UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the period ended December 27, 1996
Commission File Number 0-19952
CHRONIMED Inc.
(Exact name of registrant as specified in its charter)
Minnesota 41-1515691
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
13911 Ridgedale Drive
Minnetonka, MN 55305
(Address of principal executive offices)
(Zip code)
Registrant's telephone number, including area code (612) 541-0239
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes __X__ No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Stock, $.01 par value - 11,817,838 shares outstanding as of
January 30, 1997
INDEX
CHRONIMED INC. AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets - December 27, 1996 and June 28, 1996
Consolidated Statements of Income - Three months ended
December 27, 1996 and December 29, 1995; Six months ended
December 27, 1996 and December 29, 1995
Consolidated Statements of Cash Flows - Six months ended
December 27, 1996 and December 29, 1995
Notes to Consolidated Financial Statements - December 27, 1996
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II. OTHER INFORMATION
Items 1, 3 and 5 have been omitted since all items are not
applicable or answers are negative.
Item 2. Changes in Securities
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
3 Amendments to Chronimed By Laws as of December 18, 1996
10.15 Line of Credit Agreement between Chronimed Inc. and
First Bank, NA
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
SIGNATURES
Part I. Financial Information
Item 1. Financial Statements
<TABLE>
<CAPTION>
CHRONIMED INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
Dec 27, 1996 June 28, 1996
------------ ------------
ASSETS (Unaudited) (Note A)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 563 $ 11,434
Available-for-sale securities 1,418 12,803
Accounts receivable, net 22,442 19,843
Income taxes receivable 42 49
Inventory 16,117 5,476
Other current assets 823 559
Deferred taxes 493 493
-------- --------
Total current assets 41,898 50,657
Note receivable 1,391 1,375
Available-for-sale securities 4,892 9,069
Property and equipment:
Property and equipment 10,678 8,542
Allowance for depreciation (4,281) (3,097)
-------- --------
6,397 5,445
Intangible assets, net 10,036 1,362
-------- --------
Total assets $ 64,614 $ 67,908
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 15,942 $ 9,992
Short-term debt 350 404
-------- --------
Total current liabilities 16,292 10,396
Long-term debt -- 350
Shareholders' equity:
Preferred stock, $.01 par value--
authorized 5,000,000 shares; none outstanding --
Common stock, $.01 par value--
authorized 20,000,000 shares; issued and
outstanding December 27, 1996--11,802,826;
June 28, 1996--12,454,560 118 125
Additional paid-in capital 37,690 49,569
Retained earnings 10,491 7,475
-------- --------
48,299 57,169
Unrealized gain (loss) on available-for-sale securities 23 (7)
-------- --------
Total shareholders' equity 48,322 57,162
Total liabilities and shareholders' equity $ 64,614 $ 67,908
======== ========
</TABLE>
<TABLE>
<CAPTION>
CHRONIMED INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited, in thousands, except per share amounts)
Three months ended Six months ended
Dec 27, 1996 Dec 29, 1995 Dec 27, 1996 Dec 29, 1995
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES
Managed Care $ 5,558 $ 3,090 $ 10,490 $ 5,782
Proprietary 9,267 8,980 18,477 14,381
Patient Choice 16,507 12,739 30,871 23,172
-------- -------- -------- --------
Total Revenue 31,332 24,809 59,838 43,335
YR TO YR GROWTH 26.3% 38.1%
COSTS AND EXPENSES
Cost of sales 22,634 17,658 43,401 31,236
Gross profit 8,698 7,151 16,437 12,099
% OF REVENUE 27.8% 28.8% 27.5% 27.9%
Selling and marketing 1,883 1,749 3,447 3,217
General and administrative 4,087 3,008 8,361 5,686
Research and development 78 97 285 192
-------- -------- -------- --------
Total operating expenses 6,048 4,854 12,093 9,095
% OF REVENUE 19.3% 19.6% 20.2% 21.0%
INCOME FROM OPERATIONS 2,650 2,297 4,344 3,004
% OF REVENUE 8.5% 9.3% 7.3% 6.9%
Interest income 191 232 458 540
INCOME BEFORE INCOME TAXES 2,841 2,529 4,802 3,544
Provision for income taxes (1,078) (907) (1,786) (1,198)
NET INCOME $ 1,763 $ 1,622 $ 3,016 $ 2,346
% OF REVENUE 5.6% 6.5% 5.0% 5.4%
NET INCOME PER SHARE $ 0.14 $ 0.12 $ 0.23 $ 0.18
AVERAGE SHARES OUTSTANDING 12,695 13,078 12,887 12,991
</TABLE>
<TABLE>
<CAPTION>
CHRONIMED INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, in thousands)
Six Months Ended
Dec 27, 1996 Dec 29, 1995
------------ ------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 3,016 $ 2,346
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,771 818
Changes in operating assets and liabilities:
Accounts and notes receivable (2,609) (5,802)
Inventory (10,641) (1,126)
Other assets (290) 105
Accounts payable and accruals 5,950 3,082
-------- --------
Net cash (used in) operating activities (2,803) (577)
INVESTING ACTIVITIES:
Repurchase of common stock (13,254) --
Acquisitions, net of cash purchased (9,234) (84)
Purchases of property and equipment (2,136) (1,263)
Purchase of available-for-sale securities (2,006) (2,580)
Sales and maturities of available-for-sale securities 17,598 7,054
-------- --------
Net cash provided by (used in) investing activities (9,032) 3,127
FINANCING ACTIVITIES:
Net proceeds from sale of common stock 964 974
Net cash provided by financing activities 964 974
Increase (decrease) in cash and cash equivalents (10,871) 3,524
Cash and cash equivalents at beginning of period 11,434 2,203
-------- --------
Cash and cash equivalents at end of period $ 563 $ 5,727
======== ========
</TABLE>
CHRONIMED INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the six month period ended December 27, 1996 are
not necessarily indicative of the results that may be expected for the year
ending June 27, 1997. For further information, refer to the financial statements
and footnotes thereto for the year ended June 28, 1996.
