) deleting clause (vii) thereof in its
entirety and inserting in place thereof the following:
(vii) (A) expenditures for Minority
Equity Investments other than in FoxMeyer Canada not
to exceed $25,000,000 in the aggregate at any time
outstanding and (B) expenditures for equity
investments in, or loans or advances to, FoxMeyer
Canada of $5,181,102 as of March 31, 1995 and up to
an additional amount that would not cause the limit
provided in clause (b) of the proviso in the
definition of Consolidated Subsidiary to be exceeded,
SECTION 13. AMENDMENT OF SECTION 6.2(m). Section 6.2(m) of the Loan
Agreement is hereby amended by deleting the phrase "Evans Health Group Limited,
an Ontario corporation" therein and inserting in place thereof the phrase
"FoxMeyer Canada."
SECTION 14. AMENDMENT OF SECTION 6.2(p). Section 6.2(p) of the Loan
Agreement is hereby amended by deleting the word "Consolidated" therein.
SECTION 15. AMENDMENT TO SECTION 6.2(u). Section 6.2(u) of the Loan
Agreement is hereby amended by deleting the text thereof in its entirety and
inserting in place thereof the following:
(u) Customer Receivables. Neither Borrower nor
any Operating Subsidiary shall permit, and Borrower shall not
permit any Consolidated Subsidiary to, have outstanding and
unpaid at any time to any one customer and all Affiliates of
such customer Receivables in an aggregate amount exceeding ten
percent (10%) of the sum of (i) the Net Worth of Borrower and
its Consolidated Subsidiaries as of the end of the fiscal
quarter of Borrower then most recently ended and (ii) the
amount of the Push Down Accounting Adjustment as of such
quarter end; provided that such Receivables may
11
<PAGE> 12
be increased to fifteen percent (15%) of such Net Worth and
Push Down Accounting Adjustment if Administrative Agent and
the Co-Agents, in their sole discretion for such times and on
such conditions as they may require, consent to such increase
in writing and so confirm to Lenders in the particular case of
any customer. For the purpose of the foregoing, the Phar-Mor
Receivables shall be deemed not to be Receivables subject to
the limitations imposed by this Section 6.2(u).
SECTION 16. AMENDMENT TO EXHIBIT G. The Loan Agreement is hereby
amended by retitling "Exhibit G" as "Exhibit G-1" and adding Exhibit G-2 to
read in its entirety as set forth on Schedule I hereto. Each reference to
"Exhibit G" in the Loan Agreement is hereby amended to be a reference to
"Exhibit G-1 or G-2."
SECTION 17. AMENDMENT OF EXHIBIT M. The Loan Agreement is hereby
amended by restating Exhibit M to read in its entirety as set forth on Schedule
II hereto.
SECTION 18. EFFECTIVENESS OF AMENDMENTS. The amendments effected by
this Fifth Amendment shall be effective as of March 31, 1995, upon satisfaction
of the following, in a manner acceptable to Administrative Agent, on or before
May 2, 1995 (the date of satisfaction herein called the "Amendment Date"):
(a) The Required Lenders, Issuer, Administrative
Agent and Documentation Agent shall have executed and delivered this
Fifth Amendment.
(b) All of the Guarantors shall have executed and
delivered the Consent and Agreement attached to this Fifth Amendment.
(c) (i) a favorable legal opinion of Weil,
Gotshal & Manges as counsel for Borrower and Consolidated Subsidiaries
shall have been duly executed by such counsel and delivered to
Administrative Agent in form and substance satisfactory to
Administrative Agent and its counsel and (ii) a favorable legal
opinion of Gibson, Dunn & Crutcher, counsel to Administrative Agent
shall have been duly executed by such counsel and delivered to
Administrative Agent.
(d) After giving effect to the amendments to be
effected by this Fifth Amendment, the representations and warranties
provided in Article V of the Loan Agreement shall be true and correct
on the Amendment Date as if made on such date (except to the extent
that such
12
<PAGE> 13
representations and warranties are expressly by their terms made only
as of the date of this Fifth Amendment or another date other than the
Restatement Date), and no Potential Default or Event of Default shall
have occurred or be continuing on the Amendment Date.
(e) Administrative Agent shall have received a
certificate, appropriately completed, executed by Borrower and
Operating Subsidiaries, which certificate shall certify to resolutions
authorizing the execution, delivery and performance of this Fifth
Amendment and to the satisfaction of the conditions precedent set
forth in subsection (d) above.
(f) Administrative Agent shall have received such
other documents, instruments, certificates and opinions as it shall
deem necessary or appropriate in connection with this Fifth Amendment
and the transactions contemplated hereby.
SECTION 19. REPRESENTATIONS AND WARRANTIES. Borrower represents and
warrants, and each Operating Subsidiary as to matters relating to such
Operating Subsidiary represents and warrants, that this Fifth Amendment has
been duly authorized, executed and delivered by Borrower and the Operating
Subsidiaries and constitutes the legal, valid, and binding obligation 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, after giving effect to the amendments to be effected by this
Fifth Amendment, (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 (including the
representations or warranties that are expressly made only as of the
Restatement 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.
SECTION 20. ENTIRE AGREEMENT; RATIFICATION. This Fifth 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.
13
<PAGE> 14
SECTION 21. GOVERNING LAW. THIS FIFTH AMENDMENT SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS AND APPLICABLE
U.S. FEDERAL LAWS.
SECTION 22. COUNTERPARTS. This Fifth 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 23. NO ORAL AGREEMENTS. THIS FIFTH 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,
DOCUMENTATION AGENT, ANY LENDER OR ISSUER.
[SIGNATURES ON SUCCEEDING PAGES]
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<PAGE> 15
IN WITNESS WHEREOF, this Fifth Amendment to Amended and
Restated Loan Agreement is executed as of the date first set forth above.
FOXMEYER CORPORATION
By /s/
___________________________________
Title:
FOXMEYER DRUG COMPANY
By /s/
___________________________________
Title:
MERCHANDISE COORDINATOR SERVICES
CORPORATION
By /s/
___________________________________
Title:
HARRIS WHOLESALE COMPANY
By /s/
___________________________________
Title:
CITICORP USA, INC., individually and
as Administrative Agent
By /s/ Barbara A. Cohen
___________________________________
Barbara A. Cohen
Title: Vice President
<PAGE> 1
EXHIBIT 10-AP
THIRD AMENDMENT
Dated as of April 26, 1995
THIS THIRD AMENDMENT is entered into among FOXMEYER
CORPORATION, a Delaware corporation (the "Seller"), CORPORATE ASSET FUNDING
COMPANY, INC., a Delaware corporation ("CAFCO"), ENTERPRISE FUNDING
CORPORATION, a Delaware corporation ("Enterprise" and, together with CAFCO, the
"Investors" and individually an "Investor"), CITIBANK, N.A., a national banking
association ("Citibank"), NATIONSBANK, N.A. (CAROLINAS), a national banking
association, individually ("NationsBank") and as co-agent (the "Co- Agent"),
CITICORP NORTH AMERICA, INC., individually ("CNAI") and as agent (the "Agent"),
and the other financial institutions listed on the signature pages hereof under
the heading "A Syndicate Banks" (the "A Syndicate Banks") or "B Syndicate
Banks", respectively (the "B Syndicate Banks" and, together with Citibank,
NationsBank and the A Syndicate Banks, the "Banks").
PRELIMINARY STATEMENTS. (1) The Seller, the Investors, the
Agent and the Co-Agent are party to that certain Trade Receivables Purchase and
Sale Agreement dated as of October 29, 1993, as amended by the Amendment dated
as of October 27, 1994 and the Second Amendment dated as of November 22, 1994
(said Agreement as so amended being the "Investor Agreement"). The Seller, the
Banks, CNAI, the Agent and the Co-Agent are party to that certain Trade
Receivables Purchase and Sale Agreement dated as of October 29, 1993, as
amended by the Amendment dated as of October 27, 1994 and the Second Amendment
dated as of November 22, 1994 (said Agreement as so amended being the "Parallel
Purchase Commitment" and, together with the Investor Agreement, the
"Agreements"). Capitalized terms used herein and not otherwise defined herein
shall have the meanings set forth in the respective Agreements.
(2) The Seller has requested the amendment of, and the
Investors, Citibank, NationsBank, the other Banks, CNAI, the Agent and the
Co-Agent, on the terms and conditions stated below, have agreed to amend,
certain financial covenants, and certain definitions relating to such financial
covenants, contained in the Agreements.
SECTION 1. Amendments to the Investor Agreement. The
Investor Agreement is, effective as of March 31, 1995 and subject to the
satisfaction of the conditions precedent set forth in Section 3 hereof, hereby
amended as follows:
<PAGE> 2
2
(a) The definitions of the terms "Applicable Coverage
Ratio", "Applicable Leverage Ratio", "Consolidated Subsidiary",
"Credit Agreement", "GAAP", and "Net Worth", contained in Section 1.01
thereof, are amended in their entirety to read as follows,
respectively:
"' Applicable Coverage Ratio' means, as of any date,
the ratio of (a) (i) EBIT, plus (ii) amortization and
depreciation expense, plus (iii) the Development Cost Interest
Coverage Ratio Adjustment Amount, plus (iv) the Phar-Mor
Interest Coverage Ratio Adjustment Amount, in each case of
clauses (i) through (iv) of the Seller and the Consolidated
Subsidiaries for the 12-month period ended on such date, to (b)
Interest Expense, plus interest income then being currently
received (to the extent such income is netted against interest
charges in computing Interest Expense), for such period."
"' Applicable Leverage Ratio' means, as of any date,
the ratio of (i) the sum of (A) all consolidated Debt of the
Seller and the Consolidated Subsidiaries (other than
obligations under any Interest Rate Protection Agreements, and
under agreements entered into in the ordinary course of
business by the Seller or an Operating Subsidiary to repurchase
at a discounted price inventory sold to customers of the Seller
or such Operating Subsidiary) as of such date (or in the case
of up to $6,000,000 in principal amount of Permitted
Indebtedness (as defined in the Credit Agreement) consisting of
industrial development revenue bonds and notes and mortgages,
as of the end of the calendar month that includes such date),
plus (B) the aggregate Capital and 'Capital' under and as
defined in the Parallel Purchase Commitment outstanding as of
such date, to (ii) the sum of (A) all consolidated Debt of the
Seller and the Consolidated Subsidiaries (other than
obligations under any Interest Rate Protection Agreements, and
under agreements entered into in the ordinary course of
business by the Seller or an Operating Subsidiary to repurchase
at a discounted price inventory sold to customers of the Seller
or such Operating Subsidiary) as of such date (or in the case
of up to $6,000,000 in principal amount of Permitted
Indebtedness (as defined in the Credit Agreement) consisting of
industrial development revenue bonds and notes and mortgages,
as of the end of the calendar month that includes such date),
plus
<PAGE> 3
3
(B) the aggregate Capital and 'Capital' under and as defined in
the Parallel Purchase Commitment outstanding as of such date,
plus (C) the consolidated Net Worth of the Seller and the
Consolidated Subsidiaries as of the end of the calendar month
that includes such date, plus (D) the amount of the Push Down
Accounting Adjustment as of the end of the calendar month that
includes such date."
