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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, 1996
[ ] 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 (I.R.S. Employer
of incorporation or organization) Identification No.)
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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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]
On June 27, 1996, the aggregate value of voting stock held by non-affiliates of
the registrant was approximately $191,178,000.
On June 27, 1996, there were 16,772,788 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 22, 1996 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 health care
services, including the wholesale distribution of a full line of pharmaceutical
products and health and beauty aids to independent drug stores, chain stores,
hospitals, and alternate care facilities in the United States through its
wholly-owned subsidiary FoxMeyer Corporation ("FoxMeyer").
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 into 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 fiscal 1991 leaving the distribution businesses the
registrant had acquired in 1986 as the primary operating units. These units
were FoxMeyer and Ben Franklin Retail Stores, Inc. ("Ben Franklin"). On October
12, 1994, the registrant acquired, by way of merger of FoxMeyer into a
wholly-owned subsidiary of the registrant, the 19.5% of the outstanding common
stock of FoxMeyer that it did not previously own in exchange for approximately
4,981,000 shares of the registrant's common stock. The registrant sold a 33%
interest in Ben Franklin to the public in fiscal 1993. On September 29, 1995,
the registrant distributed most of its remaining common stock holdings in Ben
Franklin through a dividend of one share of Ben Franklin for every six shares of
the registrant's common stock. The registrant currently retains a 17.4%
interest in Ben Franklin. The registrant also discontinued certain operations
in FoxMeyer's managed care and information service segments effective June 30,
1995. The registrant is in the process of selling or closing down these
discontinued operations.
(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The registrant principally operates in the health care services segment
through FoxMeyer.
(C) DESCRIPTION OF THE BUSINESS
The following is a description of the registrant's operating subsidiaries:
FOXMEYER CORPORATION
GENERAL
FoxMeyer believes it is the fourth largest wholesale drug distributor in
the United States. Through its 23 distribution centers, FoxMeyer sells a broad
line of pharmaceutical products and health and beauty aids. FoxMeyer's
geographic coverage extends to 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
franchise program, FoxMeyer offers its 813 franchisees (as of March 31, 1996)
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.
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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. The industry has also experienced
strong price competition in order to keep and attract customers, especially
those large customers discussed below. This trend has reduced gross margins in
the industry resulting in reduced profitability for FoxMeyer and other
distributors.
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. 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 merchandise. FoxMeyer is also
expanding its private label, generic brand and specialty distribution programs.
Most of FoxMeyer's competitors are deploying the same strategies and
initiatives to increase their gross margins. The increased competition reduces
the gains that can be expected from these changes in FoxMeyer's strategies.
Inventory. FoxMeyer maintains an active inventory at each of its
warehouses that averages approximately 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, 1996
approximately 84% 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 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. FoxMeyer is in the process of closing its
Wichita, Kansas center and moving those operations to Dallas, Texas.
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
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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 four years ago under
a $60 million project that is now called "Delta". During 1996, most of the
Delta project was implemented. Delta is the key to managing inventory more
efficiently and re-engineering business processes. Until the system has been
fully integrated with older systems and processes have been updated, benefits
from this program will not be fully realized.
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
primarily using 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.
FoxMeyer has completed its national distribution center in Washington Court
House, Ohio. This distribution center incorporates 60 carousels and two
150-foot A-Frame Automatic Picking Systems. The national distribution center
also uses 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 some of the other
FoxMeyer distribution centers over the next two fiscal years.
The national distribution center offers next-day air service through
Airborne Express from its hub in Wilmington, Ohio. This allows FoxMeyer to
consolidate its back-order operations at one distribution center simplifying
this task and reducing the level of safety-stock inventory FoxMeyer must
maintain nationwide, further reducing inventory costs.
FoxMeyer closed the Cincinnati and Solon, Ohio distribution centers in
fiscal 1996 after the opening of the national distribution center. Other
possible distribution center restructurings are being considered for fiscal
1997 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 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 Chains and for
Hospitals and Alternate Care customers.
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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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1996 1995 1994
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Type of Customer Net Sales % Net Sales % Net Sales %
- -------------------- ---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Independents $1,884,282 34% $1,683,311 35% $1,751,592 35%
Chains 1,429,823 26 1,489,011 31 1,650,990 33
Hospitals &
Alternate Care 1,702,335 31 1,231,172 26 1,163,370 23
Other Activities (1) 470,922 9 402,442 8 484,000 9
---------- -------- ---------- -------- ---------- --------
Total $5,487,362 100% $4,805,936 100% $5,049,952 100%
======================================================================================
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(1) Includes bulk sales, sales by FoxMeyer's subsidiaries, Merchandising
Coordinator Services Corporation and Health Mart, Inc. See "Other
Activities" below.
During fiscal 1996, total purchases by FoxMeyer's ten largest customers
were approximately $2.8 billion or 51.0% of net sales. Sales to Hospital and
Alternate Care customers have increased significantly primarily as a result of
sales to the University Hospital Consortium ("UHC"). See "Hospitals and
Alternate Care" discussion below.
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 Chains 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 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 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
operated as "FoxMeyer Trading Company," purchased pharmaceutical products,
health and beauty aids and salon products in large quantities for short-term
resale. The activities of this subsidiary were terminated in fiscal 1996 as the
low-inflation
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climate has limited the potential profits that can be achieved. Some of these
activities will be continued through FoxMeyer's normal purchasing activities.
Health Mart 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.
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.
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.
FoxMeyer may in the future decide not to compete to keep certain customers if
management believes such customers will not generate sufficient benefits to
cover the expense of servicing that customer.
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, the FoxMeyer logo
and Health Mart.
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.
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
program.
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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, 1996, FoxMeyer employed 2,447 persons. Approximately 496
employees of FoxMeyer are represented by unions. FoxMeyer believes that its
employee relations are good.
PROPERTIES
FoxMeyer operates the following 23 distribution centers:
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DISTRIBUTION CENTER OWNED/LEASED
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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
Washington Court House, OH Leased
Oklahoma City, OK Owned
Washington, PA Leased
Nashville, TN Leased
San Antonio, TX Leased
West Valley City, UT Leased
Richmond, VA Leased
Kent, WA Leased
LaCrosse, WI Owned
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Each distribution center is equipped with material-handling equipment used
for receiving, storing and distributing large quantities of a broad array of
products. During 1996, two facilities, Cincinnati and Solon, Ohio, were
closed. The facility formerly located in Leetsdale, Pennsylvania was relocated
to Washington, Pennsylvania.
FoxMeyer leases its Carrollton, Texas executive offices and owns its
Wichita, Kansas data processing center. FoxMeyer leases a warehouse in Oklahoma
City and in Tulsa, Oklahoma which are subleased by other parties.
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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.
The registrant is also a limited partner in other real estate partnerships,
which are accounted for on an equity basis, that own and operate a hotel and
office buildings. The properties owned by all these partnerships are located
primarily in the Maryland, Virginia and Washington, D.C. areas. The properties
which are collateral for real estate loans held by these partnerships are also
located in this same geographic area.
The registrant, through a majority-owned subsidiary, owns approximately 31% of
Phar-Mor, Inc. ("Phar-Mor"), a deep discount chain drug store, which emerged
from bankruptcy proceedings in September 1995. In addition, the registrant
received approximately 8% of Phar-Mor's common stock as settlement of its
claims against Phar-Mor for receivables outstanding at the time of Phar-Mor's
bankruptcy. Net of minority interest, the registrant owns a total of
approximately 29.4% of Phar-Mor. Phar-Mor currently operates 102 stores
primarily in the eastern United States. FoxMeyer's sales to Phar-Mor during
1996 were $236.1 million or 4.3% of net sales.
The registrant owns 17.4% of Ben Franklin which is accounted for on an equity
basis. Ben Franklin, which has been in operation for more than 70 years,
franchises retail variety and crafts stores under the names Ben Franklin and
Ben Franklin Crafts and sells variety and crafts merchandise to its franchisees
and independent selected retail outlets on a wholesale basis. In addition, Ben
Franklin owns and operates Ben Franklin Crafts superstores.
The registrant owns 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.
The registrant also has a 47% interest in FoxMeyer Canada Inc. ("FoxMeyer
Canada"). FoxMeyer Canada provides health care, pharmacy and pharmacy benefit
management services in Canada. During 1996, FoxMeyer Canada acquired Les
Ordinateurs Hypocrat Inc. which provides computer services and
telecommunication networks to most sectors of Quebec's health care system.
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 Q to the Notes to
the Consolidated Financial Statements of the registrant contained herein.
Also, see "Item 3. Legal Proceedings" below for a discussion of outstanding
environmental actions involving the registrant.
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EMPLOYEES
The number of persons employed by the registrant and its consolidated
subsidiaries was approximately 2,466 at March 31, 1996.
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 been informed by the class action plaintiffs that they
intend to reject the Memorandum of Understanding and proceed with the
litigation. An Amended Complaint was filed in the consolidated case on
February 13, 1996. The Amended Complaint essentially alleges the same claims
previously raised. The defendants intend to contest the allegations raised by
the plaintiffs.
FoxMeyer Corporation
FoxMeyer Drug Company ("FoxMeyer Drug"), a wholly-owned subsidiary of
FoxMeyer, was 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 4, 1996, the court granted the motion of the drug wholesalers for
summary judgment and dismissed all claims against the drug wholesalers,
including FoxMeyer Drug. The plaintiffs have appealed this decision.
In February 1995, an action was commenced by three Minnesota retail
pharmacies in the District Court of Crow Wing County, Minnesota in which
FoxMeyer Drug was named as a defendant. On motion by the defendants, the case
Salk Drug Co., Inc., et. al. v. Abbott Laboratories, et. al., File No.
NC95-009632, was transferred to the District Court of Hennepin County. The
action, asserted on behalf of an alleged class of Minnesota retail pharmacies,
alleges violations of certain Minnesota price discrimination, conspiracy and
antitrust statutes in the sale of prescription drugs in Minnesota. FoxMeyer
Drug is vigorously defending itself in this action. FoxMeyer Drug has answered
the complaint and denied all allegations of wrongdoing. The court granted
defendants' motion to dismiss the conspiracy and antitrust claims but denied
the defendants' motion to dismiss the price discrimination claims.
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In July 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 defendant (K-S Pharmacies, Inc. et. al. vs. Abbott Laboratories, et.
al., Case No. 94CV2384). 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 sales
of prescription drugs in Wisconsin. This complaint seeks injunctive relief and
treble damages in an unspecified amount. In an order dated May, 1996, the
court granted the motion of the drug wholesalers to dismiss the complaint with
prejudice on the grounds that the complaint failed to allege a cause of action
against the wholesalers.
In March 1995, an action was commenced by approximately 130 Arkansas
retail pharmacies against numerous drug manufacturers and wholesalers
(including FoxMeyer Drug) in the United States District Court for the Eastern
District of Arkansas, entitled McSpadden Drug Store, et. al. v. Abbott
Laboratories, et. al., No. LRC95-153. Plaintiffs allege, inter alia,
violations of federal antitrust laws. The only claim brought against defendant
drug wholesalers alleges a violation of an Arkansas price discrimination
statute arising out of the sale of prescription drugs in Arkansas. This action
was transferred to the Northern District of Illinois and coordinated under MDL
997. FoxMeyer Drug intends to vigorously defend itself in this action. The
antitrust claims were dismissed pursuant to the April 4, 1996 order in In Re:
Brand Name Prescription Drugs. The price discrimination claims are still
pending.
Effective on October 26, 1994, FoxMeyer Drug entered into a Judgment
Sharing Agreement (the "Agreement") with the manufacturer defendants in the
cases discussed above. 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, 1994 (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 million 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 million amount deposited by
the registrant.
In accordance with the terms of the Definitive Agreement, NSC is
administering and discharging Environmental Liabilities incurred at the sites
described in paragraphs (a) through (f) below:
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(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, 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 agreement
with the defendants with its allocated share of the settlement at less than
$10,000 and is awaiting final approval of a consent decree containing the terms
of the settlement.
(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 sought, among
other things, a determination of the allocation for the remedial action costs
(projected to be approximately $15 to $20 million) among the municipal and
industrial defendants. The industrial defendants have successfully negotiated
with EPA to reduce the scope of the remedy at the site. In June, 1996, NSC and
eight other industrial defendants entered into a settlement agreement with
Consolidation Coal Company. NSC's allocated share of the remedial action costs
will be 2.8%, which means NSC's anticipated costs will be approximately
$420,000-$560,000. The costs will be paid from the $10 million prepaid
indemnification amount that registrant has deposited with NSC. The settlement
is subject to court approval.
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(c) 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 and 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. In addition, Weirton Steel Corporation has
agreed to a three-year groundwater monitoring program of the Brown's Island
facility. NSC receives copies of the results of that groundwater monitoring
program. To date, no groundwater remediation has been required, nor can it be
determined whether such remediation will be required. The Corporation has also
been informed that EPA is conducting an all-inclusive investigation of the
Weirton Steel facilities. This investigation may result in an order from EPA
to perform corrective action at the Weirton facilities and a claim by Weirton
against NSC.
(d) 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.
(e) 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.
(f) 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
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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 $48.3 million and
sitewide remedy costs are estimated to be $93.8 million. In May of 1995, Alumet
reached a settlement with the Environmental Protection Agency and the
Department of Justice concerning any liability Alumet may have with respect to
this site. The terms of the settlement are embodied in a consent decree that
was executed by both Alumet and the Department of Justice, and entered by the
United States District Court for the District of Colorado under the terms of
the settlement. An order was issued dismissing with prejudice the claims
against Alumet, NSC, Southwire, and the Registrant. On March 1, 1996, Alumet
paid the sum of $7.3 million in full settlement of all third party claims,
including all claims by the government and by private plaintiffs (including the
City and County of Denver, Waste Management of Colorado, Inc. and Chemical
Waste Management) with respect to this matter. NSC's share of the settlement
was 50% of the overall amount, or $3.65 million, and was paid by NSC out of the
$10 million deposited by the registrant with NSC as a prepayment of
indemnification obligations.
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 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.
(c) 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, 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
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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.
(d) 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.
(e) 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.
On or about March 29, 1996, EPA, pursuant to section 106 of CERCLA, issued a
unilateral administrative order to ten parties, including NAC, requiring them
to perform the Remedial Action. In response to the Order, NAC and a number of
Order recipients filed a notice of intent to comply. The exact cost of the
Remedial Action is unknown at this time. In addition, the Coordinating
Committee has issued a demand letter to NAC and several other PRPs, seeking
reimbursement of a percentage of costs associated with the installation of the
leachate collection system and performing the Remedial Design. NAC is
currently evaluating the merits of the Coordinating Committee's demand, which
seeks payment of more than $60,000 for NAC. The registrant will investigate
these issues as they develop.
(f) 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%. NAC accepted the PRP
group's offer of settlement and executed an Administrative Order on Consent,
Participation Agreement, and Assignment of Claims. The complaint was dismissed
without prejudice and NAC was realigned as a plaintiff in the action.
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(g) 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 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. AB filed a motion to dismiss the petition of NAC based on the
argument that the court did not have jurisdiction over the dispute. The motion
to dismiss was granted in July, 1993.
Subsequent to the filing of the above-referenced suit by NAC and the
registrant, AB commenced AB 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 spent 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, the registrant filed a response 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 a pretrial
order. On April 15, 1996, the Corporation moved for summary judgment on the
ground that the court lacked personal jurisdiction. That motion is now
pending. If summary judgment is not granted, trial is currently scheduled for
December 1996.
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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. In May, 1996, the
insureds dismissed their lawsuit in consideration of a cash settlement paid by
Continental Casualty Co.
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.
National Steel Corp., et al., No. 95C-05-237 (Sup. Ct. for New Castle County,
Delaware). On March 5, 1996, the West Virginia court denied the insurers'
motion to dismiss the complaint on the grounds of forum non conveniens. The
principal case is proceeding in West Virginia and a case management order was
entered on May 29, 1996 which contemplates a trial in the Spring of 1997. In
addition, the court has ordered a mediation session during the week of July 29,
1996.
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 May 31, 1996, the registrant had 6,667 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 PRICES FOR FISCAL 1996 AND 1995
<TABLE>
<CAPTION>
Market Price Range Dividends Declared Per
Share
- ----------------------------------------------------------------------------------------------------------
Fiscal 1996 Fiscal 1995
- ----------------------------------------------------------------------------------------------------------
High Low High Low Fiscal 1996 Fiscal 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Common Stock (Symbol: Fox)
1st Quarter.............................. $20 $17 3/4 $18 3/4 $15 1/8 $ 0 $ 0
2nd Quarter.............................. 26 17 3/4 18 1/2 14 5/8 0** 0
3rd Quarter.............................. 28 3/8 21 3/4 17 1/8 14 1/4 0 0
4th Quarter.............................. 26 3/4 15 19 7/8 14 3/8 0 0
- ----------------------------------------------------------------------------------------------------------
Preferred Stock (Symbol: FoxPr)
1st Quarter.............................. 53 1/2 50 1/4 52 1/2 49 7/8 1.25 1.25
2nd Quarter.............................. 55 51 52 49 1/4 1.25 1.25
3rd Quarter.............................. 55 3/4 52 1/4 50 3/4 48 1/4 1.25 1.25
4th Quarter.............................. 55 49 51 1/2 49 1/4 1.25 1.25
- ----------------------------------------------------------------------------------------------------------
Preferred Stock Series A (Symbol: FoxA)
1st Quarter.............................. 36 5/8 33 1/2 36 34 1.05* 1.05*
2nd Quarter.............................. 38 1/4 35 3/4 35 5/8 34 3/8 1.05* 1.05*
3rd Quarter.............................. 38 1/4 36 35 31 5/8 1.05* 1.05*
4th Quarter.............................. 37 7/8 30 1/4 35 1/2 32 1.05* 1.05*
- ----------------------------------------------------------------------------------------------------------
</TABLE>
* Paid in additional shares of Series A Preferred Stock.
** Paid a dividend of one share of Ben Franklin Retail Stores, Inc. common stock
for every six shares of the registrant's common stock.
Information with respect to restrictions on the payment of dividends is
incorporated herein by reference to Note L of the Notes to the Consolidated
Financial Statements contained herein in Item 8.
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<PAGE> 18
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,
(In million of dollars, except per share data) 1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Net sales................................ $5,487.4 $4,805.9 $5,050.0 $4,478.4 $3,020.5
Operating costs.......................... 5,537.4 4,741.8 4,993.5 4,470.8 2,984.8
Operating income (loss).................. (50.0) 64.1 56.5 7.6 35.7
Financing costs, net..................... 30.6 20.9 20.8 12.9 16.1
National Steel Corporation............... 3.3 5.4 5.3 (15.1) 7.5
Equity in income (loss) of affiliates.... (4.6) 0.8 (0.5) 6.3 2.7
Income tax provision (benefit)........... (27.9) 2.1 2.9 (18.1) 8.4
Minority interest in results of
operations
of consolidated subsidiaries.......... 2.1 4.1 6.1 2.3 9.7
Income (loss) from continuing operations
before extraordinary item............. (56.1) 43.2 31.5 1.7 11.7
Discontinued operations.................. (7.6) (1.6) (2.0) (1.1) 24.5
Income (loss) before extraordinary
item.................................. (63.7) 41.6 29.5 0.6 36.2
Extraordinary item....................... -- -- -- -- (5.8)
Net income (loss)........................ $ (63.7) $ 41.6 $ 29.5 $ 0.6 $ 30.4
- ---------------------------------------------------------------------------------------------------------
COMMON SHARE DATA
EARNINGS (LOSS) PER SHARE:
CONTINUING OPERATIONS................. $ (4.51) $ 1.63 $ 1.22 $ (0.18) $ 0.29
Discontinued operations............... (0.44) (0.11) (0.12) (0.06) 1.14
Extraordinary item.................... -- -- -- -- (0.27)
Earnings (loss) per share............. $ (4.95) $ 1.52 $ 1.10 $ (0.24) $ 1.16
Cash dividends per share................. -- -- -- -- --
Average number of common shares
outstanding
(in thousands)........................ 17,115 14,827 16,931 19,967 21,444
- ---------------------------------------------------------------------------------------------------------
FINANCIAL INFORMATION
Working capital.......................... $ 276.4 $ 444.5 $ 375.0 $ 373.2 $ 307.8
Total assets............................. 1,577.1 1,777.0 1,525.5 1,562.1 1,137.4
Capital expenditures..................... 40.8 59.1 56.3 20.1 20.2
Long-term debt........................... 403.8 422.8 310.9 256.6 29.6
Redeemable preferred stock............... 187.3 175.0 164.8 50.6 55.0
Stockholders' equity..................... 202.5 304.2 224.8 360.1 377.6
- ---------------------------------------------------------------------------------------------------------
KEY FINANCIAL RATIOS
Current Ratio............................ 1.38:1 1.57:1 1.59:1 1.52:1 1.71:1
Long-term debt as a percent of total
capitalization........................ 50.9% 46.9% 44.4% 38.5% 6.4%
Return on average common stockholders'
equity................................ (25.1)% 15.7% 10.1% 0.2% 7.7%
Return on net sales...................... (1.2)% 0.9% 0.6% 0.0% 1.0%
- ---------------------------------------------------------------------------------------------------------
</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. 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 74.5%, 66.3%, 67.9%, 46.0%, and
18.3%, respectively, for each of the five years ended March 31, 1996.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Fiscal year ended March 31, 1996 was both challenging and disappointing for
FoxMeyer Health Corporation and its subsidiaries (the "Corporation"). During the
year, the Corporation implemented a number of new systems in connection with its
Delta information system project and the opening of its new automated national
distribution center located in Washington Court House, Ohio. As part of these
strategic and operational initiatives, in conjunction with other cost reduction
measures, the Corporation recognized an unusual charge in the third quarter.
During the fourth quarter the Corporation recorded additional charges related to
the implementation of these systems.
The Corporation is primarily engaged in the wholesale distribution of a full
line of pharmaceutical products and health and beauty aids to independent drug
stores, hospitals, alternate care facilities and chain stores in the United
States. The Corporation conducts its business principally through one operating
unit, FoxMeyer Corporation and its subsidiaries ("FoxMeyer").
For the fiscal year ended March 31, 1996 the Corporation recorded a loss of
$4.95 per share which included the effects of an unusual charge of $47.4 million
related to cost reduction measures, losses on contracts and write-offs related
to certain impaired assets (see Results of Operations below) recorded in the
third quarter. In addition, during the fourth quarter the Corporation recorded
additional charges of $18.5 million related to the implementation of new systems
in connection with its Delta information project and the opening of its new
national distribution center. The Corporation also recorded a $15.5 million
increase in its valuation allowance on accounts receivable during the fourth
quarter (see Results of Operations "Other Charges").
The results for the year, even without the charges discussed above, were
disappointing. In addition, the results of operations thus far for fiscal 1997
reflect continuing monthly losses. Management is undertaking a number of
initiatives that will be implemented over the next several months that it
believes will significantly improve the current trend later in fiscal 1997.
Successful implementation of these initiatives will require the continued
support of the Corporation's customers and suppliers. There can be no assurance
that the Corporation will be successful in the implementation and execution of
these initiatives. While some of these initiatives would result in a reduction
of sales volume, management believes that it can maximize the use of its working
capital and other assets by refocusing its efforts on those segments of its
operations which it believes provide the greatest potential for future
profitability.
In July 1995, the Corporation adopted a plan to dispose of certain segments
consisting of its managed care and certain information service operations.
Losses of $7.6 million were recorded in 1996 related to the operations of these
businesses and the expected loss on their sale. The Corporation has completed
the sale of two of the businesses and is in negotiations and expects to complete
the sale of one of the two remaining businesses by the end of the second quarter
of fiscal 1997.
On September 29, 1995, the Corporation distributed a majority of its common
stock holdings in Ben Franklin Retail Stores, Inc. ("Ben Franklin") through a
dividend of one share of Ben Franklin common stock for every six shares of the
Corporation's common stock. The Corporation still owns 17.4% of Ben Franklin's
common stock.
In September 1995, the Corporation acquired a majority interest in Hamilton
Morgan L.L.C., a Delaware limited liability company ("Hamilton Morgan").
Hamilton Morgan subsequently acquired approximately 31% of the outstanding
common stock of Phar-Mor, Inc. ("Phar-Mor"), a deep discount drug store chain.
As a result of the Corporation's ownership of Hamilton Morgan, and the common
stock of Phar-Mor the Corporation acquired as part of the settlement of its
bankruptcy claim against Phar-Mor, the Corporation owns, net of minority
interest, approximately 29.4% of Phar-Mor.
19
<PAGE> 20
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1996 COMPARED
TO YEAR ENDED MARCH 31, 1995
OPERATING LOSS
Net sales increased $681.5 million to $5,487.4 million for the year ended March
31, 1996, as compared to $4,805.9 million for the year ended March 31, 1995. Net
sales to hospitals and alternative care facilities increased significantly
principally as a result of sales made under a contract to a hospital buying
group, the University Hospital Consortium ("UHC"). Sales to independent drug
stores and bulk sales also showed improvement. Sales after the first quarter of
fiscal 1997 are expected to decline due to the initiatives referred to above and
in as much as the Corporation and RiteAid Corporation ("RiteAid"), a national
retail drug store chain, have mutually agreed to terminate their relationship by
July 1996. RiteAid accounted for $416.8 million in net sales in 1996.
Gross profit decreased $33.2 million to $233.1 million for the year ended
March 31, 1996 as compared to the prior year. As a percentage of sales, gross
margin decreased from 5.5% to 4.2% of net sales for the years ended March 31,
1995 and 1996, respectively. Increased sales to large volume and lower margin
customers, such as UHC and RiteAid, as well as continuing price competition
throughout the industry contributed to this decrease. In addition, the
Corporation recorded certain losses related to new systems that also decreased
gross profit and gross margin (see discussion of "Other Charges" below).
Operating costs other than cost of goods sold ("operating expenses"),
excluding the unusual items described below, increased $38.5 million to $251.1
million for the year ended March 31, 1996 as compared to $212.6 million for the
year ended March 31, 1995, primarily due to increased sales. A portion of the
increase was related to the start-up of new systems and distribution centers as
well as to an increase in the allowance for doubtful accounts (see discussion of
"Other Charges" below). As a percentage of net sales, operating expenses
increased to 4.6% from 4.4% in the prior year primarily due to the increased
allowance for doubtful accounts. While the Corporation has taken steps to reduce
its operating costs, as described below in the explanation of 1996 unusual
items, additional cost reductions will be necessary to improve profitability.
The ability of management to reduce costs quickly and efficiently, in connection
with its initiatives for fiscal 1997, will be a significant factor in future
profitability.
For 1996, the unusual items of $47.4 million consist of certain charges
related to (i) the closing or relocation of distribution facilities, including
costs to shut-down the Corporation's trading operations, (ii) the closing of the
Wichita, Kansas data processing center and the write-off of the remaining book
value of systems that are being replaced, (iii) severance costs for personnel
reductions involving approximately 100 employees, primarily at the Corporation's
corporate office, (iv) losses expected for certain customer contracts and (v)
the write-off of certain impaired long-term assets. Partially offsetting the
charges were $6.4 million of recoveries on a prior year unusual charge related
to the Phar-Mor bankruptcy (See Note F to the accompanying consolidated
financial statements). Approximately $10.5 million of the total unusual charges
will require future cash expenditures primarily related to customer contracts,
severance costs and the closing of the data processing center. The unusual item
for 1995 represented additional reserves and legal costs related to the Phar-Mor
bankruptcy.
Other income decreased $23.7 million to $15.5 million for the year ended March
31, 1996 as compared to $39.2 million for the year ended March 31, 1995. In
1995, the Corporation recognized contingent fee income of $35.8 million from a
fiscal 1990 asset sale and a $1.7 million loss from the write-off of certain
software. In 1996, the Corporation realized gains of $19.6 million on the
settlement of certain unresolved issues related to the fiscal 1992 sale of The
Permian Corporation and other contingencies. In addition, the Corporation
recorded a write-down of $3.4 million in the value of the Corporation's
investment in Ben Franklin to its market value and a $3.9 million increase in
the cost of the accounts receivable financing program. Results from real estate
operations were approximately the same when compared to the prior year while net
gains on investments were lower in 1996 than in 1995.
OTHER CHARGES
During the fourth quarter of 1996 the Corporation recorded an adjustment to
inventory that resulted in a
20
<PAGE> 21
charge to cost of goods sold of approximately $18.5 million. This adjustment was
due primarily to significant information systems problems incurred in connection
with the opening of the Corporation's new automated national distribution center
in July 1995, and the installation of a new system utilized to record the
transfer of product among the Corporation's facilities. The problems caused by
the initial inadequacies of these systems resulted in the Corporation shipping
more product to some of its customers than it billed, and inflated the amount of
credit given to certain of its customers. The ability of the Corporation to
track certain shipments was significantly impaired as well.
The magnitude of the problem was not identified until subsequent to year end
at which time the Corporation retained the services of an independent third
party to help evaluate the problem and provide assurance the Corporation has
implemented appropriate measures to resolve the problems and prevent them from
recurring. In connection with the national distribution center project, the
Corporation engaged, and relied upon, the services of a number of professional
consulting firms, equipment manufacturers and software development companies to
manage the design, installation and implementation (including adequate training)
of the various systems. As a result of the Corporation's own analysis of this
inventory shortage, discussion with the independent third party retained by the
Corporation to evaluate the problem and based on an evaluation of the nature of
the inventory problems, the lack of sufficient information, and the time period
covered, the Corporation does not believe it can reasonably estimate the impact
of the adjustment on a quarter-by-quarter basis.
The Corporation also recorded an additional charge to operating expenses of
approximately $15.5 million, during the fourth quarter, to increase its
allowance for doubtful accounts. A portion of the increase is due to billing
problems arising from the issues addressed above. The remainder of the increase
is the result of problems primarily related to customers serviced from
facilities closed during fiscal 1996. As noted above, the Corporation does not
believe it can reasonably estimate the impact of the adjustment on a
quarter-by-quarter basis.
Management believes that all material problems have been identified and
resolved and that the adjustments referred to above are non-recurring in nature.
NET FINANCING COSTS
Net financing costs increased $9.6 million to $30.6 million for the year ended
March 31, 1996, as compared to $21.0 million for the year ended March 31, 1995.
Interest income decreased slightly as a result of the early repayment of certain
real estate notes receivable investments in late 1995 and early 1996. Interest
expense increased by $9.5 million to $34.8 million in 1996. Average debt for the
year increased by approximately $148.9 million over the year ended March 31,
1995. A portion of the additional borrowed funds were from borrowings under the
Corporation's revolving credit facilities and were primarily used to finance the
increase in net working capital required to support expanded business and
capital investments. Additional borrowings were used to finance the investment
in Hamilton Morgan and real estate acquisitions. On average, the Corporation's
cost of debt decreased slightly as compared to the year ended March 31, 1995.
NATIONAL STEEL CORPORATION RESULTS
The net preferred income for National Steel Corporation ("NSC") was $3.3
million for the year ended March 31, 1996, compared to $5.4 million for the
prior period. An increase in the expense related to the Weirton pension
obligation for the year ended March 31, 1996 was the primary reason for the $2.1
million decrease.
EQUITY IN INCOME (LOSS) OF AFFILIATES
The equity in income (loss) of affiliates primarily represented 68% and 17% of
Ben Franklin's results for the first six months and the last six months of
fiscal 1996, respectively, and 47% of FoxMeyer Canada Inc.'s ("FoxMeyer Canada")
loss for the current year. The current year also included the Corporation's
equity in the income of Phar-Mor. In the prior year, the equity in income of
affiliates consisted of 67% of Ben Franklin's income and 47% of FoxMeyer
Canada's loss. The decrease of $5.4 million in equity income (loss) of
affiliates is the result of the effects of (i) the decrease in results in Ben
Franklin from a significant 1996 operating loss partially offset by the decrease
in the Corporation's ownership in Ben Franklin,
21
<PAGE> 22
(ii) increased operating losses related to the expansion of FoxMeyer Canada's
business and (iii) the favorable results of Phar-Mor. Ben Franklin's 1996
operating loss of $27.1 million reflected a $13.2 million pre-tax charge
associated with the closing of seven crafts superstores, the relocation costs of
certain facilities and adjustments and provisions for uncollectible trade
receivables. In addition, the operating loss reflects reduced margins on retail
sales from crafts superstores owned by Ben Franklin due to heavy promotional
activity.
INCOME TAXES
The Corporation recorded an income tax benefit of $27.9 million for the year
ended March 31, 1996 as compared to a provision of $2.1 million for the year
ended March 31, 1995. The current year benefit reflects the loss from continuing
operations. The low effective tax rate for the prior period was primarily 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 $2.1
million for the year ended March 31, 1996 as compared to $4.1 million for the
year ended March 31, 1995. The minority interest in 1996 related to real estate
partnerships and Hamilton Morgan. In 1995, the minority interest related to real
estate partnerships and FoxMeyer. The decrease was primarily attributable to the
elimination of the minority interest in FoxMeyer resulting from the
Corporation's October 1994 acquisition of the 19.5% common stock interest in
FoxMeyer that it did not already own.
DISCONTINUED OPERATIONS
The loss from discontinued operations for 1996 was $0.5 million, representing
the after-tax loss to the measurement date of June 30, 1995, as compared to $1.6
million after-tax loss for the whole year of 1995. The Corporation also
recognized a loss from disposition of $7.1 million reflecting the expected
after-tax losses from operations after June 30, 1995 and the expected loss from
the disposition of the assets of the discontinued operations. Approximately $5.6
million of after-tax operating losses were incurred from June 30, 1995 to March
31, 1996. The increase in the operating loss from $1.6 million in 1995 to $6.1
million for the entire year of 1996 was primarily due to charges related to the
settlement of a lawsuit, increased operating costs related to the acquisition of
new businesses in 1995 and early 1996, and charges related to the disposition of
these segments.
PREFERRED STOCK DIVIDENDS
Preferred stock dividends were $21.1 million for the year ended March 31, 1996,
compared to $19.1 million for the year ended March 31, 1995. The increase of
$2.0 million is primarily due to the payment of incremental dividends-in-kind on
the outstanding Series A preferred stock.
YEAR ENDED MARCH 31, 1995 COMPARED
TO YEAR ENDED MARCH 31, 1994
OPERATING INCOME
Net sales decreased $244.1 million to $4,805.9 million for the year ended March
31, 1995, as compared to $5,050.0 million for the year ended March 31, 1994. Net
sales decreased across all of the Corporation's customer segments with the
exception of hospitals and alternative care facilities. The sales decline at the
Corporation was due primarily to intense competition among pharmaceutical
distributors for new customers and the Corporation'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 $14.6 million to $266.3 million for the year ended
March 31, 1995 as compared to $280.9 million for the year ended March 31, 1994.
However, as a percentage of net sales, gross profit remained relatively constant
at 5.5% as compared to 5.6% for the year ended March 31, 1994. Price competition
in the industry and the decline in the frequency and magnitude of price
increases by pharmaceutical manufacturers, which reduced the Corporation's
inventory investment buying opportunities, exerted pressure on gross margin.
Operating expenses increased $10.7 million in 1995 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 $0.2 million in 1994. Excluding the
effect of the Phar-Mor charges, operating expenses decreased $17.9 million in
1995. The reduction in expenses was a result of lower
22
<PAGE> 23
sales volume and the implementation of cost reduction programs in 1995. The
impact of these cost reduction programs was partially offset by the opening of 7
new distribution centers, the 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 4.4% and
4.6% for 1995 and 1994, respectively.
Other income increased $33.0 million in 1995 as compared to 1994 primarily as
a result of a $35.8 million settlement in 1995 of all future contingent payments
arising from an asset sale in fiscal 1990. In addition, earnings for the
Corporation's real estate operations and other investments in 1995 exceeded 1994
results. Offsetting these favorable variances was the increased cost of an
accounts receivable financing program resulting from the program being in place
for all of 1995 as compared to only five months in 1994 and the receivables sold
increasing from $125.0 million to $200.0 million in November, 1994. Furthermore,
1994 contained a gain on the termination of certain operating leases. In 1995,
other income also included a loss on the write-down of certain software.
NET FINANCING COSTS
Net financing costs increased $0.2 million to $21.0 million for the year ended
March 31, 1995 from $20.8 million for the year ended March 31, 1994. Interest
income increased $0.7 million in 1995 over 1994. Interest expense increased $0.9
million as compared to 1994. Average borrowings increased slightly from
approximately $306.8 million during 1994 to $307.3 million during 1995. The
average interest rate rose during 1995 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 $125.0 million to $200.0 million. FoxMeyer
used the additional $75.0 million of proceeds to reduce borrowings under its
revolving credit facilities. The costs associated with the sale of accounts
receivable were charged against operating income.
NATIONAL STEEL CORPORATION RESULTS
The Corporation's investment in NSC reflects income of $5.4 million in 1995
compared to $5.3 million in 1994. The Corporation recognized a loss on the sale
of NSC common stock of $2.4 million in 1994. In 1995, net preferred dividend
income decreased $2.2 million from 1994 primarily due to the redemption of
10,000 shares of NSC Preferred Stock in 1994.
EQUITY IN INCOME (LOSS) OF AFFILIATES
The increase in equity in income of $1.3 million over the loss of $0.5 million
reported in 1994 was primarily the result of the increase in net income of Ben
Franklin from 1994 to 1995. During 1994 Ben Franklin recorded a restructuring
charge that resulted in a loss for the full year.
INCOME TAXES
The Corporation recorded an income tax provision of $2.1 million for the year
ended March 31, 1995 as compared to $3.0 million for the year ended March 31,
1994. The low effective tax rates for 1995 and 1994 were primarily the result of
reductions 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 $4.1
million for the year ended March 31, 1995 as compared to $6.1 million for the
year ended March 31, 1994. The decrease was attributable to the elimination of
the minority interest in FoxMeyer resulting from the Corporation's October 1994
acquisition of the 19.5% common stock interest of FoxMeyer that it did not
already own, partially offset by the increase in net income of the Corporation's
real estate limited partnerships.
DISCONTINUED OPERATIONS
The loss on discontinued operations for 1995 was $1.6 million as compared to
$2.0 million in 1994. The decrease in the loss is primarily the result of the
acquisition of Scrip Card Enterprises, Inc. on April 1, 1994 which had a
positive impact on earnings of the managed care operations during 1995.
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.
23
<PAGE> 24
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations (which includes working capital components) was
$36.7 million for the year ended March 31, 1996. The change in working capital
components provided $47.4 million of funds primarily from the decrease in
inventory from March 31, 1995 to March 31, 1996.
Cash used in investing activities was $106.6 million for the year ended March
31, 1996. Approximately $51.2 million of funds, net of proceeds from the sale of
investments, were used to purchase investments that include the Corporation's
equity investment in Phar-Mor. Approximately $40.8 million of funds were used to
purchase property and equipment during this period.
Financing activities provided $61.6 million of cash for the year ended March
31, 1996. The proceeds from increased borrowings of $69.2 million, net of
repayments, were the principal source of the funds provided. Net borrowings
under the Corporation's various credit facilities increased by $48.0 million
during this period.
Management assesses FoxMeyer's liquidity separately from certain holding
company, corporate office and other miscellaneous activities, including certain
real estate limited partnership activities (collectively, the "Holding
Company"). While FoxMeyer is a wholly-owned subsidiary of the Corporation,
FoxMeyer's new financing agreements, which are discussed below, limit the
ability of FoxMeyer to transfer funds to the Holding Company. The new financing
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 these limitations, no dividends can be paid by FoxMeyer to the
Holding Company in fiscal 1997. These debt agreements also restrict intercompany
loans or other asset transfers with the Holding Company. The following is a
discussion of the liquidity and capital resources of each unit.
FOXMEYER
As of March 31, 1996, FoxMeyer had borrowed $180.8 million under its $295.0
million revolving credit facility (the "FoxMeyer Credit Facility") at an average
interest rate of 7.0%. The average and maximum amounts borrowed during the year
ended March 31, 1996 under the FoxMeyer Credit Facility and a $60.0 million
seasonal credit facility, which expired March 31, 1996, were $228.5 million and
$341.0 million, respectively. The FoxMeyer Credit Facility was to expire
December 31, 1997. As a result of losses during 1996 from the unusual items and
other charges as described above, FoxMeyer was in violation of certain covenants
under the FoxMeyer Credit Facility and the $200.0 million accounts receivable
financing program. The Corporation requested and received waivers of these
covenants until June 30, 1996.
On June 19, 1996, FoxMeyer, through its wholly-owned subsidiary FoxMeyer Drug
Company, entered into new financing agreements for a $475.0 million revolving
credit facility (the "New FoxMeyer Credit Facility") and a $275.0 million
accounts receivable financing program (the "New Receivable Financing"), both of
which mature in five years. Borrowings under these facilities were used to repay
amounts outstanding under the FoxMeyer Credit Facility, to retire the $198.0
million FoxMeyer senior notes and to replace the $200.0 million accounts
receivable financing program. In addition, approximately $22.5 million was used
to purchase property and equipment that were being leased by FoxMeyer.
The New FoxMeyer Credit Facility matures June 2001 and is secured by all the
tangible and intangible assets of FoxMeyer except for certain real property and
equipment. The interest rate on the New FoxMeyer Credit Facility, for the first
year, will be based on either the prime rate plus 0.5% or a LIBOR rate (as
defined) plus 2.0%. The New FoxMeyer Credit Facility contains certain
affirmative and negative covenants including (i) restrictions on acquisitions,
mergers, 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 a minimum interest coverage ratio, ratio of
accounts payable to inventory and net worth. Assuming successful implementation
of the initiatives described above, management believes that the
24
<PAGE> 25
Corporation will be able to meet these covenant requirements during 1997.
Amounts available under the New FoxMeyer Credit Facility are limited to a
percentage of certain eligible inventory and accounts receivable balances. The
New FoxMeyer Credit Facility limits the amount of dividends that can be paid by
FoxMeyer to the Holding Company to the lesser of $15.0 million or 50% of
FoxMeyer's prior fiscal year net income. Under this limitation, no dividends can
be paid by FoxMeyer to the Holding Company in fiscal 1997. The New FoxMeyer
Credit Facility does permit payments under a tax sharing agreement between
FoxMeyer and the Holding Company but limits the amount of transfers of cash or
other assets.
The New Receivable Financing also matures June 2001 and provides that FoxMeyer
will sell, with limited recourse, a percentage ownership interest in a defined
pool of its trade receivables. The New Receivable Financing contains affirmative
and negative covenants that are substantially the same as those in the New
FoxMeyer Credit Facility. The cost of the New Receivable Financing will be based
on commercial paper rates plus an additional margin of 0.875%.
Concurrent with the refinancing, FoxMeyer declared and paid a dividend (the
"FoxMeyer Dividend") to the Holding Company consisting of certain assets held by
FoxMeyer, unrelated to its core distribution business, with a book value of
$94.7 million at March 31, 1996. The FoxMeyer Dividend included substantially
all the assets and liabilities of FoxMeyer's discontinued operations, another
subsidiary that is an information service provider (US Health Data Interchange)
and FoxMeyer's investments in FoxMeyer Canada, Phar-Mor and other marketable
securities. FoxMeyer also forgave a $30.0 million loan to the Holding Company
(the "Holding Company Loan").
FoxMeyer's management expects that cash flow from operations and continued
maintenance of its revolving credit facility and accounts receivable financing
program will provide adequate cash to fund seasonal increases in inventories and
receivables and to fund expected capital expenditures of up to $35.0 million in
1997.
HOLDING COMPANY
The Holding Company had cash and short-term investments of approximately $5.1
million at March 31, 1996. In addition, the Holding Company borrowed the maximum
$15.0 million available under a revolving credit facility (the "Holding Company
Facility") at March 31, 1996 at an average interest rate of 7.3%. The $15.0
million was outstanding during all of 1996. The Holding Company had $30.0
million outstanding under the Holding Company Loan which was forgiven by
FoxMeyer in June 1996. The Holding Company also borrowed $20.0 million during
1996 to fund its purchase of Hamilton Morgan (the "Hamilton Facility").
The Holding Company Facility matured April 1, 1996 but was amended to extend
the maturity date until September 15, 1996. As a result of the amendments, the
interest rates on the Holding Company Facility were changed to the prime rate
plus .25% or a Euro-dollar rate (as defined) plus 2.75%. The Corporation is also
required to use proceeds from the sale of certain assets, including those
received as part of the FoxMeyer Dividend, to pay down the Holding Company
Facility. The Holding Company Facility restricts the payment of cash dividends
on the Corporation's common stock and its Series A preferred stock, limits the
repurchase of shares of the Corporation's common stock, and restricts the type
of investments that the Holding Company can make. Management believes that
proceeds from the sale of certain marketable securities and the sale of
discontinued operations received in the FoxMeyer Dividend will provide adequate
funds to repay the Holding Company Facility.
The Hamilton Facility requires payments of $2.5 million each in September 1996
and 1997 with the remainder due September 1998. The Hamilton Facility also
requires that the Corporation maintain a minimum net worth, restricts the
payment of cash dividends on the Corporation's common stock, and limits the
amount that may be expended on the repurchase of shares of the Corporation's
common stock. The Hamilton Facility is collateralized by (i) a portion of the
Holding Company's shares of FoxMeyer, (ii) the Holding Company's interest in
Phar-Mor common stock held by Hamilton Morgan and (iii) other marketable
securities. The Holding Company has a collateral base deficiency of
approximately $11.1 million at March 31,1996 based on the number of shares of
FoxMeyer common stock available as
25
<PAGE> 26
collateral for the Hamilton Facility. Therefore, approximately $11.1 million of
the Hamilton Facility has been classified as a current liability in the
consolidated financial statements. The Holding Company is currently negotiating
an amendment to the Hamilton Facility to cure the collateral base deficiency.
Management believes that the Hamilton Facility will be renegotiated with the due
dates for the principal payments remaining as originally established.
The Holding Company's cash requirements during fiscal 1997 include the funding
of monthly operating expenses, benefits obligations, dividend payments on the
Corporation's convertible redeemable preferred stock and mandatory sinking fund
payments thereon, repayment of the Holding Company Facility, the $2.5 million
principal payment due under the Hamilton Facility and cash outlays attributable
to environmental liabilities of previously owned businesses, the amounts and
timing of which are uncertain. The Corporation intends to pay dividends-in-kind
on its Series A preferred stock through October 1996, but the Holding Company
will be required to pay cash dividends on a quarterly basis commencing January
1997. In addition, the Holding Company intends to make additional real estate
and other investments.
The Holding Company will rely on cash on hand, proceeds from the sale of
discontinued operations and investments, borrowings against other investments,
refinancing of real estate investments and any excess cash from its real estate
operations to meet its operating expenses and to repay the Holding Company
Facility. The Corporation expects to fund additional real estate investments
primarily from additional non-recourse debt which management believes will be
available at reasonable rates.
FoxMeyer is prevented from transferring funds to the Holding Company except
for tax sharing payments and dividends. Management believes that no significant
dividend payments will be made in the next two years nor will any tax sharing
payments be made because of substantial loss carryforwards available to
FoxMeyer. In addition to FoxMeyer, assets held by the Holding Company after the
FoxMeyer Dividend will be primarily investments in real estate partnerships, Ben
Franklin, Phar-Mor, FoxMeyer Canada, FoxMeyer's discontinued operations and
other securities and partnerships. These assets had an approximate carrying
value of $95.6 million at March 31, 1996. In addition to the cash requirements
described above, the Holding Company may be required to pay down the Hamilton
Facility to correct the collateral base deficiency. As a result, the Holding
Company may be required to liquidate a portion of its investments in affiliates
and other investments in order to meet these payments. There can be no assurance
as to the value of these assets or the ability of the Holding Company to timely
liquidate these investments when funds are needed.
INFLATION
The Corporation is able to pass along inflationary cost increases through
increased prices to customers. The Corporation believes its gross profit
increases as prices of products it distributes increase. Specifically, the
benefits derived from the Corporation's inventory investment buying, and its
holding substantial quantities of inventory, are diminished with lower and less
frequent price increases. Non-inventory cost increases, such as payroll,
supplies and services, have generally been offset through these price increases
and through volume and efficiency improvements.
OTHER
The Corporation has approximately $2.5 million in reserves in connection with
environmental claims primarily related to businesses that were disposed of or
discontinued (see Note Q to the accompanying consolidated financial statements).
The Corporation paid approximately $0.2 million for claims and legal fees during
fiscal 1996. At March 31, 1996, the Corporation also has a remaining prepayment
on potential environmental claims of $7.2 million that is held by NSC. During
1996, the Corporation was released from all potential claims at one site after
paying approximately $3.6 million from the prepayment held by NSC. Management
presently believes that the remaining prepayment is adequate to cover all
environmental claims which may arise from former NSC sites for which the
Corporation has agreed to indemnify NSC (see Note J to the accompanying
consolidated financial statements).
The Financial Accounting Standards Board has issued two statements that impact
the Corporation's accounting and reporting of certain financial statement
26
<PAGE> 27
information. Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of", will be effective for the fiscal year beginning April 1, 1996.
While the Corporation has not currently adopted SFAS 121, the Corporation does
not anticipate any significant impact on the consolidated financial statements
resulting from the adoption of SFAS 121. Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
becomes effective for transactions after March 31, 1996. As permitted by SFAS
123, the Corporation will continue to apply the recognition and measurement
provisions of Accounting Principle Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS 123 beginning
in fiscal 1997. Accordingly, there will be no impact on the consolidated
financial statements from the adoption of SFAS 123.
27
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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 and subsidiaries as of March 31, 1996 and 1995, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended March 31,1996. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of FoxMeyer Health Corporation
and subsidiaries at March 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
March 31, 1996, 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 28, 1996
28
<PAGE> 29
Foxmeyer Health Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
For the years ended March 31,
(In thousands, except per share amounts) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES................................................ $5,487,362 $4,805,936 $5,049,952
OPERATING COSTS
Cost of goods sold..................................... 5,254,276 4,539,679 4,769,062
Selling, general and administrative expenses........... 226,314 191,668 211,367
Depreciation and amortization.......................... 24,774 20,889 19,044
Unusual items.......................................... 47,433 28,767 233
- -----------------------------------------------------------------------------------------------------
(65,435) 24,933 50,246
Other income............................................. 15,486 39,204 6,215
- -----------------------------------------------------------------------------------------------------
Operating income (loss).................................. (49,949) 64,137 56,461
FINANCING COSTS
Interest income........................................ 4,140 4,379 3,613
Interest expense....................................... 34,788 25,337 24,394
- -----------------------------------------------------------------------------------------------------
Financing costs, net..................................... 30,648 20,958 20,781
- -----------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before National
Steel Corporation, equity in income (loss) of
affiliates, income tax
provision (benefit) and minority interest.............. (80,597) 43,179 35,680
NATIONAL STEEL CORPORATION
Loss on common stock investment........................ -- -- (2,350)
Net preferred dividend income.......................... 3,329 5,445 7,655
EQUITY IN INCOME (LOSS) OF AFFILIATES.................... (4,575) 778 (474)
- -----------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before income
tax provision (benefit) and minority interest.......... (81,843) 49,402 40,511
INCOME TAX PROVISION (BENEFIT)........................... (27,916) 2,082 2,950
- -----------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before minority
interest............................................... (53,927) 47,320 37,561
Minority interest in results of operations of
consolidated subsidiaries.............................. 2,117 4,125 6,097
- -----------------------------------------------------------------------------------------------------
NET INCOME (LOSS) FROM CONTINUING OPERATIONS............. (56,044) 43,195 31,464
Discontinued operations:
Loss from discontinued operations, net of tax.......... (536) (1,581) (1,952)
Loss on disposal of discontinued operations, net of
tax................................................. (7,081) -- --
- -----------------------------------------------------------------------------------------------------
NET INCOME (LOSS)........................................ (63,661) 41,614 29,512
Preferred stock dividends................................ 21,108 19,096 10,830
- -----------------------------------------------------------------------------------------------------
EARNINGS (LOSS) APPLICABLE TO COMMON STOCKHOLDERS........ $ (84,769) $ 22,518 $ 18,682
- -----------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations............... $ (4.51) $ 1.63 $ 1.22
Discontinued operations................................ (0.44) (0.11) (0.12)
- -----------------------------------------------------------------------------------------------------
EARNINGS (LOSS) PER SHARE................................ $ (4.95) $ 1.52 $ 1.10
- -----------------------------------------------------------------------------------------------------
AVERAGE NUMBER OF COMMON SHARES OUTSTANDING.............. 17,115 14,827 16,931
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
Foxmeyer Health Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31,
(In thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments....................................... $ 26,987 $ 35,232
Receivables, principally trade, less allowance for possible losses of
$23,540 in 1996
and $6,510 in 1995.................................................. 291,750 334,250
Inventories........................................................... 632,269 820,818
Net assets of discontinued operations held for sale................... 16,527 --
Other current assets.................................................. 43,632 38,394
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS.................................................. 1,011,165 1,228,694
INVESTMENT IN NATIONAL STEEL CORPORATION.............................. 44,099 30,163
INVESTMENTS IN AFFILIATES............................................. 49,602 4,912
PROPERTY, PLANT AND EQUIPMENT......................................... 216,604 256,393
Less allowance for depreciation and amortization.................... 73,749 85,716
- ---------------------------------------------------------------------------------------------------
Net property, plant and equipment..................................... 142,855 170,677
OTHER ASSETS
Goodwill, net of accumulated amortization of $53,245 in 1996 and
$46,801 in 1995..................................................... 207,935 209,749
Other intangible assets, net of accumulated amortization of $9,991 in
1996 and $12,856 in 1995............................................ 12,554 22,966
Pre-bankruptcy receivable from Phar-Mor, Inc., net of $62,795
allowance for possible loss......................................... -- 5,963
Deferred tax asset, net of valuation allowance........................ 79,676 52,408
Miscellaneous assets.................................................. 29,184 51,464
- ---------------------------------------------------------------------------------------------------
TOTAL OTHER ASSETS.................................................... 329,349 342,550
- ---------------------------------------------------------------------------------------------------
TOTAL ASSETS.......................................................... $1,577,070 $1,776,996
- ---------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
<TABLE>
<CAPTION>
March 31,
(In thousands of dollars) 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable...................................................... $ 610,579 $ 674,843
Other accrued liabilities............................................. 39,088 47,137
Salaries, wages and employee benefits................................. 9,919 13,635
Income taxes payable.................................................. 2,468 3,883
Deferred income taxes................................................. 43,917 42,131
Long-term debt due within one year.................................... 28,793 2,540
- ---------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................................. 734,764 784,169
LONG-TERM DEBT........................................................ 403,831 422,751
OTHER LONG-TERM LIABILITIES........................................... 38,646 70,676
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES........................ 10,074 20,231
REDEEMABLE PREFERRED STOCK............................................ 187,292 175,019
COMMITMENTS AND CONTINGENCIES......................................... -- --
STOCKHOLDERS' EQUITY
Common stock $5.00 par value; authorized 50,000,000 shares; issued:
24,188,084 shares in 1996 and 24,167,277 shares in 1995............. 120,940 120,836
Capital in excess of par value........................................ 209,613 209,110
Minimum pension liability............................................. (64,634) (75,428)
Net unrealized holding gain (loss) on securities...................... (17) 2,374
Retained earnings..................................................... 70,431 184,949
- ---------------------------------------------------------------------------------------------------
336,333 441,841
Less: cost of common stock held in treasury; 7,520,882 shares
in 1996 and 7,735,552 shares in 1995................................ 133,870 137,691
- ---------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY............................................ 202,463 304,150
- ---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............................ $1,577,070 $1,776,996
- ---------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 32
FoxMeyer Health Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
For the three years ended March 31, 1996
---------------------------------------------------------------------------
Net
unrealized
Capital in Minimum holding gain
Common excess of par pension (loss) on Retained Treasury
(In thousands of dollars) stock value liability securities earnings stock
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
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
for treasury stock........... -- -- -- -- -- (114,004)
Amortization of discount on
Series A Preferred........... -- -- -- -- (491) --
Net unrealized holding loss on
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
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)
Net loss........................ -- -- -- -- (63,661) --
Dividend paid in Ben Franklin
Retail Stores, Inc. common
stock........................ -- -- -- -- (29,709) --
Dividends
declared -- Convertible
Preferred -- $5.00 per
share........................ -- -- -- -- (4,061) --
Dividends declared -- Series A
Preferred -- paid in
additional stock............. -- -- -- -- (15,319) --
Amortization of discount on
Series A Preferred........... -- -- -- -- (1,728) --
Conversion of preferred stock... 104 434 -- -- -- --
Net unrealized holding loss on
securities................... -- -- -- (2,391) -- --
Reduction in additional minimum
pension liability............ -- -- 10,794 -- -- --
Stock options exercised......... -- 69 -- -- -- 3,821
Other........................... -- -- -- -- (40) --
- ------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1996......... $120,940 $ 209,613 $(64,634) $ (17) $ 70,431 $(133,870)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
32
<PAGE> 33
FoxMeyer Health Corporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the years ended March 31,
(In thousands of dollars) 1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)....................................... $ (63,661) $ 41,614 $ 29,512
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Minority interest in results of operations of
consolidated subsidiaries.......................... 2,117 4,125 6,097
Equity in loss (income) of affiliates................. 4,575 (778) 474
Depreciation and amortization......................... 24,774 20,889 19,044
Income from National Steel Corporation................ (3,329) (5,445) (5,305)
Unusual items......................................... 47,712 2,707 --
Gain on investments................................... (6,951) (10,707) (2,879)
Provision for losses on accounts receivable........... 21,885 20,511 1,887
Other non-cash charges (credits)...................... (10,544) 5,257 187
Deferred income tax provision (benefit)............... (29,226) 675 820
Cash provided (used) by working capital items, net of
acquisitions:
Receivables........................................... (55,314) (109,800) (64,589)
Inventories........................................... 104,627 (197,873) (4,430)
Other assets.......................................... (160) 4,352 (10,867)
Accounts payable and accrued liabilities.............. (1,722) 120,656 (70,202)
Proceeds from accounts receivable financing program... -- 75,000 125,000
Funds transferred to National Steel Corporation for
potential environmental liabilities................ -- -- (10,000)
Other................................................. 1,934 (1,863) (610)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES........ 36,717..... (30,680) 14,139
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property, plant and equipment............. (40,789) (59,092) (56,322)
Purchase of investments............................... (84,354) (59,015) (26,898)
Proceeds from the sale of investments................. 33,178 55,954 50,424
Proceeds from the sale of property, plant and
equipment.......................................... -- 1,888 277
Acquisitions, net of cash acquired.................... (6,215) (16,104) --
Other................................................. (8,390) 4,177 (540)
- -----------------------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES................... (106,570) (72,192) (33,059)
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under revolving credit facilities.......... 1,444,880 1,288,831 1,069,350
Repayments under revolving credit facilities.......... (1,396,880) (1,177,431) (1,153,150)
Proceeds from issuance of long-term debt.............. 23,603 13,406 255,531
Debt repayments....................................... (2,418) (11,577) (128,773)
Loan origination fees................................. (1,055) (720) (5,110)
Repurchase of the common stock of subsidiaries........ -- (182) --
Repurchase of the common stock of FoxMeyer Health
Corporation........................................ -- (28,953) (1,251)
Mandatory redemption of preferred stock............... (4,236) (4,400) (4,399)
Exercise of stock options............................. 3,449 4,850 108
Dividends paid on redeemable preferred stock.......... (4,180) (4,620) (5,060)
Dividends paid to minority interests.................. (1,555) (2,087) (1,843)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES............... 61,608 77,117 25,403
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term
investments........................................... (8,245) (25,755) 6,483
Cash and short-term investments, beginning of year...... 35,232 60,987 54,504
- -----------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR............ $ 26,987 $ 35,232 $ 60,987
- -----------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
FoxMeyer Health Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Three Years Ended March 31, 1996
NOTE A - SIGNIFICANT ACCOUNTING
POLICIES AND RELATED MATTERS
DESCRIPTION OF BUSINESS: FoxMeyer Health Corporation and its subsidiaries (the
"Corporation") are engaged principally in the wholesale distribution of a full
line of pharmaceutical products and health and beauty aids to independent drug
stores, chain stores, hospitals and alternate care facilities in the United
States.
BASIS OF PRESENTATION: The preparation of the consolidated financial statements,
in conformity with generally accepted accounting principles, requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities, and the disclosure of contingent assets and liabilities, at the
dates of the financial statements and the reported amounts of revenues and
expenses during such reporting periods. Actual results could differ from these
estimates.
The consolidated financial statements include the accounts of all
majority-owned subsidiaries and partnerships in which the Corporation has a
controlling interest. Investments in 20-50% owned companies or partnerships, or
in other companies that are less than 20% owned in which the Corporation has the
ability to exercise significant influence over operating and financial policies,
are accounted for on the equity basis.
The 1996 consolidated financial statements include the results of certain
operations as discontinued as discussed in Note C. The consolidated statements
of operations for prior years have been restated to reflect the discontinued
operations as well as the spin-off of a majority-owned subsidiary (see Note B).
All significant intercompany balances and transactions have been eliminated.
Certain other previously reported amounts have been reclassified to conform to
current year presentations.
CASH AND SHORT-TERM INVESTMENTS: Cash and short-term investments consist
principally of amounts held in demand deposit accounts and amounts invested in
time deposit instruments having a maturity of three months or less at the time
of purchase and are recorded at cost.
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 H). 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 debt and equity securities have
been classified as either "available for sale" or "trading" and are carried at
fair value. The classification of the security is determined at the acquisition
date and reviewed periodically. The unrealized gains or losses resulting from
the difference in the fair value and the cost of securities, for securities
available for sale, are shown as a component of stockholders' equity and, for
trading securities, are reported in the results of operations. 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 any write-down would be included in
the results of operations as a realized loss. Realized gains and losses
resulting from the sale of securities are determined using the average cost
method (see Note I).
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES: Minority interest in results of
operations of consolidated subsidiaries primarily represents the minority
shareholders' or partners' proportionate share of the net income of FoxMeyer
Corporation ("FoxMeyer") until October 12, 1994 (see Note B) and various limited
partnerships (see Note D). The minority interest in the consolidated balance
sheets reflects the proportionate interest in the equity of consolidated
subsidiaries including Ben Franklin Retail Stores, Inc. ("Ben Franklin") in 1995
(see Note B) and various limited partnerships in 1995 and 1996.
34
<PAGE> 35
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost.
Differences between amounts received and the net carrying values of properties
retired or disposed of are included in results of operations. The cost of
maintenance and repairs is charged against 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 leasehold improvements is included in depreciation and
amortization based on the lesser of the term of the lease or the asset's
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,
1996 1995
<S> <C> <C>
- ------------------------------------------------
Land..................... $ 7,133 $ 11,425
Building and building
improvements........... 48,860 64,878
Leasehold improvements... 21,935 26,561
Equipment and
furniture.............. 85,895 95,959
Software................. 19,500 16,905
Construction in
progress............... 33,281 40,665
- ------------------------------------------------
$216,604 $256,393
- ------------------------------------------------
</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
amortized using the straight-line method over the period of expected benefit of
15 to 40 years. Customer lists are 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 indicate that the remaining life or the
amortization method require adjustment. After reviewing the appropriateness of
the remaining life and the pattern of usage of the intangible asset, the
Corporation then assesses the overall recoverability of intangible assets by
determining if the unamortized balance can be recovered through estimated
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 order and subsequent delivery
of products directly from the manufacturer to the customers' warehouses. These
sales of $548.6 million in 1996, $784.5 million in 1995, and $904.9 million in
1994, are credited to the same account as their associated cost of sales and
reported on a net basis in the consolidated statements of operations. While no
one customer accounted for more than 10% of net sales in 1996, sales to
customers that were members of a hospital buying group did account for
approximately 13% of net sales.
CAPITALIZATION OF SOFTWARE COSTS: The Corporation capitalizes software purchased
in connection with major system developments as well as certain expenditures
related to the implementation of this software. In addition, software that is
developed or substantially modified internally by the Corporation is also
capitalized. The capitalization of these internal projects begins after
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
$2.0 million, $1.3 million, and $0.3 million in 1996, 1995, and 1994,
respectively, was also capitalized. 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.
35
<PAGE> 36
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 $35.8
million of contingent fee income which is included in "Other income".
UNUSUAL ITEMS: For 1996, unusual items consist of certain charges related to (i)
the closing or relocation of distribution facilities, including costs to
shut-down the Corporation's trading operations, (ii) the closing of the Wichita,
Kansas data processing center and the write-off of the remaining book value of
systems that are being replaced, (iii) severance costs for personnel reductions
involving approximately 100 employees, primarily at the Corporation's corporate
office, (iv) losses expected for certain customer contracts and (v) the
write-off of certain impaired long-term assets. Partially offsetting the charges
were $6.4 million of recoveries on a prior year unusual charge related to the
Phar-Mor, Inc. ("Phar-Mor") bankruptcy (see Note F). Approximately $10.5 million
of the total unusual charges will require future cash expenditures primarily
related to certain customer contracts, severance costs and the closing of the
data processing center.
For 1995 and 1994, the amounts reflected as unusual items represent additional
reserves and legal costs related to the Phar-Mor bankruptcy (see Note F).
INCOME TAXES: Deferred tax assets and liabilities are established for temporary
differences between financial statement carrying amounts and the taxable basis
of assets and liabilities using rates currently in effect. A valuation allowance
is established for any portion of the deferred tax asset for which realization
is not likely. The amount of the deferred tax asset considered realizable could
be further reduced in the near term if estimates of taxable income during tax
loss carryforward periods are reduced.
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.
NOTE B - TRANSACTIONS IN SUBSIDIARY
COMMON STOCK
FOXMEYER CORPORATION
On October 12, 1994, the Corporation acquired, by way of merger of FoxMeyer with
a wholly-owned subsidiary of the Corporation, the 19.5% 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 difference of approximately
$10.1 million between the market value of the common stock issued in the
acquisition ($80.0 million) and the average cost of the treasury stock was
charged to retained earnings. The merger transaction was accounted for using the
purchase method of accounting with the difference between the purchase price and
fair value of the net assets acquired reducing the Corporation's existing
goodwill in FoxMeyer by approximately $15.1 million. The reduction in goodwill
will be amortized over the remaining life of the existing goodwill.
Unaudited pro forma results of operations for the fiscal year ended March 31,
1995 had the acquisition of FoxMeyer's minority interest taken place at the
beginning of the fiscal year is as follows (in thousands, except per share
amounts):
<TABLE>
<S> <C>
- -----------------------------------------------
Sales............................
$4,805,936
Operating income................. 64,342
Income from continuing operations
before minority interest....... 47,569
Minority interest in results of
operations of consolidated
subsidiaries................... 2,322
Net income from continuing
operations..................... 45,247
Earnings from continuing
operations per share of common
stock.......................... $ 1.51
Average number of shares
outstanding.................... 17,340
- -----------------------------------------------
</TABLE>
The foregoing unaudited pro forma results of operations for 1995 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.
36
<PAGE> 37
BEN FRANKLIN RETAIL STORES, INC.
On July 12, 1995, the Board of Directors of the Corporation approved a plan to
distribute a majority of the 67.7% of Ben Franklin's common stock which the
Corporation then owned through a dividend of Ben Franklin common stock to the
holders of the Corporation's common stock. On September 29, 1995, each
shareholder of record of the Corporation received one share of Ben Franklin
common stock for every six shares of the Corporation's common stock. The
dividend of the Ben Franklin common stock resulted in a charge of $29.7 million
to stockholders' equity. The amount of the dividend was based on the book value
of the shares at the time of the distribution.
On September 29, 1995, as a result of the distribution, the Corporation's
ownership in Ben Franklin decreased from 67.7% to 17.4%. However, the
Corporation believes it continues to exercise significant influence over Ben
Franklin's operating and financial policies and, accordingly, accounts for Ben
Franklin on an equity basis. Prior year results of operations have been
reclassified to reflect Ben Franklin's results on an equity basis. The
consolidated balance sheet at March 31, 1996 includes the Corporation's equity
investment in Ben Franklin in "Investments in affiliates". In the fourth quarter
of 1996, management determined that there had been a permanent impairment of
value of its equity investment in Ben Franklin primarily as a result of
significant operating losses reported by Ben Franklin in the fourth quarter of
1996. The carrying value of Ben Franklin was reduced by $3.4 million to
recognize the impairment.
The results of operations and financial position of Ben Franklin are
summarized below (in thousands of dollars):
<TABLE>
<CAPTION>
For the three years ended
March 31,
1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------
Operations:
Net sales......... $374,739 $354,788 $337,933
Gross profit...... 24,505 37,905 27,824
Net income (loss)
before
cumulative
effect of
change in
accounting
principle...... (27,063) 1,558 (2,325)
Net income........ (27,063) 1,558 5,717
- ---------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
March 31,
1996 1995
<S> <C> <C>
- ------------------------------------------------
Balance Sheet:
Current assets............ $132,934 $154,286
Noncurrent assets......... 72,294 65,187
Current liabilities....... 69,330 88,656
Noncurrent liabilities.... 103,490 71,431
Net worth................. 32,408 59,386
- ------------------------------------------------
</TABLE>
NOTE C - DISCONTINUED OPERATIONS
In July 1995, the Corporation adopted a plan to dispose of certain of its
managed care and information service operations. A $0.5 million after-tax loss
from operations of these segments, for the three months ended June 30, 1995, is
shown as a loss from discontinued operations. The Corporation has also recorded
a $7.1 million after-tax loss for future operating losses after June 30, 1995
and for the expected loss on the sale of these operations. The $7.1 million
after-tax loss was based on management's best estimates of the amounts of future
operating losses and proceeds to be realized on the sale or other disposition of
the discontinued operations. Actual operating losses and proceeds from
disposition may vary from these estimated amounts.
At March 31, 1996, $5.6 million of after-tax operating losses had been
incurred since June 30, 1995. The Corporation has completed the sale of two
operations and is in negotiations and expects to complete the sale of one of the
remaining businesses by the end of the second quarter of fiscal 1997. The net
book value of those assets and liabilities which are expected to be sold is
reflected on the consolidated balance sheet at March 31, 1996 as "Net assets of
discontinued operations held for sale". The net assets, before reclassification,
consisted of $15.5 million of current assets, $13.7 million of long-term assets,
$12.6 million of current liabilities and $0.1 million of long-term liabilities.
Sales for the three years ended March 31, 1996 for these segments, primarily
from the managed care operations, were $14.9 million, $16.3 million and $21.5
million, respectively. The loss from discontinued operations is net of $0.4
million, $0.7 million and $1.3 million, respectively, of tax benefits for the
three years ended March 31, 1996.
37
<PAGE> 38
NOTE D - ACQUISITIONS
PHAR-MOR, INC.
In September 1995, the Corporation acquired a majority interest in Hamilton
Morgan L.L.C., a Delaware limited liability company ("Hamilton Morgan"). The
acquisition of Hamilton Morgan was accounted for using the purchase method of
accounting resulting in goodwill of approximately $7.8 million. Hamilton Morgan
subsequently acquired an approximate 31% common stock interest in Phar-Mor, a
deep discount drug store chain. The Corporation also acquired common stock of
Phar-Mor as a result of the settlement of its bankruptcy claims against Phar-Mor
(see Note F). The total common stock investment held by the Corporation is
approximately 38.7% of Phar-Mor's common stock outstanding (29.4% net of the
minority interest in Hamilton Morgan). In addition, the Corporation received
warrants that if converted into common stock would result in an approximate 0.8%
increase in ownership. The Corporation accounts for its investment in Phar-Mor
on an equity basis. At March 31, 1996, the carrying value of the investment in
Phar-Mor was approximately $39.1 million (market value $34.4 million).
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. These partnerships have been consolidated in the accompanying financial
statements. Additionally, Development is a less than 50% general partner or a
limited partner in other real estate partnerships which are generally accounted
for using the equity method. 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 $5.9 million in 1996, $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, 1996 and
1995, respectively, was $9.1 million and $8.9 million.
FOXMEYER CANADA
On June 28, 1994, the Corporation completed an amalgamation of a wholly-owned
subsidiary with Evans Health Group Limited receiving 4,250,000 shares of common
stock in the amalgamated corporation, FoxMeyer Canada Inc. ("FoxMeyer Canada").
Subsequently, the Corporation exercised options for 5,200,000 shares of common
stock increasing the Corporation's ownership interest at March 31, 1996 to
47.5%. FoxMeyer Canada, which provides healthcare and pharmacy services in
Canada, is accounted for on an equity basis and, at March 31, 1996, the
Corporation's investment was $4.6 million, and the market value was $65.1
million based on the closing price of the common stock on the Toronto Stock
Exchange ($9.375 in Canadian dollars). The Corporation has options to acquire up
to 4,800,000 additional shares of common stock of FoxMeyer Canada for (in
Canadian dollars) $3.00 per share. In addition, the Corporation holds a FoxMeyer
Canada convertible debenture of $0.8 million.
OTHER
The Corporation acquired the stock of a pharmacy benefit management company,
Scrip Card Enterprises, Inc. ("Scrip Card"), on April 1, 1994 for $10.0 million.
The transaction was accounted for by the purchase method of accounting with $8.1
million of the purchase price assigned to the customer list acquired in the
transaction. Such business is being sold and, therefore, is shown as a
discontinued operation (see Note C). During 1996, an additional $1.5 million was
paid on the contingent purchase price agreement to the former owners of this
business.
NOTE E - ACCOUNTS RECEIVABLE FINANCING
The Corporation, through FoxMeyer, participated in a $200.0 million accounts
receivable financing program under which the Corporation sold a percentage
ownership interest in a defined pool of its trade accounts receivable with
limited recourse. Generally, an undivided interest in new accounts receivable
was sold daily as existing accounts receivable were collected to maintain the
participation interest at $200.0 million. Accounts receivable sold under this
program were not included in the accompanying balance sheets at March 31, 1996
and 1995, respectively. An allowance
38
<PAGE> 39
for doubtful accounts was retained on the participation interest sold based on
estimates of the Corporation's risk of credit loss from its obligation under the
recourse provisions. The total cost of the program was $13.0 million, $9.1
million and $2.2 million for the years ended March 31, 1996, 1995 and 1994,
respectively, and was charged against "Other income" in the accompanying
consolidated statements of operations. The Corporation also acted as agent for
the purchaser by performing recordkeeping and collection functions on the
participation interest sold. The agreement contained certain covenants regarding
the quality of the accounts receivable portfolio, as well as other covenants
which were substantially identical to those contained in FoxMeyer's credit
facilities. Subsequent to March 31, 1996, the Corporation replaced the current
accounts receivable financing program with a new $275.0 million, five year
program (see Note U).
NOTE F - PHAR-MOR, INC. RECEIVABLE
On August 17, 1992, Phar-Mor filed for protection under Chapter 11 of the U.S.
Bankruptcy Code. The Corporation'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. An
additional $0.2 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 the Corporation's reclamation claim at an amount less than the Corporation
had submitted, the Corporation recorded an additional pre-tax charge to earnings
of $28.8 million in 1995 ($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 September 1995, the
Corporation received shares of common stock in, and warrants to purchase common
stock of, Phar-Mor in final settlement of all claims. The common stock and
warrants had a market value of $7.4 million resulting in a reduction in the loss
recognized in prior years of approximately $1.4 million. In addition, the
Corporation received a $5.0 million settlement from other parties related to the
Phar-Mor bankruptcy.
NOTE G - 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. The Corporation
performs ongoing credit evaluations of its customer's financial condition and
maintains reserves for potential credit losses. The accounts receivable
valuation allowance of $23.5 million at March 31, 1996 represents management's
best estimate of potential credit losses. Actual credit losses may differ from
these estimated amounts. 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 H - INVENTORIES
Inventories valued by the LIFO cost method totaled $547.5 million and $605.2
million at March 31, 1996 and 1995, respectively. If the FIFO cost method had
been used, inventories would have been $56.8 million and $54.3 million higher
than the amounts reported in the accompanying consolidated balance sheets at
March 31, 1996 and 1995, respectively. 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 1996
by $0.1 million or $0.01 per share and in 1994 by $0.3 million or $0.02 per
share.
39
<PAGE> 40
NOTE I - INVESTMENTS IN MARKETABLE
SECURITIES
The Corporation's investments in debt securities are classified as "available
for sale" and equity securities are classified as either "available for sale" or
"trading". The carrying value and gross unrealized gains and losses for
available for sale securities are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1996 1995
- ------------------------------------------------
<S> <C> <C>
Carrying value................... $877 $18,219
Unrealized gains................. -- 2,509
Unrealized losses................ -- 196
- ------------------------------------------------
</TABLE>
The gross proceeds and realized gain and losses from the sale of available for
sale securities and the change in unrealized gains (losses) on available for
sale and trading securities are as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March
31,
1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Available for sale
securities:
Proceeds from
sales............. $13,523 $39,700 $44,090
Realized gains....... 1,103 8,077 314
Realized losses...... 892 148 2,350
Net change in
unrealized holding
gains (losses).... (2,391) 2,599 (225)
Trading securities:
Net change in
unrealized
gains............. 1,952 -- --
- ---------------------------------------------------
</TABLE>
During 1996, approximately $2.0 million of unrealized losses were charged to
operations as a result of changing the classification of certain securities from
available for sale to trading ($5.8 million in unrealized losses less $3.8
million in unrealized gains).
The balance of the net unrealized holding loss on securities shown on the
accompanying balance sheet as of March 31, 1996, represents the Corporation's
equity participation in Ben Franklin's unrealized loss on securities available
for sale.
NOTE J - 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").
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 "NSC
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 NSC 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
40
<PAGE> 41
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, 1996, there were
$20.9 million of Remaining Liabilities, including a $1.2 million net pension
liability, the NSC Note of $18.8 million and $0.9 million for other benefit
obligations, offset against the carrying value of the NSC Preferred Stock. At
March 31, 1995, there were $35.9 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, 1994, the Corporation recognized a loss of $2.4
million in connection with a January 1994 disposition of substantially all of
its 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 10.75% interest on the balance in the fund. At March 31, 1996,
the prepayment balance was approximately $7.2 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.