The balance sheet at June 28, 1996, has been derived from the audited financial
statements at that date, but does not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
The Company uses a four-week, four-week, five-week (4-4-5) quarterly accounting
cycle with the fiscal year ending on the Friday closest to June 30 and the
fiscal quarters ending on the Friday closest to the last day of the respective
month.
NOTE B--INVENTORIES
Inventories consist primarily of goods held for resale and are valued at the
lower of cost or market under the average cost method.
NOTE C--INVESTMENTS
The Company's investment policy is to invest idle and excess funds in high
grade, fixed income securities generally for no more than two years. These
securities are classified as Available-for-Sale as of December 27, 1996 and June
28, 1996. The Company considers the net unrealized gain/(loss) on these
investments of $23,000 and $(7,000) at those respective dates to be temporary,
and as such has recorded it through shareholders' equity.
Part I. Financial Information
Item 2. Management's Discussion
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Chronimed Inc. ("Chronimed" or the "Company") develops, markets and
distributes prescription drugs, medical products and educational materials by
mail and retail pharmacy to specific populations of patients with chronic
conditions. By focusing on specific chronic conditions, the Company believes it
is able to provide valuable services to: the patients affected by chronic
conditions; the insurance companies, health maintenance organizations, preferred
provider organizations, government agencies and other third-party payors
("Payors") that pay a large portion of the related health care costs; the
developers and manufacturers that produce the prescription drugs and other
products needed to manage chronic conditions; and the institutions, foundations
and health care providers working with these patients. The patient populations
for which the Company believes its services are most effective include patients
who:
* Require a costly regimen of maintenance prescription drugs or other
medical products over the course of their lives;
* Are treated by health care specialists; and
* Require a significant amount of self-management and on-going
education.
The Company is currently serving four such populations in the main: patients
with diabetes, patients who have had an organ transplant, patients with
HIV/AIDS, and patients who self-administer injectable medications. Starting July
1996, Chronimed has increased its efforts in addressing the needs of HIV/AIDS
patients through the Company's acquisition of StatScript Management Services,
Inc., and its nine specialty HIV/AIDS pharmacies. The Company is investigating
programs for a variety of other chronic conditions.
Chronimed provides patients with a convenient, competitively-priced
source of prescription drugs, medical and clinical nutrition products and a
variety of educational materials designed to help patients achieve maximum
control over their chronic conditions. Often, the greater the effort a patient
makes to stabilize or control his or her chronic condition, the lower the
incidence of complications and the better the patient's quality of life.
Historically, the Company has obtained patients primarily through
referrals from health care providers and direct patient contacts. As employers
have attempted to control their escalating health care costs, Payors have
increasingly adopted various specialized managed care techniques in order to
limit the costs of health care. The specialty managed care industry has
developed principally in response to the demand from employers and Payors for
more effective control of cost increases in certain sectors, such as patients
with chronic conditions. In 1994, an estimated 63% of employees in the United
States who were covered by a healthcare plan were enrolled in a managed care
program, up from 53% in 1993. Chronimed seeks to adapt managed care techniques
or to develop new techniques to manage the particular delivery systems, cost
structures, and utilization characteristics of patients with chronic conditions.
As a result of the increasing role of managed care, coupled with the Company's
experience in managing specific patient groups, patient referrals are
increasingly coming from the Company's Payor programs.
The Company has developed relationships with certain treatment centers,
foundations and associations which specialize in the treatment or support of
patients with chronic conditions. These relationships provide the Company with
access to a large number of individuals with chronic conditions and to the
health care providers treating these conditions.
Chronimed believes that its system is well-suited for developers and
manufacturers of pharmaceutical and medical products designed for small or
hard-to-identify patient populations. Chronimed provides these companies with
assistance in the design and rapid introduction of their products, a cost
effective means for distributing these products to specific patient populations,
and a method for monitoring the use of these products as well as outcomes.
Chronimed has increased its emphasis on the development and licensing
of proprietary products suitable for distribution through its system. Through
its agreement with Orphan Medical, Inc., the Company has the right to sell a
number of proprietary drugs. Additionally, Chronimed has exchanged rights to
sell other Orphan Medical drugs for future royalties, some of which are expected
to be received in fiscal 1997. Pursuant to exclusive distribution agreements,
the Company currently markets diabetes-related products, including the Supreme
blood glucose monitor and reagent strip, generic reagent strips, infusion sets
and a lancing device.
REVENUES
The Company's revenues are derived from three principal sources: (1)
customers who are part of a managed care network ("Managed Care"); (2) revenues
generated primarily from sales of proprietary products ("Proprietary Products");
and (3) referrals from healthcare providers or patients who choose to purchase
from the Company ("Patient Choice"), which includes the StatScript Pharmacy
business acquired in July, 1996.
Total revenues increased 26%, from $24,809,000 to $31,332,000, for the
three months ended December 29, 1995, and December 27, 1996, respectively; and
38%, from $43,335,000 to $59,838,000 for the six months ended December 29, 1995
and December 27, 1996, respectively. Price increases have generally not been a
significant reason for these revenue increases.
Revenue from Managed Care contracts grew 80%, from $3,090,000 to
$5,558,000 for the three months ended December 29, 1995, and December 27, 1996,
respectively; and 81%, from $5,782,000 to $10,490,000 for the six months ended
December 29, 1995 and December 27, 1996, respectively. Strong growth in managed
care sales of self injectable medications accounted for this increase. Revenue
from Proprietary Products grew 3% for the quarter, from $8,980,000 to $9,267,000
due to increases in Supreme strip sales and Publishing sales, partially offset
by a decline in Quick Check strip sales caused by both an extremely strong year
ago quarter performance and lower second quarter Quick Check strip sales due to
a production hold. For the respective six month periods, revenue from
Proprietary Products grew 28%, from $14,381,000 to $18,477,000, on the strength
of Supreme strip sales and related medical product sales. Patient Choice revenue
increased 30% for the quarter, from $12,739,000 to $16,507,000, due to the
addition of the StatScript Pharmacy business in July, 1996, which closed the
quarter with $4,506,000 in revenue. Specialty Pharmacy, the largest business
unit in Patient Choice, closed the quarter down 10% in revenue compared to the
year ago quarter due mainly to the decision by the Company to suspend serving
patients insured by the lowest margin payors. For the respective six month
periods, revenue from Patient Choice grew 33%, from $23,172,000 to $30,871,000,
due to $8,739,000 in StatScript growth offset by a planned decline in Specialty
Pharmacy revenue.