"' Consolidated Subsidiary' means, as of any date,
any Subsidiary of the Seller included as of such date in the
consolidated financial statements of the Seller prepared in
accordance with GAAP, and 'Consolidated Subsidiaries' means all
of such Subsidiaries; provided that if FoxMeyer Canada shall at
any time be a Subsidiary of the Seller, FoxMeyer Canada shall
be deemed not to be a Consolidated Subsidiary so long as the
following conditions are satisfied: (a) neither the Seller nor
any of its Consolidated Subsidiaries shall have any obligation
or liability, contingent or otherwise, for the Debt or other
obligations of FoxMeyer Canada other than the Seller's
obligations as co-lessee under the FMC Operating Leases; (b)
the aggregate amount of all expenditures for equity investments
in, and all loans or advances to, FoxMeyer Canada ("FMC
Investments"), in addition to the $5,181,102 expended as of
March 31, 1995, shall not exceed $4,600,000; and (c) no FMC
Investment shall be made if an Event of Termination or
Potential Event of Termination then exists or would exist. For
the purposes of Sections 1.01 and 5.03(h), the assets,
liabilities and results of operations of, and any equity in,
FoxMeyer Canada shall, to the extent not already excluded by
the terms of such Sections, be excluded from all financial
definitions, calculations, determinations and presentations,
except as provided in the definition of 'Net Worth' and except
as required by Exhibit M to the Credit Agreement and,
accordingly, for purposes of Sections 1.2, 6.2 and 6.3 of the
Credit Agreement."
"' Credit Agreement' means the Amended and Restated
Loan Agreement dated as of April 29, 1993, as amended by the
First Amendment to Amended and Restated Loan Agreement dated as
of October 18, 1993, the Second Amendment to Amended and
Restated Loan Agreement dated as of June 20, 1994, the Third
Amendment to Amended and Restated Loan Agreement dated as of
August 26, 1994, the Fourth Amendment to
<PAGE> 4
4
Amended and Restated Loan Agreement dated as of November 22,
1994, and the Fifth Amendment to Amended and Restated Loan
Agreement dated as of April 26, 1995, among the Seller as
Borrower, each Selling Subsidiary as Guarantors, the Lenders
and Issuer referred to therein, and Citicorp USA, Inc. as
Administrative Agent and NationsBank of Texas, N.A. and Banque
Paribas as Co-Agents, as further amended, supplemented or
otherwise modified from time to time."
"' GAAP' means generally accepted accounting
principles consistent with (that is, comparable in all material
respects to) those applied in the preparation of the financial
statements referred to in Section 4.01(e), provided that for
the purpose of the Push Down Accounting Adjustment, GAAP shall
include the applicable requirements of Regulation S-X of the
Securities and Exchange Commission."
"' Net Worth' means, as of the date of any
determination, the remainder of (a) the total stockholder's
equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock) which would
appear on a consolidated balance sheet of the Seller and the
Consolidated Subsidiaries prepared as of such date in
accordance with GAAP, minus (b) to the extent not deducted
therefrom, the aggregate amount of all Redeemable Capital
Stock, minus (c) the aggregate amount of gain from the sale of
capital assets, gain from any write-up of assets and any other
non-operating or extraordinary gain reflected in total
stockholder's equity shown on such balance sheet; provided,
however, that:
(i) for purposes of the minimum Net
Worth requirement of each Operating Subsidiary set
forth in Section 5.03(h)(ii), Net Worth shall be
determined without subtraction of the items described
in clause (c) above and based upon the financial
condition of such Operating Subsidiary only; and
(ii) for purposes of the ratio calculated
pursuant to Section 5.03(h)(v) and the Applicable
Leverage Ratio, Net Worth shall be determined without
subtraction of the items described in clause (c)
above.
<PAGE> 5
5
Notwithstanding the foregoing, in determining Net Worth, the
aggregate amount of the equity investment in, and the
principal amount of loans or advances to, FoxMeyer Canada by
the Seller and the Consolidated Subsidiaries shall be
accounted for in accordance with the equity method of
accounting (whether or not FoxMeyer Canada would, in
accordance with GAAP, be required to be accounted for on a
consolidated basis), except that the amount so accounted for
shall not be increased (or decreased) by the amount of any
income (or loss) of FoxMeyer Canada after March 31, 1995. It
is acknowledged that as of March 31, 1995, the amount so
accounted for is $4,912,128, representing the remaining
portion of the equity investment in FoxMeyer Canada as of such
date. In no event shall the amount so accounted for in
respect of FoxMeyer Canada exceed $9,512,128."
(b) Section 1.01 of the Investor Agreement is further amended
by amending the definitions of "Phar-Mor Debt Service Coverage Ratio
Adjustment Amount", "Phar-Mor Interest Coverage Ratio Adjustment
Amount" and Phar-Mor Net Worth Adjustment Amount" by replacing the
figure "$50,000,000" each place it appears therein with the figure
"$70,000,000".
(c) Section 1.01 of the Investor Agreement is further amended
by adding thereto the following new definitions, to be added in the
applicable alphabetical order:
"' FoxMeyer Canada' means FoxMeyer Canada, Inc., an
Ontario corporation (formerly called Evans Health Group
Limited)."
"' FMC Operating Leases' means the operating or
capital leases between HP Finance and Central Capital Corp., as
lessors, and FoxMeyer Canada and the Seller, as co-lessees,
covering certain computer equipment, as in effect on March 31,
1995."
"' Push Down Accounting Adjustment' means the
decrease in stockholders equity of the Seller and the
Consolidated Subsidiaries resulting from the application under
GAAP of purchase accounting to the extent required as a result
of the Seller's becoming a wholly owned Subsidiary of NII in
connection with NII's repurchase of the common stock of the
Seller, which decrease shall not exceed $22,000,000."
<PAGE> 6
6
"' Service Fee Adjustment Amount' means, for any
period, the service fee income currently received in cash from
customers of the Seller and the Consolidated Subsidiaries (but
only to the extent that such income can, in accordance with
GAAP, be included in interest income but has been included as
an offset to operating expense in the financial statements of
the Seller and the Consolidated Subsidiaries) during such
period."
(d) Paragraph (i) of Section 5.03(h) (concerning Net Worth)
of the Investor Agreement is amended by (i) replacing the word "and"
in clause (B)(2) of the first sentence thereof with a comma, and (ii)
adding to the end of the first sentence thereof the following:
", and minus (4) the amount of the Push Down
Accounting Adjustment made (or plus the amount thereof
reversed) during such fiscal quarter".
(e) Paragraph (iii) of Section 5.03(h) (concerning
Interest Coverage Ratio) of the Investor Agreement is amended in its
entirety to read as follows:
(iii) Interest Coverage Ratio. Permit, on the last
day of any fiscal quarter of the Seller, the ratio of (A) (1)
EBIT, plus (2) the Phar-Mor Interest Coverage Ratio Adjustment
Amount, plus (3) the Development Cost Interest Coverage Ratio
Adjustment Amount, less (4) the Service Fee Adjustment Amount,
to (B) (1) Interest Expense, plus (2) Preferred Dividends,
less (3) the Service Fee Adjustment Amount, in each case for
the 12 month period ending on such day to be less than the
ratio set forth below for the applicable period:
<TABLE>
<CAPTION>
Last Day of
Applicable Period Ratio
----------------- -----
<S> <C>
December 31, 1993 3.30 to 1.00
March 31, 1994 3.30 to 1.00
June 30, 1994 3.40 to 1.00
September 30, 1994 3.40 to 1.00
December 31, 1994 3.40 to 1.00
March 31, 1995 3.40 to 1.00
June 30, 1995 3.40 to 1.00
September 30, 1995 3.20 to 1.00
December 31, 1995 3.00 to 1.00
March 31, 1996 3.00 to 1.00
June 30, 1996 and 3.40 to 1.00
thereafter
</TABLE>
<PAGE> 7
7
(f) Paragraph (v) of Section 5.03(h) (concerning Total
Debt and Purchase Program Outstanding to Capitalization Ratio) of the
Investor Agreement is amended by inserting the following between the
words "date" and "to" in clause (B)(3) thereof:
"plus (D) the amount of the Push Down Accounting
Adjustment as of such date".
SECTION 2. Amendments to the Parallel Purchase Commitment.
The Parallel Purchase Commitment is, effective as of March 31, 1995 and subject
to the satisfaction of the conditions precedent set forth in Section 3 hereof,
hereby amended as follows:
(a) The definitions of the terms "Applicable Coverage
Ratio", "Applicable Leverage Ratio", "Consolidated Subsidiary",
"Credit Agreement", "GAAP", and "Net Worth", contained in Section 1.01
thereof, are amended in their entirety to read as follows,
respectively:
"' Applicable Coverage Ratio' means, as of any date,
the ratio of (a) (i) EBIT, plus (ii) amortization and
depreciation expense, plus (iii) the Development Cost Interest
Coverage Ratio Adjustment Amount, plus (iv) the Phar-Mor
Interest Coverage Ratio Adjustment Amount, in each case of
clauses (i) through (iv) of the Seller and the Consolidated
Subsidiaries for the 12-month period ended on such date, to (b)
Interest Expense, plus interest income then being currently
received (to the extent such income is netted against interest
charges in computing Interest Expense), for such period."
"' Applicable Leverage Ratio' means, as of any date,
the ratio of (i) the sum of (A) all consolidated Debt of the
Seller and the Consolidated Subsidiaries (other than
obligations under any Interest Rate Protection Agreements, and
under agreements entered into in the ordinary course of
business by the Seller or an Operating Subsidiary to repurchase
at a discounted price inventory sold to customers of the Seller
or such Operating Subsidiary) as of such date (or in the case
of up to $6,000,000 in principal amount of Permitted
Indebtedness (as defined in the Credit Agreement) consisting of
industrial development revenue bonds and notes and mortgages,
as of the end of the
<PAGE> 8
8
calendar month that includes such date), plus (B) the
aggregate Capital and 'Capital' under and as defined in the
Investor Agreement outstanding as of such date, to (ii) the
sum of (A) all consolidated Debt of the Seller and the
Consolidated Subsidiaries (other than obligations under any
Interest Rate Protection Agreements, and under agreements
entered into in the ordinary course of business by the Seller
or an Operating Subsidiary to repurchase at a discounted price
inventory sold to customers of the Seller or such Operating
Subsidiary) as of such date (or in the case of up to
$6,000,000 in principal amount of Permitted Indebtedness (as
defined in the Credit Agreement) consisting of industrial
development revenue bonds and notes and mortgages, as of the
end of the calendar month that includes such date), plus (B)
the aggregate Capital and 'Capital' under and as defined in
the Investor Agreement outstanding as of such date, plus (C)
the consolidated Net Worth of the Seller and the Consolidated
Subsidiaries as of the end of the calendar month that includes
such date, plus (D) the amount of the Push Down Accounting
Adjustment as of the end of the calendar month that includes
such date."
