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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998
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
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COMMISSION REGISTRANT, STATE OF INCORPORATION IRS EMPLOYER
FILE NUMBER ADDRESS AND TELEPHONE NUMBER IDENTIFICATION NO.
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<S> <C> <C>
33-27835-01 AmeriSource Health Corporation 23-2546940
(a Delaware Corporation)
300 Chester Field Parkway
Malvern, PA 19355-
(610) 296-4480
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SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
AMERISOURCE HEALTH CORPORATION:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
AMERISOURCE HEALTH CORPORATION:
COMMON STOCK, $.01 PAR VALUE PER
SHARE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [_]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the 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. [_]
Non-affiliates of AmeriSource Health Corporation, as of December 1, 1998, held
17,026,840 shares of voting stock. The registrant's voting stock is traded on
the New York Stock Exchange under the trading symbol "AAS". The aggregate
market value of the registrant's voting stock held by non-affiliates of the
registrant (based upon the closing price of such stock on the New York Stock
Exchange on December 1, 1998 and the assumption for this computation only that
399 Venture Partners, Inc. and all directors and executive officers of the
registrant are affiliates) was $1,088,653,582.
The number of shares of common stock of AmeriSource Health Corporation
outstanding as of December 1, 1998 was: Class A--21,350,423; Class B--
2,750,783; Class C--127,991.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following document are incorporated by reference in the Part
of this report indicated below:
Part III--Registrant's Proxy Statement for the 1999 Annual Meeting of
Stockholders.
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PART I
ITEM 1. BUSINESS
AmeriSource Health Corporation, through its direct wholly-owned subsidiary
AmeriSource Corporation (referred to collectively as "AmeriSource" and the
"Company"), is the fourth largest full-service wholesale distributor of
pharmaceutical products and related health care services in the United States.
The Company serves its customers nationwide through 20 drug distribution
facilities and three specialty products distribution facilities. AmeriSource
is typically the primary source of supply to its customers and offers a broad
range of services designed to enhance the operating efficiencies and
competitive position of its customers and suppliers. The Company benefits from
a diverse customer base that includes hospitals and managed care facilities
(47%), independent community pharmacies (34%), and chain drug stores,
including pharmacy departments of supermarkets and mass merchandisers (19%).
Over the past five years, AmeriSource has achieved significant growth in
revenues and operating income before unusual items. The Company's operating
revenues have increased from $3.7 billion in fiscal 1993 to $8.6 billion in
fiscal 1998, a compound annual growth rate of 18.6%, while operating income
before unusual items and amortization increased from $73.3 million in fiscal
1993 to $152.8 million in fiscal 1998, a compound annual growth rate of 15.8%.
The Company's growth is primarily the result of market share gains in existing
markets, geographic expansion and overall industry growth.
AmeriSource Health Corporation was incorporated in Delaware in 1988. The
address of the principal executive office of the Company is 300 Chester Field
Parkway, Malvern, PA 19355. The telephone number is (610) 296-4480.
BUSINESS STRATEGY
Over the past five years, AmeriSource has significantly expanded its
national presence as a leading, innovative wholesale distributor of
pharmaceutical products and related health care services. The Company believes
it is well-positioned to continue its revenue growth and increase operating
income through the execution of the following key elements of its business
strategy:
. Expanding into New Geographic Markets. The Company believes that there
are substantial opportunities to grow by expanding into new geographic
areas by opening new distribution facilities and making selective,
complementary acquisitions. Since October 1993, the Company has opened
seven distribution facilities. In October 1993, the Company opened a
facility in Dallas, Texas, and in November 1994, the Company opened two
additional facilities, one each in Portland, Oregon and Springfield,
Massachusetts. In June 1995, the Company opened a facility in Sacramento,
California and in October 1995, a facility in Phoenix, Arizona was
opened. In December 1995, the Company opened a facility in Orlando,
Florida, and in August 1998, the Company opened its newest facility in
Los Angeles, California. Each of these new facilities began operations
with an existing customer base in its regional marketplace. In addition,
in July 1995, the Company acquired Newbro Drug Company, a regional
wholesale pharmaceutical distributor based in Idaho Falls, Idaho; in
February 1996, the Company acquired Gulf Distribution Inc., a regional
wholesale pharmaceutical distributor based in Miami, Florida; and in
March 1997, the Company acquired Walker Drug Company, a regional
wholesale pharmaceutical distributor based in Birmingham, Alabama. The
Company believes that as industry consolidation pressures continue,
additional opportunities may arise to selectively acquire additional
local and regional drug wholesale companies, thereby facilitating
expansion into new geographic areas and enhancement of its competitive
position in existing markets.
. Increasing Market Share in Existing Markets. The Company believes that it
is well-positioned to continue to grow in its existing markets by: (i)
providing superior distribution services coupled with advanced
information systems to reduce costs throughout the pharmaceutical supply
channel; (ii) continuing to develop or acquire specialty value-added
services and programs to improve the competitiveness of its customers and
suppliers; (iii) maintaining its low cost operating structure to ensure
that the Company's services are priced competitively in the marketplace;
and (iv) continuing its decentralized operating structure to respond to
customers' needs more quickly and efficiently and to ensure the continued
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development of local and regional management talent. These factors have
allowed AmeriSource to compete effectively in the marketplace and generate
above-average industry sales growth over the last five years.
. Continuing Growth of Specialty Services. The Company works closely with
both customers and suppliers to develop an extensive range of specialty
services. In addition to enhancing the Company's profitability, these
services increase customer loyalty and strengthen the Company's overall
role in the pharmaceutical supply channel. These services include:
--ECHO(R), the Company's proprietary software system, provides
sophisticated ordering and inventory management assistance to its
hospital and retail customers. In addition to facilitating the primary
supply and communications between the Company and its customers,
ECHO(R) enables the Company's customers to reduce their costs by
ordering more efficiently, selecting from best price alternatives and
maintaining formulary compliance. With approximately 6,200 systems
nationwide the Company believes that its installed base of systems is
one of the largest and most sophisticated in the wholesale drug
industry.
--Family Pharmacy(R) enables small chain and independent community
pharmacies to compete more effectively through: (i) access to disease
management and pharmaceutical care programs; (ii) enhanced access to
pharmaceutical benefit programs of large health care groups, including
third-party payor programs, through Amerisource Performance Network;
(iii) value-added merchandising programs, including private label
product lines; and (iv) innovative advertising, marketing and
promotional campaigns. With over 2,550 Family Pharmacy(R) member-
stores, Family Pharmacy(R) in effect constitutes one of the largest
drugstore chains in the United States.
--The Company's Income Rx(R) program provides an integral value-added
service to its retail and hospital pharmacy customers by continually
reviewing the marketplace for generic products that offer the best
price, quality and availability. With the increasing importance of
generic pharmaceuticals, this program represents a significant
opportunity for growth and profitability. In fiscal 1998, the Company
focused on its AmeriSource Select(R) automatic substitution generic
compliance program and currently has over 4,500 customers in the
program. AmeriSource Select(R) provides customers additional profit
opportunity by channeling generic purchasing to preferred products in
order to reduce product acquisition cost and decrease redundancies in
other generic products stocked by the Company and its customers.
Revenues attributable to AmeriSource's sale of generic and multi-source
pharmaceuticals (including the Income Rx(R) program) increased to
approximately $665 million in fiscal 1998.
--American Health Packaging(R) is the Company's pharmaceutical packaging
division. In fiscal 1996, the Company expanded its packaging business
by opening a new state-of-the-art facility in Columbus, Ohio in order
to provide customized packaging solutions to both customers and
suppliers. The facility is capable of packaging pharmaceuticals into
both unit of use and unit dose formats which provide higher
productivity, better controls, and improved profitability throughout
the pharmaceutical supply channel.
--MedAssess(TM) is the Company's innovative patient care program
designed to help pharmacies generate new patient care revenue and
differentiate themselves from their competition. MedAssess(TM) offers
opportunities for pharmacies to expand their role in patient care by
providing specialized services to help patients better manage drug
therapy and wellness. MedAssess(TM) provides pharmacists with
continuing education, self-directed training, the MedAssess(TM) patient
care software, and technical and practice support. MedAssess(TM)
CareBuilder SM programs provide all the materials and information
needed to implement and promote a variety of practical, revenue-
generating patient care services.
--The Diabetes Shoppe(TM) program develops pharmacy-based diabetes care
centers to market over 600 specialized products and training for the
diabetes patient. The program offers a full spectrum of marketing
tools, including direct mailings to customers, doctors, signage, radio
advertising and much more. Since the acquisition of The Diabetes
Shoppe(TM) in September 1996, membership has grown from 215 to over 525
retail pharmacy members nationwide.
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--The Company's Health Services Plus(R) business distributes vaccines,
injectables, plasma, and oncology products to alternate care sites
such as clinics, physicians, and surgery centers. In addition, Health
Services Plus(R) provides specialty distribution services such as
warehousing, order processing, and telemarketing for pharmaceutical
and medical companies requiring distribution of specialized niche
products.
. Maintain Low-Cost Operating Structure. AmeriSource believes it has the
lowest operating cost structure among its four major national
competitors. Over the past five years, the Company has significantly
reduced operating expenses and investment in net working capital as a
percentage of revenues. Specifically, the Company has reduced its selling
and administrative expenses and depreciation as a percentage of operating
revenues from 3.72% in fiscal 1993 to 3.13% in fiscal 1998. In addition,
the Company continues to achieve productivity and operating income gains
from continued investments in advanced management information systems,
warehouse automation technology, and operating leverage due to increased
volume per Rx distribution facility. The addition of new facilities was
accomplished with minimal incremental investment in corporate overhead.
As these facilities continue to expand in their regional markets, the
Company believes that its growth and profitability will be further
enhanced.
INDUSTRY OVERVIEW
The Company has benefited from the significant growth of the full-service
drug wholesale industry in the United States. Industry sales grew from $30
billion in 1990 to $75 billion in 1997. The factors contributing to this
growth, and the sources of future growth for the industry, include (i) an
aging population, (ii) the introduction of new pharmaceuticals, (iii) the
increased use of outpatient drug therapies, (iv) a higher concentration of
distribution through wholesalers by both manufacturers and customers, and (v)
rising pharmaceutical prices.
Aging Population. The number of individuals over age 65 in the United States
grew 22% from approximately 26 million in 1980 to approximately 31 million in
1990 and is projected to increase an additional 12% to more than 35 million by
the year 2000. This age group suffers from a greater incidence of chronic
illnesses and disabilities than the rest of the population and is estimated to
account for approximately two-thirds of total health care expenditures in the
United States.
Introduction of New Pharmaceuticals. Traditional research and development as
well as the advent of new research and production methods, such as
biotechnology, continue to generate new compounds that are more effective in
treating diseases. These compounds have been responsible for significant
increases in pharmaceutical sales. The Company believes that ongoing research
and development expenditures by the leading pharmaceutical manufacturers will
contribute to continued growth of the industry.
Cost Containment Efforts. In response to rising health care costs,
governmental and private payors have adopted cost containment measures that
encourage the use of efficient drug therapies to prevent or treat diseases.
While national attention has been focused on the overall increase in aggregate
health care costs, the Company believes drug therapy has had a beneficial
impact on overall health care costs by reducing expensive surgeries and
prolonged hospital stays. Pharmaceuticals currently account for less than 11%
of overall health care costs, and manufacturers' emphasis on research and
development is expected to continue the introduction of cost-effective drug
therapies.
Higher Concentration of Distribution Through Wholesalers. Over the past
decade, manufacturers of pharmaceuticals have significantly increased the
distribution of their products through wholesalers as the cost and complexity
of maintaining inventories and arranging for delivery of pharmaceutical
products has risen. Drug wholesalers offer their customers and suppliers more
efficient distribution and inventory management. As a result, from 1980
through 1997, the percentage of pharmaceutical sales through wholesale drug
distributors increased from approximately 46% to approximately 56%. Order
processing, inventory management and product delivery by wholesale drug
distributors allow manufacturers to allocate their resources to research and
development, manufacturing and marketing their products. Customers benefit
from this shift by having a single source of supply for a full line of
pharmaceutical products as well as lower inventory costs, more timely and
efficient
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delivery, and improved purchasing and inventory information. In addition,
customers also benefit from the range of value-added programs developed by
wholesale drug distributors that are targeted to the specific needs of these
customers, which, in turn, reduce their costs and increase their operating
efficiencies.
Pharmaceutical Price Increases By Drug Manufacturers. The Company believes
that price increases by pharmaceutical manufacturers will continue to equal or
exceed the overall Consumer Price Index. The Company believes that this
increase will be due in large part to the relatively inelastic demand in the
face of higher prices charged for patented drugs as manufacturers have
attempted to recoup costs associated with the development, clinical testing
and Food and Drug Administration ("FDA") approval of new products.
At the same time that sales through the wholesale drug industry have grown,
the number of pharmaceutical wholesalers in the United States has decreased
from 139 at the end of 1980 to 43 as of September 1998. Industry analysts
expect this consolidation trend to continue, with the industry's largest
companies increasing their percentage of total industry sales.
OPERATIONS
Decentralized Structure. The Company believes that operating economies of
scale exist principally at the distribution facility level. AmeriSource
currently operates 20 drug distribution facilities and three specialty
products distribution facilities, organized into six regions across the United
States. Unlike its more centralized competitors, the Company is structured as
an organization of locally managed profit centers. Management of each
distribution facility has fiscal responsibility for its facility. The
distribution facility's results, including earnings and achievement of asset
management goals, have a direct impact on management compensation at these
facilities. The distribution facilities utilize the Company's corporate staff
for marketing, financial, purchasing, legal and executive management resources
and corporate coordination of asset and working capital management. In the
fourth quarter of fiscal 1998, the Company began to centralize its data
processing, accounting, and contract administration functions, and also
intends to centralize the purchasing function. The Company believes that the
centralization of these administrative functions will result in future
efficiencies without affecting the Company's decentralized operations and
management.
Sales and Marketing. The Company has an organization of over 225 sales
professionals organized regionally and specialized by customer segment.
Customer service representatives are located in each distribution facility in
order to respond to customer needs in a timely and effective manner. In
addition, a specially trained group of telemarketing representatives makes
regular contact with customers regarding special promotions. The Company's
corporate marketing department designs and develops the Company's array of
value-added programs and works with manufacturer suppliers to develop national
promotions. Tailored to specific customer classes, these programs can be
further customized at the distribution facility level to adapt to local market
conditions. The marketing department gathers and disseminates information to
each operating unit's purchasing and sales organization in order to enhance
their competitive effectiveness.
Facilities. Each of the Company's distribution facilities carries an
inventory line necessary for its local market. The efficient distribution of
small orders is possible through the extensive use of computerization and
modern warehouse techniques. These include computerized warehouse product
location, routing and inventory replenishment systems, gravity-flow racking,
mechanized order selection and efficient truck loading and routing. The
Company typically delivers its products to its customers on a daily basis. It
utilizes a fleet of owned and leased vans and trucks and contract carriers.
Night picking operations in its distribution facilities have further reduced
delivery time. Orders are generally delivered in less than 24 hours.
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The Company's 20 full-service Rx distribution facilities and three specialty
products facilities as of December, 1998, are organized into six regions
throughout the United States. The following table presents certain information
on a fiscal year basis regarding the Company's operating units in the
aggregate.
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FISCAL YEAR ENDED SEPTEMBER 30,
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1994 1995 1996 1997 1998
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(DOLLARS IN MILLIONS; SQUARE FEET IN THOUSANDS)
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Operating revenue............. $4,182.2 $4,668.9 $5,551.7 $7,815.9 $8,575.4
Number of Rx distribution
facilities................... 14 18 20 21 20
Average revenue/Rx
distribution facility........ $ 297.1 $ 257.8 $ 275.6 $ 367.3 $ 419.5
Total square feet (Rx
facilities).................. 1,322.1 1,446.9 1,817.5 2,244.5 2,120.9
Average revenue/square foot
(in whole dollars)
(Rx facilities).............. $ 3,146 $ 3,207 $ 3,033 $ 3,437 $ 3,956
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Customers and Markets. The Company has a diverse customer base that includes
hospitals and managed care facilities, independent community pharmacies, and
chain drug stores, including pharmacy departments of supermarkets and mass
merchandisers. The Company offers a broad range of services designed to
enhance the operating efficiencies and competitive position of its customers
and suppliers. In addition, AmeriSource is typically the primary source of
supply for its customers. The table below summarizes how the Company's
customer sales mix has changed over the last five fiscal years.
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FISCAL YEAR ENDED SEPTEMBER 30,
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1994 1995 1996 1997 1998
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(DOLLARS IN MILLIONS)
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Hospitals and Managed
Care Facilities........ $2,126 51% $2,422 52% $2,673 48% $3,706 47% $4,039 47%
Independents............ 1,292 31% 1,396 30% 1,807 33% 2,579 33% 2,948 34%
Chains.................. 764 18% 851 18% 1,072 19% 1,531 20% 1,588 19%
------ ---- ------ ---- ------ ---- ------ ---- ------ ----
Total operating
revenue............. $4,182 100% $4,669 100% $5,552 100% $7,816 100% $8,575 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
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No single customer represented more than 5% of the Company's total operating
revenues during fiscal 1998, except that the federal government accounted for
approximately 16%. Excluding the federal government, the Company's top ten
customers represented approximately 17% of total operating revenues during
fiscal 1998. A profile of each customer class follows:
. Hospitals and Managed Care Facilities. AmeriSource is one of the nation's
top three distributors in serving the hospital and managed care market.
Because hospitals and managed care facilities purchase large volumes of
high-priced, easily handled pharmaceuticals, the Company benefits from
quick turnover of both inventory and receivables and lower-than average
operating expenses. Sales to hospitals and managed care facilities have
grown at a compound rate of 17.4% from fiscal 1994 through fiscal 1998.
. Independents. Independent community pharmacy owners provide the greatest
opportunity for the Company's value-added services. The Company's sales
to independent customers have risen at a compound rate of 22.9% from
fiscal 1994 through fiscal 1998 due to the general growth of this
customer class, the Company's recent acquisition activity, and the
success of the Company's customized marketing and merchandising programs,
such as its Family Pharmacy(R) program.
. Chains. This class includes chain drug stores, including pharmacy
departments of supermarkets and mass merchandisers. The Company's sales
to chains have risen at a compound rate of 20.1% from fiscal 1994 through
fiscal 1998. This growth rate reflects the results from the Company
entering into new contracts with several drug store chains as well as the
growth of its existing chain customers. Sales to chain drug stores
decreased to 13% of operating revenues in the last quarter of fiscal 1998
due to the termination of service contracts with two large warehousing
chains.
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Suppliers. AmeriSource obtains pharmaceutical and other products from a
number of manufacturers, none of which accounts for more than approximately 8%
of its net sales in fiscal 1998. The five largest suppliers in fiscal 1998
accounted for approximately 29% of net sales. Historically, the Company has
not experienced difficulty in purchasing desired products from suppliers. The
Company has agreements with many of its suppliers which generally require the
Company to maintain an adequate quantity of a supplier's products in
inventory. The majority of contracts with suppliers are terminable upon 30
days notice by either party. The loss of certain suppliers could adversely
affect the Company's business if alternate sources of supply were unavailable.
The Company believes that its relationships with its suppliers are good.
Management Information Systems. The Company has continually invested in
advanced management information systems and automated warehouse technology.
The Company's management information systems provide for, among other things,
electronic order entry by customers, invoice preparation and purchasing and
inventory tracking. As a result of electronic order entry, the cost of
receiving and processing orders has not increased as rapidly as sales volume.
The Company's customized systems strengthen customer relationships by allowing
the customer to lower its operating costs and by providing the basis for a
number of the value-added services the Company provides to its customers,
including marketing data, inventory replenishment, single-source billing,
computer price updates and price labels. In order to eliminate redundant
processes and related expenses, the Company began to centralize its management
information systems from six regional data processing facilities to one
corporate facility in July 1998. The centralization effort is proceeding on a
distribution facility-by-facility basis with completion expected by the end of
1999. AmeriSource believes that its management information systems are capable
of serving its needs for the foreseeable future.
COMPETITION
The Company engages in the wholesale distribution of pharmaceuticals, health
and beauty aids and other products in a highly competitive environment. The
Company competes with numerous national and regional distributors, some of
which are larger and have greater financial resources than the Company. The
Company's national competitors include McKesson Corporation, Bergen Brunswig
Corporation, Cardinal Health, Inc., and Bindley Western Industries, Inc. In
addition, the Company competes with regional and local distributors, direct-
selling manufacturers, warehousing chain drug stores, and other specialty
distributors. Competitive factors include value-added service programs,
breadth of product line, price, service and delivery, credit terms, and
customer support. There can be no assurance that the Company will not
encounter increased competition in the future that could adversely affect the
Company's business. The drug wholesale industry continues to undergo
significant consolidation, with the number of wholesalers in the continental
United States declining from 139 at the end of 1980 to approximately 43 as of
September 1998.
EMPLOYEES
As of September 30, 1998, the Company employed approximately 3,200 persons,
of which approximately 3,000 were full-time employees. Approximately 11% of
full and part-time employees are covered by collective bargaining agreements.
The Company believes that its relationship with its employees is good.
REGULATORY MATTERS
The United States Drug Enforcement Administration and the Food and Drug
Administration and various state boards of pharmacy regulate the distribution
of pharmaceutical products and controlled substances, requiring wholesale
distributors of these substances to register for permits and to meet various
security and operating standards. As a wholesale distributor of
pharmaceuticals and certain medical/surgical products, the Company is subject
to these regulations. The Company has received all necessary regulatory
approvals and believes that it is in substantial compliance with all
applicable wholesale distribution requirements.
The Company is aware that at its former Charleston, South Carolina
distribution center there is evidence of residual soil contamination remaining
from the fertilizer manufacturing process operated on that site by third
parties over thirty years ago. The Company's environmental consulting firm
conducted a soil survey and a
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groundwater study during fiscal 1994 and 1995. The results of the studies
indicate that there is lead on-site at levels requiring further investigation
and potential remediation. A preliminary engineering analysis was prepared by
outside consultants during the third quarter of fiscal 1994, and indicated
that, if both soil and groundwater remediation are required, the most likely
cost is estimated to be $4.1 million. Accordingly, a liability of $4.1 million
was recorded during fiscal 1994 to cover future consulting, legal and
remediation and ongoing monitoring costs. The Company is working with the
appropriate state and federal regulatory agencies regarding further tests and
potential site remediation. That negotiation, investigation and remediation
could take several years and the actual costs may differ from the liability
that has been recorded. The accrued liability ($3.8 million at September 30,
1998), which is reflected in other long-term liabilities on the Company's
consolidated balance sheet, is based on the present estimate of the extent of
contamination, choice of remedy, and enacted laws and regulations, including
remedial standards; however, changes in any of these could affect the
estimated liability. The Company is investigating the possibility of asserting
claims against responsible third parties for recovery of these costs. Whether
or not any recovery may be forthcoming is unknown at this time, although the
Company intends to vigorously pursue its rights and remedies.
ACQUISITIONS
On September 22, 1997 the Company and McKesson Corporation signed a
definitive merger agreement which was subsequently approved by both companies'
shareholders on February 9, 1998. On March 9, 1998, the Federal Trade
Commission (FTC) filed a complaint in the United States District Court for the
District of Columbia seeking a preliminary injunction to halt the proposed
merger. On July 31, 1998, the District Court granted the FTC's request for an
injunction to halt the proposed merger. On August 7, 1998, the Company and
McKesson jointly terminated the merger agreement.
ITEM 2. PROPERTIES
As of September 1998, the Company conducted its business from office and
operating unit facilities at 41 locations throughout the United States. In the
aggregate, the Company's operating units occupy approximately 2.4 million
square feet of office and warehouse space, of which approximately 872,000
square feet is owned and the balance is leased under lease agreements with
expiration dates ranging from 1998 to 2012. The Company's 20 drug distribution
facilities range in size from approximately 20,000 square feet to 218,200
square feet. Leased facilities are located in the following states: Alabama,
Arizona, California, Delaware, Florida, Idaho, Kentucky, Massachusetts,
Minnesota, New Jersey, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee,
Texas, Virginia and West Virginia. Owned facilities are located in the
following states: Alabama, Indiana, Kentucky, Maryland, Missouri, Ohio,
Tennessee and Virginia. The Company utilizes a fleet of owned and leased vans
and trucks, as well as contract carriers to deliver its products. The Company
believes that its properties are adequate to serve the Company's current and
anticipated needs without making capital expenditures materially higher than
historical levels.
ITEM 3. LEGAL PROCEEDINGS
A former customer of the Company has alleged that the Company failed to
fulfill its obligations under the service contract between the Company and the
former customer. In connection with this claim, the former customer withheld
payment on $22 million of invoices. In response, the Company filed suit to
collect the outstanding amount. The former customer has countersued the
Company for an unspecified amount. The Company believes there is no merit to
this counterclaim and intends to aggressively pursue collection of the
outstanding amount. Because the Company is unable at this time to determine
the outcome of this matter, no provision for loss has been made.
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in a
series of purported class action antitrust lawsuits brought by retail
pharmacies and alleging violations of various antitrust laws stemming from the
use of chargeback agreements. In addition, the Company and four other
wholesale distributors were added as defendants in a series of related
antitrust lawsuits brought by independent pharmacies and chain drug stores,
both of which opted out of the class cases. The Company also was named a
defendant in parallel suits filed in state courts in Minnesota, Alabama,
Tennessee and
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Mississippi. The federal class actions were originally filed in the United
States District Court for the Southern District of New York, but were
transferred along with the individual and chain drug store cases to the United
States District Court for the Northern District of Illinois for consolidated
and coordinated pretrial proceedings. In essence, these lawsuits all claim
that the manufacturer and wholesaler defendants have combined, contracted and
conspired to fix the prices charged to retail pharmacies for prescription
brand name pharmaceuticals. Specifically, plaintiffs claim that the defendants
use "chargeback agreements" to give some institutional pharmacies discounts
that allegedly are not made available to retail drug stores. Plaintiffs seek
injunctive relief, treble damages, attorneys' fees and costs. In October 1994,
the Company entered into a Judgment Sharing Agreement with the other
wholesaler and pharmaceutical manufacturer defendants. Under the Judgment
Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the
wholesaler defendants for litigation costs incurred, up to an aggregate of $9
million; and (b) if a judgment is entered against both manufacturers and
wholesalers, the total exposure for joint and several liability of the Company
is limited to the lesser of 1% of such judgment or $1 million. In addition,
the Company has released any claims which it might have had against the
manufacturers for the claims presented by the Plaintiffs in these lawsuits.
The Judgment Sharing Agreement covers the federal court litigation as well as
the cases which have been filed in various state courts.
On April 4, 1996, the District Court granted the Company's motion for
summary judgment in the class case. Plaintiffs subsequently appealed the
Company's grant of summary judgment to the United States Court of Appeals for
the Seventh Circuit. On August 15, 1997, the Court of Appeals reversed the
District Court's order granting summary judgment in favor of the Company and
the other wholesalers. The Court of Appeals also denied the Company's petition
for rehearing. The Company and the other wholesalers filed a petition for a
writ of certiorari to the United States Supreme Court; the petition was
denied. Trial in the class case commenced in the United States District Court
for the Northern District of Illinois on September 23, 1998. After a ten-week
trial, the Court granted all of the defendants' motions for a directed verdict
and dismissed the claims the class plaintiffs had asserted against the Company
and the other wholesale distributors and the pharmaceutical manufacturers.
On or about October 2, 1997, a group of retail chain drug stores and
individual pharmacies, both of which had opted out of the class cases, filed a
motion with the United States District Court for the Northern District of
Illinois seeking to add the Company and the other wholesale distributors as
defendants in their cases against the manufacturer defendants, which cases are
consolidated before the same judge who is presently presiding over the class
cases. This motion was granted and the Company and the other wholesale
distributors have been added as defendants in those cases as well. As a
result, the Company has been served with approximately 120 additional
complaints on behalf of approximately 4,000 pharmacies and chain retailers.
Discovery and motion practice is presently underway in all of these opt-out
cases. The Company believes it has meritorious defenses to the claims asserted
in these lawsuits and intends to vigorously defend itself in all of these
cases.
AmeriSource has been named as a defendant in two lawsuits based upon alleged
injuries attributable to a category of products typically referred to as fen-
phen. AmeriSource did not manufacture these products; however, prior to an FDA
recall, AmeriSource did distribute these products from several of its vendors.
The Company believes that it is entitled to full indemnification by its
vendors with respect to these lawsuits and any other lawsuits involving these
products in which AmeriSource may be named in the future. The Company believes
that its insurance coverage and indemnification rights are adequate to cover
any losses, if they should occur.
The Company is a party to various lawsuits arising in the ordinary course of
business; however, the Company does not believe that the outcome of these
lawsuits, individually or in the aggregate, will have a material adverse
effect on its business or financial condition. (See Note 10 to the
consolidated financial statements.)
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting of the Company's stockholders was held on February 9,
1998, to consider and vote upon a proposal to approve the Agreement and Plan
of Merger dated September 22, 1997, as amended, by and among
8
<PAGE>
McKesson Corporation, Patriot Acquisition Corp., a newly formed, wholly-owned
subsidiary of McKesson Corporation, and the Company. The proposal was approved
by the following vote of the Company's stockholders:
<TABLE>
<CAPTION>
VOTES FOR VOTES AGAINST VOTES WITHHELD
--------- ------------- --------------
<S> <C> <C>
16,710,751 68,488 12,821
</TABLE>
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of the Company's executive officers, their ages and
their positions, as of December 1, 1998. Each executive officer serves at the
pleasure of the Company's Board of Directors.
<TABLE>
<CAPTION>
CURRENT POSITION WITH
THE COMPANY AND OTHER POSITION HELD IN THE LAST
NAME AGE PERIOD OF SERVICE FIVE YEARS
---- --- ---------------------- ---------------------------------
<C> <C> <S> <C>
R. David Yost... 51 President and Chief Executive Vice President--
Executive Officer Operations (1995-1997);
(1997-Present) Group President--Central Region
David M. (1989-1995)
Flowers........ 51 Executive Vice Group President--Eastern Region
President-- (1989-1995)
Sales and Marketing
Kurt J. (1995-Present)
Hilzinger...... 38 Senior Vice President Vice President, Chief Financial
and Chief Financial Officer and Treasurer (1995-
Officer (1997- 1997); Vice President, Finance
Present) and Treasurer
(1993-1995); Vice President,
Financial Planning (1991-1993).
</TABLE>
PART II
ITEM 5. MARKET FOR REGISTRANTS' COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Since May 27, 1996, the Company's Class A Common Stock has been traded on
the New York Stock Exchange under the trading symbol "AAS." Prior to May 27,
1996, the Company's Class A Common Stock was traded over-the-counter in the
National Market System of the National Association of Securities Dealers, Inc.
(Nasdaq symbol ASHC). As of December 1, 1998, there were 263 record holders of
the Company's Class A Common Stock. The following table sets forth the high
and low closing sale prices of the Class A Common Stock for the periods
indicated.
PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
HIGH LOW
---- ----
<S> <C> <C>
YEAR ENDED 9/30/97
First Quarter.............................................. $48 1/4 $37 7/8
Second Quarter............................................. 53 43 1/2
Third Quarter.............................................. 50 3/4 41 1/2
Fourth Quarter............................................. 60 1/4 46 3/8
YEAR ENDED 9/30/98
First Quarter.............................................. 65 5/8 53 5/8
Second Quarter............................................. 63 3/8 53 3/4
Third Quarter.............................................. 65 11/16 51
Fourth Quarter............................................. 76 3/4 45 7/16
</TABLE>
There is no established public trading market for the Company's Class B
Common Stock. As of December 1, 1998, there were 3 record holders of the
Company's Class B Common Stock.
9
<PAGE>
The Company's Class C Common Stock was held by 5 holders of record as of
December 1, 1998. The Class C Common Stock trades on a limited basis in the
over-the-counter market, and information concerning the historical trading
prices for the Class C Common Stock is not published by nationally-recognized
independent sources.
The Company has not paid any cash dividends to its stockholders on any class
of its Common Stock, and anticipates that for the foreseeable future its
earnings will be retained for use in its business. Payment of dividends is
within the discretion of the Company's Board of Directors and will depend,
among other factors, upon the Company's earnings, financial condition and
capital requirements and the terms of the Company's financing agreements. A
credit agreement between the Company and a syndicate of senior lenders provides
a secured credit facility of $500 million, and restricts the Company's ability
to make dividend payments unless certain financial tests are met.
ITEM 6. SELECTED FINANCIAL DATA.
The following table should be read in conjunction with the Consolidated
Financial Statements, including
the notes thereto, included elsewhere in this report.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
--------------------------------------------------------------------
1998(A) 1997(B) 1996 1995 1994(C) 1993
---------- ---------- ---------- ---------- ---------- ----------
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C>
Operating revenue $8,575,443 $7,815,942 $5,551,671 $4,668,948 $4,182,193 $3,658,871
Bulk deliveries to
customer warehouses 93,361 124,956 111,046 107,342 119,639 60,154
---------- ---------- ---------- ---------- ---------- ----------
Total revenues (d)...... 8,668,804 7,940,898 5,662,717 4,776,290 4,301,832 3,719,025
Gross profit............ 421,345 387,476 302,433 266,355 235,191 209,438
Operating expenses,
excluding amortization. 295,265 266,804 204,244 168,343 149,137 136,147
Operating income (loss). 124,944 119,613 97,889 97,835 (101,992) 65,601
Income (loss) before
extraordinary items and
in 1994 the cumulative
effect of accounting
changes................ 50,519 47,449 42,650 28,218 (172,417) (7,474)
Net income (loss) ...... 50,519 45,467 35,408 10,181 (207,671) (18,618)
Earnings (loss) per
share--assuming
dilution (e):
Income (loss) before
extraordinary items
and in 1994 the
cumulative effect of
accounting changes.... 2.08 1.97 1.86 1.54 (11.69) (.51)
Net income (loss) ..... 2.08 1.89 1.55 .56 (14.08) (1.26)
Weighted average common
shares outstanding--
assuming dilution
(e)(f)................ 24,275 24,060 22,896 18,319 14,750 14,750
Balance Sheet:
Cash and cash equiva-
lents and restricted
cash.................. $ 85,505 $ 68,931 $ 71,201 $ 46,809 $ 25,311 $ 27,136
Accounts receivable--
net................... 458,238 533,319 390,331 318,652 272,281 251,999
Merchandise invento-
ries.................. 870,223 1,017,782 650,296 404,522 351,676 346,371
Property and equip-
ment--net............. 60,789 67,462 51,666 45,244 41,182 36,106
Total assets........... $1,552,282 $1,745,040 $1,187,960 $ 838,673 $ 711,644 $ 867,944
Accounts payable....... 873,181 $1,036,462 $ 714,984 $ 462,804 $ 449,991 $ 379,826
Long-term debt......... 453,761 589,819 433,693 435,764 487,575 549,220
Stockholders' equity... 75,309 14,311 (36,808) (135,724) (300,726) (93,040)
Total liabilities and
stockholders' equity.. $1,552,282 $1,745,040 $1,187,960 $ 838,673 $ 711,644 $ 867,944
</TABLE>
(a)Includes the effect of $18.4 million merger costs and $8.3 million of costs
related to facility consolidations and employee severance.
(b)Includes the effect of $11.6 million of costs related to facility
consolidations and employee severance.
(c) Includes the effect of: the $179.8 million write-off of goodwill, the
cumulative effect of accounting changes for income taxes of $33.4 million
and postretirement benefits other than pensions of $1.2 million.
(d) Fiscal years 1993 through 1997 have been restated to include bulk
deliveries to self-warehousing customers. Previously only the gross margin
from these sales had been included in revenues.
(e) Fiscal year 1993 through 1997 have been restated in accordance with
Statement of Financial Accounting Standards No. 128, "Earnings per share."
(f) Share and per share amounts prior to April 1995 have been adjusted for the
2.95-for-1 stock split effected in conjunction with the Company's initial
public offering.
10
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
AMERISOURCE HEALTH CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements contained herein.
RESULTS OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1998 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1997
Operating revenues for the fiscal year ended September 30, 1998 increased
10% to $8.6 billion from $7.8 billion in fiscal 1997. During the fiscal year
ended September 30, 1998, sales to hospitals and managed care facilities
increased 9%, sales to independent drug store customers increased 14%, and
sales to the chain drug store customer group increased 4%, as compared with
the prior year. During the fiscal year ended September 30, 1998 sales to
hospitals and managed care facilities accounted for 47% of total operating
revenues, while sales to independent drug stores accounted for 34% and sales
to chain drug stores accounted for 19% of the total.
The majority of the operating revenue growth in fiscal 1998 was due to the
growth of relationships with existing customers. Approximately one-fourth of
the increase relates to the impact of the Walker Drug Company, L.L.C. ("Walker
Drug Company") acquisition in March 1997. The rate of growth was less than in
the prior year due to the termination of service contracts with two major
warehousing chains and one large mail order customer during the third fiscal
quarter that collectively accounted for approximately $300 million of revenue
per quarter. Sales to chain drug stores decreased to 13% of operating revenues
in the fourth quarter of fiscal 1998 as a result of the service contract
terminations. The Company does not expect that future operating income will be
significantly affected as the lost customers generated lower than average
operating margins and the Company expects that it will be able to reduce
expenses in line with the loss of gross profit. Future operating revenues may
also be impacted by continued consolidations of customers and price
competition in the industry.
Along with other companies in its industry, the Company has begun reporting
as revenue bulk shipments to customer warehouses, whereby the Company acts as
an intermediary in the ordering and subsequent delivery of pharmaceutical
products. All periods presented have been restated to reflect these bulk
shipments as revenue. Previously, only the service fees from these bulk
shipments were included in revenue. Due to the insignificant service fees
generated from these bulk shipments, fluctuations in volume have no
significant impact on operating margins.
Gross profit of $421.3 million in fiscal 1998 increased by 9% compared to
fiscal 1997. As a percentage of operating revenues, the gross profit in fiscal
1998 was 4.91% as compared to 4.96% in the prior fiscal year. The decline in
gross profit percentage was due to a reduction in selling margin percentage
due to strong competition in the industry as well as continued customer
consolidation offset in part by an increase in inventory appreciation profits.
Gross profit may continue to be impacted by price competition, changes in
customer and product mix, and distribution center performance.
On September 22, 1997, the Company and McKesson Corporation signed a
definitive merger agreement which was subsequently approved by both companies'
shareholders on February 9, 1998. On July 31, 1998 the United States District
Court for the District of Columbia granted the Federal Trade Commission's
request for an injunction to halt the proposed merger. On August 7, 1998, the
Company and McKesson jointly terminated the merger agreement. Merger related
costs consisting of professional fees and stay-put bonuses totaling $18.4
million were expensed in the fourth quarter of fiscal 1998 as a result of the
termination of the merger agreement.
In the fourth quarter of fiscal 1998 the Company began to centralize its
data processing, accounting, contract administration, and purchasing
functions, reorganize its pharmaceutical distribution facilities into six
regions, and
11
<PAGE>
consolidate one pharmaceutical distribution facility into another facility.
These initiatives are expected to be completed by the end of 1999 and when
completed are expected to provide annual cost savings of $5 to $6 million. A
charge of $8.3 million was recognized in the fourth quarter of fiscal 1998
related to this effort, and included severance of $3.3 million for
approximately 350 administrative and warehouse personnel and asset write-downs
and lease cancellation costs of $5.0 million primarily consisting of owned and
leased data processing assets to be abandoned after the consolidation dates of
the affected data processing centers.
In the third quarter of fiscal 1997, the Company commenced cost reduction
plans to consolidate three of its pharmaceutical distribution facilities into
other existing facilities and to restructure its sales force. These cost
reduction initiatives resulted in a $6.4 million charge in the third fiscal
quarter of 1997. In addition the Company incurred charges of $5.2 million
related to the retirement of its former President and CEO as well as other
executive terminations. The $6.4 million charge included $1.8 million for the
severance of approximately 240 warehouse and sales personnel and $4.6 million
of asset write-downs and lease cancellation costs primarily for buildings,
warehouse and computer equipment and other assets to be disposed of related to
the facility consolidations. The fiscal 1997 cost reduction initiatives were
completed in early fiscal 1998.
Selling and administrative expenses and depreciation increased by $13.3
million or 5% in fiscal 1998 compared with the prior fiscal year, and as a
percentage of operating revenues, were 3.13% in fiscal 1998 and 3.27% in
fiscal 1997. The increase in selling and administrative expenses and
depreciation for the year is primarily due to the impact of a full year of
expenses from the February 1997 acquisition of Walker Drug Company. The
decrease in the expense to operating revenue ratio for the year was primarily
due to benefits resulting from the fiscal 1997 cost reduction initiatives
discussed above as well as the shift in customer mix resulting from the
termination of service contracts with the two large warehousing chain
customers.
Operating income of $124.9 million for the year ended September 30, 1998
increased by 4% from the prior year. The Company's operating margin decreased
to 1.46% in fiscal 1998 from 1.53% in fiscal 1997. This decrease in operating
margin is due to the $18.4 million of merger costs described above. In
addition, both years have been impacted by the charges related to facility
consolidations and employee severance discussed above.
Interest expense of $42.1 million in fiscal 1998 represents an increase of
1% compared to the prior year as average borrowings for the year increased by
6% offset in part by a 50 basis point step-down in the interest rate under the
Company's revolving credit facility during fiscal 1998 as a result of
attaining certain financial ratios under the facility. Average borrowings
during the year ended September 30, 1998 were $639 million as compared to
average borrowings of $602 million in the prior fiscal year.
Income tax expense of $32.3 million in fiscal 1998 was based on an effective
tax rate of 39.0% versus 39.2% in the prior year. The decrease in the rate was
due to a reduction in the effective state and local income tax rate.
Income before extraordinary items increased to $50.5 million in fiscal 1998
from $47.4 million in fiscal 1997. Income before extraordinary items per
share-assuming dilution was $2.08 in fiscal 1998, a 6% increase over fiscal
1997. The effect of the merger costs and charges related to facility closings
and employee severance are included in these amounts.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. SFAS No.
128 replaced the previously reported primary and fully diluted earnings per
share with basic and diluted earnings per share. Unlike primary earnings per
share, basic earnings per share excludes any dilutive effects of options,
warrants, and convertible securities. Earnings per share-assuming dilution is
very similar to the previously reported fully diluted earnings per share. All
earnings per share amounts for all periods presented prior to fiscal 1998 have
been restated to conform to the SFAS No. 128 requirements.
YEAR ENDED SEPTEMBER 30, 1997 COMPARED WITH YEAR ENDED SEPTEMBER 30, 1996
Operating revenues for the fiscal year ended September 30, 1997 increased
41% to $7.8 billion from $5.6 billion in fiscal 1996. The year-to-year
operating revenue gains reflect increases across all customer groups and all
12
<PAGE>
geographic regions. The acquisitions of Walker Drug Company in March 1997, and
Gulf Distribution, Inc. in February 1996, contributed 9% of the 41% increase
in revenues for the fiscal year. During the fiscal year ended September 30,
1997, sales to hospitals and managed care facilities increased 39%, sales to
independent drug store customers increased 43%, and sales to the chain drug
store customer group increased 43%, as compared with the prior year.
Approximately 28% of the hospital and managed care revenue increase was due to
the addition of one large mail order pharmacy customer. During the fiscal year
ended September 30, 1997, sales to hospitals and managed care facilities
accounted for 47% of total revenues, while sales to independent drug stores
accounted for 33% and sales to chain drug stores accounted for 20% of the
total.
Gross profit of $387.5 million in fiscal 1997 increased by 28% over fiscal
1996 due to the increase in operating revenues. As a percentage of operating
revenues, the gross profit in fiscal 1997 was 4.96% as compared to 5.45% in
the prior fiscal year. The majority of the decline in gross profit percentage
was due to a reduction in selling margin percentage resulting from continuing
price competition throughout the industry and the higher-than average growth
of the Company's largest customers. Approximately 30% of the decline in gross
profit percentage from the prior fiscal year was due to the addition of a
large ($290 million in annualized revenues) mail order pharmacy customer at a
gross profit percentage significantly lower than normal percentages and a
performance shortfall in one of the Company's distribution centers. Gross
profit may continue to be impacted by price competition, changes in customer
and product mix, and distribution center performance.
Selling and administrative expenses and depreciation, increased by $51.0
million or 25% in fiscal 1997 compared with the prior fiscal year, and as a
percentage of operating revenues, were 3.27% in fiscal 1997 and 3.68% in
fiscal 1996. The increase in expenses was due to increased delivery and
warehouse expense associated with the significant revenue increase. The
decrease as a percentage of revenue in fiscal 1997 is primarily due to
improved economies of scale at the Company's established and newer locations
and the low service cost associated with the large mail order customer which
has offset higher-than anticipated integration costs of the Company's Orlando,
Florida facility.
Operating income of $119.6 million in fiscal 1997 increased by 22% from the
prior year. Included in operating income is the effect of the $11.6 million of
facility consolidations and employee severance in fiscal 1997 and a $10.9
million cumulative non-cash charge to costs of goods sold in fiscal 1996. The
Company's operating margin declined to 1.53% in fiscal 1997 from 1.76% in
fiscal 1996. The decline is due to the decrease in gross profit percentage
discussed above, offset in part by reduced selling and administrative expenses
as a percentage of operating revenues.
Interest expense of $41.6 million in fiscal 1997 represents an increase of
16% compared to the prior fiscal year. The increase over the prior year was
due to increased borrowings to fund the 41% revenue increase and the purchase
of Walker Drug Company in March 1997. Average borrowings during the fiscal
year ended September 30, 1997 were $602 million as compared to average
borrowings of $479 million in the prior fiscal year. The increased average
indebtedness was offset in part by reduced borrowing rates compared to the
prior year due to the redemption of the remaining $74.3 million of 11 1/4%
senior debentures in the third quarter of fiscal 1996 and rate reductions
under the Company's revolving credit facility and receivables securitization
financing ("Receivables Program").
Income tax expense of $30.6 million in fiscal 1997 was based on an annual
effective rate of 39.2% versus 31.1% in fiscal 1996. The fiscal 1996 rate was
reduced by 11.5% due to a favorable settlement of an Internal Revenue Service
audit of fiscal years 1987-1991. The extraordinary charge in fiscal 1997 of
$2.0 million, net of a tax benefit of $1.2 million, relates to the write-off
of unamortized deferred financing fees related to the retirement of the prior
$380 million revolving credit facility.
Income before extraordinary items increased to $47.4 million in fiscal 1997
from $42.7 million in fiscal 1996 and income before extraordinary items per
share-assuming dilution was $1.97, a 6% increase over fiscal 1996.
13
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
During the year ended September 30, 1998, the Company's operating activities
generated $125.8 million in cash primarily due to a decrease in accounts
receivable of $70.4 million. The reduction in accounts receivable was due to a
combination of a 2 day reduction in days sales outstanding due to improved
collection efforts and term negotiations as well as the impact of the loss of
the three major customers discussed above. As a result of the reduction in
accounts receivable, the collateral base for the receivables securitization
facility as of September 30, 1998 was less than the $299.9 million of fixed
certificates outstanding. Therefore, cash was deposited in the master trust to
supplement the collateral base, which resulted in the increase in restricted
cash at September 30, 1998. The provision for deferred income taxes increased
operating cash flow by $19.2 million primarily due to an increase in deferred
tax liabilities related to inventory. A decrease in merchandise inventory of
$147.6 million was offset by a related decrease of $161.8 million in accounts
payable and accrued expenses. These decreases were also impacted by the
termination of service contracts of the three large customers as well as the
reversal of the prior year end build-up of inventory related to the Company's
expansion of its Thorofare, New Jersey distribution facility. Operating cash
uses during the year ended September 30, 1998 included $44.4 million in
interest payments and $16.0 million in income tax payments. In addition, in
fiscal 1998, the Company paid a total of $5.5 million of severance and $0.6
million of lease cancellation costs and other related to its fiscal 1998 and
1997 cost reduction plans discussed above. Severance accruals of $4.3 million
and remaining lease obligations of $3.0 million at September 30, 1998 are
included in accrued expenses and other.
In fiscal 1997, the Company's operating activities used $9.3 million of cash
as increases in merchandise inventories of $271.8 million and accounts
receivable of $76.2 million were offset in part by the $274.9 million increase
in accounts payable and accrued expenses. These increases were caused by the
working capital requirements of the Company's significant revenue growth
during fiscal 1997, as well as the year end temporary build-up of inventory
and accounts payable related to the Company's expansion of its Thorofare, New
Jersey facility.
Capital expenditures for the year ended September 30, 1998 were $10.4
million and relate principally to investments in warehouse improvements,
information technology and warehouse automation. These expenditures decreased
from prior years due to delays in starting certain projects due to the
proposed McKesson merger. Expenditures for similar purposes of approximately
$18 to $20 million are expected in fiscal 1999.
