<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended February 26, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _________________
Commission File Number 0-16998
DRUG EMPORIUM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 31-1064888
(STATE OF INCORPORATION) (IRS EMPLOYER IDENTIFICATION NO.)
____________
155 HIDDEN RAVINES DRIVE
POWELL, OHIO 43065
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE IS (614) 548-7080
____________
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $0.10 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
--- ---
At May 10, 1994, there were 13,155,585 shares of Drug Emporium, Inc.
common stock outstanding. The aggregate market value of shares of common stock
held by non-affiliates of the Registrant as of May 10, 1994 was approximately
$39,168,765 based on a closing price of $4.38 per share on NASDAQ-NMS on such
date.
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. [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Part II, Items 6., 7. and 8., and Part IV, Item 14. incorporate by
reference portions of the Drug Emporium, Inc. Annual Report to Stockholders for
the year ended February 26, 1994. Part III, Items 10., 11., 12., and 13.
incorporate by reference portions of the Drug Emporium, Inc. Proxy Statement
for the 1994 Annual Meeting of Stockholders. With the exception of the
information specifically incorporated by reference, the Drug Emporium, Inc.
Annual Report to Stockholders for the year ended February 26, 1994 is not
deemed filed as part of this report.
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ITEM 1. BUSINESS
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INTRODUCTION
Drug Emporium, Inc., (the "Company") founded in 1977, has grown into a
national chain of 133 Company-controlled stores in 14 states with annual sales
of $749 million. The Company also franchises 102 Drug Emporium stores
operating in 17 states.
The Company's common stock is traded on Nasdaq National Market System
under the symbol DEMP. Drug Emporium's 7-3/4% convertible subordinated
debentures due October 1, 2014, are traded on the Nasdaq system under the
symbol DEMPG. As of February 26, 1994, there were 13,154,085 common shares
outstanding.
Drug Emporium is a category-dominant, value-added retailer selling
health and beauty care, over-the-counter medication, prescription drugs,
greeting cards and cosmetics at everyday low prices. Product lines include a
vast array of health items, cosmetics, designer fragrances and seasonal lines.
Drug Emporium's merchandising techniques, store cleanliness and advertising
promotions compare favorably with supermarket standards.
The Company and its franchisees plan to open approximately 12 additional
stores, primarily in existing markets, this fiscal year. The Company and its
franchisees estimate that during fiscal 1995 they will remodel 18 stores,
relocate two stores and close nine stores.
STORE OPERATIONS
Company stores range in size from 18,000 to 33,000 square feet, with a
typical store having approximately 25,000 square feet, including retail selling
space and storage space in the rear of each store.
Each store has a manager, one or two assistant managers, a head
pharmacist, and approximately 8 to 12 additional full-time employees. The
stores are grouped into five operational regions, each overseen by a Regional
Vice President. The Regional Vice Presidents' responsibilities include
visiting all Company stores and assuring that Company standards for buying,
merchandising, customer service and store appearance are maintained.
The Company's stores are located primarily in shopping centers on
major commercial thoroughfares. The capital expenditures required to fixture
and equip a store averages $200,000. Pre-opening expenses, including salaries
and promotional expenses, average $50,000 per store, and each store requires
approximately $1,000,000 in initial inventory.
The typical trade area for a Drug Emporium store encompasses 200,000
people in 75,000 households within a defined area, usually five miles. The
customer profile: 85 percent middle-to-upper income women between the ages of
25 and 54 who shop on a two-and-a-half work week cycle.
Drug Emporium stores accommodate 8,000 to 12,000 shoppers per week and
provide an environment for shoppers seeking a pleasant and social shopping
experience. Drug Emporium fills a unique tenant category in a shopping
center's merchandising mix. Preferably placed adjacent to a supermarket chain
store, Drug Emporium stores are well received by both hard and soft goods
national retailers.
Most stores are open seven days and 80 hours a week. Each store has a
similar layout, with the pharmacy located in the rear of the store. Company
stores accept payment in cash or by check or credit card.
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The table set forth below lists the 235 Drug Emporium stores by market:
WHOLLY-OWNED:
------------
Columbus, OH 7
Cincinnati, Dayton, OH 11
Philadelphia, PA 26
Atlanta, GA 24
Washington, DC 26
Los Angeles, CA 18
Milwaukee, WI 5
Minneapolis, MN 5
St. Louis, MO 5
Indianapolis, IN 2
Augusta, GA and Charleston, SC 2
Orlando, FL 2
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133
INDEPENDENT FRANCHISES:
----------------------
Charlotte, Raleigh, Durham, Concord, NC 5
Phoenix, Tucson, AZ 13
Kansas City, MO 3
Dallas, TX 15
Seattle, Tacoma, WA 16
San Antonio, Austin, Houston, TX 6
Virginia Beach, VA 8
Miami, FL 1
Greensboro, Winston Salem, NC 3
Barboursville, Charleston, WV 3
Baton Rouge, LA 1
Oklahoma City, OK 1
Lafayette, Shreveport, LA and Amarillo,
Abilene, Longview, Lubbock, Denton, TX
Little Rock, AR, and Wichita, KS 10
Louisville, KY 4
Houston, TX 2
Lincoln, NE 1
Richmond, Charlotteville, VA 3
Omaha, NE 1
Victoria, Brownsville, TX 2
Union City, NJ 2
Morris Plains, NJ 1
Las Vegas, NV 1
--
102
===
The Company considers various geographic and demographic factors,
including population around the site, income level within that area, proximity
to major shopping malls, traffic count, accessibility of site, proximity of
competitors and available parking spaces. Extensive market research is
utilized through an outside market research firm which identifies, among other
things, trade area, trade area potential, demographic factors, competitors and
competitors' sales/strengths/weaknesses, and projects three-year anticipated
sales volumes.
Company, and to a limited extent, franchisee, pharmacy matters are
supervised by the Director of Pharmacy who directs compliance with state and
federal pharmacy regulations and training. The Company has implemented a
computerized pharmacy system across its network of Company stores. Most
franchisees have installed similar systems. The system simplifies the
preparation of labels and maintenance of patient profiles.
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FRANCHISE OPERATIONS
Drug Emporium continues to have a strong franchise network consisting
of 102 stores. Last year, Drug Emporium, Inc. established a Franchise Advisory
Board designed to provide a forum to investigate and discuss issues and
concerns of the Company and its franchisees. One of the major accomplishments
of the Franchise Advisory Board was the formation of a program called DESIRE,
which stands for Drug Emporium Shares in Research and Education. At a
mid-winter executive conference, new merchandising concepts were shared and
mutually beneficial cooperative ventures were explored.
Under its franchise system, the Company permits franchisees to operate
Drug Emporium stores in a specific geographic area based on ADIs (areas of
dominant influence of television signals). Prospective franchisees must make a
minimum equity investment of $1,000,000 and establish an acceptable line of
credit in the amount of $500,000 per store. The Company assists franchisees in
site selection, negotiating leases, store layout, and establishing purchasing
and advertising policies.
The Company selects its franchisees carefully and works closely with
them to increase the likelihood of success for each franchisee. Prospective
franchisees sign confidentiality agreements in addition to a non-compete clause
contained within the executed franchise agreement. Upon execution of a
franchise agreement, the franchisee must pay a nonrefundable $25,000 fee for
the first store and a $10,000 commitment fee for each additional store
designated for that market. The balance of the $25,000 store fee ($15,000) is
payable upon the opening of each subsequent designated store in the market.
The current franchise agreement provides for franchise royalties at a
minimum rate of $6,000 per store for the second year and $25,000 per year per
store for stores open three years or more against the following percentage
royalties: 1% on gross sales from $3.5 million to $6 million; 2% from $6
million to $8 million; 3% from $8 million to $10 million; and 1.25% on gross
sales over $10 million.
In addition, each franchisee must pay .1% of gross sales to the
Company to offset the cost of developing advertising. Each franchisee must
also spend at least 1% of gross sales for advertising. The current franchise
agreement permits the Company to require that .6% of the 1% advertising
expenditure be contributed to a national advertising program if such program is
established by the Company. The Company may either open its own stores or
allow other franchisees to open stores in a franchisee's territory if the
franchisee fails to comply with the development schedule agreed upon by the
Company and the franchisee.
ACQUISITION OF FRANCHISEES
The Company, from time to time, has acquired or sought to acquire
certain of its franchise operations. The Company's decision to pursue the
acquisition of a franchisee is based on the Company's evaluation of the growth
opportunities in a particular market, the impact the acquisition would have on
earnings per share and the quality of the franchisee's existing management.
Since 1983, the Company has acquired franchisees located in Los Angeles,
Washington, D.C., Atlanta, Cincinnati, Milwaukee, Minneapolis, St. Louis,
Charleston, S.C., Indianapolis and Orlando. The Company plans to evaluate
future opportunities to acquire appropriate franchisees from time to time and
may use cash or securities to pay for such acquisitions.
MERCHANDISING AND MARKETING
The Company's merchandising goal is to provide customers with the
widest available selection of health and beauty aids, cosmetics, prescription
drugs and general merchandise at everyday low prices. The Company estimates
that approximately 67% of a typical store's inventory is health and beauty aids
and general merchandise, 25% pharmacy items and 8% cosmetics.
The Company is continuing to aggressively pursue strategies designed
to lower the total cost of acquiring merchandise in order to continue to be
competitive with other national and regional chain discounters. The Company
began implementing point of sale (POS) scanning during fiscal 1994. POS will
provide information to better manage gross margins and inventory levels by
electronically capturing transactions at the store level.
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During fiscal 1994, no single vendor accounted for more than 10% of
the Company's purchases. The Company purchases from over 500 vendors, although
the great majority of its business is conducted with approximately 100 vendors.
The Company believes it is a significant customer for each of these 100
vendors.
During fiscal 1994, the Company expanded its private label program
with various manufacturers of health and beauty aids and general merchandise.
Drug Emporium brand products include analgesics, laxatives, cough and cold
remedies, wet 'n drys and hosiery. Currently, out of a total of 25,000 average
stockkeeping units ("SKUs") per store, there are over 500 private label SKUs
and the program is expected to expand to over 650 SKUs over the next few years.
The Company advertises through the use of television, radio, newspaper
and direct mail. Point of sale advertising is also used. The Company's
strategy of clustering stores within ADI markets is an important factor in
maximizing the effect of its advertising expenditures. The Company works with
an advertising agency that coordinates advertising for the entire chain. The
advertising function is performed centrally. Benefits of centralization
include efficiencies of buys with media, coordination of chain-wide promotional
activities, and ability to negotiate better prices with vendors.
CUSTOMER SERVICE
The Company believes that its commitment to customer service is an
important ingredient of its success. The Company encourages its managers and
other employees to be responsive to customers. The stores are designed to make
products easily accessible. Store employees are trained to be friendly and
helpful to customers. Each store has numerous cashiers to speed up and
facilitate customer check-out.
COMPETITION
The sale of health and beauty aids, cosmetics and prescription drugs
is highly competitive. The Company believes that the principal bases of
competition in the sale of health and beauty aids, cosmetics and prescription
drugs are price, product variety and service. However, site location and
customer recognition are also important factors. The Company believes that
there exist only a few deep discount drug store companies, the major ones being
Phar-Mor Inc. and F & M Distributors Inc. The Company's stores compete not
only with numerous other drug stores with national or regional images, but also
with supermarkets, combination stores and discount stores. Many of the
Company's supermarket, combination store and discount and retail drug store
competitors have more outlets and substantially greater financial resources
than the Company or have more convenient locations than Company stores. The
Company believes that its prices are competitive and that it offers greater
product variety and better service than its competitors. The Company also
believes that the smaller size of its stores compared to the major discount
competitors provides a better shopping experience and allows a better selection
of sites in tight real estate markets that exist in some major cities. The
Company's ability to expand successfully into new markets is especially
sensitive to the competitive factors in those markets.
EMPLOYEES AND TRAINING
At May 10, 1994, the Company had a total of approximately 2,100
employees on a full-time basis, of which 126 were corporate staff personnel.
The Company also employed approximately 4,000 employees on a part-time hourly
rate basis at the stores. None of the employees are covered by a collective
bargaining agreement. The Company considers its relations with its employees
to be good.
Drug Emporium believes that the training of store employees and
franchisees is one of the most important elements of its business. The Company
conducts training classes at its headquarters, and senior management works
closely with regional and district managers in this regard.
REGULATION
The sale of franchises by the Company is subject to regulation by the
Federal Trade Commission and various states in which it does, or may in the
future do, business. Such regulation generally requires the prior registration
or an exemption from registration for the sale of franchises and delivery to
prospective franchisees of
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a franchise disclosure document. No assurances can be given that any future
changes in the existing laws or the promulgation of new laws will not adversely
affect the Company.
The Company is also subject to the Fair Labor Standards Act, which
governs such matters as minimum wages, overtime and other working conditions.
A portion of the Company's personnel are paid at rates related to the federal
minimum wage, and accordingly, further increases in the minimum wage increase
the Company's labor costs.
The prescription drug business is subject to the federal Food, Drug
and Cosmetic Act relating to the content and labeling of drug products,
comparable state statutes and state regulation regarding recordkeeping and
licensing matters with civil and criminal penalties for violations.
SERVICEMARKS
The Company has obtained federal registrations of the servicemark
"Drug Emporium" and "Savings So Big You Need a Shopping Cart" for retail drug
store services; "Drug Emporium" for technical aid and assistance in the
establishment and operation of retail drug stores; and "Drug Emporium", plus
design, for retail drug store services. Federal registration of the
servicemark "Food and Drug Emporium" is currently pending.
The mark "Drug Emporium" has been registered in the states of Alabama,
Arizona, Arkansas, California, Colorado, Florida, Georgia, Indiana, Kansas,
Kentucky, Louisiana, Maryland, Minnesota, Missouri, Nebraska, Nevada, New
Jersey, New Mexico, New York, North Carolina, Ohio, Oklahoma, Pennsylvania,
South Carolina, Tennessee, Texas, Virginia, Washington, West Virginia and
Wisconsin, as well as Mexico and Puerto Rico. The mark "Savings So Big You
Need A Shopping Cart" has been filed and is pending in Canada and Mexico. The
mark "Drug Emporium," plus design, and the shopping cart design have been filed
in Mexico and the shopping cart design is registered in Canada. The Company
believes that these marks are of material importance to its business.
Federal registration of a mark does not create new substantive rights
to use the mark or to assert rights based on ownership, but it does provide
additional remedies for the protection of the mark.
<TABLE>
EXECUTIVE OFFICERS OF THE COMPANY
---------------------------------
The Company's executive officers are:
<CAPTION>
Served as
Name Age Position (1) Officer Since
- - --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Keith E. Alessi 39 Chief Financial Officer 1993
David L. Kriegel 48 Chairman of the Board, Chief Executive Officer, Director 1992
Jane H. Lagusch 48 Vice President, Secretary 1990
Robert E. Lyons, III 43 Senior Vice President 1987
<FN>
(1) Officers serve until their successors are chosen and are qualified subject to earlier removal by the board
of directors, and subject to rights, if any, under employment contracts.
</TABLE>
KEITH E. ALESSI
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Mr. Alessi was appointed Chief Financial Officer of the Company on January
30, 1993. Mr. Alessi currently serves as Chairman and Chief Executive Officer
of Virginia Supermarkets, Inc. Previously Mr. Alessi was President of Farm
Fresh Supermarkets, Inc. and earlier served as Senior Vice President and Chief
Financial Officer of Richfood, Inc.
5
<PAGE> 7
DAVID L. KRIEGEL
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Mr. Kriegel has been the Chairman and Chief Executive Officer of the Company
since December 1, 1992. Mr. Kriegel has been a director of the Company since
1983. Mr. Kriegel is Chairman and Chief Executive Officer of Kriegel Holding
Company, Inc., a privately owned corporation dealing with consumer products,
real estate and distribution. Until January, 1993, Mr. Kriegel was Vice
President of Cardinal Health and Marketing Group, a division of Cardinal
Distribution, Inc. From September 1988 to December 1990, Mr. Kriegel was
Corporate Vice President of Roundy's Inc. and from 1973 to 1988, Mr. Kriegel
was President of American Merchandising Associates, Inc.
JANE H. LAGUSCH
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Ms. Lagusch was appointed a Vice President of the Company January 30, 1993.
Ms. Lagusch has been the Secretary of the Company since January, 1990.
ROBERT E. LYONS, III
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Mr. Lyons assumed a new position with the Company in January 1993 as Senior
Vice President with key marketing and merchandising responsibilities. From
January 1990 to December 1992, Mr. Lyons was President and Chief Operating
Officer of the Company. Mr. Lyons has been with the Company and/or associated
with a franchise since 1983.
ITEM 2. PROPERTIES
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All of the Company's stores are occupied pursuant to long-term leases that
vary as to rental provisions, expiration dates, renewal options, and rental
amounts and payment provisions. The Company does not deem any individual store
lease to be significant in relation to its overall operations. For information
as to the amount of the Company's rental obligations for retail store leases,
see Note 5 of Notes to Consolidated Financial Statements.
The Company also owns a 20,000 square foot executive office building for its
use as its principal office. The site includes five acres of property and is
located in Powell, Ohio, just north of Columbus.
ITEM 3. LEGAL PROCEEDINGS
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None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- - ------- ---------------------------------------------------
Not Applicable
6
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
- - ------- -------------------------------------------------------------
MATTERS
-------
The Company's common stock is traded on the National Association of
Securities Dealers Automated Quotation System - National Market System
("Nasdaq-NMS") under the symbol DEMP. The following table sets forth, for the
quarterly periods shown, the high and low sale price per share as reported on
Nasdaq-NMS.
<TABLE>
<CAPTION>
Fiscal Quarter Ended High Low
-------------------- ---- ---
<S> <C> <C>
February 29, 1992 $9.250 $5.500
May 30, 1992 $9.125 $5.125
August 29, 1992 $6.125 $3.625
November 28, 1992 $6.250 $4.125
February 27, 1993 $6.750 $3.750
May 29, 1993 $6.875 $4.000
August 28, 1993 $7.625 $6.250
November 27, 1993 $6.500 $4.625
February 26, 1994 $6.625 $4.623
</TABLE>
The Company paid a dividend of $.04 per share during fiscal 1993 and no
dividend in fiscal 1994.
The Company's bank credit agreement restricts total funds used for
dividends, stock repurchases and acquisition of the Company's convertible
subordinated debt to 50% of the Company's cumulative net income (as defined).
At May 10, 1994, the number of holders of record of the Company's common
stock, without determination of the number of individual participants in
security positions, was approximately 1,356.
ITEM 6. SELECTED FINANCIAL DATA
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The information required by this Item 6 is incorporated by reference from
page 10 of the Drug Emporium, Inc. Annual Report to Stockholders for the year
ended February 26, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
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RESULTS OF OPERATION
--------------------
The information required by this Item 7 is incorporated by reference from
pages 11 through 12 of the Drug Emporium, Inc. Annual Report to Stockholders
for the year ended February 26, 1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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The information required by this Item 8 is incorporated by reference from
pages 13 through 21 and page 23 of the Drug Emporium, Inc. Annual Report to
Stockholders for the year ended February 26, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- - ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- - -------- --------------------------------------------------
*
Certain of the information required by this Item 10 is set forth under Part
I, "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
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*
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -------- --------------------------------------------------------------
*
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------- ----------------------------------------------
*
* Reference is made to information under the captions "Election of Directors,"
"Executive Compensation," "Security Ownership of Certain Beneficial Owners
and Management," and "Certain Relationships and Related Transactions," in
the Company's Proxy Statement for the Annual Meeting of Stockholders to be
held on June 23, 1994. The Company mailed its definitive proxy statement to
stockholders on or about May 18, 1994.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
- - -------- ---------------------------------------------------------------
(a)(1) Financial Statements
--------------------
The following Consolidated Financial Statements of Drug Emporium,
Inc. are incorporated by reference in Item 8 from the pages set
forth below of the Drug Emporium, Inc. Annual Report to
Stockholders for the year ended February 26, 1994:
<TABLE>
<CAPTION>
Page Nos. of
Annual Report
-------------
<S> <C>
Consolidated Balance Sheets as of February 26(27), 1994 and 1993 13
Consolidated Statements of Operations for the Three Fiscal Years Ended
February 26(27)(29), 1994 14
Consolidated Statements of Shareholders' Equity for the Three Fiscal Years
Ended February 26(27)(29), 1994 15
Consolidated Statements of Cash Flows for the Three Fiscal Years Ended
February 26(27)(29), 1994 16
Notes to Consolidated Financial Statements 17-21
Report of Independent Auditors 23
</TABLE>
(2) Financial Statement Schedules
-----------------------------
Schedule IX-Notes Payable To Banks
The other schedules for which provision is made in Regulation S-X
are not required under the instructions contained therein, are
inapplicable, or the information is included in the footnotes to
the Consolidated Financial Statements.
(3) Exhibits List
-------------
(3) Articles of Incorporation and By-Laws
-------------------------------------
3.3 Restated Certificate of Incorporation
(incorporated by reference to Exhibit 3.3 to the
Company's S-1 Registration Statement No. 33-21755)
(10) Material Contracts
------------------
10.1 Drug Emporium, Inc. 1983 Incentive Stock Option
Plan (incorporated by reference to Exhibit 10.2 to
the Company's S-1 Registration Statement
Registration No. 33-21755)
10.2 Drug Emporium, Inc. 1984 Incentive Stock Option
Plan (incorporated by reference to Exhibit 10.3 to
the Company's S-1 Registration Statement
Registration No. 33-21755)
10.3 Drug Emporium, Inc. 1987 Incentive Stock Option
Plan (incorporated by reference to Exhibit 10.4 to
the Company's S-1 Registration Statement
Registration No. 33-21755)
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10.4 Drug Emporium, Inc. 1990 Incentive Stock Option
Plan (incorporated by reference to Exhibit 10.41
to the Company's Annual Report on Form 10-K for
the fiscal year ended February 28, 1990)
10.5 Drug Emporium, Inc. Non-Qualified Stock Option
Plan (incorporated by reference to Exhibit 10.5 to
the Company's S-1 Registration Statement
Registration No. 33-21755)
10.7 Form of License and Franchise Agreement
(incorporated by reference to Exhibit 10.7 to the
Company's S-1 Registration Statement Registration
No. 33-21755)
10.8 Form of Option Agreement (incorporated by
reference to Exhibit 10.8 to the Company's S-1
Registration Statement Registration No. 33-21755)
10.9 Agreement and Plan of Merger of Drug Emporium
Pacific, Inc. and Pacific Drug Distributors, Inc.
dated as of November 2, 1987 (incorporated by
reference to Exhibit 10.9 to the Company's S-1
Registration Statement Registration No. 33-21755)
*10.10 First Amended and Restated Revolving Credit and
Term Loan Agreement dated as of January 4, 1994
between Drug Emporium, Inc. and Bank One,
Columbus, N.A.
10.11 Employment contract dated March 11, 1993 between
David L. Kriegel and Drug Emporium, Inc.
(incorporated by reference to Exhibit 10.11 to the
Company's Annual Report on Form 10-K for the
fiscal year ended February 27, 1993.)
10.12 Drug Emporium, Inc. 1993 Incentive Stock Option
Plan. (incorporated by reference to Exhibit 10.12
to the Company's Annual Report on Form 10-K for
the fiscal year ended February 27, 1993.)
10.13 Drug Emporium, Inc. 1993 Non-Qualified Stock
Option Plan. (incorporated by reference to
Exhibit 10.13 to the Company's Annual Report on
Form 10-K for the fiscal year ended February 27,
1993.)
*(11) Statement re Computation of Per Share Earnings
----------------------------------------------
11.1 Computation of Per Share Earnings
*(13) Annual Report to Security Holders, Form 10Q or Quarterly Report to
------------------------------------------------------------------
Security Holders
----------------
13.1 Annual Report to Stockholders for Fiscal Year
Ended February 26, 1994 (limited to those portions
incorporated herein.)
*(22) Subsidiaries of Registrant
--------------------------
22.1 List of Subsidiaries
*(24) Consent of Experts
------------------
24.1 Consent of Ernst & Young
*Included with this Annual Report on Form 10-K
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the fourth quarter of fiscal 1994.
10
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REPORT OF INDEPENDENT AUDITORS
- - -------------------------------------------------------------------------------
BOARD OF DIRECTORS
DRUG EMPORIUM, INC.
We have audited the consolidated balance sheets of Drug Emporium, Inc. and
subsidiaries as of February 26, 1994 and February 27, 1993, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the three years in the period ended February 26, 1994 as listed in the
Index at Item 14(a). Our audit also included the financial statement schedule
listed in the Index at Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We have conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements listed in the Index at
Item 14(a) present fairly, in all material respects, the consolidated financial
position of Drug Emporium, Inc. and subsidiaries at February 26, 1994 and
February 27, 1993, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended February 26, 1994,
in conformity with generally accepted accounting principles. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly, in all
material respects, the information set forth therein.
As discussed in Note 7 to the financial statements, in the year ended February
26, 1994 the Company changed its method of accounting for income taxes.
/s/ ERNST & YOUNG
Columbus, Ohio
April 22, 1994
11
<PAGE> 13
DRUG EMPORIUM INC.
------------------
SCHEDULE IX - NOTES PAYABLE TO BANKS
------------------------------------
AT FEBRUARY 26, 1994, THE COMPANY HAD AVAILABLE APPROXIMATELY $13.5 MILLION
UNDER A REVOLVING CREDIT AGREEMENT WITH BANKS.
SHORT TERM BORROWINGS REPRESENT BORROWINGS UNDER A REVOLVING CREDIT AGREEMENT
AND CONSISTS OF THE FOLLOWING:
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Aggregate short-term borrowings at year end $13,480,000 $27,000,000 $5,953,000
Weighted average interest rate at year end 6.0% 6.0% 6.5%
Average amount outstanding during the year (1) $19,038,000 $13,094,000 $11,824,000
Weighted average interest rate during the year (2) 6.2% 5.3% 8.7%
Maximum amount outstanding during the year $31,380,000 $32,850,000 $27,279,000
<FN>
(1) The average amount outstanding during the year was computed by
dividing the total of month-end outstanding principal balances by
12.
(2) The weighted average interest rate during the year was computed by
dividing the actual interest expense (revolver only 1994, all debt
outstanding 1993 and 1992) by average short-term debt outstanding.
</TABLE>
12
<PAGE> 14
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
DRUG EMPORIUM, INC.
(Registrant)
Date: May 26, 1994 By: /s/ David L. Kriegel
-----------------------------
David L. Kriegel, Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Date: May 26, 1994
/s/ Keith E. Alessi /s/ David L. Kriegel
- - ----------------------------- -----------------------------------
Keith E. Alessi, Principal Financial David L. Kriegel, Chief Executive
and Accounting Officer Officer and Director
/s/ John B. Gerlach /s/ William L. Sweet, Jr.
- - ----------------------------- -----------------------------------
John B. Gerlach, Director William L. Sweet, Jr., Director
/s/ Gary Wilber
- - -----------------------------
Gary Wilber, Director
13
<PAGE> 1
Exhibit 10.10
FIRST AMENDED AND RESTATED
REVOLVING CREDIT
AND
TERM LOAN AGREEMENT
Borrower: DRUG EMPORIUM, INC.
Bank: BANK ONE, COLUMBUS, NA
JANUARY 4, 1994
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
Section 1. Amount and Terms of the Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Commitment of the Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Cancellation or Reduction of the Commitment by Borrower . . . . . . . . . . . . . . . . . 2
1.3. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4. Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5. The Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.6. Additional Provisions and Limitations Relating to LIBO Rate Loans . . . . . . . . . . . 5
1.7. Prepayments and Right to Reborrow . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
1.8. Borrowing Base . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 2. Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.1. General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2. Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3. Prepayment of Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.4. Additional Provisions and Limitations Relating to Term Note when LIBO Rate is in Effect . 10
Section 3. General Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.1. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2. Payment on Non-Banking Days . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3. Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4. Capital Adequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.5. Failure to Pay; Interest After Maturity . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 4. Conditions of Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1. Conditions Precedent to Initial Extensions of Credit . . . . . . . . . . . . . . . . . . 12
4.2. Conditions Precedent to Extensions of Credit . . . . . . . . . . . . . . . . . . . . . . 13
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 5. Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
5.1. Organization and Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2. Due Qualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3. Power and Authority; Due Authorization . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4. Binding Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.5. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.6. No Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.7. Government Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.8. Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.9. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.10. Margin Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.11. Accurate Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.12. Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.13. Title to Properties; Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.14. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.15. Patents, Trademarks, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.16. Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.17. Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.18. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.19. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.20. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 6. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.1. Compliance with Laws, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.2. Preservation of Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.3. Audits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.4. Reporting Requirements of Borrower . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
6.5. Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.6. Maintenance of Properties and Insurance . . . . . . . . . . . . . . . . . . . . . . . 20
6.7. Payment of Taxes and Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8. Performance of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.9. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.10. Depository . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
6.11. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 7. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1. Negative Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.2. Tangible Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.3. Minimum Current Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4. Unsubordinated Liabilities to Tangible Net Worth Ratio . . . . . . . . . . . . . . . . 22
7.5. Liabilities to Tangible Net Worth Ratio . . . . . . . . . . . . . . . . . . . . . . . 22
7.6. Income Available for Fixed Charges to Fixed Charges Ratio . . . . . . . . . . . . . . 22
7.7. Mergers, Acquisitions, Sales, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8. Loans, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.9. Contingent Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.10. Dividends, Purchases and Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.11. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.12. Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.13. Solvency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.14. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.15. Sale/Leasebacks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.16. Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
7.17. Capital Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 8. Events of Default and Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Section 9. Participation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 11. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
11.1. Term of Agreement; Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . 35
11.2. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.3. No Implied Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.4. Amendments, Modifications, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.5. Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.6. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.7. Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
11.8. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.9. Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.10. Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.11. Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.12. Confession of Judgment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.13. Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
11.14. Consent to Jurisdiction; Service . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Exhibit 1.1.3. Standard Form of Bank's Letter of Credit Application . . . . . . . . . . . . . . . . . 39
Exhibit 1.5 First Amended and Restated Revolving Credit Note . . . . . . . . . . . . . . . . . . . . . 40
Exhibit 2.2 Term Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Exhibit 4.1(b) First Amended and Restated Security Agreement . . . . . . . . . . . . . . . . . . . . . 45
Collateral Locations Exhibit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Exhibit 4.1(c) First Amended and Restated Pledge Agreement . . . . . . . . . . . . . . . . . . . . . . 59
Exhibit A Receipt for Stock Certificates and Stock Powers . . . . . . . . . . . . . . . . . . . . . . 72
Exhibit 4.1(d) First Amended and Restated Unconditional Guaranty . . . . . . . . . . . . . . . . . . . 73
</TABLE>
iv
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Exhibit 4.1(e) First Amended and Restated Security Agreement . . . . . . . . . . . . . . . . . . . . . . 80
Collateral Locations Exhibit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
Exhibit 4.1(k) Form of Borrower's Counsel's Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . 94
Exhibit 5.9 Pending Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
Exhibit 5.16 List of Subsidiaries and Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
Exhibit 6.4(i) Form of Borrowing Base Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . 100
Exhibit 6.4(k) Landlord's Waiver And Consent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
</TABLE>
v
<PAGE> 7
FIRST AMENDED AND RESTATED
REVOLVING CREDIT AND TERM LOAN AGREEMENT
THIS FIRST AMENDED AND RESTATED REVOLVING CREDIT AND TERM LOAN
AGREEMENT dated as of the 4th day of January, 1994 (the "Agreement"), is
between DRUG EMPORIUM, INC., a Delaware corporation (the "Borrower"), and BANK
ONE, COLUMBUS, NA (the "Bank"), and amends and restates in its entirety that
certain Revolving Credit Agreement dated as of February 14, 1992 between
Borrower and the Bank.
THE PARTIES HERETO, INTENDING TO BE LEGALLY BOUND, hereby agree as
follows:
SECTION 1
AMOUNT AND TERMS OF THE REVOLVING CREDIT
1.1. COMMITMENT OF THE BANK.
1.1.1. COMMITMENT. The Bank agrees, subject to the terms and
conditions of this Agreement, and provided that no Event of Default or Default
(the definitions of these and other capitalized terms used herein having the
meanings provided in Section 10) then exists, to provide Credits to Borrower in
the form of Revolving Credit Loans from time to time on and after the date
hereof but prior to February 28, 1997 (the "Revolver Maturity Date") in
respective amounts selected by Borrower from time to time, provided that the
aggregate amount thereof at any one time outstanding shall not exceed the
Commitment.
1.1.2. MAXIMUM COMMITMENT. The amount of the Commitment
shall equal the lesser of the Borrowing Base or $30,000,000. The maximum
amount of all Credits of the Bank to Borrower under this Section 1 shall not
exceed the total of the Commitment. For the purpose of computing the unused
portion of the Commitment, the Bank shall treat as outstanding Credits under
this Agreement the undrawn face amount of outstanding Letters of Credit issued
from time to time hereunder at the request of Borrower.
1.1.3. LETTERS OF CREDIT.
(a) Borrower may request a Letter of Credit by
completing the Bank's then standard application for a Letter of Credit (copy of
current standard application is attached as Exhibit 1.1.3) and delivering the
application to the Bank at least two Banking Days before the date on which the
Letter of Credit is to be issued. On the date the Letter of Credit is to be
issued, the Bank shall deliver the Letter of Credit to Borrower, or to the
Person designated by Borrower. No Letter of Credit shall be issued with an
expiration date (i) more than 180 days after the date of issuance, or (ii)
after the Revolver Maturity Date or which is payable in a currency other than
United States dollars. Except as otherwise provided herein, all the terms of
the Letter of Credit
<PAGE> 8
and such standard application shall govern the Letter of Credit.
Notwithstanding any other provision hereof to the contrary, the face amount of
all Letters of Credit outstanding at any one time shall not exceed $5,000,000.
(b) Borrower shall immediately reimburse the Bank
the amount paid on all drafts drawn under Letters of Credit issued hereunder.
If, notwithstanding the foregoing sentence, Borrower should fail to so
immediately reimburse the Bank, then, in addition to any other remedy which the
Bank may have with respect to such failure, any amount paid by the Bank on any
draft under a Letter of Credit shall be treated as a Variable Rate Loan
(bearing interest at the rate set forth in Section 3.5 hereof with respect to
Revolving Credit Loans which have become due and payable) unless Borrower makes
alternative advance provision for the funding of such reimbursement
satisfactory to the Bank.
1.2. CANCELLATION OR REDUCTION OF THE COMMITMENT BY BORROWER.
1.2.1. CANCELLATION/REDUCTION. Before the Revolver Maturity
Date, the then unused aggregate Commitment may be canceled or may be reduced
permanently from time to time by Borrower in the amount of U.S. $1,000,000 or
any larger amount which is a whole multiple of U.S. $1,000,000 upon 10 Banking
Days' written notice to the Bank of Borrower's election to do so, which notice
shall specify the date when such cancellation or reduction shall be effective
and on such effective date, the Commitment shall be so canceled or reduced;
provided that:
(a) any such cancellation or reduction shall be
irrevocable;
(b) in the event of a cancellation of the
Commitment, Borrower shall (i) pay in full all Commitment Fees due to the date
of cancellation and (ii) pay all amounts outstanding under the Revolving Credit
Notes;
(c) in the event of a reduction of the Commitment to
an amount less than the principal amount of the then outstanding Revolving
Credit Loans and Letters of Credit, Borrower shall pay the Revolving Credit
Note so that the unpaid principal amount of the then outstanding Revolving
Credit Loans and Letters of Credit does not exceed the Commitment as so
reduced; and
(d) Borrower may not cancel, prepay or reduce LIBO
Rate Loans unless Borrower first pays all fees, costs, penalties and premiums
incurred by the Bank because of such cancellation, prepayment or reduction.
1.2.2. PAYMENT OF INTEREST. All principal payments made
pursuant to this Section 1.2 shall be accompanied by the payment of accrued
interest on such principal to the date of such payment and such additional
consideration as may be required pursuant to Section 1.2.1(d).
-2-
<PAGE> 9
1.3. FEES.
1.3.1. COMMITMENT FEE. As consideration for the Commitment,
Borrower shall pay to the Bank a fee (the "Commitment Fee") on the daily
average unused portion of the aggregate Commitment at a rate PER ANNUM equal to
(a) 3/8 of 1% with respect to the unused portion of the first $20,000,000 of
the Commitment and (b) 1/4 of 1% with respect to the unused portion of the
final $10,000,000 of the Commitment, in each case commencing with the effective
date hereof. For the purpose of computing the unused portion of the aggregate
Commitment, the Bank shall treat as outstanding Credits under this Agreement
the undrawn face amount of outstanding Letters of Credit issued from time to
time hereunder at the request of Borrower. The Commitment Fee shall be
calculated on the basis of the actual number of days elapsed over a year of 360
days. The Commitment Fee shall be payable quarterly in arrears on the last day
of each February, May, August and November.
1.3.2. LETTER OF CREDIT FEES. Borrower shall pay to the Bank
a negotiation fee of 1/4 of 1% of the amount of each draft drawn under a Letter
of Credit. In addition, the Bank may charge Borrower its usual and customary
issuance and administration charges with respect to each Letter of Credit.
1.4. LOANS.
1.4.1. FORMS OF LOANS. Each Revolving Credit Loan shall, at
the election of Borrower, be made either in the form of (a) a Variable Rate
Loan (individually a "Variable Rate Loan" and collectively the "Variable Rate
Loans"); or (b) with respect to only those Revolving Credit Loans made during a
LIBO Rate Period, a LIBO Rate Loan (individually a "LIBO Rate Loan" and
collectively the "LIBO Rate Loans"). Except as otherwise provided herein, each
Variable Rate Loan shall be in the initial principal amount of $100,000 or any
larger amount which is a whole multiple of $100,000. Each LIBO Rate Loan shall
be in the initial principal amount of $1,000,000 or any larger amount which is
a whole multiple of $100,000.
1.4.2. BORROWING PROCEDURES.
(a) Except as otherwise provided herein, each
Revolving Credit Loan shall be made pursuant to Borrower's written or
telephonic request to the Bank and shall specify (i) the total amount of the
Revolving Credit Loan; (ii) whether the Revolving Credit Loan is to be a
Variable Rate Loan or, if available, a LIBO Rate Loan; (iii) the borrowing date
(the "Borrowing Date"), which shall be a Banking Day in the case of a Variable
Rate Loan or a LIBO Banking Day in the case of a LIBO Rate Loan; and (iv) in
the case of a LIBO Rate Loan, that the Bank quote to Borrower on the Trade Date
the LIBO Rate for loans outstanding for one, two, three or six months.
Requests for Variable Rate Loans may be made prior to 2:00 p.m. on the
Borrowing Date. Requests for LIBO Rate Loans shall be made by 12:00 noon on
the Request Date.
(b) In the case of a request for a LIBO Rate Loan,
the Bank shall, no later than 11:00 a.m. on the Trade Date, notify Borrower of
the LIBO Rate applicable for the periods requested by Borrower. Borrower
shall, no later than 11:30 a.m. on the Trade Date, give notice
-3-
<PAGE> 10
to the Bank by telephone confirmed by fax or otherwise in writing received on
the next succeeding Banking Day, whether it wishes (i) to complete such
borrowing in the form of a LIBO Rate Loan and, if so, the maturity date of such
LIBO Rate Loan (which shall be either one, two, three or six months from the
Borrowing Date, but in no event later than the Revolver Maturity Date); (ii) to
make such borrowing as a Variable Rate Loan; or (iii) to cancel its request for
a Revolving Credit Loan. Failure by Borrower to deliver notice to complete the
borrowing by 11:30 a.m. on the Trade Date shall constitute cancellation of such
request.