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, 1996, determined by
assuming an expected long-term rate of return on plan assets of 9.5% in 1996,
1995, and 1994, respectively, were as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Net periodic pension
costs for the
Weirton Retirement
Program:
Service
cost -- benefits
earned for the
year........... $ 139 $ 177 $ 159
Interest cost on
projected
benefit
obligation..... 38,586 38,273 42,169
Return on plan
assets......... (75,827) (28,140) (34,659)
Net amortization
and deferral... 39,187 (10,751) (10,104)
- ---------------------------------------------------
Net periodic pension
costs (income).... $ 2,085 $ (441) $ (2,435)
- ---------------------------------------------------
</TABLE>
41
<PAGE> 42
The funded status of the Weirton Retirement Program and amounts recognized in
the Corporation's consolidated balance sheets at March 31, 1996 and 1995,
utilizing a discount rate of 7.8% in 1996 and 8.5% in 1995 are set forth in the
table below (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1996 1995
- -----------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation
including vested benefits of
$471,921 and $465,517 in 1996
and 1995, respectively......... $489,843 $482,282
Projected benefit obligation..... 489,843 482,282
Plan assets at fair market
value.......................... 488,627 467,058
- -----------------------------------------------------
Projected benefit obligation in
excess of plan assets.......... 1,216 15,224
Unrecognized transition asset.... 6,504 7,406
Unrecognized net loss............ (71,138) (82,834)
Adjustment required to recognize
minimum liability.............. 64,634 75,428
- -----------------------------------------------------
Accrued pension cost............. $ 1,216 $ 15,224
- -----------------------------------------------------
</TABLE>
At March 31, 1996, the assets of the Weirton Pension Trust available to
service these obligations were comprised of approximately 67% bonds, 25% stocks
and 8% other.
NOTE K - LONG-TERM DEBT
Long-term debt was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1996 1995
- -----------------------------------------------------
<S> <C> <C>
FoxMeyer Health revolving credit
facility....................... $ 15,000 $ 15,000
FoxMeyer Health secured loan..... 20,000 --
FoxMeyer senior notes............ 198,000 198,000
Unamortized discount on FoxMeyer
senior notes................... (2,967) (3,506)
FoxMeyer revolving credit
facility....................... 180,800 132,800
Ben Franklin convertible
subordinated debentures........ -- 28,750
Ben Franklin revolving credit
facility....................... -- 18,300
Development notes with interest
rates ranging from 6.5% to
12.5% per annum with various
maturities..................... 17,737 15,826
Industrial development revenue
bonds with interest rates
ranging from 5.0% to 8.0% per
annum with various
maturities..................... 1,458 1,774
Notes and mortgages with interest
rates ranging from 7.5% to
10.3% per annum with various
maturities..................... 2,596 16,473
Capital lease obligations with
interest rates ranging from
9.3% to 14.0% per annum with
various maturities............. -- 1,874
- -----------------------------------------------------
432,624 425,291
Long-term debt due within one
year........................... 28,793 2,540
- -----------------------------------------------------
Total................... $403,831 $422,751
- -----------------------------------------------------
</TABLE>
The Corporation has a $15.0 million revolving credit facility (the "Credit
Facility") which is secured by a portion of the Corporation's shares of common
stock of FoxMeyer and matured April 1, 1996. The average and maximum balances
outstanding during 1996 were $15.0 million. The outstanding balance at March 31,
1996 was $15.0 million at an average interest rate of 7.3%. The Corporation has
obtained amendments to the Credit Facility which change the maturity date to
September 15, 1996. After the amendments, the interest rate on the Credit
Facility is a Euro-dollar rate (as defined) plus 2.75% or the prime rate plus
.25%. The amendments to the Credit Facility also require the Corporation to use
proceeds from certain asset sales which may occur after March 31, 1996 to reduce
the amount outstanding under the Credit Facility.
To fund the Corporation's purchase of a majority interest in Hamilton Morgan
(see Note D), the Corporation entered into a $20.0 million secured loan with a
bank (the "Hamilton Facility"). The Hamilton Facility matures September 6, 1998,
requires principal payments of $2.5 million each on September 6, 1996 and 1997,
and bears interest at the prime rate plus 1% or a Euro-dollar rate (as defined)
plus 2.75%. The Hamilton Facility is collateralized by (i) a portion of the
Corporation's shares of common stock of FoxMeyer, (ii) the Corporation's
interest in Phar-Mor common stock held by Hamilton Morgan and (iii) other
marketable securities. The Hamilton Facility also requires that the Corporation
maintain a minimum net worth and includes other restrictive covenants. The
Corporation has a collateral base deficiency of approximately $11.1 million at
March 31, 1996 based on the shares of common stock of FoxMeyer available as
collateral for the Hamilton Facility. The Corporation is in negotiations to cure
the deficiency. However, as a result of the deficiency, approximately $11.1
million of the Hamilton Facility has been classified as long-term debt due
within one year at March 31, 1996.
On April 29, 1993, FoxMeyer issued $198.0 million of 7.09% senior notes due
April 15, 2005 (the "FoxMeyer Senior Notes"). As a result of the refinancing
discussed in Note U, the FoxMeyer Senior Notes were retired in June, 1996.
42
<PAGE> 43
At March 31, 1996, FoxMeyer maintained a $295.0 million revolving credit
facility (the "FoxMeyer Credit Facility") which was to expire December 31, 1997.
At March 31, 1996, $180.8 million was outstanding under the FoxMeyer Credit
Facility at an average interest rate of 7.0%. FoxMeyer also maintained a $60.0
million seasonal credit facility which expired March 31, 1996. The average and
maximum amounts outstanding under the FoxMeyer Credit Facility and seasonal
credit facility during 1996 were $228.5 million and $341.0 million,
respectively. As a result of the refinancing discussed in Note U, the FoxMeyer
Credit Facility was repaid in June 1996.
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 (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.
The Corporation has letters of credit outstanding in connection with its
insurance liabilities of $4.2 million at March 31, 1996.
Maturity and approximate sinking fund requirements on all long-term debt of
the Corporation by fiscal year, after taking into consideration the refinancing
(see Note U), are as follows: $28.8 million in 1997; $3.9 million in 1998; $15.6
million in 1999; $1.1 million in 2000; $0.8 million in 2001; and $385.4 million
thereafter.
NOTE L - CAPITAL STOCK
SHARE REPURCHASE: In December 1993, the Corporation announced that the Board of
Directors had authorized the purchase of up to 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 up to an additional
1,000,000 shares of its common stock. As of March 31, 1996, 437,300 shares had
been repurchased at a cost of $7.2 million.
REDEEMABLE PREFERRED STOCK: The Corporation is authorized to issue 10,000,000
shares of preferred stock. At March 31, 1996, there were two series of
redeemable preferred stock outstanding.
At March 31, 1996 and 1995, the Corporation had 740,531 and 836,000 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 $25.80 per share. The Corporation has
reserved 1,435,138 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 1997 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 which 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.
43
<PAGE> 44
The common stock accepted by the Corporation in connection with the exchange
offer was added to treasury stock. The cost of the treasury stock was 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, 1996 and 1995, the Corporation had 4,290,824 and 3,868,373 shares
of Series A Preferred Stock outstanding, respectively. The Corporation issued
422,451 and 380,859 additional shares of Series A Preferred Stock in lieu of
cash dividends in 1996 and 1995, respectively. In addition, 112,634 additional
shares of Series A Preferred Stock were issued on April 15, 1996 in lieu of cash
dividends. This dividend was declared and charged to retained earnings in March
1996. 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 10.5%
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
or 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.
In the event that dividends on the convertible preferred stock or the Series A
Preferred Stock are in arrears for six full quarterly dividend periods when such
dividends are required to be paid in cash, the holders of each series of
preferred, voting separately as a class, will be entitled to elect two new
directors at a meeting of the stockholders of the Corporation called for that
purpose or at the annual meeting of stockholders (and at each annual meeting of
stockholders thereafter until such cumulative dividends have been paid in full).
Such voting rights and the term of office of these directors shall cease at such
time as all dividends in arrears have been paid in full, or at such time as such
dividends have been declared and an amount sufficient to pay the full amount of
such dividends has been irrevocably set aside for payment.
COMMON STOCK: The Corporation has also reserved 4,796,306 shares of its common
stock for issuance under its stock option and performance award plans (see Note
M). Certain limitations on the payment of dividends have been placed on the
Corporation through covenants under the Credit Facility and the Hamilton
Facility (see Note K). Under these restrictions, no dividends may be paid on the
common stock of the Corporation.
NOTE M - 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 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
44
<PAGE> 45
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.
The following table summarizes the information with respect to stock options
for the two years ended March 31, 1996. The table includes stock options granted
under the Plan and under the Corporation's 1987 Restated Stock Option and
Performance Award Plan, which stock options are still exercisable. All options
granted in 1996 and 1995 were at the published market price of the Corporation's
common stock on the date of grant.
<TABLE>
<CAPTION>
1996 1995
- ---------------------------------------------------------------------------------------------------------
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............. 3,372,988 $10.85 - $27.50 1,739,100 $12.81 - $27.50
Granted...................................... 527,500 15.56 - 22.38 2,146,000 14.56 - 18.25
Options arising from the FoxMeyer merger..... -- 1,104,688 10.85 - 16.39
Exercised.................................... 278,002 12.52 - 27.50 317,636 13.41 - 16.69
Canceled..................................... 457,189 14.56 - 27.50 1,299,164 13.41 - 27.50
- ---------------------------------------------------------------------------------------------------------
Outstanding at end of year................... 3,165,297 10.85 - 24.75 3,372,988 10.85 - 27.50
- ---------------------------------------------------------------------------------------------------------
Exercisable at end of year................... 1,329,669 10.85 - 24.75 1,003,807 10.85 - 27.50
Reserved for future grants................... 1,631,009 1,857,000
- ---------------------------------------------------------------------------------------------------------
</TABLE>
NOTE N - 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 outside directors of the
Corporation and its subsidiaries are covered under a nonqualified and unfunded
defined benefit plan.
The Corporation maintains an employees' savings and profit sharing plan under
Section 401(k) of the Internal Revenue Code. The plan covers substantially all
employees. Under the plan, employees generally may elect to exclude up to 12% of
their compensation from amounts subject to income tax as a salary deferral
contribution. The Corporation makes a matching contribution to each employee in
an amount equal to 50% of the first 6% of such contributions.
Pension costs for the Corporation's retirement plans for the three years ended
March 31, 1996, are presented in the table below (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended
March 31,
1996 1995 1994
<S> <C> <C> <C>
- ---------------------------------------------------
Net periodic pension
costs for defined
benefit plans:
Service
cost -- benefits
earned for the
year.............. $ 27 $ 9 $ 20
Interest cost on
projected benefit
obligation........ 4,539 4,493 4,728
Return on plan
assets............ (8,950) (2,073) (4,378)
Net amortization and
deferral.......... 3,569 (3,538) (1,463)
- ---------------------------------------------------
Net periodic pension
income............ (815) (1,109) (1,093)
Pension costs for
defined contribution
plans................ 1,309 1,262 1,308
- ---------------------------------------------------
Total pension costs.... $ 494 $ 153 $ 215
- ---------------------------------------------------
</TABLE>
The net periodic pension costs for defined benefit plans were determined by
assuming an expected long-term rate of return on plan assets of 10.0% for the
three years ended March 31, 1996.
45
<PAGE> 46
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, 1996 and 1995, utilizing a weighted average discount
rate of 7.8% in 1996 and 8.4% in 1995 (in thousands of dollars):
<TABLE>
<CAPTION>
March 31, 1996 March 31, 1995
- ----------------------------------------------------------------------------------------------------------------
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 $57,706 and $55,416 in 1996 and 1995,
respectively......................................... $51,426 $ 6,280 $49,174 $ 6,242
Projected benefit obligation........................... 51,426 6,280 49,174 6,242
Plan assets at fair market value....................... 59,128 -- 54,763 --
- ----------------------------------------------------------------------------------------------------------------
Projected benefit obligation less than (in excess of)
plan assets.......................................... 7,702 (6,280) 5,589 (6,242)
Unrecognized transition asset.......................... (1,091) -- (1,275) --
Unrecognized net loss.................................. 61 -- 913 --
- ----------------------------------------------------------------------------------------------------------------
Prepaid (accrued) pension cost included in the
consolidated balance sheet........................... $ 6,672 $(6,280) $ 5,227 $(6,242)
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
At March 31, 1996, the assets of the Corporation's defined benefit pension
plans were comprised of approximately 41% bonds, 52% stocks and 7% other.
NOTE O - 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, 1996 was as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended
March 31,
1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Service cost-benefits
earned for the year..... $ -- $ -- $ --
Interest cost............. 2,189 2,155 2,059
Amortization of prior
service cost and net
gain.................... (305) (273) (353)
- ---------------------------------------------------
Total
postretirement
benefit
cost.......... $1,884 $1,882 $1,706
- ---------------------------------------------------
</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, 1996 and 1995
utilizing a weighted average discount rate of 7.8% for 1996 and 8.3% for 1995
(in thousands of dollars):
<TABLE>
<CAPTION>
March 31,
1996 1995
- ------------------------------------------------
<S> <C> <C>
Accumulated postretirement
benefit obligation.......... $26,921 $30,094
Unrecognized prior service
cost........................ 3,579 4,512
Unrecognized net gain......... 431 4,573
- ------------------------------------------------
Amount of postretirement
benefit obligation included
in the consolidated balance
sheet....................... $30,931 $39,179
- ------------------------------------------------
</TABLE>
Medical costs were assumed to increase at a rate of 12% during 1996 and then
to decline over a period of 28 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 12.4% increase in the postretirement benefit
obligation and a 14.4% increase in the postretirement benefit cost.
46
<PAGE> 47
NOTE P - INCOME TAXES
The provision (benefit) for income taxes consisted of the following for the
three years ended March 31, 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended
March 31,
1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Federal
Current............... $ -- $ 931 $1,307
Deferred.............. (25,082) (246) --
State
Current............... 1,310 476 823
Deferred.............. (4,144) 921 820
- ---------------------------------------------------
Income tax provision
(benefit)............. $(27,916) $2,082 $2,950
- ---------------------------------------------------
</TABLE>
The Corporation files a consolidated federal income tax return with its 80% or
more owned subsidiaries (the "Corporation's Affiliated Group").
The Corporation recorded a federal tax benefit of $25.1 million in 1996. The
federal income tax benefit is attributable to FoxMeyer and is the result of the
recognition of benefits from net operating losses. A federal income tax benefit
of $2.7 million attributable to the affiliates other than FoxMeyer in the
Corporation's Affiliated Group (the "Other Affiliates") was offset by an
increase in the valuation allowance on deferred tax assets of the Other
Affiliates.
The Corporation recorded a federal income tax provision of $0.7 million in
1995. A federal income tax charge of $7.8 million attributable to FoxMeyer was
partially offset by a federal income tax benefit of $7.1 million attributable to
the current year federal income tax net operating loss and the reduction of the
valuation allowance on deferred tax assets of the Other Affiliates.
The Corporation recorded a federal income tax provision of $1.3 million in
1994. A federal income tax charge of $19.5 million attributable to FoxMeyer was
partially offset by a federal income tax benefit of $18.2 million attributable
to the current year federal income tax net operating loss and to the reduction
of the valuation allowance on deferred tax assets of the Other Affiliates.
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 continuing operations before income taxes and minority interest were
as follows (in thousands of dollars):
<TABLE>
<CAPTION>
For the years ended March 31,
1996 1995 1994
- ---------------------------------------------------
<S> <C> <C> <C>
Statutory rate
applied to pre-tax
income (loss)...... $(28,645) $ 17,291 $14,179
Change in deferred
tax asset valuation
allowance.......... 2,654 (13,441) (6,472)
Corporate dividend-
received
deduction.......... (2,197) (1,975) (2,457)
State income taxes
(net of federal tax
effect)............ (1,842) 908 1,068
Weirton interest
expense............ (498) (725) (4,420)
Loss on disposition
of investment in
NSC................ -- -- (270)
Amortization of
goodwill and other
nondeductible
items.............. 2,446 2,502 2,265
Tax attributes from
acquisitions....... -- -- (2,768)
Capital loss......... (175) (2,156) --
Alternative minimum
tax................ -- 527 --
Restatement of
affiliates to
equity method...... -- (233) 1,886
Other items.......... 341 (616) (61)
- ---------------------------------------------------
Total tax
provision
(benefit)... $(27,916) $ 2,082 $ 2,950
- ---------------------------------------------------
</TABLE>
47
<PAGE> 48
The Corporation's current and noncurrent deferred taxes, which net to a $35.8
million asset as of March 31, 1996, and a $10.3 million asset as of March 31,
1995, 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>
1996 1995
- -------------------------------------------------------------------------------------------------------------
Deferred Deferred Deferred Deferred
tax tax tax tax
assets liabilities assets liabilities
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Inventory methods..................................... $ -- $ 51,658 $ -- $ 48,726
Basis difference on acquired assets and liabilities
assumed............................................. 319 -- 863 --
Phar-Mor receivable allowance......................... -- -- 22,057 --
Allowance for possible losses on accounts
receivable.......................................... 8,953 -- 2,723 --
Other liabilities and valuation allowances............ 16,525 -- 26,053 --
Accrued interest...................................... -- 1,173 -- 1,494
Recognition of contingent fee income.................. -- -- -- 10,184
Depreciation.......................................... -- 3,258 34 3,964
Investments........................................... 15,502 7,737 -- --
Tax net operating losses.............................. 119,831 -- 81,492 --
Tax credits........................................... 11,138 -- 11,857 --
All other............................................. 185 -- 224 444
- -------------------------------------------------------------------------------------------------------------
Total deferred assets and liabilities....... 172,453 63,826 145,303 64,812
Valuation allowance on deferred tax assets............ (72,868) (70,214)
- -------------------------------------------------------------------------------------------------------------
Total deferred taxes........................ 99,585 $ 63,826 75,089 $ 64,812
- -------------------------------------------------------------------------------------------------------------
Less: deferred tax liability.......................... (63,826) (64,812)
- -------------------------------------------------------------------------------------------------------------
Deferred tax asset, net..................... $ 35,759 $ 10,277
- -------------------------------------------------------------------------------------------------------------
</TABLE>
The net change in the valuation allowance during fiscal 1996 was an increase
of approximately $2.7 million.
At March 31, 1996, the Corporation had, for federal income tax purposes,
operating loss, capital loss, and investment credit carryforwards of
approximately $342.4 million, $144.8 million, and $3.0 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 -- $15.8 million, 2004 -- $58.3 million, 2006 -- $107.3 million,
2008 -- $0.5 million, 2009 -- $39.4 million and 2011 -- $118.8 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. The capital loss
carryforwards available for utilization in the Corporation's consolidated income
tax return expire as follows: 1997 -- $52.3 million, 1998 -- $35.9 million and
1999 -- $56.6 million. Investment credit carryforwards will expire during the
years 1997 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 Q - COMMITMENTS AND CONTINGENCIES
Directly or through its subsidiaries, the Corporation leases various types of
properties, primarily warehouse
48
<PAGE> 49
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 from
continuing operations under operating leases totaled $21.0 million in 1996,
$14.7 million in 1995 and $16.4 million in 1994. Minimum rental payments under
operating leases with initial or remaining terms of one year or more at March
31, 1996, and for which no liability has been accrued, total $113.4 million with
payments due during the next five fiscal years of $16.4 million in 1997, $31.9
million in 1998, $19.7 million in 1999, $20.5 million in 2000, $4.6 million in
2001 and $20.3 million thereafter. See Note U for a discussion of the impact on
future rental payments as a result of the purchase of certain property currently
under an operating lease.
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 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, 1996, the Corporation had reserves of $2.5 million for
environmental assessments, remediation activities, penalties or fines at 11
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 J).
The Corporation believes the remaining deposit will be sufficient to satisfy
current environmental claims for which the Corporation has indemnified NSC. The
Corporation settled an environmental claim in December 1995 for $3.6 million
related to its agreement to indemnify NSC. The claim was paid from the deposit.
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.
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 environ-
49
<PAGE> 50
mental reserves, the Corporation has not offset any potential recoveries against
the environmental liabilities accrued. 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 be found to be jointly and severally liable.
From time to time, FoxMeyer makes advances to customers in anticipation of
future sales. At March 31, 1996, advances aggregating $2.8 million were
outstanding. In addition, FoxMeyer has guaranteed debt of certain customers to
their banks aggregating $1.0 million at March 31, 1996.
The Corporation entered into certain agreements in fiscal 1996 with Ashland
Oil, Inc. ("Ashland") settling unresolved issues relating to the sale of The
Permian Corporation ("TPC") to Ashland in fiscal 1992. As a result of the
agreements, the Corporation has settled all outstanding claims and is released
from any additional claims in connection with the sale of TPC to Ashland.
Previously established liabilities of $19.6 million related to these claims by
Ashland, and to other contingencies settled during the year, were released and
are included in "Other income" in the accompanying statement of operations.
FoxMeyer was 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 sought 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. On April 14, 1996, a federal judge in Chicago granted the defendant
drug wholesalers' summary judgment motion and dismissed the case. The plaintiffs
have filed an appeal. Management believes that no 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. In September 1994, two plaintiffs in the class action lawsuits
withdrew from the Memorandum. Thereafter, the remaining plaintiffs also withdrew
from the Memorandum. 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 lawsuit. An
amended complaint was filed in the consolidated case on February 13, 1996. The
amended complaint essentially alleges the same claims previously raised. 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.
50
<PAGE> 51
NOTE R - 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,
1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid....................................................... $33,486 $27,904 $ 15,530
Income taxes paid................................................... 191 1,325 459
Noncash transactions:
Exchange of Series A Preferred Stock for common stock............. -- -- 112,753
Exchange of treasury stock for FoxMeyer common stock.............. -- 80,010 --
Ben Franklin common stock distributed as a dividend............... 29,697 -- --
Payment of dividends in kind on Series A Preferred Stock.......... 15,319 13,200 5,389
Capital lease obligations incurred................................ -- 1,907 --
- ----------------------------------------------------------------------------------------------------
</TABLE>
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, 1996 and 1995:
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 $28.8 million and $43.8 million at
March 31, 1996 and 1995, respectively, while the estimated fair value of these
notes is $31.7 million and $46.9 million, respectively, based on the
contractual interest rates and the credit worthiness of the debtors. The
carrying value of long-term debt is $432.6 million and $425.3 million at March
31, 1996 and 1995, respectively, while the estimated fair value is $424.8
million and $407.9 million, respectively, based upon interest rates available
to the Corporation for issuance of similar debt with similar terms and
remaining maturities.
Debt and equity securities classified as "available for sale" or "trading"
are carried at their estimated fair value (see Notes A and I). The carrying
value of the investment in NSC Preferred Stock is net of the Remaining
Liabilities (see Note J). The carrying value of the NSC Preferred Stock is
$63.8 million and $64.8 million at March 31, 1996 and 1995, respectively. The
estimated fair market value of the NSC Preferred Stock is approximately $70.1
million and $70.6 million, respectively, based on NSC's other outstanding debt
with similar terms and remaining maturity. The carrying value of the Remaining
Liabilities consists principally of pension liabilities and the NSC Note
bearing interest at 8 1/2% with a 12 year remaining amortization. The carrying
value of the NSC Note approximates its fair value at March 31, 1996 and 1995.
The fair value of the Corporation's redeemable preferred stock, based on
quoted market prices at March 31, 1996 and 1995, were $184.0 million and
$182.5 million, respectively.
The fair value of the pre-bankruptcy receivable from Phar-Mor was estimated
to be $6.0 million at March 31, 1995.
The fair value of certain warrants with a carrying value of $1.1 million at
March 31, 1996 is estimated to be $5.0 million based upon the underlying
market value of the securities into which the warrants may be converted.
The carrying value of other investments 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, 1996
and 1995 was $6.7 million and $4.2 million, respectively.
51
<PAGE> 52
The fair value estimates were based on pertinent information available to
management as of March 31, 1996 and 1995. 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, 1996 and 1995 (in thousands of dollars, except per
share amounts):
<TABLE>
<CAPTION>
Quarter
- -------------------------------------------------------------------------------------------------------
First Second Third Fourth
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996
Net sales........................................ $1,278,289 $1,320,683 $1,430,615 $1,457,775
Gross profit..................................... 63,806 66,998 63,886 38,396
Operating income (loss).......................... 13,277 13,799 (46,238) (30,787)
Net income (loss) from continuing operations..... 6,737 7,506 (40,364) (29,923)
Earnings (loss) per common share from continuing
operations..................................... 0.09 0.12 (2.61) (2.06)
- -------------------------------------------------------------------------------------------------------
1995
Net sales........................................ $1,177,921 $1,154,812 $1,207,857 $1,265,346
Gross profit..................................... 64,218 64,462 65,032 72,545
Operating income................................. 11,951 11,327 20,028 20,831
Net income from continuing operations............ 5,471 6,965 15,076 15,683
Earnings per common share from continuing
operations..................................... 0.06 0.17 0.62 0.65
- -------------------------------------------------------------------------------------------------------
</TABLE>
The previously reported amounts for 1995 have been reclassified to reflect
discontinued operations (see Note C) and the change to equity method of
accounting for Ben Franklin (see Note B). The 1996 quarterly results differ from
those previously reported due to a change in the composition of the discontinued
operations in the fourth quarter.
During the fourth quarter of 1996, the Corporation recorded an adjustment to
inventory that resulted in a charge to cost of goods sold of approximately $18.5
million. The adjustment was due primarily to significant information systems
problems incurred in connection with the opening of the Corporation's new
automated national distribution center in July 1995, and the installation of a
new system utilized to record the transfer of product among the Corporation's
facilities. Management believes the problems caused by the initial inadequacies
of these systems resulted in the Corporation shipping more product to some of
its customers than it billed, and inflated the amount of credit given to certain
of its customers. The ability of the Corporation to track certain shipments was
significantly impaired as well. As a result of the Corporation's own analysis of
the inventory shortage, discussion with the independent third party retained by
the Corporation to evaluate the problem and based on an evaluation of the nature
of the inventory problems, the lack of sufficient information, and the time
period covered, the Corporation is unable to reasonably estimate the impact of
the adjustment on a quarter-by-quarter basis and has recorded the full impact in
the fourth quarter.
The Corporation also recorded an additional charge to operating expenses of
approximately $15.5 million during the fourth quarter to increase its allowance
for doubtful accounts. A portion of the increase is due to the billing problems
arising from the issues addressed above. The remainder of the increase is the
result of problems related to customers serviced from facilities closed during
late 1996. The Corporation, as noted above, is unable to reasonably estimate the
impact of the adjustment on a quarter-by-quarter basis.
Management believes that all material problems have been identified and
resolved and that all adjustments referred to above are non-recurring in nature.
During the third quarter of 1996, the Corporation recorded as unusual items
certain charges. See the discussion of these charges in Note A.
During 1996, the Corporation released previously established reserves related
to the settlement of certain contingent liabilities (see Note Q) that had the
effect of increasing operating income by $8.6 million and $2.8 million in the
first and second quarters, respec-
52
<PAGE> 53
tively. Additional released liabilities, net of the write-down of the
Corporation's investment in Ben Franklin, of $4.8 million were included in
operating income in the fourth quarter.
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 F). 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
Notes B and L).
NOTE U - SUBSEQUENT EVENTS
On June 19, 1996, FoxMeyer, through its wholly-owned subsidiary FoxMeyer Drug
Company, entered into new financing agreements for a $475.0 million revolving
credit facility (the "New FoxMeyer Credit Facility") and a $275.0 million
accounts receivable financing program (the "New FoxMeyer Receivable Financing"),
both of which mature in five years. Borrowings under these facilities were used
to repay amounts outstanding under the FoxMeyer Credit Facility (see Note K), to
retire the $198.0 million FoxMeyer Senior Notes (see Note K) and to replace the
$200.0 million accounts receivable financing program (see Note E). The
Corporation will incur approximately $6.8 million of charges in the first
quarter of fiscal 1997 as a result of the early extinguishment of debt and other
fees paid on the FoxMeyer Credit Facility and the FoxMeyer Senior Notes. In
addition, approximately $22.5 million was used to purchase property and
equipment that were being leased by FoxMeyer.
The New FoxMeyer Credit Facility matures in June 2001 and is secured by all
the tangible and intangible assets of FoxMeyer except for certain real property
and equipment. The interest rates on the New FoxMeyer Credit Facility, for the
first year, will be based on either the prime rate plus 0.5% or a LIBOR rate (as
defined) plus 2.0%. After the first year, the interest rate adjustments to the
prime and LIBOR rates will vary depending on certain financial ratios. The New
FoxMeyer Credit Facility contains certain affirmative and negative covenants
including (i) restrictions on acquisitions, mergers, 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 a minimum interest coverage
ratio, ratio of accounts payable to inventory and net worth. Amounts available
pursuant to the New FoxMeyer Credit Facility are limited to a percentage of
certain eligible inventory and accounts receivable balances. The New FoxMeyer
Credit Facility limits the amount of dividends that can be paid by FoxMeyer to
the lesser of $15.0 million or 50% of FoxMeyer's prior fiscal year net income.
Under this limitation, FoxMeyer will not be able to pay a dividend in fiscal
1997. The New FoxMeyer Credit Facility does permit payments under a tax sharing
agreement between FoxMeyer and the Corporation but restricts other transfers of
cash or assets.
The New FoxMeyer Receivable Financing also matures June 2001 and provides that
FoxMeyer will sell, with limited recourse, a percentage ownership interest in a
defined pool of its trade receivables. The New FoxMeyer Receivable Financing
requires that all receivables generated by FoxMeyer Drug Company be sold to a
new corporation, FoxMeyer Funding, Inc. ("FFI"), a wholly-owned subsidiary of
FoxMeyer Drug Company. FFI's business consists only of the purchase of
receivables from FoxMeyer Drug Company and the sale of those receivables.
Generally, an undivided interest in new accounts receivable will be sold daily
by FFI as existing accounts receivable are collected to attempt to maintain the
participation interest at $275.0 million. FoxMeyer Drug Company will act as
agent for the purchaser performing recordkeeping and collection functions on the
participation interest sold. The cost of the program will be based on commercial
paper rates plus an additional margin of 0.875%. The New FoxMeyer Receivable
Financing
53
<PAGE> 54
contains affirmative and negative covenants which are substantially the same as
those in the New FoxMeyer Credit Facility.
As part of the refinancing, FoxMeyer has elected to purchase certain equipment
and other personal property formerly used under an operating lease. Subsequent
to the purchase, the Corporation's future minimum rental payments (see Note Q)
under leases with initial or remaining terms of one year or more at March 31,
1996, will be $90.3 million with payments due during the next five fiscal years
of $13.0 million in 1997, $12.2 million in 1998, $19.7 million in 1999, $20.5
million in 2000, $4.6 million in 2001 and $20.3 million thereafter.
The Financial Accounting Standards Board has issued two statements that impact
the Corporation's accounting and reporting of certain financial statement
information. Statement of Financial Accounting Standards No. 121 ("SFAS 121"),
"Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be
Disposed of ", will be effective for the fiscal year beginning April 1, 1996.
While the Corporation has not currently adopted SFAS 121, the Corporation does
not anticipate any significant impact on the consolidated financial statements
resulting from the adoption of SFAS 121. Statement of Financial Accounting
Standards No. 123 ("SFAS 123"), "Accounting for Stock-Based Compensation",
becomes effective for transactions after March 31, 1996. As permitted by SFAS
123, the Corporation will continue to apply the recognition and measurement
provisions of Accounting Principle Board Opinion No. 25, "Accounting for Stock
Issued to Employees" and adopt the disclosure requirements of SFAS 123 beginning
in fiscal 1997. Accordingly, there will be no impact on the consolidated
financial statements from the adoption of SFAS 123.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
54
<PAGE> 55
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, 1996.
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 57 of all financial
statements filed as part of this report.
(2) Financial Statement Schedules
Reference is made to the listing on page 57 of all financial
statement schedules filed as part of this report.
(3) Exhibits
Reference is made to the Exhibit Index beginning on page 65
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, 1996, the registrant did
not file any Current Reports on Form 8-K.
55
<PAGE> 56
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/ Edward L. Massman
-------------------------------
Edward L. Massman
June 28, 1996 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.
<TABLE>
<CAPTION>
PRINCIPAL EXECUTIVE OFFICERS:
<S> <C> <C>
/s/ Abbey J. Butler
- ------------------------- Co-Chairman of the Board and
Abbey J. Butler Co-Chief Executive Officer June 28, 1996
/s/ Melvyn J. Estrin
- ------------------------- Co-Chairman of the Board and
Melvyn J. Estrin Co-Chief Executive Officer June 28, 1996
/s/ Edward L. Massman
- ------------------------- Senior Vice President and Chief
Edward L. Massman Financial Officer
(Principal Financial Officer) June 28, 1996
ADDITIONAL DIRECTORS:
/s/ Sheldon W. Fantle
- -------------------------
Sheldon W. Fantle Director June 28, 1996
/s/ Paul M. Finfer
- -------------------------
Paul M. Finfer Director June 28, 1996
/s/ Alfred H. Kingon
- -------------------------
Alfred H. Kingon Director June 28, 1996
/s/ William G. Tull
- -------------------------
William G. Tull Director June 28, 1996
</TABLE>
56
<PAGE> 57
ITEM 14(A) (1) AND (2) AND ITEM 14(D)
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
Page No. in
Form 10-K
------------
<S> <C>
Independent Auditors' Report....................................... 28
Consolidated Statements of Operations - For the Three Years
Ended March 31, 1996............................................. 29
Consolidated Balance Sheets - March 31, 1996 and 1995.............. 30
Consolidated Statements of Stockholders' Equity - For the Three
Years Ended March 31, 1996....................................... 32
Consolidated Statements of Cash Flows - For the Three Years Ended
March 31, 1996................................................... 33
Notes to Consolidated Financial Statements - For the Three
Years Ended March 31, 1996....................................... 34
</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... 58
Schedule II - Valuation and Qualifying Accounts.............. 62
Independent Auditors' Consent................................ 64
</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.
57
<PAGE> 58
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED BALANCE SHEETS
FoxMeyer Health Corporation (Parent Company) (In thousands of dollars)
================================================================================
<TABLE>
<CAPTION>
March 31,
----------------------
1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and short-term investments $ 4,392 $ 477
Current deferred tax asset, net of valuation allowance 592 852
Other current assets 1,652 1,053
- ---------------------------------------------------------------------------------
Total current assets 6,636 2,382
Intercompany receivables (payables) (140) 20,597
Investments in subsidiaries and affiliates 393,681 478,749
Investment in National Steel Corporation 44,099 30,163
Deferred tax asset, net of valuation allowance 26,563 29,815
Other assets 686 363
- ---------------------------------------------------------------------------------
Total assets $ 471,525 $ 562,069
=================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable $ 1,305 $ 487
Accrued and other liabilities 6,459 7,898
Long-term debt due within one year 26,115 --
- ---------------------------------------------------------------------------------
Total current liabilities 33,879 8,385
Note payable to FoxMeyer Corporation 30,000 27,700
Long-term debt 8,885 15,000
Other long-term liabilities 9,006 31,815
Redeemable preferred stock 187,292 175,019
Stockholders' equity
Common stock 120,940 120,836
Capital in excess of par value 209,613 209,110
Minimum pension liability (64,634) (75,428)
Net unrealized holding gain (loss) on securities (17) 2,374
Retained earnings 70,431 184,949
- ---------------------------------------------------------------------------------
336,333 441,841
Less: cost of common stock held in treasury 133,870 137,691
- ---------------------------------------------------------------------------------
Total stockholders' equity 202,463 304,150
- ---------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 471,525 $ 562,069
=================================================================================
</TABLE>
See notes to condensed financial statements.
58
<PAGE> 59
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF OPERATIONS
FoxMeyer Health Corporation (Parent Company) (In thousands of dollars)
================================================================================
<TABLE>
<CAPTION>
For the years ended March 31,
--------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Costs
Administrative and general expenses $ 8,585 $ 9,907 $ 10,701
Other income 16,216 91 --
- -----------------------------------------------------------------------------------------
Operating income (loss) 7,631 (9,816) (10,701)
Financing Costs
Interest income 947 741 235
Intercompany interest expense 2,800 2,643 2,412
Interest expense 3,695 2,083 1,644
- -----------------------------------------------------------------------------------------
Financing costs, net 5,548 3,985 3,821
- -----------------------------------------------------------------------------------------
Income (loss) from continuing operations before
National Steel Corporation, income tax benefit
and equity in income (loss) of subsidiaries
and affiliates 2,083 (13,801) (14,522)
National Steel Corporation
Loss on common stock investment -- -- (2,350)
Net preferred dividend income 3,329 5,445 7,655
- -----------------------------------------------------------------------------------------
Income (loss) from continuing operations before
income tax benefit and equity in income (loss)
of subsidiaries and affiliates 5,412 (8,356) (9,217)
Income tax benefit -- 7,138 18,273
- -----------------------------------------------------------------------------------------
Income (loss) from continuing operations
before equity in income (loss) of
subsidiaries and affiliates 5,412 (1,218) 9,056
Equity in income (loss) of subsidiaries and affiliates (61,456) 44,413 22,408
- -----------------------------------------------------------------------------------------
Net income (loss) from continuing operations (56,044) 43,195 31,464
Equity in loss from discontinued operations (536) (1,581) (1,952)
Equity in loss on disposal of discontinued operations (7,081) -- --
- -----------------------------------------------------------------------------------------
Net income (loss) $(63,661) $ 41,614 $ 29,512
=========================================================================================
</TABLE>
See notes to condensed financial statements.
59
<PAGE> 60
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CONDENSED STATEMENTS OF CASH FLOWS
FoxMeyer Health Corporation (Parent Company) (In thousands of dollars)
===============================================================================
<TABLE>
<CAPTION>
For the years ended March 31,
--------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME (LOSS) $(63,661) $ 41,614 $ 29,512
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED (USED) BY
OPERATING ACTIVITIES:
Loss on common stock of National Steel Corporation -- -- 2,350
Net preferred dividend income from National Steel Corporation (3,329) (5,445) (7,655)
Equity in loss (income) of subsidiaries and affiliates 69,073 (42,832) (20,456)
Deferred tax provision (benefit) -- 397 (10,034)
Other non-cash charges (credits) (15,383) 1,149 220
Gain on securities -- (80) --
CASH PROVIDED (USED) BY WORKING CAPITAL ITEMS:
Receivables and other current assets (555) 43 (658)
Accounts payable and accrued liabilities (84) (1,540) 2,541
Net intercompany activity with subsidiaries 20,737 4,390 (14,253)
Funds transferred to National Steel Corporation for potential
environmental liabilities -- -- (10,000)
Other (520) (3,668) (2,620)
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES 6,278 (5,972) (31,053)
Cash flows from investing activities:
Investments in subsidiaries and affiliates (29,329) (998) (179)
Sale of marketable securities -- 1,029 44,672
Dividends received from subsidiaries and affiliates 10,000 7,971 6,353
Other -- -- 446
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES (19,329) 8,002 51,292
CASH FLOWS FROM FINANCING ACTIVITIES:
Dividends paid (4,180) (4,620) (5,060)
Mandatory redemption of preferred stock (4,236) (4,400) (4,399)
Note payable to FoxMeyer Corporation 2,300 (625) 1,500
Loan origination fees (367) -- (512)
Net borrowings under revolving credit facility -- 15,000 --
Proceeds from issuance of long-term debt 20,000 -- --
Repurchase of treasury stock -- (28,953) (1,251)
Stock options exercised 3,449 4,850 --
- -----------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES 16,966 (18,748) (9,722)
- -----------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and short-term investments 3,915 (16,718) 10,517
Cash and short-term investments, beginning of year 477 17,195 6,678
- -----------------------------------------------------------------------------------------------------
CASH AND SHORT-TERM INVESTMENTS, END OF YEAR $ 4,392 $ 477 $ 17,195
=====================================================================================================
</TABLE>
See notes to condensed financial statements.
60
<PAGE> 61
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
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 net operating loss carryforwards and
liabilities which were not deductible for federal income tax purposes when
accrued. The valuation allowances netted against the deferred tax assets at
March 31, 1996 and 1995 were $67.1 million and $62.3 million, respectively.
INTERCOMPANY RECEIVABLES (PAYABLES) 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 had a $30.0 million revolving credit agreement
with FoxMeyer Corporation that had an interest rate that was 2% above the
subsidiary's long-term borrowing rate (9.09% at March 31, 1996). At March 31,
1996, $30.0 million was outstanding under the agreement. The balance
outstanding under the agreement plus all accrued but unpaid interest was
forgiven by FoxMeyer Corporation on June 19, 1996.
NOTE B - DIVIDENDS RECEIVED
The Parent Company received cash dividends of $10.0 million, $8.0 million, and
$6.4 million from FoxMeyer Corporation for each of the fiscal years ended March
31, 1996, 1995 and 1994, respectively. The Parent Company did not receive cash
dividend payments from any other subsidiary during the three years ended March
31, 1996.
NOTE C - TAX SHARING PAYMENTS
Under tax sharing agreements with its subsidiaries, the Parent Company received
$1.7 million, $7.5 million and $7.7 million for each of the three years ended
March 31, 1996, 1995, and 1994, respectively.
NOTE D - SUPPLEMENTAL CASH FLOW INFORMATION
The following supplemental cash flow information is provided for interest and
income taxes paid and for noncash transactions for the three year ended March
31, 1996 (in thousands of dollars):
<TABLE>
<CAPTION>
======================================================================================
1996 1995 1994
------------------------------
<S> <C> <C> <C>
Interest paid $ 3,863 $ 3,285 $ 2,801
Income taxes paid -- 826 13
Noncash transactions:
Exchange of preferred stock for common stock -- -- 112,753
Exchange of treasury stock for FoxMeyer Corporation
common stock -- 80,010 --
Ben Franklin Retail Stores, Inc. common stock
distributed as a dividend 29,697 -- --
Payment of dividends in kind on preferred stock 15,319 13,200 5,389
======================================================================================
</TABLE>
61
<PAGE> 62
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
<TABLE>
==========================================================================================================
COL A COL B COL C
- ----------------------------------------------------------------------------------------------------------
ADDITIONS
BALANCE AT -----------------------------------------
BEGINNING OF CHARGED TO COSTS CHARGED TO OTHER
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS - DESCRIBE
==========================================================================================================
<S> <C> <C> <C>
YEAR ENDED MARCH 31, 1996
-------------------------
(THOUSANDS OF DOLLARS)
RESERVES DEDUCTED FROM ASSETS
Allowances for possible losses on trade
notes and accounts receivable $ 6,510 $ 21,885 $ --
Allowance for possible loss on
pre-bankruptcy receivable from Phar-Mor, Inc. 62,795 (1,385)(8) --
Reserve for inventory shrinkage 1,934 4,444 --
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 21,726 (11,867)(10) --
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)
Allowance for possible loss on
pre-bankruptcy receivable from Phar-Mor, Inc. 40,000 22,795 --
Reserve for inventory shrinkage 4,136 593 --
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 22,638 1,639 --
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 $ --
Allowance for possible loss on
pre-bankruptcy receivable from Phar-Mor, Inc. 40,000 -- --
Reserve for inventory shrinkage 3,058 1,816 --
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 21,823 628 2,023 (6)
<CAPTION>
===================================================================================
COL D COL E
- -----------------------------------------------------------------------------------
Deductions - Balance at End
DESCRIPTION Describe of Period
===================================================================================
<S> <C> <C>
YEAR ENDED MARCH 31, 1996
-------------------------
(THOUSANDS OF DOLLARS)
RESERVES DEDUCTED FROM ASSETS
Allowances for possible losses on trade
notes and accounts receivable $4,855 (7) $23,540
Allowance for possible loss on
pre-bankruptcy receivable from Phar-Mor, Inc. 61,410 (9) --
Reserve for inventory shrinkage 1,342 (1) 5,036
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 2,654 (5) 7,205
YEAR ENDED MARCH 31, 1995
-------------------------
(THOUSANDS OF DOLLARS)
RESERVES DEDUCTED FROM ASSETS
Allowances for possible losses on trade
notes and accounts receivable $6,638 (3) $ 6,510
Allowance for possible loss on
pre-bankruptcy receivable from Phar-Mor, Inc. -- 62,795
Reserve for inventory shrinkage 2,795 (1) 1,934
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 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 $5,465 (3) $15,133
Allowance for possible loss on
pre-bankruptcy receivable from Phar-Mor, Inc. -- 40,000
Reserve for inventory shrinkage 738 (1) 4,136
RESERVES SHOWN ELSEWHERE
Long-term reserves related to facility sales,
shutdowns and discontinued operations 1,836 (5) 22,638
</TABLE>
62
<PAGE> 63
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
FOR THE THREE YEARS ENDED MARCH 31, 1996
Note 1 - Consists principally of inventory write-offs 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 - Reclassified from short-term liabilities
Note 7 - Principally relates to doubtful accounts which have been written off,
net of the effects of discontinued operations and the spin-off of Ben
Franklin Retail Stores, Inc.
Note 8 - Recovery on Phar-Mor, Inc. receivable.
Note 9 - Write-off of remaining balance of Phar-Mor, Inc. receivable.
Note 10 - Principally the result of the settlement of certain unresolved
issues relating to the sale of The Permian Corporation in 1992. As a
result of the settlement, all outstanding claims were settled and the
registrant was released from any further liability associated with the
sale. Previously established reserves related to these claims were
released.
63
<PAGE> 64
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
2-56083, 2-91622, 2-95028, 33-16919, 33-27060, 33-27719 and 33-56097 on Form
S-8, No. 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 report
dated June 28, 1996, which report expresses 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, 1996.
Deloitte & Touche LLP
Dallas, Texas
July 1, 1996
64
<PAGE> 65
FOXMEYER HEALTH CORPORATION AND SUBSIDIARIES
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
3-A Certificate of Amendment of Restated Certificate of Incorporation of the
registrant dated October 12, 1994. (Filed as Exhibit 3-A to the
registrant's Annual Report on Form 10-K for the fiscal year ended March
31,1995 and incorporated herein by reference).
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. (Filed as Exhibit 3-D to the registrant's
Annual Report on Form 10-K for the fiscal year ended March 31, 1995 and
incorporated herein by reference.)
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 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-E 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-F 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-G 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.)
</TABLE>
65
<PAGE> 66
<TABLE>
<CAPTION>
<S> <C>
10-H 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 fiscal year
ended March 31, 1992 and incorporated herein by reference.)
10-I 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-J 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-K 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-L 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-M 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-N 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-O 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-P 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-Q 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-R 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.)
</TABLE>
66
<PAGE> 67
<TABLE>
<CAPTION>
<S> <C>
10-S Employment Agreement, dated as of February 27, 1995, between the
registrant and Abbey J. Butler. (Filed as Exhibit 10-AF to the
registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-T Employment Agreement, dated as of February 27, 1995, between the
registrant and Melvyn J. Estrin. (Filed as Exhibit 10-AG to the
registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-U Employment Agreement, dated as of February 27, 1995, between FoxMeyer
Corporation and Abbey J. Butler. (Filed as Exhibit 10-AH to the
registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-V Employment Agreement, dated as of February 27, 1995, between FoxMeyer
Corporation and Melvyn J. Estrin. (Filed as Exhibit 10-AI to the
registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-W 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. . (Filed as Exhibit 10-AN to the registrant's Annual Report on
Form 10-K for the fiscal year ended March 31, 1995 and incorporated herein
by reference.)
10-X First Amendment to FoxMeyer Corporation Amended and Restated Supplemental
Savings Plan, dated as of January 1, 1995. (Filed as Exhibit 10-AQ to the
registrant's Annual Report on Form 10-K for the fiscal year ended March
31, 1995 and incorporated herein by reference.)
10-Y Second Amendment to the FoxMeyer Corporation Employees' Savings and
Profit Sharing Program, dated as of March 31, 1995. (Filed as Exhibit
10-AR to the registrant's Annual Report on Form 10-K for the fiscal year
ended March 31, 1995 and incorporated herein by reference.)
10-Z Sixth Amendment to Loan Agreement dated as of September 6, 1995 by and
among the registrant, the Banks identified therein and Bank Paribas as
agents for the Banks. (Filed as Exhibit 10-D to the registrant's
Quarterly Report in Form 10-Q for the quarter ended September 30, 1995 and
incorporated herein by reference.)
10-AA Credit Agreement dated as of September 6, 1995 between the registrant and
Credit Lyonnais New York Branch. (Filed as 10-E to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1995 and
incorporated herein by reference.)
10-AB Employment Agreement dated as of February 1, 1996 between FoxMeyer
Corporation and Edward L. Massman.*
10-AC Employment Agreement dated as of March 1, 1996 between FoxMeyer
Corporation and William L. Estes.*
10-AD Employment Agreement dated as of April 1, 1996 between FoxMeyer
Corporation and Kevin J. Rogan.*
10-AE Seventh Amendment to Loan Agreement dated as of April 1, 1996 by and
among the registrant, the Banks identified therein and Banque Paribas, as
agent for Banks.*
10-AF Eighth Amendment to Loan Agreement dated as of April 8, 1996 by and
among the registrant, the Banks identified therein and Banque Paribas, as
agent for Banks.*
10-AG Ninth Amendment to Loan Agreement dated as of May 6, 1996 by and among
the registrant, the Banks identified therein and Banque Paribas, as agent
for Banks.*
</TABLE>
67
<PAGE> 68
<TABLE>
<CAPTION>
<S> <C>
10-AH Tenth Amendment to Loan Agreement dated as of May 7, 1996 by and among
the registrant, the Banks identified therein and Banque Paribas, as agent
for Banks.*
10-AI First Amendment to Credit Agreement, dated as of December 31, 1995,
between the registrant and Credit Lyonnais New York Branch.*
10-AJ Second Amendment to Credit Agreement, dated as of May 7, 1996, between
the registrant and Credit Lyonnais New York Branch.*
10-AK Credit Agreement dated as of June 19, 1996 among FoxMeyer Drug Company,
FoxMeyer Corporation, Health Mart, Inc., Healthcare Transportation System,
Inc., Merchandise Coordinator Services Corporation, the Lenders party
thereto, General Electric Capital Corporation, as Administrative Agent,
and The CIT Group/Business Credit, Inc., as Co-Agent.*
10-AL Receivables Purchase and Servicing Agreement dated as of June 19, 1996
among FoxMeyer Funding, Inc., Redwood Receivables Corporation, FoxMeyer
Drug Company and General Electric Capital Corporation, as Operating Agent
and Collateral Agent.*
10-AM Receivables Transfer Agreement dated as of June 19, 1996 between
FoxMeyer Drug Company and FoxMeyer Funding, Inc.*
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 1995 for FoxMeyer Employee's Savings and Profit
Sharing Program.*
</TABLE>
- --------------
* Filed herewith
68
<PAGE> 1
EXHIBIT 10-AB
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
February 1, 1996, is entered into by and between FoxMeyer Corporation, a
Delaware corporation (the "COMPANY"), and Edward L. Massman ("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 February 1,
1998 (the "TERM OF EMPLOYMENT").
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Senior Vice President and Chief Financial Officer.
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.
- 1 -
<PAGE> 2
b. Benefits, Incentives and Perquisites. Executive
shall be entitled to participate in the incentive, stock option (see
Schedule A) 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 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) misconduct or negligence in the performance
by Executive of his duties and responsibilities hereunder;
(ii) the 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;
- 2 -
<PAGE> 3
(iii) the failure by Executive to substantially
achieve agreed upon goals and objectives;
(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"). 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
Corporation, or (ii) the sale, transfer or other disposition, in one or more
related transactions, by the Company or FoxMeyer Corporation of all or
substantially all of the assets of the Company or FoxMeyer 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)
- 3 -
<PAGE> 4
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, Executive's rights contained in Section
5(d)(1)(2) and (3) shall only vest if Executive agrees to remain 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 in any line of
business in which the Company is actively engaged in including without
limitation, pharmaceutical wholesaling, pharmaceutical mail order, prescription
benefit management,
- 4 -
<PAGE> 5
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 date. Reference to the Company in
Sections 6 and 7 above shall be deemed to include FoxMeyer 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.
- 5 -
<PAGE> 6
14. No Funding. The right of Executive under this Agreement shall
be that of a general creditor of the Company and Executive shall have no
preferred claims on, or any beneficial ownership in, the assets of the Company.
15. Entire Agreement. Except as provided in Section 5(d) hereof,
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 Health Corporation
1220 Senlac Drive
Carrollton, TX 75006
Attention: Abbey J. Butler
Chief Executive Officer
b. if to Executive:
Edward L. Massman
7523 Marquette Street
Dallas, TX 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.
- 6 -
<PAGE> 7
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.
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
FOXMEYER CORPORATION
By:
-----------------------------------------
Abbey J. Butler
Chief Executive Officer
-----------------------------------------
Edward L. Massman
- 7 -
<PAGE> 8
SCHEDULE A
The Company agrees to grant Executive 25,000 stock options of the
Company's stock at the next Board of Directors meeting. The exercise price
will be as of the date of such meeting.
- 8 -
<PAGE> 1
EXHIBIT 10-AC
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
March 1, 1996, is entered into by and between FoxMeyer Corporation, a Delaware
corporation (the "COMPANY"), and William L. Estes ("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 February 28,
1998 (the "TERM OF EMPLOYMENT").
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Chief Operating Officer of the Company. Executive shall
have such duties, responsibilities and authority as may, from time to time, be
assigned to Executive by either the President or the 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 $27,084.00 (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.
EMPLOYMENT AGREEMENT PAGE 1
<PAGE> 2
b. Benefits, Incentives and Perquisites.
(i) 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 disability and
business travel accident insurance during the
term of this Agreement.
(ii) Executive shall be entitled to a bonus of
$650,000.00 provided that Executive has been
continuously employed during this Agreement
and is employed by Company as of February 28,
1998. The bonus shall be paid no later than
March 31, 1998.
(iii) If an Acquisition (defined below) closes
prior to February 28, 1997, then Executive
shall be paid a $650,000.00 lump sum bonus
within 30 days of the close of the
Acquisition. If this Acquisition bonus is
paid, Executive's right to receive the
payment described in Section 4(b)(ii) above
shall terminate.
"Acquisition" is defined as 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) purchasing more than fifty percent
(50%) of the then issued and outstanding
shares of common stock of the Company,
FoxMeyer Drug Company or FoxMeyer Health
Corporation, or (ii) the sale, transfer or
other disposition, in one or more related
transactions, by the Company, FoxMeyer Drug
Company or FoxMeyer Health Corporation of all
or substantially all of the assets of the
Company or FoxMeyer Health Corporation to an
unaffiliated party.
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
EMPLOYMENT AGREEMENT PAGE 2
<PAGE> 3
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) misconduct or 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
achieve agreed upon reasonable goals and
objectives;
(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 (i) the Termination Without Cause of
Executive's employment, (ii) Employee has not accepted employment with
FoxMeyer Health Corporation; and (iii) provided that Executive
complies with Sections 6 and 7 hereof, the Company agrees to provide
Executive with:
EMPLOYMENT AGREEMENT PAGE 3
<PAGE> 4
(i) 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.
(ii) 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.
(iii) 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.
Notwithstanding the foregoing, to the extent that Executive's
severance rights provided for in his employment letter dated December
20, 1993 are greater than provided herein, the employment letter shall
govern but will not be in addition to the rights granted in this
Agreement. Executive's employment letter shall remain in effect
during the entire term of his employment with the Company.
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 an Acquisition, (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)) or (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, Executive's rights contained in
Section 5(d)(i)(ii) and (iii) shall only vest if Executive agrees to
remain employed by the Company or one of its subsidiaries 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, and may
develop, confidential information (including information he may have
developed) 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
EMPLOYMENT AGREEMENT PAGE 4
<PAGE> 5
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, whether or not developed by him, 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 or
expiration 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 (or such shorter period of this Agreement if it is Terminated Without
Cause), 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 any 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 date. This
Section 7 shall survive any termination for of this Agreement any reason other
than termination by the Company without cause and shall continue to bind
Executive in accordance with its term. Reference to the Company in Sections 6
and 7 above shall be deemed to include FoxMeyer Health Corporation and its
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
EMPLOYMENT AGREEMENT PAGE 5
<PAGE> 6
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.
15. Entire Agreement. Except as provided in Section 5(d) hereof,
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.
EMPLOYMENT AGREEMENT PAGE 6
<PAGE> 7
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: Vice President - Human Resources & Administration
b. if to Executive:
William L. Estes
370 Oak Trail
Double Oak, Texas 75067
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.
EMPLOYMENT AGREEMENT PAGE 7
<PAGE> 8
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement
on the date and year first above written.
FOXMEYER CORPORATION
By:
---------------------------------------
Abbey J. Butler
Chief Executive Officer
---------------------------------------
William L. Estes
<PAGE> 1
EXHIBIT 10-AD
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "AGREEMENT"), dated and effective as of
April 1, 1996, 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 April 1,
1998 (the "TERM OF EMPLOYMENT").
3. Position and Responsibilities. The Company hereby employs
Executive to serve as Senior Vice President, Secretary and General Counsel.
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 $15,833.34 the same, as it may be
adjusted from time to time, is referred to herein as the "MONTHLY BASE
SALARY"). During the term of this Agreement, the 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.
- 1 -
<PAGE> 2
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 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) misconduct or negligence in the performance
by Executive of his duties and responsibilities hereunder;
(ii) the 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;
- 2 -
<PAGE> 3
(iii) the failure by Executive to substantially
achieve agreed upon reasonable goals and objectives;
(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"). In the event of (i) the Termination Without
Cause of Executive's employment, (ii) Executive has not accepted employment
with FoxMeyer Health Corporation, and (iii) 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, FoxMeyer Drug Company or
FoxMeyer Health Corporation, or (ii) the sale, transfer or other disposition,
in one or more related transactions, by the Company, FoxMeyer Drug Company or
FoxMeyer Health Corporation of all or substantially all of the assets of the
Company, FoxMeyer Drug Company or FoxMeyer Health Corporation to an
unaffiliated party, and any one of the following: (A) any
- 3 -
<PAGE> 4
termination of Executive's employment for any reason (other than death,
Disability or the acts referred to in Sections 5(c)(iv) and (v)), or (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, Executive's rights contained in Section
5(d)(1)(2) and (3) shall only vest if Executive agrees to remain employed by
the Company or one of its subsidiaries or its successor for 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 (or such shorter period if this Agreement is Terminated Without Cause
by the Company), 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 any line of
business in which the Company
- 4 -
<PAGE> 5
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 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
- 5 -
<PAGE> 6
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.
15. Entire Agreement. Except as provided in Section 5(d) hereof,
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, TX 75006
Attention: Abbey J. Butler
Chief Executive Officer
b. if to Executive:
Kevin J. Rogan
3605 Rosedale Avenue
Dallas, TX 75205
- 6 -
<PAGE> 7
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.
21. Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date and year first above written.
FOXMEYER CORPORATION
By:
-----------------------------------------
Abbey J. Butler
Chief Executive Officer
-----------------------------------------
Kevin J. Rogan
- 7 -
<PAGE> 1
EXHIBIT 10-AE
April 1, 1996
FoxMeyer Health Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attn: Mr. Grady E. Schleier
Vice President and Treasurer
Re: Loan Agreement dated as of January 13, 1994, by and among
FoxMeyer Health Corporation (f/k/a National Intergroup, Inc.; the "Borrower"),
the Banks who are parties thereto (the "Banks") and Banque Paribas as Agent for
such Banks ("Agent"), as amended (the "Loan Agreement"); Seventh Amendment to
Loan Agreement
Dear Mr. Schleier:
Reference is made to the definition of the term "Maturity Date"
contained in Section 1.2 of the Loan Agreement which provides that "Maturity
Date" means April 1, 1996. All defined terms used herein but not defined
herein shall have the meanings therefor set forth in the Loan Agreement.
You have requested that the Banks extend the Maturity Date of the
Loans to April 8, 1996. In accordance with your request, please be advised
that the definition of the term "Maturity Date" in Section 1.2 of the Loan
Agreement is amended and restated to read in its entirety as follows:
"'Maturity Date'. Means April 8, 1996."
The amendment contained in this letter shall be limited strictly as
written and shall not be deemed to constitute an amendment or waiver of, or any
consent to noncompliance with, any term or provision of the Loan Agreement
except as expressly set forth herein. Except for the amendment expressly set
forth herein, all terms and provisions of the Loan Agreement shall remain
unchanged and in full force and effect and are hereby ratified and confirmed.
The Agent and the Banks shall not have any obligation whatsoever to further
extend the Maturity Date or to amend the Loan Agreement or any other Loan
Document in any respect.
<PAGE> 2
FoxMeyer Health Corporation
April 1, 1996
Page 2
If all of the terms and provisions of this letter are acceptable to
the Borrower, please indicate the Borrower's agreement to such terms and
provisions by executing a duplicate copy of this letter in the space provided
below and returning the same to the Agent.
Sincerely,
BANQUE PARIBAS
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By:
-----------------------------------------
Name:
---------------------------------------
Title:
--------------------------------------
AGREED TO AND ACCEPTED
AS OF APRIL 1, 1996:
FOXMEYER HEALTH CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 1
EXHIBIT 10-AF
EIGHTH AMENDMENT TO LOAN AGREEMENT
This EIGHTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into as of April 8, 1996, 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").
. 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, (iv) Fourth Amendment to
Loan Agreement dated as of December 19, 1994, (v) Fifth Amendment to Loan
Agreement dated as of March 22, 1995, and (vi) Sixth Amendment to Loan
Agreement dated as of September 6, 1995, and (vii) Seventh Amendment to Loan
Agreement dated as of April 1, 1996 (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.
a. 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").
b. Borrower has, effective as of October 12, 1994, changed its
name from "National Intergroup, Inc." to "FoxMeyer Health Corporation."
c. 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 as amended by that certain First
Amendment to Amended and Restated Pledge and Security Agreement dated as of
March 22, 1995, and as such Amended and Restated Pledge and Security Agreement
is concurrently herewith being further amended by that certain Second Amendment
to Amended and Restated Pledge and Security Agreement dated as of April 8, 1996
(the "Security Agreement Amendment") (as the same may be further amended,
renewed, extended, restated or otherwise modified from time to time, the
"Security Agreement"), which Security Agreement presently covers, in part, 207
shares of common stock of FoxMeyer Corporation ("FoxMeyer"), of which 56 shares
of common stock of FoxMeyer were most recently pledged by Borrower to Agent on
February 26, 1996.
d. Borrower, Agent and Banks now desire to further amend
the Agreement as herein set forth to, among other things, extend the Maturity
Date of the Loan.
<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:
. 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).
i. Amendments to Section 1.2 of the Agreement.
Effective as of the date hereof, the definitions of the terms "Maturity Date"
and "Eurodollar Rate Margin" in Section 1.2 of the Agreement are hereby amended
and restated to read in their entirety as follows:
"Maturity Date. Means May 6, 1996."
"Eurodollar Rate Margin. Means two and three-
quarters of one percent (2.75%)."
ii. 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.
iii. Conditions Precedent. The effectiveness of this
Amendment is subject to the satisfaction of each 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) Security Agreement Amendment. The Security
Agreement Amendment executed by Borrower confirming the prior pledge of an
additional 56 shares of common stock of FoxMeyer;
(iii) Financing Statement. A UCC-1 financing
statement covering all of the Collateral executed by Borrower (the "Financing
Statement");
(iv) Opinion of Counsel. A favorable opinion of
legal counsel to Borrower as to (A) the authorization, execution and delivery
of this Amendment, the Security Agreement Amendment and the Financing Statement
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
<PAGE> 3
(2) Borrower has the corporate power and
authority to execute, deliver and perform the Agreement (as amended by this
Amendment), the Security Agreement (as amended by the Security Agreement
Amendment), the Financing Statement and the other Loan Documents to which it is
a party and the execution, delivery and performance by Borrower thereof 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 Agreement (as amended by this Amendment),
the Security Agreement (as amended by the Security Agreement Amendment), the
Financing Statement 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 by
Borrower of the Agreement (as amended by this Amendment), the Security
Agreement (as amended by the Security Agreement Amendment), the Financing
Statement or the other Loan Documents to which Borrower is a party.
(6) The 207 shares of common stock of FoxMeyer
pledged pursuant to the Security Agreement (as amended by the Security
Agreement Amendment) 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, the Agent has a valid and fully perfected,
first priority Lien in and to such shares as security for the payment and
performance of the Obligations 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) Extension. An extension fee paid by Borrower
to Agent in the amount of $37,500 (to be shared by Banks based upon their Pro
Rata Shares); and
3
<PAGE> 4
(vi) 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 Default or Event of Default shall have occurred
and be continuing (after giving effect to Paragraph 2 of this Amendment).
(d) All corporate proceedings taken in connection with
the transactions contemplated by this Amendment, the Security Agreement
Amendment, the Financing Statement 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.
iv. 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. Without limiting the
generality of the foregoing, Borrower hereby represents and warrants to Agent
and Banks that the chief executive office and principal place of business of
Borrower are located in Dallas County, Texas. In addition, Borrower hereby
represents and warrants to Agent and Banks that no default or event of default
has occurred and is continuing with respect to the Credit Lyonnais Loan.
v. 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.
vi. 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.
vii. 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.
4
<PAGE> 5
viii. Agreement Remains in Effect; No Waiver. Except as
expressly provided herein, all terms and provisions of Agreement and the other
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.
ix. 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).
x. No Waiver. This Amendment is limited strictly as
written and shall not constitute a waiver of, or any consent to noncompliance
with, any term or provision of the Agreement or any other Loan Document.
Without limiting the generality of the foregoing, this Amendment shall not
constitute a waiver of, or any consent to noncompliance with, any term or
provision of the Agreement relating to any Borrowing Base Deficiency (if any).
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:
------------------------------------------
Name: Grady E. Schleier
Title: Vice President and Treasurer
AGENT:
-----
BANQUE PARIBAS, as Agent for Banks
By:
------------------------------------------
Name: Kenneth E. Moore, Jr.
Title: Vice President
By:
------------------------------------------
Name: Pierre-Jean de Filippis
Title: General Manager
5
<PAGE> 6
BANKS:
-----
BANQUE PARIBAS
By:
------------------------------------------
Name: Kenneth E. Moore, Jr.
Title: Vice President
By:
------------------------------------------
Name: Pierre-Jean de Filippis
Title: General Manager
CREDIT LYONNAIS NEW YORK BRANCH
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
6
<PAGE> 1
EXHIBIT 10-AG
May 6, 1996
FoxMeyer Health Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attn: Mr. Grady E. Schleier
Vice President and Treasurer
Re: Loan Agreement dated as of January 13, 1994, by and among
FoxMeyer Health Corporation (f/k/a National Intergroup, Inc.; the "Borrower"),
the Banks who are parties thereto (the "Banks") and Banque Paribas as Agent
for such Banks ("Agent"), as amended (the "Loan Agreement"); Ninth Amendment
to Loan Agreement
Dear Mr. Schleier:
Reference is made to the definition of the term "Maturity Date"
contained in Section 1.2 of the Loan Agreement which provides that "Maturity
Date" means May 6, 1996. All defined terms used herein but not defined herein
shall have the meanings therefor set forth in the Loan Agreement.
You have requested that the Banks extend the Maturity Date of the
Loans to May 7, 1996. In accordance with your request, please be advised that
the definition of the term "Maturity Date" in Section 1.2 of the Loan Agreement
is amended and restated to read in its entirety as follows:
"'Maturity Date'. Means May 7, 1996."
The amendment contained in this letter shall be limited strictly as
written and shall not be deemed to constitute an amendment or waiver of, or any
consent to noncompliance with, any term or provision of the Loan Agreement
except as expressly set forth herein. Except for the amendment expressly set
forth herein, all terms and provisions of the Loan Agreement shall remain
unchanged and in full force and effect and are hereby ratified and confirmed.
The Agent and the Banks shall not have any obligation whatsoever to further
extend the Maturity Date or to amend the Loan Agreement or any other Loan
Document in any respect.
<PAGE> 2
FoxMeyer Health Corporation
May 6, 1996
Page 2
If all of the terms and provisions of this letter are acceptable to
the Borrower, please indicate the Borrower's agreement to such terms and
provisions by executing a duplicate copy of this letter in the space provided
below and returning the same to the Agent.
Sincerely,
BANQUE PARIBAS
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By:
------------------------------------------
Name:
----------------------------------------
Title:
---------------------------------------
AGREED TO AND ACCEPTED
AS OF MAY 6, 1996:
FOXMEYER HEALTH CORPORATION
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10-AH
TENTH AMENDMENT TO LOAN AGREEMENT
This TENTH AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into as of May 7, 1996, 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").
. 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, (iv) Fourth Amendment
to Loan Agreement dated as of December 19, 1994, (v) Fifth Amendment to Loan
Agreement dated as of March 22, 1995, and (vi) Sixth Amendment to Loan
Agreement dated as of September 6, 1995, (vii) Seventh Amendment to Loan
Agreement dated as of April 1, 1996, (viii) Eighth Amendment to Loan Agreement
dated as of April 8, 1996, and (ix) Ninth Amendment to Loan Agreement dated as
of May 6, 1996 (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.
a. 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").
b. Borrower has, effective as of October 12, 1994, changed its
name from "National Intergroup, Inc." to "FoxMeyer Health Corporation."
c. 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 as amended by that certain First
Amendment to Amended and Restated Pledge and Security Agreement dated as of
March 22, 1995, and as such Amended and Restated Pledge and Security Agreement
is concurrently herewith being further amended by that certain Second Amendment
to Amended
<PAGE> 2
and Restated Pledge and Security Agreement dated as of April 8, 1996 (the
"Security Agreement Amendment") (as the same may be further amended, renewed,
extended, restated or otherwise modified from time to time, the "Security
Agreement"), which Security Agreement presently covers, in part, 207 shares of
common stock of FoxMeyer Corporation ("FoxMeyer"), of which 56 shares of common
stock of FoxMeyer were most recently pledged by Borrower to Agent on February
26, 1996.
d. Borrower, Agent and Banks now desire, subject to the
terms and provisions of this Amendment, to further amend the Agreement as
herein set forth to, among other things, extend the Maturity Date of the Loan.
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:
. 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).
i. Amendments to the Agreement.
(a) Effective as of the date hereof, the term "Acceptable
Commitment Letter" and the definition thereof are hereby added to Section 1.2
of the Agreement, which term and definition shall appear in alphabetical order
in such Section 1.2 and shall read in their entirety as follows:
"'Commitment Letter' means the commitment letters
dated May 3, 1996, executed by FoxMeyer and General Electric Capital
Corporation ("GECC") and by FoxMeyer and GECC's affiliates, copies of which
have been delivered to Agent, which contemplate the refinancing of FoxMeyer's
existing bank indebtedness and the distribution by FoxMeyer to Borrower of
certain assets as more specifically provided therein."
(b) Effective as of the date hereof, the term "Distributed Assets"
and the definition thereof are hereby added to Section 1.2 of the Agreement,
which term and definition shall appear in alphabetical order in such Section
1.2 and shall read in their entirety as follows:
"'Distributed Assets' means all of the assets that
are distributed from FoxMeyer to Borrower after May 3, 1996 as described more
particularly in and contemplated by the Commitment Letter."
2
<PAGE> 3
(c) Effective as of the date hereof, the definition of the term
"Maturity Date" in Section 1.2 of the Agreement is hereby amended and restated
to read in its entirety as follows:
"'Maturity Date'. Means June 30, 1996."
(d) Effective as of the date hereof, a new Section 6.1(o) is
hereby added to the Agreement, which Section 6.1(o) shall read in its entirety
as follows:
"(o) Distributed Assets. The Distributed Assets
(i) shall be distributed from FoxMeyer to Borrower on or before June 30, 1996,
(ii) shall be acquired by Borrower free and clear of any Lien (other than Liens
relating to equipment leases, not to exceed $100,000 in the aggregate), (iii)
shall include at least 1,676,300 shares of common stock of SysteMed, Inc. (the
"SysteMed Shares") having a fair market value of approximately $5,000,000 and
(iv) shall include other assets such that the aggregate book value of all
Distributed Assets shall be at least $60,000,000 as of March 31, 1996.
Borrower shall use its best efforts to promptly sell all SysteMed Shares which
are distributed to it by FoxMeyer as a part of the Distributed Assets at the
price or prices quoted on the national stock exchange on which such shares are
listed and, concurrently with such sale, shall pay all proceeds of such sale to
Agent for application against (and, if applicable, as a prepayment of) the
Loans. In addition, Borrower may sell such other of the Distributed Assets
(other than the SysteMed Shares) and, concurrently with each such sale of
assets, shall pay all proceeds of such sale to Agent for application against
(and, if applicable, as a prepayment of) the Loans; provided, however, that up
to 40% of the proceeds of such sales not to exceed an aggregate amount equal to
the remainder of $5,000,000 minus the New Loan Amount (as hereinafter defined)
may be retained by Borrower. Notwithstanding anything to the contrary
contained in Section 6.2(g), Borrower shall not encumber or otherwise allow to
be created or exist any Lien upon the Distributed Assets (other than Liens in
favor of Agent) or any Margin Stock except for Distributed Assets, other than
the SysteMed Shares, constituting Margin Stock to the minimum extent (and only
to such extent) necessary to secure a new loan or loans to Borrower in an
amount not to exceed the remainder of $5,000,000 minus the proceeds of all
sales of Distributed Assets which have not been paid by Agent for application
against the Loans (the "New Loan Amount"). Borrower shall, on or before June
15, 1996, deliver to Agent a written plan of liquidation with respect to all or
a portion of the Distributed Assets that will generate sufficient proceeds to
repay the Loans in full."
ii. 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
3
<PAGE> 4
the Agreement shall be deemed to refer the Agreement as amended by this
Amendment.
iii. Conditions Precedent. The effectiveness of
this Amendment is subject to the satisfaction of each 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) Opinion of Counsel. A favorable opinion of legal
counsel to Borrower as to (A) the authorization, execution and delivery of this
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) Borrower has the corporate power and
authority to execute, deliver and perform the Agreement (as amended by this
Amendment) and the other Loan Documents to which it is a party and the
execution, delivery and performance by Borrower thereof 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 Agreement (as amended by this 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,
4
<PAGE> 5
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 by
Borrower of the Agreement (as amended by this Amendment) or the other Loan
Documents to which Borrower is a party.
(iii) Extension. An extension fee paid by Borrower to
Agent in the amount of $35,475 (to be shared by Banks based upon their Pro Rata
Shares); and
(iv) 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 Default or Event of Default shall have occurred and be
continuing (after giving effect to Paragraph 2 of this Amendment).
(d) All corporate proceedings taken in connection with the
transactions contemplated by this 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.
iv. 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 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 (as amended by this Amendment), the Notes and the other Loan
Documents are and remain legal, valid,
5
<PAGE> 6
binding and enforceable obligations of Borrower. In addition, Borrower hereby
represents and warrants to Agent and Banks that no default or event of default
has occurred and is continuing with respect to the Credit Lyonnais Loan.
Borrower further hereby represents and warrants to Agent and Banks that the
only assets and property in which Liens have been granted to secure the Credit
Lyonnais Loan are those assets and property (or permitted substitutions
thereof) granted at the time of the original closing of the Credit Lyonnais
Loan Agreement.
v. 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.
vi. 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.
vii. 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.
viii. Agreement Remains in Effect; No Waiver. Except as
expressly provided herein, all terms and provisions of Agreement and the other
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.
ix. 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).
6
<PAGE> 7
x. No Waiver. This Amendment is limited strictly as
written and shall not constitute a waiver of, or any consent to noncompliance
with, any term or provision of the Agreement or any other Loan Document.
Without limiting the generality of the foregoing, this Amendment shall not
constitute a waiver of, or any consent to noncompliance with, any term or
provision of the Agreement relating to any Borrowing Base Deficiency (if any).
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:
--------------------------------------------
Name: Grady E. Schleier
Title: Vice President and Treasurer
AGENT:
-----
BANQUE PARIBAS, as Agent for Banks
By:
--------------------------------------------
Name: Kenneth E. Moore, Jr.
Title: Vice President
By:
--------------------------------------------
Name: Pierre-Jean de Filippis
Title: General Manager
7
<PAGE> 8
BANKS:
-----
BANQUE PARIBAS
By:
--------------------------------------------
Name: Kenneth E. Moore, Jr.
Title: Vice President
By:
--------------------------------------------
Name: Pierre-Jean de Filippis
Title: General Manager
CREDIT LYONNAIS NEW YORK BRANCH
By:
--------------------------------------------
Name:
------------------------------------------
Title:
-----------------------------------------
8
<PAGE> 1
EXHIBIT 10-AI
FIRST AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT is entered into as of December 31, 1995, between
FOXMEYER HEALTH CORPORATION, a Delaware corporation ("BORROWER"), and CREDIT
LYONNAIS NEW YORK BRANCH, a duly licensed branch under the New York Banking Law
of a foreign banking corporation organized under the Laws of the Republic of
France ("LENDER").
Borrower and Lender are party to the Credit Agreement (as renewed,
extended, and amended, the "CREDIT AGREEMENT") dated as of September 6, 1995,
providing for $20,000,000 term loan. Borrower and Lender have agreed, upon the
following terms and conditions, to amend the Credit Agreement to exclude
certain non-cash charges from EBITDA solely (a) for the purpose of calculating
Collateral Value and (b) for the period from December 31, 1995, through but not
after May 6, 1996. Accordingly, for valuable and acknowledged consideration,
Borrower and Lender agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
amendment (a) terms defined in the Credit Agreement have the same meanings when
used in this amendment and (b) references to "SECTIONS," "SCHEDULES," and
"EXHIBITS" are to the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENTS. The Credit Agreement is amended as follows
effective as of the date of this amendment. Existing provisions in the Credit
Agreement that are amended in this amendment are marked to reflect deletions of
text by strikeout and additions of new text by double underline. New
provisions are not so marked.