Cash used by financing activities during fiscal 1998 represents net
repayments of the Company's revolving credit facility from cash generated by
operations. In fiscal 1997, net borrowings of $148.7 million primarily funded
the acquisition of Walker Drug Company in March 1997. At September 30, 1998,
borrowings under the Company's $500 million revolving credit facility were
$145.0 million (at an average interest rate of 6.9%) and borrowings under the
$375 million receivable securitization financings were $299.9 million (at an
average interest rate of 5.9%). The revolving credit facility expires in
January 2002 and provides for interest rates ranging from LIBOR plus 25 basis
points to LIBOR plus 125 basis points based upon certain financial ratios. The
receivable securitization facility represents a financing vehicle utilized by
the Company because of the availability of attractive interest rates relative
to traditional financing sources. The Company securitizes its trade accounts
and notes receivable, which are generally non-interest bearing, in
transactions that do not qualify as sales transactions under SFAS No. 125. The
details of the receivable securitization financing program are summarized in
Note 4 to the consolidated financial statements. In December 1998, the Company
entered into a short-term supplemental $100 million revolving credit agreement
with substantially the same terms as the Credit Agreement. This agreement
expires March 31, 1999 and is intended to fund seasonal inventory purchases if
necessary.
The Company's primary exposure to market risk consists of changes in
interest rates on borrowings. An increase in interest rates would adversely
affect the Company's operating results and the cash flow available after debt
service to fund operations and expansion and, if permitted to do so under its
revolving credit facility, to pay dividends on its capital stock. The Company
enters into interest rate protection agreements to hedge the exposure to
increasing interest rates with respect to its long-term debt agreements. The
Company provides protection to meet actual exposures and does not speculate in
derivatives. The Company is required by its Credit Agreement
14
<PAGE>
to maintain interest rate cap protection on a minimum of $112.5 million
through January 1999 and has interest rate cap agreements expiring in May
1999, which provide protection on $115 million of its long-term borrowings.
For every $100 million of unhedged variable rate debt a 75 basis point
increase in interest rates would increase the Company's annual interest rate
expense by approximately $0.75 million.
The Company's operating results have generated sufficient cash flow which,
together with borrowings under its debt agreements and credit terms from
suppliers, have provided sufficient capital resources to finance working
capital and cash operating requirements, fund capital expenditures, and
interest currently payable on outstanding debt. The Company's primary ongoing
cash requirements will be to fund payment of interest on indebtedness, finance
working capital, and fund capital expenditures and routine growth and
expansion through new business opportunities. Future cash flows from
operations and borrowings are expected to be sufficient to fund the Company's
ongoing cash requirements.
A former customer of the Company has alleged that the Company failed to
fulfill its obligations under the service contract between the Company and the
former customer. In connection with this claim, the former customer withheld
payment on $22 million of invoices. In response, the Company filed suit to
collect the outstanding amount. The former customer has countersued the
Company for an unspecified amount. The Company believes that there is no merit
to this counterclaim and intends to aggressively pursue collection of the
outstanding amount. Because the Company is unable at this time to determine
the outcome of this matter, no provision for loss has been made in the
financial statements.
The Company is subject to certain contingencies pursuant to environmental
laws and regulations at one of its former distribution centers that may
require remediation efforts. In fiscal 1994, the Company accrued a liability
of $4.1 million to cover future consulting, legal, remediation, and ongoing
monitoring costs. The accrued liability ($3.8 million at September 30, 1998),
which is reflected in other long-term liabilities on the accompanying
consolidated balance sheet, is based on an estimate of the extent of
contamination and choice of remedy, existing technology, and presently enacted
laws and regulation; however, changes in remediation standards, improvements
in cleanup technology, and discovery of additional information concerning the
site could affect the estimated liability in the future. The Company is
investigating the possibility of asserting claims against responsible parties
for recovery of these costs. Whether or not any recovery may be forthcoming is
unknown at this time.
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS
The Year 2000 Issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the
Company's computer programs that have date-sensitive software or embedded
chips may recognize a date using "00" as the year 1900 rather than the year
2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business practices.
The Company began addressing the Year 2000 Issue in 1995 on a decentralized
basis at each of its regional data processing centers. In 1997, the Company
began monitoring progress on a corporate level and a formal Year 2000
committee, reporting to senior management, was established in early 1998 to
coordinate and monitor the Year 2000 Issue on an enterprise-wide basis. Based
on assessments made since 1995, the Company determined that modifications to
or in limited cases replacement of computer software and hardware was
necessary to enable those systems to operate properly after December 31, 1999.
The Company presently believes that with modifications to and replacement of
existing software and hardware, the Year 2000 Issue can be mitigated. However,
if such modifications and replacements are not made, or are not completed
timely, the Year 2000 Issue can have a material impact on the operations of
the Company.
In the fourth quarter of fiscal 1998, the Company announced plans to
consolidate its data processing from its regional facilities to one corporate
facility by the end of 1999. However, the Company's plan to resolve the
15
<PAGE>
Year 2000 Issue described below is not dependent on the timely completion of
the Company's consolidation efforts.
The Company's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing, and implementation. To date,
the Company has completed its assessment of all systems that could be
significantly affected by the Year 2000. The assessment indicated that most of
the Company's significant information technology systems could be affected,
particularly the Company's warehouse and distribution operating and accounting
systems. The assessment also indicated that software and hardware (embedded
chips) used in warehouse automation, scanning, and ordering as well as other
equipment used in the distribution process (operating equipment) are also at
risk. Because the Company is a distributor of pharmaceuticals, the Company's
products are not at risk.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT, INCLUDING TIMETABLE FOR
COMPLETION OF EACH REMAINING PHASE
The following estimates of completion percentages and dates are based on the
Company's best estimates. However, there can be no guarantee that these dates
can be achieved and actual results may differ. For its information technology
exposures, to date the Company is approximately 95% complete on the
remediation phase and expects to be completed with its software reprogramming
and replacement no later than March 31, 1999. Once software is reprogrammed or
replaced for a system, the Company begins testing and implementation. These
phases run concurrently for different systems. To date, the Company has
completed 90% of its testing and has implemented 85% of its remediated
systems. Completion of the testing phase for all significant operating systems
is expected by March 31, 1999, with all remediated systems fully tested and
implemented by June 30, 1999.
The remediation of operating equipment with embedded chips or software is
approximately 95% complete and is expected to be completed by March 31, 1999.
Testing of the affected equipment is approximately 90% complete and
implementation of affected equipment is 85% complete. Testing is expected to
be complete by March 31, 1999, and implementation by June 30, 1999.
NATURE AND LEVEL OF IMPORTANCE OF THIRD PARTIES AND THEIR EXPOSURE TO THE YEAR
2000
Many of the Company's customers order products from the Company using
ECHO(R), the Company's proprietary software system. ECHO(R) was developed in-
house and has been Year 2000 compliant from its inception. The Company also
issues the majority of its purchase orders to vendors through the use of
Electronic Data Interchange ("EDI"). The Company is approximately 50% complete
with its remediation efforts relating to EDI software and expects to be
complete by March 31, 1999. Testing and implementation of this software is
expected to be completed by June 30, 1999.
The Company is planning to survey its significant customers and vendors as
to their Year 2000 compliance in February and March, 1999. Based on the nature
of their responses, the Company will develop contingency plans as appropriate.
However, the Company has no means of assuring that external customers and
vendors will be Year 2000 compliant. The inability of these third parties to
complete their Year 2000 resolution process in a timely fashion could
materially impact the Company.
COSTS
The Company has utilized and will continue to utilize both internal and
external resources to reprogram, or replace, test, and implement the software
and operating equipment for Year 2000 modifications. Many of the program fixes
were completed in conjunction with other projects and had little incremental
cost. The Company estimates that incremental costs relating to Year 2000
projects to date approximate $2 million. These costs have been expensed as
incurred. The Company expects to spend less than $1 million on Year 2000
projects in fiscal 1999. Year 2000 costs are difficult to estimate accurately
and the projected cost could change due to unanticipated technical
difficulties, project delays, and third party non-compliance, among other
things.
16
<PAGE>
RISKS
Management of the Company believes that it has an effective program in place
to resolve the Year 2000 Issue in a timely manner. As noted above, the Company
has not yet completed all necessary phases of its Year 2000 plan. Because of
the range of possible issues and the large number of variables involved, it is
impossible to quantify the potential cost of problems should the Company or
its trading partners not properly complete their Year 2000 plans and become
Year 2000 compliant. Such costs and any failure of compliance efforts could
have a material adverse effect on the Company. The Company believes that the
most likely risks of serious Year 2000 business disruption are external in
nature, including continuity of utility, telecommunication and transportation
services, and the potential failure of the Company's customers due to their
own non-compliance or the non-compliance of their business partners. In the
event the Company does not properly complete its Year 2000 efforts or is
affected by the disruption of outside services, the Company could be unable to
take orders, distribute goods, invoice customers or collect payments. In
addition, disruptions in the economy generally resulting from Year 2000 could
have a material adverse effect on the Company. The Company could be subject to
litigation for computer systems failure. The amount of potential liability and
lost revenue cannot be reasonably estimated at this time.
CONTINGENCY PLANS
The Company is currently in process of developing contingency plans to
address the above Year 2000 risks as necessary. The Company plans to evaluate
the status of completion of its Year 2000 efforts by March 31, 1999 and to
determine what contingency plans are necessary at that time. In the normal
course of business, the Company has contingency plans for disruption of
business events and intends to augment those plans with specific Year 2000
considerations.
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In fiscal 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130 "Reporting Comprehensive Income," which requires that an
enterprise report, by major component and as a single total, the change in its
net assets during the period from nonowner sources and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas, and major customers. In fiscal 1998, the FASB issued SFAS
No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pensions and
other postretirement benefits and expands disclosures on changes in benefit
obligations and fair values of plan assets. These statements are effective for
fiscal years beginning after December 15, 1997. Also, in fiscal 1998, the FASB
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," which requires companies to recognize all derivatives as either
assets or liabilities in the balance sheet and measure such instruments at
fair value. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures.
FORWARD LOOKING STATEMENTS
Certain information in this Management's Discussion and Analysis of
Financial Condition and Results of Operations contains forward-looking
statements as such term is defined in Section 27A of the Securities Act and
Section 21E of the Exchange Act. Certain factors such as changes in interest
rates, competitive pressures, customer and product mix, inventory investment
buying opportunities, regulatory changes, the Year 2000 Issue, and capital
markets could cause actual results to differ materially from those in forward-
looking statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
See discussion in Item 7.
17
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Board of Directors and Stockholders of
AmeriSource Health Corporation
We have audited the accompanying consolidated balance sheets of AmeriSource
Health Corporation and subsidiaries as of September 30, 1998 and 1997, and the
related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the three years in the period ended
September 30, 1998. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of AmeriSource Health Corporation and subsidiaries at September 30, 1998 and
1997 and the consolidated results of their operations and their cash flows for
each of the three years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles. Also, in our opinion, the
related financial statement schedules, when considered in relation to the
basic financial statements taken as a whole, present fairly in all material
respects the information set forth therein.
Ernst & Young LLP
Philadelphia, Pennsylvania
November 3, 1998, except for Note 13, as to which the date is December 8, 1998
18
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ............................. $ 48,461 $ 60,045
Restricted cash........................................ 37,044 8,886
Accounts receivable, less allowance for doubtful
accounts: 1998--$26,447
1997--$22,562......................................... 458,238 533,319
Merchandise inventories................................ 870,223 1,017,782
Prepaid expenses and other............................. 4,356 4,622
---------- ----------
Total current assets................................. 1,418,322 1,624,654
Property and equipment, at cost:
Land................................................... 3,907 4,459
Buildings and improvements............................. 33,339 33,540
Machinery, equipment and other......................... 81,267 76,980
---------- ----------
118,513 114,979
Less accumulated depreciation.......................... 57,724 47,517
---------- ----------
60,789 67,462
Other assets, less accumulated amortization: 1998--
$8,847, 1997--$6,110.................................... 73,171 52,924
---------- ----------
$1,552,282 $1,745,040
========== ==========
</TABLE>
19
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
SEPTEMBER 30,
----------------------
1998 1997
---------- ----------
<S> <C> <C>
Current liabilities:
Accounts payable..................................... $ 873,181 $1,036,462
Accrued expenses and other........................... 48,532 43,798
Accrued income taxes................................. 78 9,433
Deferred income taxes................................ 93,385 40,406
---------- ----------
Total current liabilities.......................... 1,015,176 1,130,099
Long-term debt:
Revolving credit facility............................ 145,000 280,768
Receivables securitization financing................. 299,948 299,913
Other debt........................................... 8,813 9,138
---------- ----------
453,761 589,819
Other liabilities...................................... 8,036 10,811
Stockholders' equity:
Common stock, $.01 par value:
Class A (voting and convertible):
50,000,000 shares authorized; issued 9/98--
21,592,010 shares;
9/97--17,540,629 shares........................... 216 175
Class B (nonvoting and convertible):
15,000,000 shares authorized; issued 9/98--
5,700,783 shares;
9/97--9,440,370 shares............................ 57 94
Class C (nonvoting and convertible):
2,000,000 shares authorized; issued 9/98--129,237
shares;
9/97--166,495 shares.............................. 1 2
Capital in excess of par value....................... 244,664 234,188
Retained earnings (deficit).......................... (163,409) (213,928)
Cost of common stock in treasury..................... (6,220) (6,220)
---------- ----------
75,309 14,311
---------- ----------
$1,552,282 $1,745,040
========== ==========
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
---------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Operating revenue........................... $8,575,443 $7,815,942 $5,551,671
Bulk deliveries to customer warehouses...... 93,361 124,956 111,046
---------- ---------- ----------
Total revenue............................... 8,668,804 7,940,898 5,662,717
Operating cost of goods sold................ 8,154,098 7,428,466 5,249,238
Cost of goods sold--bulk deliveries......... 93,361 124,956 111,046
---------- ---------- ----------
Total cost of goods sold.................... 8,247,459 7,553,422 5,360,284
---------- ---------- ----------
Gross profit................................ 421,345 387,476 302,433
Selling and administrative.................. 254,895 243,853 195,350
Depreciation................................ 13,681 11,380 8,894
Amortization................................ 1,136 1,059 300
Merger costs................................ 18,406 -- --
Facility consolidations and employee
severance.................................. 8,283 11,571 --
---------- ---------- ----------
Operating income............................ 124,944 119,613 97,889
Interest expense............................ 42,124 41,581 35,980
---------- ---------- ----------
Income before taxes and extraordinary items. 82,820 78,032 61,909
Taxes on income............................. 32,301 30,583 19,259
---------- ---------- ----------
Income before extraordinary items........... 50,519 47,449 42,650
Extraordinary items--early retirement of
debt, net of income tax benefits........... -- (1,982) (7,242)
---------- ---------- ----------
Net income.................................. $ 50,519 $ 45,467 $ 35,408
========== ========== ==========
Earnings per share:
Income before extraordinary items......... $ 2.11 $ 2.00 $ 1.88
Extraordinary items....................... -- (.08) (.32)
---------- ---------- ----------
Net income.............................. $ 2.11 $ 1.92 $ 1.56
========== ========== ==========
Earnings per share--assuming dilution:
Income before extraordinary items......... $ 2.08 $ 1.97 $ 1.86
Extraordinary items....................... -- (.08) (.31)
---------- ---------- ----------
Net income.............................. $ 2.08 $ 1.89 $ 1.55
========== ========== ==========
Weighted average common shares outstanding:
Basic..................................... 23,953 23,720 22,687
Assuming dilution......................... 24,275 24,060 22,896
</TABLE>
See notes to consolidated financial statements.
21
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
COST OF
COMMON STOCK CAPITAL IN RETAINED COMMON
----------------------- EXCESS OF EARNINGS STOCK IN
CLASS A CLASS B CLASS C PAR VALUE (DEFICIT) TREASURY TOTAL
------- ------- ------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
September 30, 1995...... $121 $130 $ 4 $ 165,044 $(294,803) $ (6,220) $(135,724)
Net income............. 35,408 35,408
Stock conversions...... 37 (36) (1) --
Issuance of 1,500,000
shares in public
offering (net of $980
of issuance costs).... 15 49,285 49,300
Exercise of stock
options............... 42 42
Tax benefit from 1995
exercise of stock
options............... 14,166 14,166
---- ---- ---- --------- --------- -------- ---------
September 30, 1996...... 173 94 3 228,537 (259,395) (6,220) (36,808)
Net income............. 45,467 45,467
Stock conversions ..... 1 (1) --
Exercise of stock
options................ 1 3,808 3,809
Tax benefit from
exercise of stock
options............... 1,843 1,843
---- ---- ---- --------- --------- -------- ---------
September 30, 1997...... 175 94 2 234,188 (213,928) (6,220) 14,311
---- ---- ---- --------- --------- -------- ---------
Net income............. 50,519 50,519
Stock conversions...... 38 (37) (1) --
Exercise of stock
options............... 3 6,679 6,682
Tax benefit from
exercise of stock
options............... 3,797 3,797
---- ---- ---- --------- --------- -------- ---------
September 30, 1998...... $216 $ 57 $ 1 $ 244,664 $(163,409) $ (6,220) $ 75,309
==== ==== ==== ========= ========= ======== =========
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................ $ 50,519 $ 45,467 $ 35,408
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation......................... 13,681 11,380 8,894
Amortization, including deferred
financing costs..................... 2,853 2,949 2,688
Provision for loss on accounts
receivable.......................... 9,379 6,587 2,074
Gain on disposal of property and
equipment........................... (218) (176) (2)
Provision for deferred income taxes.. 19,188 (5,055) 5,805
Loss on early retirement of debt..... -- 3,250 11,142
Non-cash charge to cost of goods
sold................................ -- -- 10,899
Write-downs of assets................ 2,168 3,857 --
Changes in operating assets and
liabilities, excluding the effects
of acquisitions:
Restricted cash..................... (28,158) (3,260) 9,012
Accounts and notes receivable....... 70,418 (76,236) (48,953)
Merchandise inventories............. 147,605 (271,777) (213,112)
Prepaid expenses.................... 186 (1,019) 374
Accounts payable, accrued expenses,
and income taxes................... (161,807) 274,868 216,444
Miscellaneous....................... 59 (149) (692)
---------- ---------- ---------- ---
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES.................. 125,873 (9,314) 39,981
INVESTING ACTIVITIES
Capital expenditures................... (10,394) (15,883) (15,711)
Cost of companies acquired............. -- (130,962) (29,467)
Proceeds from sales of property and
equipment............................. 2,321 1,934 533
---------- ---------- ---------- ---
NET CASH USED IN INVESTING ACTIVITIES.. (8,073) (144,911) (44,645)
FINANCING ACTIVITIES
Long-term debt borrowings.............. 1,553,671 2,103,638 1,607,501
Long-term debt repayments.............. (1,689,737) (1,954,977) (1,618,775)
Net proceeds from public offering...... -- -- 49,300
Deferred financing costs and other .... -- (3,775) --
Exercise of stock options.............. 6,682 3,809 42
---------- ---------- ---------- ---
NET CASH (USED IN) PROVIDED BY
FINANCING ACTIVITIES.................. (129,384) 148,695 38,068
---------- ---------- ---------- ---
(DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS........................... (11,584) (5,530) 33,404
Cash and cash equivalents at beginning
of year............................... 60,045 65,575 32,171
---------- ---------- ---------- ---
CASH AND CASH EQUIVALENTS AT END OF
YEAR.................................. $ 48,461 $ 60,045 $ 65,575
========== ========== ========== ===
</TABLE>
See notes to consolidated financial statements.
23
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
AmeriSource Health Corporation and its wholly-owned subsidiaries (the
"Company") as of the dates and for the periods indicated. All intercompany
transactions and balances have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual amounts may differ from these estimated amounts.
Business
The Company is a wholesale distributor of pharmaceuticals and related health
care products within the United States.
Cash Equivalents
The Company classifies highly liquid investments with original maturities of
three months or less at date of purchase as cash equivalents.
Concentrations of Credit Risk
The Company sells its merchandise inventories to a large number of customers
in the health care industry, including independent drug stores, chain drug
stores, hospitals, mass merchandisers, clinics, and nursing homes. The
Company's trade accounts receivable are exposed to credit risk, but the risk
is limited due to the diversity of the customer base and the customer base's
wide geographic dispersion. The Company performs ongoing credit evaluations of
its customers' financial condition. The Company maintains reserves for
potential bad debt losses and such bad debt losses have been within the
Company's expectations.
The Company maintains cash balances at several large creditworthy banks
located in the United States. Accounts at each institution are insured by the
Federal Deposit Insurance Corporation up to $100,000. The Company does not
believe there is significant credit risk related to its cash balances.
Merchandise Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the last-in, first-out (LIFO) method, which results in a matching of
current costs and revenues. If the first-in, first-out (FIFO) method of
valuation had been used for determining costs, inventories would have been
approximately $96.1 million and $100.7 million higher than the amounts
reported at September 30, 1998 and 1997, respectively.
Property and Equipment
Property and equipment are stated at cost and depreciated on the straight-
line method over the estimated useful lives of the assets which range from
three to forty years.
Revenue Recognition
The Company recognizes revenues when products are delivered to customers.
The Company also acts as an intermediary in the bulk shipment of
pharmaceuticals from manufacturers to customers' warehouses.
24
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES--(CONTINUED)
All periods presented have been restated to include these bulk shipments in
revenues and cost of goods sold. Previously only the service fees from these
bulk shipments had been included in revenues.
Stock-Based Compensation
The Company follows Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations in
accounting for its employee stock-based compensation (See Note 7).
Earnings Per Share and Share Data
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 128, "Earnings Per Share." SFAS No. 128 replaced the
previously reported primary and fully diluted earnings per share with basic
and diluted earnings per share. Unlike primary earnings per share, basic
earnings per share excludes any dilutive effects of options, warrants, and
convertible securities. Earnings per share--assuming dilution is very similar
to the previously reported fully diluted earnings per share. All share and per
share amounts for all periods presented prior to fiscal 1998 have been
restated in accordance with the provision of SFAS No. 128.
Earnings per share is computed on the basis of the weighted average number
of shares of common stock outstanding during the periods presented
(23,953,000, 23,720,000 and 22,687,000 for fiscal years 1998, 1997, and 1996,
respectively). Earnings per share--assuming dilution is computed on the basis
of the weighted average numbers of shares outstanding during the period plus
the dilutive effect of stock options (322,000, 340,000 and 209,000, for fiscal
years 1998, 1997 and 1996, respectively).
Recently Issued Financial Accounting Standards
In fiscal 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 130 "Reporting Comprehensive Income," which requires that an
enterprise report, by major component and as a single total, the change in its
net assets during the period from nonowner sources and SFAS No. 131
"Disclosures about Segments of an Enterprise and Related Information," which
establishes annual and interim reporting standards for an enterprise's
operating segments and related disclosures about its products, services,
geographic areas, and major customers. In fiscal 1998, the FASB issued SFAS
No. 132 "Employers' Disclosures about Pensions and Other Postretirement
Benefits," which standardizes the disclosure requirements for pensions and
other postretirement benefits and expands disclosures on changes in benefit
obligations and fair values of plan assets. These statements are effective for
fiscal years beginning after December 15, 1997. Also, in fiscal 1998, the FASB
issued SFAS No. 133 "Accounting for Derivative Instruments and Hedging
Activities," which requires companies to recognize all derivatives as either
assets or liabilities in the balance sheet and measure such instruments at
fair value. SFAS No. 133 is effective for fiscal years beginning after June
15, 1999. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures.
NOTE 2--ACQUISITIONS
During fiscal 1997, the Company acquired all of the equity interests of
Walker Drug Company, L.L.C. in a cash transaction. Walker Drug Company, L.L.C.
is a wholesale pharmaceutical distributor based in Pelham, Alabama, which had
annual revenues of approximately $800 million. During fiscal 1996, the Company
acquired all of the stock of Gulf Distribution, Inc., a Miami, Florida-based
wholesale pharmaceutical distributor, which had annual revenues of
approximately $180 million, and substantially all of the assets of The
Diabetic Shoppe, Inc., a Wisconsin-based provider of diabetic disease
management programs to retail pharmacies.
25
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 2--ACQUISITIONS--(CONTINUED)
The aggregate purchase price for these acquisitions, including the
assumption of long-term debt, was approximately $138.7 million and $29.5
million in fiscal 1997 and 1996, respectively, and they were financed by
borrowings under the Company's revolving credit facility. These acquisitions
were accounted for by the purchase method and their results of operations are
included in the financial statements from their dates of acquisition. The
excess of purchase price over net assets acquired of $27.4 million and $8.2
million in fiscal 1997 and 1996, respectively, has been allocated to goodwill
(which is included in other assets) and is being amortized on a straight-line
basis over 40 years.
The following unaudited table (in thousands, except per share data) reflects
financial results on a pro forma basis, assuming the fiscal 1997 and 1996
acquisitions had occurred at the beginning of the periods presented. Pro forma
adjustments include: increased amortization for the cost over net assets
acquired; increased interest expense associated with financing the
acquisitions; and related income tax effects. Cost savings from combining the
operations are not reflected.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
----------------------
1997 1996
---------- ----------
<S> <C> <C>
Operating revenues...................................... $8,193,611 $6,376,049
Income before extraordinary items....................... 47,334 43,504
Net income.............................................. 45,352 36,262
Earnings per share--assuming dilution:
Income before extraordinary item...................... $ 1.97 $ 1.90
Extraordinary item.................................... (.08) (.32)
---------- ----------
Net income.......................................... $ 1.89 $ 1.58
========== ==========
</TABLE>
The unaudited pro forma information is provided for information purposes
only and does not purport to be indicative of the Company's results of
operations that would actually have been achieved had the acquisitions been
completed for the periods presented, or results that may be obtained in the
future.
NOTE 3--TAXES ON INCOME
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Current provision:
Federal....................................... $12,332 $29,747 $10,181
State and local............................... 781 5,891 3,273
------- ------- -------
13,113 35,638 13,454
Deferred provision:
Federal....................................... 15,338 (4,127) 4,725
State and local............................... 3,850 (928) 1,080
------- ------- -------
19,188 (5,055) 5,805
------- ------- -------
Provision for income taxes...................... $32,301 $30,583 $19,259
======= ======= =======
</TABLE>
26
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--TAXES ON INCOME--(CONTINUED)
A reconciliation of the statutory federal income tax rate to the effective
income tax rate is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR
ENDED
SEPTEMBER 30,
----------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 35.0% 35.0% 35.0%
State and local income tax rate, net of federal tax
benefit............................................... 3.6 4.3 3.9
Other.................................................. 0.4 (0.1) (7.8)
---- ---- ----
Effective income tax rate.............................. 39.0% 39.2% 31.1%
==== ==== ====
</TABLE>
In fiscal 1995, the Company received notices from the Internal Revenue
Service asserting deficiencies in federal corporate income taxes for the
Company's taxable years 1987 through 1991. The proposed adjustments indicated
a net increase to taxable income for these years of approximately $24 million
and related principally to the deductibility of costs incurred with respect to
the leveraged buyout transaction which occurred in 1988. Legislation enacted
in August 1996, eliminated approximately $20 million of the proposed
adjustments relating to the deductibility of costs incurred with respect to
the leveraged buyout transaction. In addition, the Company reached a
settlement with the Appeals Office of the Internal Revenue Service on all
remaining audit issues, resulting in an assessment of $2.1 million, including
interest. As a result of the settlement, the Company reduced accrued income
taxes and income tax expense by $7.1 million in fiscal 1996.
Deferred income taxes reflect the future tax consequences of differences
between the tax bases of assets and liabilities and their financial reporting
amounts. Significant components of the Company's deferred tax liabilities
(assets) are as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
--------- --------
<S> <C> <C>
Inventory............................................ $ 124,840 $ 55,625
Fixed assets......................................... 5,052 4,951
Other................................................ 790 575
--------- --------
Gross deferred tax liabilities................... 130,682 61,151
Net operating losses and tax credit carryovers....... (47,998) (4,125)
Allowance for doubtful accounts...................... (9,356) (7,682)
Accrued expenses..................................... (1,819) (4,437)
Other postretirement benefits........................ (537) (525)
Other................................................ (8,287) (4,460)
--------- --------
Gross deferred tax assets........................ (67,997) (21,229)
Valuation allowance for deferred tax assets.......... 2,222 3,173
--------- --------
Net deferred tax liabilities......................... $ 64,907 $ 43,095
========= ========
</TABLE>
In 1998 and 1997, tax benefits of $3.8 million and $1.8 million related to
the exercise of employee stock options were recorded as capital in excess of
par value. In 1996 a tax benefit of $14.2 million related to the exercise of
employee stock options in connection with the Company's April 1995 public
offering of common stock described in Note 5, was recorded as capital in
excess of par value.
As of September 30, 1998, the Company has $11.9 million of potential tax
benefits from federal net operating losses, expiring in 15 years, and has $5.0
million of potential tax benefits from state net operating
27
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--TAXES ON INCOME--(CONTINUED)
losses expiring in 5 to 15 years. As of September 30, 1998 and 1997, the
Company had $31.0 million and $3.9 million, respectively, of alternative
minimum tax credit carryforwards.
Income tax payments amounted to $16.0 million, $18.7 million, and $6.9
million in the fiscal years ended September 30, 1998, 1997, and 1996,
respectively.
NOTE 4--LONG-TERM DEBT
Receivable Securitization Financing
The Company sells substantially all of its trade accounts and notes
receivable (the "Receivables") to AmeriSource Receivables Corporation ("ARC"),
a special-purpose, wholly-owned subsidiary, pursuant to a trade receivables
securitization program (the "Receivables Program"). Additionally, the Company
has a Receivables Purchase Agreement with ARC, whereby ARC purchases on a
continuous basis Receivables originated by the Company. Pursuant to the
Receivables Program, ARC transfers such Receivables to a master trust in
exchange for, among other things, certain trade receivables-backed
certificates (the "Certificates"). During the term of the Receivables Program,
the cash generated by collections on the Receivables is used to purchase,
among other things, additional Receivables originated by the Company. The
Company accounts for the Receivables Program as a financing transaction in its
consolidated financial statements.
Pursuant to the Receivables Program in fiscal 1995, the Company issued: (i)
$175 million of Floating Rate Class A Trade Receivables Participation
Certificates ("Class A Certificates") and (ii) $35 million of Floating Rate
Class B Trade Receivables Participation Certificates ("Class B Certificates"),
which represent fractional undivided interests in the Receivables and other
assets of the master trust. The Class A Certificates bear interest at one
month LIBOR plus .35% and the Class B Certificates, which are subordinated to
the Class A Certificates, bear interest at one month LIBOR plus .70%. In
fiscal 1997, the Company issued an additional $90 million of Floating Rate
Class A Trade Receivables Participation Certificates Series 1997-1 (the
"Series 1997-1 Certificates"). The Series 1997-1 Certificates bear interest at
one month LIBOR plus .20%. The Class A, Class B and Series 1997-1 Certificates
each have a five-year term. In addition, the Company issued Floating Rate
Revolving Principal Trade Receivables Participation Certificates ("Revolving
Certificates"), pursuant to which investors may purchase up to $75 million of
interests in the master trust, which Certificates will bear interest, at the
Company's option, at either LIBOR plus .35% or the federal funds rate plus
1.00%. The Revolving Certificates rank pari passu in right of payment with the
Class A Certificates. There were no Revolving Certificates outstanding at
September 30, 1998 and 1997. Fees of $0.7 million and $4.6 million incurred in
fiscal 1997 and fiscal 1995 in connection with establishing the Receivables
Program have been deferred and are being amortized on a straight-line basis
over a period of five years. Class A Certificates of $175 million principal
amount (at an interest rate of 5.9%), Class B Certificates of $35 million
principal amount (at an interest rate of 6.3%) and Series 1997-1 Certificates
of $90 million principal amount (at an interest rate of 5.8%) were outstanding
under the Receivables Program at September 30, 1998. The Company is required
to pay a commitment fee of 1/4 of 1% per annum on the unused portion of the
Revolving Certificates. Restricted cash of $37.0 million and $8.9 million at
September 30, 1998 and 1997, represents amounts temporarily deposited in the
master trust which amounts are designated for specific purposes pursuant to
the Receivables Program, including cash deposited by the Company to supplement
the receivable collateral base, if that base is not sufficient to support the
Class A, Class B, and Series 1997-1 Certificates.
Revolving Credit Agreement
In January 1997, the Company entered into a new revolving credit agreement
(the "Credit Agreement") with a syndicate of senior lenders providing a senior
secured facility of $500 million. Among other things, the
28
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT--(CONTINUED)
Credit Agreement: (1) is for a term of five years, expiring in January 2002;
(2) provides for interest rates ranging from LIBOR plus 25 basis points to
LIBOR plus 125 basis points based upon certain financial ratios (3) provides
for the release of security upon the attainment of certain financial ratios or
once the Company achieves investment grade senior, unsecured debt ratings from
two credit rating agencies; (4) provides for a borrowing base of 70% of the
eligible inventory; and (5) provides higher limits for possible acquisitions.
An extraordinary loss of $2.0 million (net of tax benefits of $1.3 million)
was recorded in fiscal 1997, representing the write-off of the unamortized
financing fees related to the retirement of the prior $380 million revolving
credit facility. In connection with the Credit Agreement, the Company incurred
approximately $3.0 million of financing fees which have been deferred and are
being amortized on a straight-line basis over the five-year term of the Credit
Agreement.
Revolving loans made under the Credit Agreement may be prepaid during its
term without premium and may subsequently be reborrowed. Commitments under the
Credit Agreement may be permanently reduced in full or in part at any time at
the option of the Company upon prior written notice.
Borrowings under the Credit Agreement bear interest at the rate of LIBOR
plus an applicable margin (.75% at September 30, 1998) or the applicable prime
rate. Interest on loans under the Credit Agreement is payable quarterly. Under
the terms of the Credit Agreement, the Company granted the senior lenders a
perfected first priority security interest in the Company's inventory for
collateral against borrowings under the Credit Agreement. The Company is
required to pay a commitment fee on the unused portion of commitments under
the Credit Agreement (.23% per annum at September 30, 1998) plus an annual
administration fee. At September 30, 1998, the $145.0 million outstanding
under the Credit Agreement bore interest at the rate of 6.9% per annum.
Senior Debentures
In fiscal 1996, the Company purchased and redeemed senior debentures that
were previously issued and outstanding. These transactions were funded by
proceeds from the Company's 1996 public offering and borrowings under the
Company's revolving credit agreement and resulted in an extraordinary charge
of $7.2 million (net of a $3.9 million tax benefit), related to the open
market purchase and tender offer premiums, transaction fees and the write-off
of related unamortized deferred financing fees.
The Company enters into interest-rate cap agreements to hedge the exposure
to increasing interest rates with respect to its long-term debt. The Company
provides protection to meet actual interest rate exposures and does not
speculate in derivatives. The interest rate caps under these agreements exceed
the current market rates at the time they are entered into and their cost is
included in interest expense ratably over the life of the agreement. The
unamortized cost of the agreements ($83,000 at September 30, 1998) is included
in other assets. The Company is required by its Credit Agreement to maintain
interest rate protection on a minimum of $112.5 million of its long-term debt
through January 1999. The Company has entered into two-year interest rate cap
agreements expiring in May 1999 which specify that the 3-month LIBOR base rate
will not be greater than 7.50% with respect to $115 million of borrowings
under the Credit Agreement. The Company would incur additional interest
expense with respect to the borrowings if the LIBOR rate would exceed 7.50%
and the other parties to the interest rate cap agreements defaulted on their
obligations under the agreements. During fiscal 1998, the 3-month LIBOR rate
did not exceed 7.5%.
The indentures governing the Receivables Program and the Credit Agreement
contain restrictions and covenants which include limitations on incurrence of
additional indebtedness, restrictions on distributions and dividends to
stockholders, the repurchase of stock and the making of certain other
restricted payments, the issuance of preferred stock, the creation of certain
liens, transactions with subsidiaries and other affiliates, and
29
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--LONG-TERM DEBT--(CONTINUED)
certain corporate acts such as mergers, consolidations, and the sale of
substantially all assets. Additional covenants require compliance with
financial tests, including leverage, fixed charge coverage, and maintenance of
minimum net worth.
Interest paid on the above indebtedness during the fiscal years ended
September 30, 1998, 1997, and 1996 was $44.4 million, $37.3 million, and $36.2
million, respectively.
Total amortization of financing fees and expenses (included in interest
expense) for the fiscal years ended September 30, 1998, 1997, and 1996 was
$1.7 million, $1.9 million, and $2.4 million, respectively.
As of September 30, 1998, the Company's revolving credit facility and
receivables securitization financing had fair values that approximated their
carrying amounts.
NOTE 5--STOCKHOLDERS' EQUITY
In May 1996, the Company completed a public offering of 4,800,000 shares of
Class A common stock at a price of $35 per share. Of the 4,800,000 shares
sold, 1,500,000 were sold by the Company and 3,300,000 shares were sold by
certain stockholders of the Company (the "Selling Stockholders"). The Company
did not receive any of the proceeds from the shares sold by the Selling
Stockholders. The net proceeds of $49.3 million from the 1,500,000 shares sold
by the Company were used to repay long-term debt. On a pro forma basis,
assuming historical data is adjusted to reflect the public offering and
related pay-down of long-term debt as if they occurred on October 1, 1995,
earnings per share before extraordinary items for fiscal 1996 would not be
materially different from reported earnings per share.
The holders of the Class A common stock are entitled to one vote per share
on all matters on which holders of Class A common stock are entitled to vote.
The holders of the Class A common stock may elect at any time to convert any
or all such shares into the Class B common stock on a share-for-share basis
(but only to the extent that such record holder of Class A common stock shall
be deemed to be required to convert such Class A common stock into Class B
common stock pursuant to applicable law).
The rights of holders of Class B and Class C common stock and holders of
Class A common stock are substantially identical and entitle the holders
thereof to the same rights, privileges, benefits, and notices, except that
holders of Class B and Class C common stock generally do not possess the right
to vote on any matters to be voted upon by the stockholders of the Company,
except as provided by law. Holders of Class B and Class C common stock may
elect at any time to convert any and all of such shares into Class A common
stock, on a share-for-share basis, to the extent the holder thereof is not
prohibited from owning additional voting securities by virtue of regulatory
restrictions.
The Class C common stock is subject to substantial restrictions on transfer
and has certain registration and "take-along" rights. A share of Class C
common stock will automatically be converted into a share of Class A common
stock (a) immediately prior to its sale in a future public offering or (b) at
such time as such share of Class C common stock has been sold publicly.
NOTE 6--PENSION AND OTHER BENEFIT PLANS
The Company provides a benefit for the majority of its employees under
noncontributory defined benefit pension plans. For each employee, the benefits
are based on years of service and average compensation. Pension costs, which
are computed using the projected unit credit cost method, are funded on at
least the minimum amount required by government regulations.
30
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PENSION AND OTHER BENEFIT PLANS--(CONTINUED)
A summary of the components of net periodic pension cost charged to expense
for the Company-sponsored defined benefit pension plans together with
contributions charged to expense for a multi-employer union-administered
defined benefit pension plan the Company participates in follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEAR ENDED SEPTEMBER 30,
----------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Service cost............................... $ 3,159 $ 2,994 $ 2,599
Interest cost on projected benefit
obligation................................ 3,661 3,275 2,835
Actual return on plan assets............... (4,778) (4,196) (2,380)
Net amortization and deferral.............. 1,458 1,404 (14)
---------- ---------- ----------
Net pension cost of defined benefit plans.. 3,500 3,477 3,040
Net pension cost of multi-employer plan.... 367 245 196
---------- ---------- ----------
Total pension expense.................. $ 3,867 $ 3,722 $ 3,236
========== ========== ==========
</TABLE>
The following table sets forth (in thousands) the funded status and amount
recognized in the consolidated balance sheets for the Company-sponsored
defined benefit pension plans:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
ASSETS EXCEED ACCUMULATED ASSETS EXCEED ACCUMULATED
ACCUMULATED BENEFITS ACCUMULATED BENEFITS
BENEFITS EXCEED ASSETS BENEFITS EXCEED ASSETS
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Plan assets at fair
value.................. $42,654 $ 1,155 $36,349 $ 917
Actuarial present value
of benefit obligations:
Vested................ 39,510 2,280 31,444 1,706
Accumulated, not
vested............... 1,633 890 608 510
------- ------- ------- -------
Accumulated benefit
obligations............ 41,143 3,170 32,052 2,216
Effect of future pay
increases............ 11,630 771 10,119 1,280
------- ------- ------- -------
Projected benefit
obligation............. 52,773 3,941 42,171 3,496
------- ------- ------- -------
Plan assets less than
projected benefit
obligation............. (10,119) (2,786) (5,822) (2,579)
Unrecognized net
transition asset....... (315) -- (485) --
Unrecognized prior
service cost........... 2,248 669 2,553 572
Adjustment to recognize
minimum liability...... -- (830) -- (424)
Unrecognized net loss
related to assumptions. 9,112 932 3,985 1,132
------- ------- ------- -------
Pension asset
(liability) recognized. $ 926 $(2,015) $ 231 $(1,299)
======= ======= ======= =======
</TABLE>
Assumptions used in computing the funded status of the plans were as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Discount rate.............................................. 7.00% 7.75% 7.75%
Rate of increase in compensation levels.................... 5.50% 6.25% 6.25%
Expected long-term rate of return on assets................ 10.00% 10.00% 10.00%
</TABLE>
Plan assets at September 30, 1998 are invested principally in listed stocks,
corporate and government bonds, and cash equivalents.
Additionally, the Company sponsors the Employee Investment Plan, a defined
contribution 401(k) plan, which covers salaried and certain hourly employees.
Eligible participants may contribute to the plan from 2% to 18% of their
regular compensation before taxes. The Company matches the employee
contributions up to
31
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 6--PENSION AND OTHER BENEFIT PLANS--(CONTINUED)
a maximum of 6% of their regular compensation in an amount equal to 50% of the
participants' contributions. An additional discretionary Company contribution
in an amount not to exceed 50% of the participants' contributions may also be
made depending upon the Company's performance. All contributions are invested
at the direction of the employee in one or more funds. Employer contributions
vest over a five-year period depending upon an employee's years of service.
Costs of the plan charged to expense for the fiscal years ended September 30,
1998, 1997, and 1996 amounted to $1.9 million, $0.9 million, and $1.8 million,
respectively.
As a result of special termination benefit packages previously offered, the
Company provides medical, dental, and life insurance benefits to only a
limited number of retirees and their dependents. These benefit plans are
unfunded. The accumulated postretirement benefit obligation was $0.7 million
as of September 30, 1998. The weighted average discount rate used in
determining the accumulated postretirement benefit obligations was 6.75% and
7.5% at September 30, 1998 and 1997, respectively. The annual expense for such
benefits is not material.
NOTE 7--STOCK OPTION PLANS
Effective October 1, 1996, the Company adopted the disclosure-only option
under SFAS No. 123, "Accounting for Stock-Based Compensation." The Company
continues to use the accounting method under APB Opinion No. 25 ("APB 25") and
related interpretations for its employee stock options. Under APB 25,
generally when the exercise price of the Company's employee stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized.
During fiscal 1995, the Company adopted the AmeriSource Health Corporation
1995 Stock Option Plan (the "1995 Option Plan"), which provides for the
granting of nonqualified stock options to acquire up to approximately 1.2
million shares of common stock to employees of the Company at a price not less
than the fair market value of the common stock on the date the option is
granted. The option terms and vesting periods are determined at the date of
grant by a committee of the Board of Directors. Options expire six years after
the date of grant unless an earlier expiration date is set at the time of
grant.
During fiscal 1995, the Company also adopted the AmeriSource Health
Corporation Non-Employee Director Stock Option Plan (the "1995 Directors
Plan"), which provides for the grant of stock options to the Company's non-
employee directors. Under the 1995 Directors Plan, stock options are granted
annually at the fair market value of the Company's common stock on the date of
grant. The number of options so granted annually is fixed by the plan. Such
options become fully exercisable on the first anniversary of their respective
grant, except for the options under the initial grant, which are fully
exercisable on the third anniversary of the grant. The total number of shares
to be issued under the 1995 Directors Plan may not exceed 50,000 shares.
During fiscal 1997, the Company adopted the 1996 Employee Stock Option Plan
(the "1996 Option Plan") and the 1996 Non-Employee Directors Stock Option Plan
(the "1996 Directors Plan"). The 1996 Option Plan and the 1996 Directors Plan
provide for the granting of nonqualified stock options to acquire up to
797,000 and 50,000 shares of common stock, respectively, to employees and non-
employee directors at a price not less than the fair market value of the
common stock on the date the option is granted. The option terms and vesting
periods of the 1996 Option Plan are determined at the date of grant by a
committee of the Board of Directors. The number of options to be granted
annually under the 1996 Directors Plan is fixed by the plan and vest
immediately. Options expire ten years after the date of grant unless an
earlier expiration date is set at the time of grant.
32
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
A summary of the Company's stock option activity for its 1996 and 1995
option plans, and related information for the fiscal years ended September 30
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000) PRICE (000) PRICE (000) PRICE
------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
year....................... 1,266 $31 1,175 $23 907 $21
Granted................... 474 57 457 49 298 28
Exercised................. (275) 24 (174) 22 (2) 21
Forfeited................. (59) 37 (192) 32 (28) 22
------ ------ ------
Outstanding end of year..... 1,406 $41 1,266 $31 1,175 $23
====== ====== ======
Exercisable at end of year.. 451 $30 316 $24 214 $21
Weighted average fair value
of options granted during
the year................... $24.32 $19.14 $11.01
</TABLE>
A summary of the status of options outstanding at September 30, 1998
follows:
<TABLE>
<CAPTION>
EXERCISABLE OPTIONS
OUTSTANDING OPTIONS ---------------------------
-----------------------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICE RANGE (000) LIFE PRICE (000) PRICE
- - ----------- ------ ----------- -------- ------ --------
<S> <C> <C> <C> <C> <C>
$21-$28 580 3 years $23 329 $22
$42-$57 826 9 years $54 122 $51
</TABLE>
Pro forma disclosures, as required by SFAS No. 123, regarding net income and
earnings per share have been determined as if the Company had accounted for
its employee stock options under the fair value method.
Option valuation models use highly subjective assumptions to determine the
fair value of traded options with no vesting or trading restrictions. Because
options granted under the Company's Stock Option Plans have vesting
requirements and cannot be traded, and because changes in the assumptions can
materially affect the fair value estimate, in management's opinion, the
existing valuation models do not necessarily provide a reliable measure of the
fair value of its employee stock options.
The fair values for the Company's options were estimated at the date of
grant using a Black-Scholes option pricing model with the following
assumptions for fiscal 1998: risk-free interest rate of 5.3%; no dividends; a
volatility factor of the expected market price of the Company's common stock
of .392 and a weighted-average expected life of the options of 5 years; for
fiscal 1997 and fiscal 1996: risk-free interest rate of 6.0%; no dividends; a
volatility factor of the expected market price of the Company's common stock
of .321 and a weighted-average expected life of the options of 5 years.
33
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 7--STOCK OPTION PLANS--(CONTINUED)
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' assumed vesting period. SFAS
No. 123 requires only that the income effects of options granted during fiscal
1998, fiscal 1997 and fiscal 1996 be included in the pro forma disclosures.
Since a portion of the Company's stock options vest over several years and
additional options may be granted each year, the pro forma effect on net
income reported below is not representative of the effect of fair value stock
option expense on future years' pro forma net income. The Company's pro forma
information follows (in thousands, except per share data):
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR
ENDED SEPTEMBER 30,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Pro forma net income................................... $47,462 $43,532 $35,057
Pro forma earnings per share:
Basic................................................. $ 1.98 $ 1.84 $ 1.55
Assuming dilution..................................... 1.96 1.81 1.53
</TABLE>
NOTE 8--LEASES
At September 30, 1998, future minimum payments totaling $51.6 million under
noncancelable operating leases with remaining terms of more than one fiscal
year were due as follows: 1999--$13.1 million; 2000--$9.5 million; 2001--$7.0
million; 2002--$5.1 million; 2003--$3.7 million; and thereafter (through
2010)--$13.2 million. In the normal course of business, operating leases are
generally renewed or replaced by other leases.
Total rental expense was $16.0 million in fiscal 1998, $14.0 million in
fiscal 1997, and $9.7 million in fiscal 1996.
NOTE 9--FACILITY CONSOLIDATIONS AND EMPLOYEE SEVERANCE
In the fourth quarter of fiscal 1998 the Company began to centralize its
data processing, accounting and contract administration functions, reorganize
its pharmaceutical distribution facilities into six regions, and consolidate a
pharmaceutical distribution facility into another facility. The centralization
process, which commenced in July 1998, is occurring on a facility-by-facility
basis and is expected to be complete by the end of 1999.
In the third quarter of fiscal 1997 the Company commenced cost reduction
plans to consolidate three of its pharmaceutical distribution facilities into
other existing facilities and restructure its sales force. These initiatives
were completed in fiscal 1998. In addition the Company incurred costs related
to the retirement of its former President and CEO as well as other executive
terminations during fiscal 1997.
