<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K 405
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-19725
PERRIGO COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Michigan 38-2799573
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
<TABLE>
<S> <C>
117 Water Street 49010
Allegan, Michigan (Zip Code)
(Address of principal executive offices)
</TABLE>
Registrant's telephone number, including area code: (616) 673-8451
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<S> <C>
Title of each class Name of each exchange on which registered
None None
</TABLE>
Securities registered pursuant to Section 12(g) of the Act:
Common Stock (without par value)
(Title of Class)
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 (or for such shorter period that the
registrant was required to file such reports), 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 this Form 10-K. X
-
The aggregate market value of the voting stock held by non-affiliates of
the registrant, based upon the closing sale price of the common stock on
September 4, 1996 as reported on the NASDAQ National Market System, was
approximately $455,553,000. Shares of common stock held by each executive
officer and director and by each person who owns 5% of more of the outstanding
common stock have been excluded in that such persons may be deemed to be
affiliates. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
As of September 4, 1996 the registrant had outstanding 76,503,701 shares
of common stock.
Documents incorporated by reference: Registrant's Proxy Statement for
its Annual Meeting on October 30, 1996 is incorporated by reference into Part
III.
<PAGE> 2
PART I.
Item 1. Business of the Company.
- ------- ------------------------
GENERAL
The Company, established in 1887, is the nation's largest manufacturer
of over-the-counter (non-prescription) pharmaceuticals and personal care store
brand products. Store brand products are sold under a retailer's own label and
compete with nationally advertised brand name products. The Company's
customers are major national and regional retail drug, supermarket and mass
merchandise chains such as Wal*Mart, Kmart, Walgreens, Kroger, CVS, American
Stores, Target, Payless, Meijer, and Revco and major wholesalers such as Topco,
Super Valu and Fleming. The Company's marketing strategy has been to offer a
broad line of high quality store brand products which are comparable in quality
and efficacy to national brand products. The Company's products include
over-the-counter pharmaceuticals (such as analgesics, cough and cold remedies,
antacids, laxatives, feminine hygiene and suppositories), personal care
products (such as toothpaste, mouthwash, rubbing alcohol, hydrogen peroxide,
baby care, skin care, hair care and sun care) and nutritional products (such as
synthetic and natural vitamins, nutritional drinks and diet aids). The Company
attributes its leadership position in the store brand market to its commitment
to quality of products, customer service, marketing support and emphasis on low
cost production. To a lesser extent, the Company also manufactures and markets
its own brand name over-the-counter pharmaceuticals, personal care and
nutritional products under the names Swan(R), Good Sense(R), Daily Source(R)
and Nature's Glo(R), and a limited number of over-the-counter pharmaceuticals,
personal care and nutritional products under contract for marketers of national
brand products. See "Business of the Company--Products."
In recent years, there has been continued strong demand for store
brand products from both retailers and consumers. The cost to the retailer of
a store brand product is significantly lower than that of a nationally
advertised brand name product. The retailer therefore can price a store brand
product significantly below the competing national brand product while still
realizing a higher profit margin on its store brand product. Generally, the
retailers' dollar profit per unit of store brand product sold is higher than
the dollar profit per unit of the comparable national brand product.
Based upon information supplied to the Company by certain of its
customers, the Company believes that its products also are attractive to the
retailer because in many cases the rates of unit sales of its store brand
products are at least as rapid as the rates of unit sales of comparable
national brand products. From the consumers' standpoint, the Company's store
brand products offer a lower priced, comparable quality alternative to
nationally advertised brand name products. This comparable quality is possible
because the Company's products are manufactured using ingredients, formulas and
processes similar to those of national brand products, taking care to avoid any
legal infringement of proprietary rights.
The Company's principal executive offices are located at 117 Water
Street, Allegan, Michigan 49010 and its telephone number is (616) 673-8451.
The Company operates primarily through five wholly-owned domestic subsidiaries,
L. Perrigo Company, Perrigo Company of South Carolina, Inc., Perrigo Company of
Tennessee, Inc. (formally Cumberland-Swan, Inc.), Perrigo Company of Missouri,
Inc. and Perrigo International, Inc. and two wholly-owned foreign subsidiaries,
Perrigo de Mexico S.A. de C. V. and Nippon Perrigo, K.K. As used herein, the
"Company" means Perrigo Company, its subsidiaries and all predecessors of
Perrigo Company and its subsidiaries.
<PAGE> 3
SIGNIFICANT DEVELOPMENTS DURING FISCAL YEAR 1996
The Company effectively completed the process of restructuring its
sales, marketing and operational functions announced in June 1995. In
addition, a business process redesign effort to increase focus on delivering
greater value to customers while lowering costs was started in the latter half
of fiscal 1996 and is expected to continue for a period of approximately 2
years. During the fourth quarter the Company decided to discontinue the stick
deodorant product category and intensified its efforts to eliminate certain low
volume products.
Throughout the year, the Company recognized sales from new products.
The store brand equivalent of Ensure(R), a liquid nutritional supplement the
Company began to market in June 1995, proved to be a very successful addition
to the Company's existing product line. In June 1996 the Company began to
market the store brand equivalent of Rogaine(R), a hair growth stimulant which
is a new product category for the Company, through an agreement with a third
party manufacturer. This agreement demonstrated the success of the Company's
efforts to develop the store brand market by working to develop outside sources
for products which it does not currently have manufacturing capabilities or an
approved Abbreviated New Drug Application ("ANDA").
In November 1995 the Company received approval from the United States
Food and Drug Administration ("the FDA") to manufacture its own version of
Tavist-1(R), an antihistamine. Prior to receiving manufacturing approval, this
product was purchased from a generic pharmaceutical company.
In August 1995 the Company established Nippon Perrigo, K. K., a
Japanese corporation, and hired a Japanese national as country manager. The
Company was successful in increasing sales into the Japanese market as well as
markets in Russia, the Ukraine and Canada.
In April 1996 the Company's Board of Directors adopted a Preferred
Share Purchase Right Plan. The Rights contain provisions which are intended to
protect the Company's stockholders in the event of an unsolicited attempt to
acquire the Company. See Note G of Notes to Consolidated Financial Statements.
In June 1996 the Company entered into a credit agreement with a group
of banks which provides a $150 million credit facility. The new agreement has
terms and conditions which are similar to those in the previous agreement. The
new agreement is for four years and has added multi-currency features, an
additional pricing option and has a more favorable fee structure.
In December 1995 the Company entered into uncommitted credit
facilities with two financial institutions totalling $60 million. Both
facilities can be terminated by either party at any time.
During the year the Company reduced its borrowing on its lines of
credit from $97 million to $47 million.
BUSINESS STRATEGY
The Company attributes its sustained leadership position in its
categories to the implementation of several focused business strategies which
reflect the Company's commitment to its customers and employees. Set forth
below are the principal tenets of the Company's business strategy.
-2-
<PAGE> 4
# COMMITMENT TO THE CUSTOMER:
CUSTOMER SERVICE is a primary focus of the Company with an
emphasis on building and maintaining strong partnerships with its
customers. The Company seeks to establish customer loyalty by (1)
providing value priced products which are comparable in efficacy and
quality to the national brand's formulas in quality packaging and (2)
achieving superior reliability through the timely processing, shipment
and delivery of orders. The Company's customer service capabilities
are enhanced by an innovative electronic data interchange program
known as Minimum Inventory-Maximum Service (MIMS). The Company works
with its major customers to help them reduce their inventories while
maintaining optimal quantities of store brand product on their
shelves. The Company believes these cooperative programs are of
immediate benefit to its customers and to consumers and will result in
increased customer loyalty and higher sales for the Company. In
addition, in-house graphic arts and printing departments allow the
Company to respond promptly to changing trends in customer orders and
packaging preferences.
The Company has adopted the Efficient Consumer Response (ECR)
strategy whereby the Company works closely with its suppliers and
customers to bring better value to the consumer. Quick response to
consumer/retailer needs and continuous replenishment of inventory are
integral components of ECR. One of the initial processes relating to
ECR being addressed through business process redesign will be order
fulfillment. The Company's goal is to radically shorten the time that
it takes to execute customer requests for product deliveries. MIMS is
another example of how the Company is working with retailers in an ECR
strategy. The Company believes that the benefits of ECR will be a
focus on the total supply system, rather than on individual
components, which will reduce total system costs, inventories and
physical assets while improving the consumer's choice of high quality
products.
MARKETING SUPPORT provided by the Company is directed at
developing customized marketing programs for its store brand products.
The primary objective of this store brand management approach is to
enable retailers to increase sales of their own brand name products by
communicating store brand quality and value to the consumer. The
Company's marketing personnel assist in the development and promotion
of customers' store brand products by performing consumer research,
providing market information and establishing individualized marketing
programs. As part of the restructuring announced in June 1995, the
Company has increased its staff of field marketing personnel who work
closely with sales personnel to further develop customer store brand
marketing programs.
MANUFACTURING FLEXIBILITY allows the Company to respond
quickly to changes in customer needs. The Company continually strives
to improve its manufacturing capabilities and technology in order to
provide the manufacturing flexibility necessary to meet its customers'
changing needs and maintain a low cost production position.
Cross-functional teams are utilized to identify and eliminate root
causes which may negatively impact customer service and to identify
and manage cost reduction activities.
The Company's manufacturing operations focus on the unique
manufacturing characteristics of its three basic product categories.
While each manufacturing facility is not exclusive to specific
products, over-the-counter pharmaceuticals production is concentrated
in Michigan, personal care product production is concentrated in
Tennessee, Missouri and California and nutritional product production
is concentrated in South Carolina.
-3-
<PAGE> 5
# CREATING VALUE FOR CUSTOMERS AND CONSUMERS:
NEW PRODUCT DEVELOPMENT is emphasized by the Company in an
effort to be among the first companies to bring new products to the
store brand market. This effort is directed at new products in
over-the-counter pharmaceuticals, personal care and nutritional
products as well as products which are changing from "prescription
only" status to over-the-counter status. In the latter case, the
Company has combined both internal research and strategic product
development agreements with outside sources to accelerate product
approval through the United States Food and Drug Administration (the
"FDA") Abbreviated New Drug Application ("ANDA") process. As a result
of these efforts, the Company believes it is positioned to provide new
products to retailers and consumers on an accelerated basis. See page
10 "New Product Development".
BREADTH OF THE PRODUCT LINE offered by the Company for
over-the-counter pharmaceuticals, personal care and nutritional
products provides retailers with a primary supplier for such products,
thereby minimizing retailers' product sourcing costs. These savings
by retailers result in lower costs to consumers and added strategic
value to the Company.
DISTRIBUTION CHANNELS offering optimal product logistics and
maximizing service to the customer are an ongoing focus of the
Company. With regional warehouses located across the United States,
the Company is able to warehouse products near retailers, react to
retailers' needs on a timely basis and minimize freight costs,
resulting in greater value to retailers and lower costs to consumers.
In fiscal 1997 the Company has plans to complete a review of its
existing distribution system and implement a product delivery system
that reduces costs while optimizing customer service.
The Company believes it is well positioned to respond to
differing customer needs including international customers which are
expected to increase in importance to the Company.
# EMPHASIS ON EMPLOYEE PRODUCTIVITY:
PRODUCTIVITY AND EFFICIENCY IMPROVEMENTS are encouraged by
sharing related cost savings with employees through formalized
employee bonus programs which share productivity improvements with
employees on a 50/50 basis.
EDUCATION OF THE WORKFORCE AND A TEAM APPROACH provides
employees with the skills to generate and implement programs designed
to increase the Company's productivity and efficiency, to improve
quality and to better serve customers.
CONTINUOUS IMPROVEMENT PROGRAMS, including cross-functional
teams, reductions of manufacturing set-up times, internal and external
customer audits and on the job training programs are being utilized
extensively to improve efficiency by eliminating waste from all phases
of Company operations. All levels of management are involved in the
planning process in an effort to forecast future manufacturing needs
with sufficient lead time to reallocate production resources and to
implement capacity increases. During fiscal year 1996, in order to
better respond to changes in the marketplace, the Company initiated a
business process redesign effort which will focus initially on
managing orders, managing products, manufacturing planning, inventory
management and management information systems.
-4-
<PAGE> 6
PRODUCTS
The Company operates in one primary business segment, store brand
health and beauty care, and does not maintain operating profit or fixed asset
information by its three major product categories. Since this information is
not available, disclosure of operating segment information by these product
categories, utilizing arbitrary allocations, would not be material to
investors.
The Company currently markets approximately 950 store brand products
to approximately 1,150 customers. The Company includes as separate products
multiple sizes, flavors and product forms of certain products. The Company has
a leading market share in certain of its products in the store brand market.
The following table, which does not include certain miscellaneous net
sales (primarily bulk tablet sales), illustrates growth in net sales for the
Company's three product lines from fiscal year 1991 through fiscal year 1996.
<TABLE>
<CAPTION>
NET SALES BY PRODUCT LINE
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992 1991
------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
OTC Pharmaceuticals . . . . $474,551 $450,608 $433,624 $365,054 $259,414 $187,657
Personal Care . . . . . . . 212,234 197,784 175,822 159,280 114,316 65,240
Nutritional . . . . . . . . 89,808 66,701 57,024 45,155 35,224 27,882
------- ------- -------- -------- -------- --------
$776,593 $715,093 $666,470 $569,489 $408,954 $280,779
------- ------- -------- -------- -------- --------
</TABLE>
As part of the product development process, the Company reviews any
potential patent infringement and develops alternative formulations so as not
to infringe on any patent. The Company's in-house graphic arts and printing
departments and regulatory personnel work closely with the Company's customers
on packaging for their store brand products that invites comparison to the
national brands as quality value alternatives, while avoiding infringement on
any property right of the marketers of national brand products. The goal of
the Company and the retailers is to inform consumers that the store brand
product is comparable to the national brand product, not to confuse consumers
into thinking that they are buying the national brand product. The retailer,
which has control over packaging decisions, wants consumers to know they are
buying a lower cost, comparable quality alternative to a national brand
product.
The following table sets forth some of the products marketed by the
Company under store brand labels. Each retailer may have its own name for a
store brand product. Also set forth, where meaningful, are the names of
certain of the national brands with which these products compete.
-5-
<PAGE> 7
<TABLE>
<CAPTION>
Illustrative Competing
Company Products National Brands
- ---------------- ---------------
OVER-THE-COUNTER PHARMACEUTICALS
<S> <C>
Analgesics
- ----------
Ibuprofen Tablets & Caplets Advil(R) Tablets & Caplets
Pain Reliever Without Aspirin (Acetaminophen) Tylenol(R) Tablets, Caplets, Gelcaps & Gel Tabs
Children's Non-Aspirin Tablets Children's Tylenol(R)
Children's Non-Aspirin Elixirs & Suspensions Children's Tylenol(R) Elixirs & Suspensions
Non-Aspirin Infant Drops Tylenol(R) Infant Drops
Aspirin Bayer(R)
Added Strength Pain Reliever Excedrin(R)
Effervescent Pain Relief Alka-Seltzer(R)
Children's Chewable Aspirin Bayer(R) Children's Aspirin
Cough/Cold
- ----------
Nite Time Cough Syrup NyQuil(R)
Nite Time Liquid Caps NyQuil(R) Liqui-Caps
Day Time Liquid Caps DayQuil(R) Liqui-Caps
Aphedrid Tablets Actifed(R)
Cold Capsules Contac(R)
Tussin Cough Syrup Robitussin(R)
Children's Non-Aspirin Cold/Cough Tylenol(R) Cold Plus Cough
Di-Bromm Dimetapp(R)
Pseudoephedrine Sudafed(R)
Diphedryl(R) Benadryl(R)
Effervescent Cold Relief Alka-Seltzer(R) Plus
Triacting Syrup and Expectorant Triaminic(R)
Flu & Cold Medicine Thera-Flu(R)
Nasal Spray Afrin(R)
Dayhist - 1 Tavist - 1(R)
Dayhist - D Tavist - D(R)
Antacids
- --------
Stress Liquid Pepto-Bismol(R)
Maldroxal(R) Maalox(R)
Ma-santi(R) Mylanta(R)
Ma-santi(R) II Mylanta II(R)
Antacid Gelcaps Mylanta(R) Gel-Caps
Flavored Antacid Tablets Tums(R)
Laxatives
- ---------
Natural Fiber Laxative Metamucil(R)
Women's Laxative Tablets Correctol(R)
Laxative Plus Ex-Lax(R)
</TABLE>
-6-
<PAGE> 8
<TABLE>
<S> <C>
Anti-diarrheal
- --------------
Loperamide Hydrochloride Liquid Imodium A-D(R) Liquid
Loperamide Hydrochloride Caplets Imodium A-D(R) Caplets
Feminine Hygiene
- ----------------
Miconazole-7 Cream Monistat-7(R) Cream
Suppositories
- -------------
Hemorrhoidal Suppositories Preparation H(R)
Adult & Infant Glycerin Suppositories Squibb(R)
Creams and Ointments
- --------------------
Hemorrhoidal Ointment and Cream Preparation H(R)
Dermatologic
- ------------
Minoxidil Rogaine(R)
Diagnostic Test Kits
- --------------------
Pregnancy Test Kits e. p. t.(R)
Sleep Aids
- ----------
Sleep Aid Tablets
Sleep Aid PM
Sleep Aid Liquid Caps
PERSONAL CARE PRODUCTS
Oral Hygiene
- ------------
Peppermint Mouthwash Scope(R)
Green Mouthwash Scope(R)
Clear Baking Soda Mouthwash Scope(R)
Antiseptic Mouthwash Listerine(R)
Blue Mint Antiseptic Mouthwash Listerine(R)
Spring Mint Antiseptic Mouthwash Listerine(R)
Clear Alcohol Free Mouthwash Bausch & Lomb(R)
Anti-Plaque Dental Rinse Plax(R)
Effervescent Denture Tablets Efferdent(R)
Tartar Control Toothpaste Crest(R) Tartar
Tartar Gel Toothpaste Crest(R) Tartar Gel
Sodium Fluoride Toothpaste Crest(R)
Mint Sodium Fluoride Toothpaste Crest(R) Mint
Smoker's Toothpaste Topol(R)
Baking Soda Toothpaste Arm & Hammer(R)
Tartar Control Baking Soda Toothpaste Arm & Hammer(R)
Sensitive Teeth Toothpaste Sensodyne(R)
Whitening Toothpaste Rembrandt(R)
Coolfresh Toothpaste Colgate(R)
</TABLE>
- 7 -
<PAGE> 9
<TABLE>
<CAPTION>
<S> <C>
Skin Care
- ---------
Dry Skin Treatment Lotion/Cream Evlerin(R)
Beauty Lotion Oil of Olay(R)
Skin Care Lotion Vaseline(R) Intensive Care Lotion
Medicated Skin Cream Noxzema(R)
Therapeutic Dry Skin Lotion Lubriderm(R)
Skin Care Bath Oil Alpha-Keri(R) Bath Oil
Hydroxy Alpha-Hydrox(R)
Shower & Bath Powder Shower to Shower(R)
Body Wash Plus Moisturizer Oil of Olay(R)
Cold Cream Ponds(R)
Sun Care
- --------
Sunless Tanning Cream Bain de Soleil(R)
Sunless Tanning Lotion Coppertone(R)
Moisturizing Sunblock Coppertone(R)
Dark Tanning Lotion Coppertone(R)
Active Sunblock Coppertone(R) Sport
Children's Sunblock Waterbabies(R)
Tropic Tanning Oil Hawaiian Tropic(R)
Moisturizing Aloe Vera Banana Boat(R)
Hair Care
- ---------
Dandruff Shampoo Head & Shoulders(R)
Shampoo Plus Conditioner Pert(R) Plus
Vitamin Shampoo Plus Conditioner Pantene(R)
Deodorants
- ----------
Roll-On Deodorant Ban(R)
Baby Care
- ---------
Baby Bath Mennen(R), Johnson & Johnson(R)
Baby Shampoo Johnson & Johnson(R)
Baby Lotion Johnson & Johnson(R)
Baby Oil Johnson & Johnson(R)
Baby Powder Johnson & Johnson(R)
Diaper Ointment Desitin(R)
Wets & Drys
- -----------
Rubbing Alcohol
Hydrogen Peroxide
Magnesium Citrate
Epsom Salt
Mineral Oil Squibb(R)
Castor Oil
Witch Hazel
Ipecac Syrup
Calamine Lotion
Clear Anti-Itch Lotion Caladryl(R) Clear
Medicated Calamine Lotion Caladryl(R)
</TABLE>
- 8 -
<PAGE> 10
NUTRITIONAL PRODUCTS
Synthetic Vitamins
- ------------------
Multiple Vitamins One-A-Day(R)
Men's Multiple Vitamins One-A-Day(R)
Women's Multiple Vitamins One-A-Day(R)
Century IV Vitamins Centrum(R)
Century Senior Centrum Silver(R)
Century Kids
A-Shapes Chewables Flintstones(R)
Therapeutic M Theragran M(R)
Antioxidant with Zinc Ocuvite(R)
Prenatal Stuarts Prenatal(R)
Geratrex Geritol(R)
B Vitamins
Vitamin C
Vitamin E
Chromium Picolinate
Procea Protegra(R)
Natural Vitamins
- ----------------
Vitamin C
Vitamin E
Beta Carotene
Calcium
Cod Liver Oil Capsules
Herbals
- -------
Ginseng Ginsana(R)
Odorless Garlic Garlique(R)
Garlic Oil Capsules
Ginkgo Biloba
Valerian Root
Golden Seal Root
Echinacea Root
Cranberry Soft Gels
Saw Palmetto
Nutritional Drinks
- ------------------
Liquid Nutritional Supplement Ensure(R)
Liquid Nutritional Supplement Plus Ensure Plus(R)
Liquid Nutritional Supplement Light Ensure Light(R)
Diet Aids
- ---------
Diet Caplets Dexatrim(R)
Artificial Sweeteners
- ---------------------
Saccharin
Aspartane
-9-
<PAGE> 11
To a lesser extent, the Company manufactures and markets under its own
brand names the Daily Source(R) and Nature's Glo(R) lines of natural vitamins
and sun care products and the Good Sense(R) and Swan(R) brand lines of over-
the-counter pharmaceuticals and personal care products. The Good Sense(R) and
Swan(R) brands also market "wets" products such as rubbing alcohol and hydrogen
peroxide. Sales of the Company's own brand name products accounted for 6% to
8% of the Company's net sales in fiscal years 1996, 1995 and 1994. The Company
also manufactures over-the-counter pharmaceuticals, nutritional and personal
care products under contract for manufacturers of national brand products.
Contract sales accounted for 2% to 3% of the Company's net sales in fiscal
years 1996, 1995 and 1994.
RESEARCH AND DEVELOPMENT
Research and development is a key component of the Company's business
strategy. The Company does not attempt primary research to develop new
products which have not been previously sold to consumers. Instead, the
Company's research efforts are focused on developing store brand products
comparable in formulation, quality and efficacy to existing national brand
products. The Company's research and development staff also continually
reformulates existing Company products in response to changes in national brand
formulas in order to maintain product comparability.
The Company believes its research and development staff is among the
most experienced in the industry at developing national brand equivalent
products using state-of-the-art computerized equipment. The Company has 59
chemists, pharmacists and technicians devoted to research and development
activities and has spent approximately $10.4 million, $8.7 million, and $6.2
million for research and development during fiscal years 1996, 1995 and 1994,
respectively. The increase in expenditures reflects greater costs associated
with the approval for manufacturing and marketing of certain products that
require approval through the ANDA process. The Company anticipates that
research and development expenditures related to new product introductions will
continue to increase in the foreseeable future.
During fiscal year 1996 the Company made an investment in
Ireland-based Warner Chilcott plc, an affiliate of Elan Corporation, a leading
international drug technology development company. While this investment does
not directly involve Perrigo in the business of manufacturing generic
prescription products, it does allow the company to gain a better understanding
of the worldwide generic prescription industry, including its customers and
supply chain.
NEW PRODUCT DEVELOPMENT
The Company's new product development efforts, including products
which have been approved through the ANDA process, have contributed to its
growth and have enabled it to be among the first companies to manufacture and
market certain store brand products. New products, as defined by the Company,
include not only new store brand products which are comparable to newly
introduced national brand products, but also variations of existing products
such as new sizes, flavors and product forms. During fiscal year 1996
approximately $45 million of the Company's net sales were attributable to new
products added to the Company's product lines within the past two fiscal years.
Most new products introduced by the Company do not require prior
approval of the FDA for their manufacture or marketing. The introduction of
products for which patent protection is expiring or which are becoming
available over-the-counter ("switch products") is an important element of the
Company's strategic plan and requires prior approval of the FDA through its
ANDA process. In an effort to be among the first companies to offer comparable
store brand products, the Company focuses on internal development and also
negotiates exclusive arrangements with various pharmaceutical manufacturers to
market certain over-the-counter pharmaceuticals as soon as these manufacturers
receive
-10-
<PAGE> 12
FDA approval to manufacture such products. The Company has identified these
products as having a higher profit margin potential than certain of its present
products. Prior to the time when the Company receives approval to manufacture
these products, the profit potential may be less due to the costs associated
with sourcing the product from other pharmaceutical companies.
The Company has been granted FDA approval for the manufacture and
distribution of the following products: Ibuprofen tablets and caplets (a
non-aspirin analgesic which is the active ingredient in the competing branded
over-the-counter drugs Advil(R), Nuprin(R) and Motrin(R) IB); Loperamide
Hydrochloride caplets and liquids (an over-the-counter drug used for the
control and symptomatic relief of acute, non-specific diarrhea) which are
comparable to the nationally advertised brand Imodium AD(R); and Clemastine
Fumerate tablets (an antihistamine comparable to Tavist-1(R)).
The Company has obtained the rights for distribution of the following
products through the use of strategic agreements: Dayhist-D (an antihistamine
and nasal decongestant) which is comparable to Tavist-D(R), miconazole nitrate
vaginal cream (a vaginal yeast infection treatment) similar to Monistat-7(R)
cream, minoxidil (a hair growth stimulant) which contains the same active
ingredient as Rogaine(R), DiBromm tablets (a cough suppressant) which is
similar to Dimetapp-DM(R), dixaphedrine (an antihistamine and nasal
decongestant) which is the equivalent of Drixoral(R), cold capsules and sleep
aid tablets.
The Company estimates that products for which patent protection is
expiring through the year 2002, which include, among other products, Aleve(R),
Lotrimin AF(R), Tagamet(R), Zantac(R), Zovirax(R), Axid(R), Pepcid(R),
Claritin(R), Claritin-D(R), Orudis(R) and Femstat(R) represent a substantial
potential market. The Company is actively pursuing all avenues to offer store
brand equivalents for these and other switch products. However, there can be
no assurance that the Company will be successful in obtaining approval to
distribute additional products.
SALES AND MARKETING
In contrast to the national brand manufacturers, which incur
considerable advertising and marketing expenditures that are directly targeted
at the end consumer, the Company's marketing efforts channel through its
customers, the retailers and wholesalers, and reach the consumer through
in-store marketing programs. During the year ended June 30, 1996 the Company
restructured its sales and marketing functions to increase its focus on
delivering greater value to the customer while lowering costs. The Company's
marketing efforts are directed at developing customized marketing programs for
its customers' store brand products. The primary objective of this store brand
management approach is to enable retailers to increase the share of their own
brand name products by communicating the store brand quality value message to
the consumer. In addition, because the cost to the retailer of a store brand
product is generally significantly lower than that of a national brand product,
the retailer is able to commit funds to promote its store brand products
through coupons, rebates and other individualized promotions, while still
realizing a higher profit margin on its store brand products than on comparable
national brand products. In most cases, the retailer earns a greater dollar
profit per unit on store brand products.
The Company offers extensive marketing support programs for its
products. The marketing department works in tandem with the sales and field
marketing force to develop customized marketing programs for its customers.
The marketing department is responsible for managing product introductions and
conversions, promotional planning support and providing market research. The
Company utilizes both primary and secondary market research, monitoring data
and trends for products
-11-
<PAGE> 13
and categories, and provides market information and educational training aids
to its customers. In addition, merchandising vehicles such as trial size
programs, floor displays, "shelf-talkers" (point of purchase advertising),
bonus sizes, coupons, rebates, store signs and promotional packs are available
and incorporated into individual customers' programs. The graphic arts and
printing departments provide customer support by developing packaging displays
and point of purchase material.
The Company's products are sold by its own sales force, primarily to
major retail drug, supermarket and mass merchandise chains and major
wholesalers, and by industry brokers, primarily to smaller retailers. There
are no long-term contracts with customers that are considered material. Major
customers include Wal*Mart, Kmart, Walgreens, Kroger, Topco, CVS, American
Stores, Target, Payless, Super Valu, Meijer, Revco and Fleming. Wal*Mart
accounted for 19%, 18% and 15% of net sales for the years ended June 30, 1996,
1995 and 1994, respectively. None of the Company's other customers account for
more than 10% of its net sales. The Company's use of its own sales force
enables it to establish close relationships with major customers. Each sales
person is assigned to specific customers in order to assist them in the
development and promotion of their store brand sales programs and to optimize
communication of the customers' needs to the rest of the Company. Industry
brokers provide a distribution channel for some products, in particular, those
products marketed under the Swan(R) and Good Sense(R) brands.
MANUFACTURING AND DISTRIBUTION
The Company has ten manufacturing facilities which occupied
approximately 2,140,000 square feet as of June 30, 1996. During fiscal year
1996 the Company increased manufacturing and distribution capabilities through
a number of projects. Significant projects included investments in tablet
manufacturing and packaging equipment, warehousing systems and equipment that
supports process improvements. The Company has historically supplemented its
production capabilities with the purchase of product from outside sources and
will continue to do so in the future. The Company has not added additional
manufacturing capacity until needed and has been able to integrate new capacity
with minimal disruption to operations. With regard to packaging capacity, the
Company's over-the-counter pharmaceutical and nutritional production facilities
generally operated between 80% and 90% capacity during fiscal year 1996. The
personal care facilities currently are operating between 60% and 70% of
capacity. The Company is aggressively exploring opportunities to utilize
available capacities. The Company also utilized approximately 1,810,000 square
feet in its distribution operations as of June 30, 1996. The Company uses
third party warehousing operations in combination with long-term leases to
respond to seasonal fluctuations.
Total capital expenditures amounted to $17.6 million in fiscal year
1996 and are expected to be approximately $30 million in fiscal year 1997.
Planned fiscal year 1997 expenditures primarily include the addition of
manufacturing and packaging equipment to support growth in the over-the-counter
pharmaceuticals and nutritional product categories. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company has manufacturing capabilities which are designed to allow
low cost production of a wide variety of products of different quantities,
sizes and packaging while maintaining a high level of customer service and
quality. Flexible production line change-over capabilities and reduced cycle
times allow the Company to respond quickly to changes in manufacturing
schedules. The Company's manufacturing resource planning (MRP II) system
enables the Company to develop realistic and attainable production schedules
and related material and capacity requirements. The Company's customer service
capabilities are enhanced by an innovative electronic data interchange program
known as Minimum Inventory-Maximum Service (MIMS). The Company has, for the
last several years,
-12-
<PAGE> 14
worked with its major customers to help them reduce their inventories while
maintaining optimal quantities of store brand product on their shelves. The
Company believes these cooperative programs are of immediate benefit to its
customers and consumers and will result in increased customer loyalty and
higher sales.
Another of the Company's competitive advantages is that it produces
customized labels and cartons for its products. The Company's printing
capabilities allow it to work closely with customers ensuring accuracy and
reliability of product labeling and packaging and permitting faster new product
introductions. The graphic arts and printing departments printed approximately
61% of the Company's labels and 48% of the Company's cartons in its own
facilities during fiscal year 1996.
The Company currently ships its products from six geographically
dispersed distribution facilities. During fiscal year 1997 the Company will be
reassessing its warehousing configuration for potential consolidations that
will reduce costs while optimizing customer service. See "Item 2. Properties."