(a) CLAUSE (A) in the definition of the term COLLATERAL
VALUE in SECTION 1.1 is entirely amended as follows:
(a) For the FoxMeyer Stock and as of the last day
of each fiscal quarter of FoxMeyer Corporation, the product of
(i) 500% of FoxMeyer Corporation's consolidated EBITDA (plus
-- only for the purposes of this calculation, only for the
period from December 31, 1995, through but not after May 6,
1996, and only up to $41,500,000 -- FoxMeyer Corporation's
consolidated non-cash charges) for the four-fiscal quarters
ending on that last day times (ii) a fraction with (A) the
number of shares of FoxMeyer Stock subject to a Lender Lien as
the numerator and (B) the total number of shares of issued and
outstanding FoxMeyer Stock as the denominator.
(b) EXHIBIT C-4 is entirely amended in the form of -- and
all references in the Loan Documents to EXHIBIT C-4 are in the future
to -- the attached AMENDED EXHIBIT C-4.
3. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective
until Lender receives (a) counterparts of this amendment executed by each party
listed below and (b) a $50,000 amendment fee payable to Lender.
4. CONDITIONS SUBSEQUENT. Borrower covenants and agrees with
Lender to provide to Lender (a) by no later than April 8, 1996, either an
amendment or a waiver under the Banque Paribas Facility, executed by at least
Borrower as Borrower, Lender and Banque Paribas as Banks, and Banque Paribas as
Agent, for the purposes of, among other things, extending the final maturity
date under that facility to May 6, 1996, and (b) by no later than April 5,
1996, either an amendment or waiver under the FoxMeyer Corporation Facility
that is acceptable to Lender.
5. RATIFICATIONS. Borrower (a) ratifies and confirms all
provisions of the Loan Documents as amended by this amendment, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed, or
assigned to Lender under the Loan Documents (as they may have been renewed,
extended, and amended) are not released, reduced, or otherwise adversely
affected by this amendment and continue to guarantee, assure, and secure full
payment and performance of the present and future Obligation, and (c) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file, and
record such additional documents, and certificates as Lender may request in
order to create, perfect, preserve, and protect those guaranties, assurances,
and Liens.
6. REPRESENTATIONS. Borrower represents and warrants to Lender
that as of the date of this amendment (a) all representations and warranties in
the Loan Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii) the
facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement, (b) no Material-Adverse
Event, Default or Potential Default exists, and (c) the consent or approval of
Hamilton Morgan, L.L.C., to this amendment is not required under any
circumstances, including, without limitation, for the continued effectiveness
of the Security Agreement dated as of September 6, 1995, executed by Hamilton
Morgan, L.L.C., as Pledgor, for the benefit of Lender as Secured Party.
<PAGE> 2
7. MISCELLANEOUS. All references in the Loan Documents to the
"Credit Agreement" refer to the Credit Agreement as amended by this amendment.
This amendment is a "Loan Document" referred to in the Credit Agreement, and
the provisions relating to Loan Documents in SECTIONS 1 and 11 are incorporated
in this amendment by reference. Except as specifically amended and modified in
this amendment, the Credit Agreement is unchanged and continues in full force
and effect. This amendment may be executed in any number of counterparts with
the same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one and the same
instrument. This amendment binds and inures to each of the undersigned and
their respective successors and permitted assigns, subject to SECTION 11.12.
THIS AMENDMENT AND THE LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO UNWRITTEN ORAL
AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first stated above.
FOXMEYER HEALTH CORPORATION, CREDIT LYONNAIS, NEW YORK BRANCH,
as Borrower as Lender
By By
----------------------------------- --------------------------------------
Grady E. Schleier, Vice President (Name)
and Treasurer ----------------------------------
(Title)
---------------------------------
To induce Lender to enter into this amendment, the undersigned jointly
and severally (a) consent and agree to this amendment's execution and delivery,
(b) ratify and confirm that all guaranties, assurances, and Liens granted,
conveyed, or assigned to Lender under the Loan Documents (as they may have been
renewed, extended, and amended) are not released, diminished, impaired,
reduced, or otherwise adversely affected by this amendment and continue to
guarantee, assure, and secure the full payment and performance of all present
and future Obligation, (c) agree to perform such acts and duly authorize,
execute, acknowledge, deliver, file, and record such additional guaranties,
assignments, security agreements, deeds of trust, mortgages, and other
agreements, documents, instruments, and certificates as Lender may reasonably
deem necessary or appropriate in order to create, perfect, preserve, and
protect those guaranties, assurances, and Liens, (d) represent and warrant to
Lender that (i) the value of the consideration received and to be received by
the undersigned in respect of those guaranties, assurances, and Liens are
reasonably worth at least as much as the liability and obligation the
undersigned thereunder, (ii) that liability and obligation may reasonably be
expected to directly or indirectly benefit the undersigned, and (iii) each
undersigned is -- and after giving effect to those guaranties, assurances,
Liens, and the Loan Documents, in light of all existing facts and circumstances
(including, without limitation, collateral for and other obligors in respect of
the Obligation and various components of it and various rights of subrogation
and contribution), each undersigned will be -- Solvent, and (e) waive notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and their successors and permitted assigns and inures to Lender and
its successors and permitted assigns.
FOXMEYER CORPORATION
By
------------------------------------------
Grady E. Schleier, Vice President and
Treasurer
- 2 -
<PAGE> 3
AMENDED EXHIBIT C-4
QUARTERLY COLLATERAL-BASE CERTIFICATE
AGENT: Credit Lyonnais New York Branch DATE: ____________________, 19__
BORROWER: FoxMeyer Health Corporation
- -------------------------------------------------------------------------------
This certificate is delivered under SECTION 7.1(E) of the Credit
Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT")
dated as of September 6, 1995, between Borrower and Lender, all of the defined
terms of which have the same meanings when used -- unless otherwise defined --
in this certificate.
I certify to Lender that (a) I am a Responsible Officer of Borrower,
(b) the Collateral Base is calculated as follows, and (c) the Collateral that
is the subject of the Collateral Base meets all the requirements of the Loan
Documents for inclusion in the Collateral Base:
($000)
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
1. FOXMEYER STOCK -- for FoxMeyer Corporation for the four
fiscal quarters most-recently ended, as reported in
accordance with Section 7.1(b) of the Credit Agreement
- ------------------------------------------------------------------------------------------------
a. Income Before Taxes* $
- ------------------------------------------------------------------------------------------------
b. Interest Expense $
- ------------------------------------------------------------------------------------------------
c. Depreciation/Amortization $
- ------------------------------------------------------------------------------------------------
d. Only for period from 12/31/95 through 5/6/96, non- $
cash charges, not to exceed $41,500,000
- ------------------------------------------------------------------------------------------------
e. TOTAL of Lines 1(a) through (d) $
- ------------------------------------------------------------------------------------------------
f. 500% of Line 1(e) $
- ------------------------------------------------------------------------------------------------
g. Total shares of FoxMeyer Stock Pledged to Lender
- ------------------------------------------------------------------------------------------------
h. Total shares of FoxMeyer Stock outstanding
- ------------------------------------------------------------------------------------------------
i. Line 1(g) DIVIDED BY Line 1(h)
- ------------------------------------------------------------------------------------------------
j. COLLATERAL VALUE -- Line 1(f) TIMES Line 1(i) $
- ------------------------------------------------------------------------------------------------
2. Amount of Loan Outstanding $
- ------------------------------------------------------------------------------------------------
3. Collateral Coverage -- Line 1(j) divided by Line 2, %
stated as a percentage
- ------------------------------------------------------------------------------------------------
4. Required Collateral Coverage 400%
- ------------------------------------------------------------------------------------------------
</TABLE>
FOXMEYER HEALTH CORPORATION, as Borrower
By
------------------------------------------
(Name)
--------------------------------------
**(Title)
-----------------------------------
- --------------------------------------
* Adjusted for Phar-Mor
** Must be a Responsible Officer
AMENDED EXHIBIT C-4
<PAGE> 1
EXHIBIT 10-AJ
SECOND AMENDMENT TO CREDIT AGREEMENT AND
FIRST AMENDMENT TO SECURITY AGREEMENT
THIS AMENDMENT is entered into as of May 7, 1996, between FOXMEYER
HEALTH CORPORATION, a Delaware corporation ("BORROWER"), and CREDIT LYONNAIS
NEW YORK BRANCH, a duly licensed branch under the New York Banking Law of a
foreign banking corporation organized under the Laws of the Republic of France
("LENDER").
Borrower and Lender are party to the Credit Agreement (as renewed,
extended, and amended, the "CREDIT AGREEMENT") dated as of September 6, 1995,
providing for $20,000,000 term loan and party to the Security Agreement (as
renewed, extended, and amended, the "SECURITY AGREEMENT") dated as of September
6, 1995. Borrower and Lender have agreed, upon the following terms and
conditions, to amend the Credit Agreement to exclude certain non-cash charges
from EBITDA solely (a) for the purpose of calculating Collateral Value and (b)
for the period from December 31, 1995, through but not after June 30, 1996.
Accordingly, for valuable and acknowledged consideration, Borrower and Lender
agree as follows:
1. TERMS AND REFERENCES. Unless otherwise stated in this
amendment (a) terms defined in the Credit Agreement have the same meanings when
used in this amendment and (b) references to "SECTIONS," "SCHEDULES," and
"EXHIBITS" are to the Credit Agreement's sections, schedules, and exhibits.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is
amended as follows effective as of the date of this amendment. Existing
provisions in the Credit Agreement that are amended in this amendment are
marked to reflect deletions of text by strikeout and additions of new text by
double underline. New provisions are not so marked.
(a) CLAUSE (A) in the definition of the term BASE RATE in
SECTION 1.1 is amended as follows:
(a) 1.00 % PLUS
(b) The definition of COLLATERAL BASE in SECTION 1.1 is
entirely amended as follows:
COLLATERAL BASE means, at any time, the Collateral
Value of the FoxMeyer Stock and Publicly-Traded Stock and the
actual amount of cash collateral in each case that is (a)
subject to Lender Liens, (b) subject to no other Liens except
Permitted Liens, and (c) subject to no restrictions on
transfer except under general corporate and securities Laws
and, solely in respect of Phar-Mor stock, the LLC Agreement
and Proxy.
(c) CLAUSE (A) in the definition of the term COLLATERAL
VALUE in SECTION 1.1 is entirely amended as follows:
(a) For the FoxMeyer Stock and as of the last day
of each fiscal quarter of FoxMeyer Corporation, the product of
(i) 500% of FoxMeyer Corporation's consolidated EBITDA (plus
-- only for the purposes of this calculation, only for the
period from December 31, 1995, through but not after June 30,
1996, and only up to $41,500,000 -- FoxMeyer Corporation's
consolidated non-cash charges) for the four-fiscal quarters
ending on that last day times (ii) a fraction with
(A) the number of shares of FoxMeyer Stock
<PAGE> 2
subject to a Lender Lien as the numerator and (B) the total
number of shares of issued and outstanding FoxMeyer Stock as
the denominator.
(d) CLAUSE (A) in the definition of the term LIBOR in
SECTION 1.1 is amended as follows:
(a) 2.75% PLUS
(e) SECTION 7.1(E) is amended as follows:
(e) Collateral-Base Certificate. As soon as
available, and in any event within 50 days after the last day
of each fiscal quarter except the last quarter -- and 90 days
after the last day of the fiscal year based on the audited
Financials -- a Collateral-Base Certificate substantially in
the form of EXHIBIT C-4.
(f) EXHIBIT C-4 is entirely amended in the form of -- and
all references in the Loan Documents to EXHIBIT C-4 are in the future
to -- the attached SECOND AMENDED EXHIBIT C-4.
3. AMENDMENT TO SECURITY AGREEMENT. PARAGRAPH 4(A) of the
Security Agreement is amended as follows:
(a) All present and future shares of capital
stock of any class or nature, the stock certificates
evidencing which are now or in the future delivered to Secured
Party or delivered to another party to be held on behalf of
Secured Party -- including, without limitation, shares issued
by FoxMeyer Corporation and one or more public companies as
provided in Sections 2.4 and 4 of the Credit Agreement --
together with, subject to PARAGRAPH 9(E) of this agreement,
all of the following: (i) All present and future increases,
profits, combinations, and reclassifications of, stock
dividends, options, warrants, or subscription or similar
rights issued in connection with, and substitutes and
replacements for, any of that stock, whether arising in
connection with any recapitalization, reclassification,
merger, consolidation, conversion, sale of assets, combination
of shares, stock split, or spin-off; and (ii) all dividends
and other cash and noncash proceeds of, or distributions in
connection with, any of the foregoing;
4. CONDITIONS PRECEDENT. PARAGRAPH 2 above is not effective
until Lender receives (a) counterparts of this amendment executed by each party
listed below; (b) by no later than May 7, 1996, either an amendment or a waiver
under the Banque Paribas Facility, executed by at least Borrower as Borrower,
Lender and Banque Paribas as Banks, and Banque Paribas as Agent, for the
purposes of, among other things, extending the final maturity date under that
facility to June 30, 1996; and (c) by no later than May 6, 1996, either an
amendment or waiver under the FoxMeyer Corporation Facility that is acceptable
to Lender.
5. CONDITIONS SUBSEQUENT. Borrower covenants and agrees with
Lender to provide to Lender by no later than June 15, 1996 (a) cash-flow
projections reflecting in form and reasonable detail acceptable to Lender
Borrower's cash sources and uses for the five-quarterly periods commencing with
the quarter ending on March 31, 1996, and (b) a written report specifying the
amount and type of each payment
- 2 -
<PAGE> 3
made during the quarter ended on March 31, 1996 by any of the Companies under
the Tax-Sharing Agreement.
6. RATIFICATIONS. Borrower (a) ratifies and confirms all
provisions of the Loan Documents as amended by this amendment, (b) ratifies and
confirms that all guaranties, assurances, and Liens granted, conveyed, or
assigned to Lender under the Loan Documents (as they may have been renewed,
extended, and amended) are not released, reduced, or otherwise adversely
affected by this amendment and continue to guarantee, assure, and secure full
payment and performance of the present and future Obligation, and (c) agrees to
perform such acts and duly authorize, execute, acknowledge, deliver, file, and
record such additional documents, and certificates as Lender may request in
order to create, perfect, preserve, and protect those guaranties, assurances,
and Liens.
7. REPRESENTATIONS. Borrower represents and warrants to Lender
that as of the date of this amendment (a) all representations and warranties in
the Loan Documents are true and correct in all material respects except to the
extent that (i) any of them speak to a different specific date or (ii) the
facts on which any of them were based have been changed by transactions
contemplated or permitted by the Credit Agreement, (b) no Material-Adverse
Event, Default or Potential Default exists, and (c) the consent or approval of
Hamilton Morgan, L.L.C., to this amendment is not required under any
circumstances, including, without limitation, for the continued effectiveness
of the Security Agreement dated as of September 6, 1995, executed by Hamilton
Morgan, L.L.C., as Pledgor, for the benefit of Lender as Secured Party.
8. MISCELLANEOUS. All references in the Loan Documents to the
"Credit Agreement" refer to the Credit Agreement as amended by this amendment.
This amendment is a "Loan Document" referred to in the Credit Agreement, and
the provisions relating to Loan Documents in SECTIONS 1 and 11 are incorporated
in this amendment by reference. Except as specifically amended and modified in
this amendment, the Credit Agreement is unchanged and continues in full force
and effect. This amendment may be executed in any number of counterparts with
the same effect as if all signatories had signed the same document. All
counterparts must be construed together to constitute one and the same
instrument. This amendment binds and inures to each of the undersigned and
their respective successors and permitted assigns, subject to SECTION 11.12.
THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS REPRESENT THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS BY THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
EXECUTED as of the date first stated above.
FOXMEYER HEALTH CORPORATION, CREDIT LYONNAIS NEW YORK BRANCH,
as Borrower as Lender
By By
---------------------------------- -------------------------------------
Grady E. Schleier, Vice President (Name)
and Treasurer ---------------------------------
(Title)
--------------------------------
- 3 -
<PAGE> 4
To induce Lender to enter into this amendment, the undersigned jointly
and severally (a) consent and agree to this amendment's execution and delivery,
(b) ratify and confirm that all guaranties, assurances, and Liens granted,
conveyed, or assigned to Lender under the Loan Documents (as they may have been
renewed, extended, and amended) are not released, diminished, impaired,
reduced, or otherwise adversely affected by this amendment and continue to
guarantee, assure, and secure the full payment and performance of all present
and future Obligation, (c) agree to perform such acts and duly authorize,
execute, acknowledge, deliver, file, and record such additional guaranties,
assignments, security agreements, deeds of trust, mortgages, and other
agreements, documents, instruments, and certificates as Lender may reasonably
deem necessary or appropriate in order to create, perfect, preserve, and
protect those guaranties, assurances, and Liens, (d) represent and warrant to
Lender that (i) the value of the consideration received and to be received by
the undersigned in respect of those guaranties, assurances, and Liens are
reasonably worth at least as much as the liability and obligation the
undersigned thereunder, (ii) that liability and obligation may reasonably be
expected to directly or indirectly benefit the undersigned, and (iii) each
undersigned is -- and after giving effect to those guaranties, assurances,
Liens, and the Loan Documents, in light of all existing facts and circumstances
(including, without limitation, collateral for and other obligors in respect of
the Obligation and various components of it and various rights of subrogation
and contribution), each undersigned will be -- Solvent, and (e) waive notice of
acceptance of this consent and agreement, which consent and agreement binds the
undersigned and their successors and permitted assigns and inures to Lender and
its successors and permitted assigns.
FOXMEYER CORPORATION
By
--------------------------------------
Grady E. Schleier, Vice President and
Treasurer
- 4 -
<PAGE> 5
SECOND AMENDED EXHIBIT C-4
QUARTERLY COLLATERAL-BASE CERTIFICATE
AGENT: Credit Lyonnais New York Branch DATE: ____________________, 19__
BORROWER: FoxMeyer Health Corporation
- -------------------------------------------------------------------------------
This certificate is delivered under SECTION 7.1(E) of the Credit
Agreement (as renewed, extended, amended, or restated, the "CREDIT AGREEMENT")
dated as of September 6, 1995, between Borrower and Lender, all of the defined
terms of which have the same meanings when used -- unless otherwise defined --
in this certificate.
I certify to Lender that (a) I am a Responsible Officer of Borrower,
(b) the Collateral Base is calculated as follows, and (c) the Collateral that
is the subject of the Collateral Base meets all the requirements of the Loan
Documents for inclusion in the Collateral Base:
($000)
<TABLE>
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------
1. FOXMEYER STOCK -- for FoxMeyer Corporation for the four
fiscal quarters most-recently ended, as reported in
accordance with Section 7.1(b) of the Credit Agreement
- ------------------------------------------------------------------------------------------------
a. Income Before Taxes* $
- ------------------------------------------------------------------------------------------------
b. Interest Expense $
- ------------------------------------------------------------------------------------------------
c. Depreciation/Amortization $
- ------------------------------------------------------------------------------------------------
d. Only for period from 12/31/95 through 6/30/96 $
non-cash charges, not to exceed $41,500,000
- ------------------------------------------------------------------------------------------------
e. TOTAL of Lines 1(a) through (d) $
- ------------------------------------------------------------------------------------------------
f. 500% of Line 1(e) $
- ------------------------------------------------------------------------------------------------
g. Total shares of FoxMeyer Stock Pledged to Lender
- ------------------------------------------------------------------------------------------------
h. Total shares of FoxMeyer Stock outstanding
- ------------------------------------------------------------------------------------------------
i. Line 1(g) DIVIDED BY Line 1(h)
- ------------------------------------------------------------------------------------------------
j. COLLATERAL VALUE -- Line 1(f) TIMES Line 1(i) $
- ------------------------------------------------------------------------------------------------
2. Amount of Loan Outstanding $
- ------------------------------------------------------------------------------------------------
3. Collateral Coverage -- Line 1(j) divided by Line 2, %
stated as a percentage
- ------------------------------------------------------------------------------------------------
4. Required Collateral Coverage 400%
- ------------------------------------------------------------------------------------------------
</TABLE>
FOXMEYER HEALTH CORPORATION, as Borrower
By
----------------------------------------------
(Name)
------------------------------------------
**(Title)
---------------------------------------
- --------------------------------------
* Adjusted for Phar-Mor
** Must be a Responsible Officer
SECOND AMENDED EXHIBIT C-4
<PAGE> 1
EXHIBIT 10-AK
EXECUTION COPY
================================================================================
Up to U.S.$475,000,000
CREDIT AGREEMENT
Dated as of June 19, 1996
among
FOXMEYER DRUG COMPANY,
as Borrower
FOXMEYER CORPORATION
HEALTH MART, INC.
HEALTHCARE TRANSPORTATION SYSTEM, INC. and
MERCHANDISE COORDINATOR SERVICES CORPORATION
as Loan Parties
and
THE LENDERS PARTY HERETO
and
THE CIT GROUP/BUSINESS CREDIT, INC.
as Co-Agent
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Administrative Agent
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE 1 AMOUNT AND TERMS OF CREDIT
SECTION 1.1. Revolving Credit Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -2-
SECTION 1.2. Non-Funding Lender; Actions by Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . -3-
SECTION 1.3. Repayment; Reduction or Termination of Commitment . . . . . . . . . . . . . . . . . . . . . -4-
SECTION 1.4. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -5-
SECTION 1.5. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 1.6. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -6-
SECTION 1.7. Eligible Collateral . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 1.8. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -9-
SECTION 1.9. Cash Management System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 1.10. Receipt of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 1.11. Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 1.12. Application and Allocation of Payments . . . . . . . . . . . . . . . . . . . . . . . . . -10-
SECTION 1.13. Non-Receipt of Funds by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 1.14. Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -11-
SECTION 1.15. Settlement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -12-
SECTION 1.16. Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -14-
SECTION 1.17. Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -15-
SECTION 1.18. Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -16-
SECTION 1.19. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 1.20. Additional Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -17-
SECTION 1.21. Replacement of Lenders. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -18-
ARTICLE 2 CONDITIONS PRECEDENT
SECTION 2.1. Conditions to the Initial Revolving Credit Advance
and the Initial Letter of Credit Obligation . . . . . . . . . . . . . . . . . . . . -19-
SECTION 2.2. Further Conditions to Each Revolving Credit Advance
and Each Letter of Credit Obligation . . . . . . . . . . . . . . . . . . . . . . . . -23-
ARTICLE 3 REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Existence; Compliance with Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -24-
SECTION 3.2. Executive Offices; Collateral Locations; Corporate or
Other Names . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 3.3. Power; Authorization; Enforceable Obligations . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 3.4. Financial Statements and Projections . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 3.5. Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -25-
SECTION 3.6. Ownership of Property; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 3.7. Restrictions; No Default; Material Contracts . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 3.8. Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -26-
SECTION 3.9. Ventures, Subsidiaries and Affiliates; Outstanding
Stock and Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 3.10. Government Regulation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
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SECTION 3.11. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -27-
SECTION 3.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 3.13. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -28-
SECTION 3.14. No Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -29-
SECTION 3.15. Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 3.16. Patents, Trademarks, Copyrights and Licenses . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 3.17. Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -30-
SECTION 3.18. Hazardous Materials . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 3.19. Insurance Policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 3.20. Deposit and Disbursement Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 3.21. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -31-
SECTION 3.22. Certain Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
ARTICLE 4 FINANCIAL STATEMENTS AND INFORMATION
SECTION 4.1. Reports and Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
SECTION 4.2. Communication with Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -32-
ARTICLE 5 AFFIRMATIVE COVENANTS
SECTION 5.1. Maintenance of Existence and Conduct of Business . . . . . . . . . . . . . . . . . . . . -32-
SECTION 5.2. Payment of Charges and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
SECTION 5.3. Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -33-
SECTION 5.4. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 5.5. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -34-
SECTION 5.6. Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
SECTION 5.7. Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
SECTION 5.8. Supplemental Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -35-
SECTION 5.9. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
SECTION 5.10. Landlord's Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -36-
SECTION 5.11. Certain Obligations Respecting Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . -36-
SECTION 5.12. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 5.13. Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 5.14. Casualty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 5.15. Additional Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -37-
SECTION 5.16. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 5.17. Audits, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
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SECTION 5.18. Amendment to Tax Sharing Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
ARTICLE 6 NEGATIVE COVENANTS
SECTION 6.1. Mergers, Subsidiaries, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -38-
SECTION 6.2. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -39-
SECTION 6.3. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -41-
SECTION 6.4. Affiliate and Employee Loans and Transactions;
Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -42-
SECTION 6.5. Capital Structure and Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
SECTION 6.6. Guaranteed Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -43-
SECTION 6.7. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -44-
SECTION 6.8. Sale of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -45-
SECTION 6.9. Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46-
SECTION 6.10. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -46-
SECTION 6.11. Financial Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 6.12. Cancellation or Prepayment of Indebtedness . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 6.13. Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -47-
SECTION 6.14. Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 6.15. No Speculative Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 6.16. Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 6.17. Limitation on Negative Pledge Clauses, Etc. . . . . . . . . . . . . . . . . . . . . . . . -48-
SECTION 6.18. Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
SECTION 6.19. Amendments and Modifications to Debt Documents . . . . . . . . . . . . . . . . . . . . . -49-
SECTION 6.20. Activities of Certain Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . -49-
ARTICLE 7 TERM
SECTION 7.1. Duration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
SECTION 7.2. Survival of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
ARTICLE 8 EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 8.1. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -50-
SECTION 8.2. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
SECTION 8.3. Waivers by Loan Parties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -53-
SECTION 8.4. Application of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -54-
SECTION 8.5. Receivables Funding Subsidiary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -55-
ARTICLE 9 AGENT
SECTION 9.1. Appointment, Powers and Immunities . . . . . . . . . . . . . . . . . . . . . . . . . . . -55-
SECTION 9.2. Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -56-
SECTION 9.3. Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -56-
SECTION 9.4. Rights as a Lender . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57-
SECTION 9.5. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -57-
SECTION 9.6. Non-Reliance on Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . . -57-
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SECTION 9.7. Failure to Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -58-
SECTION 9.8. Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -58-
SECTION 9.9. Consents under Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -58-
SECTION 9.10. Collateral Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -59-
ARTICLE 10 SUCCESSORS AND ASSIGNS
SECTION 10.1. Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -59-
SECTION 10.2. Assignments and Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -60-
ARTICLE 11 MISCELLANEOUS
SECTION 11.1. Complete Agreement; Modification of Agreement . . . . . . . . . . . . . . . . . . . . . . -62-
SECTION 11.2. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -63-
SECTION 11.3. No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -64-
SECTION 11.4. Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
SECTION 11.5. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
SECTION 11.6. Conflict of Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
SECTION 11.7. Right of Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
SECTION 11.8. Authorized Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -65-
SECTION 11.9. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -66-
SECTION 11.10. Section Titles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
SECTION 11.11. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
SECTION 11.12. Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
SECTION 11.13. Announcements; Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -67-
SECTION 11.14. GOVERNING LAW; CONSENT TO JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . -69-
SECTION 11.15. WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -69-
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INDEX OF ANNEXES, SCHEDULES AND EXHIBITS
Annex A - Definitions; Rules of Construction
Annex B - Cash Management System
Annex C - Schedule of Closing Documents
Annex D - Schedule of Certain Fees
Annex E - Financial, Projections and Notices
Annex F - Insurance Requirements
Annex G - Letters of Credit
Annex H - Financial Covenants
Annex I - Inventory Location Waivers
Schedule 3.2 - Executive Offices; Trade Names
Schedule 3.4 - Financial and Projections
Schedule 3.5 - Dividends
Schedule 3.6 - Real Estate and Leases
Schedule 3.8 - Labor Matters
Schedule 3.9 - Ventures, Subsidiaries and Affiliates; Outstanding Stock
Schedule 3.12 - Tax Matters
Schedule 3.13 - ERISA Plans
Schedule 3.14 - Litigation
Schedule 3.16 - Patents, Trademarks, Copyrights and Licenses
Schedule 3.18 - Hazardous Materials
Schedule 3.19 - Insurance Policies
Schedule 3.20 - Disbursement, Concentration, Operating and Collateral Proceeds Accounts
Schedule 5.18 - Amendment to Tax Sharing Agreement
Schedule 6.2 - Investments
Schedule 6.4 - Loans to and Transactions with Affiliates
Schedule 6.7 - Liens
Schedule 11.8 - Authorized Officers
Exhibit 1.1(a) - Form of Notice of Revolving Credit Advance
Exhibit 1.1(d) - Form of Revolving Credit Note
Exhibit 1.1(e) - Form of Borrowing Base Certificate
Exhibit 1.6(d) - Form of Notice of Fixed Rate Election
Exhibit 3.4 - Projections
Exhibit A - Form of Guaranty
Exhibit B - Form of Subordination Agreement
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Exhibit C - Form of Patent, Trademark and Copyright Assignment
Exhibit D - Form of Security Agreement
Exhibit E - Form of Stock Pledge Agreement
Exhibit F - Form of Opinion of Counsel to Loan Parties
Exhibit G - Form of Intercompany Note
Exhibit H - Form of Landlords' Waiver
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CREDIT AGREEMENT
THIS CREDIT AGREEMENT ("Agreement") is entered into as of June
19, 1996 by and among FOXMEYER DRUG COMPANY, a Delaware corporation (the
"Borrower"), FOXMEYER CORPORATION, a Delaware corporation ("FoxMeyer"),HEALTH
MART, INC., a Colorado corporation ("Health Mart"), HEALTHCARE TRANSPORTATION
SYSTEM, INC., a Delaware corporation ("Healthcare"), MERCHANDISE COORDINATOR
SERVICES CORPORATION, a Delaware corporation ("Merchandise"), each of the
lenders listed on the signature pages hereof or which pursuant to Section 10.2
becomes a "Lender" hereunder (each individually, a "Lender" and collectively,
"Lenders"), THE CIT GROUP/BUSINESS CREDIT, INC. as Co-Agent, and GENERAL
ELECTRIC CAPITAL CORPORATION, a corporation organized under the banking laws of
the State of New York, as administrative agent hereunder for the Lenders (in
such capacity, together with its successors in such capacity, "Agent").
RECITALS
WHEREAS, defined terms used in this Agreement shall have the
respective meanings set forth in Annex A hereto; and
WHEREAS, the Borrower desires the making of Revolving Credit
Advances and the issuance of Letters of Credit in an aggregate outstanding
principal amount and undrawn or unreimbursed amount, as applicable, of up to
$475,000,000 in the aggregate from Lenders, and Lenders are willing to make
Revolving Credit Advances and to incur Letter of Credit Obligations in such
aggregate principal or undrawn or unreimbursed amount upon the terms and
conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants hereinafter contained, the parties hereto agree as follows:
For purposes of this Agreement and the other Loan Documents,
the rules of construction set forth in Annex A shall govern. Unless otherwise
indicated, all references in this Agreement to articles, sections, subsections,
schedules, annexes, exhibits, and attachments shall refer to the corresponding
articles, sections, subsections, schedules, annexes, exhibits, and attachments
of or to this Agreement. All schedules, annexes, exhibits and attachments
hereto, or expressly identified to this Agreement, are incorporated herein by
reference, and taken together, shall constitute but a single agreement. Unless
otherwise expressly set forth herein or in a written amendment referring to
such schedules and annexes, all schedules and annexes referred to herein shall
mean the schedules and annexes as in effect as of the Closing Date. The above
Recitals shall be construed as part of this Agreement.
<PAGE> 9
ARTICLE 1
AMOUNT AND TERMS OF CREDIT
SECTION 1.1. Revolving Credit Advances.
(a) Upon and subject to the terms and conditions hereof,
each Lender severally agrees to make available, from time to time until the
Commitment Termination Date, for the Borrower's use and upon the request of the
Borrower therefor to Agent, advances (each, including any advance made by Agent
under Section 1.15(b), a "Revolving Credit Advance") in an aggregate principal
amount at any time outstanding up to but not exceeding the Revolving Credit
Commitment of such Lender, provided that in no event shall (i) the aggregate
principal amount of the Revolving Credit Loan plus all outstanding Letter of
Credit Obligations exceed the lesser of (x) the Maximum Revolving Credit
Commitment and (y) the Borrowing Base. The Borrower may from time to time
borrow, repay and reborrow Revolving Credit Advances under this Section 1.1.
(b) The Borrower shall give to Agent (which shall
promptly notify Lenders) notice of each borrowing requested by the Borrower
hereunder as provided in Section 1.1(c) and, subject to Section 1.15, on the
date specified for such borrowing each Lender shall make available the amount
of the Revolving Credit Advance to be made by it on such date to Agent to such
account of Agent as Agent may designate, in immediately available funds, for
the account of the Borrower.
(c) Each notice of a borrowing by the Borrower of a
Revolving Credit Advance shall be given in writing (by telecopy, hand delivery,
or U.S. mail) by the Borrower to Agent at its address at 201 High Ridge Road,
Stamford, Connecticut 06927, to the attention of Portfolio Analyst-FoxMeyer or
such other Person as may be designated in writing by Agent, Telephone No. (203)
316-7658, Telecopy No. (203) 316-6443, given no later than 1:00 p.m. (New York
time) on the Business Day of the proposed Revolving Credit Advance requested by
the Borrower. Each such notice of borrowing (a "Notice of Revolving Credit
Advance") shall be substantially in the form of Exhibit 1.1(a) hereto,
specifying therein the requested date, the amount of such Revolving Credit
Advance, the Disbursement Account into which such Revolving Credit Advance
shall be made, and such other information as may reasonably be required by
Agent. Agent and Lenders shall be entitled to rely upon and shall be fully
protected under this Agreement in relying upon any Notice of Revolving Credit
Advance believed by Agent to be genuine and to assume that the persons
executing and delivering the same were duly authorized unless the responsible
individual acting thereon for Agent shall have actual knowledge to the
contrary.
(d) The Revolving Credit Advances made by each Lender to
the Borrower shall be evidenced by a single promissory note of the Borrower
payable to the order of such Lender substantially in the form of Exhibit 1.1(d)
hereto, dated the date hereof, in a maximum principal amount equal to the
amount of such Lender's Revolving Credit Commitment as originally in effect and
otherwise duly completed. The date and amount of each Revolving Credit Advance
made by each Lender to the Borrower and each payment of principal with respect
thereto shall be recorded on the books and records of such Lender, which books
and records shall constitute conclusive evidence, absent manifest error or bad
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faith, of the accuracy of the information therein recorded. The entire unpaid
balance of the Revolving Credit Loan, together with accrued but unpaid interest
thereon, shall be immediately due and payable on the Commitment Termination
Date.
(e) The Borrower shall furnish to Agent a Borrowing Base
Certificate substantially in the form of Exhibit 1.1(e) hereto, completed and
signed by an Authorized Officer, which sets forth a calculation of the
Borrowing Base at the times and for the periods set forth in Annex E. The
Borrower agrees that in making any Revolving Credit Advance to the Borrower
hereunder each Lender, and in any event Agent, shall be entitled to rely upon
the most recent Borrowing Base Certificate delivered to Agent and the Lenders
by the Borrower. The Borrower further agrees that if the Borrower shall have
failed to deliver a Borrowing Base Certificate to Agent within the specified
period, Lenders shall be under no obligation to make any further Revolving
Credit Advances to (or incur any additional Letter of Credit Obligations for
the account of) the Borrower until such time as such Borrowing Base Certificate
is delivered to Agent and Lenders.
SECTION 1.2. Non-Funding Lender; Actions by Lenders.
(a) The default by any Lender (such Lender, so long as
such default under its obligation to make any Revolving Credit Advance to be
made by it shall be continuing, a "Non-Funding Lender") under its obligation to
make any Revolving Credit Advance to be made by it on the date specified
therefor shall not relieve any other Lender (each such other Lender, an "Other
Lender") of its obligation to make its Revolving Credit Advance on such date,
but neither any Other Lender nor Agent shall be responsible for the failure of
any Non-Funding Lender to make a Revolving Credit Advance to be made by such
Non-Funding Lender. Notwithstanding anything set forth herein to the contrary,
a Non-Funding Lender (i) shall not have any voting or consent rights under or
with respect to any Loan Document or constitute a "Lender" (or be included in
the calculation of "Required Lenders" hereunder) for any voting or consent
rights under or with respect to any Loan Document and (ii) shall not be
entitled to receive any payment or distribution in respect of the Obligations,
whether in respect of principal, interest, fees, expenses, indemnities,
reimbursements of Letter of Credit Obligations or otherwise and whether from
Agent, any other Lender, any Loan Party, as proceeds of Collateral, or
otherwise, until the earlier to occur of (x) the payment in full in cash to all
Lenders (other than Non-Funding Lenders) of all Obligations and the termination
of the Revolving Credit Commitments and Letters of Credit (or, in the case of
Letter of Credit Obligations, the provision of Letter of Credit Cash Collateral
therefor to the extent required upon the Commitment Termination Date under
paragraph 3 of Annex G hereto) and (y) the time, if any, that such Non-Funding
Lender is no longer a Non-Funding Lender, and any and all such payments and
distributions which would otherwise be paid or distributed to a Non-Funding
Lender shall be paid or delivered to the Lenders which are not Non-Funding
Lenders, ratably according to the respective Revolving Credit Commitments of
such Lenders (or, if there are no Revolving Credit Commitments at such time, in
accordance with the principal amounts of the Revolving Credit Loan held by such
Lender) for application to the Obligations or, following the payment in full of
all Obligations other than Letter of Credit Obligations, the provision of
Letter of Credit Cash Collateral to secure the Letter of Credit Obligations of
Lenders (other than Non-Funding Lenders). Nothing contained in this Section
1.2 shall affect the rights of the Borrower contained in Section 1.21.
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(b) Anything in this Agreement to the contrary
notwithstanding, each Lender hereby agrees with each other Lender that no
Lender shall take any action to protect or enforce its rights arising out of
this Agreement, the Revolving Credit Notes or the other Loan Documents
(including exercising any rights of offset) without first obtaining the prior
written consent of Agent and Required Lenders, it being the intent of Lenders
that any such action to protect or enforce rights under this Agreement, the
Revolving Credit Notes or the other Loan Documents shall be taken in concert
and at the direction or with the consent of Agent and Required Lenders and not
individually by a single Lender.
SECTION 1.3. Repayment; Reduction or Termination of
Commitment.
(a) The Borrower hereby promises to pay to Agent, for the
account of each Lender, the entire outstanding principal amount of the
Revolving Credit Loan and all other Obligations, and, subject to earlier
acceleration as provided herein, the Revolving Credit Loan and all other
Obligations shall mature, on the Commitment Termination Date.
(b) In the event that the sum of the outstanding
principal balance of the Revolving Credit Loan and the Letter of Credit
Obligations shall at any time exceed the lesser of (i) the Maximum Revolving
Credit Commitment and (ii) the Borrowing Base, the Borrower shall immediately
repay the Revolving Credit Loan in the amount of such excess provided that if
after payment in full of the Revolving Credit Loan there shall continue to
remain any such excess, then the Borrower shall immediately pay to Agent, for
the ratable benefit of Lenders, cash or Cash Equivalents in an amount equal to
such remaining excess to be held by Agent in a Cash Collateral Account pursuant
to such documentation and on such terms as Agent shall require (together with
interest and earnings thereon, "Letter of Credit Cash Collateral").
(c) The Borrower shall have the right, exercisable not
more frequently than twice in each calendar year, in each case, upon ten (10)
days' prior written notice to Agent, to permanently and voluntarily reduce the
Revolving Credit Commitments of all (but not less than all) of Lenders, Pro
Rata (in an aggregate amount of not less than $10,000,000 or any greater amount
which is an integral multiple of $10,000,000), or terminate the Revolving
Credit Commitment, without premium or penalty, other than payment of any
amounts payable under Section 1.6(g) if any and under the Fee Letter, if any;
provided, however, that in the event that any Letter of Credit Obligations are
outstanding following any such reduction or termination, the Borrower shall
upon (x) the effectiveness of such reduction provide Letter of Credit Cash
Collateral in an amount equal to the amount by which the Letter of Credit
Obligations exceed the Revolving Credit Commitment after giving effect to such
reduction or (y) in the case of any termination, upon the effectiveness of such
termination, provide Letter of Credit Cash Collateral and make other
arrangements required upon the Commitment Termination Date, in accordance with
the terms and conditions of Annex G, with respect to any outstanding Letter of
Credit
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Obligations. Upon such termination, Borrower's right to receive Revolving
Credit Advances and the benefit of Letter of Credit Obligations shall
simultaneously terminate and Borrower's obligation to pay the Non-Use Fee shall
terminate, and notwithstanding anything to the contrary contained herein or in
any Revolving Credit Note, the entire outstanding balance of the Revolving
Credit Loan shall be immediately due and payable. At the time of such
termination, Borrower shall pay to Agent in immediately available funds all of
the Obligations, including, without limitation, any accrued and unpaid interest
and fees. At the time of any reduction of the Revolving Credit Commitment,
notwithstanding anything to the contrary contained herein or in any Revolving
Credit Note, the amount, if any, by which the outstanding principal balance of
the Revolving Credit Loan exceeds the Revolving Credit Commitment, as so
reduced, shall be immediately due and payable and the Borrower shall pay to
Agent in immediately available funds for the Pro Rata benefit of the Lenders
the amount of such excess.
(d) If the aggregate of the unpaid principal balance of
the Revolving Credit Loan plus the outstanding Letter of Credit Obligations
should at any time exceed the Maximum Revolving Credit Commitment or the
Borrowing Base, such excess shall nevertheless constitute Obligations that are
secured by the Collateral and entitled to all of the benefits thereof and of
the Loan Documents and shall, to the extent same are part of the Revolving
Credit Advances, be evidenced by the Revolving Credit Notes.
(e) On the "Facility Termination Date," as defined in,
and pursuant to, the Receivables Funding Agreement (i) all Obligations,
including the Revolving Credit Loan and the Letter of Credit Obligations, shall
be immediately due and payable, without notice, and (ii) the Revolving Credit
Commitments shall terminate and the Lenders shall have no further obligation to
make any credit extensions or financial accommodations hereunder.
SECTION 1.4. Use of Proceeds.
(a) Except as otherwise permitted under Section 1.4(b),
the Borrower shall use the proceeds of Revolving Credit Advances for (i) the
refinancing of certain outstanding Indebtedness as provided in Section 2.1(c),
(ii) the payment of costs and expenses of the financing transactions
contemplated by this Agreement that are payable by the Loan Parties, and (iii)
general working capital and other corporate purposes of the Borrower to the
extent not prohibited by the terms of this Agreement and the other Loan
Documents. The Borrower agrees that it shall not borrow any Revolving Credit
Advances except to fulfill its, and subject to Section 1.4(b) ,the immediate
cash needs of the other Loan Parties.
(b) In addition to the purposes set forth in Section
1.4(a), the Borrower may use proceeds of Revolving Credit Advances to make
Permitted Intercompany Loans, the proceeds of which shall be used for the
purposes set forth (i) in Sections 1.4(a)(i) and 1.4(a)(ii) and (ii) general
working capital and other corporate purposes of the borrowers of such Permitted
Intercompany Loans to the extent not prohibited by the terms of this Agreement
and the other Loan Documents.
SECTION 1.5. Letters of Credit. Subject to the terms and
conditions of this Agreement, the Borrower shall have the right to request, and
Lenders agree to purchase participations in Letters of Credit and Letter of
Credit Obligations arising in connection therewith in accordance with the terms
and conditions set forth in Annex G. Each Lender's obligations to purchase
participations in Letters of Credit and Letter of Credit Obligations arising in
connection therewith shall be as set forth in Annex G.
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SECTION 1.6. Interest.
(a) The Borrower shall pay to Agent for the account of
each Lender interest on the Revolving Credit Advances made to the Borrower at
the following times: (i) with respect to Revolving Credit Advances not
constituting Fixed Rate Tranches, in arrears for the preceding calendar month,
on the first day of each calendar month, commencing on July 1, 1996, and, with
respect to each Fixed Rate Tranche, on the last day of the relevant Interest
Period therefor (and for each Fixed Rate Tranche subject to an Interest Period
of 180 days, on the 90th day of such Interest Period); (ii) if not otherwise
paid in full pursuant to clause (i) above, on the Commitment Termination Date;
and (iii) if any interest accrues or remains payable after the Commitment
Termination Date, upon demand. Whenever any payment to be made hereunder or
under any other Loan Document or on any Revolving Credit Advance shall be
stated to be due and payable, or whenever the last day of any Interest Period
would otherwise occur, on a day which is not a Business Day (or Eurodollar
Business Day with respect to a Fixed Rate Tranche), such payment shall be made
and the last day of such Interest Period shall occur on the next succeeding
Business Day (or Eurodollar Business Day with respect to a Fixed Rate Tranche)
and such extension of time shall in such case be included in computing interest
on such payment; provided, however, that if such extension would cause a
payment of a Fixed Rate Tranche to be made, or the last day of such Interest
Period for a Fixed Rate Tranche to occur, in the next following calendar month,
such payment shall be made and the last day of such Interest Period shall occur
on the next preceding Eurodollar Business Day. Interest shall be calculated by
Agent on a daily basis and on the basis of a three hundred sixty (360) day
year, in each case for the actual number of days occurring in the period for
which such interest is payable. Each determination by Agent of an interest
rate hereunder and each calculation of interest hereunder shall be conclusive
and binding for all purposes, absent manifest error or bad faith.
(b) Except as provided in paragraph (c) below, the
Borrower shall pay interest to Agent for the account of each Lender on the
aggregate outstanding balance of the Revolving Credit Advances (other than any
Fixed Rate Tranche) from the date made until paid in full at a floating rate
(the "Floating Rate") equal to the Index Rate in effect from time to time plus
the Index Rate Applicable Margin therefor. Subject to Section 1.6(e), the
Borrower shall pay interest, on demand, on all Obligations other than the
Revolving Credit Advances, at the Default Rate (applicable to Revolving Credit
Advances other than Fixed Rate Tranches) from and after the date that such
Obligations become due and payable.
(c) Provided that no Default or Event of Default has
occurred and is continuing, and subject to the terms and conditions set forth
herein, the Borrower may elect in the manner provided in paragraph (d) below
that the entire principal amount of the Revolving Credit Loan, or one or more
parts thereof (any such entire principal amount or part thereof, a "Fixed Rate
Tranche"), bear interest at a fixed rate (each such rate, a "Fixed Rate") for
such Interest Period as the Borrower shall select therefor equal to the
Adjusted LIBO Rate (as in effect for such Interest Period) plus the Fixed Rate
Applicable Margin therefor; provided that (i) not more than twenty Interest
Periods in the aggregate shall be in effect at any time with respect to the
Revolving Credit Loan; (ii) each Fixed Rate Tranche shall be in a minimum
principal amount of $10,000,000 (or any greater amount which is an
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integral multiple of $5,000,000); (iii) no Interest Period shall extend beyond
the Commitment Termination Date; (iv) no more than nine (9) Fixed Rate Tranches
may commence (including by renewal in whole or in part) on any one Eurodollar
Business Date; and (v) the principal amount of the Fixed Rate Tranche to which
any Interest Period relates shall not be reduced, by payment, prepayment or
otherwise, prior to the last day of such Interest Period, unless such payment
or prepayment is accompanied by payment of the amounts specified in paragraph
(g) below.
(d) Subject to the requirements set forth in paragraph
(c) above, the Borrower may, by written notice to Agent delivered not later
than the second full Eurodollar Business Day preceding the first day of any
Interest Period described in such notice, create (or renew in whole or in part,
so long as any renewal in part satisfies the requirements of a "Fixed Rate
Tranche") a Fixed Rate Tranche described in such notice. Each such notice (a
"Notice of Fixed Rate Election") shall be substantially in the form of Exhibit
1.6(d) hereto and shall specify (i) the amount of the Fixed Rate Tranche as to
which such election is made, and (ii) the Interest Period with respect to such
Fixed Rate Tranche; provided, however, that notwithstanding the foregoing, the
Borrower may give such notice by telephone at any time on such Eurodollar
Business Day so long as such notice is confirmed in writing not later than
10:00 a.m. (New York time) on such Eurodollar Business Day. Agent and Lenders
shall be entitled to rely upon and shall be fully protected under this
Agreement in relying upon any Notice of Fixed Rate Election (including any
telephonic notice whether or not confirmed in writing) believed by Agent to be
genuine and to assume that the persons executing and delivering the same were
duly authorized unless the responsible individual acting thereon for Agent
shall have actual notice to the contrary. In the event that the Borrower shall
fail to give a Notice of Fixed Rate Election with respect to any Fixed Rate
Tranche on or prior to the second Eurodollar Business Day prior to the last day
of the Interest Period therefore, in accordance with this paragraph (d), the
entire principal amount of such Fixed Rate Tranche shall thereafter bear
interest based upon the Index Rate as provided in paragraph (b) above,
commencing with the last day of the Interest Period applicable thereto, unless
and until such Borrower shall thereafter create another Fixed Rate Tranche as
permitted by this paragraph (d) and Section 1.6(c). No Notice of Fixed Rate
Election may be issued while any Default or Event of Default is continuing and
no Fixed Rate Tranche shall commence on any date on which a Default or Event of
Default is continuing (and the Notice of Fixed Rate Election in respect of any
such Fixed Rate Tranche shall be null and void and the Borrower shall pay any
and all amounts payable under paragraph (g) of this Section 1.6 in respect
thereof). Promptly following the determination of any LIBO Rate used to
calculate the Fixed Rate applicable to any Fixed Rate Tranche, Agent shall send
to Borrower a copy of the Telerate News Service page on which appeared the
quotation used in making such determination; provided, however, that the
failure to provide any such copy shall not affect or impair the rights of Agent
or any Lender hereunder or under any other Loan Documents, or any of Borrower's
or any other Loan Party's Obligations.
(e) (i) To the extent Agent or Required Lenders has
elected, by written notice to the Borrower, to impose such rate, upon the
occurrence and during the continuation of any Event of Default or (ii) upon the
occurrence and during the continuation of a Selected Event of Default, the
interest rate applicable to principal on the Revolving Credit Advances and
other Obligations shall be increased to the Default Rate.
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In the event that an event, act or occurrence which has become a Selected
Event of Default becomes an Event of Default, the Default Rate shall continue
to apply, without any additional notification, so long as such or any other
Event of Default is continuing.
(f) Notwithstanding anything to the contrary set forth in
this Section 1.6, if, at any time until payment in full of all of the
Obligations, any rate of interest payable hereunder 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, such rate of interest shall be equal to the Maximum Lawful Rate;
provided, that if at any time thereafter any rate of interest payable hereunder
is less than the Maximum Lawful Rate, Borrower shall continue to pay interest
hereunder at the Maximum Lawful Rate until such time as the total interest
received by each Lender hereunder is equal to the total interest which such
Lender would have received had the interest rate or rates payable hereunder
been (but for the operation of this Section 1.6(f)) the interest rate or rates
payable since the Closing Date as otherwise provided in this Agreement.
Thereafter, the interest rate or rates payable hereunder shall be the rate or
rates of interest provided in Sections 1.6(a) through (e), unless and until any
rate of interest again exceeds the Maximum Lawful Rate, in which event this
Section 1.6(f) shall again apply. In no event shall the total interest
received by any Lender pursuant to the terms hereof exceed the amount which
such Lender could lawfully have received had the interest due hereunder been
calculated for the full term hereof at the Maximum Lawful Rate. In the event
the Maximum Lawful Rate is calculated pursuant to this Section 1.6(f), (x) if
required by applicable law, such interest shall be calculated at a daily rate
equal to the Maximum Lawful Rate divided by the number of days in the year in
which such calculation is made, and (y) if permitted by applicable law, the
Borrower and Lenders shall (i) characterize any nonprincipal payment as an
expense, fee or premium rather than as interest, (ii) exclude voluntary
prepayments and the effect thereof, and (iii) amortize, pro rate, allocate and
spread in equal or unequal parts the total amount of interest throughout the
entire contemplated term of the Obligations so that interest for the entire
term of this Agreement does not exceed the Maximum Lawful Rate. In the event
that a court of competent jurisdiction, notwithstanding the provisions of this
Section 1.6(f), shall make a final determination that a Lender has received
interest hereunder or under any of the Loan Documents in excess of the Maximum
Lawful Rate, such Lender shall, to the extent permitted by applicable law,
promptly apply such excess first to any lawful interest due and not yet paid
hereunder, then to the outstanding principal of the Obligations, then to Fees
and any other unpaid Obligations, and thereafter shall refund any excess to the
Borrower or as a court of competent jurisdiction may otherwise order.
(g) In order to induce Lenders to fund and maintain any
Fixed Rate Tranche at a Fixed Rate on the terms provided herein, and in
consideration of the entering into by Lenders of funding arrangements from time
to time in contemplation thereof, whether or not funded in the London interbank
market, if any Fixed Rate Tranche is repaid in whole or in part on any day
other than the last day of the Interest Period therefor (whether any such
repayment is made pursuant to any provision of this Agreement or any other Loan
Document or is the result of acceleration, by operation of law or otherwise),
or if any Fixed Rate Tranche does not commence on the date specified in any
Notice of Fixed Rate Election, the Borrower shall pay all unpaid and accrued
interest on any amount so
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repaid and shall indemnify and hold harmless each Lender from and against and
in respect of any and all losses, costs and expenses resulting from, or arising
out of or imposed upon or incurred by such Lender by reason of the liquidation
or reemployment of funds acquired or committed to be acquired by such Lender to
fund or maintain such Fixed Rate Tranche at the Fixed Rate elected by the
Borrower, pursuant to such Lender's customary funding arrangements. The amount
of any losses, costs or expenses resulting in an obligation of the Borrower to
make a payment pursuant to the foregoing sentence shall represent the excess,
if any, of (x) such Lender's cost or deemed cost of obtaining funding for the
amount necessary to fund or maintain its Pro Rata share of such Fixed Rate
Tranche at the Fixed Rate elected by the Borrower, pursuant to such Lender's
customary funding arrangements, whether or not funded in the London interbank
market, as reasonably determined by such Lender (which may be computed by any
Lender on the basis of such funds having been borrowed at a rate equal to one
percent (1%) over the interest rate on United States Treasury bills or notes
with a maturity that most closely approximated the end of the relevant Interest
Period as quoted by Telerate News Service (page 5) at the close of business on
the first day of the Interest Period in respect of such Fixed Rate Tranche),
over (y) the return such Lender would receive on its reemployment of such
funds, as reasonably determined by such Lender (which, if such Lender's cost of
obtaining funding is computed pursuant to the parenthetical to clause (x)
above, may be computed by any Lender on the basis of its reinvestment of such
funds in United States Treasury bills or notes with a maturity that most
closely approximates the end of the relevant Interest Period, as quoted by
Telerate News Service (page 5) at the close of business on the date of
repayment of such Fixed Rate Tranche); provided, that if any Lender terminates
any funding arrangements in respect of its Pro Rata share of any such Fixed
Rate Tranche, the amount of such losses, costs and expenses shall also include
the cost to such Lender of such termination. The determination of such amount
by any Lender, when evidenced by a certificate from that Lender giving a
reasonably detailed calculation of the amount of said cost, expense, claim,
penalty, liability, loss, fee, damage or other charge, shall be presumed
correct in the absence of manifest error or bad faith.
SECTION 1.7. Eligible Collateral. Based on the most
recent Borrowing Base Certificate delivered by the Borrower to Agent and on
other information available to Agent, Agent shall determine in its reasonable
judgment which Inventory and Accounts of the Borrower shall be deemed to be
"Eligible Inventory" and "Eligible Receivables" of the Borrower for purposes of
determining the Borrowing Base.
SECTION 1.8. Fees. As compensation for Agent's and
Lenders' costs, skills, services and efforts incurred and expended in making
the Revolving Credit Loan and the Letters of Credit available to the Borrower,
the Borrower agrees to pay to Agent for its own account or the account of
Lenders, as the case may be, the fees set forth in Annex D.
SECTION 1.9. Cash Management System. On or prior to the
Closing Date, the Loan Parties will establish and maintain until the
Termination Date, the cash management system described in Annex B.
SECTION 1.10. Receipt of Payments. The Borrower shall make
each payment under this Agreement not later than 2:00 p.m. (New York time) on
the day when due in Dollars in immediately available funds to the CAF Account.
For purposes of
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computing interest and Fees and determining the Borrowing Availability: (a) all
payments (including cash sweeps) consisting of cash, wire, or electronic
transfers in immediately available funds shall be deemed received by Agent upon
deposit in the CAF Account and notice to Agent of such deposit; and (b) all
payments consisting of checks, drafts, or similar non-cash items shall be
deemed received upon receipt of good funds following deposit in the CAF Account
(together with notice to Agent of such deposit). Subject to Section 1.15, each
payment received by Agent under this Agreement or any Revolving Credit Note for
the account of any Lender shall be paid by Agent promptly to such Lender, in
the same funds received, for application to the Revolving Credit Loan or other
Obligation in respect of which such payment is made.
SECTION 1.11. Pro Rata Treatment. Except to the extent
otherwise provided herein: (a) each Revolving Credit Advance (including any
Revolving Credit Advance pursuant to Section 1.15(b)) shall be incurred and
made by Lenders, Pro Rata; (b) each payment or prepayment of principal of the
Revolving Credit Loan by the Borrower shall be made to Agent for the account of
Lenders, ratably in accordance with the respective unpaid principal amounts of
the Revolving Credit Loan held by Lenders; (c) each payment of interest on the
Revolving Credit Loan by the Borrower shall be made to Agent for the account of
Lenders ratably in accordance with the amounts of interest on the Revolving
Credit Loan then due and payable to Lenders; and (d) each payment of Non-Use
Fees shall be made to Agent for the account of Lenders, Pro Rata.
SECTION 1.12. Application and Allocation of Payments.
Except as otherwise provided herein, all payments at any time or times
hereafter received from or on behalf of the Borrower shall be applied in the
following order: (a) then due and payable Fees, expenses and other Obligations
(including Revolving Credit Advances made by Agent in its capacity as Agent)
owing by the Borrower to Agent; (b) then due and payable Fees and expenses of
Lenders owing by the Borrower; (c) then due and payable interest payments owing
by the Borrower; (d) Obligations to Lenders owing by the Borrower other than
Fees, expenses and interest and principal payments; and (e) then due and
payable principal payments on the Revolving Credit Loan owing by the Borrower;
provided that if any such payments are received from or on behalf of any Loan
Party other than the Borrower or if an Event of Default shall occur and be
continuing, such payments shall be applied to the Obligations in such manner
and order as Agent shall determine (or if all Lenders determine otherwise, as
all such Lenders so determine). Agent, on behalf of Lenders, is authorized to,
and at its option may, make or cause to be made Revolving Credit Advances by
Lenders on behalf of the Borrower for payment of all Fees, expenses, charges,
costs, principal, interest, or other Obligations then due and payable by the
Borrower under this Agreement or any of the Loan Documents, even if the making
of such Revolving Credit Advance causes the outstanding balance of the
Revolving Credit Loan, together with the outstanding Letter of Credit
Obligations, to exceed the Maximum Revolving Credit Commitment or the
outstanding principal balance of the Revolving Credit Advances, together with
the outstanding Letter of Credit Obligation, owing by the Borrower to exceed
the Borrowing Base, in which case the terms of Section 1.3(d) shall apply.
SECTION 1.13. Non-Receipt of Funds by Agent. Unless Agent
shall have been notified by a Lender or by the Borrower (in either case,
"Payor") prior to the date on which such Payor is to make payment to Agent of
(in the case of a Lender) the
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proceeds of a Revolving Credit Advance to be made by such Lender hereunder or
(in the case of the Borrower) a payment to Agent for account of one or more of
Lenders hereunder (such payment being herein called the "Required Payment"),
which notice shall be effective upon receipt by Agent, that such Payor does not
intend to make the Required Payment to Agent, Agent may assume that the
Required Payment has been made and may, in reliance upon such assumption (but
shall not be required to), make the amount thereof available to the intended
recipient(s) on such date; and, if such Payor has not in fact made the Required
Payment to Agent, the recipient(s) of such payment and the Payor each (without
duplication) shall, on demand, pay to Agent the amount so made available
together with interest thereon in respect of each day during the period
commencing on the date (the "Advance Date") such amount was so made available
by Agent until the date Agent recovers such amount, at a rate per annum equal
to (a) in the event that the Payor (which originally failed to make such
payment) is a Lender, the Floating Rate, or (b) in the event that the Payor
(which originally failed to make such payment) is the Borrower, the Default
Rate. Other than as expressly provided in Section 1.15(b), nothing in this
Section 1.13 or elsewhere in this Agreement or the other Loan Documents shall
be deemed to require Agent to advance funds on behalf of any Lender or to
relieve any Lender from its obligation to fulfill its Revolving Credit
Commitment hereunder or to prejudice any rights that the Borrower may have
against any Lender as a result of any default by such Lender hereunder.
SECTION 1.14. Sharing of Payments, Etc.
(a) The Borrower agrees that, in addition to (and without
limitation of) any right of setoff, banker's lien or counterclaim a Lender may
otherwise have, each Lender shall be entitled, at its option (but subject, as
between Lenders, to the provisions of Section 1.2(b)), to offset balances held
by it for the account of the Borrower at any of its offices, in Dollars or in
any other currency, against any principal of or interest on any of such
Lender's Pro Rata portion of the Revolving Credit Loan (including any Revolving
Credit Advances deemed made by such Lender under Section 1.15(b)) or any other
amount payable to such Lender hereunder, that is not paid when due (regardless
of whether such balances are then due to the Borrower), in which case it shall
promptly notify the Borrower and Agent thereof; provided, that such Lender's
failure to give such notice shall not affect the validity thereof.
(b) If any Lender shall obtain from or on behalf of the
Borrower or any other Loan Party payment of any principal of or interest on the
Pro Rata portion of the Revolving Credit Loan owing to it or payment of any
other amount under this Agreement, any Revolving Credit Note held by it or any
other Loan Document through the exercise of any right of setoff, banker's lien
or counterclaim or similar right or otherwise (other than from Agent as
provided herein), and, as a result of such payment, such Lender shall have
received a greater percentage of the principal of or interest on the Revolving
Credit Loan or such other amounts then due hereunder or thereunder by the
Borrower to such Lender than the percentage received by any other Lender, it
shall promptly pay to Agent, for the benefit of Lenders, the amount of such
excess and simultaneously purchase from such other Lenders a participation in
(or, if and to the extent specified by such Lender, direct interests in) the
Revolving Credit Loan or such other amounts, respectively, owing to such other
Lenders (or in interest due thereon, as the case may be) in such amounts, and
make such
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other adjustments from time to time as shall be equitable, to the end that all
Lenders shall share the benefit of such excess payment (net of any expenses
that may be incurred by such Lender in obtaining or preserving such excess
payment) ratably in accordance with the unpaid principal of and/or interest on
the Revolving Credit Loan or such other amounts, respectively, owing to each of
Lenders. Amounts received by Agent under this Section 1.14(b) shall be treated
as a payment by the Borrower under Section 1.12. To such end all Lenders shall
make appropriate adjustments among themselves (by the resale of any
participation sold or otherwise) if such payment is rescinded or must otherwise
be restored.
(c) The Borrower agrees that any Lender so purchasing
such a participation (or direct interest) may exercise, in a manner consistent
with Section 1.14(a), all rights of setoff, banker's lien, counterclaim or
similar rights with respect to such participation as fully as if such Lender
were a direct holder of the Revolving Credit Loan or other amounts (as the case
may be) owing to such Lender in the amount of such participation. Any Lender
which so exercises any right of setoff shall notify the Borrower and Agent of
such exercise; provided that the failure to do so shall not affect the validity
of such setoff.
(d) Nothing contained herein shall require any Lender to
exercise any right as against the Borrower or any other Loan Party as described
in this Section 1.14 or shall affect the right of any Lender to exercise, and
retain the benefits of exercising, any such right with respect to any other
indebtedness or obligation of the Borrower or such other Loan Party. If, under
any applicable bankruptcy, insolvency or other similar law, any Lender receives
a secured claim in lieu of a setoff or right as against the Borrower or any
other Loan Party to which this Section 1.14 applies, such Lender shall, to the
extent practicable, assign such rights to Agent for the benefit of Lenders and,
in any event, exercise its rights in respect of such secured claim in a manner
consistent with the rights of Lenders entitled under this Section 1.14 to share
in the benefits of any recovery on such secured claim.
SECTION 1.15. Settlement Procedures.
(a) Except as provided in paragraphs (b) and (c) of this
Section 1.15, Agent shall use the following same day settlement procedure for
borrowings of Revolving Credit Advances. Prior to 1:30 p.m. (New York time) on
any date specified for a borrowing of a Revolving Credit Advance in a Notice of
Revolving Credit Advance, Agent may notify each Lender by telephone or by
telex, telecopy or other form of teletransmission, of the requested Revolving
Credit Advance. Not later than 3:00 p.m. (New York time) on the date of such
proposed Revolving Credit Advance, each Lender shall make available to Agent,
in same day funds, to such account of Agent as Agent may designate, such
Lender's Pro Rata share of such Revolving Credit Advance. Each Lender will
make such payments without setoff, counterclaim, recoupment or reduction of any
kind. Notwithstanding the foregoing, to the extent that there are available
funds in the CAF Account, Agent may, at Agent's discretion, notify each Lender
that such Lender's obligation to make available to Agent same day funds as
provided in the preceding sentence shall be satisfied to the extent of its
ratable share out of such funds in the CAF Account, or such portion of such
funds as Agent shall indicate are to be applied to fund such Revolving Credit
Advance.
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(b) Notwithstanding anything to the contrary contained in
this Agreement, to the extent requested by the Borrower, Agent shall fund the
entire amount of any Revolving Credit Advance, so long as (i) such Revolving
Credit Advance, together with all Revolving Credit Advances made by Agent under
this paragraph (b) and not theretofore reimbursed to Agent, shall not exceed
$75,000,000, (ii) all conditions to the making of such Revolving Credit Advance
under this Agreement shall have been satisfied, and (iii) after giving effect
to the making of such Revolving Credit Advance, the sum of the outstanding
principal balance of the Revolving Credit Loan plus the Letter of Credit
Obligations does not exceed the lesser of (x) the Maximum Revolving Credit
Commitment and (y) the Borrowing Base. In the event Agent makes such Revolving
Credit Advance under this paragraph (b), each Lender shall be unconditionally
obligated to deliver to Agent such Lender's Pro Rata share of such Revolving
Credit Advance on the Semi-Weekly Settlement Date in accordance with the
procedure for weekly settlement set forth in Section 1.15(c) or as otherwise
provided in Section 1.15(a); provided, however, that notwithstanding the
foregoing and notwithstanding anything to the contrary contained in this
Agreement, for purposes of calculating interest payable to any Lender (A) until
reimbursed by a Lender, Agent shall be deemed the "Lender" with respect to any
outstanding Revolving Credit Advances funded by Agent under this Agreement,
whether under this paragraph (b) or otherwise, and (B) the amount of Revolving
Credit Advances of any Lender that are outstanding on any day shall be equal to
the amount of such Lender's Revolving Credit Advances outstanding on such day
excluding any Revolving Credit Advances that have been funded entirely by Agent
with respect to which such Lender has not funded its Pro Rata share; provided,
further, for each day on which the outstanding principal balance of Revolving
Credit Advances made by Agent under this paragraph (b) together with the
outstanding principal balance of Revolving Credit Advances made by the Lender
which is the Agent exceed the Revolving Credit Commitment of such Lender, then,
and in any such event, Agent shall, solely from payments of interest received
in respect of such day by Agent on that portion of its Revolving Credit
Advances equal to such excess, pay to the Lenders (including such Lender), Pro
Rata, an amount equal to one-quarter of one percent (0.25%) per annum on the
amount of such excess, such amount to be paid by Agent on any day on which any
payment of Non-Use Fee is payable. For the purposes of calculating the Non-Use
Fee, the Revolving Credit Advances made by Agent under this paragraph (b) shall
be included as usage of the Revolving Credit Commitments.
(c) The Revolving Credit Loan balance may fluctuate from
day to day from Agent's disbursement of funds to, and receipt of funds from,
the Borrower. In order to minimize the frequency of transfers of funds between
Agent and Lenders, Revolving Credit Advances may be made by Agent and payments
in respect thereof will be settled according to the procedures set forth in
this Section 1.15(c). Notwithstanding these procedures, each Lender's
obligation to fund its portion of any Revolving Credit Advance will commence on
the date such Revolving Credit Advances are made. Such payments will be made
by each Lender without defense, setoff, counterclaim or reduction of any kind
and without regard as to whether on the date such payment is due and payable
there shall be continuing any Default or Event of Default and regardless of
whether on the date such payment is due and payable any conditions to the
making of any Revolving Credit Advance have not been or could not be satisfied.
Each Lender shall settle with Agent, upon Agent's request, on each Tuesday and
each Friday (to the extent any such day is a Business Day) of each week (or on
such other day of the week as may be designated from time to time by
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Agent) (each, a "Semi-Weekly Settlement Date"), on the net of Revolving Credit
Advances and payments made and collections received since the date of the last
settlement. On each Semi-Weekly Settlement Date, prior to 1:30 p.m. (New York
time), Agent shall notify each Lender by telephone or by telex, telecopy or
other form of teletransmission, of such Lender's Pro Rata share of the
outstanding Revolving Credit Advances and the amount of the payment necessary
to adjust such Lender's outstanding Revolving Credit Advances to such Lender's
Pro Rata share of such Revolving Credit Advances as of such Semi-Weekly
Settlement Date (on a net basis taking into account any funds in the CAF
Account which Agent determines are available and from which Agent may reimburse
itself for any such Revolving Credit Advance and interest thereon prior to
making any other distributions or giving any other credit to any Lender
hereunder). Any such payment shall be made by the party from which such
payment is due to the other party, in same day funds, not later than 3:00 p.m.
(New York time) on such Semi-Weekly Settlement Date. If any Lender shall, for
any reason, not settle with Agent on the Semi-Weekly Settlement Date, such
Lender agrees to pay and the Borrower agrees to repay, severally, to Agent
forthwith on demand the amount due Agent on such Semi-Weekly Settlement Date
together with interest thereon for each day from such Semi-Weekly Settlement
Date until the day such amount is paid to Agent, at the rate then in effect
with respect to Revolving Credit Advances pursuant to Section 1.6 hereof. If
such Lender shall pay to Agent such corresponding amount of principal, such
amount so paid shall constitute such Lender's Revolving Credit Advance and, if
both such Lender and the Borrower shall have paid and repaid, respectively,
such corresponding amount of principal, Agent shall promptly pay over to the
Borrower such corresponding amount in same day funds, but the Borrower shall
remain obligated for all interest thereon (which Agent may deduct from amounts
paid over to the Borrower).
SECTION 1.16. Accounting. Agent will provide a monthly
accounting of transactions under the Revolving Credit Loan to the Borrower.
Each and every such accounting shall (absent manifest error) be deemed final,
binding and conclusive upon the Borrower in all respects as to all matters
reflected therein, unless the Borrower, within fifteen (15) days after the date
any such accounting is rendered, shall notify Agent in writing of any objection
which the Borrower may have to any such accounting, describing the basis for
such objection with specificity. In that event, only those items (the
"disputed items") expressly objected to in such notice shall be deemed to be
disputed by the Borrower. Agent's determination in good faith, based upon the
facts available, of any disputed item shall (absent manifest error) be final,
binding and conclusive on the Borrower.
SECTION 1.17. Indemnity.
(a) Each Loan Party shall, jointly and severally,
indemnify and hold Agent, the Syndication Agent, each Lender, their respective
Affiliates, and their respective officers, directors, representatives,
employees, attorneys and agents (each, an "Indemnified Person"), harmless from
and against any and all suits, actions, arbitrations, costs, fines,
deficiencies, penalties, proceedings, claims, damages, losses, liabilities and
expenses (including reasonable attorneys' fees and disbursements and other
costs of investigations or defense, including those incurred upon any appeal)
(each, a "Claim") which may be instituted or asserted against or incurred by
such Indemnified Person as the result of this Agreement, any other Loan
Document, credit having been extended or not extended under
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<PAGE> 22
this Agreement or any other Loan Document, the use or intended use of proceeds
of Revolving Credit Advances or Letters of Credit, or otherwise arising in
connection with the transactions contemplated hereunder and thereunder,
including any and all Environmental Liabilities and Costs and any
investigation, litigation, arbitration or proceeding related to any of the
foregoing, and regardless of whether the Indemnified Person is a party to such
Claim; provided, that no Loan Party shall be liable for any indemnification to
such Indemnified Person with respect to any portion of any such Claim to the
extent arising from such Indemnified Person's gross negligence or willful
misconduct (including the failure by any such Indemnified Person to make
Revolving Credit Advances in breach of its obligations under this Agreement) as
determined by a final nonappealable judgment of a court of competent
jurisdiction. Each Loan Party shall reimburse each Indemnified Person, upon
demand, for any legal or other expenses incurred in connection with
investigating, defending or participating in any such Claim, or any action or
proceeding or arbitration relating to such Claim, including, without
limitation, expenses incurred in depositions and other discovery proceedings,
whether commenced or threatened (and whether or not any such person is a party
to any action or proceeding out of which any such expenses arise), or in any
way relating to or from any use or intended use of any of the proceeds of this
credit facility except, in the case of any Indemnified Person, to the extent
any such Claim is determined by a final nonappealable judgment of a court of
competent jurisdiction to arise as a result of the gross negligence or willful
misconduct (including the failure of any such Indemnified Person to make
Revolving Credit Advances in breach of its obligations under this Agreement) of
such Indemnified Person. NEITHER AGENT NOR ANY LENDER NOR ANY OTHER INDEMNIFIED
PERSON SHALL BE RESPONSIBLE OR LIABLE TO ANY OTHER PARTY HERETO, ANY SUCCESSOR,
ASSIGNEE OR THIRD PARTY BENEFICIARY OF SUCH PERSON OR ANY OTHER PERSON
ASSERTING CLAIMS DERIVATIVELY THROUGH SUCH PARTY, FOR INDIRECT, PUNITIVE,
EXEMPLARY OR CONSEQUENTIAL DAMAGES WHICH MAY BE ALLEGED AS A RESULT OF CREDIT
HAVING BEEN EXTENDED UNDER THE LOAN DOCUMENTS, THE USE OR INTENDED USE OF
PROCEEDS OF REVOLVING CREDIT ADVANCES OR OTHERWISE IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY. The foregoing provision in favor of any
Indemnified Person shall be in addition to any rights that such Indemnified
Person may have at common law or otherwise, including, but not limited to, any
right to contribution.
In any suit, proceeding or action brought by Agent or Lenders relating to any
Account, Chattel Paper, Contract, General Intangible, Instrument, Equipment or
Document for any sum owing thereunder, or to enforce any provision of any
Account, Chattel Paper, Contract, General Intangible, Instrument or Document,
the Borrower shall save, indemnify and keep Agent and Lenders harmless from and
against all expense, loss or damage suffered by reason of any defense, setoff,
counterclaim, recoupment or reduction of liability whatsoever of the obligor
thereunder arising out of a breach by the Borrower or other Loan Party of any
obligation thereunder or arising out of any other agreement, indebtedness or
liability at any time owing to, or in favor of, such obligor or its successors
from the Borrower or other Loan Party, all such obligations of the Borrower or
other Loan Party shall be and remain enforceable against, and only against, the
Borrower or other Loan Party and shall not be enforceable against Agent or
Lenders.
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(b) The Borrower acknowledges and agrees that neither
Agent nor any Lender (as of the date hereof) (i) is now or has ever been in
control of any of the Real Property or the affairs of the Borrower, any other
Loan Party or any Subsidiary thereof, and (ii) has the capacity through the
provisions of the Loan Documents to influence the conduct of the Borrower, any
other Loan Party or any Subsidiary thereof with respect to the ownership,
operation or management of any of the Real Property.
SECTION 1.18. Access. Each Loan Party shall at such
Person's expense: (a) provide access during normal business hours to Agent and
any of its officers, employees, representatives, consultants and agents (who
may be accompanied by representatives of any one or more Lenders), as
frequently as Agent reasonably determines to be appropriate, upon reasonable
advance notice (unless a Default or Event of Default shall have occurred and be
continuing, in which event no notice shall be required and there shall be no
limitation on the frequency with which, Agent may require such access, and
Agent shall have such access at all times (without regard to normal business
hours)), to the properties and facilities of such Loan Party; (b) subject to
Section 5.17, permit Agent and any of its officers, employees, representatives,
consultants and agents (who may be accompanied by representatives of any one or
more Lenders) to inspect, audit and make extracts from all of such Loan Party's
records, files and books of account; and (c) permit Agent or any
representatives, consultants or agents of Agent (who may be accompanied by
representatives of any one or more Lenders) to conduct audits to inspect,
review and evaluate the Collateral, and such Loan Party agrees to render to
Agent and its representatives, consultants and agents at such Loan Party's
cost and expense, such clerical and other assistance as may be reasonably
requested with regard thereto. Each Loan Party shall make available to Agent
and upon the occurrence and continuance of a Default or an Event of Default,
each Lender and their respective counsel, as quickly as practicable under the
circumstances, originals or copies of all books, records, board minutes,
contracts, insurance policies, environmental audits, business plans, files,
financial statements (actual and pro forma), filings with federal, state and
local and foreign regulatory agencies, and other instruments and documents
which Agent reasonably may request. Each Loan Party shall deliver any document
or instrument reasonably necessary for Agent, as it may from time to time
request, to obtain records from any service bureau or other Person which
maintains records for such Loan Party, and shall maintain duplicate records or
supporting documentation on media, including computer tapes and discs owned by
such Loan Party. Each Loan Party shall instruct its banking and other
financial institutions to make available to Agent such information and records
as Agent may reasonably request.