(c) The proceeds of each Revolving Credit Loan will,
subject to the satisfaction of the terms and conditions of this Agreement,
promptly (but at least by 3:00 p.m. of the Borrowing Date) be made available to
Borrower by the Bank by crediting or making a payment to the account of
Borrower.
1.5. THE NOTE.
1.5.1. FORM. The Revolving Credit Loans made by the Bank
shall be evidenced by a master promissory note of Borrower in the form attached
hereto as Exhibit 1.5, with appropriate insertions (the "Revolving Credit
Note"), payable to the order of the Bank and representing the obligation of
Borrower to pay the amount of the Commitment or, if different, the aggregate
unpaid principal amount of all Revolving Credit Loans made by the Bank, with
interest thereon as prescribed in this Section 1.5. The Revolving Credit Note
shall (a) be dated the date of this Agreement; (b) be stated to mature on the
Revolver Maturity Date; and (c) bear interest at the applicable interest rate
per annum as provided in, and payable as specified in, this Section 1.5. Each
Revolving Credit Loan made by the Bank and each payment made on account of
principal on the Revolving Credit Note shall be recorded by the Bank on its
books and records in the usual and ordinary course of business, such ordinary
course books and records to constitute PRIMA FACIE evidence in the absence of
manifest error of the amount of all Revolving Credit Loans and payments;
PROVIDED, HOWEVER, that the failure of the Bank to make such recordation shall
not limit or otherwise affect the obligations of Borrower under the Revolving
Credit Note.
1.5.2. INTEREST ON VARIABLE RATE LOANS. Each Variable Rate
Loan shall bear interest on the unpaid principal balance of such Loan for each
day from the day such Loan is made until it becomes due, at a fluctuating rate
PER ANNUM equal to the Prime Rate. Interest on all Variable Rate Loans shall
be calculated on the basis of the actual number of days elapsed over a year of
360 days. Any change in the interest rate on a Variable Rate Loan due to a
change in the Prime Rate shall take effect, without notice to Borrower, at the
opening of business on the date of such change in the Prime Rate. Interest on
the Variable Rate Loans shall be payable quarterly on the last day of each
February, May, August and November commencing on the first such date following
the initial Variable Rate Loan.
1.5.3. INTEREST ON LIBO RATE LOANS. Each LIBO Rate Loan
shall bear interest on the outstanding principal amount of such Loan for each
day from the day such loan is made until it becomes due, at a rate PER ANNUM
equal to the LIBO Rate. Borrower shall pay, with respect to each LIBO Rate
Loan, such additional amounts as shall be determined pursuant to Section 1.6.
Interest on each LIBO Rate Loan shall be payable at the maturity of such Loan.
Interest on all
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<PAGE> 11
LIBO Rate Loans shall be calculated on the actual number of days elapsed over a
year of 360 days.
1.5.4. ADDITIONAL INTEREST. For so long as the Bank, or any
participating bank, maintains reserves against any category of liabilities
which includes deposits by reference to which the interest rate on LIBO Rate
Loans is determined or any category of extensions of credit or other assets
which includes loans by a non-United States office of the Bank to United States
residents which the Bank, or such participating bank, determines in good faith
to be legally required, and as a result the cost to the Bank, or such
participating bank, of making or maintaining its LIBO Rate is determined by the
Bank, or such participating bank, in good faith to have increased, then the
Bank may require Borrower to pay, contemporaneously with each payment of
interest on any LIBO Rate Loan of the Bank, additional interest on such LIBO
Rate Loan at a rate PER ANNUM equal to (a)(i) the applicable LIBO Rate divided
by (ii) one minus the Euro Reserve Percentage minus (b) the applicable LIBO
Rate.
1.6. ADDITIONAL PROVISIONS AND LIMITATIONS RELATING TO LIBO RATE
LOANS.
1.6.1. ADDITIONS. The additional provisions and limitations
set forth below shall apply with respect to LIBO Rate Loans:
(a) DEPOSITS UNAVAILABLE. If the Bank shall, in
good faith, determine that it is unable to reasonably ascertain the LIBO Rate
or either the Bank or any participating bank is unable to acquire Eurodollar
deposits or Eurocurrency deposits on reasonable terms in an amount sufficient
to meet a request for a LIBO Rate Loan, the Bank shall forthwith give notice
thereof to Borrower, whereupon, until the Bank notifies Borrower that the
circumstances giving rise to such unavailability no longer exist (which the
Bank shall do upon receiving notice thereof), the obligations of the Bank to
make LIBO Rate Loans shall be suspended. In such event, Borrower may request a
Variable Rate Loan of like amount without regard to the notice requirement of
Section 1.4 or may cancel such request.
(b) ILLEGALITY. The obligation of the Bank to make
LIBO Rate Loans hereunder shall be suspended (to the extent necessary to remove
such illegality or impossibility) if any change in any law, treaty, rule or
regulation, or in any interpretation thereof by any governmental authority
charged with its administration (whether or not having the force of law)
including, without limitation, exchange controls, shall, in the sole opinion of
the Bank or any participating bank, make it unlawful or impossible for such
bank to comply with its obligation to make or maintain any LIBO Rate Loan
hereunder for the duration of such illegality or impossibility. The Bank shall
promptly notify Borrower of such suspension, whereupon, until the Bank receives
notice that such illegality or impossibility ceases to exist and gives notice
to Borrower thereof, the obligations of the Bank to make LIBO Rate Loans shall
be suspended. Borrower shall, upon receipt of notice from the Bank, either (i)
repay in full (or to the extent necessary to remove such illegality or
impossibility) the outstanding principal amount of all such LIBO Rate Loans,
plus accrued interest thereon or (ii) convert the applicable interest rate
payable with respect to such Loan to the interest rate payable on a similar
Variable Rate Loan (to the extent such rate is not illegal).
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<PAGE> 12
(c) CHANGE IN LAW. If the Bank has LIBO Rate Loans
outstanding and there shall occur any change in applicable law, treaty, rule,
regulation or in any interpretation thereof by any governmental authority
charged with its administration (whether or not having the force of law) which
(i) change directly affects transactions in Eurodollars or Eurocurrencies, (ii)
involves new or additional taxes, reserves or deposit requirements in regard to
the LIBO Rate Loans or changes in the basis of taxation of payments on such
Loans, or (iii) if the LIBO Rate Loans made hereunder by the Bank were to have
been matched with Eurodollar or Eurocurrency deposits corresponding in amounts
to such LIBO Rate Loans and having maturity dates which are the same as such
LIBO Rate Loans regardless of whether or not such LIBO Rate Loans are in fact
so matched, increases the cost to the Bank or any participating bank of making
or maintaining the LIBO Rate Loans hereunder or reduces the amount of any
payments (whether of principal, interest, or otherwise) receivable by the Bank
or any participating bank as to any LIBO Rate Loans or requires the Bank or any
participating bank to make any payment on or calculated by reference to the
gross amount of any sum received by it as to such LIBO Rate Loans, then:
(A) the Bank shall promptly notify Borrower of the occurrence of such
event;
(B) the Bank shall promptly deliver to Borrower a certificate stating
the change which has occurred, together with the date thereof and the amount of
and the manner of calculating the increased cost on any outstanding LIBO Rate
Loan; and
(C) upon receipt of such certificate from the Bank, Borrower shall
pay to the Bank within 10 days the amount or amounts of such additional cost
with respect to such outstanding LIBO Rate Loan as additional compensation
hereunder.
(d) CERTIFICATE AS TO PAYMENT. The certificate of
the Bank as to the additional amounts payable pursuant to Section 1.6.1(c)
delivered to Borrower shall (in the absence of manifest error in the
transmission or calculation) be conclusive evidence of the amount thereof. The
protection of this Section 1.6.1(d) shall be available to the Bank and any
participating bank regardless of any possible contention of invalidity or
inapplicability of the law, regulation or condition which has been imposed.
However, if Borrower has made a payment of any additional amounts pursuant to
Section 1.6.1(c) and any subsequent event occurs which reduces the amount of
the increased cost incurred by the Bank or any participating bank, then the
Bank shall promptly refund to Borrower an amount equal to such reduction in the
amount of increased cost.
(e) SUBSTITUTION. If Borrower is required to pay to
the Bank any additional amounts pursuant to Section 1.6.1(c), Borrower shall be
entitled, upon giving the Bank not less than five days' written notice, in
addition to its other rights, to prepay all or any portion of an outstanding
LIBO Rate Loan with respect to which such additional amounts of payment are
required (any prohibition against prepayment of such Loans herein contained to
the contrary notwithstanding) by substituting a Variable Rate Loan of equal
principal amount for all or any such portion of the Loan. All such prepayments
shall be accompanied by payment of interest accrued to the date of such
prepayments. As a condition of such prepayments, Borrower shall
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<PAGE> 13
promptly pay to the Bank upon the Bank's written request such amount or amounts
as in the reasonable good faith business judgment of the Bank will compensate
the Bank for any loss, premium or penalty incurred by it because of such
prepayment.
(f) INCREASED COSTS. In addition to the other
amounts payable hereunder, Borrower shall pay to the Bank such additional
amounts as shall compensate the Bank for increased costs which the Bank,
reasonably and in good faith determines to be allocable to LIBO Rate Loans.
Additional amounts payable under this Section 1.6.1(f) shall be paid by
Borrower to the Bank on the maturity of the respective LIBO Rate Loans, subject
to receipt by Borrower from the Bank of a certificate showing the amount and
certifying to the correctness thereof.
(g) INTEREST PERIOD. With respect to LIBO Rate
Loans, if the interest period selected by Borrower (i) ends on a day which is
not a LIBO Banking Day, the period so selected shall be extended to the next
succeeding LIBO Banking Day unless such LIBO Banking Day falls in another
calendar month, in which case such interest period shall end on the next
preceding LIBO Banking Day; or (ii) begins on the last LIBO Banking Day of a
calendar month (or on a day for which there is no numerically corresponding day
in the calendar month at the end of such interest period), the period so
selected shall end on the last LIBO Banking Day of the calendar month;
PROVIDED, HOWEVER, that notwithstanding (i) or (ii) above, no period may be
selected which ends after the Revolver Maturity Date.
1.6.2. LIMITATION. Charges or additional expenses or
otherwise to Borrower under Sections 1.2.1(d), 1.5.4 or 1.6.1 shall be subject
to the conditions that each is (a) the subject of notice given to Borrower by
the Bank within a reasonable time after the Bank determines that the same may
exist; (b) except as to the subjects of Section 1.2.1(d), the result of a
change in law or regulation or official interpretation thereof occurring after
the date of Closing; (c) not reflected in the determination of any other rate
or charge hereunder; and (d) (i) directly attributable and unique to the
transactions under this Agreement, or (ii) as to all the Bank's customers
similarly or analogously situated, (A) passed through to or assessed against
other customers to the extent the Bank is contractually empowered to do so and
(B) is allocated among all such customers (without reference to part (A) of
this clause).
1.6.3. STATEMENT. The Bank's written statement to Borrower
that items under or covered by this Section 1.6 are properly chargeable to
Borrower under this Agreement, the general nature of those charges, and the
amount thereof shall be conclusive, absent manifest error. Except only to the
extent specifically set forth in this Agreement to the contrary, no charges or
additions under or covered by this Section 1.6 shall be payable, and no
interest shall accrue thereon, prior to the presentation of the statement
described in this Section 1.6.3.
1.7. PREPAYMENTS AND RIGHT TO REBORROW. Outstanding Variable Rate
Loans may be prepaid in whole at any time or in part from time to time in an
amount which is a whole multiple of U.S. $100,000 (or such lesser amount as
constitutes the entire amount outstanding) without premium or penalty. The
LIBO Rate Loans may be prepaid only as provided for in Section 1.2 or Section
1.6.1(e). No prepayment of a Revolving Credit Loan shall affect Borrower's
right to reborrow from the Bank under the Revolving Credit Note before the
Revolver Maturity Date.
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<PAGE> 14
1.8. BORROWING BASE. Borrower shall, from time to time, prepay
Revolving Credit Loans in such amounts as shall be necessary so that, at all
times, the sum of the aggregate unpaid principal amount of Revolving Credit
Loans is less than or equal to the Borrowing Base as reflected on the most
recent Borrowing Base Certificate delivered hereunder. Any prepayment required
as a result of a reduced Borrowing Base shall be made within five Banking Days
after the delivery of the applicable Borrowing Base Certificate and shall be
subject to the provisions of Section 1.2.1(d) hereof. Borrower may, with the
consent of the Bank, which consent may be withheld for any reason or no reason,
in lieu of making such prepayment, deliver, within said five Banking Days, to
the Bank, such additional collateral as the Bank may request accompanied by
such documents as may be deemed necessary or appropriate by the Bank to protect
the interests of the Bank.
SECTION 2
TERM LOAN
2.1. GENERAL. Concurrently with the execution hereof, the Bank is
making a term loan (the "Term Loan") to Borrower in the amount of $15,000,000,
which Term Loan is evidenced by a term note (the "Term Note"). The Revolving
Credit Loans and the Term Loan are herein collectively called the "Loans" and
the Revolving Credit Note and the Term Note are herein collectively called the
"Notes."
2.2. TERM NOTE. The Term Loan shall be evidenced by a Term Note of
Borrower in the form attached hereto as Exhibit 2.2 executed by duly authorized
officers thereof. The Term Note shall include the following terms:
(a) TERM. The Term Note shall be dated as of the date hereof
and shall be due and payable in full on or before February 28, 1999 (the
"Termination Date").
(b) INTEREST RATE. Unless Borrower has elected, from time to
time, in accordance with the provisions of Section 2.2(c) to cause all or a
portion of the Term Note to bear interest at a LIBO Rate, the Term Note shall
bear interest calculated on the basis of the actual number of days elapsed over
a year of 360 days on the unpaid principal balance thereof at a fluctuating
rate equal to (i) 1/4 of 1% over the Prime Rate or (ii) during a LIBO Rate
Period only, the Prime Rate. Any change in the interest rate due to a change
in the Prime Rate shall take effect, without notice to Borrower, at the opening
of business on the date of the change in the Prime Rate. The LIBO Rate shall
have the meaning and shall be calculated as provided in Section 10; PROVIDED,
HOWEVER, the term "Effective Date" (as defined in Section 2.2(c)) shall be
substituted for references therein to "date of each LIBO Rate Loan" and the
term "principal amount of the Term Note to bear interest at the LIBO Rate"
shall be substituted for references therein to "amount of such LIBO Rate Loan."
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<PAGE> 15
(c) LIBO RATE. Borrower may elect, from time to time during
a LIBO Rate Period, to have all or a portion of the Term Note bear interest at
the LIBO Rate by providing a request therefor to the Bank not later than 12:00
noon, on the Request Date, which request shall specify (i) the effective date
of the LIBO Rate (the "Effective Date"), which shall be a LIBO Banking Day,
(ii) the principal amount of the Term Note to bear interest at the LIBO Rate
which shall not be less than U.S. $1,000,000 or any larger amount which is a
whole multiple of U.S. $100,000 and (iii) the interest period during which the
LIBO Rate is to be in effect, which may be for one, two, three or six months.
The Bank shall, not later than 11:00 a.m., on the Trade Date, give notice to
Borrower of the LIBO Rate applicable for the period requested by Borrower.
Borrower shall, not later than 11:30 a.m., on the Trade Date give notice by
telephone confirmed by fax or otherwise in writing to be received by the Bank
on the next succeeding Banking Day to the Bank as to whether or not Borrower
elects to have all or a portion of the Term Note bear interest at the LIBO Rate
commencing as of the Effective Date for the interest period so selected. If
Borrower elects not to have all or any part of the Term Note bear interest at
the LIBO Rate or fails to deliver such notice of election in a timely manner,
the Term Note shall continue to bear interest at the rate set forth in Section
2.2(b) (or other applicable LIBO Rate then in effect) and such portion of the
Term Loan bearing interest at a LIBO Rate shall, upon expiration of the period
selected for such LIBO Rate, bear interest at such rate. Each election to have
a portion of the Term Note bear interest at the LIBO Rate shall be recorded and
endorsed by the Bank on its books and records; PROVIDED, HOWEVER, that the
failure of the Bank to make such recordation shall not limit or otherwise
affect the obligations of Borrower under the Term Note.
(d) INTEREST PAYMENT DATES. Interest on the portion of the
Term Note bearing interest at the rate set forth at Section 2.2(b) shall be
payable in arrears on the last day of each February, May, August and November.
Interest on the portion of the Term Note bearing interest at the LIBO Rate
shall be payable at the maturity of the interest period selected.
(e) PRINCIPAL PAYMENTS. Principal payments on the Term Note
shall be due and payable in consecutive quarterly installments on the last day
of each February, May, August and November commencing May 31, 1994, with each
of the first 19 installments thereof equal to the amount set forth on the
following schedule and the last installment for the balance thereof:
<TABLE>
<CAPTION>
FOR QUARTERS INCLUDED IN FISCAL YEARS THE QUARTERLY PRINCIPAL PAYMENT
ENDING: SHALL EQUAL:
<S> <C>
February 28, 1995 $500,000
February 29, 1996 $750,000
February 28, 1997 $750,000
February 28, 1998 $875,000
February 28, 1999 $875,000
</TABLE>
2.3. PREPAYMENT OF TERM NOTE. The principal portion of the Term Note
bearing interest based on the Prime Rate may be prepaid, at the option of
Borrower, in an amount which is a whole multiple of $100,000 (or such lesser
amount as constitutes the entire amount outstanding), at any time or from time
to time, without premium or penalty, by giving written, telegraphic or oral
notice to the Bank not later than 2:00 p.m. on the Banking Day on which such
prepayment is
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<PAGE> 16
to be made. When such notice of prepayment has been given the Bank, the
applicable principal amount of the Term Note shall become due and payable on
the designated prepayment date. One-half of the amount of any prepayments will
be applied to the Term Loan in the order of maturity and the balance of such
prepayments will be applied to the Term Loan in the inverse order of maturity.
No prepayment of any portion of the principal of the Term Note that bears
interest at the LIBO Rate shall be permitted during the effective period of
such LIBO Rate for any reason or in any amounts, unless Borrower first pays all
fees, costs, penalties and premiums incurred by the Bank because of such
prepayment. Such prepayments may not be reborrowed.
2.4. ADDITIONAL PROVISIONS AND LIMITATIONS RELATING TO TERM NOTE WHEN
LIBO RATE IS IN EFFECT. The additional provisions and limitations set forth
below shall apply to the Term Note when the LIBO Rate is in effect.
2.4.1. If the Bank shall, prior to the making of any LIBO
Rate Loan, in good faith determine that it is unable to ascertain the LIBO Rate
or either the Bank or any participating bank is unable to acquire Eurodollar
deposits on reasonable terms in an amount sufficient to meet a request for a
LIBO Rate Loan hereunder, the Bank shall forthwith give notice thereof to
Borrower, whereupon until the Bank notifies Borrower that the circumstances
giving rise to such unavailability no longer exist (which the Bank shall do
upon receiving notice thereof), the Term Loan shall bear interest at 1/4 of 1%
over the Prime Rate, or, if applicable as set forth in Section 2.2(b)(ii),
above, the Prime Rate.
2.4.2. The provisions of Sections 1.6.1(b) through (g) shall
be applicable to the Term Note when bearing interest at the LIBO Rate and the
term "LIBO Rate Loan(s)" as used therein for purposes of this Section 2.4.2.
will be deemed to refer to the Term Note and the principal balance thereof
which bears interest at the LIBO Rate.
SECTION 3
GENERAL TERMS
3.1. PAYMENTS. Borrower shall make all payments of principal,
interest and additional compensation on each Note issued hereunder and
Commitment Fees to the Bank as payee at the Bank's main office, 100 East Broad
Street, Columbus, Ohio, in immediately available funds prior to 12:00 noon, on
the date such payments shall become due in accordance with the terms hereof and
of each Note.
3.2. PAYMENT ON NON-BANKING DAYS. Subject to the provisions of
Section 1.6.1(g), whenever any payment to be made hereunder shall be stated to
be due on a day other than a Banking Day, such payment shall be made on the
next succeeding Banking Day and such extension of time shall in such case be
included in the computation of payment of interest hereunder or the Commitment
Fees hereunder, as the case may be.
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<PAGE> 17
3.3. SETOFFS. Upon the occurrence of any Event of Default, the Bank
shall have the right to setoff against all obligations of Borrower to the Bank
hereunder and under a Note, whether matured or unmatured, all amounts owing to
Borrower by the Bank, whether or not then due and payable, and all other funds
or property of Borrower on deposit with or otherwise held by or in the custody
of the Bank for the beneficial account of Borrower, except for deposit accounts
that contain only (a) payroll funds, (b) employee benefit plan funds, (c) tax
deposits or (d) other funds which are not beneficially owned by Borrower.
Borrower agrees, to the fullest extent it may effectively do so under
applicable law, that any holder of a participation in a Note may exercise
rights of setoff or counterclaim, and any other rights with respect to such
participation, as fully as if the holder of the participation were a direct
creditor of the Borrower in the amount of such participation.
3.4. CAPITAL ADEQUACY. If, after the date hereof, there occurs any
change in any applicable law, rule or regulation regarding capital adequacy, or
any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency
charged with the interpretation or administration thereof, or compliance by the
Bank, or any participating bank, with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Bank's, or the participating bank's, capital
as a direct consequence of its obligations hereunder to a level below that
which the Bank, or the participating bank, could have achieved but for such
adoption, change or compliance (taking into consideration the Bank's, or
participating bank's, policies with respect to capital adequacy) by an amount
deemed by the Bank, or the participating bank, to be material, then, from time
to time, within 15 days after demand by the Bank, Borrower shall pay to the
Bank such additional amount or amounts as will compensate the Bank for such
reduction. If Borrower is required to pay to the Bank any additional amounts
pursuant to this Section 3.4, Borrower shall be entitled, upon giving the Bank
not less than five days' written notice, in addition to its other rights, to
prepay all or any portion of an outstanding Loan with respect to which such
additional amounts are due, any provision herein contained to the contrary
notwithstanding (all such prepayments shall be with interest accrued to the
date of such prepayments). As a condition of such prepayments, Borrower shall
promptly pay to the Bank upon the Bank's written request such amount or amounts
as, in the reasonable judgment of the Bank, will compensate the Bank, or any
participating bank, for such prepayment in accordance with the provisions of
Section 1.6.1(e).
3.5. FAILURE TO PAY; INTEREST AFTER MATURITY. Whenever any principal
payment to be made on a LIBO Rate Loan shall become due and payable, whether or
not at the stated maturity thereof, and Borrower fails to make such principal
payment, the unpaid amount shall be deemed to be a Variable Rate Loan
hereunder. Unpaid (a) interest on any Note, (b) principal on the Term Loan or
(c) principal of any Revolving Credit Loan, shall, after becoming due and
payable, bear interest at the Prime Rate plus 1%. If any such unpaid payment
represents the required payment to be made on a LIBO Rate Loan, Borrower shall
be liable for all the costs, premiums, fees and penalties incurred by the Bank
due to such non-payment pursuant to Section 1.6.1(e), which amounts shall be
due and payable within 10 days after demand by the Bank and which amounts shall
bear interest at the Prime Rate plus 1%.
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<PAGE> 18
SECTION 4
CONDITIONS OF EXTENSIONS OF CREDIT
The obligation of the Bank to make extensions of Credit to Borrower
provided for hereunder shall be subject to the following conditions:
4.1. CONDITIONS PRECEDENT TO INITIAL EXTENSIONS OF CREDIT. Prior to
the initial extension of Credit hereunder, Borrower shall furnish to the Bank
all of the following, each dated the date hereof (unless otherwise indicated)
in form and substance satisfactory to the Bank:
(a) NOTES. A properly executed Revolving Credit Note and
Term Note, drawn to the order of the Bank in the principal amount of the
Commitment or Term Loan.
(b) SECURITY AGREEMENT. A properly executed Security
Agreement in the form attached hereto as Exhibit 4.1(b) (the "Security
Agreement").
(c) PLEDGE AGREEMENT. A properly executed Pledge Agreement
in the form attached hereto as Exhibit 4.1(c) (the "Pledge Agreement"),
accompanied by appropriate stock certificates and stock powers.
(d) SUBSIDIARY GUARANTIES. Properly executed Guaranties of
each Wholly-Owned Subsidiary in the form attached hereto as Exhibit 4.1(d)
(each, a "Subsidiary Guaranty").
(e) SUBSIDIARY SECURITY AGREEMENTS. Properly executed
Security Agreements of each Wholly-Owned Subsidiary in the form attached hereto
as Exhibit 4.1(e) (each, a "Subsidiary Security Agreement").
(f) FINANCING STATEMENTS. Copies of duly completed and
executed Uniform Commercial Code financing statements or statements of
assignment or statements of amendment with respect to the property covered by
the Security Agreement, the Subsidiary Security Agreements and the Pledge
Agreement, in proper form for filing in all jurisdictions in which such filing
is necessary or appropriate to establish, perfect, protect and preserve the
rights, titles, interests, remedies, powers, privileges and Liens of the Bank
in such property.
(g) LIENS AND OTHER SEARCHES. Results of record searches by
a Person satisfactory to the Bank, of the Uniform Commercial Code filings which
may have been filed with respect to the personal property of Borrower or the
Subsidiaries in the state and county filing offices and real estate records in
each of the jurisdictions requested by the Bank, and of judgment and tax Liens
with respect to Borrower and each Subsidiary.
(h) BORROWING BASE CERTIFICATE. A Borrowing Base
Certificate, duly executed and completed by the chief executive officer or
chief financial officer of Borrower, setting forth the calculation of the
Borrowing Base as of November 27, 1993.
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<PAGE> 19
(i) CERTIFIED RESOLUTIONS OF BORROWER. A certified copy of
the resolutions of the Board of Directors of Borrower authorizing the
execution, delivery and performance of this Agreement, the Notes, the Security
Agreement and the Pledge Agreement.
(j) CERTIFIED RESOLUTIONS OF SUBSIDIARIES. Certified copies
of the resolutions of the Boards of Directors of each Wholly-Owned Subsidiary
authorizing the execution, delivery and performance of the applicable
Subsidiary Guaranties and Subsidiary Security Agreements.
(k) OPINION OF COUNSEL. The favorable opinion of counsel for
Borrower ("Counsel"), which Counsel shall be acceptable to the Bank, addressed
to the Bank in the form attached hereto as Exhibit 4.1(k).
(l) SECRETARY'S CERTIFICATES. Signed copies of certificates
of the Secretary or Assistant Secretary of Borrower and each of the
Wholly-Owned Subsidiaries which shall certify the names of the officers of each
such company authorized to sign this Agreement, the Notes, the Security
Agreement, the Pledge Agreement, the Subsidiary Guaranties, the Subsidiary
Security Agreements and the other documents or certificates to be executed and
delivered pursuant hereto or thereto (the "Loan Documents"), together with the
true signatures of such officers. The Bank may conclusively rely upon such
certificates until it shall receive a further certificate of the Secretary or
an Assistant Secretary of the applicable company canceling or amending the
prior certificate and submitting the signatures of the officers named in such
further certificate.
4.2. CONDITIONS PRECEDENT TO EXTENSIONS OF CREDIT. The obligation of
the Bank to provide or extend any Credit hereunder shall be subject to the
further condition precedent that, at the time of each Loan, Borrower shall be
in compliance with all of the provisions, warranties and conditions contained
in this Agreement (or, if not in compliance with the representations and
warranties hereunder, such non-compliance is disclosed to the Bank before
Borrower requests a Loan and the Bank waives the non-compliance), and there
shall exist no Default or Event of Default as set forth in Section 8. Each
borrowing hereunder shall be deemed to be a representation and warranty by
Borrower on the date of such borrowing that the representations and warranties
contained in Section 5 are then true and correct, and that Borrower is then in
compliance with the covenants contained in Sections 6 and 7.
SECTION 5
REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to the Bank, which representations
and warranties will survive the execution and delivery of this Agreement and
the Notes, as follows:
5.1. ORGANIZATION AND GOOD STANDING. Borrower and each Subsidiary
has been duly organized and is validly existing as a corporation in good
standing under the laws of its
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<PAGE> 20
jurisdiction, with power and authority to own its properties and to conduct its
business as such properties are presently owned and such business is presently
conducted.
5.2. DUE QUALIFICATION. Borrower and each Subsidiary is duly
qualified to do business as a foreign corporation in good standing, and has
obtained all necessary licenses and approvals, in all jurisdictions in which
the failure to maintain such qualification, licenses or approvals would
materially adversely affect (a) the interests of the Bank hereunder, (b) the
ability of such companies to perform their obligations hereunder or under any
document or agreement contemplated hereby or (c) the enforceability of this
Agreement.
5.3. POWER AND AUTHORITY; DUE AUTHORIZATION. Borrower and each of
the Wholly-Owned Subsidiaries has all necessary power, authority and legal
right to (a) execute, deliver and perform the Loan Documents and (b) carry out
the terms of the Loan Documents. Borrower and each of the Wholly-Owned
Subsidiaries has duly authorized, by all necessary corporate action, the
execution, delivery, and performance of this Agreement and the other Loan
Documents to which such entity is a party.
5.4. BINDING OBLIGATIONS. This Agreement constitutes, and each other
Loan Document to which each such entity is a party when duly executed and
delivered will constitute, a legal, valid and binding obligation of Borrower
and each Wholly-Owned Subsidiary enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization, or other similar laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
5.5. NO VIOLATION. The consummation of the transactions contemplated
by this Agreement and the other Loan Documents and the fulfillment of the terms
hereof and thereof will not (a) conflict with, result in any breach of any of
the terms and provisions of, or constitute (with or without notice or lapse of
time) a default under, (i) the charter documents (e.g., Articles of
Incorporation and Code of Regulations) of Borrower or any Subsidiary, or (ii)
any material indenture, loan agreement, mortgage, deed of trust, or other
agreement or instrument to which Borrower or any Subsidiary is a party or by
which it is bound, or (b) result in the creation or imposition of any Lien
(other than a Permitted Lien) upon any of the properties of Borrower or any
Subsidiary which Lien has a material impact on the enforceability of the Loan
Documents or the collectibility of amounts outstanding under the Loan Documents
pursuant to the terms of any such material indenture, loan agreement, mortgage,
deed of trust, or other agreement or instrument, other than the Loan Documents,
or (c) violate any law or any order, rule, or regulation applicable to Borrower
or any Subsidiary of any court or of any federal or state regulatory body,
administrative agency, or other governmental instrumentality having
jurisdiction over such entity or any of its properties.
5.6. NO PROCEEDINGS. To the best of Borrower's knowledge, there are
no proceedings or investigations pending or threatened before any court,
regulatory body, administrative agency or other tribunal or governmental
instrumentality (a) asserting the invalidity of this Agreement or any other
Loan Document, (b) seeking to prevent the consummation of any of the
transactions
-14-
<PAGE> 21
contemplated by this Agreement or any other Loan Document, or (c) seeking any
determination or ruling that might materially and adversely affect (i) the
performance by Borrower or any Wholly-Owned Subsidiary of its obligations under
this Agreement or any of the Loan Documents, or (ii) the validity or
enforceability of this Agreement or any of the Loan Documents.
5.7. GOVERNMENT APPROVALS. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for the due execution, delivery and performance by
Borrower or any Wholly-Owned Subsidiary of this Agreement or any other Loan
Document.
5.8. FINANCIAL CONDITION. Borrower has furnished to the Bank audited
consolidated financial statements including (a) an audited Consolidated balance
sheet as at February 27, 1993 of Borrower; (b) an audited Consolidated
statement of operations for the year ended February 27, 1993 of Borrower; (c)
an audited Consolidated statement of shareholders' equity for the year ended
February 27, 1993 of Borrower; and (d) an audited Consolidated statement of
cash flow for the year ended February 27, 1993 of Borrower. Borrower has also
furnished to the Bank unaudited Consolidated financial statements for the
interim period ending on, and as of November 27, 1993. Such financial
statements are complete and correct and fairly present the Consolidated
financial position of Borrower and the Subsidiaries as at such dates and the
Consolidated results of operations of Borrower and the Subsidiaries for the
periods ended on such dates, all in accordance with generally accepted
accounting principles consistently applied. Since November 27, 1993, to the
best of Borrower's knowledge, there has been no material adverse change in any
such position, business or operations.
5.9. LITIGATION. Except as set forth on Exhibit 5.9 hereto, no
injunction, decree or other decision has been issued or made by any court,
government or agency or instrumentality thereof that prevents, and, to the best
of Borrower's knowledge, no threat by any person has been made to attempt to
obtain, any such decision (a) that involves this Agreement or the other Loan
Documents or the transactions contemplated hereby or thereby or (b) that
Borrower reasonably believes will involve liabilities in excess of 10% of the
Borrower's Tangible Net Worth at the time of determination.
5.10. MARGIN ACTIVITY. Neither Borrower nor any Subsidiary is
engaged in the business of extending credit for the purpose of purchasing or
carrying margin stock (within the meaning of Regulation U or X of the Board of
Governors of the Federal Reserve System as is now and may from time to time
hereafter be in effect), and no part of the proceeds of any Loan hereunder will
be used to purchase or carry any such margin stock or to extend credit to
others for the purpose of purchasing or carrying any such margin stock or to
reduce or retire any Indebtedness incurred for any such purpose.
5.11. ACCURATE REPORTS. No material information, exhibit, financial
statement, document, book, record or report furnished or to be furnished by
Borrower to the Bank in connection with this Agreement was or will be
inaccurate in any material respect as of the date it was or will be dated or
(except as otherwise disclosed to the Bank at such time) as of the date so
furnished, or contained or will contain any material misstatement of fact or
omitted or will omit to
-15-
<PAGE> 22
state a material fact or any fact necessary to make the statements contained
therein not materially misleading.
5.12. TAX RETURNS AND PAYMENTS. Borrower and the Subsidiaries have
filed all tax returns required by law to be filed and have paid all taxes,
assessments and other governmental charges levied upon any of their properties,
assets, income or franchises, other than those not yet delinquent and those
being contested in good faith for which adequate reserves have been established
in accordance with generally accepted accounting principles. The charges,
accruals and reserves on the books of Borrower and its Subsidiaries in respect
to income taxes for all fiscal periods are adequate, and Borrower knows of no
unpaid material assessment for additional income taxes for any fiscal period or
of any basis therefor.
5.13. TITLE TO PROPERTIES; LIENS. Borrower and the Subsidiaries have
title to, ownership or other interests or rights sufficient to permit the use
of all of their respective material properties and assets (including all
material patents, trademarks, service marks, trade names, copyrights and
licenses) necessary to the performance of the Agreement and the conduct of
their Core Business, including the properties and assets reflected in the
balance sheet of Borrower delivered pursuant to Section 5.8, except properties
held under leases which are capitalized in accordance with generally accepted
accounting principles consistently applied and except properties and assets
disposed of since the date of such balance sheet in the ordinary course of
business, and none of such properties or assets is subject to any Lien except
Permitted Liens.
5.14. ERISA. Without in any way limiting the scope of Section 5.5,
neither Borrower nor any Subsidiary (a) has incurred any material accumulated
funding deficiency within the meaning of the Employee Retirement Income
Security Act of 1974, as amended from time to time ("ERISA"); (b) has incurred
any material liability to the Pension Benefit Guaranty Corporation established
under ERISA (or any successor thereto under ERISA) in connection with any
employee benefit plan established or maintained by such company; nor (c) has
had any tax assessed against it by the Internal Revenue Service for any alleged
violation under Section 4975 of the Internal Revenue Code.
5.15. PATENTS, TRADEMARKS, ETC. Borrower and each Subsidiary own or
have interests or rights in all the material patents, trademarks, service
marks, trade names, copyrights and licenses, necessary for the conduct of the
Core Business, without any known conflict with the rights of others except
conflicts which would not materially and adversely affect the businesses of
such companies.
5.16. SUBSIDIARIES AND AFFILIATES. Borrower has no Subsidiaries or
Affiliates except those set forth on Exhibit 5.16 attached hereto.
5.17. INVESTMENTS. Except for Permitted Investments, neither
Borrower nor any Subsidiary (a) is a general partner in any partnership or a
member in any joint venture, (b) owns or holds the assets, stocks, bonds, notes
or other securities other than as disclosed on Exhibit 5.16 or in the financial
statements delivered to the Bank pursuant to Section 5.8, nor (c) is a party to
any agreement relating to commodity futures, financial futures or similar
investments.
-16-
<PAGE> 23
5.18. INSURANCE. All of the properties and operations of Borrower
and the Subsidiaries of a character usually insured by Persons of established
reputation engaged in the same or a similar business similarly situated are
adequately insured, by reputable insurers duly licensed by appropriate state
authorities against loss or damage of the kinds and in the amounts customarily
insured against by such Persons; and Borrower and each Subsidiary carry, with
such insurers in customary amounts, such other insurance, including public
liability insurance, as is usually carried by Persons of established reputation
engaged in the same or a similar business similarly situated. Without limiting
the foregoing, the Borrower shall at all times: (a) furnish to the Bank, upon
request, a statement of its insurance coverage, in form and detail satisfactory
to the Bank; (b) require each policy of insurance to contain a provision
whereby it cannot be canceled, amended or modified except after 30 days' prior
written notice to the Bank; (c) require each policy of insurance covering any
of the Collateral (as defined in the Security Agreement or any Subsidiary
Security Agreement) to be written or endorsed so as to make losses, if any,
payable to the Bank, in addition to the Borrower; and (d) require each policy
of insurance covering any of the Collateral to contain an agreement by the
insurer that any loss shall be payable to the Bank notwithstanding any act or
negligence of the Borrower or any Subsidiary which might otherwise result in
forfeiture of said insurance. If the Borrower fails to pay or cause to be paid
the premium on any such insurance, the Bank may, in its sole discretion, do so
for the account of the Borrower, and Borrower shall reimburse the Bank for the
cost thereof on demand.
5.19. ENVIRONMENTAL MATTERS. There are, to the best of Borrower's
knowledge, no materials, presently located on any real property owned by,
leased to or operated by Borrower or any Subsidiary, which are radioactive or
which are toxic and which under federal, state or local law, statute, ordinance
or regulations, or court or administrative order or decree, or private
agreement for which Borrower or a Subsidiary is legally responsible for
compliance (the "Environmental Requirements") require special handling in
collection, storage, treatment or disposal ("Hazardous Materials") which are
not being handled in accordance with the Environmental Requirements and to the
best knowledge of Borrower, no part of such real property has been contaminated
by any Hazardous Materials.
5.20. SOLVENCY. Borrower and the Subsidiaries are able to meet their
debts as they become due. The present fair saleable value of the property and
assets of Borrower and the Subsidiaries is greater than the amount required to
pay all Indebtedness of Borrower and the Subsidiaries, including the
Indebtedness incurred under this Agreement.
SECTION 6
AFFIRMATIVE COVENANTS
Until all Loans, amounts due or which could in the future become due
under Letters of Credit and other sums due and owing under this Agreement to
the Bank have been paid in full and Borrower no longer has any right to borrow
or request Letters of Credit hereunder, Borrower covenants and agrees as
follows:
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<PAGE> 24
6.1. COMPLIANCE WITH LAWS, ETC. Borrower shall and shall cause each
of the Subsidiaries to comply in all material respects with all applicable
laws, rules, regulations and orders regarding its operations.