In most cases the Company uses either contract freight carriers or common
carriers to deliver its products. The Company has a fleet of trucks which are
integrated into its distribution network. Several of the Company's major
customers pick up their products at the Company's distribution facilities.
The Company manufactures approximately 85% of the bottles that are
utilized for personal care products. By blow molding its own bottles, the
Company is able to achieve a cost advantage in products for which the bottle is
a significant portion of the total product cost. Internal production also
enhances the Company's packaging knowledge as it works with external suppliers.
COMPETITION
The market for store brand over-the-counter pharmaceuticals, personal
care and nutritional products is highly competitive. Competition is based
primarily on quality of products, customer service, marketing support, price
and availability of new products. The Company believes it competes favorably
on all of these factors.
The Company's direct competition consists primarily of independent,
privately owned companies and is highly fragmented both in terms of
geographical market coverage and product categories. The Company is the
nation's largest manufacturer of store brand over-the-counter pharmaceuticals
and personal care products, however, the Company competes in the nutritional
area with a number of companies with broader product lines and larger sales
volumes.
The Company's products also compete with nationally advertised brand
name products. Most of the national brand companies have resources
substantially greater than those of the Company. The Company does establish
partnerships with national brand companies to further develop the store brand
market. National brand companies could in the future seek to compete more
directly with the Company by manufacturing store brand products or by lowering
prices of national brand products. The Company believes that it is not likely
that national brand manufacturers will enter the store brand market on a
widespread basis in the foreseeable future. The Company has the following
bases for this belief: certain national brand manufacturers have previously
entered the store brand market and subsequently withdrawn; the methods of
manufacturing used by national brand manufacturers are not easily adapted to
the requirements of the store brand market, such as the ability to produce many
different packagings and product sizes and colors; and the primary marketing
efforts of national brand manufacturers are directed toward the consumer rather
than toward the retailer.
-13-
<PAGE> 15
MATERIALS SOURCING
Raw materials and packaging supplies are generally available from
multiple suppliers. Certain work-in-process and finished goods are purchased
because they are either not feasible to be produced internally or when the
Company is experiencing unusual seasonal demand. The Company is normally able
to rapidly react to situations which require alternate sourcing. The Company
has good, cooperative working relationships with its suppliers. Sales volume
has allowed the Company to capitalize on economies of scale in the purchase of
materials and supplies. As a major producer of various pharmaceutical,
personal care and nutritional products, the Company has developed supply
agreements which enables it generally to purchase materials on highly
cost-effective terms.
TRADEMARKS AND PATENTS
The Company owns certain trademarks and patents, however, its business
as a whole is not materially dependent upon its ownership of any one trademark
or patent, or group of trademarks or patents.
PRODUCT LIABILITY
The sale of any product can expose the seller to product liability
claims. Over the last ten years the aggregate amount paid in settlement of
liability claims has not been material and the Company is unaware of any suits
which would impair its insurance limits. The Company believes that its product
liability insurance coverage is adequate to cover anticipated lawsuits.
ENVIRONMENTAL
The Company is subject to various Federal, state and local
environmental laws and regulations. The Company believes that the costs for
complying with such laws and regulations will not be material to the business
of the Company. The Company does not have any material remediation liabilities
outstanding.
REGULATORY
The Company's products are subject to regulation by a number of
Federal and state governmental agencies. The FDA, in particular, regulates the
formulation, manufacture, packaging and labeling of all of the Company's
products. The Company believes that its products comply in all material
respects with existing regulations.
The majority of the Company's pharmaceutical products are regulated as
"old drugs" subject to the requirements of the Over-the-Counter Drug Review
regulations promulgated by the FDA. This class of drugs requires no prior
approval from the FDA before marketing, but such products must comply with
applicable FDA Monographs which specify, among other things, required
ingredients, dosage levels, label contents and permitted uses. These
Monographs may be changed from time to time, in which case the Company may be
required to change the formulation, packaging or labeling of any affected
product. Changes to Monographs normally have a delayed effective date, so
while the Company may have to incur costs to comply with any such changes,
disruption of distribution is not likely.
Several products introduced by the Company as part of its
over-the-counter new product offering development program required prior
approval by the FDA before they could be manufactured or marketed. These drugs
were approved by the FDA through the ANDA process. See "Business of the
Company--New Product Development."
-14-
<PAGE> 16
In general, an ANDA can be filed for a drug which is the equivalent of
a product previously approved by the FDA. Under the ANDA process applicants
are required to demonstrate through studies that the bioavailability of its
product (the rate and extent of absorption of a drug's active ingredient and/or
its availability at the site of drug action) is equivalent to an approved form,
that its facilities and personnel meet FDA standards for the manufacture of
such product and that its production procedures will consistently adhere to
quality standards. If the FDA determines that the ANDA process is suitable for
the given drug and if the applicant demonstrates the required equivalency and
meets the other requirements, the FDA will normally approve the product without
requiring the applicant to conduct the clinical studies to prove safety and
efficacy required by a New Drug Application ("NDA"). Use of the ANDA process
substantially reduces the expense of securing FDA approval and may cut the time
for approval from five years or more for an NDA to approximately one to three
years from the time of submission of the application.
The FDA has promulgated regulations known as "Current Good
Manufacturing Practices for Finished Pharmaceuticals" which govern the drug
manufacturing operations of the Company's plants. These practices, to which
the Company voluntarily adheres for substantially all of its non-drug products,
include strict quality control standards at all stages of production, including
the receipt of raw materials, storage, manufacturing and labeling. Pursuant to
these practices, raw materials are sampled and tested in the Company's
laboratory facilities, products are sampled and tested during production, and
quality levels are monitored. In addition, sanitation standards applicable to
the Company's non-drug products (including vitamins) are regulated pursuant to
the Federal Food, Drug and Cosmetic Act of 1938, as amended. The FDA's most
recent inspection of the Company's manufacturing facilities found the Company
in compliance in all material respects with these sanitation standards as well
as the Current Good Manufacturing Practices.
The FDA has extensive enforcement powers, including the power to
seize, force a recall and prohibit the sale of non-complying products and to
halt the operations of non-complying manufacturers. Although certain of the
Company's products have been subject to recalls in the past, none of these
recalls have involved a product which was likely to cause serious adverse
health consequences and none were material to the Company's operations. There
can be no assurance, however, that any future recall or other FDA action would
not be material to the operations of the Company.
EMPLOYEES
As of June 30, 1996, the Company employed permanent and temporary
employees totalling 4,036 persons, of whom 423 were engaged in executive,
financial and administrative capacities; 235 in marketing, sales and service;
3,111 in production, warehousing and distribution; and 267 in research and
development and quality control functions. At June 30, 1996 approximately 300
persons were employed on a temporary or seasonal basis. The management of the
Company considers its relations with all its employees to be good.
The Company is not a party to a collective bargaining agreement.
Item 2. Properties. See page 12 "Manufacturing and Distribution".
- ------- -----------
As of June 30, 1996, the Company owned or leased the following primary
facilities:
-15-
<PAGE> 17
<TABLE>
<CAPTION>
Approximate
Location Type of Facility Square Feet Leased or Owned
-------- ---------------- ----------- ---------------
<S> <C> <C> <C>
Allegan, Michigan . . . . . . Corporate Offices and Manufacturing 1,232,000 Owned
Smyrna, Tennessee . . . . . . Manufacturing 820,000 Owned
Holland, Michigan . . . . . . Manufacturing 120,000 Owned
Greenville, South Carolina . Manufacturing 109,000 Owned
Montague, Michigan . . . . . Manufacturing 42,000 Owned
St. Louis, Missouri . . . . . Manufacturing and Distribution 196,000 Owned(1)
San Bernardino, California . Manufacturing 69,000 Owned
Holland, Michigan . . . . . . Distribution 614,000 Leased(1)
LaVergne, Tennessee . . . . . Distribution 599,000 Leased(1)
Cranbury, New Jersey . . . . Distribution 222,000 Leased
Fontana, California . . . . . Distribution 200,000 Leased
Greenville, South Carolina . Distribution 115,000 Leased(1)
Smyrna, Tennessee . . . . . . Offices 40,000 Leased
Allegan, Michigan . . . . . . Offices and Company Store 19,000 Leased
- ----------------
</TABLE>
(1) Facilities that may be affected by potential consolidations during fiscal
year 1997.
Item 3. Legal Proceedings.
- ------- ------------------
The Company, like other companies in the store brand industry, has
from time to time been the subject of claims and lawsuits brought by national
brand name companies based on the marketing of store brand products in
allegedly similar sizes, shapes, colors, labelings or packagings to their
competing brand name products. On occasion the Company has changed the
physical features of its products to settle claims.
The Company is not a party to any litigation, other than routine
litigation incidental to the business of the Company, except for the litigation
described below. The Company believes that none of the routine litigation,
individually or in the aggregate, will be material to the business of the
Company.
The Company, certain officers and directors and two commercial bank
lenders to the Company were named in a "summons with notice" filed on April 13,
1994 by Grow Group, Inc. ("Grow"), the former owner of the Company. Service
was not made on the defendants until late July 1994. On February 28, 1995 a
complaint was filed seeking unspecified damages and asserting various claims of
breech of fiduciary duty, usurpation of corporate opportunity, fraud,
conspiracy, aiding and abetting and breach of a joint venture agreement. This
lawsuit is currently pending in the U.S. District Court for the Western
District of Michigan. The relief sought against the defendants, jointly and
severally, includes rescission of the management led purchase of the Company
from Grow, an accounting by the defendants (excluding the Company) of their
stock and ownership interest in the Company and all income, profits and returns
received thereon, money damages, punitive damages, interest, costs,
disbursements and attorney's fees. While the dollar amount of actual and
punitive damages sought is material, based upon the internal investigation
that has been conducted by the Company's defendant officers, external legal
counsel and directors, and their understanding of the complaint, the Company
believes the allegations are without merit and are defensible and will take
whatever action necessary to aggressively defend the case.
On March 10, 1995 the Company was served with a complaint as a
defendant in a purported class action lawsuit brought on behalf of shareholders
who purchased Perrigo common stock between May 11, 1993 and May 10, 1994. The
complaint alleges various violations of federal securities laws by
-16-
<PAGE> 18
the Company, certain officers and directors, the lead underwriters in the
Company's October 1993 secondary offering and other related parties and seeks
unspecified damages. A second purported class action lawsuit against the
defendants named in the first lawsuit and additional related parties was filed
in May 1995. The two lawsuits were consolidated on June 9, 1995 and are
pending in the U.S. District Court for the Western District of Michigan. On
September 22, 1995 the First Amendment to the Consolidated Class Action
Complaint was filed. Based upon the information set forth in the complaint the
outcome of this matter is not currently determinable. The Company believes the
allegations are totally without merit and intends to oppose the action
vigorously. In a related matter, in June 1995 the Company received a letter
from a shareholder, and in November 1995 the complaint was filed, demanding
that the Company (a) bring suit against the other defendants in the purported
class action previously filed to protect the Company against any expense or
liability arising out of that suit; (b) invalidate the indemnification
agreement between the Company and the other defendants; and (c) bring suit
against each officer and director, and their trusts, who sold stock in the
October 1993 public offering to recover any proceeds unlawfully received by
them as a result of any alleged breach of fiduciary duties owed to the Company.
In response to the demand and complaint, the Company appointed a member of the
Perrigo Board of Directors, as an independent director under Michigan law, to
investigate these shareholder demands and make a determination whether
maintenance of the derivative action would be in the best interests of the
Company. The independent director has completed his investigation and
determined it would not be in the best interest of the Company to take any of
the action stipulated in the demand letter or the derivative action.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------- ----------------------------------------------------
No matter was submitted to the vote of security holders during the
fourth quarter of fiscal year 1996.
Additional Item. Executive Officers of the Registrant.
- ---------------- -------------------------------------
The executive officers of the Company and their ages and positions as
of September 1, 1996 were:
<TABLE>
<CAPTION>
NAME AGE POSITION
----- --- --------
<S> <C> <C>
Michael J. Jandernoa . . . . 46 Chairman of the Board of Directors, President and Chief Executive Officer
Steven M. Neil . . . . . . . 44 Vice President-Finance, Treasurer and Chief Financial Officer
Mark P. Olesnavage . . . . . 43 President, Customer Business Development
James H. Bloem . . . . . . . 46 Executive Vice President
Craig G. Hammond . . . . . . 52 Executive Vice President and Chief Operations Officer
</TABLE>
Mr. Jandernoa was elected a director in January 1981, Chief Executive
Officer in February 1986 and Chairman of the Board of Directors in October
1991. From January 1983 to October 1991, Mr. Jandernoa served as President of
the Company and was reelected President of the Company in September 1995.
Prior to January 1983, Mr. Jandernoa served in various executive capacities
with the Company since 1979. Mr. Jandernoa is a director of Old Kent Financial
Corporation and also serves on the Board of Advisors of the National
Association of Chain Drug Stores.
Mr. Neil has served as Vice President-Finance, Treasurer and Chief
Financial Officer since May 1995. He has also served as President of Perrigo
International, Inc. since July 1996. Mr. Neil also served as Vice President-
Controller of the Company from January 1993 to May 1995. Prior to that time he
served as Controller and Chief Accounting Officer with Applied Magnetics
Corporation, where he also served in other positions of increasing
responsibility since 1983. He is a member of the Advisory
-17-
<PAGE> 19
Board of the East Central Region of Allendale Insurance and also is a member of
the Board of Directors of Intelligent Solutions, Inc.
Mr. Olesnavage was appointed Executive Vice President in January 1993
and in June 1995 was also appointed President of Customer Business Development.
He served as President of the over-the-counter pharmaceutical operations from
February 1994 to June 1995. He served as Vice President of Pharmaceutical
Business Development from July 1992 to January 1993 and as Vice
President-Marketing from June 1987 to July 1992. Previously he had been
Director of Marketing of the Company since 1981. He is a member of the Board
of Directors of the Generic Pharmaceutical Industry Association and also is a
member of the Board of Directors of the National Drug Store Manufacturers
Association.
Mr. Bloem was appointed Executive Vice President in August 1995.
Prior to that time he served as Vice President, Chief Financial Officer and
Treasurer of Herman Miller, Inc. a leading office furniture manufacturer, where
he also served in other positions of increasing responsibility since 1986. He
is a member of the Board of Directors of First Michigan Bank Corporation.
Mr. Hammond was appointed Executive Vice President and Chief
Operations Officer in October 1995. Prior to that time he served as a Senior
Vice President with Borden, a consumer dairy products company, where he also
held other positions of increasing responsibilities since January of 1994.
Previously Mr. Hammond was with Kraft General Foods from 1990 to 1994 where he
held various executive positions in Operations Management. When he left Kraft,
Mr. Hammond held the position of Vice President.
PART II.
Item 5. Market for Registrant's Common Equity and Related Stockholder
- ------- --------------------------------------------------------------
Matters.
-------
The Company's common stock was first quoted and began trading on the
NASDAQ National Market System on December 17, 1991 under the symbol "PRGO."
Set forth below are the high and low closing sales price for the
Company's common stock as reported on the NASDAQ National Market System for the
last eight quarters:
<TABLE>
<CAPTION>
Fiscal Year
Ended June 30, 1996: High Low
- ------------------- ---- ---
<S> <C> <C>
First Quarter $13-7/8 $10-5/8
Second Quarter $13-5/8 $11-1/2
Third Quarter $14-1/2 $11-1/8
Fourth Quarter $13-5/8 $10-3/4
Fiscal Year
Ended June 30, 1995: High Low
- ------------------- ---- ---
First Quarter $15-1/4 $12-1/4
Second Quarter $16 $11
Third Quarter $13-7/8 $11-9/16
Fourth Quarter $12-1/2 $10-5/8
</TABLE>
The number of record holders of the Company's common stock as of June
30, 1996 was 2,745.
-18-
<PAGE> 20
Historically, the Company has not paid dividends on its common stock
and has no present intention of paying dividends. The declaration and payment
of dividends and the amount paid, if any, is subject to the discretion of the
Company's Board of Directors and will necessarily be dependent on the earnings,
financial condition and capital and surplus requirements of the Company and any
other factors the Board of Directors may consider relevant. While the
Company's credit agreement does not prohibit the Company from paying dividends,
the future payment of dividends could be restricted by financial maintenance
covenants contained in the credit agreements.
Item 6. Selected Financial Data
- ------- -----------------------
The following selected consolidated financial data should be read in
conjunction with the consolidated financial statements and the notes thereto
included herein in Item 8. The consolidated statement of income data set forth
below with respect to the fiscal years ended June 30, 1996, 1995 and 1994 and
the consolidated balance sheet data at June 30, 1996 and 1995 are derived from,
and are qualified by reference to, the audited consolidated financial
statements included in Item 8 of this report and should be read in conjunction
with those financial statements and notes thereto. The consolidated statement
of income data for the Company set forth below with respect to the fiscal years
ended June 30, 1993, 1992 and 1991, and the consolidated balance sheet data for
the Company at June 30, 1994, 1993, 1992 and 1991, are derived from audited
consolidated financial statements of the Company, not included herein.
YEAR ENDED JUNE 30,
<TABLE>
<CAPTION>
1996 1995(1) 1994 1993 1992(1) 1991
-------- --------- -------- ------- --------- --------
(In thousands except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
Statement of Income Data:
Net sales $778,121 $717,077 $669,332 $570,768 $409,785 $281,265
Cost of sales 574,806 520,265 474,958 405,469 290,626 204,614
------- ------- -------- -------- -------- --------
Gross profit 203,315 196,812 194,374 165,299 119,159 76,651
Operating expenses:
Distribution 24,929 20,037 17,742 18,718 11,369 5,305
Research and development 10,445 8,679 6,233 5,034 3,373 1,565
Selling and administrative 88,629 86,602 80,150 68,094 50,585 38,057
Restructuring costs 4,491 4,904 -- -- -- --
Unusual litigation costs 6,600 1,043 -- -- -- --
-------- -------- -------- -------- -------- --------
135,094 121,265 104,125 91,846 65,327 44,927
-------- -------- -------- -------- -------- --------
Operating income 68,221 75,547 90,249 73,453 53,832 31,724
Interest expense 5,679 5,413 3,390 3,337 8,781 12,420
-------- -------- -------- -------- -------- --------
Income before income taxes 62,542 70,134 86,859 70,116 45,051 19,304
Income taxes 22,700 25,700 32,100 25,500 16,500 7,100
-------- -------- -------- -------- -------- --------
Net income $ 39,842 $ 44,434 $ 54,759 $ 44,616 $ 28,551 $ 12,204
======== ======== ======== ======== ======== ========
Earnings per common share(2) $ .52 $ .58 $ .71 $ .58 $ .41 $ .20
Weighted average number of
common shares outstanding(2) 77,200 77,189 77,585 77,378 69,508 60,478
- ----------------
</TABLE>
-19-
<PAGE> 21
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
1996 1995 1994 1993 1992 1991
------ -------- -------- -------- -------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Working capital $166,929 $170,131 $139,834 $121,915 $ 91,129 $ 38,758
Goodwill 42,961 45,088 30,235 31,705 33,177 16,412
Total assets 549,395 555,733 474,989 413,716 316,946 182,723
Long-term debt(3) 49,140 99,440 73,230 76,003 46,870 93,657
Shareholders' equity 381,160 340,617 295,508 234,991 183,738 32,902
</TABLE>
(1) The Company's net sales and results of operations were impacted by the
acquisition of Cumberland-Swan, nc. in January 1992 and certain assets of
Vi-Jon Laboratories, Inc. in January 1995.
(2) Reflects 2-for-1 stock split effective August 1993.
(3) Includes current installments.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Dollar amounts in thousands
GENERAL
The Company's strategy to remain the leading manufacturer and marketer
of store brand over-the-counter (non-prescription) pharmaceuticals, personal
care and nutritional products is to continue to offer a broad line of high
quality store brand products which are comparable in quality and efficacy to
national brand products. The Company continues to develop programs designed to
deliver greater value to its customers while lowering its costs and focusing on
quality improvements and product innovation.
The market for store brand over-the-counter pharmaceuticals, personal
care and nutritional products is highly competitive. Competition is based
primarily on the quality of products, customer service, marketing support,
price and the availability of new products.
Growth opportunities in the Company's markets historically have been
driven by volume increases rather than net price increases. The Company
concentrates on increasing profits by expanding unit sales volume while
containing or reducing unit costs. The Company's cost reduction efforts
concentrate on economies of scale, investment in the education of its workforce
and technological advancements in manufacturing store brand products. In June
1995, the Company commenced the process of restructuring its sales, marketing
and operational functions to increase its focus on delivering greater value to
its customers while lowering costs. Additionally, the Company began an
intensive project to redesign its business processes during the latter half of
fiscal year 1996. Key processes that will be redesigned will focus initially
on managing orders and managing products.
The Company feels this process will enhance its competitive advantage
and enable it to better respond to customer needs and changes in the
marketplace.
The Company's sales are subject to seasonality, especially with regard
to the strength and timing of the cough/cold/flu season. For example, during
fiscal year 1995 the cough/cold/flu season began mildly and peaked late, while
in fiscal year 1994 it began strongly and ended quickly. Fiscal year 1996 was
considered to be a normal season.
The Company anticipates that future growth will come from additional
sales of existing products, the introduction of new products, including
prescription drugs switching to over-the-counter status,
-20-
<PAGE> 22
expansion into international markets and acquisitions. The Company has
historically evaluated acquisition opportunities and anticipates that
acquisition opportunities will continue to be identified and evaluated in the
future. No agreements with respect to any acquisition currently under review
have been reached and there can be no assurance that the Company will, or will
not, consummate acquisitions in the future.
The Company's products are subject to regulation by a number of
federal and state governmental agencies. Certain of the Company's products
require approval by the United States Food and Drug Administration (FDA) prior
to the marketing of such products. Thus, the Company's ability to market such
products is dependent upon the receipt of such approval and the Company, like
all manufacturers of such regulated products, incurs certain costs associated
with obtaining such approval.
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth, for fiscal years 1996, 1995 and 1994,
certain items from the Company's Consolidated Statements of Income expressed as
a percentage of net sales:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Year Ended June 30,
------------------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales 100.0% 100.0% 100.0%
Cost of sales 73.9 72.6 71.0
---- ---- ----
Gross profit 26.1 27.4 29.0
---- ---- ----
Operating expenses:
Distribution 3.2 2.8 2.7
Research and development 1.3 1.2 0.9
Selling and administrative 11.4 12.1 11.9
Restructuring costs 0.6 0.7 -
Unusual litigation costs 0.8 0.1 -
--- ---- -----
17.3 16.9 15.5
---- ---- ----
Operating income 8.8 10.5 13.5
Interest expense 0.8 0.7 0.5
--- --- ---
Income before income taxes 8.0 9.8 13.0
Income taxes 2.9 3.6 4.8
--- --- ---
Net income 5.1% 6.2% 8.2%
=== === ===
-----------------------------------------------------------------------------------------------------
</TABLE>
COMPARISONS OF FISCAL YEAR 1996 TO FISCAL YEAR 1995
The Company's net sales increased by 9% to $778,121 during fiscal year
1996 from $717,077 in fiscal year 1995. This increase was primarily
attributable to increased unit sales of cough and cold remedies, oral hygiene
and liquid nutritional supplement products. The sales increases were primarily
to existing customers and were the result of continuing emphasis on store brand
products by the Company's customers. Increases in sales of cough and cold
product were also the result of a more severe cough and cold season experienced
in fiscal year 1996 than in fiscal year 1995. The increase in oral hygiene
product sales reflected a full year of sales from the acquisition of certain
assets of Vi-Jon Laboratories, Inc. ("Vi-Jon") in January 1995. The liquid
nutritional supplement product category was introduced in June 1995. Sales of
analgesics, a significant product category, were comparable between fiscal
years 1996 and 1995, reflecting the softness of the total analgesic market and
continued competition from new national brand products. Analgesic sales in
fiscal year 1995 were also affected by significant promotional activity that
was not repeated in fiscal year 1996. As anticipated, antacid sales were
comparable between periods but were negatively affected by the competitive
launch of Pepcid(R), Tagamet(R) and Zantac(R), new "H2 blocker" antacid
products that switched to over-the-counter status late
-21-
<PAGE> 23
in fiscal year 1995. No store brand equivalents for these products can be
approved for sale prior to June 1998 due to exclusivity granted by the FDA.
Gross profit increased by 3% or $6,503 for fiscal year 1996 as
compared to fiscal year 1995. The gross profit percentage for fiscal year 1996
was 26.1% compared to 27.4% for fiscal year 1995. Increased sales of lower
margin nutritional and personal care products, cost increases in certain
material components that could not be passed on entirely to its customers and
excess personal care production capacities resulted in the decline in gross
profit percentage between years.
Operating expenses increased by 11% or $13,829 for fiscal year 1996 as
compared to fiscal year 1995. Included in operating expenses were $4,491 of
restructuring costs and $6,600 of unusual litigation costs compared to $4,904
of restructuring costs and $1,043 of unusual litigation costs in fiscal year
1995. Operating expenses as a percentage of net sales were 17.3% for fiscal
year 1996 as compared to 16.9% for fiscal year 1995. Excluding the
restructuring and unusual litigation costs, operating expenses as a percent of
net sales were 15.9% for fiscal year 1996 compared to 16.1% for fiscal year
1995.
The components of operating expenses are distribution, research and
development, selling and administration, restructuring costs and unusual
litigation costs. Distribution expenses increased by $4,892 to 3.2% of net
sales for fiscal year 1996 compared to 2.8% for fiscal year 1995 due to smaller
and more frequent shipments to customers, higher average inventory levels and
increased sales volumes. Research and development expenses as a percentage of
net sales were 1.3% for fiscal year 1996, compared to 1.2% for fiscal year
1995. The $1,766 increase in research and development expenses was primarily
attributable to expenses related to the development of new products for which
an approval from the FDA, through its Abbreviated New Drug Application ("ANDA")
process, is required. The Company anticipates that research and development
expenses related to new product introductions will continue to increase as many
prescription products are switching to over-the-counter status. Selling and
administrative expenses increased by $2,027 for fiscal year 1996, and as a
percentage of net sales were 11.4% compared to 12.1% for fiscal year 1995. The
decrease as a percent of net sales was due primarily to certain sales
promotions in fiscal year 1995 that were not repeated in fiscal year 1996 and
to benefits realized from the restructuring process which the Company began in
June 1995. Restructuring costs of $4,491 recorded in fiscal year 1996 related
primarily to the consolidation of sales and marketing, graphic arts, purchasing
and accounting functions, business process redesign, the discontinuance of the
stick deodorant product category and additional charges for the elimination of
certain low volume products. (See Note J.)
Unusual litigation costs of $6,600 and $1,043 during fiscal years 1996
and 1995, respectively, were associated with certain lawsuits pertaining to a
purported shareholders' class action, a related demand for a derivative action
and a suit by the former owners of the Company filed against the Company,
certain officers and directors and other defendants. The legal expenses
recorded do not include estimates of possible reimbursement from insurance
coverage. The Company and its counsel believe the allegations made in these
lawsuits are totally without merit and intend to oppose the actions vigorously.
(See Note F.)
Interest expense increased by 5% or $266 during fiscal year 1996 as
compared to fiscal year 1995. The increase reflects slightly higher effective
interest rates during fiscal year 1996 and comparable average borrowing levels.
The effective income tax rates of 36.3% and 36.6% for fiscal years
1996 and 1995, respectively, were comparable.
-22-
<PAGE> 24
COMPARISONS OF FISCAL YEAR 1995 TO FISCAL YEAR 1994
- ---------------------------------------------------
The Company's net sales increased by 7% to $717,077 during fiscal year
1995 from $669,332 during fiscal year 1994. This increase was primarily
attributable to increased unit sales of cough and cold remedies, oral hygiene,
vitamin, baby and antacid products. The sales increases were primarily to
existing customers and were the result of continuing emphasis on store brand
products by those customers. Increases in sales of oral hygiene and baby
product sales also reflect the impact of the Vi-Jon asset acquisition in
January 1995. The growth in vitamin sales was also impacted by the addition of
new vitamin customers.
Gross profit increased by 1% or $2,438 for fiscal year 1995 as
compared to fiscal year 1994. The gross profit margin for fiscal year 1995 was
27.4% compared to 29.0% for fiscal year 1994. Increased sales of lower margin
vitamin and personal care products and cost increases in certain material
components caused the decrease in gross profit margin.
Operating expenses increased by 16% or $17,140 for fiscal year 1995 as
compared to fiscal year 1994. Operating expenses as a percentage of net sales
were 16.9% for fiscal year 1995 as compared to 15.5% for fiscal year 1994.
Excluding restructuring and unusual litigation costs, operating expenses as a
percentage of net sales were 16.1% for fiscal year 1995 compared to 15.5% for
fiscal year 1994. Distribution expenses increased by $2,295 to 2.8% of net
sales for fiscal year 1995 compared to 2.7% for fiscal year 1994, due primarily
to increased shipment volumes and higher freight costs. Research and
development expenses as a percentage of net sales were 1.2% for fiscal year
1995, compared to .9% for fiscal year 1994. The $2,446 increase in research
and development expenses was primarily attributable to expenses related to the
development of new products for which approval from the FDA, through its ANDA
process, is required. Selling and administrative expenses increased by $6,452
for fiscal year 1995 compared to fiscal year 1994 due primarily to sales
promotional expenses. Selling and administration expenses as a percentage of
net sales for fiscal year 1995 were 12.1% compared to 11.9% for fiscal year
1994.
Restructuring costs of $4,904 recorded in fiscal year 1995 related
primarily to severance and employee benefit costs, consolidation of the two
California distribution centers and costs associated with the elimination of
certain low volume products. The Company incurred legal expenses of $1,043
associated with certain lawsuits in fiscal year 1995. (See Note F.)
Interest expense increased by 60% or $2,023 during fiscal year 1995 as
compared to fiscal year 1994. The increase reflects higher effective interest
rates during fiscal year 1995 and higher average borrowing levels during the
second half of fiscal year 1995, due primarily to the acquisition of certain
assets from Vi-Jon.
The effective income tax rate decreased to 36.6% for fiscal year 1995
from 37.0% during fiscal year 1994. This decrease was primarily due to the
adjustment required on deferred taxes as a result of the higher federal tax
rate enacted in fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
During fiscal year 1996, working capital decreased by $3,202 and cash
flow generated from operations was $72,915. Accounts receivable increased by
$6,378 as a result of increased sales and inventories decreased by $6,573 due
to improvements in inventory management.
The Company's capital expenditures for facilities and equipment were
$17,603 in fiscal year 1996 and were funded by cash flow from operations. In
order to support ongoing growth in sales, the Company invested in a number of
projects to increase its manufacturing and distribution capabilities.
-23-
<PAGE> 25
Significant projects included investments in tablet manufacturing and packaging
equipment, warehousing systems and equipment supporting process improvements.
During fiscal year 1996, capital expenditures were approximately $30,000 less
than originally planned, primarily due to lower than expected sales growth and
improved operating efficiencies.
At June 30, 1996, the Company had $47,000 outstanding under its lines
of credit. The $150,000 unsecured revolving credit facility, which expires
June 30, 2000, contains an annual renewal provision, allows the Company to
borrow at interest rates at or below the prime rate and contains certain
restrictive covenants related to, among other things, interest coverage, funded
debt ratios and minimum levels of tangible net worth. The Company was in
compliance with respect to all covenants as of June 30, 1996.