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SECTION 1.19. Taxes.
(a) Any and all payments by or on behalf of the Borrower
or other Loan Party hereunder or under any Revolving Credit Note or other Loan
Document, shall be made, in accordance with this Section 1.19, free and clear
of and without deduction or withholding for any and all present or future
Taxes. If the Borrower or other Loan Party shall be required by law to deduct
or withhold any Taxes from or in respect of any sum payable hereunder or under
any Revolving Credit Note or other Loan Document to Agent or any Lender, (i)
the sum payable shall be increased as may be necessary so that after making all
required deductions and withholdings (including deductions and withholdings
applicable to additional sums payable under this Section 1.19) Agent or such
Lender receives an amount equal to the sum it would have received had no such
deductions or withholdings been made, (ii) the Borrower or other Loan Party
shall make such deductions and withholdings, and (iii) the Borrower or other
Loan Party shall pay the full amount deducted or withheld to the relevant
taxing or other authority in accordance with applicable law.
(b) In addition, the Borrower and each other Loan Party
agree, jointly and severally, to pay any present or future intangible personal
property, stamp or documentary taxes or any other excise or property taxes,
charges or similar levies that arise from any payment made hereunder or under
the Revolving Credit Notes or from the execution, delivery or registration of,
or otherwise with respect to, this Agreement, the other Loan Documents or any
other matter contemplated by this Agreement (hereinafter referred to as "Other
Taxes").
(c) The Borrower and each other Loan Party, shall,
jointly and severally, indemnify and pay, within ten (10) days of demand
therefor, Agent and each Lender for the full amount of Taxes or Other Taxes
(including any Taxes or Other Taxes imposed by any jurisdiction on amounts
payable under this Section 1.19) paid by Agent or such Lender and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted.
(d) Within thirty (30) days after the date of any such
payment of Taxes or Other Taxes, the relevant Loan Party shall furnish to Agent
or such Lender, at its address referred to in Section 11.9, the original or a
certified copy of a receipt evidencing payment thereof.
(e) Without prejudice to the survival of any other
agreement of any Loan Party under this Agreement or any other Loan Document,
the agreements and obligations of the Loan Parties contained in this Section
1.19 shall survive the Termination Date.
SECTION 1.20. Additional Costs.
(a) Subject to Section 1.6(f), the Borrower shall pay
directly to each Lender from time to time on request such amounts as such
Lender may reasonably determine to be necessary to compensate such Lender for
any costs that it reasonably determines are attributable to the maintenance by
such Lender, pursuant to any law or regulation or any interpretation, directive
or request (whether or not having the force of law
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and whether or not failure to comply therewith would be unlawful) of any court
or governmental or monetary authority (i) following any Regulatory Change or
(ii) implementing after the date hereof any risk-based capital guideline or
other capital requirement (whether or not having the force of law and whether
or not the failure to comply therewith would be unlawful) hereafter issued (or
heretofore issued but not required to be complied with as of the date hereof)
by any Governmental Authority in respect of such Lender's Revolving Credit
Commitment, Revolving Credit Advances or Letter of Credit Obligations hereunder
(such compensation to include, without limitation, an amount equal to any
reduction of the rate of return on assets or equity of such Lender to a level
below that which such Lender could have achieved but for such law, regulation,
interpretation, directive or request); provided, however, that amounts payable
under this Section 1.20 shall exclude amounts taken into account in the
calculation of the Fixed Rate; provided, further, that in no event shall
Borrower be liable for any amounts under this Section 1.20 which were incurred
more than 150 days prior to the delivery of the applicable certificate with
respect thereto by a Lender.
(b) Each Lender will furnish to the Borrower a
certificate setting forth the basis and amount of each request by such Lender
for compensation under this Section 1.20. Determinations and allocations by
any Lender for purposes of this Section 1.20 of the effect of any Regulatory
Change pursuant to or of capital maintained pursuant to this Section 1.20, on
its costs or rate of return of maintaining its Revolving Credit Commitment,
Revolving Credit Advances or Letter of Credit Obligations, and of the amounts
required to compensate such Lender under this Section 1.20, shall be conclusive
and binding absent manifest error or bad faith.
SECTION 1.21. Replacement of Lenders. If (a) any Lender
defaults in its obligation to make Revolving Credit Advances under Section 1.1
or Section 1.15, (b) any Loan Party becomes obligated to pay additional amounts
to any Lender or participant as a result of an event described in Section
1.6(g), Section 1.19 or Section 1.20 as a result of any conditions described in
such Sections and payment of such amount is demanded by any Lender or any
Person who purchases a participation as set forth in Section 10.2 and as a
result thereof, the cost to Borrower of such Lender's Pro Rata share of the
Revolving Loan increases (or will increase) over the rate generally being
charged by other Lenders, (c) any Lender is not funding or advises any Loan
Party that such Lender will not fund Revolving Credit Advances bearing interest
at the Fixed Rate as a result of the enactment of a law or regulation or (d)
any Lender refuses to consent to proposed changes, waivers, discharges or
terminations with respect to this Agreement or the other Loan Documents which
changes, waivers, discharges or terminations require the consent of all Lenders
and which have been approved by Lenders holding more than eighty percent (80%)
of the aggregate of the Revolving Credit Commitments of all Lenders at such
time (or, if the Termination Date has occurred, in lieu of the Revolving
Credit Commitments, eighty percent (80%) of the sum of the Revolving Credit
Loan and Letter of Credit Obligations then outstanding) or (e) any Lender
becomes insolvent and its assets become subject to a receiver, liquidator,
trustee, custodian or other officer having similar powers, then, if no Default
or Event of Default is continuing, either immediately prior to (except as to
clause (d) above), or after, giving effect to such event, the Borrower shall
have the option to replace such Lender or in the case of a participant, the
portion of such Lender's Revolving Credit Advances (and related Revolving
Credit Commitment and risk participations) subject
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to participation in favor of such participant (each (or to the extent of such
portion), a "Replaced Lender") with one or more other Lenders or other entities
reasonably acceptable to Agent (and in any event, without contravention of the
restrictions contained in Section 10.2) (the "Replacement Lender") on 10
Business Days' prior written notice to Agent and the Replaced Lender, which
Replacement Lender shall assume the Revolving Credit Commitment (and all risk
participations created under the Credit Agreement) of the Replaced Lender. As
a condition to replacement, the Replaced Lender shall be entitled to receive in
immediately available funds (i) all outstanding principal under the Revolving
Credit Loan owing to such Replaced Lender, (ii) the Replaced Lender's ratable
share of all accrued and unpaid interest thereon, (iii) the Replaced Lender's
ratable share of all accrued and unpaid fees, and (iv) all other Obligations
then due and payable to the Replaced Lender, including, without limitation, any
amounts payable under Section 1.19 or Section 1.20, as well as a release, in
form and substance reasonably satisfactory to the Replaced Lender, from the
Borrower and the other Loan Parties with respect to all Claims which have
arisen or may thereafter arise under or in connection with the Loan Documents.
ARTICLE 2
CONDITIONS PRECEDENT
SECTION 2.1. Conditions to the Initial Revolving Credit
Advance and the Initial Letter of Credit Obligation. Notwithstanding any other
provision of this Agreement and without affecting in any manner the rights of
Agent or any Lender hereunder, the Borrower shall have no rights under this
Agreement (but shall have all applicable obligations hereunder), and Agent and
Lenders shall not be obligated to make any Revolving Credit Advance or to incur
any Letter of Credit Obligations or to take, fulfill, or perform any other
action hereunder, until the following conditions have been fulfilled to the
satisfaction of Agent (and to the extent specified below, of Lenders):
(a) This Agreement or counterparts thereof shall have
been duly executed by, and delivered to, the Borrower, the other Loan Parties,
Agent and each Lender.
(b) Agent and Lenders shall have received such documents,
instruments, certificates, opinions and agreements as Agent shall reasonably
request in connection with the transactions contemplated by this Agreement,
including in any event all documents, instruments, agreements and other
materials listed in the Schedule of Closing Documents attached as Annex C
hereto, each in form and substance satisfactory to Agent and the Lenders.
(c) Agent shall have received evidence satisfactory to
Agent that all Indebtedness and other obligations of FoxMeyer and its
Subsidiaries under the Existing Credit Agreement and related documents and the
Senior Notes and Senior Note Indenture (in each case, as in effect immediately
prior to the Closing Date) will be performed and paid in full from the proceeds
of the initial Revolving Credit Advance and all Liens upon any of the property
(including any cash collateral) of FoxMeyer and its Subsidiaries in favor of
the lender or lenders thereunder (or agent therefor) shall be terminated and
released immediately upon such payment and Agent and such lender or lenders (or
agent therefor) shall have entered into an escrow or other agreement in form
and substance satisfactory to
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Agent providing for the release and termination of all such Liens, termination
of the Existing Credit Agreement, Senior Notes and Senior Note Indenture and
acknowledgment of payment in full of all outstanding Indebtedness and other
obligations under or relating to the Existing Credit Agreement, Senior Notes
and Senior Note Indenture.
(d) Agent shall have received evidence satisfactory to
Agent that the Loan Parties have obtained consents, approvals and
acknowledgments of all Persons whose consents, approvals and acknowledgments
may be required, including all requisite Governmental Authorities, to the terms
and to the execution and delivery of this Agreement and the other Loan
Documents and the consummation of the transactions contemplated hereby and
thereby.
(e) Agent shall have received evidence satisfactory to
Agent that the insurance policies provided for in Section 3.19 and Annex F are
in full force and effect, together with appropriate evidence showing a loss
payable and/or additional insured clauses or endorsements, as appropriate, in
favor of Agent on behalf of Lenders and in form and substance satisfactory to
Agent.
(f) All of the borrowing base assets supporting the
financial accommodations to be provided hereunder and under the Receivables
Funding Agreement on the Closing Date after giving effect to the amount, if
any, of the reserves to be established thereunder on the Closing Date
(including reserves established in respect of Letter of Credit Obligations, if
any) and the initial borrowings or usage thereunder (including, without
limitation, borrowings and usage sufficient to satisfy the condition precedent
set forth in paragraph (c) of this Section 2.1) shall be sufficient in value,
on a pro forma basis after giving effect to the payment of all anticipated
closing expenditures, whether or not then paid or billed, as determined by
Agent, and without any Material Deterioration of Trade Payables, to provide the
Borrower with Borrowing Availability, of not less than $35,000,000.
(g) Payment in immediately available funds by the
Borrower to Agent for its account and the account of Lenders, as the case may
be, of all Fees and costs and expenses of closing (including reasonable fees
and expenses of consultants and counsel to Agent presented as of the Closing
Date), against which will be credited certain amounts heretofore paid by
FoxMeyer to GE Capital as and to the extent provided in the Commitment Letter
and the Fee Letter.
(h) No action, proceeding, investigation, audit,
regulation or legislation shall have been instituted, threatened or proposed
before any Governmental Authority (i) which could reasonably be expected to
have a Material Adverse Effect, or (ii) to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of, this
Agreement or any of the other Loan Documents or the consummation of the
transactions contemplated hereby or thereby and which, in Agent's reasonable
judgment, would make it inadvisable to consummate the transactions contemplated
by this Agreement or any of the other Loan Documents.
(i) There shall have been (i) no material increase in
liabilities, liquidated or contingent, of FoxMeyer or any of its Subsidiaries,
or any material decrease in the assets
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of FoxMeyer or any of its Subsidiaries from that reflected in the February
Financial Statements, other than as a result of the Dividend Transaction, (ii)
no material adverse change (x) in the business, operations, financial condition
or prospects of FoxMeyer, any of its Subsidiaries or any other Loan Party from
that reflected in the February Financial Statements, it being understood and
agreed that FoxMeyer has disclosed to the Agent and the Lenders that FoxMeyer
expects to take a charge to income of approximately $41,000,000 after February
29, 1996 arising from revaluations of inventory, recognition of losses from
discontinued operations and taking miscellaneous reserves (the "Charge to
Income"), and that the Agent and the Lenders agree that such Charge to Income,
in and of itself, shall be deemed not to constitute a material adverse change,
or (y) since the date of the February Financial Statements, in the industry in
which FoxMeyer, any of its Subsidiaries or any other Loan Party operates or in
the Collateral which is intended to be subject to the security interests
granted to the Agent and the Lenders as contemplated hereunder and (iii) no
change in the loan syndication, financial or capital market conditions
generally that has materially impaired, or could reasonably be expected to
materially impair, the syndication of the loan facility provided under this
Agreement.
(j) (w) As of the Closing Date, the Agent shall be
satisfied with the cash management systems of FoxMeyer and its Subsidiaries, it
being understood that as of May 3, 1996 the Agent was satisfied with the cash
management systems of FoxMeyer and its Subsidiaries, provided that the Agent
will require the implementation of certain depository accounts in connection
with this Agreement as set forth in Annex B hereto and the facility provided
under the Receivables Funding Documents. (x) As of the Closing Date, the Agent
shall have completed, with results reasonably satisfactory to the Agent,
business and legal due diligence including, without limitation, satisfactory
review by the Agent's field examiners or attorneys, as applicable, of
FoxMeyer's, its Subsidiaries' and the other Loan Party's accounts receivable,
assets, inventory, financial controls and records, contracts, real estate,
leases, pension funds, environmental compliance, indebtedness, liabilities,
capital structure, corporate structure, tax position and a liquidation
analysis; it being acknowledged by the Agent that as of May 3, 1996 the Agent
has completed (and found satisfactory) all business due diligence which the
Agent intends to conduct, other than completion of insurance due diligence and
any business due diligence which may be necessitated by the results of its
legal due diligence (it being understood that as of May 3, 1996 the Agent had
not commenced legal due diligence). (y) As of the Closing Date the Agent shall
be reasonably satisfied with all incentive and employment agreements, employee
plans, tax and tax sharing agreements and other material contracts of the
Parent and its subsidiaries, the structure and tax effects of the contemplated
transaction, and all organizational or governing documents and material
agreements of the Parent, the Borrower and their respective Affiliates and the
other Loan Parties. (z) As of the Closing Date, the Syndication Agent and the
Agent shall have had reasonable and continuing access to the facilities,
personnel, management and independent public accountants of the Parent and of
FoxMeyer and its Subsidiaries, copies of all documents which the Agent or the
Syndication Agent shall have required or reasonably requested, including
business plans, financial statements (actual and pro forma), books, records,
and documents, regardless of by or for whom any of such items have been
prepared and any other material which the Agent or the Syndication Agent shall
have deemed necessary in connection with the syndication of the loan facility
provided under this Agreement, or to monitor, inspect and review the loans and
collateral under such loan facility.
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(k) The Receivable Sellers and the Receivables Funding
Subsidiary shall have entered into the Receivables Funding Documents (which
documents shall be reasonably satisfactory to Agent) and shall have satisfied
all conditions set forth in Section 3.01 of the Receivables Funding Agreement
and the Receivables Sale Agreement and the Receivables Funding Documents shall
be in full force and effect.
(l) Agent and Lenders shall have obtained a pro forma
balance sheet of FoxMeyer and its Subsidiaries as of the Closing Date after
giving effect to the transactions contemplated on the Closing Date under this
Agreement and the Receivables Funding Documents in form and substance
reasonably satisfactory to the Agent.
(m) (i) the Dividend Transaction shall have been
consummated concurrently with the making of the initial Revolving Credit
Advance, (ii) Harris Wholesale, Inc., a Delaware corporation, shall have been
merged with and into FoxMeyer Drug Company, a Kansas corporation with FoxMeyer
Drug Company, a Kansas corporation being the surviving corporation, (iii)
FoxMeyer Drug Company, a Delaware corporation, shall have been merged with and
into FoxMeyer Drug Company, a Kansas corporation with FoxMeyer Drug Company, a
Kansas corporation being the surviving corporation, (iv) FMDC Company, a
Delaware corporation formed by FoxMeyer Corporation, shall have changed its
name to FoxMeyer Drug Company, a Delaware corporation, and (v) FoxMeyer Drug
Company, a Kansas corporation shall have merged with and into FoxMeyer Drug
Company, a Delaware corporation (formerly known as FMDC Company) with FoxMeyer
Drug Company, a Delaware corporation (formerly known as FMDC Company) being the
surviving corporation (and the Borrower hereunder) and all fees and taxes due
by the constituent corporations in such mergers, or assumable in connection
with such mergers, shall have been paid. As of the Closing Date, FMDC Company
shall have engaged in no activities, acquired no assets and incurred no
liabilities except in connection with the formation of FMDC Company and the
foregoing mergers.
(n) Agent shall be satisfied that, as of the Closing
Date, the Borrower and the Loan Parties and their respective Subsidiaries
thereof shall be in compliance with all material agreements and all federal,
state and local and foreign laws and regulations including labor and
environmental laws and regulations, laws and regulations of or with respect to
the Food and Drug Administration ("FDA") and the Drug Enforcement Agency
("DEA") and ERISA, and shall have obtained all waivers, consents, approvals or
withholding of objections necessary or appropriate in connection with the
transactions contemplated by this Agreement and the facilities provided
hereunder.
(o) As of the Closing Date, FoxMeyer and the other Loan
Parties and their respective Subsidiaries shall have provided to the Agent, to
the extent that Agent shall have requested same, copies of all environmental
reviews, surveys and audits existing as of the Closing Date, all environmental
indemnities and other agreements under which any Loan Party has liability in
respect of environmental claims to any Person, as well as other information
pertaining to actual or potential environmental claims, all such materials to
be reasonably satisfactory to the Agent. Nothing contained in this paragraph
(o) shall be deemed to require FoxMeyer, any Loan Party or any of their
respective Subsidiaries to commence or complete any environmental study or
audit.
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(p) Agent shall be satisfied that, as of the Closing
Date, the transactions contemplated by this Agreement shall be in compliance
with all applicable laws and regulations (including, without limitation, each
state in which any Loan Party is located or organized), and there shall be no
legal impediment to any of Lenders making loans or other extensions of credit
contemplated by this Agreement or any agent functioning as such in any
applicable jurisdiction.
(q) As of the Closing Date the Agent shall have received
landlord's or similar waivers (in form, scope and substance reasonably
satisfactory to the Agent) for each location of Inventory of the Borrower which
is not owned by a Loan Party such that 50% (by replacement value) of Inventory
of the Borrower shall be covered by a landlord's or similar waiver or located
in one or more facilities owned by a Loan Party. Each Loan Party, as to any
location owned by such Loan Party and as to which Inventory not owned by such
Loan Party is, or may in the future be, located, hereby agrees to the terms of
Annex I hereto.
SECTION 2.2. Further Conditions to Each Revolving Credit
Advance and Each Letter of Credit Obligation. It shall be a further condition
to the funding of the initial and each subsequent Revolving Credit Advance and
the incurrence of the initial and each subsequent Letter of Credit Obligation,
if any, that the following statements shall be true on the date of each such
funding, advance or incurrence, as the case may be:
(a) Each Loan Party's representations and warranties
contained herein or in any of the Loan Documents shall be true and correct on
and as of the Closing Date and the date on which each such Revolving Credit
Advance is made or any Letter of Credit Obligation, if any, is incurred, as
appropriate, as though made on or incurred on and as of such date, except to
the extent that any such representation or warranty expressly relates solely to
an earlier date and except for changes therein permitted or contemplated by
this Agreement.
(b) No event shall have occurred and be continuing, or
would result from the making of any Revolving Credit Advance or the incurrence
of any Letter of Credit Obligation, as the case may be, which constitutes or
would constitute a Default or an Event of Default.
(c) After giving effect to any such Revolving Credit
Advance or the incurrence of any such Letter of Credit Obligation, as the case
may be, the sum of the aggregate principal amount of the Revolving Credit
Advances and Letter of Credit Obligations shall not exceed the Borrowing Base
or Maximum Revolving Credit Commitment and there shall be no requirement under
Section 1.3(b) to prepay any Revolving Credit Advance or provide Letter of
Credit Cash Collateral.
(d) There shall not have occurred a Material Adverse
Effect which shall not have been waived in writing by Required Lenders or
cured.
(e) Each of the Loan Parties shall be Solvent.
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The request and acceptance by the Borrower of the proceeds of any Revolving
Credit Advance, and the request by the Borrower for the incurrence by Lenders
of Letter of Credit Obligations, as the case may be, shall be deemed to
constitute, as of the date of such request or acceptance, (i) a representation
and warranty by the Borrower that the conditions in this Section 2.2 have been
satisfied (except to the extent that any of such conditions are required to be
satisfactory to or determined by Agent or any Lender or Required Lenders), and
(ii) a confirmation by the Borrower of the granting and continuance of Agent's
and Lenders' Liens pursuant to the Collateral Documents.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
To induce Agent and Lenders to enter into this Agreement, each
Loan Party, jointly and severally, represents and warrants to Agent and Lenders
(which representations and warranties shall be made on the Closing Date and
made or deemed made at such other times as provided hereunder (including
without limitation, each Advance Date and each date of the incurrence by
Lenders of Letter of Credit Obligations and on each other date as provided in
Section 2.2), it being understood that representations and warranties made as
of a specified date shall only be made (or deemed made or repeated) as of such
specified date) that:
SECTION 3.1. Existence; Compliance with Law. Each Loan
Party: (a) is a corporation or partnership, as appropriate, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or formation and is duly qualified to do business and is in good
standing in each other jurisdiction where its ownership or lease of property or
the conduct of its business requires such qualification (except for those
foreign jurisdictions where the failure to be duly qualified to do business or
in good standing could not reasonably be expected to result in a Material
Adverse Effect) and is able to bring suit or otherwise enforce its remedies
through judicial process against each obligor of each Account; (b) has the
requisite corporate or partnership authority and the legal right to own,
pledge, mortgage or otherwise encumber and operate its properties, to lease the
property it operates under lease, and to conduct its business as now,
heretofore and proposed to be conducted; (c) has all licenses, permits,
consents or approvals from or by, and has made all filings with, and has given
all notices to, all Governmental Authorities having jurisdiction, to the extent
required for such ownership, operation and conduct (except where the failure to
have such licenses, permits, consents or approvals or make such filings or give
such notices could not reasonably be expected to result in a Material Adverse
Effect); (d) is in compliance with its articles or certificate of incorporation
and bylaws or partnership agreement and other organizational documents, as
appropriate; and (e) is in compliance with all applicable provisions of law
(except where the failure to be in compliance could not reasonably be expected
to result in a Material Adverse Effect).
SECTION 3.2. Executive Offices; Collateral Locations;
Corporate or Other Names. The current locations of the executive office,
principal place of business and corporate offices, in each case, of each Loan
Party, of all warehouses and premises within
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which any Collateral is stored or located, and of the locations of all of the
records concerning the Collateral are set forth in Schedule 3.2 and, except as
set forth in Schedule 3.2, such locations have not changed during the preceding
four months. During the prior five years, except as set forth in Schedule 3.2,
no Loan Party has been known as or used any corporate, fictitious or trade
name. No Collateral is or at any time shall be located at 1601 Wallace, #120,
Carrollton, Texas.
SECTION 3.3. Power; Authorization; Enforceable
Obligations. The execution, delivery and performance by each Loan Party of
this Agreement and the other Loan Documents to which it is a party and the
creation by such Loan Party of all Liens provided for herein and therein: (a)
are within such Loan Party's corporate or partnership power, as appropriate;
(b) have been duly authorized by all necessary corporate, partnership and
shareholder or partner action; (c) are not in contravention of any provision of
such Loan Party's articles or certificate of incorporation, bylaws, partnership
agreement or other organizational documents; (d) will not violate any law or
regulation, or any order or decree of any Governmental Authority; (e) will not
conflict with or result in the breach or termination of, constitute a default
under or accelerate any performance required by, any indenture, mortgage, deed
of trust, lease, agreement or other instrument to which Parent or any Loan
Party or any Subsidiary thereof is a party or by which Parent or any Loan Party
or any Subsidiary thereof or any of its property is bound, the breach or
termination of which could reasonably be expected to cause a Material Adverse
Effect; (f) will not result in the creation or imposition of any Lien upon any
Collateral or any material portion of any other property of any Loan Party or
any Subsidiary thereof other than those in favor of Agent or Lenders, all
pursuant to the Loan Documents; and (g) do not require the consent or approval
of any Governmental Authority or any other Person, except those referred to in
Section 2.1(d), all of which will have been duly obtained, made or complied
with prior to the Closing Date and which are in full force and effect. At or
prior to the Closing Date, each of the Loan Documents shall have been duly
executed and delivered for the benefit of or on behalf of the Loan Parties
intended to be party thereto and each shall then constitute a legal, valid and
binding obligation of such Loan Parties, enforceable against such Loan Parties
in accordance with its terms subject, as to enforceability, to bankruptcy,
reorganization, insolvency and similar laws affecting the enforcement of
creditors' rights generally and to general principles of equity.
SECTION 3.4. Financial Statements and Projections.
FoxMeyer has delivered the Financials and Projections identified in Schedule
3.4 (which Projections are attached hereto as Exhibit 3.4), and each of such
Financials and Projections complies with the description thereof contained in
Schedule 3.4.
SECTION 3.5. Material Adverse Change. As of the Closing
Date, no Loan Party has any material obligations, contingent liabilities, or
liabilities for Charges, long-term leases or unusual forward or long-term
commitments which are not reflected in the unaudited February Financial
Statements, except for those which were incurred or entered into in the
ordinary course of such Loan Party's business. Except as otherwise permitted
hereunder, except for the Dividend Transaction and except as set forth in
Schedule 3.5, no Restricted Payment has been made since March 31, 1995, and no
shares of Stock of any Loan Party has been, or is now required to be, redeemed,
retired, purchased or otherwise acquired for value by any Loan Party. Except
as set forth in Schedule 3.5, since
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February 29, 1996, no event (other than the Charge to Income) has occurred
which could reasonably be expected to result in a Material Adverse Effect.
SECTION 3.6. Ownership of Property; Liens. The real
estate listed in Schedule 3.6 constitutes, as of the Closing Date, all of the
Real Property owned, leased (other than Real Property leased, as lessee, where
the annual rental payments are less than $250,000), or used in each Loan
Party's business. Each Loan Party holds (a) good and indefeasible fee simple
title to all Real Property described as being owned in Schedule 3.6 or acquired
by such Loan Party after the Closing Date, (b) valid leasehold interests in all
of such Person's Leases (both as lessor and lessee, sublessee or assignee), and
(c) good and indefeasible title to, or valid leasehold interests in, all other
properties and assets reflected on the financial statements of (or which
include) such Loan Party. None of the properties and assets of the Loan
Parties and their Subsidiaries are subject to any Liens, except Liens permitted
by Section 6.7. Except as described in Schedule 3.6, no Loan Party nor, to any
Loan Party's knowledge, any other party to any such Lease described in Schedule
3.6 is in default of its obligations thereunder or has delivered or received
any notice of default under any such Lease, and no event has occurred which,
with the giving of notice, the passage of time, or both, would constitute a
default under any such Lease (in each instance with respect to any such Lease
where the termination of such Lease could reasonably be expected to have a
Material Adverse Effect).
SECTION 3.7. Restrictions; No Default; Material Contracts.
No contract, lease, agreement or other instrument to which any Loan Party is a
party or by which it or any of its properties or assets is bound or affected
and no provision of any charter, corporate restriction, applicable law or
governmental regulation has resulted in or could reasonably be expected to
result in a Material Adverse Effect. No Loan Party is in default and, to each
Loan Party's knowledge, no third party is in default, under or with respect to
any contract, agreement, lease or other instrument to which any Loan Party is a
party, the termination of which or default under which could reasonably be
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred and is continuing. Each Loan Party is in compliance with (i) all
material license agreements to which it is a party or bound by, and (ii) the
terms and conditions of its insurance coverage and policies therefor.
SECTION 3.8. Labor Matters. Except as set forth in
Schedule 3.8, there are no strikes or other labor disputes against any Loan
Party that are pending or, to any Loan Party's knowledge, threatened, in any
case, which could reasonably be expected to have a Material Adverse Effect.
Hours worked by and payment made to employees of each Loan Party have not been
in violation of the Fair Labor Standards Act or any other applicable law
dealing with such matters which could reasonably be expected to result in a
Material Adverse Effect. All material payments due from any Loan Party or any
of its Subsidiaries on account of employee health and welfare insurance have
been paid or accrued as a liability on the books of such Loan Party. Except as
set forth in Schedule 3.8, no Loan Party has any material obligation under any
collective bargaining agreement, management agreement, or any employment
agreement, and a correct and complete copy of each agreement listed on Schedule
3.8 has been made available to Agent. There is no material organizing activity
involving any Loan Party pending or, to any Loan Party's knowledge, threatened
by any labor union or group of employees. Except as set forth in
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Schedule 3.14, there are no representation proceedings pending or, to any Loan
Party's knowledge, threatened with the National Labor Relations Board or any
similar Governmental Authority, and no labor organization or group of employees
of any Loan Party has made a pending demand for recognition, and, there are no
material complaints or charges against any Loan Party pending or threatened to
be filed with any federal, state, local or foreign court, governmental agency
or arbitrator based on, arising out of, in connection with, or otherwise
relating to the employment or termination of employment by any Loan Party of
any individual, in any case, which, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
SECTION 3.9. Ventures, Subsidiaries and Affiliates;
Outstanding Stock and Indebtedness. As of the Closing Date, no Loan Party has
any Subsidiaries other than those Subsidiaries set forth on Schedule 3.9 and,
except as set forth in Schedule 3.9, no Loan Party is engaged in any joint
venture or partnership with any other Person or has any equity interest in any
other Person. The Stock of each Loan Party owned by each of the stockholders
thereof named in Schedule 3.9 constitutes, as of the Closing Date, all of the
issued and outstanding Stock of such Persons and all such Stock is duly and
validly issued, fully paid and non-assessable. Schedule 3.9 lists, as of the
Closing Date, the name of each Subsidiary of FoxMeyer, its jurisdiction of
organization, the number of authorized and outstanding shares or interest of
Stock of such Subsidiary and the owners of such Stock. Except as set forth in
Schedule 3.9, as of the Closing Date, there are no outstanding rights to
purchase stock, options, warrants or similar rights, agreements or plans
pursuant to which any Loan Party may be required to issue, sell or purchase any
Stock or other equity security. Schedule 3.9 lists all Indebtedness of each
Loan Party as of the Closing Date.
SECTION 3.10. Government Regulation. No Loan Party nor any
Subsidiary thereof (a) is an "investment company" or an "affiliated person" of,
or "promoter" or "principal underwriter" for, an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended; (b) is
subject to regulation under the Public Utility Holding Company Act of 1935, the
Federal Power Act, the Interstate Commerce Act or any other federal or state or
foreign statute that restricts or limits such Person's ability to incur
Indebtedness, pledge its assets, or to perform its obligations hereunder or
under any other Loan Document, and the making of the Revolving Credit Advances
and the incurrence of the Letter of Credit Obligations, in each case by
Lenders, the application of the proceeds and repayment thereof by the Borrower,
and the consummation of the transactions contemplated by this Agreement and the
other Loan Documents, will not constitute a violation by any Loan Party or any
Subsidiary thereof (or to the knowledge of each Loan Party, by any other
Person) of any provision of any such statute or any rule, regulation or order
issued by the Securities and Exchange Commission.
SECTION 3.11. Margin Regulations. No Loan Party nor any
Subsidiary thereof is engaged in the business of extending credit for the
purpose of purchasing or carrying Margin Stock and no proceeds of any Revolving
Credit Advance or Letter of Credit will be used to purchase or carry any Margin
Stock or to extend credit to others for the purpose of purchasing or carrying
any Margin Stock. No Loan Party nor any Subsidiary thereof will take or permit
to be taken any action which might cause any Loan Document or any document or
instrument delivered pursuant hereto or thereto to violate any regulation of
the Board of Governors of the Federal Reserve Board.
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SECTION 3.12. Taxes. All federal tax returns, reports and
statements, including information returns (Form 1120-S), and all state, local
and foreign tax returns, reports and statements (to the extent, in the case of
any such state, local or foreign tax return, report or statement, that the
failure to file, or to pay any tax or other amount which should have been
reported thereon, could reasonably be expected to have a Material Adverse
Effect), required to be filed by any Loan Party or any Subsidiary thereof, have
been filed with the appropriate Governmental Authority and all Charges and
other impositions shown thereon to be due and payable have been paid prior to
the date on which any fine, penalty, interest or late charge may be added
thereto for nonpayment thereof, or any such fine, penalty, interest, late
charge or loss has been paid. Each Loan Party and each Subsidiary thereof has
paid when due and payable all material Charges required to be paid by it.
Proper and accurate amounts have been withheld by each Loan Party and each
Subsidiary thereof from its employees for all periods in full and complete
compliance with the tax, social security and unemployment withholding
provisions of applicable federal, state, local and foreign law and such
withholdings have been timely paid to the respective Governmental Authorities.
Schedule 3.12 sets forth those taxable years for which any of the tax returns
of any Loan Party or any Subsidiary thereof are currently being audited by the
IRS or any other applicable Governmental Authority; and any assessments or
threatened assessments in connection with such audit or otherwise currently
outstanding. Except as described in Schedule 3.12, no Loan Party nor any
Subsidiary thereof has executed or filed with the IRS or any other Governmental
Authority any agreement or other document extending, or having the effect of
extending, the period for assessment or collection of any Charges. Except as
described in Schedule 3.12, none of the property owned by any Loan Party or any
Subsidiary thereof is property which is required to be treated as being owned
by any other Person pursuant to the provisions of Section 168(f)(8) of the
Internal Revenue Code of 1954, as amended, and in effect immediately prior to
the enactment of the Tax Reform Act of 1986 or is "tax-exempt use property"
within the meaning of IRC Section 168(h). No Loan Party nor any Subsidiary
thereof has agreed or been requested to make any adjustment under IRC Section
481(a) by reason of a change in accounting method or otherwise. No Loan Party
nor any Subsidiary thereof has any obligation under any written tax sharing
agreement except as described in Schedule 3.12.
SECTION 3.13. ERISA.
(a) Schedule 3.13 lists all Title IV and Multiemployer
Plans maintained or contributed to by any Loan Party, any Subsidiary thereof or
any ERISA Affiliate and all Retiree Welfare Plans maintained or contributed to
by any Loan Party or any subsidiary thereof. IRS determination letters
regarding the qualified status under IRC Section 401 of each Qualified Plan
have been received as of the dates listed in Schedule 3.13. Each of the
Qualified Plans has subsequently been amended to comply with the Tax Reform Act
of 1986 and to make other necessary or desirable changes. To the knowledge of
each Loan Party, the Qualified Plans as amended continue to qualify under
Section 401 of the IRC, the trusts created thereunder continue to be exempt
from tax under the provisions of IRC Section 501(a), and nothing has occurred
which would cause the loss of such qualification or tax-exempt status. Each
Qualified Plan so amended will be submitted to the IRS for a determination
letter as to the ongoing qualified status of the Plan under the IRC within the
applicable IRC Section 401(b) remedial amendment period for the Tax Reform Act
of 1986; and each such Plan shall be amended, including retroactive amendments,
as required
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during such determination letter process to maintain the qualified status of
such Plans. To the knowledge of each Loan Party, each Plan is in compliance in
all material respects with the applicable provisions of ERISA and the IRC,
including the filing of all reports required under the IRC or ERISA which are
true and correct as of the date filed, and all required contributions and
benefits have been paid in accordance with the provisions of each such Plan.
Neither any Loan Party, any Subsidiary thereof nor any ERISA Affiliate, with
respect to any Qualified Plan, has failed to make any contribution or pay any
amount due as required by IRC Section 412 or Section 302 of ERISA. Except as
set forth on Schedule 3.13, with respect to all Retiree Welfare Plans, the
present value of future anticipated expenses pursuant to the latest actuarial
projections of liabilities does not exceed $10,000,000; with respect to Pension
Plans, other than Qualified Plans and the unfunded Pension Plans listed in
Schedule 3.13, the present value of the liabilities for current participants
thereunder using interest assumptions described in IRC Section 411(a)(ii) does
not exceed $5,000,000.
(b) Except as set forth in Schedule 3.13: (i) no Title
IV Plan has any Unfunded Pension Liability; (ii) no ERISA Event or event
described in Section 4062 (e) of ERISA with respect to any Title IV Plan has
occurred or is reasonably expected to occur which in either case would be
material; (iii) there are no pending, or to the knowledge of each Loan Party,
any material threatened claims, actions or lawsuits (other than claims for
benefits in the normal course), asserted or instituted against (x) any Plan or
its assets, (y) any fiduciary with respect to any Plan or (z) any Loan Party,
any Subsidiary thereof or any ERISA Affiliate with respect to any Plan; (iv) no
Loan Party, Subsidiary thereof or any ERISA Affiliate has incurred or
reasonably expects to incur any Withdrawal Liability (and no event has occurred
which, with the giving of notice under Section 4219 of ERISA, would result in
such liability) under Section 4201 of ERISA as a result of a complete or
partial withdrawal from a Multi-employer Plan; (v) within the last five (5)
years no Loan Party, Subsidiary thereof or any ERISA Affiliate has engaged in a
transaction which resulted in a Title IV Plan with Unfunded Pension Liabilities
being transferred outside of the "controlled group" (within the meaning of
Section 4001(a)(14) of ERISA) of any such entity; (vi) no Plan which is a
Retiree Welfare Plan provides for continuing benefits or coverage for any
participant or any beneficiary of a participant after such participant's
termination of employment (except as may be required by IRC Section 4980B and
at the sole expense of the participant or the beneficiary of the participant);
and (vii) each Loan Party, any Subsidiary thereof and each ERISA Affiliate have
complied in all material respects with the notice and continuation coverage
requirements of IRC Section 4980B and the proposed or final regulations
thereunder.
SECTION 3.14. No Litigation. Except as set forth in
Schedule 3.14, no action, claim or proceeding is now pending or, to the
knowledge of each Loan Party, threatened against any Loan Party, at law, in
equity or otherwise, before any court, board, commission, agency or
instrumentality of any federal, state, or local government or of any agency or
subdivision thereof, or before any arbitrator or panel of arbitrators (a) which
challenges any such Person's right, power, or competence to enter into or
perform any of its obligations under the Loan Documents, or the validity or
enforceability of any Loan Document or any action taken thereunder, or (b)
which could be reasonably expected to result in a Material Adverse Effect. To
the knowledge of each Loan Party, there does not
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exist a state of facts which is reasonably likely to give rise to such
proceedings. Except as set forth in Schedule 3.14, no Loan Party is a party to
any consent decree.
SECTION 3.15. Brokers. No broker or finder acting on
behalf of any Loan Party brought about the obtaining, making or closing of the
credit extended pursuant to this Agreement or the transactions contemplated by
the Loan Documents or the transactions contemplated thereby and no Loan Party
has any obligation to any Person in respect of any finder's or brokerage fees
in connection therewith.
SECTION 3.16. Patents, Trademarks, Copyrights and Licenses.
Except as otherwise set forth in Schedule 3.16, each Loan Party owns all
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications and trade names which are necessary to continue to
conduct its business as heretofore conducted by it, now conducted by it and
proposed to be conducted by it, each of which is listed, together with United
States Patent and Trademark Office or United States Copyright Office
application or registration numbers (or similar information for foreign
registration or applications), where applicable, in Schedule 3.16, and will be
promptly updated by FoxMeyer to reflect any change therein. Each Loan Party
conducts business without infringement or claim of infringement of any license,
patent, copyright, service mark, trademark, trade name, trade secret or other
intellectual property right of others, except where such infringement or claim
of infringement could not reasonably be expected to result in a Material
Adverse Effect. Except as set forth in Schedule 3.16, to each Loan Party's
knowledge, there is no infringement or claim of infringement by others of any
material license, patent, copyright, service mark, trademark, trade name, trade
secret or other intellectual property right of any Loan Party, which
infringement or claim could reasonably be expected to have a Material Adverse
Effect.
SECTION 3.17. Full Disclosure. No information contained in
this Agreement, the other Loan Documents, the Financials or any written
statement furnished by or on behalf of any Loan Party or any Affiliate thereof
pursuant to the terms of this Agreement or any other Loan Document, which has
previously been delivered to Agent or any Lender, contains any untrue statement
of a material fact or omits to state a material fact necessary to make the
statements contained herein or therein not misleading in light of the
circumstances under which they were made. With respect to all business plans
and other forecasts and projections (including the Projections) furnished by or
on behalf of FoxMeyer or any other Loan Party and made available to Agent or
any Lender relating to the financial condition, operations, business,
properties or prospects of FoxMeyer or such Loan Party or any Subsidiary
thereof all such plans, forecasts and projections (a) are based upon reasonable
estimates and assumptions, all of which are fair in light of the conditions
existing when prepared, (b) have been prepared on the basis of the assumptions
stated therein and (c) reflect the reasonable estimate of the Loan Party
submitting such plan, forecast or report of the results of operations and other
information projected therein (it being acknowledged that actual results may
vary and such variations may be material). With respect to any such forecasts
or projections made available to Agent or any Lender after the Closing Date,
the foregoing clauses (a), (b) and (c) shall be true and correct in all
respects as of the date of such projections or forecasts.
SECTION 3.18. Hazardous Materials. Except in the case of
routine
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operations in the ordinary course of business in compliance with applicable
permits issued by a Governmental Authority, the Real Property is free of any
Hazardous Material, the presence of which, individually or in the aggregate,
could reasonably be expected to result in Environmental Liabilities and Costs
in excess of $10,000,000. Except as set forth in Schedule 3.18, there are no
existing or potential environmental liabilities of any Loan Party or any of its
Subsidiaries of which any Loan Party, after due inquiry, has knowledge, which
could reasonably be expected to result in Environmental Liabilities and Costs
in excess, individually or in the aggregate, of $10,000,000. Except as set
forth in Schedule 3.18, no Loan Party nor any of its Subsidiaries has caused or
suffered to occur any Release at, under, above or within any Real Property or
any other real property which could reasonably be expected to expose such
Person to any actual or potential liability in excess, individually or in the
aggregate, of $10,000,000. No Loan Party nor any of its Subsidiaries is
involved in operations which could reasonably be expected to lead to the
imposition of any liability under the Environmental Laws, in excess,
individually or in the aggregate, of $10,000,000, or any Lien on it, or any
owner of any premises which it occupies, under the Environmental Laws, and no
Loan Party nor any of its Subsidiaries has knowingly permitted any tenant or
occupant of such premises over which the Loan Party or any of its Subsidiaries
has control to engage in any such activity.
SECTION 3.19. Insurance Policies. Schedule 3.19 lists all
insurance of any nature maintained as of the Closing Date for current
occurrences by each Loan Party. Such insurance complies with and shall at all
times comply with the standards set forth in Annex F.
SECTION 3.20. Deposit and Disbursement Accounts. Schedule
3.20 lists all banks and other financial institutions at which any Loan Party
maintains deposits and/or other accounts and/or post office lock boxes, which
deposit accounts consist solely of a Concentration Account, Disbursement
Accounts, Collateral Proceeds Accounts and Operating Accounts, and such
Schedule correctly identifies the name, address and telephone number of each
depository, the name in which the account is held, a description of the purpose
of the account, and the complete account number. No Loan Party maintains any
deposit account other than those listed on Schedule 3.20.
SECTION 3.21. Solvency. As of each date referred to in the
first paragraph of this Article 3 (and, as to the Loan Party making and each
Loan Party receiving a Permitted Intercompany Loan, on each date on which a
Loan Party makes a Permitted Intercompany Loan) each Loan Party is Solvent and
will not become not Solvent after giving effect to the transactions
contemplated by this Agreement and the Receivables Funding Documents or after
giving effect to the making of, or receipt of proceeds from, any Permitted
Intercompany Loan.
SECTION 3.22. Certain Subsidiaries. No Subsidiary of
FoxMeyer which Subsidiary is not a Loan Party has any obligations,
Indebtedness, Guaranteed Indebtedness or other liability, contingent or
otherwise, for which any Loan Party is or could reasonably be expected to be
liable and which is not reflected, footnoted or otherwise disclosed on the
audited financial statements dated March 31, 1995.
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ARTICLE 4
FINANCIAL STATEMENTS AND INFORMATION
SECTION 4.1. Reports and Notices. Each Loan Party
covenants and agrees that from and after the Closing Date and until the
Termination Date, it shall deliver to Agent and each Lender the Financial
Statements, Projections and notices at the times and in the manner set forth in
Annex E.
SECTION 4.2. Communication with Accountants. Each Loan
Party (for itself and its Subsidiaries) authorizes Agent and each Lender to
communicate directly with the independent certified public accountants of such
Loan Party and Subsidiary and authorizes those accountants to make available to
Agent and each Lender any and all financial statements and other supporting
financial documents and schedules with respect to the business, financial
condition and other affairs of such Loan Party and Subsidiary, in each
instance, provided that Agent or such Lender shall (i) give FoxMeyer (on behalf
of the other Loan Parties and such Subsidiaries) prior notice of each intended
communication with such accountants and of each request to have such
accountants make available to Agent or such Lender any such financial
information and material and (ii) permit a representative of FoxMeyer to be
present at any such communication or making available of financial information
and material. At or before the Closing Date, FoxMeyer (on behalf of the other
Loan Parties and such Subsidiaries) shall deliver a letter (the "Accountant's
Letter") addressed to such accountants instructing them to make available to
Agent and Lenders such information and records as Agent and Lenders may
reasonably request and advising such accountants that Agent and Lenders intend
rely on the certified Financials opined on by such accountants. After the
Closing Date, if any Loan Party engages the services of accountants for audit
purposes other than Deloitte & Touche, LLP, it shall deliver a letter addressed
to such accountants containing substantially the same terms and provisions as
the Accountant's Letter.
ARTICLE 5
AFFIRMATIVE COVENANTS
Each Loan Party covenants and agrees that, unless Required
Lenders shall otherwise consent in writing, from and after the date hereof and
until the Termination Date:
SECTION 5.1. Maintenance of Existence and Conduct of
Business. Such Loan Party shall except as permitted in Sections 5.11 or 6.1,
(a) do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate or partnership existence, as appropriate, and
its rights and franchises, except to the extent that the failure to preserve
any such rights or franchise could not reasonably be expected to have a
Material Adverse Effect; (b) continue to conduct its business substantially as
now conducted or as otherwise permitted hereunder; (c) at all times maintain,
preserve and protect all of its material Intellectual Property, and preserve
all the remainder of its property, in use or useful in the conduct of its
business and keep the same in good repair, working order and condition (taking
into consideration ordinary wear and tear and casualty and condemnation) and
from time to time make, or cause to be made, all necessary or
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appropriate repairs, replacements and improvements thereto consistent with
industry practices, except to the extent that the failure to preserve and
protect or make such repairs, replacements and improvements could not
reasonably be expected to have a Material Adverse Effect; (d) keep and maintain
its Equipment and Fixtures in good operating condition sufficient for the
continuation of such Person's business conducted on a basis consistent with
past practices and shall provide or arrange for all maintenance and service and
all repairs necessary for such purpose, except to the extent that the failure
to maintain such Equipment and Fixtures could not reasonably be expected to
have a Material Adverse Effect; and (e) transact business only under the names
set forth in Schedule 3.2 (unless the relevant Loan Party shall provide Agent
with not less than 30 days prior written notice of such Loan Party's use of
another name and takes such actions as Agent may reasonably request in
connection therewith (including, without limitation, to execute such UCC
financing statements as Agent may reasonably request)).
SECTION 5.2. Payment of Charges and Claims. Such Loan
Party shall pay and discharge in accordance with the terms thereof, (A) all
material Charges imposed upon it or its income and profits, or any of its
property (real, personal or mixed), and (B) all lawful claims for labor,
materials, supplies and services or otherwise, which if unpaid might by law
become a Lien on its property; provided, that such Loan Party shall not be
required to pay any such Charge or claim which is being contested in good faith
by proper legal actions or proceedings, so long as at the time of commencement
of any such action or proceeding and during the pendency thereof (i) adequate
reserves with respect thereto are established and are maintained in accordance
with GAAP, (ii) such contest operates to suspend collection of the contested
Charges or claims and is maintained and prosecuted continuously with diligence,
(iii) none of the Collateral would be subject to forfeiture or loss or any Lien
by reason of the institution or prosecution of such contest, (iv) no Lien (x)
securing an amount in excess of $10,000,000 or (y) attaching to any
Collateral, shall exist, be imposed or be attempted to be imposed for such
Charges or claims during such action or proceeding unless the full amount of
such Charge or claim is covered by insurance or a bond satisfactory in all
respects to Agent, and (v) such Loan Party shall promptly pay or discharge such
contested Charges and all additional charges, interest penalties and expenses,
if any, and shall deliver to Agent evidence acceptable to Agent of such
compliance, payment or discharge, if such contest is terminated or discontinued
adversely to such Loan Party.
SECTION 5.3. Books and Records. Such Loan Party shall
keep adequate records and books of account with respect to its business
activities, in which proper entries, reflecting all of its consolidated and
consolidating financial transactions are made in accordance with GAAP
consistently applied.
SECTION 5.4. Litigation. Such Loan Party shall notify
Agent and each Lender in writing, promptly upon learning thereof, of any
litigation, Claim or other action commenced or threatened against such Loan
Party, of the institution against any such Person of any suit or administrative
proceeding which (a) could reasonably be expected to result in an award against
such Loan Party in an amount in excess of $10,000,000 individually or (to the
extent litigation, Claims or other actions are related) in the aggregate or (b)
could reasonably be expected to result in a Material Adverse Effect.
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SECTION 5.5. Insurance.
(a) Such Loan Party shall at its sole cost and expense
maintain or cause to be maintained with respect to each Loan Party, the
policies of insurance in such amounts and as otherwise described in Annex F.
Such Loan Party shall notify Agent promptly of any occurrence causing a
material loss or decline in value of any real or personal property of such Loan
Party and the estimated (or actual, if available) amount of such loss or
decline, except as specified otherwise in Annex F. Such Loan Party (for
itself and the other Loan Parties) irrevocably makes, constitutes and appoints
Agent (and all officers, employees or agents designated by Agent) as such
Person's true and lawful agent and attorney in-fact, effective while any Event
of Default is continuing, for the purpose of making, settling and adjusting
claims in respect of any loss or destruction of or damage to any Collateral
under the "All Risk" policies of insurance, endorsing the name of such Person
on any check, draft, instrument or other item of payment for the proceeds of
such claims under such "All Risk" policies of insurance, and for making all
determinations and decisions with respect to such claims under "All Risk"
policies of insurance. In the event any Loan Party at any time or times
hereafter shall fail to obtain or maintain (or fail to cause to be obtained or
maintained) any of the policies of insurance required above or to pay any
premium in whole or in part relating thereto, Agent or Lenders, without waiving
or releasing any Obligations or Default or Event of Default hereunder, may at
any time or times thereafter (but shall not be obligated to) obtain and
maintain such policies of insurance and pay such premium and take any other
action with respect thereto which Agent or Lenders deem advisable. All sums so
disbursed, including reasonable attorneys' fees, court costs and other charges
related thereto, shall be payable, on demand, by the Loan Parties (which
liability is joint and several) to Agent on behalf of Lenders and shall be
additional Obligations hereunder secured by the Collateral and bearing interest
as provided herein, provided, that if and to the extent the Loan Parties fail
to promptly pay any of such sums upon Agent's demand therefor, Agent is
authorized to, and at its option may, make or cause to be made Revolving Credit
Advances on behalf of the Borrower for payment thereof. If any Loan Party
thereof receives any proceeds of insurance in respect of any Collateral in
respect of the policies required to be maintained under this Agreement while
any Event of Default is continuing, such proceeds shall be held in trust by
such Person (and such Loan Party shall cause such Person to hold in trust such
proceeds) for Agent and, unless Agent otherwise permits, shall be forthwith
paid over to Agent for application to the Obligations or to constitute Letter
of Credit Cash Collateral, in each case, as Agent shall determine, subject to
Section 1.12 and Section 8.4.
(b) Agent and Required Lenders reserve the right at any
time, upon Agent's reasonable determination that a material adverse change in
the risk profile of any Loan Party has occurred, to require additional forms
and limits of insurance to, in Agent's or Required Lenders' sole reasonable
opinion exercised in good faith, adequately protect the interests of Agent and
Lenders in Collateral. Such Loan Party shall, if so requested by Agent,
deliver to Agent, as often as Agent may reasonably request, a report of a
reputable insurance broker reasonably satisfactory to Agent with respect to its
insurance policies.
(c) Upon request of Agent and in any event upon obtaining
any such insurance policy, such Loan Party shall deliver to Agent endorsements
to all of its and the other Loan Parties' (i) "All Risk" and business
interruption insurance naming Agent on
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behalf of Lenders as loss payee and assignee, and (ii) general liability and
other liability policies naming Agent and each Lender as additional insureds.
SECTION 5.6. Compliance with Laws. Such Loan Party shall
comply with all federal, state, local and foreign laws, permits and regulations
applicable to it, including those relating to (or issued by) FDA or DEA, or
relating to ERISA or licensing and labor matters (except where the failure to
so comply could not be reasonably expected to result in a Material Adverse
Effect and could not be reasonably expected to subject such Loan Party to any
criminal penalties or any Lender to any civil or criminal penalties) and in any
event shall comply with all laws to the extent necessary to enable such Loan
Party to maintain the ability to bring suit or otherwise enforce its remedies
against all account debtors with respect to such Loan Party's Accounts.
SECTION 5.7. Agreements. Such Loan Party shall perform,
within all required time periods (after giving effect to any applicable grace
periods), all of their respective obligations and enforce all of their
respective rights under each agreement, contract, instrument or other document
to which any of them is a party (including any leases, licenses and customer
contracts to which it is a party) where the failure to so perform and enforce
could reasonably be expected to result in a Material Adverse Effect. Such Loan
Party shall not terminate or modify any provision of any agreement, contract,
instrument or other document to which it is a party which termination or
modification could reasonably be expected to result in a Material Adverse
Effect. Such Loan Party shall perform and comply with all of its material
obligations in respect of Accounts, Chattel Paper, Contracts, Licenses,
Instruments, Documents and all other agreements constituting or giving rise to
Collateral. Such Loan Party shall take such actions or omit to take such
actions so as not to cause a breach of the representations and warranties made
hereunder and under the other Loan Documents.
SECTION 5.8. Supplemental Disclosure. On the request of
Agent or any Lender (in the event that such information is not otherwise
delivered by any Loan Party to Agent or Lenders pursuant to this Agreement),
and in any event within fifty (50) days after the end of the last Fiscal Month
in each Fiscal Quarter, such Loan Party will supplement (or cause to be
supplemented) each Schedule hereto, or representation herein or in any other
Loan Document with respect to any matter hereafter arising which, if existing
or occurring at the date of this Agreement, would have been required to be set
forth or described in such Schedule or as an exception to such representation
or which is necessary to correct any information in such Schedule or
representation which has been rendered inaccurate thereby, which supplement
shall be included in the certificate delivered pursuant to paragraph 2(c) of
Annex E and, so long as such supplement to such Schedule or representation
shall not indicate the existence or occurrence of a Default or Event of
Default, such supplement shall be deemed an amendment of such Schedule, and, if
such supplement would indicate the existence or occurrence of a Default or
Event of Default, such supplement shall not be deemed to be an amendment of
such Schedule unless expressly consented to in writing by Agent and Required
Lenders. Such Loan Party shall, if so requested by Agent or Required Lenders,
furnish to Agent and Lenders as often as they reasonably request, statements
and schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as Agent or Required Lenders may
reasonably request, all in reasonable detail, and such Loan Party shall advise
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Agent and Lenders promptly, in reasonable detail, of (a) any Lien, other than
as permitted pursuant to Section 6.7, attaching to or asserted against any of
the Collateral, (b) any material change in the composition of the Collateral,
and (c) the occurrence of any other event which could reasonably be expected to
result in a Material Adverse Effect upon the Collateral and/or Agent's Lien
thereon.
SECTION 5.9. Environmental Matters. Such Loan Party shall
(and shall cause each of its Subsidiaries to) (a) comply in all material
respects with the Environmental Laws and permits applicable to it, (b) notify
Agent and each Lender promptly after (x) any officer or director of such Loan
Party or Subsidiary or (y) other Person whose duties include environmental
compliance by such Loan Party or Subsidiary, becomes aware of any Release upon
any Real Property which could reasonably be expected to result in or expose
such Loan Party or any of its Subsidiaries to actual or potential liability in
excess of $10,000,000, and (c) promptly forward to Agent and each Lender a copy
of any order, notice, permit, application, or any communication or report
received by such Loan Party or Subsidiary in connection with any such Release
or, to the extent such matter could reasonably be expected to result in actual
or potential liability to any Loan Party or Subsidiary thereof in excess of
$10,000,000, any other matter relating to the Environmental Laws that may
affect any Real Property or such Loan Party or Subsidiary. The provisions of
this Section 5.9 shall apply whether or not the Environmental Protection
Agency, any other federal agency or any state or local or foreign environmental
agency has taken or threatened any action in connection with any Release or the
presence of any Hazardous Materials.
SECTION 5.10. Landlord's Agreements. The Borrower shall
use reasonable efforts to deliver or cause to be delivered to Agent, within 90
days following the Closing Date, landlord's waivers (in form, scope and
substance reasonably satisfactory to the Agent) for all locations not owned by
a Loan Party at which any Inventory of the Borrower is or is intended to be
located. With respect to any location (intended as a premises for Inventory to
be located) as to which the Borrower enters into a lease or other agreement for
use thereof after the Closing Date, unless otherwise agreed to by Agent in
writing, the Borrower shall deliver or cause to be delivered to Agent upon
creation of such lease or other agreement, a landlord's waiver, substantially
in the form of Exhibit H, from the lessor or provider of such leased or used
location.
SECTION 5.11. Certain Obligations Respecting Subsidiaries.
Except as reflected on Schedule 3.9 as in effect on the Closing Date, and
except for the Dividend Transaction, such Loan Party shall take such action
from time to time as shall be necessary to ensure that each Loan Party is a
direct or indirect wholly owned Subsidiary of FoxMeyer or another Loan Party;
provided, however, that (x) any wholly-owned direct or indirect Subsidiary of
FoxMeyer (other than the Borrower and the Receivables Funding Subsidiary) which
is a Loan Party may merge with and into the Borrower or any other Loan Party,
so long as, in the case of any such merger involving the Borrower, the Borrower
is the surviving entity, and, in any case, after giving effect to such merger
(1) all representations and warranties made by the Loan Parties contained in
this Agreement and in the other Loan Documents as of the date originally made
and as of the date of such merger shall be true and correct, it being
understood that representations and warranties made as of a specified date
shall only be made (or deemed made or repeated) as of such specified date and
(2) no
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Default or Event of Default shall occur or be continuing, and (y) any
wholly-owned Subsidiary of FoxMeyer which is not a Loan Party may merge with
and into any other wholly-owned Subsidiary of FoxMeyer other than the
Receivables Funding Subsidiary, so long as, in the case of any such merger
involving a Loan Party, the Loan Party is the surviving entity, and, in any
case, after giving effect to such merger (1) all representations and warranties
made by the Loan Parties contained in this Agreement and in the other Loan
Documents as of the date originally made and as of the date of such merger
shall be true and correct it being understood that representations and
warranties made as of a specified date shall only be made (or deemed made or
repeated) as of such specified date, and (2) no Default or Event of Default
shall occur or be continuing.
SECTION 5.12. Application of Proceeds. The Borrower shall
use the proceeds of Revolving Credit Advances as provided in Section 1.4.
SECTION 5.13. Fiscal Year. FoxMeyer shall maintain as its
Fiscal Year the twelve-month period ending on March 31 of each year.
SECTION 5.14. Casualty. Such Loan Party shall promptly
notify Agent of any loss, damage, or destruction to any Collateral or arising
from its use, whether or not covered by insurance; provided that no such notice
is necessary with respect to the loss, damage or destruction from a single
casualty of any Collateral with a value of less than $10,000,000.
SECTION 5.15. Additional Subsidiaries. Promptly upon any
Person becoming an Additional Loan Party, such Loan Party shall so notify Agent
and Lenders thereof and, unless otherwise agreed to in writing by Agent, shall
(i) cause such Person to become a guarantor under a Guaranty, a party to the
Subordination Agreement and a grantor of Liens under the Security Agreement and
the Patent, Trademark and Copyright Assignment, all pursuant to documentation
in form and substance satisfactory to Agent and cause such Person to execute
and deliver such other Collateral Documents as Agent may reasonably require to
obtain a Lien on all the assets, now or hereafter existing, of such Person
(other than Real Property, Equipment and Fixtures), (ii) cause such Person to
enter into a Blocked Account Agreement (executed in each case by the applicable
depository bank or other financial institution) and (iii) cause to be executed
and delivered to Agent such other documentation as Agent may reasonably request
in connection with the foregoing, including, without limitation, appropriate
UCC-1 financing statements, certified corporate resolutions and other corporate
documents of such Person and favorable opinions of independent counsel
(acceptable to the Agent) to such Person (which shall cover, among other
things, the legality, validity, binding effect and enforceability of the
documentation referred to above), all in form, content and scope satisfactory
to Agent. The foregoing shall not constitute a consent by Agent or any Lender
to the creation or acquisition of any Subsidiary.
SECTION 5.16. Further Assurances. Such Loan Party
shall at the cost and expense of such Loan Party, upon request of Agent, duly
execute and deliver, or cause to be duly executed and delivered, to Agent such
further instruments and do and cause to be done such further acts as may be
necessary or proper in the reasonable opinion of Agent to carry out more
effectually the provisions and purposes of this Agreement or any other
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Loan Document. Without limitation of the scope of the foregoing, the Loan
Parties will prepare, sign and record such documents as may be necessary to
effect transfers of property acquired by Borrower pursuant to the merger of
FoxMeyer Drug Company, a Kansas corporation with and into Borrower.
SECTION 5.17. Audits, etc. Such Loan Party shall permit
the Agent and representatives of the Agent (who may be accompanied by
representatives of any one or more Lenders) to audit the Inventory, Accounts,
books and records of such Loan Party at the expense of the Loan Parties,
jointly and severally, and at such time or times during each Fiscal Year as the
Agent may reasonably specify; provided, however, unless a Default or Event of
Default is continuing, such Loan Party shall not be obligated to pay for more
than two such audits in any Fiscal Year.
SECTION 5.18. Amendment to Tax Sharing Agreement On or
before June 30, 1996, the Loan Parties shall amend or cause the Tax Sharing
Agreement to be amended as provided in Schedule 5.18.
ARTICLE 6
NEGATIVE COVENANTS
Each Loan Party covenants and agrees that, without the
Required Lenders' prior written consent, from and after the date hereof and
until the Termination Date:
SECTION 6.1. Mergers, Subsidiaries, Etc. Such Loan Party
shall not directly or indirectly, by operation of law or otherwise, merge with,
consolidate (other than consolidation for tax reporting purposes) with, acquire
all or substantially all of the assets or capital stock of, or otherwise
combine with, any Person or, except for the creation of the Receivables Funding
Subsidiary, form or acquire any Subsidiary, other than:
(a) mergers permitted in clauses (x) and (y) of the
proviso to Section 5.11;
(b) any Loan Party (other than the Receivables Funding
Subsidiary, the Borrower or FoxMeyer) and any Subsidiary of FoxMeyer which is
not a Loan Party, may be liquidated or dissolved if in connection therewith all
of its assets are transferred to the Borrower or any other Loan Party;
(c) each Loan Party may lease, as lessee, real or
personal property in the ordinary course of business;
(d) any Loan Party may lease or acquire assets in the
ordinary course of business from any other Loan Party, other than (x) the
acquisition from the Borrower of Collateral or (y) except for Permitted
Intercompany Loans or as permitted pursuant to Section 6.2(j), the acquisition
of Cash or Cash Equivalents;
(e) any Loan Party may acquire substantially all of the
assets of any Person or 100% of all classes of capital stock of any Person or
any assets of any Person not in the ordinary course of business, so long as, in
any such case (v) after giving effect to the
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consummation of such acquisition, the Borrowing Availability shall not be less
than $10,000,000, (w) both immediately prior to, and after giving effect to,
any such acquisition, no Default or Event of Default would exist (including,
without limitation, any breach of any covenant contained in Annex H hereto,
assuming for this purpose that the assets or stock so acquired had been, on a
pro forma basis, included in the consolidated financial statements of FoxMeyer
delivered for the Fiscal Quarter most recently ended) and all representations
and warranties of the Loan Parties shall be true and correct (it being
understood that representations and warranties made as of a specified date
shall only be made (or deemed made or repeated) as of such specified date), (x)
Agent shall be reasonably satisfied with all documentation in connection with
such acquisition including, without limitation, terms of all documents
evidencing, governing or creating indebtedness or Liens assumed, incurred or
otherwise constituting consideration for such acquisition, and (y) the total
consideration for such acquisition (including, without limitation, Indebtedness
and other liabilities and Liens assumed or attaching to purchased assets, and
Indebtedness (on terms and pursuant to documentation reasonably acceptable to
Agent) issued to the seller of such stock or assets in connection with such
acquisition), when added to the total consideration for all prior acquisitions
made on or after the Closing Date under this paragraph (e), shall not exceed
$50,000,000 and (z) Agent and Lenders shall have received not less than thirty
(30) days' prior written notice of such acquisition.
SECTION 6.2. Investments. Such Loan Party shall not
directly or indirectly, make or maintain any Investment except:
(a) as otherwise permitted by any of Sections 6.1, 6.3,
6.4 or 6.6;
(b) Investments outstanding on the Closing Date, and
listed in Schedule 6.2, and extensions, renewals, modifications or restatements
or replacements thereof, provided, however, that no such extension, renewal,
modification or restatement shall (i) increase the amount of the Investment
from that outstanding on the Closing Date, (ii) adversely affect the interest
of Lenders or Agent with respect to such original Investment or the interest of
Lenders or Agent under this Agreement or any other Loan Document in any
respect;
(c) cash and Cash Equivalents; provided, however, that
(i) the aggregate amount of cash and Cash Equivalents of the Loan Parties
shall not exceed any limit set forth in Annex B at any time, and (ii) all cash
and Cash Equivalents of the Loan Parties and all claims in respect thereof
shall be pledged to Agent pursuant to Blocked Account Agreements or pledge
agreements in form and substance satisfactory to Agent whereby Agent shall
obtain a first priority perfected Lien in such cash, Cash Equivalents and
claims;
(d) capital contributions by the Borrower to the
Receivables Funding Subsidiary of Accounts created by the Borrower pursuant to
and as contemplated by the Receivables Sale Agreement so long as no Termination
Event (as defined in the Receivables Funding Agreement) is continuing;
(e) Permitted Intercompany Loans;
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(f) the creation (or, in accordance with and subject to
the terms of the Receivables Funding Documents, the acquisition) of accounts
receivable or notes receivable (which have been, to the extent requested by
Agent, delivered in pledge to Agent (duly endorsed) in accordance with the
Security Agreement), otherwise permitted hereunder in the ordinary course of
business (other than those described in paragraph (i) or paragraph (k) of this
Section 6.2) and payable or dischargeable in accordance with customary terms;
(g) subject to Section 6.3(g), interest rate protection
and currency hedge agreements;
(h) promissory notes and similar non-cash consideration
received by any Loan Party in connection with a disposition permitted by
Section 6.8(c), (d), (e) or (h) (which have been, to the extent requested by
Agent, delivered in pledge to Agent (duly endorsed) in accordance with the
Security Agreement);
(i) debt or equity instruments (which have been, to the
extent requested by Agent, delivered in pledge to Agent (duly endorsed) in
accordance with the Security Agreement) (other than those described in
paragraph (f) or paragraph (k) of this Section 6.2) and which were received by
any Loan Party (x) in connection with any state or federal bankruptcy or
reorganization proceeding of any supplier or customer and (y) in settlement of
delinquent obligations of or in settlement of disputes with, any customer or
supplier;
(j) equity contributions to the Loan Parties, in an
aggregate amount, from and after the Closing Date, not exceeding $1,000,000;
(k) Permitted Customer Advances and any other debt or
equity instrument (which have been, to the extent requested by Agent, delivered
in pledge to Agent (duly endorsed) in accordance with the Security Agreement)
(other than those described in paragraph (f) or paragraph (i) of this Section
6.2) and which was received from any customer or supplier, in each case, in the
ordinary course of business, so long as, the aggregate amount of all
Investments made by all Loan Parties under this paragraph (k) shall not exceed
$30,000,000 outstanding (as required in accordance with GAAP to be indicated on
the financial records of the applicable Loan Party or its direct or indirect
parent) at any time; and
(l) in addition to Investments permitted under paragraphs
(a) through (k) of this Section 6.2, Investments made from and after the
Closing Date not exceeding $500,000 in the aggregate.
SECTION 6.3. Indebtedness. Such Loan Party shall not
create, incur, assume or permit to exist any Indebtedness, except:
(a) the Obligations;
(b) Deferred Taxes;
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(c) secured Indebtedness (including Capital Leases)
permitted under clause (d) of Section 6.7 (and refinancings of such
Indebtedness permitted by such clause (d));
(d) Indebtedness incurred by the Receivables Funding
Subsidiary under the Receivables Funding Agreement and Indebtedness of the
Borrower to the Receivables Funding Subsidiary representing loans by the
Receivables Funding Subsidiary to the Borrower as provided in the Receivables
Sale Agreement;
(e) Indebtedness which constitutes Guaranteed
Indebtedness permitted under Section 6.6;
(f) other Indebtedness outstanding on the Closing Date as
set forth in Schedule 3.9, and extensions, renewals or replacements thereof;
provided, however, that no such extension, renewal or replacement shall (i)
amend or modify any subordination provision, if any, contained in or pertaining
to the original Indebtedness, (ii) increase the amount of such Indebtedness, or
result in Indebtedness being secured by additional collateral, (iii) make any
modification which is materially more onerous or restrictive to any Loan Party
than that contained in the original Indebtedness or (iv) be otherwise not
reasonably acceptable to Agent;
(g) Indebtedness (as determined at any time in accordance
with GAAP) outstanding at any time in connection with interest rate protection
and currency hedge agreements entered into from time to time, in each case, as
approved by Agent;
(h) other Indebtedness of the Loan Parties not exceeding
$500,000 in aggregate principal amount outstanding at any time;
(i) Indebtedness in respect of Permitted Intercompany
Loans incurred by any Loan Party;
(j) Indebtedness in respect of principal or notional
principal in connection with Permitted SL Transactions, not to exceed,
together with the aggregate amount of all basic rent payments (excluding any
imputed interest component thereunder) under operating or synthetic leases
included in Permitted SL Transactions, $50,000,000 in the aggregate;
(k) Indebtedness constituting consideration for, or
issued in accordance with Section 6.1(e) in connection with, an acquisition
permitted under Section 6.1(e); and
(l) Indebtedness under Capital Leases (on terms
reasonably acceptable to Agent) arising from leasebacks of Equipment sold in
any one or more IS Sales.
SECTION 6.4. Affiliate and Employee Loans and
Transactions; Compensation. Such Loan Party shall not enter into any lending,
borrowing or other commercial transaction with, or transfer any cash or other
assets to, any of its Subsidiaries, Affiliates, officers, directors,
shareholders or employees, including payment of any management, consulting,
advisory or similar fee; provided, that:
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(a) the Receivables Sellers and the Receivables Funding
Subsidiary may enter into and perform the Receivables Funding Documents;
provided that sales, transfers, capital contributions and other dispositions by
any Receivables Seller to the Receivables Funding Subsidiary of Accounts as
therein contemplated shall only be permitted so long as no Termination Event
(as defined in the Receivables Funding Agreement) is continuing;
(b) any Loan Party may make loans and advances to its
officers and employees in the ordinary course of business, provided that the
aggregate outstanding principal amount of all such loans and advances made by
all Loan Parties shall not exceed $500,000 at any time;
(c) any Loan Party may enter into transactions (other
than intercompany loans, except Permitted Intercompany Loans) with other Loan
Parties and their Affiliates (other than Subsidiaries of FoxMeyer which are not
Loan Parties) on arms' length terms no less favorable to such Loan Party than
terms which could be obtained from an independent third party;
(d) the transactions listed on Schedule 6.4 existing or
outstanding as of the Closing Date and any renewals thereof on substantially
the same terms or as approved by the Agent in its reasonable discretion;
(e) each Loan Party may make Permitted Intercompany
Loans;
(f) the Loan Parties may enter into any transaction which
is specifically permitted (including by way of exception) under this Agreement;
(g) the Borrower may sell Inventory to Phar-Mor, Inc. and
to Ben Franklin Retail Stores, Inc. in the ordinary course of business;
(h) each Loan Party may pay customary fees and reimburse
expenses of directors of such Loan Party;
(i) the Loan Parties may be parties to the Management
Agreement and Tax Sharing Agreement and make payments required thereunder; and
(j) the Loan Parties may enter into and make payments of
Compensation as required by (i) employment agreements with officers and
employees and (ii) consulting agreements with directors, in each case, in the
ordinary course of business.
SECTION 6.5. Capital Structure and Business. Except as
permitted under Section 5.1, such Loan Party shall not:
(a) make any changes in its business objectives, purposes
or operations which could reasonably be expected to adversely affect the
repayment of the Obligations or result in a Material Adverse Effect;
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(b) make any change in its capital structure as described
in Schedule 3.9 (including the issuance or recapitalization of any shares of
Stock or other securities convertible into Stock or any revision of the terms
of its outstanding Stock) other than (i) to qualify directors to the extent
required by applicable law, and (ii) any other changes in the capital structure
pursuant to a transaction which is specifically permitted (including by way of
an exception) under this Agreement;
(c) amend its articles of incorporation, charter, bylaws
or other organizational documents, in each case, upon not less than ten (10)
days' prior written notice to Agent and so long as, (x) in the reasonable
judgment of Agent, such amendment does not in any way adversely affect the
interest of Lenders or Agent or (y) such amendment is solely for the purpose of
effecting any action which is specifically permitted under this Agreement;
(d) engage in any business other than the business
currently engaged in by such Person or sales or distribution of similar
products or services.
SECTION 6.6. Guaranteed Indebtedness. Such Loan Party
shall not incur any Guaranteed Indebtedness except:
(a) by endorsement of instruments or items of payment for
deposit to the general account of such Person;
(b) for performance bonds, indemnities and guaranties
(other than of Indebtedness) entered into in the ordinary course of business
consistent with past practices; or
(c) for any Guaranties by Loan Parties of all or any
portion of the Obligations;
(d) agreements entered into by the Borrower in the
ordinary course of business with any Person to repurchase at a discount (that
is, at a price lower than that sold by the Borrower to such Person) Inventory
sold to such Person by the Borrower, so long as the aggregate liability of the
Borrower under all such agreements does not exceed $5,000,000 at any time;
(e) Guaranteed Indebtedness of the Loan Parties as the
guarantor of another Loan Party as the lessee under any lease (including in
connection with any Permitted SL Transaction) , so long as such lease is
permitted under this Agreement;
(f) guaranties of Indebtedness permitted pursuant to
Section 6.3(f) and extensions, renewals or replacements thereof; provided,
however, that no such extension, renewal or replacement shall (i) amend or
modify any subordination provision, if any, contained in or pertaining to the
original Indebtedness, (ii) increase the amount of such Indebtedness, or result
in such Indebtedness being secured by additional collateral, (iii) make any
modification which is materially more onerous or restrictive to any Loan Party
than that contained in the original Indebtedness, or (iv) be otherwise not
reasonably acceptable to Agent;
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(g) indemnities (i) in favor of title companies issuing
title insurance policies to any Loan Party, (ii) contained in the Receivables
Funding Documents or (iii) in favor of officers or directors contained in the
corporate charter or bylaws of any Loan Party; and
(h) Guaranteed Indebtedness constituting Permitted
Customer Advances permitted under Section 6.2(k).
SECTION 6.7. Liens. Such Loan Party shall not create or
permit to exist any Lien on any of its properties or assets except for:
(a) presently existing or hereafter created Liens in
favor of Agent or Lenders to secure the Obligations (including to secure the
obligations of any Guarantor under any Guaranty);
(b) Liens set forth in Schedule 6.7 existing on the
Closing Date, but not any increase in the amount secured by any such Liens or
the coverage thereof to other property or assets;
(c) Permitted Encumbrances;
(d) (i) Capital Leases (including, without limitation, in
connection with any Permitted SL Transaction) and purchase money mortgages or
other purchase money Liens granted after the date hereof upon any fixed or
capital assets hereafter acquired, so long as (w) any such Lien does not extend
to or cover any other asset of any Loan Party, (x) such Lien secures the
obligation to pay the purchase price of such asset (or the obligation under
such Capital Lease) only, (y) the principal amount secured by each such Lien
does not exceed the unpaid purchase price for such asset, and (z) the
aggregate amount of Indebtedness secured by such Liens and Capital Leases shall
not at any time exceed (together with the Indebtedness secured by any Liens and
Capital Leases outstanding at any time permitted under clause (b) above and any
Indebtedness permitted below in this clause (d) to refinance such Indebtedness)
$50,000,000 (excluding Indebtedness in connection with Permitted SL
Transactions), and (ii) Liens to secure any refinancing of the Indebtedness
permitted under this clause (d) and under clause (b) above so long as (x) the
Indebtedness refinancing such Indebtedness does not exceed the outstanding
principal amount of the Indebtedness being refinanced, (y) the Lien securing
such new Indebtedness secures only such Indebtedness and without the prior
written consent of Agent does not extend to or cover any asset other than the
asset secured by the refinanced Indebtedness and in any event does not extend
to any Collateral, and (z) the terms of any such refinancing are otherwise
reasonably acceptable to Agent;
(e) in the case of the Receivables Funding Subsidiary,
the Borrower and each other Loan Party which is an "Originator" (under and as
defined in the Receivables Transfer Agreement), Liens created under or pursuant
to the Receivables Funding Documents;
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(f) Liens on assets acquired in accordance with this
Agreement, (including, without limitation, in accordance with Section 6.1(e)),
to the extent such Liens do not extend to Collateral;
(g) Liens granted on assets covered by a Permitted SL
Transaction; and
(h) Liens not otherwise permitted under this Agreement or
the Loan Documents which do not attach to Collateral and which secure
obligations not exceeding $500,000 in the aggregate outstanding at any time.