6.2. PRESERVATION OF CORPORATE EXISTENCE. Except as provided in
Section 7.7.1, Borrower shall and shall cause each of the Subsidiaries to
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its incorporation, and qualify and remain
qualified in good standing as a foreign corporation in each jurisdiction where
the failure to preserve and maintain such existence, rights, franchises,
privileges and qualification would materially adversely affect (a) the
interests of the Bank hereunder or (b) the enforceability of this Agreement or
any of the Loan Documents. Borrower will engage and cause the Subsidiaries to
engage primarily in the Core Business.
6.3. AUDITS. Borrower shall and shall cause each of the Subsidiaries
to at any time and from time to time during regular business hours, upon at
least two Banking Days notice, permit the Bank, or its agents or
representatives, (a) to examine and make copies of and abstracts from all
books, records and documents (including, without limitation, computer tapes and
disks) in the possession or under the control of such company and (b) to visit
the offices and properties of such company for the purpose of examining such
materials described in clause (a) next above, and to discuss matters relating
to such company's performance hereunder or such company's business, operations
and financial condition with any of the officers or employees of such company
having knowledge of such matters and who are then available. Borrower agrees
to use reasonable efforts to make such officers and employees available at such
time or at another mutually agreeable time. In addition to the foregoing,
Borrower agrees to allow the Bank to perform inventory audits by an independent
accounting firm chosen by the Bank with respect to Borrower's and its
Subsidiaries' retail stores; PROVIDED, HOWEVER, that only one such audit shall
be conducted in any 12 month period and that any such audit shall be with
respect to up to one-half of such retail stores. The costs of such inventory
audits shall be borne by Borrower up to $25,000 in any fiscal year.
6.4. REPORTING REQUIREMENTS OF BORROWER. Borrower shall, unless the
Bank shall otherwise consent in writing, furnish to, or at the direction of,
the Bank:
(a) MONTHLY FINANCIAL STATEMENTS. Within 45 days after the
last day of each of the first 11 months of each fiscal year of Borrower, (i) a
Consolidated and Consolidating balance sheet of Borrower and the Subsidiaries
as at the close of such period; (ii) a Consolidated and Consolidating statement
of operations for Borrower and the Subsidiaries for such period and for the
year to date; and (iii) a reconciliation of retained earnings on a Consolidated
basis as at the close of such period; all in reasonable detail, prepared in
accordance with generally accepted accounting principles applied on a
consistent basis and certified as complete and correct, subject to changes
resulting from year-end adjustments, by the chief financial officer, chief
executive officer or controller of Borrower.
(b) ANNUAL FINANCIAL STATEMENTS. Within 90 days after the
end of each fiscal year of Borrower, a complete annual audit report, including
(i) a Consolidated balance sheet of
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<PAGE> 25
Borrower and the Subsidiaries as at the close of such period, (ii) Consolidated
statements of operations, shareholders' equity and cash flow for such period
and (iii) any management letters prepared in connection with such audit report,
all in reasonable detail, prepared in accordance with generally accepted
accounting principles applied on a consistent basis and accompanied by an
unqualified opinion thereon of Ernst & Young or other independent auditors of
recognized national standing selected by Borrower and acceptable to the Bank.
In addition, Borrower shall furnish to, or at the direction of, the Bank,
within 90 days after the close of each fiscal year (A) a Consolidating balance
sheet of Borrower and the Subsidiaries as at the end of such period and (B)
Consolidating statements of operations for such period; all in reasonable
detail and based upon the audited Consolidated statements referred to above,
prepared in accordance with generally accepted accounting principles applied on
a consistent basis and certified as complete and correct by the chief financial
officer, chief executive officer or controller of Borrower.
(c) WEEKLY STATEMENTS. Within seven days after the end of
each week, a report reflecting, for the prior week and the year to date and for
the comparable periods for the prior year, (i) sales activity of each retail
store operated by Borrower and each Subsidiary and (ii) sales activity of each
operating region of Borrower and each Subsidiary, all in form and substance
satisfactory to the Bank.
(d) MONTHLY COMPLIANCE CERTIFICATES. Concurrently with the
delivery of the monthly and annual financial statements to be furnished
pursuant to Sections 6.4(a) and (b) hereof, a certificate of the chief
financial officer, chief executive officer or controller of Borrower which (i)
states that, except as disclosed therein, such officer, after reasonable
investigation, has no knowledge of any Event of Default or Default and (ii)
sets forth, in summary form, calculations showing the financial status of
Borrower (at the end of, or, in the case of incurrence tests, during, such
accounting period) in respect of the restrictions contained in Sections 7.1,
7.2, 7.3, 7.4, 7.5, 7.6, 7.7.1(b), 7.9(b) and 7.10 hereof.
(e) AUDITOR'S CERTIFICATE. Concurrently with the annual
audit report called for by Section 6.4(b), a certificate prepared by the
auditors stating that, except as disclosed therein, they have no knowledge of
any Event of Default or Default with respect to the restrictions contained in
Sections 7.1(b), 7.2, 7.3, 7.4, 7.5, 7.6, 7.9(b), 7.10 and 7.17 hereof.
(f) NOTICE OF DEFAULT. Promptly upon the Chief Executive
Officer, Chief Financial Officer or Chief Accounting Officer of Borrower
obtaining knowledge thereof, a certificate identifying any Default or Event of
Default, specifying the nature and period of the existence thereof and what
action Borrower has taken, is taking, or proposes to take in respect thereof.
(g) REPORTS. Promptly upon filing or distribution, copies of
all material which Borrower or any Subsidiary sends to any class of its
security holders or files with the Securities and Exchange Commission or any
national securities exchange including, but not limited to, all registration
statements, annual reports on Form 10-K, quarterly reports on Form 10-Q,
reports on Form 8-K, proxy material and reports to shareholders and any and all
amendments thereof or supplements thereto.
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<PAGE> 26
(h) NOTICE OF LITIGATION. Promptly upon any executive
officer of Borrower obtaining knowledge thereof, a certificate identifying any
litigation, arbitration proceeding or administrative investigation, inquiry or
other proceeding to which Borrower or any Subsidiary is or hereafter may become
a party which may involve any risk of any material judgment or liability not
fully covered by insurance or which may otherwise result in any materially
adverse change in the business or assets or in the condition (financial or
otherwise) of Borrower or any Subsidiary or which may impair the ability of
Borrower or any Subsidiary to perform under this Agreement or any Loan
Document.
(i) BORROWING BASE CERTIFICATE. Within 30 days after the end
of each fiscal month, a Borrowing Base Certificate as at the end of such fiscal
month.
(j) FINANCIAL PLAN. Within 60 days after the end of each
fiscal year (i) a financial plan of Borrower and the Subsidiaries consisting of
a budget containing detailed financial projections for the then current fiscal
year on a quarterly basis (including profit and loss statements, cash flow
statements and balance sheets), in form and substance satisfactory to the Bank,
such budget and projections to be accompanied by a certificate of the chief
financial officer or controller of Borrower specifying the assumptions on which
such budget and projections were prepared and stating that such officer has no
reason to question the reasonableness of any such material assumptions; and
(ii) a reasonably detailed discussion of the issues and strategies of
management with respect to such financial plan.
(k) LANDLORD WAIVERS. Immediately upon execution hereof,
Borrower shall use its best efforts to obtain from its and its Subsidiaries'
landlords, in those jurisdictions where such landlords are given a statutory
Lien superior to or PARI PASSU with the Lien granted to the Bank under the Loan
Documents, a Landlord's Waiver and Consent in the form attached hereto as
Exhibit 6.4(k). From and after the execution hereof, Borrower shall, prior to
entering into a lease or permitting any Subsidiary to enter into a lease in
those jurisdictions where landlords are given such a statutory Lien, obtain
such a Landlord's Waiver and Consent.
6.5. USE OF PROCEEDS. Borrower shall use the loan proceeds disbursed
pursuant to this Agreement to repay all Indebtedness owed to the Bank,
including Indebtedness under that certain Revolving Credit Agreement dated
February 14, 1992 and the Revolving Credit Note dated February 14, 1992
executed thereunder, and for other legal and proper purposes.
6.6. MAINTENANCE OF PROPERTIES AND INSURANCE. Borrower shall and
shall cause each Subsidiary to (a) at all times have an ownership or other
interest in all of its respective material properties and assets (including all
material patents, trademarks, service marks, trade names, copyrights, licenses
and rights in respect of the foregoing) sufficient to permit the use thereof
necessary to the performance of this Agreement and the Loan Documents and the
conduct of their Core Business including the property and assets reflected in
the most recent balance sheet delivered to the Bank pursuant to Section 6.4
except property held under leases which are capitalized in accordance with
generally accepted accounting principles consistently applied and except
properties and assets disposed of since the date of such balance sheet in the
ordinary course of business or otherwise in compliance herewith, (b) maintain
in good repair, working
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<PAGE> 27
order and condition all material properties used or useful in the business of
Borrower and each Subsidiary and, from time to time, make all appropriate
repairs, renewals and replacements thereof; and (c) maintain insurance upon
their properties of such character and amounts as are usually maintained by
companies engaged in like business; furnish to the Bank, upon request, a
statement of its insurance coverage; and obtain additional insurance promptly
upon the reasonable and prudent request of the Bank.
6.7. PAYMENT OF TAXES AND CLAIMS. Borrower shall, and shall cause
each Subsidiary to, promptly pay and discharge all taxes and assessments levied
and assessed or imposed upon their properties or upon their income as well as
all material claims which, if unpaid, might by law become a Lien upon their
properties; PROVIDED, HOWEVER, that nothing herein contained shall require
Borrower or any Subsidiary to pay any such taxes, assessments or claims so long
as such company shall in good faith contest the validity and stay the execution
and enforcement thereof.
6.8. PERFORMANCE OF CONTRACTS. Borrower shall, and shall cause each
Subsidiary to, perform according to and comply with all of their agreements if
non-performance thereof could materially adversely affect the business or
credit of such company or could impair the ability of such company to perform
this Agreement or any Loan Document; PROVIDED, HOWEVER, that nothing herein
contained shall require Borrower or any Subsidiary to so perform or comply with
respect to any action as to which there exists a BONA FIDE dispute, during the
pendency and diligent prosecution of such dispute.
6.9. ENVIRONMENTAL MATTERS. If at any time Borrower obtains notice
that any real property owned by, leased to or operated by Borrower or any
Subsidiary has located therein Hazardous Materials, Borrower shall, within 30
days after receipt of such notice, take or cause to be taken, at its sole
expense, such actions as may be necessary to comply with all Environmental
Requirements; PROVIDED, HOWEVER, that nothing herein contained shall require
Borrower or any Subsidiary to take any such actions so long as such company
shall in good faith contest such notice and stay the execution and enforcement
thereof.
6.10. DEPOSITORY. Borrower shall and shall cause each Subsidiary to
use the Bank as its primary corporate depository institution.
6.11. SUBSIDIARIES. Concurrently with the creation of any Subsidiary
or the acquisition by Borrower of additional stock of any existing Subsidiary,
and in addition to any other requirements relating to such creation or
acquisition, Borrower shall (a) cause the shares of stock of such Subsidiary
not then subject to the Pledge Agreement to become subject to such Pledge
Agreement and (b) if the creation or acquisition results in the creation of a
Wholly-Owned Subsidiary, cause the Wholly-Owned Subsidiary to deliver a
Subsidiary Guaranty and Subsidiary Security Agreement to the Bank.
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<PAGE> 28
SECTION 7
NEGATIVE COVENANTS
Until all Loans, amounts due or which could in the future become due
under Letters of Credit and other sums due and owing under this Agreement to
the Bank have been paid and Borrower no longer has the right to borrow
hereunder, Borrower covenants and agrees as follows:
7.1. NEGATIVE PLEDGE. Borrower shall not, and shall not allow any
Subsidiary to, without the prior written consent of the Bank:
(a) Create, incur, assume or permit to continue any Lien on
any of its property or assets, whether now owned or hereafter acquired, except
Permitted Liens; nor
(b) Create, incur, assume or suffer to exist any Indebtedness
except (i) Indebtedness represented by the Notes; (ii) Subordinated Debt; (iii)
Secured Indebtedness which is secured by Permitted Liens; and (iv) unsecured
Indebtedness owed by Borrower to any Subsidiary or owed by any Wholly-Owned
Subsidiary to Borrower or another Subsidiary.
7.2. TANGIBLE NET WORTH. Borrower shall not permit Tangible Net
Worth at any time to be less than the amount set forth for the applicable
period; PROVIDED, HOWEVER, that each of the amounts of Tangible Net Worth set
forth in the following schedule shall be automatically increased on and after
the date of any issuance by Borrower of any equity security by an amount equal
to 75% of any increase in Tangible Net Worth resulting solely from such
issuance:
<TABLE>
<CAPTION>
PERIOD TANGIBLE NET WORTH
<S> <C>
Date hereof until and including February 28, 1994 $43,000,000
March 1, 1994 until and including February 28, 1995 $45,000,000
March 1, 1995 until and including February 29, 1996 $48,000,000
March 1, 1996 until and including February 28, 1997 $51,000,000
March 1, 1997 until and including February 28, 1998 $54,000,000
March 1, 1998 and thereafter $58,000,000
</TABLE>
Notwithstanding any other provision hereof to the contrary, for purposes of
this Section 7.2, Tangible Net Worth shall be deemed to include up to
$2,800,000 of goodwill arising from the purchase occurring on December 3, 1993
of certain of the capital stock of Cincinnati Drug Distributors, Inc.
7.3. MINIMUM CURRENT RATIO. Borrower shall not permit, at any time,
the Consolidated Current Ratio of Borrower to be less than 1.50:1.00.
"Consolidated Current Ratio" means the ratio of (a) Current Assets of Borrower
(Consolidated) to (b) Current Liabilities of Borrower (Consolidated).
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<PAGE> 29
7.4. UNSUBORDINATED LIABILITIES TO TANGIBLE NET WORTH RATIO.
Borrower shall not permit the ratio of Consolidated Unsubordinated Liabilities
to Tangible Net Worth plus Subordinated Debt to be more than 1.25:1.00 at any
time.
7.5. LIABILITIES TO TANGIBLE NET WORTH RATIO. Borrower shall not
permit the ratio of Borrower's Consolidated Liabilities to Tangible Net Worth
to be more than 4.00:1.00 at any time.
7.6. INCOME AVAILABLE FOR FIXED CHARGES TO FIXED CHARGES RATIO.
Borrower shall not permit the ratio of Borrower's Consolidated Income Available
for Fixed Charges to Borrower's Consolidated Fixed Charges at the end of any
fiscal quarter (commencing with the fiscal quarter ending on November 30, 1993)
for the immediately preceding four fiscal quarters to be less than the relevant
ratio set forth in the following schedule:
<TABLE>
<CAPTION>
PERIOD RATIO
<S> <C>
Date hereof until and including February 28, 1995 1.05:1.00
March 1, 1995 and thereafter 1.15:1.00
</TABLE>
7.7. MERGERS, ACQUISITIONS, SALES, ETC.
7.7.1. Borrower shall not, and shall not allow any Subsidiary
to, (a) be a party to any merger or consolidation, or (b) purchase or otherwise
acquire (i) all or substantially all of the assets or any stock of any class
of, or (ii) any partnership or joint venture interest in, any other Person,
except for Permitted Investments and except for any merger of any Subsidiary
into Borrower provided that Borrower shall be the continuing or surviving
corporation and, after giving effect to such merger, no Event of Default or
Default shall exist hereunder.
7.7.2. Borrower shall not, and shall not allow any Subsidiary
to, sell, transfer, convey or lease all or any substantial part of its assets,
including the stock of any Subsidiary, except in the ordinary course of
business.
7.8. LOANS, ETC. Borrower shall not, and shall not allow any
Subsidiary to, make any loan, advance or capital contribution to or investment
in or with any Person, except (a) Permitted Investments, (b) loans or advances
of Borrower to Wholly-Owned Subsidiaries or (c) loans or advances (up to an
aggregate at any one time outstanding not exceeding $500,000 on a Consolidated
basis) to Persons other than Wholly-Owned Subsidiaries; provided that the
conversion of delinquent open account royalty receivables to notes receivable
shall not be deemed to constitute a loan or advance for purposes of this
Section 7.8.
7.9. CONTINGENT OBLIGATIONS. Borrower shall not, and shall cause the
Subsidiaries to not, assume, guarantee, endorse, contingently agree to purchase
or otherwise become liable upon the obligation of any one or more Persons other
than (a) guaranties by Borrower of obligations of Wholly-Owned Subsidiaries;
(b) guaranties by Borrower of obligations of Affiliates and Subsidiaries, other
than Wholly-Owned Subsidiaries, which are engaged in the Core Business up to an
aggregate amount of $1,000,000 for the amount of all such guaranties at any one
time outstanding on a Consolidated basis; (c) guaranties by Subsidiaries of
obligations of Borrower;
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<PAGE> 30
(d) guaranties by Borrower of real estate lease obligations for stores closed
by Borrower and leased by the landlord thereof to unrelated Persons so long as
the aggregate rentals payable under any such guaranty do not exceed the amount
payable under the original lease of Borrower which was terminated
simultaneously with the execution of the guaranty; and (e) guaranties by
Borrower of obligations of unrelated Persons up to an aggregate amount of
$100,000 for the amount of all such guaranties at any one time outstanding on a
Consolidated basis.
7.10. DIVIDENDS, PURCHASES AND PREPAYMENTS. Borrower shall not, and
shall not permit any Subsidiary to, (a) declare or pay any dividends on, or
make any distribution with respect to, any shares of its capital stock of any
class (except in shares of such capital stock), (b) purchase, redeem or
otherwise acquire for a consideration any shares of its capital stock of any
class, nor (c) prepay, purchase, redeem or otherwise acquire any of its
Subordinated Debt; PROVIDED, HOWEVER, that, from and after February 28, 1994,
Borrower may take any such action so long as (i) no Event of Default shall then
have occurred and be continuing or would result from such action, and (ii) at
the time of such action, and after giving effect thereto, the aggregate amount
expended in connection with all such actions shall not exceed 50% of cumulative
Consolidated Net Income (net of any losses and exclusive of extraordinary
credits and non-recurring gains) earned from and after February 28, 1994 and;
PROVIDED FURTHER, that Wholly-Owned Subsidiaries shall not be restricted by the
provisions of this Section 7.10 from paying cash dividends to Borrower.
7.11. TRANSACTIONS WITH AFFILIATES. Borrower shall not, and shall
not allow any Subsidiary to, enter into any transaction, including, without
limitation, the purchase, sale or exchange of any property or the rendering of
any service, with any Affiliate except in the ordinary course of and pursuant
to the reasonable requirements of the business of Borrower and upon fair and
reasonable terms no less favorable to Borrower than would obtain in an arm's
length transaction with a Person not an Affiliate of Borrower.
7.12. SUBORDINATED DEBT. Borrower shall not permit the modification,
waiver or amendment of any of the terms of its Subordinated Debt.
7.13. SOLVENCY. Borrower shall not, and shall not allow any
Subsidiary to, make any transfer of an interest in property or incur any
obligation if such company:
(a) made such transfer or incurred such obligation with
actual intent to hinder, delay, or defraud any Person to which such company
was, or became, indebted on or after the date such transfer was made or such
obligation was incurred; or
(b) (i) received less than a reasonably equivalent value
in exchange for such transfer or obligation; and
(ii) (A) was insolvent on the date that such
transfer was made or such obligation was incurred, or became insolvent as a
result of such transfer or obligation;
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<PAGE> 31
(B) was engaged in business or a
transaction, or was about to engage in business or a transaction, for which any
property remaining with such company was an unreasonably small capital; or
(C) intended to incur, or believed that such
company would incur, Indebtedness that would be beyond such company's ability
to pay as it matured;
PROVIDED, HOWEVER, that the provisions of this Section 7.13 shall not be deemed
to have been violated by reason of the transactions contemplated hereby.
7.14. ERISA. Borrower shall not, and shall not allow any Subsidiary
to, (a) incur any material accumulated funding deficiency within the meaning of
ERISA; (b) incur any material liability to the Pension Benefit Guaranty
Corporation established under ERISA (or any successor thereto under ERISA) in
connection with any employee benefit plan established or maintained by such
company; nor (c) have any tax assessed against it by the Internal Revenue
Service for any alleged violation under Section 4975 of the Internal Revenue
Code.
7.15. SALE/LEASEBACKS. Borrower shall not, and shall not allow any
Subsidiary to, enter into any agreement with any Person providing for the
leasing by such company of real or personal property which has been or is to be
sold or transferred by such company to such Person or of real or personal
property intended to be used for substantially the same purpose as the property
sold or transferred by such company; PROVIDED, HOWEVER, that all personal
property which is purchased after the date hereof for the express purpose of a
later sale and leaseback transaction shall be exempt from the foregoing
prohibition.
7.16. ACCOUNTS RECEIVABLE. Borrower shall not, and shall not allow
any Subsidiary to, discount or sell any of its notes or accounts receivable.
7.17. CAPITAL EXPENDITURES. Borrower will not permit the aggregate
amount of Capital Expenditures made by Borrower and the Subsidiaries during any
fiscal year to exceed the amounts set forth in the following schedule. To the
extent that Capital Expenditures in any fiscal year are less than the permitted
amount as set forth in the following schedule (without giving effect to any
adjustment allowed pursuant to this sentence), the permitted amount of Capital
Expenditures for the next succeeding fiscal year only shall be increased by the
amount of such difference.
<TABLE>
<CAPTION>
PERIOD CAPITAL EXPENDITURES
<S> <C>
Date hereof until and including February 28, 1994 $ 4,000,000
March 1, 1994 until and including February 28, 1995 $ 9,000,000
March 1, 1995 until and including February 29, 1996 $10,000,000
March 1, 1996 until and including February 28, 1997 $11,000,000
March 1, 1997 until and including February 28, 1998 $12,000,000
March 1, 1998 until and including February 28, 1999 $13,000,000
</TABLE>
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<PAGE> 32
SECTION 8
EVENTS OF DEFAULT AND REMEDIES
If any of the following events ("Events of Default") shall occur and
be continuing:
(a) PRINCIPAL AND LETTER OF CREDIT PAYMENTS. Borrower shall
default (i) in the payment of the principal of any Note when and as the same
shall become due and payable, whether at the due date thereof or by
acceleration or otherwise (including any payment due pursuant to Section 1.8 as
a result of any Borrowing Base deficiency) or (ii) in the payment of any
reimbursement to the Bank for amounts paid on any draft drawn under a Letter of
Credit issued hereunder;
(b) INTEREST PAYMENTS AND FEES. Borrower shall default in
the payment of interest on any Note or any additional amount due hereunder or
thereunder, when and as the same shall become due and payable, whether at the
due date thereof or by acceleration or otherwise, provided such default shall
continue for a period of five days;
(c) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty made by Borrower in this Agreement, any Borrowing Base Certificate,
report, certificate, financial statement or other instrument furnished in
connection with this Agreement or the Loans shall prove to be false or
misleading in any material respect;
(d) SPECIAL COVENANTS. Borrower or any Subsidiary shall fail
to observe or perform any covenant, condition or agreement in Section 6.4(a),
(b) or (i) or Section 7 of this Agreement;
(e) OTHER COVENANTS. Borrower or any Subsidiary shall fail
to observe or perform any covenant, condition or agreement (other than those
mentioned in Section 6.4(a), (b) or (i) or Section 7) to be observed or
performed pursuant to the terms hereof or of any Loan Document, provided such
default shall continue unremedied for 30 days after written notice thereof to
Borrower by the Bank;
(f) CROSS DEFAULT. (i) Borrower or any Subsidiary shall
default with respect to any Indebtedness other than Indebtedness represented by
the Notes; (ii) any event or condition shall occur which enables the holder of
any Indebtedness (other than Indebtedness represented by the Notes) or any
Person acting on such holder's behalf to accelerate the maturity thereof, or
(iii) the holder of any Indebtedness other than Indebtedness represented by the
Notes shall accelerate the maturity of such Indebtedness; PROVIDED, HOWEVER,
that no Default under this Section 8(f) shall be deemed to occur where the
amount, individually or in the aggregate, of such Indebtedness does not exceed
$500,000;
(g) JUDGMENTS. One or more judgments from which no appeal
may be taken or with respect to which the time to appeal has expired for the
payment of money in excess of $500,000 shall be rendered against Borrower and
the Subsidiaries in the aggregate and the same
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<PAGE> 33
shall remain undischarged for a period of 30 consecutive days during which the
execution shall not be effectively stayed;
(h) BANKRUPTCY, ETC. Borrower or any Subsidiary shall (i)
make an assignment for the benefit of, or enter into any composition or
arrangement with, creditors; (ii)(A) apply for or consent to the appointment of
a receiver, custodian, trustee or liquidator for it or any of its property, or
(B) authorize such application or consent, or (C) proceedings seeking such
appointment shall be commenced against such company without authorization,
consent or application, and shall have not been discharged within 60 days of
such commencement; (iii)(A) authorize or file a voluntary petition in
bankruptcy, suffer an order for relief under any federal bankruptcy law or
apply for or consent (by admission of material allegations of a petition or
otherwise) to the application of any bankruptcy, reorganization, arrangement,
readjustment of debt, insolvency, dissolution, liquidation or other similar law
of any jurisdiction, or (B) authorize such application or consent, or
proceedings to such end shall be instituted against such company without its
authorization, application or consent and shall not be discharged within 60
days of the institution thereof; (iv) permit or suffer all or any part of its
properties to be sequestered, attached, or subjected to a Lien through any
legal proceeding or distraint which is not discharged within 60 days of the
commencement thereof; or (v) generally not pay its debts as such debts become
due;
(i) REORGANIZATION, RECEIVER, ETC. An order, judgment or
decree shall be entered without the application, approval or consent of
Borrower or any Subsidiary by any court of competent jurisdiction, approving a
petition seeking reorganization of such company or appointing a receiver,
trustee or liquidator of such company or of all or a substantial part of its
assets, and such order, judgment or decree shall continue unstayed and in
effect for any period of 60 days;
(j) ERISA. A Reportable Event (as defined in ERISA) shall
have occurred with respect to any Plan (as defined therein) of Borrower or any
Subsidiary and, within 30 days after the reporting of such Reportable Event to
the Bank, the Bank shall have notified Borrower in writing that (i) it has made
a determination that, on the basis of such Reportable Event, there are
reasonable grounds for the termination of such Plan by the Pension Benefit
Guaranty Corporation or for the appointment by the appropriate United States
District Court of a trustee to administer such Plan; and (ii) as a result
thereof an Event of Default exists hereunder; or a trustee shall be appointed
by a United States District Court to administer any Plan; or the Pension
Benefit Guaranty Corporation shall institute proceedings to terminate any Plan;
(k) CHANGE IN CONTROL. Any Person or group of Persons acting
in concert, other than David Kriegel or John B. Gerlach, acquires beneficial
interest in 25% or more of any class of the outstanding voting securities of
Borrower; or
(l) COLLATERAL DEFAULT. Any default shall occur pursuant to
the terms of any of the Loan Documents;
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<PAGE> 34
then (A) the Bank, at any time thereafter during the continuance of any such
Event of Default specified above (other than in Section (h) or (i)), may, by
written notice to Borrower, terminate the Commitment (if still in existence),
and declare the entire principal amount of the Notes to be due and payable
forthwith, whereupon each such Note, including all principal and interest and
all other amounts payable hereunder or thereunder, shall forthwith become due
and payable; and (B) automatically upon the occurrence of any of the events
specified in Section (h) or (i), the Commitment shall terminate (if still in
existence) and each Note shall become immediately due and payable, in either
case without presentment, demand, protest, or notice of any kind, all of which
are hereby expressly waived, anything contained herein or in any Note or the
Loan Documents to the contrary notwithstanding.
SECTION 9
PARTICIPATION
The Bank may sell or agree to sell to one or more other Persons a
participation in all or any part of any Loans held by it or any Loan made or to
be made by it hereunder. For all purposes hereunder, including the enforcement
of any rights arising hereunder, any such participating person shall be deemed
to be a party hereto and a "Bank", as defined herein, as fully as though such
participating person were a signator hereto and whether or not specifically
contemplated by the terms hereof.
SECTION 10
DEFINITIONS
10.1. DEFINITIONS. For purposes of this Agreement, the following
terms shall have the meanings specified:
"AFFILIATE" with respect to any Person means each Person that
directly or indirectly (through one or more intermediaries or otherwise),
controls, is controlled by, or is under common control with such Person, but
when used with respect to Borrower, such term shall exclude Subsidiaries.
"AGREEMENT" is defined in the preamble.
"BANK" is defined in the preamble.
"BANKING DAYS" means days other than Saturdays, Sundays and
other legal holidays or days on which the principal office of the Bank is
closed.
"BORROWER" is defined in the preamble.
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<PAGE> 35
"BORROWING BASE" means, as at the date of determination
thereof, 35% of the aggregate amount of Eligible Inventory.
"BORROWING BASE CERTIFICATE" means a certificate of the chief
executive officer, chief financial officer or controller of Borrower in the
form of Exhibit 6.4(i) attached hereto setting forth the calculation of the
Borrowing Base.
"BORROWING DATE" is defined at Section 1.4.3.
"CAPITAL EXPENDITURES" means, as to any Person, for any
period, expenditures (including the aggregate amount due under capital leases
incurred during such period but excluding such amount under capital leases of
assets the inclusion of which would cause such amount to be double counted for
such period) made by such Person to acquire or construct fixed assets, plant
and equipment (including renewals, improvements and replacements) during such
period, computed in accordance with generally accepted accounting principles
applied on a basis consistent with those used in making the calculations for
purposes of determining compliance with the provisions of this Agreement and
shall include that portion of the purchase price of any asset acquisition
permitted by Section 7.7 which is allocated to fixed assets.
"CLOSING" means the closing of the transactions described
herein at the offices of Drug Emporium, Inc., 155 Hidden Ravines Drive, Powell,
Ohio.
"COMMITMENT" is defined at Section l.1.2.
"COMMITMENT FEE" is defined at Section 1.3.1.
"CONSOLIDATED" means reports or accounts of Borrower and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles applied on a consistent basis.
"CONSOLIDATED CURRENT RATIO" is defined at Section 7.3.
"CONSOLIDATING" means financial statements which present
individual financial statements for (a) each of the separate entities which is
included in the Consolidated statements of Borrower, (b) each of Borrower's
Mid-Atlantic, Midwest, Northeast, Southeast, Western and Cincinnati districts
and (c) each additional district which may be added by Borrower or any
Subsidiary after the date hereof, together with all entries required by
generally accepted accounting principles for the elimination of intercompany
accounts.
"CORE BUSINESS" means the ownership and operation of deep
discount drugstores.
"COUNSEL" is defined at Section 4.1(k).
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<PAGE> 36
"CREDIT AMOUNT," "CREDIT" or "CREDITS" means credit extended
by the Bank to Borrower pursuant to the provisions of this Agreement, whether
in the form of Revolving Credit Loans, Letters of Credit, the Term Loan or
otherwise.
"CURRENT ASSETS" means all assets which may properly be
classified as current assets in accordance with generally accepted accounting
principles applied on a consistent basis, except that amounts due from
unconsolidated Subsidiaries and Affiliates shall be excluded.
"CURRENT LIABILITIES" means all Liabilities as may properly be
classified as current Liabilities in accordance with generally accepted
accounting principles applied on a consistent basis, and shall include the
amount of all Revolving Credit Loans which are outstanding hereunder.
"DEFAULT" means any condition or event which constitutes an
Event of Default or which would become an Event of Default with the giving of
notice or lapse of time or both (unless cured or waived).
"EFFECTIVE DATE" is defined at Section 2.2(c).
"ELIGIBLE INVENTORY" means, at any time, without duplication,
the aggregate cost (net of all reserves other than LIFO reserves) to Borrower
of Inventory (y) owned exclusively by Borrower, and (z) up to $3,000,000 of
Inventory owned exclusively by Winter Fern Drug Distributors (so long as such
company remains a Wholly-Owned Subsidiary) wherever located, now or hereafter
existing and all accessions thereto and products thereof as determined on a
FIFO basis in accordance with generally accepted accounting principles
consistently applied less the sum of (a) 285% of the aggregate outstanding
balance of the Term Loan plus (b) the face amount of all guaranties then
outstanding as authorized by Section 7.9(b); PROVIDED, HOWEVER, that there
shall be excluded from Eligible Inventory (i) all Inventory which is
customarily dispensed to the consumer through a pharmacy only with a doctor's
prescription and (ii) all Inventory in transit.
"ENVIRONMENTAL REQUIREMENTS" is defined at Section 5.19.
"ERISA" is defined at Section 5.14.
"EURO RESERVE PERCENTAGE" means, for any day, that percentage
(expressed as a decimal) which is in effect on such day, as prescribed by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the actual reserve requirement for a member bank of the Federal
Reserve System in respect of "Eurocurrency liabilities" (or in respect of any
other category of liabilities which includes deposits by reference to which the
interest rates on LIBO Rate Loans is determined or any category of extensions
of credit or other assets which includes loans by a non-United States office of
either Bank to United States residents).
"EUROCURRENCY" means any currency (a) for which a Rate of
Exchange Available to the Bank exists and (b) an established, stable trading
market in the currency exists.
"EURODOLLAR" means the United States dollars loaned under a
LIBO Rate Loan.
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<PAGE> 37
"EVENTS OF DEFAULT" is defined at Section 8.
"FIXED CHARGES" means, for any period, the sum of (a) gross
interest expense incurred during such period and (b) gross rental expense
incurred during such period with respect to non-capitalized leases, all as
determined in accordance with generally accepted accounting principles, applied
on a consistent basis.
"HAZARDOUS MATERIALS" is defined at Section 5.19.
"INCOME AVAILABLE FOR FIXED CHARGES" means, for any period,
the sum of Consolidated Net Income before income taxes and the amount of any
LIFO provision incurred during such period, determined in accordance with
generally accepted accounting principles consistently applied, plus Fixed
Charges.
"INDEBTEDNESS" means any Liabilities representing obligations
for borrowed money or the deferred purchase price of property or services
(except accruals and trade accounts payable arising in the ordinary course of
business) including, without limitation, capitalized lease obligations, and
Liabilities similar to the foregoing of other Persons which are secured by a
Lien on any asset of Borrower or any Subsidiary, or guaranteed directly or
indirectly by any of them.
"INVENTORY" means finished goods owned by Borrower held for
sale in the ordinary course of business of Borrower.
"LETTER OF CREDIT" means a commercial letter of credit issued
hereunder by the Bank as a Revolving Credit Loan pursuant to this Agreement on
behalf of Borrower. "Letter of Credit" shall specifically not include stand-by
letters of credit and the Bank is under no obligation to issue stand-by letters
of credit to Borrower hereunder.
"LIABILITIES" as applied to any Person, shall mean (a) all
items (except items of capital stock, of capital surplus, of general
contingency reserves or of retained earnings and amounts attributable to
minority interest, if any) which, in accordance with generally accepted
accounting principles, would be included in determining total liabilities as
shown on the liability side of a balance sheet of such Person as at the date as
of which Liabilities are to be determined, including specifically capitalized
lease obligations and (b) all obligations secured by any Lien or conditional
sale or other title retention agreement to which any property or asset owned or
held by such Person is subject, whether or not the obligations secured thereby
shall have been assumed (excluding non-capitalized leases which may amount to
title retention agreements).
"LIBO BANKING DAYS" means days which are both Banking Days
and London Banking Days.
"LIBO RATE" means as of the date of each LIBO Rate Loan, the
rate of interest (rounded upward, if necessary, to the next highest 1/16th of
1%) at which the Bank was offered deposits in United States dollars at 11:00
a.m., London time, in the London Interbank LIBO
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<PAGE> 38
Market on the second London Banking Day preceding the date of such LIBO Rate
Loan for delivery on the date of such LIBO Rate Loan, for deposits for a like
period as such LIBO Rate Loan and in an amount equal to the amount of such LIBO
Rate Loan plus, in the case of the Term Loan, 2.5% and, in the case of a
Revolving Credit Loan, 2.25% and including any additional costs provided for in
Section 1.5.4.
"LIBO RATE LOAN" is defined at Section 1.4.1.
"LIBO RATE PERIOD" means any period during which the most
recent annual audit of Borrower indicates (a) a ratio of Income Available for
Fixed Charges (adjusted for the amount of any applicable LIFO provision
incurred during such period and exclusive of any extraordinary credits and
non-recurring gains) to Fixed Charges of 1.25:1.00 or better and (b) a ratio of
(i) the sum of total Consolidated Liabilities plus 40% of any LIFO reserve to
(ii) the sum of Consolidated Tangible Net Worth plus 60% of any LIFO reserve of
2.0:1.0 or less.
"LIEN" means a security interest, charge, or encumbrance, or
other right or claim of any Person other than (a) a potential claim or right
(that has not yet been asserted) of a trustee appointed for any customer of
Borrower in connection with any bankruptcy proceeding or (b) an unfiled lien
for taxes accrued but not yet payable.
"LOAN DOCUMENTS" are defined at Section 4.1(l).
"LOANS" are defined at Section 2.1.
"LONDON BANKING DAYS" means days on which dealings are
carried out in the London Interbank Market.
"NET INCOME" means for any period the Consolidated net income
(deficit) of Borrower incurred during such period as determined in accordance
with generally accepted accounting principles consistently applied.
"NOTES" are defined at Section 2.1.
"PERMITTED INVESTMENTS" means any of the following to the
extent such investment does not violate the covenants set forth in Section 7 of
this Agreement on or after the date such investment is made:
(a) commercial paper issued by the Bank or
certificates of deposit issued, or other time deposit accounts offered, by the
Bank or any Affiliate of the Bank;
(b) marketable direct obligations issued by the
United States of America maturing within one year from the date of acquisition
thereof;
(c) commercial paper maturing no more than one year
from the date of creation thereof and having as at any date of determination a
rating of at least A-1 (or its
-32-
<PAGE> 39
equivalent) from Standard & Poor's Corporation or P-1 (or its equivalent) from
Moody's Investor's Service, Inc.;
(d) existing investments in the Subsidiaries;
(e) the purchase of all or a portion of the assets
of a Person so long as (i) the assets acquired are used solely in the Core
Business, (ii) the cumulative aggregate consideration paid for all such assets
purchased hereunder in any fiscal year does not exceed $3,000,000 and (iii) the
Bank is notified in writing of each such purchase 30 days in advance;
(f) investments by Borrower in newly formed,
partially owned Subsidiaries and Affiliates involved in the Core Business so
long as the cumulative aggregate investment made hereunder does not exceed
$500,000;
(g) investments toward an acquisition permitted by
Section 7.7 which acquisition is not completed; and
(h) acquisitions and other transactions permitted
by Section 7.7.