OUTLOOK - FISCAL YEAR 1997
- --------------------------
During the year, the Company expects to achieve sales growth in
over-the-counter pharmaceuticals and nutritional products, but not from
personal care products. In total, this growth is expected to result from the
sale of new and additional products to existing customers and be approximately
at the same rate as experienced in fiscal year 1996. The components of growth
could vary significantly for the three major product categories of over-the-
counter, personal care and nutritional products. As noted previously, the
Company's sales are subject to seasonality, especially with regard to the
strength and timing of the cough/cold/flu season. The Company anticipates that
the analgesic market will remain relatively soft and that the "H2 blocker"
products that have recently switched to over-the-counter status will continue
to have a negative impact on its antacid sales in the short-term. In January
1997 the Company expects to begin shipments of the store brand equivalent of
Aleve(R), an analgesic product that first became available over-the-counter in
June 1994. This product is not expected to materially impact sales or profits
in fiscal 1997. Sales of personal care products are likely to be negatively
impacted by increased competition in the key categories of oral hygiene, wets
and baby products. Nutritional product sales are expected to exceed a growth
rate of ten percent.
Gross profit margins in fiscal 1997 are expected to improve slightly
from those experienced in fiscal year 1996 due to favorable changes in product
mix and the impact of employee involved material cost reductions. With respect
to operating expenses: research and development expenses related to new
product introductions should continue to increase; distribution expenses are
expected to decrease slightly as a percentage of net sales due to improved
operational efficiencies; and selling and administration expenses are expected
to increase as a percentage of net sales due to renewed promotional focus and
expenditures related to process improvements.
The Company anticipates incurring additional restructuring charges of
approximately $6,000 and $2,000 in fiscal years 1997 and 1998, respectively,
related to the business redesign effort and additional distribution center
consolidation. The Company estimates that the net benefits from the business
process redesign effort will be approximately $5,000 in fiscal year 1998 and in
excess of $10,000 in fiscal year 1999. Additionally, unusual litigation costs
related to existing lawsuits are expected to be approximately $6,000 and $4,000
during fiscal years 1997 and 1998, respectively, before consideration of
possible insurance reimbursement.
In fiscal year 1997, the Company plans to spend approximately $30,000
for capital expenditures, principally for additional manufacturing and
packaging equipment including an expansion of its facility in Montague,
Michigan required to support growth in the over-the-counter pharmaceutical and
nutritional product categories. The Company anticipates capital expenditures
in fiscal years 1998 and 1999 will be at similar levels.
Cash flow from operations is expected to substantially fund working
capital, restructuring and other non-recurring charges and capital
expenditures. Additionally, borrowings from the Company's lines of credit are
available, as required.
-24-
<PAGE> 26
Additional Item. Safe Harbor For Forward-Looking Statements.
- ---------------- -------------------------------------------
The Company or its representatives from time to time may make or may
have made certain forward-looking statements, orally or in writing, including
without limitation any such statements made or to be made in the Management's
Discussion and Analysis contained in its various SEC filings. The Company
wishes to ensure that such statements are accompanied by meaningful cautionary
statements, so as to ensure to the fullest extent possible the protections of
the safe harbor established in the Private Securities Litigation Reform Act of
1995. Accordingly, such statements are qualified in their entirety by
reference to and are accompanied by the following discussion of certain
important factors that could cause actual results to differ materially from
those projected in such forward-looking statements.
The Company cautions the reader that this list of factors may not be
exhaustive. The Company operates in a continually changing business
environment, and new risk factors emerge from time to time. Management cannot
predict such risk factors, nor can it assess the impact, if any, of such risk
factors on the Company's business or the extent to which any factors, or
combination of factors, may cause actual results to differ materially from
those projected in any forward-looking statements. Accordingly,
forward-looking statements should not be relied upon as a prediction of actual
results.
Store Brand Product Growth
- --------------------------
The future growth of domestic store brand products will be influenced
by general economic conditions, which can influence consumers to switch to
store brand products, consumer perception and acceptance of the quality of the
products available, the development of new products, the market exclusivity
periods awarded on prescription to over-the-counter switch products and the
Company's ability to grow the store brand market share. The Company does not
advertise like the national brand companies and thus is dependent on retailer
promotional spending to drive sales volume and increase market share.
Promotional spending is a significant element of selling and administrative
expenses and is directly influenced by retailer promotional decisions and is
thus very difficult to estimate in future periods. Growth opportunities for
the products in which the Company currently has a significant store brand
market share (mouthwash, cough and cold remedies and analgesics) will be driven
by the ability to offer new products to existing domestic customers and the
Company's ability to service new customers internationally. Should store brand
growth be limited by any of these factors, there could be a significant impact
on the operating results of the Company.
Fluctuation in Quarterly Results
- --------------------------------
The Company's quarterly operating results depend on a variety of
factors including the severity and timing of the cough, cold and flu season,
the timing of new product introductions by the Company and its competitors,
changes in the levels of inventories maintained by the Company's customers and
the timing of retailer promotional programs. Accordingly, the Company may be
subject to significant and unanticipated quarter-to-quarter fluctuations.
Regulatory Environment
- ----------------------
The Company's products are subject to regulation by a number of
federal and state governmental agencies. The cost of maintaining product
quality through Good Manufacturing Practices ("GMP") is increasing. Should the
Company fail to adequately conform to governmental regulations, there may be a
significant impact in the operating results of the Company.
The Company's ability to bring new products to market is limited by
certain patent and tradedress factors including, but not limited to, the
exclusivity periods awarded on products that have
-25-
<PAGE> 27
switched from prescription to over-the-counter status. The cost and time to
develop these switch products is significantly greater than the rest of the new
products that the Company seeks to introduce.
The Federal Drug Administration ("FDA") will from time to time mandate
packaging or labeling changes. Such changes could be related to safety or
efficacy issues. With specific regard to safety, there have been instances
within the Company's product categories in which evidence of product tampering
has occurred resulting in a costly product recall. Significant costs could
also be incurred in complying with the required packaging and labeling changes.
Should the Company be involved in such an event, the associated costs could
have a material impact on the results of operations.
The Company believes that it has excellent relationships with these
agencies, which it intends to maintain. If these relationships should
deteriorate, however, the Company's ability to bring new and current products
to market could be impeded.
Research and Development
- ------------------------
The Company's investment in research and development will continue to
exceed historical levels due to the high cost of developing and becoming a
qualified manufacturer of new products that are switching from prescription to
over-the-counter status. The ability to attract chemists proficient in
emerging delivery forms and/or contracting with a third party innovator in
order to generate new products of this type is a critical element of the
Company's long term plans. Should the Company fail to attract qualified
employees or enter into reasonable agreements with third party innovators, long
term sales growth and profit would be adversely impacted.
Dependence on Personnel
- -----------------------
The Company's future success will depend in large part upon its
ability to attract and retain highly skilled research and development chemists
(as noted above), management information specialists, operations, sales,
marketing and managerial personnel. The Company does not have employment
contracts with any key personnel. Should the Company not be able to attract or
retain key qualified employees, future operating results may be adversely
impacted.
International Operations
- ------------------------
The Company sources certain key raw materials from foreign suppliers
and is increasing its sales outside the United States. Additionally, the
Company is investing significant amounts in the development of its
international business. Sales to customers outside the United States and
foreign raw material purchases expose the Company to a number of risks
including unexpected changes in regulatory requirements and tariffs, possible
difficulties in enforcing agreements, longer payment cycles, exchange rate
fluctuations, difficulties obtaining export or import licenses, and the
imposition of withholding or other taxes, embargoes, exchange controls or the
adoption of other restrictions on foreign trade. Should any of these risks
occur, they may have a material adverse impact on the operating results of the
Company.
Raw Material Availability
- -------------------------
In the past, supplies of certain raw materials used by the Company
have become limited, or are available from one or only a few suppliers, and it
is possible that this will occur in the future. Should this situation occur,
it can result in increased prices, rationing and shortages. In response to
these problems the Company tries to identify alternative materials or suppliers
for such raw materials. Certain shortages could adversely affect financial
results.
Legal Exposure
- --------------
From time to time the Company and/or its subsidiaries become involved
in lawsuits arising from
-26-
<PAGE> 28
various commercial matters, including, but not limited to competitive issues,
contract issues, intellectual property matters, workers' compensation and
product liability. Currently, the most significant pending litigation relates
to a purported class action, a derivative action and a complaint related to the
purchase of the Company from its former owners (see page 16 - Item 3 Legal
Proceedings). Litigation tends to be unpredictable and costly. There is no
assurance that litigation will not have an adverse effect on the Company's
financial position or results of operations in the future.
The Company maintains property, cargo, auto, product, general
liability, and directors and officers liability insurance to protect itself
against potential loss exposures. To the extent that losses occur, there could
be an adverse effect on the Company's financial results depending on the nature
of the loss, and the level of insurance coverage maintained by the Company.
From time to time, the Company may reevaluate and change the types and levels
of insurance coverage that it purchases.
Competitive Issues
- ------------------
The market for store brand over-the-counter pharmaceutical, personal
care and nutritional products is highly competitive. Store brand competition
is based principally on price, quality of products, customer service and
marketing support. National brand companies could choose to compete more
directly by manufacturing store brand products or by lowering the prices of
national brand products. Due to the high degree of price competition, the
Company has not always been able to fully pass on cost increases to its
customers. The inability to pass on future cost increases, the impact of
direct store brand competitors, and the impact of national brand companies
lowering prices of their products or directly operating in the store brand
market could have a material adverse impact on financial results.
Customer Issues
- ---------------
The impact of retailer consolidation is unknown but could have an
adverse impact on future sales growth. Should a large customer encounter
financial difficulties, the exposure on uncollectible receivables and unusable
inventory could have a material adverse impact on the Company's financial
position or results of operation.
The Company's largest customer, Wal*Mart, currently comprises
approximately 19% of total revenues. Should Wal*Mart's current relationship
with the Company change adversely, the resulting loss of business could have a
material unfavorable impact on the Company's operating results and financial
position.
Capital Requirements
- --------------------
The Company maintains a broad product line to function as a primary
supplier for its customers. Capital investments are driven by growth,
technological advancements and the need for manufacturing flexibility.
Estimation of future capital expenditures could vary materially due to the
uncertainty of these factors. If the Company fails to stay current with the
latest manufacturing and packaging technology it may be unable to competitively
support the launch of new product introductions. The Company also is
vertically integrated in the areas of preprinted componentry (labels and
cartons) and plastics (bottle blow molding). Should the Company fail to keep
up with current technology it could lose its cost competitive advantage in
these areas.
Interest Rate Implication
- -------------------------
The Company's line of credit facilities are based on a variable
interest rate factor. The interest rates are established at the time of
borrowing based upon the prime rate, the LIBOR rate, plus a factor, or at a
rate based on interest rate bids. Accordingly, interest expense is subject to
variation due to the variability of these rates.
-27-
<PAGE> 29
Tax Rate Implication
- --------------------
Income tax rate changes by governments and changes in the tax
jurisdictions in which the Company operates could influence the effective tax
rates that have been projected for future years. The anticipated growth of the
Company's international business increases the likelihood of fluctuation
occurring.
Liquidity and Capital Resources
- -------------------------------
The Company anticipates that cash flow from operations will
substantially fund working capital, restructuring and other unusual charges and
capital expenditures. Additionally, borrowing from the Company's line of
credit are available, if required. The Company has historically evaluated
acquisition opportunities and anticipates that acquisition opportunities will
continue to be identified and evaluated in the future. The historical growth
of sales and profits have been significantly influenced by acquisitions. There
is no assurance that future sales and profits will, or will not, be impacted by
acquisition activities. The Company's current capital structure, results of
operations and cash flow needs could be materially changed by acquisitions.
The Company has, and will continue to, evaluate the products and
product categories in which it does business. Future product line extensions,
or deletions, could have a material impact on the Company's financial position
or results of operations.
Potential Volatility of Stock Price
- -----------------------------------
The market price of the Company's Common Stock has been, and could be
subject to wide fluctuations in response to, among other things, quarterly
fluctuations in operating results, adverse circumstances affecting the
introduction or market acceptance of new products, failure to meet published
estimates of, or changes in earnings estimates by securities analysts,
announcements of new products or enhancements by competitors, sales of Common
Stock by existing holders, loss of key personnel, market conditions in the
industry, shortages of key components and general economic conditions.
Item 8. Financial Statements and Supplementary Data.
- ------- --------------------------------------------
Financial statements and supplementary data for the Company are on the
following pages 29 through 42.
-28-
<PAGE> 30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Certified Public Accountants . . . . . . . . . . . . . . . . . . . . . . 30
Consolidated Balance Sheets as of June 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . 31
Consolidated Statements of Income for the years ended June 30, 1996,
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Consolidated Statements of Shareholders' Equity for the years ended
June 30, 1996, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Consolidated Statements of Cash Flows for the years ended June 30, 1996
1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . 35
</TABLE>
-29-
<PAGE> 31
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Perrigo Company
Allegan, Michigan
We have audited the accompanying consolidated balance sheets of
Perrigo Company and subsidiaries as of June 30, 1996, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended June 30, 1996. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express and opinion on the consolidated financial
statements based on our audits.
We conducted 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 consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Perrigo Company and subsidiaries as of June 30, 1996 and 1995, and the results
of their operations and their cash flows for each of the three years in the
period ended June 30, 1996 in conformity with generally accepted accounting
principles.
By: /s/BDO Seidman, LLP
- -----------------------
BDO Seidman, LLP
Grand Rapids, Michigan
August 2, 1996
-30-
<PAGE> 32
<TABLE>
<CAPTION>
PERRIGO COMPANY
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
JUNE 30,
ASSETS 1996 1995
<S> <C> <C>
Current assets
Cash $ 176 $ 259
Accounts receivable, net of allowances of $2,975 and $3,040, respectively 91,396 85,018
Inventories 156,976 163,549
Prepaid expenses and other current assets 11,025 12,866
---------- ----------
Total current assets 259,573 261,692
Property and equipment
Land 12,220 12,092
Buildings 156,044 150,892
Machinery and equipment 171,444 162,116
---------- ----------
339,708 325,100
Less accumulated depreciation 100,716 78,853
---------- ----------
238,992 246,247
Cost in excess of net assets of acquired businesses, net 42,961 45,088
Other 7,869 2,706
---------- ----------
$ 549,395 $ 555,733
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable $ 56,700 $ 57,034
Payrolls and related taxes 13,002 12,813
Accrued expenses 21,417 20,661
Income taxes 1,225 753
Current installments on long-term debt 300 300
---------- ----------
Total current liabilities 92,644 91,561
Deferred income taxes 26,751 24,415
Long-term debt, less current installments 48,840 99,140
Shareholders' equity
Preferred stock, without par value,
10,000 shares authorized, none issued - -
Common stock, without par value, 200,000 shares authorized,
76,327 and 76,019 issued, respectively 146,056 145,355
Retained earnings 235,104 195,262
---------- ----------
Total shareholders' equity 381,160 340,617
---------- ----------
$ 549,395 $ 555,733
========== ==========
See accompanying notes to consolidated financial statements.
-31-
</TABLE>
<PAGE> 33
PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------------------------------------------------
1996 1995 1994
-------------- ------------- ---------------
<S> <C> <C> <C>
Net Sales $ 778,121 $ 717,077 $ 669,332
Cost of sales 574,806 520,265 474,958
-------------- ------------- ---------------
Gross profit 203,315 196,812 194,374
-------------- ------------- ---------------
Operating expenses
Distribution 24,929 20,037 17,742
Research and development 10,445 8,679 6,233
Selling and administrative 88,629 86,602 80,150
Restructuring costs 4,491 4,904 --
Unusual litigation costs 6,600 1,043 --
-------------- ------------- ---------------
135,094 121,265 104,125
-------------- ------------- ---------------
Operating income 68,221 75,547 90,249
Interest expense 5,679 5,413 3,390
-------------- ------------- ---------------
Income before income taxes 62,542 70,134 86,859
Income taxes 22,700 25,700 32,100
-------------- ------------- ---------------
Net income $ 39,842 $ 44,434 $ 54,759
============== ============ ================
Earnings per common share $ 0.52 $ 0.58 $ 0.71
============== ============ ================
Weighted average number of common
shares outstanding 77,200 77,189 77,585
============== ============ ================
</TABLE>
See accompanying notes to consolidated financial statements
-32-
<PAGE> 34
PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Common Stock Retained
Shares Amount Earnings
------ ------------ ----------
<S> <C> <C> <C>
Balance June 30, 1993 74,812 $ 138,922 $ 96,069
Issuance of common stock under stock options 1,014 1,684 -
Tax benefit of stock transactions - 4,074 -
Net income - - 54,759
------ --------- --------
Balance June 30, 1994 75,826 144,680 150,828
Issuance of common stock under stock options 193 75 -
Tax benefit of stock transactions - 600 -
Net income - - 44,434
------ --------- --------
Balance June 30, 1995 76,019 145,355 195,262
Issuance of common stock under stock options 308 241 -
Tax benefit of stock transactions - 460 -
Net income - - 39,842
------ --------- --------
Balance June 30, 1996 76,327 $ 146,056 $235,104
====== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
-33-
<PAGE> 35
PERRIGO COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------------
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Cash Flows From (For) Operating Activities
Net income $ 39,842 $ 44,434 $ 54,759
Adjustments to derive cash flows
Depreciation 24,858 21,549 17,245
Amortization of intangibles 2,362 2,233 1,696
Deferred income taxes 3,635 2,288 2,998
Provision for losses on accounts receivable 361 608 316
Changes in operating assets and liabilities, net
of amounts acquired from business acquisition
Accounts receivable (6,739) (9,228) (6,254)
Inventories 6,573 (24,622) (7,406)
Prepaid expenses and other current assets 203 (806) (1,822)
Accounts payable (334) 4,135 (3,437)
Payrolls and related taxes 189 (1,790) 3,378
Accrued expenses 1,754 4,079 (254)
Income taxes 211 (495) (488)
-------- --------- --------
Net cash from operating activities 72,915 42,385 60,731
-------- --------- --------
Cash Flows From (For) Investing Activities
Additions to property and equipment (17,603) (38,597) (62,251)
Business acquisition - (32,579) -
Other (5,796) 8 484
-------- --------- --------
Net cash for investing activities (23,399) (71,168) (61,767)
-------- --------- --------
Cash Flows From (For) Financing Activities
Borrowings of long-term debt - 39,000 -
Repayments of long-term debt (50,300) (12,790) (2,773)
Tax benefit of stock transactions 460 600 4,074
Issuance of common stock 241 75 1,684
-------- --------- --------
Net cash from financing activities (49,599) 26,885 2,985
-------- --------- --------
Net increase (decrease) in cash (83) (1,898) 1,949
Cash, at beginning of period 259 2,157 208
-------- --------- --------
Cash, at end of period $ 176 $ 259 $ 2,157
======== ========= ========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for:
Interest $ 5,556 $ 5,706 $ 3,823
Income taxes $ 17,078 $ 23,877 $ 26,228
</TABLE>
See accompanying notes to consolidated financial statements.
-34-
<PAGE> 36
PERRIGO COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company:
- ------------
The Company is the nation's largest manufacturer of over-the-counter
(non-prescription) pharmaceuticals and personal care store brand products. The
Company's principal customers are major national and regional retail drug,
supermarket and mass merchandise chains and major wholesalers located within
the United States. All of the Company's manufacturing facilities are located
in the United States.
During the years ended June 30, 1996, 1995 and 1994, one customer
accounted for 19%, 18%, and 15% of revenues, respectively. None of the
Company's other customers account for more than 10% of its sales.
Principles of Consolidation:
- ----------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries, all of which are wholly-owned. Significant
intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates:
- -----------------
The preparation of 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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition:
- --------------------
Revenue is recognized when products are shipped. Provision for
estimated losses due to adjustments is provided when revenue is recognized.
Property, Equipment, Depreciation and Amortization:
- ---------------------------------------------------
Buildings and machinery and equipment are depreciated primarily using
the straight-line method over the estimated useful lives of the assets.
Estimated useful lives are as follows:
<TABLE>
<S> <C>
Buildings . . . . . . . . . . . . . 10 - 40 years
Machinery and equipment . . . . . . 5 - 10 years
</TABLE>
For income tax purposes, assets are depreciated primarily using
accelerated methods.
-35-
<PAGE> 37
The Company capitalizes expenditures that increase asset lives.
Maintenance and minor replacements are charged to operations when incurred.
Goodwill and Amortization:
- --------------------------
The cost in excess of net assets acquired resulting from business
acquisitions accounted for using the purchase method of accounting is being
amortized on a straight-line basis over 25 years. Management periodically
reviews goodwill for impairment based upon the projected undiscounted cash
flows from operations of the subsidiaries to which the goodwill relates.
Amortization of $2,127, $1,799 and $1,470 has been recorded during the years
ended June 30, 1996, 1995 and 1994, respectively. Accumulated amortization was
$10,340 and $8,213 as of June 30, 1996 and 1995, respectively.
Income Taxes:
- -------------
Deferred income tax assets and liabilities are recorded based upon the
difference between the financial statement and income tax basis of assets and
liabilities using enacted tax rates.
Earnings Per Share:
- -------------------
Earnings per share is based on the weighted average number of shares
of common stock and dilutive common stock equivalents outstanding during each
period. Earnings per share is computed using the treasury stock method, under
which the number of shares outstanding reflects the assumed repurchase of
shares of the Company's common stock with the proceeds from the assumed
exercise of dilutive outstanding stock options.
New Accounting Standards:
- ------------------------
In 1996, Statement of Financial Accounting Standards (SFAS) No. 107,
"Disclosures About Fair Value of Financial Instruments," which requires
disclosure of fair value information about certain financial instruments,
became effective. The carrying amount of the Company's financial instruments,
consisting of cash, accounts receivable, accounts payable and long-term debt,
approximates their fair value.
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of." The Company is required to adopt SFAS No. 121 by
its fiscal year ending June 30, 1997. The new statement requires the Company
to review long-lived assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. If it is determined that an impairment loss has occurred based on
expected future cash flows, then the loss should be recognized in the income
statement and certain disclosures regarding the impairment should be made in
the financial statements. The Company does not expect the adoption of SFAS No.
121 to have a material impact on the Company's financial position or results of
operations.
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, "Accounting for Stock-Based Compensation." SFAS No. 123 allows
companies to continue to account for their stock option plans in accordance
with APB Opinion 25 but encourages the adoption of a new accounting method to
record compensation expense based on the estimated fair value of employee stock
options. Companies electing not to follow the new fair value based method are
required to provide expanded footnote disclosures, including pro forma net
income and earnings per share, determined as if the company had applied the new
method. SFAS No. 123 is required to be adopted prospectively beginning
-36-
<PAGE> 38
July 1, 1996. Management intends to continue to account for its stock option
plans in accordance with APB Opinion 25 and provide supplemental disclosures as
required by SFAS No. 123, beginning in 1997.
NOTE B - INVENTORIES
Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out (FIFO) method.
Inventories are summarized as follows:
<TABLE>
<CAPTION>
At June 30,
------------------------
1996 1995
------------------------
<S> <C> <C>
Finished goods . . . . . . . . . . $ 74,657 $ 79,312
Work in process . . . . . . . . . 57,529 55,958
Raw materials . . . . . . . . . . 24,790 28,279
--------- ---------
$ 156,976 $ 163,549
========= =========
</TABLE>
NOTE C - LONG-TERM BORROWINGS AND CREDIT ARRANGEMENTS
Long-term debt consists of the following:
<TABLE>
<CAPTION>
At June 30,
--------------------------
1996 1995
--------------------------
<S> <C> <C>
Revolving line of credit . . . . . . $ 25,000 $ 97,000
Uncommitted lines of credit . . . . 22,000 -
Note payable, Industrial Development
Board of Rutherford County, TN . 2,140 2,440
-------- --------
Total . . . . . . . . . . . . . 49,140 99,440
Less current installments . . . . . 300 300
-------- --------
Long-term debt . . . . . . . . . . . $ 48,840 $ 99,140
======== ========
</TABLE>
Long-term debt matures as follows: 1997--$300; 1998--$300;
1999--$400; 2000--$47,400; 2001--$400; and thereafter--$340.
In June 1996, the Company entered into a credit agreement with a group
of banks which provides a $150,000 unsecured revolving credit facility. The
agreement expires June 30, 2000, but contains an option whereby the agreement
may be extended for one-year periods each June 30. Repayment has been
guaranteed by the Company's subsidiaries. Restrictive loan covenants apply to,
among other things, minimum levels of tangible net worth, interest coverage and
funded debt ratio.
In December 1995, the Company entered into uncommitted credit
facilities with two financial institutions totaling $60,000. Both facilities
can be terminated by either party at any time. The Company's restrictive
covenants under these facilities is substantially the same as those under the
$150,000 credit facility.
Interest rates on the revolving credit facility are established at the
time of borrowing through four different pricing options: the prime rate (8.25%
at June 30, 1996), a LIBOR rate plus a factor (.20%
-37-
<PAGE> 39
at June 30, 1996) established quarterly based on the interest coverage ratio, a
CD rate plus a factor (.325% at June 30, 1996) established quarterly based on
the interest coverage ratio, or at a rate based on interest rate bids submitted
by banks within the bank group, for periods of 1 to 29 days. Interest rates
associated with the uncommitted credit facility loans are based on bids
submitted by the financial institutions for periods of 1 to 100 days. At June
30, 1996, $25,000 of revolving credit facility (LIBOR rate option) and $22,000
of uncommitted credit facility loans were outstanding. The weighted average
interest rates at June 30, 1996 for the revolving credit facility and
uncommitted credit facility loans were 5.85% and 5.69%, respectively.
The Company is obligated to the Industrial Development Board of
Rutherford County, Tennessee, under an agreement entered into to finance the
acquisition of certain machinery and equipment installed at the Smyrna,
Tennessee plant. The debt is subject to mandatory sinking fund redemption
through final maturity on October 1, 2001, bears interest at a variable rate
(3.35% at June 30, 1996), is secured by a letter of credit and a security
interest in the assets financed, and requires certain financial balances and
ratios to be maintained.
As of June 30, 1996, the Company was in compliance with respect to all
covenants under existing credit facilities.
NOTE D - INCOME TAXES
A summary of income taxes is as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . . . $17,545 $22,257 $27,522
State . . . . . . . . . . . . . . . . 1,520 1,155 1,580
------- ------- -------
19,065 23,412 29,102
Deferred 3,635 2,288 2,998
------- ------- -------
Total . . . . . . . . . . . . . . . $22,700 $25,700 $32,100
======= ======= =======
</TABLE>
The tax effects of temporary differences between the financial
statement carrying amounts and tax bases of assets and liabilities that give
rise to the net deferred income tax liability are as follows:
<TABLE>
<CAPTION>
At June 30,
-----------------------------------
1996 1995
------- --------
<S> <C> <C>
Accumulated depreciation . . . . . . . . . . . $26,856 $24,388
Inventory costs . . . . . . . . . . . . . . . (1,133) (1,837)
Allowance for doubtful accounts . . . . . . . (1,046) (1,064)
Accrued expenses not yet deductible . . . . . (3,073) (3,450)
Other, net . . . . . . . . . . . . . . . . . . (583) (651)
------- -------
Net deferred income tax liability . . . . . . $21,021 $17,386
======= =======
</TABLE>
The net deferred income tax liability is presented in the balance
sheets as follows:
<TABLE>
<CAPTION>
At June 30,
-------------------------------------
1996 1995
-------- --------
<S> <C> <C>
Current asset . . . . . . . . . . . . . . . . $ 5,730 $ 7,029
Long-term liability . . . . . . . . . . . . . 26,751 24,415
</TABLE>
-38-
<PAGE> 40
The effective income tax rate varied from the statutory Federal tax
rate as follows:
<TABLE>
<CAPTION>
Year Ended June 30,
----------------------------------------------
1996 1995 1994
------ -------- --------
<S> <C> <C> <C>
Federal statutory rate . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Expenses not deductible for tax purposes . . . . 0.7 1.1 0.7
Other. . . . . . . . . . . . . . . . . . . . . . 0.6 0.5 1.3
----- ---- ----
Effective income tax rate . . . . . . . . . . 36.3 % 36.6% 37.0%
----- ---- ----
</TABLE>
NOTE E - RETIREMENT PLANS
The Company has a qualified profit-sharing plan and three investment
plans under section 401(k) of the Internal Revenue Code, which cover
substantially all employees. Contributions to the qualified profit-sharing
plan are at the discretion of the Board of Directors. Under the investment
plans, the Company matches a percentage of employees' contributions. Under
one of the plans, the Company makes a contribution of 2% of base compensation
paid to eligible employees. The Company's contributions to the plans were
$5,322, $5,157, and $4,547 for the years ended June 30, 1996, 1995 and 1994,
respectively.
NOTE F - COMMITMENTS AND CONTINGENCIES
The Company leases certain assets, principally warehouse facilities
and data processing equipment, under agreements which expire at various dates
through August 2001. Certain leases contain provisions for renewal and
purchase options and require the Company to pay various related expenses.
Future non-cancelable minimum operating lease commitments are as follows:
1997--$9,081; 1998--$5,748; 1999--$3,403; 2000--$1,936; 2001--$231; and
thereafter--$1. Rent expense under all leases was $12,904, $10,809 and $8,936
for the years ended June 30, 1996, 1995, and 1994, respectively.
In July 1994 the Company was served a "summons with notice" alleging
breach of fiduciary duties by its officers in connection with their purchase of
the Company from the former owner in April 1988. In February 1995 a complaint
was filed seeking unspecified damages.
In March 1995 the Company was served with a complaint purporting to be
a class action lawsuit on behalf of shareholders who purchased Perrigo common
stock between May 11, 1993 and May 10, 1994. The complaint alleges various
violations of federal securities laws and seeks unspecified damages.
In June 1995 the Company received notice of a possible derivative
class action against the Company, as a nominal defendant, and certain of its
officers and directors, and their trusts. In November 1995 the related
complaint was filed. The complaint alleges possible violation of Michigan law,
seeks to protect the Company against any expense or liability arising out of
the aforementioned and purported class action lawsuit, and seeks to recover any
proceeds unlawfully received by named officers and directors, and their trusts,
in the October 1993 public offering.
The consolidated statements of income for the years ended June 30,
1996 and 1995 include $6,600 and $1,043 of charges primarily related to the
purported class action and derivative legal actions. While future costs
related to those matters are uncertain, the Company estimates that an
additional $6,000 and $4,000 could be incurred in fiscal years 1997 and 1998,
respectively. Actual amounts
-39-
<PAGE> 41
incurred could materially differ from these estimates.
The Company has pending certain legal actions and claims incurred in
the normal course of business and is actively pursuing the defense thereof.
The Company believes the actions and claims cited above are without
merit or are covered by insurance and intends to vigorously defend against
these actions. The Company believes the resolution of all of these matters
will not have a material adverse effect on its financial condition and results
of operations as reported in the accompanying financial statements. However,
depending on the amount and timing of an unfavorable resolution of these
lawsuits, it is possible that the Company's future results of operations or
cash flow could be materially affected in a particular period.
NOTE G - SHAREHOLDERS' EQUITY
On April 10, 1996 the Company's Board of Directors adopted a Preferred
Share Purchase Rights Plan and declared a dividend distribution to be made to
shareholders of record on April 22, 1996, of one Preferred Share Purchase Right
on each outstanding share of the Company's common stock. The Rights contain
provisions which are intended to protect the Company's stockholders in the
event of an unsolicited and unfair attempt to acquire the Company. The Company
is entitled to redeem the Rights at $.01 per Right at any time before a 20%
position has been acquired. The Rights will expire on April 10, 2006, unless
previously redeemed or exercised.
The Company's 1988 Employee Incentive Stock Option Plan grants key
management employees options to purchase shares of common stock. The options
may be exercised from one to ten years after the date of grant. Proceeds from
the exercise of stock options under the Company's stock option plans and income
tax benefits attributable to stock options exercised are credited to common
stock.