The cost reduction initiatives referred to above resulted in the following
charges for the fiscal year ended September 30 (in thousands):
<TABLE>
<CAPTION>
1998 1997
------ -------
<S> <C> <C>
Write-downs of assets...................................... $2,168 $ 3,857
Severance.................................................. 3,269 1,832
Lease cancellations and other.............................. 2,846 727
Executive severance........................................ -- 5,155
------ -------
$8,283 $11,571
====== =======
</TABLE>
34
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 9--FACILITY CONSOLIDATIONS AND EMPLOYEE SEVERANCE--(CONTINUED)
Write-downs of assets in 1998 relate primarily to computer equipment to be
abandoned as a result of the data processing centralization. In fiscal 1997,
write-downs of assets related to buildings, warehouse and computer equipment
and other assets to be disposed of primarily due to the facility
consolidations. The write-downs of assets were based on estimated salvage and
market values of related facilities and equipment compared to carrying values.
Computer and warehouse equipment were determined to have minimal salvage value
based on Company estimates.
Severance includes the termination of approximately 350 administrative and
warehouse employees in fiscal 1998 and 240 warehouse and sales employees in
fiscal 1997. All of the employees targeted in fiscal 1997 and 25 of the
employees targeted in fiscal 1998 were terminated by September 30, 1998.
Accrued severance of $4.3 million, including executive severance of $1.4
million, at September 30, 1998 is included in accrued expenses and other.
Lease cancellations and other in fiscal 1998 relates primarily to non-
cancellable lease obligations remaining after the conversion dates for
computer equipment to be abandoned as a result of the data processing
centralization. In fiscal 1997, lease cancellations and other relates
primarily to non-cancellable lease obligations of the consolidated facilities.
Remaining lease obligations of $3.0 million are included in accrued expenses
and other at September 30, 1998.
NOTE 10--LEGAL MATTERS AND CONTINGENCIES
In the ordinary course of its business, the Company becomes involved in
lawsuits, administrative proceedings, and governmental investigations,
including antitrust, environmental, product liability, and regulatory agency
and other matters. In some of these proceedings, plaintiffs may seek to
recover large and sometimes unspecified amounts and the matters may remain
unresolved for several years. On the basis of information furnished by counsel
and others, the Company does not believe that these matters, individually or
in the aggregate, will have a material adverse effect on its business or
financial condition.
A former customer of the Company has alleged that the Company failed to
fulfill its obligations under the service contract between the Company and the
former customer. In connection with this claim, the former customer withheld
payment on $22 million of invoices. In response, the Company filed suit to
collect the outstanding amount. The former customer has countersued the
Company for an unspecified amount. The Company believes there is no merit to
this counterclaim and intends to aggressively pursue collection of the
outstanding amount. Because the Company is unable at this time to determine
the outcome of this matter, no provision for loss has been made.
In November 1993, the Company was named a defendant, along with six other
wholesale distributors and twenty-four pharmaceutical manufacturers, in a
series of purported class action antitrust lawsuits brought by retail
pharmacies and alleging violations of various antitrust laws stemming from the
use of chargeback agreements. In addition, the Company and four other
wholesale distributors were added as defendants in a series of related
antitrust lawsuits brought by independent pharmacies and chain drug stores,
both of which opted out of the class cases. The Company also was named a
defendant in parallel suits filed in state courts in Minnesota, Alabama,
Tennessee and Mississippi. The federal class actions were originally filed in
the United States District Court for the Southern District of New York, but
were transferred along with the individual and chain drug store cases to the
United States District Court for the Northern District of Illinois. Plaintiffs
seek injunctive relief, treble damages, attorneys' fees and costs. In October
1994, the Company entered into a Judgment Sharing Agreement with the other
wholesaler and pharmaceutical manufacturer defendants. Under the Judgment
Sharing Agreement: (a) the manufacturer defendants agreed to reimburse the
wholesaler defendants for litigation costs
35
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 10--LEGAL MATTERS AND CONTINGENCIES--(CONTINUED)
incurred up to an aggregate of $9 million; and (b) if a judgment is entered
against both manufacturers and wholesalers, the total exposure for joint and
several liability of the Company is limited to the lesser of 1% of such
judgment or $1 million. In addition, the Company has released any claims which
it might have had against the manufacturers for the claims presented by the
Plaintiffs in these lawsuits. The Judgment Sharing Agreement covers the
federal court litigation as well as the cases which have been filed in various
state courts.
On April 4, 1996, the District Court granted the Company's motion for
summary judgment in the class case. Plaintiffs subsequently appealed the
Company's grant of summary judgment to the United States Court of Appeals for
the Seventh Circuit. On August 15, 1997, the Court of Appeals reversed the
District Court's order granting summary judgment in favor of the Company and
the other wholesalers. The Court of Appeals also denied the Company's petition
for rehearing. The Company and the other wholesalers filed a petition for a
writ of certiorari to the United States Supreme Court; the petition was
denied. Trial in the class case commenced in the United States District Court
for the Northern District of Illinois on September 23, 1998. After a ten-week
trial, the Court granted all of the defendants motions for a directed verdict
and dismissed the claims the class plaintiffs had asserted against the Company
and the other defendants.
On or about October 2, 1997, a group of retail chain drug stores and
individual pharmacies, both of which had opted-out of the class cases, filed a
motion with the United States District Court for the Northern District of
Illinois seeking to add the Company and the other wholesale distributors as
defendants in their cases against the manufacturer defendants, which cases are
consolidated before the same judge who is presently presiding over the class
case. This motion was granted and the Company and the other wholesale
distributors have been added as defendants in those cases as well. As a
result, the Company has been served with approximately 120 additional
complaints on behalf of approximately 4,000 pharmacies and chain retailers.
Discovery and motion practice is presently underway in all of these opt-out
cases. The Company believes it has meritorious defenses to the claims asserted
in these lawsuits and intends to vigorously defend itself in all of these
cases.
The Company is subject to contingencies pursuant to environmental laws and
regulations at one of its former distribution centers that may require the
Company to take remediation efforts. In fiscal 1994, the Company accrued $4.1
million to cover future consulting, legal, and remediation and ongoing
monitoring costs. The accrued liability, which is reflected in other long-term
liabilities on the accompanying consolidated balance sheet ($3.8 million at
September 30, 1998), is based on an engineering analysis prepared by outside
consultants and represents an estimate of the extent of contamination and
choice of remedy based on existing technology and presently enacted laws and
regulations. However, changes in remediation standards, improvements in
cleanup technology and discovery of additional information concerning the site
could affect the estimated liability in the future. The Company is
investigating the possibility of asserting claims against responsible parties
for recovery of these costs. Whether or not any recovery may be forthcoming is
unknown at this time, although the Company intends to vigorously enforce its
rights and remedies.
NOTE 11--MERGER COSTS--TERMINATED MERGER AGREEMENT
On September 22, 1997 the Company and McKesson Corporation signed a
definitive merger agreement which was subsequently approved by both companies'
shareholders on February 9, 1998. On March 9, 1998, the Federal Trade
Commission (FTC) filed a complaint in the United States District Court for the
District of Columbia seeking a preliminary injunction to halt the proposed
merger. On July 31, 1998, the District Court granted the FTC's request for an
injunction to halt the proposed merger. On August 7, 1998, the Company and
McKesson jointly terminated the merger agreement. Merger related costs
consisting of professional fees and stay-put bonuses totaling $18.4 million
were expensed in the fourth quarter of fiscal 1998 as a result of the
termination of the merger agreement.
36
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 12--QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
QUARTERLY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1997 1998 1998 1998
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Operating revenue............ $2,254,560 $2,192,285 $2,094,510 $2,034,088
Bulk deliveries to customer
warehouses.................. 24,998 26,069 34,682 7,612
---------- ---------- ---------- ----------
Total revenue................ 2,279,558 2,218,354 2,129,192 2,041,700
Gross profit................. 105,606 113,013 99,469 103,257
Selling and administrative
expenses, depreciation and
amortization................ 69,202 74,406 62,901 89,892
Operating income............. 36,404 38,607 36,568 13,365
Net income................... 14,483 16,210 16,472 3,354
Net income per share......... .61 .68 .69 .14
Net income per share--
assuming dilution........... .60 .67 .68 .14
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------
DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30,
1996 1997 1997 1997
------------ ---------- ---------- -------------
<S> <C> <C> <C> <C>
Operating revenue............ $1,746,935 $1,785,469 $2,064,174 $2,219,364
Bulk deliveries to customer
warehouses.................. 44,375 36,732 27,010 16,839
---------- ---------- ---------- ----------
Total revenue................ 1,791,310 1,822,201 2,091,184 2,236,203
Gross profit................. 86,152 92,901 100,460 107,963
Selling and administrative
expenses, depreciation and
amortization................ 57,162 60,314 79,468 70,919
Operating income............. 28,990 32,587 20,992 37,044
Income before extraordinary
item........................ 11,817 13,132 6,332 16,168
Extraordinary item--early
retirement of debt.......... -- (1,982) -- --
Net income................... 11,817 11,150 6,332 16,168
Earnings per share:
Income before extraordinary
item...................... .50 .55 .27 .68
Extraordinary item......... -- (.08) -- --
Net income............... .50 .47 .27 .68
Earnings per share--assuming
dilution:
Income before extraordinary
item...................... .49 .55 .26 .67
Extraordinary item......... -- (.08) -- --
Net income............... .49 .46* .26 .67
</TABLE>
- - --------
*Difference due to rounding.
Quarterly revenues prior to September 30, 1998 have been restated to reflect
bulk shipments to customers' warehouses as revenue as described in Note 1.
In the fourth quarter of fiscal 1998, the Company recorded $18.4 million in
costs related to the termination of its merger agreement with McKesson
Corporation (see Note 11) as well as $8.3 million for restructuring
initiatives undertaken to centralize redundant administrative functions, and
to close a distribution facility. See Note 9.
In the third quarter of fiscal 1997, the Company incurred a $6.4 million
charge to consolidate facilities and restructure its sales force and a $5.2
million charge related to executive management changes. See Note 9.
37
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 13--SUBSEQUENT EVENT
On December 8, 1998, the Company's Board of Directors approved the
AmeriSource Health Corporation 1999 Stock Option Plan (the "1999 Option Plan")
and the AmeriSource Health Corporation 1999 Non-Employee Directors Stock
Option Plan (the "1999 Directors Plan"). The 1999 Option Plan and the 1999
Directors Plan are subject to shareholder approval and provide for the
granting of nonqualified stock options to acquire up to 1,600,000 and 175,000
shares of common stock, respectively, at a price not less than the fair market
value of the common stock on the date the option is granted. Generally, the
option term is ten years and the options vest at the rate of 25% per year,
commencing one year following the grant. The number of options to be granted
annually under the 1999 Directors Plan is fixed by the plan and such options
vest one year from the grant date. Options expire ten years after the date of
grant.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
(No response to this Item is required.)
38
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information appearing under "Election of Directors" and "Compliance with
Section 16(a) of the Securities Exchange Act of 1934" in the Company's Notice
of Annual Meeting of Stockholders and Proxy Statement for the 1999 annual
meeting of stockholders (the "1999 Proxy Statement") is incorporated herein by
reference. The Company will file the 1999 Proxy Statement with the Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year.
Information regarding executive officers is set forth in Part I of this
report.
ITEM 11. EXECUTIVE COMPENSATION.
Information regarding executive compensation appearing under "Management,"
"Compensation of Directors," "Compensation Committee Interlocks and Insider
Participation," "Report of the Compensation Committee of the Board of
Directors," and "Stockholder Return Performance" in the 1999 Proxy Statement
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information regarding security ownership of certain beneficial owners and
management appearing under "Security Ownership of Certain Beneficial Owners
and Management" in the 1999 Proxy Statement is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Information appearing under "Certain Relationships and Transactions" in the
1999 Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(A)(1) AND (2) LIST OF FINANCIAL STATEMENTS AND SCHEDULES.
Financial Statements: The following consolidated financial statements are
submitted in response to Item 14(a)(1):
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors......................... 18
Consolidated Balance Sheets as of September 30, 1998 and 1997............. 19
Consolidated Statements of Operations for the fiscal years ended September
30, 1998, 1997 and 1996.................................................. 21
Consolidated Statements of Changes in Stockholders' Equity for the fiscal
years ended September 30, 1998, 1997 and 1996............................ 22
Consolidated Statements of Cash Flows for the fiscal years ended September
30, 1998, 1997 and 1996.................................................. 23
Notes to Consolidated Financial Statements................................ 24
</TABLE>
Financial Statement Schedules: The following financial statement schedules
are submitted in response to Item 14(a)(2) and Item 14(d):
<TABLE>
<S> <C>
Schedule I--Condensed Financial Information of AmeriSource Health
Corporation as of
September 30, 1998 and 1997 and for the fiscal years ended
September 30, 1998, 1997 and 1996................................ S-1
Schedule II--Valuation and Qualifying Accounts............................ S-4
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
39
<PAGE>
(A)(3) LIST OF EXHIBITS.*
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.1 Agreement and Plan of Merger, dated as of September 22, 1997, by and
among McKesson Corporation, AmeriSource Health Corporation and Patriot
Acquisition Corp. (incorporated by reference to Exhibit 99.1 to
Registrant's Current Report on Form 8-K filed with the Commission on
September 24, 1997).
2.2 Stock Option Agreement, dated September 22, 1997, by and between
McKesson Corporation and AmeriSource Health Corporation (incorporated
by reference to Exhibit 99.2 to Registrant's Current Report on Form 8-
K filed with the Commission on September 24, 1997).
2.3 Voting/Support Agreement, dated September 22, 1997, by and among 399
Venture Partners, Inc., McKesson Corporation and Patriot Acquisition
Corp. (incorporated by reference to Exhibit 99.3 to Registrant's
Current Report on Form 8-K filed with the Commission on September 24,
1997).
2.4 Registration Rights Agreement, dated September 22, 1997, by and
between McKesson Corporation and 399 Venture Partners, Inc.
(incorporated by reference to Exhibit 99.4 to Registrant's Current
Report on Form 8-K filed with the Commission on September 24, 1997).
3.1 Certificate of Incorporation of the Registrant, (incorporated by
reference to Exhibit 3.1 to the Registrant's Annual Report on Form 10-
K for the fiscal year ended September 30, 1995).
3.2 Amended and Restated By-Laws of the Registrant (incorporated by
reference to Exhibit 3.2 to Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1997).
4.1 Indenture, dated as of May 30, 1986, between AmeriSource Corporation
("AmeriSource") and Bankers Trust Company, as trustee relating to the
6 1/4% Convertible Subordinated Debentures due 2001 of AmeriSource
(the "Convertible Debentures") including the form of Convertible
Debenture (incorporated by reference to Exhibit 4 to AmeriSource's
Current Report, dated July 1, 1986, on Form 8-K).
4.2 First Supplemental Indenture, dated as of October 31, 1989, to
Indenture, dated as of May 30, 1986 (incorporated by reference to
Exhibit 4.23 to Registrant's and AmeriSource's Annual Report on Form
10-K for the fiscal year ended September 30, 1989).
4.3 Second Supplemental Indenture, dated as of October 31, 1989, to
Indenture, dated as of May 30, 1986 (incorporated by reference to
Exhibit 4.24 to Registrant's and AmeriSource's Annual Report on Form
10-K for the fiscal year ended September 30, 1989).
4.4 Indenture dated July 15, 1993 between Registrant and Security Trust
Company, N.A., as trustee relating to the 11 1/4% Senior Debentures
due 2005 (the "Senior Debentures") of Registrant including the form of
the Senior Debentures (incorporated by reference to Exhibit 4 to
Registrant's and AmeriSource's Form 10-Q for the quarter ended June
30, 1993).
4.5 Receivables Purchase Agreement, dated as of December 13, 1994 between
AmeriSource, as Seller and AmeriSource Receivables Corporation, as
Purchaser (incorporated by reference to Exhibit 4.11 to Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994).
4.6 AmeriSource Receivables Master Trust Pooling and Servicing Agreement,
dated as of December 13, 1994 among AmeriSource Receivables
Corporation, as transferor, AmeriSource, as the initial Servicer, and
Manufacturers and Traders Trust Company, as Trustee (incorporated by
reference to Exhibit 4.12 to Registrant's Annual Report on Form 10-K
for the fiscal year ended September 30, 1994).
4.7 Revolving Certificate Purchase Agreement, dated as of December 13,
1994 among AmeriSource Receivables Corporation, AmeriSource, The
Revolving Purchasers and Bankers Trust Company, as Agent and Revolving
Purchaser (incorporated by reference to Exhibit 4.13 to Registrant's
Annual Report on Form 10-K for the fiscal year ended September 30,
1994).
4.8 Series 1994-1 Supplement to Pooling and Servicing Agreement, dated as
of December 13, 1994 among AmeriSource Receivables Corporation, as
Transferor, AmeriSource, as Initial Servicer, and Manufacturers and
Traders Trust Company, as Trustee (incorporated by reference to
Exhibit 4.14 to Registrant's Annual Report on Form 10-K for the fiscal
year ended September 30, 1994).
</TABLE>
40
<PAGE>
<TABLE>
<C> <S>
4.9 Credit Agreement, dated as of January 8, 1997 among AmeriSource
Corporation as Borrower, AmeriSource Health Corporation and Certain
Subsidiaries and Affiliates, as Guarantors and Nations Bank, N.A. as
Administrative Agent (incorporated by reference to Exhibit 4.14 to
Registrant's Quarterly Report Form 10-Q for its fiscal quarter ended
December 31, 1996).
4.10 Amendment No. 1, dated as of February 26, 1997 to the January 1997
Credit Agreement (incorporated by reference to Exhibit 4.15 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
March 31, 1997).
4.11 Amendment to Pooling and Servicing Agreement and Receivables Purchase
Agreement, dated as of March 5, 1997 among AmeriSource Receivables
Corporation, AmeriSource Corporation, and Manufacturers and Traders
Trust Company, as Trustee (incorporated by reference to Exhibit 4.1 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
June 30, 1997).
4.12 Certificate Purchase Agreement, dated as of April 11, 1997, among
AmeriSource Corporation, AmeriSource Receivables Corporation, BT
Securities Corporation, Bankers Trust International PLC, and Bankers
Trust Australia Limited (incorporated by reference to Exhibit 4.2 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
June 30, 1997).
4.13 Amendment to Pooling and Servicing Agreement and Receivables Purchase
Agreement dated as of April 17, 1997 among AmeriSource Receivables
Corporation, AmeriSource Corporation, and Manufacturers and Traders
Trust Company, as Trustee (incorporated by reference to Exhibit 4.3 to
Registrant's Quarterly Report on Form 10-Q for its fiscal quarter ended
June 30, 1997).
4.14 Series 1997-1 Supplement to Pooling and Servicing Agreement dated as of
April 17, 1997 among AmeriSource Receivables Corporation as Transferor,
AmeriSource Corporation as initial Servicer and Manufacturers and
Traders Trust Company as Trustee (incorporated by reference to Exhibit
4.4 to Registrant's Quarterly Report on Form 10-Q for its fiscal quarter
ended June 30, 1997).
4.15 Amendment No. 3, dated October 1997, to the January 1997 Credit
Agreement.
4.16 Credit Agreement, dated as of November 10, 1997, among AmeriSource as
Borrower, AmeriSource Health and certain subsidiaries and affiliates as
Guarantors and CoreStates Bank as Documentation Agent, Bankers Trust as
Syndication Agent and NationsBank as Administrative Agent.
4.17 Amendment No. 4, dated November 1998, to the January 1997 Credit
Agreement.
4.18 Liquidity Facility Credit Agreement, dated as of December 21, 1998,
among Amerisource as borrower, Amerisource Health and certain
subsidiaries and affiliates as Guarantors and NationsBank, N.A. as
Administrative Agent.
9 Not Applicable.
10.1 Stock Purchase and Stockholders' Agreement, dated December 29, 1988,
among Drexel Burnham Lambert Incorporated, the other purchasers named
therein, Registrant and Citicorp Venture Capital Ltd. (incorporated by
reference to Exhibit 10.3 to the Registration Statement on Form S-1,
Registration No. 33-27835, filed March 29, 1989).
10.2 Stock Purchase Agreement, dated as of December 29, 1988, among
Registrant, Anthony C. Howkins, The NTC Group, Inc., Barton J. Winokur
and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit
10.4 to the Registration Statement on Form S-1, Registration No. 33-
27835, filed March 29, 1989).
10.3 AmeriSource Master Pension Plan (incorporated by reference to Exhibit
10.9 to the Registration Statement on Form S-1, Registration No. 33-
27835, filed March 29, 1989).
10.4 AmeriSource 1988 Supplemental Retirement Plan (incorporated by reference
to Exhibit 10.10 to the Registration Statement on Form S-1, Registration
No. 33-27835, filed March 29, 1989).
10.5 AmeriSource 1985 Deferred Compensation Plan (incorporated by reference
to Exhibit 10.1 to Registrant's Annual Report on Form 10-K for the
fiscal year ended September 30, 1985).
10.6 Form of Securities Purchase and Holders Agreement among Registrant,
Citicorp Venture Capital Ltd. and a Management Investor (incorporated by
reference to Exhibit 10.14 to Amendment No. 1, filed August 15, 1989, to
the Registration Statement on Form S-1, Registration No. 33-27835).
</TABLE>
41
<PAGE>
<TABLE>
<C> <S>
10.7 Form of Take-Along and Registration Rights Agreement between Registrant
and Citicorp Venture Capital Ltd. (incorporated by reference to Exhibit
4.19 to Amendment No. 2, filed September 7, 1989, to the Registration
Statement on Form S-1, Registration No. 33-27835).
10.8 Agreement, dated October 14, 1994, among certain manufacturers and
wholesalers of prescription products, including AmeriSource
(incorporated by reference to Exhibit 10.13 to Registrant's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994).
10.9 Registrant's 1995 Stock Option Plan (incorporated by reference to
Exhibit 10.16 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513).
10.10 Registrant's Non-Employee Directors Stock Option Plan (incorporated by
reference to Exhibit 10.17 to Amendment No. 2 to the Registrant's
Registration Statement on Form S-2 dated April 3, 1995, Registration No.
33-57513).
10.11 Registration Rights Agreement dated as of March 30, 1995 among
Registrant and 399 Venture Partners, Inc. (incorporated by reference to
Exhibit 10.18 to Amendment No. 2 to the Registrant's Registration
Statement on Form S-2 dated April 3, 1995, Registration No. 33-57513).
10.12 Employment Agreement, dated September 4, 1997, between AmeriSource and
R. David Yost (incorporated by reference to Exhibit 10.12 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997).
10.13 Employment Agreement, dated September 4, 1997, between AmeriSource and
David M. Flowers (incorporated by reference to Exhibit 10.13 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997).
10.14 Employment Agreement, dated September 4, 1997, between AmeriSource and
Kurt J. Hilzinger (incorporated by reference to Exhibit 10.14 to
Registrant's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997).
10.15 AmeriSource Health Corporation 1996 Stock Option Plan (incorporated by
reference to Appendix C to Registrant's Proxy Statement dated January
15, 1997 for the Annual Meeting of Stockholders held on February 11,
1997).
10.16 AmeriSource Health Corporation 1996 Non-Employee Directors Stock Option
Plan (incorporated by reference to Appendix D to Registrant's Proxy
Statement dated January 15, 1997 for the Annual Meeting of Stockholders
held on February 11, 1997).
10.17 1996 Amendment to the AmeriSource Health Corporation 1995 Stock Option
Plan (incorporated by reference to Appendix A to Registrant's Proxy
Statement dated January 15, 1997 for the Annual Meeting of Stockholders
held on February 11, 1997).
10.18 Consulting Agreement, dated October 31, 1997, between AmeriSource
Corporation and John F. McNamara (incorporated by reference to Exhibit
10.18 to Registrant's Annual Report on Form 10-K for the fiscal year
ended September 30, 1997).
11 Not Applicable.
12 Not Applicable.
13 Not Applicable.
16 Not Applicable.
18 Not Applicable.
21 Subsidiaries of Registrant.
22 Not Applicable.
23 Consent of Independent Auditors.
24 Not Applicable.
27 Financial Data Schedule for the year ended September 30, 1998.
</TABLE>
42
<PAGE>
<TABLE>
<C> <S>
27.1 Financial Data Schedule for the three, six and nine months ended December
31, 1997, March 31, 1998 and June 30, 1998 respectively. Restated to
include bulk shipments in revenues and cost of goods sold.
27.2 Financial Data Schedule for the years ended September 30, 1997 and
September 30, 1996. Restated to include bulk shipments in revenues and
cost of goods sold and for a change in accounting principle for earnings
per share.
27.3 Financial Data Schedule for the three, six and nine months ended December
31, 1996, March 31, 1997 and June 30, 1997 respectively. Restated to
include bulk shipments in revenues and cost of goods sold and for a
change in accounting principle for earnings per share.
99 Not Applicable.
</TABLE>
- - --------
* Copies of the exhibits will be furnished to any security holder of the
Registrant upon payment of the reasonable cost of reproduction.
(B) REPORTS ON FORM 8-K
None.
43
<PAGE>
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.
AmeriSource Health Corporation
/s/ Kurt J. Hilzinger
Date: December 23, 1998 By: __________________________________
(KURT J. HILZINGER) SENIOR VICE
PRESIDENT AND CHIEF FINANCIAL
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON DECEMBER 23, 1998 BY THE FOLLOWING PERSONS ON
BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.
SIGNATURE TITLE
/s/ R. David Yost President and Chief
- - ------------------------------------ Executive Officer
(R. DAVID YOST) and Director
(Principal
Executive Officer)
/s/ Kurt J. Hilzinger Senior Vice
- - ------------------------------------ President and
(KURT J. HILZINGER) Chief Financial
Officer (Principal
Financial Officer)
/s/ Michael D. DiCandilo Vice President,
- - ------------------------------------ Controller
(MICHAEL D. DICANDILO) (Principal
Accounting
Officer)
Director
- - ------------------------------------
(BRUCE C. BRUCKMANN)
/s/ Michael A. Delaney Director
- - ------------------------------------
(MICHAEL A. DELANEY)
/s/ Richard C. Gozon Director
- - ------------------------------------
(RICHARD C. GOZON)
/s/ Lawrence C. Karlson Director and
- - ------------------------------------ Chairman
(LAWRENCE C. KARLSON)
/s/ George H. Strong Director
- - ------------------------------------
(GEORGE H. STRONG)
/s/ James A. Urry Director
- - ------------------------------------
(JAMES A. URRY)
Director
- - ------------------------------------
(BARTON J. WINOKUR)
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERISOURCE HEALTH CORPORATION
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1998 1997
--------- ---------
ASSETS
<S> <C> <C>
Cash...................................................... $ 3 $ 2
Receivable from AmeriSource Corporation................... 35,234 28,549
Other assets ............................................. 230 252
Investment at equity in AmeriSource Corporation (accumu-
lated gains and losses of AmeriSource in excess of in-
vestment)................................................ 40,200 (14,148)
--------- ---------
$ 75,667 $ 14,655
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued expenses.......................................... $ 358 $ 344
Stockholders' equity:
Common Stock, $.01 par value
Class A (voting and convertible):
50,000,000 shares authorized; issued 9/98--21,529,010
shares; 9/97-- 17,540,629 shares..................... 216 175
Class B (nonvoting and convertible):
15,000,000 shares authorized; issued 9/98--5,700,783
shares; 9/97-- 9,440,370 shares...................... 57 94
Class C (nonvoting and convertible):
2,000,000 shares authorized; issued 9/98--129,237
shares; 9/97--166,495 shares......................... 1 2
Capital in excess of par value.......................... 244,664 234,188
Retained earnings (deficit)............................. (163,409) (213,928)
Cost of common stock in treasury........................ (6,220) (6,220)
--------- ---------
75,309 14,311
--------- ---------
$ 75,667 $ 14,655
========= =========
</TABLE>
See notes to condensed financial statements.
S-1
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
AMERISOURCE HEALTH CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
------------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Revenues............................................. $ -- $ -- $ 7
Interest expense..................................... -- -- 5,669
------- ------- -------
Loss before equity in net income of subsidiary, taxes
and extraordinary items............................. -- -- (5,662)
Equity in net income of subsidiary before
extraordinary items................................. 50,519 47,449 47,246
Income tax benefit................................... -- -- (1,066)
------- ------- -------
Income before extraordinary items.................... 50,519 47,449 42,650
Extraordinary items--early retirement of debt, net of
income tax benefits................................. -- (1,982) (7,242)
------- ------- -------
Net income........................................ $50,519 $45,467 $35,408
======= ======= =======
Earnings per share:
Income before extraordinary items.................. $ 2.11 $ 2.00 $ 1.88
Extraordinary items................................ -- (.08) (.32)
------- ------- -------
Net income....................................... $ 2.11 $ 1.92 $ 1.56
======= ======= =======
Earnings per share--assuming dilution:
Income before extraordinary items.................. $ 2.08 $ 1.97 $ 1.86
Extraordinary items................................ -- (.08) (.31)
------- ------- -------
Net income....................................... $ 2.08 $ 1.89 $ 1.55
======= ======= =======
Weighted average common shares outstanding:
Basic.............................................. 23,953 23,720 22,687
Assuming dilution.................................. 24,275 24,060 22,896
</TABLE>
---------------
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
SEPTEMBER 30,
---------------------------
1998 1997 1996
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................................... $50,519 $ 45,467 $ 35,408
Adjustments to reconcile net income to net cash
used in operating activities:
Amortization................................... -- -- 138
Equity in net income of subsidiary............. (50,519) (47,449) (47,246)
Loss on early retirement of debt............... -- -- 11,142
Income tax benefit invested in AmeriSource
Corporation................................... -- -- (10,621)
Changes in operating assets and liabilities:
Receivable from AmeriSource Corporation...... (2,888) (1,988) 6,622
Accrued expenses............................. 14 -- (1,467)
Miscellaneous................................ 22 14 3
------- -------- --------
NET CASH USED IN OPERATING ACTIVITIES........ (2,852) (3,956) (6,021)
FINANCING ACTIVITIES
Long-term debt repayments........................ -- -- (83,460)
Net proceeds from public offerings............... -- -- 49,300
Deferred financing costs and other............... -- -- 43
Exercise of stock options........................ 6,682 3,809 42
------- -------- --------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES.................................. 6,682 3,809 (34,075)
INVESTING ACTIVITIES
Capital contribution, net........................ (3,829) 140 40,083
------- -------- --------
NET CASH (USED IN) PROVIDED BY INVESTING
ACTIVITIES.................................. (3,829) 140 40,083
------- -------- --------
INCREASE (DECREASE) IN CASH....................... 1 (7) (13)
Cash at beginning of year......................... 2 9 22
------- -------- --------
CASH AT END OF YEAR............................... $ 3 $ 2 $ 9
======= ======== ========
</TABLE>
See notes to condensed financial statements.
S-2
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE-I CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying condensed financial statements present the financial
position, results of operations and cash flows of AmeriSource Health
Corporation (the "Company") as of the dates and for the periods indicated in
accordance with Rule 12-04 of Regulation S-X of the Securities Exchange Act of
the Securities and Exchange Commission and, accordingly, do not include the
accounts of its wholly-owned subsidiaries. The Company's primary asset is its
investment in and receivables from AmeriSource Corporation, which is a wholly-
owned subsidiary of the Company. Substantially all of the Company's operations
are transacted by AmeriSource Corporation. The ability of the Company to pay
its obligations depends on the operations of AmeriSource Corporation.
These condensed financial statements should be read in conjunction with the
Consolidated Financial Statements of AmeriSource Health Corporation and
Subsidiaries contained in Item 8 of this document for more information on
long-term debt, stockholders' equity and other disclosures.
NOTE 2--LONG-TERM DEBT
In fiscal 1996, the Company purchased and redeemed senior debentures that
were previously issued and outstanding. These transactions were funded by
proceeds from the Company's 1996 public offering and borrowings under the
Company's revolving credit agreement and resulted in an extraordinary charge
in fiscal 1996 of $7.2 million (net of a $3.9 million tax benefit) related to
the open market purchase and tender offer premiums, transaction fees and the
write-off of related unamortized deferred financing fees.
NOTE 3--STOCKHOLDERS' EQUITY
In May 1996, the Company completed a public offering of 4,800,000 shares of
Class A common stock at a price of $35 per share. Of the 4,800,000 shares
sold, 1,500,000 were sold by the Company and 3,300,000 were sold by certain
stockholders of the Company (the "Selling Stockholders"). The Company did not
receive any of the proceeds from the shares sold by the selling stockholders.
The net proceeds of $49.3 million from the 1,500,000 shares sold by the
Company were invested in AmeriSource Corporation to reduce its indebtedness.
AmeriSource Corporation borrowings from its revolving credit facility were
used to retire and redeem the Senior Debentures as described in Note 2.
S-3
<PAGE>
AMERISOURCE HEALTH CORPORATION AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
- - -------------------------------------------------------------------------------
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
- - ---------------------------------------------------------------------------------------
ADDITIONS
-----------------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER ACCOUNTS DEDUCTIONS- END OF
DESCRIPTION OF PERIOD EXPENSES -DESCRIBE(1) DESCRIBE(2) PERIOD
- - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AMERISOURCE HEALTH
CORPORATION AND
SUBSIDIARIES
- - -------------------------------------------------
YEAR ENDED SEPTEMBER 30,
1998
Allowance for doubtful
accounts............... $22,562,000 $9,379,000 $ -- $5,494,000 $26,447,000
=========== ========== ========== ========== ===========
YEAR ENDED SEPTEMBER 30,
1997
Allowance for doubtful
accounts.............. $14,848,000 $6,587,000 $5,363,000 $4,236,000 $22,562,000
=========== ========== ========== ========== ===========
YEAR ENDED SEPTEMBER 30,
1996
Allowance for doubtful
accounts.............. $12,941,000 $2,074,000 $1,062,000 $1,229,000 $14,848,000
=========== ========== ========== ========== ===========
</TABLE>
- - --------
(1) Reserves acquired in connection with the Walker Drug Company L.L.C. and
Gulf Distribution Inc. acquisitions in fiscal 1997 and 1996, respectively.
(2) Accounts written off during year, net of recoveries.
S-4
<PAGE>
EXHIBIT 4.15
AMENDMENT NO.3
THIS AMENDMENT NO.3, dated as of October______, 1997 (the "Amendment")
---------
relating to the Credit Agreement referenced below, by and among AMERISOURCE
CORPORATION, a Delaware corporation, certain subsidiaries and affiliates party
to the Credit Agreement and identified on the signature pages hereto, and
NATIONSBANK, N.A., as Administrative Agent for and on behalf of the Lenders.
Terms used but not otherwise defined shall have the meanings provided in the
Credit Agreement.
W I T N E S S E T H
WHEREAS, a $500 million credit facility has been extended to AmeriSource
Corporation pursuant to the terms of that Credit Agreement dated as of January
8, 1997 (as amended and modified, the "Credit Agreement") among AmeriSource
----------------
Corporation, the Guarantors and Lenders identified therein, and NationsBank,
N.A., as Administrative Agent;
WHEREAS, the Borrower plans to enter into liquidity financing to provide
for general corporate purposes, including the build-up of inventory and
receivables;
WHEREAS, the Company has requested certain modifications described herein
connection therewith which require the consent of the Required Lenders; and
WHEREAS, the Required Lenders have consented to the requested modifications
on the terms and conditions set forth herein and have authorized the
Administrative Agent to enter into this Amendment on their behalf to give effect
to this Amendment;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
A. The Credit Agreement is amended and modified in the following
respects:
1. Section 1.1 shall be amended to include the following
additional terms (or such existing terms shall be amended to read as follows):
"Borrowing Base" means, at any time, an amount equal to (i)
--------------
seventy percent (70%) of Eligible Inventory minus (ii) Obligations
-----
outstanding under the Liquidity Facility.
"Debt Transaction" means, other than the Liquidity Facility which
----------------
shall not be included within this definition, with respect to any member of the
Consolidated Group, any sale, issuance or placement of Funded Debt, whether or
not evidenced by promissory note or other written evidence of indebtedness.
<PAGE>
"Liquidity Facility" means such term as defined in Section 8.1(j).
------------------
"Liquidity Intercreditor Agreement" means that Intercreditor Agreement
---------------------------------
to be executed relating to the Liquidity Facility and the Obligations under
this Credit Agreement, among NationsBank, N.A., as Administrative Agent
under this Credit Agreement, NationsBank, N.A., as Administrative Agent
under the Liquidity Facility, and the Credit Parties, as amended and
modified.
2. The definition of "Credit Documents" in Section 1.1 shall be
amended to include "the Liquidity Intercreditor Agreement".
3. In the definition of "Permitted Liens" in Section 1.1, subsection
(xviii) is amended to read as follows:
(xviii) Liens to secure the Liquidity Facility referenced in Section
8.1(j), provided that any such property pledged or securing such Liquidity
--------
Facility shall also be pledged to secure the Obligations hereunder and such
Liens shall be the subject of the Liquidity Intercreditor Agreement
relating to the Liquidity Facility and the Obligations hereunder providing,
among other things, that such Liens will be shared by the Lenders hereunder
and the Lenders under the Liquidity Facility, respectively, on a pari passu
basis.
4. In Section 8.1, subsection (j) shall be amended to read as
follows:
(j) other senior secured Indebtedness of the Borrower in an aggregate
principal amount of up to $100,000,000 incurred pursuant to that Credit
Agreement dated as of October____, 1997, among the Borrower, the Guarantors
and Lenders identified therein and NationsBank, N.A. (the "Liquidity
---------
Facility"); and
--------
6. In Section 8.9(b) the reference at the end to "except to the
extent permitted by Section 8.10." is amended to read as follows:
"except as relates to the Liquidity Facility and to the extent permitted by
Section 8.10."
7. In Section 8.12, the "and" immediately preceding clause (iii) is
deleted and there shall be inserted at the end of clause (iii) immediately
following the reference to "Section 8.4(c)" the following:
", and (iv) the Liquidity Facility,"
8. In Section 9.1, in subsection (j) the "." at the end of such
subsection is replaced with the phrase "; or" and a new subsection (k) is added
to read as follows:
(k) Liquidity Facility. The occurrence and continuance of an Event of
------------------
Default under the Liquidity Facility.
2
<PAGE>
B. By execution of the Consent relating to this Amendment, the Required
Lenders authorize and direct the Administrative Agent, on behalf of the Lenders
under the Credit Agreement, to enter into the Liquidity Agreement with the
Credit Parties referred to therein and the Lenders under the Liquidity Facility,
or the Administrative Agent for the Lenders under the Liquidity Facility, in
substantially the form attached as Exhibit A.
---------
C. Except as modified hereby, all of the terms and provisions of the
Credit Agreement (and Exhibits and Schedules) remain in full force and effect.
D. The Company agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
E. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
F. This Amendment, and the Credit Agreement as amended hereby, shall be
governed by and construed and interpreted in accordance with the laws of the
State of North Carolina.
[Remainder of Page Intentionally Left Blank]
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
BORROWER: AMERISOURCE CORPORATION,
- - --------
a Delaware corporation
By:___________________________
Name:
Title:
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- - ----------
a Delaware corporation
By:___________________________
Name:
Title:
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By:___________________________
Name:
Title:
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By:___________________________
Name:
Title:
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By:___________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________
Name:
Title:
<PAGE>
ADMINISTRATIVE
AGENT: NATIONSBANK, N.A.,
- - -----
as Administrative Agent for and on behalf of the Lenders
By:_____________________________
Name:
Title:
<PAGE>
EXHIBIT 4.16
CREDIT AGREEMENT
Dated as of November 10, 1997
among
AMERISOURCE CORPORATION
as Borrower,
AMERISOURCE HEALTH CORPORATION
and Certain Subsidiaries and Affiliates,
as Guarantors,
THE LENDERS NAMED HEREIN
AND
CORESTATES BANK, N.A.,
as Documentation Agent,
BANKERS TRUST COMPANY,
as Syndication Agent,
NATIONSBANK, N.A.,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SECTION 1 DEFINITIONS.................................................... 1
1.1 Definitions ................................................ 1
1.2 Computation of Time Periods.................................... 7
1.3 Accounting Terms............................................... 7
SECTION 2 CREDIT FACILITIES.............................................. 7
2.1 Revolving Loans................................................ 8
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES................. 9
3.1 Default Rate................................................... 9
3.2 Extension and Conversion....................................... 9
3.3 Voluntary Prepayments.......................................... 10
3.4 Reductions in commitments and Mandatory Prepayments............ 10
3.5 Fees........................................................... 11
3.6 Capital Adequacy............................................... 12
3.7 Inability To Determine Interest Rate........................... 12
3.8 Illegality..................................................... 12
3.9 Requirements of Law............................................ 13
3.10 Taxes.......................................................... 14
3.11 Indemnity...................................................... 16
3.12 Pro Rata Treatment............................................. 17
3.13 Sharing of Payments............................................ 17
3.14 Payments, Computations, Etc.................................... 18
3.15 Evidence of Debt............................................... 19
SECTION 4 GUARANTY ...................................................... 20
4.1 The guarantee.................................................. 20
4.2 Obligations Unconditional...................................... 20
4.3 Reinstatement.................................................. 21
4.4 Certain Additional Waivers..................................... 22
4.5 Remedies....................................................... 22
4.6 Rights of Contribution......................................... 22
4.7 Continuing Guarantee........................................... 23
SECTION 5 CONDITIONS..................................................... 23
5.1 Conditions to Closing.......................................... 23
5.2 Conditions to Effectiveness.................................... 24
5.3 Conditions to All Extensions of Credit......................... 25
SECT10N 6 REPRESENTATIONS, WARRANTIES AND COVENANTS...................... 25
6.1 Incorporation.................................................. 25
6.2 Additional Representations..................................... 26
6.3 Additional Covenants........................................... 26
SECTION 7 EVENTS OF DEFAULT.............................................. 27
</TABLE>
<PAGE>
<TABLE>
<S> <C>
7.1 Events of Default............................................... 27
7.2 Acceleration; Remedies.......................................... 29
SECTION 8 AGENCY PROVISIONS.............................................. 30
8.1 Appointment..................................................... 30
8.2 Delegation of Duties............................................ 30
8.3 Exculpatory Provisions.......................................... 30
8.4 Reliance on Communications...................................... 31
8.5 Notice of Default............................................... 31
8.6 Non-Reliance on Administration Agent and Other Lenders.......... 31
8.7 Indemnification................................................. 32
8.8 Administrative Agent in its Individual Capacity................. 32
8.9 Successor Administrative Agent.................................. 33
8.10 Intercreditor Agreements....................................... 33
SECTION 9 MISCELLANEOUS.................................................. 34
9.1 Notices......................................................... 34
9.2 Right of Set-Off................................................ 35
9.3 Benefit of Agreement............................................ 35
9.4 No Waiver; Remedies Cumulative.................................. 37
9.5 Payment of Expenses, etc........................................ 37
9.6 Amendments, Waivers and Consents................................ 38
9.7 Counterparts.................................................... 39
9.8 Headings........................................................ 39
9.9 Survival........................................................ 39
9.10 Governing Law Submission to Jurisdiction; Venue................ 39
9.11 Severability................................................... 40
9.12 Entirety....................................................... 40
9.13 Binding Effect; Termination.................................... 40
9.14 ConfidentialitY................................................ 41
9.15 Source of Funds................................................ 41
9.16 Conflict....................................................... 42
</TABLE>
ii
<PAGE>
SCHEDULES
Schedule 2.1(a) Schedule of Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.1(e)Form of Revolving Note
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 5.1(g)(v) Form of Secretary's Certificate
Schedule 5.1(g)(vi)(A) Form of Solvency Certificate - AmeriSource Corporation
Schedule 5.l(g)(vi)(B) Form of Solvency Certificate - AmeriSource Health
Corporation
Schedule 8.10(a) Form of Securitization Intercreditor Agreement
Schedule 8.10(b) Form of Liquidity intercreditor Agreement
Schedule 9.3(b) Form of Assignment and Acceptance
iii
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of November 10, 1997 (the "Credit
------
Agreement"), is by and among AMERISOURCE CORPORATION, a Delaware corporation
- - ---------
(the "Borrower"), AMERICSOURCE HEALTH CORPORATION, a Delaware corporation
--------
(the "Company") and the subsidiaries and affiliates identified on the signature
-------
pages hereto and such other subsidiaries and affiliates as may from time to time
become Guarantors hereunder in accordance with the provisions hereof
(collectively with the Company, the "Guarantors"), the lenders named herein and
----------
such other lenders as may become a party hereto (the "Lenders"), BANKERS TRUST
----------
COMPANY, as Syndication Agent, CORESTATES BANK, N.A., as Documentation Agent,
and NATIONSBANK, N.A., as Administrative Agent (in such capacity, the
"Administrative Agent").
--------------------
WITNESSETH
WHEREAS, the Borrower has requested that the Lenders provide a $100 million
revolving liquidity facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows;
SECTION 1
DEFINITIONS
-----------
1.1 DEFINITIONS.
-----------
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires, and provided
--------
that terms used but not otherwise defined shall have the meanings provided in
the Existing Credit Agreement:
"Additional Credit Party" means each Person that becomes a Guarantor
-----------------------
after the Closing Date by execution of a Joinder Agreement,
"Administrative Agent" shall have the meaning assigned to such term
--------------------
in the heading hereof, together with any successors or assigns.
"Administrative Agent's Fee Letter" means that certain letter
---------------------------------
agreement, dated as of October 23, 1997, between the Administrative Agent
and the Borrower, as amended, modified, supplemented or replaced from time
to time.
"Administrative Agent's Fees" shall have the meaning assigned to such
---------------------------
term in Section 3.5(b).
1
<PAGE>
"Agents" means, collectively, NationsBank N.A., as Administrative
------
Agent, Bankers Trust Company, as Syndication Agent, and CoreStates Bank,
N.A., as Documentation Agent.
"Aggregate Revolving Committed Amount" means the aggregate amount of
------------------------------------
Revolving Commitments in effect from time to time, being initially ONE
HUNDRED MILLION DOLLARS ($100,000,000).
"Base Rate" means, for any day, the rate per annum (rounded upwards,
---------
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
----
or (b) the Prime Rate in effect on such day. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable after due inquiry to
ascertain the Federal Funds Rate for any reason including the inability or
failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Base Rate shall be determined without
regard to clause (a) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime Rate
or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
--------------
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
--------
together with any permitted successors and assigns.
"Borrowing Base" means, at any time, an amount equal to (i) seventy
--------------
percent (70%) of Eligible Inventory minus (ii) Obligations outstanding
under the Existing Credit Agreement.
"Business Day" means a day other than a Saturday, Sunday or other
------------
day on which commercial banks in Charlotte, North Carolina or Philadelphia,
Pennsylvania are authorized or required by law to close, except that, when
-----------
used in connection with a Eurodollar Loan, such day shall also be a day on
which dealings between banks are carried on in U,S, dollar deposits in
London, England, Charlotte, North Carolina and New York, New York.
"Closing Date" means the date hereof.
------------
"Commitment" means the Revolving Commitment.
----------
"Commitment Fee" shall have the meaning given such term in Section
--------------
3.5(a).
"Commitment Percentage" means the Revolving Commitment Percentage.
---------------------
"Commitment Period" means the period from and including the Effective
-----------------
Date to but not including the earlier of (i) the Termination Date, or
(ii) the date on which the Revolving Commitments terminate in accordance
with the provisions of this Credit Agreement.
2
<PAGE>
"Company" means AmeriSource Health Corporation, a Delaware
-------
corporation, as referenced in the opening paragraph, its successors and
permitted assigns.
"Credit Documents" means a collective reference to this Credit
----------------
Agreement, the Notes, the Security Agreement, the Pledge Agreement, each
Joinder Agreement, the Administrative Agent's Fee Letter, the Liquidity
Intercreditor Agreement and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
------------
"Default" means any event, act or condition which with notice or lapse
-------
of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such time,
-----------------
(i) has failed to make an Extension of Credit required pursuant to the
terms of this Credit Agreement, (ii) has failed to pay to the
Administrative Agent or any Lender an amount owed by such Lender pursuant
to the terms of the Credit Agreement or any other of the Credit Documents,
or (iii) has been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means dollars in lawful currency of the United
------- -
States of America.
"Effective Date" means the date on or after the Closing Date on
--------------
which the conditions set out in Section 5.2 have been satisfied or waived.
"Eurodollar Loan" means any Loan bearing interest at a rate
---------------
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
---------------
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant
to the following formula.
Eurodollar Rate = Interbank Offered Rate
---------------------------------
I - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
-----------------------------
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar Loans is determined), whether or not Lender has any
Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities and
as such shall be deemed subject to reserve requirements without benefits of
credits for proration, exceptions or offsets that may be
3
<PAGE>
available from time to time to a Lender. The Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default" means such term as defined in Section 7.1.
----------------
"Existing Credit Agreement" means that Credit Agreement dated as of
-------------------------
January 8, 1997 among the Borrower, the Company and the other Guarantors
identified therein, the Lenders identified therein and NationsBank, N.A.,
as Administrative Agent, as amended and modified.
"Extension of Credit " means, as to any Lender, the making of, or
-------------------
participation in, a Loan by such Lender.
"Fees" means all fees payable pursuant to Section 3.5.