"' Consolidated Subsidiary' means, as of any date,
any Subsidiary of the Seller included as of such date in the
consolidated financial statements of the Seller prepared in
accordance with GAAP, and 'Consolidated Subsidiaries' means all
of such Subsidiaries; provided that if FoxMeyer Canada shall at
any time be a Subsidiary of the Seller, FoxMeyer Canada shall
be deemed not to be a Consolidated Subsidiary so long as the
following conditions are satisfied: (a) neither the Seller nor
any of its Consolidated Subsidiaries shall have any obligation
or liability, contingent or otherwise, for the Debt or other
obligations of FoxMeyer Canada other than the Seller's
obligations as co-lessee under the FMC Operating Leases; (b)
the aggregate amount of all expenditures for equity investments
in, and all loans or advances to, FoxMeyer Canada ("FMC
Investments"), in addition to the $5,181,102 expended as of
March 31, 1995, shall not exceed $4,600,000; and (c) no FMC
Investment shall be made if an Event of Termination or
Potential Event of Termination then exists or would exist. For
the purposes of Sections 1.01 and 5.03(h), the assets,
liabilities and results of operations of, and any
<PAGE> 9
9
equity in, FoxMeyer Canada shall, to the extent not already
excluded by the terms of such Sections, be excluded from all
financial definitions, calculations, determinations and
presentations, except as provided in the definition of 'Net
Worth' and except as required by Exhibit M to the Credit
Agreement and, accordingly, for purposes of Sections 1.2, 6.2
and 6.3 of the Credit Agreement."
"' Credit Agreement' means the Amended and Restated
Loan Agreement dated as of April 29, 1993, as amended by the
First Amendment to Amended and Restated Loan Agreement dated as
of October 18, 1993, the Second Amendment to Amended and
Restated Loan Agreement dated as of June 20, 1994, the Third
Amendment to Amended and Restated Loan Agreement dated as of
August 26, 1994, the Fourth Amendment to Amended and Restated
Loan Agreement dated as of November 22, 1994, and the Fifth
Amendment to Amended and Restated Loan Agreement dated as of
April 26, 1995, among the Seller as Borrower, each Selling
Subsidiary as Guarantors, the Lenders and Issuer referred to
therein, and Citicorp USA, Inc. as Administrative Agent and
NationsBank of Texas, N.A. and Banque Paribas as Co-Agents, as
further amended, supplemented or otherwise modified from time
to time."
"' GAAP' means generally accepted accounting
principles consistent with (that is, comparable in all material
respects to) those applied in the preparation of the financial
statements referred to in Section 4.01(e), provided that for
the purpose of the Push Down Accounting Adjustment, GAAP shall
include the applicable requirements of Regulation S-X of the
Securities and Exchange Commission."
"' Net Worth' means, as of the date of any
determination, the remainder of (a) the total stockholder's
equity (including capital stock, additional paid-in capital and
retained earnings after deducting treasury stock) which would
appear on a consolidated balance sheet of the Seller and the
Consolidated Subsidiaries prepared as of such date in
accordance with GAAP, minus (b) to the extent not deducted
therefrom, the aggregate amount of all Redeemable Capital
Stock, minus (c) the aggregate amount of gain from the sale of
capital assets, gain from any write-up of assets and any
<PAGE> 10
10
other non-operating or extraordinary gain reflected in total
stockholder's equity shown on such balance sheet; provided,
however, that:
(i) for purposes of the minimum Net
Worth requirement of each Operating Subsidiary set
forth in Section 5.03(h)(ii), Net Worth shall be
determined without subtraction of the items described
in clause (c) above and based upon the financial
condition of such Operating Subsidiary only; and
(ii) for purposes of the ratio calculated
pursuant to Section 5.03(h)(v) and the Applicable
Leverage Ratio, Net Worth shall be determined without
subtraction of the items described in clause (c)
above.
Notwithstanding the foregoing, in determining Net Worth, the
aggregate amount of the equity investment in, and the
principal amount of loans or advances to, FoxMeyer Canada by
the Seller and the Consolidated Subsidiaries shall be
accounted for in accordance with the equity method of
accounting (whether or not FoxMeyer Canada would, in
accordance with GAAP, be required to be accounted for on a
consolidated basis), except that the amount so accounted for
shall not be increased (or decreased) by the amount of any
income (or loss) of FoxMeyer Canada after March 31, 1995. It
is acknowledged that as of March 31, 1995, the amount so
accounted for is $4,912,128, representing the remaining
portion of the equity investment in FoxMeyer Canada as of such
date. In no event shall the amount so accounted for in
respect of FoxMeyer Canada exceed $9,512,128."
(b) Section 1.01 of the Parallel Purchase Commitment is
further amended by amending the definitions of "Phar-Mor Debt Service
Coverage Ratio Adjustment Amount", "Phar-Mor Interest Coverage Ratio
Adjustment Amount" and Phar-Mor Net Worth Adjustment Amount" by
replacing the figure "$50,000,000" each place it appears therein with
the figure "$70,000,000".
(c) Section 1.01 of the Parallel Purchase Commitment is
further amended by adding thereto the following new definitions, to be
added in the applicable alphabetical order:
<PAGE> 11
11
"' FoxMeyer Canada' means FoxMeyer Canada, Inc., an
Ontario corporation (formerly called Evans Health Group
Limited)."
"' FMC Operating Leases' means the operating or
capital leases between HP Finance and Central Capital Corp., as
lessors, and FoxMeyer Canada and the Seller, as co-lessees,
covering certain computer equipment, as in effect on March 31,
1995."
"' Push Down Accounting Adjustment' means the
decrease in stockholders equity of the Seller and the
Consolidated Subsidiaries resulting from the application under
GAAP of purchase accounting to the extent required as a result
of the Seller's becoming a wholly owned Subsidiary of NII in
connection with NII's repurchase of the common stock of the
Seller, which decrease shall not exceed $22,000,000."
"' Service Fee Adjustment Amount' means, for any
period, the service fee income currently received in cash from
customers of the Seller and the Consolidated Subsidiaries (but
only to the extent that such income can, in accordance with
GAAP, be included in interest income but has been included as
an offset to operating expense in the financial statements of
the Seller and the Consolidated Subsidiaries) during such
period."
(d) Paragraph (i) of Section 5.03(h) (concerning Net Worth)
of the Parallel Purchase Commitment is amended by (i) replacing the
word "and" in clause (B)(2) of the first sentence thereof with a
comma, and (ii) adding to the end of the first sentence thereof the
following:
", and minus (4) the amount of the Push Down
Accounting Adjustment made (or plus the amount thereof
reversed) during such fiscal quarter".
(e) Paragraph (iii) of Section 5.03(h) (concerning
Interest Coverage Ratio) of the Parallel Purchase Commitment is
amended in its entirety to read as follows:
(iii) Interest Coverage Ratio. Permit, on the last
day of any fiscal quarter of the Seller, the ratio of (A) (1)
EBIT, plus (2) the Phar-Mor Interest Coverage Ratio Adjustment
Amount, plus (3) the Development Cost Interest Coverage Ratio
<PAGE> 12
12
Adjustment Amount, less (4) the Service Fee Adjustment Amount,
to (B) (1) Interest Expense, plus (2) Preferred Dividends,
less (3) the Service Fee Adjustment Amount, in each case for
the 12 month period ending on such day to be less than the
ratio set forth below for the applicable period:
<TABLE>
<CAPTION>
Last Day of
Applicable Period Ratio
----------------- -----
<S> <C>
December 31, 1993 3.30 to 1.00
March 31, 1994 3.30 to 1.00
June 30, 1994 3.40 to 1.00
September 30, 1994 3.40 to 1.00
December 31, 1994 3.40 to 1.00
March 31, 1995 3.40 to 1.00
June 30, 1995 3.40 to 1.00
September 30, 1995 3.20 to 1.00
December 31, 1995 3.00 to 1.00
March 31, 1996 3.00 to 1.00
June 30, 1996 and 3.40 to 1.00
thereafter
</TABLE>
(f) Paragraph (v) of Section 5.03(h) (concerning Total
Debt and Purchase Program Outstanding to Capitalization Ratio) of the
Parallel Purchase Commitment is amended by inserting the following
between the words "date" and "to" in clause (B)(3) thereof:
"plus (D) the amount of the Push Down Accounting
Adjustment as of such date".
SECTION 3. Conditions Precedent. This Third Amendment shall
become effective as of March 31, 1995 when, and only when, the Agent shall have
received counterparts of this Third Amendment executed by the Majority Banks
under and as defined in the Parallel Purchase Commitment (or, as to any Banks,
advice satisfactory to the Agent that such Banks have duly executed such
amendment), the Seller, each Investor, CNAI, the Co-Agent and the Agent.
SECTION 4. Representations and Warranties of the Seller. The
Seller represents and warrants (including without limitation for purposes of
Section 7.01(b) of the Agreements) as follows:
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction
indicated at the beginning of this Third Amendment.
<PAGE> 13
13
(b) The execution, delivery and performance by the Seller
of this Third Amendment, and the performance by the Seller of the
Agreements as amended by this Third Amendment, are within the Seller's
corporate powers, have been duly authorized by all necessary corporate
action and do not (i) contravene the Seller's charter or by-laws or
law or any contractual restriction binding on or affecting the Seller,
or (ii) result in or require the creation of any Adverse Claim upon or
with respect to any of its properties (other than pursuant thereto),
or (iii) require compliance with any bulk sales act or similar law.
(c) No authorization, approval or other action by, and no
notice to or filing with, any governmental authority or regulatory
body is required for the due execution, delivery and performance by
the Seller of this Third Amendment or the performance by the Seller of
the Agreements as amended by this Third Amendment.
(d) This Third Amendment and the Agreements as amended by
this Third Amendment constitute the legal, valid and binding
obligations of the Seller enforceable against the Seller in accordance
with their respective terms, subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting
creditors' rights generally and by general principles of equity.
(e) The representations and warranties contained in the
Agreements as amended by this Third Amendment are correct on and as of
the date hereof as though made on and as of such date.
(f) No event has occurred and is continuing which
constitutes an Event of Termination or Potential Event of Termination
under either Agreement as amended by this Third Amendment.