A summary of activity for the Company's stock option plan is presented
below:
<TABLE>
<CAPTION>
Year Ended June 30,
-----------------------------------------
1996 1995 1994
------- -------- --------
<S> <C> <C> <C>
Options outstanding at beginning of year . . . 3,239 2,836 3,465
Granted . . . . . . . . . . . . . . . . . . 498 876 418
Exercised . . . . . . . . . . . . . . . . . . (280) (193) (988)
Terminated . . . . . . . . . . . . . . . . . . (209) (280) (59)
----- ----- -----
Options outstanding at end of year . . . . . . 3,248 3,239 2,836
===== ===== =====
Options exercisable at end of year . . . . . . 1,062 824 464
===== ===== =====
Options available for grant at end of year . . 2,734 1,023 1,618
===== ===== =====
$.22 to $.22 to $.22 to
Price per share of options outstanding . . . . $31.25 $31.25 $31.25
</TABLE>
In August 1996, the Company granted options on 1,178 shares to certain
employees, with an exercise price of $9.13 per share.
Under the Company's 1989 non-qualified stock option plan for
directors, 48 shares of common stock are reserved for issuance to non-employee
directors. The options may be exercised from two to ten years after the date
of grant. As of June 30, 1996 options to purchase 76 shares at a price of $.57
to $29.38 were outstanding, 12 of which were exercisable. There were 28 shares
exercised in the year ended June 30, 1996.
-40-
<PAGE> 42
NOTE H - ACQUISITION
On January 13, 1995, the Company acquired certain assets of Vi-Jon
Laboratories, Inc., a manufacturer and marketer of store brand personal care
products, located in St. Louis, Missouri, for the purchase price of
approximately $33,000, which included approximately $17,000 allocated to cost
in excess of net assets acquired. The purchase price was funded by additional
line of credit borrowings. Cost in excess of the fair market value of assets
purchased is being amortized over 25 years.
NOTE I - QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1996 September 30, December 31, March 31, June 30,
- ------------------------- ------------- ------------ --------- ---------
<S> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . . $205,147 $200,991 $196,326 $175,657
Gross profit . . . . . . . . . . . . . . . . 55,376 54,368 51,402 42,169
Net income (see Note J) . . . . . . . . . . . 12,190 12,162 10,634 4,856
Earnings per common
share . . . . . . . . . . . . . . . . . $ .16 $ .16 $ .14 $ .06
Weighted average
number of common shares
outstanding . . . . . . . . . . . . . . 77,191 77,208 77,215 77,188
1995
- -------------------------
Net sales . . . . . . . . . . . . . . . . . . $182,685 $174,721 $185,266 $174,405
Gross profit . . . . . . . . . . . . . . . . 54,336 49,455 48,711 44,310
Net income (See Note J) . . . . . . . . . . . 14,769 12,852 11,423 5,390
Earnings per common
share . . . . . . . . . . . . . . . . . $ .19 $ .17 $ .15 $ .07
Weighted average
number of common shares
outstanding . . . . . . . . . . . . . . 77,208 77,186 77,186 77,175
</TABLE>
NOTE J - RESTRUCTURING COSTS
On June 20, 1995, the Company announced a restructuring of its sales,
marketing and operational functions to better serve its customers and improve
operational efficiencies. This restructuring included the consolidating and
refocusing of various organizational functions, the elimination of certain low
volume products and the consolidation of certain distribution centers. The
organizational restructuring was effectively completed in fiscal 1996. During
the fourth quarter fiscal 1996, the Company decided to discontinue the stick
deodorant product category and intensified its efforts to eliminate certain low
volume products.
Completion of the consolidation of distribution centers, originally
scheduled for the end of fiscal 1996, has been delayed. The delay relates to
further review of the logistic requirements of customers in order to optimize
the service level to those customers in a cost effective manner. As a result,
further restructuring costs, estimated to be approximately $1,000, are
anticipated to be recognized in fiscal 1997, if recognized at all.
The Company also initiated a business process redesign effort which will
focus initially on managing orders and managing products. It is estimated that
the Company will incur approximately $5,000 and $2,000 of costs relating to the
business process redesign effort during fiscal years 1997 and 1998,
respectively.
-41-
<PAGE> 43
For the year ended June 30, 1996, the consolidated statements of income
includes $4,491 of restructuring costs related primarily to the consolidation
of sales and marketing, graphic arts, purchasing and accounting functions, cost
related to business process redesign, the discontinuing of the stick deodorant
product category and additional charges for elimination of certain low volume
products. During the year, $3,011 was expensed as incurred, $1,480 was accrued
and $3,832 of costs were paid that were accrued in a previous period. As of
June 30, 1996, $1,648 remains in accrued liabilities. For the year ended June
30, 1995 the consolidated statements of income included $4,904 of restructuring
cost, primarily related to severance and employee benefit costs, consolidation
of two distribution centers and cost associated with the elimination of certain
low volume products.
It is estimated that the Company will incur approximately $6,000 and
$2,000 in additional restructuring costs, including business process redesign,
in fiscal years 1997 and 1998, respectively. Actual amounts could differ from
these estimates.
-42-
<PAGE> 44
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.
Not applicable.
PART III.
Item 10. Directors and Executive Officers of the Registrant.
(a) Directors of the Company.
See the Company's Proxy Statement, incorporated by reference as
Part III of this Form 10-K, under the heading "Election of
Directors."
(b) Executive Officers of the Company.
See Part I of this Form 10-K at page 17.
Item 11. Executive Compensation.
See the Company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the headings "Compensation of Executive
Officers" and "Compensation of Directors."
Item 12. Security Ownership of Certain Beneficial Owners and Management.
See the Company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the heading "Principal Securityholders."
Item 13. Certain Relationships and Related Transactions.
See the Company's Proxy Statement, incorporated by reference as Part
III of this Form 10-K, under the heading "Compensation of Directors."
PART IV.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed or incorporated by reference
as part of this Form 10-K:
1. All financial statements. See Index to Consolidated
Financial Statements on page 29 of this Form 10-K.
2. Financial Schedules
Report of Independent Certified Public Accountants on
Financial Statement Schedules Schedule II - Valuation and
Qualifying Accounts
3. Exhibits:
3(a)** - Amended and Restated Articles of Incorporation of
Registrant.
-43-
<PAGE> 45
<TABLE>
<S> <C> <C>
3(b)**** - Restated Bylaws of Registrant, dated April 10, 1996.
4(a)**** - Shareholders' Rights Plan.
10(a) - Credit Agreement, dated June 30 1996, between the Registrant and NBD Bank,
N.W., Sanwa Bank, Comerica Bank-Detroit, National City Bank, Westdeutsche
Landesbank Girozentrale and Old Kent Bank and Trust Company.
10(b)*** - Registrant's Management Incentive Plan.
10(c) - Registrant's 1988 Employee Incentive Stock Option Plan as amended,
incorporated by reference to Exhibit A of the Registrant's 1995 proxy
statement.
10(d)* - Registrant's 1989 Non-Qualified Stock Option Plan for Directors.
21 - Subsidiaries of the Registrant.
23 - Consent of BDO Seidman, LLP.
24 - Power of Attorney (see signature page).
27 - Financial Data Schedule.
</TABLE>
(b) Exhibit and reports on Form 8-K.
The Company filed the following report on Form 8-K during the three
months ended June 30, 1996.
On April 11, 1996 the Company announced that its Board of
Directors adopted a Preferred Share Purchase Rights Plan on April 10,
1996 which is intended to protect the Company's stockholders in the
event of an unsolicited attempt to acquire the Company. The following
exhibits were filed as attachments:
(a) The Rights agreement;
(b) Form of press release dated April 11, 1996;
(c) Form of letter to shareholders of the Company dated April 23,
1996; and
(d) Bylaws of the Company, amended and restated as of April 10,
1996.
______________________________
* Document incorporated by reference from Registration Statement No.
33-43834 filed by the Registrant on November 8, 1991.
** Document incorporated by reference from Amendment No. 2 to
Registration Statement No. 33-43834 filed by the Registrant on December 11,
1991.
*** Document incorporated by reference from Registration Statement No.
33-69324 filed by the Registrant on September 23, 1993.
**** Document incorporated by reference to the Registrant's Form 8-K filed
on April 10, 1996.
-44-
<PAGE> 46
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
Board of Directors
Perrigo Company
Allegan, Michigan
The audits referred to in our report to Perrigo Company and
Subsidiaries dated August 2, 1996 relating to the consolidated financial
statements of Perrigo Company, which is contained in Item 8 of this Form 10-K
for the year ended June 30, 1996, included the audit of the financial statement
schedule listed in the accompanying index. This financial statement schedule
is the responsibility of the Company's management. Our responsibility is to
express an opinion on the financial statement schedule based upon our audits.
In our opinion, such financial statement schedule presents fairly, in
all material respects, the information set forth therein.
By: /s/BDO Seidman, LLP
----------------------
BDO Seidman, LLP
Grand Rapids, Michigan
August 2, 1996
-45-
<PAGE> 47
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
PERRIGO COMPANY
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE CHARGED TO BALANCE
AT BEGINNING COSTS AND AT END
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS(1) OF PERIOD
----------- --------- -------- ------------- ----------
<S> <C> <C> <C> <C>
Year Ended June 30 1994:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $2,570 $ 316 $ (85) $2,801
Year Ended June 30 1995:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $2,801 $ 608 $ (369) $3,040
Year Ended June 30 1996:
Reserves and allowances deducted from
asset accounts:
Allowance for uncollectible accounts $3,040 $ 361 $ (426) $2,975
</TABLE>
________________________
(1) Uncollectible accounts charged off, net of recoveries.
-46-
<PAGE> 48
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report on Form
10-K for the fiscal year ended June 30, 1996 to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Allegan, State of
Michigan on the 25th of September, 1996.
PERRIGO COMPANY
By: /s/Michael J. Jandernoa
-------------------------------------
Michael J. Jandernoa
Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby appoints Michael J.
Jandernoa and Steven M. Neil and each of them severally, acting alone and
without the other, his true and lawful attorney-in-fact with authority to
execute in the name of each such person, and to file with the Securities and
Exchange Commission, together with any exhibits thereto and other documents
therewith, any and all amendments to this Annual Report on Form 10-K for the
fiscal year ended June 30, 1996 necessary or advisable to enable Perrigo
Company to comply with the Securities Exchange Act of 1934, any rules,
regulations and requirements of the Securities and Exchange Commission in
respect thereof, which amendments may make such other changes in the report as
the aforesaid attorney-in-fact executing the same deems appropriate.
-47-
<PAGE> 49
Pursuant to the requirements of the Securities Exchange Act of
1934, this Annual Report on Form 10-K for the fiscal year ended June 30, 1996
has been signed by the following persons in the capacities indicated on the
25th of September, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/Michael J. Jandernoa Chairman of the Board and Chief
- --------------------------------- Executive Officer and Director
Michael J. Jandernoa (Principal Executive Officer)
/s/Steven M. Neil Vice President - Finance,
- ------------------------------------- Treasurer and Chief Financial
Steven M. Neil Officer (Principal Accounting
Officer)
/s/William C. Swaney Director
- ---------------------------------
William C. Swaney
/s/F. Folsom Bell Director
- --------------------------------------
F. Folsom Bell
/s/L.R. Jalenak, Jr. Director
- ---------------------------------------
L.R. Jalenak, Jr.
/s/Richard G. Hansen Director
- -----------------------------------
Richard G. Hansen
/s/Peter R. Formanek Director
- -----------------------------------
Peter R. Formanek
/s/Mary Alice Taylor Director
- -----------------------------------
Mary Alice Taylor
/s/John W. Spoelhof Director
- -----------------------------------
John W. Spoelhof
</TABLE>
-48-
<PAGE> 50
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DOCUMENT
- ------- --------
<S> <C>
10(a) Credit Agreement Dated June 1996
21 Subsidiaries of the Registrant
23 Consent of Independent
Certified Public Accountants
27 Financial Data Schedule
</TABLE>
-49-
<PAGE> 1
Exhibit 10(a)
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of June 30, 1996 (this "Agreement"), is
among PERRIGO COMPANY, a Michigan corporation (the "Company"), the lenders
named in Section 2.1 hereof (collectively, the "Lenders" and individually, a
"Lender"), and NBD BANK, a Michigan banking corporation, as agent for the
Lenders (the "Agent").
RECITALS
The Company desires to obtain an unsecured revolving bank credit,
including letters of credit, in the aggregate principal amount not to exceed
$150,000,000 expiring on June 30, 2000, and the Lenders are willing to
establish such a credit facility in favor of the Company on the terms and
conditions herein set forth.
AGREEMENT
In consideration of the premises and of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS
Certain Definitions. As used herein the following terms shall have the
following respective meanings:
"Acquisition" shall have the meaning ascribed thereto in Section 6.2(g).
"Affiliate" when used with respect to any person means any other person
which, directly or indirectly, controls or is controlled by or is under common
control with such person. For purposes of this definition, "control"
(including the correlative meanings of the terms "controlled by" and "under
common control with"), with respect to any person, means possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of such person, whether through the ownership of voting securities
or by contract or otherwise.
"Applicable Lending Office" means, with respect to any Loan made by any
Lender or with respect to a Lender's Commitment, the office of that Lender or
of any Affiliate of that Lender located at the address set forth next to the
name of that Lender in the signature pages hereof, as may be changed by that
Lender by notice to the Company and the Agent. Unless the Agent shall notify
the Company otherwise, the Applicable Lending Office of the Agent shall be: (a)
with respect to all Loans denominated in Dollars and Letters of Credit, the
principal office of the Agent in Detroit, Michigan; and (b) with respect to all
other Loans, the office or branch of the Agent or any Affiliate of the Agent as
the Agent shall determine.
"Applicable Margin" means the percentage per annum set forth below in
accordance
CREDIT AGREEMENT
-1-
<PAGE> 2
with the then-applicable Interest Coverage Ratio (calculated as set forth in
Section 6.2(b) of this Agreement):
<TABLE>
<CAPTION>
Interest Coverage Ratio Eurocurency Rate CD Rate L/C Fee
---------------- ------- -------
<S> <C> <C> <C>
Less than 3.5 to 1.0 .35% .475% .475%
Greater than or equal to 3.5 to 1.0 and less than 5.0 to 1.0 .30% .425% .425%
Greater than or equal to 5.0 to 1.0 and less than 10.0 to 1.0 .22% .345% .345%
Greater than or equal to 10.0 to 1.0 and less than 15.0 to 1.0 .20% .325% .325%
Greater than or equal to 15.0 to 1.0 .18% .305% .305%
</TABLE>
The applicable Interest Coverage Ratio shall be determined as of the last
day of each fiscal quarter of the Company based on information provided by the
Company on or before the 28th day after the close of such quarter pursuant to
Section 6.1(d)(ii). Any change in the Applicable Margin resulting from a
change in the Interest Coverage Ratio shall be effective on the first day of
the month following receipt of the information referenced above provided by the
Company on or before the 28th day after the close of each fiscal quarter of the
Company but shall be subject to adjustment in accordance with and as of the
date of the computation subsequently furnished to the Lenders with the
quarterly financial statements of the Company and the Subsidiaries pursuant to
Section 6.1(d)(ii)(B).
"Bid Rate" means, with respect to any Bid Rate Loan, the Bid Rate, as
defined in Section 2.2(d)(ii)(D), that is offered for such Bid Rate Loan.
"Bid Rate Auction" means a solicitation of Bid Rate Quotes pursuant to
Section 2.2.
"Bid Rate Interest Period" means, with respect to any Bid Rate Loan, the
period commencing on the day such Bid Rate Loan is made and ending on the day
not more than 29 days thereafter, as the Company may elect in the applicable
Notice of Bid Rate Loan, provided that (a) any Bid Rate Interest Period which
would otherwise end on a day which is not a Business Day shall be extended to
the next succeeding Business Day; and (b) no Bid Rate Interest Period may be
elected that extends beyond the Termination Date with respect to the Bid Rate
Loans.
"Bid Rate Loan" means any loan that is made by a Lender pursuant to a Bid
Rate Auction.
CREDIT AGREEMENT
-2-
<PAGE> 3
"Bid Rate Notes" means the promissory notes of the Company evidencing Bid
Rate Loans, in substantially the form annexed hereto as Exhibit A, as amended
or modified from time to time and together with any promissory note or notes
issued in exchange or replacement therefor, and "Bid Rate Note" means any one
of such promissory notes.
"Bid Rate Quote" means an offer by a Lender to make a Bid Rate Loan in
accordance with Section 2.2(d).
"Bid Rate Quote Request" means any request for Bid Rate Quotes that is
made by the Company pursuant to Section 2.2(b).
"Business Day" means a day other than a Saturday, Sunday or other day on
which the Agent is not open for the transaction of substantially all of its
banking functions.
"CD Interest Period" means, with respect to any CD Rate Loan, the period
commencing on the day such Loan is made or converted to a CD Rate Loan and
ending on the day which is 30, 60, 90 or 180 days thereafter, as the Company
may elect under Section 3.1 or 3.4, and, with respect to any continuation of
such Loan is a CD Rate Loan, each subsequent period commencing on the last day
of the immediately preceding CD Interest Period and ending on the day which is
30, 60, 90 or 180 days thereafter, as the Company may elect under Section 3.1
or 3.4, provided, however, that (a) each Interest Period which would otherwise
end on a day which is not a Business Day shall end on the next succeeding
Business Day, and (b) no CD Interest Period which would end after the
Termination Date shall be permitted.
"CD Rate" means, with respect to any CD Rate Loan and the related CD
Interest Period, the per annum rate that is equal to the sum of:
(a) the applicable Margin plus
(b) the rate per annum obtained by dividing (i) the arithmetic mean of
secondary market bid rates per annum (expressed as a percentage) quoted at
approximately 10:00 a.m. New York time (or as soon thereafter as practicable)
on the first day of the related CD Interest Period by two or more New York
certificate of deposit dealers of recognized standing selected by the Agent for
the purchase from the Agent at face value of negotiable certificates of deposit
of the Agent with a term comparable to such CD Interest Period in an aggregate
amount comparable to the related CD Rate Loan to be made by the Agent in its
capacity as a Lender hereunder, by (ii) an amount equal to one minus the stated
maximum rate (expressed as a decimal) of all reserve requirements (including,
without limitation, any marginal, emergency, supplemental, special or other
reserves) under any regulations of the Board of Governors of the Federal
reserve System (or any successor agency thereto), applicable on the first day
of the related CD Interest Period to a negotiable certificate of deposit of the
Agent with a term comparable to such CD Interest Period in an aggregate amount
comparable to the related CD Rate Loan, plus
(c) the annual assessment rate (expressed as a percentage) estimated by
the Agent on the first day of the related CD Interest Period to be payable by
the Agent to the Federal Deposit Insurance Corporation (or any successor agency
thereto) for such Corporation's (or such successor's) insuring Dollar deposits
of the Agent in the United States during the related CD Interest Period;
CREDIT AGREEMENT
-3-
<PAGE> 4
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of one-hundredth of one percent (1/100
of 1%).
"Capital Expenditures" means any expenditures for any fixed asset or any
other capital expenditure as determined in accordance with generally accepted
accounting principles.
"Capital Lease" of any person means any lease under which such person is
the lessee and which, in accordance with generally accepted accounting
principles, is or should be capitalized on the books of such person.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time.
"Commitments" means the commitments of the Lenders to lend pursuant to
Section 2.1(a), as such amounts may be reduced from time to time pursuant to
Section 2.4 hereof.
"Consolidated" or "consolidated" means, when used with reference to any
financial term in this Agreement, the aggregate for the Company and the
Subsidiaries of the amounts signified by such term for all such persons
determined on a consolidated basis in accordance with generally accepted
accounting principles.
"Credit" means the revolving bank credit established under Section 2.1
hereof in the amount of the Commitments.
"Cumberland Freight" means Cumberland Freight Line, Inc., a Tennessee
corporation which is a wholly-owned subsidiary of PTN.
"Cumulative Net Income" of any person means, as of any date, the net
income (after deduction for income and other taxes of such person determined by
reference to income or profits of such person) for the period commencing on the
specified date through the end of the most recently completed fiscal year of
such person (but without reduction for any net loss incurred for any completed
fiscal year during such period), taken as one accounting period, all as
determined in accordance with generally accepted accounting principles.
"Default" means any Event of Default, or any event or condition which
might become such an Event of Default with notice or lapse of time, or both.
"Dollar Equivalent" means, with respect to each Eurocurrency Rate Loan,
the sum in Dollars resulting from converting the amount of the Loan from the
Permitted Currency in which it is denominated into Dollars at the most
favorable spot exchange rate determined by the Agent to be available to it for
purchasing the Permitted Currency with Dollars at approximately 11:00 a.m.
local time of the Applicable Lending Office on the date the Eurocurrency Rate
Loan is disbursed or continued, or on such other date as the determination is
made, which rate shall be substantially representative of the market rate.
"Dollars" and "$" means the lawful money of the United States of America.
CREDIT AGREEMENT
-4-
<PAGE> 5
"EBITDA" of any person means, for any period, the net income of such
person, determined before Interest Charges, depreciation, amortization and
taxes, including without limitation the Michigan Single Business Tax, and in
accordance with generally accepted accounting principles.
"Effective Date" means the effective date specified in the final paragraph
of this Agreement.
"Environmental Laws" means all provisions of law, statute, ordinances,
rules, regulations, judgments, writs, injunctions, decrees, orders, awards and
standards promulgated by the government of the United States of America or any
foreign government or by any state, province, municipality or other political
subdivision thereof or therein or by any court, agency or instrumentality,
regulatory authority or commission of any of the foregoing concerning the
protection of, or regulating the discharge of substances into, the environment.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"ERISA Affiliate" means, with respect to any person, any trade or business
(whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code.
"Eurocurrency Business Day" means, with respect to any Eurocurrency Rate
Loan, a day which is both a Business Day and a day on which dealings in Dollar
deposits are carried out in the interbank market selected by the Agent with
respect to such Eurocurrency Rate Loan.
"Eurocurrency Interest Period" means, with respect to any Eurocurrency
Rate Loan, the period commencing on the day such Eurocurrency Rate Loan is made
or converted to a Eurocurrency Rate Loan and ending on the date one, two,
three, or six months thereafter, as the Company may elect under Section 3.1 or
3.4, and each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the date one, two, three, or six months
thereafter, as the Company may elect under Section 3.1 or 3.4, provided,
however, that (a) any Eurocurrency Interest Period which commences on the last
Eurocurrency Business Day of a calendar month (or on any day for which there is
no numerically corresponding day in the appropriate subsequent calendar month)
shall end on the last Eurocurrency Business Day of the appropriate subsequent
calendar month, (b) each Eurocurrency Interest Period which would otherwise end
on a day which is not a Eurocurrency Business Day shall end on the next
succeeding Eurocurrency Business Day or, if such next succeeding Eurocurrency
Business Day falls in the next succeeding calendar month, on the next preceding
Eurocurrency Business Day, and (c) no Eurocurrency Interest Period which would
end after the Termination Date shall be permitted.
"Eurocurrency Rate" means, with respect to any Eurocurrency Rate Loan and
the related Eurocurrency Interest Period, the per annum rate that is equal to
the sum of:
(a) the Applicable Margin plus
(b) the rate obtained by dividing (i) the per annum rate of interest at
which deposits in Dollars for such Eurocurrency Interest Period in an aggregate
amount comparable to the amount of such
CREDIT AGREEMENT
-5-
<PAGE> 6
Eurocurrency Rate Loan to be made by the Agent in its capacity as a Lender
hereunder are offered to the Agent by other prime banks in the London or Nassau
interbank market, selected in the Agent's discretion, at approximately 11:00
a.m. London or Nassau time, as the case may be, on the second Eurocurrency
Business Day prior to the first day of such Eurocurrency Interest Period by
(ii) an amount equal to one minus the stated maximum rate (expressed as a
decimal) of all reserve requirements (including, without limitation, any
marginal, emergency, supplemental, special or other reserves) that is specified
on the first day of such Eurocurrency Interest Period by the Board of Governors
of the Federal Reserve System (or any successor agency thereto) for determining
the maximum reserve requirement with respect to eurocurrency funding (currently
referred to as "Eurocurrency liabilities" in Regulation D of such Board)
maintained by a member bank of such System;
all as conclusively determined by the Agent, such sum to be rounded up, if
necessary, to the nearest whole multiple of one-tenth of one percent (1/10 of
1%).
"Eurocurrency Rate Loan" means any Revolving Credit Loan denominated in a
Permitted Currency which bears interest at the Eurocurrency Rate.
"Event of Default" means any of the events or conditions described in
Section 7.1.
"Extension Request" means an extension request duly executed by the
Company, substantially in the form of Exhibit B hereto.
"Federal Funds Rate" means, for any day, the average of the Overnight
Rates, as published by the Federal Reserve Bank of Chicago for such day, or, if
the Overnight Rates are not so published for any day, the average of the
quotations for the Overnight Rates received by the Agent from three Federal
funds brokers of recognized national standing selected by it.
"Fixed Asset" means, as of any date, any tangible asset of the Company and
the Subsidiaries (other than Current Assets of the Company and the
Subsidiaries) that is or should be classified as a fixed asset on a balance
sheet of the Company and the Subsidiaries in accordance with generally accepted
accounting principles.
"Fixed Rate Loan" means any CD Rate Loan or Eurocurrency Rate Loan.
"Funded Debt" of any person means the outstanding principal amount of the
Consolidated Indebtedness of such person and its Subsidiaries of the nature
referred to in the definition of Indebtedness.
"Funded Debt Ratio" means the ratio (expressed as a percentage) of Funded
Debt to the sum of Funded Debt plus Tangible Net Worth.
"generally accepted accounting principles" means generally accepted
accounting principles applied on a basis consistent with that reflected in the
financial statements referred to in Section 5.10.
"Guarantors" means LPC, PSC and PTN together with any Material
Subsidiaries existing after the Effective Date which have executed guaranty
agreements pursuant to Section 6.1(g).
CREDIT AGREEMENT
-6-
<PAGE> 7
"Guaranty" means the guaranty agreements of the Guarantors in form and
substance satisfactory to the Agent, entered into or confirmed by the
Guarantors for the benefit of the Agent and the Lenders pursuant to Section
3.2(f) or 6.1(g), as such guaranty agreements may be amended or modified from
time to time.
"Indebtedness" of any person means, as of any date, (a) all obligations of
such person for borrowed money, (b) all obligations which are secured by any
lien or encumbrance existing on property owned by such person whether or not
the obligation secured thereby shall have been assumed by such person, (c) all
obligations of such person as lessee under any lease which, in accordance with
generally accepted accounting principles, is or should be capitalized on the
books of the lessee, (d) the deferred purchase price for goods, property or
services acquired by such person, and all obligations of such person to
purchase goods, property or services where payment therefor is required
regardless of whether or not delivery of such goods or property or the
performance of such services is ever made or tendered, (e) all obligations of
such person to advance funds to, or to purchase property or services from, any
other person in order to maintain the financial condition of such person, (f)
liabilities in respect of unfunded vested benefits under any Plan of such
person, (g) all reimbursement obligations on letters of credit issued for the
account of such person, (h) all obligations of such person in respect of any
interest rate or currency swap, rate cap or other similar transaction (valued
in an amount equal to the highest termination payment, if any, that would be
payable by such person upon termination for any reason on the date of
determination), (i) deferred taxes of such person, and (j) all obligations of
others similar in character to those described in clauses (a) through (i) of
this definition for which such person is liable, contingently or otherwise, as
obligor, guarantor or in any other capacity, or in respect of which obligations
such person assures a creditor against loss or agrees to take any action to
prevent any such loss (other than endorsements of negotiable instruments for
collection in the ordinary course of business).
"Intangibles" of any person means, as of any date, all items of the
following character which are included in the assets of such person: (i) good
will, including without limitation, the excess of cost over book value of any
asset, (ii) organization or experimental expenses, (iii) unamortized debt
discount and expense, (iv) patents, trademarks, trade names and copyrights, (v)
treasury stock, (vi) deferred charges, (vii) franchises, licenses and permits,
(viii) covenants not to compete, (ix) future supply contracts and (x) other
assets which are deemed intangible assets under generally accepted accounting
principles.
"Interest Charges" of any person means for any period the sum of all
interest paid or payable during such period on Indebtedness of such person.
"Interest Coverage Ratio" means, for any period, the ratio of (a) the
Consolidated EBITDA of the Company and its Subsidiaries minus the Consolidated
Capital Expenditures (excluding any expenditures under any acquisition governed
by Section 6.2(g) which may be considered a Capital Expenditure) of the Company
and its Subsidiaries, to (b) Consolidated Interest Charges of the Company and
its Subsidiaries.
"Interest Payment Date" means (a) with respect to any Eurocurrency Rate
Loan or Bid Rate Loan, the last day of each Interest Period with respect to
such Loan, (b) with respect to any Prime Rate Loan and in all other cases, the
12th day of each January, April, July and October, commencing July 12, 1996.
As provided in Section 4.2(b), so long as no Default has occurred and is
continuing, interest payable on any Interest Payment Date with respect to any
Prime Rate Loan shall be for all interest accrued through the end of the
preceding month.
CREDIT AGREEMENT
-7-
<PAGE> 8
"Interest Period" means any Eurocurrency Interest Period, CD Interest
Period, Swing Line Interest Period, or Bid Rate Interest Period.
"Invitation for Bid Rate Quotes" means an invitation for Bid Rate Quotes
in the form referred to in Section 2.2(c).
"Letter of Credit" means a standby letter of credit having a stated expiry
date not later than one year after the issuance thereof, and in any event not
later than the Termination Date, issued by the Agent on behalf of the Lenders
for the account of the Company under an application and related documentation
acceptable to the Agent requiring, among other things, immediate reimbursement
by the Company to the Agent in respect of all drafts or other demand for
payment honored thereunder and all expenses paid or incurred by the Agent
relative thereto.
"Letter of Credit Advance" means the issuance of any Letter of Credit
under Section 3.1 hereof made pursuant to Section 2.1 in which each Lender
acquires a pro-rata risk participation pursuant to Section 3.1(e).
"Letter of Credit Documents" shall have the meaning ascribed thereto in
Section 3.3.
"Lien" means any pledge, assignment, mortgage, option, title retaining
contract, sale and leaseback transaction, lease which, in accordance with
generally accepted accounting principles, is or should be capitalized,
subordination of any claim or right, or any other type of lien, charge or
encumbrance, security interest or other claim or right.
"Loans" means as the context may require either the Revolving Credit
Loans, the Bid Rate Loans and the Swing Line Loans or all such types of Loans,
collectively, and "Loan" means either any Revolving Credit Loan, Bid Rate Loan
and the Swing Line Loans, as the context may require.
"LPC" means L. Perrigo Company, a Michigan corporation, which is a
wholly-owned subsidiary of the Company.
"Majority Lenders" means the Lenders holding not less than 67% of the
aggregate principal amount of the Revolving Credit Loans then outstanding (or
67% of the Commitments if no Revolving Credit Loans are then outstanding).
"Management Group" means Michael J. Jandernoa and other directors or
officers of the Company who individually own more than one percent (1%) of the
securities of the Company having ordinary voting power for the election of
directors.
"Material Subsidiary" means any Subsidiary of the Company which, in any
fiscal quarter, accounts for five percent or more of the gross revenues of the
Company and its Subsidiaries or whose total assets are equal to five percent or
more of the total assets of the Company and its Subsidiaries.
"Multiemployer Plan" means any "multiemployer" plan as defined in Section
4001(a)(3) of ERISA or Section 414(f) of the Code.
CREDIT AGREEMENT
-8-
<PAGE> 9
"NBD" means NBD Bank, a Michigan banking corporation.
"Net Worth" of any person means, as of any date, net worth determined in
accordance with generally accepted accounting principles.
"Notes" means, collectively, the Revolving Credit Notes, the Bid Rate
Notes and the Swing Line Notes.
"Notice of Bid Rate Loan" shall have the meaning set forth in Section
2.2(f).
"Overdue Rate" means (a) in respect of principal of Prime Rate Loans, a
rate per annum that is equal to the sum of three percent (3%) per annum plus
the Prime Rate, (b) in respect of principal of all other Loans than Prime Rate
Loans, a rate per annum that is equal to the sum of three percent (3%) per
annum plus the per annum rate in effect thereon until the end of the
then-current Interest Period for such Loan and, thereafter, a rate per annum
that is equal to the sum of three percent (3%) per annum plus the Prime Rate,
and (c) in respect of other amounts payable by the Company hereunder (other
than interest), a per annum rate that is equal to the sum of three percent (3%)
per annum plus the Prime Rate.