The shortfall in Quick Check sales noted above was due to a voluntary
shipment hold by our reagent strip supplier starting late November pending final
and conclusive results of a Food and Drug Administration (FDA) standards test on
the product. Revenues for the second quarter were negatively impacted by about
$1 million due to this hold. Chronimed's strip supplier and independent experts
in the field of diabetes have disputed the FDA's preliminary test findings. The
Company's supplier has been working very closely with the FDA on this matter,
and as a result, Chronimed remains cautiously optimistic about resuming
shipments soon. In the event, however, that satisfactory resolution of this
matter does not occur in the Third Fiscal Quarter ending March 28, 1997, revenue
could be adversely impacted by up to $4 million and earnings per share by up to
$0.06 in the Third Fiscal Quarter. It is also possible that adverse impact could
extend into the Fourth Fiscal Quarter if the issue continues unresolved.
Revenue growth for Chronimed is expected to continue through the
remainder of fiscal 1997, particularly due to growth in the self-injectables
program and StatScript Pharmacy. The Company predicates its high growth managed
care revenue projections on a business model which relates the number of
converted patients for the Company's self injectables program to the number of
members of health insurance plans under agreements with the Company. Because the
Company has had limited time with the programs to develop statistically sound
patient conversion rates, its projections may be subject to inaccuracy. As to
proprietary products' projections, sales and production rates of reagent strips,
if continued, coupled with new and updated products to be offered this fiscal
year, should provide for continued growth through fiscal 1997 compared to fiscal
1996. However, as discussed above, the Quick Check shipment hold must be
resolved soon in order for Proprietary Products revenue to continue strong
through year-end. The Company believes its Supreme reagent strip production
rates are sustainable but may be subject to unforeseen shortfalls.
GROSS PROFIT
The gross profit percentage declined from 28.8% to 27.8% for the three
months ended December 29, 1995 and December 27, 1996, respectively. This decline
is due primarily to the increase in lower-margin Managed Care revenue and
decrease in Specialty Pharmacy gross profits, partially offset by
better-than-average gross profit percentages in our growing StatScript business.
For the respective six month periods, the gross profit percentage declined
slightly from 27.9% to 27.5% due primarily to the increase in lower-margin
Managed Care revenue.
The average order size for all businesses increased from $434 to $485
for the three months ended December 29, 1995 and December 27, 1996,
respectively; and from $406 to $480 for the respective six month periods. The
increase in order size has generally resulted in higher gross margin dollars per
order. These increases are due to continued growth in higher-priced prescription
drugs and volume sales through distributors of medical products.
SELLING AND MARKETING EXPENSES
Selling and marketing expenses increased 8% over the prior year's
second quarter, primarily as a result of increased spending in the
self-injectables program and in the StatScript Pharmacy business. As a percent
of revenues, selling and marketing expenses decreased from 7.0% to 6.0% in the
three months ended December 29, 1995 and December 27, 1996, respectively. For
the respective six month periods, selling and marketing expenses increased 7%
for the same reasons noted above. As a percent of revenue, selling and marketing
expenses decreased from 7.4% to 5.8% in the six months ended December 29, 1995
and December 27, 1996, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative (G&A) expenses increased 36% over the prior
year's second quarter. As a percent of revenues, these expenses increased from
12.1% to 13.0%. For the respective six month periods, G&A expenses increased
47%, with expenses increasing from 13.1% of revenue to 14.0% of revenue. The
Company's G&A expenses include customer service and fulfillment, and thus vary
with order activity. These increases reflect additional people and systems to
build an appropriate infrastructure for continued revenue growth. These
increases also reflect goodwill amortization associated with the StatScript
acquisition as well as StatScript's normal general and administrative expenses.
INCOME FROM OPERATIONS
Income from operations increased from $2,297,000 to $2,650,000 for the
three months ended December 29, 1995 and December 27, 1996, respectively. As a
percent of revenue, operating income decreased from 9.3% to 8.5% primarily as a
result of decreased gross profit percentage caused by factors noted earlier. For
the respective six month period, operating income increased from $3,004,000 to
$4,344,000, up from 6.9% of revenue to 7.3% of revenue due primarily to reduced
sales and marketing expenses as a percent of revenue.
INTEREST INCOME
Interest income for both the quarter and six month period decreased as
a result of the decrease in total investment balances.
INCOME TAXES
The Company's income tax rate was approximately 35.9% and 37.9% in the
three months ended December 29, 1995 and December 27, 1996, respectively; and
33.8% and 37.2% in the respective six month periods. These rates differ from the
statutory rate due to favorable tax treatment on municipal bond interest income.
The rate increase in the comparable periods is due to a lower percentage of
income from interest in fiscal 1997 and to lesser relative amounts of investment
securities being tax exempt.
LIQUIDITY AND CAPITAL RESOURCES
As of December 27, 1996, the Company had working capital of
$25,606,000, with no long-term debt, and $48,322,000 of shareholders' equity.
The Company believes that its current working capital, together with
existing sources of liquidity and cash generated by operations, will satisfy its
working capital requirements through at least fiscal 1997.
The Company's accounts receivable are generally with Payors for which
the collection periods vary depending on the practices of the individual Payor.