"PERMITTED LIENS" means any of the following:
(a) Liens securing (i) taxes, assessments, fees or
other governmental charges or levies, or securing the claims of materialmen,
mechanics, carriers, warehousemen, landlords and other similar Persons or (ii)
Permitted Investments, to the extent the Lien thereon arises by operation of
law;
(b) Liens incurred or deposits made in the ordinary
course of business (i) in connection with workers' compensation, unemployment
insurance, social security and other similar laws or (ii) to secure the
performance of bids, tenders, sales, contracts, public or statutory obligations
not incurred in connection with the borrowing of money, the obtaining of
advances or the payment of the purchase price of property or services;
(c) Reservations, exceptions, easements, leases and
other similar title exceptions or encumbrances affecting real property,
provided they do not in the aggregate materially interfere with their use in
the ordinary course of Borrower's or any Subsidiary's business;
(d) Liens in favor of the Bank;
(e) Liens securing purchase money obligations
respecting personal property of Borrower and the Subsidiaries and capitalized
leases for an aggregate amount not in excess of $14,000,000 at any one time
outstanding on a Consolidated basis so long as such Liens apply only to the
personal property being purchased or leased and do not attach to Inventory; and
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<PAGE> 40
(f) Liens securing the existing mortgage of MetLife
Capital on real property used as Borrower's headquarters located at 155 Hidden
Ravines Drive, Powell, Ohio and fixtures thereon (but not personal property of
any type appurtenant thereto or used in connection therewith) incurred by
Borrower provided that the aggregate amount of Indebtedness of Borrower secured
thereby does not exceed $1,900,000 at any one time outstanding;
"PERSON" means any individual, partnership, corporation,
trust, unincorporated organization, government or any department or agency
thereof or any other entity.
"PLEDGE AGREEMENT" is defined at Section 4.1(c).
"PRIME RATE" means the rate published or announced by the Bank
as its "Prime Rate" which rate may not be the Bank's lowest rate.
"RATE OF EXCHANGE AVAILABLE TO THE BANK" means (a) whenever an
exchange rate applies to voluntary borrowings by Borrower, the rate of exchange
of United States dollars to a Eurocurrency, as quoted to the Bank from brokers,
traders or other Persons who make such quotations, or (b) whenever an exchange
rate applies to a situation other than a voluntary borrowing by Borrower, the
rate of exchange as between Eurocurrency and United States dollars, in the
following order of preference: (i) from correspondents, principals, brokers,
traders or other Persons with whom the Bank regularly conducts business, (A) as
offered to and accepted by the Bank for transactions hereunder and for other
customers or for its own account; (B) as offered to the Bank; (ii) from
brokers, traders, or other Persons who make such quotations in the ordinary
course of their business (A) as offered to and accepted by the Bank for
transactions hereunder and for other customers or for its own account; (B) as
offered to the Bank.
"REQUEST DATE" means the day three LIBO Banking Days before
the Borrowing Date of a LIBO Rate Loan or the Effective Date of a Term Loan.
"REVOLVER MATURITY DATE" is defined at Section 1.1.1.
"REVOLVING CREDIT LOAN" means a loan made by the Bank pursuant
hereto evidenced by the Revolving Credit Note.
"REVOLVING CREDIT NOTE" is defined at Section 1.5.1.
"SECURITY AGREEMENT" is defined at Section 4.1(b).
"SUBORDINATED DEBT" means unsecured Indebtedness of Borrower
maturing more than 12 months from the date of determination thereof that is
subordinated to all Loans and other amounts owed under this Agreement on terms
acceptable to the Bank.
"SUBSIDIARY" means any corporation at least 51% of the
outstanding voting stock of which shall, at the time as of which any
determination is being made, be owned, directly or indirectly, by Borrower.
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<PAGE> 41
"SUBSIDIARY GUARANTIES" is defined at Section 4.1(d).
"SUBSIDIARY SECURITY AGREEMENT" is defined at Section 4.1(e).
"TANGIBLE NET WORTH" means the total of the capital stock (net
of treasury stock), paid in surplus and retained earnings (deficit), as
determined in accordance with generally accepted accounting principles
consistently applied, minus the following items (without duplication of
deductions), if any, appearing on the Consolidated balance sheet of Borrower:
(a) all deferred charges (net of amortization);
(b) the book amount of all assets which would be
treated as intangibles under generally accepted accounting principles,
including, without limitation, such items as goodwill, unamortized debt
discount and expense and corporate organization expenses, treasury stock,
trademarks, trademark applications, trade names, service marks, brand names,
copyrights, patents, patent applications and licenses and rights with respect
to the foregoing; and
(c) write-up in the book amount of any asset
resulting from a revaluation thereof from the book amount entered upon
acquisition.
"TERM LOAN" is defined at Section 2.1.
"TERM NOTE" is defined at Section 2.1.
"TERMINATION DATE" is defined at Section 2.2(a).
"TRADE DATE" means, regarding LIBO Rate Loans, the day two
LIBO Banking Days before the Borrowing Date or the Effective Date.
"UNSUBORDINATED LIABILITIES" means all Liabilities of Borrower
less Subordinated Debt.
"VARIABLE RATE LOAN" is defined at Section 1.4.1.
"WHOLLY-OWNED SUBSIDIARY" means a Subsidiary, all of the
voting stock (other than directors' qualifying shares) of which and all other
stock and equity securities of which are owned, directly or indirectly, by
Borrower.
10.2. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements of Borrower as of the date hereof.
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<PAGE> 42
SECTION 11
MISCELLANEOUS
11.1. TERM OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement and
all covenants, agreements, representations and warranties made herein and in
the certificates delivered pursuant hereto shall survive the making by the Bank
of the Loans and the execution and delivery to the Bank of the Notes and shall
continue in full force and effect until the Termination Date, the Revolver
Maturity Date, the termination of the Commitment or the payment in full of all
amounts due hereunder, whichever is latest. Whenever in this Agreement either
of the parties are referred to, such reference shall include the successors and
assigns of such party; and all terms and provisions of this Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective successors and assigns.
11.2. NOTICES. Notices, demands and communications shall be deemed
to have been properly given to Borrower when faxed to (614) 548-6541 or
deposited in the United States mail, registered or certified, postage prepaid,
and addressed to Borrower at 155 Hidden Ravines Drive, Powell, Ohio 43065,
Attention: Chief Executive Officer, or hand delivered to the same address.
Any communication to the Bank shall be deemed properly given if faxed, hand
delivered or similarly mailed as follows:
Bank One, Columbus, NA
Commercial Loan Department
100 East Broad Street
Columbus, Ohio 43271-0170
Fax: (614) 248-5518
11.3. NO IMPLIED WAIVERS. No delay on the part of the Bank in
exercising any right, power or privilege granted hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof. The rights
and remedies herein expressly specified are cumulative and not exclusive of any
other rights and remedies which the Bank would otherwise have.
11.4. AMENDMENTS, MODIFICATIONS, ETC. No amendment, modification,
termination, or waiver of any provision of this Agreement or of any Note nor
consent to any departure by Borrower therefrom, shall in any event be effective
unless the same shall be in writing and signed by the Bank, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice or demand on Borrower in any case
shall entitle Borrower to any other or further notice or demand in similar or
other circumstances.
11.5. APPLICABLE LAW. This Agreement and the Notes shall be deemed
to be contracts made under the laws of the State of Ohio, and for all purposes
shall be construed in accordance with the laws of such state.
-36-
<PAGE> 43
11.6. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
11.7. EXPENSES. All fees, costs or expenses, including reasonable
fees and expenses of outside legal counsel incurred by the Bank, in connection
with the preparation, administration, amendment, modification or enforcement of
the Agreement shall be paid by Borrower on demand.
11.8. COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures thereto were upon the
same instrument. Complete sets of counterparts shall be lodged with Borrower
and the Bank.
11.9. ENTIRE AGREEMENT. The Loan Documents set forth the entire
understanding between the parties concerning the subject matter thereof and
incorporate all prior negotiations and understandings. There are no covenants,
promises, agreements, conditions or understandings, either oral or written,
between them relating to the subject matter of this Agreement other than those
set forth in the Loan Documents. No representation or warranty has been made
by or on behalf of any party to the Loan Documents (or any officer, director,
employee or agent thereof) to induce the other parties to enter into the Loan
Documents or to abide by or consummate any transactions contemplated by any
term of the Agreement, except representations and warranties, if any, expressly
set forth or referred to in the Loan Documents. Nothing expressed or implied
in any of the Loan Documents is intended or shall be construed to confer upon
or give any Person other than the parties hereto and their successors or
assigns, any rights or remedies under or by reason of the Loan Documents.
11.10. HEADINGS. Headings of the sections of this Agreement are for
convenience only and shall not affect the construction of this Agreement.
11.11. EFFECTIVE DATE. This Agreement shall become effective upon
the execution of a counterpart hereof by each of the parties.
11.12. CONFESSION OF JUDGMENT. Borrower hereby authorizes any
attorney at law to appear for Borrower, in an action on the Agreement, at any
time after the same becomes due, as herein provided, in any court of record in
or of the State of Ohio, or elsewhere, to waive the issuing and service of
process against Borrower and to confess judgment in favor of the holder of the
Agreement or the party entitled to the benefits of the Agreement against
Borrower for the amount that may be due, with interest at the rate herein
mentioned and costs of suit, and to waive and release all errors in said
proceedings and judgment, and all petitions in error, and right of appeal from
the judgment rendered.
11.13. TIME. Unless otherwise stated, all time references set forth
herein are stated in Columbus, Ohio time.
-37-
<PAGE> 44
11.14. CONSENT TO JURISDICTION; SERVICE. As a specifically bargained
inducement for the transactions set forth herein, the parties hereto
specifically agree that any action, suit or proceeding in respect of or arising
from or out of this Agreement, its validity or performance, shall be initiated
and prosecuted as to all parties and their successors and assigns at Columbus,
Ohio. The parties hereto consent to and submit to the exercise of jurisdiction
over their person by any court situated at Columbus, Ohio, including without
limitation the United States District Court for the Southern District of Ohio
and having jurisdiction over the subject matter hereof and each not otherwise
subject to jurisdiction and service in Columbus, Ohio, hereby irrevocably
appoints and designates Thomas D. Igoe (or any other person in Columbus, Ohio
whom the Bank or its successor or assign, after giving the parties hereto five
days written notice thereof, may appoint), as its true and lawful attorney in
fact and duly authorized agent for service of legal process and agree that
service of such process upon such attorney in fact shall constitute personal
service of such process upon such party. Such attorney in fact, within five
days after receipt of any such process, shall forward the same, by personal or
messenger delivery or by registered or certified mail, together with all papers
affixed thereto, to such party at such party's address as set forth herein.
The parties hereto have caused this Agreement to be duly executed by
their respective duly authorized officers as of the date first above written.
BANK ONE, COLUMBUS, NA
By: /s/ Thomas D. Igoe
-----------------------------
Thomas D. Igoe
Senior Vice President
DRUG EMPORIUM, INC.
By: /s/ David L. Kriegel
-----------------------------
David L. Kriegel, Chief Executive Officer
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND
COURT TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN
AGAINST YOU WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE
USED TO COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST
THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS
PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
-38-
<PAGE> 45
EXHIBIT 1.1.3.
ATTACH STANDARD FORM OF
BANK'S LETTER OF CREDIT APPLICATION
-39-
<PAGE> 46
<TABLE>
<CAPTION>
APPLICATION AND AGREEMENT
FOR COMMERCIAL LETTER OF CREDIT
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
TO:
Date ----------------
Gentlemen:
Please issue an irrevocable Letter of Credit in accordance with this application and forward same to your correspondent for
delivery to the beneficiary as indicated below (by check "X"). In issuing the Credit you are expressly authorized to make such
changes from the terms hereinbelow set forth as you in your sole discretion may deem advisable provided that no such changes shall
vary the principal terms hereof.
Transmit by [ ] Airmail [ ] Airmail, with Short Preliminary Cable Advice [ ] Cable, with Airmail Confirmation
- - ---------------------------------------------------------------------|--------------------------------------------------------------
This part for bank use only unless you designate advising bank | Applicant
|
|
- - ------------------------------------------------------------------------------------------------------------------------------------
Beneficiary | Maximum amount
|
| In words
|
| In figures
- - ------------------------------------------------------------------------------------------------------------------------------------
| Expiration date
|
| In the country of the beneficiary unless otherwise indicated
- - ------------------------------------------------------------------------------------------------------------------------------------
Available by drafts at drawn on you or, at your option, any of your correspondents
-----------------------------------------------
(Indicate Tenor - Sight, 30, 60, 90 Days, Etc.)
Discount charges, if any, for the account of the [ ] applicant [ ] beneficiary.
DRAFTS MUST BE ACCOMPANIED BY THE FOLLOWING DOCUMENTS (AS CHECKED):
Signed commercial invoice in copies
---------------
Special U.S. Customs invoice in copies
-------------
Negotiable Marine/Air Insurance Policy or Certificate in duplicate for 110% of invoice value (unless otherwise specified)
covering all risks, and war risks and other risks (please specify)
---------------------------------------------------------------
Insurance effected by ourselves. We agree to keep insurance coverage in force until this transaction is completed.
Full set of clean on board ocean bills of lading issued to order of
-------------------------------------------------------------
Clean air waybill, consigned to:
--------------------------------------------------------------------------------------------------
(Name)
- - ------------------------------------------------------------------------------------------------------------------------------------
(Address)
Marked freight collect/prepaid and marked notify
------------------------------------------------------------------------------------
(Name)
- - ------------------------------------------------------------------------------------------------------------------------------------
(Address)
Bills of lading to be dated no later than
-----------------------------------------------
Packing list in copies.
-------------------------------------------------------------------
Other documents, if any:
---------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Covering shipment of:
--------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
(Please mention commodity only, omitting details as to grade, quality, etc. if possible)
[] C.I.F. [] C & F [] C & I [] F.O.B.
---------------------------------------------------------------------------------------
(Name of city, port, or airport)
- - -------------------------------------------------------------------|----------------------------------------------------------------
Shipments from: | Partial shipments [] Are [] Are not permitted
| Transshipments [] Are [] Are not permitted
All banking charges outside the United States for beneficiary's account.
Unless otherwise instructed, documents will be forwarded to you in one airmail by the negotiating bank.
- - ------------------------------------------------------------------------------------------------------------------------------------
SPECIAL INSTRUCTIONS
- - ------------------------------------------------------------------------------------------------------------------------------------
Catalog No. 00860 (7/9)
</TABLE>
<PAGE> 47
TERMS AND CONDITIONS OF APPLICATION
AND AGREEMENT FOR COMMERCIAL LETTER OF CREDIT
In consideration of your issuing, at our request, your Commercial Letter of
Credit (herein called "the Credit") substantially in accordance with the
Application appearing on the first page hereof, the undersigned agree as
follows:
1. We certify that each draft or acceptance under or purporting to be under
the Credit will grow out of transactions pursuant to definite bona fide
contracts in the shipment of goods within a specified reasonable time.
2. As to drafts or acceptances under or purporting to be under the Credit,
which are payable in United States Currency, we agree (a) in the case of each
sight draft, to reimburse you at your issuing office, on demand, in United
States legal tender, the amount paid on such draft, or, if so demanded by you,
to pay to you at said office, in advance in such legal tender the amount
required to pay such draft; and (b) in the case of each acceptance, to pay to
you, at said office, in United States legal tender, the amount thereof, on
demand but in any event not later than one business day prior to maturity, or,
in case the acceptance is not payable at your said office, then on demand, but
in any event in time to reach the place of payment in the usual course of the
mails not later than one business day prior to maturity.
3. As to drafts or acceptances under or purporting to be under the Credit,
which are payable in currency other than United States currency, we agree (a)
in the case of each sight draft, to reimburse you, at your issuing office, on
demand, the equivalent of the amount paid, in United States legal tender at the
rate of exchange then current for cable transfers to the place of payment in
the currency in which such draft is drawn, and (b) in the case of each
acceptance, to furnish you, at said office, on demand, but in any event in time
to reach the place of payment in the usual course of the mails not later than
one business day prior to maturity, with first class banker's demand bills of
exchange to be approved by you for the amount of the acceptance, payable in the
currency of the acceptance and bearing our endorsement, or, if you so request,
to pay to you at said office, on demand, the equivalent of the acceptance in
United States legal tender at the rate of exchange then current for cable
transfers to the place of payment in the currency in which the acceptance is
payable. A demand made on one of us shall fix the exchange rate as to all of
us. If for any reason whatsoever there shall be at the time of your demand for
reimbursement or payment no rate of exchange current for effective cable
transfers to the place of payment in the currency in which any such draft is
drawn or any such acceptance is payable, we agree to pay you, on demand, in
United States legal tender an amount which in your sole judgment shall be
sufficient to meet our obligations hereunder, which amount may be applied by
you at any time as a payment on account of such obligations, or, at your
option, held as security therefor: it being understood, however, that we shall
remain liable for any deficiency which may result if such amount in United
States legal tender shall prove insufficient to effect full payment or
reimbursement to you at the time when a rate of exchange for such cable
transfers shall be again current.
4. We also agree to pay to you, on demand, your commission and all charges
and expenses (including all charges for legal services) paid or incurred by you
in connection with the Credit, plus correspondents' charges, if any, and
interest where chargeable.
5. That, if the foregoing application requests the inclusion in the Credit
of any provision for Clean Advances to the beneficiary, you may place in the
Credit such a provision in that respect as you may deem appropriate, under
which any bank entitled to negotiate drafts under the Credit, acting in its
discretion in each instance and upon the request and receipt in writing from
the beneficiary, may make any one or more Clean Advances at any time on or
prior to the date by which the drafts are to be negotiated under the Credit.
The aggregate of such advances shall in no event be more than the amount
specified in the Application for Clean Advances, and in no event shall any such
advance exceed the amount remaining available under the Credit at the time of
the advance. While it is expected by us that each such advance will be repaid
to the bank that made the advance by the beneficiary from the proceeds of any
drafts drawn under the Credit, should any such advances not be thus repaid, we
will on demand pay you the amounts thereof as if such advances were evidenced
by drafts drawn under the Credit, together with interest on each such amount
for the period that the same shall have been outstanding at such rate as you
may find at the time of demand is payable. It is understood that neither you
nor any bank which may make such advances shall be obligated to inquire into
the use that may be made thereof by the beneficiary and that you and each such
bank shall be without liability for any wrongful use that may be made by the
beneficiary of any such funds so advanced.
6. We hereby recognize and admit your unqualified right to the possession
and disposal of all property shipped or werehoused under or pursuant to or in
connection with the Credit or in any way relative thereto or to the drafts
drawn thereunder, whether or not released to any of us on trust or bailee
receipt or otherwise, and also in and to all shipping documents, warehouse
receipts, policies or certificates of insurance and other documents
accompanying or relative to drafts drawn under the Credit, and in and to the
proceeds of each and all of the foregoing, until such time as all the
obligations and liabilities of us or any of us to you at any time existing
under or with reference to the Credit or this agreement, or any other credit or
any other obligation or liability to you, whether now existing or hereafter
created or arising, have been fully paid and discharged, all as security for
such obligations and liabilities; and that all or any of such property and
documents, and the proceeds of any thereof, coming into the possession of you
or any of your correspondents, may be held and disposed of by you as herein
provided; and the receipt by you, or any of your correspondents, at any time of
other security, of whatever nature, including cash, shall not be deemed a
waiver of any of your rights or powers herein recognized.
7. Unless otherwise instructed by you, we agree from time to time to give
you trust receipts in any form acceptable to you for any property or documents
released by you to any of us and to sign and deliver to you such Statements of
Trust Receipt Financing, such Security Agreements and/or such Financing
Statements as you may from time to time request in any form acceptable to you.
We will pay any relative filing fees. In the event you receive some, but not
all, of the documents against which availments may be made and, at our request,
you deliver such documents to us, against trust receipt or otherwise, prior to
the presentation of the relative draft, we agree to pay you on demand the
amount of any claim made against you by reason thereof and authorize you to pay
or accept (as the case may be) such draft when it is presented, regardless of
whether or not such draft or any document which may accompany it complies with
the terms of the Credit.
8. Except so far as otherwise expressly stated in the Credit, we agree (a)
that you and any of your correspondents may receive and accept, as a "Bill of
Lading" relative to the Credit, any document issued or purporting to be issued
by or on behalf of any carrier which acknowledges receipt of property for
transportation, whatever the specific provisions of such document, and any such
bill of lading issued by or on behalf of an ocean carrier may be accepted by
you as an "Ocean Bill of Lading" whether or not the entire transportation is by
water, and the date of every bill of lading shall be deemed the date of
shipment of the property mentioned therein; and (b) that you and any of your
correspondents may receive and accept as sufficient and controlling the
description of the property contained in the invoice and also receive and
accept bills of lading, insurance and other documents, however variant in
description from that contained in the invoice; and (c) that you and any of
your correspondents may receive and accept bills of lading containing stamped,
written, or typewritten provisions thereon, whether or not signed or initialed,
and you or any of your correspondents may assume conclusively that the same
were placed with proper authority on the bill of lading at the time of its
signing and issuance by the carrier or any agent thereof; and (d) that, if the
Credit states that except so far as otherwise expressly stated it is subject
to the Uniform Customs and Practice for Documentary Credits (1983 Revision),
and any subsequent revision thereof, fixed by the International Chamber of
Commerce (Publication No. 400) (herein called the "Uniform Customs"), the
Credit shall be so subject in all respects; and (e) that, if the Credit does
not state that except so far as otherwise expressly stated it is subject to the
Uniform Customs, you and any of your correspondents may, without limiting the
type of document acceptable according to any other provisions of this
agreement, accept documents of any character which comply with the Uniform
Customs or which comply with the laws or regulations in force and customs and
usages of the place of negotiation; and (f) that you and any of your
correspondents may receive and accept as documents of insurance under the
Credit either insurance policies or insurance certificates which need to be for
an amount of insurance greater than the amount paid by you under or relative to
the Credit; and (g) that you and any of your correspondents may receive, accept
and pay as complying with the terms of the Credit, any drafts or other
documents, otherwise in order, which may be signed by, or issued to, the
administrator or executor of, or the trustee in bankruptcy of, or the receiver
for any of the property of, the party in whose name the Credit provides that
any drafts or other documents should be drawn or issued.
<PAGE> 48
9. Except as otherwise expressly stated in the Credit, we agree (a)
that part shipments may be made under the Credit and that you may honor the
relative drafts without inquiry regardless of any apparent disproportion
between the quantity shipped and the amount of the relative draft and the total
amount of the Credit and the total quantity to be shipped under the Credit; and
(b) that if the Credit specifies shipments in installments within stated
periods and the shipper fails to ship in any designated period, shipments of
subsequent installments may nevertheless be made in their respective designated
periods and you may honor the relative drafts.
10. We agree that in the event of any extension of the maturity or time for
presentation of drafts, acceptances or documents, or any other modification of
the terms of the Credit, at the request of any of us, with or without
notification to the others, or in the event of any increase in the amount of
the Credit at our request, this agreement shall be binding upon us with regard
to the Credit so increased or otherwise modified, to drafts, documents and
property covered thereby, and to any action taken by you or any of your
correspondents in accordance with such extension, increase or other
modification.
11. We hereby expressly authorize you and any of your correspondents to
accept and pay at your option any drafts drawn under or purporting to be drawn
under the Credit notwithstanding any discrepancies or irregularities between
the drafts and documents presented and those required by the terms of the
Credit; provided that as to discrepancies and irregularities not otherwise
covered by the provisions of this agreement, you or your correspondent so
accepting or paying must be furnished with an indemnity satisfactory to you
which, running in our favor as well as yours, covers the discrepancies or
irregularities but is limited to the actual damage directly attributable to
such discrepancies or irregularities.
12. We assume all risks of the acts or omissions of the users of the Credit.
We agree that should the beneficiary under the Credit, upon receipt of advice
by cable, or otherwise, of the issuance of the Credit, but prior to its actual
receipt, negotiate drafts by virtue of such advice, such negotiation shall be
considered a proper one and shall be included under the terms and subject to all
conditions hereof, and we assume all the risks of the misuse of the Credit
whatsoever. Neither you nor your correspondents shall be responsible for any
difference in character, description, quality, quantity, weight, condition,
packing or value of the property from that expressed in documents; for the
form, validity, sufficiency, genuineness or legal effect of documents, even if
such documents should in fact prove to be in any or all respects invalid,
insufficient, fraudulent or forged; for the time, place, manner or order in
which shipment is made; for partial or incomplete shipment, or failure or
omission to ship any or all of the propery referred to in the Credit; for the
character, adequacy, validity, or genuineness of any insurance; for the
solvency or responsibility of any insurer, or for any other risk connected with
insurance; for any deviation from instructions, delay, default or fraud by the
shipper or anyone else in connection with the propery or the shipping thereof;
for the solvency, responsibility or relationship to the property of any party
issuing any documents in connection with the property; for delay in arrival or
failure to arrive of either the property or any of the documents relating
thereto; for delay in giving or failure to give notice of arrival or any other
notice; for any breach of contract between the shippers or vendors and
ourselves or any of us; for the validity or sufficiency of any instrument
assigning or purporting to assign the Credit or the rights or benefits
thereunder or proceeds thereof in whole or in part, which may prove to be
invalid or ineffective for any reason; for failure of any draft to bear any
reference or adequate reference to the Credit, or failure of documents to
accompany any draft at negotiation, or failure of documents to accompany any
draft at payment if sent by duplicate mail, or failure of any person to note
the amount of any draft on the reverse of the Credit or to surrender to take up
the Credit or to send forward documents apart from drafts as required by the
terms of the Credit, each of which provisions, if contained in the Credit
itself, it is agreed may be waived by you, or for errors, omissions,
interruptions or delays in transmission or delivery of any messages, by mail,
cable, telegraph, wireless or otherwise, whether or not they be in cipher; nor
shall you be responsible for any error, neglect, or default of any of your
correspondents for errors in translation or for errors in interpretation of
technical terms or for any consequences arising from causes beyond your
control; and none of the above shall affect, impair, or prevent the vesting of
any of your rights or powers hereunder. You shall have the right to transmit
the terms of the Credit without translating them. We shall protect you and any
other drawee in paying any draft dated on or before the expiration of any time
limit expressed in the Credit regardless of when drawn and when or whether
negotiated. If the Credit provides that payment is to be made by your
correspondent, neither you nor such correspondent shall be responsible for the
failure of any of the documents specified in the Credit to come into your hands
or for any delay in connection therewith, and our obligation to reimburse you
for payments made or obligations incurred shall not be affected by such failure
or delay in the receipt by you of any of such documents. In furtherance and
extension and not in limitation of the specific provisions hereinbefore set
forth, we agree that any action taken by you or any correspondent of yours,
under or in connection with the Credit or the relative drafts, documents or
property, if taken in good faith, shall be binding on us, and shall not put
you or your correspondent under any resulting liability to us; and we make like
agreement as to any inaction or omission, unless in breach of good faith.
You shall not in any way be liable for any failure by you or anyone else to
pay or accept any draft or acceptance under the Credit resulting from any
censorship, law, control or restriction rightfully or wrongfully exercised by
any de facto or de jure domestic or foreign government or agency or from any
other cause beyond your control or the control of your correspondents, agents
or sub-agents or for any loss or damage to us or anyone else resulting from any
such failure to pay or accept, all such risks being expressly assumed by us,
and we agree to indemnify and hold you harmless from any claim, loss, liability
or expense arising by reason of any such failure to pay or accept. We are
responsible to you for all obligations imposed upon you with respect to the
Credit or the relative drafts, documents or property.
13. We agree to procure promptly any necessary import and export or other
licenses for the import or export or shipping of the property and to comply
with all foreign and domestic governmental regulations in regard to the
shipment of the property or the financing thereof, and to furnish such
certificates in that respect as you may at any time require, and to keep the
property adequately covered by insurance satisfactory to you, in companies
satisfactory to you, and to assign the policies or certificates of insurance to
you, or to make the loss or adjustment, if any, payable to you, at your option;
and to furnish you if demanded with evidence of acceptance by the insurers of
such assignment.
14. Each of us agrees, at any time and from time to time, on demand, to
deliver to you, as a security for any and all of the liabilities of us and any
of us hereunder and all other liabilities of us and any of us to you, direct or
contingent, joint, several or independent, now or hereafter existing, due or to
become due, whether created directly or acquired by assignment or otherwise,
additional property satisfactory to you or to make such payment as you may
require. Each of us agrees that the balance of every account of us or any of
us with you and each claim of us or any of us against you existing from time to
time, shall be subject to a lien and subject to be set off against any and all
such liabilities of us or any of us; and you may at any time or from time to
time at your option and without notice appropriate and apply toward the payment
of any of such liabilities of us or any of us the balance of each such account
of us or any of us with you and each such claim of us or any of us against you,
and we and each of us will continue liable for any deficiency. Each of us
agrees that all property of every description, now or hereafter in your
possession or custody or in transit to you for any purpose including
safekeeping, collection or pledge, for the account of us or any of us, or as to
which we or any of us may have any interest, right or power, whether or not
such property is in whole or in part released to us or any of us on trust or
bailee receipt, are hereby made security and subject to a lien and security
interest in your favor for any and all such liabilities of us or any of us.
You may at any time and from time to time, without notice, transfer into your
own name or that of your nominee any property so held as collateral. Each of
us agrees that upon the failure of us or any of us at all times to keep a margin
of security with you satisfactory to you, or upon the nonpayment or
nonfulfillment of any such liabilities of us or any of us when they shall
become due or be made due, or upon the death or insolvency of us or any of us,
or upon the suspension of business of us or any of us, or upon the issuance of
any warrant of attachment against the credits or any of the property of us or
any of us, or upon the making by us or any of us of an assignment for the
benefit of creditors, or upon the application for the appointment or the
appointment of a trustee or receiver for us or any of us or for any of the
property of us or any of us, or upon the taking possession by any public
official having regulatory powers over any of us of the property of any of us
for the purpose of conserving the assets of any of us, or upon any proceedings
being commenced by or against us or any of us under or purporting to be under
any bankruptcy, reorganization, arrangement, readjustment of debt,
receivership, liquidation, dissolution, winding up, adjustment, compensation or
liquidation law or statute of any jurisdiction, then and in any such event, (a)
any and all such liabilities of us or any of us shall, at your option, become
and be
<PAGE> 49
immediately due and payable, without notice, presentation, demand of payment or
protest, all such being hereby expressly waived, and notwithstanding any credit
or time allowed to any of us, or any instrument evidencing such liabilities or
otherwise, and (b) you shall have the right from time to time to sell, resell,
assign, and deliver all or any part of the property securing any liabilities of
us or any of us, arrived or to arrive, at any Broker's Board of Exchange, or at
public or private sale, at your option, without having the property at the
place of sale, in such parcel or parcels and at such time or times and at such
place or places, and upon such terms and conditions as you may deem proper, and
in connection therewith may grant options, all without demand, advertisement or
notice to us or any of us, all of which are hereby expressly waived, and to
apply the net proceeds of such sale or sales to the payment of any and all such
liabilities and we and any of us will continue liable to you for any
deficiency, with interest. Upon each such sale, you may purchase the whole or
any part of the property of us or any of us being sold, free from any right of
redemption, which we and each of us hereby expressly waive and release. Demands
or calls for collateral on or any notices to us or any of us respectively (a)
may be made or given by you by leaving same at the last known address of us or
any of us respectively or by mailing, telegraphing, cabling, radioing,
telephoning or otherwise sending same to such address, with the same effect as
if delivered to all of us in person, (b) shall be considered made as of the
time of such leaving or mailing, telegraphing, cabling, radioing, telephoning
or other sending by public agencies of communication. Each of us agrees that
with or without notification to any of us, you may exchange, release,
surrender, realize upon, release on trust receipt to any of us, or otherwise
deal with any property by whomsoever pledged, mortgaged, or subjected to a
security interest to secure directly or indirectly any of the obligations
hereunder or for which any of the undersigned may be liable.
We will bear and pay all expenses of every kind (including all charges for
legal services) of the enforcement of any of your rights herein mentioned, of
any claim or demand by you against us or any of us, and of any actual or
attempted sale, exchange, enforcement, collection, maintenance, retention,
insurance, compromise, settlement, release, delivery on trust receipt, or
delivery of any such security, and of the receipt of proceeds thereof, and will
repay to you any such expenses incurred by you.
15. None of your options, powers or rights (including those hereunder) shall
be waived unless you or your authorized agent shall have signed such waiver in
writing. No such waiver, unless expressly as stated therein, shall be effective
as to any transaction wich occurs subsequent to the date of such waiver, nor as
to any continuance of a breach after such waiver. No segregation or specific
allocation by you of specified collateral against any liability shall waive or
affect any lien of any sort against other securities or property or any of your
options, powers or rights (including those hereunder).
16. The word "property" as used in this agreement includes goods,
merchandise, securities, funds, choses in action, and any and all other forms
of property, whether real, personal or mixed and any right or interest therein.
Property in your possession shall include property in possession of anyone for
you in any manner whatsoever. Your options, powers and rights specified in this
agreement are in addition to those otherwise created. You are hereby expressly
given the right and power in furtherance of any right, power or privilege which
you may have hereunder or in connection with the Credit to execute
endorsements, assignments or other instruments of conveyance or transfer in our
name, place and stead covering any property standing in our name or belonging
to us of every kind and description which you may hold or which may come into
your possession under the Credit or by reason of this agreement.
17. If the undersigned is a banking institution, the undersigned hereby
appoints you as its agent to the extent of issuing the Credit in accordance
with, and subject to the terms and provisions of, the foregoing Application and
Agreement for Commercial Letter of Credit.
18. If the undersigned is a partnership, the obligations hereof shall
continue in force, and apply, notwithstanding any change in the membership of
such partnership, whether arising from the death or retirement of one or more
partners or the addition of one or more new partners.
19. This agreement shall be binding upon us, our heirs, executors,
administrators, successors and assigns, and shall inure to the benefit of, and
to be enforceable by, you, your heirs, executors, administrators, successors,
transferees and assigns. If this agreement should be terminated or revoked by
operation of law unto us, or any of us, we will indemnify and save you harmless
from any loss which may be suffered or incurred by you in acting hereunder
prior to the receipt by you, or your transferees or assigns, of notice in
writing of such termination or revocation. If this agreement is signed by two
or more parties, it shall be the joint and several agreement of such parties,
and whenever used herein, the singular number shall include the plural, and the
plural the singular. The agreement shall be governed by and construed in
accordance with the law of the state in which the BANK ONE affiliate specified
in this application and agreement has its principal office.
20. In the event that we fail to pay you on demand any amounts due you
arising under the the terms of this Application we will pay you in the
following manner;
_____ (a) in addition to the aforesaid amounts, interest on the amounts
due you at the rate equivalent to your "Prime Lending Rate" in effect
from time to time, plus _____% per annum calculated on a ____ day year
basis, calculated on the actual number of days elapsed during the
lending period. "Prime Lending Rate" means the rate announced from time
to time by BANK ONE as its Prime Lending Rate, which rate may not be the
lowest rate of interest offered by BANK ONE. The rate of interest will
be adjusted on the same day as BANK ONE's Prime Lending Rate changes.
All amounts due hereunder including interest and principal shall be
payable upon demand by you.
_____ (b) We request that you activate the Promissory Note in your
possession payable to you which we have heretofore executed.
Any deferred payments to be made under (a) or (b) above shall be: _____
unsecured (subject however, to the rights granted you in this
Application). _____ secured by the following described property and the
proceeds thereof (which property is in addition to that otherwise
described in this Application): ________________________________________
________________________________________________________________________
________________________________________________________________________
which property has been deposited with you, or to which a security
interest is hereby given to you. You shall have all rights and remedies
in connection with said property as set forth in this Application in
addition to those arising under the Uniform Commercial Code.
21. WE HEREBY CERTIFY THAT TRANSACTIONS IN THE MERCHANDISE COVERED BY THIS
APPLICATION ARE NOT PROHIBITED UNDER THE FOREIGN ASSETS CONTROL REGULATIONS OF
THE UNITED STATES TREASURY DEPARTMENT AND THAT ANY IMPORTATION COVERED BY THIS
APPLICATION CONFORMS IN EVERY RESPECT WITH ALL EXISTING UNITED STATES
GOVERNMENT REGULATIONS AND EXECUTIVE ORDERS.
Very Truly Yours,
___________________________________ ________________________________ (SEAL)
(Corporation or Firm) (Individual)
By ___________________________________ ________________________________ (SEAL)
(Authorized Signature and Title) (Individual)
<PAGE> 50
EXHIBIT 1.5
FIRST AMENDED AND RESTATED
REVOLVING CREDIT NOTE
$30,000,000
Columbus, Ohio
January 4 ___, 1994
On or before February 28, 1997, for value received, the undersigned,
DRUG EMPORIUM, INC., a Delaware corporation (the "Company"), hereby promises to
pay to the order of BANK ONE, COLUMBUS, NA (the "Lender") or its assigns, as
further provided herein, the principal amount of Thirty Million Dollars
($30,000,000) or, if such principal is less, the aggregate unpaid principal
amount of all Revolving Credit Loans made by the Lender to the Company pursuant
to the Agreement referred to in Section 1 hereof, together with interest on the
unpaid principal balance from time to time outstanding hereunder until paid in
full at the rates determined and payable at the times in accordance with the
provisions of Section 1.5 of the Agreement. Both principal and interest are
payable in federal funds or other immediately available money of the United
States of America at the Main Office of the Lender, Bank One, Columbus, NA, 100
East Broad Street, Columbus, Ohio.
Section 1. AGREEMENT. This Note is the Revolving Credit Note referred
to in the First Amended and Restated Revolving Credit and Term Loan Agreement
dated as of the date hereof, between the Company and the Lender, as the same
may be amended, modified or supplemented from time to time (the "Agreement"),
which Agreement, as amended, is incorporated by reference herein. All
capitalized terms used herein shall have the same meanings as are assigned to
such terms in the Agreement. This Note is entitled to the benefits of and is
subject to the terms, conditions and provisions of the Agreement. The
Agreement, among other things, contains provisions for acceleration of the
maturity hereof upon the happening of certain stated events, and also for
repayments and reborrowings on account of the principal hereof prior to
maturity upon the terms, conditions and provisions specified therein. The
obligations of the Company hereunder are secured as set forth in the Agreement.
Section 2. ENDORSEMENTS. All Revolving Credit Loans made by the Lender
to the Company pursuant to the Agreement and all payments made on account of
principal hereof shall be recorded by the Lender and, prior to any transfer
hereof, endorsed on the schedule attached hereto which is a part of this Note;
PROVIDED, HOWEVER, that the failure of the Lender or any holder to make such
notation shall not limit or otherwise affect the obligations of the Company
hereunder or under the Agreement.
Section 3. SETOFFS. Upon the occurrence of any Event of Default, the
holder hereof shall have the right to setoff against all obligations of the
Company hereunder or under any of the Loan Documents, whether matured or
unmatured, all amounts owing to the Company or any Wholly Owned Subsidiary by
the holder hereof or any Affiliate of the holder hereof, whether or not then
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due and payable, and all other funds or property of the Company or any Wholly
Owned Subsidiary on deposit with or otherwise held by or in the custody of the
holder hereof or any Affiliate of the holder hereof for the beneficial account
of the Company or any Wholly Owned Subsidiary.
Section 4. CONFESSION OF JUDGMENT. The Company hereby authorizes any
attorney at law to appear for the Company in an action on this Note, at any
time after the same becomes due, as herein provided, in any court of record in
or of the State of Ohio, or elsewhere, to waive the issuing and service of
process against the Company and to confess judgment in favor of the legal
holder of this Note against the Company for the amount that may be due, with
interest at the rate herein mentioned and cost of suit, and to waive and
release all errors in said proceedings and judgment, and all petitions in
error, and right of appeal from the judgment rendered.
DRUG EMPORIUM, INC.