"Overnight Rates" means for any day, the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PSC" means Perrigo Company of South Carolina, Inc., a Michigan
corporation, which is a wholly-owned subsidiary of the Company.
"PTN" means Perrigo Company of Tennessee, Inc., a Tennessee corporation
which is a wholly-owned subsidiary of the Company.
"Permitted Currency" means Dollars and any currency which is freely
transferable and convertible into Dollars, is readily available to the Lenders
in the relevant interbank market, and is issued by a country which is a member
of the Organization for Economic Cooperation and Development ("OECD") (as such
designation shall change from time to time) or any other currency approved by
the Agent and the Lenders. A list of all OECD countries as of the Effective
Date is set forth in Exhibit Q.
"Person" or "person" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a joint stock company, an
unincorporated organization, a joint venture, a government (foreign or
domestic), and any agency or political subdivision thereof, or any other
entity.
"Plan" means, with respect to any person, any pension plan (other than a
Multiemployer Plan) subject to Title IV of ERISA or to the minimum funding
standards of Section 412 of the Code which has been established or maintained
by the Company, any Subsidiary of the Company or any ERISA Affiliate, or by any
other person if the Company, any Subsidiary of the Company or any ERISA
Affiliate could have liability with respect to such pension plan.
CREDIT AGREEMENT
-9-
<PAGE> 10
"Prime Rate" means the per annum rate that is equal to the greater of (a)
the per annum rate announced by the Agent from time to time as its "prime
rate", which may not be the lowest rate charged by the Agent to any of its
customers, or (b) the Federal Funds Rate plus one-half of one percent (1/2%)
per annum. The Prime Rate shall change simultaneously with any change in such
"prime rate" or such Federal Funds Rate, if applicable.
"Prime Rate Loan" means any Loan denominated in Dollars which bears
interest at the Prime Rate.
"Prior Credit Agreement" means the Credit Agreement dated as of April 1,
1992, among the Company, the Lenders thereto and the Agent, as amended.
"Pro Forma Interest Coverage Ratio" means, for any period, with respect to
any Acquisition of a Person by the Company, the ratio of (a) the Consolidated
EBITDA of the Company and its Subsidiaries plus the Consolidated EBITDA of the
Person being acquired by the Company, minus Consolidated Capital Expenditures
(excluding any expenditures under any acquisition governed by Section 6.2(g)
made by the Company or by any of its Subsidiaries or by the Person being
acquired existing prior to any such acquisition which may be considered Capital
Expenditures) of the Company and its Subsidiaries plus the Consolidated Capital
Expenditures of the Person being acquired by the Company, to (b) the sum of
Consolidated Interest Charges of the Company and its Subsidiaries plus
Consolidated Interest Charges of the Person being acquired by the Company.
"Prohibited Transaction" means any transaction including any Plan which is
proscribed by Section 406 of ERISA or Section 4975 of the Code.
"Related Business" means any business substantially similar to the
business of the Company and any business that supplies or is supplied by the
Company (including generic prescription drug manufacturers).
"Reportable Event" means a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"Revolving Credit Loan" means any borrowing under Section 2.1(a) evidenced
by the Revolving Credit Notes. Any Revolving Credit Loan or portion thereof
may also be denominated as a Prime Rate Loan, a CD Rate Loan, or a Eurocurrency
Rate Loan, as appropriate, and such Prime Rate Loans, CD Rate Loans, and
Eurocurrency Rate Loans are referred to herein as "types" of Revolving Credit
Loans.
"Revolving Credit Notes" means the promissory notes of the Company issued
to the Lenders evidencing the Revolving Credit Loans, in substantially the form
annexed hereto as Exhibit C, as amended or modified from time to time and
together with any promissory note or notes issued in exchange or replacement
therefor.
"Solvency Certificate" means a certificate of the chief executive officer
and the chief financial officer of the Company in form and substance
satisfactory to the Agent and the Lenders certifying as to the matters set
forth in Section 5.11.
CREDIT AGREEMENT
-10-
<PAGE> 11
"Solvent" means, with respect to any person, that, as of any date of
determination, (a) the then fair saleable value of the property of such person
is (i) greater than the total amount of liabilities (including contingent
liabilities) of such person and (ii) greater than the amounts that would be
required to pay such person's probable liability on such person's then existing
debts as they become absolute and matured, (b) such person's property is not
unreasonably small in relation to its business or any contemplated or
undertaken transaction, and (c) such person does not intend to incur, or
believe or reasonably should have believed that it will incur, debts beyond its
ability to pay such debts as they become due.
"Subsidiaries" means all corporations (whether now existing or hereafter
organized or acquired) in which at least a majority of the securities (other
than directors' qualifying shares required by law) of each class having
ordinary voting power for the election of directors (other than securities
having such power only by reason of the happening of a contingency), at the
time as of which any determination is being made, is owned, beneficially and of
record, by the Company and/or by one or more of the other Subsidiaries.
"Swing Line Facility" means the facility under which the Agent may make
Swing Line Loans to the Company pursuant to Section 2.1(b).
"Swing Line Interest Period" means, with respect to any Swing Line Loan,
the period commencing on the day the Swing Line Loan is made and ending on the
date agreed upon between the Company and the Agent at the time the Swing Line
Loan is made. No Swing Line Interest Period which would end after the
Termination Date will be permitted.
"Swing Line Loan" means any borrowing under Section 2.1(b) evidenced by
the Swing Line Note.
"Swing Line Note" means the promissory note of the Company payable to the
order of the Agent, in substantially the form of Exhibit D, as amended or
modified from time to time and together with any promissory note or notes
issued in exchange or replacement therefor.
"Swing Line Rate" means, with respect to any Swing Line Loan, the rate per
annum agreed upon between the Company and the Agent at the time the Swing Line
Loan is made.
"Tangible Net Worth" of any person means, as of any date, (a) the amount
of any capital stock, paid-in capital and similar equity accounts plus (or
minus in the case of a deficit) the capital surplus and retained earnings of
such person, less (b) the net book value of all Intangibles of such person.
"Termination Date" means the earlier to occur of (a) June 30, 2000, or (b)
the date on which the Credit shall be terminated pursuant to Section 2.4 or
7.2.
Other Definitions; Rules of Construction. As used herein, the terms
"Lenders", "Lender", "Agent", "Company" and "this Agreement" shall have the
respective meanings ascribed thereto in the introductory paragraph of this
Agreement. Such terms, together with the other terms defined in Section 1.1,
shall include both the singular and the plural forms thereof and be construed
accordingly. Any financial terms used but not defined herein shall be
interpreted in accordance with generally accepted accounting principles.
References to "Sections" and "subsections" shall be to Sections and
subsections, respectively,
CREDIT AGREEMENT
-11-
<PAGE> 12
of this Agreement unless otherwise specifically provided.
ARTICLE II. THE COMMITMENT AND THE ADVANCES
Commitments of the Lenders.
(a) Revolving Credit Loans and Letter of Credit Advances. Each Lender
agrees, for itself only, subject to the specific limitations set forth in this
Section 2.1(a) and to the other terms of this Agreement, to make Revolving
Credit Loans to the Company pursuant to Section 3.1 and to participate in
Letter of Credit Advances to the Company pursuant to Section 3.1, from time to
time from the Effective Date until the Termination Date not to exceed in
aggregate principal amount at any time outstanding the Dollar Equivalent of the
amount set forth opposite its name below as its Commitment:
<TABLE>
<S> <C>
NAME OF LENDER COMMITMENT
-------------- ----------
NBD Bank $35,000,000
PNC Bank $29,000,000
Comerica Bank-Detroit $26,000,000
Sanwa Bank, Limited $23,000,000
Westdeutsche Landesbank Girozentrale $23,000,000
Old Kent Bank $14,000,000
------------
Aggregate Commitments $150,000,000
</TABLE> ------------
The aggregate principal amount of all Letter of Credit Advances (being the
maximum amount available to be drawn under the related Letters of Credit plus
the amount of any draws under such Letters of Credit that have not been
reimbursed) at any time outstanding shall not exceed $10,000,000.
Notwithstanding anything in this Agreement to the contrary, the aggregate
principal amount of all Loans and Letter of Credit Advances shall not at any
time exceed the aggregate Commitments.
(b) Swing Line Loans. The Company may request the Agent to make, and the
Agent may, in its sole discretion, make Swing Line Loans to the Company from
time to time on any Business Day (but limited to one such Loan per Business
Day) during the period from the Effective Date until the Termination Date in
the principal amount not to exceed at any time outstanding the lesser of (i)
$10,000,000 and (ii) the aggregate of the unused portion of the Commitments of
all Lenders as of such date. The Company may at any time request a Revolving
Credit Loan to repay any Swing Line Loan. Forthwith upon demand by the Agent,
the Company shall request a Revolving Credit Loan hereunder (and if the Company
does not do so
CREDIT AGREEMENT
-12-
<PAGE> 13
the Agent shall be entitled to do so on behalf of the Company) to repay all or
any Swing Line Loans (provided that such Swing Line Loan was not made in
violation of any term or provision of this Agreement and that the Agent did not
have any actual knowledge of an Event of Default at the time of the making of
such Swing Line Loan) and the Lenders shall be obligated, absolutely and
unconditionally, to make such Revolving Credit Loan, and the obligation shall
not be affected by any circumstance whatsoever, including, without limitation,
(i) any setoff, counterclaim, recoupment, defense or other right which such
Lender or the Company may have against the Agent, the Company or anyone else
for any reason whatsoever, (ii) the occurrence of any Default, (iii) any
adverse change in the condition (financial or otherwise) of the Company or any
of its Subsidiaries, (iv) any breach of this Agreement by the Company, any of
its Subsidiaries or any Lender, or (v) any other circumstance, happening or
event whatsoever, whether or not similar to any of the foregoing, including
without limitation any limitation on the Commitments, or any failure to satisfy
any conditions contained in Sections 3.2, 3.3, or any other provision of this
Agreement. Each Swing Line Loan shall bear interest at the Swing Line Rate.
Within the limits of the Swing Line Facility, so long as the Agent, in its sole
discretion, elects to make Swing Line Loans, the Company may borrow and
reborrow under this Section 2.1(b).
1.1 Bid Rate Loans.
(a) The Bid Rate Option. From the Effective Date to but excluding the
Termination Date, the Company may, as set forth in this Section 2.2, request
the Lenders to make offers to make Bid Rate Loans to the Company; provided,
however, that the Lenders may, but shall have no obligation to, make such
offers and the Company may, but shall have no obligation to, accept any such
offers, in the manner set forth in this Section 2.2.
(b) Bid Rate Quote Request. When the Company wishes to request offers to
make Bid Rate Loans under this Section 2.2, it shall transmit to the Agent by
telex or telecopy a Bid Rate Quote Request substantially in the form of Exhibit
E hereto so as to be received no later than 1:00 p.m. Detroit time on the first
Business Day prior to the date of the Loan proposed therein specifying:
(i) the proposed date of the Bid Rate Loan, which
shall be a Business Day;
(ii) the aggregate amount of such Bid Rate Loan, which
shall be a minimum of $5,000,000 or a larger multiple of
$100,000, but may not be greater than an amount which,
together with the sum of all Bid Rate Loans then outstanding,
would exceed sixty-seven percent (67%) of the Commitments; and
(iii) the duration of the Bid Rate Interest Period
applicable thereto, subject to the provisions of the
definition of Bid Rate Interest Period.
The Company may request offers to make Bid Rate Loans for more than one Bid
Rate Interest Period in a single Bid Rate Quote Request.
(c) Invitation for Bid Rate Quotes. Promptly upon receipt of a Bid Rate
Quote Request, the Agent shall send to the Lenders by telex or telecopy (or
telephone promptly confirmed by telex or telecopy) an Invitation for Bid Rate
Quotes substantially in the form of Exhibit F hereto, which shall constitute an
CREDIT AGREEMENT
-13-
<PAGE> 14
invitation by the Company to each Lender to submit Bid Rate Quotes offering to
make the Bid Rate Loans to which such Bid Rate Quote Request relates in
accordance with this Section 2.2.
(d) Submission and Contents of Bid Rate Quotes. (i) Each Lender may
submit a Bid Rate Quote containing an offer or offers to make Bid Rate Loans in
response to any Invitation for Bid Rate Quotes. Each Bid Rate Quote must
comply with the requirements of this subsection (d) and must be submitted to
the Agent by telex or telecopy (or by telephone promptly confirmed by telex or
telecopy) at its office referred to in Section 10.2 not later than 10:00 a.m.
Detroit time on the proposed date of the Bid Rate Loan; provided that Bid Rate
Quotes submitted by the Agent (or any Affiliate of the Agent) in the capacity
of a Lender may be submitted, and may only be submitted, if the Agent or such
Affiliate notifies the Company of the terms of the offer or offers contained
therein not later than 9:30 a.m. Detroit time on the proposed date of such Bid
Rate Loan. Subject to Sections 3.2, 3.3, and Article VI, any Bid Rate Quote so
made shall be irrevocable except with the written consent of the Agent given on
the instructions of the Company.
(ii) Each Bid Rate Quote shall be in substantially the
form of Exhibit G hereto, but may be submitted to the Agent by
telephone with prompt confirmation by delivery to the Agent of
such written Bid Rate Quote, and shall in any case specify:
(A) the proposed date of the Bid Rate
Loan;
(B) the principal amount of the Bid Rate
Loan for which each such offer is being made, which
principal amount (x) must be in a minimum of $5,000,000
or a larger multiple of $100,000, and (y) may not exceed
the principal amount of the Bid Rate Loans for which
offers were requested;
(C) the Bid Rate Interest Period for
which each such offer is being made;
(D) the rate of interest per annum
(rounded to the nearest 1/100 of 1%) (the "Bid Rate")
offered for each such Bid Rate Loan; and
(E) the identity of the quoting Lender.
(iii) Any Bid Rate Quote shall be
disregarded if it:
(A) is not substantially in the form of
Exhibit G hereto (or submitted by telephone to the Agent
with prompt written confirmation to follow) or does not
specify all of the information required by clause (ii)
of this subsection (d);
(B) contains qualifying, conditional or
similar language;
(C) proposes terms other than or in
addition to those set forth in the applicable Invitation
for Bid Rate Quotes; or
(D) arrives after the time set forth in
Section 2.2(d)(i);
CREDIT AGREEMENT
-14-
<PAGE> 15
provided that a Bid Rate Quote shall not be disregarded pursuant to
clause (B) or (C) above solely because it contains an indication
that an allocation that might otherwise be made to it pursuant to
Section 2.2(g) would be unacceptable.
(e) Notice to Company. The Agent shall promptly notify the Company of the
terms of any Bid Rate Quote submitted by a Lender that is in accordance with
Section 2.2(d). Any Bid Rate Quote not made in accordance with Section 2.2(d)
shall be disregarded by the Agent. The Agent's notice to the Company shall be
in the form of Exhibit H hereto and shall specify (i) the aggregate principal
amount of Bid Rate Loans for which offers have been received for each Bid Rate
Interest Period specified in the related Bid Rate Quote Request, and (ii) the
respective principal amounts and Bid Rates so offered.
(f) Acceptance and Notice by Company. Not later than 1:30 p.m. Detroit
time on the proposed date of a Bid Rate Loan, the Company shall notify the
Agent of its acceptance or non-acceptance of the offers so notified to it
pursuant to subsection (e) of this Section and the Agent shall, promptly upon
receiving such notice from the Company, notify each Lender whose Bid Rate Quote
has been accepted. In the case of acceptance, such notice (a "Notice of Bid
Rate Loan") shall specify the aggregate principal amount of offers for the
respective Bid Rate Interest Period that have been accepted. The Company may
accept any Bid Rate Quote in whole or in part provided that:
(i) the aggregate principal amount of each Bid Rate
Loan may not exceed the applicable amount set forth in the
related Bid Rate Quote Request for the applicable Bid Rate
Interest Period;
(ii) the principal amount of each Bid Rate Loan must be $5,000,000
or a larger multiple of $100,000;
(iii) acceptance of offers may only be made on the basis of ascending
Bid Rates; and
(iv) the Company may not accept any offer that is described in
Section 2.2(d)(iii) or that otherwise fails to comply with the
requirements of this Agreement.
(g) Allocation by Agent. If offers are made by two or more Lenders with
the same Bid Rate, for a greater aggregate principal amount than the amount in
respect of which offers are accepted for the related Interest Period, the
principal amount of Bid Rate Loans in respect of which such offers are accepted
shall be allocated by the Agent among such Lenders as nearly as possible (in
such multiples, not greater than $100,000, as the Agent may deem appropriate)
in proportion to the aggregate principal amount of such offers. Determinations
by the Agent of the amounts of Bid Rate Loans shall be conclusive in the
absence of manifest error.
1.2 Effect on Commitments. Notwithstanding anything in this Agreement to
the contrary, the sum of the Dollar Equivalent of the aggregate principal
amount of all Revolving Credit Loans plus all Swing Line Loans, all Letter of
Credit Advances (being the maximum amount available to be drawn under the
related Letters of Credit plus the amount of any draws under Letters of Credit
that have not been reimbursed) and all Bid Rate Loans shall not at any time
exceed the aggregate amount of the Commitments of all
CREDIT AGREEMENT
-15-
<PAGE> 16
Lenders. All Bid Rate Loans, for purposes of determining the obligations of
the Lenders to make Loans, shall not count as usage of the Commitments, and
each Lender's obligation to make its pro rata portion of any subsequently
requested Revolving Credit Loan or Letter of Credit Advance shall not be
affected by the making by such Lender of a Bid Rate Loan, and the Lender which
has outstanding Bid Rate Loans may be obligated to exceed its Commitment,
provided that, as stated above, the aggregate principal amount of all Revolving
Credit Loans plus all Swing Line Loans, all Letter of Credit Advances and all
Bid Rate Loans shall not at any time exceed the aggregate amount of the
Commitments of all Lenders.
1.3 Termination and Reduction of the Commitments. (a) The Company shall
have the right to terminate or reduce the Commitments at any time and from time
to time, in which case the Commitments of the Lenders shall be terminated or
permanently reduced by the amount so specified (the reduction of each Lender's
Commitment being on a pro rata basis in accordance with the respective amounts
of the Commitments), as the case may be; provided that (i) the Company shall
give notice of such termination or reduction to the Agent at least five
Business Days in advance thereof, specifying the amount and effective date
thereof, (ii) each partial reduction of the Commitments shall be in a minimum
amount of $5,000,000 and in an integral multiple of $1,000,000, (iii) no such
termination or reduction shall be permitted with respect to any portion of the
Commitments as to which a request for a Loan or Letter of Credit Advance
pursuant to Section 3.1 is then pending, and (iv) the Commitments may not be
completely terminated if any Loans or Letter of Credit Advances are then
outstanding and may not be reduced below the principal amount of the aggregate
Loans and Letter of Credit Advances then outstanding. The Credit or any portion
thereof so terminated or reduced pursuant to this Section 2.4 may not be
reinstated.
(b) For purpose of this Agreement, a Letter of Credit Advance (i) shall be
deemed outstanding in an amount equal to the sum of the maximum amount
available to be drawn under the related Letter of Credit on or after the date
of determination and on or before the stated expiry date thereof plus the
amount of any draws under such Letter of Credit that have not been reimbursed
as provided in Section 4.3, and (ii) shall be deemed outstanding at all times
on and before such stated expiry date or such earlier date on which all amounts
available to be drawn under such Letter of Credit have been fully drawn, and
thereafter until all related reimbursement obligations have been paid pursuant
to Section 4.3. As provided in Section 4.3, upon each payment made by the
Agent in respect of any draft or other demand for payment under any Letter of
Credit, the amount of any Letter of Credit Advance outstanding immediately
prior to such payment shall be automatically reduced by the amount of each
Revolving Credit Loan deemed advanced in respect of the related reimbursement
obligation of the Company.
1.4 Facility Fee. The Company agrees to pay to the Agent for the pro rata
benefit of the Lenders a facility fee on the daily average amount of the
Commitments, for the period from the Effective Date to but excluding the
Termination Date, in arrears, at the following rates per annum:
<TABLE>
<CAPTION>
Interest Coverage Ratio Facility Fee
- ----------------------- ------------
<S> <C>
Less than 3.5 to 1.0 .20%
Greater than or equal to 3.5 to 1.0 and less than 5.0 to 1.0 .15%
Greater than or equal to 5.0 to 1.0 and less than 10.0 to 1.0 .13%
</TABLE>
CREDIT AGREEMENT
-16-
<PAGE> 17
<TABLE>
<S> <C>
Greater than or equal to 10.0 to 1.0 and less than 15.0 to 1.0 .11%
Greater than or equal to 15.0 to 1.0 .09%
</TABLE>
Accrued facility fees shall be payable, in arrears, on the 12th day of each
January, April, July and October occurring after the date hereof, commencing
July 12, 1996, which payment then due shall be for all facility fees accrued
through the end of the preceding month, and on the Termination Date, which
payment then due shall be for all facility fees accrued through the Termination
Date.
1.5 Letter of Credit Fees. The Company agrees to pay to the Agent for the
pro rata
benefit of the Lenders a fee computed at a per annum rate equal to the
then-Applicable Margin of the maximum amount available to be drawn from time to
time under such Letter of Credit for the period from and including the date of
issuance of such Letter of Credit to and including the stated expiry date of
such Letter of Credit, which fees shall be paid in advance. The Company also
agrees to pay a fronting fee to the Agent for its own account computed at the
rate of one-eighth of one percent (.125%) per annum of such maximum amount for
such period, to be payable at such times as agreed upon between the Company and
the Agent. Such fees are nonrefundable and the Company shall not be entitled
to any rebate of any portion thereof if such Letter of Credit does not remain
outstanding through its stated expiry date or for any other reason. The
Company further agrees to pay to the Agent, on demand, such other customary
administrative fees, charges and expenses of the Agent in respect of the
issuance, negotiation, acceptance, amendment, transfer and payment of such
Letter of Credit or otherwise payable pursuant to the application and related
documentation under which such Letter of Credit is issued.
1.6 Agency Fee. The Company agrees to pay to the Agent an agency fee
for its services as Agent under this Agreement in such amounts as may from
time to time be agreed upon by the Company and the Agent.
1.7 [Intentionally Omitted.]
1.8 Extension of Termination Date. The Termination Date and the
obligation pursuant to Section 4.1(a) to make mandatory repayment of the
outstanding principal amount of the Loans on the Termination Date shall be
subject to extension as set forth in this Section 2.9.
(a) Request for Extension of Termination Date. Notwithstanding anything
contained in this Agreement to the contrary, not later than April 15, 1997, and
each April 15th thereafter, the Company may, by delivery of a duly completed
Extension Request to the Agent in the form of Exhibit B hereto, which Extension
Request must be accompanied by the audited financial statements required by
Section 6.1(d)(iii), irrevocably request that each Lender extend the
Termination Date relating to such Lender's Commitment for a single one-year
period for each Extension Request.
(b) Consent to Extension of Termination Date.
(i) The Agent shall, promptly after receiving any
such Extension Request pursuant to subsection (a) above,
notify each Lender by providing them a copy of the Extension
CREDIT AGREEMENT
-17-
<PAGE> 18
Request.
(ii) Each Lender shall, within 30 days of receiving
the Extension Notice, notify the Agent whether it consents to
the Company's request set forth in such Extension Request,
such consent to be in the sole discretion of such Lender.
Each Lender acknowledges and agrees that its consent to the
Company's request to extend the Termination Date shall also be
deemed to be a consent by such Lender to an extension of its
obligations to participate pursuant to Section 3.1(e) in the
Letter of Credit Advances. If any Lender does not so notify
the Agent of its decision within such 30 day period, such
Lender shall be deemed not to have consented to such requests
of the Company.
(iii) The Agent shall promptly notify the Company
whether the Lenders have consented to such request. If the
Agent does not so notify the Company by June 5, 1997, and each
June 5th thereafter, the Agent shall be deemed to have
notified the Company that the Lenders have not consented to
the Company's request.
(iv) Each Lender that elects not to extend the
Termination Date or fails to so notify the Agent of such
consent (a "Non-Consenting Lender") hereby agrees that if any
other Lender or financial institution acceptable to the
Company and the Agent offers to purchase such Non-Consenting
Lender's Commitment for a purchase price equal to the sum of
all amounts then owing with respect to the Loans and all
other amounts accrued for the account of such Non-Consenting
Lender, such Non-Consenting Lender will promptly assign, sell
and transfer all of its right, title, interest and obligations
with respect to the foregoing to such other Lender or
financial institution pursuant to and on the terms specified
in the form of Assignment and Acceptance attached hereto as
Exhibit P.
(v) The Loans of any Non-Consenting Lender that are
not purchased pursuant to clause (iv) above will mature and be
due and payable on the then scheduled Termination Date and the
Commitment of such Non-Consenting Lender will thereupon
terminate. On such Termination Date, the aggregate
Commitments will be automatically reduced by an amount equal
to such Non-Consenting Lenders' Commitment.
(vi) The pro rata share of the remaining Lenders which
have consented to an extension of their Commitment hereunder
shall be adjusted accordingly by the Agent, based on such
Lenders' pro rata share of the remaining Commitments as it may
be adjusted pursuant to clause (iv) above or otherwise.
ARTICLE III. THE LOANS AND LETTERS OF CREDIT
1 Disbursement of Loans and Letter of Credit Advances. (a) The Company shall
give the Agent notice of each requested Revolving Credit Loan, Swing Line Loan
or Letter of Credit Advance in the form of Exhibit I hereto not later than (i)
1:30 p.m. Detroit time three Eurocurrency Business Days prior to the date
CREDIT AGREEMENT
-18-
<PAGE> 19
of any requested Revolving Credit Loan if such Loan is to be made as a
Eurocurrency Rate Loan, (ii) 1:30 p.m. Detroit time two Business Days prior to
the date of any Revolving Credit Loan if such Loan is to be made as a CD Rate
Loan, (iii) 1:30 p.m. Detroit time one Business Day prior to the date of any
requested Revolving Credit Loan if such Loan is to be made as a Prime Rate
Loan, (iv) 3:00 p.m. on the day any requested Swing Line Loan is to be made and
(v) five Business Days prior to the date any Letter of Credit Advance is
requested to be made. Such notice shall specify whether a Eurocurrency Rate
Loan, CD Rate Loan, Prime Rate Loan, Swing Line Loan or a Letter of Credit
Advance is requested and, in the case of each requested Fixed Rate Loan and
Swing Line Loan, the Interest Period to be initially applicable to such Loan
and, if a Eurocurrency Rate Loan is requested, the Permitted Currency requested
and, in the case of each Letter of Credit, such information as may be necessary
for the issuance thereof by the Agent. The Agent shall provide notice of such
requested Revolving Credit Loan or Letter of Credit Advance to each Lender no
later than 3:00 p.m. Detroit time on the day such notice is received. Subject
to the terms of this Agreement, the proceeds of such requested Revolving Credit
Loan requested in Dollars or Swing Line Loan shall be made available to the
Company by depositing the proceeds thereof, in immediately available funds, in
an account maintained and designated by the Company with the Agent and, in all
other cases shall be made available to the Company by depositing the proceeds
thereof, in immediately available funds in an account maintained and designated
by the Company at a bank acceptable to the Agent in the principal financial
center of the country issuing the Permitted Currency in which the Loan is
denominated, or in such other place specified by the Agent. Subject to the
terms and conditions of this Agreement, the Agent shall, on the date any Letter
of Credit Advance is requested to be made, issue the related Letter of Credit
on behalf of the Lenders for the account of the Company. Notwithstanding
anything herein to the contrary, the Agent may decline to issue any requested
Letter of Credit on the basis that the beneficiary, the purpose of issuance or
the terms or the conditions of drawing are unacceptable to it in its
discretion.
(b) Each Lender, on the date each Revolving Credit Loan is requested to be
made, shall make its pro rata share of such Revolving Credit Loan, if
denominated in Dollars, available in immediately available funds at the
principal office of the Agent for disbursement to the Company or reimbursement
of the Agent, as the case may be, and, in all other cases, to the Agent's
account at its designated branch or correspondent bank in the country issuing
the respective Permitted Currency or at such other place specified by the
Agent. Unless the Agent shall have received notice from any Lender prior to
the date any Revolving Credit Loan is requested to be made under this Section
3.1 that such Lender will not make available to the Agent such Lender's pro
rata portion of such Revolving Credit Loan, the Agent may assume that such
Lender has made such portion available to the Agent on the date such Loan is
requested to be made in accordance with this Section 3.1. If and to the extent
such Lender shall not have so made such pro rata portion available to the
Agent, the Agent may (but shall not be obligated to) make such amount available
to the Company, and such Lender and the Company severally agree to pay to the
Agent forthwith on demand such amount together with interest thereon for each
day from the date such amount is made available to the Company by the Agent
until the date such amount is repaid to the Agent at a rate per annum equal to
the interest rate applicable to such Loan during such period. If such Lender
shall pay such amount to the Agent together with interest, such amount so paid
shall constitute a loan by such Lender as a part of such Revolving Credit Loan
for the purposes of this Agreement. The failure of any Lender to make its pro
rata portion of any such Loan available to the Agent shall not relieve any
other Lender of its obligations to make available its pro rata portion of such
Revolving Credit Loan on the date required under this Section 3.1, but no
Lender shall be responsible for the failure of any other Lender to make such
pro rata portion available to the Agent on the date required under this Section
3.1.
CREDIT AGREEMENT
-19-
<PAGE> 20
(c) All Revolving Credit Loans made under this Section 3.1 shall be
evidenced by the Revolving Credit Notes and each Revolving Credit Loan shall be
made by the Lenders pro rata in accordance with their Commitments. All Loans
shall be due and payable and bear interest as provided in Article IV hereof.
Each Lender is hereby authorized by the Company to note on the schedule
attached to its Revolving Credit Notes or otherwise on its books and records
the date, amount and type of each Loan, the related Interest Period (if
applicable), the amount of each payment or prepayment of principal thereon, and
the other information provided for on such schedule, which schedule or books
and records shall constitute prima facie evidence of the information so noted,
provided that failure of any Lender to make any such notation, or any error in
any such notation, shall not relieve the Company of its obligation to repay the
outstanding principal amount of the Revolving Credit Loans, all accrued
interest thereon and other amounts payable with respect thereto in accordance
with the terms of the Revolving Credit Notes and this Agreement. Subject to
the terms and conditions of this Agreement, the Company may borrow, prepay
pursuant to Section 4.1 hereof, and reborrow Revolving Credit Loans, under this
Section 3.1.
(d) All Bid Rate Loans shall be disbursed directly by the Lender making
such Bid Rate Loan to the Company by 2:30 p.m. Detroit time on the date such
Bid Rate Loan is requested to be made via wire transfer in immediately
available funds to NBD Bank, 611 Woodward Avenue, Detroit, Michigan 48226, ABA
Number 072000326, Attention: Perrigo Company, Credit Account Number 8605-23,
confirm to William C. Goodhue (313) 225-2227 or as otherwise directed by the
Company.
(e) Nothing in this Agreement shall be construed to require or authorize
any Lender to issue any Letter of Credit, it being recognized that the Agent
has the sole obligation under this Agreement to issue Letters of Credit on
behalf of the Lenders and the Revolving Credit Commitment of each Lender with
respect to Letter of Credit Advances are expressly conditioned upon the Agent's
performing such obligations. Upon such issuance by the Agent, each Lender
shall automatically acquire a pro rata risk participation interest in such
Letter of Credit Advance based on its respective Revolving Credit Commitment.