----
"Federal Funds Rate" means, for any day, the rate of interest per
------------------
annum (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day,
provided that (A) if such day is not a Business Day, the Federal Funds Rate
--------
for such day shall be such rate on such transactions on the next preceding
Business Day and (B) if no such rate is so published on such next preceding
Business Day, The Federal Funds Rate for such day shall be the average rate
quoted to the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Guarantor" means the Company and each of those other Persons
---------
identified as a "Guarantor" on the signature pages hereto, and each
Additional Credit Party which may hereafter execute a Joinder Agreement,
together with their successors and permitted assigns.
"Guaranteed Obligations" means, as to each Guarantor, without
----------------------
duplication, (i) all obligations of the Borrower to the Lenders and the
Administrative Agent, whenever arising, under this Credit Agreement, the
Notes or the Credit Documents relating to the Obligations hereunder, and
(ii) all liabilities and obligations, whenever arising, owing from the
Borrower to any Lender, or any Affiliate of a Lender, arising under any
Hedging Agreement relating to Loans or Obligations hereunder.
"Incorporated Covenants" means such term as defined in Section 6.1.
----------------------
"Incorporated Representations" means such term as defined in Section
----------------------------
6.1.
"Interbank Offered Rate " means, for the interest Period for each
----------------------
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal
to the rate of interest, determined by the Administrative Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day of
such Interest Period), appearing on Telerate Page 3750 (or, if, for any
reason, Telerate Page 3750 is not available, the Reuters Screen LIBO
4
<PAGE>
Page) as of approximately 11:00 A.M. (London time) two (2) Business Days
before the first day of such Interest Period. As used herein, "Telerate
Page 3750" means the display designated as page 3750 by Dow Jones Telerate,
Inc. (or such other page as may replace such page on that service for the
purpose of displaying the British Bankers Association London interbank
offered rates) and "Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuters Monitor Rates Service (or such other page as
may replace the LIBO page on that service for the purpose of displaying
London interbank offered rates of major banks).
"Interest Payment Date" means (i) as to any Base Rate Loan, the first
---------------------
day of each January, April, July and October, the date of repayment of
principal of such Loan and the Termination Date and (ii) as to any
Eurodollar Loan, the last day of each Interest Period for such Loan, the
date of repayment of principal of such Loan and on the Termination Date,
and in addition where the applicable Interest Period is more than 3 months,
then also on the date 3 months from the beginning of the Interest Period,
and each 3 months thereafter. If an Interest Payment Date falls on a date
which is not a Business Day, such Interest Payment Date shall be deemed to
be the next succeeding Business Day.
"Interest Period" means as to any Eurodollar Loan, a period of one,
---------------
two, or three month's duration, as the Borrower may elect, commencing in
each case, on the date of the borrowing (including conversions, extensions
and renewals) provided, however, (A) if any Interest Period would end on a
-------- -------
day which is not a Business Day, such Interest Period shall be extended
to the next succeeding Business Day (except that in the case of Eurodollar
Loans where the next succeeding Business Day falls in the next succeeding
calendar month, then on the next preceding Business Day), (B) no Interest
Period shall extend beyond the Termination Date, and (C) in the case of
Eurodollar Loans, where an Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last day
of such calendar month.
"Joinder Agreement" means a Joinder Agreement substantially in the
-----------------
form of Schedule 7.11-1 to the Existing Credit Agreement but relating to
---------------
this Credit Agreement and the obligations hereunder, executed and delivered
by an Additional Credit Party in accordance with the provisions of Section
6.3(b).
"Lenders" means each of the Persons identified as a "Lender" on the
-------
signature pages hereto, and their successors and assigns.
"Liquidity Intercreditor Agreement" means the Intercreditor Agreement
---------------------------------
dated as of the date hereof among NationsBank, N.A., as Administrative
Agent under the Existing Credit Agreement, NationsBank, N.A., as
Administrative Agent under this Credit Agreement, and the Credit Parties,
as amended and modified, as referenced in Section 8.10(b).
"Loan" or "Loans" means the Revolving Loans.
---- -----
"NationsBank" means NationsBank, N.A. and its successors.
-----------
"Non-Excluded Taxes" means such term as is defined in Section 3.10.
------------------
5
<PAGE>
"Note" or "Notes" means any Revolving Note.
---- -----
"Notice of Borrowing" means a written notice of borrowing in
-------------------
substantially the form of Schedule 2.1(b)(i), as required by Section
------------------
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of extension
------------------------------
or conversion in substantially the form of Schedule 3.2, as required by
------------
Section 3.2.
"Obligations" means, the Revolving Loans.
-----------
"Participation Interest" means the purchase by a Lender of a
----------------------
participation in Loans as provided in Section 3.13.
"Pledge Agreement" means the Pledge Agreement dated as of the date
----------------
hereof entered into by the Credit Parties in favor of the Administrative
Agent for the benefit of the Lenders (and affiliates of Lenders as to
certain obligations under Hedge Agreements), as amended and modified.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by NationsBank as its prime rate in effect at its
principal office in Charlotte, North Carolina, with each change in the
Prime Rate being effective on the date such change is publicly announced
as effective (it being understood and agreed that the Prime Rate is a
reference rate used by NationsBank in determining interest rates on
certain loans and is not intended to be the lowest rate of interest charged
on any extension of credit by NationsBank to any debtor).
"Register" shall have the meaning given such term in Section 9.3(c).
--------
"Required Lenders" means, at any time, Lenders having more than fifty
----------------
percent (50%) of the Commitments, or if the Commitments have been
terminated, Lenders having more than fifty percent (50%) of the aggregate
principal amount of the Obligations outstanding (taking into account in
each case Participation Interests or obligation to participate therein);
provided that the Commitments of, and outstanding principal amount of
--------
Obligations (taking into account Participation Interests therein) owing
to, a Defaulting Lender shall be excluded for purposes hereof in making a
determination of Required Lenders.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment of such Lender to make Revolving Loans in an aggregate principal
amount at any time outstanding of up to such Lender's Commitment Percentage
of the Aggregate Revolving Committed Amount as specified in Schedule
--------
2.1.(a), as such amount may be reduced from time to time in accordance with
-------
the provisions hereof.
"Revolving Commitment Percentage" means, for each Lender, a fraction
-------------------------------
(expressed as a decimal) the numerator of which is the Revolving
Commitment of such Lender at such time and the denominator of which is the
Aggregate Revolving
6
<PAGE>
Committed Amount at such time. The initial Revolving Commitment
Percentages are set out on Schedule 2.1(a).
---------------
"Revolving Committed Amount" means, collectively, the aggregate
--------------------------
amount of all of the Revolving Commitments as referenced in Section 2.1(a)
and, individually, the amount of each Lender's Revolving Commitment as
specified in Schedule 2.1(a).
---------------
"Revolving Loans" shall have the meaning assigned to such term in
---------------
Section 2.l(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
-------------- ---------------
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
in substantially the form attached as Schedule 2.1(e), individually or
---------------
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time.
"Security Agreement" means the Security Agreement dated as of the date
------------------
hereof entered into by the Credit Parties in favor of the Administrative
Agent for the benefit of the Lenders (and affiliates of Lenders as to
certain obligations under Hedge Agreements), as amended and modified.
"Termination Date" means March 31, 1998.
----------------
1.2 COMPUTATION OF TIME PERIODS.
---------------------------
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 ACCOUNTING TERMS.
----------------
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly financial statements delivered pursuant to Section 7.1 of
the Incorporated Covenants (or, prior to the delivery of the first financial
statements pursuant to Section 7.1 of the Incorporated Covenants, consistent
with the annual audited financial statements referenced in Section 6.1(i) of the
Incorporated Covenants); provided, however, if (a) the Company shall object
-------- -------
to determining such compliance on such basis at the time of delivery of such
financial statements due to any change in GAAP or the rules promulgated with
respect thereto or (b) the Administrative Agent or the Required Lenders shall
so object in writing within 30 days after delivery of such financial statements,
then such calculations shall be made on a basis consistent with the most recent
financial statements delivered by the Borrower to the Lenders as to which no
such objection shall have been made.
SECTION 2
CREDIT FACILITIES
-----------------
7
<PAGE>
2.1 REVOLVING LOANS.
---------------
(a) Revolving Commitment. During the Commitment Period, subject to the
--------------------
terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (the "Revolving loans") to the Borrower from time to time in the
---------------
amount of such Lender's Revolving Commitment Percentage of such Revolving Loans
for the purposes hereinafter set forth; provided that Revolving Loans hereunder
--------
shall be available (and existing Revolving Loans may be extended and renewed)
only if and where the Existing Credit Agreement shall be fully drawn upon and
there shall be no remaining availability thereunder (that is, the liquidity
facility established hereby shall be in the nature of an overadvance line); and
provided further that (i) with regard to the Lenders collectively, the aggregate
- - -------- -------
principal amount of Obligations outstanding at any time shall not exceed the
lesser of (A) ONE HUNDRED MILLION DOLLARS ($100,000,000) (as referenced on
Schedule 2.1(a), the "Revolving Committed Amount") or (B) until the
- - -------------- --------------------------
Security Release Date relating to inventory (but not thereafter), the Borrowing
Base, and (ii) with regard to each Lender individually, such Lender's Revolving
Commitment Percentage of Obligations outstanding at any time shall not exceed
such Lender's Revolving Committed Amount. Revolving Loans may consist of Base
Rate Loans or Eurodollar Loans, or a combination thereof, as the Borrower may
request, and may be repaid and reborrowed in accordance with the provisions
hereof.
(b) Revolving Loan Borrowings.
-------------------------
(i) Notice of Borrowing. The Borrower shall request a Revolving Loan
-------------------
borrowing by delivery of a Notice of Borrowing (or telephone notice
promptly confirmed in writing) substantially in the form of Schedule 2.1
------------
(b)(i) to the Administrative Agent not later than 12:00 Noon (Charlotte,
-----
North Carolina time) on the date of the requested borrowing (which shall
be a Business Day) in the case of Base Rate Loans, and on the third
Business Day prior to the date of the requested borrowing in the case of
Eurodollar Loans. Each such request for borrowing shall be irrevocable and
shall specify (A) that a Revolving Loan is requested, (B) the date of the
requested borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination thereof
and if Eurodollar Loans are requested, the Interest Period(s) therefor. If
the Borrower shall fail to specify in any such Notice of Borrowing (I) an
applicable Interest Period in the case of a Eurodollar Loan, then such
notice shall be deemed to be a request for an Interest Period of one
month, or (II) the type of Revolving Loan requested, then such notice
shall be deemed to be a request for a Base Rate Loan hereunder. The
Administrative Agent shall give notice to each Lender promptly upon
receipt of each Notice of Borrowing pursuant to this Section 2.1 (b)(i),
the contents thereof and each such Lender's share of any borrowing to be
made pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan shall be in a minimum
---------------
aggregate principal amount of $1,000,000, in the case of Eurodollar Loans,
or $500,000 (or the remaining Revolving Committed Amount, if less), in the
case of Base Rate Loans.
(iii) Advances. Each Lender will make its Revolving Commitment
--------
Percentage of each Revolving Loan borrowing available to the Administrative
Agent for the account of the Borrower as specified in Section 3.14(a), or
in such other manner as the Administrative
8
<PAGE>
Agent may specify in writing by 2.00 P.M. (Charlotte, North Carolina time)
on the date specified in the applicable Notice of Borrowing in Dollars and
in funds immediately available to the Administrative Agent. Such borrowing
will then be made available to the Borrower by the Administrative Agent by
crediting the account of the Borrower on the books of such office with the
aggregate of the amounts made available to the Administrative Agent by the
Lenders and in like funds as received by the Administrative Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
---------
and payable in full on the Termination Date.
(d) Interest. Subject to the provisions of Section 3.1,
--------
(i) Base Rate Loans. During such periods as Revolving Loans shall be
---------------
comprised in whole or in part of Base Rate Loans, such Base Rate Loans
shall bear interest at a per annum rate equal to the Base Rate plus
----
one and one-fourth percent (1/4/%); and
(ii) Eurodollar Loans. During such periods as Revolving Loans shall
----------------
be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans
shall bear interest at a per annum rate equal to the applicable Eurodollar
Rate plus one and one-fourth percent (1-1/4%).
----
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans shall be evidenced by a duly
---------------
executed Revolving Note in favor of each Lender.
(f) Maximum Number of Eurodollar Loans. The Borrower will be limited to a
----------------------------------
maximum number of six (6) Eurodollar Loans outstanding at any time. For purposes
hereof, Eurodollar Loans with separate or different Interest Periods will be
considered as separate Eurodollar Loans even if their Interest Periods expire on
the same date.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
----------------------------------------------
3.1 DEFAULT RATE.
------------
Upon the occurrence, and during the continuance, of an Event of
Default, the principal of and, to the extent permitted by law, interest on the
Loans and any other amounts owing hereunder or under the other Credit Documents
shall bear interest, payable upon written demand by the Administrative Agent, at
a per annum rate 2% greater than the rate which would otherwise be applicable
(or if no rate is applicable, whether in respect of interest, fees or other
amounts, then 2% greater than the Base Rate).
3.2 EXTENSION AND CONVERSION.
------------------------
9
<PAGE>
Subject to the terms of Section 5.3, the Borrower shall have the
option, on any Business Day, to extend existing Loans into a subsequent
permissible Interest Period or to convert Loans into Loans of another interest
rate type; provided, however, that (i) except as provided in Section 3.8,
-------- -------
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar Loans, only if no Default
or Event of Default is in existence on the date of extension or conversion,
(iii) Loans extended as, or converted into, Eurodollar Loans shall be subject
to the terms of the definition of "Interest Period" set forth in Section 1.1
---------------
and shall be in such minimum amounts as provided in Section 2.1(b)(ii), and
(iv) any request for extension or conversion of a Eurodollar Loan which shall
fail to specify an Interest Period shall be deemed to be a request for an
Interest Period of one month. Each such extension or conversion shall be
effected by the Borrower by giving a Notice of Extension/Conversion
substantially in the form of Schedule 3.2 (or telephone notice promptly
------------
confirmed in writing) to the Administrative Agent prior to 12:00 Noon
(Charlotte, North Carolina time) on the Business Day of, in the case of the
conversion of a Eurodollar Loan into a Base Rate Loan, and on the third Business
Day prior to, in the case of the extension of a Eurodollar Loan as, or
conversion of a Base Rate Loan into, a Eurodollar Loan, the date of the proposed
extension or conversion, specifying the date of the proposed extension or
conversion, the Loans to be so extended or converted, the types of Loans into
which such Loans are to be converted and, if appropriate, the applicable
Interest Periods with respect thereto. Each request for extension or conversion
shall be irrevocable and shall constitute a representation and warranty by the
Borrower of the matters specified in subsections (a) through (e) of Section 5.3.
In the event the Borrower fails to request extension or conversion of any
Eurodollar Loan in accordance with this Section, or any such conversion or
extension is not permitted or required by this Section, then such Eurodollar
Loan shall be automatically converted into a Base Rate Loan at the end of the
Interest Period applicable thereto. The Administrative Agent shall give each
Lender notice as promptly as practicable of any such proposed extension or
conversion affecting any Loan.
3.3 VOLUNTARY PREPAYMENTS.
---------------------
Revolving Loans may be repaid in whole or in part without premium or
penalty; provided that (i) Eurodollar Loans may be prepaid only upon three (3)
--------
Business Days' prior written notice to the Administrative Agent and must be
accompanied by payment of any amounts owing under Section 3.11, and (ii)
partial repayments shall be in minimum principal amounts of $1,000,000, in the
case of Eurodollar Loans, and $500,000, in the case of Base Rate Loans.
3.4 REDUCTIONS IN COMMITMENTS AND MANDATORY PREPAYMENTS.
---------------------------------------------------
(a) Voluntary Reduction in Revolving Commitment. The Revolving
---------------------------------------------
Commitments may be terminated or permanently reduced in whole or in part upon
three (3) Business Days' prior written notice to the Administrative Agent,
provided that (i) after giving effect to any voluntary reduction the aggregate
- - --------
amount of Obligations shall not exceed the lesser of (A) the Aggregate
Revolving Committed Amount, as reduced, or (B) until the Security Release
Date relating to inventory (but not thereafter), the Borrowing Base, and (ii)
partial reductions shall be in minimum principal amounts of $5,000,000, and in
integral multiples of $1,000,000 in excess thereof.
(b) Mandatory Reductions in Revolving Commitments and Mandatory
------------------------------------------------------------
Prepayments. The Revolving Commitments shall be automatically and permanently
- - -----------
reduced (and
10
<PAGE>
prepayments shall be required to the extent that outstanding Obligations exceed
the respective Revolving Commitment, as so reduced), by the amounts provided
below;
(i) Asset Dispositions. An amount equal to one hundred
------------------
percent (100%) of the Net Proceeds received from Asset Dispositions.
(ii) Debt and Equity Transactions. An amount equal to one
----------------------------
hundred percent (100%) of the Net Proceeds received from any Debt
Transaction or Equity Transaction.
(c) Mandatory Prepayments, Etc.
--------------------------
(i) If at any time the aggregate principal amount of
Obligations hereunder shall exceed the lesser of (A) the Aggregate
Revolving Committed Amount or (B) until the Security Release Date relating
to inventory (but not thereafter), the Borrowing Base, the Borrower shall
immediately make payment on the Revolving Loans hereunder in an amount
sufficient to eliminate the deficiency.
(ii) If at any time the Aggregate Revolving Committed Amount
under the Existing Credit Agreement shall exceed the Obligations owing
thereunder (that is, there is unused availability under the Existing Credit
Agreement determined for purposes hereof without giving effect to any
voluntary, optional or mandatory reduction in the Aggregate Revolving
Committed Amount thereunder in effect on the Closing Date hereof, being
$500,000,000), the Borrower shall immediately either (A) make payment on
the Revolving Loans hereunder in an amount sufficient to reduce the
Obligations outstanding hereunder to zero or (B) reborrow Revolving Loans
(or have Letters of Credit issued) under the Existing Credit Agreement in
an amount sufficient to eliminate such excess.
(iii) The Borrower will make prepayment on the Revolving Loans
hereunder in an amount equal to one hundred percent (100%) of the Net
Proceeds received from any Securitization Transaction (including for
purposes hereof any increase in aggregate Invested Amount relating to the
Excluded Securitization Transaction above $285,000,000).
(d) Application. Unless otherwise specified by the Borrower,
-----------
prepayments made hereunder shall be applied first to Base Rate Loans, then to
Eurodollar Loans in direct order of Interest Period maturities. Amounts prepaid
hereunder may be reborrowed in accordance with the provisions hereof.
(e) Mandatory Commitment Termination. The Commitments hereunder
--------------------------------
shall terminate on the Termination Date.
3.5 FEES.
----
(a) Commitment Fee. In consideration of the Revolving Commitments
--------------
hereunder, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a commitment fee (the "Commitment Fee") equal to
--------------
31.25 basis points (.3125%) per
11
<PAGE>
annum on the average daily unused amount of the Revolving Committed Amount for
the applicable period from the Closing Date. The Commitment Fee shall be
payable quarterly in arrears on the 15th day following the last day of each
calendar quarter for the immediately preceding quarter (or portion thereof)
beginning with the first such date to occur after the Closing Date.
(b) Administrative Fees. The Borrower agrees to pay to the
-------------------
Administrative Agent, for its own account, an annual administrative fee and
such other fees, if any, referred to in the Administrative Agent's Fee Letter
(collectively, the "Administrative Agent's Fees").
---------------------------
3.6 CAPITAL ADEQUACY.
----------------
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender 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 such Lender's capital or assets as a consequence of its commitments
or obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender on an after-tax basis for such reduction. Each determination by any such
Lender of amounts owing under this Section shall, absent manifest error, be
conclusive and binding on the parties hereto.
3.7 INABILITY TO DETERMINE INTEREST RATE.
------------------------------------
If prior to the first day of any Interest Period, the Administrative
Agent shall have determined (which determination shall be conclusive and binding
upon the Borrower absent manifest error) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist for
ascertaining the Eurodollar Rate for such Interest Period, the Administrative
Agent shall give telecopy or telephonic notice thereof to the Borrower and the
Lenders as soon as practicable thereafter. If such notice is given (a) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as Base Rate Loans and (b) any Loans that were to have been
converted on the first day of such Interest Period to or continued as Eurodollar
Loans shall be converted to or continued as Base Rate Loans. Until such notice
has been withdrawn by the Administrative Agent, no further Eurodollar Loans
shall be made or continued as such, nor shall the Borrower have the right to
convert Base Rate Loans to Eurodollar Loans.
3.8 ILLEGALITY.
----------
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar
12
<PAGE>
Loans, continue Eurodollar Loans as such and convert a Base Rate Loan to
Eurodollar Loans shall forthwith be canceled and, until such time as it shall no
longer be unlawful for such Lender to make or maintain Eurodollar Loans, such
Lender shall then have a commitment only to make a Base Rate Loan when a
Eurodollar Loan is requested and (c) such Lender's Loans then outstanding as
Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans on
the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.11.
3.9 REQUIREMENTS OF LAW.
-------------------
If, after the date hereof, the adoption of or any change in any Requirement
of Law or in the interpretation or application thereof applicable to any Lender,
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, in each
case made subsequent to the Closing Date (or, if later, the date on which such
Lender becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever
with respect to any Eurodollar Loans made by it or its obligation to make
Eurodollar Loans, or change the basis of taxation of payments to such
Lender in respect thereof (except for (i) Non-Excluded Taxes covered by
Section 3.10 (including Non-Excluded Taxes imposed solely by reason of any
failure of such Lender to comply with its obligations under Section
3.10(b)) and (ii) changes in taxes measured by or imposed upon the overall
net income, or franchise tax (imposed in lieu of such net income tax), of
such Lender or its applicable lending office, branch, or any affiliate
thereof));
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding any
tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, upon notice to the
Borrower from such Lender, through the Administrative Agent, in accordance
herewith, the Borrower shall be obligated to promptly pay such Lender, upon its
demand, any additional amounts necessary to compensate such Lender on an after-
tax basis for such increased cost or reduced amount receivable, provided that,
--------
in any such case the Borrower may elect to convert the Eurodollar Loans made by
such Lender hereunder to Base Rate Loans by giving the Administrative Agent at
least one Business Day's notice of such election, in which case the Borrower
shall promptly pay to such Lender, upon demand, without duplication, such
amounts, if any, as may be required pursuant to Section 3.11. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall provide prompt notice thereof to the Borrower, through the Administrative
Agent,
13
<PAGE>
certifying (x) that one of the events described in this paragraph 3.9 has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Lender and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this subsection submitted by such Lender, through the
Administrative Agent, to the Borrower shall be conclusive and binding on the
parties hereto in the absence of manifest error. This covenant shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder.
3.10 TAXES.
-----
(a) Except as provided below in this subsection, all payments made by the
Borrower or any Guarantor under this Credit Agreement and any Notes shall be
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any court, or governmental body, agency or
other official, excluding taxes measured by or imposed upon the overall net
income of any Lender or its applicable lending office, or any branch or
affiliate thereof, and all franchise taxes, branch taxes, taxes on doing
business or taxes on the overall capital or net worth of any Lender or its
applicable lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net income taxes, imposed: (i) by the jurisdiction under the
laws of which such Lender, applicable lending office, branch or affiliate is
organized or is located, or in which its principal executive office is located,
or any nation within which such jurisdiction is located or any political
subdivision thereof; or (ii) by reason of any connection between the
jurisdiction imposing such tax and such Lender, applicable lending office,
branch or affiliate other than a connection arising solely from such Lender
having executed, delivered or performed its obligations, or received payment
under or enforced, this Credit Agreement or any Notes. If any such non-excluded
taxes, levies, imposts, duties, charges, fees, deductions or withholdings ("Non-
----
Excluded Taxes") are required to be withheld from any amounts payable to the
- - --------------
Administrative Agent or any Lender hereunder or under any Notes, (A) the amounts
so payable to the Administrative Agent or such Lender shall be increased to the
extent necessary to yield to the Administrative Agent or such Lender (after
payment of all Non-Excluded Taxes) interest or any such other amounts payable
hereunder at the rates or in the amounts specified in this Credit Agreement and
any Notes, provided, however, that the Borrower shall be entitled to deduct and
-------- -------
withhold any Non-Excluded Taxes and shall not be required to increase any such
amounts payable to any Lender that is not organized under the laws of the United
States of America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes
are payable by the Borrower, and (B) as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof or other
evidence of remittance of Non-Excluded Taxes reasonably acceptable to the
Administrative Agent. If the Borrower fails to pay any Non-Excluded Taxes when
due to the appropriate taxing authority or fails to remit to the Administrative
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure. The agreements in this subsection
shall survive the termination of this Credit Agreement and the payment of the
Loans and all other amounts payable hereunder.
14
<PAGE>
(b) Each Lender that is not incorporated or organized under the laws of
the United States of America or a state thereof shall:
(X)(i) on or before the date it becomes a Lender, deliver to the
Borrower and the Administrative Agent (A) two (2) properly completed and
duly executed copies of United States Internal Revenue Service Form 1001
or 4224, or successor applicable form, as the case may be, certifying that
it is entitled to receive payments under this Credit Agreement and any
Notes without deduction or withholding of any United States federal
income taxes and (B) an Internal Revenue Service Form W-8 or W-9, or
successor applicable form, as the case may be, certifying that it is
entitled to an exemption from United States backup withholding tax;
(ii) deliver to the Borrower and the Administrative Agent two (2)
further properly completed and duly executed copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the
Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent; or
(Y) in the case of any such Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (i) on or
before the date it becomes a Lender, deliver to the Borrower (for the
benefit of the Borrower and the Administrative Agent) (A) a statement under
penalties of perjury that it (1) is not a bank within the meaning of
Section 881(c)(3)(A) of the Internal Revenue Code, (2) is not a 10-percent
shareholder within the meaning of Section 881(c)(3)(B) of the Code, and (3)
is not a controlled foreign corporation receiving interest from a related
person within the meaning of Section 881(c)(3)(C) of the Code, and (B) two
(2) properly completed and duly executed copies of Internal Revenue Service
Form W-8, or successor applicable form certifying to such Lender's legal
entitlement at the date of such certificate to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the Internal
Revenue Code with respect to payments to be made under this Credit
Agreement and any Notes (ii) deliver to the Borrower and the Administrative
Agent two (2) further properly completed and duly executed copies of such
form on or before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recently provided
form, (iii) if necessary, obtain any extensions of time reasonably
requested by the Borrower or the Administrative Agent for filing and
completing such forms, and (iv) agree, to the extent legally entitled to do
so, upon reasonable request by the Borrower, to provide to the Borrower
(for the benefit of the Borrower and the Administrative Agent) such other
forms as may be reasonably required in order to establish the legal
entitlement of such Lender to an exemption from withholding with respect to
payments under this Credit Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has occurred
after the date such Person becomes a Lender hereunder which renders all such
forms inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender so advises the
Borrower and the Administrative Agent. Each Person that shall become a Lender
or a participant of a Lender pursuant to subsection 9.3 shall and each Lender
shall, upon a change in its applicable lending office, upon the effectiveness of
the related transfer, be required to provide all of
15
<PAGE>
the forms, certifications and statements required pursuant to this subsection,
provided that in the case of a participant of a Lender the obligations of such
- - --------
participant of a Lender pursuant to this subsection (b) shall be determined as
if the participant of a Lender were a Lender except that such participant of a
Lender shall furnish all such required forms, certifications and statements to
the Lender from which the related participation shall have been purchased.
(c) If any Lender shall become aware that it is entitled to claim a
refund or credit (such credit to include any increase in any foreign tax credit)
in respect of any Non-Excluded Taxes (including any penalties or interest with
respect thereto) as to which it has been indemnified by the Borrower or with
respect to which the Borrower has paid increased amounts pursuant to this
Section 3.10, it shall promptly notify the Borrower of the availability of such
refund or credit and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund or credit. If any Lender receives a refund or
credit (such credit to include any increase in any foreign tax credit) in
respect of any Non-Excluded Taxes as to which it has been indemnified by The
Borrower or with respect to which the Borrower has paid increased amounts under
this Section 3.10, it shall promptly notify the Borrower of such refund or
credit and shall, within 30 days after receipt of such refund or the benefit of
such credit (such benefit to include any reduction of the taxes for which the
Lender would otherwise be liable due to any increase in any foreign tax credit
available to such Lender) repay the amount of such refund or benefit of such
credit to the Borrower (to the extent of amounts that have been paid by the
Borrower under this Section 3.10 with respect to Non-Excluded Taxes giving rise
to such refund or credit), plus any interest received with respect thereto, net
or all reasonable out-of-pocket expenses of such Lender and without interest
(other than interest actually received from the relevant taxing authority or
other governmental authority with respect to such refund or credit); provided,
--------
however, that the Borrower, upon the request of such Lender, agrees to return
- - -------
the amount of such refund or benefit of such credit (plus interest) to such
Lender in the event such Lender is required to repay the amount of such refund
or benefit of such credit to the relevant taxing authority or other
governmental authority.
(d) Each Lender represents that it is not participating in, and will not
participate in, a conduit financing arrangement within the meaning of Treas.
Reg. (S) 1.881-3(a)(2)(iv) in connection with the Loans.
3.11 Indemnity.
---------
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than through such Lender's gross negligence or willful misconduct) as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a
day which is not the last day of an Interest Period with respect thereto. With
respect to Eurodollar Loans, such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Eurodollar Loans provided for
16
<PAGE>
herein (excluding, however, the Applicable Percentage included therein, if any)
over (ii) the amount of interest (as reasonably determined by such Lender) which
would have accrued to such Lender on such amount by placing such amount on
deposit for a comparable period with leading banks in the interbank Eurodollar
market. The covenants of the Borrower set forth in this Section 3.11 shall
survive the termination of this Credit Agreement and the payment of the Loans
and all other amounts payable hereunder.
3.12 PRO RATA TREATMENT.
------------------
Except to the extent otherwise provided herein:
(a) Loans. Each Loan, each payment or prepayment of principal of any
-----
Loan, each payment of interest on the Loans, each payment of Commitment Fees,
each reduction of the Revolving Committed Amount and each conversion or
extension of any Loan, shall be allocated pro rata among the Lenders in
accordance with the respective principal amounts of their outstanding Loans and
Participation Interests.
(b) Advances. Unless the Administrative Agent shall have been notified
--------
in writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its ratable share of such borrowing available to
the Administrative Agent, the Administrative Agent may assume that such Lender
is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to the
Administrative Agent by such Lender within the time period specified therefor
hereunder, such Lender shall pay to the Administrative Agent, on demand, such
amount with interest thereon at a rate equal to the Federal Funds Rate for the
period until such Lender makes such amount immediately available to the
Administrative Agent. A certificate of the Administrative Agent submitted to any
Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
3.13 SHARING OF PAYMENTS.
-------------------
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan or any other obligation owing to such
Lender under this Credit Agreement through the exercise of a right of setoff,
banker's lien or counterclaim, or pursuant to a secured claim under Section 506
of Title 11 of the United States Code or other security or interest arising from
or in lieu of, such secured claim, received by such Lender under any applicable
bankruptcy, insolvency or other similar law or otherwise, or by any other means,
in excess of its pro rata share of such payment as provided for in this Credit
Agreement, such Lender shall promptly purchase from the other Lenders a
participation in such Loans, and other obligations in such amounts, and make
such other adjustments from time to time, as shall be equitable to the end that
all Lenders share such payment in accordance with their respective ratable
shares as provided for in this Credit Agreement. The Lenders further agree among
themselves that if payment to a Lender obtained by such Lender through the
exercise of a right of setoff, banker's lien, counterclaim or other event as
aforesaid shall be rescinded or must otherwise be restored, each Lender which
shall have shared the benefit of such payment shall, by repurchase of a
participation theretofore sold, return its share of that benefit (together with
its share of any accrued interest payable with respect thereto) to each Lender
whose payment shall have been rescinded or otherwise restored. The Borrower
agrees that any Lender so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including
17
<PAGE>
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan, or other obligation in the
amount of such participation. Except as otherwise expressly provided in this
Credit Agreement, if any Lender or the Administrative Agent shall fail to remit
to the Administrative Agent or any other Lender an amount payable by such Lender
or the Administrative Agent to the Administrative Agent or such other Lender
pursuant to this Credit Agreement on the date when such amount is due, such
payments shall be made by the Administrative Agent or such Lender, as the case
may be, together with interest thereon for each date from the date such amount
is due until the date such amount is paid to the Administrative Agent or such
other Lender at a rate per annum equal to the Federal Funds Rate. If under any
applicable bankruptcy, insolvency or other similar law, any Lender receives a
secured claim in lieu of a setoff to which this Section 3.13 applies, such
Lender shall, to the extent practicable, exercise its rights in respect of such
secured claim in a manner consistent with the rights of the Lenders under this
Section 3.13 to share in the benefits of any recovery on such secured claim.
3.14 PAYMENTS, COMPUTATIONS, ETC.
---------------------------
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Administrative Agent in Dollars in immediately
available funds, without offset, deduction, counterclaim or withholding of any
kind, at the Administrative Agent's office specified in Section 9.1 not later
than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments
received after such time shall be deemed to have been received on the next
succeeding Business Day. The Borrower shall, at the time it makes any payment
under this Credit Agreement, specify to the Administrative Agent the Loans,
Fees, interest or other amounts payable by the Borrower hereunder to which such
payment is to be applied (and in the event that it fails so to specify, or if
such application would be inconsistent with the terms hereof, the Administrative
Agent shall distribute such payment to the Lenders in such manner as the
Administrative Agent may determine to be appropriate in respect of obligations
owing by the Borrower hereunder, subject to the terms of Section 3.12(a)). The
Administrative Agent will distribute such payments to such Lenders, if any such
payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a
Business Day in like funds as received prior to the end of such Business Day and
otherwise the Administrative Agent will distribute such payment to such Lenders
on the next succeeding Business Day. Whenever any payment hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day (subject to accrual of
interest and Fees for the period of such extension), except that in the case of
Eurodollar Loans, if the extension would cause the payment to be made in the
next following calendar month, then such payment shall instead be made on the
next preceding Business Day. Except as expressly provided otherwise herein, all
computations of interest and fees shall be made on the basis of actual number of
days elapsed over a year of 360 days, except with respect to computation of
interest on Base Rate Loans which (unless the Base Rate is determined by
reference to the Federal Funds Rate) shall be calculated based on a year of 365
or 366 days, as appropriate. Interest shall accrue from and include the date of
borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
---------------------------------------------
other provisions of this Credit Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Administrative Agent or any Lender on account of the Obligations
or any other amounts outstanding under any of the Credit Documents shall be paid
over or delivered as follows:
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<PAGE>
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Administrative Agent in connection with enforcing the rights of the Lenders
under the Credit Documents;
SECOND, to payment of any fees owed to the Administrative Agent;
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Obligations owing to such
Lender;
FOURTH, to the payment of all accrued interest and fees on or in
respect of the Obligations;
FIFTH, to the payment of the outstanding principal amount of the
Obligations;
SIXTH, to all other Obligations and other obligations which shall
have become due and payable under the Credit Documents or otherwise and not
repaid pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Obligations held by such Lender bears to the aggregate then outstanding
Obligations) of amounts available to be applied pursuant to clauses "THIRD",
"FOURTH", "FIFTH" and "SIXTH" above.
(c) Treatment. The Lenders agree that in the exercise of rights under
---------
Sections 3.6, 3.7, 3.8 and 3.9, they will accord the Borrower the treatment
generally accorded by the Lenders to similarly situated borrowers.
3.15 EVIDENCE OF DEBT.
----------------
(a) Each Lender shall maintain an account or accounts evidencing each
Loan made by such Lender to the Borrower from time to time, including the
amounts of principal and interest payable and paid to such Lender from time to
time under this Credit Agreement. Each Lender will make reasonable efforts to
maintain the accuracy of its account or accounts and to promptly update its
account or accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to
Section 9.3(c) hereof, and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and Interest
Period of each such Loan hereunder, (ii) the amount of any principal or interest
due and payable or to become due and payable to each Lender hereunder and (iii)
the amount of any sum received by the Administrative Agent hereunder from or for
the account of the Borrower and each Lender's share thereof. The Administrative
Agent will make reasonable efforts to
19
<PAGE>
maintain the accuracy of the subaccounts referred to in the preceding sentence
and to promptly update such subaccounts from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts
maintained pursuant to subsection (b) of this Section 3.15 (and, if consistent
with the entries of the Administrative Agent, subsection (a)) shall be prima
facie evidence of the existence and amounts of the obligations of the Borrower
therein recorded; provided, however, that the failure of any Lender or the
-------- -------
Administrative Agent to maintain any such account, such Register or such
subaccount, as applicable, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay the Loans made by such Lender in
accordance with the terms hereof.
SECTION 4
GUARANTY
---------
4.1 THE GUARANTEE.
-------------
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, to each Affiliate of a Lender that enters into a Hedging Agreement and
to the Administrative Agent as hereinafter provided the prompt payment of the
Guaranteed Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, a mandatory cash collateralization or
otherwise) strictly in accordance with the terms thereof. The Guarantors hereby
further agree that if any of the Guaranteed Obligations are not paid in full
when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as mandatory cash collateralization or otherwise and after giving
effect to any grace periods), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration or otherwise and
after giving effect to any grace periods) in accordance with the terms of such
extension or renewal. This is a guaranty of payment and not of collection.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
4.2 OBLIGATIONS UNCONDITIONAL.
-------------------------
The obligations of the Guarantors under Section 4.1 hereof are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each
20
<PAGE>
Guarantor agrees that such Guarantor shall have no right of subrogation,
indemnity, reimbursement or contribution against the Borrower or any other
Guarantor of the Guaranteed Obligations for amounts paid under this Guaranty
until such time as the Lenders (and any Affiliates of Lenders entering into
Hedging Agreements) have been paid in full, all Commitments under the Credit
Agreement have been terminated and no Person or Governmental Authority shall
have any right to request any return or reimbursement of funds from the Lenders
in connection with monies received under the Credit Documents or Hedging
Agreements. Without limiting the generality of the foregoing, it is agreed that,
to the fullest extent permitted by law, the occurrence of any one or more of the
following shall not alter or impair the liability of any Guarantor hereunder
which shall remain absolute and unconditional as described above:
(i) at any time or from time to time, without notice to any
Guarantor, the time for any performance of or compliance with any of the
Guaranteed Obligations shall be extended, or such performance or compliance
shall be waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Administrative Agent or
any Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected or shall be released or discharged in
whole or in part; or
(v) any of the Guaranteed Obligations shall be determined to be void
or voidable (including, without limitation, for the benefit of any
creditor of any Guarantor) or shall be subordinated to the claims of any
Person (including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Administrative Agent or any Lender
exhaust any right, power or remedy or proceed against any Person under any of
the Credit Documents, any Hedging Agreement or any other agreement or instrument
referred to in the Credit Documents or Hedging Agreements, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations.
4.3 REINSTATEMENT.
-------------
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Guaranteed Obligations is rescinded
or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or
21
<PAGE>
otherwise, and each Guarantor agrees that it will indemnify the Administrative
Agent and each Lender on demand for all reasonable costs and expenses
(including, without limitation, fees and expenses of counsel) incurred by the
Administrative Agent or such Lender in connection with such rescission or
restoration, including any such costs and expenses incurred in defending against
any claim alleging that such payment constituted a preference, fraudulent
transfer or similar payment under any bankruptcy, insolvency or similar law.
4.4 CERTAIN ADDITIONAL WAIVERS.
--------------------------
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. (S)(S) 26-7
through 26-9, inclusive. Each Guarantor further agrees that such Guarantor shall
have no right of recourse to security for the Guaranteed Obligations, except
through the exercise of the rights of subrogation pursuant to Section 4.2.
4.5 REMEDIES.
--------
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Section 7.2 hereof (and shall be deemed
to have become automatically due and payable in the circumstances provided in
said Section 7.2) for purposes of Section 4.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing the
Guaranteed Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration (or the Guaranteed
Obligations being deemed to have become automatically due and payable), the
Guaranteed Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of said
Section 4.1.
4.6 RIGHTS OF CONTRIBUTION.
----------------------
The Guarantors hereby agree, as among themselves, that if any Guarantor
shall become an Excess Funding Guarantor (as defined below), each other
Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the
succeeding provisions of this Section 4.6), pay to such Excess Funding
Guarantor an amount equal to such Guarantor's Pro Rata Share (as defined below
and determined, for this purpose, without reference to the properties, assets,
liabilities and debts of such Excess Funding Guarantor) of such Excess Payment
(as defined below). The payment obligation of any Guarantor to any Excess
Funding Guarantor under this Section 4.6 shall be subordinate and subject in
right of payment to the prior payment in full of the obligations of such
Guarantor under the other provisions of this Section 4, and such Excess Funding
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For purposes
hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations
------------------------
arising under the other provisions of this Section 4 (hereafter, the "Guarantied
----------
Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata
- - -----------
Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in
--------------
respect of any Guarantied Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and
(iii) "Pro Rata Share", for the purposes of this Section 4.6, shall mean, for
--------------
any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which
the aggregate present fair saleable value of all of its assets and properties
exceeds the amount of all debts and liabilities of such Guarantor (including
contingent, subordinated, unmatured, and unliquidated liabilities, but excluding
the obligations of such Guarantor
22
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hereunder) to (b) the amount by which the aggregate present fair saleable value
of all assets and other properties of the Borrower and all of the Guarantors
exceeds the amount of all of the debts and liabilities (including contingent,
subordinated, unmatured, and unliquidated liabilities, but excluding the
obligations of the Borrower and the Guarantors hereunder) of the Borrower and
all of the Guarantors, all as of the Closing Date (if any Guarantor becomes a
party hereto subsequent to the Closing Date, then for the purposes of this
Section 4.6 such subsequent Guarantor shall be deemed to have been a Guarantor
as of the Closing Date and the information pertaining to, and only pertaining
to, such Guarantor as of the date such Guarantor became a Guarantor shall be
deemed true as of the Closing Date).
4.7 CONTINUING GUARANTEE.
--------------------
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Guaranteed Obligations whenever arising.
SECTION 5
CONDITIONS
----------
5.1 CONDITIONS TO CLOSING.
---------------------
Closing of the liquidity facility pursuant to this Credit Agreement is
subject to satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement and Credit Documents. Receipt of
--------------------------------------------------
(i) multiple counterparts of this Credit Agreement, (ii) a Revolving Note for
each Lender, (iii) multiple counterparts of the Pledge Agreement and the
Security Agreement and UCC financing statements relating thereto, if any, in
each case executed by a duly authorized officer of each party thereto and in
each case conforming to the requirements of this Credit Agreement.
(b) Liquidity Intercreditor Agreement. Receipt of multiple executed
---------------------------------
counterparts of the Liquidity Intercreditor Agreement.
(c) Stock Certificates. Acknowledgment from NationsBank, N.A., as
------------------
Administrative Agent under the Existing Credit Agreement, (i) of its receipt of
original stock certificates evidencing the ownership interests of the Credit
Parties pledged pursuant to the Pledge Agreement, together in each case with
original undated stock powers executed in blank (evidencing, among other things,
100% of the voting stock of the Borrower), (ii) of the interests of the
Administrative Agent and the Lenders hereunder therein pursuant to the Pledge
Agreement and (iii) that it holds such stock certificates and stock powers as
bailee for the Administrative Agent hereunder.
(d) Financial Information. Receipt of financial information
---------------------
regarding the Company and the Borrower and their subsidiaries, as may be
requested by, and in each case in form and substance satisfactory to the Agents.
(e) Absence of Legal Proceedings. The absence of any action, suit,
----------------------------
investigation or proceeding pending in any court or before any arbitrator or
governmental instrumentality
23
<PAGE>
which could reasonably be expected to have a Material Adverse Effect on the
Consolidated Group taken as a whole.
(f) Legal Opinions. Receipt of multiple counterparts of opinions of
--------------
counsel for the Credit Parties relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to the
Agents and the Lenders,
(g) Corporate Documents. Receipt of the following (or their
-------------------
equivalent) for each of the Credit Parties:
(i) Articles of Incorporation. Copies of the certificate of
-------------------------
incorporation or charter documents certified to be true and complete as of
a recent date by the appropriate governmental authority of the state of its
incorporation.
(ii) Resolutions. Copies of resolutions of the Board of
-----------
Directors approving and adopting the respective Credit Documents, the
transactions contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary as of the Closing
Date to be true and correct and in force and effect as of such date.
(iii) Bylaws. Copies of the bylaws certified by a secretary or
------
assistant secretary as of the Closing Date to be true and correct and in
force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of (A)
-------------
certificates of good standing, existence or its equivalent certified as of
a recent date by the appropriate governmental authorities of the state of
incorporation and each other state in which the failure to so qualify and
be in good standing would have a Material Adverse Effect and (B) a
certificate indicating payment of all corporate franchise taxes certified
as of a recent date by the appropriate governmental taxing authorities in
the state of incorporation.
(v) Officer's Certificate. An officer's certificate for each
---------------------
of the Credit Parties dated as of the Closing Date substantially in the
form of Schedule 5.1(g)(v) with appropriate insertions and attachments.
------------------
(vi) Solvency Certificate. An officer's certificate for each
--------------------
of the Borrower and the Company, both dated as of the Closing Date and
substantially in the form of Schedule 5.1(g)(vi)(A) or Schedule
--------------------- --------
5.1(g)(vi)(B), as appropriate.
-------------
(h) Fees. Receipt of all fees, if any, owing pursuant to the
----
Administrative Agent's Fee Letter, Section 3.5 or otherwise.
(i) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Credit Agreement shall be
reasonably satisfactory in form and substance to the Agents and the Required
Lenders.
5.2 CONDITIONS TO EFFECTIVENESS.
---------------------------
24
<PAGE>
Effectiveness of the liquidity facility pursuant to this Credit Agreement,
and to the initial Extensions of Credit hereunder, are subject to satisfaction
of the following conditions precedent:
(a) Amendment No. 3 to Existing Credit Agreement. Receipt of an
--------------------------------------------
executed copy of Amendment No. 3 to the Existing Credit Agreement, in form and
substance satisfactory to the Lenders hereunder.
(b) Section 5.3 Conditions. The conditions specified in Section 5.3
----------------------
shall be satisfied.
5.3 CONDITIONS TO ALL EXTENSIONS OF CREDIT.
--------------------------------------
The obligation of the Lenders to make any Extension of Credit hereunder
(including the initial Extension of Credit to be made hereunder) is subject to
the satisfaction of the following conditions precedent on the date of making
such Extension of Credit:
(a) Representations and Warranties. The representations and
------------------------------
warranties made by the Credit Parties herein or in any other Credit Documents
or which are contained in any certificate furnished at any time under or in
connection herewith shall be true and correct in all material respects on and as
of the date of such Extension of Credit as if made on and as of such date
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on such date or after giving effect to the
Extension of Credit to be made on such date unless such Default or Event of
Default shall have been waived or cured in accordance with this Credit
Agreement.
(c) No Material Adverse Effect. No circumstances, events or
--------------------------
conditions shall have occurred since the date of the audited financial
statements referenced in Section 6.1 of the Incorporated Representations which
would have a Material Adverse Effect.
(d) Additional Conditions to Revolving Loans. If a Revolving Loan is
----------------------------------------
made pursuant to Section 2.1, all conditions set forth therein shall have been
satisfied.
(e) No Availability under the Existing Credit Agreement. The
---------------------------------------------------
Existing Credit Agreement shall then be fully drawn upon and there shall be no
remaining availability thereunder.
Each request for an Extension of Credit (including extensions and
conversions) and each acceptance by the Borrower of an Extension of Credit
(including extensions and conversions) shall be deemed to constitute a
representation and warranty by the Borrower as of the date of such Extension of
Credit that the applicable conditions in paragraphs (a), (b), (c), (d) and (e)
of this subsection have been satisfied.
SECTION 6
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
6.1 INCORPORATION.
-------------
25
<PAGE>
The representations and warranties contained in Section 6 of the Existing
Credit Agreement (the "Incorporated Representations") and the affirmative and
----------------------------
negative covenants contained in Sections 7 and 8, respectively, of the Existing
Credit Agreement (the "Incorporated Covenants") as in effect on the Closing Date
----------------------
are incorporated herein by reference with the same effect as if stated at
length. The Credit Parties affirm and represent and warrant to the
Administrative Agent and the Lenders that the Incorporated Representations are
true and correct in all material respects as of the date hereof and covenant and
agree that the Incorporated Covenants shall be as binding on the Credit Parties
as if set forth fully herein, provided that (i) such Incorporated
--------
Representations and Incorporated Covenants as incorporated herein shall reflect
that they are delivered to and run in favor of the Administrative Agent and the
Lenders hereunder, rather than just to the Administrative Agent and the Lenders
under the Existing Credit Agreement as literally provided in the Existing Credit
Agreement, and references therein to the "Credit Agreement" and "Credit
Documents" shall be deemed for purposes hereof to include this Credit Agreement
and the Credit Documents relating hereto, (ii) any amendments or modifications
to such Incorporated Representations or Incorporated Covenants subsequent to the
date hereof must be consented to in writing by the Required Lenders hereunder,
and (iii) in the event that the Existing Credit Agreement shall be refinanced
or replaced by another credit agreement, then the Incorporated Representations
and Incorporated Covenants shall be as in effect immediately prior to such
refinancing or replacement.