SECTION 5. Reference to and Effect on the Agreements. (a)
Upon the effectiveness of Sections 1 and 2 hereof, on and after the date of
this Third Amendment, each reference in either Agreement to "this Agreement",
"hereunder", "hereof", "herein" or words of like import, and each reference to
either Agreement in the other Agreement, the Fee Letter, the Asset Purchase
Agreement, any Selling Subsidiary Letter, any letter agreement with any Bank or
any other document delivered in connection with either Agreement, shall mean
and be a reference to such Agreement as amended hereby.
<PAGE> 14
14
(b) Except as specifically amended above, the Agreements,
the Certificates, the Fee Letter, the Asset Purchase Agreement, the Selling
Subsidiary Letters, the respective letter agreements between the Agent or the
Co-Agent, as applicable, and the respective Banks and the other documents
delivered in connection with the Agreements are and shall continue to be in
full force and effect and are hereby ratified and confirmed.
SECTION 6. Costs and Expenses. The Seller agrees to pay on
demand all costs and expenses of each of the Agent and the Co-Agent,
respectively, in connection with the preparation, execution and delivery of
this Third Amendment and the other instruments and documents to be delivered
hereunder, including, without limitation, the reasonable fees and out-of-pocket
expenses of counsel for the Agent and the Co-Agent, respectively, with respect
thereto and with respect to advising the Agent or the Co-Agent as to its rights
and responsibilities hereunder and thereunder. The Seller further agrees to
pay on demand all costs and expenses, if any (including, without limitation,
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Third
Amendment and the other instruments and documents to be delivered hereunder,
including, without limitation, reasonable counsel fees and expenses in
connection with the enforcement of rights under this Section 6.
SECTION 7. Execution in Counterparts. This Third Amendment
may be executed in any number of counterparts and by different parties hereto
in separate counterparts, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same instrument. Delivery of an executed counterpart of a
signature page to this Third Amendment and the consent referred to below by
telefacsimile shall be effective as delivery of a manually executed counterpart
of this Third Amendment and such consent.
SECTION 8. Governing Law. This Third Amendment shall be
governed by and construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Third
Amendment to be executed by their respective
<PAGE> 15
15
officers thereunto duly authorized, as of the date first above written.
FOXMEYER CORPORATION
By: /s/
----------------------------------
Title:
CORPORATE ASSET FUNDING COMPANY, INC.
By: CITICORP NORTH AMERICA, INC.,
its Attorney-in-Fact
By: /s/
-----------------------------
Vice President
ENTERPRISE FUNDING CORPORATION
By: /s/
---------------------------------
Title: Vice President
CITICORP NORTH AMERICA, INC.,
individually and as Agent
By: /s/
---------------------------------
Vice President
CITIBANK, N.A.
By: /s/
---------------------------------
Vice President
NATIONSBANK, N.A. (CAROLINAS),
individually and as Co-Agent
By: /s/
---------------------------------
Title: Vice President
<PAGE> 16
16
A SYNDICATE BANKS
BANK OF AMERICA ILLINOIS
(formerly Continental Bank N.A.)
By: /s/
---------------------------------
Title: Vice President
PNC BANK, NATIONAL ASSOCIATION
By: /s/
--------------------------------
Title: Assistant Vice President
FIRST BANK NATIONAL ASSOCIATION
By: /s/
--------------------------------
Title: Commercial Banking
Officer
B SYNDICATE BANKS
THE FUJI BANK, LTD. - HOUSTON
AGENCY
By: /s/
---------------------------------
Title: Joint General Manager
THE BOATMEN'S NATIONAL BANK OF
ST. LOUIS
By: /s/
---------------------------------
Title: Vice President
THE BANK OF TOKYO, LTD.,
acting through its Dallas Agency
By: /s/
---------------------------------
Title: Vice President
<PAGE> 1
EXHIBIT 10-AQ
FIRST AMENDMENT
TO
FOXMEYER CORPORATION
AMENDED AND RESTATED
SUPPLEMENTAL SAVINGS PLAN
WHEREAS, FoxMeyer Corporation ("FoxMeyer") previously adopted the
FoxMeyer Corporation Amended and Restated Supplemental Savings Plan effective as
of January 1, 1994 (the "Supplemental Plan");
WHEREAS, Article 9.4 of the Supplemental Plan provides that
FoxMeyer may amend the Supplemental Plan at any time;
WHEREAS, on or about November 29, 1994, the Board of Directors of
FoxMeyer adopted resolutions (a) appointing the Plan Committee established under
the FoxMeyer Employees' Savings and Profit Sharing Plan (the "401(k) Plan") as
the Plan Administrator to assist the Board in administering the Supplemental
Plan and (b) authorizing Sandra K. Stevens, a member of the Plan Committee, to
act on behalf of the Plan Committee; and
WHEREAS, FoxMeyer and the Plan Committee have determined to amend
the Supplemental Plan as provided in this amendment; NOW, THEREFORE, the
Supplemental Plan is hereby amended as follows:
1. Article 3.2(b) of the Supplemental Plan is deleted in its
entirety and replaced by the following:
for all other employees who become Eligible Employees
after the Effective Date, by filing a Contribution Agreement
on or before the earlier of (a) the date set by the Plan
Administrator for annual enrollment in the Plan (the "Annual
Enrollment Date"), in which case they shall become
Participants on January 1 of the next Plan Year or (b) the
date the Employee becomes eligible for participation
<PAGE> 2
in the 401(k) Plan, in which case they shall become
Participants on such date.
2. Article 6.2(c) of the Supplemental Plan is deleted in its
entirety.
IN WITNESS WHEREOF, FoxMeyer Corporation has executed this
Amendment effective as of January 1, 1995.
FOXMEYER CORPORATION
By: /s/ Sandra K. Stevens
---------------------------------
Name: Sandra K. Stevens
Title: Vice President - Human
Resources and Administration
and Authorized Officer of the
Plan Committee
<PAGE> 1
EXHIBT 10-AR
SECOND AMENDMENT
TO THE
FOXMEYER CORPORATION
EMPLOYEES' SAVINGS AND PROFIT SHARING PROGRAM
WHEREAS, FoxMeyer Corporation ("FoxMeyer") has established the
FoxMeyer Corporation Employees' Savings and Profit Sharing Plan effective as of
January 1, 1993 (as amended, the "Plan");
WHEREAS, Article X of the Plan provides that FoxMeyer may amend the
Plan at any time;
WHEREAS, the Board of Directors of FoxMeyer has (a) established a
Plan Committee as the Plan Administrator to assist the Board in administering
the Plan and (b) appointed Sandra K. Stevens, a member of the Plan Committee, as
an Authorized Officer to act on behalf of the Plan Committee;
WHEREAS, FoxMeyer Health Corporation, formerly known as National
Intergroup, Inc. ("FHC"), has maintained the Retirement Savings Plan for
Salaried Employees of National Intergroup, Inc. (the "NII Plan");
WHEREAS, the Board of Directors of FHC has approved the termination
of the NII Plan, effective as of March 31, 1995, and, in connection with such
termination, participants in the NII Plan will under certain circumstances have
the funds in their NII Plan accounts transferred to the Plan, subject to certain
restrictions on investment alternatives; and
WHEREAS, FoxMeyer and the Plan Committee have determined to amend
the Plan to reflect the restrictions on the investment
<PAGE> 2
alternatives available to participants whose funds are transferred from the NII
Plan;
NOW, THEREFORE, the Plan is hereby amended by adding a new Section
2.04 to the Plan, as follows:
Participants in the Retirement Savings Plan for Salaried Employees of
National Intergroup, Inc. (the "NII Plan") whose NII Plan account cannot
be distributed upon termination of the NII Plan on or about March 31,
1995 because (i) the participant cannot be found, (ii) the participant
does not consent to the distribution, or (iii) the participant elects an
installment distribution of his or her account, shall become Members of
this Plan by having their NII Plan account transferred to an Individual
Account under this Plan, and any and all elections and designations made
by such Members (including but not limited to designations of
Beneficiaries) that such persons made under the NII Plan shall be deemed
to have been made under the Plan; provided, however, that
notwithstanding anything in this Plan that may be to the contrary, (a)
all funds in an Individual Account transferred to this Plan from any NII
Plan account shall be deposited only in the Separate Fund maintained by
the Trustees as a money market fund or equivalent and (b) such Members
shall not have any right to change or reallocate the amounts in such
Individual Accounts into any other Separate Fund maintained by the
Trustees.
IN WITNESS WHEREOF, FoxMeyer Corporation has executed this
Amendment effective as of March 31, 1995.
FOXMEYER CORPORATION
By: /s/ Sandra K. Stevens
---------------------------------
Name: Sandra K. Stevens
Title: Vice President - Human
Resources and Administration
and Authorized Officer of the
Plan Committee
<PAGE> 1
EXHIBIT 10-AS
FOXMEYER CORPORATION
FY '95 EXECUTIVE INCENTIVE COMPENSATION PLAN
PLAN DOCUMENT
PURPOSE
FoxMeyer's Executive Incentive Compensation is intended to:
- - Motivate and reward high performing executives;
- - Focus executive attention on achieving key objectives for Fiscal Year
1995;
- - Encourage executives to improve performance in areas identified as
critical success factors and key long-term strategic priorities;
- - Reward results that are achieved through an appropriate demonstration
of the FoxMeyer values;
- - Be a component of a total competitive pay structure.
EFFECTIVE DATE
The effective date of this program is April 1, 1987. The program will continue
in effect for subsequent years unless it is terminated or amended by the
Co-Chief Executive Officers and the Personnel and Compensation Committee of the
Board of Directors. (This copy reflects 4/1/95 amendments.)
ELIGIBILITY
Participation in the plan is limited to Officers whose positions have a direct
influence on the growth and profitability of FoxMeyer. The Co-CEO s and the
Personnel and Compensation Committee of the Board of Directors will approve all
participants in the plan.
ELIGIBILITY AND TARGET AWARDS
The following Officer level positions are eligible to participate in the
Executive Incentive Compensation Plan. Based on the level of a position a
target payout rate is established as follows:
1
<PAGE> 2
<TABLE>
<CAPTION>
LEVEL DESCRIPTION TARGET PAYOUT
- ----- ----------- -------------
<S> <C> <C>
1 President 50% of base salary
2 Staff Senior Vice Presidents 30% of base salary
Line Senior Presidents
Regional Senior Vice Presidents
3 Staff Vice Presidents 25% of base salary
Line Vice Presidents
Group Vice Presidents
</TABLE>
The positions and incumbents for the current plan year are listed in Attachment
One.
AWARDABLE COMPONENTS
The awardable components for the Executive Incentive Plan are consistent for all
plan participants:
<TABLE>
<CAPTION>
Individual
EVA EBT Objectives Delta III
--- --- ---------- ---------
<S> <C> <C> <C> <C>
President/COO - 20% 60% 20% 0%
SVP/VP Direct Report to President 10% 60% 20% 10%
VP 0% 60% 30% 10%
</TABLE>
EARNINGS BEFORE TAXES
Earnings Before Taxes will be Net Income Before Taxes, before extraordinary
items.