Because of the complexities involved in the reimbursement process, typically as
much as one third of the Company's receivables are outstanding for more than 90
days on an ongoing basis. The average collection period for the Company's
accounts receivable increased up until the beginning of fiscal 1995 as the
Company became more involved in the reimbursement process through its specialty
pharmacy programs for patients with chronic conditions, including organ
transplant and HIV/AIDS. Additionally, the Company has obtained an increasing
number of patients with benefits from Medicaid and special state programs which
tend to pay claims more slowly. The advent of electronic billing is a recent
positive trend that has begun to shorten cash collection periods and improve
cash flow. Nonetheless, the Company expects working capital requirements to
increase as revenues increase.
The days sales outstanding (DSO) of the Company's accounts receivable
improved to 66 at December 27, 1996, compared to 71 at December 29, 1995. The
decrease reflects improved collection efforts and the mix of business. Growth in
revenue from Payors which are billed electronically and increased sales to large
institutions have both contributed to the decrease in DSO as these groups pay
claims in a more timely manner.
The reserve for bad debts increased from $860,000 to $890,000 from June
28, 1996, to December 27, 1996, supporting the Company's revenue growth,
favorably offset by the improving quality of receivables.
Inventory increased $10.6 million from June 1996 to December 1996 due
to two large forward purchase agreements to secure favorable pricing, to the
acquisition of StatScript inventory, and to general business growth. The Company
believes there is not significant risk of inventory write-offs and that the
current inventory reserve is adequate.
On September 6, 1996, the Company approved a stock repurchase plan of
up to 1 million shares at times and prices to be determined by management.
Through December 27, 1996, the Company has repurchased 903,500 shares at a cost
of $13.3 million.
The Company has no material commitments for capital expenditures for
fiscal 1997. The Company's capital plan for fiscal 1997 is $2.7 million.
The Company recently increased its committed line of credit from $2.5
million to $15 million in an agreement executed on December 31, 1996. There was
no balance outstanding under the earlier line of credit on December 27, 1996.
The Company has a $1.4 million note receivable from Health Craft
International, Inc. (HCI) at December 27, 1996. The note bears interest at a
rate of 8%, payable monthly. Proceeds from the note are being used to fund
development of a new product for diabetes patients. Principal payments on the
note have been restructured to commence in March, 1997, and are payable in sixty
equal monthly installments. The Company has the option of converting this note
into a controlling equity interest in HCI. Alternatively, the Company has the
option to acquire the assets of HCI by forgiving the note, paying a one-time
fee, and agreeing to a revenue-based royalty schedule subject to a maximum
dollar limit. As is always the case with product design and development efforts,
there is a risk that the project will not be completed successfully. If the
underlying HCI project is unsuccessful, the Company's note receivable may become
uncollectible.
HEALTH REFORM/GOVERNMENT REGULATION
Political, economic and regulatory influences are subjecting the health
care industry in the United States to fundamental change. A variety of new
approaches has been proposed, including mandated basic health care benefits,
controls on health care spending through limitations on the growth of private
health insurance premiums and Medicare and Medicaid spending, and the creation
of large purchasing groups and other fundamental changes to the health care
delivery system. In addition, some of the states in which the Company operates
have adopted or are considering various health care reform proposals. The
Company anticipates that both the public and private sectors will continue to
review and assess alternative health care delivery systems and payment methods
and that debate of these issues will likely continue in the future. Because of
uncertainty regarding the ultimate features of reform initiatives and their
enactment and implementation, the Company cannot predict which, if any, of such
reform proposals will be adopted, when they may be adopted, or what impact they
may have on the Company.
The Company's business is subject to substantial governmental
regulation, including laws governing the dispensing of prescription drugs and
laws prohibiting the payment of remuneration for patient referrals. Management
believes that the Company is in substantial compliance with all existing
statutes and regulations materially affecting the conduct of its business.
SEASONALITY
The Company has experienced a significant seasonal pattern in its
operating results. Historically, the Company has had higher revenues in its
second fiscal quarter than in its third fiscal quarter. The Company believes the
seasonality of its revenues and earnings results from the acceleration of
purchases of prescription drugs and medical products by individuals prior to the
beginning of a new calendar year (which is generally when Payors impose new
deductible calculations). As sales through Patient Choice become a less
significant part of the Company's total revenues, the Company believes its
operating results will become somewhat less seasonal.
OUTLOOK
Information contained in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations", other than historical
information, should be considered forward looking and reflects management's
current views of future events and financial performance that involve a number
of risks and uncertainties. The factors that could cause actual results to
differ include, but are not limited to, the following: competition and pricing
pressures; difficulties or delays in the development and marketing of the
Company's products; difficulties in realizing the expected revenues and profits
from the StatScript acquisition; termination of key payor contracts; termination
of key supplier contracts; changes in or unknown violations of various federal,
state, and local regulations governing the business; timing of decisions by the
FDA relative to Chronimed's regulated products; and management of growth. Please
see Exhibit 99 filed with the Company's Form 10-K on September 12, 1996, for
additional circumstances that could cause actual results to differ from
forecasts.
PART II
Items 1, 3 and 5 required under Part II have been omitted since they are not
applicable or the answers negative.
Item 2- Changes in Securities
The Company filed a report on Form 8-K dated December 18, 1996 related
to the adoption of a shareholder rights plan.
Item 4- Annual Meeting of Shareholders, held on November 13, 1996.