If the Agent shall honor a draft or other demand for payment presented or made
under any Letter of Credit, the Agent shall provide notice thereof to each
Lender on the date such draft or demand is honored unless the Company shall
have satisfied its reimbursement obligation under Section 4.3 by payment to the
Agent on such date. Each Lender, on such date, shall make its pro rata share
of the amount paid by the Agent and not reimbursed by the Company available in
immediately available funds at the principal office of the Agent for the
account of the Agent. If and to the extent such Lender shall not have made
such pro rata portion available to the Agent, such Lender and the Company
severally agree to pay to the Agent forthwith on demand such amount together
with interest thereon, for each day from the date such amount was paid by the
Agent until such amount is so made available to the Agent at a per annum rate
equal to the interest rate applicable during such period to the related Loan
disbursed under Section 4.3 in respect of the reimbursement obligation of the
Company. If such Lender shall pay such amount to the Agent together with such
interest, such amount so paid shall constitute a Revolving Credit Loan by such
Lender disbursed in respect of the reimbursement obligation of the Company
under Section 4.3 for purposes of this Agreement. The failure of any Lender to
make its pro rata portion of any such amount paid by the Agent available to the
Agent shall not relieve any other Lender of its obligation to make available
its pro rata portion of such amount, but no Lender shall be responsible for
failure of any other Lender to make such pro rata portion available to the
Agent.
Conditions for Disbursement of Initial Loans and/or Letter of Credit
Advances. The obligation of the Lenders to make the initial Loan or of the
Agent to issue the initial Letter of Credit
CREDIT AGREEMENT
-20-
<PAGE> 21
hereunder is subject to receipt by the Agent of the following documents, in
form and substance satisfactory to the Agent:
(a) Charter Documents. Copies of all charter documents of each of the
Company and the Guarantors on file in their respective states of incorporation,
certified as of a recent date by the appropriate authority or official of such
states and certified as true and correct as of the Effective Date by a duly
authorized officer of each of the Company and the Guarantors;
(b) Bylaws and Corporate Authorizations. Copies of the respective by-laws
of each of the Company and the Guarantors, together with all authorizing
resolutions and evidence of other corporate action taken by the Company and the
Guarantors to authorize the execution, delivery and performance by the Company
of this Agreement and the Notes and by each of the Guarantors of the Guaranty
to which it is a party, and the consummation by each of them of the
transactions contemplated hereby, each certified as true and correct as of the
Effective Date by a duly authorized officer of each of the Company and the
Guarantors;
(c) Incumbency Certificate. Certificates of incumbency of each of the
Company and the Guarantors containing and attesting to the genuineness of the
signatures of those officers authorized to act on behalf of the Company in
connection with the Agreement and the Notes and of each of the Guarantors in
connection with the Guaranty and the consummation by each of them of the
transactions contemplated hereby, certified as true and correct as of the
Effective Date by a duly authorized officer of each of the Company and the
Guarantors;
(d) Good Standing Certificates. Certificates of recent dates of (i) the
Director of the Department of Commerce of the State of Michigan certifying as
to good standing and corporate existence of each of the Company, LPC and PSC in
the State of Michigan; (ii) the appropriate governmental official of the State
of Tennessee certifying as to the good standing and corporate existence of PTN
and Cumberland Freight in the State of Michigan; and (iii) the appropriate
governmental official certifying as to the good standing of each of the Company
and each Guarantor in each additional jurisdiction such person should be
qualified to do business, except where the failure to be so qualified would
have a material adverse effect on the properties, business, operations, or
condition, financial or otherwise, of the Company or such Guarantor;
(e) Notes. The Notes, appropriately completed for each Lender duly
executed on behalf of the Company;
(f) Guaranty. A fully executed guaranty or confirmation of guaranty
whereby the Guarantors guarantee all obligations of the Company to the Lenders
and the Agent under this Agreement and the Notes;
(g) Legal Opinion. The favorable written opinion of Law, Weathers &
Richardson, counsel for the Company and the Guarantors, relating to those
matters referenced in Sections 5.1, 5.2, 5.3, 5.5 and 5.7 of this Agreement and
paragraphs 5(a) and (b) of the Guaranty, in form and substance satisfactory to
the Lenders and as to such other matters as the Lenders may reasonably request;
(h) Solvency Certificate. The Solvency Certificate, in form, and
substance satisfactory to the Agent, executed by the chief executive officer
and the chief financial officer of the Company, together with
CREDIT AGREEMENT
-21-
<PAGE> 22
balance sheets as of March 31, 1996 of the Company and each of LPC, PSC, and
PTN and of the Company, LPC, PSC, and PTN on a consolidated basis;
(i) Payment of Indebtedness Under Prior Credit Agreement. Payment in full
(which payment shall be made simultaneously with the first Loans made under
this Agreement) of the outstanding principal balance and all interest accrued
through the Effective Date hereof on the loans and all fees accrued under the
Prior Credit Agreement, and it is hereby acknowledged and agreed that the
Commitments replace all commitments to lend under the Prior Agreement, all of
which commitments to lend under the Prior Credit Agreement shall be terminated
simultaneously upon this Agreement being executed;
(j) Additional Documents. Such additional agreements and documents, fully
executed by the Company and its Subsidiaries, requested by the Agent as the
Agent may consider to be necessary or desirable to implement or further the
provisions and intent of this Agreement.
Further Conditions for Disbursement of Loans and/or Letter of Credit
Advances. No Lender shall be obligated to make any Loan and the Agent shall
not be obligated to issue any Letter of Credit (including the initial Loan or
Letter of Credit) unless (a) no Default exists or shall have occurred and be
continuing on the date such Loan or Letter of Credit Advance is made, and the
representations and warranties set forth in Article V hereof are true and
correct as of the date such Loan or Letter of Credit Advance is made with the
same effect as if made on such date and (b) in the case of any Letter of Credit
Advance, the Company shall have delivered to the Agent an application for the
related Letter of Credit and other related documentation requested by and
acceptable to the Agent appropriately completed and duly executed on behalf of
the Company. The Company shall be deemed to have made a certification to the
Lenders at the time of the making of each Loan or Letter of Credit Advance to
the effect set forth in this Section 3.3. For purposes of this Section 3.3,
the representations and warranties contained in Section 5.10 shall be deemed
made with respect to both the financial statements referred to therein and the
most recent financial statements delivered pursuant to Section 6.1(d)(ii) and
(iii).
Subsequent Elections as to Revolving Credit Loans. The Company may elect
(a) to continue a Fixed Rate Loan or a portion thereof, as a Fixed Rate Loan of
the then-existing type, or (b) to convert a Fixed Rate Loan of one type, or a
portion thereof, to a Loan of another type, or (c) to convert a Prime Rate
Loan, or a portion thereof, to a Fixed Rate Loan, or, (d) to convert a Loan
denominated in a Permitted Currency to a Loan denominated in another Permitted
Currency, in each case by giving notice thereof to the Agent in substantially
the form of Exhibit J hereto not later than 1:30 p.m. Detroit time three
Eurocurrency Business Days prior to the date any such continuation of or
conversion to a Eurocurrency Rate Loan is to be effective and not later than
1:30 p.m. Detroit time one day prior to the date any such continuation or
conversion is to be effective in all other cases; provided that an outstanding
Fixed Rate Loan may only be converted on the last day of the then-current
Interest Period with respect to such Loan, and provided, further, if a
continuation of a Revolving Credit Loan as, or a conversion of a Loan to, a
Fixed Rate Loan is requested, such notice shall also specify the Interest
Period and the Permitted currency, if applicable, to be applicable thereto upon
such continuation or conversion. The Agent, no later than 3:00 p.m. Detroit
time on the day such notice is received, shall provide notice of such election
to the Lenders and provided, further, that a Revolving Credit Loan may not be
converted to a Swing Line Loan. If the Company shall not timely deliver such a
notice with respect to any outstanding Fixed Rate Loan, the Company shall be
deemed to have elected to convert such Fixed Rate Loan to a Prime Rate Loan on
the last day of the then-current Interest Period with
CREDIT AGREEMENT
-22-
<PAGE> 23
respect to such Fixed Rate Loan.
Limitation of Requests and Elections. Notwithstanding any other provision
of this Agreement to the contrary, if, upon receiving a request for a Fixed
Rate Loan pursuant to Section 3.1 hereof, or a request for a continuation or
conversion of a Fixed Rate Loan, or a portion thereof, as a Fixed Rate Loan, or
a request for a conversion of a Prime Rate Loan, or a portion thereof, to a
Fixed Rate Loan pursuant to Section 3.4, or a request for a conversion of a
Loan denominated in a Permitted Currency to a Loan denominated in another
Permitted Currency, (a) in the case of any Fixed Rate Loan, deposits in the
relevant Permitted Currency for periods comparable to the Interest Period
elected by the Company are not available to any Lender in the relevant
interbank market, or (b) the CD Rate or Eurodollar Rate will not adequately and
fairly reflect the cost to any Lender of making, funding or maintaining the
related Fixed Rate Loan, or (c) by reason of national or international
financial, political or economic conditions or by reason of any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect, or the interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by any Lender with any guideline, request or directive of such
authority (whether or not having the force of law), including without
limitation exchange controls, it is impracticable, unlawful or impossible for
any Lender (i) to make or fund the relevant Fixed Rate Loan, or (ii) to
continue or convert such Fixed Rate Loan, or a portion thereof, as a Fixed Rate
Loan, or (iii) to convert a Prime Rate Loan, or a portion thereof, to a Fixed
Rate Loan, or (iv) the Company to make or any Lender to receive any payment
under this Agreement at the place specified for payment hereunder or to freely
convert any amount paid into Dollars at market rates of exchange or to transfer
any amount paid or so converted to the address of its principal office, then
the Company shall not be entitled, so long as such circumstances continue, to
request a Loan of the affected type pursuant to Section 3.1 or a continuation
of or conversion to a Loan of the affected type pursuant to Section 3.4. In
the event that such circumstances no longer exist, the Lenders shall again
consider requests for Loans of the affected type pursuant to Section 3.1, and
requests for continuations of and conversions to Loans of the affected type
pursuant to Section 3.4.
Minimum Amounts. Except for (a) Revolving Credit Loans and conversions
which exhaust the entire remaining amount of the Credit and (b) conversions or
payments required pursuant to Article IX hereof, each Fixed Rate Loan shall be
in a minimum amount of $1,000,000 and in integral multiples thereof (or the
Dollar Equivalent thereof) and each Prime Rate Loan shall be in a minimum
amount and in integral multiples of $1,000,000 (or the Dollar Equivalent
thereof). The aggregate number of Fixed Rate Loans outstanding at any one time
under this Agreement may not exceed five.
ARTICLE IV. PAYMENTS AND PREPAYMENTS OF LOANS
1 Principal Payments.
(a) Unless earlier payment is required under this Agreement, the Company
shall pay to the Agent for the account of the Lenders (i) on the Termination
Date, the outstanding principal amount of all Revolving Credit Loans and (ii)
on the stated maturity date, the outstanding principal amount of all Swing Line
Loans but in no event shall such date be later than the Termination Date.
CREDIT AGREEMENT
-23-
<PAGE> 24
(b) Unless earlier payment is required under this Agreement, the Company
shall, on the maturity date of any Bid Rate Loan, pay to the Lender of such Bid
Rate Loan the outstanding principal amount of such Loan.
(c) The Company may at any time and from time to time prepay all or any
portion of the Loans without premium or penalty, provided that (i) the Company
may not prepay any portion of any Revolving Credit Loan as to which an election
for continuation as or conversion to a Fixed Rate Loan is pending pursuant to
Section 3.1 or 3.4 hereof, (ii) unless earlier payment is required under this
Agreement, any Fixed Rate Loan or Bid Rate Loan may only be paid on the last
day of the then-current Interest Period with respect to such Loan and no
prepayments thereof are allowed, and (iii) each such prepayment of any Loan
shall be in a minimum amount and in integral multiples of $1,000,000.
(d) If at any time the Dollar Equivalent of the aggregate principal
amounts outstanding under the Loans and Letters of Credit exceed the
Commitments, the Company shall immediately pay to the Agent for the account of
the Lenders an amount not less than the amount of such excess, to be applied
first to the amounts outstanding under the Revolving Credit Loans, then to the
amounts outstanding under the remaining Loans, and the remainder, if any, to be
held by the Agent on behalf of the Lenders as cash collateral securing any
reimbursement obligations which may arise under the outstanding Letters of
Credit, if any; the Company grants to the Agent for the benefit of the Lenders
a first-priority lien and security interest in this cash collateral, and all
cash collateral shall be in the Agent's sole and exclusive control.
(e) If at any time the face amount of the Letters of Credit exceed the
lesser of $10,000,000 and the Commitment, the Company shall immediately pay to
the Agent for the account of the Lenders an amount not less than the amount of
such excess, to be applied first to the amounts outstanding under the Revolving
Credit Loans, and the remainder, if any, to be held by the Agent on behalf of
the Lenders as cash collateral securing any reimbursement obligations which may
arise under the outstanding Letters of Credit, if any.
Interest Payments. (a) The Company shall pay interest to the Agent for
the account of the Lenders on the unpaid principal amount of each Loan for the
period commencing on the date such Loan is made until such Loan is paid in
full, on each Interest Payment Date and on the Termination Date, and thereafter
on demand, at the following rates per annum:
(i) During such periods that such Loan is a Prime
Rate Loan, the Prime Rate;
(ii) During such periods that such Loan is a Eurocurrency Rate
Loan, the Eurocurrency Rate applicable to such Loan for the
related Interest Period;
(iii) During such periods that such Loan is a CD Rate Loan, the CD
Rate applicable to such Loan for the related Interest Period;
(iv) During such periods that such Loan is a Bid Rate Loan, the
Bid Rate applicable to such Loan for each related Bid Rate
Interest Period; and
(v) During such periods that such Loan is a Swing
Line Loan, the Swing Line Rate applicable to such Loan for
each related Swing Line Interest Period; and
CREDIT AGREEMENT
-24-
<PAGE> 25
(vi) Notwithstanding the foregoing paragraphs (i)
through (v), the Company agrees to pay interest on demand at
the Overdue Rate on the outstanding principal amount of any
Loan and any other amount payable by the Company hereunder
(other than interest) which is not paid in full within five
Business Days from the due date thereof (whether at stated
maturity, by acceleration or otherwise) for the period
commencing on the sixth day after the due date thereof until
the same is paid in full.
(b) So long as no Default has occurred and is continuing, interest payable
on any Interest Payment Date on any of the Prime Rate Loans shall be for
interest accrued on the Loans through the end of the preceding month.
1.2 Letter of Credit Reimbursement Payments. (a) The Company agrees to
pay to the Agent, on the day on which the Agent shall honor a draft or other
demand for payment presented or made under any Letter of Credit, an amount
equal to the amount paid by the Agent in respect of such draft or other demand
under such Letter of Credit and all expenses paid or incurred by the Agent
relative thereto. Unless the Company shall have made such payment to the Agent
on such day, upon each such payment by the Agent, the Agent shall be deemed to
have disbursed to the Company, and the Company shall be deemed to have elected
to satisfy its reimbursement obligation by, a Revolving Credit Loan bearing
interest at the Prime Rate for the account of the Lenders in an amount equal to
the amount so paid by the Agent in respect of such draft or other demand under
such Letter of Credit. Such Revolving Credit Loan shall be disbursed
notwithstanding any failure to satisfy any conditions for disbursement of any
Loan set forth in Article III hereof and, to the extent of the Revolving Credit
Loan so disbursed, the reimbursement obligation of the Company under this
Section 4.3 shall be deemed satisfied without, however, constituting any waiver
by the Lenders or the Agent as to any Default then existing or thereby created.
(b) The reimbursement obligation of the Company under this Section 4.3
shall be absolute, unconditional and irrevocable and shall remain in full force
and effect until all obligations of the Company to the Lenders hereunder shall
have been satisfied, and such obligations of the Company shall not be affected,
modified or impaired upon the happening of any event, including without
limitation, any of the following, whether or not with notice to, or the consent
of, the Company:
(i) Any lack of validity or enforceability of any
Letter of Credit or any documentation relating to any Letter
of Credit or to any transaction related in any way to such
Letter of Credit (the "Letter of Credit Documents");
(ii) Any amendment, modification, waiver, consent, or
any substitution, exchange or release of or failure to perfect
any interest in collateral or security, with respect to any of
the Letter of Credit Documents;
(iii) The existence of any claim, setoff, defense or
other right which the Company may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any
persons or entities for whom any such beneficiary or any such
transferee may be acting), the Agent or any Lender or any
other person or entity, whether in connection with any of the
Letter of Credit Documents, the transactions contemplated
herein or therein or any unrelated transactions;
CREDIT AGREEMENT
-25-
<PAGE> 26
(iv) Any draft or other statement or document
presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any
statement therein being untrue or inaccurate in any respect;
(v) Payment by the Agent to the beneficiary under any
Letter of Credit against presentation of documents which do
not comply with the terms of the Letter of Credit, including
failure of any documents to bear any reference or adequate
reference to such Letter of Credit;
(vi) Any failure, omission, delay or lack on the part
of the Agent or any Lender or any party to any of the Letter
of Credit Documents to enforce, assert or exercise any right,
power or remedy conferred upon the Agent, any Lender or any
such party under this Agreement or any of the Letter of Credit
Documents, or any other acts or omissions on the part of the
Agent, any Lender or any such party; and
(vii) Any other event or circumstance that would, in
the absence of this clause, result in the release or
discharge by operation of law or otherwise of the Company from
the performance or observance of any obligation, covenant or
agreement contained in this Section 4.3.
No setoff, counterclaim, reduction or diminution of any obligation or any
defense of any kind or nature which the Company has or may have against the
beneficiary of any Letter of Credit shall be available hereunder to the Company
against the Agent or any Lender. Nothing in this Section 4.3 shall limit the
liability, if any, of the Lenders to the Company pursuant to Section 10.5(b).
1.3 Payment Method. (a) All payments to be made by the Company hereunder
will be made in immediately available funds to the Agent (i) in the case of
principal and interest on any Loan, in the Permitted Currency in which such
Loan is denominated and (ii) in all other cases, in the otherwise specified or
relevant currency. All payments in Dollars shall be made to the Agent not
later than 1:30 p.m. Detroit time on the date on which such payment shall
become due, and all payments in a Permitted Currency other than dollars shall
be made by credit to the Agent's account at its designated branch or
correspondent bank in the country issuing the relevant Permitted Currency, or
in such other place specified by the Agent, not later than 1:30 p.m. in the
local time at the place for payment. Payments received after 1:30 p.m. local
time shall be deemed to be payments made prior to 1:30 p.m. local time on the
next succeeding Business Day. The Company hereby authorizes the Agent to
charge its account with the Agent in order to cause timely payment of amounts
due hereunder to be made (subject to sufficient funds being available in such
account for that purpose).
(b) At the time of making each such payment, the Company shall, subject to
the other terms and conditions of this Agreement, specify to the Agent that
obligation of the Company hereunder to which such payment is to be applied, or,
if an Event of Default shall have occurred and be continuing, the Agent shall
apply such payments as follows: first, to reimburse the Agent for all costs
and expenses incurred by and in connection with performing its duties and
obligations hereunder and any documents executed in connection herewith;
second, on a pro rata basis, all accrued but unpaid commitment fees, letter of
credit fees, agent fees, fronting fees, and other similar fees due hereunder;
third, on a pro rata basis, all accrued but unpaid
CREDIT AGREEMENT
-26-
<PAGE> 27
interest on any Loans, provided that if no Event of Default has occurred and is
continuing, interest shall be paid on the Revolving Credit Loans before payment
of interest on other Loans; fourth, on a pro rata basis, to pay all principal
on all Loans and all cash collateral and reimbursement obligations under
Letters of Credit, provided, that if no Event of Default shall have occurred
and be continuing, the principal amount of Revolving Credit Loans shall be paid
prior to payment of any principal on any other Loans or any cash collateral or
reimbursement obligations under Letters of Credit; and fifth, to pay to the
Agent and the Lenders any other amounts payable hereunder.
(c) On each day such payments are deemed received, the Agent shall remit
to the Lenders their pro rata shares of such payments in immediately available
funds via wire transfer (i) in the case of payments of principal and interest
on the Revolving Credit Loans, determined with respect to each such Lender by
the ratio which the outstanding principal balance of its Revolving Credit Notes
bears to the outstanding principal balance of all such Revolving Credit Notes
and (ii) in the case of facility fees, letter of credit fees paid pursuant to
Sections 2.4 through 2.6, and other amounts payable hereunder (other than
amounts payable with respect to Article X hereof), determined with respect to
each such Lender by the ratio which the Commitment of such Lender bears to the
Commitments of all the Lenders.
(d) This Agreement arises in the context of an international transaction,
and the specification of payment in a specific currency at a specific place
pursuant to this Agreement is of the essence. Such specified currency shall be
the currency of account and payment under this Agreement. The Company's
obligations hereunder shall not be discharged by an amount paid in any other
currency or at another place, whether pursuant to a judgment or otherwise, to
the extent that the amount so paid, on prompt conversion into the applicable
currency and transfer to the Lenders under normal banking procedure, does not
yield the amount of such currency due under this Agreement. In the event that
any payment, whether pursuant to a judgment or otherwise, upon conversion and
transfer, does not result in payment of the amount of such currency due under
this Agreement, the Lenders shall have an independent cause of action against
the Company for the currency deficit.
(e) If for purposes of obtaining judgment in any court, it becomes
necessary to convert any currency due hereunder into any other currency, the
Company will pay any additional amount as may be necessary to ensure that the
amount paid in respect of such judgment is the amount in such other currency
which, when converted at the Agent's spot rate of exchange prevailing on the
date of payment, would yield the same amount of the currency due hereunder.
Any amount due from the Company under this Section will be due as a separate
debt and shall not be affected by judgment being obtained for any other sum due
under or in respect of this Agreement.
1.4 No Setoff or Deduction. (a) All payments of principal of and
interest on the Loans and other amounts payable by the Company hereunder shall
be made by the Company without setoff or counterclaim, and free and clear of,
and without deduction or withholding for, or on account of, any present or
future taxes, levies, imposts, duties, fees, assessments, or other charges of
whatever nature, imposed by any governmental authority, or by any department,
agency or other political subdivision or taxing authority.
(b) If at any time the Company is required by law or by any directive or
order of any court of competent jurisdiction to make any deduction or
withholding of whatever nature from any payment due in
CREDIT AGREEMENT
-27-
<PAGE> 28
any Permitted Currency under this Agreement, the Company will ensure that the
same does not exceed the minimum liability therefor and will (i) pay to any
Lender on request such additional amount as such Lender certifies will result
in the net amount received by it after all deductions being equal to the full
amount which would have been receivable had there been no deduction or
withholding and (ii) pay forthwith to the relevant authorities the full amount
of the deduction or withholding and deliver to the Agent such an official
receipt, certificate or other proof evidencing the amount paid in respect of
such deduction or withholding. Any additional amount paid under this
sub-clause shall not be treated as interest but as agreed compensation.
1.5 Payment on Non-Business Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan outstanding hereunder or any other
amount due hereunder, becomes due and payable on a day which is not a Business
Day, the maturity thereof shall be extended to the next succeeding Business Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during such extension. Computations of interest and other amounts due under
this Agreement shall be made on the basis of a year of 360 days, or 365 or 366
days, as determined by custom in the relevant market, for the actual number of
days elapsed, including the first day but excluding the last day of the
relevant period.
ARTICLE V. REPRESENTATIONS AND WARRANTIES
The Company represents and warrants that:
1 Corporate Existence and Power. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan
and is duly qualified to do business in each additional jurisdiction where the
failure to so qualify would have a material adverse effect on the properties,
business, operations, or condition, financial or otherwise, of the Company.
The Company has all requisite corporate power to own its properties and to
carry on its business as now being conducted and as proposed to be conducted,
and to execute and deliver this Agreement and the Notes and to engage in the
transactions contemplated by this Agreement.
1.1 Corporate Authority. The execution, delivery and performance by the
Company and the Guarantors of this Agreement, the Guaranty and the Notes, are
within their corporate powers, have been duly authorized by all necessary
corporate action, and do not contravene any law, rule or regulation, or any
judgment, decree, writ, injunction, order or award of any arbitrator, court or
governmental authority, or of the terms of the Company's or any Guarantor's
charter or by-laws, or of any contract or undertaking to which the Company or
any Subsidiary is a party or by which the Company, any Guarantor or their
property may be bound or affected; and neither the Company nor any Subsidiary
is in default under any such law, rule or regulation, judgment, decree, writ,
injunction, order or award of any arbitrator, court of governmental authority,
or of any contract or undertaking to which the Company or any Subsidiary is a
party or by which the Company or its property or any Subsidiary or any of its
property may be bound or affected, where such default could have a material
adverse effect on the business, properties, operations or condition, financial
or otherwise, of the Company or any Subsidiary.
CREDIT AGREEMENT
-28-
<PAGE> 29
1.2 Binding Effect. This Agreement, the Guaranty and the Notes when
delivered hereunder will be, legal, valid and binding obligations of the
Company and each Guarantor enforceable against the Company and each Guarantor
in accordance with their respective terms, except as limited by applicable
bankruptcy, insolvency, reorganization, moratorium, or other laws relative to
or affecting the enforcement of creditors' rights generally in effect from time
to time and by general principles of equity.
1.3 Subsidiaries. Exhibit K hereto correctly sets forth the corporate
name, jurisdiction of incorporation and ownership percentage of each
Subsidiary. Each such Subsidiary is and each corporation becoming a Subsidiary
after the date hereof will be a corporation duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation and
duly qualified to do business in each additional jurisdiction where the failure
to so qualify would have a material adverse effect on the properties, business,
operations, or condition, financial or otherwise, of the Company and the
Subsidiaries, on a consolidated basis. Each Subsidiary has and will have all
requisite corporate power to own its properties and to carry on its business as
now being conducted and as proposed to be conducted. All outstanding shares of
capital stock of each class of each Subsidiary have been and will be validly
issued and will be fully paid and nonassessable and, except as otherwise
indicated on Exhibit K hereto, are and will be owned, beneficially and of
record, by the Company or another Subsidiary of the Company free and clear of
any liens, charges, encumbrances or rights of others whatsoever, other than
Liens permitted under Section 6.2(f).
1.4 Litigation. Except as set forth on Exhibit R, there are no actions,
suits or proceedings pending or, to the best of the Company's knowledge,
threatened against or affecting the Company or any of its Subsidiaries before
any court, governmental authority, or arbitrator which, if adversely decided,
might result, either individually or collectively, in any material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company and the Subsidiaries on a consolidated basis and, to
the best of the Company's knowledge, there is no basis for any such action,
suit or proceeding.
1.5 Use of Loans and Letter of Credit Advances. The Company does not
extend or maintain, in the ordinary course of business, credit for the purpose,
whether immediate, incidental, or ultimate, of buying or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Loan or Letter of Credit
Advance will be used for the purpose, whether immediate, incidental, or
ultimate, of buying or carrying any such margin stock or maintaining or
extending credit to others for such purpose. After applying the proceeds of
each Loan and Letter of Credit Advance, not more than 25% of the value of the
assets (either of the Company alone or of the Company and its Subsidiaries on a
consolidated basis) subject to the provisions of this Agreement that may cause
the Loan or any Letter of Credit Advance to be deemed secured will constitute
such margin stock.
1.6 Consents, Etc. No consent, approval or authorization of or
declaration, registration or filing with any governmental authority or any
nongovernmental person or entity, including without limitation any creditor or
stockholder of the Company or any of the Subsidiaries, is required on the part
of the Company or any of the Subsidiaries in connection with the execution,
delivery and performance by the Company of this Agreement and the Notes and by
the Guarantors of any Guaranty or the transactions contemplated hereby or as a
condition to the legality, validity or enforceability of this Agreement, the
Notes or the Guaranties except for such consents approvals, authorizations,
declarations, registrations or filings which have been obtained and are in full
force and effect.
CREDIT AGREEMENT
-29-
<PAGE> 30
Taxes. Each of the Company and each Subsidiary has filed or has caused to
be filed all tax returns (federal, state and local) required to be filed
(unless the failure to file such returns would not materially adversely affect
the business, properties, operations or condition, financial or otherwise, of
the Company and its Subsidiaries on a consolidated basis) and has paid all
taxes shown thereon to be due, including interest and penalties, or, if
required by generally accepted accounting principles, has established adequate
financial reserves on its books and records for payment thereof.
Title to Properties. Each of the Company and the Subsidiaries has good
and marketable title to, and a valid indefeasible ownership interest in, all of
its properties and assets (other than property and assets which do not
materially adversely affect the business or financial condition of the Company
and the Subsidiaries on a consolidated basis) and all of its properties and
assets are free and clear of any Lien except Liens permitted by Section 6.2(f).
Financial Condition. The consolidated balance sheet of the Company and
its Subsidiaries and the consolidated statements of income, retained earnings
and cash flows of the Company and its Subsidiaries for the fiscal year ended
June 30, 1995, certified by BDO/Seidman, independent certified public
accountants, and the interim consolidated balance sheet and interim
consolidated statements of income and cash flow as of or for the nine-month
period ended on March 31, 1996, copies of which have been furnished to the
Lenders, fairly present the consolidated financial condition of the Company and
its Subsidiaries as at the date thereof, and the consolidated results of
operations of the Company and its Subsidiaries for the periods indicated, all
in accordance with generally accepted accounting principles consistently
applied. There has been no material adverse change in the business,
properties, operations, or in the condition, financial or otherwise of the
Company and its Subsidiaries, on a consolidated basis, since June 30, 1995.
There are no liabilities of the Company or any Subsidiary, fixed or contingent,
which are material but are not reflected in such financial statements or the
notes thereto.
Solvency. The Company and its Subsidiaries, individually and on a
consolidated basis, are Solvent.
ERISA Compliance. The Company, its Subsidiaries, their ERISA Affiliates
and their respective Plans are in compliance in all material respects with
those provisions of ERISA and of the Code which are applicable with respect to
any Plan. No Prohibited Transaction and no Reportable Event has occurred with
respect to any Plan. None of the Company, any of its Subsidiaries or any ERISA
Affiliate is an employer with respect to any Multiemployer Plan. The Company,
its Subsidiaries and their ERISA Affiliates have met the minimum funding
requirements under ERISA and the Code with respect to each of their respective
Plans, if any, and have not incurred any liability to the PBGC or any Plan.
The execution, delivery and performance of this Agreement and the Notes do not
constitute a Prohibited Transaction. There is no material unfunded benefit
liability, determined in accordance with Section 4001(a)(18) of ERISA, with
respect to any Plan.
Labor Disputes and Casualties. Neither the business nor the properties of
the Company or any Subsidiary are affected by any strike, lockout or other
labor dispute, or by any fire, accident, or other casualty, which materially
and adversely affects such business or properties or the operation of the
Company and its Subsidiaries on a consolidated basis.
CREDIT AGREEMENT
-30-
<PAGE> 31
Environmental, Safety, Drug and Cosmetic Regulations. Except as disclosed
on Exhibit L hereto, the Company and each Subsidiary is in compliance in all
material respects with all federal, state and local laws, ordinances and
regulations relating to safety, industrial hygiene, the environmental condition
or the manufacture, sale or distribution of any drug or cosmetic, including,
without limitation all Environmental Laws in jurisdictions in which the Company
or any Subsidiary owns or operates, or has owned or operated, a facility or
site, or arranges or has arranged for disposal or treatment of hazardous
substances, solid waste, or other wastes, accepts or has accepted for transport
any hazardous substances, solid wastes or holds or has any interest in real
property or otherwise. No demand, claim, notice, suit, suit in equity, action,
administrative action, investigation or inquiry whether brought by any
governmental authority, private person or entity or otherwise, arising under,
relating to or in connection with any Environmental Laws is pending or
threatened against the Company or any of its Subsidiaries, any real property in
which the Company or any such Subsidiary holds or has held an interest or any
past or present operation of the Company or any Subsidiary, the outcome of
which, if adversely determined against the Company or any Subsidiary, would be
material to the business, operations, properties or condition, financial or
otherwise, of the Company and its Subsidiaries on a consolidated basis.