STRATEGIC INITIATIVES/CRITICAL SUCCESS FACTORS
Performance is measured by the level of attainment of specific critical success
factors, strategic initiatives and financial objectives jointly established by
participants and their direct managers. Objectives are established towards the
beginning of each fiscal year and the level of attainment is measured at the end
of the fiscal year.
PAYOUT OPPORTUNITIES
Each Executive Incentive level has threshold, target and maximum payout
opportunity levels established. They are as follows:
<TABLE>
<CAPTION>
LEVEL THRESHOLD TARGET MAXIMUM
- ----- --------- ------ --------
<S> <C> <C> <C>
1 25% of base salary 50% of base salary 100% of base salary
2 15% of base salary 30% of base salary 45% of base salary
3 12.5% of base salary 25% of base salary 37.5% of base salary
</TABLE>
2
<PAGE> 3
The payout amount is based on the incumbent s salary effective at the end of the
fiscal year. For Vice Presidents with annual salaries of less than $100,000,
the payout opportunities are $12,500, $25,000 and $37,500 for threshold, target
and maximum respectively.
When results fall between any two of the payout opportunities, awards will be
calculated based on straight-line interpolation of results between the
measurement points (threshold-target-maximum).
The specific payout opportunities for the current fiscal year based on awardable
components are itemized in the following attachments:
<TABLE>
<CAPTION>
ATTACHMENT LEVEL DESCRIPTION
- ---------- ----- -----------
<S> <C> <C>
Two 1 President
Three 2 Sr. Vice President
Four 2 Vice President - Direct Report
to President
Five 3 Vice President
</TABLE>
INCENTIVE AWARD ADJUSTMENTS
Incentive awards can be increased, modified, reduced or withheld based on
unusual circumstances. All incentive award adjustments must be approved by the
Co-CEO's and the Personnel and Compensation Committee of the Board of Directors.
PAYMENT SCHEDULE
Payments awarded under the Plan are paid annually, during the first quarter of
the fiscal year, based on performance in the previous fiscal year, following
confirmation of performance achievement levels. Payments will be approved by
the Co-CEO's and the Personnel and Compensation Committee of the Board of
Directors.
EMPLOYMENT STATUS/TERMINATION
Participants must be employees of FoxMeyer, a subsidiary or an affiliate at the
time incentives are paid to receive an award; employees who terminate
voluntarily or who are terminated for cause prior to the award date forfeit all
rights to any award.
In the event of termination of employment due to health, disability, retirement,
or involuntary termination other than for cause, participants may receive
pro-rated awards after the end of the plan year, based on the duration of
employment prior to termination, subject to the approval of the Co-CEO s and
Personnel and Compensation Committee of the Board of Directors.
3
<PAGE> 4
PRO-RATED AWARDS
Individuals who are hired or promoted to officer levels during the plan year may
be given partial awards under this program, pro-rated based upon the time spent
in the incentive-eligible position, subject to the approval of the Co-CEO's and
the Personnel and Compensation Committee of the Board of Directors.
PLAN ADMINISTRATION
The administration of this program shall be the responsibility of the Senior
Vice President-Administration.
Nothing in this plan shall be construed to limit in any way the right of
FoxMeyer to terminate an employee s employment at any time; nor shall it be
evidence of any agreement or understanding, expressed or implied, that FoxMeyer
will employ an individual in any particular position, for any particular period
of time, ensure participation in any incentive programs, or grant awards from
such programs, as they may from time to time exist.
The Co-CEO's in conjunction with the Personnel and Compensation Committee of the
Board of Directors shall have the full power and authority to construe,
interpret and administer the plan. The Co-CEO's and Committee also reserve the
right to change or terminate the plan without notice. All decisions, actions,
or interpretations of the Committee shall be conclusive and binding on all
parties.
4
<PAGE> 5
ATTACHMENT ONE
FY '95 EXECUTIVE INCENTIVE PLAN
ELIGIBLE POSITIONS
<TABLE>
<CAPTION>
LEVEL TITLE INCUMBENT
- ----- ----- ---------
<S> <C> <C>
50% President and Chief Operating Officer T.L. Anderson
30% Senior Vice President - Operations W.L. Estes
Senior Vice President - Chief Financial Officer P.B. McKee
Senior Vice President - IS & Chief Information Officer D.J. Schwinn
Senior Vice President - Retail Marketing and Prod. Mkt B.L. Fugagli
Senior Vice President - Sales H.G. Daugherty
Senior Vice President - Regional Sales J.R. Nixon
Senior Vice President - Regional Sales R.H. Levin
Senior Vice President - HealthConnect R.E. Davis
Senior Vice President - General Counsel K.J. Rogan
25% Vice President - Human Resources S.K. Stevens
Vice President - Controller E.L. Massman
Vice President - Treasurer M.C. Kearney
Vice President - Strategic Planning T. Bailey
Vice President - Institutional and Managed Care Mkt G.R. Frost
Vice President - National Accounts P.A. Gunn
Vice President - Business Development T.M. Shivers
Vice President - H/AC Sales M. Straub
Vice President - Technical & Managed Care D.M. Gage
Vice President - Distribution and Sales Support B. Hayden
Vice President - Computer Services J.P. Lavalley
Vice President - Trade Relations and Product Mgmt, J.L. Grigg
</TABLE>
5
<PAGE> 6
FY '95 INCENTIVE PROGRAM ATTACHMENT TWO
PRESIDENT - LEVEL ONE
TARGET PERCENTAGE OF BASE: 50%
PAYOUT BASIS: 20% COMPANY EVA
60% COMPANY EBT
20% INDIVIDUAL OBJECTIVES
PROGRAM DESIGN:
<TABLE>
<CAPTION>
COMPANY EVA COMPANY EBT
PERFORMANCE PERFORMANCE IND OBJ TOTAL
LEVEL PAYOUT* LEVEL PAYOUT* PAYOUT* PAYOUT*
===========================================================================================================
<S> <C> <C> <C> <C> <C> <C>
THRESHOLD TBD 5.0% $53.2 MIL 15.0% 5.0% 25.0%
TARGET $-12.4 TO $-11.2MIL 10.0% $56.0 MIL 30.0% 10.0% 50.0%
MAXIMUM TBD 20.0% $61.6 MIL 60.0% 20.0% 100.0%
===========================================================================================================
</TABLE>
*Payout: Percentage of Base Salary
<PAGE> 7
FY '95 INCENTIVE PROGRAM ATTACHMENT THREE
SENIOR VICE PRESIDENT - LEVEL TWO
TARGET PERCENTAGE OF BASE: 30%
PAYOUT BASIS: 10% EVA
60% COMPANY EBT
20% STRATEGIC INITIATIVES/CRITICAL SUCCESS FACTORS
10% DELTA III
PROGRAM DESIGN:
<TABLE>
<CAPTION>
COMPANY EVA COMPANY EBT
PERFORMANCE PERFORMANCE IND OBJ DELTA III TOTAL
LEVEL PAYOUT* LEVEL PAYOUT* PAYOUT* PAYOUT* PAYOUT*
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
THRESHOLD TBD 1.5% $53.2 MIL 9.0% 3.0% 1.5% 15.0%
TARGET $-12.4 TO $-11.2MIL 3.0% $56.0 MIL 18.0% 6.0% 3.0% 30.0%
MAXIMUM TBD 4.5% $61.6 MIL 27.0% 9.0% 4.5% 45.0%
=======================================================================================================================
</TABLE>
*Payout: Percentage of Base Salary
<PAGE> 8
FY '95 INCENTIVE PROGRAM ATTACHMENT FOUR
VP DIRECT REPORT TO PRESIDENT - LEVEL TWO
TARGET PERCENTAGE OF BASE: 25%
PAYOUT BASIS: 10% EVA
60% COMPANY EBT
20% STRATEGIC INITIATIVES/CRITICAL SUCCESS FACTORS
10% DELTA III
PROGRAM DESIGN:
<TABLE>
<CAPTION>
COMPANY EVA COMPANY EBT
PERFORMANCE PERFORMANCE IND OBJ DELTA III TOTAL
LEVEL PAYOUT* LEVEL PAYOUT* PAYOUT* PAYOUT* PAYOUT*
========================================================================================================================
<S> <C> <C> <C> <C> <C> <C> <C>
THRESHOLD TBD 1.25% $53.2 MIL 7.5% 2.50% 1.25% 12.5%
TARGET $-12.4 TO $-11.2MIL 2.5% $56.0 MIL 15.0% 5.00% 2.50% 25.0%
MAXIMUM TBD 3.75% $61.6 MIL 22.2% 7.50% 3.75% 37.5%
========================================================================================================================
</TABLE>
*Payout: Percentage of Base Salary
<PAGE> 9
FY '95 INCENTIVE PROGRAM
ATTACHMENT FIVE VICE PRESIDENT - LEVEL THREE
TARGET PERCENTAGE OF BASE: 25%
PAYOUT BASIS: 60% COMPANY EBT
30% STRATEGIC INITIATIVES/CRITICAL SUCCESS FACTORS
10% DELTA III
PROGRAM DESIGN:
<TABLE>
<CAPTION>
COMPANY EBT
PERFORMANCE IND OBJ DELTA III TOTAL
LEVEL PAYOUT* PAYOUT* PAYOUT PAYOUT*
======================================================================================
<S> <C> <C> <C> <C> <C>
THRESHOLD $53.2 MIL 7.5% 3.75% 1.25% 12.5%
TARGET $56.0 MIL 15.0% 7.50% 2.50% 25.0%
MAXIMUM $61.6 MIL 22.2% 11.25% 3.75% 37.5%
======================================================================================
</TABLE>
*Payout: Percentage of Base Salary
<PAGE> 1
EXHIBIT 11
FOXMEYER HEALTH CORPORATION
COMPUTATION OF EARNINGS PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
===========================================================================================================
For the Years Ended March 31,
-------------------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Primary
- -------
Earnings
Net income $ 41,614 $ 29,512 $ 603
Dividends on preferred shares (19,096) (10,830) (5,352)
-------------------------------------------
Net income (loss) applicable to common stockholders $ 22,518 $ 18,682 $ (4,749)
===========================================
Shares
Weighted average number of common shares outstanding 14,827 16,931 19,967
-------------------------------------------
Net income (loss) $ 1.52 $ 1.10 $ (.24)
===========================================================================================================
Assuming Full Dilution
- ----------------------
Earnings
Net income $ 41,614 $ 29,512 $ 603
Dividends on non-convertible preferred shares (14,586) (5,880)
Dividends on convertible preferred shares (conversion of
preferred shares would be anti-dilutive) (4,510) (4,950) (5,352)
-------------------------------------------
Net income (loss) applicable to common stockholders $ 22,518 $ 18,682 $ (4,749)
===========================================
Shares
Weighted average number of common shares outstanding 14,827 16,931 19,967
Conversion of preferred stock (anti-dilutive) - - -
Assuming conversion of National Steel Corporation 4-5/8%
convertible debentures (anti-dilutive in 1993 and 1992)* - 39 -
Additional dilutive effect of outstanding options (as
determined by application of the treasury stock method) 286 55 -
-------------------------------------------
Weighted average number of common shares outstanding as
adjusted 15,113 17,025 19,967
===========================================
Net income (loss) ** $ 1.49 $ 1.10 $ (.24)
===========================================================================================================
</TABLE>
* The debentures matured in 1995 but were convertible into the common stock
of FoxMeyer Health Corporation prior to their maturity.