SECTION 6.8. Sale of Assets. Such Loan Party shall not
sell, transfer, convey, assign or otherwise dispose of any of its assets or
properties, including, without limitation, any Collateral; provided, that the
foregoing shall not prohibit:
(a) (i) the sale or other transfer by the Receivables
Seller of its Accounts to the Receivables Funding Subsidiary pursuant to and in
accordance with the Receivables Sale Agreement; provided, that no such sales or
transfers shall be permitted from and after the occurrence of the Facility
Termination Date (as defined in the Receivables Funding Agreement) or from and
after the time, if any, that (x) the Obligations shall have become immediately
due and payable and (y) Agent shall have delivered written notice thereof to
the "Operating Agent," "Receivables Purchaser," and "Receivables Collateral
Agent" (as such terms are defined in the Intercreditor Agreement), (ii) the
sale by the Receivables Funding Subsidiary to Redwood of such Accounts in
accordance with the Receivable Funding Documents and (iii) the sale by the
Receivables Funding Subsidiary of Accounts to any Receivables Seller if
required by the Receivables Sale Agreement;
(b) the sale or consignment of Inventory in the ordinary
course of business; and
(c) the sale or disposition of any Equipment or Real
Property which, in each instance, has become no longer useful, obsolete or
surplus to the business of any Loan Party or any Subsidiary thereof or the sale
or disposition of any Equipment in connection with the purchase of upgraded
Equipment of like nature;
(d) licenses or sublicenses by the Loan Parties of
Intellectual Property in the ordinary course of business and which do not
materially interfere with business of any of the Loan Parties;
(e) transfers of condemned property to the governmental
authority or agency which condemned same (whether by deed in lieu of
condemnation or otherwise) and transfers of properties that have been subject
to a casualty to the insurer or its designee as part of an insurance settlement
with respect to such casualty; and
(f) transfers of assets permitted by Section 6.1 and
Section 6.2.
(g) Leases or subleases by the Loan Parties, as lessor or
sublessor, in the ordinary course of business;
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(h) bulk sales of Inventory other than in the ordinary
course of business for fair market value and with a cash payment of not less
than 20% of the purchase price therefor, provided that all such sales of
Inventory under this Section 6.8(h) shall not exceed $30,000,000 in the
aggregate; and provided further that the Borrower shall deliver to the Agent a
Borrowing Base Certificate in connection with any such sale illustrating the
Borrowing Base after giving effect to such sale;
(i) the IS Sale;
(j) the sale or disposition of any Equipment or Real
Property of the Loan Parties in connection with the consolidation or relocation
of distribution centers to enhance efficiency and meet the demand for capacity;
(k) the sale of stock of the Borrower in connection with
a equity offering not in violation of this Agreement; and
(l) the sale of assets in connection with the creation
of, and subject to, a Permitted SL Transaction.
SECTION 6.9. Material Contracts. Such Loan Party shall
not cancel or terminate any Material Contract or amend or otherwise modify any
Material Contract, waive any default or breach under any Material Contract, or
take any other action in connection with any Material Contract that, with
respect to any of the foregoing, could reasonably be expected to result in a
Material Adverse Effect.
SECTION 6.10. ERISA. Neither any Loan Party nor any
Subsidiary thereof nor any ERISA Affiliate shall acquire any new ERISA
Affiliate that maintains or has an obligation to contribute to a Title IV Plan
that has either an "accumulated funding deficiency," as defined in Section 302
of ERISA, or "unfunded vested benefits," as defined in Section
4006(a)(3)(E)(iii) of ERISA in the case of any Title IV Plan other than a
Multi-employer Plan and in Section 4211 of ERISA in the case of a
Multi-employer Plan, in any case, which could reasonably be expected to have a
Material Adverse Effect. Additionally, neither any Loan Party nor any
Subsidiary thereof nor any ERISA Affiliate shall: (a) permit or suffer any
condition set forth in Section 3.13 to cease to be met and satisfied at any
time; (b) terminate any Title IV Plan where such termination could reasonably
be expected to have a Material Adverse Effect; (c) permit any accumulated
funding deficiency, as defined in Section 302(a)(2) of ERISA, to be incurred
with respect to any Title IV Plan; (d) make a complete or partial withdrawal
(within the meaning of Section 4201 of ERISA) from any Multi-employer Plan that
would cause such Loan Party or ERISA Affiliate to incur withdrawal liability
which could reasonably be expected to have a Material Adverse Effect; or (e) at
any time fail to provide Agent and any Lender with copies of any Plan documents
or governmental reports or filings, if reasonably requested by Agent or any
Lender.
SECTION 6.11. Financial Covenants. Such Loan Party shall
not breach or fail to comply with any of the financial covenants set forth in
Annex H, each of which shall be calculated in accordance with GAAP consistently
applied (and based upon the financial statements delivered hereunder).
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SECTION 6.12. Cancellation or Prepayment of Indebtedness.
Such Loan Party shall not (except as to Indebtedness existing on the Closing
Date and listed on Schedule 3.9 hereof) cancel any claim or Indebtedness owing
to it, except for reasonable consideration and in the ordinary course of its
business, or voluntarily prepay, redeem, defease or repurchase any
Indebtedness (other than the Obligations), except as otherwise permitted by the
Subordination Agreement.
SECTION 6.13. Restricted Payments. Such Loan Party shall
not make any Restricted Payment to any Person, except that:
(a) each Loan Party may declare and pay dividends on its
Stock payable solely in the same class of Stock of such Person;
(b) any Subsidiary of FoxMeyer may declare and pay
dividends or return capital or make any other distribution on its Stock, in
each instance, solely to FoxMeyer or any other Loan Party; and
(c) FoxMeyer may declare and pay dividends (in addition
to dividends permitted under paragraph (a) of this Section 6.13) not exceeding
$15,000,000 in any Fiscal Year so long as (i) as of the date of payment of any
such dividend by FoxMeyer to Parent (x) there shall be continuing, and there
shall occur as a result of such payment, no Default or Event of Default, and
(y) immediately prior to and after giving effect to the payment of such
dividend, FoxMeyer shall be Solvent, (ii) the amount of such dividends paid in
any Fiscal Year shall not exceed an amount equal to fifty per cent (50%) of the
net income of FoxMeyer and its Subsidiaries on a consolidated basis for the
immediately preceding Fiscal Year as reported in the audited financial
statements of FoxMeyer delivered pursuant to Section 4.1, and (iii) no such
dividend paid in any Fiscal Year shall be paid prior to the delivery to Agent
and Lenders of the audited financial statements of FoxMeyer and its
Subsidiaries (and accompanying certificates and other documents) in accordance
with Section 4.1 for such immediately preceding Fiscal Year;
(d) so long as no Default or Event of Default is
continuing, each Loan Party may, pursuant to the terms of the Management
Agreement, reimburse Parent for out-of-pocket expenditures made by Parent for
the benefit of, and reasonably allocated to, such Loan Party so long as such
reimbursements do not exceed $2,000,000 in the aggregate in any Fiscal Year;
(e) so long as no Default or Event of Default is
continuing, FoxMeyer may, pursuant to the terms of the Management Agreement,
pay third party costs for the benefit of Parent in an amount not exceeding
$1,000,000 which has remained unreimbursed by Parent at any time;
(f) each Loan Party being a party thereto may make
payments required under the terms of the Tax Sharing Agreement so long as at
the time of any such payment no Default or Event of Default exists and no
Default or Event of Default would occur after giving effect to such payment;
provided, however, that whether or not a Default or Event of Default is
continuing each Loan Party being a party thereto may make payments required
under the terms of the Tax Sharing Agreement to the extent such payments will
be
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substantially concurrently owed by Parent to make payments of taxes to
appropriate Governmental Authorities which are due and payable.
(g) Parent and its Subsidiaries may consummate the
Dividend Transaction; and
(h) each Loan Party may enter into and consummate
transactions permitted for such Loan Party under Sections 6.1(a), 6.1(b),
6.1(d) and 6.3(i).
SECTION 6.14. Bank Accounts. Such Loan Party shall not
maintain any deposit, operating or other bank accounts except for those
accounts identified in Schedule 3.20.
SECTION 6.15. No Speculative Transactions. Except as
permitted by Section 6.2(g) and Section 6.3(g), such Loan Party shall not
engage in any transaction involving interest rate or commodity options or
futures contracts, derivatives, currency options or futures contracts or any
similar speculative transactions.
SECTION 6.16. Margin Regulations. The Borrower shall not,
directly or indirectly, use the proceeds of any Revolving Credit Advance or
Letter of Credit to purchase or carry any Margin Stock or any equity security
of a class which is registered pursuant to Section 12 of the Securities
Exchange Act of 1934.
SECTION 6.17. Limitation on Negative Pledge Clauses, Etc.
Such Loan Party shall not, directly or indirectly, after the date of this
Agreement (i) enter into any agreement with any Person which prohibits or
limits the ability of such Loan Party to create, incur, assume or suffer to
exist any Lien upon any of its property, assets or revenues, whether now owned
or hereafter acquired, other than the agreements with Agent or Lenders pursuant
to a Loan Document (and other than pursuant to the terms of any purchase money
Indebtedness, Capital Leases or in documents evidencing a Permitted SL
Transaction, in each case, to the extent permitted hereunder relating solely to
the asset financed thereunder), (ii) enter into any indenture, agreement,
instrument or other arrangement that, directly or indirectly, prohibits or
restrains, or has the effect of prohibiting or restraining, or imposes
materially adverse conditions upon, the incurrence or payment of Indebtedness,
the granting of Liens (other than the Loan Documents and pursuant to the terms
of any purchase money Indebtedness, Capital Leases or in documents evidencing a
Permitted SL Transaction, in each case, to the extent permitted hereunder
relating solely to the asset in question), the declaration or payment of
dividends or other Restricted Payments, the making of loans, advances or
investments or the sale, assignment, transfer or other disposition of any
property or assets, and other than (i) under applicable law, (ii) customary
provisions restricting subletting or assignment of any lease governing a
leasehold interest of any Loan Party, (iii) customary provisions restricting
assignment of any licensing agreement entered into by any Loan Party, and (iv)
as contained in the Receivables Funding Documents.
SECTION 6.18. Accounting Changes. Such Loan Party shall
not make any significant change in accounting treatment and reporting practices
except for changes concurred in by such Person's independent public
accountants.
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SECTION 6.19. Amendments and Modifications to Debt
Documents. Such Loan Party shall not directly or indirectly, amend, modify,
supplement, waive compliance with, grant a waiver under, or assent to
noncompliance with: (i) any instrument, document or agreement evidencing,
creating, guaranteeing or governing Indebtedness (including, without
limitation, the documents entered into in connection with any Permitted SL
Transaction) or Guaranteed Indebtedness in excess of $2,000,000 permitted under
Section 6.3 or 6.6 or entered into in connection therewith, except as permitted
under Section 6.3(f), Section 6.6(f) or the definition of "Permitted SL
Transaction", (ii) any documents governing Permitted Intercompany Loans, (iii)
except for the amendment required by Section 5.18, the Tax Sharing Agreement or
(iv) the Management Agreement except to the extent any such amendment,
modification, supplement or waiver of or under the Management Agreement does
not result in any Loan Party being required to pay any amount which it was not
theretofore obligated to pay or results in any amount payable by the Loan
Parties under the Management Agreement as in effect immediately prior to such
amendment, modification, waiver or supplement being increased.
SECTION 6.20. Activities of Certain Subsidiaries. Each
Loan Party shall cause each of its Subsidiaries (other than other Loan Parties)
and the Borrower shall cause the Receivables Funding Subsidiary, from and after
the date that all Purchaser Claims (as defined in the Intercreditor Agreement
as in effect on the Closing Date) are paid and satisfied in full in cash, not
to (i) engage in any business or other activity or enter into or consummate any
transaction or agreement, (ii) incur any liabilities, obligations or
Indebtedness, other than those incurred solely as a result of being included in
the consolidated group of Parent or FoxMeyer, or (iii) acquire any assets;
provided, however, that this Section 6.20 shall not prohibit any such
Subsidiary from (or any Loan Party from permitting any such Subsidiary from)
subject to Section 6.1, (x) liquidating, (y) merging with any other such
Subsidiary or with a Loan Party or (z) transferring any or all of its assets to
any other such Subsidiary or to any Loan Party.
ARTICLE 7
TERM
SECTION 7.1. Duration. The financing arrangements
contemplated hereby shall be in effect until the Commitment Termination Date.
On the Commitment Termination Date, the Revolving Credit Commitments shall
terminate and the Revolving Credit Loan and all other Obligations shall
immediately become due and payable in full, in immediately available funds in
Dollars.
SECTION 7.2. Survival of Obligations. Except as otherwise
expressly provided for in the Loan Documents, no termination or cancellation
(regardless of cause or procedure) of any financing arrangement under this
Agreement shall in any way affect or impair the Obligations, duties,
indemnities, and liabilities of the Borrower or any other Loan Party, or the
rights of Agent or any Lender relating to any Obligations, due or not due,
liquidated, contingent or unliquidated or any transaction or event occurring
prior to such termination, or any transaction or event, the performance of
which is not required until after
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the Commitment Termination Date. Except as otherwise expressly provided herein
or in any other Loan Document, all undertakings, agreements, covenants,
warranties and representations of or binding upon the Borrower or any other
Loan Party, and all rights of Agent and each Lender, all as contained in the
Loan Documents shall not terminate or expire, but rather shall survive such
termination or cancellation and shall continue in full force and effect until
such time as all of the Obligations have been paid in full in immediately
available funds in Dollars in accordance with the terms of the agreements
creating such Obligations; provided, however, that for the purposes of this
sentence, the provision of Letter of Credit Cash Collateral as required on the
Commitment Termination Date under Annex G shall constitute payment in full in
immediately available funds of any Letter of Credit Obligations outstanding on
such date.
ARTICLE 8
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 8.1. Events of Default. The occurrence of any one
or more of the following events (regardless of the reason therefor) shall
constitute an "Event of Default" hereunder:
(a) The Borrower or any other Loan Party shall fail to
make any payment in respect of any Obligations hereunder or under any of the
other Loan Documents when due and payable or declared due and payable,
including, without limitation, any payment of principal of, or interest on, or
Fees in respect of, the Revolving Credit Loan, to provide Letter of Credit Cash
Collateral or to make reimbursement in respect of Letter of Credit Obligations,
and, in the case of such failure to make payment of principal on the Revolving
Credit Loan, reimbursement for payments of Letter of Credit Obligations or
provision of Letter of Credit Cash Collateral, such failure shall continue
unremedied until 5:00 p.m. (New York time) on the first Business Day which
follows the day on which such failure occurs (it being understood that any
failure referred to in this paragraph to make any other payment shall be an
Event of Default immediately upon such failure without notice or grace of any
kind).
(b) The Borrower or any other Loan Party shall fail or
neglect to perform, keep or observe any of the provisions of Section 1.9,
Section 4.1, Section 5.1(a) (as it relates to corporate existence), Section
5.5(a) or Article 6, including any of the provisions set forth in Annex B,
Annex E, Annex F or Annex H.
(c) The Borrower or any other Loan Party shall fail or
neglect to perform, keep or observe any term or provision of this Agreement or
of any of the other Loan Documents (other than any such term or provision
referred to in paragraph (a) or (b) above), and the same shall remain
unremedied (if capable of being remedied) for a period ending on the first to
occur of thirty (30) days after FoxMeyer shall receive written notice of any
such failure or neglect from Agent or any Lender or thirty (30) days after the
Borrower, any other Loan Party shall become aware thereof.
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(d) (x) A default shall occur and be continuing under
any other agreement, document or instrument to which any Loan Party is a party
or by which any such Person or its property is bound, and such default (i)
involves the failure to make any payment (whether of principal, interest or
otherwise) due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) in respect of any Indebtedness of such
Person in an aggregate amount exceeding $5,000,000 or (ii) permits any holder
of such Indebtedness or a trustee or agent to cause such Indebtedness, or a
portion thereof, in an aggregate amount exceeding $5,000,000, to become due
prior to its stated maturity or prior to its regularly scheduled dates of
payment or (y) any such default under clause (x) above (whether or not
continuing) causes or results in such Indebtedness, or a portion thereof, in an
aggregate amount exceeding $5,000,000, to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment.
(e) Any representation or warranty herein or in any Loan
Document or in any written statement pursuant thereto or hereto, any report,
financial statement or certificate made or delivered to Agent or any Lender by
any Loan Party shall be untrue or incorrect in any respect as of the date when
made or deemed made (including those made or deemed made pursuant to Section
2.2).
(f) Any of the material assets of any Loan Party or any
other Collateral shall be attached, seized, levied upon or subjected to a writ,
execution, distress warrant or similar process, or come within the possession
of any receiver, trustee, custodian or assignee for the benefit of creditors of
such Loan Party and shall remain unstayed or undismissed for sixty (60)
consecutive days; or any Person shall apply for the appointment of a receiver,
trustee or custodian for any Loan Party's assets or any other Collateral and
such appointment shall remain unstayed or undismissed for sixty (60)
consecutive days; or any Loan Party shall have concealed, removed or permitted
to be concealed or removed, any part of its property, with intent to hinder,
delay or defraud its creditors or any of them or made or suffered a transfer of
any of its property or the incurring of an obligation which may be fraudulent
under any bankruptcy, fraudulent conveyance or other similar law.
(g) A case or proceeding shall have been commenced
against any Loan Party in a court having competent jurisdiction seeking a
decree or order (i) under Title 11 of the United States Code, as now
constituted or hereafter amended, or any other applicable federal, state or
foreign bankruptcy or other similar law, (ii) appointing a custodian, receiver,
liquidator, assignee, trustee or sequestrator (or similar official) of any Loan
Party or of any substantial part of its properties, or (iii) ordering the
winding up or liquidation of the affairs of any Loan Party and such case or
proceeding shall remain undismissed or unstayed for sixty (60) consecutive days
or such court shall enter a decree or order granting the relief sought in such
case or proceeding.
(h) Any Loan Party (i) shall file a petition seeking
relief under Title 11 of the United States Code, as now constituted or
hereafter amended, or any other applicable federal, state or foreign bankruptcy
or other similar law, (ii) shall consent to the institution of proceedings
thereunder or to the filing of any such petition or to the appointment of or
taking possession by a custodian, receiver, liquidator, assignee, trustee or
sequestrator (or similar official) of any Loan Party or of any substantial part
of any Loan Party's properties,
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(iii) shall fail generally to pay its debts as such debts become due, or (iv)
shall take any corporate action in furtherance of any such action.
(i) Final judgment or judgments (after the expiration of
all times to appeal therefrom) shall be rendered against any Loan Party for the
payment of money in excess of $10,000,000 in the aggregate for all such
judgments against the Loan Parties unless the same shall be vacated, stayed,
bonded, paid, covered by insurance or an indemnity (from a credit worthy Person
to the extent such Person has not denied coverage therefor) or discharged
within a period of thirty (30) days from the date of such respective judgment.
(j) There shall occur any Material Adverse Effect which
shall not have been waived in writing by Required Lenders or cured within
thirty (30) days of notice thereof from Agent or the Required Lenders to
FoxMeyer.
(k) Any provision of any Loan Document shall for any
reason cease to be valid, binding and enforceable in accordance with its terms
or any Loan Party or other party thereto shall so state in writing; or, except
as otherwise specifically permitted under this Agreement, any Lien created
under any Collateral Document shall cease to be a valid and perfected Lien
having the first priority in Collateral purported to be covered thereby
(subject only to Liens permitted hereby).
(l) There shall occur a Change in Control.
(m) Without limiting the effect of Section 1.3(e) above,
there shall occur the "Facility Termination Date" under and as defined in the
Receivables Funding Agreement.
(n) An event or condition specified in Section 6.10
hereof shall occur or exist with respect to any Plan or Multiemployer Plan and,
as a result of such event or condition, together with all other such events or
conditions, any Loan Party, any Subsidiary or any ERISA Affiliate shall incur
or in the opinion of Required Lenders shall be reasonably likely to incur a
liability to a Plan, a Multiemployer Plan or PBGC (or any combination of the
foregoing), and any such occurrence individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
(o) Any state, federal or local license, permit or other
authorization of any Loan Party to sell, possess or distribute any prescription
medication, controlled substance or other pharmaceutical shall expire without
renewal, shall become conditional, or shall be revoked, discontinued,
suspended, terminated, not renewed, canceled, abandoned or surrendered and any
such occurrence, individually or in the aggregate, could reasonably be expected
to have a Material Adverse Effect.
SECTION 8.2. Remedies. If any Event of Default shall have
occurred and be continuing (and without limitation of the effect of the
occurrence of a Selected Event of Default), to the extent Agent or Required
Lenders has elected by written notice to Borrower to impose such rate, the rate
of interest applicable to the Revolving Credit Loan, the Letter of Credit
Obligations and interest and other Obligations shall be increased to or
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charged at, as appropriate, effective as of the date of the occurrence of such
Event of Default, the Default Rate as provided in Section 1.6(e). If any Event
of Default shall have occurred and be continuing, Agent may, or if requested by
the Required Lenders, shall, without notice, take any one or more of the
following actions: (a) terminate the Revolving Credit Commitments, whereupon
Lenders' obligation to make further Revolving Credit Advances and to incur
Letter of Credit Obligations shall terminate; (b) declare all or any portion of
the Obligations to be forthwith due and payable, including the Revolving Credit
Loan and any contingent liabilities with respect to Letter of Credit
Obligations, whereupon such Obligations shall become and be due and payable;
(c) require that the Borrower immediately provide Letter of Credit Cash
Collateral in an amount equal to all Letter of Credit Obligations in accordance
with the terms of Annex G; or (d) exercise any rights and remedies provided to
Agent or Lenders under the Loan Documents and/or at law or equity, including
all remedies provided under the Code; provided, that upon the occurrence of an
Event of Default specified in Section 8.1 (f), (g) or (h) (other than under
Section 8.1(h)(iii)) the Revolving Credit Commitments of each of the Lenders
shall immediately terminate and the Obligations shall become immediately due
and payable, in each case, without declaration, notice or demand by or to any
Person.
SECTION 8.3. Waivers by Loan Parties. Except as otherwise
provided for in this Agreement and applicable law, to the full extent permitted
by applicable law, each Loan Party waives (a) presentment, demand and protest
and notice of presentment, dishonor, notice of intent to accelerate, notice of
acceleration, protest, default, nonpayment, maturity, release, compromise,
settlement, extension or renewal of any or all Loan Documents, notes,
commercial paper, accounts, contract rights, documents, instruments, chattel
paper and guaranties at any time held by Agent or any Lender on which such Loan
Party may in any way be liable, and such Loan Party hereby ratifies and
confirms whatever Agent or any Lender may do in this regard, (b) all rights to
notice and a hearing prior to Agent's or Lenders' taking possession or control
of, or to Agent's or Lenders' replevy, attachment or levy upon, the Collateral
or any bond or security which might be required by any court prior to allowing
Agent or Lenders to exercise any of their remedies, and (c) the benefit of any
right of redemption and all valuation, appraisal and exemption laws. Each Loan
Party acknowledges that it has been advised by counsel of its choice with
respect to this Agreement, the other Loan Documents and the transactions
contemplated by this Agreement and the other Loan Documents.
SECTION 8.4. Application of Proceeds. After the
occurrence of an Event of Default and acceleration of the Obligations, the
proceeds of the Collateral and of other property of the Loan Parties and of
property of Persons other than the Loan Parties securing the Obligations and
collections from the Guaranties shall be applied by Agent to payment of the
Obligations in the following order, unless Lenders otherwise agree in writing
or a court of competent jurisdiction shall otherwise direct:
(i) FIRST, ratably to each Issuing Bank to reimburse such
Issuing Bank for that portion of any payments made by it with respect
to Letter of Credit Obligations for which another Lender, as a
participant in such Letter of Credit Obligations, failed to pay its
Pro Rata share thereof as required pursuant to Section 11 of Annex G
hereto;
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(ii) SECOND, to payment of all costs and expenses of Agent
and Lenders incurred in connection with the preservation, collection
and enforcement of the Obligations or the Guaranties, or of any of the
Liens granted to Agent pursuant to the Collateral Documents or
otherwise, including, without limitation, any amounts advanced by
Agent or Lenders to protect or preserve the Collateral;
(iii) THIRD, to payment of that portion of the Obligations
constituting accrued and unpaid interest and fees and indemnities
payable under Section 1 hereof and Annexes D and G hereof, ratably
amongst Agent and Lenders in accordance with the proportion which the
accrued interest and fees and indemnities payable under such Section 1
and Annexes D and G constituting the Obligations owing to Agent and
each such Lender at such time bears to the aggregate amount of accrued
interest and fees and indemnities payable under such Section 1 and
Annexes D and G constituting the Obligations owing to the Agent and
all Lenders at such time until such interest, fees and indemnities
shall be paid in full;
(iv) FOURTH, to payment of the principal of the
Obligations (excluding reimbursement obligations with respect to the
aggregate amount of any then outstanding Letter of Credit
Obligations), ratably amongst Lenders in accordance with the
proportion which the principal amount of the Obligations owing to each
such Lender (excluding reimbursement obligations with respect to the
aggregate amount of any then outstanding Letter of Credit Obligations)
bears to the aggregate principal amount of the Obligations (excluding
reimbursement obligations with respect to the aggregate amount of any
then outstanding Letter of Credit Obligations) owing to all Lenders
until such principal of the Obligations shall be paid in full;
(v) FIFTH, to the extent, with respect to Letter of
Credit Obligations, that the Letter of Credit Collateral, if any, held
by Agent as security for reimbursement obligations with respect to the
Letter of Credit Obligations is less than the aggregate amount of the
Letter of Credit Obligations outstanding at the time of distribution
hereunder, to Agent to be held by Agent as additional Letter of Credit
Cash Collateral therefor;
(vi) SIXTH, to the payment of all other Obligations,
ratably amongst Lenders in accordance with the proportion which the
amount of such other Obligations owing to each such Lender bears to
the aggregate principal amount of such other Obligations owing to all
Lenders until such other Obligations shall be paid in full; and
(vii) SEVENTH, the balance, if any, after all of the
Obligations has been satisfied, shall, except as otherwise provided in
any Loan Document, be deposited by Agent in an operating account(s) of
the Borrower with the Agent designated by the Borrower or paid over to
such other Person or Persons as may be required by applicable law.
The Loan Parties acknowledge and agree that they shall remain
liable to the extent of any deficiency between the amount of the proceeds of
the Collateral and
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collections under the Guaranties (to the fullest extent recourse to such Loan
Parties under the Guaranties) and the aggregate amount of the sums referred to
in the first through sixth clauses above.
SECTION 8.5. Receivables Funding Subsidiary. The Agent
and the Lenders shall have no claim against the Receivables Funding Subsidiary
for any breach by the Receivables Funding Subsidiary of any covenant contained
in the Loan Documents, the only consequence of such a breach being the
existence of a Default or Event of Default, as applicable; provided, however,
that nothing contained in this Section 8.5 shall affect any liability of the
Receivables Funding Subsidiary under the Guaranty (from and after the execution
and delivery thereof by the Receivables Funding Subsidiary).
ARTICLE 9
AGENT
SECTION 9.1. Appointment, Powers and Immunities. Each
Lender hereby irrevocably appoints and authorizes GE Capital to act as its
agent hereunder and under the other Loan Documents with such powers as are
specifically delegated to Agent by the terms of this Agreement and of the other
Loan Documents, together with such other powers as are reasonably incidental
thereto. Agent (which term as used in this sentence and in Section 9.5 and the
first sentence of Section 9.6 hereof shall include reference to its Affiliates
(including, without limitation, the Syndication Agent) and its own and its
affiliates' officers, directors, employees and agents): (a) shall have no
duties or responsibilities except those expressly set forth in this Agreement
and in the other Loan Documents, and shall not by reason of this Agreement or
any other Loan Document be a trustee or fiduciary for any Lender; (b) shall not
be responsible to Lenders for any recitals, statements, representations or
warranties contained in this Agreement or in any other Loan Document, or in any
certificate or other document referred to or provided for in, or received by
any of them under, this Agreement or any other Loan Document, or for the value,
validity, effectiveness, genuineness, enforceability or sufficiency of this
Agreement or any other Loan Document or any other document referred to or
provided for herein or therein or for any failure by any Loan Party or any
other Person to perform any of its obligations hereunder or thereunder; (c)
shall not be required to initiate or conduct any litigation or collection
proceedings hereunder or under any other Loan Document; (d) shall not be
responsible to Lenders for any action taken or omitted to be taken by it
hereunder or under any other Loan Document or under any other document or
instrument referred to or provided for herein or therein or in connection
herewith or therewith, except for its own gross negligence or willful
misconduct as determined by a final judgment of a court of competent
jurisdiction. Agent may employ agents and attorneys-in-fact and shall not be
responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it in good faith. Agent may deem and treat the
payee of any Revolving Credit Note as the holder thereof for all purposes
hereof unless and until a notice of the assignment or transfer thereof shall
have been filed with Agent.
SECTION 9.2. Reliance by Agent. Agent shall be entitled
to rely upon any certification, notice or other communication (including any
thereof by telephone,
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telecopy, telex, telegram or cable) believed by it to be genuine and correct
and to have been signed or sent by or on behalf of the proper Person or
Persons, and upon advice and statements of legal counsel, independent
accountants and other experts selected by Agent. As to any matters not
expressly provided for by this Agreement or any other Loan Document, Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or thereunder in accordance with instructions given by Required
Lenders or all of Lenders as is required in such circumstance, and such
instructions of such Lenders and any action taken or failure to act pursuant
thereto shall be binding on all Lenders.
SECTION 9.3. Defaults. Agent shall not be deemed to have
knowledge or notice of the occurrence of a Default or Event of Default (other
than the non-payment of principal of or interest on the Revolving Credit Loan
or of Fees) unless Agent has received notice from a Lender or Loan Party
specifying such Default or Event of Default and stating that such notice is a
"Notice of Default". In the event that Agent receives such a notice of the
occurrence of a Default or Event of Default, Agent shall give prompt notice
thereof to Lenders (and shall give each Lender prompt notice of each such
non-payment). Agent shall (subject to Section 9.7) take such action with
respect to such Default or Event of Default as shall be directed by Required
Lenders; provided, that unless and until Agent shall have received such
directions, Agent may (but shall not be obligated to) take such action, or
refrain from taking such action, with respect to such Default or Event of
Default as it shall deem advisable in the best interest of Lenders except to
the extent that this Agreement expressly requires that such action be taken, or
not be taken, only with the consent or upon the authorization of Required
Lenders or all of Lenders as is required in such circumstance.
SECTION 9.4. Rights as a Lender. With respect to its
Revolving Credit Commitment and all Revolving Credit Advances made by GE
Capital (and any successor acting as Agent), it shall have the same rights and
powers hereunder as any other Lender and may exercise the same as though it
were not acting as Agent, and the term "Lender" or "Lenders" shall, unless the
context otherwise indicates, include Agent in its individual capacity. GE
Capital (and any successor acting as Agent) and its Affiliates may (without
having to account therefor to any Lender) lend money to, make investments in
and generally engage in any kind of business with any other Loan Party (and any
of its Subsidiaries or Affiliates) as if it were not acting as Agent, and GE
Capital and its Affiliates may accept fees and other consideration from any
Loan Party or Affiliate thereof for services in connection with this Agreement
or otherwise without having to account for the same to Lenders.
SECTION 9.5. Indemnification. Lenders agree to indemnify
Agent (to the extent not reimbursed by the Loan Parties hereunder and without
limiting the obligations of the Loan Parties hereunder) ratably in accordance
with the aggregate principal amount of the Revolving Credit Advances held by
Lenders (or, if no Revolving Credit Advances are at the time outstanding, Pro
Rata in accordance with their respective Revolving Credit Commitments), for any
and all Claims of any kind and nature whatsoever that may be imposed on,
incurred by or asserted against Agent (including by any Lender) arising out of
or by reason of any investigation in or in any way relating to or arising out
of this Agreement or any other Loan Document or any other documents
contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby (including the costs and expenses that any Loan
Party is obligated to pay hereunder) or the
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enforcement of any of the terms hereof or thereof or of any such other
documents; provided, that no Lender shall be liable for any of the foregoing to
the extent they arise solely from the gross negligence or willful misconduct of
the party to be indemnified as determined by a final judgment of a court of
competent jurisdiction.
SECTION 9.6. Non-Reliance on Agent and Other Lenders.
Each Lender agrees that it has, independently and without reliance on Agent or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own credit analysis of the Loan Parties and each
Subsidiary thereof and decision to enter into this Agreement and that it will,
independently and without reliance upon Agent or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own analysis and decisions in taking or not taking action
under this Agreement or any of the other Loan Documents. Agent shall not be
required to keep itself informed as to the performance or observance by the
Loan Parties or any of their Subsidiaries of this Agreement or any of the other
Loan Documents or any other document referred to or provided for herein or
therein or to inspect the properties or books of the Loan Parties or any of
their Subsidiaries. Agent will use reasonable efforts to provide Lenders with
any information received by Agent from any Loan Party which is required to be
provided to Lenders hereunder, with any Notice of Default received by Agent
from any Loan Party and with any notice of a Default or Event of Default
delivered by Agent to any Loan Party; provided, that Agent shall not be liable
to any Lender for any failure to do so, except to the extent that such failure
is attributable to Agent's gross negligence or willful misconduct as determined
by a final judgment of a court of competent jurisdiction. Agent shall not have
any duty or responsibility to provide any Lender with any other credit or other
information concerning the affairs, financial condition or business of any Loan
Party (or any of their Affiliates) that may come into the possession of Agent
or any of its affiliates nor to update or correct any information previously
given which becomes incorrect or which Agent learns is incorrect.
SECTION 9.7. Failure to Act. Except for action expressly
required of Agent hereunder and under the other Loan Documents, Agent shall in
all cases be fully justified in failing or refusing to act hereunder and
thereunder unless it shall receive further assurances to its satisfaction from
Lenders of their indemnification obligations under Section 9.5 hereof against
any and all liability and expense that may be incurred by it by reason of
taking or continuing to take any such action.
SECTION 9.8. Successor Agent. Subject to and effective
upon the appointment and acceptance of a successor Agent as provided below,
Agent may resign at any time by giving notice thereof to Lenders and the
Borrower, and the Required Lenders may, at any time when GE Capital's Pro Rata
share of the aggregate of the Revolving Credit Commitments of all Lenders at
such time (or, if the Commitment Termination Date has occurred, in lieu of the
Revolving Credit Commitments, the Revolving Credit Loan then outstanding in
respect of the Revolving Credit Commitment) equals less than ten percent (10%)
remove the Agent by written notice to that effect, with the written consent of
the Borrower (which consent shall not be unreasonably withheld or delayed)
(unless an Event of Default is continuing, in which event such consent shall
not be required). Upon any such resignation or removal, the Required Lenders
shall have the right to appoint a successor Agent, subject to the written
consent of the Borrower (which consent shall not be
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unreasonably withheld or denied). If no successor Agent shall have been so
appointed by the Required Lenders (and consented to by the Borrower) or if no
successor Agent shall have accepted such appointment within thirty (30) days
after the retiring or removed Agent's giving of notice of resignation or
receipt of notice of removal, then the retiring or removed Agent may, on behalf
of Lenders, appoint a successor Agent, that shall be (or shall be a direct or
indirect wholly-owned subsidiary of) a financial institution with a combined
capital and surplus or net worth of at least $200,000,000. Upon the acceptance
of any appointment as Agent hereunder by a successor Agent, such successor
Agent shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring or removed Agent, and the retiring or
removed Agent shall be discharged from its duties and obligations hereunder.
After any retiring Agent's resignation, or removed Agent's removal, hereunder
as Agent, the provisions of this Article 9 shall continue in effect for its
benefit in respect of any actions taken or omitted to be taken by it while it
was acting as Agent.
SECTION 9.9. Consents under Loan Documents. Except as
otherwise provided in Section 11.1 with respect to this Agreement, Agent may,
with the prior consent of Required Lenders (but not otherwise), consent to any
modification, supplement or waiver under any of the Loan Documents; provided,
that without the prior consent of each Lender, Agent shall not (except as
provided herein or in the Collateral Documents) release any of the Collateral
or otherwise terminate any Lien under any Collateral Document with respect to
any of the Collateral, or agree to additional obligations being secured by such
Collateral, except that no consent of any Lender shall be required, and Agent
is hereby authorized and instructed, to release or terminate any Collateral or
any Lien under any Collateral Document with respect to any Collateral (a) which
is the subject of a disposition permitted hereunder, (b) which secures
Indebtedness to the extent permitted under Sections 6.3 and 6.7, or (c) the
value of which does not exceed $1,000,000 in any Fiscal Year.
SECTION 9.10. Collateral Matters.
(a) Except as otherwise expressly provided for in this
Agreement, Agent shall have no obligation whatsoever to any Lender or any other
Person to investigate, confirm or assure that the Collateral exists or is owned
by any Loan Party or is cared for, protected or insured or has been encumbered,
or that any particular items of Collateral meet the eligibility criteria
applicable in respect of the Borrowing Base, or whether any particular reserves
are appropriate, or that the Liens granted to Agent herein or pursuant hereto
have been properly or sufficiently or lawfully created, perfected, protected or
enforced or are entitled to any particular priority, or to exercise at all or
in any particular manner or under any duty of care, disclosure or fidelity, or
to continue exercising, any of the rights, authorities and powers granted or
available to Agent in this Agreement or in any of the other Loan Documents, it
being understood and agreed (as between Agent on the one hand and Lenders on
the other hand) that (i) in respect of the Collateral, or any act, omission or
event related thereto, Agent may act in any manner it may deem appropriate, in
its sole discretion, given Agent's own interest in the Collateral as a Lender
and (ii) that Agent shall have no duty or liability whatsoever to any other
Lender, other than liability to the extent resulting from its own gross
negligence or willful misconduct as determined by a final judgment of a court
of competent jurisdiction.
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(b) Each Lender hereby appoints each other Lender as
agent for the purpose of perfecting Lenders' security interest in assets which,
in accordance with Article 8 or Article 9 of the Code, can be perfected only by
possession. Should any Lender (other than Agent) obtain possession of any such
Collateral, such Lender shall notify Agent thereof and, promptly upon Agent's
request therefor, shall deliver such Collateral to Agent or in accordance with
Agent's instructions.
ARTICLE 10
SUCCESSORS AND ASSIGNS
SECTION 10.1. Successors and Assigns. This Agreement and
the other Loan Documents shall be binding on and shall inure to the benefit of
the Loan Parties, Agent, Lenders, and their respective successors and assigns,
except as otherwise provided herein or therein. No Loan Party may assign,
delegate, transfer, hypothecate or otherwise convey its rights, benefits,
obligations or duties hereunder or under any of the Loan Documents without the
prior express written consent of Agent and all Lenders. Any such purported
assignment, transfer, hypothecation or other conveyance by any Loan Party
without such prior express written consent shall be void. The terms and
provisions of this Agreement and the other Loan Documents are for the purpose
of defining the relative rights and obligations of the Loan Parties, Agent and
Lenders with respect to the transactions contemplated hereby and there shall be
no third party beneficiaries of any of the terms and provisions of this
Agreement or any of the other Loan Documents.
SECTION 10.2. Assignments and Participations.
(a) Each Lender may, with the prior written consent of
Agent (except in the case of participations created by a Lender in favor of a
Lender Affiliate of such Lender provided that, as to any Lender, there shall be
no more than one participation in favor of such Lender's Lender Affiliate at
any one time), which consent shall not be unreasonably withheld, resell
(through syndication, assignment or a participation) all or a portion of its
rights and obligations under this Agreement (including all or a part of its
Revolving Credit Advances, Letter of Credit Obligations, Revolving Credit
Commitment and Revolving Credit Note), in minimum increments of $5,000,000 (or
any greater amount which is an integral multiple of $5,000,000) to any other
Person and so long as (i) as to each Lender other than the Lender which is the
Agent, after giving effect to any such syndication, assignment or participation
each Lender's Revolving Credit Commitment (excluding any portion thereof held
subject to any participation) is either (x) $12,500,000 or more or (y) zero and
(ii) as to the Lender which is the Agent, after giving effect to any such
syndication, assignment or participation, such Lender's Revolving Credit
Commitment (including any portion thereof held subject to any participation) is
not less than 10% of the Revolving Credit Commitments of all Lender; provided,
however, that the restriction contained in this clause (ii) on the Lender which
is the Agent shall not prevent such Lender from effecting any such syndication,
assignment or participation if (x) such Lender has been or is being replaced as
Agent, (y) such Lender must effect such sale due to any requirement of law or
regulation or (z) such Lender has liquidated or is liquidating the loan
portfolio of which the facility created under this Agreement is a part. Each
Lender shall
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use reasonable efforts to provide the Borrower with prior notice of any such
resale (other than a participation, which shall not require any such notice);
provided, that the failure to do so shall not affect the validity of such
resale or create any liability against such Lender.
(b) In the case of an assignment by any Lender under this
Section 10.2, the purchaser shall have, to the extent of such assignment, the
same rights, benefits and obligations as it would if it were a Lender
hereunder; provided, that each such assignment shall be of a constant, and not
a varying, percentage of the selling Lender's rights and obligations under this
Agreement. Upon execution by the assignor and the assignee of an instrument
pursuant to which the assignee assumes such rights and obligations, payment by
such assignee to such assignor of an amount equal to the purchase price agreed
between such assignor and assignee and delivery to Agent and the Borrower of an
executed copy of such instrument together with payment (by assignor and/or
assignee) to Agent of a processing fee of $3,000, such assignee shall have, to
the extent of such assignment (unless otherwise provided therein), the same
rights and benefits as it would have if it were a Lender hereunder and the
assignor shall be, to the extent of such assignment (unless otherwise provided
therein) released from its obligations under this Agreement. Each Loan Party
hereby acknowledges and agrees that any assignment will give rise to a direct
obligation of such Loan Party to the assignee and that the assignee shall be
considered to be a "Lender" hereunder and under the other Loan Documents. In
all instances, each Lender's liability to make Revolving Credit Advances shall
be several and not joint and shall be limited to such Lender's Pro Rata share
thereof. Upon any such assignment, the Borrower, at its own expense, shall
execute and deliver to Agent in exchange for the surrendered Revolving Credit
Note of the assignor Lender a new Revolving Credit Note to the order of the
assignee Lender in an amount equal to the Revolving Credit Commitment assumed
by such assignee Lender, and if the assignor Lender has retained a Revolving
Credit Commitment hereunder, a new Revolving Credit Note to the order of the
assignor Lender in an amount equal to such retained Revolving Credit
Commitment. Such new Revolving Credit Notes shall be dated the Closing Date
and shall otherwise be in the form of the Revolving Credit Note replaced
thereby. The Revolving Credit Notes surrendered to Agent shall be returned by
Agent to the Borrower marked "canceled".
(c) In the case of a participation by any Lender under
this Section 10.2, (A) all amounts payable by the Borrower hereunder shall be
determined as if that Lender had not sold such participation and the
participating Lender shall remain a "Lender" for all purposes under this
Agreement, (B) any such grant of a participation will be made in compliance
with all applicable state or federal laws, rules, and regulations, (C) such
Lender shall not grant any participation under which the participant shall have
rights to approve any amendment to or waiver of this Agreement or the Loan
Documents, except to the extent such amendment or waiver would (i) extend the
final maturity date for payment of the Revolving Credit Loan; (ii) reduce the
interest rate or the amount of principal or Fees applicable to the Revolving
Credit Loan; or (iii) release all or substantially all of the Collateral,
except as expressly provided herein. In those cases in which a Lender grants
rights to its participants to approve any amendment to or waiver of this
Agreement or the other Loan Documents respecting the matters described in the
foregoing clauses (i) through (iii), the relevant participation agreements
shall provide for a voting mechanism whereby a majority of the amount of the
participating Lender's portion of the Revolving Credit Loan (irrespective of
whether held by such Lender or participated), shall control the vote for all
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of such Lender's portion of the Revolving Credit Loan and (D) the participation
agreement shall require the participant to sell to the participating Lender the
participation created thereunder to the extent that the portion of the
Revolving Credit Loan (and related Revolving Credit Commitment and risk
participations) subject to participation in favor of such participant is
required to be replaced under Section 1.21 (and, subject to the conditions
precedent contained in Section 1.21, such Lender shall repurchase such
participation and create an assignment in favor of the "Replacement Lender" to
the extent contemplated by Section 1.21). In the case of any participation,
the participant shall not have any rights under this Agreement or any of the
other Loan Documents entered into in connection herewith (the participant's
right against such Lender in respect of such participation to be those set
forth in the participation or other agreement executed by such Lender and the
participant relating thereto) and all amounts payable to any Lender hereunder
shall be determined as if such Lender had not sold such participation;
provided, however, that notwithstanding the foregoing, each participant shall
be deemed to be a "Lender" under and for the purposes of Sections 1.19 and 1.20
and shall have all the rights of a "Lender" thereunder.
(d) Except as otherwise provided in this Section 10.2 no
Lender shall, as between any Loan Party and such Lender, be relieved of any of
its obligations hereunder as a result of any sale, assignment, transfer or
negotiation of, or granting of participation in, all or any part of the
Revolving Credit Loan or other Obligations owed to such Lender. Any Lender
permitted to sell assignments and participations under this Section 10.2 may
furnish any information concerning any Loan Party and its Subsidiaries in the
possession of that Lender from time to time to assignees and participants
(including prospective assignees and participants) subject to Section 11.13.
(e) The Borrower and each other Loan Party shall assist
any Lender permitted to sell assignments or participations under this Section
10.2 in whatever manner reasonably necessary in order to enable or effect any
such assignment or participation, including the execution and delivery of any
and all agreements, notes and other documents and instruments as shall be
reasonably requested.
(f) Each Lender agrees that if such Lender shall intend
to assign or grant a participation in all or any part of its interest in this
Agreement, any other Loan Document or any of the financial accommodations
provided or to be provided by it hereunder to any bank or other entity which is
organized under the laws of a jurisdiction outside of the United States or any
Commonwealth thereof (a "Foreign Lending Entity"), such Lender, as a condition
to the effectiveness of such assignment or participation, shall request that
such Foreign Lending Entity provide to the Borrower and Agent on or prior to
the consummation of such assignment or participation a properly completed and
executed Internal Revenue Service Form 4224 or Form 1001 or other applicable
form, certificate or document prescribed by the Internal Revenue Service of the
United States certifying as to such Foreign Lending Entity's entitlement to
exemption from United States withholding tax or a zero rate of withholding
under an applicable statute or tax treaty with respect to its interest in the
credit facility herein provided. In the event that such Foreign Lending Entity
is unable to deliver such form, certificate or document at or prior to the
consummation of such assignment or participation, such assignment or
participation shall not be permitted.
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ARTICLE 11
MISCELLANEOUS
SECTION 11.1. Complete Agreement; Modification of
Agreement. This Agreement and the other Loan Documents constitute the complete
agreement between the parties with respect to the subject matter hereof and
thereof and supersede all prior agreements, commitments, understandings or
inducements (oral or written, expressed or implied). Neither this Agreement
nor any other Loan Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by Required Lenders and the Loan Party or Loan
Parties which are party thereto; provided, however, that no such change,
waiver, discharge or termination shall, without the written consent of each
Lender and Agent, (a) extend the scheduled final maturity of the Revolving
Credit Loan, or any portion thereof, or extend the time for payment of
principal of any Obligation or payment in respect of or reimbursement of any
Letter of Credit Obligations, or reduce the rate or extend the time of payment
of interest (other than as a result of waiving the applicability of any
post-Default increase in interest rates) thereon or Fees, or reduce the
principal amount thereof, or increase the Revolving Credit Commitment of any
Lender over the amount thereof then in effect (it being understood that a
waiver of any Default or Event of Default shall not constitute a change in the
terms of any Revolving Credit Commitment of any Lender), (b) release Collateral
(except as expressly permitted by the Loan Documents), (c) amend, modify or
waive any provision of this Section, or Section 1.11, 1.17, 9.5, 11.2 or 11.7,
(d) reduce any percentage specified in, or otherwise modify, the definition of
Required Lenders, or (e) consent to the assignment or transfer by any Loan
Party of any of its rights and obligations under this Agreement. No provision
of Article 9 may be amended or waived without the prior written consent of
Agent and no provision of Annex G or Section 8.4(i) may be amended or waived
without the written consent of each Issuing Bank as to which there are Letter
of Credit Obligations outstanding at such time. Without the written consent of
Required Lenders, Agent shall not include as "Eligible Inventory" or "Eligible
Receivables" any Inventory or Accounts which are specifically (and without
regard to the exercise of any judgment or discretion on the part of Agent)
excluded therefrom under paragraphs (a) through (m) in the definition of
"Eligible Accounts" or under paragraphs (a) through (o) in the definition of
"Eligible Receivables", respectively.
SECTION 11.2. Fees and Expenses.
(a) Each Loan Party shall, jointly and severally, pay on
demand all reasonable out-of-pocket costs and expenses (including reasonable
fees of counsel) of Agent, GE Capital and its Affiliates (limited, in the case
of the Syndication Agent, to reasonable fees and expenses incurred by the
Syndication Agent through the date 90 days following May 3, 1996 in connection
with the Syndication Agent's syndication of the Revolving Credit Commitments)
in connection with the preparation, negotiation, approval, execution, delivery,
administration, syndication (limited as aforesaid), modification, amendment,
waiver and enforcement (whether through negotiations, legal proceedings or
otherwise) of the Loan Documents, and commitments relating thereto, and the
other documents to be delivered hereunder or thereunder and the transactions
contemplated hereby and thereby and the fulfillment or attempted fulfillment of
conditions precedent
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hereunder, including: (i) any amendment, modification or waiver of, or consent
with respect to, any of the Loan Documents or advice in connection with the
administration of the advances made pursuant hereto or its rights hereunder or
thereunder; (ii) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, any Loan Party or any other Person)
in any way relating to the Collateral, any of the Loan Documents or any other
agreements to be executed or delivered in connection therewith or herewith,
whether as party, witness, or otherwise, including any litigation, contest,
dispute, suit, case, proceeding or action, and any appeal or review thereof,
and any depositions or other discovery proceedings in connection therewith, in
connection with a case commenced by or against any Loan Party or any other
Person that may be obligated to Agent and Lenders by virtue of the Loan
Documents, including any litigation, contest, dispute, suit, case, proceeding
or action (and any appeal or review) in connection with a case under Title 11
of the United States Code, as now constituted or hereafter amended, or any
other applicable Federal, state or foreign bankruptcy or similar insolvency
law, except, as to Agent or any Lender, to the extent that Agent or such
Lender, as the case may be, arising from Agent's or such Lenders gross
negligence or wilful misconduct (including the failure by Agent or such Lender
to make Revolving Credit Advances in breach of its obligations under this
Agreement) as determined by a final non-appealable judgment of a court of
competent jurisdiction, (iii) any attempt to enforce any rights of Agent or
Lenders against any Loan Party or any other Person that may be obligated to
Agent or Lenders by virtue of any of the Loan Documents; or (iv) any effort to
(A) monitor the Revolving Credit Loan and the Loan Documents, (B) evaluate,
observe or assess any Loan Party or its affairs, or (C) verify, protect,
evaluate, assess, appraise, collect, sell, liquidate or otherwise dispose of
the Collateral.
(b) Each Loan Party shall, jointly and severally, pay on
demand all reasonable out-of-pocket costs and expenses (including (i)
reasonable fees of outside counsel, and (ii) reasonable allocated expenses
(with details of allocation, hours billed, billing rates and personnel used) of
in house counsel) of Agent and each Lender in connection with any Default or
Event of Default and any enforcement or collection proceedings resulting
therefrom or any amendment, modification or waiver of, or consent with respect
to, any of the Loan Documents in connection with any Default or Event of
Default; provided, however, that, where deemed appropriate by Agent, Agent
shall use reasonable efforts to utilize one counsel for the Agent and the
Lenders.
(c) Without limiting the generality of clauses (a) and
(b) above, each Loan Party's obligation to reimburse Agent and/or any Lender
for costs and expenses shall include the reasonable fees and expenses of
counsel (and local, foreign or special counsel, advisors, consultants and
auditors retained by such counsel), as well as the fees and expenses of
accountants, environmental advisors, field examiners, auditors (Agent will
assess the Loan Parties and the Loan Parties agree to pay $500 per day per
individual plus reasonable out-of-pocket expenses in connection with Agent's
field audits), appraisers, investment bankers, rating agencies, management and
other consultants and paralegals; court costs and expenses; photocopying and
duplicating expenses; court reporter fees, costs and expenses; long distance
telephone charges; air express charges; telegram charges; secretarial overtime
charges; expenses for travel, lodging and food; and all other out-of-pocket
costs and expenses of every type and nature paid or incurred in connection with
the performance of such legal or other advisory services, in each case, to the
extent
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reasonable and consistent with the policies of Agent and Lenders when paying
such expenses or fees for its or their own account.
SECTION 11.3. No Waiver.
(a) No failure on the part of Agent or Lenders, at any
time or times, to require strict performance by any Loan Party, of any
provision of this Agreement and any of the other Loan Documents shall waive,
affect or diminish any right of Agent or Lenders thereafter to demand strict
compliance and performance therewith. Any suspension or waiver of a Default or
Event of Default shall not suspend, waive or affect any other Default or Event
of Default whether the same is prior or subsequent thereto and whether of the
same or of a different type. None of the undertakings, agreements, warranties,
covenants and representations of any Loan Party contained in this Agreement or
any of the other Loan Documents and no Default or Event of Default by any Loan
Party shall be deemed to have been suspended or waived by Lenders, unless such
waiver or suspension is by an instrument in writing signed by an officer of or
other authorized employee of Agent and Required Lenders or all of Lenders if
required hereunder and directed to such Loan Party specifying such suspension
or waiver.
(b) No failure on the part of any Loan Party, at any time
or times, to require strict performance by any Lender or Agent, of any
provision of this Agreement and any of the other Loan Documents shall waive,
affect or diminish any right of such Loan Party thereafter to demand strict
compliance and performance therewith.
SECTION 11.4. Remedies. The rights and remedies of Agent
and Lenders under this Agreement shall be cumulative and nonexclusive of any
other rights and remedies which Agent or any Lender may have under any other
agreement, including the Loan Documents, by operation of law or otherwise.
Recourse to the Collateral shall not be required.
SECTION 11.5. Severability. Wherever possible, each
provision of this Agreement shall be interpreted in such manner as to be
effective and valid under applicable law, but if any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective to the extent of such prohibition or invalidity,
without invalidating the remainder of such provision or the remaining
provisions of this Agreement.
SECTION 11.6. Conflict of Terms. Except as otherwise
provided in this Agreement or any of the other Loan Documents by specific
reference to the applicable provisions of this Agreement, if any provision
contained in this Agreement is in conflict with, or inconsistent with, any
provision in any of the other Loan Documents, the provisions contained in this
Agreement shall govern and control.
SECTION 11.7. Right of Set-off. Subject to Section 1.2 and
1.14, upon the occurrence and during the continuance of any Event of Default,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to setoff and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held and
other indebtedness at any time owing by such Lender to or for
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the credit or the account of any Loan Party against any and all of the
Obligations now or hereafter existing irrespective of whether or not such
Lender shall have made any demand under this Agreement or any other Loan
Document and although such Obligations may be unmatured. Each Lender agrees to
use reasonable efforts to promptly notify Agent and the Loan Parties after any
such setoff and application made by such Lender; provided, that the failure to
give such notice (or to timely do so) shall not affect the validity of such
setoff and application. The rights of each Lender under this Section are in
addition to the other rights and remedies (including other rights of setoff)
which such Lender may have.
SECTION 11.8. Authorized Signature. Until Agent shall be
notified by any Loan Party to the contrary, the signature upon any document or
instrument delivered by such Loan Party pursuant hereto and believed by Agent
or any of Agent's officers, agents, or employees to be that of an officer or
duly authorized representative of such Loan Party listed on Schedule 11.8 or on
the most recent list of "Authorized Officers" delivered to Agent shall bind
such Loan Party and be deemed to be the act of such Loan Party affixed pursuant
to and in accordance with resolutions duly adopted by such Loan Party's Board
of Directors, and Agent and each Lender shall be entitled to assume the
authority of each signature and authority of the Person whose signature it is
or appears to be unless the Person acting in reliance on such signature shall
have actual knowledge of the fact that such signature is false or the Person
whose signature or purported signature is presented is without authority.
SECTION 11.9. Notices. Except as otherwise provided
herein, whenever it is provided herein that any notice, demand, request,
consent, approval, declaration or other communication shall or may be given to
or served upon either of the parties by the other party, or whenever either of
the parties desires to give or serve upon the other party any communication
with respect to this Agreement, each such notice, demand, request, consent,
approval, declaration or other communication shall be in writing and shall be
deemed to have been validly served, given or delivered (a) upon the earlier of
actual receipt and three (3) days after deposit in the United States Mail,
registered or certified mail, return receipt requested, with proper postage
prepaid, (b) upon transmission, when sent by telecopy or other similar
facsimile transmission (with such telecopy or facsimile promptly confirmed by
delivery of a copy by personal delivery or United States Mail as otherwise
provided in this Section 11.9), (c) one Business Day after deposit with a
reputable overnight courier with all charges prepaid, or (d) when delivered, if
hand-delivered by messenger, all of which shall be addressed to the party to be
notified and sent to the address or facsimile number indicated below or to such
other address (or facsimile number) as may be substituted by notice given as
herein provided. The giving of any notice required hereunder may be waived in
writing by the party entitled to receive such notice. Failure or delay in
delivering copies of any notice, demand, request, consent, approval,
declaration or other communication to any Person (other than any Loan Party,
Agent or any Lender) designated below to receive copies shall in no way
adversely affect the effectiveness of such notice, demand, request, consent,
approval, declaration or other communication.
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(a) If to Agent, as a Lender or as Agent, at:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Vice President-Portfolio/FoxMeyer
Telecopy No.: (203) 316-7821
with a copy to:
General Electric Capital Corporation
201 High Ridge Road
Stamford, Connecticut 06927
Attention: Legal Counsel/FoxMeyer
Telecopy No.: (203) 316-7822
and
Kaye, Scholer, Fierman, Hays & Handler, LLP
425 Park Avenue
New York, New York 10022
Attention: Robert S. Finley, Esq.
Telecopy No.: (212) 836-7151
(b) if to any Loan Party, at:
c/o FoxMeyer Corporation
1220 Senlac Drive
Carrollton, Texas 75006
Attention: Treasurer and General Counsel
Telecopy No.: (214) 446-4580 and (214) 446-4295,
respectively
with a copy to:
Glenn D. West, Esq.
Weil, Gotshal & Manges LLP
100 Crescent Court
Dallas, Texas 75201
Telecopy No.: (214) 746-7777
SECTION 11.10. Section Titles. The Section titles and Table
of Contents contained in this Agreement are and shall be without substantive
meaning or content of any kind whatsoever and are not a part of this Agreement.
SECTION 11.11. Counterparts. This Agreement may be executed
in any number of separate counterparts, each of which shall, collectively and
separately, constitute one agreement.
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SECTION 11.12. Time of the Essence. Time is of the essence
of this Agreement and each of the other Loan Documents.
SECTION 11.13. Announcements; Confidentiality.
(a) Each Loan Party agrees that it shall not (and shall
not permit any of its Subsidiaries to) issue any news release or make any
public announcement pertaining to the transactions contemplated by the Loan
Documents without the prior written consent of Agent (which consent shall not
be unreasonably withheld) unless such news release or public announcement is
required by law, in which case FoxMeyer shall use reasonable efforts to consult
with Agent prior to the issuance of any such news release or public
announcement. Each Loan Party acknowledges that Agent may publish a tombstone
or other advertisement with respect to the transactions contemplated hereby and
by the Receivables Funding Documents and such Loan Party consents thereto.
(b) The Loan Parties have furnished and will furnish to
Agent and Lenders certain written information concerning the Parent and the
Loan Parties and their respective Subsidiaries and their respective businesses,
finances, operations and affairs, in each case, which the Loan Parties have
advised is non-public, proprietary or confidential in nature ("Confidential
Information"). Agent and each Lender confirms to each Loan Party for itself,
that it is Agent's and such Lender's policy and practice to maintain in
confidence all Confidential Information which is provided to it under
agreements providing for the extension of credit and which is identified to it
as such, and that it will use good faith efforts to maintain, for a period of
one year following the Termination Date, as confidential the Confidential
Information submitted to it with respect to the Parent, any Loan Party or any
of their respective Subsidiaries under this Agreement, commensurate with its
efforts to maintain the confidentiality of its own Confidential Information,
provided, however, that (i) nothing contained herein shall prevent Agent or any
Lender from disclosing Confidential Information (A) to its and its Affiliates,
Redwood and their respective directors, officers and employees, the Rating
Agencies, and to any legal counsel, auditors, appraisers, consultants or other
persons retained by it or its Affiliates as professional advisors, on the
condition that such information not be further disclosed except in compliance
with this Section 11.13(b); provided, however, that none of Agent, any Lender
or any such other Person shall be liable for any misrepresentation or misuse of
such information by any Person to whom the Confidential Information has been
properly furnished under this Agreement; (B) reasonably believed by Agent, such
Lender or such other Person, as being under color of legal authority,
including, without limitation, to any regulatory authority having jurisdiction
over it or its operations or to or under the authority of any court deemed by
it to be of competent jurisdiction, including, without limitation, bank
examiners, auditors, regulators and accountants; (C) to any actual or potential
assignee of or participant in a Lender's rights and obligations under this
Agreement pursuant to Section 10.2 hereof to the extent such actual or
potential assignee or participant has agreed to maintain such information in
confidence on the basis set forth in this Section 11.13(b); and (D) as
necessary in connection with the exercise of its remedies under this Agreement
or any of the other Loan Documents; (ii) the terms of this Section 11.13(b)
shall be inapplicable to any information furnished to it which is in the
Agent's or any Lender's possession prior to the delivery to it of such
information by any Loan Party or any of its Subsidiaries, or otherwise has been
obtained by it on a non-confidential basis, or which was or becomes
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available to the public or otherwise part of the public domain (other than as a
result of Agent's or such Lender's failure or any prospective participant's or
assignee's failure to abide hereby), or which was not non-public, proprietary
or confidential when any Loan Party or any of its Subsidiaries delivered it to
Agent or any Lender; and (iii) the determination by Agent or any Lender as to
the application of any of the circumstances described in the foregoing clauses
(i) and (ii) will be conclusive and binding if made in good faith. Agent and
Lenders hereby acknowledge that they are familiar with the United States
federal securities laws relating to the use and treatment of material,
non-public information and any obligations that Agent and Lenders who are
provided with Confidential Information may have in respect of such securities
laws.
SECTION 11.14. GOVERNING LAW; CONSENT TO JURISDICTION.
EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN ANY OF THE LOAN DOCUMENTS, IN ALL
RESPECTS, INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS
AGREEMENT AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE, AND ANY APPLICABLE
LAWS OF THE UNITED STATES OF AMERICA. EACH LOAN PARTY HEREBY CONSENTS AND
AGREES THAT THE STATE OR FEDERAL COURTS LOCATED IN NEW YORK COUNTY, NEW YORK
SHALL HAVE EXCLUSIVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES
PERTAINING TO THIS AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO ANY
MATTER ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS; PROVIDED, THAT EACH LENDER AND EACH LOAN PARTY ACKNOWLEDGES THAT ANY
APPEALS FROM THOSE COURTS MAY HAVE TO BE HEARD BY A COURT LOCATED OUTSIDE OF
NEW YORK COUNTY, NEW YORK; AND FURTHER PROVIDED, THAT NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO PRECLUDE AGENT OR ANY LENDER FROM BRINGING SUIT
OR TAKING OTHER LEGAL ACTION IN ANY OTHER JURISDICTION TO COLLECT THE
OBLIGATIONS, TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF AGENT OR
ANY LENDER. EACH LOAN PARTY EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH LOAN
PARTY HEREBY WAIVES ANY OBJECTION WHICH SUCH PERSON MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH LOAN PARTY HEREBY WAIVES PERSONAL SERVICE OF
THE SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINTS AND OTHER PROCESS MAY BE MADE
BY REGISTERED OR CERTIFIED MAIL ADDRESSED TO SUCH PERSON AT THE ADDRESS SET
FORTH IN SECTION 11.9 OF THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE
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<PAGE> 76
DEEMED COMPLETED UPON THE EARLIER OF SUCH PERSON'S ACTUAL RECEIPT THEREOF OR
THREE (3) DAYS AFTER DEPOSIT IN THE U.S. MAILS PROPER POSTAGE PREPAID.
SECTION 11.15. WAIVER OF JURY TRIAL. BECAUSE DISPUTES
ARISING IN CONNECTION WITH COMPLEX FINANCIAL TRANSACTIONS ARE MOST QUICKLY AND
ECONOMICALLY RESOLVED BY AN EXPERIENCED AND EXPERT PERSON AND THE PARTIES WISH
APPLICABLE STATE AND FEDERAL LAWS TO APPLY (RATHER THAN ARBITRATION RULES), THE
PARTIES DESIRE THAT THEIR DISPUTES BE RESOLVED BY A JUDGE APPLYING SUCH
APPLICABLE LAWS. THEREFORE, TO ACHIEVE THE BEST COMBINATION OF THE BENEFITS OF
THE JUDICIAL SYSTEM AND OF ARBITRATION, THE PARTIES HERETO WAIVE ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, SUIT, OR PROCEEDING BROUGHT TO RESOLVE ANY
DISPUTE, WHETHER IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO, THIS AGREEMENT OR ANY OF THE OTHER LOAN
DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
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IN WITNESS WHEREOF, this Agreement has been duly executed as
of the date first written above.
FOXMEYER CORPORATION
FOXMEYER DRUG COMPANY,
HEALTHCARE TRANSPORTATION,
SYSTEM, INC.
MERCHANDISE COORDINATOR
SERVICES CORPORATION
By
---------------------------------
Name: Grady E. Schleier
Title: Vice President and
Treasurer
of each of the above
corporations
GENERAL ELECTRIC CAPITAL
CORPORATION, as Agent
By
---------------------------------
Name: Denis M. Creeden
Title: Duly Authorized Signatory
Lenders:
-------
Revolving Credit Commitment: GENERAL ELECTRIC CAPITAL
- --------------------------- CORPORATION
$120,000,000
By
---------------------------------
Name: John P. Crosby, Jr.
Title: Duly Authorized Signatory
<PAGE> 78
THE CIT GROUP/BUSINESS CREDIT, INC.
$35,000,000
By
---------------------------------
Name:
Title:
BANKAMERICA BUSINESS CREDIT, INC.
$50,000,000
By
---------------------------------
Name:
Title:
$35,000,000 HELLER FINANCIAL, INC.
By
---------------------------------
Name:
Title:
$35,000,000 LA SALLE BUSINESS CREDIT, INC.
By
---------------------------------
Name:
Title:
<PAGE> 79
SANWA BUSINESS CREDIT
$30,000,000 CORPORATION
By
---------------------------------
Name:
Title:
THE BANK OF NEW YORK
$25,000,000 COMMERCIAL CORPORATION
By
---------------------------------
Name:
Title:
$25,000,000 CORESTATES BANK, N.A.
By
---------------------------------
Name:
Title:
FBS BUSINESS FINANCE
$25,000,000 CORPORATION
By
---------------------------------
Name:
Title:
<PAGE> 80
$25,000,000 FIRST NATIONAL BANK OF BOSTON
By
---------------------------------
Name:
Title:
$25,000,000 NATIONSBANK OF TEXAS, N.A.
By
---------------------------------
Name:
Title:
$15,000,000 BTM CAPITAL CORPORATION
By
---------------------------------
Name:
Title:
GIBRALTOR CORPORATION OF
$15,000,000 AMERICA
By
---------------------------------
Name:
Title:
NATIONAL CITY COMMERCIAL
$15,000,000 FINANCE, INC.
By
---------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10-AL
RECEIVABLES PURCHASE AND SERVICING AGREEMENT
Dated as of June 19, 1996
by and among
FOXMEYER FUNDING, INC.,
as Seller,
REDWOOD RECEIVABLES CORPORATION,
as Purchaser,
FOXMEYER DRUG COMPANY,
as Servicer,
and
GENERAL ELECTRIC CAPITAL CORPORATION,
as Operating Agent and Collateral Agent
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TABLE OF CONTENTS
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ARTICLE I.DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.02. Other Terms and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II.AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.02. Optional Changes in Purchase Limit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Section 2.03. Notices Relating to Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.04. Conveyance of Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 2.05. Facility Termination Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.06. Repayment of Capital Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.07. Daily Yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.08. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.09. Time and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10. Further Action Evidencing Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.11. Additional Costs; Capital Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 2.12. Breakage Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2.13. Purchase Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III.CONDITIONS TO PURCHASE
Section 3.01. Conditions Precedent to Effectiveness of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 3.02. Conditions Precedent to All Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV.REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 4.02. Representations and Warranties of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE V.GENERAL COVENANTS OF THE SELLER
Section 5.01. Affirmative Covenants of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 5.02. Reporting Requirements of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 5.03. Negative Covenants of the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VI.COLLECTIONS AND DISBURSEMENTS
Section 6.01. Establishment of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 6.02. Funding of Collection Account . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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Section 6.03. Daily Disbursements From the Collection Account - Revolving Period . . . . . . . . . . . . . . . . . . 28
Section 6.04. Disbursements From the Retention Account - Settlement Date Procedures -
Revolving Period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 6.05. Liquidation Settlement Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Section 6.06. Investment of Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 6.07. Termination Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE VII.APPOINTMENT OF THE SERVICER
Section 7.01. Appointment of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 7.02. Duties and Responsibilities of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.03. Collections on Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.04. Authorization of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 7.05. Servicing Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.06. Covenants of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 7.07. Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.08. Annual Statement as to Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.09. Annual Independent Public Accountants' Servicing and Compliance Report . . . . . . . . . . . . . . . . 40
ARTICLE VIII.GRANT OF SECURITY INTERESTS
Section 8.01. Seller's Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 8.02. Seller's Certification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.03. Consent to Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.04. Delivery of Collateral42
Section 8.05. Seller Remains Liable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
Section 8.06. Covenants of the Seller and Servicer Regarding the Collateral . . . . . . . . . . . . . . . . . . . . 43
ARTICLE IX.TERMINATION EVENTS
Section 9.01. Termination Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 9.02. Events of Servicer Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE X.REMEDIES
Section 10.01. Actions Upon Termination Event . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 10.02. Exercise of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.03. Severability of Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.04. Power of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 10.05. Continuing Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ARTICLE XI.SUCCESSOR SERVICER
Section 11.01. Servicer Not to Resign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
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Section 11.02. Appointment of the Successor Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.03. Duties of the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 11.04. Effect of Termination or Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE XII.INDEMNIFICATION
Section 12.01. Indemnities by the Seller . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 12.02. Indemnities by the Servicer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
ARTICLE XIII.OPERATING AGENT
Section 13.01. Authorization and Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 13.02. Reliance, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 13.03. GE Capital and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
ARTICLE XIV.MISCELLANEOUS
Section 14.01. Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.02. Binding Effect; Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.03. Costs, Expenses and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 14.04. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 14.05. No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.06. Amendments; Waivers; Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
Section 14.07. GOVERNING LAW; CONSENT TO JURISDICTION;
WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 14.08. Execution in Counterparts; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 14.09. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 14.10. Limited Recourse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Schedule 1 - Concentration Limits
Schedule 2 - Excluded Obligors
Annex A to
Schedule 2 - Form of Amending Letter
Schedule 3 - Determination of "Daily Yield"
Schedule 4 - Yield Discount Amount
Schedule 5 - Addresses of the Seller
Schedule 6 - List of Lockboxes and Lockbox Accounts
Schedule 7 - List of Seller Agreements
Schedule 8 - List of Originator/Servicer Trade, Fictitious, Assumed and "Doing Business as" Names
Schedule 9 - States for Which Good Standing Certificates are Required
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Exhibit A-1 - Form of Notice (Request for Purchase)
Exhibit A-2 - Form of Notice (Reduction of Commitment)
Exhibit A-3 - Form of Notice (Termination of Commitment)
Exhibit A-4 - Form of Notice (Repayment of Capital Investment)
Exhibit B - Form of Purchase Assignment
Exhibit C - Form of Investment Base Certificate
Exhibit D - Form of Officer's Certificate as to Solvency
Exhibit E - Form of Officer's Certificate of Seller
(Bringdown Certificate)
Exhibit F - Form of Officer's Certificate of Servicer
Exhibit G - Form of Monthly Report
Exhibit H - Financial Covenants - Servicer
Exhibit I - Financial Covenants - Seller
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RECEIVABLES PURCHASE AND SERVICING AGREEMENT, dated as of June
19, 1996 (the "AGREEMENT") by and among FOXMEYER FUNDING, INC., a Delaware
corporation (the "SELLER"), REDWOOD RECEIVABLES CORPORATION, a Delaware
corporation, as Purchaser (as such, together with its successors and assigns,
the "PURCHASER"), GENERAL ELECTRIC CAPITAL CORPORATION, in its capacity as
operating agent hereunder (as such, together with its successors and assigns,
the "OPERATING AGENT") and in its capacity as Collateral Agent for the
Purchaser Secured Parties (as such, together with its successors and assigns,
the "COLLATERAL AGENT"), and FOXMEYER DRUG COMPANY, a Delaware corporation, as
servicer hereunder (as such, together with its successors and permitted
assigns, the "SERVICER").
RECITALS
A. The Seller is a wholly-owned bankruptcy remote
Subsidiary of the Parent.
B. The Seller has been formed for the sole purpose of
purchasing or otherwise acquiring certain Receivables originated by the
Originator.
C. The Seller intends that such Receivables shall be
purchased by or contributed to the Seller pursuant to the Transfer Agreement.
D. The Seller and the Purchaser intend that the
Purchaser purchase the Receivables.
E. The Operating Agent has been requested and is willing
to act as operating agent on behalf of the Purchaser in connection with the
making and financing of such purchases.
F. In order to effectuate the purposes of this
Agreement, the Purchaser and the Operating Agent desire that a servicer be
appointed to perform certain servicing, administrative and collection functions
in respect of the receivables acquired by the Purchaser under this Agreement.
G. FoxMeyer Drug Company has been requested and is
willing to act as the Servicer subject to the terms of this Agreement.
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NOW, THEREFORE, the parties agree as follows:
ARTICLE I.
DEFINITIONS AND INTERPRETATION
Section 1.01. Definitions. Except as otherwise expressly provided
herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have meanings assigned to such terms in Annex X
hereto, which is incorporated by reference herein. All other capitalized terms
used herein shall have the meanings specified herein.
Section 1.02. Other Terms and Interpretation. All other terms and
the interpretation of this Agreement shall be as set out in Annex X hereto.
ARTICLE II.
AMOUNTS AND TERMS OF THE PURCHASES
Section 2.01. Purchases. On the terms and conditions hereinafter set
forth, the Purchaser shall purchase Transferred Receivables (each, a
"PURCHASE") from the Seller from time to time during the Revolving Period.
Under no circumstances shall the Purchaser make any Purchase if, after giving
effect to such Purchase, the aggregate outstanding Capital Investment would
exceed the Availability. The aggregate price for each such Purchase shall
consist of the Cash Purchase Price and the Deferred Purchase Price.
Section 2.02. Optional Changes in Purchase Limit.
(a) The Seller may, not more than twice during each
calendar year, reduce the Maximum Purchase Limit; provided that (i) the Seller
shall give notice of such reduction to the Purchaser in the form of Exhibit
A-2, (ii) any partial reduction of the Maximum Purchase Limit shall be in an
amount equal to five million dollars ($5,000,000) or an integral multiple
thereof, and (iii) no such reduction shall reduce the Maximum Purchase Limit
below Capital Investment.
(b) The Seller shall be entitled at its option to
terminate the Maximum Purchase Limit, provided that (i) the Purchaser shall be
given no less than 90 days' prior notice by the Seller of such termination in
the form of Exhibit A-3, except that, in the event the Seller intends to prepay
the Capital Investment the Purchaser shall be given no less than 30 days' prior
notice by the Seller of such termination in the form of Exhibit A-3 and (ii) no
such termination shall reduce the Maximum Purchase Limit below Capital
Investment.
(c) Each written notice required to be delivered pursuant
to clauses (a) and (b) above shall be permanent and irrevocable and shall be
effective only if received by the Purchaser and the Operating Agent not later
than 5:00 p.m., New York City time on the
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Business Day prior to the date of the related reduction or termination. Each
notice of reduction shall specify the amount thereof.
Section 2.03. Notices Relating to Purchases.
(a) On the third Business Day of each week, the Seller
shall file with the Operating Agent an Investment Base Certificate and, upon
request, copies of all applicable Request Notices under the Transfer Agreement
delivered since the date of the most recent Investment Base Certificate filed
with the Operating Agent. Availability will be calculated based on the most
recent Investment Base Certificate delivered to the Purchaser and the Operating
Agent.
(b) The Seller shall give the Purchaser and the Operating
Agent written notice of each Purchase resulting in an increase in Capital
Investment (in each case, a "SELLER NOTICE"). Each such written notice shall
be substantially in the form of Exhibit A-1, shall be irrevocable and shall be
effective only if received by the Purchaser and the Operating Agent not later
than 4:00 p.m., New York City time on the Business Day prior to the date of the
related Purchase. Each such notice requesting a Purchase shall specify the
amount by which the Seller wishes the Capital Investment of the Purchaser to be
increased and the Purchase Date (which shall be a Business Day).
Section 2.04. Conveyance of Receivables.