6.2 ADDITIONAL REPRESENTATIONS.
--------------------------
(a) Purpose of Extensions of Credit. Notwithstanding the provisions
-------------------------------
of Section 6.15 of the Existing Credit Agreement, Extensions of Credit under
this Credit Agreement shall be used for general corporate purposes, including
the build-up of inventory and receivables.
6.3 ADDITIONAL COVENANTS.
--------------------
(a) Purpose of Revolving Loans. The proceeds of Revolving Loans
--------------------------
hereunder shall be used for general corporate purposes, including the build-up
of inventory and receivables.
(b) Additional Guaranties and Stock Pledges. The Company
---------------------------------------
will provide to the Administrative Agent for the benefit of the Lenders
hereunder a Joinder Agreement providing a guaranty of the obligations under this
Credit Agreement in the same form and from the same Subsidiaries and Affiliates
and a pledge of stock relating thereto as provided under the Existing Credit
Agreement in Section 7.11 thereof.
(c) Prepayments under the Existing Credit Facility. There shall be
----------------------------------------------
excepted from the operation of Section 8.9(a) of the Existing Credit Agreement
as incorporated herein amendment, modification or waiver of the provisions
of the Existing Credit Agreement and from the operation of Section 8.9(b) of the
Existing Credit Agreement as incorporated herein prepayment, mandatory, optional
or voluntary, on the Obligations under the Existing Credit Agreement.
(d) Prepayments and Commitment Reductions under the Existing Credit
---------------------------------------------------------------
Agreement. During the term of this Credit Agreement, the Borrower will not (i)
- - ---------
make any
26
<PAGE>
optional or voluntary prepayment on or in respect of the Obligations under the
Existing Credit Agreement during any period when Revolving Loans are outstanding
hereunder, or (ii) make any optional or voluntary reduction in the Aggregate
Revolving Committed Amount under the Existing Credit Agreement.
SECTION 7
EVENTS OF DEFAULT
-----------------
7.1 EVENTS OF DEFAULT.
-----------------
An Event of Default shall exist upon the occurrence of any of the
following specified events (each an "Event of Default"):
----------------
(a) Payment. Any Credit Party shall
-------
(i) default in the payment when due of any principal of any of the
Loans, or
(ii) default, and such defaults shall continue for five (5) or more
Business Days, in the payment when due of any interest on the Loans, or of
any Fees or other reasonable fees and amounts owing hereunder, under any
of the other Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement made or
---------------
deemed to be made herein, in any of the other Credit Documents, or in any
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove untrue in any material respect on the date as of which it
was deemed to have been made; or
(c) Covenants.
---------
(i) Default in the due performance or observance of any term,
covenant or agreement contained in Section 7.3(a), 7.9, 7.11, 7.13 or 8.1
through 8.12 (except in the case of negative covenants contained in Sections
8.1 through 8.12, those Defaults which may occur or arise other than on
account of or by affirmative or intentional act of the Borrower or event or
condition which the Borrower shall with knowledge permit to exist, all of
which shall be subject to the provisions of clause (ii) hereof), inclusive,
in each case of the Incorporated Covenants, or
(ii) Default in the due performance or observance by it of any term,
covenant or agreement (other than those referred to in subsections (a), (b)
or (c)(i) of this Section 7.1) contained in this Credit Agreement and such
default shall continue unremedied for a period of at least 30 days after
the earlier of a Responsible Officer of a Credit Party becoming aware of
such default, or the giving of notice thereof by the Administrative Agent,
or with respect to Section 7.8 of the Incorporated Covenants, without a
response or investigation being initiated within such time period; or
27
<PAGE>
(d) Other Credit Documents. (i) Any Credit Party shall default in the due
----------------------
performance or observance of any material term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) except as to the Credit Party which is dissolved, released or
merged or consolidated out of existence as the result of or in connection with
a dissolution, merger or disposition permitted by Section 8.4(a), Section 8.4(b)
or Section 8.4(c) of the Incorporated Covenants, any Credit Document shall fail
to be in full force and effect or to give the Administrative Agent and/or the
Lenders any material part of the Liens, rights, powers and privileges purported
to be created thereby; or
(e) Guaranties. Except as to the Credit Party which is dissolved, released
----------
or merged or consolidated out of existence as the result of or in connection
with a dissolution, merger or disposition permitted by Section 8.4(a), Section
8.4(b) or Section 8.4(c) of the Incorporated Covenants, the guaranty given by
any Guarantor hereunder or any material provision thereof shall cease to be in
full force and effect, or any Guarantor hereunder or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations
under such guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any
---------------
member of the Consolidated Group; or
(g) Defaults under Other Agreements.
--------------------------------
(i) Any member of the Consolidated Group shall default in the
performance or observance (beyond the applicable grace period with respect
thereto, if any) of any material obligation or condition of any contract or
lease material to the Consolidated Group, taken as a whole which is
reasonably likely to have a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than Indebtedness
outstanding under this Credit Agreement) in excess of $10,000,000 in the
aggregate for the Consolidated Group taken as a whole, (A) (1) any member of
the Consolidated Group shall default in any payment (beyond the applicable
grace period with respect thereto, if any) with respect to any such
Indebtedness, or (2) the occurrence and continuance of a default in the
observance or performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the effect of which
is to cause any such Indebtedness to become due prior to its stated
maturity; or (B) any such Indebtedness shall be declared due and payable, or
required to be prepaid other than by a regularly scheduled required
prepayment, prior to the stated maturity thereof; or
(h) Judgments. Any member of the Consolidated Group shall fail within 30
---------
days of the date due and payable to pay, bond or otherwise discharge any
judgment, settlement or order for the payment of money which judgment,
settlement or order, when aggregated with all other such judgments, settlements
or orders due and unpaid at such time, exceeds $5,000,000, and which is not
stayed on appeal (or for which no motion for stay is pending) or is not
otherwise being executed or is not covered by insurance (subject to applicable
deductibles); or
28
<PAGE>
(i) ERISA. Any of the following events or conditions, if such event or
-----
condition could reasonably be expected to have a Material Adverse Effect: (1)
any "accumulated funding deficiency," as such term is defined in Section 302 of
ERISA and Section 412 of the Code, whether or not waived, shall exist with
respect to any Single Employer or Multiple Employer Plan, or any lien shall
arise on the assets of a member of the Consolidated Group or any ERISA Affiliate
in favor of the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a
Single Employer Plan, which is, in the reasonable opinion of the Administrative
Agent, likely to result in the termination of such Plan for purposes of Title IV
of ERISA; (3) an ERISA Event shall occur with respect to a Multiemployer Plan or
Multiple Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in (i) the termination of such Plan for
purposes of Title IV of ERISA, or (ii) a member of the Consolidated Group or any
ERISA Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or insolvency
of (within the meaning of Section 4245 of ERISA) such Plan; or (4) any
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) or breach of fiduciary responsibility shall occur which may
subject a member of the Consolidated Group or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which a member
of the Consolidated Group or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability; or
(j) Ownership. There shall occur a Change of Control; or
---------
(k) Existing Credit Agreement. The occurrence and continuance of an Event
-------------------------
of Default under the Existing Credit Agreement.
7.2 ACCELERATION; REMEDIES.
----------------------
Upon the occurrence of an Event of Default, and at any time thereafter
during the continuance of an Event of Default, the Administrative Agent shall,
upon the request and direction of the Required Lenders, by written notice to
the Credit Parties take any of the following actions:
(i) Termination of Commitments. Declare the Commitments terminated
--------------------------
whereupon the Commitments shall be immediately terminated.
(ii) Acceleration. Declare the unpaid principal of and any accrued
------------
interest in respect of all Loans and any and all other indebtedness or
obligations of any and every kind owing by the Credit Parties to the
Administrative Agent and/or any of the Lenders hereunder to be due
whereupon the same shall be immediately due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by each of the Credit Parties.
(iii) Enforcement of Rights. Enforce any and all rights and
---------------------
interests created and existing under the Credit Documents and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
7.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Administrative Agent and/or any
of the Lenders hereunder automatically shall immediately
29
<PAGE>
become due and payable without presentment, demand, protest or the giving of
any notice or other action by the Administrative Agent or the Lenders, all of
which are hereby waived by the Credit Parties.
SECTION 8
AGENCY PROVISIONS
-----------------
8.1 APPOINTMENT.
-----------
Each Lender hereby designates and appoints NationsBank, N.A. as
administrative agent (in such capacity, the "Administrative Agent") of such
--------------------
Lender to act as specified herein and the other Credit Documents, and each such
Lender hereby authorizes the Administrative Agent as the Administrative Agent
for such Lender, to take such action on its behalf under the provisions of this
Credit Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated by the terms hereof and of the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. Each Lender further directs and authorizes the
Administrative Agent to execute releases (or similar agreements) to give effect
to the provisions of this Credit Agreement and the other Credit Documents,
including specifically without limitation the provisions of Section 3.16 hereof
and Section 8.4 of the Incorporated Covenants hereof. Notwithstanding any
provision to the contrary elsewhere herein and in the other Credit Documents,
the Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth herein and therein, or any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Credit Agreement or any of
the other Credit Documents, or shall otherwise exist against the Administrative
Agent. The provisions of this Section are solely for the benefit of the
Administrative Agent and the Lenders and none of the Credit Parties shall have
any rights as a third party beneficiary of the provisions hereof. In performing
its functions and duties under this Credit Agreement and the other Credit
Documents, the Administrative Agent shall act solely as Administrative Agent of
the Lenders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for any Credit Party or
any of their respective Affiliates.
8.2 DELEGATION OF DUTIES.
---------------------
The Administrative Agent may execute any of its duties hereunder or under
the other Credit Documents by or through Administrative Agents or attorneys-in-
fact and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Administrative Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.
8.3 EXCULPATORY PROVISIONS.
----------------------
The Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report,
30
<PAGE>
document, financial statement or other written or oral statement referred to or
provided for in, received by the Administrative Agent under or in connection
herewith or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of
any Credit Party to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Credit Agreement, or any of the other Credit Documents or
for any representations, warranties, recitals or statements made herein or
therein or made by the Borrower or any Credit Party in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Lenders or by or on behalf
of the Credit Parties to the Administrative Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or the use of the Letters of Credit
or of the existence or possible existence of any Default or Event of Default or
to inspect the properties, books or records of the Credit Parties or any of
their respective Affiliates.
8.4 RELIANCE ON COMMUNICATIONS.
--------------------------
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Administrative Agent with reasonable care). The
Administrative Agent may deem and treat the Lenders as the owner of their
respective interests hereunder for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent in accordance with Section 9.3(b) hereof. The
Administrative Agent shall be fully justified in failing or refusing to take
any action under this Credit Agreement or under any of the other Credit
Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Administrative Agent shall in all cases be fully protected in acting, or in
refraining from acting, hereunder or under any of the other Credit Documents in
accordance with a request of the Required Lenders (or to the extent specifically
provided in Section 9.6. all the Lenders) and such request and any action taken
or failure to act pursuant thereto shall be binding upon all the Lenders
(including their successors and assigns).
8.5 NOTICE OF DEFAULT.
-----------------
The Administrative Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
prompt notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders.
8.6 NON-RELIANCE ON ADMINISTRATIVE AGENT AND OTHER LENDERS.
------------------------------------------------------
31
<PAGE>
Each Lender expressly acknowledges that each of the Administrative Agent
and its officers, directors, employees, agents, attorneys-in-fact or affiliates
has not made any representations or warranties to it and that no act by the
Administrative Agent or any affiliate thereof hereinafter taken, including any
review of the affairs of any Credit Party or any of their respective Affiliates,
shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the Administrative
Agent that it has, independently and without reliance upon the Administrative
Agent or any other Lender, and based on such documents and information as it has
deemed appropriate, made its own appraisal of and investigation into the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower, the other Credit Parties or
their respective Affiliates and made its own decision to make its Loans
hereunder and enter into this Credit Agreement. Each Lender also represents that
it will, independently and without reliance upon the Administrative Agent or any
other Lender, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under this Credit Agreement, and to
make such investigation as it deems necessary to inform itself as to the
business, assets, operations, property, financial and other conditions,
prospects and creditworthiness of the Borrower, the other Credit Parties and
their respective Affiliates. Except for notices, reports and other documents
expressly required to be furnished to the Lenders by the Administrative Agent
hereunder, the Administrative Agent shall not have any duty or responsibility to
provide any Lender with any credit or other information concerning the business,
operations, assets, property, financial or other conditions, prospects or
creditworthiness of the Borrower, the other Credit Parties or any of their
respective Affiliates which may come into the possession of the Administrative
Agent or any of its officers, directors, employees, agents, attorneys-in-fact or
affiliates.
8.7 INDEMNIFICATION.
---------------
The Lenders agree to indemnify the Agents in their capacity as such (to
the extent not reimbursed by the Borrower and without limiting the obligation
of the Borrower to do so), ratably according to their respective Commitments (or
if the Commitments have expired or been terminated, in accordance with the
respective principal amounts of outstanding Loans and Participation Interests of
the Lenders), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following the final payment of all of the obligations of the Borrower
hereunder and under the other Credit Documents) be imposed on, incurred by or
asserted against the Agents in their capacity as such in any way relating to or
arising out of this Credit Agreement or the other Credit Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agents
under or in connection with any of the foregoing; provided that no Lender shall
--------
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or willful misconduct of the
Agents. If any indemnity furnished to the Agents for any purpose shall, in the
opinion of such Agent, be insufficient or become impaired, the Agent may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section shall survive the repayment of the Loans, and other obligations under
the Credit Documents and the termination of the Commitments hereunder.
8.8 ADMINISTRATIVE AGENT IN ITS INDIVIDUAL CAPACITY.
------------------------------------------------
32
<PAGE>
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Company,
the Borrower, its Subsidiaries or their respective Affiliates as though the
Administrative Agent were not the Administrative Agent hereunder. With respect
to the Loans made to and all obligations of the Borrower hereunder and under
the other Credit Documents, the Administrative Agent shall have the same rights
and powers under this Credit Agreement as any Lender and may exercise the same
as though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
8.9 SUCCESSOR ADMINISTRATIVE AGENT.
------------------------------
The Administrative Agent may, at any time, resign upon 20 days' written
notice to the Lenders, and may be removed, upon show of cause, by the Required
Lenders upon 30 days' written notice to the Administrative Agent. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall
have been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the notice of resignation or notice of
removal, as appropriate, then the retiring Administrative Agent shall select a
successor Administrative Agent provided such successor is a Lender hereunder or
a commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and has a combined capital and surplus of at
least $400,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties obligations as Administrative Agent,
as appropriate, under this Credit Agreement and the other Credit Documents and
the provisions of this Section 8.9 shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Administrative Agent under this
Credit Agreement.
8.10 INTERCREDITOR AGREEMENTS.
-------------------------
(a) The terms of the Excluded Receivables Transaction require the
execution of an Intercreditor Agreement substantially in the form of Schedule
--------
8.10(a) (the "INTERCREDITOR AGREEMENT") as a condition to the grant of a
- - ------- ------------------------
security interest by the Borrower in inventory and accounts. By execution
hereof, each Lender hereby acknowledges, and agrees to be bound by, the terms of
the Intercreditor Agreement (including specifically, without limitation, the
provisions of Sections 6, 7 and 10(b) thereof), and further authorizes and
directs the Administrative Agent to enter into the Intercreditor Agreement on
its behalf.
(b) In addition, inasmuch as the obligations under the Existing Credit
Agreement are secured by the same collateral as that securing the obligations
this Credit Agreement, an intercreditor agreement is required in order that the
respective obligations share in such collateral on a pari passu basis. By
execution hereof, each Lender hereby acknowledges and agrees to be bound by the
terms of an Intercreditor Agreement in substantially the form of Schedule 8.10
-------------
(b) (as defined herein, The "Liquidity Intercreditor Agreement") and further
- - --- ---------------------------------
authorizes and directs the Administrative Agent to enter into the Liquidity
Intercreditor Agreement on its behalf.
33
<PAGE>
SECTION 9
MISCELLANEOUS
-------------
9.1 NOTICES.
-------
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (i) when
delivered, (ii) when transmitted via telecopy (or other facsimile device) to the
number set out below, (iii) the day following the day on which the same has
been delivered prepaid to a reputable national overnight air courier service, or
(iv) the third Business Day following the day on which the same is sent by
certified or registered mail, postage prepaid, in each case to the respective
parties at the address, in the case of the Borrower, Guarantors and the
Administrative Agent, set forth below, and, in the case of the Lenders, set
forth on Schedule 2.1 (a), or at such other address as such party may specify
----------------
by written notice to the other parties hereto:
if to the Borrower or the Guarantors:
AMERISOURCE CORPORATION
300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attn: John A. Aberant
Telephone: (610) 296-4480
Telecopy: (610) 993-9085
if to the Administrative Agent;
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-9371
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N.A.
NationsBank Healthcare Finance Group
100 N. Tryon Street
NationsBank Corporate Center, Eighth Floor
Charlotte, North Carolina 28255
Attn: Scott S. Ward
Telephone: (704) 388-7839
Telecopy: (704) 388-6002
34
<PAGE>
9.2 RIGHT OF SET-OFF.
----------------
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default, each Lender is authorized at any time and from time to
time, without presentment, demand, protest or other notice of any kind (all of
which rights being hereby expressly waived), to set-off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by such Lender (including, without limitation branches,
agencies or Affiliates of such Lender wherever located) to or for the credit or
the account of any Credit Party against obligations and liabilities of such
Person to such Lender hereunder, under the Notes the other Credit Documents or
otherwise, irrespective of whether such Lender shall have made any demand
hereunder and although such obligations, liabilities or claims, or any of them,
may be contingent or unmatured, and any such set-off shall be deemed to have
been made immediately upon the occurrence of an Event of Default even though
such charge is made or entered on the books of such Lender subsequent thereto.
Any Person purchasing a participation in the Loans and Commitments hereunder
pursuant to Section 3.13 or Section 9.3(d) may exercise all rights of set-off
with respect to its participation interest as fully as if such Person were a
Lender hereunder.
9.3 BENEFIT OF AGREEMENT.
--------------------
(a) Generally. This Credit Agreement shall be binding upon and inure
---------
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties may
--------
assign or transfer any of its interests or obligations without prior
written consent of the Lenders; provided further that the rights of each
-------- -------
Lender to transfer, assign or grant participations in its rights and/or
obligations hereunder shall be limited as set forth in this Section 9.3,
provided however that nothing herein shall prevent or prohibit any Lender
--------
from (i) pledging its Loans hereunder to a Federal Reserve Bank in support
of borrowings made by such Lender from such Federal Reserve Bank, or (ii)
granting assignments or selling participations in such Lender's Loans
and/or Commitments hereunder to its parent company and/or to any Affiliate
or Subsidiary of such Lender.
(b) Assignments. Each Lender may assign all or a portion of its rights
-----------
and obligations hereunder, pursuant to an assignment agreement
substantially in the form of Schedule 9.3(b), to (i) any Lender or any
---------------
Affiliate or Subsidiary of a Lender, or (ii) any other commercial bank
financial institution or "accredited investor" (as defined in Regulation D
of the Securities and Exchange Commission) reasonably acceptable to the
Administrative Agent; provided that (i) any such assignment (other than any
--------
assignment to an existing Lender) shall be in a minimum aggregate amount
of $5,000,000 (or, if less, the remaining amount of the Commitment being
assigned by such Lender) of the Commitments and in integral multiples of
$1,000,000 above such amount and (ii) each such assignment shall be of a
constant, not varying, percentage of all such Lender's rights and
obligations under this Credit Agreement. Any assignment hereunder shall be
effective upon delivery to the Administrative Agent of written notice of
the assignment together with a transfer fee of $3,500 payable to the
Administrative Agent for its own account from and after the later of (i)
the effective date specified in the applicable assignment agreement and
(ii) the date of recording of such assignment in the Register pursuant to
the terms of subsection (c) below. The assigning Lender will give prompt
notice to the Administrative Agent and the Borrower of any such
35
<PAGE>
assignment. Upon the effectiveness of any such Assignment (and after notice to,
and (to the extent required pursuant to the terms hereof), with the consent of,
the Borrower and the Administrative Agent as provided herein), the assignee
shall become a "Lender" for all purposes of this Credit Agreement and the other
Credit Documents and, to the extent of such assignment, the assigning Lender
shall be relieved of its obligations hereunder to the extent of the Loans and
Commitment components being assigned. Along such lines the Borrower agrees that
upon any such assignment and surrender of the appropriate Note or Notes, it will
promptly provide to the assigning Lender and to the assignee separate promissory
notes in the amount of their respective interests substantially in the form of
the original Note (but with notation thereon that it is given in substitution
for and replacement of the original Note or any replacement notes thereof). By
executing and delivering an assignment agreement in accordance with this Section
9.3(b), the assigning Lender thereunder and the assignee thereunder shall be
deemed to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Lender warrants that it is the legal and beneficial
owner of the interest being assigned thereby free and clear of any adverse
claim; (ii) except as set forth in clause (i) above, such assigning Lender makes
no representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Credit Agreement, any of the other Credit Documents or any other instrument or
document furnished pursuant hereto or thereto, or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Credit
Agreement, any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto or the financial condition of any Credit
Party or any of their respective Affiliates or the performance or observance by
any Credit Party of any of its obligations under this Credit Agreement, any of
the other Credit Documents or any other instrument or document furnished
pursuant hereto or thereto; (iii) such assignee represents and warrants that it
is legally authorized to enter into such assignment agreement; (iv) such
assignee confirms that it has received a copy of this Credit Agreement, the
other Credit Documents and such other documents and information as it has deemed
appropriate to make its own credit analysis and decision to enter into such
assignment agreement; (v) such assignee will independently and without reliance
upon the Administrative Agent, such assigning Lender or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under this Credit Agreement and the other Credit Documents; (vi) such assignee
appoints and authorizes the Administrative Agent to take such action on its
behalf and to exercise such powers under this Credit Agreement or any other
Credit Document as are delegated to the Administrative Agent by the terms hereof
or thereof, together with such powers as are reasonably incidental thereto; and
(vii) such assignee agrees that it will perform in accordance with their terms
all the obligations which by the terms of this Credit Agreement and the other
Credit Documents are required to be performed by it as a Lender.
(c) Maintenance of Register. The Administrative Agent shall maintain at
-----------------------
one of its offices in Charlotte, North Carolina a copy of each Lender assignment
agreement delivered to it in accordance with the terms of subsection (b) above
and a register for the recordation of the identity of the principal amount, type
and Interest Period of each Loan outstanding hereunder, the names, addresses and
the Commitments of the Lenders pursuant to the terms hereof from time to time
(the "Register"). The Administrative Agent will make reasonable efforts to
--------
maintain the accuracy of the Register and to promptly update the Register from
time to time, as necessary. The entries in the Register shall be conclusive in
the absence of manifest
36
<PAGE>
error and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Credit Agreement. The
Register shall be available for inspection by the Borrower and each Lender,
at any reasonable time and from time to time upon reasonable prior notice.
(d) Participations. Each Lender may sell, transfer, grant or assign
--------------
participations in all or any part of such Lender's interests and
obligations hereunder, provided that (i) such selling Lender shall remain a
--------
"Lender" for all purposes under this Credit Agreement (such selling
Lender's obligations under the Credit Documents remaining unchanged) and
the participant shall not constitute a Lender hereunder, (ii) no such
participant shall have, or be granted, rights to approve any amendment or
waiver relating to this Credit Agreement or the other Credit Documents
except to the extent any such amendment or waiver would (A) reduce the
principal of or rate of interest on or Fees in respect of any Loans or any
Letter of Credit in which the participant is participating, (B) postpone
the date fixed for any payment of principal (including extension of the
Termination Date or the date of any mandatory prepayment), interest or Fees
in which the participant is participating, or (C) except as expressly
provided in the Credit Documents, release all or substantially all of the
collateral pledged to secure the Obligations hereunder or release all or
substantially all of the Guarantors from the guaranty obligations
hereunder, and (iii) sub-participations by the participant (except to an
affiliate, parent company or affiliate of a parent company of the
participant) shall be prohibited. In the case of any such participation,
the participant shall not have any rights under this Credit Agreement or
the other Credit Documents (the participant's rights against the selling
Lender in respect of such participation to be those set forth in the
participation agreement with such Lender creating such participation) and
all amounts payable by the Borrower hereunder shall be determined as if
such Lender had not sold such participation, provided, however, that such
--------
participant shall be entitled to receive the benefit of additional amounts
under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a
Lender.
9.4 NO WAIVER; REMEDIES CUMULATIVE.
------------------------------
No failure or delay on the part of the Administrative Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Administrative Agent or any Lender
and any of the Credit Parties shall operate as a waiver thereof, nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Administrative Agent or any Lender would otherwise
have. No notice to or demand on any Credit Party in any case shall entitle the
Borrower or any other Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
9.5 PAYMENT OF EXPENSES, ETC.
------------------------
37
<PAGE>
The Borrower agrees to: (i) pay all reasonable out-of-pockets costs and
expenses (A) of the Administrative Agent in connection with the negotiation,
preparation, execution and delivery of this Credit Agreement and the other
Credit Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and expenses of Moore & Van
Allen, PLLC, special counsel to the Administrative Agent) and any amendment,
waiver of consent relating hereto and thereto including, but not limited to, any
such amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Credit Parties
under this Credit Agreement and (B) of the Administrative Agent and the Lenders
in connection with enforcement of or preservation of rights under the Credit
Documents and the documents and instruments referred to therein (including,
without limitation, in connection with any such enforcement, the reasonable fees
and disbursements of counsel for the Administrative Agent and each of the
Lenders); (ii) pay and hold each of the Lenders harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Lender, its officers, directors, employees, representatives and
Administrative Agents from and hold each of them harmless against any and all
losses, liabilities, claims, damages or reasonable expenses incurred by any of
them as a result of, or arising out of, or in any way related to, or by reason
of (A) any investigation, litigation or other proceeding (whether or not any
Lender is a party thereto) related to the entering into and/or performance of
any Credit Document or the use of proceeds of any Loans (including other
extensions of credit) hereunder or the consummation of any other transactions
contemplated in any Credit Document, including, without limitation, the
reasonable fees and disbursements of counsel incurred in connection with any
such investigation, litigation or other proceeding (other than investigations,
litigation or other proceedings relating solely to claims between or among the
Lenders) or (B) the presence or Release of any Materials of Environmental
Concern at, under or from any Property owned, operated or leased by the Borrower
or any of its Subsidiaries, or the failure by the Borrower or any of its
Subsidiaries to comply with any Environmental Law (but excluding, in the case of
either of clause (A) or (B) above, any such losses, liabilities, claims, damages
or expenses to the extent incurred by reason of gross negligence or willful
misconduct on the part of the Person to be indemnified).
9.6 AMENDMENTS, WAIVERS AND CONSENTS.
--------------------------------
Neither this Credit Agreement nor any other Credit Document not any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
-------- -------
(a) no such amendment, change, waiver, discharge or termination
shall, without the consent of each Lender directly affected thereby, (i)
reduce the rate or extend the time of payment of interest (other than as a
result of waiving the applicability of any post-default increase in
interest rates) on any Loan or the Commitment Fee or the Letter of Credit
Fee hereunder, (ii) extend (A) the Commitments of the Lenders, or (B) the
final maturity of any Loan, or (iii) reduce the principal amount on any
Loan;
(b) no such amendment, change, waiver, discharge or termination
shall, without the consent of each Lender affected thereby, (i) increase
the Commitments of the Lenders over the amount thereof in effect (it being
understood and agreed that a waiver of any Default
38
<PAGE>
or Event of Default or of a mandatory reduction in the total commitments
shall not constitute a change in the terms of any Commitment of any
Lender), (ii) except as the result of or in connection with a release of
collateral as provided in Section 3.16 or with a dissolution, merger or
disposition permitted under Section 8.4 of the Incorporated Covenants,
release all or substantially all of the collateral pledged to secure the
Obligations hereunder or release all or substantially all of the Guarantors
from the guaranty obligations hereunder, (iii) amend, modify or waive any
provision of this Section 11.6 or Section 3.6, 3.10, 3.11, 3.12, 3.13,
3.16, Section 4, 7.1(a), 9.3, 9.5 or 9.9. (iv) reduce any percentage
specified in, or otherwise modify, the definition of "Required Lenders," or
(v) consent to the assignment or transfer by the Borrower (or any
Guarantor) of any of its rights and obligations under (or in respect of)
the Credit Documents to which it is a party; and
(c) no provision of Section 8 may be amended without the consent of
the Administrative Agent.
9.7 COUNTERPARTS.
------------
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart.
9.8 HEADINGS.
--------
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
9.9 SURVIVAL.
--------
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.9, 3.11 or 7.8(c) of the Incorporated Covenants, 8.7 or 9.5 shall
survive the execution and delivery of this Credit Agreement, the making of the
Loans, the issuance of the Letters of Credit, the repayment of the Loans and
other obligations under the Credit Documents and the termination of the
Commitments hereunder, and all representations and warranties made by the Credit
Parties herein shall survive delivery of the Notes and the making of the Loans
hereunder.
9.10 GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE.
------------------------------------------------
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. Any legal action or proceeding with respect to this Credit Agreement
or any other Credit Document may be brought in the courts of the State of North
Carolina in Mecklenburg County, or of the United States for the Western District
of North Carolina, and, by execution and delivery of this Credit Agreement, each
of the Credit Parties hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the nonexclusive jurisdiction of
such courts. Each of the Credit Parties further irrevocably
39
<PAGE>
consents to the service of process out of any of the aforementioned courts in
any such action or proceeding by the mailing of copies thereof by registered or
certified mail, postage prepaid, to it at the address set out for notices
pursuant to Section 9.1, such service to become effective three (3) days after
such mailing. Nothing herein shall affect the right of the Administrative Agent
to serve process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against any Credit Parry in any other
jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement or any other Credit Document brought in the courts referred to
in subsection (a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE AGENT, THE
LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
9.11 SEVERABILITY.
------------
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully serverable and
the remaining provisions shall remain in full force and effect and shall be
constructed without giving effect to the illegal, invalid or unenforceable
provisions.
9.12 ENTIRETY.
--------
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to he Credit Documents or the transactions
contemplated herein and therein.
9.13 BINDING EFFECT: TERMINATION.
---------------------------
(a) This Credit Agreement shall become effective at such time on or after
the Closing Date when it shall have been executed by the Borrower, the
Guarantors and the Administrative Agent, and the Administrative Agent shall have
received copies hereof (telefaxed or otherwise) which, when taken together, bear
the signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors, the
Administrative Agent and each Lender and their respective successors and
assigns.
(b) The term of this Credit Agreement shall be until no Loans, or any
other amounts payable hereunder or under any of the other Credit Documents shall
remain outstanding and until all of the Commitments hereunder shall have expired
or been terminated.
40
<PAGE>
9.14 CONFIDENTIALITY.
---------------
The Administrative Agent and the Lenders agree to keep Confidential (and to
cause their respective affiliates, officers, directors, employees,
Administrative Agents and representatives to keep confidential) all information,
materials and documents furnished to the Administrative Agent or any such Lender
by or on behalf of any Credit Party (whether before or after the Closing Date)
which relates to the Company, the Borrower or any of their Subsidiaries (the
"Information"). Notwithstanding the foregoing, the Administrative Agent and each
-----------
Lender shall be permitted to disclose Information (i) to its affiliates,
officers, directors, employees, Administrative Agents and representatives in
connection with its participation in any of the transactions evidenced by this
Credit Agreement or any other Credit Documents or the administration of this
Credit Agreement or any other Credit Documents; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any Governmental Authority; (iii) to the extent such Information
(A) becomes publicly available other than as a result of a breach of this Credit
Agreement or any agreement entered into pursuant to clause (iv) below, (B)
becomes available to the Administrative Agent or such Lender on a non-
confidential basis from a source other than a Credit Party or (C) was available
to the Administrative Agent or such Lender on a non-confidential basis prior to
its disclosure to the Administrative Agent or such Lender by a Credit Party;
(iv) to any assignee or participant (or prospective assignee or participant) so
long as such assignee or participant (or prospective assignee or participant)
first specifically agrees in a writing furnished to and for the benefit of the
Credit Parties to be bound by the terms of this Section 9.14; or (v) to the
extent that the Borrower shall have consented in writing to such disclosure.
Nothing set forth in this Section 9.14 shall obligate the Administrative Agent
or any Lender to return any materials furnished by the Credit Parties.
9.15 SOURCE OF FUNDS.
---------------
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any
separate account maintained by such Lender in which any employee benefit
plan (or its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets of
an insurance company's general account, such insurance company has complied
with all of the requirements of the regulations issued under Section
401(c)(l)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit
plans which such Lender has identified in writing to the Borrower.
41
<PAGE>
As used in this Section 9.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
9.16 CONFLICT.
--------
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
42
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: AMERISOURCE CORPORATION,
- - ---------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- - ----------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer and Asst. Secretary
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By: /s/ Teresa T. Ciccotelli
---------------------------------
Name: Teresa T. Ciccotelli
Title: Vice President
LENDERS: NATIONSBANK, N.A.,
- - -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_________________________________
Name:
Title:
CORESTATES BANK, N.A.
By:_________________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
- - -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By: /s/ SCOTT S. WARD
---------------------------------
Name: SCOTT S. WARD
Title: SENIOR VICE PRESIDENT
BANKERS TRUST COMPANY
By:_________________________________
Name:
Title:
CORESTATES BANK, N.A.
By:_________________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
- - -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_________________________________
Name:
Title:
BANKERS TRUST COMPANY
By: /s/ Fredric W. Thomas Sr.
---------------------------------
Name: Fredric W. Thomas Sr.
Title: V.P.
CORESTATES BANK, N.A.
By:_________________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_________________________________
Name:
Title:
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_________________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A,
- - -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_________________________________
Name:
Title:
BANKERS TRUST COMPANY
By:_________________________________
Name:
Title:
CORESTATES BANK, N.A.
By: /s/ Carol A. Williams
---------------------------------
Name: Carol A. Williams
Title: Senior Vice President
<PAGE>
SCHEDULE 2.1 (A)
----------------
Schedule of Lenders and Commitments
<TABLE>
<CAPTION>
REVOLVING
REVOlVING COMMITMENT
LENDER COMMITTED AMOUNT PERCENTAGE
------ ---------------- ----------
<S> <C> <C>
NationsBank, N.A. $ 33,333,334.00 33.333333%
101 North Tryon Street
15th Floor, Agency Services
NC1-001-15-04
Charlotte, NC 28255
Tel: (704) 386-9371
Fax: (704) 386-9923
Bankers Trust Company $ 33,333,333.00 33.333333%
14 Wall Street, 3rd Floor
New York, NY 10005
Tel: (212) 618-2615
Fax: (212) 618-2640
CoreStates Bank, N.A. $ 33,333,333.00 33.333333%
FC 1-8-3-8
1345 Chestnut Street
PO Box 7618
Philadelphia, PA 19101-7618
Tel: (215) 973-2315
Fax: (215) 973-6745
--------------- -----------
$100,000,000.00 100.000000%
</TABLE>
<PAGE>
SCHEDULE 2.1(B)(I)
------------------
FORM OF NOTICE OF BORROWING
NationsBank, N.A,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NCl-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of November 10, 1997 (as amended and
modified, the "Credit Agreement") among AmeriSource Corporation, the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, AMERISOURCE CORPORATI0N, a Delaware corporation, being the
Borrower under the above-referenced Credit Agreement hereby gives notice
pursuant to Section 2.1(b) of the Credit Agreement of a request for a Revolving
Loan as follows
(A) Date of Borrowing
(which is a Business Day) _____________________
(B) Principal Amount of
Borrowing _____________________
(C) Interest rate basis _____________________
(D) Interest Period and the
last day thereof _____________________
In accordance with the requirements of Section 5.3 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly relate to an earlier date).
<PAGE>
(b) No Default or Event of Default exits, or will exist after giving
effect to the requested Extension of Credit.
(c) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Incorporated Representations of the Credit Agreement which would have a Material
Adverse Effect.
(d) All conditions set forth in Section 2.1 as to the making of
Revolving Loans have been satisfied.
Very truly yours,
AMERISOURCE CORPORATION
By:_________________________
Name:
Title:
<PAGE>
SCHEDULE 2.1(E)
---------------
FORM OF REVOLVING NOTE
November 10, 1997
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay
to the order of ___________________, and its successors and assigns, on or
before the Termination Date to the office of the Administrative Agent in
immediately available funds as provided in the Credit Agreement, the principal
amount of such Lender's Revolving Committed Amount or, if less, the aggregate
unpaid principal amount of all Revolving Loans made by such Lender to the
undersigned Borrower; together with interest thereon at the rates and as
provided in the Credit Agreement.
This Note is one of the Revolving Notes referred to in the Credit Agreement
dated as of November 10, 1997 (as amended and modified, the "Credit Agreement
----------------
among AmeriSource Corporation, a Delaware corporation, AmeriSource Health
Corporation, a Delaware corporation, the Guarantors and Lenders identified
therein and NationsBank, N.A., as Administrative Agent. Terms used but not
otherwise defined herein shall have the meanings provided in the Credit
Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
AMERISOURCE CORPORATION,
a Delaware corporation
By:____________________________
Name:
Title:
<PAGE>
SCHEDULE 3.2
------------
FORM OF NOTICE OF EXTENSION/CONVERSION
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NCI-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of November 10, 1997 (as amended and
modified, the "Credit Agreement") among AmeriSource Corporation, the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, AMERISOURCE CORPORATION (the "Borrower"), refers to the
--------
Credit Agreement dated as of November 10, 1997 (as amended, modified, extended
or restated from time to time, the "Credit Agreement"), among the Borrower, the
----------------
Lenders and NationsBank, N.A., as Administrative Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Borrower hereby gives notice pursuant to
Section 3.2 of the Credit Agreement that it requests an extension or conversion
of a Revolving Loan outstanding under the Credit Agreement, and in connection
therewith sets forth below the terms on which such extension or conversion is
requested to be made:
(A) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) __________________________
(B) Principal Amount of
Extension or Conversion __________________________
(C) Interest rate basis __________________________
(D) Interest Period and the
last day thereof __________________________
In accordance with the requirements of Section 5.3 of the Credit Agreement,
the undersigned Borrower hereby certifies that:
<PAGE>
(a) The representations and warranties contained in the Credit Agreement
and the other Credit Documents are true and correct in all material respects as
of the date of this request, and will be true and correct after giving effect to
the requested Extension of Credit (except for those which expressly relate to an
earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) No circumstances, events or conditions have occurred since the date of
the audited financial statements referenced in Section 6.1 of the Incorporated
Representations of the Credit Agreement which would have a Material Adverse
Effect.
Very truly yours,
AMERISOURCE CORPORATION
By: ____________________________
Name:
Title:
<PAGE>
SCHEDULE 5.1(G)(V)
-------------------
SECRETARY'S CERTIFICATE
Pursuant to Section 5.1(g)(v) of the Credit Agreement (the "Credit
------
Agreement"), dated as of November 10, 1997, among AMERISOURCE CORPORATION, a
- - ---------
Delaware corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent, the undersigned ________________
Secretary of __________________________ (the "Corporation") hereby certifies as
-----------
follows:
1. Attached hereto as Annex I is a true and complete copy of resolutions
duly adopted by the Board of Directors of the Corporation on _____________,
1996. The attached resolutions have not been rescinded or modified and remain in
full force and effect. The attached resolutions are the only corporate
proceedings of the Corporation now in force relating to or affecting the
matters referenced to therein.
2. Attached hereto as Annex II is true and completed copy of the By-laws
of the Corporation as in effect on the date hereof.
3. Attached hereto as Annex III is a true and complete copy of the
Certificate of Incorporation of the Corporation and all amendments thereto as in
effect on the date hereof.
4. The following persons are now duly elected and qualified officers of
the Corporation, holding the offices indicated, and the signature appearing
opposite his name below is his true and genuine signature, and such officer is
duly authorized to execute and deliver on behalf of the Corporation the Credit
Agreement, the Notes to be issued pursuant thereto and the other Credit
Documents and to act as a Responsible Officer on behalf of the Corporation under
the Credit Agreement.
Name Office Signature
- - ---- ------ ---------
___________________
IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and
affixed the corporate seal of the Corporation.
_______________________________,
Secretary
(CORPORATE SEAL)
Date: _____________, 1997
I, ____________, ________________ of _________________, hereby certify that
__________________, whose genuine signature appears above, is, and has been at
all times since ___________________, a duly elected, qualified and acting
__________ of ________________________.
_____________________________ of
_____________________________
_______________________, 1997
<PAGE>
SCHEDULE 5.1(G)(VI)(A)
----------------------
SOLVENCY CERTIFICATE
SOLVENCY CERTIFICATE
Pursuant to Section 5.1(g)(vi) of the Credit Agreement (the "Credit
------
Agreement;" terms used but not otherwise defined herein shall have the meanings
- - ---------
provided in the Credit Agreement), dated as of November 10, 1997, among
AMERISOURCE CORPORATION, a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent, the
undersigned ________________ of AMERISOURCE CORPORATION, a Delaware corporation
(the "Corporation"), hereby certifies:
-----------
1. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, are able to pay their debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business.
2. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, do not intend to, and do not believe that they will,
incur debts or liabilities beyond their ability to pay as such debts and
liabilities mature in their ordinary course.
3. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, are not engaged in any business or transaction, and are
not about to engage in any business or transaction, for which the Property
of the Corporation and its Subsidiaries, on a consolidated basis, would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which Corporation and its
Subsidiaries are engaged or are to engage.
4. As of the date hereof, the present fair saleable value of the
consolidated assets of the Corporation and its Subsidiaries is not less
than the amount that will be required to pay the probable liability on the
debts of the Corporation and its Subsidiaries, on a consolidated basis, as
they become absolute and matured.
This the ____ day of November, 1997.
AMERISOURCE CORPORATION,
a Delaware corporation
By:_____________________
Name:
Title:
<PAGE>
SCHEDULE 5.1(G)(vi)(B)
----------------------
SOLVENCY CERTIFICATE
Pursuant to Section 5.1(g)(vi) of the Credit Agreement (the "Credit
------
Agreement," terms used but not otherwise defined herein shall have the meanings
- - ---------
provided in the Credit Agreement), dated as of November 10, 1997, among
AMERISOURCE CORPORATION, a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent, the
undersigned _____________________ of AMERISOURCE HEALTH CORPORATION, a Delaware
corporation, hereby certifies:
1. As of the date hereof, the Credit Parties, on a consolidated basis,
are able to pay their debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business.
2. As of the date hereof, the Credit Parties, on a consolidated basis, do
not intend to, and do not believe that they will, incur debts or
liabilities beyond their ability to pay as such debts and liabilities
mature in their ordinary course.
3. As of the date hereof, the Credit Parties, on a consolidated basis,
are not engaged in any business or transaction, and are not about to engage
in any business or transaction, for which the Property of the Credit
Parties, on a consolidated basis, would contitute unreasonable small
capital after giving due consideration to the prevailing practice in the
industry in which Credit Parties are engaged or are to engage.
4. As of the date hereof, the present fair saleable value of the
consolidated assets of the Credit Parties is not less than the amount that
will be required to pay the probable liability on the debts of the Credit
Parties, on a consolidated basis, as they become absolute and matured.
This the ____ day of November, 1997.
AMERISOURCE HEALTH CORPORATION,
a Delaware corporation
By: _____________________________
Name:
Title:
<PAGE>
SCHEDULE 8.10(A)
----------------
SECURITIZATION INTERCREDITOR AGREEMENT
<PAGE>
SCHEDULE 8.10(B)
----------------
LIQUIDITY INTERCREDITOR AGREEMENT
<PAGE>
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT dated as of November 10, 1997 (this "Agreement")
---------
is by and among NATIONSBANK, N.A., as Administrative Agent for and on behalf of
the Lenders under the Existing Credit Agreement, NATIONSBANK, N.A., as
Administrative Agent for and on behalf of the Lenders under the Liquidity Credit
Agreement, and AMERISOURCE CORPORATION, a Delaware corporation, and certain
Subsidiaries and Affiliates identified on the signature pages hereto.
WITNESSETH
WHEREAS, a $500 million revolving credit facility (the "Existing Facility")
-----------------
has been extended to AmeriSource Corporation, a Delaware corporation (the
"Borrower") pursuant to the terms of that Credit Agreement dated as of January
--------
8, 1997 (as amended and modified, the "Existing Credit Agreement") among the
-------------------------
Borrower, the Guarantors and Lenders identified therein and NationsBank, N.A.,
as Administrative Agent:
WHEREAS, a $100 million revolving credit facility (the "Liquidity
---------
Facility") has been extended to the Borrower pursuant to the terms of that
- - --------
Credit Agreement dated as of November 10, 1997 (as amended and modified, the
"Liquidity Credit Agreement") among the Borrower, the Guarantors and Lenders
--------------------------
identified therein and NationsBank, N.A., as Administrative Agent;
WHEREAS, it is a condition to the establishment of the Liquidity
Facility that such facility be secured by and share in the same collateral
securing the Existing Facility on a pari passu basis pursuant to the terms set
out in this Agreement;
WHEREAS, the Lenders under each of the respective Credit Facilities have
authorized and directed their respective Administrative Agent to enter into
this Agreement for and on their behalf;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. Unless otherwise defined herein, terms shall have the
-----------
meanings provided in the Liquidity Credit Agreement and in the Liquidity Credit
Documents.
"Commitments" means such term as defined under the Existing Credit
-----------
Agreement and/or the Liquidity Credit Agreement, as appropriate.
"Existing Agent" means NationsBank, N.A., in its capacity as
--------------
Administrative Agent for the Lenders under the Existing Credit Agreement,
and its successors and assigns in such capacity.
<PAGE>
"Existing Credit Agreement" shall have the meaning provided in the
-------------------------
Recitals.
"Existing Credit Documents" means the Credit Documents under the
-------------------------
Existing Credit Agreement, including the Existing Credit Agreement.
"Existing Facility" shall have the meaning provided in the Recitals.
-----------------
"Existing Lenders" means the Lenders under the Existing Credit
----------------
Agreement.
"Facility" or "Facilities" means the Existing Facility and/or the
-------- ----------
Liquidity Facility, as appropriate.
"Lenders" means the Existing Lenders and the Liquidity Lenders,
-------
collectively or individually, as appropriate.
"Liquidity Agent" means NationsBank, N.A., in its capacity as
---------------
Administrative Agent for the Lenders under the Liquidity Credit Agreement,
and its successors and assigns in such capacity.
"Liquidity Credit Agreement" shall have the meaning provided in the
--------------------------
Recitals.
"Liquidity Credit Documents" means the Credit Documents under the
--------------------------
Liquidity Credit Agreement, including the Liquidity Credit Agreement.
"Liquidity Facility" shall have the meaning provided in the Recitals.
------------------
"Liquidity Lenders" means the Lenders under the Liquidity Credit
-----------------
Agreement.
"Obligations" means such term as defined under the Existing Credit
-----------
Agreement and/or the Liquidity Credit Agreement, as appropriate.
"pari passu" means, with respect to any Administrative Agent or
----------
any Lender, or any lien or security interest in favor of such
Administrative Agent or Lender, that the obligations held by such
Administrative Agent or Lender or secured by such lien or security
interest are of equal dignity and priority with the interest of each other
Administrative Agent or Lender or the interest secured by any other lien
or security interest.
2. Collateral
----------
(a) Under the Security Agreement. The Borrower and the Guarantors
----------------------------
have pledged and granted security interests to the Administrative Agent in
inventory, accounts and certain other personal property pursuant to the terms of
the respective Security Agreements as more particularly described therein. The
collateral pledged and security interests granted are the same for each of the
respective Facilities.
2
<PAGE>
(b) Under the Pledge Agreement. The Borrower and certain of the
--------------------------
Guarantors have pledged and granted security interests to the Administrative
Agent in capital stock of the Borrower and certain Subsidiaries and Affiliates
pursuant to the terms of the respective Pledge Agreements as more particularly
described therein. The shares and interests pledged are the same for each of the
respective Facilities.
(c) NationsBank, N.A. as Collateral Agent and Bailee. The Existing
------------------------------------------------
Facility was established prior to establishment of the Liquidity Facility and
the collateral was pledged to and security interests were granted in favor of
the Existing Agent at such time. By execution hereof, it is acknowledged and
agreed that the Existing Agent shall act as administrative agent, collateral
agent and bailee for the Lenders under the Liquidity Facility, as well as for
the Lenders under the Existing Facility, for purposes of perfecting security
interests in and otherwise dealing with the collateral (and specifically, the
Existing Agent shall hold and possess the shares pledged pursuant to the Pledge
Agreement relating to the Liquidity Facility as bailee for purposes of
perfecting the pledge and security interest therein and references to
"NationsBank, N.A., as Administrative Agent for the Lenders" as the secured
party in the UCC financing statements recorded in connection with the
establishment of the Existing Facility shall be deemed to include the Lenders
under the Liquidity Facility as well as the Existing Facility).