** 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%.
<PAGE> 1
EXHIBIT 21
FOXMEYER HEALTH CORPORATION
(FORMERLY NATIONAL INTERGROUP, INC.)
SUBSIDIARIES OF THE REGISTRANT*
* ALL SUBSIDIARIES ARE 100% OWNED EXCEPT WHERE OTHERWISE NOTED.
FoxMeyer Corporation (Delaware)
d/b/a CareStream
FoxMeyer Canada Inc. (Ontario) (24%)
FoxMeyer Drug Company (Kansas)
DRxCare, Inc. (Delaware)
FoxMeyer Drug Company (Delaware)
Harris Wholesale Company (Delaware)
Health Mart, Inc. (Colorado)
IVPartners, Inc. (Delaware)
FoxMeyer Realty Company (Delaware)
FoxMeyer Software, Inc. (Delaware) (80%)
Healthcare Connect, Inc. (Delaware)
OmNex Health, Inc. (Delaware)
Health Care Pharmacy Providers, Inc. (Delaware)
FoxMeyer Canada Inc. (Ontario) (23%)
NexCare, Inc. (Delaware)
Scrip Card Enterprises, Inc. (Utah)
US HealthData Interchange, Inc. (Delaware)
Healthcare Transportation System, Inc. (Delaware)
Health Systems, Inc. (Delaware)
Merchandise Coordinator Services Corporation (Delaware)
d/b/a FoxMeyer Trading Company
Full Value Distributors
Carol Stream Holdings, Inc. (Illinois)
Ben Franklin Retail Stores, Inc. (Delaware) (67.7%)
Belmont Insurance Co., Ltd. (Bermuda)
Ben Franklin Crafts, Inc. (Delaware)
Ben Franklin Stores, Inc. (Delaware)
BF Services, Inc. (Illinois)
Ben Franklin Insurance Agency, Inc. (Illinois)
Ben Franklin Realty Corporation (Delaware)
Ben Franklin Transportation, Inc. (Delaware)
Intergroup Services, Inc. (Delaware)
M&A Investments, Inc. (Delaware)
National Aluminum Corporation (Delaware)
National Intergroup Realty Corporation (Delaware)
National Intergroup Realty Development, Inc. (Delaware)
National Intergroup Realty Funding, Inc. (Delaware)
National Magnesium Corporation (Texas)
National Steel Products Company (Texas)
National Steel Products Company, Inc. (Indiana)
Natmin Development Corporation (Delaware)
Natoil Corporation (Kansas)
NII Health Care Corporation (Delaware)
NI World Trade, Incorporated (Delaware)
Oceanside Enterprises, Inc. (Delaware)
Riverside Insurance Co., Ltd. (Bermuda)
Starcom International, Inc. (Delaware) (80%)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-START> APR-01-1994
<PERIOD-END> MAR-31-1995
<CASH> 35,232
<SECURITIES> 18,219
<RECEIVABLES> 340,760
<ALLOWANCES> 6,510
<INVENTORY> 820,818
<CURRENT-ASSETS> 1,228,694
<PP&E> 256,393
<DEPRECIATION> 85,716
<TOTAL-ASSETS> 1,776,996
<CURRENT-LIABILITIES> 784,169
<BONDS> 422,751
<COMMON> 120,836
175,019
0
<OTHER-SE> 321,005
<TOTAL-LIABILITY-AND-EQUITY> 1,776,996
<SALES> 5,177,072
<TOTAL-REVENUES> 5,177,072
<CGS> 4,821,059
<TOTAL-COSTS> 4,821,059
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 20,511
<INTEREST-EXPENSE> 30,682
<INCOME-PRETAX> 48,230
<INCOME-TAX> 2,114
<INCOME-CONTINUING> 41,614
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,614
<EPS-PRIMARY> 1.52
<EPS-DILUTED> 1.52
</TABLE>
<PAGE> 1
Exhibit 99
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 11-K
ANNUAL REPORT PURSUANT TO SECTION 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
A. Full Title of the Plan and Address of the Plan:
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
1220 SENLAC DRIVE
CARROLLTON, TX 75006
B. Name of issuer of the securities held pursuant to the Plan and the
address of its principal executive office:
FOXMEYER HEALTH CORPORATION
1220 Senlac Drive
Carrollton, TX 75006
<PAGE> 2
FoxMeyer Employees' Savings and
Profit-Sharing Program
--------------------------------------------------
Financial Statements as of December 31, 1994 and
1993 and For Each of the Three Years in the Period
Ended December 31, 1994, Supplemental Schedules
as of and for the Year Ended December 31, 1994,
and Independent Auditors' Report
<PAGE> 3
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 2
Statements of Net Assets Available for Benefits as of December 31, 1994 and 1993 3
Statements of Changes in Net Assets Available for Benefits for Each of the Three Years in
the Period Ended December 31, 1994 4 - 6
Notes to Financial Statements 7 - 10
Item 27a - Schedule of Assets Held for Investment Purposes 11
Item 27d - Schedule of Reportable Transactions 12
Independent Auditors' Consent 13
</TABLE>
- 1 -
<PAGE> 4
INDEPENDENT AUDITORS' REPORT
TO THE RETIREMENT ADMINISTRATIVE COMMITTEE
FOXMEYER CORPORATION
We have audited the accompanying statements of net assets available for
benefits of the FoxMeyer Employees' Savings and Profit Sharing Program (the
"Plan") as of December 31, 1994 and 1993 and the related statements of changes
in net assets available for benefits for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Plan's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the net assets available for benefits of the Plan at December 31,
1994 and 1993, and the changes in net assets available for benefits for each of
the three years in the period ended December 31, 1994, in conformity with
generally accepted accounting principles.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental information by fund is
presented for the purpose of additional analysis of the basic financial
statements rather than to present information regarding the net assets
available for benefits and changes in net assets available for benefits of the
individual funds, and the accompanying supplemental schedules of (1) assets
held for investment purposes at December 31, 1994 and (2) reportable
transactions for the year ended December 31, 1994 are presented for the purpose
of additional analysis and are not a required part of the basic financial
statements. The supplemental information and schedules are the responsibility
of the Plan's management. The supplemental schedules are required by the
Department of Labor's Rules and Regulations for Reporting and Disclosure under
the Employee Retirement Income Security Act of 1974. Such supplemental
information and schedules have been subjected to the auditing procedures
applied in our audit of the basic financial statements and, in our opinion, are
fairly stated in all material respects when considered in relation to the basic
financial statements taken as a whole.
Deloitte & Touche LLP
Dallas, TX
April 12, 1995
- 2 -
<PAGE> 5
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
============================================================================================================
December 31,
------------------------------------------
1994 1993
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments, at Fair Value:
Fidelity Mutual Funds:
Equity-Income Fund $ 5,139,910 $ 5,280,950
Government Money Market Fund 9,660,884 10,643,272
Magellan Fund 5,455,258 4,541,581
Intermediate Bond Fund 1,012,455 1,188,864
Growth and Income Fund 2,958,948 2,633,685
Asset Manager Fund 42,671 -
Managed Income Portfolio Fund 500,321 -
FoxMeyer Common Stock Fund - 923,369
FoxMeyer Health Common Stock Fund 784,868 -
Participant Loans 1,417,718 37,048
------------------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 26,973,033 $ 25,248,769
============================================================================================================
</TABLE>
See notes to financial statements.
- 3 -
<PAGE> 6
FOXMEYER EMPLOYEES' SAVINGS AND
PROFIT-SHARING PROGRAM
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
==============================================================================================
SUPPLEMENTAL INFORMATION BY FUND
==============================================================================================
Government
Equity- Money Intermediate Growth and Asset
Income Market Magellan Bond Income Manager
Fund Fund Fund Fund Fund Fund
==============================================================================================
<S> <C> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1993 $5,280,950 $10,643,272 $4,541,581 $1,188,864 $2,633,685 $ -
----------------------------------------------------------------------------------------------
Investment Income (Loss):
Net Appreciation (Depreciation) in
Fair Value of Investments (499,754) - (286,671) (99,926) (169,079) (1,598)
Interest and Dividends 498,062 375,775 199,566 78,378 227,084 597
----------------------------------------------------------------------------------------------
Total Investment Income (Loss) (1,692) 375,775 (87,105) (21,548) 58,005 (1,001)
----------------------------------------------------------------------------------------------
Additions:
Transfers-in 229,607 547,708 752,163 164,012 450,766 -
Contributions:
Employer 199,838 381,563 373,972 65,601 190,791 2,173
Employee 564,294 908,478 1,056,849 178,646 546,746 4,461
----------------------------------------------------------------------------------------------
Total Contributions 764,132 1,290,041 1,430,821 244,247 737,537 6,634
----------------------------------------------------------------------------------------------
Total Additions 993,739 1,837,749 2,182,984 408,259 1,188,303 6,634
----------------------------------------------------------------------------------------------
Deductions:
Benefits Paid (1,099,562) (2,042,605) (1,303,173) (252,739) (1,133,702) -
Transfers Within Funds (32,197) (1,150,961) 122,180 (310,350) 212,695 37,038
Other (1,328) (2,346) (1,209) (31) (38) -
----------------------------------------------------------------------------------------------
Total Deductions (1,133,087) (3,195,912) (1,182,202) (563,120) (921,045) 37,038
----------------------------------------------------------------------------------------------
Net Assets Available for
Benefits, December 31, 1994 $5,139,910 $9,660,884 $5,455,258 $1,012,455 $2,958,948 $42,671
==============================================================================================
<CAPTION>
======================================================================
SUPPLEMENTAL INFORMATION BY FUND
======================================================================
Managed FoxMeyer FoxMeyer
Income Common Health
Portfolio Stock Common Participant
Fund Fund Stock Fund Loans Total
======================================================================================
<S> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1993 $ - $ 923,369 $ - $ 37,048 $25,248,769
--------------------------------------------------------------------------------------
Investment Income (Loss):
Net Appreciation (Depreciation) in
Fair Value of Investments - 146,735 54,234 - (856,059)
Interest and Dividends 17,054 15,445 - 56,065 1,468,026
--------------------------------------------------------------------------------------
Total Investment Income (Loss) 17,054 162,180 54,234 56,065 611,967
--------------------------------------------------------------------------------------
Additions:
Transfers-in 425,550 48,851 - 57,591 2,676,248
Contributions:
Employer 5,038 41,722 1,504 - 1,262,202
Employee 22,270 119,355 3,341 - 3,404,440
--------------------------------------------------------------------------------------
Total Contributions 27,308 161,077 4,845 - 4,666,642
--------------------------------------------------------------------------------------
Total Additions 452,858 209,928 4,845 57,591 7,342,890
--------------------------------------------------------------------------------------
Deductions:
Benefits Paid (97,432) (201,155) (25,823) (69,186) (6,225,377)
Transfers Within Funds 127,904 (1,094,322) 751,813 1,336,200 -
Other (63) - (201) - (5,216)
--------------------------------------------------------------------------------------
Total Deductions 30,409 (1,295,477) 725,789 1,267,014 (6,230,593)
--------------------------------------------------------------------------------------
Net Assets Available for
Benefits, December 31, 1994 $500,321 $ - $784,868 $1,417,718 $26,973,033
======================================================================================
</TABLE>
See notes to financial statements.