(a) On the Effective Date, the Seller will complete,
execute and deliver a Purchase Assignment in the form of Exhibit B to the
Purchaser.
(b) (i) Following receipt of a Seller Notice, subject
to the satisfaction of the conditions set forth in Section 3.02, the Purchaser
shall make available to or on behalf of the Seller by depositing same in the
Collection Account, in same day funds, in accordance with the Seller's
instructions (after taking into account amounts on deposit in the Collection
Account which may be applied to any Capital Investment pursuant to Section
6.03(a)(iii)) the lesser of the amount specified in such Seller Notice and
Capital Investment Available.
(ii) On each Business Day during the Revolving
Period, subject to the terms of Section 6.03, the Purchaser shall make
available to or on behalf of the Seller, in same day funds, amounts on deposit
in the Collection Account which may be disbursed to the Seller as payment for
the Transferred Receivables pursuant to Section 6.03(c)(vi).
(c) Effective on the date of each Purchase, the ownership
of all Transferred Receivables (including Transferred Receivables transferred
prior to the Purchase Date) will be vested in the Purchaser. The Seller shall
not take any action inconsistent with such ownership and shall not claim any
ownership interest in any such Transferred Receivable. The Seller shall
indicate in its Records that ownership of the Transferred Receivable is held by
the Purchaser. In addition, the Seller shall respond to
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any inquiries with respect to ownership of a Transferred Receivable by stating
that it is no longer the owner of such Transferred Receivable and that
ownership of such Transferred Receivable is held by the Purchaser. Documents
relating to the Transferred Receivables shall be held in trust by the Seller or
the Servicer, as the case may be, for the benefit of the Purchaser as the owner
thereof, and possession of any incident relating to the Transferred Receivables
so retained is for the sole purpose of facilitating the servicing of the
Transferred Receivables. Such retention and possession is at the will of the
Purchaser and in a custodial capacity for the benefit of the Purchaser only.
(d) If the Originator is required to repurchase
Transferred Receivables from the Seller pursuant to Section 4.04 of the
Transfer Agreement, the Purchaser shall sell such Transferred Receivables to
the Seller (i) for cash or (ii) in exchange for a new Eligible Receivable or
new Eligible Receivables, in either case in an amount equal to the Outstanding
Balance of such Transferred Receivables.
Section 2.05. Facility Termination Date. Notwithstanding anything to
the contrary herein, on and after the Facility Termination Date, the Purchaser
shall have no obligation to purchase any additional Transferred Receivables.
Section 2.06. Repayment of Capital Investment. The Capital
Investment may be repaid at any time and from time to time, in whole or in
part, upon prior written notice to the Purchaser and Operating Agent
substantially in the form of Exhibit A-4 provided, however, that all repayments
of Capital Investment or any portion thereof shall be made together with
payment of (i) all Daily Yield accrued on the amount repaid to (but excluding)
the date of such repayment, and (ii) any and all Breakage Costs payable under
Section 2.12.
Section 2.07. Daily Yield.
(a) The Seller shall pay to the Purchaser, as set forth
in Sections 6.03, 6.04 and 6.05, Daily Yield on the Capital Investment of the
Purchaser.
(b) Notwithstanding the foregoing, the Seller shall pay
interest on unpaid Daily Yield and on any other amount payable by the Seller
hereunder (to the extent permitted by law) that shall not be paid in full when
due (whether at stated maturity, by acceleration or otherwise) for the period
commencing on the due date thereof to (but excluding) the date the same is paid
in full at the applicable Daily Yield Rate.
Section 2.08. Fees.
(a) The Seller shall pay to the Purchaser the fees set
forth in the Fee Letter.
(b) On each Settlement Date, the Seller shall pay to the
Servicer, the Servicing Fee.
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Section 2.09. Time and Method of Payments. Subject to the provisions
of Sections 6.02, 6.03, 6.04 and 6.05, all payments of Capital Investment,
yield, fees and other amounts payable by the Seller hereunder shall be made in
dollars, in immediately available funds, to the Purchaser not later than 2:00
p.m. on the date on which such payment shall become due. Any such payment made
on such date but after such time shall be deemed to have been made on, and
Daily Yield shall continue to accrue and be payable thereon until, the next
succeeding Business Day. If any payment becomes due on a day other than a
Business Day, such payment may be made on the next succeeding Business Day and
such extension shall be included in computing Daily Yield in connection with
such payment. All payments hereunder shall be made without setoff or
counterclaim and in such amounts as may be necessary in order that all such
payments shall not be less than the amounts otherwise specified to be paid
under this Agreement. If any payment hereunder to any Affected Party is
subject to withholding for or on account of any present or future taxes,
levies, imposts, duties or other similar charges of whatever nature imposed
upon an Affected Party by any Governmental Authority (other than any tax
imposed on the overall net income or net profits of the Affected Party or
franchise tax imposed on the overall net income or net profits of the Affected
Party, in each case to which any such payment is due from the United States of
America or the jurisdiction in which such Affected Party is organized, has its
principal office or applicable lending office, or is doing business), such
payment shall be grossed up by an amount such that the Affected Party receives
the same amount that would have been received had such payment not been subject
to withholding.
Section 2.10. Further Action Evidencing Purchases.
(a) The Seller agrees that, from time to time, at its
expense, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or appropriate,
in the opinion of the Purchaser or the Operating Agent, or that the Purchaser
or the Operating Agent may request, in order to perfect, protect or more fully
evidence the transfer of ownership of Transferred Receivables or to enable the
Purchaser (or the Operating Agent on behalf of the Purchaser) to exercise or
enforce any of its rights hereunder or under any Purchase Assignment. Without
limiting the generality of the foregoing, the Seller will, upon the request of
the Purchaser, (i) execute and file such financing or continuation statements,
or amendments thereto or assignments thereof, and such other instruments or
notices, as may be necessary or appropriate, or as the Purchaser or the
Operating Agent may request, (ii) after the occurrence of an Incipient Event,
mark, or cause the Servicer or the Originator, as the case may be, to mark
conspicuously each invoice evidencing each Transferred Receivable with a
legend, acceptable to the Purchaser and the Operating Agent, evidencing that
the Purchaser has purchased all right and title thereto and interest therein as
provided in the Transfer Agreement, (iii) after the occurrence of an Incipient
Event, send or cause the Servicer or the Originator, as the case may be, to
send notification to Obligors as to the transfer of Transferred Receivables,
and (iv) mark, or cause the Servicer or the Originator, as the case may be, to
mark, its master data processing records evidencing such Transferred
Receivables with such legend.
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(b) The Seller hereby authorizes the Purchaser to file
one or more financing or continuation statements, and amendments thereto and
assignments thereof, relating to all or any of the Transferred Receivables
without the signature of the Seller where permitted by law. A carbon,
photographic or other reproduction of this Agreement or any notice or financing
statement covering the Transferred Receivables or any part thereof shall be
sufficient as a notice or financing statement where permitted by law. The
Purchaser will promptly send to the Seller after receipt of any acknowledgment
copies from the appropriate governmental agency any financing or continuation
statements thereto which it files without the signature of the Seller except,
in the case of filings of copies of this Agreement as financing statements, the
Purchaser will promptly send the Seller after receipt from the appropriate
Governmental Authority the filing or recordation information with respect
thereto.
Section 2.11. Additional Costs; Capital Requirements.
(a) In the event that any existing or future law,
regulation or guideline, or interpretation thereof, by any court or
administrative or Governmental Authority charged with the administration
thereof, or compliance by any Affected Party with any request or directive
(whether or not having the force of law) of any such authority shall impose,
modify or deem applicable or result in the application of, any capital
maintenance, capital ratio or similar requirement against commitments made by
any Affected Party under this Agreement or a Program Document, and the result
of any event referred to above is to impose upon any Affected Party or increase
any capital requirement applicable as a result of the making or maintenance of,
such Affected Party's commitment (which imposition of capital requirements may
be determined by each Affected Party's allocation of the aggregate of such
capital increases or impositions), then, upon demand made by the Operating
Agent on behalf of such Affected Party as promptly as practicable after the
Operating Agent obtains knowledge that such law, regulation, guideline,
interpretation, request or directive exists and determines to make such demand,
the Seller shall immediately pay to the Collateral Agent on behalf of such
Affected Party from time to time as specified by the Operating Agent,
additional amounts which shall be sufficient to compensate such Affected Party
for the Seller's Share of such imposition of or increase in capital
requirements together with interest on each such amount from the date demanded
until payment in full thereof at the Daily Yield Rate. A certificate setting
forth in reasonable detail the amount necessary to compensate such Affected
Party as a result of an imposition of or increase in capital requirements
submitted by the Operating Agent to the Seller shall be conclusive, absent
manifest error, as to the amount thereof. The Seller shall not be liable for
any amounts under this Section 2.11(a) which were incurred more than 150 days
prior to the delivery of the applicable certificate with respect thereto.
(b) In the event that any Regulatory Change shall: (i)
change the basis of taxation of any amounts payable to any Affected Party in
respect of any Purchases, Capital Investment, LOC Draws, Liquidity Loans or
Transaction Liquidity Loans (other than taxes imposed on the overall net income
or net profits of such Affected Party or franchise tax imposed on the overall
net income or net profits of the Affected Party, in each case, for any
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such Purchases, Capital Investment, LOC Draws, Liquidity Loans or Transaction
Liquidity Loans by the United States of America or the jurisdiction in which
such Affected Party is organized, has its principal office or applicable
lending office, or is doing business); (ii) impose or modify any reserve,
Federal Deposit Insurance Corporation premium or assessment, special deposit or
similar requirements relating to any extensions of credit or other assets of,
or any deposits with or other liabilities of, such Affected Party (excluding
reserves required under Regulation D to the extent included in the calculation
of the Daily Yield Rate); or (iii) impose any other conditions affecting this
Agreement in respect of Purchases, Capital Investment, LOC Draws, Liquidity
Loans, and Transaction Liquidity Loans (or any of such extensions of credit,
assets, deposits or liabilities); and the result of any event referred to in
clause (i), (ii) or (iii) above shall be to increase such Affected Party's cost
of making or maintaining any Purchases, Capital Investment, LOC Draws,
Liquidity Loans, and Transaction Liquidity Loans or its commitment under a
Program Document, or to reduce any amount receivable by such Affected Party
hereunder in respect of any of its Purchases, Capital Investment, LOC Draws,
Liquidity Loans and Transaction Liquidity Loans or its commitment (such
increases in costs and reductions in amounts receivable are hereinafter
referred to as "ADDITIONAL COSTS") then, upon demand made by the Operating
Agent on behalf of such Affected Party, as promptly as practicable after it
obtains knowledge that such a Regulatory Change exists and determines to make
such demand, the Seller shall pay to the Collateral Agent on behalf of such
Affected Party, from time to time as specified by the Operating Agent,
additional commitment fees or other amounts which shall be sufficient to
compensate such Affected Party for the Seller's Share of such increased cost or
reduction in amounts receivable by such Affected Party from the date of such
change, together with interest on each such amount from the date demanded until
payment in full thereof at the Daily Yield Rate. The Seller shall not be
liable for any amounts under this Section 2.11(b) which were incurred more than
150 days prior to the delivery of the applicable certificate with respect
thereto.
(c) Determinations by any Affected Party for purposes of
this Section 2.11 of the effect of any Regulatory Change on its costs of making
or maintaining Purchases, Capital Investment, LOC Draws, Liquidity Loans or
Transaction Liquidity Loans or on amounts receivable by it in respect of
Purchases, Capital Investment, LOC Draws, Liquidity Loans or Transaction
Liquidity Loans and of the additional amounts required to compensate such
Affected Party in respect of any Additional Costs, shall be set forth in a
written notice to the Seller in reasonable detail and shall be conclusive,
absent manifest error.
Section 2.12. Breakage Costs. The Seller shall pay to the Collateral
Agent for the account of the Purchaser, upon the request of the Purchaser or
the Operating Agent, such amount or amounts as shall compensate the Purchaser
for any loss (including loss of profit), cost or expense incurred by the
Purchaser (as determined by the Purchaser or the Operating Agent) as a result
of any repayment of a Purchase (and interest thereon) other than on the
maturity date of the Commercial Paper funding such Purchase, such compensation
to include, without limitation, an amount equal to any loss or expense suffered
by the Purchaser during the period from the date of receipt of such repayment
to (but excluding)
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the maturity date of such Commercial Paper, if the rate of interest obtainable
by the Purchaser upon the redeployment of an amount of funds equal to the
amount of such repayment is less than the rate of interest applicable to such
Commercial Paper (such expense to be referred to as "BREAKAGE COSTS"). The
determination by the Purchaser or the Operating Agent of the amount of any such
loss or expense shall be set forth in a written notice to the Seller in
reasonable detail and shall be conclusive, absent manifest error. The Seller
shall not be liable for any amounts under this Section 2.12 which were incurred
more than 150 days prior to the delivery of the applicable notice with respect
thereto.
Section 2.13. Purchase Excess. After completion of the disbursements
specified in Sections 6.03(a), (b) and (c), the Operating Agent shall notify
the Seller of any remaining Purchase Excess and the Seller shall deposit the
amount of any Purchase Excess in the Collection Account by 11:00 a.m. on the
Business Day following the date of such Purchase Excess.
ARTICLE III.
CONDITIONS TO PURCHASE
Section 3.01. Conditions Precedent to Effectiveness of Agreement.
The effectiveness of this Agreement is subject to the condition precedent that
the Purchaser, the Operating Agent and the Collateral Agent shall each have
received on or before the Effective Date the following, in form and substance
satisfactory to the Operating Agent:
(a) An executed copy of the Transfer Agreement.
(b) A certificate from an officer of each Originator in
the form of Exhibit D (Solvency Certificate as to Seller).
(c) With respect to the Seller:
(i) the certificate or articles of incorporation
of the Seller certified, as of a date no more than ten (10) days prior
to the Effective Date, by the Secretary of State of its state of
incorporation;
(ii) a good standing certificate, dated no more
than ten (10) days prior to the Effective Date, from the respective
Secretary of State of its state of incorporation and each state in
which the Seller is required to qualify, or represents that it is
qualified, to do business;
(iii) a certificate of the Secretary or Assistant
Secretary of the Seller certifying as of the Effective Date: (A) the
names and true signatures of the officers authorized on its behalf to
sign this Agreement, (B) a copy of the Seller's by-laws, and (C) a
copy of the resolutions of the board of directors of the Seller
approving
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this Agreement, the Related Documents to which it is a party and the
transactions contemplated hereby and thereby; and
(iv) an Officer's Certificate in the form of
Exhibit E (Bringdown Certificate).
(d) With respect to the Servicer:
(i) the certificate or articles of incorporation
of the Servicer certified, as of a date no more than ten (10) days
prior to the Effective Date, by the Secretary of State of its state of
incorporation;
(ii) a good standing certificate, dated no more
than ten (10) days prior to the Effective Date, from the Secretary of
State of Delaware;
(iii) a certificate of the Secretary or Assistant
Secretary of the Servicer certifying as of the Effective Date: (A)
the names and true signatures of the officers authorized on its behalf
to sign this Agreement, (B) a copy of the Servicer's by-laws, and (C)
a copy of the resolutions of the board of directors of the Servicer
approving this Agreement, the Related Documents to which it is a party
and the transactions contemplated thereby and hereby; and
(iv) an Officer's Certificate in the form of Exhibit F (Servicer's
Certificate).
(e) Certified copies of requests for information or
copies on form UCC-11 (or a similar search report certified by a party
acceptable to the Operating Agent), dated a date no more than twenty-one (21)
days prior to the Effective Date listing all effective financing statements and
other similar instruments and documents which name any Originator or the Seller
(under their present names and any previous names) as debtor, together with
copies of such financing statements.
(f) Executed termination statements (form UCC-3 or
similar termination statements acceptable to the Operating Agent), if any,
necessary to release all security interests and other rights of any Person in
Transferred Receivables previously granted by an Originator including, without
limitation, all such releases specified by such Originator prior to the date
hereof.
(g) Any necessary third party consents to the closing of
the transactions contemplated hereby.
(h) Executed financing statements (form UCC-1 or similar
financing statements acceptable to the Operating Agent), in respect of
Transferred Receivables, (i) pursuant to the Transfer Agreement, naming each
Originator as the assignor and the Seller as the assignee, and (ii) pursuant to
Article VIII, naming the Seller as the
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debtor/seller, the Purchaser as secured party/purchaser and the Collateral
Agent as the assignee, or other, similar instruments or documents, as may be
necessary or, in the opinion of the Operating Agent, desirable under the UCC of
all appropriate jurisdictions or any other applicable law (including the
Assignment of Claims Act) to perfect the Purchaser's and the Collateral Agent's
interests in all Transferred Receivables in which an interest may be assigned
hereunder.
(i) Fully executed copies of each Lockbox Agreement.
(j) The favorable opinion of counsel to the Seller and
the Originator as to (i) corporate and security interest/perfection matters,
(ii) the true sale of the Transferred Receivables from the Originator to the
Seller, (iii) the nonconsolidation of the Seller's assets into the bankruptcy
estate of the Parent, and (iv) such other matters as the Operating Agent may
reasonably require.
(k) Payment of all fees due hereunder or under the Fee
Letter.
(l) Payment or satisfactory provisions for payment of the
reasonable legal and documentation costs of the Purchaser and Operating Agent.
(m) (i) Consolidated balance sheets of FoxMeyer
Corporation and its Subsidiaries for each of the years in the three
year period ended March 31, 1995, audited by a nationally recognized
accounting firm (accompanied by consolidating financial information
reviewed by such accounting firm and a satisfactory management letter,
together with management's response thereto) and the related
statements of operations and cash flows; and
(ii) Unaudited consolidated and consolidating
balance sheets and statements of operations and consolidated cash
flows of FoxMeyer Corporation and its Subsidiaries for the 12 month
period ended March 31, 1996 and the one month period ending April 30,
1996.
(n) Confirmation of the ratings of the Commercial Paper
as A-1+ by S&P and P-1 by Moody's.
(o) A copy of the Servicer's Credit and Collection
Policies.
(p) An Investment Base Certificate as of the Effective
Date.
(q) All taxes (other than any taxes imposed on the net
income or net profits of any Affected Party by the United States of America or
the jurisdiction in which such Affected Party is organized, has its principal
office or applicable lending office, or is doing business) including without
limitation, any stamp duty, imposed on any party hereto as a result of the
transfer of the Receivables, shall have been paid by the Originator.
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(r) The Intercreditor Agreement, duly executed by the
parties thereto.
(s) (i) Harris Wholesale, Inc., a Delaware corporation,
shall have been merged with and into FoxMeyer Drug Company, a Kansas
corporation with FoxMeyer Drug Company, a Kansas corporation being the
surviving corporation, (ii) FoxMeyer Drug Company, a Delaware corporation,
shall have been merged with and into FoxMeyer Drug Company, a Kansas
corporation with FoxMeyer Drug Company, a Kansas corporation being the
surviving corporation, (iii), FMDC Company, a Delaware corporation formed by
FoxMeyer Corporation, shall have changed its name to FoxMeyer Drug Company, a
Delaware corporation, and (iv) FoxMeyer Drug Company, a Kansas corporation
shall have merged with and into FoxMeyer Drug Company, a Delaware corporation
(formerly known as FMDC Company) with FoxMeyer Drug Company, a Delaware
corporation (formerly known as FMDC Company) being the surviving corporation
(and the Parent and Servicer hereunder) and all fees and taxes due by the
constituent corporations in such mergers, or assumable in connection with such
mergers shall have been paid. As of the Effective Date, FMDC Company shall
have engaged in no activities, acquired no assets and incurred no liabilities
except in connection with the formation of FMDC Company and the foregoing
mergers.
(t) Such other approvals, consents, opinions, documents
and instruments, as the Operating Agent may reasonably request.
Section 3.02. Conditions Precedent to All Purchases. Each Purchase
(including the initial Purchase) shall be subject to the following further
conditions precedent:
(a) On the related Purchase Date, the Seller shall have
certified in the related Investment Base Certificate that, except as
specifically disclosed in writing to the Purchaser, and specifically consented
to by the Purchaser or the Operating Agent in their sole discretion:
(i) the representations and warranties of the
Seller, the Originator and the Servicer set forth in Sections 4.01 and
4.02 are true and correct on and as of such date, before and after
giving effect to such Purchase and to the application of the proceeds
therefrom, as though made on and as of such date;
(ii) no event has occurred and is continuing, or
would result from such Purchase or from the application of the
proceeds therefrom, which constitutes a Termination Event or Incipient
Event;
(iii) the Seller is in compliance with each of its
covenants set forth herein; and
(iv) no event has occurred and is continuing, or
would result from such Purchase or from the application of the
proceeds therefrom, which constitutes
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an Event of Servicer Termination or would constitute an Event of
Servicer Termination but for the requirement that notice be given or
time elapse or both.
(b) The Facility Termination Date has not occurred.
(c) Before and after giving effect to such Purchase and
to the application of proceeds therefrom, there exists no Purchase Excess.
(d) Each Originator and the Seller shall have taken such
other action, including delivery of approvals, consents, opinions, documents
and instruments to the Purchaser and the Operating Agent, as (i) the Operating
Agent may reasonably request or (ii) a Rating Agency may request.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.01. Representations and Warranties of the Seller. The
Seller represents and warrants to the Purchaser, the Operating Agent and the
Collateral Agent as of the date hereof, as of the Effective Date and on each
subsequent Purchase Date as follows:
(a) The Seller is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to do business, and is in good standing, in
each jurisdiction in which the nature of its business requires it to be so
qualified (except for those foreign jurisdictions where the failure to be duly
qualified to do business or in good standing could not reasonably be expected
to result in a Material Adverse Effect) and either individually or through the
Servicer, is able to bring suit or otherwise enforce its remedies through
judicial process against each Obligor of each Transferred Receivable.
(b) The Seller has the power and authority to own,
pledge, mortgage, operate and convey all of its properties, to conduct its
business as now or proposed to be conducted and to execute and deliver this
Agreement and the Related Documents and to perform the transactions
contemplated hereby and thereby.
(c) The Seller is and has been a wholly-owned subsidiary
of the Parent.
(d) The Seller is operated is such a manner that the
separate corporate existence of the Seller and the Parent Group would not be
disregarded in the event of a bankruptcy or insolvency of any member of the
Parent Group and in such regard:
(i) the Seller is and has been a limited purpose
corporation whose activities are restricted in its certificate or
articles of incorporation;
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(ii) no member of the Parent Group or any Person
at the time it is acting as an officer of any such member is nor has
been involved in the day-to-day management of the Seller;
(iii) other than the purchase and contribution of
Receivables, the payment of dividends and the return of capital to an
Originator, any lease or sub-lease of office space or equipment, the
payment of Servicing Fees to the Servicer under this Agreement, the
making of loans to the Parent pursuant to the Parent Note and the
Transfer Agreement, the Tax Sharing Agreement, and a reimbursement of
expenses paid by the Servicer on behalf of the Seller, the Seller
engages or has engaged in no intercorporate transactions with any
member of the Parent Group;
(iv) the Seller maintains separate corporate
records and books of account from each member of the Parent Group,
holds regular corporate meetings and otherwise observes corporate
formalities and has a separate business office from each member of the
Parent Group;
(v) the financial statements and books and
records of the Seller and each member of the Parent Group prepared
after the Effective Date reflect the separate corporate existence of
the Seller;
(vi) the Seller maintains its assets separately
from the assets of each member of the Parent Group (including through
the maintenance of separate bank accounts and except for any Records
to the extent necessary for the servicing of the Transferred
Receivables), the Seller's funds and assets, and records relating
thereto, have not been and are not commingled with those of any member
of the Parent Group and the separate creditors of the Seller will be
entitled to be satisfied out of the Seller's assets prior to any value
in the Seller becoming available to the Seller's equityholders;
(vii) except as permitted under this Agreement and
the Related Documents and those associated with the creation and
organization of the Seller, no member of the Parent Group (A) pays the
Seller's expenses; (B) guarantees the Seller's obligations, or (C)
advances funds to the Seller for the payment of expenses or otherwise;
(viii) all business correspondence of the Seller and
other communications are conducted in the Seller's own name, on its
own stationery and through a separately-listed telephone number;
(ix) the Seller does not act as agent for any
member of the Parent Group, but instead presents itself to the public
as a corporation separate from each member of the Parent Group,
independently engaged in the business of purchasing and financing
Receivables;
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(x) the Seller maintains at least two independent
directors each of whom, at all times after the Effective Date, shall
not be a shareholder, director, officer, employee or associate, or any
relative of any of the foregoing, of any member of the Parent Group as
provided in its certificate or articles of incorporation; and
(xi) the bylaws or Certificate of Incorporation of
the Seller require it to maintain (A) correct and complete books and
records of account, and (B) minutes of the meetings and other
proceedings of its shareholders and board of directors.
(e) The Seller has not engaged, and does not presently
engage, in any activity other than the activities undertaken pursuant to this
Agreement and the Related Documents, nor has the Seller entered into any
agreement other than this Agreement and the Related Documents, and any
agreement necessary to undertake any activity pursuant to this Agreement or the
Related Documents.
(f) The execution, delivery and performance by the Seller
of this Agreement, the Related Documents to which it is a party or by which it
may be bound and the transactions contemplated hereby and thereby (i) have been
duly authorized by all necessary corporate or other action on the part of the
Seller, (ii) do not contravene or cause the Seller to be in default under (A)
its certificate or articles of incorporation or by-laws, (B) any contractual
restriction contained in any indenture, loan or credit agreement, lease,
mortgage, security agreement, bond, note, or other agreement or instrument
binding on or affecting the Seller or its property or the Originator or its
property, or (C) any law, rule, regulation, order, license requirement, writ,
judgment, award, injunction, or decree applicable to, binding on or affecting
it or its property or the Originator or its property, and (iii) do not result
in or require the creation of any Adverse Claim upon or with respect to any of
its property or any property of any Originator (other than in favor of the
Purchaser and the Collateral Agent).
(g) This Agreement and the Related Documents to which the
Seller is a party have each been duly executed and delivered by the Seller.
(h) No consent of, notice to, filing with or permits,
qualifications or other action by any Governmental Authority or any other party
is required (i) for the due execution, delivery and performance by the Seller
of this Agreement or any of the Related Documents to which it is a party or by
which it may be bound, (ii) for the perfection of or the exercise by each of
the Purchaser, the Operating Agent or the Collateral Agent of any of its rights
or remedies hereunder or thereunder, (iii) for the grant by the Seller of the
security interests granted under Section 8.01 of this Agreement, (iv) for the
perfection of or the exercise by each of the Purchaser or the Collateral Agent
of its rights and remedies provided for in this Agreement, or (v) to ensure the
legality, validity, enforceability or admissibility into evidence of this
Agreement in any jurisdiction in which any of the Collateral is located, in
each case other than consents, notices, filings and other actions
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which have been obtained or made and complete copies of which have been
provided to the Purchaser, the Operating Agent or the Collateral Agent and
continuation statements in respect of any such filings.
(i) No transaction contemplated by this Agreement
requires compliance with any bulk sales act or similar law.
(j) This Agreement and each Related Document to which the
Seller is a party or by which it may be bound is the legal, valid and binding
obligation of the Seller enforceable against the Seller in accordance with its
respective terms. Each of the Seller Assigned Agreements to which an Originator
or the Seller is a party constitutes the legal, valid and binding obligation of
such Person, enforceable against such Person in accordance with its terms,
subject to any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting the
enforceability of creditors' rights generally and general equitable principles,
whether applied in a proceeding at law or in equity.
(k) There is no pending or threatened, nor any reasonable
basis for any, action, suit or proceeding against or affecting the Seller, its
officers or directors, or the property of the Seller, in any court or tribunal,
before any arbitrator of any kind or before or by any Governmental Authority.
(l) No injunction, writ, restraining order or other order
of any nature adverse to the Seller or the conduct of its business or which is
inconsistent with the due consummation of the transactions contemplated by this
Agreement or the Related Documents has been issued by a Governmental Authority
nor been sought by any Person.
(m) The principal place of business and chief executive
office of the Seller, and the offices where the Seller keeps its Records and
the original copies of the Seller Assigned Agreements are located at the
address of the Seller for notices under Section 14.01 and as set forth on
Schedule 5 and there are currently no, and during the past four months (or such
shorter time as the Seller has been in existence) there have not been, any
other locations where the Seller is located (as that term is used in the UCC of
the jurisdiction where such principal place of business is located) or keeps
Records.
(n) The Seller does not have and has never conducted
business using trade names, fictitious names, assumed names or "doing business
as" names and has not changed its name during the last five years (or such
shorter time as the Seller has been in existence).
(o) The Seller does not have any Subsidiaries.
(p) The Seller is Solvent and will not become Insolvent
after giving effect to the transactions contemplated by this Agreement and the
Related Documents. The Seller has no Debts to any Person other than pursuant
to this Agreement and the Related Documents. The Seller, after giving effect
to the transactions contemplated by this
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Agreement and the Related Documents, will have an adequate amount of capital to
conduct its business in the foreseeable future.
(q) For federal income tax, reporting and accounting
purposes (except in any consolidated financial statements and consolidated tax
returns), the Seller will treat the purchase or assignment of each Transferred
Receivable pursuant to the Transfer Agreement as a purchase or absolute
assignment of each Originator's full right, title and ownership interest in
such Transferred Receivable to the Seller (and Contributed Receivables shall be
accounted for as an increase in the stated capital of the Seller) and the
Seller has not in any other manner accounted for or treated the transactions in
Transferred Receivables.
(r) The Seller has complied and will comply in all
respects with all applicable laws, rules, regulations, judgments, agreements,
decrees and orders with respect to its business and properties and all
Collateral.
(s) The Seller has filed on a timely basis all tax
returns (federal, state and local) required to be filed, is not liable for
taxes payable by any other Person (except for the payment of such amounts as a
result of the filing of a consolidated tax return) and has paid or made
adequate provisions for the payment of all taxes, assessments and other
governmental charges due from the Seller. No tax lien or similar Adverse Claim
has been filed, and no claim is being asserted, with respect to any such tax,
assessment or other governmental charge. Any taxes, fees and other
governmental charges payable by the Originator in connection with the execution
and delivery of this Agreement and the Related Documents and the transactions
contemplated hereby or thereby have been paid or shall have been paid if and
when due.
(t) Each Investment Base Certificate and Request Notice
is accurate in all material respects.
(u) Each Transferred Receivable is owned by the Seller
free and clear of any Adverse Claim and the Seller has the full right,
corporate power and lawful authority to assign, transfer and pledge the same
and interests therein and all substitutions therefor and additions thereto
pursuant to Section 8.01, and upon making each Purchase, the Purchaser will
have acquired a perfected, first priority and valid security interest in such
Transferred Receivables, free and clear of any Adverse Claim or restriction on
transferability. No effective financing statement or other instrument similar
in effect covering all or any part of the Seller Collateral is on file in any
recording office, except such as may have been filed in favor of the Purchaser
as "Secured Party/Purchaser" and the Collateral Agent as "Assignee" pursuant to
Article VIII of this Agreement or, with respect to the Transferred Receivables,
in favor of the Seller pursuant to the Transfer Agreement unless termination
statements or statements of release are provided thereto with respect to
Section 3.01(f).
(v) Each Transferred Receivable was purchased by or
contributed to the Seller on the relevant Transfer Date pursuant to the
Transfer Agreement.
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(w) Each purchase of Receivables under the Transfer
Agreement will constitute (i) a "current transaction" within the meaning of
Section 3(a)(3) of the Securities Act of 1933, as amended, and (ii) a purchase
or other acquisition of notes, drafts, acceptances, open accounts receivable or
other obligations representing part or all of the sales price of merchandise,
insurance or services within the meaning of Section 3(c)(5) of the Investment
Company Act of 1940, as amended.
(x) All information heretofore or hereafter furnished by
or on behalf of the Seller to the Collateral Agent, the Operating Agent or the
Purchaser in connection with this Agreement or any transaction contemplated
hereby is and will be true and complete in all material respects and does not
and will not omit to state a material fact necessary to make the statements
contained therein not misleading.
(y) The Seller is in compliance with ERISA and has not
incurred and does not expect to incur any liabilities (except for premium
payments arising in the ordinary course of business) payable to the PBGC (or
any successor thereto) under ERISA.
(z) (i) The Seller is not a party to any indenture, loan
or credit agreement or any lease or other agreement or instrument or subject to
any charter or corporation restriction other than the Tax Sharing Agreement and
those contemplated by the Related Documents, (ii) the Seller is not in default
under or with respect to any contract, agreement, lease or other instrument to
which the Seller is a party and which is material to the Seller's condition
(financial or otherwise), business, operations or properties, and the Seller
has not delivered or received any notice of default thereunder, and (iii) each
contract, agreement, lease or other instrument to which the Seller is a party
is listed on Schedule 7.
(aa) The Seller is not an "investment company" or an
"affiliated person" of, or "promoter" or "principal underwriter" for, an
"investment company," as such terms are defined in the Investment Company Act
of 1940, as amended. The making of the Purchases by the Purchaser, the
application of the proceeds and repayment thereof by the Seller and the
consummation of the transactions contemplated by this Agreement and the other
Related Documents to which the Seller is a party will not violate any provision
of such Act or any rule, regulation or order issued by the Securities and
Exchange Commission thereunder.
(bb) Except for the Tax Sharing Agreement, there is not
now, nor will there be at any time in the future, any agreement or
understanding between any member of the Parent Group and the Seller (other than
as expressly set forth herein) providing for the allocation or sharing of
obligations to make payments or otherwise in respect of any taxes, fees,
assessments or other governmental charges (except for the payment of such
amounts as a result of the filing of a consolidated tax return or the
allocation to the Seller of any fees, expenses and other amounts which are
properly chargeable to and due from the Seller but which were paid when due by
a member of the Parent Group on behalf of the Seller).
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(cc) Each of the representations and warranties of the
Seller contained in the Related Documents (other than this Agreement) is true
and correct in all material respects and the Seller hereby makes each such
representation and warranty to, and for the benefit of, the Collateral Agent,
the Operating Agent and the Purchaser as if the same were set forth in full
herein.
Section 4.02. Representations and Warranties of the Servicer. The
Servicer represents and warrants to the Purchaser, the Operating Agent and the
Collateral Agent as follows as of the date hereof:
(a) The Servicer is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to do business, and is in good standing, in
every jurisdiction in which the nature of its business requires it to be so
qualified (except for those foreign jurisdictions in which the failure to
comply could not reasonably be expected to result in a Material Adverse Effect)
and is able to bring suit or otherwise enforce its remedies through judicial
process against each Obligor of a Transferred Receivable.
(b) The Servicer has the power and authority to (i)
conduct its business as it is presently conducted or proposed to be conducted,
and (ii) to execute and deliver this Agreement and to perform the transactions
contemplated hereby.
(c) The execution, delivery and performance by the
Servicer of this Agreement, each other Related Document to which it is a party
or by which it may be bound and all other agreements, instruments and documents
which may be delivered by it pursuant hereto and thereto and the transactions
contemplated hereby and thereby (i) have been duly authorized by all necessary
corporate or other action on the part of the Servicer, (ii) do not contravene
or cause the Servicer to be in default under (A) its certificate or articles of
incorporation or by-laws, (B) any contractual restriction with respect to any
Debt of the Servicer or contained in any indenture, loan or credit agreement,
lease, mortgage, security agreement, bond, note or other agreement or
instrument binding on or affecting it or its property the breach or termination
of which could reasonably be expected to result in a Material Adverse Effect,
or (C) any law, rule, regulation, order, writ, judgment, award, injunction or
decree binding on or affecting it or its property, and (iii) do not result in
or require the creation of any Adverse Claim upon or with respect to any
material portion of any property of the Servicer (other than in favor of the
Seller, the Purchaser and the Collateral Agent).
(d) This Agreement and each other Related Document to
which it is a party has been duly executed and delivered by the Servicer.
(e) No consent of, notice to, filing with or permits,
qualifications or other action by any Governmental Authority or any other party
is required for the due execution, delivery and performance by the Servicer of
this Agreement, any Related Document to which it is a party or by which it may
be bound or any other agreement, document or
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instrument to be delivered hereunder other than any consents, notices, permits,
qualifications, filings or other actions which have been obtained or made and
complete copies of which have been provided to the Purchaser, the Operating
Agent and the Collateral Agent (except where the failure to have such consents,
notices, permits, qualifications, or make such filings or do other actions
could not reasonably be expected to result in a Material Adverse Effect).
(f) This Agreement and each other Related Document to
which it is a party or by which it may be bound is the legal, valid and binding
obligation of the Servicer enforceable against the Servicer in accordance with
its respective terms subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to or affecting the enforceability of creditors' rights generally and
general equitable principles, whether applied in a proceeding at law or in
equity.
(g) There is no pending or to the knowledge of Servicer,
threatened, nor any reasonable basis for any, action, suit, investigation or
proceeding of a material nature against or affecting the Servicer, its officers
or directors, or the property of the Servicer, in any court or tribunal, before
any arbitrator of any kind or before or by any Governmental Authority (i)
asserting the invalidity of this Agreement, any other Related Document or any
document to be delivered by the Servicer hereunder or thereunder, or (ii)
seeking any determination or ruling that could reasonably be expected to result
in a Material Adverse Effect.
(h) No injunction, writ, restraining order or other order
of any material nature adverse to the Servicer or the conduct of its business
or which is inconsistent with the due consummation of the transactions
contemplated by this Agreement and the Related Documents has been issued by a
Governmental Authority or, to the knowledge of the Servicer, has been sought by
any other Person.
(i) The Servicer has complied and will comply in all
respects with all applicable laws, rules, regulations, judgments, agreements,
decrees and orders with respect to its business and properties and all
Collateral (except for such noncompliance which could not reasonably be
expected to result in a Material Adverse Effect).
(j) The Servicer has filed on a timely basis all federal
tax returns, reports and statements, including information returns (Form
1120-S), and all state, local and foreign tax returns, reports and statements
(to the extent, in the case of any such state, local or foreign tax return,
report or statement, that the failure to file, or to pay any tax or other
amount which should have been reported thereon, could reasonably be expected to
have a Material Adverse Effect), required to be filed and has paid or made
adequate provisions for the payment of all taxes, fees, assessments and other
governmental charges due from the Servicer, no tax lien or similar Adverse
Claim has been filed, and no claim is being asserted, with respect to any such
tax, fee, assessment, or other governmental charge. Any taxes, fees,
assessments and other governmental charges payable by the Servicer in
connection with the execution and delivery of this Agreement and the Related
Documents
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and the transactions contemplated hereby or thereby have been paid or shall
have been paid when due.
(k) The Servicer is in compliance with ERISA and has not
incurred and does not expect to incur any liabilities (except for premium
payments arising in the ordinary course of business) payable to the PBGC (or
any successor thereto) under ERISA where any non-compliance or liabilities
could reasonably be expected to result in a Material Adverse Effect.
(l) (i) The Servicer is not a party to any indenture,
loan or credit agreement or any lease or other agreement or instrument or
subject to any charter or corporation restriction that could have, and no
provision of applicable law or governmental regulation could reasonably be
expected to result in a Material Adverse Effect, and (ii) the Servicer is not
in default under or with respect to any contract, agreement, lease or other
instrument to which the Servicer is a party the termination of which or default
under which could reasonably be expected to result in a Material Adverse
Effect, and the Servicer has not delivered or received any notice of default
thereunder.
(m) The legal name of such Servicer is as set forth at
the beginning of this Agreement and, except as set forth in Schedule 8, such
Servicer has not changed its name in the last five years, and during such
period such Servicer did not use, nor does such Servicer now use, any trade
names, fictitious names, assumed names or "doing business as" names except as
set forth on Schedule 8.
(n) The Servicer is not an "investment company" or an
"affiliated person" of or "promoter" or "principal underwriter" for, an
"investment company", as such terms are defined in the Investment Company Act
of 1940, as amended.
(o) Each of the representations and warranties of the
Servicer contained in this Agreement and the Related Documents is true and
correct in all material respects and the Servicer hereby makes each such
representation and warranty contained in the Related Documents to, and for the
benefit of, the Purchaser, the Operating Agent and the Collateral Agent.
ARTICLE V.
GENERAL COVENANTS OF THE SELLER
Section 5.01. Affirmative Covenants of the Seller. The Seller shall,
unless the Operating Agent shall otherwise consent in writing:
(a) perform each of its obligations under this Agreement
and the Related Documents to which it is a party or by which it may be bound
and comply in all respects with all of its obligations under this Agreement and
the Related Documents to which it is a
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party or by which it may be bound and comply with all applicable laws, rules,
regulations and orders with respect to this Agreement, the Related Documents,
its business and properties and all Transferred Receivables and related
Contracts;
(b) preserve and maintain its corporate existence,
rights, franchises and privileges in the jurisdiction of its incorporation and
shall conduct its business in accordance with the terms of its certificate of
incorporation and bylaws;
(c) continue to operate its business in the manner set
forth in Sections 4.01(d) and (e);
(d) deposit all Collections it may receive in respect of
Transferred Receivables into a Lockbox Account within one Business Day of
receipt;
(e) use the proceeds of the Purchases made hereunder
solely for (i) the purchase of Receivables from an Originator, (ii) payment of
dividends to its shareholder, (iii) payment of administrative fees or Servicing
Fees or expenses or routine administrative expenses, or (iv) to make loans to
the Parent pursuant to the Parent Note and the Transfer Agreement, in any case,
as permitted by this Agreement or the Related Documents;
(f) permit representatives of the Operating Agent and the
Collateral Agent at any time and from time to time during normal business hours
(unless an Incipient Event or a Termination Event shall have occurred and be
continuing, in which event no notice shall be required and there shall be no
limitation on the frequency with which the Purchaser, the Operating Agent or
the Collateral Agent shall have such access (without regard for normal business
hours)), (i) to make inspections and audits of any books, records and papers of
the Seller and the Servicer and to make extracts therefrom and copies thereof,
and (ii) to make inspections and examinations of any properties and facilities
of the Seller and the Servicer and to discuss matters relating to the
Receivables or the Seller and Seller's performance under this Agreement or the
Related Documents with any officer or employee of the Servicer having knowledge
of such matters.
(g) pay, perform and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due, unless and to the
extent only that such obligations, liabilities, taxes, assessments and
governmental charges shall be contested in good faith and by appropriate
proceedings and that, to the extent required by GAAP, proper and adequate book
reserves relating thereto are established by the Seller and then only to the
extent that a bond is filed in cases where the filing of a bond is necessary to
avoid the creation of an Adverse Claim against any of its properties;
(h) upon request of the Purchaser, the Collateral Agent
or the Operating Agent, mark its Records to show the interests of the Purchaser
and Collateral Agent; and
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(i) pursuant to Section 14.03, pay the Purchaser's
reasonable attorney's fees and disbursements, rating agency fees and other
costs, expenses and taxes.
Section 5.02. Reporting Requirements of the Seller. The Seller shall
furnish, or cause to be furnished, to the Purchaser, the Operating Agent, the
Collateral Agent and (in the case of Section 5.02(f) only) the Rating Agencies:
(a) no less frequently than the third Business Day of
each week, an Investment Base Certificate in the form of Exhibit C;
(b) monthly, as soon as available, and in any event,
within fifteen Business Days after the end of each fiscal month, a Monthly
Report in the form of Exhibit G;
(c) as soon as available and in any event within 95 days
after the end of each fiscal year, a copy of the annual unaudited consolidating
(in the case of FoxMeyer Corporation and its Subsidiaries only) and audited
consolidated financial statements of FoxMeyer Corporation and its Subsidiaries,
in each case, consisting of a balance sheet and statement of operations,
retained earnings and (as to consolidated statements only) cash flow and
retained earnings, setting forth in comparative form, the figures from the
previous fiscal year certified, in a manner acceptable to the Operating Agent
and the Collateral Agent and without qualification, by Deloitte & Touche, LLP
or other nationally recognized independent public accountants acceptable to the
Operating Agent and the Collateral Agent with such financial statements being
prepared in accordance with GAAP applied consistently throughout the period
involved (except as approved by such accountants and disclosed therein);
(d) as soon as available and in any event within (i) 35
days after the end of each fiscal month of each fiscal year of FoxMeyer
Corporation (other than any month which constitutes the end of any fiscal
quarter) or (ii) 50 days after the end of each of the first three quarters of
each fiscal year of FoxMeyer Corporation, in each case, an unaudited
consolidated and consolidating balance sheet of FoxMeyer Corporation and its
Subsidiaries as of the end of such month or quarter and including the prior
comparable period, and the unaudited consolidated and consolidating statements
of income of FoxMeyer Corporation and its Subsidiaries for such month or
quarter and for the period commencing at the end of the previous fiscal year
and ending with the end of such month or quarter, certified by an Authorized
Officer of FoxMeyer Corporation identifying such documents as being the
documents described in this paragraph (d) and stating that the information set
forth therein fairly presents the financial condition of FoxMeyer Corporation
and its Subsidiaries as of and for the periods then ended, subject to year-end
adjustments consisting only of normal, recurring accruals and confirming that
the Servicer is in compliance with all financial covenants in this Agreement;
(e) as soon as possible and in any event within five days
after the occurrence of a Termination Event or an Incipient Event, the
statement of an Authorized
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Officer of the Seller setting forth complete details of such Termination Event
or Incipient Event and the action which the Seller has taken, is taking and
proposes to take with respect thereto;
(f) as soon as available and in any event within 95 days
after the end of each fiscal year, a report from Deloitte & Touche, LLP or
other nationally recognized independent public accountants (upon which report,
the Operating Agent and the Collateral Agent may rely) to the Collateral Agent
and the Operating Agent to the effect that such firm has applied the agreed
upon procedures agreed to by the Seller and the Operating Agent with respect to
(i) each of the Seller's and the Servicer's compliance with the Seller's and
the Servicer's financial covenants in this Agreement and (ii) the substantial
compliance with this Agreement in the preparation of the Monthly Reports
(including the Investment Base Certificates attached thereto) delivered during
the previous fiscal year, and that, on the basis of such procedures, such firm
has reported that there are no exceptions, except as set forth in such
statement;
(g) with each financial statement delivered pursuant to
Section 5.02(d)(ii), a report of the Servicer executed on its behalf by an
Authorized Officer of the Servicer setting forth management's discussion and
analysis of all current income statement, balance sheet and cash flow financial
trends;
(h) promptly, from time to time, such other information,
documents, records or reports respecting the Transferred Receivables or the
Contracts or the condition or operations, financial or otherwise, of the
Seller, or an Originator or any of its Subsidiaries, as the Purchaser, the
Operating Agent or the Collateral Agent may reasonably request from time to
time;
(i) upon any request from the Operating Agent and in any
event, on or before 95 days after the end of each fiscal year, (i) an Officer's
Certificate of the Seller, dated the date of such delivery, bringing down to
such date the matters set forth in the Officer's Certificate in the form of
Exhibit E, and (ii) an Officer's Certificate of the Servicer, dated the date of
such delivery, bringing down to such date the matters set forth in the
Officer's Certificate in the form of Exhibit F; and
(j) promptly, notification in writing of any litigation,
legal proceeding or dispute, whether or not in the ordinary course of business,
affecting the Seller, whether or not fully covered by insurance, and regardless
of the subject matter thereof.
Section 5.03. Negative Covenants of the Seller. The Seller shall
not, without the written consent of the Purchaser, the Operating Agent and the
Collateral Agent:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim (except,
in the case of any Lockbox or Lockbox Account, as created pursuant to the
Inventory Facility, the Security Agreement or the Intercreditor Agreement) upon
or with respect to, or assign any right to receive income
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in respect of (other than by merging one Lockbox with and into another Lockbox
subject to Section 6.01(a)(iii) of this Agreement), (i) any Transferred
Receivable or related Contract with respect thereto, or upon or with respect to
any Lockbox Account, any Lockbox, the Collection Account, the Retention Account
or other account in which any Collections are deposited, or (ii) any of the
Seller's property;
(b) extend, amend, forgive, discharge, compromise, waive,
cancel or otherwise modify the terms of the Transfer Agreement, any Related
Document, the Credit and Collection Policies or of any Transferred Receivable,
or amend, modify or waive any term or condition of any Contract related thereto
provided that the foregoing shall not prohibit the Seller from authorizing the
Servicer to take such actions to the extent permitted hereunder, under the
Transfer Agreement or by the Credit and Collection Policies;
(c) make any change in its instructions to Obligors
regarding payments to be made to the Seller or payments to be deposited to a
Lockbox Account or any Lockbox;
(d) amend its articles or certificate of incorporation,
its by-laws;
(e) merge with or into, consolidate with or into, convey,
transfer, lease or otherwise dispose of all or substantially all of its assets
(whether now owned or hereafter acquired) to, or acquire all or substantially
all of the assets of, or any capital stock or other ownership interest of, any
Person (whether in one transaction or in a series of transactions), or own any
Subsidiary;
(f) prepare any financial statements which shall account
for the transactions contemplated by the Transfer Agreement in any manner other
than as a true sale or absolute assignment of the Transferred Receivables to
the Seller from any Originator, or in any other respect account for or treat
the transactions contemplated hereby (including but not limited to, for
accounting, tax and reporting purposes) in any manner other than as a true sale
or absolute assignment of the Transferred Receivables to the Seller from such
Originator;
(g) prepare (i) any financial statements which shall
account for the transactions contemplated by this Agreement in any manner other
than as a sale or absolute assignment of the Transferred Receivables to the
Purchaser from the Seller, or (ii) any tax return or any other tax report which
shall account for or treat the transactions contemplated hereby in any manner
other than as debt of the Seller from the Purchaser.
(h) at any time (i) advance credit to any Person, or (ii)
declare any dividends, repurchase any stock, return any capital, or otherwise
make any distribution of cash or any other property, if after giving effect to
such distribution, there would be a Purchase Excess;
(i) create, incur, permit to exist or have outstanding
any Debt, except:
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(i) Debt of the Seller to the Purchaser, any
Affected Party, any Indemnified Party, the Servicer or any other
Person under the Transfer Agreement and this Agreement;
(ii) taxes, assessments and governmental charges; and
(iii) the endorsement of negotiable instruments for
deposit or collection in the ordinary course of business;
(j) issue any additional shares or any right or option to
acquire any shares, or any security convertible into any shares, of the capital
stock of the Seller to any Person other than the Parent;
(k) enter into, or be a party to, any transaction with
any Person, other than pursuant to this Agreement or the Transfer Agreement;
(l) make or suffer to exist any purchases of assets or
investments in any Person, including, without limitation, any shareholder,
director, officer or employee of the Seller or any of the Parent's other
Subsidiaries, except as permitted under this Agreement or the Related
Documents; or
(m) deposit or permit the deposit of any funds that are
not Collections of Transferred Receivables into any Lockbox Account provided
that (i) Collections of Receivables which are not Transferred Receivables and
other amounts which do not constitute Collections may be deposited in a Lockbox
Account if such funds constitute a de minimus portion of the funds on deposit
therein on any day, (ii) the Seller notifies the Operating Agent within one
Business Day of the presence of such funds in a Lockbox Account and (iii) the
Seller requests that such funds be removed from such Lockbox Account.
ARTICLE VI.
COLLECTIONS AND DISBURSEMENTS
Section 6.01. Establishment of Accounts.
(a) Lockbox Account.
(i) The Seller has established with a Lockbox
Bank each Lockbox Account, into which the Servicer shall deposit from
time to time all monies, instruments and other property received by it
as Proceeds of the Transferred Receivables. The Seller agrees that
prior to a Termination Event the Operating Agent, and upon the
occurrence and during the continuation of a Termination Event the
Collateral Agent, shall have exclusive dominion and control of each
Lockbox Account and all monies, instruments and other property from
time to time in each
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Lockbox Account. The Seller will not make or cause to be made, or
have any ability to make or cause to be made any withdrawals from any
Lockbox Account, except as provided in Section 6.01(b)(ii).
(ii) The Seller and the Servicer have instructed
all existing Obligors of Transferred Receivables, and will instruct
all future Obligors, to make payments in respect of Transferred
Receivables only (A) by check or money order mailed to one or more
lockboxes or post office boxes under the control of the Operating
Agent (each such box being a "LOCKBOX"), or (B) by wire transfer or
moneygram directly to a Lockbox, or (C) by direct debit from such
Obligor's account to the Lockbox Account, except as otherwise provided
in the Credit and Collection Policies. The Lockboxes and Lockbox
Accounts to which payments are made as of the date hereof are listed
on the attached Schedule 6. The Seller and the Servicer shall
endorse, to the extent necessary, all checks or other instruments
received in any Lockbox so that the same can be deposited in a Lockbox
Account, in the form so received (with all necessary endorsements), on
the next Business Day after the Business Day on which such check or
other instruments are received. In addition, the Seller and Servicer
shall deposit or cause to be deposited in a Lockbox Account all cash,
checks, money orders or other Proceeds of Collateral received other
than in a Lockbox or by wire payments, in the form so received (with
all necessary endorsements), not later than the close of business on
the Business Day following the date of such receipt, and until so
deposited all such items or other Proceeds shall be held in trust for
the Collateral Agent. Neither the Seller nor the Servicer shall
deposit any moneys not required or permitted under this Agreement or
the Related Documents into a Lockbox or Lockbox Account.
(iii) If a Lockbox Agreement terminates for any
reason, any Lockbox Bank fails to comply with its obligations under
the related Lockbox Agreement for any reason or one Lockbox is merged
with or into another Lockbox, then the Seller shall promptly notify
all Obligors to make all future wire payments to a new Lockbox Account
with another Lockbox Bank (except that where one Lockbox is merged
into another Lockbox, such new Lockbox Account may, at the Seller's
option, remain at the same Lockbox Bank). The Seller shall not close
the Lockbox Account unless it shall have (A)(1) received the prior
written consent of the Operating Agent and the Collateral Agent, (2)
established a new account with the same Lockbox Bank or with a new
depositary institution reasonably satisfactory to the Operating Agent
and the Collateral Agent, (3) entered into an agreement covering such
new account with the Lockbox Bank or with such new depositary
institution substantially in the form of the Lockbox Agreement or
which is otherwise reasonably satisfactory in all respects to the
Operating Agent and the Collateral Agent (whereupon, for all purposes
of this Agreement and the Related Documents, such new account shall
become the Lockbox Account, such new agreement shall become the
Lockbox Agreement and any new depositary institution shall become the
Lockbox Bank), and (4) taken all such action as the Collateral Agent
shall require to grant and perfect a first priority security interest
in such new Lockbox Account to
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the Collateral Agent under Section 8.01 of this Agreement, or (B)
directed all Obligors to direct payment to another existing Lockbox or
Lockbox Account. Other than pursuant to this Section 6.01(a), the
Seller or Servicer shall not open any new Lockbox or Lockbox Account
without the consent of the Operating Agent, the Collateral Agent and
the Purchaser.
(b) Collection Account.
(i) The Purchaser has established and shall
maintain a segregated deposit account with the Depositary titled
"Redwood Receivables Corporation - Collection Account (FoxMeyer Drug
Company) (the "COLLECTION ACCOUNT"). The Seller agrees that the
Operating Agent shall have exclusive dominion and control of the
Collection Account and all monies, instruments and other property from
time to time in the Collection Account.
(ii) Pursuant to Section 6.02, the Seller
shall instruct the Lockbox Bank to transfer, and the Seller hereby
grants each of the Operating Agent and the Collateral Agent the
authority to instruct each Lockbox Bank to transfer, on each Business
Day in same day funds, all available funds deposited in the Lockbox
Account on or before such Business Day to the Collection Account. The
Purchaser, the Operating Agent and the Collateral Agent may deposit
into the Collection Account from time to time all monies, instruments
and other property received by any of them as Proceeds of the
Transferred Receivables. On each Business Day before the Facility
Termination Date, so long as no Termination Event shall have occurred
and be continuing, the Operating Agent shall instruct and cause the
Depositary (which instruction may be in writing or by telephone
confirmed promptly thereafter in writing) to release funds on deposit
in the Collection Account in the order of priority set forth in Section
6.03. On each Business Day on and after the Facility Termination Date
and on each Business Day during any period while a Termination Event
has occurred and is continuing, the Collateral Agent may and the
Operating Agent shall apply all amounts when received in the Collection
Account in the order of priority set forth in Section 6.05.
(iii) If the Depositary wishes to resign as
depositary of the Collection Account for any reason or fails to carry
out the instructions of the Operating Agent or the Collateral Agent
for any reason, then the Purchaser or the Operating Agent shall
promptly notify the Purchaser Secured Parties. The Purchaser shall
not close the Collection Account unless it shall have (1) received the
prior written consent of the Operating Agent and the Collateral Agent,
(2) established a new account with the Depositary or with a new
depositary institution satisfactory to the Operating Agent and the
Collateral Agent, (3) entered into an agreement covering such new
account with such new depositary institution satisfactory in all
respects to the Operating Agent and the Collateral Agent (whereupon
such new account shall become the Collection Account for all purposes
of this Agreement and the Related Documents), and (4) taken all such
action as the Collateral Agent shall
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require to grant and perfect a first priority security interest in
such new Collection Account to the Collateral Agent under this
Agreement.
(c) Retention Account. The Purchaser has established and
shall maintain a segregated deposit account with the Depositary and controlled
by the Operating Agent titled "Redwood Receivables Corporation - Retention
Account (FoxMeyer Drug Company)" (the "RETENTION ACCOUNT").
(d) Collateral Account. The Purchaser has established
and shall maintain a segregated deposit account with the Depositary and
controlled by the Operating Agent titled "Redwood Receivables Corporation -
Collateral Account" (the "COLLATERAL ACCOUNT").
Section 6.02. Funding of Collection Account.
(a) As soon as practicable and in any event, no later
than 10:00 a.m., on each Business Day:
(i) the relevant Lockbox Bank shall transfer all
Collections of available funds deposited in any Lockbox Account prior
to such Business Day to the Collection Account;
(ii) the Purchaser shall, or shall cause the
Collateral Agent to, deposit in the Collection Account the amount
required, pursuant to Section 2.04(b)(i);
(iii) the Purchaser shall, or shall cause the
Collateral Agent to, deposit any Seller LOC Draws made on such
Business Day to the Collection Account;
(iv) if, pursuant to a Seller Notice, the Seller
has requested to reduce the Capital Investment of the Purchaser, the
Seller shall deposit cash into the Collection Account in an amount
equal to the amount specified in such Seller Notice,
(v) if, on the prior Business Day, the Operating
Agent has notified the Seller of any Purchase Excess, the Seller shall
deposit cash in the amount of such Purchase Excess in the Collection
Account;
(vi) if on such Business Day the Seller is
required to make other payments under this Agreement not previously
retained out of Collections (including Indemnified Amounts not
previously paid), the Seller shall deposit an amount equal to such
payments in the Collection Account;
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(vii) if, on the prior Business Day, an Originator
made a capital contribution of a Rejected Amount or repurchased a
Transferred Receivable, pursuant to the Transfer Agreement, the Seller
shall deposit cash in the amount received from such Originator for
such contribution or repurchase in the Collection Account; and
(viii) the Servicer shall deposit into the
Collection Account the Outstanding Balance of any Transferred
Receivable it elects to pay pursuant to Section 7.04.
(b) If, two Business Days prior to any Settlement Date,
the Operating Agent notifies the Seller of any Retention Account Deficiency
pursuant to Section 6.04(b), the Seller shall deposit cash in the amount of
such deficiency into the Collection Account no later than 10:00 a.m. on such
Settlement Date.
(c) On the Facility Termination Date and any date
thereafter, the Operating Agent shall transfer all amounts held in the
Retention Account as of each such date to the Collection Account.
Section 6.03. Daily Disbursements From the Collection Account -
Revolving Period. On each Business Day, as soon as practicable and in any
event no later than 12:00 p.m., during the Revolving Period, following the
transfers made in accordance with Section 6.02, the Operating Agent shall
disburse all amounts in the Collection Account in the following priority:
(a) transfer all amounts in the Collection Account in the
following priority:
(i) to the Retention Account for the account of
the Purchaser, the amount of any Retention Account Deficiency
deposited pursuant to Section 6.02(b);
(ii) to the Deferred Purchase Price Sub-Account,
all Deferred Purchase Price Collections;
(iii) to the Capital Investment Sub-Account, the
balance;
(b) transfer all amounts in the Deferred Purchase Price
Sub-Account, in the following priority:
(i) to the Retention Account for the account of
the Purchaser, an amount equal to the sum of
(A) Daily Yield;
(B) the Yield Shortfall for the prior
Business Day;
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(C) the Servicing Fee;
(D) the Servicing Fee Shortfall for the
prior Business Day;
(E) the Unused Commitment Fee; and
(F) the Unused Commitment Fee Shortfall
for the prior Business Day;
(ii) to the Capital Investment Sub-Account, an
amount equal to the Dilution Funded Amount;
(iii) if the Deferred Purchase Price Adjustment is
less than zero, to the Capital Investment Sub-Account an amount equal
to the absolute value of the Deferred Purchase Price Adjustment; and
(iv) to an account previously designated by the
Seller, in partial payment of the Deferred Purchase Price, the
balance, if any; and
(c) transfer all amounts in the Capital Investment
Sub-Account, in the following priority:
(i) to the Retention Account for the account of
the Purchaser, the Yield Shortfall, the Servicing Fee Shortfall and
the Unused Commitment Fee Shortfall, if any, following the transfer
made pursuant to Section 6.03(b)(i);
(ii) to the Collateral Account for the account of
the Purchaser (or in the case of Indemnified Amounts, for the account
of the Indemnified Party), amounts deposited into the Collection
Account pursuant to Section 6.02(a)(vi);
(iii) to the Collateral Account for the account of
the Purchaser, in reduction of its Capital Investment if, as disclosed
in the most recently submitted Investment Base Certificate, there is a
Purchase Excess, by transfer of such Purchase Excess;
(iv) if, pursuant to a Seller Notice, the Seller
has requested to reduce the Capital Investment of the Purchaser, to
the Collateral Account for the account of the Seller, the lesser of
(A) the amount of such request, in reduction of Capital Investment and
the (B) the balance;
(v) if the Deferred Purchase Price Adjustment is
greater than zero, to the Seller an amount equal to the Deferred
Purchase Price Adjustment, as partial payment of the Deferred Purchase
Price;
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(vi) the balance, to an account previously
designated by the Seller, as payment of the Cash Purchase Price for
Purchases made on such day.
Section 6.04. Disbursements From the Retention Account - Settlement
Date Procedures - Revolving Period.
(a) As soon as practicable and in any event no later than
1:00 p.m. on each Settlement Date during the Revolving Period, the amounts held
in the Retention Account shall be disbursed or retained by the Operating Agent
in the following priority:
(i) to the Collateral Account for the account of
the Purchaser (or, if applicable, any Indemnified Party), in an amount
equal to:
(A) an amount equal to the accrued and
unpaid Daily Yield to the end of the preceding Settlement
Period;
(B) all Additional Amounts incurred and
payable to any Affected Party through the end of the preceding
Settlement Period;
(C) all other amounts accrued and
payable under this Agreement (including Indemnified Amounts
incurred and payable to any Indemnified Party) through the end
of the preceding Settlement Period to the extent not already
transferred pursuant to Section 6.03(c)(ii); and
(D) if there is a Purchase Excess, an
amount equal to such excess, in reduction of Capital
Investment;
(ii) to the Servicer on behalf of the Seller, in
an amount equal to its accrued and unpaid Servicing Fee to the end of
the preceding Settlement Period;
(iii) retained in the Retention Account, the
Accrued Monthly Yield, Accrued Unused Commitment Fee and Accrued
Servicing Fee as of that date; and
(iv) to the extent that the balance in the
Retention Account exceeds the amount to be retained or disbursed under
Sections 6.04(a)(i) through (iii), the excess to an account previously
designated in writing by the Seller.
(b) No later than two Business Days prior to each
Settlement Date, the Operating Agent shall determine and notify the Seller of
any Retention Account Deficiency for the preceding Settlement Period, and the
Seller shall deposit funds in the amount of such Retention Account Deficiency
to the Collection Account pursuant to Section 6.02(b).
Section 6.05. Liquidation Settlement Procedures. On each Business
Day on and after the Facility Termination Date, the Collateral Agent shall:
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(a) transfer all amounts in the Collection Account in the
following priority:
(i) to the Deferred Purchase Price Sub-Account,
all Deferred Purchase Price Collections; and
(ii) to the Capital Investment Sub-Account, the
balance;
(b) transfer all amounts in the Deferred Purchase Price
Sub-Account, in the following priority:
(i) if an Event of Servicer Termination has
occurred and a Successor Servicer has been appointed, to the Successor
Servicer in an amount equal to its accrued and unpaid Servicing Fee;
(ii) to the Collateral Account for the account of
the Purchaser, in an amount equal to, on any such Business Day on
which Capital Investment is being maintained through the issuance of
Commercial Paper (to the extent such Capital Investment exceeds
Transaction Liquidity Loans then outstanding), accrued and unpaid CP
Interest Amount through and including the date of maturity of the
Commercial Paper maintaining such Capital Investment;
(iii) if there are Transaction Liquidity Loans
then outstanding, to the Transaction Liquidity Agent on behalf of the
Transaction Liquidity Providers, in an amount equal to accrued and
unpaid interest on the Transaction Liquidity Loans;
(iv) to the Capital Investment Sub-Account:
(A) an amount equal to the Dilution
Funded Amount; and
(B) if there are Transaction Liquidity
Loans or LOC Draws then outstanding or Capital Investment exceeds the
Transaction Liquidity Loans then outstanding, all amounts remaining in
the Deferred Purchase Price Sub-Account, if any;
(v) to the Letter of Credit Agent, if there are
any outstanding LOC Draws in respect of the Seller, in an amount equal
to accrued and unpaid interest on such outstanding LOC Draws;
(vi) to the Collateral Account, an amount equal to
(A) accrued and unpaid Daily Yield minus (B) the sum of (i) amounts
paid pursuant to Section 6.05(b)(ii), (ii) amounts paid pursuant to
Section 6.05(b)(iii), and (iii) amounts paid under Section 6.05(b)(v);
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(vii) if an Event of Servicer Termination has not
occurred, to the Servicer in an amount equal to its accrued and unpaid
Servicing Fee;
(viii) upon payment in full of all amounts set forth
in clauses (c)(i)-(c)(v) below, to an account previously designated by
the Seller, in partial payment of the Deferred Purchase Price, the
balance, if any; and
(c) transfer all amounts in the Capital Investment
Sub-Account, in the following priority:
(i) to the Collateral Account for the account of
the Purchaser, in an amount equal to,
(A) on any such Business Day on which
Capital Investment is being maintained through the issuance of
Commercial Paper (to the extent such Capital Investment
exceeds Transaction Liquidity Loans then outstanding), accrued
and unpaid CP Interest through and including such date, to the
extent not paid pursuant to Sections 6.05(b)(ii) and
6.05(b)(vi); and
(B) on any such Business Day on which
Capital Investment is being maintained through the issuance of
Commercial Paper (to the extent such Capital Investment
exceeds Transaction Liquidity Loans then outstanding), the
principal of all Capital Investment in excess of such
Transaction Liquidity Loans;
(ii) if there are Transaction Liquidity Loans
outstanding, to the Transaction Liquidity Agent on behalf of the
Transaction Liquidity Providers, in an amount equal to:
(A) accrued and unpaid interest on the
Transaction Liquidity Loans to the extent not paid pursuant to
Section 6.05(b)(iii);
(B) the principal of outstanding
Transaction Liquidity Loans; and
(C) any other amounts, including any
fees, owing to the Transaction Liquidity Agent or Transaction
Liquidity Providers in connection with the Transaction
Liquidity Loans;
(iii) to the Collateral Account for the account of
the Purchaser, in an amount equal to:
(A) all Additional Amounts incurred and
payable to any Affected Party; and
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(B) all Indemnified Amounts incurred and
payable to any Indemnified Party;
(iv) to the Letter of Credit Agent, if there are
any outstanding LOC Draws in respect of the Seller, in an amount equal
to:
(A) accrued and unpaid interest on such
outstanding LOC Draws to the extent not paid pursuant to
6.05(b)(v);
(B) the principal of such outstanding
LOC Draws; and
(C) any other amounts, including fees,
owing to the Letter of Credit Agent in connection with such
outstanding LOC Draws; and
(v) to the Collateral Account, an amount equal to
(A) accrued and unpaid Daily Yield minus (B) the sum of (i) amounts
paid pursuant to Section 6.05(c)(i)(A), (ii) amounts paid pursuant to
Section 6.05(c)(ii)(A), and (iii) amounts paid under Section
6.05(c)(iv)(A);
(vi) if an Event of Servicer Termination has not
occurred, to the Servicer in an amount equal to its accrued and unpaid
Servicing Fee; and
(vii) upon payment in full of all amounts set forth
in clauses (c)(i)-(c)(vi) above, to an account previously designated
by the Seller, the balance, if any.
(d) On the Facility Termination Date and any date
thereafter, on each such date by no later than 11:00 a.m. the Operating Agent
shall transfer all amounts then on deposit in the Retention Account to the
Collateral Account;
Section 6.06. Investment of Accounts. During the Revolving Period,
to the extent there are uninvested amounts deposited in the Collateral Account
or the Retention Account, the Operating Agent shall invest all such amounts in
Permitted Investments selected by the Operating Agent that mature no later than
the immediately succeeding Business Day, in the case of the Collateral Account,
and the immediately succeeding Settlement Date, in the case of the Retention
Account. On or after the Facility Termination Date, any investment of such
amounts shall be solely at the discretion of the Operating Agent, subject to
the restrictions described above.
Section 6.07. Termination Procedure.
(a) On the earlier of (i) the first Business Day after
the Facility Termination Date on which the Capital Investment has been reduced
to zero or (ii) the Final Purchase Date, if the payments required to be made
pursuant to Sections 6.05(a), (b), (c) and (d) have not been made in full, the
Seller shall immediately deposit into the Collection Account an amount
sufficient to make such payments in full.
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(b) On the first Business Day after the Facility
Termination Date on which the payments required pursuant to Subsections
6.05(a), (b) and (c) have been made in full, all amounts held in the Collection
Account and the Retention Account, if any, shall be disbursed in immediately
available funds to the Seller and all security interests of the Purchaser and
the Collateral Agent in all Transferred Receivables owned by the Seller or
other Seller Collateral shall be released by the Purchaser and the Collateral
Agent. Such disbursement shall constitute the final payment to which the
Seller is entitled pursuant to the terms of this Agreement.
ARTICLE VII.
APPOINTMENT OF THE SERVICER
Section 7.01. Appointment of the Servicer. The Purchaser hereby
appoints the Servicer as its agent to service the Transferred Receivables and
enforce its rights and interests in and under each Transferred Receivable and
each related Contract and to serve in such capacity until the termination of
its responsibilities pursuant to Sections 9.02 or 11.01. The Servicer hereby
agrees to perform the duties and obligations with respect thereto set forth
herein. The Servicer may, with the prior consent of the Purchaser, the
Operating Agent, and the Collateral Agent subcontract with a Sub-Servicer for
collection, servicing or administration of the Transferred Receivables,
provided, that (a) the Servicer shall remain liable for the performance of the
duties and obligations of the Sub-Servicer pursuant to the terms hereof, and
(b) any Sub-Servicing Agreement that may be entered into and any other
transactions or services relating to the Transferred Receivables involving a
Sub-Servicer shall be deemed to be between the Sub-Servicer and the Servicer
alone and the Purchaser, Operating Agent and the Collateral Agent shall not be
deemed parties thereto and shall have no obligations, duties or liabilities
with respect to the Sub-Servicer.
Section 7.02. Duties and Responsibilities of the Servicer.
(a) The Servicer shall conduct the servicing,
administration and collection of the Transferred Receivables and shall take, or
cause to be taken, all such actions (i) as may be necessary or advisable to
service, administer and collect each Transferred Receivable from time to time;
(ii) as the Servicer would take if the Transferred Receivables were owned and
serviced by the Servicer, and (iii) as are consistent with industry practice
for the servicing of such Transferred Receivables.
(b) The Purchaser, the Operating Agent and the Collateral
Agent shall not have any obligation or liability with respect to any
Transferred Receivables or related Contracts, nor shall any of them be
obligated to perform any of the obligations of the Servicer hereunder.
Section 7.03. Collections on Receivables. In the event that the
Servicer is unable to determine the specific Receivables on which Collections
have been received from an
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Obligor, for the purposes of this Agreement only, the parties agree that such
Collections shall be deemed to have been received on the Receivables in the
order in which they were originated with respect to such Obligor. In the event
that the Servicer is unable to determine the specific Receivables on which
discounts, offsets or other non-cash reductions have been granted or made with
respect to an Obligor, for the purposes of this Agreement only, the parties
agree that such reductions shall be deemed to have been granted or made (i)
prior to a Termination Event, in the discretion of the Servicer, and (ii) after
a Termination Event, in the reverse order in which they were originated with
respect to such Obligor.
Section 7.04. Authorization of the Servicer. Each of the Seller and
the Purchaser hereby authorizes the Servicer (including any successor thereto)
to take any and all steps in its name and on its behalf necessary or desirable
and not inconsistent with the ownership of the Transferred Receivables by the
Purchaser and the pledge to the Collateral Agent, in the determination of the
Servicer, to collect all amounts due under any and all such Transferred
Receivables, including, without limitation, endorsing any of their names on
checks and other instruments representing Collections, executing and delivering
any and all instruments of satisfaction or cancellation, or of partial or full
release or discharge, and all other comparable instruments, with respect to
such Transferred Receivables and, after the delinquency of any such Transferred
Receivable and to the extent permitted under and in compliance with applicable
law and regulations, to commence proceedings with respect to enforcing payment
of such Transferred Receivables and the related Contracts, and adjusting,
settling or compromising the account or payment thereof, to the same extent as
the Originator could have done if it had continued to own such Receivable.
Each Originator, the Seller and the Purchaser shall furnish the Servicer (and
any Successor Servicer) with any powers of attorney and other documents
necessary or appropriate to enable the Servicer to carry out its servicing and
administrative duties hereunder, and shall cooperate with the Servicer to the
fullest extent in order to ensure the collectibility of the Transferred
Receivables. Notwithstanding anything to the contrary contained herein, the
Purchaser, the Collateral Agent and the Operating Agent shall have the absolute
and unlimited right to direct the Servicer (whether the Servicer is the
Originator or otherwise) to commence or settle any legal action to enforce
collection of any such Transferred Receivable or to foreclose upon, repossess
or take any other action which the Collateral Agent or the Operating Agent
deems necessary or advisable with respect thereto; provided, that the Servicer
may, rather than commencing such action or taking other enforcement action, at
its option elect to pay the Purchaser the Outstanding Balance of such
Transferred Receivable. In no event shall the Servicer be entitled to make the
Purchaser, the Collateral Agent or the Operating Agent a party to any
litigation without such party's express prior written consent or if Servicer is
directed by the Purchaser to commence such litigation, or to make the Seller a
party to any litigation without the Operating Agent's consent. If any
Transferred Receivable becomes a Defaulted Receivable, the Servicer may at its
option (but shall not be obligated to) purchase from the Purchaser such
Defaulted Receivable and all, but not less than all, Transferred Receivables of
the Obligor which is the Obligor on such Defaulted Receivable whether or not
such Transferred Receivables constitutes a Defaulted Receivable,
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by paying to the Collateral Account the Outstanding Balance of such Transferred
Receivables, including such Defaulted Receivable.
Section 7.05. Servicing Fees. As compensation for its servicing
activities and as reimbursement for its expenses in connection therewith, the
Servicer shall be entitled to receive the Servicing Fees in the manner set
forth in Sections 6.04 and 6.05, payable monthly in arrears on each Settlement
Date with respect to the preceding Settlement Period. The Servicer shall be
required to pay for all expenses incurred by the Servicer in connection with
its activities hereunder (including any payments to accountants, counsel or any
other Person) and shall not be entitled to any payment therefor other than the
Servicing Fees.
Section 7.06. Covenants of the Servicer. The Servicer shall (unless
having previously received the prior written consent of the Operating Agent and
the Collateral Agent):
(a) not sell, assign (by operation of law or otherwise)
or otherwise dispose of (other than by merging one Lockbox with and into
another Lockbox subject to Section 6.01(a)(iii) of this Agreement), or create
or suffer to exist any Adverse Claim (except, in the case of any Lockbox or
Lockbox Account, as created pursuant to the Inventory Facility, the Security
Agreement or the Intercreditor Agreement) upon or with respect to (and any such
purported disposition shall be null and void), any Transferred Receivable or
related Contract with respect thereto, or upon or with respect to any Lockbox
Account, any Lockbox, the Collection Account, the Retention Account or any
other account to which any Collections of any Transferred Receivable are
deposited, or assign any right to receive income in respect thereof;
(b) not extend, amend or otherwise modify the terms of
any Transferred Receivable (other than adjusting, settling or compromising the
account or payment of a Transferred Receivable pursuant to Section 7.04 and
except for deferments in the ordinary course of business which are consistent
with the Credit and Collection Policies), or amend, modify or waive any term or
condition of any Contract related thereto other than those in the ordinary
course of business which would not materially and adversely affect such
Transferred Receivable and in accordance with the Credit and Collection
Policies;
(c) not, and shall not permit any of its Subsidiaries to
engage in any business or other activity or enter into or consummate any
transaction or agreement, other than (i) those incurred solely as a result of
being included in the consolidated group of the Servicer or (ii) its duties and
obligations as Servicer set forth herein or (iii) those engaged in on the date
of this Agreement and those entered into or consummated on or before the date
of this Agreement or, after the date of this Agreement, as necessary for the
conduct of its business.