By ____________________________________
David L. Kriegel, Chief Executive
Officer
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
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<PAGE> 52
SCHEDULE TO REVOLVING CREDIT NOTE
<TABLE>
<S> <C> <C> <C> <C>
DATE AMOUNT OF AMOUNT OF UNPAID NOTATION MADE
LOAN PRINCIPAL PRINCIPAL BY
PAYMENTS BALANCE
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
________________________________________________________________
</TABLE>
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<PAGE> 53
EXHIBIT 2.2
TERM NOTE
$15,000,000
Columbus, Ohio
January 4, 1994
On or before February 28, 1999, for value received, the undersigned,
DRUG EMPORIUM, INC., a Delaware corporation (the "Company"), hereby promises to
pay to the order of BANK ONE, COLUMBUS, NA (the "Lender") or its assigns, as
further provided herein, the principal amount of Fifteen Million Dollars
($15,000,000), together with interest on the unpaid principal balance from time
to time outstanding hereunder until paid in full at the rates determined and
payable at the times in accordance with the provisions of Section 2.2 of the
Agreement, as defined in Section 1, below. Both principal and interest are
payable in federal funds or other immediately available money of the United
States of America at the Main Office of the Lender, Bank One, Columbus, NA, 100
East Broad Street, Columbus, Ohio.
Section 1. AGREEMENT. This Note is the Term Note referred to in the
First Amended and Restated Revolving Credit and Term Loan Agreement, dated as
of the date hereof, between the Company and the Lender, as the same may be
amended, modified or supplemented from time to time (the "Agreement"), which
Agreement, as amended, is incorporated by reference herein. All capitalized
terms used herein shall have the same meanings as are assigned to such terms in
the Agreement. This Note is entitled to the benefits of and is subject to the
terms, conditions and provisions of the Agreement. The Agreement, among other
things, contains provisions for acceleration of the maturity hereof upon the
happening of certain stated events upon the terms, conditions and provisions
specified therein. The obligations of the Company hereunder are secured as set
forth in the Agreement.
Section 2. PAYMENTS.
2.1. INTEREST. Interest on the portion of this Note bearing
interest at the rate set forth at Section 2.2(b) of the Agreement shall be
payable in arrears on the last day of each February, May, August and November.
Interest on the portion of this Note bearing interest at the LIBO Rate shall be
payable at the maturity of the interest period selected.
2.2. PRINCIPAL. Principal payments on this Note shall be due
and payable in consecutive quarterly installments on the last day of each
February, May, August and November commencing May 31, 1994, with each of the
first 19 installments thereof equal to the amount set forth on the following
schedule and the last installment for the balance thereof:
FOR QUARTERS INCLUDED IN THE QUARTERLY PRINCIPAL
FISCAL YEARS ENDING: PAYMENT SHALL EQUAL:
February 28, 1995 $500,000
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<PAGE> 54
February 29, 1996 $750,000
February 28, 1997 $750,000
February 28, 1998 $875,000
February 28, 1999 $875,000
Section 3. PREPAYMENT. Subject to the provisions of the Agreement,
including, without limitation, Section 2.3 thereof, the principal of this Note
may be prepaid in whole at any time or in part from time to time.
Section 4. SETOFFS. Upon the occurrence of any Event of Default, the
holder hereof shall have the right to setoff against all obligations of the
Company hereunder or under any of the Loan Documents, whether matured or
unmatured, all amounts owing to the Company or any Wholly Owned Subsidiary by
the holder hereof or any Affiliate of the holder hereof, whether or not then
due and payable, and all other funds or property of the Company or any Wholly
Owned Subsidiary on deposit with or otherwise held by or in the custody of the
holder hereof or any Affiliate of the holder hereof for the beneficial account
of the Company or any Wholly Owned Subsidiary.
Section 5. CONFESSION OF JUDGMENT. The Company hereby authorizes any
attorney at law to appear for the Company in an action on this Note, at any
time after the same becomes due, as herein provided, in any court of record in
or of the State of Ohio, or elsewhere, to waive the issuing and service of
process against the Company and to confess judgment in favor of the legal
holder of this Note against the Company for the amount that may be due, with
interest at the rate herein mentioned and cost of suit, and to waive and
release all errors in said proceedings and judgment, and all petitions in
error, and right of appeal from the judgment rendered.
DRUG EMPORIUM, INC.
By _____________________________________
David L. Kriegel, Chief Executive
Officer
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR
WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH
THE AGREEMENT, OR ANY OTHER CAUSE.
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<PAGE> 55
EXHIBIT 4.1(B)
FIRST AMENDED AND RESTATED
SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED SECURITY AGREEMENT dated as of the 4th
day of January, 1994 (collectively with the exhibits attached hereto, the
"Agreement") is between DRUG EMPORIUM, INC., a Delaware corporation (the
"Company"), and BANK ONE, COLUMBUS, NA (the "Bank") under that certain First
Amended and Restated Revolving Credit and Term Loan Agreement dated of even
date herewith between the Company and the Bank (the "Loan Agreement) and amends
and restates in its entirety that certain Security Agreement dated as of
February 14, 1992 between the Company and the Bank. The parties agree as
follows:
Section 1. DEFINITIONS.
1.1. ADDITIONAL DEFINITIONS. In addition to the terms defined
elsewhere in this Agreement or the Loan Agreement, the following terms have the
following meanings:
"Account" means and includes all accounts (whether or not earned by
performance), contract rights, chattel paper, instruments, documents, general
intangibles (including, without limitation, general customer and prescription
customer lists, tax refunds, tax refund claims, patents, trademarks, trade
names, good will, blue prints and drawings relating thereto) and all other
forms of obligations owing to the Company, whether secured or unsecured,
whether now existing or hereafter created, and whether or not specifically
assigned to the Bank under this Agreement, all guarantees and other security
therefor, all merchandise returned to or repossessed by the Company, and all
rights of stoppage in transit and all other rights and remedies of an unpaid
vendor, lienor or secured party.
"Collateral" means and includes all Accounts, Inventory, all property
now or at any time hereafter in the Bank's possession (including claims and
credit balances), and all other property in which the Company at any time
grants a Lien to the Bank pursuant to the Loan Documents or otherwise, whether
now existing or hereafter acquired or arising, together with (a) all books,
records, ledger cards and other property pertaining to any of the foregoing,
and any equipment on which any such items are stored or maintained and (b) all
products and proceeds of any of the foregoing, and all insurance proceeds
related to any of the foregoing, including, without limitation, any claims
against third parties for loss or damage to or destruction of any or all of the
foregoing and any cash, negotiable instruments and other instruments of money,
chattel paper, security agreements or other documents. The term "Collateral"
shall not include furniture, fixtures or equipment but shall include computers,
modems, printers, software, and related equipment, media and data necessary to
run software owned or used by the Company to keep track of its Inventory or
Accounts.
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<PAGE> 56
"Collateral Location" means each of the locations listed on the
Collateral Locations Exhibit, attached hereto and made a part hereof, and such
other locations as may be established as such pursuant to this Agreement.
"Customer" means any Person who is obligated as an account debtor or
other obligor on, under, or in connection with, any Account.
"Default" means any Event of Default and any event, condition or
circumstance which, with the giving of notice or lapse of time, or both, may
become an Event of Default.
"Event of Default" means any of the events specified in Section 8 of the
Loan Agreement as an Event of Default, provided that any requirement for the
giving of notice or lapse of time has been satisfied in connection with such
event.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with the accounting principles reflected in the financial statements
furnished to the Bank under, and which comply with the requirements of, the
Loan Agreement.
"Inventory" means all raw materials, work in process, finished goods and
materials and supplies of any kind, nature or description which are or might be
used or consumed in the business of the Company or used in connection with the
manufacturing, packing, shipping, advertising, selling or finishing of such
goods, merchandise and other personal property, and all goods, merchandise and
other personal property wherever located, to be furnished by the Company under
any contract or contract for service or held for sale or lease, whether now
owned or hereafter acquired, and all documents of title or other documents
representing the foregoing.
"Loan Documents" means this Agreement, the Loan Agreement and all other
instruments or agreements required or contemplated hereby or thereby.
"Obligations" means (a) the obligations of the Company or any Subsidiary
to the Bank under this Agreement or any of the Loan Documents, (b) the
obligations of the Company to the Bank under any other instrument or agreement
required or contemplated hereby or thereby, (c) all costs and expenses incurred
by the Bank in the collection or the enforcement of any such obligations of the
Company, or realization upon the Collateral, including without limitation
reasonable attorneys' fees and legal expenses, (d) all future advances made by
the Bank for the maintenance, protection or preservation of, the Collateral or
any portion thereof, including without limitation advances for storage,
insurance premiums, transportation charges, and the like and (e) all other
obligations of the Company to the Bank, howsoever created, arising, or
evidenced, whether direct or indirect, absolute or contingent, or now or
hereafter existing or due or to become due.
"Requirement of Law" means, for any Person, any term, condition, or
provision of any law, rule, judgment, regulation, order, writ, injunction or
decree of any court or government, domestic or foreign and any ruling of any
arbitrator to which such Person is a party or by which such
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<PAGE> 57
Person or any of its assets or property is bound or affected or from which such
Person derives benefits, and, if such Person is a corporation, its charter
documents and bylaws.
"UCC" means Chapters 1301 through 1309 of the Ohio Revised Code as in
effect on the date of this Agreement and as the same may be supplemented or
amended from time to time hereafter.
1.2. RULES OF CONSTRUCTION. All accounting terms used in this
Agreement not otherwise specifically defined in this Agreement shall be
construed in accordance with GAAP. Any capitalized term not defined herein but
defined in the Loan Agreement shall be construed in accordance with the
definition of such term as set forth in the Loan Agreement. Any other term not
specifically defined in this Agreement or the Loan Agreement shall be construed
in accordance with the meaning for such terms under the UCC. The meaning of
any defined term used in this Agreement shall apply equally to the singular,
plural and other forms of the term defined.
Section 2. GRANT OF SECURITY INTEREST.
2.1. LIEN. As security for the full and timely payment or
performance of the Obligations in accordance with the terms thereof, the
Company agrees that the Bank shall have, and there is hereby granted to and
created in favor of the Bank, a Lien under the UCC, and otherwise in accordance
with applicable law, in and to the Collateral. The Lien created hereunder
shall be prior in interest to any other Lien affecting the Collateral. The
Lien created hereunder shall be and remain in full force and effect until all
of the Obligations shall have been paid and discharged in full and otherwise
satisfied and the Company shall no longer have any right to request any Loans
under the Loan Agreement.
2.2. COLLATERAL. As an inducement to enter into this Agreement
and the Loan Agreement, the Company is hereby granting to the Bank a security
interest in, among other assets, its Accounts and Inventory. The Company
understands that the Bank would not have entered into this Agreement or the
Loan Agreement if the Company was not granting a security interest to the Bank
in Accounts and Inventory and that the indubitable equivalent of any Lien in
favor of the Bank against Accounts and Inventory is not provided to the Bank by
the substitution therefor of a Lien against real estate or any other asset
which is not as quickly convertible into cash as Accounts or Inventory.
Section 3. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Bank that:
3.1. TITLE TO COLLATERAL. The Company has good, indefeasible
and marketable title to all the Collateral free of all Liens other than those
granted hereby, except for Liens of landlords under state statutes or Liens
permitted under the Loan Agreement. No financing or continuation statement
which names the Company as debtor has been filed in any state or other
jurisdiction except as provided for herein or as set forth on Schedule 3.1
hereto, and the Company has not agreed or consented to cause or to permit in
the future (upon the happening of a contingency or
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<PAGE> 58
otherwise) any of the Collateral, whether now owned or hereafter acquired, to
be subject to a Lien.
3.2. PERFECTION OF LIEN. The Company has taken or caused to be
taken all actions necessary to establish the Bank's Lien in the Collateral as a
valid, enforceable and perfected Lien, first and prior to all other Liens
except Liens permitted under the Loan Agreement.
3.3. BOOKS AND RECORDS; CHIEF EXECUTIVE OFFICE. All books and
records of the Company concerning the Collateral are accurate, complete and
maintained in accordance with GAAP. The Collateral Locations Exhibit correctly
sets forth the address of (a) the chief executive office, registered office and
principal place of business of the Company, (b) any plant or division of the
Company maintaining a separate principal place of business, registered office
or chief executive office, (c) all other places of business of the Company and
the location of all Collateral and (d) the name and business address of each
landlord and mortgagee with any interest in any Collateral Location. The only
original books of account and records of the Company relating to any Accounts
of the Company are, and will continue to be, kept at the offices of the Company
set forth on the Collateral Locations Exhibit opposite the name of the division
or the plant of the Company where such Accounts originated. The only locations
at which Inventory is located are set forth on the Collateral Locations Exhibit
opposite the name of the division or the plant of the Company or other location
where such Inventory is located.
3.4. ACCOUNTS. The Accounts arose out of BONA FIDE sales or
services, are collectible in the ordinary course of business and are not
disputed or subject to offset.
Section 4. AFFIRMATIVE COVENANTS. On and after the date of this
Agreement and until all of the Obligations shall have been paid and discharged
in full or otherwise satisfied and the Company shall no longer have any right
to request any Loans under the Loan Agreement:
4.1. INSURANCE. The Company shall at all times: (a) maintain
or cause to be maintained insurance upon the Collateral with responsible and
reputable insurers of such character and in such amounts as are usually
maintained by Persons engaged in a like business; (b) furnish to the Bank, upon
request, a statement of its insurance coverage, in form and detail satisfactory
to the Bank; (c) require each policy of insurance to contain a provision
whereby it cannot be canceled, amended or modified except after 30 days' prior
written notice to the Bank; (d) require each policy of insurance covering any
of the Collateral to be written or endorsed so as to make losses, if any,
payable to the Bank, in addition to the Company; and (e) require each policy of
insurance covering any of the Collateral to contain an agreement by the insurer
that any loss shall be payable to the Bank notwithstanding any act or
negligence of the Company which might otherwise result in forfeiture of said
insurance. If the Company fails to pay or cause to be paid the premium on any
such insurance, the Bank may, in its sole discretion, do so for the account of
the Company, add the cost thereof to the Obligations and be reimbursed by the
Company therefor on demand.
4.2. NOTICE OF DEFAULT. If any Default or Event of Default
occurs, the Company shall give prompt notice of such happening to the Bank.
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<PAGE> 59
4.3. INSPECTION. The Company shall permit any Person
designated by the Bank to enter, examine, audit and inspect the Collateral and
all properties, corporate books and financial records pertaining to the
Collateral, or the operation, business, affairs and financial condition of the
Company at any reasonable time and from time to time, and shall permit such
Persons to copy and make excerpts of such books and records.
4.4. SALE OF INVENTORY. Notwithstanding the security interest
in the Collateral granted hereunder, the Company shall have the right to sell,
lease or otherwise dispose of its Inventory in the ordinary course of its
business, free and clear of such security interest; but, in such event, such
security interest shall continue in the proceeds of such sale, lease or other
disposition.
4.5. COMPANY'S RIGHTS TO COLLECT ACCOUNTS. Notwithstanding the
security interest in the Accounts granted under this Agreement, the Company
shall endeavor to collect the Accounts at its own cost and expense, until such
time as the Bank shall have notified the Company, pursuant to Section 4.6, that
the Bank has revoked the Company's right to collect the Accounts.
4.6. COLLECTION OF ACCOUNTS BY THE BANK. If an Event of
Default shall have occurred, the Bank shall have the right at any time and
without affecting the liability of the Company to the Bank (a) to revoke any
right of the Company to collect its Accounts pursuant to Section 4.5 by written
notice to the Company to such effect, (b) to take over and direct collection of
the Accounts of the Company, (c) to give notice of the security interest of the
Bank in the Accounts to any or all of the Customers, (d) to give notice to the
Customers to make payment of the Accounts directly to the Bank (and, at the
request of the Bank, the Company shall indicate on all billings to Customers
that payments thereon are to be made to the Bank), and (e) to take control of
the Accounts of the Company and the Proceeds thereof, and to take possession of
all of the Company's books and records relating thereto, with full power and
authority in the name of the Bank or of the Company to enforce, collect, sue
for, receive, compromise, settle and give receipts for any and all of the
Accounts. If any Account becomes evidenced by a promissory note, trade
acceptance, chattel paper or other writing or instrument for the payment of
money, and there is at the time a Default, the Company shall, at the request of
the Bank, promptly deliver any such instrument to the Bank duly endorsed to the
order of the Bank as additional Collateral under this Agreement. It is
understood and agreed by the Company that the Bank shall have no liability
whatsoever to the Company under this Section 4.6.
4.7. ACCOUNT VERIFICATION. The Bank may at any time, without
notice to the Company, verify with any Customer the status of any Account
payable by such Customer; PROVIDED, HOWEVER, that, prior to the occurrence of
an Event of Default, no request for verification shall be made in the name of
the Bank, nor shall the Bank disclose the purpose of such request. The Company
from time to time will execute and deliver such instruments and take all such
action as the Bank may reasonably request in order to effectuate the purpose of
this Section 4.7.
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4.8. PRESERVATION AND PROTECTION OF SECURITY INTERESTS. The
Company shall faithfully preserve and protect the Bank's security interest in
the Collateral and shall, at its own cost and expense, cause such security
interest to be perfected and continue perfected so long as the Obligations or
any portion thereof are outstanding and unpaid, and for such purpose the
Company shall from time to time at the request of the Bank file or record, or
cause to be filed or recorded, such instruments, documents and notices,
including without limitation financing and continuation statements, as the Bank
may deem necessary or advisable from time to time in order to preserve, perfect
and continue perfected said security interest. The Company shall do all such
other acts and things and shall execute and deliver all such other instruments
and documents, including without limitation further security agreements,
pledges, endorsements, assignments and notices, as the Bank may deem necessary
or advisable from time to time in order to perfect and preserve the priority of
said security interest as a perfected first Lien in the Collateral prior to the
rights of any other secured party or lien creditor. The Bank, and its
officers, employees and authorized agents, or any of them, are hereby
irrevocably appointed the attorneys-in-fact of the Company to do all acts and
things which the Bank may deem necessary or advisable to preserve, perfect and
continue perfected the Bank's security interest in the Collateral, including
without limitation the signing of financing, continuation or other similar
statements and notices on behalf of the Company.
4.9. MAINTENANCE OF COLLATERAL. The Company shall (a) from
time to time replace and repair all parts of the Collateral which are or become
worn, broken, damaged, or deteriorated, maintain the Collateral now or
hereafter owned or acquired by it, and every part thereof, in good working
order and repair and pay the costs of such repairs, replacements, and
maintenance as well as any costs of storing the same; and (b) pay and discharge
all taxes, assessments, fees, and other governmental charges or levies imposed
upon it or any of the Collateral as well as all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords and other similar Persons for
labor, materials, supplies and rentals which, if unpaid, might by law become a
Lien on the Collateral or any part thereof. If the Company fails to make any
payments it is required to make under this Section 4.9, the Bank may do so for
the account of the Company and may add the amount of such payments to the
Obligations.
4.10. INVENTORY. The Company shall maintain the Inventory in
good condition, salable at the Company's normal prices in the ordinary course
of its business.
4.11. NEW STORES. Prior to the opening of any retail store not
presently operated by the Company or any Subsidiary, the Company shall give
written notice to the Bank and shall perform, and cause each of the
Subsidiaries to perform, such acts as may be necessary or advisable to grant to
the Bank a perfected Lien, subject to no other Liens other than Liens permitted
under the Loan Agreement, in the Collateral located or to be located in such
new retail store.
4.12. ANNUAL CERTIFICATE. The Company shall furnish to the
Bank within 45 days after the close of each fiscal year, a certificate of the
chief financial officer or controller of the Company certifying that he has
reviewed the locations where the Inventory is located and that appropriate
filings have been made for the Company and each Subsidiary so that the Bank
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continues to have a perfected Lien hereunder, subject to no other Lien other
than Liens permitted under the Loan Agreement.
Section 5. NEGATIVE COVENANTS. On and after the date of this Agreement
and until all of the Obligations shall have been paid and discharged in full or
otherwise satisfied and the Company shall no longer have the right to request
Loans under the Loan Agreement.
5.1. LIENS. The Company shall not create, assume, incur or
suffer to exist or agree or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) to be created, assumed, incurred or to
exist any Lien upon any of the Collateral except with the prior written consent
of the Bank to each such Lien or Lien permitted under the Loan Agreement.
5.2. NEGATIVE PLEDGE. Except as permitted by the Loan
Agreement, it shall not, without the prior written consent of the Bank, (a)
sell, assign, or transfer any of its right, title and interest in the
Collateral, except the Company may sell Inventory in the ordinary course of
business pursuant to Section 4.4, (b) permit any levy or attachment to be made
against any of the Collateral, or (c) file any financing statement with respect
to any of the Collateral, except financing statements in favor of the Bank.
5.3. CORPORATE NAME. The Company shall not change its
corporate name unless, before the effective date of such change, the Company
delivers to the Bank such financing statements executed by the Company that the
Bank may request to reflect such name change, together with such other
documents and instruments that the Bank may request in connection with such
name change. The Company shall not hold its right, title or interest in, nor
maintain its records relating to, any Collateral in any name other than its
corporate name.
5.4. CHANGE OF LOCATIONS. The Company shall not change any of
the Collateral Locations unless, before the effective date of such change, (a)
the Company shall have given to the Bank 10 days prior written notice of its
intention to so change any such Collateral Location, clearly describing each
such new Collateral Location and providing any other information in connection
therewith that the Bank may reasonably request and (b) with respect to each
such new Collateral Location, it shall have taken such action, satisfactory to
the Bank (including, without limitation, the execution and delivery to the Bank
of such financing statements executed by the Company that the Bank may request
to reflect such change in Collateral Location together with such other
documents and instruments that the Bank may request in connection with such
change), as may be necessary to maintain the security interest of the Bank in
the Collateral at all times fully perfected and in full force and effect.
Section 6. APPLICATION OF MONEYS.
6.1. PAYMENTS. Except as otherwise provided herein, all monies
which the Bank shall receive either upon realization of the Lien granted
hereunder or otherwise may be applied by or at the direction of the Bank as
follows:
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6.1.1. First, to the payment or reimbursement of all
reasonable advances, expenses and disbursements of the Bank (including, without
limitation, the fees and disbursements of its counsel and agents) incurred in
connection with the administration and enforcement of, or the preservation of
any rights under, this Agreement or the Loan Documents or in the collection of
the Obligations.
6.1.2. Second, to the payment of the then existing
Obligations, matured and unmatured, in such order and in such manner as the
Bank may elect.
6.1.3. Third, after discharge and repayment of all of
the Obligations, any remaining funds shall be paid by the Bank to the Company.
6.2. RESERVED RIGHTS. The Bank shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations. To the extent that the Company makes a payment or
payments to the Bank or the Bank receives any payment or proceeds of the
Collateral for the Company's benefit, which payment(s) or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Obligations or the part thereof intended to be satisfied shall be revived and
continue in full force and effect as if such payment or proceeds had not been
received by the Bank.
Section 7. EVENTS OF DEFAULT AND REMEDIES.
7.1. RIGHTS ON EVENT OF DEFAULT.
7.1.1. Upon the occurrence of any Event of Default,
the Bank shall have the right, upon notice to the Company, (except that upon
the occurrence of an Event of Default under Section 8(h) or 8(i) of the Loan
Agreement, no notice shall be required) to declare the Obligations immediately
due and payable and may, without demand of performance or other demand,
advertisement or notice of any kind to or upon the Company or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived), forthwith exercise such rights and remedies as are provided
by the UCC and such other rights and remedies in respect thereof as it may have
at law or in equity or under any of the Loan Documents, including without
limitation the right to enter any premises where any of the Collateral is
located and take possession of the same without demand or notice and without
prior judicial hearing or legal proceedings, which the Company hereby expressly
waives, and to sell all or any portion of the Collateral at public or private
sale, without prior notice to the Company except as otherwise required by law
(and, if notice is required by law, after 10 days prior written notice), at
such place or places and at such time or times and in such manner and upon such
terms, whether for cash or on credit, as the Bank in its sole discretion may
determine. Upon any such sale of any of the Collateral, the Bank may purchase
all or any of the Collateral being sold, free from any equity or right of
redemption. The Bank shall apply the proceeds of any such sale as provided in
Section 6.
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If such proceeds are insufficient to pay the amounts required by law, the
Company shall be liable for any deficiency in the amount so realized from the
Collateral.
7.1.2. The Company shall promptly pay or reimburse all
costs and expenses of the Bank, including, but not limited to, attorneys' fees,
incurred with respect to the enforcement or preservation of any of the Bank's
rights hereunder.
7.1.3. Except as otherwise provided in this Agreement,
the Company hereby waives presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this
Agreement or any Collateral.
7.1.4. The Bank shall not incur any liability as a
result of the sale of any Collateral, or any part thereof, at any private sale
conducted in a commercially reasonable manner, in compliance with any
applicable law. The Company hereby waives any claims against the Bank arising
by reason of the fact that the price at which any of the Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Bank accepts the first offer received and does not
offer any Collateral to more than one offeree, provided that the Bank has acted
in a commercially reasonable manner in conducting such private sale.
7.1.5. Upon any sale of all or any part of any
Collateral made either under the power of sale given hereunder or under
judgment or decree in any judicial proceedings for foreclosure or otherwise for
the enforcement of this Agreement, the Bank is hereby irrevocably appointed the
true and lawful attorney of the Company, in its name and stead, to make all
necessary deeds, bills of sale and instruments of assignment, and transfer or
conveyance of the property thus sold. For that purpose, the Bank may execute
all such documents and instruments. This power of attorney shall be deemed
coupled with an interest, and the Company hereby ratifies and confirms all that
its said attorney, or its substitute or substitutes, shall lawfully do by
virtue of this Agreement. If so requested by the Bank or by any purchaser of
the Collateral or a portion thereof, the Company shall further ratify and
confirm any such sale or transfer by executing and delivering to the Bank or to
such purchaser or purchasers at the Company's expense all reasonable and proper
deeds, bills of sale, instruments of assignment, conveyance or transfer and
releases as may be designated in any such request.
7.1.6. When authorized in accordance with this Section
7.1, the Bank may proceed to realize upon the security interest in the
Collateral against any one or more of the types of Collateral, at any one time
or from time to time, as the Bank shall determine in its sole discretion,
subject to the provisions of this Section 7.1. The Bank shall not be required
to realize upon any one type of Collateral before proceeding to realize upon
the security interest granted in any other type of Collateral. The proceeds of
any sale of, or other realization upon, or other receipt from, all or any
Collateral shall be applied by the Bank in the manner set forth in Section 6
hereof.
7.2. REMEDIES CUMULATIVE; DELAY OR OMISSION NOT A WAIVER. To
the extent permitted by law and not otherwise provided to the contrary under
this Agreement, no remedy
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given hereunder to the Bank shall be exclusive of any other remedy, and every
such remedy shall be cumulative and in addition to every other remedy given
hereunder or now or hereafter given by statute, law, equity or otherwise to the
extent not contrary to or inconsistent with the terms of this Agreement. The
Bank may, in its absolute discretion, exercise all or any of the powers, rights
or remedies given to it hereunder or which may be now or hereafter given by
statute, law or equity or otherwise. No course of dealing between the Company
and the Bank or any delay or omission of the Bank to exercise any right, remedy
or power accruing upon any Default or Event of Default shall impair any right,
remedy or power or shall be construed to be a waiver of any such Default or
Event of Default or of any right of the Bank or acquiescence therein, and every
right, remedy and power given by this Agreement to the Bank may, to the extent
permitted by law, be exercised from time to time and as often as may be deemed
expedient by the Bank.
7.3. ASSEMBLING OF COLLATERAL. In addition, upon the
occurrence of any Default, the Company, upon demand by the Bank, shall promptly
assemble the Collateral, or any part thereof designated by the Bank, and make
it available to the Bank at a place to be designated by the Bank which shall be
reasonably convenient to the Bank and the Company. The right of the Bank under
this Section 7.3 to have the Collateral assembled and made available to it is
of the essence of this Agreement and the Bank may, at its election, enforce
such right by an action for specific performance.
7.4. NO REQUIREMENT TO MARSHAL COLLATERAL. The Company, to the
extent that it has any right, title or interest in any of the Collateral,
waives and releases any right to require the Bank to collect any of the
Obligations from any portion of the Collateral under any theory of marshaling
of assets, or otherwise, and specifically authorizes the Bank to apply any of
its Collateral against any of the Obligations in any manner that the Bank may
determine.
Section 8. TERMINATION OF AGREEMENT. Upon the last to occur of (a)
satisfaction of all obligations of the Company under this Agreement, (b)
payment of all of the Obligations, (c) termination of the Commitment, (d)
termination of all outstanding Letters of Credit or (e) payment in full of the
Notes, this Agreement and the estate and rights hereby granted by the Company
in the Collateral shall automatically cease, terminate and be void
simultaneously therewith. Any of the Collateral remaining at the time of such
termination shall be fully released and discharged from the Lien hereof and
delivered to the Company by the Bank, and this Agreement shall thereupon be
released by the Bank, all at the expense of the Company.
Section 9. MISCELLANEOUS.
9.1. EXPENSES. All fees, costs or expenses, including
reasonable fees and expenses of outside legal counsel, incurred by the Bank in
connection with either the preparation, administration, amendment, modification
or enforcement of this Agreement or any other instruments, documents, or
agreements to be delivered pursuant thereto (including, without limitation, (a)
all expenses incurred in obtaining all necessary judicial and other approvals
of the transactions contemplated hereby, (b) all expenses incurred in
conducting any examinations or appraisals which the Bank, in its sole
discretion, deems necessary or appropriate, (c) all expenses
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incurred in assigning or otherwise transferring control of post office boxes to
the Bank or (d) out-of-pocket collateral administration expenses) shall be paid
by the Company on demand.
9.2. TERM OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
and all covenants, agreements, representations and warranties made herein and
in the certificates delivered pursuant hereto shall survive the execution and
delivery hereof and shall continue in full force and effect until the
termination of this Agreement as set forth in Section 8. Whenever in this
Agreement either of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
terms and provisions of this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective permitted successors and
assigns. The Company may not assign its rights or obligations hereunder
without the prior consent of the Bank. The Bank may assign all or any of its
rights or obligations hereunder without the prior consent of the Company.
9.3. NOTICES. Notices, demands and communications shall be
deemed to have been properly given to the Company only when faxed to (614)
548-6541 or when made in writing and deposited in the United States mail,
registered or certified, postage prepaid, and addressed to the Company at 155
Hidden Ravines Drive, Powell, Ohio 43065, Attention: Chief Executive Officer,
whether or not the same are actually received by the Company. Any
communication to the Bank shall be deemed properly given if faxed to (614)
248-5518 or similarly mailed and addressed to the Bank at Commercial Loan
Department, 100 East Broad Street, Columbus, Ohio 43271-0121.
9.4. NO IMPLIED WAIVERS. No delay on the part of the Bank in
exercising any right, power or privilege granted hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof. The rights
and remedies herein expressly specified are cumulative and not exclusive of any
other rights and remedies which the Bank would otherwise have.
9.5. AMENDMENTS, MODIFICATIONS, ETC. No amendment,
modification, termination, 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 Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No notice or demand on the Company in
any case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
9.6. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of Ohio, and for all purposes shall
be construed in accordance with the laws of such state.
9.7. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
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9.8. COUNTERPARTS. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto were upon the
same instrument. Complete sets of counterparts shall be lodged with the
Company and the Bank.
9.9. MERGER. This Agreement, the Notes, the Loan Agreement and
the other Loan Documents reflect the entire understanding of the parties with
respect to their subject matter and supersede all prior agreements or
understandings with respect thereto in their entirety.
9.10. HEADINGS. Headings of the sections of this Agreement are
for convenience only and shall not affect the construction of this Agreement.
9.11. EFFECTIVE DATE. This Agreement shall become effective
upon the execution of a counterpart hereof by each of the parties.
9.12. CONFESSION OF JUDGMENT. The Company hereby authorizes
any attorney at law to appear for the Company, in an action on this Agreement,
at any time after any obligation hereunder becomes due, as herein provided, in
any court of record in or of the State of Ohio, or elsewhere, to waive the
issuing and service of process against the Company and to confess judgment in
favor of the Bank or the party entitled to the benefits of this Agreement
against the Company for the amount that may be due, with interest at the
default rate provided for in the Loan Documents and costs of suit, and to waive
and release all errors in said proceedings and judgment, and all petitions in
error, and right of appeal from the judgment rendered.
The parties hereto have caused this Agreement to be duly executed by
their respective duly authorized officers as of the day and year first above
written.
BANK ONE, COLUMBUS, NA
By______________________________________
Thomas D. Igoe
Senior Vice President
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON
HIS PART TO COMPLY WITH THIS AGREEMENT, OR ANY OTHER CAUSE.
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DRUG EMPORIUM, INC.
By______________________________________
David L. Kriegel, Chief Executive Officer
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COLLATERAL LOCATIONS
EXHIBIT
[**To be prepared by the Company as
anticipated by Section 3.3**]
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EXHIBIT 4.1(C)
FIRST AMENDED AND RESTATED
PLEDGE AGREEMENT
THIS FIRST AMENDED AND RESTATED PLEDGE AGREEMENT dated as of the 4th day
of January, 1994 (the "Agreement") is between DRUG EMPORIUM, INC., a Delaware
corporation (the "Company"), and BANK ONE, COLUMBUS, NA, (the "Bank") under
that certain First Amended and Restated Revolving Credit and Term Loan
Agreement dated of even date herewith between the Company and the Bank (the
"Loan Agreement"), and amends and restates in its entirety that certain Pledge
Agreement dated as of February 14, 1992 between the Company and the Bank. The
parties agree as follows:
Section 1. DEFINITIONS.
1.1. ADDITIONAL DEFINITIONS. In addition to the terms defined
elsewhere in this Agreement or the Loan Agreement, the following terms have the
following meanings:
"Collateral" is defined in Section 2.2.
"Collateral Proceeds" means all proceeds derived from or with
respect to the Collateral including, but not limited to, all securities
hereafter delivered or deliverable to the Bank in substitution for or in
addition to any of such Collateral and all certificates and instruments
evidencing such securities and all cash, securities and other property at any
time and from time to time received, receivable or otherwise distributed in
respect to or in exchange for any such Collateral.
"Default" means the occurrence of a condition or event which
with notice or lapse of time or both would constitute an Event of Default.
"Eligible Collateral" means marketable certificated securities
reviewed and approved by the Bank in advance in its reasonable discretion,
including, but not limited to, the Initial Collateral, and includes the
securities and the certificates or instruments representing the securities.
"Event of Default" means any of the events identified in Section
8 of the Loan Agreement as an Event of Default, provided that any requirement
for the giving of notice or lapse of time has been satisfied in connection with
such event.
"Initial Collateral" means the Collateral delivered by the
Company to the Bank prior to or contemporaneously with the execution and
delivery hereof and initially made subject to the Lien of this Agreement as
more fully described on Exhibit A.
"Lien of this Agreement" or "Lien hereof" means the lien created
by this Agreement or by any prior, concurrent or subsequent conveyance to the
Bank (whether made by the
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Company or any other Person) or otherwise created upon any property held by the
Bank to secure payment of the Obligations and/or performance of the Company's
other obligations under the Loan Documents.
"Loan Documents" means this Agreement, the Loan Agreement and
all other instruments or agreements required or contemplated hereby or thereby.
"Obligations" means (a) the obligations of the Company or any
Subsidiary to the Bank under this Agreement or any of the Loan Documents, (b)
the obligations of the Company to the Bank under any other instrument or
agreement required or contemplated hereby or thereby, (c) all costs and
expenses incurred by the Bank in the collection or the enforcement of any such
obligations of the Company, or realization upon the Collateral, including,
without limitation, reasonable attorneys' fees and legal expenses, (d) all
future advances made by the Bank for the maintenance, protection or
preservation of, the Collateral or any portion thereof, including, without
limitation, advances for storage, insurance premiums, transportation charges,
and the like and (e) all other obligations of the Company to the Bank,
howsoever created, arising, or evidenced, whether direct or indirect, absolute
or contingent, or now or hereafter existing or due or to become due.
"UCC" means Chapters 1301 through 1309 of the Ohio Revised Code
as in effect on the date of this Agreement and as the same may be supplemented
or amended from time to time hereafter.
1.2. RULES OF CONSTRUCTION. All accounting terms used in
this Agreement not otherwise specifically defined in this Agreement shall be
construed in accordance with generally accepted accounting principles applied
on a basis consistent with the accounting principles reflected in the financial
statements furnished to the Bank under, and which comply with the requirements
of, the Loan Agreement. Any capitalized term not defined herein but defined in
the Loan Agreement shall be construed in accordance with the definition of such
term as set forth in the Loan Agreement. Any other term not specifically
defined in this Agreement or the Loan Agreement shall be construed in
accordance with the meaning for such terms under the UCC. The meaning of any
defined term used in this Agreement shall apply equally to the singular, plural
and other forms of the term defined.
Section 2. DELIVERY AND PLEDGE OF COLLATERAL.
2.1. DELIVERY OF COLLATERAL.
2.1.1. Prior to or contemporaneously with the
execution and delivery hereof, the Company is delivering the Initial Collateral
to the Bank. Any and all Collateral delivered to the Bank shall meet the
applicable requirements set forth in Section 2.1.2 and, until the termination
of this Agreement as provided in Section 8 hereof, shall be pledged to and held
by the Bank for the purposes set forth in Section 2.2 hereof.
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2.1.2. The Company shall effect delivery, with respect
to each item of Eligible Collateral which is to be delivered to the Bank
pursuant hereto, by delivery of stock certificates in suitable form duly
endorsed in blank or having attached thereto a legal assignment, stock power or
bond power in a form satisfactory to the Bank, with signature guarantees
satisfactory to the Bank.
2.1.3. Concurrently with each delivery of Collateral
to the Bank pursuant to this Agreement (including, but not limited to, Initial
Collateral) the Company shall deliver to the Bank a certificate of the Company
dated the date of such delivery (a) identifying the items of Collateral being
delivered and (b) certifying that the representations and warranties of the
Company set forth herein are true and correct with respect to such items of
Collateral on such date.
2.2. PLEDGE OF COLLATERAL. As security for the full
and timely payment or performance of the Obligations in accordance with the
terms thereof, the Company, by these presents, does hereby grant and pledge
unto the Bank, and its successors and assigns, all of the Company's right,
title and interest in and to the following property (the "Collateral"):
2.2.1. The Initial Collateral and such other Eligible
Collateral as shall hereafter be actually delivered by the Company to the Bank
in substitution for or in addition to the Initial Collateral pursuant to the
terms of this Agreement;
2.2.2. The Collateral Proceeds;
2.2.3. Any other property and, to the extent provided
in this Agreement, the proceeds thereof that may, from time to time hereafter,
be subject to the Lien of this Agreement; and
2.2.4. All powers and appurtenant rights of the
Company in the property listed in Sections 2.2.1 through 2.2.3 above.
Section 3. COLLATERAL MAINTENANCE.