3. Priority of Liens and Security Interests. Notwithstanding anything
----------------------------------------
to the contrary contained in any of the documents or agreements evidencing or
relating to either of the Facilities, or any other document relating thereto and
irrespective of the time, order or method of attachment, perfection, filing or
recording of any lien or security interest in favor of any Administrative Agent
or Lender, any provision of or filing or recording under the Uniform
Commercial Code or other applicable law, it is acknowledged and agreed that at
all times, whether before, during or after the commencement of bankruptcy,
reorganization or other insolvency proceeding, the liens and security interests
securing the Existing Facility and the Liquidity Facility, and payments in
respect thereof, shall rank pari passu with one another; provided, however,
---- ----- --------
notwithstanding the applicable provisions of the respective Pledge Agreements
and Security Agreements, the Lenders under the Existing Facility and the Lenders
under the Liquidity Facility shall share pro rata, any proceeds in respect
thereof based on the outstanding Obligations of each Facility. In furtherance
thereof, neither Administrative Agent will take or cause to be taken any action,
including commencement of any legal or equitable proceedings, the effect of
which is or could be to give its Facility a preference or priority therein over
the other Facility.
4. Amendments. This Agreement shall not amended or modified, nor shall
----------
waivers or consents be granted hereunder, except with the written consent of the
Administrative Agent for the Lenders under the Existing Facility at the
direction of the Required Lenders thereunder, the Administrative Agent for the
Lenders under the Liquidity Facility at the direction of the Required Lenders
thereunder and the Borrower.
5. Notices. Except as otherwise expressly provided herein, all notices
-------
and other communications shall have been duly given and shall be effective (i)
when delivered, (ii) when
3
<PAGE>
transmitted via telecopy (or other facsimile device) to the number set out
below, (iii) the day following the day on which the same has been delivered
prepaid to a reputable national overnight air courier service, or (iv) the third
Business Day following the day on which the same is sent by certified or
registered mail, postage prepaid, in each case to the respective parties at the
address set forth below or at such other address as such party may specify by
written notice to the other parties hereto:
if to the Borrower or the Guarantors:
AMERISOURCE CORPORATION
300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attn: John A. Aberant
Telephone: (610) 296-4480
Telecopy: (610) 993-9085
if to the Administrative Agent under either the Existing Facility or
the Liquidity Facility:
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NCI-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-9371
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N.A.
NationsBank Healthcare Finance Group
100 N. Tryon Street
NationsBank Corporate Center, Eighth Floor
Charlotte, North Carolina 28255
Attn: Scott S. Ward
Telephone: (704) 388-7839
Telecopy: (704) 388-6002
6. Conflict. In the event of a conflict or inconsistency between the
--------
provisions hereof, on the one hand, and the provisions of any of the Credit
Documents relating to either Facility, on the other hand, the terms of this
Agreement shall control.
7. Successors and Assigns. This Agreement shall be binding upon and shall
----------------------
inure to the benefit of the parties hereto and their successors and assigns.
4
<PAGE>
8. Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which when so executed and delivered shall be an original,
but all of which shall constitute one and the same instrument. It shall not be
necessary in making proof of this Agreement to produce or account for more than
one such counterpart.
9. Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of North Carolina.
[Remainder of Page Intentionally Left Blank]
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Agreement to be duly executed and delivered as of the date first above
written.
NATIONSBANK, N.A., as Administrative Agent for
the Lenders under the Existing Facility
By:_________________________________
Name:
Title:
NATIONSBANK, N.A., as Administrative Agent for
the Lenders under the Liquidity Facility
By:_________________________________
Name:
Title:
BORROWER: AMERISOURCE CORPORATION,
- - ---------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- - ----------
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: V.P., Treasurer
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
<PAGE>
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer and Asst. Secretary
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By: /s/ John A. Aberant
---------------------------------
Name: John A. Aberant
Title: Asst. Treasurer
SKYLAND HOSPITAL SUPPLY, INC.,
A Tennessee corporation
By: /s/ Teresa T. Ciccotelli
---------------------------------
Name: Teresa T. Ciccotelli
Title: Vice President
<PAGE>
SCHEDULE 9.3(B)
---------------
FORM OF ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE dated as of _______________, 199_ is entered
into between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS THE "ASSIGNOR" (the
"Assignor") and THE PARTIES IDENTIFIED ON THE SIGNATURE PAGES AS "ASSIGNEES"
--------
("Assignee").
--------
Reference is made to that Credit Agreement dated as of November 10, 1997
(as amended and modified, the "Credit Agreement") among AMERISOURCE CORPORATION,
----------------
a Delaware corporation (the "Borrower"), the Guarantors and Lenders identified
--------
therein and NationsBank, N.A., as Administrative Agent. Terms defined in the
Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignees, and the Assignees hereby purchase and assume, without recourse, from
the Assignor, effective as of the Effective Date shown below, those rights and
interests of the Assignor under the Credit Agreement identified below (the
"Assigned Interests"), including the Obligations and Commitments relating
------------------
thereto, together with unpaid interest and fees relating thereto accruing from
the Effective Date. The Assignor represents and warrants that it owns the
interests assigned hereby free and clear of liens, encumbrances or other claims.
Each of the Assignees represents that it is an Eligible Assignee within the
meaning of the term in the Credit Agreement. The Assignor and each of the
Assignees hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 9.3 of the Credit Agreement, a
copy of which has been received by each such party. From and after the Effective
Date (i) each Assignee, if it is not already a Lender under the Credit
Agreement, shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (ii) each
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement (other than the rights of indemnification referenced in Section
9.9 of the Credit Agreement).
2. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of North Carolina.
3. Terms of Assignment
(a) Date of Assignment: _____________, 199_
(b) Legal Name of Assignor: SEE SIGNATURE PAGE
<PAGE>
(c) Legal Name of Assignee: SEE SIGNATURE PAGE
(d) Effective Date of Assignment: ____________, 199_
See Schedule I attached for a description of the Loans and Obligations and
----------
Commitments (and the percentage interests therein and relating thereto) which
are the subject of this Assignment and Acceptance.
4. The fee payable to the Paying Agent in connection with this Assignment
is enclosed.
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
instrument by their duly authorized officers as of the date first above written.
ASSIGNOR: ASSIGNEE:
- - -------- --------
By____________________ By_______________________
Name: Name:
Title: Title:
ACKNOWLEDGMENT AND CONSENT
- - --------------------------
NATIONSBANK, N.A. AMERISOURCE CORPORATION
as Administrative Agent
By____________________ By_______________________
Name: Name:
Title: Title:
<PAGE>
SCHEDULE 1
----------
TO ASSIGNMENT AND ACCEPTANCE
AMERISOURCE CORPORATION
REVOLVING LOANS AND LETTERS OF CREDIT PRIOR TO ASSIGNMENT
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
------ ---------- -----------
ASSIGNOR
- - --------
ASSIGNEES
- - ---------
_________ _________ _________
$ $
REVOLVING LOANS AND LETTERS OF CREDIT INTERESTS SUBJECT TO THIS ASSIGNMENT
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
------ ---------- -----------
ASSIGNOR
- - --------
_________ _________ _________
$ $
<PAGE>
Exhibit 4.17
AMENDMENT NO. 4
THIS AMENDMENT NO. 4, dated as of November __, 1998 (the "Amendment")
---------
relating to the Credit Agreement referenced below, by and among AMERISOURCE
CORPORATION, a Delaware corporation, certain subsidiaries and affiliates party
to the Credit Agreement and identified on the signature pages hereto, and
NATIONSBANK, N.A., as Administrative Agent for and on behalf of the Lenders.
Terms used but not otherwise defined shall have the meanings provided in the
Credit Agreement.
W I T N E S S E T H
WHEREAS, a $500 million credit facility has been extended to AmeriSource
Corporation pursuant to the terms of that Credit Agreement dated as of January
8, 1997 (as amended and modified, the "Credit Agreement") among AmeriSource
----------------
Corporation, the Guarantors and Lenders identified therein, and NationsBank,
N.A., as Administrative Agent;
WHEREAS, the Company has requested certain modifications to the Credit
Agreement which require the consent of the Required Lenders; and
WHEREAS, the Required Lenders have consented to the requested modifications
on the terms and conditions set forth herein and have authorized the
Administrative Agent to enter into this Amendment on their behalf to give effect
to this Amendment;
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. The Credit Agreement is amended and modified in the following respects:
1.1. The definition of "Consolidated EBITDA" in Section 1.1 shall be
amended to add at the end of the first sentence therein, the following:
", and excluding for purposes hereof a special charge to earnings taken in the
---------
fourth fiscal quarter of 1998 of up to $20 million in connection with the
terminated merger with McKesson Corp."
1.2. In the definition of "Permitted Investments" in Section 1.1, clause
(xx) is renumbered as (xxi) and a new clause (xx) is added to read as follows:
", (xx) Investments in and to joint ventures of up to $25 million (on a cost
basis) in the aggregate at any time where the Borrower, directly or indirectly,
owns at least fifty percent (50%) in voting equity interests;"
<PAGE>
1.3. In Section 8.1, subsection (j) shall be amended to read as follows:
(j) other senior secured Indebtedness of the Borrower in an aggregate
principal amount of up to $100,000,000 with a maturity date not later than March
31, 1999 incurred pursuant to that Credit Agreement among the Borrower, the
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent (as amended and modified, the "Liquidity Facility"); and
------------------
1.4 Clause (A) of Section 8.4(d) is amended to read as follows:
(A) the aggregate cost of all such acquisitions referred to in subsection
(d)(i) or (d)(ii) shall not exceed:
(i) in the case of cash paid, property given and Indebtedness assumed,
total consideration (including the fair value of property given and Indebtedness
assumed in connection therewith) shall not exceed an amount equal to the sum of
$175,000,000 plus an amount equal to 75% of cumulative Consolidated Excess Cash
----
Flow from the Closing Date plus the amount of Net Proceeds from Equity
----
Transactions received after the Closing Date, provided that any such acquisition
--------
in excess of $75,000,000 (other than the Prospective Acquisition) shall require
the consent of the Required Lenders hereunder; and
(ii) in the case of issuance or exchange of capital stock or other
equity interests in the Company, total consideration (based on the fair value of
such equity interests in the Company) shall not exceed $100,000,000 in the
aggregate from the date of Amendment No. 4 (being November __, 1998);
1.5 In Section 8.7, the "and" immediately preceding clause (iii) is
deleted and a new clause (iv) is added to read as follows:
and (iv) issuance, transfer or sale of Equity Interests in joint
ventures permitted hereunder.
2. The Lenders acknowledge that the reference to the "Liquidity Facility" in
the Intercreditor Agreement dated as of November 10, 1997 (as amended and
modified, the "Intercreditor Agreement") among NationsBank, N.A., as
-----------------------
Administrative Agent for the Lenders under the Credit Agreement referenced
herein, NationsBank, N.A., as Administrative Agent for the Lenders under the
Liquidity Facility, the Borrower and the subsidiaries and affiliates identified
therein, as approved by the Lenders pursuant to the terms of Amendment No. 3
dated November 7, 1997, shall include the Liquidity Facility permitted pursuant
to Section 8.1(i) and authorize and direct the Administrative Agent to enter
into any amendment thereto or otherwise take appropriate action to give effect
thereto.
2
<PAGE>
3. The Company and the Borrower hereby affirm that (i) the representations
and warranties set out in Section 6 of the Credit Agreement are true and correct
as of the date hereof (except those which expressly relate to an earlier period)
and (ii) no Default or Event of Default presently exists and is continuing.
4. Except as modified hereby, all of the terms and provisions of the Credit
Agreement (and Exhibits and Schedules) remain in full force and effect.
5. The Company agrees to pay all reasonable costs and expenses of the
Administrative Agent in connection with the preparation, execution and delivery
of this Amendment, including without limitation the reasonable fees and expenses
of Moore & Van Allen, PLLC.
6. This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original and it shall
not be necessary in making proof of this Amendment to produce or account for
more than one such counterpart.
5. This Amendment, and the Credit Agreement as amended hereby, shall be
governed by and construed and interpreted in accordance with the laws of the
State of North Carolina.
3
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Amendment to be duly executed and delivered as of the date first above
written.
BORROWER: AMERISOURCE CORPORATION,
- - -------- a Delaware corporation
By:_______________________________
Name:
Title:
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- - ---------- a Delaware corporation
By:_______________________________
Name:
Title:
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By:_______________________________
Name:
Title:
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By:_______________________________
Name:
Title:
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By:_______________________________
Name:
Title:
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_______________________________
Name:
Title:
4
<PAGE>
SKYLAND HOSPITAL SUPPLY, INC.,
a Tennessee corporation
By:_______________________________
Name:
Title:
ADMINISTRATIVE
AGENT: NATIONSBANK, N.A.,
- - ----- as Administrative Agent for and on behalf of the Lenders
By:_______________________________
Name:
Title:
5
<PAGE>
CONSENT TO AMENDMENT
NationsBank, N.A., as Administrative Agent
101 N. Tryon Street, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Carol Lindsay, Agency Services
Re: Credit Agreement dated as of January 8, 1997 (as amended and modified,
the "Credit Agreement") among AmeriSource Corporation, the Guarantors and
----------------
Lenders identified therein and NationsBank, N.A., as Administrative Agent. Terms
used but not otherwise defined shall have the meanings provided in the Credit
Agreement.
Amendment No. 4 dated November __, 1998 (the "Subject Amendment") relating to
-----------------
the Credit Agreement
Ladies and Gentlemen:
This should serve to confirm our receipt of, and consent to, the Subject
Amendment. We hereby authorize and direct you, as Administrative Agent for the
Lenders, to enter into the Subject Amendment on our behalf in accordance with
the terms of the Credit Agreement upon your receipt of such consent and
direction from the Required Lenders.
Sincerely,
_____________________________
[Name of Lender]
By:__________________________
Name:
Title:
6
<PAGE>
Exhibit 4.18
LIQUIDITY FACILITY CREDIT AGREEMENT
Dated as of December __, 1998
among
AMERISOURCE CORPORATION
as Borrower,
AMERISOURCE HEALTH CORPORATION
and Certain Subsidiaries and Affiliates,
as Guarantors,
THE LENDERS NAMED HEREIN
AND
NATIONSBANK, N.A.,
as Administrative Agent
<PAGE>
TABLE OF CONTENTS
SECTION 1 DEFINITIONS........................................................1
1.1 Definitions...........................................................1
1.2 Computation of Time Periods...........................................7
1.3 Accounting Terms......................................................7
SECTION 2 CREDIT FACILITIES..................................................8
2.1 Revolving Loans.......................................................8
SECTION 3 OTHER PROVISIONS RELATING TO CREDIT FACILITIES....................10
3.1 Default Rate.........................................................10
3.2 Extension and Conversion.............................................10
3.3 Voluntary Prepayments................................................11
3.4 Reductions in Commitments and Mandatory Prepayments..................11
3.5 Fees. ............................................................12
3.6 Capital Adequacy.....................................................12
3.7 Inability To Determine Interest Rate.................................13
3.8 Illegality...........................................................13
3.9 Requirements of Law..................................................14
3.10 Taxes. ............................................................15
3.11 Indemnity...........................................................17
3.12 Pro Rata Treatment..................................................18
3.13 Sharing of Payments.................................................18
3.14 Payments, Computations, Etc.........................................19
3.15 Evidence of Debt....................................................21
SECTION 4 GUARANTY..........................................................21
4.1 The Guarantee........................................................21
4.2 Obligations Unconditional............................................22
4.3 Reinstatement........................................................23
4.4 Certain Additional Waivers...........................................23
4.5 Remedies.............................................................23
4.6 Rights of Contribution...............................................24
4.7 Continuing Guarantee.................................................24
SECTION 5 CONDITIONS........................................................24
5.1 Conditions to Closing................................................25
5.2 Conditions to Effectiveness..........................................26
5.3 Conditions to All Extensions of Credit...............................26
SECTION 6 REPRESENTATIONS, WARRANTIES AND COVENANTS.........................27
6.1 Incorporation........................................................27
6.2 Additional Representations...........................................28
6.3 Additional Covenants.................................................28
<PAGE>
SECTION 7 EVENTS OF DEFAULT.................................................29
7.1 Events of Default....................................................29
7.2 Acceleration; Remedies...............................................31
SECTION 8 AGENCY PROVISIONS.................................................32
8.1 Appointment..........................................................32
8.2 Delegation of Duties.................................................32
8.3 Exculpatory Provisions...............................................32
8.4 Reliance on Communications...........................................33
8.5 Notice of Default....................................................33
8.6 Non-Reliance on Administrative Agent and Other Lenders...............34
8.7 Indemnification......................................................34
8.8 Administrative Agent in its Individual Capacity......................35
8.9 Successor Administrative Agent.......................................35
8.10 Intercreditor Agreements............................................35
SECTION 9 MISCELLANEOUS.....................................................36
9.1 Notices..............................................................36
9.2 Right of Set-Off.....................................................37
9.3 Benefit of Agreement.................................................37
9.4 No Waiver; Remedies Cumulative.......................................40
9.5 Payment of Expenses, etc.............................................40
9.6 Amendments, Waivers and Consents.....................................41
9.7 Counterparts.........................................................41
9.8 Headings.............................................................42
9.9 Survival.............................................................42
9.10 Governing Law; Submission to Jurisdiction; Venue....................42
9.11 Severability........................................................43
9.12 Entirety............................................................43
9.13 Binding Effect; Termination.........................................43
9.14 Confidentiality.....................................................43
9.15 Source of Funds.....................................................44
9.16 Conflict............................................................44
ii
<PAGE>
SCHEDULES
Schedule 2.1(a) Schedule of Lenders and Commitments
Schedule 2.1(b)(i) Form of Notice of Borrowing
Schedule 2.1(e) Form of Revolving Note
Schedule 3.2 Form of Notice of Extension/Conversion
Schedule 5.1(g)(v) Form of Secretary's Certificate
Schedule 5.1(g)(vi)(A) Form of Solvency Certificate - AmeriSource Corporation
Schedule 5.1(g)(vi)(B) Form of Solvency Certificate - AmeriSource Health
Corporation
Schedule 8.10(a) Form of Securitization Intercreditor Agreement
Schedule 8.10(b) Form of Liquidity Intercreditor Agreement
Schedule 9.3(b) Form of Assignment and Acceptance
iii
<PAGE>
EXHIBIT 4.18
CREDIT AGREEMENT
THIS CREDIT AGREEMENT dated as of December __, 1998 (the "Credit
------
Agreement"), is by and among AMERISOURCE CORPORATION, a Delaware corporation
(the "Borrower"), AMERISOURCE HEALTH CORPORATION, a Delaware corporation (the
--------
"Company") and the subsidiaries and affiliates identified on the signature pages
- - --------
hereto and such other subsidiaries and affiliates as may from time to time
become Guarantors hereunder in accordance with the provisions hereof
(collectively with the Company, the "Guarantors"), the lenders named herein and
----------
such other lenders as may become a party hereto (the "Lenders"), and
-------
NATIONSBANK, N.A., as Administrative Agent (in such capacity, the
"Administrative Agent").
- - ---------------------
W I T N E S S E T H
WHEREAS, the Borrower has requested that the Lenders provide a $100 million
revolving liquidity facility for the purposes hereinafter set forth;
WHEREAS, the Lenders have agreed to make the requested credit facility
available to the Borrower on the terms and conditions hereinafter set forth;
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS
-----------
1.1 Definitions.
-----------
As used in this Credit Agreement, the following terms shall have the
meanings specified below unless the context otherwise requires, and provided
--------
that terms used but not otherwise defined shall have the meanings provided in
the Existing Credit Agreement:
"Additional Credit Party" means each Person that becomes a Guarantor
-----------------------
after the Closing Date by execution of a Joinder Agreement.
"Administrative Agent" shall have the meaning assigned to such term in
--------------------
the heading hereof, together with any successors or assigns.
"Administrative Agent's Fee Letter" means that certain letter
---------------------------------
agreement, dated as of December __, 1998, between the Administrative Agent
and the Borrower, as amended, modified, supplemented or replaced from time
to time.
"Administrative Agent's Fees" shall have the meaning assigned to such
---------------------------
term in Section 3.5(b).
1
<PAGE>
"Agents" means, collectively, NationsBank, N.A., as Administrative
------
Agent and [______________] as [_____________] Agent.
"Aggregate Revolving Committed Amount" means the aggregate amount of
------------------------------------
Revolving Commitments in effect from time to time, being initially ONE
HUNDRED MILLION DOLLARS ($100,000,000).
"Base Rate" means, for any day, the rate per annum (rounded upwards,
---------
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
----
or (b) the Prime Rate in effect on such day. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable after due inquiry to
ascertain the Federal Funds Rate for any reason, including the inability or
failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Base Rate shall be determined without
regard to clause (a) of the first sentence of this definition until the
circumstances giving rise to such inability no longer exist. Any change in
the Base Rate due to a change in the Prime Rate or the Federal Funds Rate
shall be effective on the effective date of such change in the Prime Rate
or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Loan bearing interest at a rate determined
--------------
by reference to the Base Rate.
"Borrower" means the Person identified as such in the heading hereof,
--------
together with any permitted successors and assigns.
"Borrowing Base" means, at any time, an amount equal to (i) seventy
--------------
percent (70%) of Eligible Inventory minus (ii) Obligations outstanding
under the Existing Credit Agreement.
"Business Day" means a day other than a Saturday, Sunday or other day
------------
on which commercial banks in Charlotte, North Carolina or Philadelphia,
Pennsylvania are authorized or required by law to close, except that, when
------ ----
used in connection with a Eurodollar Loan, such day shall also be a day on
which dealings between banks are carried on in U.S. dollar deposits in
London, England, Charlotte, North Carolina and New York, New York.
"Closing Date" means the date hereof.
------------
"Commitment" means the Revolving Commitment.
----------
"Commitment Fee" shall have the meaning given such term in Section
--------------
3.5(a).
"Commitment Percentage" means the Revolving Commitment Percentage.
---------------------
"Commitment Period" means the period from and including the Effective
-----------------
Date to but not including the earlier of (i) the Termination Date, or (ii)
the date on which the
2
<PAGE>
Revolving Commitments terminate in accordance with the provisions of this
Credit Agreement.
"Company" means AmeriSource Health Corporation, a Delaware
-------
corporation, as referenced in the opening paragraph, its successors and
permitted assigns.
"Credit Documents" means a collective reference to this Credit
----------------
Agreement, the Notes, the Security Agreement, the Pledge Agreement, each
Joinder Agreement, the Administrative Agent's Fee Letter, the Liquidity
Intercreditor Agreement and all other related agreements and documents
issued or delivered hereunder or thereunder or pursuant hereto or thereto.
"Credit Party" means any of the Borrower and the Guarantors.
------------
"Default" means any event, act or condition which with notice or lapse
-------
of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, at such time,
-----------------
(i) has failed to make an Extension of Credit required pursuant to the
terms of this Credit Agreement, (ii) has failed to pay to the
Administrative Agent or any Lender an amount owed by such Lender pursuant
to the terms of the Credit Agreement or any other of the Credit Documents,
or (iii) has been deemed insolvent or has become subject to a bankruptcy or
insolvency proceeding or to a receiver, trustee or similar proceeding.
"Dollars" and "$" means dollars in lawful currency of the United
------- -
States of America.
"Effective Date" means the date on or after the Closing Date on which
--------------
the conditions set out in Section 5.2 have been satisfied or waived.
"Eurodollar Loan" means any Loan bearing interest at a rate determined
---------------
by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
---------------
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant to
the following formula:
Eurodollar Rate = Interbank Offered Rate
---------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
-----------------------------
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is
3
<PAGE>
defined in Regulation D (or against any other category of liabilities that
includes deposits by reference to which the interest rate of Eurodollar
Loans is determined), whether or not Lender has any Eurocurrency
liabilities subject to such reserve requirement at that time. Eurodollar
Loans shall be deemed to constitute Eurocurrency liabilities and as such
shall be deemed subject to reserve requirements without benefits of credits
for proration, exceptions or offsets that may be available from time to
time to a Lender. The Eurodollar Rate shall be adjusted automatically on
and as of the effective date of any change in the Eurodollar Reserve
Percentage.
"Event of Default" means such term as defined in Section 7.1.
----------------
"Existing Credit Agreement" means that Credit Agreement dated as of
-------------------------
January 8, 1997 among the Borrower, the Company and the other Guarantors
identified therein, the Lenders identified therein and NationsBank, N.A.,
as Administrative Agent, as amended and modified.
"Extension of Credit" means, as to any Lender, the making of, or
-------------------
participation in, a Loan by such Lender.
"Fees" means all fees payable pursuant to Section 3.5.
----
"Federal Funds Rate" means, for any day, the rate of interest per
------------------
annum (rounded upwards, if necessary, to the nearest whole multiple of
1/100 of 1%) equal to the weighted average of the rates on overnight
Federal funds transactions with members of the Federal Reserve System
arranged by Federal funds brokers on such day, as published by the Federal
Reserve Bank of New York on the Business Day next succeeding such day,
provided that (A) if such day is not a Business Day, the Federal Funds Rate
--------
for such day shall be such rate on such transactions on the next preceding
Business Day and (B) if no such rate is so published on such next preceding
Business Day, the Federal Funds Rate for such day shall be the average rate
quoted to the Administrative Agent on such day on such transactions as
determined by the Administrative Agent.
"Guarantor" means the Company and each of those other Persons
---------
identified as a "Guarantor" on the signature pages hereto, and each
Additional Credit Party which may hereafter execute a Joinder Agreement,
together with their successors and permitted assigns.
"Guaranteed Obligations" means, as to each Guarantor, without
----------------------
duplication, (i) all obligations of the Borrower to the Lenders and the
Administrative Agent , whenever arising, under this Credit Agreement, the
Notes or the Credit Documents relating to the Obligations hereunder, and
(ii) all liabilities and obligations, whenever arising, owing from the
Borrower to any Lender, or any Affiliate of a Lender, arising under any
Hedging Agreement relating to Loans or Obligations hereunder.
"Incorporated Covenants" means such term as defined in Section 6.1.
----------------------
"Incorporated Representations" means such term as defined in Section
----------------------------
6.1.
4
<PAGE>
"Interbank Offered Rate" means, for the Interest Period for each
----------------------
Eurodollar Loan comprising part of the same borrowing (including
conversions, extensions and renewals), a per annum interest rate (rounded
upwards, if necessary, to the nearest whole multiple of 1/100 of 1%) equal
to the rate of interest, determined by the Administrative Agent on the
basis of the offered rates for deposits in dollars for a period of time
corresponding to such Interest Period (and commencing on the first day of
such Interest Period), appearing on Telerate Page 3750 (or, if, for any
reason, Telerate Page 3750 is not available, the Reuters Screen LIBO Page)
as of approximately 11:00 A.M. (London time) two (2) Business Days before
the first day of such Interest Period. As used herein, "Telerate Page
3750" means the display designated as page 3750 by Dow Jones Telerate, Inc.
(or such other page as may replace such page on that service for the
purpose of displaying the British Bankers Association London interbank
offered rates) and "Reuters Screen LIBO Page" means the display designated
as page "LIBO" on the Reuters Monitor Money Rates Service (or such other
page as may replace the LIBO page on that service for the purpose of
displaying London interbank offered rates of major banks).
"Interest Payment Date" means (i) as to any Base Rate Loan, the first
---------------------
day of each January, April, July and October, the date of repayment of
principal of such Loan and the Termination Date and (ii) as to any
Eurodollar Loan, the last day of each Interest Period for such Loan, the
date of repayment of principal of such Loan and on the Termination Date,
and in addition where the applicable Interest Period is more than 3 months,
then also on the date 3 months from the beginning of the Interest Period,
and each 3 months thereafter. If an Interest Payment Date falls on a date
which is not a Business Day, such Interest Payment Date shall be deemed to
be the next succeeding Business Day.
"Interest Period" means as to any Eurodollar Loan, a period of one,
---------------
two, or three month's duration, as the Borrower may elect, commencing in
each case, on the date of the borrowing (including conversions, extensions
and renewals); provided, however, (A) if any Interest Period would end on a
-------- -------
day which is not a Business Day, such Interest Period shall be extended to
the next succeeding Business Day (except that in the case of Eurodollar
Loans where the next succeeding Business Day falls in the next succeeding
calendar month, then on the next preceding Business Day), (B) no Interest
Period shall extend beyond the Termination Date, and (C) in the case of
Eurodollar Loans, where an Interest Period begins on a day for which there
is no numerically corresponding day in the calendar month in which the
Interest Period is to end, such Interest Period shall end on the last day
of such calendar month.
"Joinder Agreement" means a Joinder Agreement substantially in the
-----------------
form of Schedule 7.11-1 to the Existing Credit Agreement but relating to
---------------
this Credit Agreement and the obligations hereunder, executed and delivered
by an Additional Credit Party in accordance with the provisions of Section
6.3(b).
"Lenders" means each of the Persons identified as a "Lender" on the
-------
signature pages hereto, and their successors and assigns.
5
<PAGE>
"Liquidity Intercreditor Agreement" means the Intercreditor Agreement
---------------------------------
dated as of ____________ among NationsBank, N.A., as Administrative Agent
under the Existing Credit Agreement, NationsBank, N.A., as Administrative
Agent under this Credit Agreement, and the Credit Parties, as amended and
modified, as referenced in Section 8.10(b).
"Loan" or "Loans" means the Revolving Loans.
---- -----
"NationsBank" means NationsBank, N.A. and its successors.
-----------
"Non-Excluded Taxes" means such term as is defined in Section 3.10.
------------------
"Note" or "Notes" means any Revolving Note.
---- -----
"Notice of Borrowing" means a written notice of borrowing in
-------------------
substantially the form of Schedule 2.1(b)(i), as required by Section
------------------
2.1(b)(i).
"Notice of Extension/Conversion" means the written notice of extension
------------------------------
or conversion in substantially the form of Schedule 3.2, as required by
------------
Section 3.2.
"Obligations" means, the Revolving Loans.
-----------
"Participation Interest" means the purchase by a Lender of a
----------------------
participation in Loans as provided in Section 3.13.
"Pledge Agreement" means the Pledge Agreement dated as of the date
----------------
hereof entered into by the Credit Parties in favor of the Administrative
Agent for the benefit of the Lenders (and affiliates of Lenders as to
certain obligations under Hedge Agreements), as amended and modified.
"Prime Rate" means the rate of interest per annum publicly announced
----------
from time to time by NationsBank as its prime rate in effect at its
principal office in Charlotte, North Carolina, with each change in the
Prime Rate being effective on the date such change is publicly announced as
effective (it being understood and agreed that the Prime Rate is a
reference rate used by NationsBank in determining interest rates on certain
loans and is not intended to be the lowest rate of interest charged on any
extension of credit by NationsBank to any debtor).
"Register" shall have the meaning given such term in Section 9.3(c).
--------
"Required Lenders" means, at any time, Lenders having more than fifty
----------------
percent (50%) of the Commitments, or if the Commitments have been
terminated, Lenders having more than fifty percent (50%) of the aggregate
principal amount of the Obligations outstanding (taking into account in
each case Participation Interests or obligation to participate therein);
provided that the Commitments of, and outstanding principal amount of
--------
Obligations (taking into account Participation Interests therein)
6
<PAGE>
owing to, a Defaulting Lender shall be excluded for purposes hereof in
making a determination of Required Lenders.
"Revolving Commitment" means, with respect to each Lender, the
--------------------
commitment of such Lender to make Revolving Loans in an aggregate principal
amount at any time outstanding of up to such Lender's Commitment Percentage
of the Aggregate Revolving Committed Amount as specified in Schedule
--------
2.1(a), as such amount may be reduced from time to time in accordance with
the provisions hereof.
"Revolving Commitment Percentage" means, for each Lender, a fraction
-------------------------------
(expressed as a decimal) the numerator of which is the Revolving Commitment
of such Lender at such time and the denominator of which is the Aggregate
Revolving Committed Amount at such time. The initial Revolving Commitment
Percentages are set out on Schedule 2.1(a).
---------------
"Revolving Committed Amount" means, collectively, the aggregate amount
--------------------------
of all of the Revolving Commitments as referenced in Section 2.1(a) and,
individually, the amount of each Lender's Revolving Commitment as specified
in Schedule 2.1(a).
---------------
"Revolving Loans" shall have the meaning assigned to such term in
---------------
Section 2.1(a).
"Revolving Note" or "Revolving Notes" means the promissory notes of
-------------- ---------------
the Borrower in favor of each of the Lenders evidencing the Revolving Loans
in substantially the form attached as Schedule 2.1(e), individually or
---------------
collectively, as appropriate, as such promissory notes may be amended,
modified, supplemented, extended, renewed or replaced from time to time.
"Security Agreement" means the Security Agreement dated as of the date
------------------
hereof entered into by the Credit Parties in favor of the Administrative
Agent for the benefit of the Lenders (and affiliates of Lenders as to
certain obligations under Hedge Agreements), as amended and modified.
"Termination Date" means March 31, 1999.
----------------
1.2 Computation of Time Periods.
---------------------------
For purposes of computation of periods of time hereunder, the word
"from" means "from and including" and the words "to" and "until" each mean "to
but excluding."
1.3 Accounting Terms.
----------------
Except as otherwise expressly provided herein, all accounting terms
used herein shall be interpreted, and all financial statements and certificates
and reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP applied on a consistent
basis. All calculations made for the purposes of determining compliance with
this Credit Agreement shall (except as otherwise expressly provided herein) be
made by application of GAAP applied on a basis consistent with the most recent
annual or quarterly
7
<PAGE>
financial statements delivered pursuant to Section 7.1 of the Incorporated
Covenants (or, prior to the delivery of the first financial statements pursuant
to Section 7.1 of the Incorporated Covenants, consistent with the annual audited
financial statements referenced in Section 6.1(i) of the Incorporated
Covenants); provided, however, if (a) the Company shall object to determining
-------- -------
such compliance on such basis at the time of delivery of such financial
statements due to any change in GAAP or the rules promulgated with respect
thereto or (b) the Administrative Agent or the Required Lenders shall so object
in writing within 30 days after delivery of such financial statements, then such
calculations shall be made on a basis consistent with the most recent financial
statements delivered by the Borrower to the Lenders as to which no such
objection shall have been made.
SECTION 2
CREDIT FACILITIES
-----------------
2.1 Revolving Loans.
---------------
(a) Revolving Commitment. During the Commitment Period, subject to the
--------------------
terms and conditions hereof, each Lender severally agrees to make revolving
credit loans (the "Revolving Loans") to the Borrower from time to time in the
---------------
amount of such Lender's Revolving Commitment Percentage of such Revolving Loans
for the purposes hereinafter set forth; provided that Revolving Loans hereunder
--------
shall be available (and existing Revolving Loans may be extended and renewed)
only if and where the Existing Credit Agreement shall be fully drawn upon and
there shall be no remaining availability thereunder (that is, the liquidity
facility established hereby shall be in the nature of an overadvance line); and
provided further that (i) with regard to the Lenders collectively, the aggregate
- - -------- -------
principal amount of Obligations outstanding at any time shall not exceed the
lesser of (A) ONE HUNDRED MILLION DOLLARS ($100,000,000) (as referenced on
Schedule 2.1(a), the "Revolving Committed Amount") or (B) until the Security
- - --------------- --------------------------
Release Date relating to inventory (but not thereafter), the Borrowing Base, and
(ii) with regard to each Lender individually, such Lender's Revolving Commitment
Percentage of Obligations outstanding at any time shall not exceed such Lender's
Revolving Committed Amount. Revolving Loans may consist of Base Rate Loans or
Eurodollar Loans, or a combination thereof, as the Borrower may request, and may
be repaid and reborrowed in accordance with the provisions hereof.
(b) Revolving Loan Borrowings.
-------------------------
(i) Notice of Borrowing. The Borrower shall request a Revolving Loan
-------------------
borrowing by delivery of a Notice of Borrowing (or telephone notice
promptly confirmed in writing) substantially in the form of Schedule
--------
2.1(b)(i) to the Administrative Agent not later than 12:00 Noon (Charlotte,
---------
North Carolina time) on the date of the requested borrowing (which shall be
a Business Day) in the case of Base Rate Loans, and on the third Business
Day prior to the date of the requested borrowing in the case of Eurodollar
Loans. Each such request for borrowing shall be irrevocable and shall
specify (A) that a Revolving Loan is requested, (B) the date of the
requested borrowing (which shall be a Business Day), (C) the aggregate
principal amount to be borrowed, and (D) whether the borrowing shall be
comprised of Base Rate Loans, Eurodollar Loans or a combination
8
<PAGE>
thereof, and if Eurodollar Loans are requested, the Interest Period(s)
therefor. If the Borrower shall fail to specify in any such Notice of
Borrowing (I) an applicable Interest Period in the case of a Eurodollar
Loan, then such notice shall be deemed to be a request for an Interest
Period of one month, or (II) the type of Revolving Loan requested, then
such notice shall be deemed to be a request for a Base Rate Loan hereunder.
The Administrative Agent shall give notice to each Lender promptly upon
receipt of each Notice of Borrowing pursuant to this Section 2.1(b)(i), the
contents thereof and each such Lender's share of any borrowing to be made
pursuant thereto.
(ii) Minimum Amounts. Each Revolving Loan shall be in a minimum
---------------
aggregate principal amount of $1,000,000, in the case of Eurodollar Loans,
or $500,000 (or the remaining Revolving Committed Amount, if less), in the
case of Base Rate Loans.
(iii) Advances. Each Lender will make its Revolving Commitment
--------
Percentage of each Revolving Loan borrowing available to the Administrative
Agent for the account of the Borrower as specified in Section 3.14(a), or
in such other manner as the Administrative Agent may specify in writing, by
2:00 P.M. (Charlotte, North Carolina time) on the date specified in the
applicable Notice of Borrowing in Dollars and in funds immediately
available to the Administrative Agent. Such borrowing will then be made
available to the Borrower by the Administrative Agent by crediting the
account of the Borrower on the books of such office with the aggregate of
the amounts made available to the Administrative Agent by the Lenders and
in like funds as received by the Administrative Agent.
(c) Repayment. The principal amount of all Revolving Loans shall be due
---------
and payable in full on the Termination Date.
(d) Interest. Subject to the provisions of Section 3.1,
--------
(i) Base Rate Loans. During such periods as Revolving Loans shall be
---------------
comprised in whole or in part of Base Rate Loans, such Base Rate Loans
shall bear interest at a per annum rate equal to the Base Rate; and
(ii) Eurodollar Loans. During such periods as Revolving Loans shall
----------------
be comprised in whole or in part of Eurodollar Loans, such Eurodollar Loans
shall bear interest at a per annum rate equal to the applicable Eurodollar
Rate plus three quarters of one percent ( 3/4%).
----
Interest on Revolving Loans shall be payable in arrears on each applicable
Interest Payment Date (or at such other times as may be specified herein).
(e) Revolving Notes. The Revolving Loans shall be evidenced by a duly
---------------
executed Revolving Note in favor of each Lender.
(f) Maximum Number of Eurodollar Loans. The Borrower will be limited to a
----------------------------------
maximum number of six (6) Eurodollar Loans outstanding at any time. For
purposes hereof,
9
<PAGE>
Eurodollar Loans with separate or different Interest Periods will be considered
as separate Eurodollar Loans even if their Interest Periods expire on the same
date.
SECTION 3
OTHER PROVISIONS RELATING TO CREDIT FACILITIES
----------------------------------------------
3.1 Default Rate.
------------
Upon the occurrence, and during the continuance, of an Event of
Default, the principal of and, to the extent permitted by law, interest on the
Loans and any other amounts owing hereunder or under the other Credit Documents
shall bear interest, payable upon written demand by the Administrative Agent, at
a per annum rate 2% greater than the rate which would otherwise be applicable
(or if no rate is applicable, whether in respect of interest, fees or other
amounts, then 2% greater than the Base Rate).
3.2 Extension and Conversion.
------------------------
Subject to the terms of Section 5.3, the Borrower shall have the
option, on any Business Day, to extend existing Loans into a subsequent
permissible Interest Period or to convert Loans into Loans of another interest
rate type; provided, however, that (i) except as provided in Section 3.8,
-------- -------
Eurodollar Loans may be converted into Base Rate Loans only on the last day of
the Interest Period applicable thereto, (ii) Eurodollar Loans may be extended,
and Base Rate Loans may be converted into Eurodollar Loans, only if no Default
or Event of Default is in existence on the date of extension or conversion,
(iii) Loans extended as, or converted into, Eurodollar Loans shall be subject to
the terms of the definition of "Interest Period" set forth in Section 1.1 and
---------------
shall be in such minimum amounts as provided in Section 2.1(b)(ii) , and (iv)
any request for extension or conversion of a Eurodollar Loan which shall fail to
specify an Interest Period shall be deemed to be a request for an Interest
Period of one month. Each such extension or conversion shall be effected by the
Borrower by giving a Notice of Extension/Conversion substantially in the form of
Schedule 3.2 (or telephone notice promptly confirmed in writing) to the
- - ------------
Administrative Agent prior to 12:00 Noon (Charlotte, North Carolina time) on the
Business Day of, in the case of the conversion of a Eurodollar Loan into a Base
Rate Loan, and on the third Business Day prior to, in the case of the extension
of a Eurodollar Loan as, or conversion of a Base Rate Loan into, a Eurodollar
Loan, the date of the proposed extension or conversion, specifying the date of
the proposed extension or conversion, the Loans to be so extended or converted,
the types of Loans into which such Loans are to be converted and, if
appropriate, the applicable Interest Periods with respect thereto. Each request
for extension or conversion shall be irrevocable and shall constitute a
representation and warranty by the Borrower of the matters specified in
subsections (a) through (e) of Section 5.3. In the event the Borrower fails to
request extension or conversion of any Eurodollar Loan in accordance with this
Section, or any such conversion or extension is not permitted or required by
this Section, then such Eurodollar Loan shall be automatically converted into a
Base Rate Loan at the end of the Interest Period applicable thereto. The
Administrative Agent shall give each Lender notice as promptly as practicable of
any such proposed extension or conversion affecting any Loan.
3.3 Voluntary Prepayments.
---------------------
10
<PAGE>
Revolving Loans may be repaid in whole or in part without premium or
penalty; provided that (i) Eurodollar Loans may be prepaid only upon three (3)
--------
Business Days' prior written notice to the Administrative Agent and must be
accompanied by payment of any amounts owing under Section 3.11, and (ii) partial
repayments shall be in minimum principal amounts of $1,000,000, in the case of
Eurodollar Loans, and $500,000, in the case of Base Rate Loans.
3.4 Reductions in Commitments and Mandatory Prepayments.
---------------------------------------------------
(a) Voluntary Reduction in Revolving Commitment. The Revolving
-------------------------------------------
Commitments may be terminated or permanently reduced in whole or in part upon
three (3) Business Days' prior written notice to the Administrative Agent,
provided that (i) after giving effect to any voluntary reduction the aggregate
- - --------
amount of Obligations shall not exceed the lesser of (A) the Aggregate Revolving
Committed Amount, as reduced, or (B) until the Security Release Date relating to
inventory (but not thereafter), the Borrowing Base, and (ii) partial reductions
shall be in minimum principal amounts of $5,000,000, and in integral multiples
of $1,000,000 in excess thereof.
(b) Mandatory Reductions in Revolving Commitments and Mandatory
-----------------------------------------------------------
Prepayments. The Revolving Commitments shall be automatically and permanently
- - -----------
reduced (and prepayments shall be required to the extent that outstanding
Obligations exceed the respective Revolving Commitment, as so reduced), by the
amounts provided below:
(i) Asset Dispositions. An amount equal to one hundred percent
------------------
(100%) of the Net Proceeds received from Asset Dispositions.
(ii) Debt and Equity Transactions. An amount equal to one
----------------------------
hundred percent (100%) of the Net Proceeds received from any Debt
Transaction or Equity Transaction.
(c) Mandatory Prepayments, Etc.
---------------------------
(i) If at any time the aggregate principal amount of Obligations
hereunder shall exceed the lesser of (A) the Aggregate Revolving Committed
Amount or (B) until the Security Release Date relating to inventory (but
not thereafter), the Borrowing Base, the Borrower shall immediately make
payment on the Revolving Loans hereunder in an amount sufficient to
eliminate the deficiency.
(ii) If at any time the Aggregate Revolving Committed Amount
under the Existing Credit Agreement shall exceed the Obligations owing
thereunder (that is, there is unused availability under the Existing Credit
Agreement determined for purposes hereof without giving effect to any
voluntary, optional or mandatory reduction in the Aggregate Revolving
Committed Amount thereunder in effect on the Closing Date hereof, being
$500,000,000), the Borrower shall immediately either (A) make payment on
the Revolving Loans hereunder in an amount sufficient to reduce the
Obligations outstanding hereunder to zero or (B) reborrow Revolving Loans
(or have Letters of
11
<PAGE>
Credit issued) under the Existing Credit Agreement in an amount sufficient
to eliminate such excess.
(iii) The Borrower will make prepayment on the Revolving Loans
hereunder in an amount equal to one hundred percent (100%) of the Net
Proceeds received from any Securitization Transaction (including for
purposes hereof any increase in aggregate Invested Amount relating to the
Excluded Securitization Transaction above $285,000,000).
(d) Application. Unless otherwise specified by the Borrower,
-----------
prepayments made hereunder shall be applied first to Base Rate Loans, then to
Eurodollar Loans in direct order of Interest Period maturities. Amounts prepaid
hereunder may be reborrowed in accordance with the provisions hereof.
(e) Mandatory Commitment Termination. The Commitments hereunder
--------------------------------
shall terminate on the Termination Date.
3.5 Fees.
----
(a) Commitment Fee. In consideration of the Revolving Commitments
--------------
hereunder, the Borrower agrees to pay to the Administrative Agent for the
ratable benefit of the Lenders a commitment fee (the "Commitment Fee") equal to
--------------
22.5 basis points (.225%) per annum on the average daily unused amount of the
Revolving Committed Amount for the applicable period from the Closing Date. The
Commitment Fee shall be payable quarterly in arrears on the 15th day following
the last day of each calendar quarter for the immediately preceding quarter (or
portion thereof) beginning with the first such date to occur after the Closing
Date.
(b) Administrative Fees. The Borrower agrees to pay to the
-------------------
Administrative Agent, for its own account, an annual administrative fee and such
other fees, if any, referred to in the Administrative Agent's Fee Letter
(collectively, the "Administrative Agent's Fees").
---------------------------
3.6 Capital Adequacy.
----------------
If any Lender has determined, after the date hereof, that the adoption
or the becoming effective of, or any change in, or any change by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof in the interpretation or administration
of, any applicable law, rule or regulation regarding capital adequacy, or
compliance by such Lender 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 such Lender's capital or assets as a consequence of its commitments or
obligations hereunder to a level below that which such Lender could have
achieved but for such adoption, effectiveness, change or compliance (taking into
consideration such Lender's policies with respect to capital adequacy), then,
upon notice from such Lender to the Borrower, the Borrower shall be obligated to
pay to such Lender such additional amount or amounts as will compensate such
Lender on an after-tax basis for such
12
<PAGE>
reduction. Each determination by any such Lender of amounts owing under this
Section shall, absent manifest error, be conclusive and binding on the parties
hereto.
3.7 Inability To Determine Interest Rate.
------------------------------------
If prior to the first day of any Interest Period, the Administrative Agent
shall have determined (which determination shall be conclusive and binding upon
the Borrower absent manifest error) that, by reason of circumstances affecting
the relevant market, adequate and reasonable means do not exist for ascertaining
the Eurodollar Rate for such Interest Period, the Administrative Agent shall
give telecopy or telephonic notice thereof to the Borrower and the Lenders as
soon as practicable thereafter. If such notice is given (a) any Eurodollar
Loans requested to be made on the first day of such Interest Period shall be
made as Base Rate Loans and (b) any Loans that were to have been converted on
the first day of such Interest Period to or continued as Eurodollar Loans shall
be converted to or continued as Base Rate Loans. Until such notice has been
withdrawn by the Administrative Agent, no further Eurodollar Loans shall be made
or continued as such, nor shall the Borrower have the right to convert Base Rate
Loans to Eurodollar Loans.
3.8 Illegality.
----------
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrower
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate
Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it
shall no longer be unlawful for such Lender to make or maintain Eurodollar
Loans, such Lender shall then have a commitment only to make a Base Rate Loan
when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.11.