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(d) not make any change in its instructions to Obligors
to make payments to a Lockbox or Lockbox Account other than in accordance with
the Credit and Collection Policies;
(e) not merge with or into, consolidate with or into
(other than consolidation for tax reporting purposes), convey, transfer, lease
or otherwise dispose of all or substantially all of its assets (whether now
owned or hereafter acquired) to, or acquire all or substantially all of the
assets or capital stock or other ownership interest of, any Person (whether in
one transaction or in a series of transactions) except that:
(i) the Servicer may lease, as lessee, real or
personal property in the ordinary course of business;
(ii) the Servicer may sell or consign Inventory
in the ordinary course of business;
(iii) the Servicer may sell or dispose of any
equipment or real property in connection with the consolidation or
relocation of distribution centers to enhance efficiency and meet the
demand for capacity;
(iv) any Subsidiary of the Servicer (other than
FFI) may merge with and into the Servicer, so long as the Servicer is
the surviving entity, and, in any case, after giving effect to such
merger (i) all representations and warranties made by the Servicer
hereunder or in any of the Related Documents as of the date originally
made and as of the date of such merger shall be true and correct, it
being understood that representations and warranties made as of a
specified date shall only be made (or deemed made or repeated) as of
such specified date and (2) no Incipient Event or Termination Event
shall occur or be continuing.
(v) if the Servicer is the Parent, the Servicer
may make bulk sales of Inventory other than in the ordinary course of
business for fair market value and with a cash payment of not less
than 20% of the purchase price therefor, provided that all such sales
of Inventory under this Section 7.06(e)(iii) shall not exceed
$30,000,000 in the aggregate;
(vi) if the Servicer is the Parent, the Servicer
may make the IS Sale or sell assets in connection with the creation
of, and subject to, a Permitted SL Transaction; and
(vii) if the Servicer is the Parent, the Servicer
may acquire substantially all of the assets of any Person or 100% of
all classes of capital stock of any Person or any assets of any Person
not in the ordinary course of business, so long as, in any such case
(A) both immediately prior to, and after giving effect to, any such
acquisition, no Incipient Event, Termination Event or Event of
Servicer Termination would exist (including, without limitation, any
breach of any covenant
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in Exhibit H, assuming for this purpose that the assets or stock so
acquired had been, on a pro forma basis, included in the consolidated
statements of FoxMeyer Corporation delivered for the fiscal quarter
most recently ended) and all representations and warranties of the
Servicer shall be true and correct (it being understood that
representations and warranties made as of a specified date shall only
be made (or deemed made or repeated) as of such specified date), (B)
the Operating Agent and the Collateral Agent shall be reasonably
satisfied with all documentation in connection with such acquisition
(including, without limitation, the terms of all documents evidencing,
governing or creating Debt or Adverse Claims assumed, incurred or
otherwise constituting consideration for such acquisition), (C) the
total consideration for such acquisition (including, without
limitation, debt or other liabilities and Adverse Claims assumed or
attaching to purchased assets, and Debt (on terms and pursuant to
documentation reasonably acceptable to the Operating Agent and the
Collateral Agent) issued in connection with such acquisition), when
added to the total consideration for all prior acquisitions made on or
after the Effective Date under this paragraph (v), shall not exceed
$50,000,000, and (D) the Operating Agent, the Collateral Agent and the
Purchaser shall have received not less than thirty (30) days' prior
written notice of such acquisition.
(f) not make any change to its corporate name or use any
trade names, fictitious names, assumed names or "doing business as" names
except those disclosed on Schedule 1 to the Transfer Agreement and after at
least thirty days' prior written notice to the Operating Agent, Collateral
Agent and Redwood;
(g) identify the Transferred Receivables clearly and
unambiguously in its Servicing Records to reflect that such Transferred
Receivables are owned by the Purchaser;
(h) comply in all material respects with the Credit and
Collection Policies in regard to each Transferred Receivable and the related
Contracts; and
(i) comply with all requirements of all applicable laws,
rules, regulations and orders with respect to it, its business and properties
and all Transferred Receivables and related Contracts, except for such
noncompliance which could not reasonably be expected to result in a Material
Adverse Effect and could not reasonably be expected to subject the Servicer or
the Seller to criminal penalties or Redwood to civil or criminal penalties.
Section 7.07. Reporting. During the term of this Agreement, solely
with respect to clauses (a) and (b) below, if the Parent is not the Servicer,
the Servicer shall furnish to the Collateral Agent, the Operating Agent and the
Purchaser:
(a) as soon as available and in any event within 90 days
after the end of each fiscal year of the Servicer, a copy of the audited
consolidated financial statement of the Servicer and its consolidated
Subsidiaries as of the end of such year and the related consolidated statements
of income and retained earnings, and of cash flow, of the Servicer and its
consolidated Subsidiaries for such year, in each case reported on by Deloitte &
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Touche, LLP or other firm of nationally recognized independent public
accountants acceptable to the Operating Agent (accompanied by consolidating
financial information received by such accounting firm and a satisfactory
management letter) and each other report or statement sent to shareholders or
publicly filed by the Servicer;
(b) on or before the 45th day after each quarter, an
Officer's Certificate stating, as to each signer thereof, that (i) a review of
the activities of the Servicer during the preceding calendar quarter and of its
performance under this Agreement has been made under such officer's
supervision, (ii) to the best of such officer's knowledge, based on such
review, the Servicer has fulfilled all its obligations under this Agreement
throughout such quarter, or, if there has been a default in the fulfillment of
any such obligation, specifying each such default known to such officer and the
nature and status thereof, (iii) the Servicer has complied with the covenants
set forth in Section 7.06 and Exhibit H, and (iv) the representations and
warranties of the Servicer in Section 4.02 are true and correct as if made on
the date of such Officer's Certificate;
(c) written notification of the occurrence of a
Termination Event (including, without limitation, a Material Adverse Effect on
an Originator) or an Incipient Event;
(d) written notification of any material action, suit,
proceeding, dispute, offset deduction, defense or counterclaim that is or may
be asserted by an Obligor with respect to any Transferred Receivable;
(e) written notification of any changes made to the
Credit and Collection Policies immediately upon or prior to the effectiveness
thereof; and
(f) such other periodic, special or other reports or
information as the Purchaser, the Operating Agent or the Collateral Agent may
reasonably require.
Section 7.08. Annual Statement as to Compliance. The Servicer shall
deliver to the Collateral Agent, the Operating Agent and the Purchaser on or
before 95 days after the end of each fiscal year, an Officer's Certificate
stating, as to each signer thereof, that (a) a review of the activities of the
Servicer during the preceding calendar year and of its performance under this
Agreement has been made under such officer's supervision, (b) to the best of
such officer's knowledge, based on such review, the Servicer has fulfilled all
its obligations under this Agreement throughout such year or, if there has been
a default in the fulfillment of any such obligation, specifying each such
default known to such officer and the nature and status thereof, (c) the
Servicer has complied with the covenants set forth in Section 7.06 and Exhibit
H, and (d) the representations and warranties of the Servicer in Section 4.02
are true and correct as if made on the date of such Officer's Certificate.
Section 7.09. Annual Independent Public Accountants' Servicing and
Compliance Report. Without duplication of Section 5.02(f), as soon as
available, and in any event within 90 days after the end of each fiscal year,
the Servicer at its expense shall cause a
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firm of nationally recognized independent public accountants to furnish a
statement (on which the Purchaser, the Operating Agent and the Collateral Agent
may rely) to the Collateral Agent and the Operating Agent to the effect that
such firm has applied the agreed upon procedures referred to in Section 5.02(f)
with respect to (a) the Servicer's compliance with the Servicer's financial
covenants in this Agreement and (b) the Servicer's substantial compliance with
this Agreement (including the Credit and Collection Policies), and that, on the
basis of such procedures, such firm has reported that there are no exceptions,
except as set forth in such statement.
ARTICLE VIII.
GRANT OF SECURITY INTERESTS
Section 8.01. Seller's Grant of Security Interest. Except as set
forth in Section 14.03(e), it is the intention of the parties hereto that each
payment by the Purchaser to the Seller with respect to Transferred Receivables
to be made hereunder shall constitute a purchase and sale of such Transferred
Receivables and not a loan. If, however, a court of competent jurisdiction
holds that the transaction evidenced hereby constitutes a loan and not a
purchase and sale, it is the intention of the parties hereto that this
Agreement shall constitute a security agreement under applicable law. In such
regard and, in any event, as security for the prompt payment or performance in
full when due, whether at stated maturity, by acceleration or otherwise, of all
Seller Secured Obligations, the Seller hereby assigns and pledges to the
Purchaser, and grants to the Purchaser a security interest in and lien upon,
all of the Seller's right, title and interest in and to the following, in each
case whether now or hereafter existing or in which Seller now has or hereafter
acquires an interest and wherever the same may be located (collectively, the
"SELLER COLLATERAL"):
(a) all Transferred Receivables and Contracts;
(b) the Transfer Agreement, all Lockbox Agreements and
all other Related Documents now or hereafter in effect relating to the
purchase, servicing or processing of such Transferred Receivables (the "SELLER
ASSIGNED AGREEMENTS"), including (i) all rights of the Seller to receive moneys
due and to become due under or pursuant to the Seller Assigned Agreements, (ii)
all rights of the Seller to receive proceeds of any insurance, indemnity,
warranty or guaranty with respect to the Seller Assigned Agreements, (iii)
claims of the Seller for damages arising out of or for breach of or default
under the Seller Assigned Agreements, and (iv) the right of the Seller to
amend, waive or terminate the Seller Assigned Agreements, to perform under the
Seller Assigned Agreements and to compel performance and otherwise exercise all
remedies under the Seller Assigned Agreements;
(c) all of the following (the "SELLER ACCOUNT
COLLATERAL"):
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(i) each Lockbox Account, each Lockbox, and all
funds held in each Lockbox Account, and each Lockbox and all
certificates and instruments, if any, from time to time representing
or evidencing any Lockbox Account, any Lockbox, or such funds,
(ii) the Collection Account and the Retention
Account, all funds held in the Collection Account and the Retention
Account, and all certificates and instruments, if any, from time to
time representing or evidencing the Collection Account, the Retention
Account or such funds,
(iii) all Investments from time to time of amounts
in the Collection Account and the Retention Account, and all
certificates and instruments, if any, from time to time representing
or evidencing such Investments,
(iv) all notes, certificates of deposit and other
instruments related to the Receivables or the Related Documents from
time to time delivered to or otherwise possessed by the Purchaser or
any assignee or agent on behalf of the Purchaser in substitution for
or in addition to any of the then existing Seller Account Collateral,
and
(v) all interest, dividends, cash, instruments
and other property from time to time received, receivable or otherwise
distributed in respect of or in exchange for any and all of the then
existing Seller Account Collateral;
(d) all additional property related to the Receivables
and the Related Documents that may from time to time hereafter be granted and
pledged by the Seller or by anyone on its behalf under this Agreement,
including the deposit with the Purchaser, the Operating Agent or the Collateral
Agent of additional moneys by the Seller; and
(e) all Proceeds, accessions, substitutions, rents and
profits of any and all of the foregoing Seller Collateral (including Proceeds
that constitute property of the types described in Sections 8.01(a) through (d)
above) and, to the extent not otherwise included, all payments under insurance
(whether or not the Purchaser or any assignee or agent on behalf of the
Purchaser is the loss payee thereof) or any indemnity, warranty or guaranty
payable by reason of loss or damage to or otherwise with respect to any of the
foregoing Seller Collateral.
Section 8.02. Seller's Certification. The Seller hereby certifies
that (a) the benefits of the representations and warranties of each Originator
made under the Transfer Agreement have been assigned to the Purchaser and the
Collateral Agent; (b) the rights of the Seller under the Transfer Agreement to
require a capital contribution or payment of a Rejected Amount from an
Originator may be enforced by the Purchaser and the Collateral Agent; and (c)
the Transfer Agreement provides that the representations, warranties and
covenants described in Sections 4.01 and 4.02 shall survive the sale of the
Transferred Receivables and the termination of the Transfer Agreement and this
Agreement.
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Section 8.03. Consent to Assignment. Each of the Seller and the
Servicer acknowledges and consents to the security interest over the Seller
Collateral created pursuant to the Collateral Agent Agreement and acknowledges
the rights of the Collateral Agent and the covenants given by the Purchaser in
favor of the Collateral Agent set forth in the Collateral Agent Agreement, and
further acknowledges and consents that the Collateral Agent shall be entitled
to enforce the provisions of the Seller Assigned Agreements to which the
Seller, any Originator or the Servicer is a party and shall be entitled to all
the rights and remedies of the Purchaser thereunder. In addition, each of the
Seller, each Originator and the Servicer hereby authorizes the Collateral Agent
to rely on the representations and warranties of the Seller, each Originator or
the Servicer, respectively, contained in the Seller Assigned Agreements to
which the Seller, any Originator or the Servicer is a party and in any other
certificates and documents furnished by the Seller, any Originator or the
Servicer to any party in connection therewith.
Section 8.04. Delivery of Collateral. All certificates or
instruments representing or evidencing Collateral shall be delivered to and
held by or on behalf of the Collateral Agent pursuant to the Collateral Agent
Agreement and shall be in suitable form for transfer by delivery or shall be
accompanied by duly executed instruments of transfer or assignment in blank,
all in form and substance satisfactory to the Collateral Agent, and to the
extent not constituting an assignment shall be irrevocable powers of attorney
coupled with an interest. The Collateral Agent shall have the right, at any
time in its discretion following the occurrence of and during the continuation
of a Termination Event and without prior notice to the Seller or the Purchaser,
to transfer to or to register in the name of the Collateral Agent or any of its
nominees any or all of the Collateral. In addition, the Collateral Agent shall
have the right at any time to exchange certificates or instruments representing
or evidencing Collateral for certificates or instruments of smaller or larger
denominations.
Section 8.05. Seller Remains Liable. Notwithstanding anything in
this Agreement, (a) each of the Seller and each Originator shall remain liable
under the Transferred Receivables, Contracts, Seller Assigned Agreements and
other agreements included in the Collateral to perform all of its duties and
obligations thereunder to the same extent as if this Agreement had not been
executed, (b) the exercise by the Purchaser or the Collateral Agent of any of
its rights under this Agreement or the Collateral Agent Agreement shall not
release the Seller or the Servicer from any of their respective duties or
obligations under the Transferred Receivables, Contracts, Seller Assigned
Agreements or other agreements included in the Collateral, (c) the Purchaser,
the Collateral Agent and the Purchaser Secured Parties shall not have any
obligation or liability under the Transferred Receivables, Contracts, Seller
Assigned Agreements or other agreements included in the Collateral by reason of
this Agreement or the Collateral Agent Agreement, and (d) neither the
Collateral Agent nor any of the other Secured Parties shall be obligated to
perform any of the obligations or duties of the Seller or the Servicer under
the Transferred Receivables, Contracts, Seller Assigned Agreements or other
agreements included in the Collateral or to take any action to collect or
enforce any claim for payment assigned under this Agreement or the Collateral
Agent Agreement.
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Section 8.06. Covenants of the Seller and Servicer Regarding the
Collateral.
(a) Offices and Records. The Seller shall keep its chief
place of business and chief executive offices and the office where it keeps its
Records at the respective locations specified in Schedule 5 or, upon at least
30 days prior written notice to the Collateral Agent, at such other location in
a jurisdiction where all action required by Section 8.06(f) shall have been
taken with respect to the Collateral. The Seller and the Servicer shall, for
not less than three years or for such longer period as may be required by law,
from the date on which any Transferred Receivable arose, maintain the Records
with respect to each Transferred Receivable, including records of all payments
received, credits granted and merchandise returned. The Seller and the
Servicer will permit representatives of the Operating Agent and the Collateral
Agent at any time and from time to time during normal business hours (unless an
Incipient Event or an Termination Event shall have occurred and be continuing,
in which event no notice shall be required and there shall be no limitation on
the frequency with which, representatives of FFI, the Servicer, the Operating
Agent or the Collateral Agent shall have such access (without regard for normal
business hours)), (i) to inspect and make copies of and abstracts from such
records, and (ii) to visit the properties of the Seller or the Servicer
utilized in connection with the collection, processing or servicing of the
Transferred Receivables for the purpose of examining such Records, and to
discuss matters relating to the Receivables or the Seller's or Servicer's
performance under this Agreement or the Related Documents with any officer or
employee of the Seller or Servicer having knowledge of such matters. In
connection therewith, the Operating Agent or the Collateral Agent may institute
procedures to permit it to confirm the Obligor balances in respect of any
Transferred Receivables. Each of the Seller and the Servicer agrees to render
to the Operating Agent and the Collateral Agent such clerical and other
assistance as may be requested with regard to the foregoing. If a Termination
Event shall have occurred and be continuing, promptly upon request therefor,
the Seller or the Servicer shall deliver to the Collateral Agent records
reflecting activity through the close of business on the immediately preceding
Business Day.
(b) Collection of Transferred Receivables. Except as
otherwise provided in this Section 8.06(b), the Seller shall continue to
collect or cause to be collected, at its own expense, all amounts due or to
become due to the Seller under the Transferred Receivables, the Seller Assigned
Agreements and any other Seller Collateral. In connection with such
collections, the Seller may take (and at the Collateral Agent's direction after
a Termination Event has occurred and is continuing, shall take) such action as
the Seller or the Collateral Agent may deem necessary or advisable to enforce
collection of the Transferred Receivables and the Seller Assigned Agreements;
provided, however, that the Collateral Agent may, at any time that a
Termination Event has occurred and is continuing, notify any Obligor with
respect to any Transferred Receivables or obligors under the Seller Assigned
Agreements of the assignment of such Transferred Receivables or Seller Assigned
Agreements, as the case may be, to the Collateral Agent and direct that
payments of all amounts due or to become due to the Seller thereunder be made
directly to the Collateral Agent or any servicer, collection agent or lockbox
or other account designated by the Collateral Agent and, upon such notification
and at the expense of the Seller, the Collateral
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Agent may enforce collection of any such Transferred Receivables or the Seller
Assigned Agreements and adjust, settle or compromise the amount or payment
thereof, provided that the Seller may, rather than commencing such action or
taking other enforcement action, at its option, elect to pay the Purchaser the
Outstanding Balance of such Transferred Receivable.
(c) Maintain Records of Transferred Receivables. The
Seller and the Servicer shall, at their own cost and expense, maintain
satisfactory and complete records of the Collateral, including a record of all
payments received and all credits granted with respect to the Collateral and
all other dealings with the Collateral. Each of the Seller and the Servicer
will mark conspicuously with a legend, in form and substance satisfactory to
the Collateral Agent, its records, computer tapes, computer disks and credit
files pertaining to the Collateral and the Related Contracts, and its file
cabinets or other storage facilities where it maintains information pertaining
to the Collateral, to evidence this Agreement and the assignment and security
interest granted by this Article VIII. Upon the occurrence and during the
continuation of a Termination Event, the Seller and Servicer shall permit
representatives of the Operating Agent and the Collateral Agent at any time and
from time to time during normal business hours (unless an Incipient Event or a
Termination Event shall have occurred and be continuing, in which event no
notice shall be required and there shall be no limitation on the frequency with
which, the Operating Agent or the Collateral Agent shall have such access
(without regard for normal business hours)), (i) to inspect and make copies of
and abstracts from such records, (ii) to visit the properties of the Seller or
the Servicer utilized in connection with the collection, processing or
servicing of the Transferred Receivables for the purpose of examining such
Records, and to discuss matters relating to the Receivables or the Seller's or
Servicer's performance under this Agreement with any officer or employee of the
Seller or Servicer having knowledge of such matters, and (iii) allow the
Collateral Agent to occupy the premises of the Seller and the Servicer where
such books and Records are maintained, and utilize such premises, the equipment
thereon and any personnel of the Seller or the Servicer that the Collateral
Agent may wish to employ to administer, service and collect the Transferred
Receivables.
(d) Performance of Seller Assigned Agreements. The
Seller or the Servicer, as applicable, shall (i) perform and observe all the
terms and provisions of the Seller Assigned Agreements to be performed or
observed by it, maintain the Seller Assigned Agreements in full force and
effect, enforce the Seller Assigned Agreements in accordance with their terms
and take all such action to such end as may be from time to time requested by
the Collateral Agent, and (ii) upon request of the Operating Agent or the
Collateral Agent, make to any other party to the Seller Assigned Agreements
such demands and requests for information and reports or for action as the
Seller is entitled to make under the Seller Assigned Agreements.
(e) Notice of Adverse Claim. Each of the Seller and the
Servicer shall advise the Purchaser, the Operating Agent and the Collateral
Agent promptly, in reasonable detail, (i) of any Adverse Claim (except, in the
case of any Lockbox or Lockbox Account, as created pursuant to the Inventory
Facility, the Security Agreement or the Intercreditor
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Agreement) known to it made or asserted against any of the Seller Collateral,
(ii) of the occurrence of any event which could reasonably result in a Material
Adverse Effect on the aggregate value of the Seller Collateral or on the
assignments and security interests granted by the Seller in this Agreement and
(iii) of the occurrence of any event described in Section 4.02(h)(iii), (iv) or
(v) of the Transfer Agreement with respect to any Obligor with an Outstanding
Balance of Transferred Receivables of $1,000,000 or more at any one time.
(f) Further Assurances; Financing Statements.
(i) Each of the Seller and the Servicer severally
agrees that at any time and from time to time, at its expense, it
shall promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or
desirable or that the Purchaser, the Operating Agent or the Collateral
Agent may request to perfect and protect the assignments and security
interests granted or purported to be granted by this Article VIII or
to enable the Purchaser, the Operating Agent or the Collateral Agent
to exercise and enforce its rights and remedies under this Agreement
and the Collateral Agent Agreement with respect to any Collateral.
Without limiting the generality of the foregoing, the Seller shall
execute and file such financing or continuation statements, or
amendments thereto, and such other instruments or notices as may be
necessary, desirable or that the Purchaser, the Operating Agent or the
Collateral Agent may request to protect and preserve the assignments
and security interests granted by this Agreement and the Collateral
Agent Agreement.
(ii) The Seller and the Purchaser hereby severally
authorize the Collateral Agent to file one or more financing or
continuation statements, and amendments thereto, relating to all or
any part of the Collateral without the signature of the Seller or the
Purchaser where permitted by law. A carbon, photographic or other
reproduction of this Agreement or any financing statement covering the
Collateral or any part thereof shall be sufficient as a financing
statement where permitted by law. The Collateral Agent will promptly
send to the Seller any financing or continuation statements thereto
which it files without the signature of the Seller and will promptly
send to the Purchaser any financing or continuation statements thereto
which it files without the signature of the Purchaser except, in the
case of filings of copies of this Agreement as financing statements,
the Collateral Agent will promptly send the Seller or the Purchaser,
as the case may be, the filing or recordation information with respect
thereto.
(iii) Each of the Seller and the Servicer shall
furnish to the Collateral Agent from time to time such statements and
schedules further identifying and describing the Collateral and such
other reports in connection with the Collateral as the Collateral
Agent may request, all in reasonable detail.
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ARTICLE IX.
TERMINATION EVENTS
Section 9.01. Termination Events. If any of the following
events (each, a "TERMINATION EVENT") shall occur and be continuing:
(a) (i) the Seller shall default in the payment of any
amount owed by it hereunder and such failure shall remain unremedied for one
Business Day, or (ii) the Seller shall fail to perform or observe any other
term, covenant or agreement contained in this Agreement or the Related
Documents and such failure shall remain unremedied for five Business Days after
written notice of any such failure described in this clause (ii) shall have
been given by the Operating Agent or the Collateral Agent to the Seller; or
(b) (i) a default shall occur and be continuing under any
other agreement, document or instrument to which any of the Parent, any
Originator or the Seller is a party or by which any such Person or its property
is bound, and such default (A) involves the failure to make any payment
(whether of principal, interest or otherwise) due (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise) in respect of
any Debt of such Person in an aggregate amount exceeding $5,000,000 or (B)
permits any holder of such Debt or a trustee or agent to cause such Debt, or a
portion thereof, in an aggregate amount exceeding $5,000,000, to become due
prior to its stated maturity or prior to its regularly scheduled dates of
payment or (ii) any such default under clause (i) above (whether or not
continuing) causes or results in such Debt or a portion thereof, in an
aggregate amount exceeding $5,000,000, to become due prior to its stated
maturity or prior to its regularly scheduled dates of payment; or
(c) any Originator or the Seller shall generally not pay
any of its respective Debts as such Debts become due, or shall admit in writing
its inability to pay its Debts generally, or shall make a general assignment
for the benefit of creditors, or any proceeding shall be instituted by or
against any Originator or the Seller seeking to adjudicate it bankrupt or
Insolvent, or seeking liquidation, winding up, reorganization, arrangement,
adjustment, protection, relief or composition of it or any of its Debts under
any law relating to bankruptcy, insolvency, reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for it or for any
substantial part of its property, or any of the actions sought in such
proceeding (including, without limitation, the entry of an order for relief
against, or the appointment of a receiver, trustee, custodian or other similar
official for, it or for any substantial part of its property) shall occur, or
any Originator or the Seller shall take any corporate action to authorize any
of the actions set forth in this subsection; or
(d) final judgments or orders for the payment of money
(after the expiration of all periods to appeal therefrom) (other than such
judgments or orders in respect of which adequate insurance or an indemnity from
a creditworthy Person (except to the extent that the insurer or indemnitor has
disclaimed liability) is maintained for the payment thereof) in excess of
$10,000,000 in the aggregate against any Originator shall
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remain unpaid, unstayed on appeal, undischarged, unbonded or undismissed for a
period of 30 days or more; or
(e) a judgment or order for the payment of money is
rendered against the Seller; or
(f) there is a material breach of any of the
representations and warranties of the Seller set forth in Section 4.01; or
(g) any Governmental Authority (including the Internal
Revenue Service or the PBGC) shall file notice of a lien with regard to any
assets of an Originator (other than a lien (i) limited by its terms to assets
other than Receivables and (ii) not materially adversely affecting the
financial condition of the Servicer or the Servicer's ability to perform as
Servicer hereunder); or
(h) any Governmental Authority (including the Internal
Revenue Service or the PBGC) shall file notice of a lien with regard to any of
the assets of the Seller; or
(i) the Operating Agent or the Collateral Agent has
determined that any event or condition which materially adversely affects the
collectibility of the Receivables has occurred, or that any other event or
condition which materially adversely affects the financial condition of the
Seller or the Seller and its Subsidiaries as a whole, the ability of any
Originator or the Seller to collect Receivables or the ability of the Seller to
perform hereunder has occurred; or
(j) there shall occur a failure of an Originator to make
any payment, repurchase any Transferred Receivables or substitute any
Transferred Receivables with Eligible Receivables as required under Section
4.04 of the Transfer Agreement, or if the Transfer Agreement shall for any
reason cease to evidence the transfer to the Seller (or its assignees or
transferees) of the legal and equitable title to, and ownership of, the
Transferred Receivables; or
(k) subject to Section 6.01(a)(iii), any Lockbox
Agreement or the Transfer Agreement have been amended or terminated without the
written consent of the Purchaser, the Operating Agent and the Collateral Agent;
or
(l) an Event of Servicer Termination has occurred; or
(m) the Operating Agent has determined that the funding
of Receivables hereunder is impracticable due to (i) a drop in or withdrawal of
any of the ratings assigned to the Purchaser's Commercial Paper, (ii) the
imposition of Additional Amounts, (iii) restrictions on the amount of
Transferred Receivables it may finance, or (iv) the inability of the Purchaser
to issue Commercial Paper provided funding is not available under the Liquidity
Loan Agreement; or
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(n) the Purchaser and the Collateral Agent cease to hold
a first priority, perfected ownership interest in the Transferred Receivables;
or
(o) a Seller LOC Draw has occurred; or
(p) the obligations of the Transaction Liquidity
Providers to make Transaction Liquidity Loans, the proceeds of which may be
used by the Purchaser to make Purchases to the Seller, have terminated; or
(q) a breach of the covenants in Exhibit I has occurred;
or
(r) (i) a breach of a provision contained in Section 4.04
of the Transfer Agreement has occurred that is not remedied within one Business
Day of the occurrence thereof, or (ii) a breach of any other provision of the
Transfer Agreement has occurred that is not remedied within 5 Business Days
after written notice thereof shall have been given by the Operating Agent or
the Collateral Agent to the Seller; or
(s) an Event of Default under the Collateral Agent
Agreement has occurred; or
(t) the short term debt rating of a Transaction Liquidity
Provider has been downgraded by a Rating Agency and such Transaction Liquidity
Provider has not been replaced in accordance with the Transaction Liquidity
Agreement within 30 days; or
(u) the Purchase Discount Rate shall be less than 50% for
two consecutive Settlement Periods; or
(v) an event of default under the Program Documents has
occurred;
then and in any such event, the Operating Agent shall, at the request, or may
with the consent, of the Purchaser or the Collateral Agent, by notice to the
Seller declare the Facility Termination Date to have occurred, whereupon the
Facility Termination Date shall forthwith occur, without demand, protest or
further notice of any kind, all of which are hereby expressly waived by the
Seller; provided, that in the event that any of the Termination Events
described in subsections (c), (o), (p), (s), (t) and (v) have occurred, or the
Termination Event described in subsection (a)(i) or (r)(i) has occurred and
remained unremedied for four days, the Facility Termination Date shall
automatically occur, without demand, protest or any notice of any kind, all of
which are hereby expressly waived by the Seller.
Section 9.02. Events of Servicer Termination. If any of the
following events (each, an "EVENT OF SERVICER TERMINATION") shall occur and be
continuing:
(a) the Servicer shall fail to perform or observe any
term, covenant or agreement contained in this Agreement and such failure shall
remain unremedied for five
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Business Days after written notice thereof shall have been given by the
Purchaser, the Collateral Agent or the Operating Agent to the Servicer; or
(b) (i) a default shall occur and be continuing under any
other agreement, document or instrument to which the Servicer is a party or by
which the Servicer or its property is bound, and such default (A) involves the
failure to make any payment (whether of principal, interest or otherwise) due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise) in respect of any Debt of the Servicer in an aggregate amount
exceeding $5,000,000 or (B) permits any holder of such Debt or a trustee or
agent to cause such Debt, or a portion thereof, in an aggregate amount
exceeding $5,000,000, to become due prior to its stated maturity or prior to
its regularly scheduled dates of payment or (ii) any such default under clause
(i) above (whether or not continuing) causes or results in such Debt or a
portion thereof, in an aggregate amount exceeding $5,000,000, to become due
prior to its stated maturity or prior to its regularly scheduled dates of
payment; or
(c) the Servicer shall generally not pay any of its Debts
as such Debts become due, or shall admit in writing its inability to pay its
Debts generally, or shall make a general assignment for the benefit of
creditors, or any proceeding shall be instituted by or against the Servicer
seeking to adjudicate it a bankrupt or Insolvent, or seeking liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief or
composition of it or any of its Debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for it or for any substantial part of its property, or any of
the actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur, or the Servicer shall take any corporate action to
authorize any of the actions set forth in this subsection; or
(d) judgments or orders for the payment of money (other
than such judgments or orders in respect of which adequate insurance is
maintained for the payment thereof) in excess of $10,000,000 in the aggregate
against the Servicer, FoxMeyer Corporation or any of the Servicer's
Subsidiaries shall remain unpaid, unstayed on appeal, undischarged, unbonded or
undismissed for a period of 30 days or more; or
(e) there is a breach of any of the representations and
warranties of the Servicer set forth in Section 4.02; or
(f) a breach of the covenants in Exhibit H has occurred;
or
(g) the Operating Agent or the Collateral Agent shall
have determined that any event or condition which materially adversely affects
the ability of the Servicer to collect Receivables or to otherwise perform
hereunder has occurred; or
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(h) a Termination Event shall have occurred or this
Agreement shall have been terminated; or
(i) a deterioration has taken place in the quality of
servicing of Transferred Receivables or other Receivables serviced by the
Servicer which either the Operating Agent or the Collateral Agent, each in its
sole discretion, determines to be material, and such material deterioration has
not been eliminated within thirty (30) days of Purchaser's written notice to
Servicer of such deterioration; or
(j) the Servicer shall assign or purport to assign any of
its obligations hereunder or under the Transfer Agreement without the prior
written consent of the Operating Agent and the Collateral Agent; or
(k) the Seller's board of directors has determined that
it is in the best interests of the Seller to terminate the Servicer and shall
have given the Servicer, the Operating Agent, the Purchaser and the Collateral
Agent at least 30 days written notice thereof; or
(l) a Change in Control has occurred,
then, and in any such event, the Operating Agent shall (on behalf of the
Seller), at the request, or may with the consent, of the Purchaser or the
Collateral Agent, by delivery of a Servicer Termination Notice to the Seller
and the Servicer, terminate the servicing responsibilities of the Servicer
hereunder, without demand, protest or further notice of any kind, all of which
are hereby waived by the Servicer. Upon any such declaration, all authority
and power of the Servicer under this Agreement and the Transfer Agreement shall
pass to and be vested in the Successor Servicer appointed pursuant to Section
11.02; provided, that notwithstanding anything to the contrary herein, the
Seller agrees that it will continue to follow the procedures set forth in
Section 7.02(a) with respect to Collections on Transferred Receivables.
ARTICLE X.
REMEDIES
Section 10.01. Actions Upon Termination Event. If any Termination
Event shall have occurred and be continuing and the Operating Agent shall have
declared the Facility Termination Date to have occurred or the Facility
Termination Date shall have been deemed to have occurred pursuant to Section
9.01, then the Collateral Agent may exercise in respect of the Seller
Collateral, in addition to any and all other rights and remedies otherwise
available to it, all of the rights and remedies of a secured party upon default
under the UCC (such rights and remedies to be cumulative and nonexclusive),
and, in addition, may take the following remedial actions:
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(a) The Collateral Agent may, without notice to the
Seller except as required by law and at any time or from time to time, charge,
set-off and otherwise apply all or any part of the Seller Secured Obligations
against amounts payable to the Seller from the Collection Account, the Lockbox
Account, the Retention Account or any part of such accounts in accordance with
the priorities required by Sections 6.05 and 6.07.
(b) The Collateral Agent may, without notice except as
specified below, solicit and accept bids for and sell the Seller Collateral or
any part of the Seller Collateral in one or more parcels at public or private
sale, at any exchange, broker's board or at any of the Purchaser's, Operating
Agent's or Collateral Agent's offices or elsewhere, for cash, on credit or for
future delivery, and upon such other terms as the Collateral Agent may deem
commercially reasonable. The Seller agrees that, to the extent notice of sale
shall be required by law, at least ten Business Days' notice to the Seller of
the time and place of any public sale or the time after which any private sale
is to be made shall constitute reasonable notification. The Collateral Agent
shall not be obligated to make any sale of Seller Collateral regardless of
notice of sale having been given. The Collateral Agent may adjourn any public
or private sale from time to time by announcement at the time and place fixed
for such sale, and such sale may, without further notice, be made at the time
and place to which it was so adjourned. Every such sale shall operate to
divest all right, title, interest, claim and demand whatsoever of the Seller in
and to the Seller Collateral so sold, and shall be a perpetual bar, both at law
and in equity, against the Seller, the Originator, any Person claiming the
Seller Collateral sold through the Seller, the Originator and their respective
successors or assigns.
(c) Upon the completion of any sale under Section
10.01(b), the Seller or the Servicer will deliver or cause to be delivered all
of the Seller Collateral sold to the purchaser or purchasers at such sale on
the date of sale, or within a reasonable time thereafter if it shall be
impractical to make immediate delivery, but in any event full title and right
of possession to such property shall pass to such purchaser or purchasers
forthwith upon the completion of such sale. Nevertheless, if so requested by
the Collateral Agent or by any purchaser, the Seller shall confirm any such
sale or transfer by executing and delivering to such purchaser all proper
instruments of conveyance and transfer and releases as may be designated in any
such request.
(d) At any sale under Section 10.01(b), the Purchaser,
the Collateral Agent or any Purchaser Secured Party may bid for and purchase
the property offered for sale and, upon compliance with the terms of sale, may
hold, retain and dispose of such property without further accountability
therefor.
(e) The Collateral Agent may exercise at the Seller's
expense any and all rights and remedies of the Seller under or in connection
with the Seller Assigned Agreements or the other Seller Collateral, including
any and all rights of the Seller to demand or otherwise require payment of any
amount under, or performance of any provisions of, the Seller Assigned
Agreements.
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Section 10.02. Exercise of Remedies. No failure or delay on the part
of the Collateral Agent to exercise any right, power or privilege under this
Agreement and no course of dealing between the Seller, the Servicer, the
Originator or the Operating Agent, on the one hand, and the Collateral Agent,
on the other hand, shall operate as a waiver of such right, power or privilege,
nor shall any single or partial exercise of any right, power or privilege under
this Agreement preclude any other or further exercise of such right, power or
privilege or the exercise of any other right, power or privilege. The rights
and remedies expressly provided in this Agreement are cumulative and not
exclusive of any rights or remedies which the Collateral Agent or the Secured
Parties would otherwise have pursuant to law or equity. No notice to or demand
on any party in any case shall entitle such party to any other or further
notice or demand in similar or other circumstances, or constitute a waiver of
the right of the other party to any other or further action in any
circumstances without notice or demand.
Section 10.03. Severability of Remedies. The invalidity of any
remedy in any jurisdiction shall not invalidate such remedy in any other
jurisdiction. The invalidity or unenforceability of the remedies herein
provided in any jurisdiction shall not in any way affect the right of the
enforcement in such jurisdiction or elsewhere of any of the other remedies
herein provided.
Section 10.04. Power of Attorney. Each of the Seller and the
Servicer hereby irrevocably appoints the Collateral Agent its true and lawful
attorney (with full power of substitution) in its name, place and stead and at
its expense, in connection with the enforcement of the rights and remedies
provided for in this Article X, including with the following powers: (a) to
give any necessary receipts or acquittance for amounts collected or received
hereunder, (b) to make all necessary transfers of the Seller Collateral in
connection with any sale or other disposition made pursuant hereto, (c) to
execute and deliver for value all necessary or appropriate bills of sale,
assignments and other instruments in connection with any such sale or other
disposition, the Seller and the Servicer hereby ratifying and confirming all
that such attorney (or any substitute) shall lawfully do hereunder and pursuant
hereto, and (d) to sign any agreements, orders or other documents in connection
with or pursuant to this Agreement and any Related Document. Nevertheless, if
so requested by the Collateral Agent or a purchaser of Seller Collateral, the
Seller shall ratify and confirm any such sale or other disposition by executing
and delivering to the Collateral Agent or such purchaser all proper bills of
sale, assignments, releases and other instruments as may be designated in any
such request.
Section 10.05. Continuing Security Interest. This Agreement shall
create a continuing security interest in the Collateral until the satisfaction
of Section 6.07(b).
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ARTICLE XI.
SUCCESSOR SERVICER
Section 11.01. Servicer Not to Resign. The Servicer shall not resign
from the obligations and duties hereby imposed on it except upon determination
that (a) the performance of its duties hereunder has become impermissible under
applicable law or regulation, and (b) there is no reasonable action which the
Servicer could take to make the performance of its duties hereunder become
permissible under applicable law. Any such determination permitting the
resignation of the Servicer shall be evidenced as to clause (a) above by an
opinion of counsel to such effect delivered to the Purchaser, the Collateral
Agent and the Operating Agent. No such resignation shall become effective
until a successor servicer shall have assumed the responsibilities and
obligations of the Servicer in accordance with Section 11.02.
Section 11.02. Appointment of the Successor Servicer. In connection
with the termination of the Servicer's responsibilities under this Agreement
pursuant to Section 9.02 or 11.01, the Operating Agent shall (a) succeed to and
assume all of the Servicer's responsibilities, rights, duties and obligations
as Servicer (but not in any other capacity, including specifically not its
obligations under Section 12.02) under this Agreement (and except that the
Operating Agent makes no representations and warranties pursuant to Section
4.02), or (b) appoint a successor servicer to the Servicer which shall be
acceptable to the Collateral Agent and shall succeed to all rights and assume
all of the responsibilities, duties and liabilities of the Servicer under this
Agreement (the Operating Agent, in such capacity, or such successor servicer
being referred to as the "SUCCESSOR SERVICER"); provided, that the Successor
Servicer shall have no responsibility for any actions of the Servicer prior to
the date of its appointment as Successor Servicer. In selecting a Successor
Servicer, the Operating Agent may obtain bids from any potential Successor
Servicer and may agree to any bid it deems appropriate. The Successor Servicer
shall accept its appointment by executing, acknowledging and delivering to the
Operating Agent and the Collateral Agent an instrument in form and substance
acceptable to the Operating Agent and the Collateral Agent.
Section 11.03. Duties of the Servicer. At any time following the
appointment of a Successor Servicer:
(a) The Servicer agrees that it will terminate its
activities as Servicer hereunder in a manner acceptable to the Collateral Agent
so as to facilitate the transfer of servicing to the Successor Servicer
including, without limitation, timely delivery (i) to the Collateral Agent of
any funds that were required to be remitted to the Collateral Agent for deposit
in the Collection Account, and (ii) to the Successor Servicer, at a place
selected by the Successor Servicer, of all Servicing Records and other
information with respect to the Transferred Receivables. The Servicer shall
account for all funds and shall execute and deliver such instruments and do
such other things as may be required to more fully and
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definitely vest and confirm in the Successor Servicer all rights, powers,
duties, responsibilities, obligations and liabilities of the Servicer.
(b) The Servicer shall terminate each Sub-Servicing
Agreement that may have been entered into and the Successor Servicer shall not
be deemed to have assumed any of the Servicer's interest therein or to have
replaced the Servicer as a party to any such Sub-Servicing Agreement.
Section 11.04. Effect of Termination or Resignation. Any termination
or resignation of the Servicer under this Agreement shall not affect any claims
that the Originator, the Collateral Agent, the Purchaser or the Operating Agent
may have against the Servicer for events or actions taken or not taken by the
Servicer arising prior to any such termination or resignation.
ARTICLE XII.
INDEMNIFICATION
Section 12.01. Indemnities by the Seller.
(a) Without limiting any other rights that the Collateral
Agent, the Purchaser, the Operating Agent, the Transaction Liquidity Agent, any
Transaction Liquidity Provider, the Letter of Credit Agent or any Letter of
Credit Provider or any director, officer, employee, agent or incorporator of
such party (each an "INDEMNIFIED PARTY") may have hereunder or under applicable
law, the Seller hereby agrees to indemnify each Indemnified Party from and
against any and all claims, losses, liabilities, obligations, damages,
penalties, actions, judgments, suits, and costs and expenses of any nature
whatsoever related thereto, including attorneys' fees and disbursements (all of
the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS"), which
may be imposed on, incurred by or asserted against an Indemnified Party in any
way arising out of or relating to (i) any breach of the Seller's obligations
under this Agreement or any Related Document, (ii) the sale or the pledge of
the Transferred Receivables, or (iii) any Receivable or any Contract,
excluding, however Indemnified Amounts to the extent resulting from gross
negligence or willful misconduct on the part of such Indemnified Party
including a failure of the Purchaser to Purchase in breach of its obligations
under Section 2.01. Without limiting or being limited by the foregoing, the
Seller shall pay on demand to each Indemnified Party any and all amounts
necessary to indemnify such Indemnified Party from and against any and all
Indemnified Amounts relating to or resulting from:
(A) reliance on any representation or warranty made or
deemed made by the Seller (or any of its officers) under or in
connection with this Agreement, any Related Document or any report or
other information delivered by the Seller pursuant hereto which shall
have been incorrect in any material respect when made or deemed made
or delivered;
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(B) the failure by the Seller to comply with any term,
provision or covenant contained in this Agreement, any Related
Document or any agreement executed by it in connection with this
Agreement or with any applicable law, rule or regulation with
respect to any Transferred Receivable or its related Contract, or the
nonconformity of any Transferred Receivable or its related Contract
with any such applicable law, rule or regulation; or
(C) the failure to vest and maintain vested in the
Purchaser legal and equitable title to and ownership of the
Receivables which are, or are purported to be, Transferred
Receivables, free and clear of any Adverse Claim (except as permitted
hereunder) whether existing at the time of the purchase of such
Receivable or at any time thereafter, and to maintain or transfer to
the Collateral Agent a first priority, perfected security interest
therein.
(b) Any Indemnified Amounts subject to the
indemnification provisions of this Section 12.01 not paid in accordance with
Article VI, to the extent that funds are available therefor in accordance with
the provisions of Article VI, shall be paid to the Indemnified Party within
five Business Days following demand therefor.
Section 12.02. Indemnities by the Servicer.
(a) Without limiting any other rights that an Indemnified
Party may have hereunder or under applicable law, the Servicer hereby agrees to
indemnify each Indemnified Party from and against any and all Indemnified
Amounts which may be imposed on, incurred by or asserted against an Indemnified
Party in any way arising out of or relating to any breach of the Servicer's
obligations under this Agreement, excluding, however, (A) Indemnified Amounts
to the extent resulting from gross negligence or willful misconduct on the part
of such Indemnified Party including a failure of the Purchaser to Purchase in
breach of its obligations under Section 2.01, and (B) recourse solely for
uncollectible and uncollected Transferred Receivables. Without limiting or
being limited by the foregoing, the Servicer shall pay on demand to each
Indemnified Party any and all amounts necessary to indemnify such Indemnified
Party from and against any and all Indemnified Amounts relating to or resulting
from:
(i) reliance on any representation or warranty
made or deemed made by the Servicer (or any of its officers) under or
in connection with this Agreement, any Related Document or any report
or other information delivered by the Servicer pursuant hereto which
shall have been incorrect in any material respect when made or deemed
made or delivered; or
(ii) the failure by the Servicer to comply with
any term, provision or covenant contained in this Agreement, any
Related Document or any agreement executed by it in connection with
this Agreement or with any applicable law, rule or regulation with
respect to any Transferred Receivable or its related Contract, or the
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imposition of any Adverse Claim (except as permitted hereunder) with
respect to a Transferred Receivable as a result of the Servicer's
actions hereunder.
(b) Any Indemnified Amounts subject to the
indemnification provisions of this Section 12.02 shall be paid to the
Indemnified Party within five Business Days following demand therefor.
ARTICLE XIII.
OPERATING AGENT
Section 13.01. Authorization and Action. The Operating Agent may
take such action and carry out such functions under this Agreement as are
delegated to it by the terms hereof, pursuant to the Operating Agent Agreement
or otherwise contemplated hereby or thereby or are reasonably incidental
thereto; provided, that the duties of the Operating Agent shall be determined
solely by the express provisions of this Agreement and other than the duties
set forth in Section 13.02 any permissive right of the Operating Agent
hereunder shall not be construed as a duty.
Section 13.02. Reliance, etc. None of the Operating Agent, any
Affiliate thereof nor any of their respective directors, officers, agents or
employees will be liable for any action taken or omitted to be taken by any of
them under or in connection with this Agreement, the Program Documents or the
Related Documents, except when caused solely by their own gross negligence or
willful misconduct. Without limiting the generality of the foregoing, and
notwithstanding any term or provision hereof to the contrary, the Seller, the
Servicer and the Purchaser hereby acknowledge and agree that the Operating
Agent (a) acts as agent hereunder for the Purchaser and has no duties or
obligations to, will incur no liabilities or obligations to, and does not act
as an agent in any capacity for, the Seller or the Originator, (b) may consult
with legal counsel, independent public accountants and other experts selected
by it and shall not be liable for any action taken or omitted to be taken in
good faith by it in accordance with the advice of such counsel, accountants or
experts, (c) makes no warranty or representation hereunder and shall not be
responsible for any statements, warranties or representations made in or in
connection with this Agreement, the Program Documents or the Related Documents,
(d) shall not have any duty to ascertain or to inquire as to the performance or
observance of any of the terms, covenants or conditions of this Agreement, the
Program Documents or Related Documents on the part of the Seller, the Servicer
or the Purchaser or to inspect the property (including the books and records)
of the Seller, the Servicer or the Purchaser, (e) shall not be responsible to
the Seller, the Servicer or the Purchaser for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Agreement
or any other instrument or document furnished pursuant hereto (including the
Related Documents), (f) shall incur no liability under or in respect of this
Agreement, the Program Documents or the Related Documents by acting upon any
notice or communication (including a communication by telephone), consent,
certificate or other instrument or writing believed by it to be genuine and
signed,
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sent or communicated by the proper party or parties and (g) shall not be bound
to make any investigation into the facts or matters stated in any notice or
other communication hereunder and may rely on the accuracy of such facts or
matters.
Section 13.03. GE Capital and Affiliates. GE Capital and its
Affiliates may generally engage in any kind of business with the Seller, any
Originator, the Servicer, the Purchaser or any Obligor, any of their respective
Affiliates and any Person who may do business with or own securities of such
parties or any of their respective Affiliates, all as if GE Capital were not
the Operating Agent, and without the duty to account therefor to the Seller,
any Originator, the Servicer, the Purchaser or any other Person.
ARTICLE XIV.
MISCELLANEOUS
Section 14.01. Notices, Etc.. All notices and other communications
provided for hereunder, unless otherwise stated herein, shall be in writing and
mailed or telecommunicated, or delivered as to each party hereto, at its
address set forth on the signature page hereto or at such other address as
shall be designated by such party in a written notice to the other parties
hereto. All such notices and communications shall not be effective until
received by the party to whom such notice or communication is addressed.
Section 14.02. Binding Effect; Assignability. This Agreement shall
be binding upon and inure to the benefit of the Seller, the Servicer, the
Purchaser, the Operating Agent and their respective permitted successors and
assigns. Neither the Seller nor the Servicer may assign any of their rights
and obligations hereunder or any interest herein without the prior written
consent of the Purchaser, the Collateral Agent and the Operating Agent and
unless the Rating Agency Condition has been fulfilled. The Purchaser, the
Collateral Agent and the Operating Agent may, at any time, without the consent
of the Seller, any Originator or the Servicer, assign any of their respective
rights and obligations hereunder or interest herein to any Affiliate of GE
Capital or any party to any Program Document. Any such assignee may further
assign at any time its rights and obligations hereunder or interests herein to
any other Affiliate of GE Capital or any party to any Program Document without
the consent of the Seller, any Originator or the Servicer. Otherwise, the
Purchaser, the Collateral Agent and the Operating Agent may not assign any of
their rights hereunder or their interests herein without the prior written
consent of the Seller. This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms, and
shall remain in full force and effect until its termination; provided, that the
rights and remedies with respect to any breach of any representation and
warranty made by the Seller or the Servicer pursuant to Article IV and the
indemnification and payment provisions of Article XII shall be continuing and
shall survive any termination of this Agreement for one year and one day after
the day after the Final Purchase Date.
Section 14.03. Costs, Expenses and Taxes.
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(a) In addition to the rights of indemnification under
Article XII hereof, the Seller agrees to pay upon demand all reasonable costs
and expenses and taxes (excluding income and franchise taxes) incurred by the
Purchaser, the Operating Agent or the Collateral Agent in connection with the
administration (including periodic auditing, Rating Agency requirements,
modification and amendment) of this Agreement, the Related Documents and the
other documents to be delivered hereunder. The Seller further agrees to pay on
demand reasonable fees and out-of-pocket expenses of counsel for the Purchaser,
the Operating Agent and the Collateral Agent whether incurred before or after
the Effective Date with respect thereto and with respect to advising the
Purchaser, the Operating Agent or the Collateral Agent as to its rights and
remedies under this Agreement, the Related Documents and the other agreements
executed pursuant hereto. The Seller further agrees to pay on demand all
reasonable costs, counsel fees and expenses in connection with the enforcement
(whether through negotiation, legal proceedings or otherwise) of this
Agreement, the Related Documents and the other agreements and documents to be
delivered hereunder, including, without limitation, reasonable counsel fees and
expenses in connection with the enforcement of rights under this Section 14.03
in accordance with the provisions of Article VI to the extent that funds are
available therefor in accordance therewith.
(b) In addition, the Seller shall pay on demand any and
all stamp, sales, excise and other taxes (other than income and franchise
taxes) and fees payable or determined to be payable in connection with the
execution, delivery, filing or recording of this Agreement, the Related
Documents or the other agreements and documents to be delivered hereunder, and
agrees to indemnify and save each Indemnified Party from and against any and
all liabilities with respect to or resulting from any delay in paying or
omission to pay such taxes and fees except where such delay is caused by the
Operating Agent including a failure by the Operating Agent to notify the Seller
of such taxes and fees.
(c) In the event that the Operating Agent determines that
any of the costs referred to in paragraphs (a) or (b) above were in any part
incurred on behalf of, or are attributable to the actions of, borrowers or
sellers under Other Purchase Agreements, the Seller shall have no liability
hereunder in excess of the Seller's Share of such costs.
(d) If the Seller or the Servicer fails to perform any
agreement or obligation contained herein, the Purchaser, the Collateral Agent
or the Operating Agent may (but shall not be required to) itself perform, or
cause performance of, such agreement or obligation, and the expenses of such
party incurred in connection therewith shall be payable by the party which has
failed to so perform upon such party's demand therefor.
(e) The Seller and Purchaser agree to treat the
transactions contemplated by this Agreement as a financing for tax purposes,
and not as a sale or the creation of a joint venture or an association taxable
as a corporation, and as a sale for accounting purposes and further agree to
file on a timely basis all federal and other income and franchise tax returns
consistent with such treatment. The provisions of this Agreement shall be
interpreted in accordance with, and in furtherance of, the characterization of
this transaction described in this Section 14.03(e).
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Section 14.04. Confidentiality.
(a) Except to the extent otherwise required by applicable
law or unless the Operating Agent shall otherwise consent in writing, the
Seller and the Servicer agree to maintain the confidentiality of this Agreement
(and all drafts hereof and documents ancillary thereto) in its communications
with third parties and otherwise and not to disclose, deliver or otherwise make
available to any third party (other than its directors, officers, employees,
accountants or counsel) the original or any copy of all or any part of this
Agreement (or any draft hereof and documents ancillary thereto).
(b) The Seller and the Servicer each agree that it shall
not issue any news release or make any public announcement pertaining to the
transactions contemplated by this Agreement and the Related Documents without
the prior written consent of the Purchaser (which consent shall not be
unreasonably withheld) unless such news release or public announcement is
required by law, in which case the Seller shall consult with the Operating
Agent prior to the issuance of such news release or public announcement. The
Seller may, however, disclose the general terms of this Agreement and the
Related Documents to trade creditors, suppliers and other similarly situated
Persons so long as such disclosure is not in the form of a news release or
public announcement.
(c) The Seller, the Servicers and the Originators have
furnished and will furnish to the Operating Agent, the Collateral Agent and the
Purchaser certain written information concerning the Parent, Seller, the
Servicers and the Originators and their respective Subsidiaries and their
respective businesses, finances, operations and affairs, in each case, which
the Seller, the Servicers and the Originators have advised is non-public,
proprietary or confidential in nature ("CONFIDENTIAL INFORMATION"). The
Operating Agent, the Collateral Agent and the Purchaser confirms to each of the
Seller, the Servicers and the Originators for itself, that it is the Operating
Agent's, the Collateral Agent's and the Purchaser's policy and practice to
maintain in confidence all Confidential Information which is provided to it
under agreements providing for the extension of credit and which is identified
to it as such, and that it will use good faith efforts to maintain, for a
period of one year following the day on which all payments pursuant to Section
6.07(b) have been made, as confidential the Confidential Information submitted
to it with respect to the Seller, the Servicers and the Originators or any of
their respective Subsidiaries under this Agreement, commensurate with its
efforts to maintain the confidentiality of its own Confidential Information,
provided, however, that (i) nothing contained herein shall prevent the
Operating Agent, the Collateral Agent or the Purchaser from disclosing
Confidential Information (A) to its and its Affiliates, the Purchaser and their
respective directors, officers and employees, the Rating Agencies, and to any
legal counsel, auditors, appraisers, consultants or other persons retained by
it or its Affiliates as professional advisors, on the condition that such
information not be further disclosed except in compliance with this Section
14.04(c); provided, however, that none of the Operating Agent, the Collateral
Agent, the Purchaser or any such other Person shall be liable for any
misrepresentation or misuse of such information by any Person to whom the
Confidential Information has been properly furnished under this Agreement; (B)
reasonably believed by the Operating Agent,
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the Collateral Agent, the Purchaser or such other Person, as being under color
of legal authority, including, without limitation, to any regulatory authority
having jurisdiction over it or its operations or to or under the authority of
any court deemed by it to be of competent jurisdiction including, without
limitation, bank examiners, auditors, regulators and accountants; (C) to any
actual or potential assignee of or participant in the Purchaser's rights and
obligations under this Agreement pursuant to Section 14.02 hereof to the extent
such actual or potential assignee or participant has agreed to maintain such
information in confidence on the basis set forth in this Section 14.02; and (D)
as necessary in connection with the exercise of its remedies under this
Agreement or any of the other Related Documents; (ii) the terms of this Section
14.02 shall be inapplicable to any information furnished to it which is in the
Operating Agent's, the Collateral Agent's or the Purchaser's possession prior
to the delivery to it of such information by the Seller, the Servicers and the
Originators or any of their Subsidiaries, or otherwise has been obtained by it
on a non-confidential basis, or which was or becomes available to the public or
otherwise part of the public domain (other than as a result of the Operating
Agent's, the Collateral Agent's or the Purchaser's failure or any prospective
participant's or assignee's failure to abide hereby), or which was not
non-public, proprietary or confidential when the Seller, the Servicers and the
Originators or any of their Subsidiaries delivered it to the Operating Agent,
the Collateral Agent or the Purchaser; and (iii) the determination by the
Operating Agent, the Collateral Agent or the Purchaser as to the application of
any of the circumstances described in the foregoing clauses (i) and (ii) will
be conclusive and binding if made in good faith. The Operating Agent, the
Collateral Agent and the Purchaser hereby acknowledge that they are familiar
with the United States federal securities laws relating to the use and
treatment of material, non-public information and any obligations that Agent
and Lenders who are provided with Confidential Information may have in respect
of such securities laws.
Section 14.05. No Proceedings. The Seller and the Servicer each
hereby agrees that it will not, directly or indirectly, institute, or cause to
be instituted, against the Purchaser any proceeding of the type referred to in
Section 9.01(c) so long as there shall not have elapsed one year plus one day
since the latest maturing Commercial Paper has been paid in full in cash.
Section 14.06. Amendments; Waivers; Consents. No modification,
amendment or waiver of or with respect to any provision of this Agreement, the
Related Documents or any other agreements, instruments and documents delivered
pursuant hereto or thereto, nor consent to any departure by the Seller or the
Servicer from any of the terms or conditions hereof or thereof, shall be
effective unless it shall be in writing and signed by each of the parties
hereto and with respect to any material modification, amendment or waiver,
satisfies the Rating Agency Condition. Any waiver or consent shall be
effective only in the specific instance and for the purpose for which given.
No consent to or demand on the Seller, the Originator or the Servicer in any
case shall, in itself, entitle it to any other consent or further notice or
demand in similar or other circumstances. This Agreement, the Related
Documents and the documents referred to therein embody the entire agreement
among the
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Seller, the Purchaser, the Operating Agent, the Collateral Agent and the
Servicer and supersede all prior agreements and understandings relating to the
subject hereof.
Section 14.07. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK (WITHOUT REGARD TO THE
CONFLICT OF LAW PROVISIONS THEREOF).
(b) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY SUBMITS
TO THE NON-EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND
THE UNITED STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW
YORK CITY, AND EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND
CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED
TO THE ADDRESSES SET FORTH BELOW, AND SERVICE SO MADE SHALL BE DEEMED TO BE
COMPLETED FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS,
POSTAGE PREPAID. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES ANY
OBJECTION BASED ON FORUM NON CONVENIENS AND ANY OBJECTION TO VENUE OF ANY
ACTION INSTITUTED HEREUNDER, AND CONSENTS TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY THE COURT. NOTHING IN THIS
SECTION 14.07(b) SHALL AFFECT THE RIGHT OF ANY PARTY TO THIS AGREEMENT TO SERVE
LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(c) EACH OF THE PARTIES TO THIS AGREEMENT HEREBY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO OR IN
CONNECTION WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE
RESOLVED IN A BENCH TRIAL WITHOUT A JURY.
Section 14.08. Execution in Counterparts; Severability. This
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
when taken together shall constitute one and the same agreement. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations, or of such provision or obligation
shall not in any way be affected or impaired thereby in such jurisdiction and
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation shall not be impaired thereby
in any other jurisdiction.
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Section 14.09. Descriptive Headings. The descriptive headings of the
various sections of this Agreement are inserted for convenience of reference
only and shall not be deemed to affect the meaning or construction of any of
the provisions hereof.
Section 14.10. Limited Recourse. The obligations of the Purchaser,
the Seller and the Servicer under this Agreement and all Related Documents are
solely the corporate obligations of the Purchaser, the Seller and the Servicer,
respectively. No recourse shall be had for the payment of any amount owing in
respect of Purchases or for the payment of any fee hereunder or any other
obligation or claim arising out of or based upon this Agreement or any other
Related Document against any shareholder, employee, officer, director, agent or
incorporator of the Purchaser, the Seller or the Servicer. Any accrued
obligations owing by the Purchaser under this Agreement shall be payable by the
Purchaser solely to the extent that funds are available therefor from time to
time in accordance with the provisions of Article VI of the Collateral Agent
Agreement and Article VI of this Agreement (and such accrued obligations shall
not be extinguished until paid in full).
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IN WITNESS WHEREOF, the parties have caused this Receivables Purchase
and Servicing Agreement to be executed by their respective officers thereunto
duly authorized, as of the date first above written.
FOXMEYER DRUG COMPANY, a Delaware
corporation, as Servicer
By
---------------------------------------------------
Name: Grady Schleier
Title: Vice President and Treasurer
Address: 1220 Senlac Drive
Carrollton, Texas 75006
Attention: Treasurer and General Counsel
Phone number: (214) 446-4800
Telecopier number: (214) 446-4580 Treasurer
(212) 446-4295 General Counsel
REDWOOD RECEIVABLES CORPORATION, as Purchaser
By
---------------------------------------------------
Name: Catharine L. Midkiff
Title: Assistant Secretary
Address: c/o General Electric Capital Corporation
260 Long Ridge Road
Stamford, Connecticut 06927
Attention: Redwood Administrator
Phone number: (203) 961-5488
Telecopier number: (203) 357-6330
or (203) 961-2953
<PAGE> 70
FOXMEYER FUNDING, INC., as Seller
By
---------------------------------------------------
Name: Mark A. Cox
Title: Assistant Treasurer
Address: 1220 Senlac Drive, Suite C4-6638
Carrollton, Texas 75006
Attention: Treasurer
Phone number: (214) 389-5985
Telecopier number: (214) 389-5989
GENERAL ELECTRIC CAPITAL CORPORATION,
as Operating Agent and Collateral Agent
By
---------------------------------------------------
Name:
Title: Duly Authorized Signatory
Address: 201 High Ridge Road
Stamford, Connecticut 06927
Attention: Vice President, Portfolio/FoxMeyer
Phone number: (203) 316-7607
Telecopier number: (203) 316-7821
65
<PAGE> 1
EXHIBIT 10-AM
RECEIVABLES TRANSFER AGREEMENT
Dated as of June 19, 1996
by and between
FOXMEYER DRUG COMPANY
and
FOXMEYER FUNDING, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 1.02. Other Terms and Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
TRANSFERS OF RECEIVABLES
SECTION 2.01. Agreement to Transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2.02. Grant of Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.03. Addition of Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
SECTION 2.04. Termination of Status as an Originator . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III
CONDITIONS OF SALE
SECTION 3.01. Conditions Precedent to the Initial Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SECTION 3.02. Conditions Precedent to All Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.01. Representations and Warranties of the Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 4.02. Covenants of the Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
SECTION 4.03. Negative Covenants of the Originators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 4.04. Breach of Representations, Warranties or Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE V
INDEMNIFICATION
SECTION 5.01. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 5.02. Assignment of Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
i
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<TABLE>
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ARTICLE VI
FFI LOANS TO THE PARENT
SECTION 6.01. FFI Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.02. Notices Relating to Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.03. Disbursement of Loan Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.04. Parent Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 6.05. Principal Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.06. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 6.07. Time and Method of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE VII
COLLATERAL SECURITY
SECTION 7.01. Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.02. Indebtedness Secured . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.03. Other Collateral; Rights in Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 7.04. Further Action Evidencing Security Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.02. No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.03. Binding Effect; Assignability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 8.04. No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.05. Amendments; Consents and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . 29
SECTION 8.07. Execution in Counterparts; Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.08. Descriptive Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.09. No Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.10. Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.11. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
SECTION 8.12. Assignment of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
</TABLE>
ii
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<TABLE>
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SCHEDULE 1 LIST OF CHIEF EXECUTIVE OFFICES OF ORIGINATORS, PLACES OF BUSINESS OF ORIGINATORS AND OTHER OFFICES
WHERE RECORDS ARE KEPT
SCHEDULE 2 LIST OF PRIOR, TRADE, FICTITIOUS, ASSUMED OR "DOING BUSINESS AS" NAMES
EXHIBIT A FORM OF ASSIGNMENT
EXHIBIT B FORM OF PARENT NOTE
ANNEX X DEFINITIONS AND INTERPRETATION
</TABLE>
iii
<PAGE> 5
RECEIVABLES TRANSFER AGREEMENT, dated as of June 19, 1996
(this "AGREEMENT"), between FOXMEYER DRUG COMPANY, a Delaware corporation (the
"PARENT" or an "ORIGINATOR" and, together with all other Persons added pursuant
to Section 2.03, the "ORIGINATORS"), and FOXMEYER FUNDING, INC., a Delaware
corporation ("FFI").
R E C I T A L S
A. The Parent owns all of the outstanding stock of FFI.
B. FFI has been formed for the sole purpose of acquiring
all trade receivables originated by the Originators.
C. Each Originator intends to sell, and FFI intends to
purchase, such trade receivables, from time to time, as described herein.
D. The Parent may also, from time to time, contribute
capital to FFI in the form of Contributed Receivables or cash.
The parties agree as follows:
ARTICLE I
DEFINITIONS AND INTERPRETATION
SECTION 1.01. Definitions. Except as otherwise expressly
provided herein or unless the context otherwise requires, capitalized terms not
otherwise defined herein shall have the meanings assigned to such terms in
Annex X hereto, which is incorporated by reference herein. All other
capitalized terms used herein shall have the meanings specified herein.
SECTION 1.02. Other Terms and Interpretation. All other
terms and the interpretation of this Agreement shall be as set out in Annex X
hereto.
ARTICLE II
TRANSFERS OF RECEIVABLES
SECTION 2.01. Agreement to Transfer.
(a) On and after the date of this Agreement, each
Originator agrees to sell or, in the case of the Parent, sell or contribute, to
FFI all Receivables originated by such Originator. On or before the Effective
Date, each Originator and FFI shall enter into a
<PAGE> 6
separate Certificate of Assignment substantially in the form of Exhibit A
hereto (individually, an "ASSIGNMENT" and collectively, the "ASSIGNMENTS").
(b) Each Originator shall, on the Effective Date and on
each date thereafter (or if such date is not a Business Day, the following
Business Day, each such date, a "TRANSFER DATE"), transfer to FFI all
outstanding Receivables originated and owned by such Originator through such
date. On each Transfer Date, each Originator shall identify (i) all
outstanding Receivables originated through such date which are owned by such
Originator on such date, (ii) if such Originator is the Parent, at its option,
certain Receivables to be contributed to FFI (the "CONTRIBUTED RECEIVABLES"),
and (iii) in the case of any Originator, including the Parent, all such
Receivables not previously identified as purchased and sold or contributed, to
be purchased by FFI and sold by such Originator (the "SOLD RECEIVABLES"). Each
such identification shall be made as of the opening of business of the relevant
Originator on each such Transfer Date. Each Originator may deliver to FFI a
Request Notice making such identification, provided that each Originator shall
keep such records necessary to promptly deliver a Request Notice in respect of
each prior Transfer Date if requested by FFI or the Operating Agent. To the
extent not identified by the Parent as being contributed or any Originator as
sold, the transfer of such Receivables to FFI shall be deemed to have been a
purchase by FFI and sale by such Originators on such Transfer Date.
(c) The price paid for the Sold Receivables shall be the
Sale Price. Such Sale Price shall be paid by means of an immediate cash
payment to the relevant Originator on the Transfer Date. On each Transfer
Date, the Sold Receivables and Contributed Receivables shall be assigned to
FFI, and on such Transfer Date, FFI shall pay the Sale Price for such Sold
Receivables. The Sale Price shall be payable by wire transfer on the Transfer
Date to the relevant Originator in immediately available funds to an account
designated by the Parent (and approved by the Operating Agent).
(d) On and after each Transfer Date hereunder, FFI shall
own the Transferred Receivables (assuming payment by FFI in accordance with
Section 2.01(c) hereof in the case of Sold Receivables) and no Originator shall
take any action inconsistent with such ownership, nor shall any Originator
claim any ownership interest in any such Transferred Receivables.
(e) Until the occurrence of an Event of Servicer
Termination or a resignation of the Servicer pursuant to the Purchase
Agreement, (i) the Parent, as Servicer, shall conduct the servicing,
administration and collection of such Transferred Receivables and shall take,
or cause to be taken, all such actions as may be necessary or advisable to
service, administer and collect such Transferred Receivables, from time to
time, all in accordance with (A) the terms of the Purchase Agreement, (B)
customary and prudent servicing procedures for trade receivables of a similar
type and (C) all applicable laws, rules and regulations, and (ii) documents
relating to Transferred Receivables shall be held in trust by the Parent, as
Servicer, for the benefit of FFI and its assignees as the owners thereof, and
possession of any incident relating to the Transferred Receivables and
2
<PAGE> 7
Contracts so retained is for the sole purpose of facilitating the servicing of
the Transferred Receivables. Such retention and possession thereof is at the
will of FFI and its assignees and in a custodial capacity for their benefit
only. Each Sale by the Originators, and in the case of the Parent, Sale and
contribution, to FFI is made without recourse to the Originators, except as set
forth in Section 4.04 hereof.
SECTION 2.02. Grant of Security Interest. It is the
intention of the parties hereto that each transfer of Transferred Receivables
to be made hereunder shall constitute a purchase and sale or capital
contribution, as the case may be, and not a loan. In the event, however, that a
court of competent jurisdiction were to hold that any transaction provided for
hereby constitutes a loan and not a purchase and sale or capital contribution,
it is the intention of the parties hereto that this Agreement shall constitute
a security agreement under applicable law and that each Originator shall be
deemed to have granted to FFI a first priority security interest in all of such
Originator's right, title and interest in, to and under the Transferred
Receivables, all payments of principal, interest, fees, charges and indemnities
on or under such Transferred Receivables and all Proceeds of any such
Transferred Receivables.
SECTION 2.03. Addition of Originators. Any Subsidiary or
Affiliate of the Parent may become an Originator hereunder if the Rating Agency
Condition is satisfied with respect to such addition. The Parent and its
Subsidiary or Affiliate that is proposed to be added as an Originator shall
give to FFI and its assigns prior written notice of its desire to add such
Subsidiary or Affiliate as an Originator. Once the notice has been given, any
addition of a Subsidiary or Affiliate of the Parent as an Originator pursuant
to this Section 2.03 shall become effective on the first Business Day following
the date on which (i) the Rating Agency Condition has been satisfied, (ii) the
Subsidiary or Affiliate and the parties hereto shall have executed and
delivered the agreements, instruments and other documents and the amendments or
other modifications to the Related Documents, in form and substance reasonably
satisfactory to FFI and the Operating Agent, that FFI and the Operating Agent
reasonably determine are necessary or appropriate to effect the addition and
(iii) the Operating Agent shall have given written notice of its approval of
such addition. Upon such effectiveness, any reference to "Originators" in
this Agreement shall refer to the Originators and the Subsidiary or Affiliate
of the Parent added as an Originator pursuant to this Section collectively or
individually as the context shall require.
SECTION 2.04. Termination of Status as an Originator.
(a) At any time when more than one Person is an
Originator, an Originator may terminate its obligations as an Originator
hereunder if:
(i) such Originator (a "TERMINATING ORIGINATOR")
shall have given FFI and its assigns not less than 30 days' prior
written notice of its intention to terminate,
3
<PAGE> 8
(ii) an Authorized Officer of the Terminating
Originator shall have certified that the termination by the
Terminating Originator of its status as an Originator will not have a
material adverse effect on the business, financial condition,
operations or assets of FFI, and
(iii) both immediately before and after giving
effect to the termination by the Terminating Originator, no
Termination Event shall have occurred and be continuing or shall
reasonably be expected to occur as a result of such termination.
Any termination by an Originator shall become effective on the
first Business Day that follows the day on which the requirements of clauses
(i) through (iii) shall have been satisfied (or such later date specified in
the notice or certificate referred to in the clauses). Upon such
effectiveness, any reference to "Originators" in this Agreement shall refer to
the Originators excluding the Terminating Originator. Any termination by an
Originator shall terminate its rights and obligations hereunder; provided,
however, that the termination shall not relieve the Terminating Originator of
obligations which relate to Transferred Receivables originated by or
obligations of the Terminating Originator prior to the effective date of the
termination.
(b) An Originator's right and obligation to sell its
Receivables to FFI shall terminate immediately if the Originator ceases to be
the Parent or a Subsidiary or Affiliate of the Parent; provided, however, that
the termination shall not relieve the Originator of obligations which relate to
Transferred Receivables originated by or obligations of the Originator prior to
the effective date of the termination.
ARTICLE III
CONDITIONS OF SALE
SECTION 3.01. Conditions Precedent to the Initial Sale. The
initial Sale hereunder is subject to the following conditions precedent that
FFI shall have received on or before the date of the Effective Date, each dated
such date (unless otherwise indicated), in form and substance satisfactory to
FFI:
(a) an Assignment executed by each Originator;
(b) a copy of resolutions duly adopted by the Board of
Directors of each Originator approving this Agreement, the Assignment and the
other documents to be delivered by it hereunder and the transactions and
matters contemplated hereby, certified by its Secretary or Assistant Secretary;
4
<PAGE> 9
(c) the charter, as amended, of each Originator,
certified by the Secretary of State of such Originator's respective state of
incorporation, dated not earlier than 10 days prior to the Effective Date;
(d) a good standing certificate for each Originator
issued by the Secretary of State of such Originator's respective state of
incorporation, dated not earlier than 10 days prior to the date of the
Effective Date;
(e) a copy of each Originator's by-laws, as amended,
certified by such Originator's Secretary or Assistant Secretary;
(f) a certificate of the Secretary or Assistant Secretary
of each Originator certifying the names and true signatures of the officers
authorized on behalf of such Originator to sign this Agreement, the Assignment,
and the other documents to be delivered by such Originator hereunder (on which
certificate FFI may conclusively rely until such time as FFI shall receive from
any Originator a revised certificate meeting the requirements of this Section
3.01(a)(f)) and certifying that (A) the charter of such Originator has not
changed since the date of the certificate referred to in Section 3.01(a)(c),
(B) such Originator is still in good standing in all jurisdictions where it
does business, including, without limitation, those referred to in Section
3.01(a)(d);
(g) copies of proper financing statements (Form UCC-1 or
similar financing statement acceptable to the Operating Agent), dated on or
prior to the Effective Date, naming each Originator as the assignor of the
Transferred Receivables and FFI as assignee, or other similar instruments or
documents, in form and substance sufficient for filing under the UCC or any
comparable law of any and all jurisdictions as may be necessary or, in the
opinion of the Operating Agent desirable to perfect FFI's ownership interest in
all Transferred Receivables, in each case in which an interest may be assigned
hereunder;
(h) copies of properly executed termination statements or
statements of release (Forms UCC-2 or UCC-3 or similar termination statement
acceptable to the Operating Agent) or other similar instruments or documents,
if any, in form and substance satisfactory for filing under the UCC or any
comparable law of any and all jurisdictions as may be necessary, in the opinion
of the Operating Agent, to release all security interests and similar rights of
any Person in the Receivables previously granted by any Originator;
(i) certified copies of requests for information or
copies (Form UCC-11) (or a similar search report certified by a party
acceptable to the Operating Agent), dated a date reasonably near and prior to
the Effective Date, listing all effective financing statements and other
similar instruments and documents, which name any Originator (under its present
name and any previous name) as debtor and which are filed in the jurisdictions
in which filings are to be made pursuant to such Subsections (vii) and (viii)
above, together with copies of such financing statements;
5
<PAGE> 10
(j) any necessary third party consents to the closing of
the transactions contemplated hereby, in the form and substance reasonably
satisfactory to the Operating Agent;
(k) the Intercreditor Agreement, duly executed by the
parties thereto;
(l) the Lockbox Agreements in respect of each Lockbox
Account, in each case duly executed by the parties thereto and acknowledged and
agreed to by the applicable Lockbox Bank; and
(m) evidence that (i) Harris Wholesale, Inc., a Delaware
corporation, shall have been merged with and into FoxMeyer Drug Company, a
Kansas corporation with FoxMeyer Drug Company, a Kansas corporation being the
surviving corporation, (ii) FoxMeyer Drug Company, a Delaware corporation,
shall have been merged with and into FoxMeyer Drug Company, a Kansas
corporation with FoxMeyer Drug Company, a Kansas corporation being the
surviving corporation, (iii), FMDC Company, a Delaware corporation formed by
FoxMeyer Corporation, shall have changed its name to FoxMeyer Drug Company, a
Delaware corporation, and (iv) FoxMeyer Drug Company, a Kansas corporation
shall have merged with and into FoxMeyer Drug Company, a Delaware corporation
(formerly known as FMDC Company) with FoxMeyer Drug Company, a Delaware
corporation (formerly known as FMDC Company) being the surviving corporation
(and the Parent and Originator hereunder) and all fees and taxes due by the
constituent corporations in such mergers, or assumable in connection with such
mergers shall have been paid. As of the Effective Date, FMDC Company shall
have engaged in no activities, acquired no assets and incurred no liabilities
except in connection with the formation of FMDC Company and the foregoing
mergers.