<PAGE> 7
FOXMEYER EMPLOYEES' SAVINGS AND
PROFIT-SHARING PROGRAM
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
=======================================================================
SUPPLEMENTAL INFORMATION BY FUND
=======================================================================
Government
Equity-Income Money Market Magellan Intermediate Growth and
Fund Fund Fund Bond Fund Income Fund
=======================================================================
<S> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1992 $3,813,271 $8,780,431 $2,469,070 $ 856,001 $1,561,064
-----------------------------------------------------------------------
Investment Income:
Net Appreciation in Fair Value
of Investments 695,318 - 319,785 30,194 235,242
Interest and Dividends 189,356 310,523 382,852 80,662 137,176
-----------------------------------------------------------------------
Total Investment Income 884,674 310,523 702,637 110,856 372,418
-----------------------------------------------------------------------
Additions:
Contributions:
Employer 200,877 476,814 288,347 71,890 196,915
Employee 686,291 1,133,448 950,600 179,080 595,224
-----------------------------------------------------------------------
Total Contributions 887,168 1,610,262 1,238,947 250,970 792,139
-----------------------------------------------------------------------
Total Additions 887,168 1,610,262 1,238,947 250,970 792,139
-----------------------------------------------------------------------
Deductions:
Benefits Paid (462,450) (1,725,910) (780,264) (134,765) (335,273)
Transfers Within Funds 158,287 1,667,966 911,191 105,802 243,337
-----------------------------------------------------------------------
Total Deductions (304,163) (57,944) 130,927 (28,963) (91,936)
-----------------------------------------------------------------------
Net Assets Available for Benefits,
December 31, 1993 $5,280,950 $10,643,272 $4,541,581 $1,188,864 $2,633,685
=======================================================================
<CAPTION>
=====================================================
SUPPLEMENTAL INFORMATION BY FUND
=====================================================
FoxMeyer
Common Participant
GIC Fund Stock Fund Loans Total
======================================================================
<S> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1992 $3,076,676 $693,336 $48,738 $21,298,587
----------------------------------------------------------------------
Investment Income:
Net Appreciation in Fair Value
of Investments - 2,483 - 1,283,022
Interest and Dividends 12,580 21,026 3,834 1,138,009
----------------------------------------------------------------------
Total Investment Income 12,580 23,509 3,834 2,421,031
----------------------------------------------------------------------
Additions:
Contributions:
Employer - 73,032 - 1,307,875
Employee - 177,151 - 3,721,794
----------------------------------------------------------------------
Total Contributions - 250,183 - 5,029,669
----------------------------------------------------------------------
Total Additions - 250,183 - 5,029,669
----------------------------------------------------------------------
Deductions:
Benefits Paid (24,114) (37,742) - (3,500,518)
Transfers Within Funds (3,065,142) (5,917) (15,524) -
----------------------------------------------------------------------
Total Deductions (3,089,256) (43,659) (15,524) (3,500,518)
----------------------------------------------------------------------
Net Assets Available for Benefits,
December 31, 1993 $ - $923,369 $37,048 $25,248,769
======================================================================
</TABLE>
See notes to financial statements.
<PAGE> 8
FOXMEYER EMPLOYEES' SAVINGS AND
PROFIT-SHARING PROGRAM
STATEMENT OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
FOR THE YEAR ENDED DECEMBER 31, 1992
<TABLE>
<CAPTION>
======================================================================
SUPPLEMENTAL INFORMATION BY FUND
======================================================================
Equity- Government Growth
Income Money Market Magellan Intermediate and Income
Fund Fund Fund Bond Fund Fund
======================================================================
<S> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1991 $2,571,494 $7,328,513 $1,326,059 $281,591 $ 721,984
----------------------------------------------------------------------
Investment Income (Loss):
Net Appreciation (Depreciation)
in Fair Value of Investments 287,267 - (167,975) (10,082) (40,767)
Interest and Dividends 117,851 295,902 308,277 36,571 158,343
----------------------------------------------------------------------
Total Investment Income (Loss) 405,118 295,902 140,302 26,489 117,576
----------------------------------------------------------------------
Additions:
Transfers-In 502,501 246,287 253,856 286,008 288,550
Contributions:
Employer 131,668 508,794 137,203 35,033 91,373
Employee 322,979 1,155,713 390,497 108,360 258,859
----------------------------------------------------------------------
Total Contributions 454,647 1,664,507 527,700 143,393 350,232
----------------------------------------------------------------------
Total Additions 957,148 1,910,794 781,556 429,401 638,782
----------------------------------------------------------------------
Deductions:
Benefits Paid (296,577) (1,731,490) (155,413) (60,739) (51,096)
Transfers Within Funds 176,088 976,712 376,566 179,259 133,818
----------------------------------------------------------------------
Total Deductions (120,489) (754,778) 221,153 118,520 82,722
----------------------------------------------------------------------
Net Assets Available for Benefits,
December 31, 1992 $3,813,271 $8,780,431 $2,469,070 $856,001 $1,561,064
======================================================================
<CAPTION>
=========================================================
SUPPLEMENTAL INFORMATION BY FUND
=========================================================
FoxMeyer
NII Common Common Participant
GIC Fund Stock Fund Stock Fund Loans Total
======================================================================
<S> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1991 $4,899,562 $1,008,363 $ - $ - $18,137,566
----------------------------------------------------------------------
Investment Income (Loss):
Net Appreciation (Depreciation)
in Fair Value of Investments - (122,766) (63,955) - (118,278)
Interest and Dividends 260,093 2,208 8,498 1,126 1,188,869
----------------------------------------------------------------------
Total Investment Income (Loss) 260,093 (120,558) (55,457) 1,126 1,070,591
----------------------------------------------------------------------
Additions:
Transfers-In - - 136,233 51,519 1,764,954
Contributions:
Employer - 2,973 37,869 - 944,913
Employee - 6,482 142,090 - 2,384,980
----------------------------------------------------------------------
Total Contributions - 9,455 179,959 - 3,329,893
----------------------------------------------------------------------
Total Additions - 9,455 316,192 51,519 5,094,847
----------------------------------------------------------------------
Deductions:
Benefits Paid (614,581) (67,431) (27,090) - (3,004,417)
Transfers Within Funds (1,468,398) (829,829) 459,691 (3,907) -
----------------------------------------------------------------------
Total Deductions (2,082,979) (897,260) 432,601 (3,907) (3,004,417)
----------------------------------------------------------------------
Net Assets Available for Benefits,
December 31, 1992 $3,076,676 $ - $693,336 $48,738 $21,298,587
======================================================================
</TABLE>
See notes to financial statements.
<PAGE> 9
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Accounting: The accounting records of the FoxMeyer Employees' Savings
and Profit-Sharing Program (the "Plan"), sponsored by FoxMeyer Corporation (the
"Corporation"), a wholly owned subsidiary of Foxmeyer Health Corporation
(formerly National Intergroup, Inc., ("NII")) ("Health"), are maintained on the
accrual basis of accounting.
Investments: Investments are recorded in the financial statements at fair
value determined by quoted market prices at the close of business on December
31. The change in the difference between fair value and the cost of
investments, including realized gains or losses, is reflected in the statement
of changes in net assets available for benefits as net appreciation
(depreciation) in fair value of investments during the year. The principle
followed in determining the cost of the securities sold is the first-in,
first-out basis. Interest and dividend income are recorded on an accrual
basis.
Expenses: Expenses incurred by the Trustee, Fidelity Management Trust Company
("Fidelity"), a subsidiary of FMR Corporation, Boston, Massachusetts, in
connection with the purchase and sale of common stock, are paid from the
appropriate investment fund. The Plan's expenses are paid by either the
Corporation or the Plan as provided by the plan document.
NOTE B - DESCRIPTION OF THE PLAN
The following brief description of the Plan provides only general information.
Participants should refer to the plan document for a more complete description
of the Plan's provisions.
Plan Organization, Amendments and General Provisions: The Plan is a defined
contribution plan covering eligible employees of the Corporation and certain
subsidiaries and affiliated companies. Some employees covered by a collective
bargaining agreement are not eligible to participate in the Plan. The purpose
of the Plan is to permit employees to share in the profits of the Corporation
and to encourage employees to accumulate savings for their retirement. The
Plan is administered by the Corporation and by an appointed committee of seven
individuals.
As a result of the purchase of Snyder's Drug Stores, Inc.'s warehouse and
distribution center in Eagan, Minnesota in September 1992, assets from Snyder's
401(k) plan were transferred to the Plan in November 1992 for those employees
transferred to the Corporation. Along with the transfer of assets, participant
loans made under the provisions of the Snyder 401(k) plan were also
transferred.
Effective March 15, 1994, the Harris Wholesale 401(k) Savings and Retirement
Profit Sharing Plan (the "Harris Plan") was terminated and the assets and
liabilities of the Harris Plan were transferred to the Plan on March 17, 1994.
Harris Wholesale Company, the plan sponsor of the Harris Plan, was purchased by
the Corporation in May 1992.
The Plan is subject to the provisions of the Employee Retirement Income
Security Act of 1974 ("ERISA").
Contributions and Vesting: The Plan is qualified under Section 401(k) of the
Internal Revenue Code (the "Code"). Participants may elect to exclude up to
12% (except for certain highly compensated employees whose contributions are
limited to a maximum of 6%) of their compensation, after having been employed
for at least 12 months, from amounts subject to income tax and such amounts are
characterized as salary deferral contributions by the Corporation. The Plan
document provides for limitations on salary deferral contributions in the event
of a hardship withdrawal. The Corporation generally makes a matching
contribution at the rate of 50% of the first 6% of the participant's salary
deferral contribution. The Corporation may also make additional matching
contributions at the discretion of the Corporation's Board of Directors. No
such additional discretionary payments were made during the three years ended
December 31, 1994. Vesting in salary deferral and matching employer
contribution accounts is 100% at all times.