At the meeting, the director nominees described in the Company's Proxy
Statement were elected as follows:
WITHHOLD
FOR AUTHORITY
--- ---------
Maurice R. Taylor, II 11,486,393 72,917
Henry F. Blissenbach, Pharm.D. 11,487,096 72,214
John Howell Bullion 11,485,198 74,112
Donnell D. Etzwiler, M.D. 11,488,418 70,892
Charles V. Owens, Jr. 11,486,075 73,235
Lawrence C. Weaver, Ph.D. 11,482,238 77,072
In addition, the Company's 1997 Employee Stock Purchase Plan and the
appointment of Ernst and Young were approved by shareholders as
follows:
<TABLE>
BROKER
FOR AGAINST ABSTAIN NON-VOTE
--- ------- ------- --------
<C> <C> <C> <C> <C>
1997 Stock Option Plan 4,409,620 2,098,644 102,769 4,948,277
Appointment of Ernst and Young LLP
as independent auditors for 1997
fiscal year. 11,493,229 46,522 19,559 -0-
</TABLE>
Item 6- Exhibits and Reports on Form 8-K
(a) Exhibits
3 Amendments to Chronimed By Laws as of December 18, 1996
10.15 Line of Credit Agreement between Chronimed Inc. and
First Bank, NA
11.1 Computation of Earnings Per Share
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a report on Form 8-K dated December 18, 1996 related to the
adoption of a shareholder rights plan.
SIGNATURES
Pursuant to the requirements 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.
CHRONIMED INC.
(REGISTRANT)
February 4, 1997 /s/ Maurice R. Taylor, II
- --------------------- -------------------------------------
Date Maurice R. Taylor, II
Chairman of the Board, President, and
Chief Executive Officer
February 4, 1997 /s/ Norman A. Cocke
- --------------------- -------------------------------------
Date Norman A. Cocke
Senior Vice President, Chief Financial Officer
and Secretary
RESOLUTIONS
OF
THE BOARD OF DIRECTORS
OF CHRONIMED INC.
RESOLVED, that Article II, Section 2 of the By-Laws of Chronimed Inc.
(The "By-Laws") is hereby amended and restated to read in its entirety as
follows:
Section 2. Regular Meetings. Regular meetings of the shareholders of this
corporation may be held at the discretion of the Board of Directors on an
annual or less frequent periodic basis on such date and at such time and
place as may be designated by the Board of Directors in the notice of
meeting. At regular meetings the shareholders shall elect a Board of
Directors and transact such other business as may properly come before the
shareholders. To be properly brought before a regular meeting of
shareholders, business must be either (1) specified in the notice of the
meeting, (2) directed to be brought before the meeting by the Board of
Directors or (3) proposed by a shareholder who (i) was a shareholder of
record at the time of giving of notice provided for in these By-Laws, (ii)
is entitled to vote at the meeting and (iii) gives notice of the matter,
which must otherwise be a proper matter for shareholder action, in the
manner herein provided. For business to be properly brought before a
regular meeting by a shareholder, the shareholder must give written notice
to the Secretary of the corporation so as to be received at the principal
executive offices of the corporation not less than sixty (60) days prior
to the date fixed for the prior year's regular meeting. Such notice shall
set forth (1) a brief description of the business desired to be brought
before the regular meeting and the reasons for conducting such business,
(2) the name and record address of the shareholder proposing such business
and of the beneficial owner, if any, on whose behalf the proposal is made,
(3) the class and number of shares of the corporation beneficially owned
by the shareholder and by the beneficial owner, if any, on whose behalf
the proposal is made, and 4) any material interest in such business of the
shareholder and the beneficial owner, if any, on whose behalf the proposal
is made. The presiding officer of the meeting may refuse to acknowledge
any business proposals not made in compliance with the foregoing
procedure. If a regular meeting of shareholders has not been held for a
period of fifteen (15) months, one or more shareholders holding not less
than three percent (3%) of the voting power of all shares of the
corporation entitled to vote may call a regular meeting of shareholders by
delivering to the President or Treasurer a written demand for a regular
meeting. Within thirty (30) days after the receipt of such written demand
by the President or Treasurer, the Board of Directors shall cause a
regular meeting of shareholders to be called and held on notice no later
than ninety (90) days after the receipt of written demand, all at the
expense of the corporation.
FURTHER RESOLVED, that Article II, Section 3 of the By-Laws is hereby
amended and restated to read in its entirety as follows:
Section 3. Special Meetings. Special meetings of the shareholders, for any
purpose or purposes appropriate for action by shareholders, may be called
by the President, by the Vice President in the absence of the President,
by the Treasurer, or by the Board of Directors or any two or more members
thereof. Such meeting shall be held on such date and at such time and
place as shall be fixed by the person or persons calling the meeting and
designated in the notice of the meeting. Special meetings may also be
called by one or more shareholders holding not less than ten percent (10%)
of the voting power of all shares of the corporation entitled to vote,
except that a special meeting for the purpose of considering any action,
directly or indirectly, to facilitate or effect a business combination,
including any action to change or otherwise effect the composition of the
Board of Directors for that purpose, must be called by twenty-five percent
(25%) or more of the voting power of all shares entitled to vote. A
shareholder or shareholders entitled to call a special meeting of
shareholders may demand a special meeting of the shareholders by written
notice of demand given to the President or Treasurer of the corporation.
Such notice shall set forth (1) a brief description of the business
desired to be brought before the special meeting and the reasons for
conducting such business, (2) the name and record address of the
shareholder proposing such business and of the beneficial owner, if any,
on whose behalf the proposal is made, (3) the class and number of shares
of the corporation beneficially owned by the shareholder and by the
beneficial owner, if any, on whose behalf the proposal is made, and (4)
any material interest in such business of the shareholder and the
beneficial owner, if any, on whose behalf the proposal is made. Within
thirty (30) days after the receipt of a written demand for a special
meeting of shareholders by the President or Treasurer, the Board of
Directors shall cause a special meeting of shareholders to be called and
held on notice no later than ninety (90) days after the receipt of such
written demand, all at the expense of the corporation. Business transacted
at any special meeting of shareholders shall be limited to the purpose or
purposes stated in the notice of meeting. Any business transacted at any
special meeting of shareholders that is not included among the stated
purposes of such meeting shall be voidable by or on behalf of the
corporation unless all of the shareholders have waived notice of the
meeting.
- ------------------------------------
Director Approval Signature
December 31, 1996
Chronimed, Inc.