3.1. HOLDING OF COLLATERAL. Prior to the occurrence of any
Event of Default, all Collateral shall be held by the Bank in the name of the
Company endorsed or signed in blank or in favor of the Bank. After the
occurrence of any Event of Default, any or all of the Collateral may be
registered in the name of the Bank or any nominee of the Bank. The Bank may
deliver any of the Collateral to the issuers thereof for the purpose of making
denominational exchanges or registrations or transfers or for such other
purpose in furtherance and pursuant to the provisions of this Agreement as the
Bank may deem advisable. The Company will deliver promptly (but not later than
three Banking Days after receipt of a written request from the Bank) to the
Bank such other documents and certificates as the Bank may reasonably request
in connection with subjecting any Collateral and Collateral Proceeds to the
Lien of this Agreement.
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3.2. VOTING RIGHTS. Prior to the occurrence of any Event of
Default, the Company shall have the right to vote and give consents with
respect to the Collateral, to consent to, ratify action taken at, or waive
notice of, any meeting with respect to the Collateral and to exercise all other
stockholders' rights and privileges with respect to the Collateral with the
same force and effect as if the Collateral was not subject to this Agreement;
PROVIDED, HOWEVER, that no vote shall be cast nor shall any consent, waiver or
ratification be given or action taken which would be inconsistent with any of
the provisions of this Agreement or would cause, or approve any action that
would cause, the occurrence of a Default or Event of Default. After the
occurrence of any Event of Default, the Bank shall have all voting rights and
all other stockholders' rights and privileges with respect to the Collateral
with the same force and effect as if it was the absolute owner and record
holder thereof. The Company shall execute and deliver to the Bank all such
proxies, powers of attorney and other instruments as the Bank may request for
the purpose of enabling it to exercise its rights under this Section 3.2.
3.3. PAYMENTS ON COLLATERAL. Prior to the occurrence of any
Event of Default, and subject to Section 3.4 hereof, all payments on or with
respect to any Collateral shall be made to the Company. After the occurrence
of an Event of Default, the Bank shall have the right to take or direct all
actions which it deems necessary, desirable or appropriate to cause all
payments on or with respect to any Collateral to be made directly to the Bank,
and the Bank shall hold such payments as Collateral Proceeds or shall apply
such payments as provided in Section 6 hereof. If the Company receives any
payment on or with respect to any Collateral after the occurrence of an Event
of Default, the Company shall hold such payment in trust for the benefit of the
Bank and shall promptly remit such payment to the Bank. Upon waiver of an
Event of Default, the Bank shall, within three Banking Days after any such cure
or waiver, pay over to the Company any and all payments on the Collateral
collected and held by the Bank (other than any such payment theretofore applied
by the Bank as provided in Section 6 hereof) and so long as no other Event of
Default has occurred, the Company shall thereafter be entitled to receive
directly payments on or with respect to the Collateral.
3.4. STOCK DIVIDENDS; DISTRIBUTIONS. Notwithstanding the
provisions of Section 3.3 hereof, the following items shall forthwith be
delivered to the Bank, accompanied by proper stock powers, bond powers and/or
instruments of assignment duly executed by the Company, to be held as
Collateral subject to the terms of this Agreement.
3.4.1. Any and all dividends and interest on or with
respect to the Collateral paid or payable by delivery of stock or otherwise
paid or payable other than in cash;
3.4.2. Any and all other distributions made or payable
on or with respect to the Collateral, whether resulting from a subdivision,
combination or reclassification of the securities of the issuer thereof or
received in exchange for Collateral, or any part thereof, or as a result of any
merger, consolidation, acquisition or other exchange of assets to which such
issuer may be a party or otherwise; and
3.4.3. Any and all property (other than dividends and
interest) received in payment of or in redemption of or in exchange for any
Collateral.
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All such items received by the Company shall be held by it in trust for the
benefit of the Bank until delivered to the Bank.
Section 4. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to the Bank that:
4.1. TITLE TO COLLATERAL. The Company is, or on the date of
delivery of the Collateral will be, the sole owner, of record and beneficially,
of the Initial Collateral and all other Eligible Collateral delivered pursuant
hereto. The Company has, or will have at the date of such delivery, good and
marketable title to each item constituting Collateral, free of any mortgage,
pledge, security interest, lien, charge or encumbrance (other than the Lien of
this Agreement). No Person has, or will have at the date of such delivery, any
rights to purchase or acquire any of the Collateral. Exhibit A correctly sets
forth the percentage of the issued and outstanding capital stock of the
applicable issuer eligible to vote for election of directors which each item of
Initial Collateral represents.
4.2. PERFECTION OF LIEN. The Company has taken with respect to
the Initial Collateral, or will have taken at the date of delivery of all of
the Eligible Collateral delivered pursuant hereto, all actions necessary so
that the Bank shall have a valid first and prior perfected security interest in
and to, and a general first lien upon, such Collateral subject to no other lien
or encumbrance.
4.3. CONSENTS OR GOVERNMENTAL APPROVALS. No consents or
approvals of any Person are required for the assignment and transfer by the
Company of possession of any of the Collateral to the Bank hereunder or, except
as set forth herein, the subsequent sale or transfer of such Collateral by the
Bank.
4.4. STATUS OF COLLATERAL. Each share of the Initial
Collateral is, and each share of Eligible Collateral delivered pursuant hereto
will be, validly issued, fully paid and non-assessable and, to the best of the
Company's knowledge and belief, transferable on the books and records of the
issuer in its present form without restriction, except as transferability may
now or in the future be restricted by operation of state "blue sky" laws or
federal securities laws.
Section 5. COVENANTS.
5.1. WARRANTY OF TITLE AND AUTHORITY TO PLEDGE. The Company
warrants and agrees that all the Collateral now or hereafter subject to the
Lien of this Agreement is or will be, as the case may be, owned by the Company,
of record and beneficially, and pledged by it hereunder free and clear of any
mortgage, pledge, security interest, lien, charge or encumbrance, except the
Lien of this Agreement, and that it has and will have full power and lawful
authority to pledge, assign, transfer and deliver such Collateral in the manner
and form described or to cause such Collateral to be so pledged, assigned,
transferred and delivered. The Company shall not create, incur or suffer to
exist any mortgage, pledge, security interest, lien, charge or encumbrance upon
the Collateral other than the Lien of this Agreement. The Company hereby does,
and until the
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Collateral is reassigned to the Company will, warrant and defend the title of
the Bank to the Collateral, whether now or hereafter pledged or delivered by
the Company, against the claims and demands of all Persons.
5.2. PROTECTION OF TITLE; PAYMENT OF TAXES, LIENS AND OTHER
ITEMS. The Company shall:
5.2.1. Duly and promptly pay and discharge, or cause
to be paid and discharged, before they become delinquent, all taxes,
assessments, governmental and other charges lawfully levied, assessed or
imposed upon or against any of the Collateral, including the income or profits
therefrom and the interest of the Bank in such Collateral;
5.2.2. Duly observe and conform in all material
respects to all valid requirements of any governmental authority imposed upon
the Company relative to any of the Collateral, and all covenants, terms and
conditions under or upon which any part thereof is held; and
5.2.3. Cause to be paid and discharged all lawful
claims (including, without limitation, income taxes) which, if unpaid, might
become a lien or encumbrance upon the Collateral.
5.3. PRESERVATION AND PROTECTION OF SECURITY INTERESTS. The
Company shall faithfully preserve and protect the Bank's security interest in
the Collateral and shall, at its own cost and expense, cause such security
interest to be perfected and continue perfected so long as the Obligations or
any portion thereof are outstanding and unpaid, and for such purpose the
Company shall from time to time at the request of the Bank file or record, or
cause to be filed or recorded, such instruments, documents and notices,
including without limitation financing and continuation statements, as the Bank
may deem necessary or advisable from time to time in order to preserve, perfect
and continue perfected said security interest. The Company shall do all such
other acts and things and shall execute and deliver all such other instruments
and documents, including without limitation further security agreements,
pledges, endorsements, assignments and notices, as the Bank may deem necessary
or advisable from time to time in order to perfect and preserve the priority of
said security interest as a perfected first lien in the Collateral prior to the
rights of any other secured party or lien creditor. The Bank, and its
officers, employees and authorized agents, or any of them, are hereby
irrevocably appointed the attorneys-in-fact of the Company to do all acts and
things which the Bank may deem necessary or advisable to preserve, perfect and
continue perfected the Bank's security interest in the Collateral, including
without limitation the signing of financing, continuation or other similar
statements and notices on behalf of the Company.
5.4. ADVANCES BY BANK. If the Company shall fail to perform
any of its covenants contained in this Agreement, the Bank may, but shall not
be obligated to, make advances to perform the same on behalf of the Company,
and the Company will repay upon demand all sums so advanced, with interest from
the date of such advance until payment in full at the default rate of interest
payable under the Loan Documents. All sums so advanced, with interest as
aforesaid,
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shall be secured by this Agreement. No such advance shall be deemed to relieve
the Company from any Default or Event of Default hereunder.
5.5. NOTICE OF DEFAULT. If any Default occurs, the Company
shall give immediate notice of such happening to the Bank.
Section 6. APPLICATION OF MONIES.
6.1. PAYMENTS. Except as otherwise provided herein, all monies
which the Bank shall receive upon realization of the Lien of this Agreement
hereunder or otherwise may be applied by or at the direction of the Bank as
follows:
6.1.1. First, to the payment or reimbursement of all
reasonable advances, expenses and disbursements of the Bank (including, without
limitation, the fees and disbursements of its counsel and agents) incurred in
connection with the administration and enforcement of, or the preservation of
any rights under, this Agreement or the Loan Documents or in the collection of
the Obligations.
6.1.2. Second, to the payment of the then existing
Obligations, matured and unmatured, in such order and in such manner as the
Bank may elect.
6.1.3. Third, after discharge and repayment of all of
the Obligations, any remaining funds shall be paid by the Bank to the Company.
6.2. RESERVED RIGHTS. The Bank shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations. To the extent that the Company makes a payment or
payments to the Bank or the Bank receives any payment or proceeds of the
Collateral for the Company's benefit, which payment(s) or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Obligations or the part thereof intended to be satisfied shall be revived and
continue in full force and effect as if such payment or proceeds had not been
received by the Bank.
Section 7. REMEDIES UPON EVENT OF DEFAULT.
7.1. REMEDIES.
7.1.1. Upon the occurrence of any Event of Default,
the Bank shall have the right, upon notice to the Company, (except that upon
the occurrence of an Event of Default under Section 8(h) or 7(i) of the Loan
Agreement, no notice shall be required) to declare the Obligations immediately
due and payable and may, without demand of performance or other demand,
advertisement or notice of any kind to or upon the Company or any other Person
(all and each of which demands, advertisements and/or notices are hereby
expressly waived), forthwith collect,
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receive, appropriate and realize upon the Collateral, or any part thereof,
and/or forthwith sell, assign, give an option or options to purchase, contract
to sell or otherwise dispose of and deliver said Collateral, or any part
thereof, in one or more parcels at public or private sale or sales, at any
exchange, broker's board or any of the Bank's offices or elsewhere upon such
terms and conditions as it may deem advisable and at such prices as it may deem
best, for cash or on credit or for future delivery without assumption of any
credit risk, with the right to the Bank upon any such sale or sales, public or
private, to purchase the whole or any part of said Collateral so sold, free of
any right or equity of redemption in the Company, which right or equity is (to
the extent permitted by applicable law) hereby expressly waived and released.
To the extent permitted by applicable law, the Company waives all claims,
damages and demands against the Bank arising out of the retention or sale of
the Collateral. In addition to the rights and remedies granted to it in this
Agreement and in any other instrument or agreement securing, evidencing or
relating to any of the Obligations, the Bank shall have all the rights and
remedies of a secured party under the UCC.
7.1.2. The Company recognizes that, by reason of
certain prohibitions contained in the Securities Act of 1933, as amended, and
applicable state securities laws, the Bank may be compelled, with respect to
any sale of all or any part of the Collateral, to limit purchasers to those who
will agree, among other things, to acquire the Collateral for their own
account, for investment and not with a view to the distribution or resale
thereof. The Company acknowledges that any such private sale may be at prices
and on terms less favorable to the Bank than those obtainable through a public
sale without such restrictions, and, notwithstanding such circumstances, agrees
that any such private sale shall be deemed to have been made in a commercially
reasonable manner and that the Bank shall have no obligation to engage in
public sales and no obligation to delay the sale of any Collateral for the
period of time necessary to permit the respective issuer thereof to register it
for public sale.
7.1.3. The Company shall promptly pay or reimburse all
costs and expenses of the Bank, including, but not limited to, attorneys' fees,
incurred with respect to the enforcement or preservation of any of the Bank's
rights hereunder.
7.1.4. Except as otherwise provided in this Agreement,
the Company hereby waives presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this
Agreement or any Collateral.
7.1.5. The Bank shall not incur any liability as a
result of the sale of any Collateral, or any part thereof, at any private sale
conducted in a commercially reasonable manner, in compliance with any
applicable law. The Company hereby waives any claims against the Bank arising
by reason of the fact that the price at which any of the Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Bank accepts the first offer received and does not
offer any Collateral to more than one offeree, provided that the Bank has acted
in a commercially reasonable manner in conducting such private sale.
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7.1.6. Upon any sale of all or any part of any
Collateral made either under the power of sale given hereunder or under
judgment or decree in any judicial proceedings for foreclosure or otherwise for
the enforcement of this Agreement, the Bank is hereby irrevocably appointed the
true and lawful attorney of the Company, in its name and stead, to make all
necessary deeds, bills of sale and instruments of assignment, and transfer or
conveyance of the property thus sold. For that purpose, the Bank may execute
all such documents and instruments. This power of attorney shall be deemed
coupled with an interest, and the Company hereby ratifies and confirms all that
its said attorney, or its substitute or substitutes, shall lawfully do by
virtue of this Agreement. If so requested by the Bank or by any purchaser of
the Collateral or a portion thereof, the Company shall further ratify and
confirm any such sale or transfer by executing and delivering to the Bank or to
such purchaser or purchasers at the Company's expense all reasonable and proper
deeds, bills of sale, instruments of assignment, conveyance or transfer and
releases as may be designated in any such request.
7.1.7. When authorized in accordance with this Section
7.1, the Bank may proceed to realize upon the security interest in the
Collateral against any one or more of the types of Collateral, at any one time
or from time to time, as the Bank shall determine in its sole discretion,
subject to the provisions of this Section 7.1. The Bank shall not be required
to realize upon any one type of Collateral before proceeding to realize upon
the security interest granted in any other type of Collateral. The proceeds of
any sale of, or other realization upon, or other receipt from, all or any
Collateral shall be applied by the Bank in the manner set forth in Section 6
hereof.
7.2. REMEDIES CUMULATIVE; DELAY OR OMISSION NOT A WAIVER. To
the extent permitted by law and not otherwise provided to the contrary under
this Agreement, no remedy given hereunder to the Bank shall be exclusive of any
other remedy, and every such remedy shall be cumulative and in addition to
every other remedy given hereunder or now or hereafter given by statute, law,
equity or otherwise to the extent not contrary to or inconsistent with the
terms of this Agreement. The Bank may, in its absolute discretion, exercise
all or any of the powers, rights or remedies given to it hereunder or which may
be now or hereafter given by statute, law or equity or otherwise. No course of
dealing between the Company and the Bank or any delay or omission of the Bank
to exercise any right, remedy or power accruing upon any Default or Event of
Default shall impair any right, remedy or power or shall be construed to be a
waiver of any such Default or Event of Default or of any right of the Bank or
acquiescence therein, and every right, remedy and power given by this Agreement
to the Bank may, to the extent permitted by law, be exercised from time to time
and as often as may be deemed expedient by the Bank.
Section 8. TERMINATION OF AGREEMENT. Upon the last to occur of (a)
satisfaction of all obligations of the Company under this Agreement, and (b)
payment of all of the Obligations, (c) termination of the Commitment, (d)
termination of all outstanding Letters of Credit or (e) payment in full of the
Notes, this Agreement and the estate and rights hereby granted by the Company
in the Collateral shall automatically cease, terminate and be void
simultaneously therewith. Any of the Collateral remaining at the time of such
termination shall be fully released and discharged from the Lien hereof and
delivered to the Company by the Bank, and this Agreement shall thereupon be
released by the Bank, all at the expense of the Company.
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Section 9. MISCELLANEOUS.
9.1. EXPENSES. All fees, costs or expenses, including
reasonable fees and expenses of outside legal counsel, incurred by the Bank in
connection with either the preparation, administration, amendment, modification
or enforcement of this Agreement or any other instruments, documents, or
agreements to be delivered pursuant thereto (including, without limitation, (a)
all expenses incurred in obtaining all necessary judicial and other approvals
of the transactions contemplated hereby, (b) all expenses incurred in
conducting any examinations or appraisals which the Bank, in its sole
discretion, deems necessary or appropriate, subject, however, to the provisions
of Section 6.3 of the Loan Agreement restricting the Company's obligations with
respect to inventory audits, or (c) out-of-pocket collateral administration
expenses) shall be paid by the Company on demand.
9.2. TERM OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
and all covenants, agreements, representations and warranties made herein and
in the certificates delivered pursuant hereto shall survive the execution and
delivery hereof and shall continue in full force and effect until the
termination of this Agreement as set forth in Section 8. Whenever in this
Agreement any of the parties hereto are referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
terms and provisions of this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective permitted successors and
assigns. The Company may not assign its rights or obligations hereunder
without the prior consent of the Bank. The Bank may assign all or any of its
rights or obligations hereunder without the prior consent of the Company.
9.3. NOTICES. Notices, demands and communications shall be
deemed to have been properly given to the Company only when faxed to the
Company at (614) 548-6541 or when made in writing and deposited in the United
States mail, registered or certified, postage prepaid, and addressed to the
Company at 155 Hidden Ravines Drive, Powell, Ohio 43065, Attention: Chief
Executive Officer, whether or not the same are actually received by the
Company. Any communication to the Bank shall be deemed properly given if faxed
to the Bank at (614) 248-5518 or similarly mailed to the Bank and addressed to
the Bank at Commercial Loan Department, 100 East Broad Street, Columbus, Ohio
43271-0121.
9.4. NO IMPLIED WAIVERS. No delay on the part of the Bank in
exercising any right, power or privilege granted hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof. The rights
and remedies herein expressly specified are cumulative and not exclusive of any
other rights and remedies which the Bank would otherwise have.
9.5. AMENDMENTS, MODIFICATIONS, ETC. No amendment,
modification, termination, 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 Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the
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specific purpose for which given. No notice or demand on the Company in any
case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
9.6. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of Ohio, and for all purposes shall
be construed in accordance with the laws of such state.
9.7. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
9.8. COUNTERPARTS. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto were upon the
same instrument. Complete sets of counterparts shall be lodged with the
Company and the Bank.
9.9. MERGER. This Agreement, the Loan Agreement and the other
agreements executed in connection with the Loan Agreement reflect the entire
understanding of the parties with respect to its subject matter and supersede
all prior agreements or understandings with respect thereto in their entirety.
9.10. HEADINGS. Headings of the sections of this Agreement are
for convenience only and shall not affect the construction of this Agreement.
9.11. EFFECTIVE DATE. This Agreement shall become effective
upon the execution of a counterpart hereof by each of the parties.
9.12. CONFESSION OF JUDGMENT. The Company hereby authorizes
any attorney at law to appear for the Company, in an action on this Agreement,
at any time after any obligation hereunder becomes due, as herein provided, in
any court of record in or of the State of Ohio, or elsewhere, to waive the
issuing and service of process against the Company and to confess judgment in
favor of the Bank or the party entitled to the benefits of this Agreement
against the Company for the amount that may be due, with interest at the
default rate provided for in the Loan Agreement and costs of suit, and to waive
and release all errors in said proceedings and judgment, and all petitions in
error, and right of appeal from the judgment rendered.
IN WITNESS WHEREOF, the Company and the Bank have caused this Agreement
to be executed and delivered effective the day and year first above written.
BANK ONE, COLUMBUS, NA
By
----------------------------
Thomas D. Igoe
Senior Vice President
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WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON
HIS PART TO COMPLY WITH THIS AGREEMENT, OR ANY OTHER CAUSE.
DRUG EMPORIUM, INC.
By______________________________________
David L. Kriegel, Chief Executive Officer
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EXHIBIT A
RECEIPT FOR STOCK CERTIFICATES
AND STOCK POWERS
January 4, 1994
The undersigned hereby acknowledges receipt of the following:
1. Stock Certificate No. 1 dated February 26, 1991, evidencing the
ownership by the Company of 10 shares of the Common Stock of Centerline, Inc.,
being 100% of the issued and outstanding shares of the capital stock of such
issuer eligible to vote for election of directors of such issuer.
2. Stock Certificate No. 1 dated August 23, 1991, evidencing the ownership
by the Company of 100 shares of the Common Stock of Winter Fern Drug
Distributors, Inc., being 100% of the issued and outstanding shares of the
capital stock of such issuer eligible to vote for election of directors of such
issuer.
3. Stock Powers, each dated February 11, 1992, relating to the above listed
stock certificates, executed by the Company in blank.
IN WITNESS WHEREOF, I have executed this Receipt as of the day and year
first above written.
BANK ONE, COLUMBUS, NA
By______________________________________
Thomas D. Igoe
Senior Vice President
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EXHIBIT 4.1(D)
FIRST AMENDED AND RESTATED
UNCONDITIONAL GUARANTY
_________________, a ____________ corporation (the "Guarantor"), in
order to induce BANK ONE, COLUMBUS, NA ("the Bank"), to make loans to DRUG
EMPORIUM, INC., a Delaware corporation (the "Company"), pursuant to that
certain First Amended and Restated Revolving Credit and Term Loan Agreement of
even date herewith (the "Agreement"), does hereby:
(a) CONSIDERATION. Represent and warrant to the Bank that it is a
subsidiary of the Company and, as such, it is entering into this Guaranty in
order to ensure to itself the availability of certain of the funds which the
Company plans to borrow from the Bank pursuant to the Agreement and that the
Guarantor, therefore, expects to derive economic benefits from the execution,
delivery and performance of the Agreement;
(b) SOLVENCY. Represent and warrant to the Bank that, both before and
after its execution, delivery and performance of the Guaranty, it is or will be
solvent, it has or will have assets having a fair value in excess of the amount
required to pay its probable liabilities or its existing debts as they become
absolute and matured and it has or will have access to adequate capital for the
conduct of its business and is or will be able to pay its debts from time to
time incurred in connection therewith as such debts mature;
(c) GUARANTY OF PAYMENT. Unconditionally and absolutely guarantee the
full and timely payment by the Company to the Bank of (i) any and all of the
liabilities or obligations which may become due and payable to the Bank from
the Company in accordance with the terms and conditions of the Agreement or any
other agreement, instrument or document executed by the Company in connection
therewith, (ii) all costs and expenses incurred by the Bank in the collection
or the enforcement of any such obligations of the Company, or realization upon
the Collateral, including, without limitation, reasonable attorneys' fees and
legal expenses, (iii) all future advances made by the Bank for the maintenance,
protection or preservation of, the Collateral or any portion thereof,
including, without limitation, advances for storage, insurance premiums,
transportation charges, and the like and (iv) all other obligations of payment
of the Company to the Bank, howsoever created, arising, or evidenced, whether
direct or indirect, absolute or contingent, or now or hereafter existing or due
or to become due (the "Payment Obligations"); and
(d) GUARANTY OF PERFORMANCE. Unconditionally and absolutely guarantee
the due and punctual performance and observance by the Company of (i) any and
all other obligations which are to be performed or observed by the Company in
accordance with the terms and conditions of the Agreement or any other
agreement, instrument or document executed by the Company in connection
therewith, whether according to the original or present terms thereof, at an
earlier or accelerated date or dates as provided therein, or pursuant to any
extension of time or to any
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change or changes in the terms and conditions thereof, now or at any time
hereafter made or granted and (ii) all other obligations of the Company to the
Bank, howsoever created, arising, or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing or due or to become due
(the "Performance Obligations" and, collectively with the Payment Obligations,
the "Obligations").
SECTION 1. ABSOLUTE AND UNCONDITIONAL OBLIGATION OF GUARANTOR. All
obligations of Guarantor under this Guaranty shall be absolute, unconditional
and continuing and shall remain in full force and effect until all of the
Obligations now existing or hereafter incurred shall have been paid and
discharged in full and otherwise satisfied. The obligations of Guarantor under
this Guaranty shall not be released, discharged, affected, modified or impaired
by reason of the happening from time to time of any event, including, without
limitation, any one or more of the following:
1.1. COMPROMISE, ETC. The compromise, settlement, release,
discharge or termination of any or all of the Obligations, by operation of law
or otherwise, except by payment and performance in full of the Obligations
pursuant to the terms of the Agreement or any other agreement, document or
instrument pursuant to which the Company is obligated to the Bank with respect
thereto;
1.2. FAILURE TO GIVE NOTICE. The failure of the Bank to give
notice to Guarantor of the occurrence of any Default or Event of Default under
the Agreement (capitalized terms not defined herein are defined in the
Agreement);
1.3. WAIVER. The waiver of the payment, performance or
observance by the Company of any of the Obligations;
1.4. EXTENSION. The extension of the time for payment of any
Indebtedness constituting Obligations or of the time for performance of any
other Obligation, or the extension or the renewal of any thereof;
1.5. MODIFICATION. The modification or amendment (whether
material or otherwise) of any of the Obligations, whether set forth in the
Agreement or any other agreement, document or instrument pursuant to which the
Company or any other Person is obligated to the Bank, in accordance with the
provisions of the Agreement, or any other agreement, instrument or document
relating thereto or otherwise;
1.6. ACTION OR INACTION. The taking of or omission to take any
action under the Agreement or any other agreement, document or instrument
pursuant to which the Company or any other Person is obligated to the Bank;
1.7. INVALIDITY, ETC. The invalidity or unenforceability of
any term or provision of the Agreement or any other agreement, document or
instrument pursuant to which the Company or any other Person is obligated to
the Bank, or any loss or release or substitution of, or other dealing with, any
of the Indebtedness constituting Obligations or otherwise;
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1.8. DELAY. Any failure, omission or delay on the part of the
Bank to enforce, assert or exercise any right, power or remedy conferred in the
Agreement or any other agreement, document or instrument pursuant to which the
Company or any other Person is obligated to the Bank, or any other act or acts
on the part of the Bank;
1.9. BANKRUPTCY. The voluntary or involuntary liquidation,
dissolution, sale or other disposition of all or substantially all of the
assets, marshaling of assets and liabilities, receivership, insolvency,
bankruptcy, assignment for the benefit of creditors, arrangement, composition
with creditors or readjustment of, or other similar proceedings affecting the
Company, or its assets, or any allegation of invalidity or contest of the
validity of this Guaranty in any such proceedings;
1.10. DEFAULT BY GUARANTOR. The default or failure of
Guarantor to fully perform any of its obligations set forth in this Guaranty,
the occurrence of any Event of Default under the Agreement, or the default or
failure of any other Person to fully perform any of its obligations set forth
in any other agreement, document or instrument pursuant to which the Company or
any such Person is obligated to the Bank;
1.11. MISSING AGREEMENTS. The failure of any agreement,
instrument, certificate, or other document to be executed or delivered in
connection with the Agreement; or
1.12. MISCELLANEOUS. Any other event, circumstance, right,
claim or defense of any character whatsoever, whether or not similar to the
foregoing.
SECTION 2. NO CONSENT OR NOTICE. The Bank may, at any time and from
time to time, without consent of, or notice to, Guarantor, do any, some, or all
of the following without thereby impairing or releasing the obligations of
Guarantor under this Guaranty:
2.1. AMENDMENTS. Change the manner, place or terms of payment,
or change or extend the time of payment of, or renew or alter, the terms of any
obligations of payment of the Company to the Bank, and the guarantee herein
made shall apply to the obligations of payment of the Company to the Bank as so
changed, extended, renewed or altered;
2.2. ACTION OR INACTION. Exercise or refrain from exercising
any rights against the Company, any other guarantor of the Agreement, or any
other Person, or otherwise act or refrain from acting; or
2.3. SETTLE OR COMPROMISE. Settle or compromise any
obligations of payment of the Company, or any other guarantor of the
obligations of the Company to the Bank or subordinate the payment of all or any
part thereof to the payment of any liability (whether due or not) to creditors
of the Company other than the Bank.
SECTION 3. RIGHTS OF THE BANK AND RELATED MATTERS.
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3.1. ENFORCEMENT. Guarantor agrees that this Guaranty may be
enforced by the Bank without first resorting to or exhausting any other remedy
available under the Agreement, any other guaranty of the Agreement, any other
related agreement, document or instrument pursuant to which the Company or any
other Person is obligated to the Bank, or otherwise; PROVIDED, HOWEVER, that
nothing herein contained shall prevent the Bank from resorting to any right or
remedy available to it.
3.2. BENEFIT. Guarantor agrees that this Guaranty will inure
to the benefit of and may be enforced by the Bank, its successors and assigns,
any duly authorized agent of the Bank, and any subsequent holder of any
instrument evidencing any of the Obligations, and shall be binding on and
enforceable against Guarantor, its successors and assigns.
3.3. WAIVER OF NOTICE, EVENT OF DEFAULT UNDER THE AGREEMENT,
ETC. Guarantor waives notice of any Default or Event of Default under the
Agreement and presentment, protest, notice of dishonor and demand for payment
of or with respect to any obligation of payment of the Company to the Bank or
any instrument or other writing evidencing or securing any obligation of
payment of the Company to the Bank.
3.4. SUBORDINATION AS TO GUARANTOR. Guarantor hereby
subordinates any and all claims which it now has, or in the future may acquire,
as creditor, employee, or contributor to the capital of the Company, to the
prior payment and performance in full of any and all of the Obligations to the
extent hereinafter set forth in this Section 3.4. If, prior to the payment and
performance of all of the Obligations, upon the occurrence and during the
continuation of a Default or an Event of Default under the Agreement, Guarantor
would, without reference to the provisions of this Section 3.4, be entitled to
receive any payment on account of any claim of Guarantor against the Company,
in insolvency proceedings or otherwise, all such payments shall be made instead
to the Bank until all of the Obligations have been paid and performed in full,
and Guarantor hereby so directs. If, following the occurrence and during the
continuation of a Default or any Event of Default, Guarantor receives any
payment on account of any claim of Guarantor against the Company, Guarantor
shall immediately pay the same over to the Bank to be applied to the payment
and performance of all of the Obligations.
3.5. NO DEFENSE LIMITS GUARANTOR'S OBLIGATIONS. No setoff,
counterclaim, reduction, or diminution of any obligation, or any other defense
of any kind or nature (excepting payment or performance in fact) which
Guarantor has or may have against the Bank shall limit or in any way affect
Guarantor's obligations under this Guaranty.
3.6. WAIVER OF RIGHTS TO SUBROGATION AND REIMBURSEMENT.
Guarantor hereby waives any right of subrogation to the rights of the Bank
against the Company, any right of reimbursement by the Company or any other
right of recovery that Guarantor may have against the Company if Guarantor
makes any payment under this Guaranty. Guarantor hereby represents and
warrants that it has not received any promissory note from the Company or
entered into any other written or oral agreement with the Company to the effect
that Guarantor will be reimbursed by the Company if Guarantor makes any
payments under this Guaranty and has not received any property of the Company
as security for any such reimbursement. Guarantor hereby covenants
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and agrees that Guarantor will not, at any time, accept any promissory note or
enter into any written or oral agreement with the Company which has the effect
of reimbursing Guarantor for any payments that it may make under this Guaranty,
accept any property of the Company as security for any such reimbursement, or
make any claim for reimbursement or that Guarantor should be subrogated to the
rights of the Bank against the Company. The waivers, representations,
warranties, covenants and agreements contained in this paragraph are for the
benefit of and may be enforced by the Bank and the Company and their respective
successors and assigns, including (without limitation) any trustee in
bankruptcy of the Company.
3.7. WAIVER OF NOTICE OF ACCEPTANCE. Guarantor hereby
expressly waives notice from the Bank of its acceptance of and reliance upon
this Guaranty, and of any future creation, renewal or accrual of any of the
Obligations, and any and every obligation of payment and performance of the
Company to the Bank shall conclusively be presumed to have been created,
contracted or incurred in reliance upon this Guaranty.
3.8. SECURITY. The obligations of the Guarantor hereunder are
secured by a First Amended and Restated Security Agreement of even date
herewith between the Guarantor and the Bank.
SECTION 4. MISCELLANEOUS.
4.1. NOTICES. All notices, requests or other communications
under this Guaranty shall be in writing and shall be deemed to have been
properly given only when faxed or deposited in the United States mail,
registered or certified, postage prepaid, return receipt requested, addressed
as follows:
To Guarantor:
__________________________________
__________________________________
__________________________________
__________________________________
(614) ____________________________
To the Bank:
Bank One, Columbus, NA
Commercial Loan Department
100 East Broad Street
Columbus, Ohio 43271-0121
(614) 248-5518
Any party may, by notice given under this Section 4.1, designate a different
address for it than the one specified above.
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4.2. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If the
Company should fail in the payment or performance of any of the Obligations and
the Bank employs attorneys or incurs other expenses for the enforcement of
performance or observance by Guarantor of any of the Obligations or any
obligation or agreement on the part of Guarantor contained in this Guaranty,
Guarantor shall, on demand therefor, reimburse the reasonable fees of such
attorneys and such other expenses so incurred by the Bank.
4.3. WAIVER. No delay on the part of the Bank in exercising
any of its options, powers or rights under this Guaranty, or any partial or
single exercise thereof, shall constitute a waiver thereof. No waiver of any
of the respective rights or obligations of the Bank under this Guaranty, and no
modification or amendment of this Guaranty, will be deemed to be effective
unless the same shall be in writing, duly signed on behalf of the Bank and
Guarantor. Each waiver, if any, will apply only with respect to the specific
instance and for the specific purpose given, and will in no way impair the
rights of the Bank or the obligations of Guarantor to the Bank in any respect
at any other time. No notice to or demand on Guarantor in any case will
entitle Guarantor to any other or further notice or demand in similar or other
circumstances.
4.4. AMENDMENT. This Guaranty shall not be or be deemed to be
amended, modified or limited orally or by any course of conduct or dealing or
any manner other than by a writing signed by the party against which such
amendment, modification or limitation is sought to be charged. This Guaranty
is made in the State of Ohio and is to be construed in accordance with and the
rights of the parties hereunder are to be governed by Ohio law.
4.5. NO RELEASE. The provisions of this Guaranty
notwithstanding, no rights or privileges of the Bank under the Agreement or any
other agreement, document or instrument pursuant to which the Company is
obligated to the Bank shall in any way be diminished or released by this
Guaranty.
4.6. SEVERABILITY. In case any clause, provision or section of
this Guaranty, or any covenant, stipulation, obligation, agreement, act, or
action, or part thereof, made, assumed, entered into, or taken under this
Guaranty, or any application thereof, is for any reason held to be illegal,
invalid or inoperable, such illegality, invalidity, or inoperability shall not
affect the remainder thereof or any other clause, provision or section or any
other covenant, stipulation, obligation, agreement, act or action or part
thereof, made, assumed, entered into, or taken thereunder, which shall at the
time be construed and enforced as if such illegal or invalid or inoperable
portion were not contained therein, nor shall such illegality or invalidity or
inoperability or any application thereof affect any legal and valid and
operable application thereof, from time to time, and each such clause,
provision or section, covenant, stipulation, obligation, agreement, act, or
action, or part thereof shall be deemed to be effective, operative, made,
entered into or taken in the manner and to the full extent from time to time
permitted by law.
4.7. CAPTIONS. The captions or headings in this Guaranty are
for convenience only and in no way define, limit or describe the scope or
intent of any provision or section of this Guaranty.
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4.8. ENTIRE AGREEMENT. This Guaranty sets forth the entire
understanding of the parties and supersedes any and all prior agreements,
arrangements, and understandings relating to the subject matter of this
Guaranty.
4.9. SEPARATE INSTRUMENT. This Guaranty constitutes a separate
instrument, enforceable in accordance with its terms, and neither this Guaranty
nor the obligations of Guarantor under this Guaranty shall, under any
circumstance or in any legal proceedings, be deemed to have merged into or with
any other agreement or obligation of Guarantor.
4.10. JOINT PREPARATION. This Guaranty is to be deemed to have
been prepared jointly by the Guarantor and the Bank, and any uncertainty or
ambiguity existing herein shall not be interpreted against either party, but
shall be interpreted according to the rules for the interpretation of arm's
length agreements.
4.11. THIRD PARTIES. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give any Person other than the
parties hereto and their successors or assigns, any rights or remedies under or
by reason of this Guaranty.
4.12. GOVERNING LAW. This Guaranty shall be governed and
construed by the provisions hereof and in accordance with the laws of the State
of Ohio applicable to instruments to be performed in the State of Ohio.
4.13. CONFESSION OF JUDGMENT. Guarantor hereby authorizes any
attorney at law to appear for it, in an action on this Guaranty, as herein
provided, in any court of record in or of the State of Ohio, or elsewhere, to
waive the issuing and service of process against Guarantor and to confess
judgment in favor of the holder of the Guaranty against Guarantor for the
amount that may be due, with interest at the default rate provided for in the
Agreement and costs of suit, and to waive and release all errors in said
proceedings and judgment, and all petitions in error, and right of appeal from
the judgment rendered.
IN WITNESS WHEREOF, Guarantor has executed this Guaranty as of the 4th
day of January, 1994.
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON
HIS PART TO COMPLY WITH THE AGREEMENT, OR ANY OTHER CAUSE.
[**SUBSIDIARY**]
By:_____________________________________
Its:____________________________________
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EXHIBIT 4.1(E)
FIRST AMENDED AND RESTATED
SECURITY AGREEMENT
THIS FIRST AMENDED AND RESTATED SECURITY AGREEMENT dated as of the ___
day of ___________, 199__ (collectively with the exhibits attached hereto, the
"Agreement") is between ______________________________, a _____________
corporation (the "Company"), and BANK ONE, COLUMBUS, NA (the "Bank") under that
certain First Amended and Restated Revolving Credit and Term Loan Agreement
dated of even date herewith between Drug Emporium, Inc. (the "Parent") and the
Bank (the "Loan Agreement) and amends and restates in its entirety that certain
Security Agreement dated as of February 14, 1992 between the Parent and the
Bank. The parties agree as follows:
Section 1. DEFINITIONS.
1.1. ADDITIONAL DEFINITIONS. In addition to the terms defined
elsewhere in this Agreement or the Loan Agreement, the following terms have the
following meanings:
"Account" means and includes all accounts (whether or not earned by
performance), contract rights, chattel paper, instruments, documents, general
intangibles (including, without limitation, general customer and prescription
customer lists, tax refunds, tax refund claims, patents, trademarks, trade
names, good will, blue prints and drawings relating thereto) and all other
forms of obligations owing to the Company, whether secured or unsecured,
whether now existing or hereafter created, and whether or not specifically
assigned to the Bank under this Agreement, all guarantees and other security
therefor, all merchandise returned to or repossessed by the Company, and all
rights of stoppage in transit and all other rights and remedies of an unpaid
vendor, lienor or secured party.
"Collateral" means and includes all Accounts, Inventory, all property
now or at any time hereafter in the Bank's possession (including claims and
credit balances), and all other property in which the Company at any time
grants a Lien to the Bank pursuant to the Loan Documents or otherwise, whether
now existing or hereafter acquired or arising, together with (a) all books,
records, ledger cards and other property pertaining to any of the foregoing,
and any equipment on which any such items are stored or maintained and (b) all
products and proceeds of any of the foregoing, and all insurance proceeds
related to any of the foregoing, including, without limitation, any claims
against third parties for loss or damage to or destruction of any or all of the
foregoing and any cash, negotiable instruments and other instruments of money,
chattel paper, security agreements or other documents. The term "Collateral"
shall not include furniture, fixtures or equipment but shall include computers,
modems, printers, software, and related equipment, media and data necessary to
run software owned or used by the Company to keep track of its Inventory or
Accounts.