Neither the Company nor any Subsidiary (a) is the subject of any federal or
state investigation evaluating whether any remedial action is needed to respond
to a release of any toxic substances, radioactive materials, hazardous wastes
or related materials into the environment, (b) has received any notice of any
toxic substances, radioactive materials, hazardous waste or related materials
in or upon any of its properties in violation of any Environmental Laws, except
as disclosed on Exhibit L hereto, and, as to such matters disclosed on Exhibit
L, none, if adversely decided, would result, either individually or
collectively, in any material adverse change in the business, operations,
properties or condition, financial or otherwise, of the Company and its
Subsidiaries on a consolidated basis, (c) has received any notice or to its
knowledge is the subject of any federal or state investigation with respect to
any material violation of any laws or regulations relating to the manufacture,
sale or distribution of any drug or cosmetic, including without limitation the
Federal Food, Drug and Cosmetic Act, 21 USC Section Section 301 et seq., or
(d) knows of any basis for any such investigation, notice or violation other
than an investigation, notice, or violation which, if adversely decided, would
not result, either individually or collectively, in any material adverse change
in the business, operations, properties or condition, financial or otherwise,
of the Company and the Subsidiaries, on a consolidated basis.
ARTICLE VI. COVENANTS
1 Affirmative Covenants. The Company covenants and agrees that, until the
Termination Date and thereafter until payment in full of the principal of and
accrued interest on the Notes, the termination or expiration of all Letters of
Credit and the performance of all other obligations of the Company under this
Agreement, unless the Majority Lenders shall otherwise consent in writing, it
shall, and shall cause each of the Subsidiaries to:
(a) Preservation of Corporate Existence, Etc. Except as permitted under
Section 6.2(g), preserve and maintain its corporate existence, rights,
privileges, licenses, franchises and permits and qualify and remain qualified
as a validly existing corporation in good standing in each jurisdiction in
which the failure to so qualify would have a material adverse effect on the
properties, business, operations or condition, financial or otherwise, of the
Company and the Subsidiaries, on a consolidated basis.
CREDIT AGREEMENT
-31-
<PAGE> 32
(b) Compliance with Laws, Etc. Comply in all material respects with all
applicable laws, rules, regulations and orders of any governmental authority,
whether federal, state, local or foreign (including without limitation ERISA,
the Code and Environmental Laws), in effect from time to time; and pay and
discharge promptly when due all taxes, assessments and governmental charges or
levies imposed upon it or upon its income, revenues or property, before the
same shall become delinquent or in default; as well as all lawful claims for
labor, materials and supplies or otherwise, which, if unpaid, might give rise
to liens upon such properties or any portion thereof), except to the extent
that failure to comply with the foregoing would not have a material adverse
impact on the business or financial condition of the Company and the
Subsidiaries, on a consolidated basis, or that compliance with any of the
foregoing is then being contested in good faith by appropriate legal
proceedings and with respect to which adequate financial reserves have been
established on the books and records of the Company or its Subsidiaries, if
required by generally accepted accounting principles.
(c) Maintenance of Insurance. Maintain insurance with responsible and
reputable insurance companies or associations in such amounts and covering such
risks as is usually carried by companies engaged in similar or comparable
businesses, or otherwise in the manner determined in the reasonable judgment of
the Company which would not have a material adverse effect on the financial
condition of the Company and its Subsidiaries on a consolidated basis,
including without limitation such workers' compensation insurance as required
by law, unless the Company or any Subsidiary is qualified and duly authorized
by law to self-insure with respect to its workers' compensation liability and
is not otherwise prohibited by this Agreement from doing so, and products
liability insurance. The insurance listed on Exhibit M hereto is currently in
full force and effect.
(d) Reporting Requirements. Furnish to the Lenders the following:
(i) Promptly and in any event within 10 calendar days
after becoming aware of the occurrence of (A) any Event of
Default or any event or condition which, with notice or lapse
of time, or both, would constitute an Event of Default, (B)
the commencement of any material litigation against, by or
affecting the Company or any Subsidiary, and any material
developments therein, (C) the entry into any material contract
or undertaking that is not entered into in the ordinary course
of business, (D) any development in the business or affairs of
the Company or any of its Subsidiaries which has resulted in
or which is likely, in the reasonable judgment of the Company,
to result in any material adverse change in the business,
properties, operations or condition, financial or otherwise,
of the Company or any of its Subsidiaries, or (E) any notice
from any governmental entity, including without limitation the
Food and Drug Administration and the Environmental Protection
Agency, of any formal or informal investigation or violation
of any law or regulation with respect to the Company or any
Subsidiary (other than customary, reoccurring or routine
investigations) which is likely, in the reasonable judgment of
the Company, to result in any material adverse change in the
business, properties, operations or conditions, financial or
otherwise, of the Company or any of its Subsidiaries, together
with a statement of the chief financial officer of the Company
setting forth the details of any of the foregoing and the
action which the Company has taken and proposes to take with
respect thereto;
CREDIT AGREEMENT
-32-
<PAGE> 33
(ii) As soon as available and in any event within 45
days after the end of each fiscal quarter of the Company, the
consolidated balance sheet of the Company and its Subsidiaries
as of the end of such quarterly period, and the related
consolidated statements of income, retained earnings and cash
flows for the period commencing at the end of the previous
fiscal year and ending with the end of such quarterly period,
setting forth in each case in comparative form the
corresponding figures for the corresponding date or period of
the preceding fiscal year, all in reasonable detail and duly
certified (subject to year-end adjustments) by the chief
financial officer of the Company as having been prepared in
accordance with generally accepted accounting principles,
together with a certificate of the chief financial officer of
the Company stating that (A) no Event of Default or event or
condition which, with notice or lapse of time, or both, would
constitute an Event of Default, has occurred and is continuing
or, if an Event of Default or such an event or condition has
occurred and is continuing, a statement setting forth the
details thereof and the action which the Company has taken and
proposes to take with respect thereto and (B) a computation
(which computation shall accompany such certificate in
reasonable detail) showing compliance with Sections 6.2(a),
(b), (c), and (d) in conformity with the terms of this
Agreement; provided, however, that, within 28 days after the
end of each fiscal quarter of the Company, the Company shall
provide the Agent with a computation showing compliance with
Sections 6.2(b) and (c);
(iii) As soon as available and in any event within 90
days after the end of each fiscal year of the Company, the
consolidated balance sheet of the Company and its Subsidiaries
as of the end of such fiscal year and the related consolidated
statements of income, retained earnings and cash flows for
such fiscal year, certified without qualifications
unacceptable to the Lenders by independent certified public
accountants selected by the Company and acceptable to the
Agent, together with a certificate of such accountants stating
(A) that they have reviewed this Agreement, and stating
further whether, in the course of their review of such
financial statements, they have become aware of any Default
and, if a Default has occurred and is continuing, a statement
setting forth the nature and status thereof and (B) a
computation by the Company (which computation shall accompany
such certificate and shall be in reasonable detail) showing
compliance with Sections 6.2(a), (b), (c) and (d) in
conformity with the terms of this Agreement;
(iv) Promptly after the sending or filing thereof,
copies of all reports, proxy statements and financial
statements which the Company or any of the Subsidiaries sends
to any securities exchange or to the Securities and Exchange
Commission or any successor agency thereof;
(v) Promptly and in any event within 10 calendar days
after receiving or becoming aware thereof (A) a copy of any
notice of intent to terminate any Plan of the Company, its
Subsidiaries or any ERISA Affiliate filed with the PBGC, (B) a
statement of the chief financial officer of the Company
setting forth the details of the occurrence of any Reportable
Event with respect to any such Plan, (C) a copy of any notice
that the
CREDIT AGREEMENT
-33-
<PAGE> 34
Company, any of its Subsidiaries or any ERISA Affiliate may
receive from the PBGC relating to the intention of the PBGC to
terminate any such Plan or to appoint a trustee to administer
any such Plan, or (D) a copy of any notice of failure to make
a required installment or other payment within the meaning of
Section 412(n) of the Code or Section 302(f) of ERISA with
respect to any such Plan;
(vi) At least 15 days but not more than 60 days prior
to the Company entering into an Acquisition with a purchase
price (including all assumed liabilities) valued at
$50,000,000 or more, a certificate of the chief financial
officer of the Company stating that (A) no Event of Default or
event or condition which, with notice or lapse of time, or
both, would constitute an Event of Default, has occurred and
is continuing or would occur as a result of the Acquisition
taking place, and (B) a computation (which computation shall
accompany such certificate in reasonable detail) showing
compliance with Sections 6.2(a), (b), (c), (d), and (g) in
conformity with the terms of this Agreement.
(vii) Promptly, such other information respecting the
business, properties or the condition or operations, financial
or otherwise, of the Company or any of its Subsidiaries as any
Lender may from time to time reasonably request.
(e) Access to Records, Books, Etc. At any reasonable time and from time
to time, permit the Lenders or any agents or representatives thereof to examine
and make copies of and abstracts from the records and books of account of, and
visit the properties of, the Company and the Subsidiaries, and to discuss the
affairs, finances and accounts of the Company and the Subsidiaries with their
respective officers and employees.
(f) Use of Proceeds. The proceeds of the Loans shall be used to (i) pay
in full all outstanding amounts due under the Prior Credit Agreement, without
any prepayment fee, (ii) make advances to the Guarantors for working capital,
capital expenditures and operating expenses, and (iii) for other general
corporate purposes of the Company.
(g) Further Assurances. Promptly (i) cause each person becoming a
Material Subsidiary at any time after the Effective Date to execute and deliver
to the Lenders (or, where appropriate, to the Agent for the benefit of the
Lenders), within 30 days after such person becomes a Material Subsidiary, a
Guaranty in substantially the form of such Guaranty delivered by the
Guarantors, (ii) execute and cause each such Subsidiary promptly to execute and
deliver all further instruments and documents and take all further action that
may be necessary or desirable, or that the Agent may request, in order to give
effect to, and to aid in the exercise and enforcement of the rights and
remedies of the Agent and the Lenders under this Agreement and the Notes.
1.1 Negative Covenants. The Company covenants and agrees that, until the
Termination Date and thereafter until payment in full of the principal of and
accrued interest on the Notes, the termination or expiration of all Letters of
Credit and the performance of all other obligations of the Company under this
Agreement, unless the Majority Lenders shall otherwise consent in writing, it
shall not, and shall not permit any Subsidiary to:
CREDIT AGREEMENT
-34-
<PAGE> 35
(a) Tangible Net Worth. Permit or suffer Consolidated Tangible Net Worth
of the Company and its Subsidiaries to be less than the sum of (i)
$250,000,000, plus (ii) an amount equal to 50% of Cumulative Net Income
(without reduction for net loss) of the Company and its Subsidiaries for each
fiscal year of the Company ending after the Effective Date, plus (iii) the
amount of proceeds of any new issuance of common or preferred stock other than
stock issued pursuant to the exercise of employee stock options.
(b) Interest Coverage Ratio. Permit or suffer the Consolidated Interest
Coverage Ratio of the Company and its Subsidiaries, as calculated for the four
consecutive fiscal quarters of the Company then ending, to be less than 3.0 to
1.0 as of the last day of each fiscal quarter of the Company and its
Subsidiaries.
(c) Funded Debt Ratio. Permit or suffer the Funded Debt Ratio to be
greater than 55%.
(d) Loans and Advances; Investments. Purchase or otherwise acquire any
capital stock of or other ownership interest in, or debt securities of or other
evidences of Indebtedness of, any other person, nor make any loan or advance of
any of its funds or property or make any other extension of credit to, or make
any investment or acquire any interest whatsoever in, any other person, nor
incur any contingent liability except under this Agreement and the Guaranty,
other than:
(i) extensions of trade credit made in the ordinary
course of business on customary credit terms and advances made
to officers and employees in the ordinary course of business;
(ii) commercial paper of any United States issuer
having an investment grade rating then given by Moody's
Investors Service, Inc., or Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., direct obligations of and
obligations fully guaranteed by the United States of America
or any agency or instrumentality thereof, or certificates of
deposit or repurchase agreements of any commercial bank which
is a member of the Federal Reserve System and which has
capital, surplus and undivided profit (as shown on its most
recently published statement of condition) aggregating not
less than $50,000,000;
(iii) loans and advances to and other investments in
joint ventures and in other corporations primarily engaged in
a Related Business, provided that the aggregate outstanding
amount of all such loans, advances and other investments shall
not exceed 20% of Consolidated Tangible Net Worth of the
Company and its Subsidiaries as of the later of March 31,
1996, or the then most recently ended fiscal quarter of the
Company, and that portion of such aggregate amount consisting
of loans and advances shall not exceed 10% of Consolidated
Tangible Net Worth of the Company and its Subsidiaries as of
the later of March 31, 1996, or the then most recently ended
fiscal quarter of the Company;
(iv) funds invested with a prudently selected nationally recognized
money market fund;
(v) loans or advances by the Company to and investments by the
Company in any Subsidiaries and loans or advances by any
CREDIT AGREEMENT
-35-
<PAGE> 36
Subsidiaries to and investments by any Subsidiaries in the
Company or any other Subsidiaries; and
(vi) acquisitions of evidences of Indebtedness of
Subsidiaries pursuant to Section 6.2(e)(iv) and transactions
permitted by Section 6.2(g).
(e) Indebtedness. Create, incur, assume, guaranty or in any manner become
liable in respect of, or suffer to exist, any Indebtedness other than:
(i) Indebtedness existing on the Effective Date and
described in Exhibit N attached hereto, but no increase of the
principal amount of any such Indebtedness shall be permitted;
(ii) The Loans, the Letters of Credit, and the Guaranty;
(iii) Indebtedness of the Company and its Subsidiaries in aggregate
outstanding principal amount not exceeding $25,000,000 which
is secured by one or more Liens permitted by Section
6.2(f)(iv);
(iv) Indebtedness of any Subsidiary owing to the Company or to
any other Subsidiary;
(v) Indebtedness in aggregate outstanding amount not
exceeding $25,000,000 constituting obligations as lessee under
any Capital Lease;
(vi) Indebtedness consisting of payments and other
amounts due under operating leases provided the aggregate
amount of all such payments does not exceed $20,000,000 in any
fiscal year, which amount shall increase each fiscal year
based on the percentage increase in sales for the most
recently ended fiscal year of the Company;
(viii) Any Indebtedness pursuant to any interest rate swap,
interest rate cap or other similar interest rate protection
relating to the Indebtedness of the Company hereunder;
(ix) Indebtedness assumed in any acquisition permitted
under Section 6.2(g) which is consummated after the Effective
Date where the Indebtedness consists of (A) Indebtedness which
bears interest at a fixed rate and was originally incurred by
the acquired Person to purchase Fixed Assets and is secured by
Liens which would be permitted for the Company or any
Subsidiary under Section 6.2(f)(iv), (B) Indebtedness which
was originally incurred by the acquired Person in connection
with any industrial development bond financing for the benefit
of the acquired Person or any wholly-owned subsidiary of the
acquired Person, and (C) other Indebtedness which does not
exceed an aggregate amount, for all acquisitions made from the
Effective Date through the date of the acquisition then
consummated, equal to the lesser of 20% of the Consolidated
Tangible Net Worth of the Company and its Subsidiaries (not
including the acquired Person) as of the later of March 31,
1996, or the then most recently ended fiscal quarter of the
Company or $50,000,000.
CREDIT AGREEMENT
-36-
<PAGE> 37
(x) Indebtedness consisting of deferred taxes; and
(xi) Other Indebtedness in aggregate outstanding
amount not exceeding $75,000,000 at any time, the terms of
which Indebtedness or of any agreement relating thereto are
not more restrictive than the terms of the Loans and of this
Agreement as such terms exist immediately prior to the
incurring of such other Indebtedness.
(f) Liens. Create, incur or suffer to exist, any Liens on any of the
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired of the Company or any
Subsidiary, other than:
(i) Liens existing on the Effective Date and described in Exhibit
O attached hereto, but no increase in the amount secured
thereby or the assets covered thereby shall be permitted;
(ii) Liens for taxes not delinquent or for taxes being contested in
good faith by appropriate proceedings and as to which
adequate financial reserves have been established on its books
and records, if required by generally accepted accounting
principles;
(iii) Liens created by operation of law in connection with workers'
compensation, unemployment insurance, and social security and
other Liens incidental to the conduct of its business or the
ownership of its property and assets which were not incurred
in connection with the borrowing of money or the obtaining of
advances or credit, and which do not in the aggregate
materially detract from the value of its property or assets or
materially impair the use thereof in the operation of its
business;
(iv) Liens on any Fixed Asset created to secure the payment of a
portion of the purchase price of such Fixed Asset acquired in
the ordinary course of business by the Company or any
Subsidiary if the outstanding principal amount of the
Indebtedness secured by any such Lien does not at any time
exceed the purchase price paid by the Company or such
Subsidiary for such Fixed Asset, and the aggregate principal
amount of all Indebtedness secured by such Liens does not
exceed the amounts permitted under Section 6.2(e)(iii) and
(v), provided that such Lien does not burden any other asset
at any time owned by the Company or any Subsidiary and
provided, further, that not more than one such Lien shall
burden a Fixed Asset at any one time;
(v) Any interest or title of a lessor under any lease; Liens which
constitute minor survey exceptions, minor encumbrances,
easements or reservations of, or rights of others for, rights
of way, sewers, electric lines, telegraph and telephone lines
and other similar purposes; or zoning or other restrictions
affecting real property owned or leased by the Company or the
Subsidiaries, provided that all of the foregoing, in the
aggregate, do not at any time materially detract from the
value of such property or materially impair the use of such
property in the operation of the businesses of the Company and
the Subsidiaries, on a consolidated basis; and
CREDIT AGREEMENT
-37-
<PAGE> 38
(vi) Liens assumed in any acquisition permitted
hereunder, provided that such Lien does not burden any other
asset at any time owned by the Company or any Subsidiary other
than the asset to which it attached prior to the acquisition,
and there shall be no increase in the amount of indebtedness
secured thereby.
(g) Merger; Purchase or Sale of Assets; Etc. Sell, lease, transfer or
otherwise dispose of any of its assets or business to any Person other than (A)
sales, leases, transfers or other dispositions of any line or lines of business
in any fiscal year which did not constitute more than 10% of the Consolidated
Net Income of the Company and its Subsidiaries for the then most recently ended
fiscal year of the Company, and (B) sales, leases, transfers and other
dispositions of other assets which, together with those subject to transactions
permitted under clause (A), do not have a book value constituting more than 25%
of the consolidated total book value of assets of the Company and its
Subsidiaries as of the end of the then most recently ended fiscal quarter; nor
purchase or otherwise acquire all or a substantial portion of the assets of any
Person, or all or a substantial portion of the shares of stock of or other
ownership interest in any other Person; nor merge or consolidate with any other
Person; nor make any substantial change in the nature of its business; nor
become, or remain, an obligee with respect to any obligation of any other
Person if the obligation of such Person would constitute Indebtedness of such
Person other than Indebtedness secured by Liens permitted under Section
6.2(f)(iv) hereof in an amount not exceeding the purchase price of the assets
subject to such Liens; provided, however, that the Company or any Subsidiary
may purchase or otherwise acquire all or 50% or more of the assets of any
Person or of any line of business or division of any Person or all or 50% or
more of the shares of stock or other ownership interest in any other Person or
merge with any other corporation (individually, an "Acquisition" and the
foregoing transactions described in this provision are governed by this Section
6.2(g) and not by Section 6.2(d)) provided that (A) the Company shall be the
surviving or continuing corporation after such merger or consolidation, (B) no
Default shall exist or shall have occurred and be continuing, either before or
after giving effect to the Acquisition, (C) the assets or stock being purchased
or the Person into which the Company is merging is primarily engaged in a
Related Business, (D) the aggregate amount paid and other consideration given
for all such Acquisitions, whether of assets or stock or other ownership
interests, or in connection with any merger, does not in the aggregate for any
fiscal quarter exceed 25% of the consolidated total book value of assets of the
Company and its Subsidiaries as of the most recently ended fiscal year, and (E)
the Pro Forma Interest Coverage Ratio shall be not less than 3.0 to 1.0 as
calculated for the most recent four consecutive fiscal quarters, prior to the
Acquisition, of the Company and its Subsidiaries and the Person being acquired.
No transaction permitted under this Section 6.2(g) shall be limited by the
restriction on investments of the Company and its Subsidiaries under Section
6.2(d)(iii), and any purchase or other Acquisition by the Company of less than
50% of the assets of any Person or of any line of business or division of any
Person or less than 50% of the shares of the stock or other ownership interest
in any other Person shall be governed by the limitations as set forth in
Section 6.2(d) and not by this Section 6.2(g).
ARTICLE VII. DEFAULT
1 Events of Default. The occurrence of any one of the following events or
conditions shall be deemed an "Event of Default" hereunder unless waived
pursuant to Section 10.1 hereof:
CREDIT AGREEMENT
-38-
<PAGE> 39
(a) Default in any payment of principal of any of the Notes; or
(b) Default in any payment of interest on any of the Notes, any fees, or
any other amount payable hereunder within 5 Business Days after it is due; or
(c) Any representation or warranty made by the Company in Article V
hereof, or by the Company or any Guarantor in any other document or
certificate furnished by or on behalf of the Company or such Guarantor in
connection with this Agreement, shall prove to have been incorrect in any
material respect when made; or
(d) The Company shall fail to perform or observe any term, covenant or
agreement contained in Section 6.1(a) or Section 6.2; or
(e) The Company shall fail to perform or observe any other term, covenant
or agreement contained in this Agreement and any such failure shall remain
unremedied for 30 calendar days after notice thereof shall have been given to
the Company by any Lender or 30 calendar days after notice thereof should have
been given by the Company to the Lenders pursuant to Section 6.1(d)(i) hereof,
whichever is earlier; or
(f) The Company or any of its Subsidiaries shall fail to pay any part of
the principal of, the premium, if any, or the interest on, or any other payment
of money due under any Indebtedness outstanding in favor of any Lender, whether
as agent or otherwise, or any other Indebtedness aggregating in excess of
$1,000,000 (other than Indebtedness hereunder) beyond any period of grace
provided with respect thereto, or the Company or any of its Subsidiaries shall
fail to perform or observe any other term, covenant or agreement contained in
any document evidencing or securing such Indebtedness, or in any agreement or
instrument under which any such Indebtedness was issued or created, beyond the
period of grace, if any, provided with respect thereto, if the effect of such
failure is to accelerate the maturity of such Indebtedness; or
(g) A judgment or order for the payment of money which, together with
other such judgments or orders exceeds the aggregate amount of $2,000,000,
shall be rendered against the Company or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order and such judgment or order shall have remained unsatisfied
and such proceedings shall have remained unstayed for a period of 30
consecutive days, or (ii) for a period of 30 consecutive days such judgment or
order shall have remained unsatisfied and a stay of enforcement thereof, by
reason of pending appeal or otherwise, shall not have been in effect; or
(h) The occurrence of a Reportable Event that results in or could result
in liability of the Company, any Subsidiary or their ERISA Affiliates to the
PBGC or to any Plan and such Reportable Event is not corrected within thirty
(30) days after the occurrence thereof; or the occurrence of any Reportable
Event which could constitute grounds for termination of any Plan of the
Company, any Subsidiary or their ERISA Affiliates by the PBGC or for the
appointment by the appropriate United States District Court of a trustee to
administer any such Plan and such Reportable Event is not corrected within
thirty (30) days after the occurrence thereof; or the filing by the Company,
any Subsidiary or any of their ERISA Affiliates of a notice of intent to
terminate a Plan or the institution of other proceedings to terminate a Plan;
or the
CREDIT AGREEMENT
-39-
<PAGE> 40
Company, any Subsidiary or any of their ERISA Affiliates shall fail to pay when
due any liability to the PBGC or to a Plan; or the PBGC shall have instituted
proceedings to terminate, or to cause a trustee to be appointed to administer,
any Plan of the Company, any Subsidiary or their ERISA Affiliates; or any
person engages in a Prohibited Transaction with respect to any Plan which
results in or could result in liability of the Company, any Subsidiary, any of
their ERISA Affiliates, any Plan of the Company, its Subsidiaries or their
ERISA Affiliates or fiduciary of any such Plan; or failure by the Company, any
Subsidiary or any of their ERISA Affiliates to make a required installment or
other payment to any Plan within the meaning of Section 302(f) of ERISA or
Section 412(n) of the Code that results in or could result in liability of the
Company, any Subsidiary or any of their ERISA Affiliates to the PBGC or any
Plan; or the withdrawal of the Company, any Subsidiary or any of their ERISA
Affiliates from a Plan during a plan year in which it was a "substantial
employer" as defined in Section 4001(9a)(2) of ERISA; or the Company, any
Subsidiary or any of their ERISA Affiliates becomes an employer with respect to
any Multiemployer Plan without the prior written consent of the Majority
Lenders; or
(i) The Company or any of its Subsidiaries shall generally not pay its
debts as they 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 shall institute, or there shall be instituted against the Company
or any of its Subsidiaries, any proceeding or case seeking to adjudicate it a
bankrupt or insolvent or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief or
protection 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, and, if such proceeding is
instituted against the Company or such Subsidiary and is being contested by the
Company or such Subsidiary, as the case may be, in good faith by appropriate
proceedings, such proceedings shall remain undismissed or unstayed for a period
of 60 days; or the Company or such Subsidiary shall take any action (corporate
or other) to authorize or further any of the actions described above in this
subsection; or
(j) Any event of default described in any Guaranty shall have occurred and
be continuing, or any material provision of any Guaranty shall at any time for
any reason cease to be valid and binding and enforceable against any obligor
thereunder, or the validity, binding effect or enforceability thereof shall be
contested by any person, or any obligor shall deny that it has any or further
liability or obligation thereunder, or any Guaranty shall be terminated,
invalidated or set aside, or be declared ineffective or inoperative or in any
way cease to give or provide to the Lenders and the Agent the benefits
purported to be created thereby; or
(k) Any person, other than the Management Group, shall own in the
aggregate, directly or indirectly, more than 25% of the securities having
ordinary voting power for the election of directors of the Company unless the
Company's board of directors shall agree to such person acquiring more than
25%.
1.1 Remedies.
(a) Upon the occurrence and during the continuance of any Event of
Default, the Agent shall at the request of, or may with the consent of, the
Majority Lenders, by notice to the Company (i) terminate the Credit and the
Commitments or (ii) declare the outstanding principal of, and accrued interest
on, the Notes, all unpaid reimbursement obligations in respect of drawings
under Letters of Credit and all other
CREDIT AGREEMENT
-40-
<PAGE> 41
amounts due under this Agreement to be immediately due and payable, or (iii)
demand immediate delivery of cash collateral and the Company agrees to deliver
such cash collateral upon demand, in an amount equal to the maximum amount that
may be available to be drawn at any time prior to the stated expiry of all
outstanding Letters of Credit, or any one or more of the foregoing, whereupon
the Credit and the Commitments shall terminate forthwith and all such amounts,
including such cash collateral, shall become immediately due and payable, as
the case may be, provided that in the case of any event or condition described
in Section 7.1(i) with respect to the Company, the Credit and the Commitments
shall automatically terminate forthwith and all such amounts, including such
cash collateral, shall automatically become immediately due and payable without
notice and without demand, presentment, protest, diligence, notice of dishonor
or other formality, all of which are hereby expressly waived. Such cash
collateral delivered in respect of outstanding Letters of Credit shall be
deposited in a special cash collateral account to be held by the Agent as
collateral security for the payment and performance of the Company's
obligations under this Agreement to the Lenders and the Agent.
(b) Upon the occurrence and during the continuance of such Event of
Default, the Agent may, and, upon being directed to do so by the Majority
Lenders, shall, in addition to the remedies provided in Section 7.2(a), enforce
any and all other rights and remedies available to it or the Lenders either by
suit in equity, or by action at law, or by other appropriate proceedings,
whether for the specific performance (to the extent permitted by law) of any
covenant or agreement contained in this Agreement, the Notes or the Guaranties,
or in aid of the exercise of any power granted in this Agreement, the Notes or
the Guaranties, and may enforce the payment of the Notes and any other rights
available to it or the Lenders at law or in equity.
(c) Upon the occurrence and during the continuance of any Event of Default
hereunder, each Lender is hereby authorized at any time and from time to time,
without notice to the Company (any requirement for such notice being expressly
waived by the Company) to set off and apply against any and all of the
obligations of the Company now or hereafter existing under this Agreement any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other indebtedness at any time owing by such Lender to or for
the credit or the account of the Company and any property of the Company from
time to time in possession of such Lender, irrespective of whether or not such
Lender shall have made any demand hereunder and although such obligations may
be contingent and unmatured. The rights of the Lenders under this Section
7.2(c) are in addition to other rights and remedies (including, without
limitation, other rights of setoff) which the Lenders may have.
ARTICLE VIII. THE AGENT AND THE LENDERS
1 Appointment of Agent. NBD is hereby appointed Agent for the Lenders and
accepts such appointment and agrees to act as such upon the conditions herein
set forth. The Agent shall have no duties or responsibilities except those
expressly set forth in this Agreement, and shall not, by reason of this
Agreement, have a fiduciary relationship with any Lender.
1.1 Scope of Agency. Neither the Agent nor any of its directors, officers
or agents shall be liable for any action taken or omitted by any of them
hereunder or under the Notes or any Guaranty except for its,
CREDIT AGREEMENT
-41-
<PAGE> 42
his or her own gross negligence or willful misconduct; or be responsible for
any recitals, warranties or representations herein or in the Notes or any other
agreement to which the Company or any Subsidiary is a party, or for the
execution or validity of this Agreement, the Notes, the Guaranties or any other
agreement to which the Company or any Subsidiary is a party; or be required to
make any inquiry concerning the performance by the Company of any of its
obligations under this Agreement, the Notes or any other agreement to which the
Company or any Subsidiary is a party. In the absence of gross negligence or
willful misconduct, the Agent shall be entitled to rely, without liability
therefor, upon any certificate or other document or other communication
believed by it to be genuine and correct and to have been signed or sent by the
proper officer or person and upon the advice of legal counsel (which may be
legal counsel for the Company), independent public accountants and other
experts concerning all matters pertaining to the agency. The Company agrees,
upon demand, to pay or to reimburse the Agent for the payment of all reasonable
compensation of such counsel, accountants and other experts and all other
reasonable out-of-pocket expenses of the Agent. To the extent that the Company
shall fail to pay or to reimburse the Agent for the payment of any such
amounts, the Lenders shall reimburse the Agent for such amounts on a pro rata
basis in accordance with the Commitments, and any such amount so paid shall be
immediately due and payable to the Lenders by the Company. The Lenders agree
to indemnify the Agent ratably in accordance with their Commitments for any and
all liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against the Agent in any way
relating to or arising out of this Agreement or the transactions contemplated
hereby, provided that no Lender shall be liable for any of the foregoing to the
extent they arise solely from the Agent's gross negligence or willful
misconduct.
1.2 Duties of Agent. In carrying out the agency, the Agent shall have
only the duties and responsibilities expressly set forth in this Agreement. In
performing such duties and responsibilities the Agent shall exercise the same
degree of care as it would if the Loans were entirely for its own account, but,
unless the Agent has actual knowledge thereof, the Agent shall not be deemed to
have knowledge of the occurrence of any Event of Default or any Default, and
need not take or continue any action with respect thereto or toward the
enforcement of this Agreement, the Notes, or any Guaranty nor prosecute or
defend any suit with respect to this Agreement, the Notes, or any Guaranty
unless directed to do so by the Majority Lenders and unless indemnified to its
satisfaction against any loss, cost, liability or expense which it might incur
as a consequence of taking such action. The Agent may employ agents and
attorneys and shall not be answerable for the negligence or misconduct of any
such agents or attorneys selected by it with reasonable care. The Agent in its
capacity as a Lender hereunder shall have the same rights and powers hereunder
as any other Lender and may exercise the same as though it were not acting as
the Agent hereunder. Each Lender agrees that it has, independently and without
reliance on the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own credit analysis of the
Company and the Subsidiaries in connection with its decision to enter into this
Agreement and that it will, independently and without reliance upon the 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.