13911 Ridgedale Drive
Minnetonka, MN 55305
Attention: Mr. Norman A. Cocke
Re: Revolving Credit Advances
Ladies/Gentlemen:
First Bank National Association (the "Bank"), is pleased to advise
Chronimed, Inc., a Minnesota corporation (the "Borrower"), that the Bank is
willing to make loans to the Borrower on a revolving basis in amounts of up to
$15,000,000 (the "Commitment"), as further described herein.
SECTION 1 ADVANCES, INTEREST AND FEES.
1.1 The Advances. Subject to the terms and conditions of this
Agreement, the Bank will make advances ("Advances" or an "Advance") to the
Borrower until the earlier of December 31, 1997, or the date on which the
Commitment is terminated as provided herein (such earlier date being the
"Termination Date"). The Bank shall not make any Advance if the aggregate
outstanding principal amount of the Advances would exceed the Commitment.
Borrower may repay and reborrow.
1.2 The Note. The Advances shall be evidenced by a Revolving Credit
Note in the form of EXHIBIT A attached hereto (as hereafter amended extended,
renewed or replaced, the "Note"). The Note sets forth borrowing procedures for
the Advances. All unpaid principal and all interest accrued on the Note shall be
due and payable in full on the Termination Date.
1.3 Interest. The principal balance of the Advances shall bear interest
as set forth in the Note. The Bank is authorized to charge the Borrower's
account at the Bank (Account No.17303115452) with the amount of any interest
payment when due or, at the Bank's sole discretion, to increase the principal
balance of the Advances in the amount of such payment without notice to the
Borrower and regardless of whether the Borrower is in compliance with the terms,
covenants and conditions of this Agreement at the time of such increase. The
Borrower shall remain liable for such payment in the event such account does not
contain a sufficient amount to cover such required payment or any portion
thereof or such payment is not made by an increase in the Advances. The Borrower
agrees to execute any additional authorizations which may be required at any
time by the Bank in order to effectuate the making of such payment.
1.4 Commitment Fees. The Borrower may elect annually, by providing
written notice to the Bank on or before each December 31st, either (a) to
maintain on interest-free deposit with the Bank a daily average "Balance
Available for other Services" (as shown on the monthly account activity analysis
provided to the Borrower by the Bank, and herein called the "Available Balance")
in an amount equal to two and one-half percent (2.5%) of the Commitment less the
amount of any participations; or (ii) to pay a fee in an amount determined by
applying a rate of one-fourth of one percent (1/4%) per annum to the average
daily unused amount of the Commitment less the amount of any participations,
payable quarterly in arrears. For the purposes of determining compliance by the
Borrower with this Available Balance requirement, such daily averages shall be
calculated quarterly as of the last day of the quarter following the date of
this Agreement and each subsequent quarter for the period then ended. If upon
any such calculation, the daily average Available Balance is found to have been
less than the amount herein required, the Borrower shall pay to the Bank upon
demand a compensating balance fee equal to the product of the following factors:
(x) the amount by which the daily average Available Balance fell short of the
amount herein required, times (y) the daily average Reference Rate during such
period, plus one percent (1.00%) per annum, times (z) the number of days in such
period divided by 360.
1.5 Reduction or Termination of Commitment. The Borrower may, by
written notice to the Bank, reduce or terminate the Commitment, with any such
reduction in a minimum amount of $500,000 or an integral multiple thereof. Upon
any reduction in the Commitment pursuant to this Section, the Borrower shall pay
to the Bank the amount, if any, by which the aggregate unpaid principal amount
of outstanding Advances exceeds the reduced Commitment. Amounts so paid cannot
be reborrowed. If the Commitment is terminated, the Borrower shall pay the full
amount of all outstanding Advances, all accrued and unpaid interest and fees and
all other unpaid obligations of the Borrower to the Bank hereunder.
SECTION 2 CONDITIONS PRECEDENT
2.1 Conditions of first Advance. The obligation of the Bank to make the
first Advance hereunder shall be subject to the satisfaction of the conditions
precedent that the Bank shall have received all of the following, in form and
substance satisfactory to the Bank, each duly executed (as hereafter amended,
modified, extended, renewed or replaced, the "Loan Documents"):
(a) The Note, together with a Schedule of Authorized Officers and a
Compliance Certificate in the form attached hereto as EXHIBIT B.
(b) A copy of the approval resolution of the Borrower, certified by the
Secretary or an Assistant Secretary of the Borrower, together with a
certificate showing the names and titles, and bearing the signatures
of, the officers of the Borrower authorized to execute the Loan
Documents and to request Advances hereunder.
(c) Copies of the Borrower's By-Laws with all amendments thereto,
certified by the Secretary or an Assistant Secretary of the Borrower.
(d) The Borrower's Articles of Incorporation, with all amendments,
certified by the Minnesota Secretary of State.
(e) A current Certificate of Good Standing for the Borrower issued by
the Minnesota Secretary of State.
Section 2.2 Conditions Precedent to all Advances. The obligation of the
Bank to make any Advance hereunder, including the first, shall be subject to the
satisfaction of the condition precedent that on the date of such Advance the
following statements shall be true (the request by the Borrower for such Advance
shall be deemed to constitute a representation or warranty by the Borrower that
such statements are true):
(a) Before and after giving effect to such Advance, the representation
and warranties contained in SECTION 3 shall be true and correct, as
though made on the date of such Advance; and
(b) No Event of Default, as hereinafter defined, has occurred and is
continuing, or would result from such Advance, and no event has
occurred which with the giving of notice or passage of time or both
would mature into an Event of Default hereunder.
SECTION 3 REPRESENTATIONS AND WARRANTIES.
To induce the Bank to enter into this Agreement, to grant the
Commitment and to make Advances hereunder, the Borrower represents and warrants
to the Bank:
3.1 Organization, Standing, Etc. The Borrower is a corporation duly
incorporated and validly existing and in good standing under the laws of the
State of Minnesota and has all requisite corporate power and authority, and
requisite corporate qualifications, to carry on its business as now conducted,
to enter into the Loan Documents and to issue the Note and to perform its
obligations under the Loan Documents.