SECTION 3.02. Conditions Precedent to All Sales. The
obligation of FFI to pay for each Sold Receivable on each Transfer Date
(including the initial Transfer Date) shall be subject to the further
conditions precedent that on such Transfer Date:
(a) The following statements shall be true (and delivery
by any Originator of a Request Notice, the identification or deemed
identification of any Receivables pursuant to Section 2.01(b) and the
acceptance by each Originator of the Sale Price for any Receivables on any
Transfer Date shall constitute a representation and warranty by each Originator
that on such Transfer Date such statements are true):
(i) the representations and warranties of such
Originator contained in Section 4.01 shall be correct on and as of
such Transfer Date in all material respects (except with respect to
Section 4.01(b) and those already so qualified which are true and
correct in all respects), before and after giving effect to the Sale
of Receivables on such Transfer Date and to the application of
proceeds therefrom, as though made on and as of such date;
(ii) no event has occurred, or would result from
the Sale of Receivables on such Transfer Date or from the application
of the proceeds
6
<PAGE> 11
therefrom, which constitutes a Termination Event or would constitute a
Termination Event but for the requirement that notice be given or time
elapse or both; and
(iii) such Originator is in compliance with each of
its covenants and other agreements set forth herein; and
(b) each Originator shall have taken such other action,
including delivery of approvals, consents, opinions, documents and instruments
to FFI, as FFI may reasonably request or which a Rating Agency may request.
ARTICLE IV
REPRESENTATIONS, WARRANTIES AND COVENANTS
SECTION 4.01. Representations and Warranties of the
Originators. Each Originator represents and warrants as to itself to FFI as of
each Transfer Date, which representations and warranties are or will be true
and correct as of such Transfer Date, (it being understood that representations
and warranties as of a specified date shall only be made (or deemed made or
repeated) as of such specified date) that:
(a) With respect to each Originator:
(i) such Originator is a corporation duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation and is duly qualified to do business and
is in good standing in every jurisdiction where its ownership or lease
of property or the nature or conduct of its business requires such
qualification (except for those foreign jurisdictions where the
failure to be duly qualified to do business or be in good standing
could not reasonably be expected to result in a Material Adverse
Effect);
(ii) such Originator has the corporate power,
authority and the legal right (A) to conduct its business as it is
presently, heretofore or proposed to be conducted, (B) to own, pledge,
mortgage, or otherwise encumber, operate and convey all of its
properties and assets, and (C) to execute and deliver this Agreement
and the Related Documents to which it is a party and to perform the
transactions contemplated hereby and thereby;
(iii) such Originator is in compliance with (A) its
articles or certificate of incorporation, bylaws and other
organizational documents as appropriate, and (B) all applicable
provisions of law (except where the failure to be in compliance could
not reasonably be expected to result in a Material Adverse Effect);
7
<PAGE> 12
(iv) the execution, delivery and performance by
such Originator of this Agreement and the Related Documents to which
it is a party and the transactions contemplated hereby and thereby (A)
are within such Originator's corporate power, (B) have been duly
authorized by all necessary corporate or other action on the part of
such Originator, (C) do not contravene or cause such Originator to be
in default under (1) such Originator's certificate or articles of
incorporation or by-laws, (2) any contractual restriction with respect
to any Debt of such Originator or contained in any indenture, loan or
credit agreement, lease, mortgage, security agreement, bond, note, or
other agreement or instrument binding on or affecting such Originator,
its affiliates or their or its respective property, the breach or
termination of which could reasonably be expected to cause a Material
Adverse Effect, or (3) any law, rule, regulation, order, writ,
judgment, award, injunction or decree applicable to, binding on or
affecting such Originator, or its property and (D) do not result in or
require the creation of any Adverse Claim upon or with respect to the
Collateral or any material portion of its other properties (other than
in favor of FFI with respect to this Agreement and Redwood and the
Collateral Agent under the Purchase Agreement);
(v) this Agreement and the Related Documents to
which the Originator is a party have each been duly executed and
delivered by such Originator;
(vi) no approval or consent of, notice to, filing
with or licenses, permits, qualifications or other action by any
Governmental Authority or any other party, is required or necessary
for the conduct of such Originator's business as currently conducted
and for the due execution, delivery and performance by such Originator
of this Agreement or any of the Related Documents to which it is a
party or by which it may be bound or for the perfection of or the
exercise by FFI, Redwood, the Operating Agent or the Collateral Agent
of any of their rights or remedies thereunder or hereunder, other than
approvals, consents, notices, filings, licenses and other actions
which have been obtained or made and complete copies of which have
been provided to Redwood, the Operating Agent and the Collateral Agent
(except where the failure to be in compliance could not reasonably be
expected to result in a Material Adverse Effect);
(vii) this Agreement and the other Related
Documents delivered by such Originator are the legal, valid and
binding obligations of such Originator enforceable against such
Originator in accordance with their respective terms subject to (A)
any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
the enforceability of creditors' rights generally and (B) general
equitable principles, whether applied in a proceeding at law or in
equity;
(viii) there is no pending or, to the knowledge of
such Originator, threatened, nor any reasonable basis for any, action,
suit or proceeding against or affecting such Originator, its officers
or directors, or the property of such Originator,
8
<PAGE> 13
in any court or tribunal, or before any arbitrator of any kind or
before or by any Governmental Authority (A) asserting the invalidity
or unenforceability of this Agreement or any of the Related Documents,
(B) seeking to prevent the transfer, sale, pledge or contribution of
any Receivable or the consummation of any of the transactions
contemplated hereby or thereby, or (C) seeking any determination or
ruling that could reasonably be expected to result in a Material
Adverse Effect;
(ix) no injunction, writ, restraining order or
other order of any nature adverse to such Originator or the conduct of
its business or which is inconsistent with the due consummation of the
transactions contemplated by this Agreement or the Purchase Agreement
or any of the other Related Documents has been issued by a
Governmental Authority nor been sought, to the knowledge of such
Originator, by any Person;
(x) the principal place of business, chief
executive office and all other places of business of such Originator
are located at the address of such Originator referred to in Schedule
1 and there are now no, and during the past four months there have not
been any, other locations where such Originator is located (as that
term is used in the UCC of the jurisdiction where such principal place
of business is located) or keeps Records;
(xi) the legal name of such Originator is as set
forth at the beginning of this Agreement and, except as set forth in
Schedule 2, such Originator has not changed its name in the last five
years, and during such period such Originator did not use, nor does
such Originator now use, any trade names, fictitious names, assumed
names or "doing business as" names except as set forth in Schedule 2;
(xii) such Originator is Solvent and will not
become Insolvent after giving effect to the transactions contemplated
by this Agreement and the Related Documents;
(xiii) for federal income tax, reporting and
accounting purposes (except in any consolidated financial statements
and consolidated tax returns), such Originator will treat the sale of
each Sold Receivable sold or assigned pursuant to this Agreement as a
sale of, or absolute assignment of, its full right, title and
ownership interest in such Receivable to FFI, and all Contributed
Receivables shall be accounted for as an increase in the stated
capital of FFI, and such Originator has not in any other respect
accounted for or treated the transactions contemplated by this
Agreement or the Related Documents;
(xiv) such Originator has complied in all material
respects with all applicable laws, rules, regulations, and orders with
respect to it, its business and properties and all Transferred
Receivables and related Contracts (including without limitation, all
applicable environmental, health and safety requirements) and all
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restrictions contained in any indenture, loan or credit agreement,
mortgage, security agreement, bond, note or other agreement or
instrument binding on or affecting such Originator or its property,
and has and maintains all permits, licenses, authorizations,
registrations, approvals and consents of Governmental Authorities for
(A) the activities and business of such Originator and each of its
Subsidiaries as currently conducted and as proposed to be conducted,
(B) the ownership, use, operation and maintenance by each of them of
its properties, facilities and assets and (C) the performance by such
Originator and FFI of this Agreement and the Related Documents (the
"GOVERNMENTAL CONSENTS"), with respect to which any noncompliance or
failure to maintain such items could reasonably be, separately or in
the aggregate, expected to result in a Material Adverse Effect;
(xv) no practice, procedure or policy employed or
proposed to be employed by such Originator in the conduct of its
business violates any law, regulation, judgment, agreement, order or
decree applicable to such Originator which, if enforced, could
reasonably be expected to result in a Material Adverse Effect;
(xvi) without limiting the generality of the prior
representation, no condition exists or event has occurred which, in
itself or with the giving of notice or lapse of time or both, would
result in the suspension, revocation, impairment, forfeiture or
non-renewal of any Governmental Consent applicable to such Originator
or any Subsidiary except where such conditions or events could not,
separately or in the aggregate, reasonably be expected to result in a
Material Adverse Effect;
(xvii) such Originator has filed on a timely basis
all federal tax returns, reports and statements, including information
returns (Form 1120-S), and all state, local and foreign tax returns,
reports and statements (to the extent, in the case of any such state,
local or foreign tax return, report or statement, that the failure to
file, or to pay any tax or other amount which should have been
reported thereon, could reasonably be expected to have a Material
Adverse Effect), required to be filed and has paid or made adequate
provisions for the payment of all taxes, fees, assessments and other
governmental charges due from such Originator, no tax lien or similar
Adverse Claim has been filed, and no claim is being asserted, with
respect to any such tax, fee, assessment, or other governmental
charge. Any taxes, fees, assessments and other governmental charges
payable by such Originator in connection with the execution and
delivery of this Agreement and the Related Documents and the
transactions contemplated hereby or thereby have been paid or shall
have been paid when due, at or prior to such Transfer Date;
(xviii) with respect to such Originator or any of its
Subsidiaries, there has occurred no event which has or is reasonably
likely to have a material adverse effect on such Originator's
operations, including its ability to perform its obligations
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under this Agreement or the Related Documents, as an Originator,
Servicer (in the case of the Parent) or otherwise;
(xix) such Originator is licensed or otherwise has
the lawful right to use all patents, trademarks, servicemarks,
tradenames, copyrights, technology, know-how and processes used in or
necessary for the conduct of its business as currently conducted, the
absence of which could, separately or in the aggregate, reasonably be
expected to result in a Material Adverse Effect on any Originator;
(xx) each Request Notice delivered by such
Originator contains, or if no Request Notice has been delivered, the
list of Receivables identified or deemed to be identified pursuant to
Section 2.01(b) is, a complete and accurate list of all Transferred
Receivables, in the case of any Originator other than the Parent, sold
by such Originator to FFI as of the relevant Transfer Date or, in the
case of the Parent, all Transferred Receivables contributed or sold by
the Parent to FFI as of the relevant Transfer Date;
(xxi) each Obligor of a Transferred Receivable has
been directed, and is required to, remit all payments with respect to
such Receivable for deposit in a Lockbox Account or a Lockbox;
(xxii) no Obligor of an Eligible Receivable has any
claim of a material nature against or affecting such Originator or the
property of such Originator;
(xxiii) such Originator is in compliance with ERISA
and has not incurred and does not expect to incur any liabilities
(except for premium payments arising in the ordinary course of
business) to the PBGC (or any successor thereof) under ERISA or the
Internal Revenue Code where such non-compliance or liabilities could
reasonably be expected to result in a Material Adverse Effect;
(xxiv) each pension plan or profit sharing plan to
which such Originator or any Commonly Controlled Entity is a party has
been administered and fully funded in accordance with the obligations
of such Originator or Commonly Controlled Entity under law and as set
forth in such plan in all material respects;
(xxv) such Originator has not agreed to pay any fee
or commission to any agent, broker, finder or other person for or on
account of services rendered as a broker or finder in connection with
this Agreement or the Related Documents or the transactions
contemplated hereby or thereby which would give rise to any valid
claim against FFI for any brokerage commission or finder's fee or like
payment;
(xxvi) all information heretofore furnished with
respect to such Originator to FFI in connection with any transaction
contemplated by this Agreement or the Related Documents is true and
complete in all material respects
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and does not omit to state a material fact necessary to make the
statements contained herein or therein not misleading except in the
case of plans, forecasts and projections, which are based upon
reasonable estimates and assumptions, all of which are fair in light
of the conditions existing when delivered are prepared on the basis of
the assumptions stated therein, and reflect the reasonable estimate of
the Originator submitting such plan, forecast or projection of the
results of operations and other information projected therein (it
being acknowledged that actual results may vary, and such variations
may be material);
(xxvii) no part of the proceeds received by such
Originator or any Affiliate from the Sale Price will be used directly
or indirectly for the purpose of purchasing or carrying, or for
payment in full or in part of, Debt that was incurred for the purposes
of purchasing or carrying any "margin stock," as such term is defined
in Regulations G and U of the Board of Governors of the Federal
Reserve System;
(xxviii) there are not now, nor will there be at any
time in the future, any agreement or understanding between such
Originator and FFI (other than pursuant to the Tax Sharing Agreement
and as expressly set forth herein) providing for the allocation or
sharing of obligations to make payments or otherwise in respect of any
taxes, fees, assessments or other governmental charges;
(xxix) no transaction contemplated by this Agreement
or any of the Related Documents requires compliance with any bulk
sales act or similar law;
(xxx) the Request Notice with respect to such
Transfer Date is accurate in all material respects;
(xxxi) each purchase of Receivables under this
Agreement will constitute (A) a "current transaction" within the
meaning of Section 3(a)(3) of the Securities Act of 1933, as amended,
and (B) a purchase or other acquisition of notes, drafts, acceptances,
open accounts receivable or other obligations representing part or all
of the sales price of merchandise, insurance or services within the
meaning of Section 3(c)(5) of the Investment Company Act of 1940, as
amended;
(xxxii) (A) such Originator is not a party to any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporation restriction that
could reasonably be expected to result in, and no provision of
applicable law or governmental regulation could reasonably be expected
to result in, a Material Adverse Effect and (B) such Originator is not
in default under or with respect to any contract, agreement, lease or
other instrument to which such Originator is a party, which default
could reasonably be expected to result in a Material Adverse Effect;
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(xxxiii) such Originator is not an "investment
company" or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an "investment company," as such terms are defined
in the Investment Company Act of 1940, as amended, nor is such
Originator subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Interstate Commerce
Act or any other federal or state or foreign statute that restricts or
limits such Originator's ability to incur indebtedness, pledge, its
assets, or perform its obligations hereunder. The purchase or
acquisition of the Transferred Receivables by FFI, the application of
the proceeds and the consummation of the transactions contemplated by
this Agreement and the other Related Documents to which such
Originator is a party will not violate any provision of such Act or
any rule, regulation or order issued by the Securities and Exchange
Commission thereunder;
(xxxiv) the bylaws or the articles of incorporation
of such Originator require it to maintain (A) books and records of
account, and (B) minutes of the meetings and other proceedings of its
shareholders and board of directors;
(xxxv) the Lockboxes and the Lockbox Accounts are
the only lockboxes and accounts maintained by such Originator into
which Collections of any Transferred Receivables are deposited;
(xxxvi) no inventory is or at any time shall be,
located at 1601 Wallace, #120, Carrollton, Texas; and
(xxxvii) each of the representations and warranties of
such Originator contained in the Related Documents (other than this
Agreement) is true and correct in all material respects and such
Originator hereby makes each such representation and warranty to, and
for the benefit of, the Collateral Agent, the Operating Agent and
Redwood as if the same were set forth in full herein.
(b) On each Transfer Date and as of the date of each
Investment Base Certificate delivered under the Purchase Agreement with respect
to each Transferred Receivable designated as an Eligible Receivable:
(i) such Receivable is an Eligible Receivable;
(ii) such Receivable is a receivable created
through the provision of merchandise, goods or services by such
Originator in the ordinary course of its business in a current
transaction;
(iii) such Receivable was created in accordance
with and satisfies in all material respects all applicable
requirements of such Originator's Credit and Collection Policies;
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(iv) (A) such Receivable represents the genuine,
legal, valid and binding obligation in writing of the Obligor
enforceable by the holder thereof in accordance with its terms, (B)
the holder of such Receivable is able to bring suit or otherwise
enforce its remedies against an Obligor through judicial process, (C)
neither such Receivable nor its related Contract has been satisfied,
subordinated, rescinded or amended in any manner (other than
amendments to such Contracts in accordance with the Credit and
Collection Policy made prior to such Transfer Date), subject to (x)
any applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to or affecting
the enforceability of creditors' rights generally, and (y) general
equitable principles, whether applied in a proceeding at law or in
equity;
(v) neither such Receivable nor its related
Contract is or will be subject to any exercise of any right of
rescission, set-off, recoupment, counterclaim or defense, whether
arising out of transactions concerning the Receivable or otherwise
(except in accordance with the Credit and Collection Policies);
(vi) prior to its sale or, in the case of the
Parent, sale or contribution, to FFI, such Receivable was owned by
such Originator free and clear of any Adverse Claim, and such
Originator had the right to contribute, sell, assign and transfer the
same and interests therein as contemplated under this Agreement and,
upon such sale or contribution, FFI will have acquired good and
marketable title to and the sole record and beneficial ownership
interest in such Receivable, free and clear of any Adverse Claim and,
after such sale or contribution, such Receivable did not become
subject to any Adverse Claim as a result of any action or inaction of
such Originator;
(vii) this Agreement and the Assignment constitute
a valid sale, contribution, transfer, assignment, setover and
conveyance to FFI of all right, title and interest of such Originator
in and to such Receivable;
(viii) such Receivable is entitled to be paid
pursuant to the terms of the related Contract, has not been paid in
full or been compromised, adjusted, extended, satisfied, subordinated,
rescinded or modified, and is not subject to compromise, adjustment,
extension, satisfaction, subordination, rescission, or modification by
such Originator (except in accordance with the Credit and Collection
Policies);
(ix) such Originator has submitted all necessary
documentation for payment of such Receivable to the Obligor and has
fulfilled all its other obligations in respect thereof;
(x) such Receivable is an "account" within the
meaning of the UCC of the jurisdiction where such Originator's chief
executive office is located;
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(xi) neither such Receivable nor its related
Contract contravenes in any material respect any laws, rules or
regulations applicable thereto (including, without limitation, laws,
rules and regulations relating to usury, consumer protection, truth in
lending, fair credit billing, fair credit reporting, equal credit
opportunity, fair debt collection practices and privacy) and no party
to such related Contract is in violation of any such law, rule or
regulation which could have a material adverse effect on the
collectibility of such Receivable, the value of such Receivable or the
payment terms of such Receivable;
(xii) such Receivable does not represent "billed
but not yet shipped" goods or merchandise, unperformed services,
consigned goods or "sale or return" goods; nor does such Receivable
arise from a transaction for which any additional performance by FFI
or acceptance or other act of the Obligor remains to be performed as a
condition to any payments on such Receivable; provided that, the right
of Obligors to return pharmaceutical inventory after the expiration
date of such pharmaceutical inventory shall not, in and of itself,
render such goods consigned or "sale or return" goods, except to the
extent such right of return has been exercised;
(xiii) there are no proceedings or investigations
pending or threatened before any Governmental Authority (A) asserting
the invalidity of such Receivable or such Contract, (B) asserting the
bankruptcy or Insolvency of the related Obligor, (C) seeking the
payment of such Receivable or payment and performance of such Contract
or (D) seeking any determination or ruling that might materially and
adversely affect the validity or enforceability of such Receivable or
such Contract;
(xiv) as of the relevant Transfer Date hereunder,
no Obligor on such Receivable is bankrupt or Insolvent, is the debtor
in a voluntary or involuntary bankruptcy proceeding, or is the subject
of a comparable receivership or insolvency proceeding, other than
Obligors under the protection of a bankruptcy court or receivership
which has approved payment by any such Obligor of such Receivable; and
(xv) such Originator has no knowledge of any fact
(including any defaults by the Obligor on any other accounts) which
leads it or should have led it to expect that any payments on such
Receivable will not be paid in full when due or to expect any other
Material Adverse Effect.
(c) The representations and warranties described in this
Section 4.01 shall survive the sale or contribution of the Transferred
Receivables to FFI, any subsequent assignment of the Transferred Receivables by
FFI, and the termination of this Agreement and the Related Documents and shall
continue so long as any Transferred Receivable shall remain outstanding.
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SECTION 4.02. Covenants of the Originators.
(a) Offices and Records. Each Originator shall keep its
chief place of business and chief executive offices and the office where it
keeps its Records at the respective locations specified in Schedule 1 hereto
or, upon at least 30 days prior written notice to FFI and the Collateral Agent,
at such other location in a jurisdiction where all action required by Section
4.02(d) shall have been taken with respect to the Transferred Receivables.
Each Originator shall, for not less than three years or for such longer period
as may be required by law, from the date on which any Transferred Receivable
arose, maintain the Records with respect to each Transferred Receivable,
including records of all payments received, credits granted and merchandise
returned. Each Originator will permit representatives of FFI, the Servicer,
the Operating Agent or the Collateral Agent at any time and from time to time
during normal business hours (unless an Incipient Event or a Termination Event
shall have occurred and be continuing, in which event no notice shall be
required and there shall be no limitation on the frequency with which
representatives of FFI, the Servicer, the Operating Agent or the Collateral
Agent shall have such access (without regard for normal business hours)), (i)
to inspect and make copies of and abstracts from such records, and (ii) to
visit the properties of such Originator utilized in connection with the
collection, processing or servicing of the Transferred Receivables for the
purpose of examining such Records, and (iii) to discuss matters relating to the
Transferred Receivables or such Originator's performance under this Agreement
or the affairs, finances and accounts of such Originator with any of its
officers, directors, employees, representatives or agents (in each case, with
those persons having knowledge of such matters) and with its independent
certified accountants. Each Originator will advise such accountants that FFI,
the Operating Agent, the Servicer and the Collateral Agent have been authorized
to review and discuss with such accountants any and all financial statements
and other information of any kind that they may have with respect to such
Originator, in each instance, provided that FFI, the Operating Agent, the
Servicer or the Collateral Agent shall (i) give the Parent prior notice of each
intended communication with such accountants and of each request to have such
accountants made available to FFI, the Operating Agent, the Servicer or the
Collateral Agent and such financial information and material and (ii) permit a
representative of the Parent to be present at any such communication or making
available of such financial information and material. On or before the
Effective Date, each Originator shall deliver a letter (the "ACCOUNTANTS'
LETTER") addressed to such accountants instructing them to make available to
FFI, the Operating Agent, the Servicer and the Collateral Agent such
information and records as FFI, the Operating Agent, the Servicer and the
Collateral Agent may reasonably request and to otherwise comply with the
provisions of this Section 4.02(a). After the Effective Date, if any
Originator engages the services of accountants for audit purposes other than
Deloitte & Touche, LLP, it shall deliver a letter addressed to such accountants
containing substantially the same terms and provisions as the Accountant's
Letter. In connection with the foregoing, each Originator, the Operating Agent
or the Collateral Agent may institute procedures to permit it to confirm the
Obligor outstanding balances in respect of any Transferred Receivables. Each
Originator agrees to render to FFI, the Operating Agent and the Collateral
Agent, at such Originator's own cost and expense, such clerical and other
assistance as may be reasonably
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requested with regard to the foregoing. If a Termination Event under the
Purchase Agreement shall have occurred and be continuing, promptly upon request
therefor, each Originator shall assist FFI in delivering to the Operating Agent
records reflecting activity through the close of business on the immediately
preceding Business Day.
(b) Compliance With Credit and Collection Policies. Each
Originator shall comply in all material respects with the Credit and Collection
Policies with regard to each Transferred Receivable and the related Contracts,
and with the terms of such Receivables and Contracts and shall give written
notice to FFI and each assignee of each change made to the Credit and
Collection Policies immediately upon or prior to the effectiveness thereof.
(c) Notice of Adverse Claim. Each Originator shall
advise FFI and any assignees, promptly, in reasonable detail, (i) of any
Adverse Claim known to it made or asserted against any of the Transferred
Receivables, (ii) of any determination that a Sold Receivable, or any other
Receivable designated as an Eligible Receivable in a Request Notice or
otherwise, was not an Eligible Receivable at such time and (iii) of the
occurrence of any event which would have a material adverse effect on the
aggregate value of the Transferred Receivables or on the validity of the
transfers in this Agreement.
(d) Further Assurances; Financing Statements.
(i) Each Originator agrees that at any time and
from time to time, at its expense, it shall promptly execute and
deliver all further instruments and documents, and take all further
action, that may be necessary or desirable or that FFI or any assignee
may request to perfect, preserve, continue and maintain fully and
protect the transfers made and the right, title and interests
(including any security interests) granted to FFI by this Agreement or
to enable FFI, or any assignee to exercise and enforce its rights and
remedies under this Agreement or any of the Related Documents with
respect to any Transferred Receivables. Without limiting the
generality of the foregoing, each Originator shall execute and file
such financing or continuation statements, or amendments thereto, and
such other instruments or notices as may be necessary or that FFI or
any assignee may request to protect and preserve and perfect the
transfers and security interests granted by this Agreement, free and
clear of all Adverse Claims.
(ii) Each Originator hereby authorizes FFI and the
Collateral Agent to file one or more financing or continuation
statements, and amendments thereto, relating to all or any part of the
Transferred Receivables without the signature of such Originator where
permitted by law. A carbon, photographic or other reproduction of
this Agreement or any notice or financing statement covering the
Transferred Receivables or any part thereof shall be sufficient as a
notice or financing statement where permitted by law.
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(e) Assignment. Each Originator acknowledges and agrees
that, to the extent permitted under the Purchase Agreement, FFI may assign all
of its right, title and interest in, to and under the Transferred Receivables
and FFI Loans and its right, title and interest under this Agreement, including
its right to exercise the remedies created by Section 4.04. Each Originator
agrees that, upon such assignment, the assignee under the Purchase Agreement
may enforce directly, without joinder of FFI, the repurchase obligations of
such Originator set forth in Section 4.04 with respect to breaches of the
representations and warranties or covenants set forth in Section 4.01 and 4.02.
(f) Compliance With Agreements and Applicable Laws. Each
Originator shall (i) perform each of its obligations under this Agreement and
the Related Documents, (ii) comply with all requirements of any law, rule or
regulation applicable to it, except for such noncompliance which could not
reasonably be expected to result in a Material Adverse Effect and could not
reasonably be expected to subject such Originator or FFI to any criminal
penalties and (iii) maintain the ability to bring suit or otherwise enforce its
remedies against an Obligor through judicial process.
(g) Corporate Existence. Each Originator shall maintain
its corporate existence and shall at all times continue to be duly organized
under the laws of the state of its incorporation and duly qualified and duly
authorized (as described in Section 4.01) and shall conduct its business in
accordance with the terms of its certificate of incorporation and bylaws.
(h) Notice of Material Event. Each Originator shall
promptly inform FFI and any assignee (except in respect of clause (i), in which
case each Originator shall immediately inform FFI and any assignee) in writing
of the occurrence of any of the following:
(i) the submission of any claim or the initiation
of any legal process, litigation or administrative or judicial
investigation against such Originator or with respect to or in
connection with all or any portion of the Transferred Receivables,
involving potential damages or penalties in an amount in excess of
$1,000,000 in respect of any Transferred Receivable or an amount in
excess of $10,000,000 in respect of any Originator individually or (to
the extent such litigation, claims or other actions are related) in
the aggregate;
(ii) any change in the location of such
Originator's principal office or any change in the location of such
Originator's books and records;
(iii) the commencement or threat of any rule making
or disciplinary proceedings or any proceedings instituted by or
against such Originator in any federal, state or local court or before
any governmental body or agency, or before any arbitration board, or
the promulgation of any proceeding or any proposed or final rule which
could reasonably be expected to result in a Material Adverse Effect;
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(iv) the commencement of any proceedings by or
against such Originator under any applicable bankruptcy,
reorganization, liquidation, rehabilitation, insolvency or other
similar law now or hereafter in effect or of any proceeding in which a
receiver, liquidator, conservator, trustee or similar official shall
have been, or may be, appointed or requested for such Originator or
any of its assets;
(v) the receipt of notice that (A) such
Originator is being placed under regulatory supervision, (B) any
license, permit, charter, registration or approval necessary for the
conduct of such Originator's business is to be, or may be, suspended
or revoked, or (C) such Originator is to cease and desist any
practice, procedure or policy employed by such Originator in the
conduct of its business, and such cessation could reasonably be
expected to result in a Material Adverse Effect; or
(vi) any other event, circumstance or condition
that has had, or has a material possibility of resulting in, a
Material Adverse Effect.
(i) Maintenance of Licenses. Each Originator shall
maintain all licenses, permits, charters and registrations which are material
to the conduct of its business.
(j) Use of Proceeds. Each Originator shall apply its
funds towards general corporate purposes (including the retirement or repayment
of third party debt) and towards the other sums payable by such Originator
under this Agreement and the Related Documents in connection with the
transactions contemplated hereby and by the Related Documents and for no other
purpose.
(k) Separate Identity.
(i) Each Originator shall maintain corporate
records and books of account separate from those of FFI.
(ii) The financial statements of the Parent and
its consolidated Subsidiaries shall disclose (A) the effects of such
Originator's transactions in accordance with GAAP and (B) that the
assets of FFI are not available to pay creditors of any Originator or
any other Affiliate of such Originator.
(iii) The annual financial statements of the Parent
and its consolidated Subsidiaries (including FFI) will contain
footnotes or other information to the effect that with respect to FFI:
(A) FFI's business consists of the purchase of the Receivables from
the Originators and (B) FFI is a separate corporate entity with its
own separate creditors, which upon its liquidation will be entitled to
be satisfied out of FFI's assets prior to any value in FFI becoming
available to FFI's equityholders.
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(iv) The resolutions, agreements and other
instruments underlying the transactions described in this Agreement
shall be continuously maintained by each Originator as official
records.
(v) Each Originator shall use its best efforts to
maintain an arm's-length relationship with FFI and will not hold
itself out as being liable for the debts of FFI.
(vi) Each Originator shall use its best efforts to
keep its assets and its liabilities wholly separate from those of FFI.
(vii) Each Originator will conduct its business
solely in its own name through its duly authorized officers or agents
so as not to mislead others as to the identity of such Originator.
(viii) Each Originator will use its best efforts to
avoid the appearance of conducting business on behalf of FFI or that
the assets of such Originator are available to pay the creditors of
FFI.
(ix) The Parent will cause operating expenses and
liabilities of FFI to be paid from FFI's funds, whether directly or by
reimbursement to the Parent by FFI.
(l) ERISA. Each Originator shall give the Operating
Agent prompt notice of each of the following events (but in no event more than
30 days after the occurrence of the event): (i) an Accumulated Funding
Deficiency, (ii) the failure to make a material required contribution to a Plan
or Multiemployer Plan (but in no event will a contribution failure sufficient
to give rise to a lien under Section 302(f) of ERISA be considered immaterial),
(iii) a Reportable Event, (iv) any action by a Commonly Controlled Entity to
terminate any Plan or withdraw from any Multiemployer Plan, (v) any action by
the PBGC to terminate or appoint a trustee to administer a Plan, (vi) the
reorganization or insolvency of any Multiemployer Plan and (vii) an aggregate
Underfunding for all Underfunded Plans in excess of $100,000.
(m) Cooperation With Requests for Information or
Documents. Each Originator will cooperate fully with all reasonable requests
of FFI or any assignee regarding the provision of any information or documents,
necessary, including the provision of such information or documents in
electronic or machine-readable format, or desirable to allow FFI and each
assignee to carry out its responsibilities under the Related Documents.
(n) Payment, Performance and Discharge of Obligations.
Each Originator will pay, perform and discharge all of its obligations and
liabilities, including, without limitation, all taxes, assessments and
governmental charges upon its income and properties when due, the non-payment,
performance or discharge of which could reasonably be expected to result in a
Material Adverse Effect, unless and to the extent only that such obligations,
liabilities, taxes, assessments and governmental charges shall be contested in
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good faith and by appropriate proceedings and that, to the extent required by
GAAP, proper and adequate book reserves relating thereto are established by
such Originator and then only to the extent that a bond is filed in cases where
the filing of a bond is necessary to avoid the creation of an Adverse Claim
against any of its properties.
(o) Deposit Collections. Each Originator shall deposit
all Collections it may receive in respect of Transferred Receivables into a
Lockbox Account within one Business Day of receipt.
SECTION 4.03. Negative Covenants of the Originators. Each
Originator shall not, without the written consent of FFI and each assignee of
FFI's rights:
(a) sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Adverse Claim upon or
with respect to, or assign any right to receive income in respect of any
Transferred Receivable or related Contract with respect thereto, or upon or
with respect to any Lockbox or any Lockbox Account (except as created in favor
of FFI hereby or in the case of any Lockbox or Lockbox Account pursuant to the
Inventory Facility, the Security Agreement or the Intercreditor Agreement);
(b) extend, amend, forgive, discharge, compromise, cancel
or otherwise modify the terms of any Transferred Receivable, or amend, modify
or waive any term or condition of any Contract related thereto (except as to
the Parent in its capacity as the Servicer under the Purchase Agreement);
(c) make any change in its instructions to Obligors
regarding payments to be made to FFI or payments to be deposited to a Lockbox
or a Lockbox Account other than in accordance with the Credit and Collection
Policy;
(d) merge with or into, consolidate with or into (other
than consolidation for tax reporting purposes), convey, transfer, lease or
otherwise dispose of all or substantially all of its assets (whether now owned
or hereafter acquired) to, or acquire all or substantially all of the assets or
capital stock or other ownership interest of, any Person (whether in one
transaction or in a series of transactions) except that:
(i) any Originator may merge or be consolidated
with any other Originator;
(ii) any Originator may be liquidated or dissolved
if in connection therewith all of its assets are transferred to any
other Originator;
(iii) each Originator may lease, as lessee, real or
personal property in the ordinary course of business;
(iv) any Originator may lease or acquire assets in
the ordinary course of business from any other Originator;
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(v) each Originator may sell Inventory in the
ordinary course of business;
(vi) each Originator may make bulk sales of
Inventory other than in the ordinary course of business for fair
market value and with a cash payment of not less than 20% of the
purchase price therefore, provided that all such sales of Inventory
under this Section 4.03(d)(vi) shall not exceed $30,000,000 in the
aggregate;
(vii) the Parent may make the IS Sale or sell
assets in connection with the creation of, and subject to, a Permitted
SL Transaction; and
(viii) any Originator may acquire substantially all
of the assets of any Person or 100% of all classes of capital stock of
any Person or any assets of any Person not in the ordinary course of
business, so long as, in any such case (A) both immediately prior to,
and after giving effect to, any such acquisition, no Incipient Event,
Event of Termination or Event of Servicer Termination would exist
(including, without limitation, any breach of any covenant in Exhibit
H to the Purchase Agreement, assuming for this purpose that the assets
or stock so acquired had been, on a pro forma basis, included in the
consolidated statements of FoxMeyer Corporation delivered for the
fiscal quarter most recently ended) and all representations and
warranties of the Originators shall be true and correct (it being
understood that representations and warranties made as of a specified
date shall only be made (or deemed made or repeated) as of such
specified date), (B) the Operating Agent and the Collateral Agent
shall be reasonably satisfied with all documentation in connection
with such acquisition (including, without limitation, the terms of all
documents evidencing, governing or creating Debt or Adverse Claims
assumed, incurred or otherwise constituting consideration for such
acquisition), (C) the total consideration for such acquisition
(including, without limitation, debt or other liabilities and Adverse
Claims assumed or attaching to purchased assets, and Debt (on terms
and pursuant to documentation reasonably acceptable to the Operating
Agent and the Collateral Agent) issued in connection with such
acquisition), when added to the total consideration for all prior
acquisitions made on or after the Effective Date under this paragraph
(viii), shall not exceed $50,000,000, and (D) the Operating Agent and
the Collateral Agent and the Purchaser shall have received not less
than thirty (30) days' prior written notice of such acquisition.
(e) make statements or disclosures or prepare any
financial statements which shall account for the transactions contemplated by
this Agreement in any manner other than as a sale or absolute assignment of the
Transferred Receivables to FFI, or in any other respect account for or treat
the transactions contemplated hereby (including but not limited to, for
accounting, tax and reporting purposes) in any manner other than as a sale or
absolute assignment of the Transferred Receivables;
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(f) amend, supplement or otherwise modify its certificate
of incorporation or bylaws (or permit any of the foregoing) in any manner which
may (i) adversely affect the Purchaser or its assigns, the Transferred
Receivables or the ability of such Originator to perform its obligations under
the Related Documents or (ii) violate (or authorize or permit acts or events
which may violate) any of the provisions of the Related Documents;
(g) (i) take any action, or fail to take any action, if
such action or failure to take action may interfere with the enforcement of any
rights under this Agreement or the Related Documents that are material to the
rights, benefits or obligations of FFI or any assignee (however, nothing herein
shall be construed to constitute a guarantee of collectibility by such
Originator); (ii) waive or alter any rights with respect to the Transferred
Receivables (or any agreement or instrument relating thereto); (iii) take any
action, or fail to take any action, if such action or failure to take action
may interfere with the enforcement of any rights with respect to the
Transferred Receivables; or (iv) fail to pay any tax, assessment, charge, fee
or other obligation of such Originator with respect to the Transferred
Receivables, or fail to defend any action, if such failure to pay or defend may
adversely affect the priority or enforceability of the first priority perfected
interest of FFI in the Transferred Receivables or such Originator's right,
title or interest in the Transferred Receivables;
(h) neither such Originator nor any Commonly Controlled
Entity will:
(i) terminate any Plan so as to incur any
material liability to the PBGC;
(ii) knowingly participate in any "prohibited
transaction" (as defined in ERISA) involving any Plan or Multiemployer
Plan or any trust created thereunder which would subject any of them
to a material tax or penalty on prohibited transactions imposed under
Section 4975 of the Internal Revenue Code or ERISA;
(iii) fail to pay to any Plan or Multiemployer Plan
any contribution which it is obligated to pay under the terms of such
Plan or Multiemployer Plan, if such failure would cause such plan to
have any material Accumulated Funding Deficiency, whether or not
waived; or
(iv) allow or suffer to exist any occurrence of a
Reportable Event, or any other event or condition, which presents a
material risk of termination by the PBGC on any Plan or Multiemployer
Plan, to the extent that the occurrence or nonoccurrence of such
Reportable Event or other event or condition is within the control of
it or any Commonly Controlled Entity;
(i) make any material change to the Credit and Collection
Policies without the prior written consent of FFI and each assignee; or
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(j) take or permit (other than with respect to actions
taken or to be taken solely by a Government Authority) to be taken any action
which would have the effect directly or indirectly of subjecting interest on
any of the Purchases or the Commercial Paper to withholding taxation in the
hands of, respectively, FFI, Redwood or holders of the Commercial Paper
generally who are residents of the United States, and will perform all of such
Originator's obligations under this Agreement and the Related Documents to
prevent or cure any default by such Originator which would have the effect,
directly or indirectly, of subjecting interest on any of the Purchases or the
Commercial Paper to withholding taxation.
SECTION 4.04. Breach of Representations, Warranties or
Covenants. Upon discovery by any Originator, FFI, or any assignee of FFI's
rights hereunder, that any of the representations, warranties or covenants
described in Sections 4.01(b), 4.02(b), (c) or (f)(iii) or 4.03 (a), (b), (c)
or (g) have been breached such that they are or were untrue or incorrect in any
respect, which breach is reasonably likely to have a material adverse effect on
the value of a Transferred Receivable or the interests of FFI or any assignee
therein, the party discovering the same shall give prompt written notice to the
other parties. Thereafter, if requested by notice from FFI or any assignee, or
if the relevant Originator so desires, the Originator that breached such
representation, warranty or covenant shall, on the next succeeding Business
Day, either (i) repurchase such Transferred Receivable from FFI in
consideration of cash, (ii) transfer ownership of a new Eligible Receivable or
new Eligible Receivables on such Business Day; or (iii) in the case of the
Parent, make a capital contribution of the Rejected Amount in cash to FFI by
remitting the amount of such capital contribution to the Collection Account in
accordance with the terms of the Purchase Agreement, in the case of clauses
(i), (ii) and (iii) in an amount equal to the Billed Amount of such Transferred
Receivable less Collections received in respect thereof. Notwithstanding the
foregoing, if any Receivable is not paid in full on account of any Dilution
Factors, the Originator's repurchase obligation under this Section 4.04 shall
be reduced by the amount of any such Dilution Factors taken into account in the
Sale Price.
ARTICLE V
INDEMNIFICATION
SECTION 5.01. Indemnification.
(a) Without limiting any other rights that FFI, any of
its shareholders, officers or agents, or any assignee of FFI's rights hereunder
or such assignee's shareholders, officers, employees or agents (each, an
"INDEMNIFIED PARTY") may have hereunder or under applicable law, each
Originator hereby agrees to indemnify each Indemnified Party from and against
any and all claims, losses, liabilities, obligations, damages, penalties,
actions, judgments, suits, and costs and expenses of any nature whatsoever
related thereto, including reasonable attorneys' fees and disbursements (all of
the foregoing being collectively referred to as "INDEMNIFIED AMOUNTS") which
may be imposed on, incurred by or asserted against
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an Indemnified Party in any way arising out of or resulting from the breach of
(including, without limitation, the matters set forth in the next succeeding
sentence) this Agreement or any Related Documents by such Originator or the use
by such Originator of proceeds of any purchase or assignment hereunder or in
respect of any Transferred Receivable or any Contract, excluding, however, (a)
Indemnified Amounts to the extent resulting solely from gross negligence, acts
of bad faith or willful misconduct on the part of such Indemnified Party or (b)
recourse for uncollectible or uncollected Transferred Receivables. Without
limiting or being limited by the foregoing, except as set forth in clauses (a)
and (b) of the immediately preceding sentence, each Originator shall pay on
demand to each Indemnified Party any and all Indemnified Amounts necessary to
indemnify such Indemnified Party from and against any and all Indemnified
Amounts relating to or resulting from:
(i) reliance on any representation or warranty
made or deemed made by such Originator (or any of its officers) under
or in connection with this Agreement or any Related Document, any
report or any other information delivered by such Originator pursuant
hereto, which shall have been incorrect in any material respect when
made or deemed made or delivered;
(ii) the failure by such Originator to comply with
any term, provision or covenant contained in this Agreement, any
Related Document or any agreement executed in connection with this
Agreement, with any applicable law, rule or regulation with respect to
any Transferred Receivable or the related Contract, or the
nonconformity of any Transferred Receivable or the related Contract
with any such applicable law, rule or regulation; or
(iii) the failure to vest and maintain vested in
FFI, or to transfer to FFI, legal and equitable title to and ownership
of the Receivables which are, or are purported to be, Transferred
Receivables, together with all Collections and Proceeds in respect
thereof, free and clear of any Adverse Claim (except as permitted
hereunder) whether existing at the time of the proposed sale of such
Receivable or at any time thereafter.
SECTION 5.02. Assignment of Indemnities. Each Originator
acknowledges that, to the extent permitted under the Purchase Agreement, FFI
may assign its rights of indemnity granted hereunder and upon such assignment,
such assignee shall have all rights of FFI hereunder and may in turn assign
such rights. Each Originator agrees that, upon such assignment, such assignee,
may enforce directly, without joinder of FFI, the indemnities set forth in this
Article V.
ARTICLE VI
FFI LOANS TO THE PARENT
SECTION 6.01. FFI Loans. From time to time, FFI may, on the
terms and subject to the conditions of this Agreement upon request of the
Parent, make advances (each, a "FFI LOAN") to the Parent to the extent of its
available funds during the term of
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this Agreement in an aggregate principal amount at any one time outstanding up
to, but not exceeding, the Maximum Purchase Limit. Subject to the terms of
this Agreement, the Parent may borrow, repay and reborrow; provided that no
such FFI Loans may be made if, after giving effect thereto, an Incipient Event,
a Termination Event or an Event of Servicer Termination, or an event which,
upon the giving of notice or the passage of time, or both would become an Event
of Servicer Termination has occurred and is continuing or there would be a
Purchase Excess.
SECTION 6.02. Notices Relating to Loans. The Parent shall
give FFI and each assignee one Business Day prior written notice of each
borrowing and repayment of each FFI Loan. Each such notice of borrowing or
repayment shall specify the amount of FFI Loans to be borrowed or repaid and
the date of such action (which shall be a Business Day).
SECTION 6.03. Disbursement of Loan Proceeds. Not later than
11:00 a.m., New York City time, on the date specified for each FFI Loan
hereunder, FFI shall transfer, by wire transfer or otherwise, but in any event
in immediately available funds, the amount of FFI Loan to be made on such date,
to the account designated by the Parent, in accordance with instructions
previously supplied to FFI.
SECTION 6.04. Parent Note.
(a) FFI Loans made by FFI hereunder shall be evidenced by
a single promissory note of the Parent in substantially the form of Exhibit B
hereto (the "PARENT NOTE"). The Parent Note shall be dated the date of this
Agreement, shall be payable to the order of FFI in a principal amount equal to
$275,000,000 and shall otherwise be duly completed.
(b) FFI shall enter on a schedule attached to the Parent
Note a notation (which may be computer generated) with respect to each FFI Loan
made hereunder of: (i) the date and principal amount thereof and (ii) each
payment and repayment of principal thereof. The failure of FFI to make a
notation on the schedule to the Parent Note as aforesaid shall not limit or
otherwise affect the obligation of the Parent to repay FFI Loans in accordance
with their respective terms as set forth herein.
SECTION 6.05. Principal Repayments. FFI Loans may be repaid
by the Parent at any time and from time to time, in whole or in part, upon
prior written notice to FFI and each assignee as provided in Section 6.02. In
addition, FFI Loans shall be payable immediately on demand of FFI. Any amount
so repaid may, subject to the terms and conditions hereof, be reborrowed
hereunder; provided, however, that all repayments of FFI Loans or any portion
thereof shall be made together with payment of all interest accrued on the
amount repaid to (but excluding) the date of such repayment.
SECTION 6.06. Interest.
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(a) On each monthly anniversary of the date hereof, the
Parent shall pay to FFI interest at the rate shown in the Wall Street Journal
as the "Prime Rate" on such date (the "PARENT INTEREST RATE") on the unpaid
principal amount of each FFI Loan for the period commencing on and including
the date of such FFI Loan until but excluding the date of such monthly
anniversary and such FFI Loan shall be paid in full.
(b) Notwithstanding the foregoing, the Parent shall pay
interest on unpaid interest, on any FFI Loan or any installment thereof, and on
any other amount payable by the Parent hereunder (to the extent permitted by
law) that shall not be paid in full when due (whether at stated maturity, by
acceleration or otherwise) for the period commencing on the due date thereof to
(but excluding) the date the same is paid in full at the applicable Parent
Interest Rate.
SECTION 6.07. Time and Method of Payments. All payments of
principal, interest and other amounts (including indemnities) payable by the
Parent under this Article VI shall be made in dollars, in immediately available
funds, to FFI not later than 11:00 a.m., New York City time, on the date on
which such payment shall become due. Any such payment made on such date but
after such time shall, if the amount paid bears interest, be deemed to have
been made on, and interest shall continue to accrue and be payable thereon
until, the next succeeding Business Day. If any payment of principal or
interest becomes due on a day other than a Business Day, such payment may be
made on the next succeeding Business Day and such extension shall be included
in computing interest in connection with such payment. All payments under this
Article VI and under the Parent Note shall be made without set-off or
counterclaim and in such amounts as may be necessary in order that all such
payments shall not be less than the amounts otherwise specified to be paid
under this Agreement and the Parent Note. Upon payment in full of the Parent
Note, following the end of the term of this Agreement, FFI shall mark the
Parent Note "Paid" and return it to the Parent.
ARTICLE VII
COLLATERAL SECURITY
SECTION 7.01. Security Interest. Each Originator hereby
grants to FFI a security interest ("SECURITY INTEREST") in the following
property, wherever located and whether now owned or hereafter acquired by such
Originator (collectively, the "COLLATERAL"):
(a) all accounts, inventory, general intangibles
(excluding leases of Real Property and Equipment), chattel paper, documents,
and instruments (each as defined in the UCC), whether or not specifically
assigned to FFI;
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(b) all books, records and other information (including,
without limitation, computer programs, tapes, disks, data processing software,
and other related property and rights) at any time evidencing or relating to
any Collateral;
(c) all monies, securities and other property, now or
hereafter held or received by, or in transit to FFI from or for such
Originator, and all of FFI's credits, and balances with such Originator
existing at any time; and
(d) all Proceeds, accessions, substitutions, rents and
profits of any and all of the foregoing Collateral (including Proceeds that
constitute property of the types described in Sections 7.01(a) through (c)
above) and, to the extent not otherwise included, all payments under insurance
(whether or not FFI or any assignee or agent on behalf of FFI is the loss payee
thereof) or any indemnity, warranty or guaranty payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral,
excluding however, Real Property and Equipment.
SECTION 7.02. Indebtedness Secured. The Security Interest
secures payment of any and all recourse obligations of each Originator to FFI
or any assignee hereunder, including but not limited to those set forth in
Sections 4.04 and 5.01.
SECTION 7.03. Other Collateral; Rights in Receivables.
Nothing contained in this Article shall limit the rights of FFI or any assignee
in and to any other collateral which may have been or may hereafter be granted
to FFI by any Originator or any third party pursuant to any other agreement nor
the rights of FFI or any assignee under any of the Transferred Receivables.
SECTION 7.04. Further Action Evidencing Security Interest.
(a) Each Originator agrees that from time to time, at its
expense, it will promptly execute and deliver all further instruments and
documents, and take all further action, that may be necessary or appropriate or
that FFI or any assignee may reasonably request in order to perfect, protect or
more fully evidence the Sale, contribution or the Security Interest, or to
enable FFI or any assignee to exercise or enforce any of its rights hereunder.
Without limiting the generality of the foregoing, each Originator will, upon
the request of FFI or any assignee: (i) execute and file such financing or
continuation statements, or amendments thereto or assignments thereof, and such
other instruments or notices, as may be necessary or appropriate or as FFI or
any assignee may request, in order to perfect, protect, or evidence such
Security Interest and (ii) mark conspicuously or segregate any Collateral in a
manner acceptable to FFI and any assignee.
(b) Each Originator hereby authorizes FFI and any
assignee to file one or more financing or continuation statements, and
amendments thereto and assignments thereof, relating to all or part of any of
FFI's or such assignee's interest now existing or hereafter arising with
respect to the Collateral now existing or hereafter arising without the
signature of such Originator where permitted by law. A carbon, photographic or
other
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reproduction of this Agreement or any financing statement covering the
Collateral, or any part thereof, shall be sufficient as a financing statement
where permitted by law.
(c) If any Originator fails to perform any agreement or
obligations under this Section 7.04, FFI or any assignee may (but shall not be
required to) itself perform, or cause performance of, such agreement or
obligation, and the reasonable expenses of FFI or any assignee incurred in
connection therewith shall be payable by such Originator upon FFI's or such
assignee's demand therefor.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Notices, Etc. All notices and other
communications provided for hereunder shall, unless otherwise stated herein, be
in writing (including facsimile, telex and express mail) and mailed or
telecommunicated, or delivered as to each party hereto, at its address set
forth on Schedule 1 or at such other address as shall be designated by such
party in a written notice to the other parties hereto. All such notices and
communications shall not be effective until received by the party to whom such
notice or communication is addressed.
SECTION 8.02. No Waiver; Remedies. No failure on the part of
an Originator or FFI or any assignee of FFI to exercise, and no delay in
exercising, any right hereunder or under any Assignment shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
other remedies provided by law.
SECTION 8.03. Binding Effect; Assignability. This Agreement
shall be binding upon and inure to the benefit of each Originator and FFI, and
their respective successors and permitted assigns. Except as contemplated
herein, none of the parties may assign any of its rights and obligations
hereunder or any interest herein without the prior written consent of the other
parties. This Agreement shall create and constitute the continuing obligations
of the parties hereto in accordance with its terms, and shall remain in full
force and effect until its termination; provided, that the rights and remedies
pursuant to Section 4.04 with respect to any breach of any representation,
warranty or covenants made by any Originator pursuant to Sections 4.01, 4.02
and 4.03 and the indemnification and payment provisions of Article V shall be
continuing and shall survive any termination of this Agreement.
SECTION 8.04. No Proceedings. Each Originator agrees that it
will not, directly or indirectly, institute, or cause to be instituted, against
FFI any proceeding of the type referred to in Section 9.01(c) of the Purchase
Agreement so long as there shall not
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have elapsed one year plus one day since the latest maturing Commercial Paper
and allocated to FFI has been paid in full in cash.
SECTION 8.05. Amendments; Consents and Waivers. No
modification, amendment or waiver of, or with respect to, any provision of this
Agreement, and all other agreements, instruments and documents delivered in
connection therewith, nor consent to any departure by any Originator or FFI
from any of the terms or conditions hereof or thereof, shall be effective
unless it shall be in writing and signed by each of the parties hereto, and
prior written consent is given by Redwood and the Collateral Agent. Any waiver
or consent shall be effective only in the specific instance and for the purpose
for which given. No consent or demand in any case shall, in itself, entitle any
party to any other consent or further notice or demand in similar or other
circumstances. This Agreement and the documents referred to herein embody the
entire agreement of the Originators and FFI with respect to the Transferred
Receivables and supersede all prior agreements and understandings relating to
the subject hereof.
SECTION 8.06. GOVERNING LAW; CONSENT TO JURISDICTION; WAIVER
OF JURY TRIAL.
(a) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS)
OF THE STATE OF NEW YORK.
(b) EACH ORIGINATOR AND FFI HEREBY SUBMIT TO THE
EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND THE UNITED
STATES DISTRICT COURT LOCATED IN THE BOROUGH OF MANHATTAN IN NEW YORK CITY, AND
EACH WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENTS THAT
ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE ADDRESS
SET FORTH ON SCHEDULE 1 AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED
FIVE DAYS AFTER THE SAME SHALL HAVE BEEN DEPOSITED IN THE U.S. MAILS, POSTAGE
PREPAID. EACH ORIGINATOR AND FFI HEREBY WAIVE ANY OBJECTION BASED ON FORUM NON
CONVENIENS, AND ANY OBJECTION TO VENUE OF ANY ACTION INSTITUTED HEREUNDER AND
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY THE COURT. NOTHING IN THIS SECTION SHALL AFFECT THE RIGHT OF
ANY ORIGINATOR OR FFI TO SERVE LEGAL PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW.
(c) EACH ORIGINATOR AND FFI HEREBY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR IN CONNECTION
WITH THIS AGREEMENT. INSTEAD, ANY DISPUTE RESOLVED IN COURT WILL BE RESOLVED IN
A BENCH TRIAL WITHOUT A JURY.
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SECTION 8.07. Execution in Counterparts; Severability. This
Agreement may be executed by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and both of which
when taken together shall constitute one and the same agreement. In case any
provision in or obligation under this Agreement shall be invalid, illegal or
unenforceable in any jurisdiction, the validity, legality and enforceability of
the remaining provisions or obligations in any jurisdiction, or of such
provision or obligation in any jurisdiction, shall not in any way be affected
or impaired thereby.
SECTION 8.08. Descriptive Headings. The descriptive headings
of the various sections of this Agreement are inserted for convenience of
reference only and shall not be deemed to affect the meaning or construction of
any of the provisions hereof.
SECTION 8.09. No Setoff. Each Originator's obligations under
this Agreement shall not be affected by any right of setoff, counterclaim,
recoupment, defense or other right such Originator might have against FFI,
Redwood, the Operating Agent, the Collateral Agent or any assignee, all of
which rights are hereby waived by such Originator.
SECTION 8.10. Further Assurances. Each Originator agrees to
do such further acts and things and to execute and deliver to FFI, Redwood, the
Operating Agent or any assignee such additional assignments, agreements, powers
and instruments as FFI, Redwood, the Operating Agent or any assignee may
require or deem advisable to carry into effect the purposes of this Agreement
or to better assure and confirm unto any such party its respective rights,
powers and remedies hereunder.
SECTION 8.11. Confidentiality.
(a) Except to the extent otherwise required by applicable
law, as required to be filed publicly with the Securities and Exchange
Commission, or unless the Affected Party shall otherwise consent in writing,
each Originator and FFI agree to maintain the confidentiality of this Agreement
(and all drafts of this agreement and documents ancillary to this Agreement) in
its communications with third parties other than any Affected Party or any
Indemnified Party and otherwise and not to disclose, deliver or otherwise make
available to any third party (other than its directors, officers, employees,
accountants or counsel) the original or any copy of all or any part of this
Agreement (or any draft of this Agreement and documents ancillary to this
Agreement) except to an Affected Party or an Indemnified Party.
(b) Each Originator agrees that it shall not (and shall
not permit any of its Subsidiaries to) issue any news release or make any
public announcement pertaining to the transactions contemplated by this
Agreement and the Related Documents without the prior written consent of FFI
and its assignees (which consent shall not be unreasonably withheld) unless
such news release or public announcement is required by law, in which case such
Originator shall consult with FFI and its assignees prior to the issuance of
such news release or public announcement. Any Originator may, however,
disclose the general terms
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of the transactions contemplated by this Agreement and the Related Documents to
trade creditors, suppliers and other similarly situated Persons so long as such
disclosure is not in the form of a news release or public announcement.
SECTION 8.12. Assignment of Agreement. Each Originator
acknowledges that, to the extent permitted under the Purchase Agreement, FFI
may assign its rights granted hereunder, including any rights in the Collateral
granted under Article VII, and upon such assignment, such assignee shall have
all rights of FFI hereunder and, to the extent permitted under the Purchase
Agreement, may in turn assign such rights. Each Originator agrees that, upon
such assignment, such assignee may enforce directly, without joinder of FFI,
the rights set forth in this Agreement.
<PAGE> 37
IN WITNESS WHEREOF, the parties have caused this Receivables
Transfer Agreement to be executed by their respective officers thereunto duly
authorized, as of the date first above written.
FOXMEYER DRUG COMPANY
By:
-------------------------------------
Name: Grady E. Schleier
Title: Vice President and Treasurer
FOXMEYER FUNDING, INC.
By:
--------------------------------------
Name: Mark A. Cox
Title: Assistant Treasurer
33
<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,
--------------------------------
1996 1995 1994
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
PRIMARY
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from continuing operations $(56,044) $ 43,195 $ 31,464
Deduct dividends on preferred shares 21,108 19,096 10,830
--------------------------------
Income (loss) from continuing operations applicable
to common stockholders $(77,152) $ 24,099 $ 20,634
================================
LOSS FROM DISCONTINUED OPERATIONS $ (7,617) $ (1,581) $ (1,952)
================================
SHARES
Weighted average number of common shares outstanding 17,115 14,827 16,931
================================
Income (loss) from continuing operations $ (4.51) $ 1.63 $ 1.22
Loss from discontinued operations (0.44) $ (0.11) $ (0.12)
--------------------------------
Net income (loss) $ (4.95) $ 1.52 $ 1.10
================================
ASSUMING FULL DILUTION
INCOME (LOSS) FROM CONTINUING OPERATIONS
Income (loss) from continuing operations $(56,044) $ 43,195 $ 31,464
Dividends on non-convertible preferred shares 17,047 14,586 5,880
Dividends on convertible preferred shares (conversion
of preferred shares would be anti-dilutive) 4,061 4,510 4,950
--------------------------------
Income (loss) from continuing operations applicable
to common stockholders $(77,152) $ 24,099 $ 20,634
================================
LOSS FROM DISCONTINUED OPERATIONS $ (7,617) $ (1,581) $ (1,952)
================================
SHARES
Weighted average number of common shares outstanding 17,115 14,827 16,931
Conversion of preferred stock (anti-dilutive) -- -- --
Additional dilutive effect of outstanding options
(as determined by the treasury stock method) 504 286 55
Assuming conversion of National Steel Corporation 4-5/8%
convertible debentures* -- -- 39
--------------------------------
Weighted average number of common shares outstanding as adjusted 17,619 15,113 17,025
================================
Income (loss) from continuing operations $ (4.38) $ 1.59 $ 1.21
Loss from discontinued operations (0.43) (0.10) (0.11)
--------------------------------
Net income (loss) ** $ (4.81) $ 1.49 $ 1.10
=====================================================================================================
</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%.
33
<PAGE> 1
EXHIBIT 21
FOXMEYER HEALTH CORPORATION
SUBSIDIARIES OF THE REGISTRANT*
AS OF JUNE 19, 1996
* ALL SUBSIDIARIES ARE 100% OWNED EXCEPT WHERE OTHERWISE NOTED.
FoxMeyer Corporation (Delaware)
FoxMeyer Drug Company (Kansas)
FoxMeyer Funding, Inc. (Delaware)
Health Mart, Inc. (Colorado)
FoxMeyer Software, Inc. (Delaware) (80%)
Healthcare Transportation System, Inc. (Delaware)
Merchandise Coordinator Services Corporation (Delaware)
d/b/a FoxMeyer Trading Company
Healthcare Connect, Inc. (Delaware)
d/b/a CareStream
Health Systems, Inc. (Delaware)
FoxMeyer Canada Inc. (Ontario) (41%)
OmNex Health, Inc. (Delaware)
Health Care Pharmacy Providers, Inc. (Delaware)
NexCare, Inc. (Delaware)
Scrip Card Enterprises, Inc. (Utah)
SCE Acquisition Corporation (Delaware)
US HealthData Interchange, Inc. (Delaware)
CareStream Holdings, Inc. (Delaware)
Hamilton Morgan L.L.C. (Delaware) (69.8%)
Intergroup Services, Inc. (Delaware)
M&A Investments, Inc. (Delaware)
National Aluminum Corporation (Delaware)
National Intergroup Realty Bestgate. Inc. (Delaware)
National Intergroup Realty Corporation (Delaware)
National Intergroup Realty Riva, Inc. (Delaware)
National Intergroup Realty Development, Inc. (Delaware)
National Intergroup Ventures, 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%)
34
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> APR-01-1995
<PERIOD-END> MAR-31-1996
<CASH> 26,987
<SECURITIES> 35,995
<RECEIVABLES> 315,290
<ALLOWANCES> 23,540
<INVENTORY> 632,269
<CURRENT-ASSETS> 1,011,165
<PP&E> 216,604
<DEPRECIATION> 73,749
<TOTAL-ASSETS> 1,577,070
<CURRENT-LIABILITIES> 734,764
<BONDS> 403,831
<COMMON> 120,940
187,292
0
<OTHER-SE> 81,523
<TOTAL-LIABILITY-AND-EQUITY> 1,577,070
<SALES> 5,847,362
<TOTAL-REVENUES> 5,847,362
<CGS> 5,254,276
<TOTAL-COSTS> 5,254,276
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 21,885
<INTEREST-EXPENSE> 34,788
<INCOME-PRETAX> (77,268)
<INCOME-TAX> (27,916)
<INCOME-CONTINUING> (56,044)
<DISCONTINUED> (7,617)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (63,661)
<EPS-PRIMARY> (4.95)
<EPS-DILUTED> (4.95)
</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, 1995
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, 1995 and
1994 and For Each of the Three Years in the Period
Ended December 31, 1995, Supplemental Schedules
as of and for the Year Ended December 31, 1995,
and Independent Auditors' Report
<PAGE> 3
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report 2
Statements of Net Assets Available for Benefits as of December 31, 1995 and 1994 3
Statements of Changes in Net Assets Available for Benefits for Each of the Three Years in the
Period Ended December 31, 1995 4 - 6
Notes to Financial Statements 7 - 11
Item 27a - Schedule of Assets Held for Investment Purposes 12
Item 27d - Schedule of Reportable Transactions 13
Item 27e - Schedule of Nonexempt Transactions 14
Independent Auditors' Consent 15
</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, 1995 and 1994 and the related statements of changes
in net assets available for benefits for each of the three years in the period
ended December 31, 1995. 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,
1995 and 1994, and the changes in net assets available for benefits for each of
the three years in the period ended December 31, 1995, 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, 1995, (2) reportable transactions
for the year ended December 31, 1995 and (3) nonexempt transactions for the
year ended December 31, 1995 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 audits
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 25, 1996
- 2 -
<PAGE> 5
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
<TABLE>
<CAPTION>
=============================================================================
December 31,
----------------------------------
1995 1994
- -----------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Investments, at Fair Value:
Fidelity Mutual Funds:
Equity-Income Fund $ 6,878,878 $ 5,139,910
Government Money Market Fund 10,029,840 9,660,884
Magellan Fund 8,644,283 5,455,258
Intermediate Bond Fund 1,402,568 1,012,455
Growth and Income Fund 4,877,940 2,958,948
Asset Manager Fund 168,164 42,671
Managed Income Portfolio Fund 657,001 500,321
FoxMeyer Health Common Stock Fund 1,068,717 784,868
Participant Loans 1,343,500 1,417,718
----------------------------------
NET ASSETS AVAILABLE FOR BENEFITS $ 35,070,891 $ 26,973,033
=============================================================================
</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, 1995
<TABLE>
<CAPTION>
=================================================================================
SUPPLEMENTAL INFORMATION BY FUND
=================================================================================
Government
Equity- Money Intermediate Growth and
Income Market Magellan Bond Income
Fund Fund Fund Fund Fund
=================================================================================
<S> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1994 $5,139,910 $9,660,884 $5,455,258 $1,012,455 $2,958,948
---------------------------------------------------------------------------------
Investment Income:
Net Appreciation in Fair Value
of Investments 1,257,285 - 1,567,921 69,502 938,347
Interest and Dividends 403,180 559,755 497,462 93,404 229,331
---------------------------------------------------------------------------------
Total Investment Income 1,660,465 559,755 2,065,383 162,906 1,167,678
---------------------------------------------------------------------------------
Additions:
Transfers from Other Plan - 1,401,008 - - -
Contributions:
Employer 194,290 347,910 407,866 65,394 210,153
Employee 587,527 847,695 1,168,593 193,154 668,383
---------------------------------------------------------------------------------
Total Contributions 781,817 1,195,605 1,576,459 258,548 878,536
---------------------------------------------------------------------------------
Total Additions 781,817 2,596,613 1,576,459 258,548 878,536
---------------------------------------------------------------------------------
Deductions:
Benefits Paid (535,388) (2,349,973) (769,387) (78,748) (436,661)
Transfers Within Funds (166,445) (373,121) 320,485 47,518 309,619
Other (1,481) (64,318) (3,915) (111) (180)
---------------------------------------------------------------------------------
Total Deductions (703,314) (2,787,412) (452,817) (31,341) (127,222)
---------------------------------------------------------------------------------
Net Assets Available for Benefits,
December 31, 1995 $6,878,878 $10,029,840 $8,644,283 $1,402,568 $ 4,877,940
=================================================================================
<CAPTION>
================================================================
SUPPLEMENTAL INFORMATION BY FUND
================================================================
Managed
Asset Income FoxMeyer
Manager Portfolio Health Common Participant
Fund Fund Stock Fund Loans Total
=================================================================================
<S> <C> <C> <C> <C> <C>
Net Assets Available for Benefits,
December 31, 1994 $ 42,671 $ 500,321 $ 784,868 $1,417,718 $26,973,033
---------------------------------------------------------------------------------
Investment Income:
Net Appreciation in Fair Value
of Investments 11,668 - 531,191 - 4,375,914
Interest and Dividends 3,367 34,033 28,179 101,240 1,949,951
---------------------------------------------------------------------------------
Total Investment Income 15,035 34,033 559,370 101,240 6,325,865
---------------------------------------------------------------------------------
Additions:
Transfers from Other Plan - - - - 1,401,008
Contributions:
Employer 21,838 21,616 24,962 - 1,294,029
Employee 57,903 125,383 58,095 - 3,706,733
---------------------------------------------------------------------------------
Total Contributions 79,741 146,999 83,057 - 5,000,762
---------------------------------------------------------------------------------
Total Additions 79,741 146,999 83,057 - 6,401,770
---------------------------------------------------------------------------------
Deductions:
Benefits Paid (12,910) (112,010) (45,364) (217,523) (4,557,964)
Transfers Within Funds 43,720 87,772 (311,613) 42,065 -
Other (93) (114) (1,601) (71,813)
---------------------------------------------------------------------------------
Total Deductions 30,717 (24,352) (358,578) (175,458) (4,629,777)
---------------------------------------------------------------------------------
Net Assets Available for Benefits,
December 31, 1995 $ 168,164 $ 657,001 $ 1,068,717 $1,343,500 $35,070,891
=================================================================================
</TABLE>
See notes to financial statements.
- 4 -
<PAGE> 7
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 Stock Participant
Fund Fund 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.
- 5 -
<PAGE> 8
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 Magellan Intermediate Growth and
Fund Market 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.
- 6 -
<PAGE> 9
FOXMEYER EMPLOYEES' SAVINGS
AND PROFIT-SHARING PROGRAM
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
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.
Effective March 15, 1994, the Harris Wholesale 401(k) Savings and Retirement
Profit Sharing Plan (the "Harris Plan") merged with the Plan and the assets and
liabilities of the Harris Plan were transferred on March 17, 1994. Harris
Wholesale Company, the plan sponsor of the Harris Plan, was purchased by the
Corporation in May 1992.
Effective March 31, 1995, participants in the Retirement Savings Plan for
Salaried Employees of National Intergroup, Inc. (the "NII Plan") were given the
option to have their balances distributed to them or transferred to the Plan.
The final transfer of NII Plan assets occurred on June 20, 1995.
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, 1995. 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, 1995.
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 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, 1995, 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.
- 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 Health. At that time each share
of the Corporation's common stock was exchanged for .904 shares of
Health. As a result of the merger, the 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.
Fidelity 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.
Fidelity 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, 1995
---------------------------------------------------------------
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 Fund $ 37.93 668 181,357 $ 6,878,878
Government Money Market Fund 1.00 1,151 10,029,840 10,029,840
Magellan Fund 85.98 959 100,538 8,644,283
Intermediate Bond Fund 10.41 328 134,733 1,402,568
Growth and Income Fund 27.05 674 180,330 4,877,940
Asset Manager Fund 15.85 76 10,610 168,164
Managed Income Portfolio Fund 1.00 173 657,001 657,001
FoxMeyer Health Common Stock Fund 26.75 275 39,952 1,068,717
============================================================================================================
</TABLE>
- 9 -
<PAGE> 12
<TABLE>
<CAPTION>
===========================================================================================================
December 31, 1994
--------------------------------------------------------------
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 Fund $ 30.70 677 167,424 $ 5,139,910
Government Money Market Fund 1.00 1,198 9,660,884 9,660,884
Magellan Fund 66.80 796 81,666 5,455,258
Intermediate Bond Fund 9.83 302 102,996 1,012,455
Growth and Income Fund 21.09 581 140,301 2,958,948
Asset Manager Fund 13.83 22 3,085 42,671
Managed Income Portfolio Fund 1.00 144 500,321 500,321
FoxMeyer Health Common Stock Fund 14.88 263 52,764 784,868
===========================================================================================================
</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>
==========================================================================================================
1995 1994 1993
----------------------------------------------------
<S> <C> <C> <C>
Fidelity Mutual Funds $ 3,844,723 $ (1,057,028) $ 1,280,539
FoxMeyer Common Stock Fund - 146,735 2,483
FoxMeyer Health Common Stock Fund 531,191 54,234 -
------------ ------------ -----------
Net appreciation (depreciation) in fair
value of investments $ 4,375,914 $ (856,059) $ 1,283,022
==========================================================================================================
</TABLE>
NOTE F - WITHDRAWALS
Net assets available for Plan benefits at December 31, 1995 and 1994 included
$205,194 and $626,975, respectively, for participants who were no longer
employed by the Corporation and who requested that their funds be distributed.
- 10 -
<PAGE> 13
NOTE G - PROHIBITED TRANSACTION
During 1994, the Corporation advanced funds to the Harris Plan to expedite that
plan's merger into the Plan. Approximately $61,000 was advanced to the Harris
Plan for securities held by the Harris Plan which were not readily marketable
at the time of the asset transfer. This amount is included in the 1994
Statement of Changes in Net Assets as part of the "Transfers-In". These
securities were sold in December 1994 and the proceeds were deposited in the
Plan. The amount advanced to the Harris Plan was repaid to the Corporation by
the Plan in January 1995 and is included in the 1995 Statement of Changes in
Net Assets as part of "Other". The Corporation did not receive any interest on
the advance.
The advance of funds to the Harris Plan and the subsequent repayment were in
technical violation of the provisions of ERISA and the Internal Revenue Code
even though the Corporation did not profit from the transaction. While the
Corporation's management does not believe there is any penalty related to the
transaction, any payments that should be due related to this transaction will
be borne by the sponsor of the Plan.
- 11 -
<PAGE> 14
FOXMEYER EMPLOYEES' SAVINGS AND PROFIT-SHARING PROGRAM
ITEM 27A - SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
DECEMBER 31, 1995
<TABLE>
<CAPTION>
====================================================================================================================
(a) (b) Identity of issue, borrower, (c) Description of investment (d) Cost (e) Current
lessor, or similar party including maturity date, value
rate of interest, collateral,
par or maturity value
====================================================================================================================
<S> <C> <C> <C>
Fidelity Mutual Funds Equity-Income Fund $ 5,545,577 $ 6,878,878
Fidelity Mutual Funds Government Money Market Fund 10,029,840 10,029,840
Fidelity Mutual Funds Magellan Fund 7,480,581 8,644,283
Fidelity Mutual Funds Intermediate Bond Fund 1,386,797 1,402,568
Fidelity Mutual Funds Growth and Income Fund 4,052,823 4,877,940
Fidelity Mutual Funds Asset Manager Fund 159,806 168,164
Fidelity Mutual Funds Managed Income Portfolio Fund 657,001 657,001
FoxMeyer Health Corporation Common Stock, $5 par value 618,902 1,068,717
Participant Loans Interest rates ranging from 1,343,500 1,343,500
7.0% to 10.5% with maturity dates
ranging from January 1996 to
December 2004.
</TABLE>
- 12 -
<PAGE> 15
FOXMEYER EMPLOYEES' SAVINGS AND PROFIT-SHARING PROGRAM
ITEM 27D - SCHEDULE OF REPORTABLE TRANSACTIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
=====================================================================================================================
(a) Identity of (b) Description of asset (include (c) Purchase (d) Selling (e) Lease
party involved interest rate and maturity in price price rental
case of loan)
=====================================================================================================================
<S> <C> <C> <C>
Fidelity Mutual Funds Equity-Income Fund $1,739,045 $1,257,362
Fidelity Mutual Funds Government Money Market Fund 3,955,103 3,586,148
Fidelity Mutual Funds Magellan Fund 3,495,471 1,874,367
Fidelity Mutual Funds Growth and Income Fund 1,775,047 794,402
<CAPTION>
====================================================================================================
(f) Expense (g) Cost of (h) Current value (i) Net gain
incurred asset of asset on or (loss)
with transaction transaction date
====================================================================================================
<S> <C> <C> <C>
$1,094,966 $1,257,362 $ 162,396
3,586,148 3,586,148 -
1,504,512 1,874,367 369,855
680,671 794,402 113,731
</TABLE>
- 13 -
<PAGE> 16
FOXMEYER EMPLOYEES' SAVINGS AND PROFIT-SHARING PROGRAM
ITEM 27E-SCHEDULE OF NONEXEMPT TRANSACTIONS
For the Year Ended December 31, 1995
<TABLE>
<CAPTION>
(c) Description of
(b) Relationship Transactions Including
to Plan, Employer, Maturity Date, Rate of
(a) Identity of or Other Party-in- Interest, Collateral, Par (d) Purchase (e) Selling (f) Lease
Party Involved Interest or Maturity Value Price Price Rental
- --------------- ------------------ ------------------------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
FoxMeyer Parent of
Corporation Plan Sponsor a. N/A N/A N/A
<CAPTION>
(g) Expenses (j) Net Gain
Incurred in or (Loss)
Connection With (h) Cost of (i) Current on Each
Transaction Asset Value of Asset Transaction
- --------------- ----------- ------------------ ---------------
<S> <C> <C> <C>
- 0 - 61,400 61,400 - 0 -
</TABLE>
a. The Harris Wholesale 401 (k) Savings and Retirement Profit
Sharing Plan (the "Harris Plan") was merged on March 15, 1994,
and most of the assets held in the trust associated with the
Harris Plan (the "Harris Trust") were transferred to the trust
associated with the FoxMeyer Employees' Savings and Profit
Sharing Program (the "Plan Trust") on March 17, 1994.
However, State of Israel bonds in the amount of $75,000 (three
bonds, each valued at $25,000) were not transferred to the
Plan Trust at that time. In August 1994, FoxMeyer was
informed by State of Israel Corporation/Chase Manhattan Bank
that redeeming the bonds would take several months. However,
since FoxMeyer desired to transfer the final Harris Trust
assets to the Plan Trust as soon as possible, on August 18,
1994, FoxMeyer loaned the Plan $61,400.09, representing a
partial payment attributable to the State of Israel bonds
redemption, which amount was subsequently deposited into the
Plan Trust. FoxMeyer would be repaid upon the redemption of
the bonds. To avoid any appearance of impropriety, FoxMeyer
did not charge the Harris Plan any interest with respect to
the money it loaned to the Harris Plan.
In September 1994, the bonds were sent to the State of Israel
Corporation/Chase Manhattan Bank for redemption. In December
1994, FoxMeyer received a check (payable to the Harris Plan)
for the redemption of the bonds in the amount of $76,567.71
(the face amount of the bonds plus interest of $1,567.71).
This amount was transferred to the Plan Trust on December 27,
1994. Again, to avoid any appearance of impropriety, the
interest on the bonds, $1,567.71, was left in the Plan Trust
as earnings - a windfall to the Harris Plan participants. On
January 13, 1995, the Plan Trust was adjusted by backing out
$61,400.09, which amount was returned to FoxMeyer in complete
satisfaction of the August 18, 1994 loan.
- 14 -
<PAGE> 17
EXHIBIT 24(i)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement No.
33-56097 of FoxMeyer Health Corporation on Form S-8 of our report dated April
25, 1996, appearing in this Annual Report on Form 11-K of the FoxMeyer
Employees' Savings and Profit-Sharing Program for the year ended December 31,
1995.
DELOITTE & TOUCHE LLP
Dallas, Texas
June 28, 1996
- 15 -