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"Collateral Location" means each of the locations listed on the
Collateral Locations Exhibit, attached hereto and made a part hereof, and such
other locations as may be established as such pursuant to this Agreement.
"Customer" means any Person who is obligated as an account debtor or
other obligor on, under, or in connection with, any Account.
"Default" means any Event of Default and any event, condition or
circumstance which, with the giving of notice or lapse of time, or both, may
become an Event of Default.
"Event of Default" means any of the events specified in Section 7.1 of
this Agreement as an Event of Default, provided that any requirement for the
giving of notice or lapse of time has been satisfied in connection with such
event.
"GAAP" means generally accepted accounting principles applied on a basis
consistent with the accounting principles reflected in the financial statements
of the Parent furnished to the Bank under, and which comply with the
requirements of, the Loan Agreement.
"Inventory" means all raw materials, work in process, finished goods and
materials and supplies of any kind, nature or description which are or might be
used or consumed in the business of the Company or used in connection with the
manufacturing, packing, shipping, advertising, selling or finishing of such
goods, merchandise and other personal property, and all goods, merchandise and
other personal property wherever located, to be furnished by the Company under
any contract or contract for service or held for sale or lease, whether now
owned or hereafter acquired, and all documents of title or other documents
representing the foregoing.
"Loan Documents" means this Agreement, the Loan Agreement, the Notes,
the Pledge Agreement, the Subsidiary Guaranties, the Subsidiary Security
Agreements and all other instruments or agreements required or contemplated
hereby or thereby.
"Obligations" means (a) the obligations of the Parent or any Subsidiary
to the Bank under any of the Loan Documents, (b) the obligations under any
other instrument or agreement required or contemplated hereby or thereby, (c)
all costs and expenses incurred by the Bank in the collection or the
enforcement of any such obligations, or realization upon the Collateral,
including without limitation reasonable attorneys' fees and legal expenses, (d)
all future advances made by the Bank for the maintenance, protection or
preservation of, the Collateral or any portion thereof, including without
limitation advances for storage, insurance premiums, transportation charges,
and the like and (e) all other obligations of the Parent or any Subsidiary to
the Bank, howsoever created, arising, or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing or due or to become due.
"Requirement of Law" means, for any Person, any term, condition, or
provision of any law, rule, judgment, regulation, order, writ, injunction or
decree of any court or government, domestic or foreign and any ruling of any
arbitrator to which such Person is a party or by which such
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Person or any of its assets or property is bound or affected or from which such
Person derives benefits, and, if such Person is a corporation, its charter
documents and bylaws.
"UCC" means Chapters 1301 through 1309 of the Ohio Revised Code as in
effect on the date of this Agreement and as the same may be supplemented or
amended from time to time hereafter.
1.2. RULES OF CONSTRUCTION. All accounting terms used in this
Agreement not otherwise specifically defined in this Agreement shall be
construed in accordance with GAAP. Any capitalized term not defined herein but
defined in the Loan Agreement shall be construed in accordance with the
definition of such term as set forth in the Loan Agreement. Any other term not
specifically defined in this Agreement or the Loan Agreement shall be construed
in accordance with the meaning for such terms under the UCC. The meaning of
any defined term used in this Agreement shall apply equally to the singular,
plural and other forms of the term defined.
Section 2. GRANT OF SECURITY INTEREST.
2.1. LIEN. As security for the full and timely payment or
performance of the Obligations in accordance with the terms thereof, the
Company agrees that the Bank shall have, and there is hereby granted to and
created in favor of the Bank, a Lien under the UCC, and otherwise in accordance
with applicable law, in and to the Collateral. The Lien created hereunder
shall be prior in interest to any other Lien affecting the Collateral. The
Lien created hereunder shall be and remain in full force and effect until all
of the Obligations shall have been paid and discharged in full and otherwise
satisfied and the Parent shall no longer have any right to request any Loans
under the Loan Agreement.
2.2. COLLATERAL. As an inducement to enter into this Agreement
and the Loan Agreement, the Company is hereby granting to the Bank a security
interest in, among other assets, its Accounts and Inventory. The Company
understands that the Bank would not have entered into this Agreement or the
Loan Agreement if the Company was not granting a security interest to the Bank
in Accounts and Inventory and that the indubitable equivalent of any Lien in
favor of the Bank against Accounts and Inventory is not provided to the Bank by
the substitution therefor of a Lien against real estate or any other asset
which is not as quickly convertible into cash as Accounts or Inventory.
Section 3. REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Bank that:
3.1. TITLE TO COLLATERAL. The Company has good, indefeasible
and marketable title to all the Collateral free of all Liens other than those
granted hereby, except for Liens of landlords under state statutes or Liens
permitted under the Loan Agreement. No financing or continuation statement
which names the Company as debtor has been filed in any state or other
jurisdiction except as provided for herein or as set forth in the Loan
Agreement, and the Company has not agreed or consented to cause or to permit in
the future (upon the happening of a contingency or
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otherwise) any of the Collateral, whether now owned or hereafter acquired, to
be subject to a Lien.
3.2. PERFECTION OF LIEN. The Company has taken or caused to be
taken all actions necessary to establish the Bank's Lien in the Collateral as a
valid, enforceable and perfected Lien, first and prior to all other Liens
except Liens permitted under the Loan Agreement.
3.3. BOOKS AND RECORDS; CHIEF EXECUTIVE OFFICE. All books and
records of the Company concerning the Collateral are accurate, complete and
maintained in accordance with GAAP. The Collateral Locations Exhibit correctly
sets forth the address of (a) the chief executive office, registered office and
principal place of business of the Company, (b) any plant or division of the
Company maintaining a separate principal place of business, registered office
or chief executive office, (c) all other places of business of the Company and
the location of all Collateral and (d) the name and business address of each
landlord and mortgagee with any interest in any Collateral Location. The only
original books of account and records of the Company relating to any Accounts
of the Company are, and will continue to be, kept at the offices of the Company
set forth on the Collateral Locations Exhibit opposite the name of the division
or the plant of the Company where such Accounts originated. The only locations
at which Inventory is located are set forth on the Collateral Locations Exhibit
opposite the name of the division or the plant of the Company or other location
where such Inventory is located.
3.4. ACCOUNTS. The Accounts arose out of BONA FIDE sales or
services, are collectible in the ordinary course of business and are not
disputed or subject to offset.
Section 4. AFFIRMATIVE COVENANTS. On and after the date of this
Agreement and until all of the Obligations shall have been paid and discharged
in full or otherwise satisfied and the Parent shall no longer have any right to
request any Loans under the Loan Agreement:
4.1. INSURANCE. The Company shall at all times: (a) maintain
or cause to be maintained insurance upon the Collateral with responsible and
reputable insurers of such character and in such amounts as are usually
maintained by Persons engaged in a like business; (b) furnish to the Bank, upon
request, a statement of its insurance coverage, in form and detail satisfactory
to the Bank; (c) require each policy of insurance to contain a provision
whereby it cannot be canceled, amended or modified except after 30 days' prior
written notice to the Bank; (d) require each policy of insurance covering any
of the Collateral to be written or endorsed so as to make losses, if any,
payable to the Bank, in addition to the Company; and (e) require each policy of
insurance covering any of the Collateral to contain an agreement by the insurer
that any loss shall be payable to the Bank notwithstanding any act or
negligence of the Company which might otherwise result in forfeiture of said
insurance. If the Company fails to pay or cause to be paid the premium on any
such insurance, the Bank may, in its sole discretion, do so for the account of
the Company, add the cost thereof to the Obligations and be reimbursed by the
Company therefor on demand.
4.2. NOTICE OF DEFAULT. If any Default or Event of Default
occurs, the Company shall give prompt notice of such happening to the Bank.
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4.3. INSPECTION. The Company shall permit any Person
designated by the Bank to enter, examine, audit and inspect the Collateral and
all properties, corporate books and financial records pertaining to the
Collateral, or the operation, business, affairs and financial condition of the
Company at any reasonable time and from time to time, and shall permit such
Persons to copy and make excerpts of such books and records.
4.4. SALE OF INVENTORY. Notwithstanding the security interest
in the Collateral granted hereunder, the Company shall have the right to sell,
lease or otherwise dispose of its Inventory in the ordinary course of its
business, free and clear of such security interest; but, in such event, such
security interest shall continue in the proceeds of such sale, lease or other
disposition.
4.5. COMPANY'S RIGHTS TO COLLECT ACCOUNTS. Notwithstanding the
security interest in the Accounts granted under this Agreement, the Company
shall endeavor to collect the Accounts at its own cost and expense, until such
time as the Bank shall have notified the Company, pursuant to Section 4.6, that
the Bank has revoked the Company's right to collect the Accounts.
4.6. COLLECTION OF ACCOUNTS BY THE BANK. If an Event of
Default shall have occurred, the Bank shall have the right at any time and
without affecting the liability of the Company to the Bank (a) to revoke any
right of the Company to collect its Accounts pursuant to Section 4.5 by written
notice to the Company to such effect, (b) to take over and direct collection of
the Accounts of the Company, (c) to give notice of the security interest of the
Bank in the Accounts to any or all of the Customers, (d) to give notice to the
Customers to make payment of the Accounts directly to the Bank (and, at the
request of the Bank, the Company shall indicate on all billings to Customers
that payments thereon are to be made to the Bank), and (e) to take control of
the Accounts of the Company and the Proceeds thereof, and to take possession of
all of the Company's books and records relating thereto, with full power and
authority in the name of the Bank or of the Company to enforce, collect, sue
for, receive, compromise, settle and give receipts for any and all of the
Accounts. If any Account becomes evidenced by a promissory note, trade
acceptance, chattel paper or other writing or instrument for the payment of
money, and there is at the time a Default, the Company shall, at the request of
the Bank, promptly deliver any such instrument to the Bank duly endorsed to the
order of the Bank as additional Collateral under this Agreement. It is
understood and agreed by the Company that the Bank shall have no liability
whatsoever to the Company under this Section 4.6.
4.7. ACCOUNT VERIFICATION. The Bank may at any time, without
notice to the Company, verify with any Customer the status of any Account
payable by such Customer; PROVIDED, HOWEVER, that, prior to the occurrence of
an Event of Default, no request for verification shall be made in the name of
the Bank, nor shall the Bank disclose the purpose of such request. The Company
from time to time will execute and deliver such instruments and take all such
action as the Bank may reasonably request in order to effectuate the purpose of
this Section 4.7.
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4.8. PRESERVATION AND PROTECTION OF SECURITY INTERESTS. The
Company shall faithfully preserve and protect the Bank's security interest in
the Collateral and shall, at its own cost and expense, cause such security
interest to be perfected and continue perfected so long as the Obligations or
any portion thereof are outstanding and unpaid, and for such purpose the
Company shall from time to time at the request of the Bank file or record, or
cause to be filed or recorded, such instruments, documents and notices,
including without limitation financing and continuation statements, as the Bank
may deem necessary or advisable from time to time in order to preserve, perfect
and continue perfected said security interest. The Company shall do all such
other acts and things and shall execute and deliver all such other instruments
and documents, including without limitation further security agreements,
pledges, endorsements, assignments and notices, as the Bank may deem necessary
or advisable from time to time in order to perfect and preserve the priority of
said security interest as a perfected first Lien in the Collateral prior to the
rights of any other secured party or lien creditor. The Bank, and its
officers, employees and authorized agents, or any of them, are hereby
irrevocably appointed the attorneys-in-fact of the Company to do all acts and
things which the Bank may deem necessary or advisable to preserve, perfect and
continue perfected the Bank's security interest in the Collateral, including
without limitation the signing of financing, continuation or other similar
statements and notices on behalf of the Company.
4.9. MAINTENANCE OF COLLATERAL. The Company shall (a) from
time to time replace and repair all parts of the Collateral which are or become
worn, broken, damaged, or deteriorated, maintain the Collateral now or
hereafter owned or acquired by it, and every part thereof, in good working
order and repair and pay the costs of such repairs, replacements, and
maintenance as well as any costs of storing the same; and (b) pay and discharge
all taxes, assessments, fees, and other governmental charges or levies imposed
upon it or any of the Collateral as well as all lawful claims of materialmen,
mechanics, carriers, warehousemen, landlords and other similar Persons for
labor, materials, supplies and rentals which, if unpaid, might by law become a
Lien on the Collateral or any part thereof. If the Company fails to make any
payments it is required to make under this Section 4.9, the Bank may do so for
the account of the Company and may add the amount of such payments to the
Obligations.
4.10. INVENTORY. The Company shall maintain the Inventory in
good condition, salable at the Company's normal prices in the ordinary course
of its business.
4.11. NEW STORES. Prior to the opening of any retail store not
presently operated by the Company, the Company shall give written notice to the
Bank and shall perform such acts as may be necessary or advisable to grant to
the Bank a perfected Lien, subject to no other Liens other than Liens permitted
under the Loan Agreement, in the Collateral located or to be located in such
new retail store.
4.12. ANNUAL CERTIFICATE. The Company shall furnish to the
Bank within 45 days after the close of each fiscal year, a certificate of the
chief financial officer or controller of the Company certifying that he has
reviewed the locations where the Inventory is located and that appropriate
filings have been made for the Company so that the Bank continues to have a
perfected Lien hereunder, subject to no other Lien other than Liens permitted
under the Loan Agreement.
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Section 5. NEGATIVE COVENANTS. On and after the date of this Agreement
and until all of the Obligations shall have been paid and discharged in full or
otherwise satisfied and the Company shall no longer have the right to request
Loans under the Loan Agreement:
5.1. LIENS. The Company shall not create, assume, incur or
suffer to exist or agree or consent to cause or permit in the future (upon the
happening of a contingency or otherwise) to be created, assumed, incurred or to
exist any Lien upon any of the Collateral except with the prior written consent
of the Bank to each such Lien or Lien permitted under the Loan Agreement.
5.2. NEGATIVE PLEDGE. Except as permitted by the Loan
Agreement, it shall not, without the prior written consent of the Bank, (a)
sell, assign, or transfer any of its right, title and interest in the
Collateral, except the Company may sell Inventory in the ordinary course of
business pursuant to Section 4.4, (b) permit any levy or attachment to be made
against any of the Collateral, or (c) file any financing statement with respect
to any of the Collateral, except financing statements in favor of the Bank.
5.3. CORPORATE NAME. The Company shall not change its
corporate name unless, before the effective date of such change, the Company
delivers to the Bank such financing statements executed by the Company that the
Bank may request to reflect such name change, together with such other
documents and instruments that the Bank may request in connection with such
name change. The Company shall not hold its right, title or interest in, nor
maintain its records relating to, any Collateral in any name other than its
corporate name.
5.4. CHANGE OF LOCATIONS. The Company shall not change any of
the Collateral Locations unless, before the effective date of such change, (a)
the Company shall have given to the Bank 10 days prior written notice of its
intention to so change any such Collateral Location, clearly describing each
such new Collateral Location and providing any other information in connection
therewith that the Bank may reasonably request and (b) with respect to each
such new Collateral Location, it shall have taken such action, satisfactory to
the Bank (including, without limitation, the execution and delivery to the Bank
of such financing statements executed by the Company that the Bank may request
to reflect such change in Collateral Location together with such other
documents and instruments that the Bank may request in connection with such
change), as may be necessary to maintain the security interest of the Bank in
the Collateral at all times fully perfected and in full force and effect.
Section 6. APPLICATION OF MONEYS.
6.1. PAYMENTS. Except as otherwise provided herein, all monies
which the Bank shall receive either upon realization of the Lien granted
hereunder or otherwise may be applied by or at the direction of the Bank as
follows:
6.1.1. First, to the payment or reimbursement of all
reasonable advances, expenses and disbursements of the Bank (including, without
limitation, the fees and disbursements of its counsel and agents) incurred in
connection with the administration and enforcement of, or
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the preservation of any rights under, this Agreement or the Loan Documents or
in the collection of the Obligations.
6.1.2. Second, to the payment of the then existing
Obligations, matured and unmatured, in such order and in such manner as the
Bank may elect.
6.1.3. Third, after discharge and repayment of all of
the Obligations, any remaining funds shall be paid by the Bank to the Company.
6.2. RESERVED RIGHTS. The Bank shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to any
portion of the Obligations. To the extent that the Company makes a payment or
payments to the Bank or the Bank receives any payment or proceeds of the
Collateral for the Company's benefit, which payment(s) or proceeds or any part
thereof are subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, receiver or any
other party under any bankruptcy act, state or federal law, common law or
equitable cause, then, to the extent of such payment or proceeds received, the
Obligations or the part thereof intended to be satisfied shall be revived and
continue in full force and effect as if such payment or proceeds had not been
received by the Bank.
Section 7. EVENTS OF DEFAULT AND REMEDIES.
7.1. EVENTS OF DEFAULT. There shall exist an Event of Default
if any of the following occurs:
7.1.1. A default or event of default occurs under any
of the Loan Documents.
7.1.2. Any representation or warranty of the Company
made in this Agreement shall prove to have been false or misleading in any
material respect on the date as of which made.
7.1.3. Any agreement, report, certificate, financial
statement or other instrument or document referred to in and furnished to the
Bank pursuant to this Agreement shall prove to have been false or misleading in
any material respect on the date as of which delivered.
7.1.4. A default in the performance or observance of
any of the covenants set forth in this Agreement to be performed or observed by
the Company provided such default shall continue unremedied for 30 days after
written notice thereof to the Company by the Bank.
7.1.5. A failure of the Bank to have a valid,
enforceable and perfected Lien upon all of the Collateral, first and prior to
all other Liens except for those permitted by the Loan Agreement.
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7.1.6. Any default in payment of principal or interest
on the Notes when and as due or when demand is made all as provided in a Note
or the Loan Agreement.
7.2. RIGHTS ON EVENT OF DEFAULT.
7.2.1. Upon the occurrence of any Default or Event of
Default, the Bank shall have the right, upon notice to the Company, (except
that upon the occurrence of an Event of Default under Section 8(h) or 8(i) of
the Loan Agreement, no notice shall be required) to declare the Obligations
immediately due and payable and may, without demand of performance or other
demand, advertisement or notice of any kind to or upon the Company or any other
Person (all and each of which demands, advertisements and/or notices are hereby
expressly waived), forthwith exercise such rights and remedies as are provided
by the UCC and such other rights and remedies in respect thereof as it may have
at law or in equity or under any of the Loan Documents, including without
limitation the right to enter any premises where any of the Collateral is
located and take possession of the same without demand or notice and without
prior judicial hearing or legal proceedings, which the Company hereby expressly
waives, and to sell all or any portion of the Collateral at public or private
sale, without prior notice to the Company except as otherwise required by law
(and, if notice is required by law, after 10 days prior written notice), at
such place or places and at such time or times and in such manner and upon such
terms, whether for cash or on credit, as the Bank in its sole discretion may
determine. Upon any such sale of any of the Collateral, the Bank may purchase
all or any of the Collateral being sold, free from any equity or right of
redemption. The Bank shall apply the proceeds of any such sale as provided in
Section 6. If such proceeds are insufficient to pay the amounts required by
law, the Company shall be liable for any deficiency in the amount so realized
from the Collateral.
7.2.2. The Company shall promptly pay or reimburse all
costs and expenses of the Bank, including, but not limited to, attorneys' fees,
incurred with respect to the enforcement or preservation of any of the Bank's
rights hereunder.
7.2.3. Except as otherwise provided in this Agreement,
the Company hereby waives presentment, demand, protest or any notice (to the
extent permitted by applicable law) of any kind in connection with this
Agreement or any Collateral.
7.2.4. The Bank shall not incur any liability as a
result of the sale of any Collateral, or any part thereof, at any private sale
conducted in a commercially reasonable manner, in compliance with any
applicable law. The Company hereby waives any claims against the Bank arising
by reason of the fact that the price at which any of the Collateral may have
been sold at such a private sale was less than the price which might have been
obtained at a public sale or was less than the aggregate amount of the
Obligations, even if the Bank accepts the first offer received and does not
offer any Collateral to more than one offeree, provided that the Bank has acted
in a commercially reasonable manner in conducting such private sale.
7.2.5. Upon any sale of all or any part of any
Collateral made either under the power of sale given hereunder or under
judgment or decree in any judicial proceedings for foreclosure or otherwise for
the enforcement of this Agreement, the Bank is hereby irrevocably
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appointed the true and lawful attorney of the Company, in its name and stead,
to make all necessary deeds, bills of sale and instruments of assignment, and
transfer or conveyance of the property thus sold. For that purpose, the Bank
may execute all such documents and instruments. This power of attorney shall
be deemed coupled with an interest, and the Company hereby ratifies and
confirms all that its said attorney, or its substitute or substitutes, shall
lawfully do by virtue of this Agreement. If so requested by the Bank or by any
purchaser of the Collateral or a portion thereof, the Company shall further
ratify and confirm any such sale or transfer by executing and delivering to the
Bank or to such purchaser or purchasers at the Company's expense all reasonable
and proper deeds, bills of sale, instruments of assignment, conveyance or
transfer and releases as may be designated in any such request.
7.2.6. When authorized in accordance with this Section
7.2, the Bank may proceed to realize upon the security interest in the
Collateral against any one or more of the types of Collateral, at any one time
or from time to time, as the Bank shall determine in its sole discretion,
subject to the provisions of this Section 7.2. The Bank shall not be required
to realize upon any one type of Collateral before proceeding to realize upon
the security interest granted in any other type of Collateral. The proceeds of
any sale of, or other realization upon, or other receipt from, all or any
Collateral shall be applied by the Bank in the manner set forth in Section 6
hereof.
7.3. REMEDIES CUMULATIVE; DELAY OR OMISSION NOT A WAIVER. To
the extent permitted by law and not otherwise provided to the contrary under
this Agreement, no remedy given hereunder to the Bank shall be exclusive of any
other remedy, and every such remedy shall be cumulative and in addition to
every other remedy given hereunder or now or hereafter given by statute, law,
equity or otherwise to the extent not contrary to or inconsistent with the
terms of this Agreement. The Bank may, in its absolute discretion, exercise
all or any of the powers, rights or remedies given to it hereunder or which may
be now or hereafter given by statute, law or equity or otherwise. No course of
dealing between the Company and the Bank or any delay or omission of the Bank
to exercise any right, remedy or power accruing upon any Default or Event of
Default shall impair any right, remedy or power or shall be construed to be a
waiver of any such Default or Event of Default or of any right of the Bank or
acquiescence therein, and every right, remedy and power given by this Agreement
to the Bank may, to the extent permitted by law, be exercised from time to time
and as often as may be deemed expedient by the Bank.
7.4. ASSEMBLING OF COLLATERAL. In addition, upon the
occurrence of any Default, the Company, upon demand by the Bank, shall promptly
assemble the Collateral, or any part thereof designated by the Bank, and make
it available to the Bank at a place to be designated by the Bank which shall be
reasonably convenient to the Bank and the Company. The right of the Bank under
this Section 7.4 to have the Collateral assembled and made available to it is
of the essence of this Agreement and the Bank may, at its election, enforce
such right by an action for specific performance.
7.5. NO REQUIREMENT TO MARSHAL COLLATERAL. The Company, to the
extent that it has any right, title or interest in any of the Collateral,
waives and releases any right to require the Bank to collect any of the
Obligations from any portion of the Collateral under any theory of
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marshaling of assets, or otherwise, and specifically authorizes the Bank to
apply any of its Collateral against any of the Obligations in any manner that
the Bank may determine.
Section 8. TERMINATION OF AGREEMENT. Upon the last to occur of (a)
satisfaction of all obligations of the Company under this Agreement, and (b)
payment of all of the Obligations, (c) termination of the Commitment, (d)
termination of all outstanding Letters of Credit or (e) payment in full of the
Notes, this Agreement and the estate and rights hereby granted by the Company
in the Collateral shall automatically cease, terminate and be void
simultaneously therewith. Any of the Collateral remaining at the time of such
termination shall be fully released and discharged from the Lien hereof and
delivered to the Company by the Bank, and this Agreement shall thereupon be
released by the Bank, all at the expense of the Company.
Section 9. MISCELLANEOUS.
9.1. EXPENSES. All fees, costs or expenses, including
reasonable fees and expenses of outside legal counsel, incurred by the Bank in
connection with either the preparation, administration, amendment, modification
or enforcement of this Agreement or any other instruments, documents, or
agreements to be delivered pursuant thereto (including, without limitation, (a)
all expenses incurred in obtaining all necessary judicial and other approvals
of the transactions contemplated hereby, (b) all expenses incurred in
conducting any examinations or appraisals which the Bank, in its sole
discretion, deems necessary or appropriate, (c) all expenses incurred in
assigning or otherwise transferring control of post office boxes to the Bank or
(d) out-of-pocket collateral administration expenses) shall be paid by the
Company on demand.
9.2. TERM OF AGREEMENT; SUCCESSORS AND ASSIGNS. This Agreement
and all covenants, agreements, representations and warranties made herein and
in the certificates delivered pursuant hereto shall survive the execution and
delivery hereof and shall continue in full force and effect until the
termination of this Agreement as set forth in Section 8. Whenever in this
Agreement either of the parties hereto is referred to, such reference shall be
deemed to include the permitted successors and assigns of such party; and all
terms and provisions of this Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective permitted successors and
assigns. The Company may not assign its rights or obligations hereunder
without the prior consent of the Bank. The Bank may assign all or any of its
rights or obligations hereunder without the prior consent of the Company.
9.3. NOTICES. Notices, demands and communications shall be
deemed to have been properly given to the Company only when faxed to (614)
_________ or when made in writing and deposited in the United States mail,
registered or certified, postage prepaid, and addressed to the Company at
____________________________________________________________________,
Attention: Chief Executive Officer, whether or not the same are actually
received by the Company. Any communication to the Bank shall be deemed
properly given if faxed to (614) 248-5518 or similarly mailed and addressed to
the Bank at Commercial Loan Department, 100 East Broad Street, Columbus, Ohio
43271-0121.
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9.4. NO IMPLIED WAIVERS. No delay on the part of the Bank in
exercising any right, power or privilege granted hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
power or privilege preclude any other or further exercise thereof. The rights
and remedies herein expressly specified are cumulative and not exclusive of any
other rights and remedies which the Bank would otherwise have.
9.5. AMENDMENTS, MODIFICATIONS, ETC. No amendment,
modification, termination, 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 Bank, and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. No notice or demand on the Company in
any case shall entitle the Company to any other or further notice or demand in
similar or other circumstances.
9.6. APPLICABLE LAW. This Agreement shall be deemed to be a
contract made under the laws of the State of Ohio, and for all purposes shall
be construed in accordance with the laws of such state.
9.7. SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provisions in any other jurisdiction.
9.8. COUNTERPARTS. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures thereto were upon the
same instrument. Complete sets of counterparts shall be lodged with the
Company and the Bank.
9.9. MERGER. This Agreement, the Notes, the Loan Agreement and
the other Loan Documents reflect the entire understanding of the parties with
respect to their subject matter and supersede all prior agreements or
understandings with respect thereto in their entirety.
9.10. HEADINGS. Headings of the sections of this Agreement are
for convenience only and shall not affect the construction of this Agreement.
9.11. EFFECTIVE DATE. This Agreement shall become effective
upon the execution of a counterpart hereof by each of the parties.
9.12. CONFESSION OF JUDGMENT. The Company hereby authorizes
any attorney at law to appear for the Company, in an action on this Agreement,
at any time after any obligation hereunder becomes due, as herein provided, in
any court of record in or of the State of Ohio, or elsewhere, to waive the
issuing and service of process against the Company and to confess judgment in
favor of the Bank or the party entitled to the benefits of this Agreement
against the Company for the amount that may be due, with interest at the
default rate provided for in the Loan Documents and costs of suit, and to waive
and release all errors in said proceedings and judgment, and all petitions in
error, and right of appeal from the judgment rendered.
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The parties hereto have caused this Agreement to be duly executed by
their respective duly authorized officers as of the day and year first above
written.
BANK ONE, COLUMBUS, NA
By______________________________________
Thomas D. Igoe
Senior Vice President
WARNING - BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO
COLLECT FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE
AGAINST THE CREDITOR WHETHER FOR RETURNED GOODS, FAULTY GOODS, FAILURE ON
HIS PART TO COMPLY WITH THIS AGREEMENT, OR ANY OTHER CAUSE.
[**SUBSIDIARY**]
By_______________________________
Its______________________________
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COLLATERAL LOCATIONS
EXHIBIT
[**To be prepared by the Company as
anticipated by Section 3.3**]
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EXHIBIT 4.1(K)
FORM OF BORROWER'S COUNSEL'S OPINION
1. The Company and each of its Wholly Owned Subsidiaries are corporations
duly organized, and each other Subsidiary is a corporation duly
incorporated, and the Company and each Subsidiary is validly existing
and in good standing under the laws of the jurisdictions in which
incorporated. The Company and each of its Subsidiaries have all
requisite power and authority, corporate or otherwise, to own or lease
their property and carry on their businesses as and in the places
where such properties are now located, leased or operated or such
businesses are now conducted and the Company has such power and
authority to enter into and perform all of its obligations under the
Agreement, the Notes, the Security Agreement and the Pledge Agreement.
Each Wholly Owned Subsidiary has all requisite power and authority,
corporate or otherwise, to enter into and perform all of its
obligations under its Subsidiary Guaranty and Subsidiary Security
Agreement.
2. The execution, delivery and performance by the Company of the
Agreement, the Notes, the Security Agreement and the Pledge Agreement
has been duly authorized by all necessary corporate action. The
Agreement, the Notes, the Security Agreement and the Pledge Agreement
have been duly executed and delivered by the Company. The Agreement,
the Notes, the Security Agreement and the Pledge Agreement constitute
the legal, valid and binding obligation of the Company, and are
enforceable against the Company in accordance with their terms,
subject as to enforceability to bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights generally
and subject to general principles of equity.
3. The execution, delivery and performance by each of the Wholly Owned
Subsidiaries of its Subsidiary Guaranty and Subsidiary Security
Agreement has been duly authorized by all necessary corporate action.
Each of the Subsidiary Guaranties and Subsidiary Security Agreements
has been duly executed and delivered by the applicable Wholly Owned
Subsidiary. Each of the Subsidiary Guaranties and Subsidiary Security
Agreements constitutes the legal, valid and binding obligation of the
applicable Wholly Owned Subsidiary, and is enforceable against such
Wholly Owned Subsidiary in accordance with its terms, subject as to
enforceability to bankruptcy, insolvency or other similar laws
affecting the enforcement of creditors' rights generally and subject
to general principles of equity.
4. Each of the Notes issued and delivered to the Bank pursuant to the
provisions of the Agreement (assuming its due execution and delivery)
is a valid, binding and enforceable obligation of the Company in
accordance with its terms, subject as to enforceability to bankruptcy,
insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to general principles of
equity.
5. To the best of our knowledge, after due inquiry, neither the Company
nor any of its Subsidiaries is in violation of or in default under any
provision of: its Certificate of
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Incorporation or Bylaws (each as amended to date); any law, rule,
regulation, order, writ, judgment, injunction, decree, determination
or award presently in effect and having applicability to the Company
or any of its Subsidiaries; or any loan, indenture, credit agreement,
lease or other instrument which violation or default could materially
adversely affect the business, Consolidated financial position or
Consolidated results of operations of the Company and its Subsidiaries.
6. To the best of our knowledge, after due inquiry, the execution,
delivery and performance of the Agreement, the Notes, the Security
Agreement and the Pledge Agreement by the Company and of the
Subsidiary Guaranties and Subsidiary Security Agreements by each of
the Wholly Owned Subsidiaries does not result in a violation of any
terms or conditions of the Certificate of Incorporation or Bylaws of
the Company or any Wholly Owned Subsidiary, or breach any term or
provision of, or constitute a default under, any agreement, note or
other agreement to which the Company or any of its Subsidiaries is a
party, which violation, breach or default could materially adversely
affect the business, Consolidated financial position or Consolidated
results of operations of the Company and its Subsidiaries.
7. To the best of our knowledge, after due inquiry, there is no action,
proceeding or investigation pending or threatened which questions the
validity of the Agreement, the Notes or any of the Loan Documents or
any action taken or to be taken pursuant thereto, or which might
result, either in any case or in the aggregate, in any material and
adverse change in the business, operations, affairs or condition of
the Company or any of its Subsidiaries, their properties and assets or
in any material liability on the part of the Company or any of its
Subsidiaries.
8. All amounts due or to become due to the Bank under the Agreement are
"Senior Indebtedness" as that term is defined in that certain
Indenture (the "Indenture") dated as of October 5, 1989 between the
Company and The Huntington National Bank as trustee pursuant to which
$52,000,000 principal amount of 7 3/4% Convertible Subordinated
Debentures due October 1, 2014 (the "Subordinated Debentures") was
issued. The Subordinated Debentures are subordinated and subject in
right to the prior payment in full of all amounts due or to become due
to the Bank under the Agreement to the extent and in the manner set
forth in the subsections of Article Fourteen of the Indenture.
9. Each of the Notes is entitled to the benefits of, and is secured by
valid Liens created by, the Pledge Agreement, the Security Agreement,
the Subsidiary Guaranties and the Subsidiary Security Agreements.
10. The provisions of the Pledge Agreement, the Security Agreement and the
Subsidiary Security Agreements are effective to create in favor of the
Bank legal, valid and enforceable security interests as between the
parties to those agreements, but specifically excluding any opinion as
to the perfection of those security interests except as provided in
paragraph 11 below, in all right, title, and interest of the Company
and the Wholly Owned Subsidiaries in the Collateral, as defined
therein, and further subject as to enforceability to
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bankruptcy, insolvency or other similar laws affecting the
enforcement of creditors' rights generally and subject to general
principles of equity.
11. Assuming (i) the accuracy and completeness of the list of Store
Locations set forth on attached Exhibit B, and (ii) that, other than
[**Barclay Farms, Inc. and Centerline, Inc. as to the State of
Delaware and Drug Emporium, Inc. as to the States of South Carolina,
Indiana and New Hampshire**], each debtor has a place of business in
more than one county of each state listed opposite its respective name
on attached Exhibit C, and based solely upon our review of Ohio law
and the CCH Secured Transaction Guide as to the other jurisdictions,
the filing of financing statements in substantially the form of
Exhibit A, with appropriate names of the debtor inserted therein and
appropriate exhibits appended thereto (the "Financing Statements")
with the Secretary of State and County Recorder (or other comparable
official) of the states and counties listed on attached Exhibit C will
be sufficient to perfect the Bank's security interest described in the
Security Agreement and the Subsidiary Security Agreements in the
Collateral as defined therein, and the delivery to the Bank of the
Collateral, as defined in the Pledge Agreement, is sufficient to
perfect the Bank's security interest described in the Pledge
Agreement, except as follows:
(a) in the case of "instruments" [as such term is defined in
Uniform Commercial Code Section 9-105 (1)(i) (Ohio Revised
Code Section 1309.01(A)(9)] not constituting part of "chattel
paper" [as such term is defined in Uniform Commercial Code
Section 9-105(1)(b) (Ohio Revised Code Section
1309.01(A)(2)], the security interest of the Bank therein
cannot be perfected through the filing of the Financing
Statements but will be perfected if possession thereof is
obtained by the Bank;
(b) insofar as the Bank's security interest relates to
after-acquired Collateral, such security interest will be
perfected only when the Company or a Subsidiary acquires
rights in such Collateral;
(c) the effectiveness of the Financing Statements terminates five
years after the date of filing, unless a continuation
statement is filed prior to such termination in accordance
with Uniform Commercial Code Section 9-403(2)-(3) [Ohio
Revised Code Section 1309.40(B)-(C)];
(d) in the case of nonidentifiable cash proceeds, continuation of
perfection of the Bank's security interest therein is limited
to the degree set forth in Uniform Commercial Code Section
9-306 (Ohio Revised Code Section 1309.25);
(e) if the Company or a Subsidiary so changes its name, identity,
or corporate structure that any Financing Statement becomes
seriously misleading, the filing of such Financing Statement
will, pursuant to Uniform Commercial Code Section 9-402(7)
[Ohio Revised Code Section 1309.39(G)], be ineffective to
perfect a security interest in collateral acquired by the
Company or any such Subsidiary more than four months after the
change, unless a new appropriate financing statement is filed
before the expiration of that period;
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(f) in the case of either (1) the movement of certain tangible
collateral to a state in which a Financing Statement has not
been filed or (2) a change in the location of the Company or a
Subsidiary to a state in which a Financing Statement has not
been filed, the Bank's security interest will become
unperfected unless a new appropriate financing statement is
filed in the new state within four months in accordance with
Uniform Commercial Code Section 9-103 (Ohio Revised Code
Section 1309.03); and
(g) under certain circumstances described in Uniform Commercial
Code Section Section 9-307 and 9-308 (Ohio Revised Code
Section Section 1309.26 and 1309.27), purchasers of collateral
may take the same free of a perfected security interest.
12. To the best of our knowledge, after due inquiry (such inquiry
consisting solely of (a) a certificate delivered to us by the Company,
and (b) our review of the results of searches conducted by, and made
available to us by, the Bank, as set forth on attached Exhibit D), the
Bank's perfected security interest in the Collateral described in the
Security Agreement and the Subsidiary Security Agreements is prior to
any other security interest in such Collateral evidenced by the filing
of a financing statement, but only to the extent a security interest
in such Collateral created by the Security Agreement and the
Subsidiary Security Agreements may be perfected by the filing of
financing statement(s), and, assuming that the Bank has no notice of
any adverse claim in favor of any third person in the Collateral
described in the Pledge Agreement, the Bank's perfected security
interest in the Collateral described in the Pledge Agreement is prior
to any Liens, except for the following:
(a) the Bank's security interest is subordinate to the Liens
described on Exhibit D attached hereto and made a part hereof;
(b) the Bank's security interest is subordinate to Liens expressly
permitted under the Agreement or the Pledge Agreement, the
Security Agreement or the Subsidiary Security Agreements; and
(c) insofar as the Bank's security interest relates to
after-acquired Collateral, such security interest may be
subordinated in priority to the conflicting security interest
of a purchase-money creditor pursuant to Uniform Commercial
Code Section 9-312(3)-(4) [Ohio Revised Code Section
1309.31(C)-(D)] or to a federal tax lien properly filed more
than forty-five (45) days before such security interest arises
(or a lesser period, if the Bank acquires knowledge of such
federal tax lien), pursuant to 26 U.S.C. Section 6323(c).
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EXHIBIT 5.9
PENDING LITIGATION
NORTEX DRUG DISTRIBUTORS, INC. V. DRUG EMPORIUM, INC, Case No.
C2-93-767, filed August 6, 1993, and TEXAS DRUG DISTRIBUTORS, INC. V. DRUG
EMPORIUM, INC., Case No. C2-93-847, filed August 30, 1993, both of which are
pending in the United States District Court, Southern District of Ohio, Eastern
Division. The plaintiffs in the two suits are both franchisees of the Company.