3.2 Authorization and Validity. The execution, delivery and performance
by the Borrower of the Loan Documents have been duly authorized by all necessary
corporate action by the Borrower, and the Loan Documents constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their terms.
3.3 No Conflict; No Default. The execution, delivery and performance by
the Borrower of the Loan Documents will not (a) violate any provision of any
law, statute, rule or regulation or any order, writ, judgement, injunction,
decree, determination or award of any court, governmental agency or arbitrator
presently in effect having applicability to the Borrower, (b) violate or
contravene any provisions of the Articles of Incorporation or by-laws of the
Borrower, or (c) result in a breach of or constitute a default under any
indenture, loan or credit agreement or any other agreement, lease or instrument
to which the Borrower is a party or by which it or any of its properties may be
bound.
3.4 Government Consent. No order, consent, approval, license,
authorization or validation of, or filing, recording or registration with, or
exemption by, any governmental or public body or authority is required on the
part of the Borrower to authorize, or is required in connection with the
execution, delivery and performance of, or the legality, validity, binding
effect or enforceability of, the Loan Documents.
3.5 Financial Statements and Condition. The Borrower's audited
financial statements as at June 28, 1996, and unaudited financial statements as
at September 27, 1996, as heretofore furnished to the Bank, have been prepared
in accordance with generally accepted accounting principles on a consistent
basis and fairly present the financial condition of the Borrower and the results
of its operations, changes in financial position, and statement of cash flows
for the respective periods then ended. Since June 28, 1996, there has been no
material adverse change in the business, operations or assets of the Borrower.
3.6 Litigation and Contingent Liabilities. SCHEDULE I lists all
material actions, suits or proceedings pending or, to the knowledge of the
Borrower, threatened against or affecting the Borrower before any court,
arbitrator, governmental department or other instrumentality and all material
contingent liabilities of the Borrower.
3.7 Compliance. The Borrower is in material compliance with all
statutes and governmental rules and regulations applicable to it. There does not
exist any violation by the Borrower of any applicable federal, state or local
law, rule or regulation or order of any government, governmental department or
other instrumentality relating to environmental, pollution, health or safety
matters which will or threatens to impose a material liability on the Borrower
or which would require a material expenditure by the Borrower to cure. The
Borrower has not received any notice to the effect that any part of its
operations or properties is not in material compliance with any such law, rule,
regulation or order or notice that it or its property is the subject of any
governmental investigation evaluating whether any remedial action is needed to
respond to any release of any toxic or hazardous waste or substance into the
environment.
3.8 Regulation U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Board of Governors of the Federal Reserve System)
and no part of the proceeds of any Advance will be used to purchase or carry
margin stock or for any other purpose which would violate any of the margin
requirements of the Board of Governors of the Federal Reserve System.
3.9 Ownership of Property; Liens. The Borrower has good and marketable
title to its real properties and good and sufficient title to its other
properties, including all properties and assets shown in the financial statement
of the Borrower referred to above (other than property disposed of since the
date of such financial statement in the ordinary course of business).
3.10 Taxes. The Borrower has filed all federal, state and local tax
returns required to be filed and has paid or made provision for the payment of
all taxes due and payable pursuant to such returns and pursuant to any
assessments made against it or any of its property and all other taxes, fees and
other charges imposed on it or any of its property by any governmental authority
(other than taxes, fees or charges the amount or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which reserves in accordance with generally accepted accounting principles have
been provided on the books of the Borrower). No tax Liens have been filed and no
material claims are being asserted with respect to any such taxes, fees or
charges. The charges, accruals and reserves on the books of the Borrower in
respect of taxes and other governmental charges are adequate.
3.11 Subsidiaries. Except as set forth on SCHEDULE II attached hereto,
Borrower has no Subsidiaries (defined as any corporation 50% or more of the
combined voting power of all classes of stock of which is owned by or on
Borrower's behalf directly or indirectly or by or on behalf directly or
indirectly of a Subsidiary of Borrower).
3.12 ERISA Compliance. The provisions of each Plan of the Borrower or
any affiliate comply in all material respects with all applicable requirements
of ERISA, and Borrower has not incurred any "accumulated funding deficiency"
within the meaning of ERISA or has incurred any material liability to PBGC, in
connection with any Plan. For the purposes hereof, "Plan" means each employee
benefit plan or other class of benefits covered by Title IV of ERISA, whether
now in existence or hereafter instituted. For the purposes hereof, "ERISA" means
the Employee Retirement Income Security Act of 1974, as the same may from time
to time be amended, and the rules and regulations promulgated thereunder. For
the purposes hereof, "PBGC" shall mean the Pension Benefit Guaranty Corporation
or any successor.
SECTION 4 AFFIRMATIVE COVENANTS
The Borrower covenants and agrees with Bank that for so long as there
is any amount remaining unpaid on the Note, or the Bank has any obligation to
make any Advance hereunder, Borrower will:
4.1 Financial Statements. Furnish to the Bank:
(a) Within 90 days after the end of each of Borrower's fiscal years,
audited annual financial statements for Borrower, which include a
balance sheet, statement of cash flow and income statement prepared by
certified public accountants acceptable to the Bank and prepared in
accordance with generally accepted accounting principles consistently
applied, which show all liabilities, direct and contingent, of the
Borrower, together with the management letter issued by such certified
public accountants for such fiscal year;
(b) Within 45 days after the end of the first three fiscal quarters of
each year, financial statements for Borrower, which include a balance
sheet, statement of cash flow, certified by the Borrower's chief
financial officer to have been prepared from the Borrower's books and
records in accordance with generally accepted accounting principles
(subject to year-end adjustments) and that such financial statements
accurately reflect the Borrower's financial condition as of the date
reported.