3.9 Requirements of Law.
-------------------
If, after the date hereof, the adoption of or any change in any Requirement
of Law or in the interpretation or application thereof applicable to any Lender,
or compliance by any Lender with any request or directive (whether or not having
the force of law) from any central bank or other Governmental Authority, in each
case made subsequent to the Closing Date (or, if later, the date on which such
Lender becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever
with respect to any Eurodollar Loans made by it or its obligation to make
Eurodollar Loans, or change the basis of taxation of payments to such
Lender in respect thereof (except for (i)
13
<PAGE>
Non-Excluded Taxes covered by Section 3.10 (including Non-Excluded Taxes
imposed solely by reason of any failure of such Lender to comply with its
obligations under Section 3.10(b)) and (ii) changes in taxes measured by or
imposed upon the overall net income, or franchise tax (imposed in lieu of
such net income tax), of such Lender or its applicable lending office,
branch, or any affiliate thereof));
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding
any tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, upon notice to the
Borrower from such Lender, through the Administrative Agent, in accordance
herewith, the Borrower shall be obligated to promptly pay such Lender, upon its
demand, any additional amounts necessary to compensate such Lender on an after-
tax basis for such increased cost or reduced amount receivable, provided that,
--------
in any such case, the Borrower may elect to convert the Eurodollar Loans made by
such Lender hereunder to Base Rate Loans by giving the Administrative Agent at
least one Business Day's notice of such election, in which case the Borrower
shall promptly pay to such Lender, upon demand, without duplication, such
amounts, if any, as may be required pursuant to Section 3.11. If any Lender
becomes entitled to claim any additional amounts pursuant to this subsection, it
shall provide prompt notice thereof to the Borrower, through the Administrative
Agent, certifying (x) that one of the events described in this paragraph 3.9 has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Lender and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this subsection submitted by such Lender, through the
Administrative Agent, to the Borrower shall be conclusive and binding on the
parties hereto in the absence of manifest error. This covenant shall survive
the termination of this Credit Agreement and the payment of the Loans and all
other amounts payable hereunder.
3.10 Taxes.
-----
(a) Except as provided below in this subsection, all payments made by the
Borrower or any Guarantor under this Credit Agreement and any Notes shall be
made free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts, duties,
charges, fees, deductions or withholdings, now or hereafter imposed, levied,
collected, withheld or assessed by any court, or governmental body, agency or
other official, excluding taxes measured by or imposed upon the overall net
income of any Lender or its applicable lending office, or any branch or
affiliate thereof, and all franchise taxes, branch taxes, taxes on doing
business or taxes on the overall capital or net worth of any Lender or its
applicable lending office, or any branch or affiliate thereof, in each case
imposed in lieu of net
14
<PAGE>
income taxes, imposed: (i) by the jurisdiction under the laws of which such
Lender, applicable lending office, branch or affiliate is organized or is
located, or in which its principal executive office is located, or any nation
within which such jurisdiction is located or any political subdivision thereof;
or (ii) by reason of any connection between the jurisdiction imposing such tax
and such Lender, applicable lending office, branch or affiliate other than a
connection arising solely from such Lender having executed, delivered or
performed its obligations, or received payment under or enforced, this Credit
Agreement or any Notes. If any such non-excluded taxes, levies, imposts, duties,
charges, fees, deductions or withholdings ("Non-Excluded Taxes") are required
------------------
to be withheld from any amounts payable to the Administrative Agent or any
Lender hereunder or under any Notes, (A) the amounts so payable to the
Administrative Agent or such Lender shall be increased to the extent necessary
to yield to the Administrative Agent or such Lender (after payment of all Non-
Excluded Taxes) interest or any such other amounts payable hereunder at the
rates or in the amounts specified in this Credit Agreement and any Notes,
provided, however, that the Borrower shall be entitled to deduct and withhold
- - -------- -------
any Non-Excluded Taxes and shall not be required to increase any such amounts
payable to any Lender that is not organized under the laws of the United States
of America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this subsection whenever any Non-Excluded Taxes
are payable by the Borrower, and (B) as promptly as possible thereafter the
Borrower shall send to the Administrative Agent for its own account or for the
account of such Lender, as the case may be, a certified copy of an original
official receipt received by the Borrower showing payment thereof or other
evidence of remittance of Non-Excluded Taxes reasonably acceptable to the
Administrative Agent. If the Borrower fails to pay any Non-Excluded Taxes when
due to the appropriate taxing authority or fails to remit to the Administrative
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Administrative Agent and the Lenders for any incremental
taxes, interest or penalties that may become payable by the Administrative Agent
or any Lender as a result of any such failure. The agreements in this subsection
shall survive the termination of this Credit Agreement and the payment of the
Loans and all other amounts payable hereunder.
(b) Each Lender that is not incorporated or organized under the laws of the
United States of America or a state thereof shall:
(X)(i) on or before the date it becomes a Lender, deliver to the
Borrower and the Administrative Agent (A) two (2) properly completed and
duly executed copies of United States Internal Revenue Service Form 1001 or
4224, or successor applicable form, as the case may be, certifying that it
is entitled to receive payments under this Credit Agreement and any Notes
without deduction or withholding of any United States federal income taxes
and (B) an Internal Revenue Service Form W-8 or W-9, or successor
applicable form, as the case may be, certifying that it is entitled to an
exemption from United States backup withholding tax;
(ii) deliver to the Borrower and the Administrative Agent two (2)
further properly completed and duly executed copies of any such form or
certification on or before the date that any such form or certification
expires or becomes obsolete and after the occurrence of any event requiring
a change in the most recent form previously delivered by it to the
Borrower; and
15
<PAGE>
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Administrative Agent; or
(Y) in the case of any such Lender that is not a "bank" within the
meaning of Section 881(c)(3)(A) of the Internal Revenue Code, (i) on or
before the date it becomes a Lender, deliver to the Borrower (for the
benefit of the Borrower and the Administrative Agent) (A) a statement under
penalties of perjury that it (1) is not a bank within the meaning of
Section 881(c)(3)(A) of the Internal Revenue Code, (2) is not a 10-percent
shareholder within the meaning of Section 881(c)(3)(B) of the Code, and (3)
is not a controlled foreign corporation receiving interest from a related
person within the meaning of Section 881(c)(3)(C) of the Code, and (B) two
(2) properly completed and duly executed copies of Internal Revenue Service
Form W-8, or successor applicable form certifying to such Lender's legal
entitlement at the date of such certificate to an exemption from U.S.
withholding tax under the provisions of Section 881(c) of the Internal
Revenue Code with respect to payments to be made under this Credit
Agreement and any Notes (ii) deliver to the Borrower and the Administrative
Agent two (2) further properly completed and duly executed copies of such
form on or before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recently provided
form, (iii) if necessary, obtain any extensions of time reasonably
requested by the Borrower or the Administrative Agent for filing and
completing such forms, and (iv) agree, to the extent legally entitled to do
so, upon reasonable request by the Borrower, to provide to the Borrower
(for the benefit of the Borrower and the Administrative Agent) such other
forms as may be reasonably required in order to establish the legal
entitlement of such Lender to an exemption from withholding with respect to
payments under this Credit Agreement and any Notes;
unless in any such case any change in treaty, law or regulation has occurred
after the date such Person becomes a Lender hereunder which renders all such
forms inapplicable or which would prevent such Lender from duly completing and
delivering any such form with respect to it and such Lender so advises the
Borrower and the Administrative Agent. Each Person that shall become a Lender
or a participant of a Lender pursuant to subsection 9.3 shall and each Lender
shall, upon a change in its applicable lending office, upon the effectiveness of
the related transfer, be required to provide all of the forms, certifications
and statements required pursuant to this subsection, provided that in the case
--------
of a participant of a Lender the obligations of such participant of a Lender
pursuant to this subsection (b) shall be determined as if the participant of a
Lender were a Lender except that such participant of a Lender shall furnish all
such required forms, certifications and statements to the Lender from which the
related participation shall have been purchased.
(c) If any Lender shall become aware that it is entitled to claim a refund
or credit (such credit to include any increase in any foreign tax credit) in
respect of any Non-Excluded Taxes (including any penalties or interest with
respect thereto) as to which it has been indemnified by the Borrower or with
respect to which the Borrower has paid increased amounts pursuant to this
Section 3.10, it shall promptly notify the Borrower of the availability of such
refund or credit and shall, within 30 days after receipt of a request by the
Borrower, apply for such refund or credit. If any Lender receives a refund or
credit (such credit to include any increase in any foreign tax
16
<PAGE>
credit) in respect of any Non-Excluded Taxes as to which it has been indemnified
by the Borrower or with respect to which the Borrower has paid increased amounts
under this Section 3.10, it shall promptly notify the Borrower of such refund or
credit and shall, within 30 days after receipt of such refund or the benefit of
such credit (such benefit to include any reduction of the taxes for which the
Lender would otherwise be liable due to any increase in any foreign tax credit
available to such Lender) repay the amount of such refund or benefit of such
credit to the Borrower (to the extent of amounts that have been paid by the
Borrower under this Section 3.10 with respect to Non-Excluded Taxes giving rise
to such refund or credit), plus any interest received with respect thereto, net
or all reasonable out-of-pocket expenses of such Lender and without interest
(other than interest actually received from the relevant taxing authority or
other governmental authority with respect to such refund or credit); provided,
--------
however, that the Borrower, upon the request of such Lender, agrees to return
- - -------
the amount of such refund or benefit of such credit (plus interest) to such
Lender in the event such Lender is required to repay the amount of such refund
or benefit of such credit to the relevant taxing authority or other governmental
authority.
(d) Each Lender represents that it is not participating in, and will not
participate in, a conduit financing arrangement within the meaning of Treas.
Reg. (S)1.881-3(a)(2)(iv) in connection with the Loans.
3.11 Indemnity.
---------
The Borrower promises to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur (other
than through such Lender's gross negligence or willful misconduct) as a
consequence of (a) default by the Borrower in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrower has given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrower in making any prepayment of a Eurodollar Loan after
the Borrower has given a notice thereof in accordance with the provisions of
this Credit Agreement or (c) the making of a prepayment of Eurodollar Loans on a
day which is not the last day of an Interest Period with respect thereto. With
respect to Eurodollar Loans, such indemnification may include an amount equal to
the excess, if any, of (i) the amount of interest which would have accrued on
the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Eurodollar Loans provided for herein (excluding, however, the
Applicable Percentage included therein, if any) over (ii) the amount of interest
(as reasonably determined by such Lender) which would have accrued to such
Lender on such amount by placing such amount on deposit for a comparable period
with leading banks in the interbank Eurodollar market. The covenants of the
Borrower set forth in this Section 3.11 shall survive the termination of this
Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
3.12 Pro Rata Treatment.
------------------
Except to the extent otherwise provided herein:
17
<PAGE>
(a) Loans. Each Loan, each payment or prepayment of principal of any Loan,
-----
each payment of interest on the Loans, each payment of Commitment Fees, each
reduction of the Revolving Committed Amount and each conversion or extension of
any Loan, shall be allocated pro rata among the Lenders in accordance with the
respective principal amounts of their outstanding Loans and Participation
Interests.
(b) Advances. Unless the Administrative Agent shall have been notified in
--------
writing by any Lender prior to a borrowing that such Lender will not make the
amount that would constitute its ratable share of such borrowing available to
the Administrative Agent, the Administrative Agent may assume that such Lender
is making such amount available to the Administrative Agent, and the
Administrative Agent may, in reliance upon such assumption, make available to
the Borrower a corresponding amount. If such amount is not made available to
the Administrative Agent by such Lender within the time period specified
therefor hereunder, such Lender shall pay to the Administrative Agent, on
demand, such amount with interest thereon at a rate equal to the Federal Funds
Rate for the period until such Lender makes such amount immediately available to
the Administrative Agent. A certificate of the Administrative Agent submitted
to any Lender with respect to any amounts owing under this subsection shall be
conclusive in the absence of manifest error.
3.13 Sharing of Payments.
-------------------
The Lenders agree among themselves that, in the event that any Lender shall
obtain payment in respect of any Loan or any other obligation owing to such
Lender under this Credit Agreement through the exercise of a right of setoff,
banker's lien or counterclaim, or pursuant to a secured claim under Section 506
of Title 11 of the United States Code or other security or interest arising
from, or in lieu of, such secured claim, received by such Lender under any
applicable bankruptcy, insolvency or other similar law or otherwise, or by any
other means, in excess of its pro rata share of such payment as provided for in
this Credit Agreement, such Lender shall promptly purchase from the other
Lenders a participation in such Loans, and other obligations in such amounts,
and make such other adjustments from time to time, as shall be equitable to the
end that all Lenders share such payment in accordance with their respective
ratable shares as provided for in this Credit Agreement. The Lenders further
agree among themselves that if payment to a Lender obtained by such Lender
through the exercise of a right of setoff, banker's lien, counterclaim or other
event as aforesaid shall be rescinded or must otherwise be restored, each Lender
which shall have shared the benefit of such payment shall, by repurchase of a
participation theretofore sold, return its share of that benefit (together with
its share of any accrued interest payable with respect thereto) to each Lender
whose payment shall have been rescinded or otherwise restored. The Borrower
agrees that any Lender so purchasing such a participation may, to the fullest
extent permitted by law, exercise all rights of payment, including setoff,
banker's lien or counterclaim, with respect to such participation as fully as if
such Lender were a holder of such Loan, or other obligation in the amount of
such participation. Except as otherwise expressly provided in this Credit
Agreement, if any Lender or the Administrative Agent shall fail to remit to the
Administrative Agent or any other Lender an amount payable by such Lender or the
Administrative Agent to the Administrative Agent or such other Lender pursuant
to this Credit Agreement on the date when such amount is due, such payments
shall be made by the Administrative Agent or such Lender, as the case may be,
together with interest thereon for each date from the date such amount is due
until the date such amount is paid to the Administrative
18
<PAGE>
Agent or such other Lender at a rate per annum equal to the Federal Funds Rate.
If under any applicable bankruptcy, insolvency or other similar law, any Lender
receives a secured claim in lieu of a setoff to which this Section 3.13 applies,
such Lender shall, to the extent practicable, exercise its rights in respect of
such secured claim in a manner consistent with the rights of the Lenders under
this Section 3.13 to share in the benefits of any recovery on such secured
claim.
3.14 Payments, Computations, Etc.
----------------------------
(a) Except as otherwise specifically provided herein, all payments
hereunder shall be made to the Administrative Agent in Dollars in immediately
available funds, without offset, deduction, counterclaim or withholding of any
kind, at the Administrative Agent's office specified in Section 9.1 not later
than 2:00 P.M. (Charlotte, North Carolina time) on the date when due. Payments
received after such time shall be deemed to have been received on the next
succeeding Business Day. The Borrower shall, at the time it makes any payment
under this Credit Agreement, specify to the Administrative Agent the Loans,
Fees, interest or other amounts payable by the Borrower hereunder to which such
payment is to be applied (and in the event that it fails so to specify, or if
such application would be inconsistent with the terms hereof, the Administrative
Agent shall distribute such payment to the Lenders in such manner as the
Administrative Agent may determine to be appropriate in respect of obligations
owing by the Borrower hereunder, subject to the terms of Section 3.12(a)). The
Administrative Agent will distribute such payments to such Lenders, if any such
payment is received prior to 12:00 Noon (Charlotte, North Carolina time) on a
Business Day in like funds as received prior to the end of such Business Day and
otherwise the Administrative Agent will distribute such payment to such Lenders
on the next succeeding Business Day. Whenever any payment hereunder shall be
stated to be due on a day which is not a Business Day, the due date thereof
shall be extended to the next succeeding Business Day (subject to accrual of
interest and Fees for the period of such extension), except that in the case of
Eurodollar Loans, if the extension would cause the payment to be made in the
next following calendar month, then such payment shall instead be made on the
next preceding Business Day. Except as expressly provided otherwise herein, all
computations of interest and fees shall be made on the basis of actual number of
days elapsed over a year of 360 days, except with respect to computation of
interest on Base Rate Loans which (unless the Base Rate is determined by
reference to the Federal Funds Rate) shall be calculated based on a year of 365
or 366 days, as appropriate. Interest shall accrue from and include the date of
borrowing, but exclude the date of payment.
(b) Allocation of Payments After Event of Default. Notwithstanding any
---------------------------------------------
other provisions of this Credit Agreement to the contrary, after the occurrence
and during the continuance of an Event of Default, all amounts collected or
received by the Administrative Agent or any Lender on account of the Obligations
or any other amounts outstanding under any of the Credit Documents shall be
paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Administrative Agent in connection with enforcing the rights of the Lenders
under the Credit Documents;
SECOND, to payment of any fees owed to the Administrative Agent;
19
<PAGE>
THIRD, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation, reasonable attorneys' fees) of each
of the Lenders in connection with enforcing its rights under the Credit
Documents or otherwise with respect to the Obligations owing to such
Lender;
FOURTH, to the payment of all accrued interest and fees on or in
respect of the Obligations;
FIFTH, to the payment of the outstanding principal amount of the
Obligations;
SIXTH, to all other Obligations and other obligations which shall have
become due and payable under the Credit Documents or otherwise and not
repaid pursuant to clauses "FIRST" through "FIFTH" above; and
SEVENTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (i) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; and (ii) each of the Lenders shall receive an amount equal
to its pro rata share (based on the proportion that the then outstanding
Obligations held by such Lender bears to the aggregate then outstanding
Obligations) of amounts available to be applied pursuant to clauses "THIRD",
"FOURTH", "FIFTH" and "SIXTH" above.
(c) Treatment. The Lenders agree that in the exercise of rights under
---------
Sections 3.6, 3.7, 3.8 and 3.9, they will accord the Borrower the treatment
generally accorded by the Lenders to similarly situated borrowers.
3.15 Evidence of Debt.
----------------
(a) Each Lender shall maintain an account or accounts evidencing each Loan
made by such Lender to the Borrower from time to time, including the amounts of
principal and interest payable and paid to such Lender from time to time under
this Credit Agreement. Each Lender will make reasonable efforts to maintain the
accuracy of its account or accounts and to promptly update its account or
accounts from time to time, as necessary.
(b) The Administrative Agent shall maintain the Register pursuant to
Section 9.3(c) hereof, and a subaccount for each Lender, in which Register and
subaccounts (taken together) shall be recorded (i) the amount, type and Interest
Period of each such Loan hereunder, (ii) the amount of any principal or interest
due and payable or to become due and payable to each Lender hereunder and (iii)
the amount of any sum received by the Administrative Agent hereunder from or for
the account of the Borrower and each Lender's share thereof. The Administrative
Agent will make reasonable efforts to maintain the accuracy of the subaccounts
referred to in the preceding sentence and to promptly update such subaccounts
from time to time, as necessary.
(c) The entries made in the accounts, Register and subaccounts maintained
pursuant to subsection (b) of this Section 3.15 (and, if consistent with the
entries of the Administrative Agent,
20
<PAGE>
subsection (a)) shall be prima facie evidence of the existence and amounts of
the obligations of the Borrower therein recorded; provided, however, that the
-------- -------
failure of any Lender or the Administrative Agent to maintain any such account,
such Register or such subaccount, as applicable, or any error therein, shall not
in any manner affect the obligation of the Borrower to repay the Loans made by
such Lender in accordance with the terms hereof.
SECTION 4
GUARANTY
--------
4.1 The Guarantee.
-------------
Each of the Guarantors hereby jointly and severally guarantees to each
Lender, to each Affiliate of a Lender that enters into a Hedging Agreement and
to the Administrative Agent as hereinafter provided the prompt payment of the
Guaranteed Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration, a mandatory cash collateralization or
otherwise) strictly in accordance with the terms thereof. The Guarantors hereby
further agree that if any of the Guaranteed Obligations are not paid in full
when due (whether at stated maturity, as a mandatory prepayment, by
acceleration, as mandatory cash collateralization or otherwise and after giving
effect to any grace periods), the Guarantors will, jointly and severally,
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Guaranteed
Obligations, the same will be promptly paid in full when due (whether at
extended maturity, as a mandatory prepayment, by acceleration or otherwise and
after giving effect to any grace periods) in accordance with the terms of such
extension or renewal. This is a guaranty of payment and not of collection.
Notwithstanding any provision to the contrary contained herein or in any
other of the Credit Documents or Hedging Agreements, to the extent the
obligations of a Guarantor shall be adjudicated to be invalid or unenforceable
for any reason (including, without limitation, because of any applicable state
or federal law relating to fraudulent conveyances or transfers) then the
obligations of each Guarantor hereunder shall be limited to the maximum amount
that is permissible under applicable law (whether federal or state and
including, without limitation, the Bankruptcy Code).
4.2 Obligations Unconditional.
-------------------------
The obligations of the Guarantors under Section 4.1 hereof are joint and
several, absolute and unconditional, irrespective of the value, genuineness,
validity, regularity or enforceability of any of the Credit Documents or Hedging
Agreements, or any other agreement or instrument referred to therein, or any
substitution, release or exchange of any other guarantee of or security for any
of the Guaranteed Obligations, and, to the fullest extent permitted by
applicable law, irrespective of any other circumstance whatsoever which might
otherwise constitute a legal or equitable discharge or defense of a surety or
guarantor, it being the intent of this Section 4.2 that the obligations of the
Guarantors hereunder shall be absolute and unconditional under any and all
circumstances. Each Guarantor agrees that such Guarantor shall have no right of
subrogation, indemnity, reimbursement or contribution against the Borrower or
any other Guarantor of the Guaranteed Obligations for amounts paid under this
Guaranty until such time as the Lenders (and
21
<PAGE>
any Affiliates of Lenders entering into Hedging Agreements) have been paid in
full, all Commitments under the Credit Agreement have been terminated and no
Person or Governmental Authority shall have any right to request any return or
reimbursement of funds from the Lenders in connection with monies received under
the Credit Documents or Hedging Agreements. Without limiting the generality of
the foregoing, it is agreed that, to the fullest extent permitted by law, the
occurrence of any one or more of the following shall not alter or impair the
liability of any Guarantor hereunder which shall remain absolute and
unconditional as described above:
(i) at any time or from time to time, without notice to any Guarantor,
the time for any performance of or compliance with any of the Guaranteed
Obligations shall be extended, or such performance or compliance shall be
waived;
(ii) any of the acts mentioned in any of the provisions of any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be done or omitted;
(iii) the maturity of any of the Guaranteed Obligations shall be
accelerated, or any of the Guaranteed Obligations shall be modified,
supplemented or amended in any respect, or any right under any of the
Credit Documents, any Hedging Agreement or any other agreement or
instrument referred to in the Credit Documents or Hedging Agreements shall
be waived or any other guarantee of any of the Guaranteed Obligations or
any security therefor shall be released or exchanged in whole or in part or
otherwise dealt with;
(iv) any Lien granted to, or in favor of, the Administrative Agent or
any Lender or Lenders as security for any of the Guaranteed Obligations
shall fail to attach or be perfected or shall be released or discharged in
whole or in part; or
(v) any of the Guaranteed Obligations shall be determined to be void
or voidable (including, without limitation, for the benefit of any creditor
of any Guarantor) or shall be subordinated to the claims of any Person
(including, without limitation, any creditor of any Guarantor).
With respect to its obligations hereunder, each Guarantor hereby expressly
waives diligence, presentment, demand of payment, protest and all notices
whatsoever, and any requirement that the Administrative Agent or any Lender
exhaust any right, power or remedy or proceed against any Person under any of
the Credit Documents, any Hedging Agreement or any other agreement or instrument
referred to in the Credit Documents or Hedging Agreements, or against any other
Person under any other guarantee of, or security for, any of the Guaranteed
Obligations.
4.3 Reinstatement.
-------------
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Guaranteed Obligations is rescinded
or must be otherwise restored by any holder of any of the Guaranteed
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Administrative Agent and each Lender on demand for all reasonable costs and
expenses (including, without limitation, fees and
22
<PAGE>
expenses of counsel) incurred by the Administrative Agent or such Lender in
connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
4.4 Certain Additional Waivers.
--------------------------
Without limiting the generality of the provisions of this Section 4, each
Guarantor hereby specifically waives the benefits of N.C. Gen. Stat. (S)(S) 26-7
through 26-9, inclusive. Each Guarantor further agrees that such Guarantor
shall have no right of recourse to security for the Guaranteed Obligations,
except through the exercise of the rights of subrogation pursuant to Section
4.2.
4.5 Remedies.
--------
The Guarantors agree that, to the fullest extent permitted by law, as
between the Guarantors, on the one hand, and the Administrative Agent and the
Lenders, on the other hand, the Guaranteed Obligations may be declared to be
forthwith due and payable as provided in Section 7.2 hereof (and shall be deemed
to have become automatically due and payable in the circumstances provided in
said Section 7.2) for purposes of Section 4.1 hereof notwithstanding any stay,
injunction or other prohibition preventing such declaration (or preventing the
Guaranteed Obligations from becoming automatically due and payable) as against
any other Person and that, in the event of such declaration (or the Guaranteed
Obligations being deemed to have become automatically due and payable), the
Guaranteed Obligations (whether or not due and payable by any other Person)
shall forthwith become due and payable by the Guarantors for purposes of said
Section 4.1.
4.6 Rights of Contribution.
----------------------
The Guarantors hereby agree, as among themselves, that if any Guarantor
shall become an Excess Funding Guarantor (as defined below), each other
Guarantor shall, on demand of such Excess Funding Guarantor (but subject to the
succeeding provisions of this Section 4.6), pay to such Excess Funding Guarantor
an amount equal to such Guarantor's Pro Rata Share (as defined below and
determined, for this purpose, without reference to the properties, assets,
liabilities and debts of such Excess Funding Guarantor) of such Excess Payment
(as defined below). The payment obligation of any Guarantor to any Excess
Funding Guarantor under this Section 4.6 shall be subordinate and subject in
right of payment to the prior payment in full of the obligations of such
Guarantor under the other provisions of this Section 4, and such Excess Funding
Guarantor shall not exercise any right or remedy with respect to such excess
until payment and satisfaction in full of all of such obligations. For purposes
hereof, (i) "Excess Funding Guarantor" shall mean, in respect of any obligations
------------------------
arising under the other provisions of this Section 4 (hereafter, the "Guarantied
----------
Obligations"), a Guarantor that has paid an amount in excess of its Pro Rata
- - -----------
Share of the Guarantied Obligations; (ii) "Excess Payment" shall mean, in
--------------
respect of any Guarantied Obligations, the amount paid by an Excess Funding
Guarantor in excess of its Pro Rata Share of such Guarantied Obligations; and
(iii) "Pro Rata Share", for the purposes of this Section 4.6, shall mean, for
--------------
any Guarantor, the ratio (expressed as a percentage) of (a) the amount by which
the aggregate present fair saleable value of all of its assets and properties
exceeds the amount of all
23
<PAGE>
debts and liabilities of such Guarantor (including contingent, subordinated,
unmatured, and unliquidated liabilities, but excluding the obligations of such
Guarantor hereunder) to (b) the amount by which the aggregate present fair
saleable value of all assets and other properties of the Borrower and all of the
Guarantors exceeds the amount of all of the debts and liabilities (including
contingent, subordinated, unmatured, and unliquidated liabilities, but excluding
the obligations of the Borrower and the Guarantors hereunder) of the Borrower
and all of the Guarantors, all as of the Closing Date (if any Guarantor becomes
a party hereto subsequent to the Closing Date, then for the purposes of this
Section 4.6 such subsequent Guarantor shall be deemed to have been a Guarantor
as of the Closing Date and the information pertaining to, and only pertaining
to, such Guarantor as of the date such Guarantor became a Guarantor shall be
deemed true as of the Closing Date).
4.7 Continuing Guarantee.
--------------------
The guarantee in this Section 4 is a continuing guarantee, and shall apply
to all Guaranteed Obligations whenever arising.
SECTION 5
CONDITIONS
----------
5.1 Conditions to Closing.
---------------------
Closing of the liquidity facility pursuant to this Credit Agreement is
subject to satisfaction of the following conditions precedent:
(a) Execution of Credit Agreement and Credit Documents. Receipt of
--------------------------------------------------
(i) multiple counterparts of this Credit Agreement, (ii) a Revolving Note for
each Lender, (iii) multiple counterparts of the Pledge Agreement and the
Security Agreement and UCC financing statements relating thereto, if any, in
each case executed by a duly authorized officer of each party thereto and in
each case conforming to the requirements of this Credit Agreement.
(b) Liquidity Intercreditor Agreement. Receipt of multiple executed
---------------------------------
counterparts of the Liquidity Intercreditor Agreement.
(c) Stock Certificates. Acknowledgment from NationsBank, N.A., as
------------------
Administrative Agent under the Existing Credit Agreement, (i) of its receipt of
original stock certificates evidencing the ownership interests of the Credit
Parties pledged pursuant to the Pledge Agreement, together in each case with
original undated stock powers executed in blank (evidencing, among other things,
100% of the voting stock of the Borrower), (ii) of the interests of the
Administrative Agent and the Lenders hereunder therein pursuant to the Pledge
Agreement and (iii) that it holds such stock certificates and stock powers as
bailee for the Administrative Agent hereunder.
(d) Financial Information. Receipt of financial information
---------------------
regarding the Company and the Borrower and their subsidiaries, as may be
requested by, and in each case in form and substance satisfactory to the Agents.
24
<PAGE>
(e) Absence of Legal Proceedings. The absence of any action , suit,
----------------------------
investigation or proceeding pending in any court or before any arbitrator or
governmental instrumentality which could reasonably be expected to have a
Material Adverse Effect on the Consolidated Group taken as a whole.
(f) Legal Opinions. Receipt of multiple counterparts of opinions of
--------------
counsel for the Credit Parties relating to the Credit Documents and the
transactions contemplated herein, in form and substance satisfactory to the
Agents and the Lenders.
(g) Corporate Documents. Receipt of the following (or their
-------------------
equivalent) for each of the Credit Parties:
(i) Articles of Incorporation. Copies of the certificate of
-------------------------
incorporation or charter documents certified to be true and complete as of
a recent date by the appropriate governmental authority of the state of its
incorporation.
(ii) Resolutions. Copies of resolutions of the Board of
-----------
Directors approving and adopting the respective Credit Documents, the
transactions contemplated therein and authorizing execution and delivery
thereof, certified by a secretary or assistant secretary as of the Closing
Date to be true and correct and in force and effect as of such date.
(iii) Bylaws. Copies of the bylaws certified by a secretary or
------
assistant secretary as of the Closing Date to be true and correct and in
force and effect as of such date.
(iv) Good Standing. Copies, where applicable, of (A)
-------------
certificates of good standing, existence or its equivalent certified as of
a recent date by the appropriate governmental authorities of the state of
incorporation and each other state in which the failure to so qualify and
be in good standing would have a Material Adverse Effect and (B) a
certificate indicating payment of all corporate franchise taxes certified
as of a recent date by the appropriate governmental taxing authorities in
the state of incorporation.
(v) Officer's Certificate. An officer's certificate for
---------------------
each of the Credit Parties dated as of the Closing Date substantially in
the form of Schedule 5.1(g)(v) with appropriate insertions and attachments.
------------------
(vi) Solvency Certificate. An officer's certificate for each
--------------------
of the Borrower and the Company, both dated as of the Closing Date and
substantially in the form of Schedule 5.1(g)(vi)(A) or Schedule
---------------------- --------
5.1(g)(vi)(B), as appropriate.
-------------
(h) Fees. Receipt of all fees, if any, owing pursuant to the
----
Administrative Agent's Fee Letter, Section 3.5 or otherwise.
25
<PAGE>
(i) Additional Matters. All other documents and legal matters in
------------------
connection with the transactions contemplated by this Credit Agreement shall be
reasonably satisfactory in form and substance to the Agents and the Required
Lenders.
5.2 Conditions to Effectiveness.
---------------------------
Effectiveness of the liquidity facility pursuant to this Credit Agreement,
and to the initial Extensions of Credit hereunder, are subject to satisfaction
of the following conditions precedent:
(a) Amendment No. 4 to Existing Credit Agreement. Receipt of an
--------------------------------------------
executed copy of Amendment No. 4 to the Existing Credit Agreement, in form and
substance satisfactory to the Lenders hereunder.
(b) Section 5.3 Conditions. The conditions specified in Section 5.3
----------------------
shall be satisfied.
5.3 Conditions to All Extensions of Credit.
--------------------------------------
The obligation of the Lenders to make any Extension of Credit hereunder
(including the initial Extension of Credit to be made hereunder) is subject to
the satisfaction of the following conditions precedent on the date of making
such Extension of Credit:
(a) Representations and Warranties. The representations and
------------------------------
warranties made by the Credit Parties herein or in any other Credit Documents or
which are contained in any certificate furnished at any time under or in
connection herewith shall be true and correct in all material respects on and as
of the date of such Extension of Credit as if made on and as of such date
(except for those which expressly relate to an earlier date).
(b) No Default or Event of Default. No Default or Event of Default
------------------------------
shall have occurred and be continuing on such date or after giving effect to the
Extension of Credit to be made on such date unless such Default or Event of
Default shall have been waived or cured in accordance with this Credit
Agreement.
(c) No Material Adverse Effect. No circumstances, events or
--------------------------
conditions shall have occurred since the date of the audited financial
statements referenced in Section 6.1 of the Incorporated Representations which
would have a Material Adverse Effect.
(d) Additional Conditions to Revolving Loans. If a Revolving Loan is
----------------------------------------
made pursuant to Section 2.1, all conditions set forth therein shall have been
satisfied.
(e) No Availability under the Existing Credit Agreement. The
---------------------------------------------------
Existing Credit Agreement shall then be fully drawn upon and there shall be no
remaining availability thereunder.
Each request for an Extension of Credit (including extensions and
conversions) and each acceptance by the Borrower of an Extension of Credit
(including extensions and conversions) shall be deemed to constitute a
representation and warranty by the Borrower as of the date of
26
<PAGE>
such Extension of Credit that the applicable conditions in paragraphs (a), (b),
(c), (d) and (e) of this subsection have been satisfied.
SECTION 6
REPRESENTATIONS, WARRANTIES AND COVENANTS
-----------------------------------------
6.1 Incorporation.
-------------
The representations and warranties contained in Section 6 of the Existing
Credit Agreement (the "Incorporated Representations") and the affirmative and
----------------------------
negative covenants contained in Sections 7 and 8, respectively, of the Existing
Credit Agreement (the "Incorporated Covenants") as in effect on the Closing Date
----------------------
are incorporated herein by reference with the same effect as if stated at
length. The Credit Parties affirm and represent and warrant to the
Administrative Agent and the Lenders that the Incorporated Representations are
true and correct in all material respects as of the date hereof and covenant and
agree that the Incorporated Covenants shall be as binding on the Credit Parties
as if set forth fully herein, provided that (i) such Incorporated
--------
Representations and Incorporated Covenants as incorporated herein shall reflect
that they are delivered to and run in favor of the Administrative Agent and the
Lenders hereunder, rather than just to the Administrative Agent and the Lenders
under the Existing Credit Agreement as literally provided in the Existing Credit
Agreement, and references therein to the "Credit Agreement" and "Credit
Documents" shall be deemed for purposes hereof to include this Credit Agreement
and the Credit Documents relating hereto, (ii) any amendments or modifications
to such Incorporated Representations or Incorporated Covenants subsequent to the
date hereof must be consented to in writing by the Required Lenders hereunder,
and (iii) in the event that the Existing Credit Agreement shall be refinanced or
replaced by another credit agreement, then the Incorporated Representations and
Incorporated Covenants shall be as in effect immediately prior to such
refinancing or replacement.
6.2 Additional Representations.
--------------------------
(a) Purpose of Extensions of Credit. Notwithstanding the provisions
-------------------------------
of Section 6.15 of the Existing Credit Agreement, Extensions of Credit under
this Credit Agreement shall be used for general corporate purposes, including
the build-up of inventory and receivables.
6.3 Additional Covenants.
--------------------
(a) Purpose of Revolving Loans. The proceeds of Revolving Loans
--------------------------
hereunder shall be used for general corporate purposes, including the build-up
of inventory and receivables.
(b) Additional Guaranties and Stock Pledges. The Company will provide
---------------------------------------
to the Administrative Agent for the benefit of the Lenders hereunder a Joinder
Agreement providing a guaranty of the obligations under this Credit Agreement in
the same form and from the same Subsidiaries and Affiliates and a pledge of
stock relating thereto as provided under the Existing Credit Agreement in
Section 7.11 thereof.
27
<PAGE>
(c) Prepayments under the Existing Credit Facility. There shall be
----------------------------------------------
excepted from the operation of Section 8.9(a) of the Existing Credit Agreement
as incorporated herein amendment, modification or waiver of the provisions of
the Existing Credit Agreement and from the operation of Section 8.9(b) of the
Existing Credit Agreement as incorporated herein prepayment, mandatory, optional
or voluntary, on the Obligations under the Existing Credit Agreement.
(d) Prepayments and Commitment Reductions under the Existing Credit
---------------------------------------------------------------
Agreement. During the term of this Credit Agreement, the Borrower will not (i)
- - ---------
make any optional or voluntary prepayment on or in respect of the Obligations
under the Existing Credit Agreement during any period when Revolving Loans are
outstanding hereunder, or (ii) make any optional or voluntary reduction in the
Aggregate Revolving Committed Amount under the Existing Credit Agreement.
SECTION 7
EVENTS OF DEFAULT
-----------------
7.1 Events of Default.
-----------------
An Event of Default shall exist upon the occurrence of any of the following
specified events (each an "Event of Default"):
----------------
(a) Payment. Any Credit Party shall
-------
(i) default in the payment when due of any principal of any of the
Loans, or
(ii) default, and such defaults shall continue for five (5) or more
Business Days, in the payment when due of any interest on the Loans, or of
any Fees or other reasonable fees and amounts owing hereunder, under any of
the other Credit Documents or in connection herewith or therewith; or
(b) Representations. Any representation, warranty or statement made or
---------------
deemed to be made herein, in any of the other Credit Documents, or in any
statement or certificate delivered or required to be delivered pursuant hereto
or thereto shall prove untrue in any material respect on the date as of which it
was deemed to have been made; or
(c) Covenants.
---------
(i) Default in the due performance or observance of any term, covenant
or agreement contained in Section 7.3(a), 7.9, 7.11, 7.13 or 8.1 through
8.12 (except in the case of negative covenants contained in Sections 8.1
through 8.12, those Defaults which may occur or arise other than on account
of or by affirmative or intentional act of the Borrower or event or
condition which the Borrower shall with knowledge permit to exist, all of
which shall be subject to the
28
<PAGE>
provisions of clause (ii) hereof), inclusive, in each case of the
Incorporated Covenants, or
(ii) Default in the due performance or observance by it of any term,
covenant or agreement (other than those referred to in subsections (a), (b)
or (c)(i) of this Section 7.1) contained in this Credit Agreement and such
default shall continue unremedied for a period of at least 30 days after the
earlier of a Responsible Officer of a Credit Party becoming aware of such
default, or the giving of notice thereof by the Administrative Agent, or
with respect to Section 7.8 of the Incorporated Covenants, without a
response or investigation being initiated within such time period; or
(d) Other Credit Documents. (i) Any Credit Party shall default in the due
----------------------
performance or observance of any material term, covenant or agreement in any of
the other Credit Documents (subject to applicable grace or cure periods, if
any), or (ii) except as to the Credit Party which is dissolved, released or
merged or consolidated out of existence as the result of or in connection with a
dissolution, merger or disposition permitted by Section 8.4(a), Section 8.4(b)
or Section 8.4(c) of the Incorporated Covenants, any Credit Document shall fail
to be in full force and effect or to give the Administrative Agent and/or the
Lenders any material part of the Liens, rights, powers and privileges purported
to be created thereby; or
(e) Guaranties. Except as to the Credit Party which is dissolved, released
----------
or merged or consolidated out of existence as the result of or in connection
with a dissolution, merger or disposition permitted by Section 8.4(a), Section
8.4(b) or Section 8.4(c) of the Incorporated Covenants, the guaranty given by
any Guarantor hereunder or any material provision thereof shall cease to be in
full force and effect, or any Guarantor hereunder or any Person acting by or on
behalf of such Guarantor shall deny or disaffirm such Guarantor's obligations
under such guaranty, or any Guarantor shall default in the due performance or
observance of any term, covenant or agreement on its part to be performed or
observed pursuant to any guaranty; or
(f) Bankruptcy, etc. Any Bankruptcy Event shall occur with respect to any
---------------
member of the Consolidated Group; or
(g) Defaults under Other Agreements.
-------------------------------
(i) Any member of the Consolidated Group shall default in the
performance or observance (beyond the applicable grace period with respect
thereto, if any) of any material obligation or condition of any contract or
lease material to the Consolidated Group, taken as a whole which is
reasonably likely to have a Material Adverse Effect; or
(ii) With respect to any Indebtedness (other than Indebtedness
outstanding under this Credit Agreement) in excess of $10,000,000 in the
aggregate for the Consolidated Group taken as a whole, (A) (1) any member of
the Consolidated Group shall default in any payment (beyond the applicable
grace period with respect thereto, if any) with respect to any such
Indebtedness, or (2) the occurrence and continuance of a default in the
observance or performance relating to such Indebtedness or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the effect of which
is to cause any such
29
<PAGE>
Indebtedness to become due prior to its stated maturity; or (B) any such
Indebtedness shall be declared due and payable, or required to be prepaid
other than by a regularly scheduled required prepayment, prior to the stated
maturity thereof; or
(h) Judgments. Any member of the Consolidated Group shall fail within 30
---------
days of the date due and payable to pay, bond or otherwise discharge any
judgment, settlement or order for the payment of money which judgment,
settlement or order, when aggregated with all other such judgments, settlements
or orders due and unpaid at such time, exceeds $5,000,000, and which is not
stayed on appeal (or for which no motion for stay is pending) or is not
otherwise being executed or is not covered by insurance (subject to applicable
deductibles); or
(i) ERISA. Any of the following events or conditions, if such event or
-----
condition could reasonably be expected to have a Material Adverse Effect: (1)
any "accumulated funding deficiency," as such term is defined in Section 302 of
ERISA and Section 412 of the Code, whether or not waived, shall exist with
respect to any Single Employer or Multiple Employer Plan, or any lien shall
arise on the assets of a member of the Consolidated Group or any ERISA Affiliate
in favor of the PBGC or a Plan; (2) an ERISA Event shall occur with respect to a
Single Employer Plan, which is, in the reasonable opinion of the Administrative
Agent, likely to result in the termination of such Plan for purposes of Title IV
of ERISA; (3) an ERISA Event shall occur with respect to a Multiemployer Plan or
Multiple Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in (i) the termination of such Plan for
purposes of Title IV of ERISA, or (ii) a member of the Consolidated Group or any
ERISA Affiliate incurring any liability in connection with a withdrawal from,
reorganization of (within the meaning of Section 4241 of ERISA), or insolvency
of (within the meaning of Section 4245 of ERISA) such Plan; or (4) any
prohibited transaction (within the meaning of Section 406 of ERISA or Section
4975 of the Code) or breach of fiduciary responsibility shall occur which may
subject a member of the Consolidated Group or any ERISA Affiliate to any
liability under Sections 406, 409, 502(i), or 502(l) of ERISA or Section 4975 of
the Code, or under any agreement or other instrument pursuant to which a member
of the Consolidated Group or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability; or
(j) Ownership. There shall occur a Change of Control; or
---------
(k) Existing Credit Agreement. The occurrence and continuance of an Event
-------------------------
of Default under the Existing Credit Agreement.
7.2 Acceleration; Remedies.
----------------------
Upon the occurrence of an Event of Default, and at any time thereafter
during the continuance of an Event of Default, the Administrative Agent shall,
upon the request and direction of the Required Lenders, by written notice to the
Credit Parties take any of the following actions:
(i) Termination of Commitments. Declare the Commitments terminated
--------------------------
whereupon the Commitments shall be immediately terminated.
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(ii) Acceleration. Declare the unpaid principal of and any accrued
------------
interest in respect of all Loans and any and all other indebtedness or
obligations of any and every kind owing by the Credit Parties to the
Administrative Agent and/or any of the Lenders hereunder to be due whereupon
the same shall be immediately due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by each
of the Credit Parties.
(iii) Enforcement of Rights. Enforce any and all rights and
---------------------
interests created and existing under the Credit Documents and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
7.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all accrued interest in respect thereof, all accrued and unpaid Fees and
other indebtedness or obligations owing to the Administrative Agent and/or any
of the Lenders hereunder automatically shall immediately become due and payable
without presentment, demand, protest or the giving of any notice or other action
by the Administrative Agent or the Lenders, all of which are hereby waived by
the Credit Parties.
SECTION 8
AGENCY PROVISIONS
-----------------
8.1 Appointment.
-----------
Each Lender hereby designates and appoints NationsBank, N.A. as
administrative agent (in such capacity, the "Administrative Agent") of such
--------------------
Lender to act as specified herein and the other Credit Documents, and each such
Lender hereby authorizes the Administrative Agent as the Administrative Agent
for such Lender, to take such action on its behalf under the provisions of this
Credit Agreement and the other Credit Documents and to exercise such powers and
perform such duties as are expressly delegated by the terms hereof and of the
other Credit Documents, together with such other powers as are reasonably
incidental thereto. Each Lender further directs and authorizes the
Administrative Agent to execute releases (or similar agreements) to give effect
to the provisions of this Credit Agreement and the other Credit Documents,
including specifically without limitation the provisions of Section 3.16 hereof
and Section 8.4 of the Incorporated Covenants hereof. Notwithstanding any
provision to the contrary elsewhere herein and in the other Credit Documents,
the Administrative Agent shall not have any duties or responsibilities, except
those expressly set forth herein and therein, or any fiduciary relationship with
any Lender, and no implied covenants, functions, responsibilities, duties,
obligations or liabilities shall be read into this Credit Agreement or any of
the other Credit Documents, or shall otherwise exist against the Administrative
Agent. The provisions of this Section are solely for the benefit of the
Administrative Agent and the Lenders and none of the Credit Parties shall have
any rights as a third party beneficiary of the provisions hereof. In performing
its functions and duties under this Credit Agreement and the other Credit
Documents, the Administrative Agent shall act solely as Administrative Agent of
the Lenders and does not assume and shall not be deemed to have assumed any
obligation or relationship of agency or trust with or for any Credit Party or
any of their respective Affiliates.
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<PAGE>
8.2 Delegation of Duties.
--------------------
The Administrative Agent may execute any of its duties hereunder or under
the other Credit Documents by or through Administrative Agents or attorneys-in-
fact and shall be entitled to advice of counsel concerning all matters
pertaining to such duties. The Administrative Agent shall not be responsible
for the negligence or misconduct of any agents or attorneys-in-fact selected by
it with reasonable care.
8.3 Exculpatory Provisions.
----------------------
The Administrative Agent and its officers, directors, employees, agents,
attorneys-in-fact or affiliates shall not be (i) liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct), or (ii)
responsible in any manner to any of the Lenders for any recitals, statements,
representations or warranties made by any of the Credit Parties contained herein
or in any of the other Credit Documents or in any certificate, report, document,
financial statement or other written or oral statement referred to or provided
for in, or received by the Administrative Agent under or in connection herewith
or in connection with the other Credit Documents, or enforceability or
sufficiency therefor of any of the other Credit Documents, or for any failure of
any Credit Party to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Credit Agreement, or any of the other Credit Documents or
for any representations, warranties, recitals or statements made herein or
therein or made by the Borrower or any Credit Party in any written or oral
statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Lenders or by or on behalf
of the Credit Parties to the Administrative Agent or any Lender or be required
to ascertain or inquire as to the performance or observance of any of the terms,
conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or the use of the Letters of Credit
or of the existence or possible existence of any Default or Event of Default or
to inspect the properties, books or records of the Credit Parties or any of
their respective Affiliates.
8.4 Reliance on Communications.
--------------------------
The Administrative Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice, consent,
certificate, affidavit, letter, cablegram, telegram, telecopy, telex or teletype
message, statement, order or other document or conversation believed by it to be
genuine and correct and to have been signed, sent or made by the proper Person
or Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to any of the Credit Parties, independent accountants and
other experts selected by the Administrative Agent with reasonable care). The
Administrative Agent may deem and treat the Lenders as the owner of their
respective interests hereunder for all purposes unless a written notice of
assignment, negotiation or transfer thereof shall have been filed with the
Administrative Agent in accordance with Section 9.3(b) hereof. The
Administrative Agent shall be fully justified in failing or refusing to take any
action under this Credit Agreement or under any of the other Credit Documents
unless it shall first receive such advice or concurrence of the Required Lenders
as it
32
<PAGE>
deems appropriate or it shall first be indemnified to its satisfaction by the
Lenders against any and all liability and expense which may be incurred by it by
reason of taking or continuing to take any such action. The Administrative Agent
shall in all cases be fully protected in acting, or in refraining from acting,
hereunder or under any of the other Credit Documents in accordance with a
request of the Required Lenders (or to the extent specifically provided in
Section 9.6, all the Lenders) and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Lenders (including their
successors and assigns).
8.5 Notice of Default.
-----------------
The Administrative Agent shall not be deemed to have knowledge or notice of
the occurrence of any Default or Event of Default hereunder unless the
Administrative Agent has received notice from a Lender or a Credit Party
referring to the Credit Document, describing such Default or Event of Default
and stating that such notice is a "notice of default." In the event that the
Administrative Agent receives such a notice, the Administrative Agent shall give
prompt notice thereof to the Lenders. The Administrative Agent shall take such
action with respect to such Default or Event of Default as shall be reasonably
directed by the Required Lenders.