The claims set forth in the complaints are substantially the same in both suits
and allege that the Company failed to perform as required under the Company's
franchise agreements with plaintiffs and under Texas law. Plaintiffs also
claim that the Company imposed a mandatory pricing structure on plaintiffs
which violated state and federal antitrust laws. The plaintiffs are seeking
treble damages and a declaration that the noncompetition clause in the
franchise agreements is unenforceable. No specific amount of damages is
claimed. The Company intends to aggressively defend these suits.
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EXHIBIT 5.16
LIST OF SUBSIDIARIES AND AFFILIATES
NAME SHARES OWNED PERCENTAGE OWNED
CENTERLINE, INC. 10 100.00%
WINTER FERN DRUG DISTRIBUTORS, INC. 100 100.00%
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EXHIBIT 6.4(I)
DRUG EMPORIUM, INC.
BORROWING BASE CERTIFICATE
Date: ____________________________________
COLLATERAL ACTIVITY
1. Gross FIFO Inventory owned by Drug Emporium exclusive of
Inventory owned by Subsidiaries and Affiliates as of
_____________, 199__ except for up to $3 million of
Winter Fern Drug Distributors, Inc. _____________
2. LESS: Reserve for shrink _____________
3. LESS: All other Inventory reserves, if any, other than
LIFO reserves _____________
4. Net FIFO Inventory (Line 1 minus Lines 2 and 3) _____________
5. LESS: Pharmacy Prescription Inventory _____________
6. LESS: Inventory in Transit _____________
7. LESS: 285% of outstanding Term Loan balance _____________
8. LESS: Face amount of Borrower guaranties of
obligations of Affiliates and Subsidiaries, other than
Wholly-Owned Subsidiaries, engaged in the Core Business
(not to exceed $1,000,000) _____________
9. Eligible Inventory as of ________________________ _____________
10. Funds Available under the Revolving Credit: 35% of Line 9_____________
-100-
<PAGE> 110
LOAN ACTIVITY
11. Beginning Revolving Credit Loan Balance (from Line 14 of
previous certificate) _______________
12. LESS: Payments made since last report _______________
13. PLUS: Revolving Credit Loans received since last report _______________
14. New Revolving Credit Loan Balance as of _________________________________
15. Remaining Availability (Line 10 - Line 14) _______________
The undersigned represents and warrants that the foregoing information
is true, complete and correct, and the collateral reflected herein complies
with the conditions, terms, warranties, representations and covenants set forth
in the First Amened and Restated Revolving Credit and Term Loan Agreement
between the undersigned and BANK ONE, COLUMBUS, NA and any supplements and
amendments, if any, thereto. The undersigned promises to pay to the order of
BANK ONE, COLUMBUS, NA the new loan balance reflected above, plus interest, as
set forth in the First Amended and Restated Revolving Credit and Term Loan
Agreement and any supplements and amendments, if any, thereto.
DRUG EMPORIUM, INC. Date_________________
Authorized Signature______________________________
Title_____________________________________________
2
L:\CORP\BANKONE\DRUGEMPR\CFBCERT.DOC 01/03/94 01:26 PM
<PAGE> 111
EXHIBIT 6.4(K)
LANDLORD'S WAIVER AND CONSENT
This Landlord's Waiver and Consent is executed as of this _ day of
__________________, 199__, by ________________, located at __________________
("Landlord"), for the benefit of Bank One, Columbus, NA, a national banking
association located at 100 East Broad Street, Columbus, Ohio 43215 (the "Bank").
W I T N E S S E T H:
WHEREAS, the Bank has made or is about to make one or more loans,
advances, and/or other financial accommodations to Drug Emporium, Inc. (the
"Borrower"), to be secured in whole or in part by a guaranty of ______________
(the "Subsidiary"), which guaranty is to be secured in whole or in part by a
security agreement covering among other things, the inventory of the Subsidiary
(the "Collateral"); and
WHEREAS, the Collateral is or may be kept at the premises located at
________________ (the "Premises") which are owned by the Landlord and leased to
the Subsidiary, pursuant to a lease agreement (the "Lease").
1. The Landlord consents to the location of the Collateral in the
Premises, and agrees that any right, title or interest in or to the Collateral
it may have or acquire under statute or through any other means by reason of
the location in the Premises of the Collateral, or possession thereof, or
otherwise, is subordinate to the right, title and interest of the Bank in and
to the Collateral to the full extent the Collateral secures or may hereafter
secure any and all obligations and indebtedness of every kind, now existing or
hereafter arising, and the Landlord hereby agrees that, so long as the Borrower
is obligated or indebted to the Bank, the Landlord shall not exercise any
rights, assert any claim or interest, take any action or institute any
proceedings with respect to the Collateral.
2. The Bank and its agents and representatives may enter the Premises
and remove and take possession of the Collateral at any time in accordance with
said security agreement and the Bank shall have the right to occupy the
Premises for such purposes. The Landlord will not hinder the Bank's actions in
assembling the Collateral located on the Premises, will permit the Bank to
remove the Collateral from the Premises without charge and will not hinder the
Bank's actions in enforcing its liens in the Collateral.
3. The Landlord shall and does hereby waive and relinquish in favor of
the Bank any right, claim, interest and lien which the Landlord now has or may
hereafter have in and to the Collateral, including, without limitation, any
right to levy upon the Collateral and any right to distraint with respect
thereto under any law now or hereafter in force.
-102-
<PAGE> 112
4. In connection with exercising any of its rights pursuant to this
Waiver and Consent, the Bank agrees that it will repair any and all damage
caused to any of the real property improvements located on the Premises so as
to cause such real property improvements to be returned to the same condition
they were in immediately prior to the taking of any such actions by the Bank.
5. The provisions hereof shall remain in full force and effect until
the Borrower has fully paid and performed all of its obligations to the Bank
under all security agreements, present and future, and any extensions,
modifications and renewals thereof at any time made.
This Landlord's Waiver and Consent shall be binding upon and inure to
the benefit of the parties herein named and their respective assigns and
successors in interest.
IN WITNESS WHEREOF, the Landlord has duly executed this Landlord's
Waiver and Consent as of the day and year first above written.
________________________________________
[Individual Landlord]
STATE OF ________________________________
COUNTY OF _______________________________, SS:
BE IT REMEMBERED, that on this ___________ day of __________________,
199__, before me the subscriber, a Notary Public in and for said County and
State, personally came the above-named
__________________________________________who acknowledged the signing of the
foregoing Waiver and Consent to be his voluntary act and deed.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
official seal on the day and year first aforesaid.
________________________________________
Notary Public
-103-
<PAGE> 113
[Corporate Landlord]
STATE OF ________________________________,
COUNTY OF ______________________, ss:
BEFORE ME, the undersigned authority, on this date personally appeared
______________________ of _______, a corporation, known to me to be the person
and officer whose name is subscribed to the foregoing instrument and being by
me first duly sworn acknowledged to me that he executed the same as the act and
deed of such corporation for the purposes and consideration therein expressed,
and in the capacity therein stated.
GIVEN UNDER MY HAND AND SEAL OF OFFICE this _______ day of
_________________, 199__.
________________________________________
Notary Public.
[Partnership Landlord]
STATE OF _______________________ :
: SS
COUNTY OF ______________ :
BE IT REMEMBERED, that on this ___________ day of __________________,
199__, before me, the subscriber, a Notary Public in and for said county,
personally came _________________________,
_________________________________________, and ___________________, being all
the general partners of ________________________________, the Landlord in the
foregoing instrument, and acknowledged the signing thereof on behalf of
the __________________________.
IN TESTIMONY WHEREOF, I have hereunto subscribed my name and affixed my
seal on this day and year aforesaid.
___________________________________________________
Notary Public
-104-
<PAGE> 1
<TABLE>
EXHIBIT 11.1
DRUG EMPORIUM, INC.
COMPUTATION OF EARNINGS (LOSS) PER SHARE
<CAPTION>
YEAR ENDED
February 26 February 27 February 29
1994 1993 1992
<S> <C> <C> <C>
PRIMARY:
Weighted Average Number of Common Shares 13,132,745 13,115,027 12,970,582
Outstanding
Net Effect of Dilutive Stock Options -- (1) (1) (1)
Based on Treasury Stock Method using
Estimated Average Market Price
Weighted Average Common and Common 13,132,745 13,115,027 12,970,582
Equivalent Shares
Net Income (Loss) 1,281,000 ($2,666,694) ($4,670,422)
Net Income (Loss) Per Common and Common $0.10 ($0.20) ($0.36)
Equivalent Share
Fully Diluted:
Weighted Average Number of Common Shares 13,132,745 13,115,027 12,970,562
Outstanding
Net Effect of Dilutive Stock Options -- (1) (1) (1)
Based on Treasury Stock Method using An
Estimated Year-End Marketprice
Fully Diluted Shares 13,132,745 13,115,027 12,970,562
Income (Loss) 1,281,000 ($2,666,694) ($4,670,422)
Savings (Loss) Per Share Assuming Full $0.10 ($0.20) ($0.36)
Dilution
<FN>
(1) Excluded since amounts are antidilutive.
</TABLE>
<PAGE> 1
Exhibit 13.1
DRUG EMPORIUM, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
- - -------------------------------------------------------------------------------
The following table is derived from the consolidated financial statements of
the Company and sets forth selected financial data and other operating
information. The financial data should be read in conjunction with the
consolidated financial statements and related notes contained elsewhere in this
report and Management's Discussion and Analysis of Financial Condition and
Results of Operations.
<TABLE>
STATEMENT OF OPERATIONS DATA:
<CAPTION>
Year Ended February
1994 1993 1992 1991 1990
(In thousands, except per share data) ------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales . . . . . . . . . . . . . . . . . $ 749,040 $ 756,710 $ 742,343 $ 620,212 $ 487,955
Gross margin . . . . . . . . . . . . . . . 154,773 154,022 142,404 123,869 99,585
Less:
Selling, administrative and occupancy
expenses . . . . . . . . . . . . . . . . 146,220 146,726 136,798 108,340 82,723
Other expenses, (net) . . . . . . . . . . 6,183 10,505 12,859 4,249 2,529
------------------------------------------------------------------
Income (loss) before income taxes . . . . . 2,370 (3,229) (7,253) 11,280 14,333
Provision (benefit) for income taxes . . . 1,089 (562) (2,583) 4,689 6,127
------------------------------------------------------------------
Net income (loss) . . . . . . . . . . . . . $ 1,281 $ (2,667) $ (4,670) $ 6,591 $ 8,206
==================================================================
PER SHARE DATA:
Net income (loss) . . . . . . . . . . . . . $ 0.10 $ (0.20) $ (0.36) $ 0.50 $ 0.63
Cash dividends . . . . . . . . . . . . . . $ -- $ 0.04 $ 0.12 $ 0.11 $ 0.10
Shareholders' equity . . . . . . . . . . . $ 3.91 $ 3.82 $ 4.06 $ 4.49 $ 4.19
CONSOLIDATED BALANCE SHEET DATA:
Working capital . . . . . . . . . . . . . . $ 82,176 $ 72,525 $ 74,239 $ 82,465 $ 86,604
Total assets . . . . . . . . . . . . . . . $ 196,890 $ 194,935 $ 188,948 $ 183,837 $ 174,376
Non-current liabilities . . . . . . . . . . $ 67,566 $ 59,861 $ 61,634 $ 62,771 $ 67,026
Total shareholders' equity . . . . . . . . $ 51,484 $ 50,095 $ 53,254 $ 58,633 $ 53,284
</TABLE>
10
<PAGE> 2
<TABLE>
DRUG EMPORIUM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- - -----------------------------------------------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS:
The following table sets forth selected items from the Company's Consolidated Statement of Operations expressed as a percentage of
net sales for the years indicated.
<CAPTION>
YEAR ENDED FEBRUARY
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Net sales (in thousands) . . . . . . . . . . . . . . . . . . $ 749,040 $ 756,710 $ 742,343
Gross margin . . . . . . . . . . . . . . . . . . . . . . . . 20.7% 20.4% 19.2%
Selling, administrative and occupancy expense . . . . . . . . 19.5 19.4 18.4
Other expenses (net) . . . . . . . . . . . . . . . . . . . . .9 1.4 1.8
-------------------------------------------
Income (loss) before income taxes . . . . . . . . . . . . . . .3 (.4) (1.0)
Provision (benefit) for income taxes . . . . . . . . . . . . .1 (.1) (.4)
-------------------------------------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . .2 (.3%) (.6%)
===========================================
</TABLE>
Sales declined one percent in fiscal 1994 compared with a two percent increase
for fiscal 1993 resulting from a reduction in comparable store sales of 1.8% and
3.9%, respectively, offset by the impact of store openings and closings. The
decline in comparable store sales is primarily attributable to an overall
weakness in consumer spending in the early part of fiscal 1994 and increased
competition.
The following table lists store openings, stores acquired and stores closed for
the year ended February 26, 1994 and prior years.
<TABLE>
YEAR ENDED FEBRUARY
1994 1993 1992
-------------------------------------------
<S> <C> <C> <C>
Number of stores at beginning of year . . . . . . . . . . . . 132 128 109
Stores opened . . . . . . . . . . . . . . . . . . . . . . . . 6 12 25
Stores acquired . . . . . . . . . . . . . . . . . . . . . . . -- -- 3
Stores closed . . . . . . . . . . . . . . . . . . . . . . . . (5) (8) (9)
-----------------------------------------
Total stores at end of year . . . . . . . . . . . . . . . . . 133 132 128
=========================================
</TABLE>
Gross margin as a percentage of net sales increased in fiscal 1994 over the
previous year. This is primarily due to lower product costs, and selectively
strengthened product pricing including introduction of private label brands in
all Company stores, partially offset by reductions in the retail price of the
most competitive items. The fiscal 1993 gross margin percentage increased over
the previous year primarily due to actions taken to lower product costs and
selectively strengthened product pricing.
Selling, administrative and occupancy expenses decreased slightly in fiscal 1994
as compared to fiscal 1993 on a lower sales base. These same expenses increased
in fiscal 1993 as a percentage of sales as compared to fiscal 1992 due to
negative comparable store sales, the slower maturity of new store sales volumes
and the inability to proportionately absorb the fixed expenses of the new
stores.
Other expenses include primarily interest on borrowings and charges for
restructuring, severance and store closings. In fiscal 1993, the Company
recorded a $4,357,000 charge for restructuring, severance and store closing
costs. A similar charge of $7,270,000 was recorded in fiscal 1992.
INVENTORY VALUATION:
The Company uses the LIFO method of accounting for its inventories. Under this
method, the cost of merchandise sold reported in the financial statements
approximates current costs.
The Company, in computing its LIFO charges throughout the fiscal year, uses an
estimated percentage rate of inflation determined at the beginning of the fiscal
year. This LIFO charge is adjusted at each year end based upon the actual
weighted average percentage rate of inflation during the fiscal year.
11
<PAGE> 3
DRUG EMPORIUM, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
- - ----------------------------------------------------------------------------
<TABLE>
The table below sets forth LIFO charge and the corresponding inflation rates
for the years indicated.
<CAPTION>
Year Ended February
1994 1993 1992
----------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
LIFO charge ......................... $654 $1,837 $3,680
Inflation rate ...................... .5% 1.2% 2.4%
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES:
The Company signed a new bank credit agreement (Agreement) on January 4, 1994.
The Agreement increases the available borrowings and replaces the previous bank
credit agreement that was due to expire August 31, 1996.
The Agreement allows for a total credit facility of $45,000,000, depending on
available collateral, consisting of a revolving credit line (Revolver) of up to
$30,000,000 and $15,000,000 of term debt. The Revolver expires on February 28,
1997, while the term debt is due in quarterly installments, as follows:
$500,000 during fiscal 1995, $750,000 during fiscal 1996 and fiscal 1997, and
$875,000 during fiscal 1998 and 1999. The interest rate on the Revolver and the
term debt float at the bank's prime rate (Prime) and prime plus 1/4%,
respectively. The Agreement requires a commitment fee on the Revolver (.375% on
the first $20,000,000 and .25% on the last $10,000,000) and has no compensating
balance requirements.
Borrowings made pursuant to the Agreement are secured by inventory and accounts
receivable. The Agreement contains certain covenants pertaining to, among other
things, the Company's investments, net worth, working capital, indebtedness
and fixed charge coverage. The Agreement also restricts payment of dividends,
stock repurchases and acquisition of the Company's convertible subordinated
debt to 50% of the cumulative net income (as defined). The Company believes
that internally generated funds and borrowings available under its Agreement
are sufficient to finance the Company's current operations.
12
<PAGE> 4
<TABLE>
DRUG EMPORIUM, INC.
CONSOLIDATED BALANCE SHEETS
- - ---------------------------------------------------------------------------------------------
<CAPTION>
FEBRUARY 26 FEBRUARY 27
1994 1993
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash $ 585 $ 465
Accounts receivable 9,455 6,388
Inventories 146,569 146,847
Income taxes and other 3,407 3,804
-------- -----------
Total current assets 160,016 157,504
Property and equipment, net 29,512 32,072
Goodwill 6,736 4,473
Other assets 626 886
-------- -----------
Total assets $196,890 $194,935
-------- -----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Revolving credit line $ 13,480 $ 27,000
Accounts payable 37,375 33,336
Other accrued expenses 22,875 22,266
Current maturities of long-term debt 4,110 2,377
-------- -----------
Total current liabilities 77,840 84,979
Convertible subordinated debt 50,805 50,748
Long-term debt, other 16,761 5,832
Minority interest - 3,281
Shareholders' equity:
Preferred stock, authorized 2,000,000 shares, none issued - -
Common stock, stated value $.10 per share, authorized
28,000,000, issued and outstanding 13,154,000, 1994;
13,117,000, 1993 1,315 1,312
Additional paid-in capital 32,014 31,909
Retained earnings 18,155 16,874
-------- -----------
Total shareholders' equity 51,484 50,095
-------- -----------
Total liabilities and shareholders' equity $196,890 $194,935
-------- -----------
<FN>
SEE ACCOMPANYING NOTES.
</TABLE>
13
<PAGE> 5
<TABLE>
DRUG EMPORIUM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
- - -------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
FEBRUARY 26 FEBRUARY 27 FEBRUARY 29
1994 1993 1992
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales $749,040 $756,710 $742,343
Cost of sales 594,267 602,708 599,939
-------- -------- --------
154,773 154,002 142,404
-------- -------- --------
Selling, administrative and occupancy
expenses 146,220 146,726 136,798
Restructuring and store closure expense - 4,357 7,270
Interest expense, net 5,983 5,596 5,629
Minority interest and other 200 552 (40)
-------- -------- --------
Income (loss) before income taxes 2,370 (3,229) (7,253)
Provision (benefit) for income taxes 1,089 (562) (2,583)
-------- -------- --------
Net income (loss) $ 1,281 $ (2,667) $ (4,670)
-------- -------- --------
Net income (loss) per share $ .10 $ (.20) $ (.36)
-------- -------- --------
Weighted average number of common and
common equivalent shares (if dilutive)
used in computing net income (loss) per share 13,133 13,115 12,971
-------- -------- --------
<FN>
SEE ACCOMPANYING NOTES.
</TABLE>
14
<PAGE> 6
<TABLE>
DRUG EMPORIUM, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
- - --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONAL TOTAL
COMMON STOCK PAID-IN RETAINED TREASURY SHAREHOLDERS'
SHARES AMOUNT CAPITAL EARNINGS STOCK EQUITY
<S> <C> <C> <C> <C> <C> <C>
----------------------------------------------------------------------------------------
(In thousands)
Balance at March 1, 1991 13,062 $1,306 $31,052 $27,632 $(1,357) $58,633
Exercise of stock options 213 21 825 - - 846
Net loss - - - (4,670) - (4,670)
Dividends paid ($.12 per share) - - - (1,555) - (1,555)
Retirement of treasury stock (165) (16) - (1,341) 1,357 -
------------------------------------------------------------------------------------
Balance at February 29, 1992 13,110 1,311 31,877 20,066 - 53,254
Exercise of stock options 7 1 32 - - 33
Net loss - - - (2,667) - (2,667)
Dividends paid ($.04 per share) - - - (525) - (525)
-------------------------------------------------------------------------------------
Balance at February 27, 1993 13,117 1,312 31,909 16,874 - 50,095
Exercise of stock options 37 3 105 - - 108
Net income - - - 1,281 - 1,281
-------------------------------------------------------------------------------------
Balance at February 26, 1994 13,154 $1,315 $32,014 $18,155 $ - $51,484
-------------------------------------------------------------------------------------
<FN>
SEE ACCOMPANYING NOTES.
</TABLE>
15
<PAGE> 7
<TABLE>
DRUG EMPORIUM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
- - ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
YEAR ENDED
-------------------------------------------------------
FEBRUARY 26 FEBRUARY 27 FEBRUARY 29
1994 1993 1992
-------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 1,281 $ (2,667) $ (4,670)
Add (deduct) non-cash charges (credits):
Restructuring and store closure expense - 4,357 7,270
Depreciation and amortization 6,542 6,537 6,163
Minority interest 200 623 271
Deferred income taxes 1,893 (1,244) (3,973)
LIFO provision 654 1,857 3,680
Cash provided by (used for) current assets and
liabilities, net of effects from acquisitions
of franchisees:
Accounts payable and accrued expenses 4,648 (16,094) (1,932)
Accounts receivable (3,067) 5,168 (1,778)
Inventories at current cost (376) (15,326) 6,242
Other (1,429) 1,707 482
-----------------------------------------------
Net cash provided by (used for) operating activities 10,346 (15,082) 11,755
INVESTING ACTIVITIES
Purchase of property and equipment, net (3,220) (4,163) (12,331)
Purchase of franchisees, net of cash acquired - - (3,115)
Acquisition of minority interest (6,256) - (1,291)
-----------------------------------------------
Net cash used for investing activities (9,476) (4,163) (16,737)
FINANCING ACTIVITIES
Net borrowings (repayments) under revolving
credit line (13,520) 22,200 (1,400)
Cash dividends - (525) (1,555)
Proceeds from term debt 15,000 - -
Net borrowings (repayments), other (2,338) (2,464) 7,457
Other 108 33 561
-----------------------------------------------
Net cash provided by (used for) financing activities (750) 19,244 5,063
-----------------------------------------------
Increase (decrease) in cash and cash equivalents, net 120 (1) 81
Cash and cash equivalents, net, beginning of year 465 466 385
-----------------------------------------------
Cash and cash equivalents, net, end of year $585 $465 $466
===============================================
<FN>
SEE ACCOMPANYING NOTES.
</TABLE>
16
<PAGE> 8
DRUG EMPORIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- - -----------------------------------------------------------------------------
1. SIGNIFICANT ACCOUNTING POLICIES-------------------------------------------
BASIS OF OPERATION
The consolidated financial statements include the accounts of Drug Emporium,
Inc. and subsidiaries (the Company) whose primary business activity is the
operation of retail stores specializing in the sale of health and beauty aids,
cosmetics, pharmaceuticals and general merchandise at competitive prices.
Significant intercompany accounts and transactions have been eliminated in
consolidation.
FISCAL YEAR
The Company operates on a fiscal year consisting of four thirteen week fiscal
quarters. The quarter and fiscal year ends were as follows:
<TABLE>
<CAPTION>
FISCAL YEAR 1994 FISCAL YEAR 1993
<S> <C> <C>
First quarter May 29, 1993 May 30, 1992
Second quarter August 28, 1993 August 29, 1992
Third quarter November 27, 1993 November 28, 1992
Year end February 26, 1994 February 27, 1993
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
use of the last-in, first-out (LIFO) method. If current cost had been used,
inventories would have been approximately $19,381,000 and $19,713,000 higher
than reported at February 26, 1994 and February 27, 1993, respectively. Cost
of sales is primarily computed on an estimated basis and adjusted based on
physical inventories which are generally taken at all locations twice annually.
PROPERTY AND EQUIPMENT
Property and equipment is stated on the basis of cost. Depreciation is
computed by the straight-line method based on estimated useful lives of owned
assets. Leasehold improvements are amortized over the estimated physical life
of the asset or the term of the lease, whichever is shorter.
PRE-OPENING EXPENSES
Expenditures related to the opening of new retail drugstores, other than
expenditures for capital assets, are charged to expense when incurred.
GOODWILL
Goodwill is amortized over 15 years using the straight-line method. The
Company amortized $512,000, $391,000 and $391,000 of goodwill during fiscal
1994, 1993 and 1992, respectively. Accumulated amortization was $2,114,000 at
February 26, 1994 and $1,602,000 at February 27, 1993.
DEBT ISSUANCE COSTS
Debt issuance costs incurred in connection with the convertible subordinated
debt are amortized using a straight-line method over the term of the debt.
Unamortized debt issuance costs have been recorded as a reduction to the
outstanding debt. Amortization expense related to the issuance costs is
reported as interest expense and approximated $57,000, $58,000 and $51,000 for
fiscal 1994, 1993 and 1992, respectively.
NET INCOME (LOSS) PER SHARE
The Company calculates net income (loss) per share based on the weighted
average number of common shares outstanding and common stock equivalents
derived from dilutive stock options. In computing net income (loss) per common
share, the conversion of the Company's subordinated debentures was not assumed
as the effect would be anti-dilutive.
RECLASSIFICATIONS
Certain amounts in prior years' financial statements have been reclassified to
conform with the fiscal 1994 presentation.
2. RESTRUCTURING AND STORE CLOSURES
During fiscal 1993 and 1992, the Company provided for the cost of restructuring
certain elements of the business including the cost of centralizing certain
operations, streamlining operations and closing unprofitable stores.
3. REVOLVING CREDIT LINE
The Company signed a new bank credit agreement (Agreement) on January 4, 1994.
The Agreement increases the available borrowings and replaces the previous bank
credit agreement that was due to expire August 31, 1996.
The Agreement allows for a total credit facility of $45,000,000, depending on
available collateral, consisting of a revolving credit line (Revolver) of up to
$30,000,000 and $15,000,000 of term debt (see Note 4). The Revolver expires on
February 28, 1997. The interest rate on the Revolver floats at the bank's
prime rate (6% at February 26, 1994). The agreement requires a commitment fee
on the Revolver (.375% on the first $20,000,000 and .25% on the last
$10,000,000) and has no
<PAGE> 9
DRUG EMPORIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - -------------------------------------------------------------------------------
compensating balance requirements.
Borrowings made pursuant to the Agreement are secured by inventory and accounts
receivable. The Agreement contains certain covenants pertaining to, among
other things, the Company's investments, net worth, working capital,
indebtedness and fixed charge coverage. The Agreement also restricts payment
of dividends, stock repurchases and acquisition of the Company's convertible
subordinated debt to 50% of the cumulative net income (as defined).
Cash paid for interest on the revolving credit line and long-term debt
approximated interest expense in fiscal 1994, 1993 and 1992.
4. LONG-TERM DEBT--------------------------------------------------------------
<TABLE>
<CAPTION>
FEBRUARY 26 FEBRUARY 27
1994 1993
----------------------------------
(IN THOUSANDS)
<S> <C> <C>
Convertible subordinated debentures, less unamortized debt
issuance costs of $1,195,000, 1994 and $1,252,000, 1993
$ 50,805 $ 50,748
Term debt 15,000 -
Equipment finance agreements 4,257
6,427
Mortgage note 1,614 1,782
----------------------------------
71,676 58,957
Less current maturities (4,110) (2,377)
----------------------------------
$ 56,580
$ 67,566
----------------------------------
</TABLE>
In September 1989, the Company issued $52,000,000 of 7.75% convertible
subordinated debentures. These debentures are unsecured obligations of the
Company and may be converted into common stock of the Company at any time prior
to maturity, unless previously redeemed. The conversion rate is 65.1466 shares
per $1,000 principal amount of debentures (or approximately $15.35 per share),
subject to certain adjustments under the terms of these debentures. These
debentures are redeemable at the option of the Company at 104.2% of par plus
accrued interest. This redemption rate declines annually to par on the
maturity date, October 1, 1999. The Company has reserved 3,387,624 shares of
common stock for issuance upon conversion of the debentures and 33,900 shares
of Series A Preferred Stock in connection with the rights to be distributed
under the Shareholder Rights Plan (Note 8) with respect to the reserved shares
of common stock.
The term debt is part of the Agreement discussed in Note 3 and is due in
quarterly installments, as follows: $500,000 during fiscal 1995, $750,000
during fiscal 1996 and fiscal 1997, and $875,000 during fiscal 1998 and 1999.
The interest rate on the term debt floats at the bank's prime rate (6% at
February 26, 1994) plus 1/4%.
As of February 26, 1994, substantially all of the Company's furniture, fixtures
and equipment have been pledged as security for the repayment of the equipment
finance agreements. These financing agreements contain interest rates ranging
from 4.5% to 12.7%. Principal amounts related to these agreements due for
fiscal years 1995 through 1999 are $1,937,000, $1,584,000, $710,000, $10,000
and $7,000, respectively.
The Company has a mortgage note secured by its corporate office building that
bears interest at a variable interest rate based on the 30 day commercial paper
rate (6% at February 26, 1994). Principal amounts related to the note due for
fiscal years 1995 through 1999 are $173,000, $177,000, $188,000, $199,000 and
$211,000, respectively.
5. OPERATING LEASES------------------------------------------------------------
The Company leases retail stores under non-cancelable operating leases.
Certain of the leases require contingent rentals based upon sales in excess of
specified amounts and certain are renewable with escalation clauses. Rent
expense (excluding rent expense for closed stores from the date closed) was
$27,960,000, $27,799,000 and $22,035,000 during fiscal 1994, 1993 and 1992,
respectively.
At February 26, 1994 future minimum operating lease payments during the next
five years and thereafter are: 1995-$28,100,000; 1996-$26,500,000;
1997-$25,700,000; 1998-$24,000,000; 1998-$23,400,000 and $87,000,000
thereafter. At February 26, 1994 the future minimum lease payments for closed
stores total approximately $21,100,000 for which the Company estimates it will
receive approximately $20,500,000 of sub-lease income (for which there are
sub-leases in force aggregating $4,100,000 at February 26, 1994).
<PAGE> 10
DRUG EMPORIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - ------------------------------------------------------------------------------
6. PROPERTY AND EQUIPMENT-----------------------------------------------------
Property and equipment is summarized as follows:
<TABLE>
<CAPTION>
FEBRUARY 26 FEBRUARY 27
1994 1993
------------------------------
(IN THOUSANDS)
<S> <C> <C>
Land and building $ 2,525 $ 2,525
Furniture and fixtures 35,828 33,708
Leasehold improvements 18,575 18,446
------------------------------
56,928 54,679
Less allowances for depreciation and amortization (27,416) (22,607)
------------------------------
$ 29,512 $ 32,072
==============================
</TABLE>
7. INCOME TAXES-----------------------------------------------------------------
Effective February 28, 1993, the Company changed its method of accounting for
income taxes from the deferred method to the liability method as required by
FASB Statement No. 109, "Accounting for Income Taxes". As permitted under the
new rules, prior years' financial statements have not been restated.
The cumulative effect of adopting Statement No. 109 as of February 28, 1993 did
not have a material impact on the financial statements.
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Deferred tax assets
relate primarily to accrued liabilities not yet deducted for tax reporting
purposes. Deferred tax liabilities relate primarily to tax depreciation and
the tax LIFO provision in excess of amounts recorded for financial reporting
purposes. There were no significant deferred tax valuation allowances as of
February 26, 1994. The amounts of these tax liabilities and assets are as
follows (in thousands):
<TABLE>
<CAPTION>
FEBRUARY 26
1994
--------------------
(IN THOUSANDS)
<S> <C>
Deferred income tax assets $ 5,420
Deferred income tax liabilities (3,556)
--------------------
1,864
Current income tax receivable 910
--------------------
$ 2,774
--------------------
</TABLE>
Significant components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
LIABILITY DEFERRED
METHOD METHOD
------------------------------------
1994 1993 1992
------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal . . . . . . . . . . . . . $ (997) $ 430 $ 1,687
State . . . . . . . . . . . . . . 193 252 (297)
------------------------------------
Total current . . . . . . . . . . . (804) 682 1,390
Deferred . . . . . . . . . . . . . 1,893 (1,244) (3,973)
------------------------------------
Total . . . . . . . . . . . . . . . $ 1,089 $ (562) $(2,583)
====================================
</TABLE>
The components of the provision for deferred income taxes for the years ended
February 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
1993 1992
---------------------------
(IN THOUSANDS)
<S> <C> <C>
Inventory valuation . . . . . . . . $ (72) $ (826)
Accrued liabilities . . . . . . . . (834) (2,472)
Other . . . . . . . . . . . . . . . (338) (675)
---------------------------
$ (1,244) $ (3,973)
</TABLE>
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense (benefit) is:
<TABLE>
<CAPTION>
LIABILITY DEFERRED
METHOD METHOD
------------------------------------
1994 1993 1992
------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax at statutory rate . . . . . . . $ 806 $ (1,098) $ (2,446)
State income tax net of federal
tax benefit . . . . . . . . . . . 95 166 (196)
Goodwill and minority interest . . 205 320 225
Other-net . . . . . . . . . . . . . (17) 50 (166)
------------------------------------
$ 1,089 $ (562) $ (2,583)
====================================
</TABLE>
The Company made income tax payments of $1,203,000, $1,743,000 and $1,463,000
in fiscal 1994, 1993 and 1992, respectively.
19
<PAGE> 11
DRUG EMPORIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - -------------------------------------------------------------------------------
8. SHAREHOLDERS' EQUITY--------------------------------------------------------
The Company has authorized 2,000,000 shares of $1.00 par value preferred stock.
The terms of the preferred stock are subject to determination by the Company's
Board of Directors. The Company has a shareholder rights plan which provides
for the distribution of a right to purchase one-hundredth of a share of
preferred stock to each holder of common stock. The rights become exercisable
upon the occurrence of certain triggering events, as defined in the plan.
9. STOCK OPTION PLANS---------------------------------------------------------
The Company has adopted stock option plans for key employees. Under such
plans, the Board of Directors may grant options for shares of common stock at a
price not less than 100% of the fair market value of the shares on the date of
grant. If an employee owns stock possessing more than 10% of the total
combined voting power of the Company, the option price must be 110% of the fair
market value on the date of grant. The options vest based on the term of the
optionee's continuous employment at 10% to 40% per year. Service prior to date
of grant is considered. The following is a summary of transactions under the
option plans:
<TABLE>
<CAPTION>
SHARES UNDER OPTION
1994 1993 1992
------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Outstanding, beginning of year . . . . . . 395 455 656
Granted during the year (at prices from
$4.13 to $6.50 per share) . . . . . . . . 384 - 25
Cancelled during the year . . . . . . . . (78) (53) (13)
Exercised during the year (at prices from
$2.14 to $5.33 per share) . . . . . . . . (37) (7) (213)
------------------------------------------------
Outstanding, end of year (at prices ranging
from $2.14 to $8.81 per share) . . . . . . 664 395 455
================================================
Eligible, end of year for exercise
currently (at prices ranging from $2.14 to
$8.81 per share) . . . . . . . . . . . . . 516 338 397
================================================
</TABLE>
At the end of fiscal years 1994, 1993 and 1992, there were 775,000, 97,000 and
45,000 shares, respectively, reserved for future grants.
10. ACQUISITION OF MINORITY INTEREST AND OTHER---------------------------------
On December 3, 1993, the Company acquired substantially all the remaining
minority shares of the Drug Emporium franchise which operates eleven stores in
Cincinnati and Dayton, Ohio. The cash transaction was financed utilizing the
Company's existing revolving credit line.
During 1992, the Company purchased certain net assets of a franchise operating
three stores in the Orlando, Florida area for $3,115,000.
These acquisitions were accounted for as purchases. Proforma results have not
been presented for these acquisitions since amounts were not significant.
11. CONTINGENCY----------------------------------------------------------------
The Company is a defendant in suits filed by two current franchisees of the
Company alleging failure to perform as required by the franchise agreements and
violation of state and federal antitrust laws. The plaintiffs claim a loss of
investment capital, out-of-pocket expenses and lost profits and goodwill and
seek an unspecified amount of damages. The Company intends to vigorously
defend these suits and believes the ultimate outcome of these suits will not
materially affect the financial position of the Company.
20
<PAGE> 12
DRUG EMPORIUM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
- - ------------------------------------------------------------------------------
<TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)--------------------------------------
<CAPTION>
NET INCOME
(LOSS) DIVIDENDS
NET PER PAID PER
NET GROSS INCOME COMMON STOCK PRICES COMMON
SALES PROFIT (LOSS) SHARE HIGH LOW SHARE
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1994
First quarter $182,538 $ 37,693 $ 151 $ .01 $6.875 $4.000 $ -
Second quarter 184,050 37,230 186 .01 7.625 6.250 -
Third quarter 180,210 37,863 89 .01 6.500 4.625 -
Fourth quarter 202,242 41,987 855 .07 6.625 4.625 -
---------------------------------------------------------------------------------------
$749,040 $ 154,773 $ 1,281 $ .10 $ -
---------------------------------------------------------------------------------------
1993
First quarter $186,805 $ 36,374 $ (710) $(.05) $9.125 $5.125 $ -
Second quarter 183,391 36,256 (650) (.05) 6.125 3.625 .04
Third quarter 182,358 37,003 (2,190) (.17) 6.250 4.125 -
Fourth quarter 204,156 44,369 883 .07 6.750 3.750 -
---------------------------------------------------------------------------------------
$756,710 $ 154,002 $ (2,667) $(.20) $ .04
---------------------------------------------------------------------------------------
<FN>
In the fourth quarter of fiscal 1993 the Company recorded $4.4 million ($2.9
million after tax, $.22 per share) in expenses related to store closings and
restructuring.
</TABLE>
-21-
<PAGE> 13
REPORT OF INDEPENDENT AUDITORS
- - -------------------------------------------------------------------------------
BOARD OF DIRECTORS
DRUG EMPORIUM, INC.
We have audited the accompanying consolidated balance sheets of Drug
Emporium, Inc. and subsidiaries as of February 26, 1994 and February 27,
1993, and the related consolidated statements of operations, shareholders'
equity and cash flows for each of the three years in the period ended
February 26, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above,
present fairly, in all material respects, the consolidated financial position
of Drug Emporium, Inc. and subsidiaries at February 26, 1994 and February 27,
1993, and the consolidated results of their operations and their cash flows
for each of the three years in the period ended February 26, 1994, in
conformity with generally accepted accounting principles.
As discussed in Note 7 to the financial statements, in the year ended February
26, 1994 the Company changed its method of accounting for income taxes.
/s/ ERNST & YOUNG
Columbus, Ohio
April 22, 1994
23
<PAGE> 1
<TABLE>
EXHIBIT 22.1
LIST OF SUBSIDIARIES
--------------------
DRUG EMPORIUM, INC.
LISTED BELOW ARE THE MAJORITY OR WHOLLY OWNED SUBSIDIARIES OF THE REGISTRANT AND THE STATE OF INCORPORATION
OF EACH.
<CAPTION>
NAME OF STATE OF
SUBSIDIARY INCORPORATION
<S> <C>
Centerline, Inc. Delaware
Winter Fern Drug Distributors, Inc. Ohio
</TABLE>
<PAGE> 1
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8, Numbers 33-25768 and 33-69638) of Drug Emporium, Inc. and
subsidiaries of our report dated April 22, 1994, with respect to the
consolidated financial statements and schedule of Drug Emporium, Inc. and
subsidiaries included in this Annual Report (Form 10-K) for the year ended
February 26, 1994.
ERNST & YOUNG
Columbus, Ohio
May 25, 1994