1.3 Resignation of Agent. The Agent may resign as such at any time upon
30 days' prior written notice to the Company and the Lenders. In the event of
any such resignation, the Majority Lenders shall, by an instrument in writing
delivered to the Company and the Agent, appoint a successor which shall be an
incorporated bank or trust company. If a successor is not so appointed or does
not accept such appointment
CREDIT AGREEMENT
-42-
<PAGE> 43
at least 5 days before the Agent's resignation becomes effective, the Agent may
appoint a temporary successor to act until such appointment by the Majority
Lenders is made and accepted. Any successor to the Agent shall execute and
deliver to the Company and the Lenders an instrument accepting such appointment
and, from and after such acceptance, such successor Agent, without further act,
deed, conveyance or transfer shall become vested with all of the properties,
rights, interests, powers, authorities and obligations of its predecessor
hereunder with like effect as if originally named as Agent hereunder. Upon
request of such successor Agent, the Company and the Agent ceasing to act shall
execute and deliver such instruments of conveyance, assignment and further
assurance and do such other things as may reasonably be required for more fully
and certainly vesting and confirming in such successor Agent all such
properties, rights, interests, powers, authorities and obligations.
1.4 Pro Rata Sharing by Lenders. Each Lender agrees with every other
Lender that, in the event that it shall receive and retain any payment on
account of any Note (other than Bid Rate Notes) in excess of its pro rata
portion, according to the principal amount of the Notes (other than Bid Rate
Notes) then outstanding, of the payment due all of the Lenders, whether such
payment be voluntary, involuntary or by operation of law, by application of
set-off of any indebtedness or otherwise, then such Lender shall promptly
purchase from the other Lenders, without recourse, for cash and at face value,
ratably in accordance with the principal amount of the Revolving Credit Notes
then outstanding, participation interests in the Notes of the other Lenders in
such an amount that each Lender shall have received payment pro rata on account
of the Revolving Credit Notes in accordance with the unpaid principal amount
thereof then owing to it; provided, that all proceeds of any set offs shall be
applied first to the Revolving Credit Notes before being applied to any Bid
Rate Notes; and provided, further that if any such purchase be made by any
Lender and if any such excess payment relating thereto or any part thereof is
thereafter recovered from such Lender, appropriate adjustment in the related
purchase from the other Lenders shall be made by rescission and restoration of
the purchase price as to the portion of such excess payment so recovered. It
is further agreed that, to the extent there is then owing by the Company or any
Guarantor to any Lender indebtedness other than that evidenced by the Notes, to
which such Lender may apply any involuntary payments of indebtedness by the
Company or any Guarantor, including those resulting from exercise of rights of
set-off or similar rights or any proceeds resulting from a sale or other
disposition of or realization upon any collateral or security now or hereafter
securing indebtedness owing by the Company or any Guarantor to any Lender other
than that evidenced by the Notes, such Lender shall apply all such involuntary
payments first to obligations of the Company to the Lenders hereunder and under
the Notes and then to such other indebtedness owed to it by the Company or any
Guarantor.
ARTICLE IX. YIELD PROTECTION AND CONTINGENCIES
1 Additional Costs. (a) In the event that any applicable law, treaty, rule or
regulation (whether domestic or foreign) now or hereafter in effect and whether
or not presently applicable to any Lender or the Agent, or any interpretation
or administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Lender or the
Agent with any guideline, request or directive of any such authority (whether
or not having the force of law), shall (a) affect the basis of taxation of
payments to any Lender or the Agent of any amounts payable by the Company under
this Agreement (other than taxes imposed on the overall net income of any
Lender or the Agent, by the
CREDIT AGREEMENT
-43-
<PAGE> 44
jurisdiction, or by any political subdivision or taxing authority of any such
jurisdiction, in which any Lender or the Agent, as the case may be, has its
principal office), or (b) shall impose, modify or deem applicable any reserve,
special deposit or similar requirement against assets of, deposits with or for
the account of, or credit extended by any Lender or the Agent, or (c) shall
impose any other condition with respect to this Agreement, the Commitments, the
Notes or the Loans or any Letter of Credit, and the result of any of the
foregoing is to increase the cost to any Lender or the Agent, as the case may
be, of making, funding or maintaining any Fixed Rate Loan or any Letter of
Credit or to reduce the amount of any sum receivable by any Lender or the
Agent, as the case may be, thereon, then the Company shall pay to such Lender
or the Agent, as the case may be, from time to time, upon request by such
Lender (with a copy of such request to be provided to the Agent) or the Agent,
additional amounts sufficient to compensate such Lender or the Agent, as the
case may be, for such increased cost or reduced sum receivable to the extent,
in the case of any Fixed Rate Loan, such Lender or the Agent is not compensated
therefor in the computation of the interest rate applicable to such Fixed Rate
Loan. A statement as to the amount of such increased cost or reduced sum
receivable, prepared in good faith and in reasonable detail by such Lender or
the Agent, as the case may be, and submitted by such Lender or the Agent, as
the case may be, to the Company, shall be conclusive and binding for all
purposes absent manifest error in computation.
(b) In the event that any applicable law, treaty, rule or regulation
(whether domestic or foreign) now or hereafter in effect and whether or not
presently applicable to any Lender or the Agent, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by any Lender or the
Agent with any guideline, request or directive of any such authority (whether
or not having the force of law), including any risk-based capital guidelines,
affects or would affect the amount of capital required or expected to be
maintained by such Lender or the Agent (or any corporation controlling such
Lender or the Agent) and such Lender or the Agent, as the case may be,
determines that the amount of such capital is increased by or based upon the
existence of such Lender's or the Agent's obligations hereunder and such
increase has the effect of reducing the rate of return on such Lender's or the
Agent's (or such controlling corporation's) capital as a consequence of its
obligations hereunder to a level below that which such Lender or the Agent (or
such controlling corporation) could have achieved but for such circumstances
(taking into consideration its policies with respect to capital adequacy) by an
amount deemed by such Lender or the Agent to be material, then the Company
shall pay to such Lender or the Agent, as the case may be, from time to time,
upon request by such Lender (with a copy of such request to be provided to the
Agent) or the Agent, additional amounts sufficient to compensate such Lender or
the Agent (or such controlling corporation) for any increase in the amount of
capital and reduced rate of return which such Lender or the Agent reasonably
determines to be allocable to the existence of such Lender's or the Agent's
obligations hereunder. A statement as to the amount of such compensation,
prepared in good faith and in reasonable detail by such Lender or the Agent, as
the case may be, and submitted by such Lender or the Agent to the Company,
shall be conclusive and binding for all purposes absent manifest error in
computation.
1.1 Illegality and Impossibility. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to any Lender, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by any Lender
with any guideline, request or directive of such authority (whether or not
having the force of law), including without limitation exchange controls, shall
make it unlawful or impossible for any Lender to maintain any Fixed Rate Loan
under this Agreement,
CREDIT AGREEMENT
-44-
<PAGE> 45
the Company shall upon receipt of notice thereof from such Lender, repay in
full the then outstanding principal amount of each Fixed Rate Loan so affected,
together with all accrued interest thereon to the date of payment and all
amounts owing to such Lender under Section 9.3, (a) on the last day of the
then-current Interest Period applicable to such Loan if such Lender may
lawfully continue to maintain such Loan to such day, or (b) immediately if such
Lender may not continue to maintain such Loan to such day.
1.2 Funding Loss Indemnification. If the Company makes any payment of
principal with respect to any Fixed Rate Loan on any other date than the last
day of an Interest Period applicable thereto (whether pursuant to Section 7.2
or otherwise), or if the Company fails to borrow any Fixed Rate Loan after
notice has been given to the Lender or if the Company fails to make any payment
of principal or interest in respect of a Fixed Rate Loan when due, the Company
shall, in addition to any other amounts that may be payable hereunder reimburse
each Lender (or any existing or prospective participant in the related Loan) on
demand for any resulting loss or expense incurred by each such Lender (or such
participant), including without limitation any loss incurred in obtaining,
liquidating or employing deposits from third parties, whether or not such
Lender shall have funded or committed to fund such Loan. A statement as to the
amount of such loss or expense, prepared in good faith and in reasonable detail
by such Lender and submitted by such Lender to the Company, shall be
conclusive and binding for all purposes absent manifest error in computation.
Calculation of all amounts payable to such Lender under this Section 9.3 shall
be made as though such Lender shall have actually funded or committed to fund
its relevant Fixed Rate Loan through the purchase of an underlying deposit in
an amount equal to the amount of such Fixed Rate Loan and having a maturity
comparable to the related Interest Period and, in the case of a Eurocurrency
Rate Loan, through the transfer of such deposit from an offshore office of such
Lender to a domestic office of such Lender in the United States of America;
provided, however, that such Lender may fund any Fixed Rate Loan in any manner
it sees fit and the foregoing assumption shall be used only for the purpose of
calculation of amounts payable under this Section 9.3.
1.3 HLT. If, after the Effective Date, the Agent determines that, or the
Agent is advised by the Majority Lenders that the Majority Lenders have
received notice from any governmental authority, central bank or comparable
agent that, the Loans or the Commitments are classified as a "highly leveraged
transaction" (an "HLT Classification"), the Agent shall promptly give notice of
such HLT Classification to the Company and the other Lenders. During the
period of such HLT Classification, the applicable interest rate shall be
increased by one percent (1%) in the case of all Fixed Rate Loans, Prime Rate
Loans and Swing Line Loans, and Bid Rate Loans shall not be available to the
Company.
ARTICLE X. MISCELLANEOUS
1 Amendments, Etc. (a) This Agreement and the Guaranties may be amended from
time to time and any provision hereof may be waived by an instrument in writing
executed by the Company, the Majority Lenders and the Agent, provided that,
except by an instrument in writing executed by the Company, all of the Lenders
and the Agent, no such amendment or waiver shall:
(i) Authorize or permit the extension of the time or
times of payment of the principal of, or interest on, the
Notes or any of them, or any Letter of Credit reimbursement
CREDIT AGREEMENT
-45-
<PAGE> 46
obligation, or the reduction in the principal amount thereof
or the rate of interest thereon, or the rate or time for
payment of any fees or any other modification in the terms of
the payment of the principal of or interest on the Notes or
any fees; or
(ii) Amend or change the respective amounts of the
Lenders' Commitments set forth in Section 2.1 hereof, reduce
the percentage of the aggregate principal amount of the Loans
outstanding required by the provisions of this Section for the
taking of any action under this Section, amend or change
Section 2.9, the definition of Majority Lenders or this
Section 10.1; or
(iii) Permit the termination of the obligations of any
Lender, provided that upon any such termination, (a) the
Company shall have the option to select a lender to replace
such terminating Lender and assume the rights and obligations
of such Lender hereunder, provided that such replacement
Lender is acceptable to each non-terminating Lender, and (b)
in the event that such terminating Lender is not so replaced,
each non-terminating Lender shall be entitled, but shall not
be obligated, to increase its Commitment by an amount equal to
that amount of the terminating Lender's Commitment bearing the
same ratio to such terminating Lender's Commitment as such
non-terminating Lenders's Commitment bears to the aggregate
Commitment of all non-terminating Lenders. In the event that
any non-terminating Lender shall not elect to increase its
Commitment as specified in clause (b), each Lender making such
election shall be entitled, but shall not be obligated, to
further increase its Commitment by an amount equal to that
amount of each non-electing Lender's Commitment bearing the
same ratio to such non-electing Lender's Commitment as such
electing Lender's Commitment bears to the aggregate Commitment
of all electing Lenders. The procedure set forth in the
preceding sentence shall be followed until the entire
Commitment of the terminating Lender is allocated or until no
non-terminating Lender shall desire to further increase its
Commitment; or
(iv) Release any guaranties of the Loans or release
all or any substantial portion of any collateral, if any.
(b) No such amendment or waiver of any provision of this Agreement, nor
consent to any departure by the Company therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and by
the Majority Lenders or the Lenders, as the case may be, and then such
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
1.1 Notices. (a) Except as otherwise provided in Section 10.2(c), all
notices and other communications hereunder or under the Guaranty shall be in
writing and shall be delivered or sent to the Company, the Guarantors, the
Agent and the Lenders at the respective addresses for notices set forth on the
signatures pages hereof, or to such other address as may be designated by the
Company, any Guarantor, the Agent or any Lender by notice to the other parties
hereto. All notices and other communications shall be deemed to have been
given at the time of actual delivery thereof to such address or if sent by the
Agent to the Company or to any Guarantor by certified or registered mail,
postage prepaid, to such address, on the
CREDIT AGREEMENT
-46-
<PAGE> 47
fifth day after the date of mailing, or, if sent by recognized overnight
delivery service, prepaid to such address, on the Business Day following the
date of deposit with such delivery service prior to such services next day
delivery deadline, provided, however, that notices to the Agent or the Lenders
shall not be effective until received.
(b) Notices by the Company to the Agent with respect to terminations or
reductions of the Commitments pursuant to Section 2.4, requests for extensions
pursuant to Section 2.10, requests for Loans pursuant to Section 3.1, and
notices of prepayment pursuant to Section 4.1 shall be irrevocable and binding
on the Company.
(c) Any notice to be given by the Company to the Agent pursuant to
Sections 2.4 or 3.1 and any notice to be given by the Agent hereunder, may be
given by telephone, by telex or by facsimile transmission and must be
immediately confirmed in writing in the manner provided in Section 10.2(a).
Any such notice given by telephone, telex or facsimile transmission shall be
deemed effective upon receipt thereof by the party to whom such notice is
given.
1.2 Conduct No Waiver; Remedies Cumulative. No course of dealing on the
part of the Agent or any Lender, nor any delay or failure on the part of the
Agent or any Lender in exercising any right, power or privilege hereunder shall
operate as a waiver of such right, power or privilege or otherwise prejudice
the Agent's or such Lender's rights and remedies hereunder; nor shall any
single or partial exercise thereof preclude any further exercise thereof or
the exercise of any other right, power or privilege. No right or remedy
conferred upon or reserved to the Agent or any Lender under this Agreement, the
Notes or any Guaranty is intended to be exclusive of any other right or remedy,
and every right and remedy shall be cumulative and in addition to every other
right or remedy granted thereunder or now or hereafter existing under any
applicable law. Every right and remedy granted by this Agreement or the Notes
or by applicable law to the Agent or any Lender may be exercised from time to
time and as often as may be deemed expedient by the Agent or any Lender and,
unless contrary to the express provisions of this Agreement or the Notes,
irrespective of the occurrence or continuance of any Event of Default.
1.3 Reliance on and Survival of Various Provisions. All terms, covenants,
agreements, representations and warranties of the Company and the Subsidiaries
made herein or in any certificate or other document delivered pursuant hereto
shall be deemed to be material and to have been relied upon by the Agent and
the Lenders, notwithstanding any investigation heretofore or hereafter made by
any Lender or the Agent on such Lender's behalf, and those covenants and
agreements of the Company set forth in Sections 9.1, 9.2, and 10.5 shall
survive the repayment in full of the Loans and the termination of the
Commitments.
1.4 Expenses; Indemnification. (a) The Company agrees to pay, or
reimburse the Agent for the payment of, on demand, (i) the reasonable fees and
expenses of counsel to the Agent, including without limitation the fees and
expenses of Dickinson, Wright, Moon, Van Dusen & Freeman, in connection with
the preparation, execution, delivery and administration of this Agreement, the
Notes, the Guaranties and the consummation of the transactions contemplated
hereby, and in connection with advising the Agent as to its rights and
responsibilities with respect thereto, and in connection with any amendments,
waivers or consents in connection therewith, and (ii) all stamp and other taxes
and fees payable or determined to be payable in connection with the execution,
delivery, filing or recording of this Agreement, the Notes, the Guaranties and
the consummation of the transactions contemplated hereby, and any and all
liabilities with respect to or
CREDIT AGREEMENT
-47-
<PAGE> 48
resulting from any delay in paying or omitting to pay such taxes or fees, and
(iii) all reasonable costs and expenses of the Agent and the Lenders (including
reasonable fees and expenses of counsel and whether incurred through
negotiations, legal proceedings or otherwise) in connection with any Default or
Event of Default or the enforcement of, or the exercise or preservation of any
rights under, this Agreement or the Notes, the Guaranties or in connection with
any financing or restructuring of the credit arrangements provided under this
Agreement, and (iv) all reasonable costs and expenses of the Agent and the
Lenders (including reasonable fees and expenses of counsel) in connection with
any action or proceeding relating to a court order, injunction or other process
or decree restraining or seeking to restrain the Agent from paying any amount
under, or otherwise relating in any way to, any Letter of Credit and any and
all costs and expenses which any of them may incur relative to any payment
under any Letter of Credit. The Company hereby indemnifies and agrees to hold
harmless the Agent and the Lenders from and against any and all liabilities,
damages, penalties, suits, costs, and expenses of any kind and nature
(including reasonable attorneys fees and disbursements), imposed on, incurred
by or asserted against any of them in any way relating to or arising out of
this Agreement, the Notes, the Guaranties and any other document and agreement
executed pursuant hereto (including the administration and enforcement thereof)
or in any way relating to or arising out of any activities of the Company,
including without limitation the Company's acquisition, or attempted
acquisitions, directly or indirectly, in any manner, of a part or all of the
stock (or other equity interest) or assets of any person or the manufacture,
sale, lease, or return or other disposition of any goods by the Company or any
Subsidiary (including, without limitation, latent and other defects, whether or
not discoverable by the Lender or the Company or any Subsidiary, any tort claim
(whether in strict liability or otherwise), and any claim for patent, trademark
or copyright infringement).
(b) The Company hereby indemnifies and agrees to hold harmless the
Lenders and the Agent, and their respective officers, directors, employees and
agents, harmless from and against any and all claims, damages, losses,
liabilities, costs or expenses of any kind or nature whatsoever which the
Lenders or the Agent or any such person may incur or which may be claimed
against any of them by reason of or in connection with any Letter of Credit,
and neither any Lender nor the Agent or any of their respective officers,
directors, employees or agents shall be liable or responsible for: (i) the use
which may be made of any Letter of Credit or for any acts or omissions of any
beneficiary in connection therewith; (ii) the validity, sufficiency or
genuineness of documents or of any endorsement thereon, even if such documents
should in fact prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (iii) payment by the Agent to the beneficiary under any
Letter of Credit against presentation of documents which do not comply with the
terms of any Letter of Credit, including failure of any documents to bear any
reference or adequate reference to such Letter of Credit; (iv) any error,
omission, interruption or delay in transmission, dispatch or delivery of any
message or advice, however transmitted, in connection with any Letter of
Credit; or (v) any other event or circumstance whatsoever arising in connection
with any Letter of Credit; provided, however, that the Company shall not be
required to indemnify the Lenders and the Agent and such other persons, and the
Agent shall be liable to the Company to the extent, but only to the extent, of
any direct, as opposed to consequential or incidental, damages suffered by the
Company which were caused by (A) the Agent's wrongful dishonor of any Letter of
Credit after the presentation to it by the beneficiary thereunder of a draft or
other demand for payment and other documentation strictly complying with the
terms and conditions of such Letter of Credit, or (B) the payment by the Agent
to the beneficiary under any Letter of Credit against presentation of documents
which do not comply with the terms of the Letter of Credit to the extent, but
only to the extent, that such payment constitutes gross negligence of wilful
misconduct of the Agent. It is understood that in making any payment under a
Letter of Credit, the Agent will rely on documents presented
CREDIT AGREEMENT
-48-
<PAGE> 49
to it under such Letter of Credit as to any and all matters set forth therein
without further investigation and regardless of any notice or information to
the contrary, and such reliance and payment against documents presented under a
Letter of Credit substantially complying with the terms thereof shall not be
deemed gross negligence or wilful misconduct of the Agent in connection with
such payment. It is further acknowledged and agreed that the Company may have
rights against the beneficiary or others in connection with any Letter of
Credit with respect to which the Lenders are alleged to be liable and it shall
be a precondition of the assertion of any liability of the Lenders under this
Section that the Company shall first have exhausted all remedies in respect of
the alleged loss against such beneficiary and any other parties obligated or
liable in connection with such Letter of Credit and any related transactions.
1.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns, provided that the Company may not, without the prior consent of the
Lenders, assign its rights or obligations hereunder or under the Notes or any
Guaranty and the Lenders shall not be obligated to make any Loan hereunder to
any entity other than the Company.
1.6 Participations and Assignments. (a) Any Lender may sell
participations to one or more banks or other entities in or to all or a portion
of its rights and obligations under this Agreement (including, without
limitation, all or a portion of its Commitment, the Notes held by it, and its
interest in the Guaranties) provided that (i) such Lender's obligations under
this Agreement (including without limitation, its Commitment to lend to the
Company hereunder) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such
obligations, (iii) such Lender shall remain the holder of its Note for all
purposes under this Agreement, and (iv) the Company, the Agent and the other
Lenders shall continue to deal solely and directly with such Lender in
connection with such Lender's rights and obligations under this Agreement.
(b) Any Lender may assign, transfer and negotiate all or a portion of its
Commitment, the Notes held by it and its interest in the Guaranties to any
affiliate of such Lender without the consent of any other Lender, the Agent or
the Company and any Lender may so assign, transfer and negotiate such Lender's
interest, with the consent of the Agent and the Company, which consent shall
not be unreasonably withheld, to any financial institution or institutions,
provided, however, that each such assignment of less than all of a Lender's
commitment shall be in the minimum amount of $10,000,000 and integral multiples
of $5,000,000. In the case of any assignment, transfer or negotiation, the
assignee, transferee or recipient shall have, to the extent of such assignment,
transfer or negotiation, the same rights, benefits and obligations as if it
were a Lender with respect to such Commitment or Notes, including, without
limitation, the right to approve or disapprove actions which, in accordance
with the terms hereof, require the approval of Majority Lenders and the
obligation to fund Loans and Letter of Credit Advances pursuant to Article III.
The parties to each such assignment shall execute and deliver to the Agent an
Assignment and Acceptance in the form of Exhibit P hereto (an "Acceptance and
Assignment"), together with any Note or Notes subject to such assignment. The
assigning Lender shall pay to the Agent an assignment fee in the amount of
$3,500 for administration of each assignment, transfer or negotiation of its
Commitment and Notes.
1.7 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.
CREDIT AGREEMENT
-49-
<PAGE> 50
1.8 Governing Law. This Agreement is a contract made under, and shall be
governed by and construed in accordance with, the laws of the State of Michigan
applicable to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State. The Company
further agrees that any legal action or proceeding with respect to this
Agreement or the Notes or the transactions contemplated hereby may be brought
in any court of the State of Michigan, or in any court of the United States of
America sitting in Michigan, and the Company hereby submits to and accepts
generally and unconditionally the jurisdiction of those courts with respect to
its person and property.
1.9 Table of Contents and Headings. The table of contents and the
headings of the various subdivisions hereof are for the convenience of
reference only and shall in no way modify any of the terms or provisions
hereof.
1.10 Construction of Certain Provisions. If any provision of this
Agreement refers to any action to be taken by any person, or which such person
is prohibited from taking, such provision shall be applicable whether such
action is taken directly or indirectly by such person, whether or not expressly
specified in such provision.
1.11 Integration and Severability. This Agreement embodies the entire
agreement and understanding between the Company, the Agent and the Lenders, and
supersedes all prior agreements and understandings, relating to the subject
matter hereof. In case any one or more of the obligations of the Company under
this Agreement or any Note shall be invalid, illegal or unenforceable in any
jurisdiction, the validity, legality and enforceability of the remaining
obligations of the Company shall not in any way be affected or impaired
thereby, and such invalidity, illegality or enforceability in one jurisdiction
shall not affect the validity, legality or enforceability of the obligations of
the Company under this Agreement or the Notes in any other jurisdiction.
1.12 Interest Rate Limitation. Notwithstanding any provisions of this
Agreement, the Notes or any other documents, in no event shall the amount of
interest paid or agreed to be paid by the Company exceed an amount computed at
the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement or the
Notes at the time performance of such provision shall be due, shall involve
exceeding the interest rate limitation validly prescribed by law which a court
of competent jurisdiction may deem applicable hereto, then, ipso facto, the
obligations to be fulfilled shall be reduced to an amount computed at the
highest rate of interest permissible under applicable law, and if for any
reason whatsoever the Lender shall ever receive as interest an amount which
would be deemed unlawful under such applicable law such interest shall be
automatically applied to the payment of principal of the Loans outstanding
hereunder (whether or not then due and payable) and not to the payment of
interest, or shall be refunded to the Company if such principal and all other
obligations of the Company to the Lenders have been paid in full.
1.13 Execution by Guarantors. Each of the Guarantors is joining in the
execution of this Agreement for the purpose of acknowledging and agreeing to
all of the terms hereof and the conditions and obligations to be observed or
performed by such Guarantor hereunder.
1.14 Foreign Lenders. Each Lender organized under the laws of a
jurisdiction outside the United
CREDIT AGREEMENT
-50-
<PAGE> 51
States shall, from time to time if requested in writing by the Agent (but
only so long thereafter as such Lender remains lawfully able to do so), provide
the Agent and the Company with Internal Revenue Service form 1001 or 4224, as
appropriate, or any successor form prescribed by the Internal Revenue Service,
certifying that such Lender is entitled to benefits under an income tax treaty
to which the United States is a party that reduces the rate of withholding tax
on payments under this Agreement or the Notes certifying that the income
receivable pursuant to this Agreement or the Notes is effectively connected
with the conduct of a trade or business in the United States. If the form
provided by a Lender at the time such Lender first becomes a party to this
Agreement indicates a United States interest withholding tax rate in excess of
zero, withholding tax at such rate shall be considered excluded from taxes. If
any form or document referred to in this Section 10.15 requires the disclosure
of information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001
or 4224, that the Lender reasonably considers to be confidential, the Lender
shall give notice thereof to the Company and shall not be obligated to include
in such form or document such confidential information.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the 30th day of June, 1996, which shall be
the Effective Date of this Agreement, notwithstanding the day and year first
above written or the date this Agreement is executed by any of the parties
hereto on the following signature pages, and which shall be the date inserted
by the Agent on which the Agent has executed counterparts of this Agreement
which have been executed by each of the Lenders, the Company and the
Guarantors.
Address for Notices: PERRIGO COMPANY
117 Water Street
Allegan, MI 49010
Attn: Chief Financial
Officer By:
--------------------------
Telephone:(616) 673-9098 Steve M. Neil
Facsimile:(616) 673-9128 Vice President, Chief
Financial Officer
Address for Notices: L. PERRIGO COMPANY
117 Water Street
Allegan, MI 49010
Attn: Chief Financial
Officer By:
--------------------------
Telephone:(616) 673-9098 Steve M. Neil
Facsimile:(616) 673-9128 Vice President, Chief
Financial Officer
CREDIT AGREEMENT
-51-
<PAGE> 52
Address for Notices: PERRIGO COMPANY OF SOUTH
CAROLINA, INC.
117 Water Street
Allegan, MI 49010
Attn: Chief Financial
Officer By:
Telephone:(616) 673-9098 --------------------------
Facsimile:(616) 673-9128 Steve M. Neil
Vice President Chief
Financial Officer
Address for Notices: PERRIGO COMPANY OF
TENNESSEE
117 Water Street
Allegan, MI 49010
Attn: Chief Financial
Officer By:
Telephone (616) 673-9098 -------------------------
Facsimile (616) 673-9128 Steve M. Neil
Vice President Chief
Financial Officer
Address for Notices: NBD BANK, as
611 Woodward Avenue Agent and Individually
Detroit, MI 48226 as a Lender
Attn: Manager,
Commercial Loans By:
--------------------------
With a Copy to: William C. Goodhue
William C. Goodhue Vice President
Telephone: (313) 225-2227
Facsimile: (313) 225-2649
CREDIT AGREEMENT
-52-
<PAGE> 53
Address for Notices: PNC BANK, NATIONAL
ASSOCIATION
500 W. Madison, Suite 3140
Chicago, IL 60606
Attn: Pete Stack By:
Telephone: (312) 906-3426 -------------------------
Facsimile: (312) 906-3420 Its:
-------------------------
Address for Notices: COMERICA BANK-DETROIT
99 Monroe N.W.
1000 Campau Square Plaza
Grand Rapids, Michigan 49503
Attn: Kevin M. Ringenberg By:
Telephone:(616) 776-6380 -------------------------
Telecopy: (616) 776-7885 Its:
-------------------------
Address for Notices: SANWA BANK, LIMITED
Chicago Branch
10 South Wacker Dr., 31st Fl.
Attn: Richard H. Ault By:
Telephone: (312) 368-3011 -------------------------
Telecopy: (312) 346-6677 Its:
-------------------------
Address for Notices: WESTDEUTSCHE LANDESBANK
GIROZENTRALE
Westdeutsche Landesbank Girozentrale
1211 Avenue of the Americas
New York, New York 10036
Attn: Cynthia Niesen By:
Telephone: (212) 852-6000 --------------------------
Facsimile: (212) 852-6300 Its:
-------------------------
CREDIT AGREEMENT
-53-
<PAGE> 54
Address for Notices:
OLD KENT BANK
One Vandenberg Center
Grand Rapids, MI 49503
Attn: Richard K. Russo By:
Telephone: (616) 774-5870 --------------------------
Telecopy: (616) 774-1119 Its:
-------------------------
CREDIT AGREEMENT
-54-
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
State/Country of Percent Owned By
Name Incorporation Perrigo Company
---- ------------- ---------------
<S> <C> <C>
L. Perrigo Company Michigan 100%
Perrigo Company of Tennessee, Inc. Tennessee 100%
Cumberland Freight Line, Inc. Tennessee 100% by Perrigo Company of Tennessee
Perrigo Company of Missouri, Inc. Missouri 100%
Perrigo Company of Michigan 100%
South Carolina, Inc.
Perrigo Sales Company Michigan 100%
Perrigo (Barbados), L.T.D. Barbados 100%
Perrigo International, Inc. Michigan 100%
Perrigo de Mexico S.A. de C.V. Nuevo Leon (Mexico) 100% by Perrigo International, Inc.
Nippon Perrigo K.K. Japan 100% by Perrigo International, Inc.
</TABLE>
-1-
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference and use of our
report dated August 2, 1996 on the consolidated financial statements of Perrigo
Company and Subsidiaries which appears on page 30 of this Form 10-K for the
year ended June 30, 1996 in the previously filed registration statements for
that company's 1988 Employee Incentive Stock Option Plan, as amended
(Registration No. 33-46265), 1989 Non-qualified Stock Option Plan for Directors
(Registration No. 33-46264), Investment Plan and Trust (Registration No.
33-46262), Cumberland-Swan, Inc. Retirement Income Savings Plan (Registration
No. 33-46263) and Perrigo Company Missouri, Inc. Investment Plan (Registration
No. 33-90886).
By: /s/BDO Seidman, LLP
---------------------
BDO Seidman, LLP
Grand Rapids, Michigan
September 25, 1996
-1-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 176
<SECURITIES> 0
<RECEIVABLES> 91,396
<ALLOWANCES> 2,975
<INVENTORY> 156,976
<CURRENT-ASSETS> 259,573
<PP&E> 339,708
<DEPRECIATION> 100,716
<TOTAL-ASSETS> 549,395
<CURRENT-LIABILITIES> 92,644
<BONDS> 49,140
<COMMON> 146,056
0
0
<OTHER-SE> 235,104
<TOTAL-LIABILITY-AND-EQUITY> 549,395
<SALES> 778,121
<TOTAL-REVENUES> 778,121
<CGS> 574,806
<TOTAL-COSTS> 574,806
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 361
<INTEREST-EXPENSE> 5,679
<INCOME-PRETAX> 62,542
<INCOME-TAX> 22,700
<INCOME-CONTINUING> 39,842
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 39,842
<EPS-PRIMARY> .52
<EPS-DILUTED> .52
</TABLE>