- 7 -
<PAGE> 10
The Corporation's Board of Directors also has the discretion to make
non-matching contributions to the Plan. Such contributions are allocated to
participants based upon the percentage of a participant's compensation to total
compensation of all participants. A participant vests in such contributions
made to his account ratably over a five year period and is 100% vested in such
contributions at age 65, disability or death regardless of years of service.
No such contributions were made during the three years ended December 31, 1994.
Currently, participants can elect to have their contributions invested in any
of several investment options which are described in Note C. The participant
can change elections monthly and can also move those funds already invested
between available investment options. Certain limitations exist for officers
and directors who wish to purchase the common stock of Health.
The Plan adopted certain new options which were effective in 1992. The Plan
allows rollovers from other qualified plans. In addition, hardship withdrawals
for medical treatment, tuition, and purchase of or possible eviction from a
primary residence are also permitted. Effective January 1, 1994, the Plan
allows participants to borrow up to 50% of their vested balance of Plan assets
for non-hardship reasons.
Forfeitures are allocated to participants, as defined in the plan document,
based upon the percentage of a participant's compensation to total compensation
of all participants during the Plan year.
Distribution of Benefits: Distributions of vested benefits may be made to a
participant upon retirement, disability, death or termination of employment.
Prior to age 59 1/2, a participant, while employed, may make a withdrawal from
his salary deferral contributions account in the event that the participant has
an immediate and heavy financial need, as defined in Section 401(k) of the
Code, subject to certain conditions contained in the Plan document. Upon
attainment of age 59 1/2, a participant, while employed, may make withdrawals
from his salary deferral and matching employer contribution accounts.
Distributions of benefits under the Plan shall be paid to the participant or a
beneficiary in the form of a lump sum distribution or three to five
substantially level annual installments (for vested balances over $3,500).
Any withdrawals from the Plan will generally be subject to federal income tax.
Taxes may be postponed by "rolling over" the proceeds to an individual
retirement plan or to another qualified plan. An additional 10% excise tax may
be imposed on the taxable portion of distributions and withdrawals before
attaining age 59 1/2. The additional tax is not imposed on distributions on
death, disability, termination of employment after age 55, pursuant to a
qualified domestic order, and for other reasons enumerated in the Code.
Amendment or Termination: The Corporation has reserved the right to amend,
modify or terminate the Plan at any time, subject to the Plan document and
applicable laws and regulations.
NOTE C - PLAN INVESTMENTS
During the three years ended December 31, 1994, the following Plan investments
were offered by the Plan through Fidelity.
GIC Fund -- A fund which purchases investment contracts which provide
both a guaranteed principal and interest rate. This fund option was
discontinued during 1993.
Fidelity Equity-Income Fund -- A growth and income fund which invests
primarily in stocks but also invests in bonds and convertible
securities. The fund seeks to invest in equities whose dividend yield
exceeds the average yield of the S&P 500 and have the potential for
capital growth.
NII Common Stock Fund -- A fund which invests in the common stock of
NII. This option to purchase NII stock was discontinued December 31,
1991. All shares of NII stock were sold and the proceeds rolled into
another investment option under the Plan by September 1992.
- 8 -
<PAGE> 11
FoxMeyer Common Stock Fund -- A fund which invests in the common stock
of the Corporation. On October 12, 1994 the Corporation merged with
and into a wholly-owned subsidiary of NII. At that time each share of
the Corporation's common stock was exchanged for .904 shares of NII.
Subsequent to the merger NII changed its name to FoxMeyer Health
Corporation. As a result of the merger, participants' common stock was
exchanged into Health common stock and employees were given the option
to further invest in the FoxMeyer Health Common Stock Fund.
Government Money Market Fund -- A money market fund which seeks high
yields and stability of principal by investing in short-term
government money market investments.
Fidelity Intermediate Bond Fund -- A fund which seeks a high level of
income by investing in high quality, fixed income obligations with a
dollar weighted average portfolio maturing from three to ten years.
Fidelity Magellan Fund -- An aggressive growth fund which seeks
capital appreciation by investing in stocks of both well-known and
lesser-known companies with above average growth potential and a
corresponding higher level of risk. Securities may be either foreign
or domestic companies.
Fidelity Growth and Income Fund-- A fund which seeks long-term capital
growth, current income and growth of income consistent with reasonable
investment risk by investing primarily in common stock of corporations
with growth of earnings potential while paying current dividends.
Managed Income Portfolio Fund-- A fund which invests in high-quality,
short and long-term investment contracts issued by insurance
companies, banks, and other financial institutions.
Asset Manager Fund-- An allocation fund which seeks a high total
return with reduced risk over the long term by allocating its assets
among domestic and foreign equities, bonds and short-term instruments.
FoxMeyer Health Common Stock Fund-- A fund which invests in the common
stock of Health.
<TABLE>
<CAPTION>
================================================================================================================
December 31, 1994
---------------------------------------------------------------------
Number Number of
of Plan Units Held
Unit Participants in Participant
Fund Valuation With Balances Accounts Market Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Mutual Funds:
Equity-Income $ 30.70 677 167,424 $ 5,139,910
Government Money Market 1.00 1,198 9,660,884 9,660,884
Magellan 66.80 796 81,666 5,455,258
Intermediate Bond 9.83 302 102,996 1,012,455
Growth and Income 21.09 581 140,301 2,958,948
Asset Manager 13.83 22 3,085 42,671
Managed Income Portfolio 1.00 144 500,321 500,321
FoxMeyer Health Common Stock Fund 14.88 263 52,764 784,868
================================================================================================================
</TABLE>
- 9 -
<PAGE> 12
<TABLE>
<CAPTION>
================================================================================================================
December 31, 1993
---------------------------------------------------------------------
Number Number of
of Plan Units Held
Unit Participants in Participant Market
Fund Valuation With Balances Accounts Value
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fidelity Mutual Funds:
Equity-Income $ 33.84 667 156,056 $ 5,280,950
Government Money Market 1.00 1,247 10,643,272 10,643,272
Magellan 70.85 718 64,101 4,541,581
Intermediate Bond 10.78 311 110,284 1,188,864
Growth and Income 22.22 535 118,528 2,633,685
FoxMeyer Common Stock Fund 11.25 287 82,077 923,369
================================================================================================================
</TABLE>
NOTE D - INCOME TAX STATUS
The Internal Revenue Service has determined that the Plan qualifies for tax
exemption under Section 401(a) of the Code and that the related trust qualifies
under Section 501(a) of the Code.
Elective contributions made by participants, matching employer contributions,
interest, dividends and profit from the sale of securities need not be reported
by participants for federal income tax purposes until their account is
withdrawn or distributed, wholly or partially.
NOTE E - NET APPRECIATION (DEPRECIATION) IN FAIR VALUE OF INVESTMENTS
The following table details the net change in fair value by type of investment:
<TABLE>
<CAPTION>
=============================================================================================================
1994 1993 1992
---------------------------------------------------------
<S> <C> <C> <C>
Fidelity Mutual Funds $(1,057,028) $ 1,280,539 $ 68,443
NII Common Stock Fund - - (122,766)
FoxMeyer Common Stock Fund 146,735 2,483 (63,955)
FoxMeyer Health Common Stock Fund 54,234 - -
----------------- ---------------- ----------------
Net appreciation (depreciation) in fair
value of investments $ (856,059) $ 1,283,022 $(118,278)
=============================================================================================================
</TABLE>
NOTE F - WITHDRAWALS
Net assets available for Plan benefits at December 31, 1994 and 1993 included
$626,975 and $463,994, respectively, for participants who were no longer
employed by the Corporation and who requested that their funds be distributed
prior to December 31, 1994 and 1993, respectively.
NOTE G - SUBSEQUENT EVENT
Effective March 31, 1995, the Retirement Savings Plan for Salaried Employees of
National Intergroup, Inc. (the "NII Plan") was terminated and the assets and
liabilities of the NII Plan were transferred to the Plan.
- 10 -
<PAGE> 13
FOXMEYER EMPLOYEES' SAVINGS AND PROFIT-SHARING PROGRAM
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1994
<TABLE>
<CAPTION>
========================================================================================================================
(a) (b) Identity of issue, (c) Description of investment including (d) Cost (e) Current
borrower, lessor, or maturity date, rate of interest, value
similar party collateral, par or maturity value
========================================================================================================================
<S> <C> <C> <C>
Fidelity Mutual Funds Equity-Income Fund $ 4,889,617 $ 5,139,910
Fidelity Mutual Funds Government Money Market Fund 9,660,884 9,660,884
Fidelity Mutual Funds Magellan Fund 5,575,871 5,455,258
Fidelity Mutual Funds Intermediate Bond Fund 1,067,669 1,012,455
Fidelity Mutual Funds Growth and Income Fund 2,982,935 2,958,948
Fidelity Mutual Funds Asset Manager 43,867 42,671
Fidelity Mutual Funds Managed Income Portfolio 500,321 500,321
FoxMeyer Health Common Stock, $5 par value 736,556 784,868
Participant Loans Interest rates ranging from 7.0% to 1,417,718 1,417,718
10.5% with maturities dates ranging
from January 1995 to December 2004.
</TABLE>
<PAGE> 14
FOXMEYER EMPLOYEES' SAVINGS AND PROFIT-SHARING PROGRAM
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
===============================================================================================================
(a) Identity of (b) Description of asset (c) Purchase (d) Selling (e) Lease (f) Expense
party involved (include interest rate price price rental incurred
and maturity in case of with
loan) transaction
===============================================================================================================
<S> <C> <C> <C> <C> <C>
Fidelity Mutual Funds Equity-Income Fund $2,009,756 $1,651,042
Fidelity Mutual Funds Government Money Market Fund 2,836,520 3,818,908
Fidelity Mutual Funds Magellan Fund 3,189,930 1,989,582
Fidelity Mutual Funds Growth and Income Fund 1,878,998 1,384,656
FoxMeyer Common Stock Fund 306,527 1,493,250
<CAPTION>
=====================================================================
(a) Identity of (g) Cost of (h) Current (i) Net
party involved asset value of asset gain or
on transaction (loss)
date
=====================================================================
<S> <C> <C> <C>
Fidelity Mutual Funds $1,708,366 $1,651,042 $ (57,324)
Fidelity Mutual Funds 3,818,908 3,818,908 -
Fidelity Mutual Funds 2,058,440 1,989,582 (68,858)
Fidelity Mutual Funds 1,405,739 1,384,656 (21,083)
1,164,173 1,493,250 329,077
</TABLE>
<PAGE> 15
EXHIBIT 24(i)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-56097 of FoxMeyer Corporation on Form S-8 of our report dated April 12,
1995, appearing in this Annual Report on Form 11-K of the FoxMeyer Employees'
Savings and Profit-Sharing Program for the year ended December 31, 1994.
Deloitte & Touche LLP
Dallas, Texas
June 28, 1995