8.6 Non-Reliance on Administrative Agent and Other Lenders.
------------------------------------------------------
Each Lender expressly acknowledges that each of the Administrative Agent
and its officers, directors, employees, agents, attorneys-in-fact or affiliates
has not made any representations or warranties to it and that no act by the
Administrative Agent or any affiliate thereof hereinafter taken, including any
review of the affairs of any Credit Party or any of their respective Affiliates,
shall be deemed to constitute any representation or warranty by the
Administrative Agent to any Lender. Each Lender represents to the
Administrative Agent that it has, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of the Borrower, the other
Credit Parties or their respective Affiliates and made its own decision to make
its Loans hereunder and enter into this Credit Agreement. Each Lender also
represents that it will, independently and without reliance upon the
Administrative Agent or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Credit Agreement, and to make such investigation as it deems necessary to
inform itself as to the business, assets, operations, property, financial and
other conditions, prospects and creditworthiness of the Borrower, the other
Credit Parties and their respective Affiliates. Except for notices, reports and
other documents expressly required to be furnished to the Lenders by the
Administrative Agent hereunder, the Administrative Agent shall not have any duty
or responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial or other
conditions, prospects or creditworthiness of the Borrower, the other Credit
Parties or any of their respective Affiliates which may come into the possession
of the Administrative Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or affiliates.
8.7 Indemnification.
---------------
33
<PAGE>
The Lenders agree to indemnify the Agents in their capacity as such (to the
extent not reimbursed by the Borrower and without limiting the obligation of the
Borrower to do so), ratably according to their respective Commitments (or if the
Commitments have expired or been terminated, in accordance with the respective
principal amounts of outstanding Loans and Participation Interests of the
Lenders), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following the final payment of all of the obligations of the Borrower
hereunder and under the other Credit Documents) be imposed on, incurred by or
asserted against the Agents in their capacity as such in any way relating to or
arising out of this Credit Agreement or the other Credit Documents or any
documents contemplated by or referred to herein or therein or the transactions
contemplated hereby or thereby or any action taken or omitted by the Agents
under or in connection with any of the foregoing; provided that no Lender shall
--------
be liable for the payment of any portion of such liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, costs, expenses or
disbursements resulting from the gross negligence or willful misconduct of the
Agents. If any indemnity furnished to the Agents for any purpose shall, in the
opinion of such Agent, be insufficient or become impaired, the Agent may call
for additional indemnity and cease, or not commence, to do the acts indemnified
against until such additional indemnity is furnished. The agreements in this
Section shall survive the repayment of the Loans, and other obligations under
the Credit Documents and the termination of the Commitments hereunder.
8.8 Administrative Agent in its Individual Capacity.
-----------------------------------------------
The Administrative Agent and its affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Company, the
Borrower, its Subsidiaries or their respective Affiliates as though the
Administrative Agent were not the Administrative Agent hereunder. With respect
to the Loans made to and all obligations of the Borrower hereunder and under the
other Credit Documents, the Administrative Agent shall have the same rights and
powers under this Credit Agreement as any Lender and may exercise the same as
though it were not the Administrative Agent, and the terms "Lender" and
"Lenders" shall include the Administrative Agent in its individual capacity.
8.9 Successor Administrative Agent.
------------------------------
The Administrative Agent may, at any time, resign upon 20 days' written
notice to the Lenders, and may be removed, upon show of cause, by the Required
Lenders upon 30 days' written notice to the Administrative Agent. Upon any such
resignation or removal, the Required Lenders shall have the right to appoint a
successor Administrative Agent. If no successor Administrative Agent shall have
been so appointed by the Required Lenders, and shall have accepted such
appointment, within 30 days after the notice of resignation or notice of
removal, as appropriate, then the retiring Administrative Agent shall select a
successor Administrative Agent provided such successor is a Lender hereunder or
a commercial bank organized or licensed under the laws of the United States of
America or of any State thereof and has a combined capital and surplus of at
least $400,000,000. Upon the acceptance of any appointment as Administrative
Agent hereunder by a successor, such successor Administrative Agent shall
thereupon succeed to and become vested with all the rights, powers, privileges
and duties of the retiring Administrative Agent, and the retiring Administrative
Agent shall be discharged from its duties and obligations as
34
<PAGE>
Administrative Agent, as appropriate, under this Credit Agreement and the other
Credit Documents and the provisions of this Section 8.9 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Credit Agreement.
8.10 Intercreditor Agreements.
------------------------
(a) The terms of the Excluded Receivables Transaction require the
execution of an Intercreditor Agreement substantially in the form of Schedule
--------
8.10(a) (the "Intercreditor Agreement") as a condition to the grant of a
- - ------- -----------------------
security interest by the Borrower in inventory and accounts. By execution
hereof, each Lender hereby acknowledges, and agrees to be bound by, the terms of
the Intercreditor Agreement (including specifically, without limitation, the
provisions of Sections 6, 7 and 10(b) thereof), and further authorizes and
directs the Administrative Agent to enter into the Intercreditor Agreement on
its behalf.
(b) In addition, inasmuch as the obligations under the Existing Credit
Agreement are secured by the same collateral as that securing the obligations
this Credit Agreement, an intercreditor agreement is required in order that the
respective obligations share in such collateral on a pari passu basis. By
execution hereof, each Lender hereby acknowledges and agrees to be bound by the
terms of an Intercreditor Agreement in substantially the form of Schedule
--------
8.10(b) (as defined herein, the "Liquidity Intercreditor Agreement") and further
- - ------- ---------------------------------
authorizes and directs the Administrative Agent to enter into the Liquidity
Intercreditor Agreement on its behalf.
SECTION 9
MISCELLANEOUS
-------------
9.1 Notices.
-------
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (i) when
delivered, (ii) when transmitted via telecopy (or other facsimile device) to the
number set out below, (iii) the day following the day on which the same has been
delivered prepaid to a reputable national overnight air courier service, or (iv)
the third Business Day following the day on which the same is sent by certified
or registered mail, postage prepaid, in each case to the respective parties at
the address, in the case of the Borrower, Guarantors and the Administrative
Agent, set forth below, and, in the case of the Lenders, set forth on Schedule
--------
2.1(a), or at such other address as such party may specify by written notice to
- - ------
the other parties hereto:
if to the Borrower or the Guarantors:
AMERISOURCE CORPORATION
300 Chester Field Parkway
Malvern, Pennsylvania 19355
Attn: John A. Aberant
Telephone: (610) 296-4480
Telecopy: (610) 993-9085
35
<PAGE>
if to the Administrative Agent:
NationsBank, N.A.
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attn: Agency Services
Telephone: (704) 386-9371
Telecopy: (704) 386-9923
with a copy to:
NationsBank, N.A.
NationsBank Healthcare Finance Group
100 N. Tryon Street
NationsBank Corporate Center, Eighth Floor
Charlotte, North Carolina 28255
Attn: Scott S. Ward
Telephone: (704) 388-7839
Telecopy: (704) 388-6002
9.2 Right of Set-Off.
----------------
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default, each Lender is authorized at any time and from time to
time, without presentment, demand, protest or other notice of any kind (all of
which rights being hereby expressly waived), to set-off and to appropriate and
apply any and all deposits (general or special) and any other indebtedness at
any time held or owing by such Lender (including, without limitation branches,
agencies or Affiliates of such Lender wherever located) to or for the credit or
the account of any Credit Party against obligations and liabilities of such
Person to such Lender hereunder, under the Notes, the other Credit Documents or
otherwise, irrespective of whether such Lender shall have made any demand
hereunder and although such obligations, liabilities or claims, or any of them,
may be contingent or unmatured, and any such set-off shall be deemed to have
been made immediately upon the occurrence of an Event of Default even though
such charge is made or entered on the books of such Lender subsequent thereto.
Any Person purchasing a participation in the Loans and Commitments hereunder
pursuant to Section 3.13 or Section 9.3(d) may exercise all rights of set-off
with respect to its participation interest as fully as if such Person were a
Lender hereunder.
9.3 Benefit of Agreement.
--------------------
(a) Generally. This Credit Agreement shall be binding upon and inure
---------
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties may
--------
assign or transfer any of its interests or obligations without prior
written consent of the Lenders; provided
--------
36
<PAGE>
further that the rights of each Lender to transfer, assign or grant
-------
participations in its rights and/or obligations hereunder shall be limited
as set forth in this Section 9.3, provided however that nothing herein
--------
shall prevent or prohibit any Lender from (i) pledging its Loans hereunder
to a Federal Reserve Bank in support of borrowings made by such Lender from
such Federal Reserve Bank, or (ii) granting assignments or selling
participations in such Lender's Loans and/or Commitments hereunder to its
parent company and/or to any Affiliate or Subsidiary of such Lender.
(b) Assignments. Each Lender may assign all or a portion of its
-----------
rights and obligations hereunder, pursuant to an assignment agreement
substantially in the form of Schedule 9.3(b), to (i) any Lender or any
---------------
Affiliate or Subsidiary of a Lender, or (ii) any other commercial bank,
financial institution or "accredited investor" (as defined in Regulation D
of the Securities and Exchange Commission) reasonably acceptable to the
Administrative Agent; provided that (i) any such assignment (other than any
--------
assignment to an existing Lender) shall be in a minimum aggregate amount of
$5,000,000 (or, if less, the remaining amount of the Commitment being
assigned by such Lender) of the Commitments and in integral multiples of
$1,000,000 above such amount and (ii) each such assignment shall be of a
constant, not varying, percentage of all such Lender's rights and
obligations under this Credit Agreement. Any assignment hereunder shall be
effective upon delivery to the Administrative Agent of written notice of
the assignment together with a transfer fee of $3,500 payable to the
Administrative Agent for its own account from and after the later of (i)
the effective date specified in the applicable assignment agreement and
(ii) the date of recording of such assignment in the Register pursuant to
the terms of subsection (c) below. The assigning Lender will give prompt
notice to the Administrative Agent and the Borrower of any such assignment.
Upon the effectiveness of any such Assignment (and after notice to, and (to
the extent required pursuant to the terms hereof), with the consent of, the
Borrower and the Administrative Agent as provided herein), the assignee
shall become a "Lender" for all purposes of this Credit Agreement and the
other Credit Documents and, to the extent of such assignment, the assigning
Lender shall be relieved of its obligations hereunder to the extent of the
Loans and Commitment components being assigned. Along such lines the
Borrower agrees that upon any such assignment and surrender of the
appropriate Note or Notes, it will promptly provide to the assigning Lender
and to the assignee separate promissory notes in the amount of their
respective interests substantially in the form of the original Note (but
with notation thereon that it is given in substitution for and replacement
of the original Note or any replacement notes thereof). By executing and
delivering an assignment agreement in accordance with this Section 9.3(b),
the assigning Lender thereunder and the assignee thereunder shall be deemed
to confirm to and agree with each other and the other parties hereto as
follows: (i) such assigning Lender warrants that it is the legal and
beneficial owner of the interest being assigned thereby free and clear of
any adverse claim; (ii) except as set forth in clause (i) above, such
assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or
representations made in or in connection with this Credit Agreement, any of
the other Credit Documents or any other instrument or document furnished
pursuant hereto or thereto, or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of this Credit Agreement,
any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto or the financial condition of any
Credit Party or any of their respective Affiliates
37
<PAGE>
or the performance or observance by any Credit Party of any of its
obligations under this Credit Agreement, any of the other Credit Documents
or any other instrument or document furnished pursuant hereto or thereto;
(iii) such assignee represents and warrants that it is legally authorized
to enter into such assignment agreement; (iv) such assignee confirms that
it has received a copy of this Credit Agreement, the other Credit Documents
and such other documents and information as it has deemed appropriate to
make its own credit analysis and decision to enter into such assignment
agreement; (v) such assignee will independently and without reliance upon
the Administrative Agent, such assigning Lender or any other Lender, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking
action under this Credit Agreement and the other Credit Documents; (vi)
such assignee appoints and authorizes the Administrative Agent to take such
action on its behalf and to exercise such powers under this Credit
Agreement or any other Credit Document as are delegated to the
Administrative Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto; and (vii) such assignee agrees
that it will perform in accordance with their terms all the obligations
which by the terms of this Credit Agreement and the other Credit Documents
are required to be performed by it as a Lender.
(c) Maintenance of Register. The Administrative Agent shall maintain
-----------------------
at one of its offices in Charlotte, North Carolina a copy of each Lender
assignment agreement delivered to it in accordance with the terms of
subsection (b) above and a register for the recordation of the identity of
the principal amount, type and Interest Period of each Loan outstanding
hereunder, the names, addresses and the Commitments of the Lenders pursuant
to the terms hereof from time to time (the "Register"). The Administrative
--------
Agent will make reasonable efforts to maintain the accuracy of the Register
and to promptly update the Register from time to time, as necessary. The
entries in the Register shall be conclusive in the absence of manifest
error and the Borrower, the Administrative Agent and the Lenders may treat
each Person whose name is recorded in the Register pursuant to the terms
hereof as a Lender hereunder for all purposes of this Credit Agreement.
The Register shall be available for inspection by the Borrower and each
Lender, at any reasonable time and from time to time upon reasonable prior
notice.
(d) Participations. Each Lender may sell, transfer, grant or assign
--------------
participations in all or any part of such Lender's interests and
obligations hereunder; provided that (i) such selling Lender shall remain a
--------
"Lender" for all purposes under this Credit Agreement (such selling
Lender's obligations under the Credit Documents remaining unchanged) and
the participant shall not constitute a Lender hereunder, (ii) no such
participant shall have, or be granted, rights to approve any amendment or
waiver relating to this Credit Agreement or the other Credit Documents
except to the extent any such amendment or waiver would (A) reduce the
principal of or rate of interest on or Fees in respect of any Loans or any
Letter of Credit in which the participant is participating, (B) postpone
the date fixed for any payment of principal (including extension of the
Termination Date or the date of any mandatory prepayment), interest or Fees
in which the participant is participating, or (C) except as expressly
provided in the Credit Documents, release all or substantially all of the
collateral pledged to secure the Obligations hereunder or release all or
substantially all of the Guarantors from the guaranty obligations
38
<PAGE>
hereunder, and (iii) sub-participations by the participant (except to an
affiliate, parent company or affiliate of a parent company of the
participant) shall be prohibited. In the case of any such participation,
the participant shall not have any rights under this Credit Agreement or
the other Credit Documents (the participant's rights against the selling
Lender in respect of such participation to be those set forth in the
participation agreement with such Lender creating such participation) and
all amounts payable by the Borrower hereunder shall be determined as if
such Lender had not sold such participation, provided, however, that such
--------
participant shall be entitled to receive the benefit of additional amounts
under Sections 3.6, 3.9, 3.10 and 3.11 on the same basis as if it were a
Lender.
9.4 No Waiver; Remedies Cumulative.
------------------------------
No failure or delay on the part of the Administrative Agent or any Lender
in exercising any right, power or privilege hereunder or under any other Credit
Document and no course of dealing between the Administrative Agent or any Lender
and any of the Credit Parties shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege hereunder or under
any other Credit Document preclude any other or further exercise thereof or the
exercise of any other right, power or privilege hereunder or thereunder. The
rights and remedies provided herein are cumulative and not exclusive of any
rights or remedies which the Administrative Agent or any Lender would otherwise
have. No notice to or demand on any Credit Party in any case shall entitle the
Borrower or any other Credit Party to any other or further notice or demand in
similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
9.5 Payment of Expenses, etc.
------------------------
The Borrower agrees to: (i) pay all reasonable out-of-pocket costs and
expenses (A) of the Administrative Agent in connection with the negotiation,
preparation, execution and delivery of this Credit Agreement and the other
Credit Documents and the documents and instruments referred to therein
(including, without limitation, the reasonable fees and expenses of Moore & Van
Allen, PLLC, special counsel to the Administrative Agent) and any amendment,
waiver or consent relating hereto and thereto including, but not limited to, any
such amendments, waivers or consents resulting from or related to any work-out,
renegotiation or restructure relating to the performance by the Credit Parties
under this Credit Agreement and (B) of the Administrative Agent and the Lenders
in connection with enforcement of or preservation of rights under the Credit
Documents and the documents and instruments referred to therein (including,
without limitation, in connection with any such enforcement, the reasonable fees
and disbursements of counsel for the Administrative Agent and each of the
Lenders); (ii) pay and hold each of the Lenders harmless from and against any
and all present and future stamp and other similar taxes with respect to the
foregoing matters and save each of the Lenders harmless from and against any and
all liabilities with respect to or resulting from any delay or omission (other
than to the extent attributable to such Lender) to pay such taxes; and (iii)
indemnify each Lender, its officers, directors, employees, representatives and
Administrative Agents from and hold each of them harmless against any and all
losses, liabilities, claims, damages or reasonable expenses incurred by any of
them as a result of, or arising out of, or in any way related to, or by reason
of (A) any investigation, litigation or other proceeding (whether or not any
Lender is a party thereto) related
39
<PAGE>
to the entering into and/or performance of any Credit Document or the use of
proceeds of any Loans (including other extensions of credit) hereunder or the
consummation of any other transactions contemplated in any Credit Document,
including, without limitation, the reasonable fees and disbursements of counsel
incurred in connection with any such investigation, litigation or other
proceeding (other than investigations, litigation or other proceedings relating
solely to claims between or among the Lenders) or (B) the presence or Release of
any Materials of Environmental Concern at, under or from any Property owned,
operated or leased by the Borrower or any of its Subsidiaries, or the failure by
the Borrower or any of its Subsidiaries to comply with any Environmental Law
(but excluding, in the case of either of clause (A) or (B) above, any such
losses, liabilities, claims, damages or expenses to the extent incurred by
reason of gross negligence or willful misconduct on the part of the Person to be
indemnified).
9.6 Amendments, Waivers and Consents.
--------------------------------
Neither this Credit Agreement nor any other Credit Document nor any of the
terms hereof or thereof may be amended, changed, waived, discharged or
terminated unless such amendment, change, waiver, discharge or termination is in
writing entered into by, or approved in writing by, the Required Lenders and the
Borrower, provided, however, that:
-------- -------
(a) no such amendment, change, waiver, discharge or termination shall,
without the consent of each Lender directly affected thereby, (i) reduce
the rate or extend the time of payment of interest (other than as a result
of waiving the applicability of any post-default increase in interest
rates) on any Loan or the Commitment Fee or the Letter of Credit Fee
hereunder, (ii) extend (A) the Commitments of the Lenders, or (B) the final
maturity of any Loan, or (iii) reduce the principal amount on any Loan;
(b) no such amendment, change, waiver, discharge or termination shall,
without the consent of each Lender affected thereby, (i) increase the
Commitments of the Lenders over the amount thereof in effect (it being
understood and agreed that a waiver of any Default or Event of Default or
of a mandatory reduction in the total commitments shall not constitute a
change in the terms of any Commitment of any Lender), (ii) except as the
result of or in connection with a release of collateral as provided in
Section 3.16 or with a dissolution, merger or disposition permitted under
Section 8.4 of the Incorporated Covenants, release all or substantially all
of the collateral pledged to secure the Obligations hereunder or release
all or substantially all of the Guarantors from the guaranty obligations
hereunder, (iii) amend, modify or waive any provision of this Section 11.6
or Section 3.6, 3.10, 3.11, 3.12, 3.13, 3.16, Section 4, 7.1(a), 9.3, 9.5
or 9.9, (iv) reduce any percentage specified in, or otherwise modify, the
definition of "Required Lenders," or (v) consent to the assignment or
transfer by the Borrower (or any Guarantor) of any of its rights and
obligations under (or in respect of) the Credit Documents to which it is a
party; and
(c) no provision of Section 8 may be amended without the consent of
the Administrative Agent.
9.7 Counterparts.
------------
40
<PAGE>
This Credit Agreement may be executed in any number of counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. It shall not be necessary in
making proof of this Credit Agreement to produce or account for more than one
such counterpart.
9.8 Headings.
--------
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
9.9 Survival.
--------
All indemnities set forth herein, including, without limitation, in Section
2.2(i), 3.9, 3.11 or 7.8(c) of the Incorporated Covenants, 8.7 or 9.5 shall
survive the execution and delivery of this Credit Agreement, the making of the
Loans, the issuance of the Letters of Credit, the repayment of the Loans and
other obligations under the Credit Documents and the termination of the
Commitments hereunder, and all representations and warranties made by the Credit
Parties herein shall survive delivery of the Notes and the making of the Loans
hereunder.
9.10 Governing Law; Submission to Jurisdiction; Venue.
------------------------------------------------
(a) THIS CREDIT AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH
CAROLINA. Any legal action or proceeding with respect to this Credit Agreement
or any other Credit Document may be brought in the courts of the State of North
Carolina in Mecklenburg County, or of the United States for the Western District
of North Carolina, and, by execution and delivery of this Credit Agreement, each
of the Credit Parties hereby irrevocably accepts for itself and in respect of
its property, generally and unconditionally, the nonexclusive jurisdiction of
such courts. Each of the Credit Parties further irrevocably consents to the
service of process out of any of the aforementioned courts in any such action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to it at the address set out for notices pursuant to Section
9.1, such service to become effective three (3) days after such mailing.
Nothing herein shall affect the right of the Administrative Agent to serve
process in any other manner permitted by law or to commence legal proceedings or
to otherwise proceed against any Credit Party in any other jurisdiction.
(b) Each of the Credit Parties hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Credit Agreement or any other Credit Document brought in the courts referred to
in subsection (a) hereof and hereby further irrevocably waives and agrees not to
plead or claim in any such court that any such action or proceeding brought in
any such court has been brought in an inconvenient forum.
41
<PAGE>
(c) TO THE EXTENT PERMITTED BY LAW, EACH OF THE ADMINISTRATIVE AGENT, THE
LENDERS, THE BORROWER AND THE CREDIT PARTIES HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
9.11 Severability.
------------
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
9.12 Entirety.
--------
This Credit Agreement together with the other Credit Documents represent
the entire agreement of the parties hereto and thereto, and supersede all prior
agreements and understandings, oral or written, if any, including any commitment
letters or correspondence relating to the Credit Documents or the transactions
contemplated herein and therein.
9.13 Binding Effect; Termination.
---------------------------
(a) This Credit Agreement shall become effective at such time on or after
the Closing Date when it shall have been executed by the Borrower, the
Guarantors and the Administrative Agent, and the Administrative Agent shall have
received copies hereof (telefaxed or otherwise) which, when taken together, bear
the signatures of each Lender, and thereafter this Credit Agreement shall be
binding upon and inure to the benefit of the Borrower, the Guarantors, the
Administrative Agent and each Lender and their respective successors and
assigns.
(b) The term of this Credit Agreement shall be until no Loans, or any other
amounts payable hereunder or under any of the other Credit Documents shall
remain outstanding and until all of the Commitments hereunder shall have expired
or been terminated.
9.14 Confidentiality.
---------------
The Administrative Agent and the Lenders agree to keep confidential (and to
cause their respective affiliates, officers, directors, employees,
Administrative Agents and representatives to keep confidential) all information,
materials and documents furnished to the Administrative Agent or any such Lender
by or on behalf of any Credit Party (whether before or after the Closing Date)
which relates to the Company, the Borrower or any of their Subsidiaries (the
"Information"). Notwithstanding the foregoing, the Administrative Agent and
- - ------------
each Lender shall be permitted to disclose Information (i) to its affiliates,
officers, directors, employees, Administrative Agents and representatives in
connection with its participation in any of the transactions evidenced by this
Credit Agreement or any other Credit Documents or the administration of this
Credit Agreement or any other Credit Documents; (ii) to the extent required by
applicable laws and regulations or by any subpoena or similar legal process, or
requested by any Governmental Authority; (iii) to the
42
<PAGE>
extent such Information (A) becomes publicly available other than as a result of
a breach of this Credit Agreement or any agreement entered into pursuant to
clause (iv) below, (B) becomes available to the Administrative Agent or such
Lender on a non-confidential basis from a source other than a Credit Party or
(C) was available to the Administrative Agent or such Lender on a non-
confidential basis prior to its disclosure to the Administrative Agent or such
Lender by a Credit Party; (iv) to any assignee or participant (or prospective
assignee or participant) so long as such assignee or participant (or prospective
assignee or participant) first specifically agrees in a writing furnished to and
for the benefit of the Credit Parties to be bound by the terms of this Section
9.14; or (v) to the extent that the Borrower shall have consented in writing to
such disclosure. Nothing set forth in this Section 9.14 shall obligate the
Administrative Agent or any Lender to return any materials furnished by the
Credit Parties.
9.15 Source of Funds.
---------------
Each of the Lenders hereby represents and warrants to the Borrower that at
least one of the following statements is an accurate representation as to the
source of funds to be used by such Lender in connection with the financing
hereunder:
(a) no part of such funds constitutes assets allocated to any separate
account maintained by such Lender in which any employee benefit plan (or
its related trust) has any interest;
(b) to the extent that any part of such funds constitutes assets
allocated to any separate account maintained by such Lender, such Lender
has disclosed to the Borrower the name of each employee benefit plan whose
assets in such account exceed 10% of the total assets of such account as of
the date of such purchase (and, for purposes of this subsection (b), all
employee benefit plans maintained by the same employer or employee
organization are deemed to be a single plan);
(c) to the extent that any part of such funds constitutes assets of an
insurance company's general account, such insurance company has complied
with all of the requirements of the regulations issued under Section
401(c)(1)(A) of ERISA; or
(d) such funds constitute assets of one or more specific benefit plans
which such Lender has identified in writing to the Borrower.
As used in this Section 9.15, the terms "employee benefit plan" and "separate
account" shall have the respective meanings assigned to such terms in Section 3
of ERISA.
9.16 Conflict.
--------
To the extent that there is a conflict or inconsistency between any
provision hereof, on the one hand, and any provision of any Credit Document, on
the other hand, this Credit Agreement shall control.
[Signature Page to Follow]
43
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of
this Credit Agreement to be duly executed and delivered as of the date first
above written.
BORROWER: AMERISOURCE CORPORATION,
- - --------
a Delaware corporation
By:_______________________________
Name:
Title:
GUARANTORS: AMERISOURCE HEALTH CORPORATION,
- - ----------
a Delaware corporation
By:_______________________________
Name:
Title:
AMERISOURCE HEALTH SERVICES CORP.,
a Delaware corporation
By:_______________________________
Name:
Title:
AMERISOURCE SALES CORPORATION,
a Delaware corporation
By:_______________________________
Name:
Title:
HEALTH SERVICES CAPITAL CORP.,
a Delaware corporation
By:_______________________________
Name:
Title:
<PAGE>
HEALTH SERVICES PLUS, INC.,
a Delaware corporation
By:_______________________________
Name:
Title:
AMERISOURCE MEDICAL SUPPLY, INC.
a Tennessee corporation
By:_______________________________
Name:
Title:
AMERISOURCE HERITAGE CORPORATION
a Delaware corporation
By:_______________________________
Name:
Title:
LENDERS: NATIONSBANK, N.A.,
- - -------
individually in its capacity as a Lender
and in its capacity as Administrative Agent
By:_______________________________
Name:
Title:
THE BANK OF NOVA SCOTIA
By:_______________________________
Name:
Title:
<PAGE>
Schedule 2.1(a)
---------------
Schedule of Lenders and Commitments
Revolving
Revolving Commitment
Lender Committed Amount Percentage
------ ---------------- ----------
NationsBank, N.A. $ 75,000,000.00 75.000000%%
101 North Tryon Street
15th Floor, Agency Services
NC1-001-15-04
Charlotte, NC 28255
Tel: (704) 386-9371
Fax: (704) 386-9923
The Bank of Nova Scotia $ 25,000,000.00 25.000000%
_____________________
_____________________
Tel: (___) ___-____ _________________ _____________
Fax: (___) ___-____ $100,000,000.00 100.000000%
<PAGE>
Schedule 2.1(b)(i)
------------------
FORM OF NOTICE OF BORROWING
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of December __, 1998 (as amended and
modified, the "Credit Agreement") among AmeriSource Corporation, the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, AMERISOURCE CORPORATION, a Delaware corporation, being the
Borrower under the above-referenced Credit Agreement hereby gives notice
pursuant to Section 2.1(b) of the Credit Agreement of a request for a Revolving
Loan as follows
(A) Date of Borrowing
(which is a Business Day) _______________________
(B) Principal Amount of
Borrowing _______________________
(C) Interest rate basis _______________________
(D) Interest Period and the
last day thereof _______________________
In accordance with the requirements of Section 5.3 of the Credit Agreement, the
undersigned Borrower hereby certifies that:
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly relate to an earlier date).
<PAGE>
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Incorporated Representations of the Credit Agreement which would have a
Material Adverse Effect.
(d) All conditions set forth in Section 2.1 as to the making of
Revolving Loans have been satisfied.
Very truly yours,
AMERISOURCE CORPORATION
By:_______________________________
Name:
Title:
<PAGE>
Schedule 2.1(e)
---------------
FORM OF REVOLVING NOTE
December __, 1998
FOR VALUE RECEIVED, the undersigned Borrower, hereby promises to pay to the
order of ________________________, and its successors and assigns, on or before
the Termination Date to the office of the Administrative Agent in immediately
available funds as provided in the Credit Agreement, the principal amount of
such Lender's Revolving Committed Amount or, if less, the aggregate unpaid
principal amount of all Revolving Loans made by such Lender to the undersigned
Borrower; together with interest thereon at the rates and as provided in the
Credit Agreement.
This Note is one of the Revolving Notes referred to in the Liquidity
Facility Credit Agreement dated as of December __, 1998 (as amended and
modified, the "Credit Agreement among AmeriSource Corporation, a Delaware
----------------
corporation, AmeriSource Health Corporation, a Delaware corporation, the
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein shall have
the meanings provided in the Credit Agreement.
The holder may endorse and attach a schedule to reflect borrowings
evidenced by this Note and all payments and prepayments thereon; provided that
--------
any failure to endorse such information shall not affect the obligation of the
undersigned Borrower to pay amounts evidenced hereby.
Upon the occurrence of an Event of Default, all amounts evidenced by this
Note may, or shall, become immediately due and payable as provided in the Credit
Agreement without presentment, demand, protest or notice of any kind, all of
which are waived by the undersigned Borrower. In the event payment of amounts
evidenced by this Note is not made at any stated or accelerated maturity, the
undersigned Borrower agrees to pay, in addition to principal and interest, all
costs of collection, including reasonable attorneys' fees.
This Note and the Loans and amounts evidenced hereby may be transferred
only as provided in the Credit Agreement.
This Note shall be governed by, and construed and interpreted in accordance
with, the law of the State of North Carolina.
IN WITNESS WHEREOF, the undersigned Borrower has caused this Note to be
duly executed as of the date first above written.
AMERISOURCE CORPORATION,
a Delaware corporation
By_________________________________
Name:
Title:
<PAGE>
Schedule 3.2
------------
Form of Notice of Extension/Conversion
NationsBank, N.A.,
as Administrative Agent for the Lenders
101 N. Tryon Street
Independence Center, 15th Floor
NC1-001-15-04
Charlotte, North Carolina 28255
Attention: Agency Services
Re: Credit Agreement dated as of December __, 1998 (as amended and
modified, the "Credit Agreement") among AmeriSource Corporation, the
----------------
Guarantors and Lenders identified therein and NationsBank, N.A., as
Administrative Agent. Terms used but not otherwise defined herein
shall have the meanings provided in the Credit Agreement.
Ladies and Gentlemen:
The undersigned, AMERISOURCE CORPORATION (the "Borrower"), refers to the
--------
Credit Agreement dated as of December __, 1998 (as amended, modified, extended
or restated from time to time, the "Credit Agreement"), among the Borrower, the
----------------
Lenders and NationsBank, N.A., as Administrative Agent. Capitalized terms used
herein and not otherwise defined herein shall have the meanings assigned to such
terms in the Credit Agreement. The Borrower hereby gives notice pursuant to
Section 3.2 of the Credit Agreement that it requests an extension or conversion
of a Revolving Loan outstanding under the Credit Agreement, and in connection
therewith sets forth below the terms on which such extension or conversion is
requested to be made:
(A) Date of Extension or Conversion
(which is the last day of the
the applicable Interest Period) _______________________
(B) Principal Amount of
Extension or Conversion _______________________
(C) Interest rate basis _______________________
(D) Interest Period and the
last day thereof _______________________
In accordance with the requirements of Section 5.3 of the Credit Agreement,
the undersigned Borrower hereby certifies that:
<PAGE>
(a) The representations and warranties contained in the Credit
Agreement and the other Credit Documents are true and correct in all
material respects as of the date of this request, and will be true and
correct after giving effect to the requested Extension of Credit (except
for those which expressly relate to an earlier date).
(b) No Default or Event of Default exists, or will exist after giving
effect to the requested Extension of Credit.
(c) No circumstances, events or conditions have occurred since the
date of the audited financial statements referenced in Section 6.1 of the
Incorporated Representations of the Credit Agreement which would have a
Material Adverse Effect.
Very truly yours,
AMERISOURCE CORPORATION
By:_______________________
Name:
Title:
<PAGE>
Schedule 5.1(g)(v)
------------------
Secretary's Certificate
Pursuant to Section 5.1(g)(v) of the Credit Agreement (the "Credit
------
Agreement"), dated as of December __, 1998, among AMERISOURCE CORPORATION, a
- - ---------
Delaware corporation, the Guarantors and Lenders identified therein and
NationsBank, N.A., as Administrative Agent, the undersigned ____________________
Secretary of _________________________ (the "Corporation") hereby certifies as
-----------
follows:
1. Attached hereto as Annex I is a true and complete copy of resolutions
duly adopted by the Board of Directors of the Corporation on __________________,
1998. The attached resolutions have not been rescinded or modified and remain
in full force and effect. The attached resolutions are the only corporate
proceedings of the Corporation now in force relating to or affecting the matters
referenced to therein.
2. Attached hereto as Annex II is a true and complete copy of the By-laws
of the Corporation as in effect on the date hereof.
3. Attached hereto as Annex III is a true and complete copy of the
Certificate of Incorporation of the Corporation and all amendments thereto as in
effect on the date hereof.
4. The following persons are now duly elected and qualified officers of
the Corporation, holding the offices indicated, and the signature appearing
opposite his name below is his true and genuine signature, and such officer is
duly authorized to execute and deliver on behalf of the Corporation the Credit
Agreement, the Notes to be issued pursuant thereto and the other Credit
Documents and to act as a Responsible Officer on behalf of the Corporation under
the Credit Agreement:
Name Office Signature
- - ---- ------ ---------
________________________
IN WITNESS WHEREOF, the undersigned has hereunto set his/her name and
affixed the corporate seal of the Corporation.
_______________________________,
Secretary
(CORPORATE SEAL)
Date: __________________, 1997
I, ___________________, ___________________ of ________________________,
hereby certify that ______________________, whose genuine signature appears
above, is, and has been at all times since ________________________, a duly
elected, qualified and acting _________________ of
____________________________________.
__________________________________ of
___________________________________
_______________________________, 1997
<PAGE>
Schedule 5.1(g)(vi)(A)
----------------------
Solvency Certificate
Solvency Certificate
Pursuant to Section 5.1(g)(vi) of the Credit Agreement (the "Credit
------
Agreement;" terms used but not otherwise defined herein shall have the meanings
- - ---------
provided in the Credit Agreement), dated as of December __, 1998, among
AMERISOURCE CORPORATION, a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent, the
undersigned ____________________ of AMERISOURCE CORPORATION, a Delaware
corporation (the "Corporation"), hereby certifies:
-----------
1. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, are able to pay their debts and other liabilities,
contingent obligations and other commitments as they mature in the normal
course of business.
2. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, do not intend to, and do not believe that they will,
incur debts or liabilities beyond their ability to pay as such debts and
liabilities mature in their ordinary course.
3. As of the date hereof, the Corporation and its Subsidiaries, on a
consolidated basis, are not engaged in any business or transaction, and are
not about to engage in any business or transaction, for which the Property
of the Corporation and its Subsidiaries, on a consolidated basis, would
constitute unreasonably small capital after giving due consideration to the
prevailing practice in the industry in which Corporation and its
Subsidiaries are engaged or are to engage.
4. As of the date hereof, the present fair saleable value of the
consolidated assets of the Corporation and its Subsidiaries is not less
than the amount that will be required to pay the probable liability on the
debts of the Corporation and its Subsidiaries, on a consolidated basis, as
they become absolute and matured.
This the ____ day of November, 1997.
AMERISOURCE CORPORATION,
a Delaware corporation
By:_________________________
Name:
Title:
<PAGE>
Schedule 5.1(g)(vi)(B)
----------------------
Solvency Certificate
Pursuant to Section 5.1(g)(vi) of the Credit Agreement (the "Credit
------
Agreement;" terms used but not otherwise defined herein shall have the meanings
- - ---------
provided in the Credit Agreement), dated as of December __, 1998, among
AMERISOURCE CORPORATION, a Delaware corporation, the Guarantors and Lenders
identified therein and NationsBank, N.A., as Administrative Agent, the
undersigned ____________________ of AMERISOURCE HEALTH CORPORATION, a Delaware
corporation, hereby certifies:
1. As of the date hereof, the Credit Parties, on a consolidated basis, are
able to pay their debts and other liabilities, contingent obligations and
other commitments as they mature in the normal course of business.
2. As of the date hereof, the Credit Parties, on a consolidated basis, do
not intend to, and do not believe that they will, incur debts or
liabilities beyond their ability to pay as such debts and liabilities
mature in their ordinary course.
3. As of the date hereof, the Credit Parties, on a consolidated basis, are
not engaged in any business or transaction, and are not about to engage in
any business or transaction, for which the Property of the Credit Parties,
on a consolidated basis, would constitute unreasonably small capital after
giving due consideration to the prevailing practice in the industry in
which Credit Parties are engaged or are to engage.
4. As of the date hereof, the present fair saleable value of the
consolidated assets of the Credit Parties is not less than the amount that
will be required to pay the probable liability on the debts of the Credit
Parties, on a consolidated basis, as they become absolute and matured.
This the ____ day of November, 1997.
AMERISOURCE HEALTH CORPORATION,
a Delaware corporation
By:_________________________
Name:
Title:
<PAGE>
Schedule 8.10(a)
----------------
SECURITIZATION INTERCREDITOR AGREEMENT
<PAGE>
Schedule 8.10(b)
----------------
LIQUIDITY INTERCREDITOR AGREEMENT
<PAGE>
Schedule 9.3(b)
---------------
Form of Assignment and Acceptance
THIS ASSIGNMENT AND ACCEPTANCE dated as of _________________________,
199___ is entered into between THE LENDER IDENTIFIED ON THE SIGNATURE PAGES AS
THE "ASSIGNOR" (the "Assignor") and THE PARTIES IDENTIFIED ON THE SIGNATURE
--------
PAGES AS "ASSIGNEES" ("Assignee").
--------
Reference is made to that Credit Agreement dated as of December __, 1998
(as amended and modified, the "Credit Agreement") among AMERISOURCE CORPORATION,
----------------
a Delaware corporation (the "Borrower"), the Guarantors and Lenders identified
--------
therein and NationsBank, N.A., as Administrative Agent. Terms defined in the
Credit Agreement are used herein with the same meanings.
1. The Assignor hereby sells and assigns, without recourse, to the
Assignees, and the Assignees hereby purchase and assume, without recourse, from
the Assignor, effective as of the Effective Date shown below, those rights and
interests of the Assignor under the Credit Agreement identified below (the
"Assigned Interests"), including the Obligations and Commitments relating
- - -------------------
thereto, together with unpaid interest and fees relating thereto accruing from
the Effective Date. The Assignor represents and warrants that it owns the
interests assigned hereby free and clear of liens, encumbrances or other claims.
Each of the Assignees represents that it is an Eligible Assignee within the
meaning of the term in the Credit Agreement. The Assignor and each of the
Assignees hereby makes and agrees to be bound by all the representations,
warranties and agreements set forth in Section 9.3 of the Credit Agreement, a
copy of which has been received by each such party. From and after the
Effective Date (i) each Assignee, if it is not already a Lender under the Credit
Agreement, shall be a party to and be bound by the provisions of the Credit
Agreement and, to the extent of the interests assigned by this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and (ii) each
Assignor shall, to the extent of the interests assigned by this Assignment and
Acceptance, relinquish its rights and be released from its obligations under the
Credit Agreement (other than the rights of indemnification referenced in Section
9.9 of the Credit Agreement).
2. This Assignment and Acceptance shall be governed by and construed in
accordance with the laws of the State of North Carolina.
3. Terms of Assignment
(a) Date of Assignment: ___________________, 199__
(b) Legal Name of Assignor: SEE SIGNATURE PAGE
<PAGE>
(c) Legal Name of Assignee: SEE SIGNATURE PAGE
(d) Effective Date of Assignment: ___________________, 199__
See Schedule I attached for a description of the Loans and Obligations and
----------
Commitments (and the percentage interests therein and relating thereto) which
are the subject of this Assignment and Acceptance.
4. The fee payable to the Paying Agent in connection with this Assignment
is enclosed.
IN WITNESS WHEREOF, the parties hereto have caused the execution of this
instrument by their duly authorized officers as of the date first above written.
ASSIGNOR: ASSIGNEE:
- - -------- --------
By____________________________ By____________________________
Name: Name:
Title: Title:
ACKNOWLEDGMENT AND CONSENT
- - --------------------------
NATIONSBANK, N.A. AMERISOURCE CORPORATION
as Administrative Agent
By___________________________ By____________________________
Name: Name:
Title: Title:
<PAGE>
SCHEDULE I
----------
TO ASSIGNMENT AND ACCEPTANCE
AMERISOURCE CORPORATION
REVOLVING LOANS AND LETTERS OF CREDIT PRIOR TO ASSIGNMENT
<TABLE>
<CAPTION>
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
ASSIGNOR
- - --------
ASSIGNEES
- - ----------
____________________ ____________________ ____________________
$ $
</TABLE>
REVOLVING LOANS AND LETTERS OF CREDIT INTERESTS SUBJECT OF THIS ASSIGNMENT
<TABLE>
<CAPTION>
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
ASSIGNOR
- - --------
____________________ ____________________ ____________________
$ $
</TABLE>
<PAGE>
SCHEDULE I
----------
TO ASSIGNMENT AND ACCEPTANCE
AMERISOURCE CORPORATION
REVOLVING LOANS AND LETTERS OF CREDIT AFTER ASSIGNMENT
<TABLE>
<CAPTION>
Revolving Revolving Revolving
Committed Commitment Loans
Amount Percentage Outstanding
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
ASSIGNOR
- - --------
ASSIGNEES
- - ---------
____________________ ____________________ ____________________
$ $
</TABLE>
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF AMERISOURCE HEALTH CORPORATION
As of December 1, 1998, the subsidiaries of AmeriSource Health
Corporation, together with their respective jurisdictions of incorporation, were
as follows:
Subsidiary Jursidictions of Incorporation
---------- ------------------------------
AmeriSource Corporation Delaware
<PAGE>
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statements No.
333-45547, 333-01951, 033-60051, 033-58329 and 033-58321 on Form S-8 and No.
333-67985 on Form S-3 of AmeriSource Health Corporation, of our report dated
November 3, 1998, except for Note 13, as to which the date is December 8, 1998,
with respect to the consolidated financial statements and schedules of
AmeriSource Health Corporation and subsidiaries included in the Annual Report
(Form 10-K) for the fiscal year ended September 30, 1998.
Philadelphia, Pennsylvania
December 18, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<CASH> 85,505
<SECURITIES> 0
<RECEIVABLES> 458,238
<ALLOWANCES> 26,447
<INVENTORY> 870,223
<CURRENT-ASSETS> 1,418,322
<PP&E> 118,513
<DEPRECIATION> 57,724
<TOTAL-ASSETS> 1,552,282
<CURRENT-LIABILITIES> 1,015,176
<BONDS> 453,761
0
0
<COMMON> 274
<OTHER-SE> 75,035
<TOTAL-LIABILITY-AND-EQUITY> 1,552,282
<SALES> 8,668,804
<TOTAL-REVENUES> 8,668,804
<CGS> 8,247,459
<TOTAL-COSTS> 8,247,459
<OTHER-EXPENSES> 296,401
<LOSS-PROVISION> 9,379
<INTEREST-EXPENSE> 42,124
<INCOME-PRETAX> 82,820
<INCOME-TAX> 32,301
<INCOME-CONTINUING> 50,519
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,519
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.08
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-K
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1998 SEP-30-1998 SEP-30-1998
<PERIOD-START> OCT-01-1997 OCT-01-1997 OCT-01-1997
<PERIOD-END> DEC-31-1997 MAR-31-1998 JUN-30-1998
<CASH> 66,031 87,007 116,575
<SECURITIES> 0 0 0
<RECEIVABLES> 560,217 462,427 448,969
<ALLOWANCES> 25,029 30,158 28,988
<INVENTORY> 1,034,110 959,308 876,111
<CURRENT-ASSETS> 1,664,738 1,512,922 1,447,148
<PP&E> 116,186 118,386 120,348
<DEPRECIATION> 49,969 52,991 56,057
<TOTAL-ASSETS> 1,780,096 1,631,171 1,575,976
<CURRENT-LIABILITIES> 958,967 942,040 954,690
<BONDS> 781,005 630,540 541,616
0 0 0
0 0 0
<COMMON> 273 273 273
<OTHER-SE> 29,287 47,740 68,531
<TOTAL-LIABILITY-AND-EQUITY> 1,780,096 1,631,171 1,575,976
<SALES> 2,279,558 4,497,912 6,627,104
<TOTAL-REVENUES> 2,279,558 4,497,912 6,627,104
<CGS> 2,173,952 4,279,293 6,309,016
<TOTAL-COSTS> 2,173,952 4,279,293 6,309,016
<OTHER-EXPENSES> 69,202 143,608 206,509
<LOSS-PROVISION> 3,066 8,383 8,505
<INTEREST-EXPENSE> 12,662 24,692 34,250
<INCOME-PRETAX> 23,742 50,319 77,329
<INCOME-TAX> 9,259 19,626 30,164
<INCOME-CONTINUING> 14,483 30,693 47,165
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 14,483 30,693 47,165
<EPS-PRIMARY> .61 1.29 1.97
<EPS-DILUTED> .60 1.27 1.95
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1996
<PERIOD-START> OCT-01-1996 OCT-01-1995
<PERIOD-END> SEP-30-1997 SEP-30-1996
<CASH> 68,931 71,201
<SECURITIES> 0 0
<RECEIVABLES> 533,319 390,331
<ALLOWANCES> 22,562 14,848
<INVENTORY> 1,107,782 650,296
<CURRENT-ASSETS> 1,624,654 1,115,064
<PP&E> 114,979 91,508
<DEPRECIATION> 47,517 39,842
<TOTAL-ASSETS> 1,745,040 1,187,960
<CURRENT-LIABILITIES> 1,130,099 785,782
<BONDS> 589,819 433,693
0 0
0 0
<COMMON> 271 270
<OTHER-SE> 14,040 (37,078)
<TOTAL-LIABILITY-AND-EQUITY> 1,745,040 1,187,960
<SALES> 7,940,898 5,662,717
<TOTAL-REVENUES> 7,940,898 5,662,717
<CGS> 7,553,422 5,360,284
<TOTAL-COSTS> 7,553,422 5,360,284
<OTHER-EXPENSES> 267,863 204,544
<LOSS-PROVISION> 6,587 2,074
<INTEREST-EXPENSE> 41,581 35,980
<INCOME-PRETAX> 78,032 61,909
<INCOME-TAX> 30,583 19,259
<INCOME-CONTINUING> 47,449 42,650
<DISCONTINUED> 0 0
<EXTRAORDINARY> (1,982) (7,242)
<CHANGES> 0 0
<NET-INCOME> 45,467 35,408
<EPS-PRIMARY> 1.92 1.56
<EPS-DILUTED> 1.89 1.55
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> SEP-30-1997 SEP-30-1997 SEP-30-1997
<PERIOD-START> OCT-01-1996 OCT-01-1996 OCT-01-1996
<PERIOD-END> DEC-31-1996 MAR-31-1997 JUN-30-1997
<CASH> 46,537 66,834 92,359
<SECURITIES> 0 0 0
<RECEIVABLES> 470,574 499,857 490,626
<ALLOWANCES> 16,803 19,775 19,192
<INVENTORY> 763,061 825,424 795,122
<CURRENT-ASSETS> 1,283,759 1,397,754 1,383,286
<PP&E> 92,048 112,542 111,167
<DEPRECIATION> 40,723 43,055 45,640
<TOTAL-ASSETS> 1,355,397 1,519,505 1,502,336
<CURRENT-LIABILITIES> 762,158 865,672 964,866
<BONDS> 611,929 656,173 532,335
0 0 0
0 0 0
<COMMON> 270 270 271
<OTHER-SE> (25,261) (13,351) (6,316)
<TOTAL-LIABILITY-AND-EQUITY> 1,355,397 1,519,505 1,502,336
<SALES> 1,791,310 3,613,511 5,704,695
<TOTAL-REVENUES> 1,791,310 3,613,511 5,704,695
<CGS> 1,705,158 3,434,458 5,425,182
<TOTAL-COSTS> 1,705,158 3,434,458 5,425,182
<OTHER-EXPENSES> 57,162 117,476 196,944
<LOSS-PROVISION> 2,090 2,371 3,252
<INTEREST-EXPENSE> 9,295 20,355 30,966
<INCOME-PRETAX> 19,695 41,222 51,603
<INCOME-TAX> 7,878 16,273 20,322
<INCOME-CONTINUING> 11,817 24,949 31,281
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 (1,982) (1,982)
<CHANGES> 0 0 0
<NET-INCOME> 11,817 22,967 29,299
<EPS-PRIMARY> .50 .97 1.24
<EPS-DILUTED> .49 .96 1.22
</TABLE>