(c) With each of the financial statements provided under SECTIONS
4.1(a) AND (b) above, a Compliance Certificate in the form attached
hereto as EXHIBIT B.
(d) As soon as available, all filings made by the Borrower with the
Security and Exchange Commission ("SEC"), and all adverse notices
received from the SEC.
(e) Such other information as the Bank may reasonably request from time
to time.
4.2 Corporate Existence. Maintain and preserve its existence as a
corporation and conduct the same general type of business as is now being
carried on and continue compliance with all applicable statutes, laws, rules and
regulations.
4.3 Maintain Assets. Maintain and keep its assets, properties and
equipment in good repair, working order and condition and from time to time make
or cause to be made all needed renewals, replacements and repairs so that at all
times the Borrower's businesses can be operated efficiently.
4.4 Insurance. Insure and keep insured all of its property of an
insurable value under all-risk policies in an amount acceptable to the Bank and
workers' compensation insurance of not less than the minimum amounts required by
applicable statutes, and such other insurance as is usually carried by persons
engaged in the same or similar business, and from time to time furnish to Bank
upon request appropriate evidence of such insurance.
4.5 Access to Records. Permit any person designated by Bank, at Bank's
expense, to visit and inspect any of Borrower's properties, books and financial
records and to discuss the Borrower's affairs, finances and accounts with
officers and designated employees of the Borrower, all at such reasonable times
and as often as Bank may reasonably request.
4.6 Taxes, Assessments and Charges. Promptly pay over to the
appropriate authorities all sums for taxes deducted and withheld from wages as
well as the employer's contributions and other governmental charges imposed upon
or asserted against the Borrower's income, profits, properties and rental
charges or otherwise which are or might become a lien charged upon the
Borrower's properties, unless the same are being contested in good faith by
appropriate proceedings and adequate reserves shall have been established on the
Borrower's books with respect thereto.
4.7 Notification of Changes. Promptly notify the Bank of:
(a) Any litigation which might materially and adversely affect the
Borrower or any of the Borrower's properties;
(b) The occurrence of any Event of Default or any event which, with the
passage of time or giving of notice or both, would constitute an Event
of Default; and
(c) Any material adverse change in the operations, business,
properties, assets or conditions, financial or otherwise, of the
Borrower.
(d) The occurrence of a Reportable Event or Prohibited Transaction (as
those terms are defined under ERISA and the Internal Revenue Code of
1986, as amended) or receipt of a notice from the PBGC that a Plan of
the Borrower or an ERISA Affiliate will be terminated or receiver or
trustee appointed therefor.
4.8 Books and Records. Keep true and accurate books of records and
accounts in accordance with generally accepted accounting principles.
4.9 Reimbursement of Expenses. Promptly reimburse Bank for any and all
reasonable expenses, fees and disbursements, including attorneys' fees, incurred
in connection with the preparation and performance of this Agreement and the
instruments and documents related thereto, all amendments, modifications and
restatements thereof and supplements thereto, and all expenses of collection of
any loans made or to be made hereunder, including reasonable attorneys' fees.
SECTION 5 NEGATIVE COVENANTS
The Borrower covenants and agrees with Bank that for so long as there
is any amount remaining unpaid on the Note, or the Bank has any obligation to
make any Advance hereunder, Borrower will not:
5.1 Merge, Consolidate or Sell. Transfer, lease or sell all or a
substantial portion (defined as assets in excess of 20% of Borrower's total
assets) of the Borrower's property and business to any other entity or entities,
other than in the ordinary course of business, or acquire all or substantially
all of the assets or a controlling interest in, any other entity or entities;
provided, however, that so long as no Default or Event of Default has occurred
and is continuing, Borrower may make acquisitions the purchase price of which
acquisitions, together with the investments permitted under SECTION 5.4 up to
the aggregate amount of $15,000,000 at any time.
5.2 Liens and Encumbrances. Create, assume, incur or suffer to exist
any pledge, mortgage, assignment or other lien or encumbrance of any kind, of or
upon any of its property of any kind, whether now owned or hereafter acquired,
or of or upon the income or profits therefrom except for:
(a) Liens for taxes, assessments and other governmental charges which
are not delinquent or which are being contested in good faith by
appropriate proceedings, against which required reserves have been set
up;
(b) Liens incurred or deposits made in the ordinary course of business
in connection with workmen's compensation, unemployment insurance or
other similar laws or to secure the performance of statutory
obligations or of a like nature;
(c) Liens imposed by law in connection with transactions in the
ordinary course of business, such as liens of carriers, warehousemen,
mechanics and materialmen which are not delinquent or which are being
contested in good faith and by appropriate proceedings, against which
adequate reserves have been set up;
(d) Landlords' liens under authorized leases to which the Borrower is a
party;
(e) Zoning restrictions, licenses and minor encumbrances and
irregularities in title all of which in the aggregate do not materially
detract from the value of the property involved or impair its use;
(f) Liens disclosed on SCHEDULE III attached hereto;
(g) Liens in favor of the Bank;
(h) Mortgages securing indebtedness not exceeding the aggregate amount
of $5,000,000 at any time and prior written notice of which was given
to the Bank by the Borrower; and
(i) Purchase money liens on the property being purchased and securing
only the purchase price of such property.
5.3 Guarantees. Not assume, guarantee, endorse or otherwise become
liable upon the obligation of any person, firm or corporation except by
endorsement of negotiable instruments for deposit or collection in the ordinary
course of business, nor sell any notes or accounts receivable with recourse, in
excess of the aggregate amount of $1,000,000 at any time.
5.4 Investments. Except as disclosed on SCHEDULE IV attached hereto and
except as permitted under SECTION 5.1, not make or permit to exist any loans or
advances to or investments in any person, firm or corporation, or any other
entity, other than through the purchase or sale of negotiable instruments;
provided, however, that the Borrower may make investments hereunder so long as
the aggregate amount of such investments, together with the investments
disclosed on SCHEDULE IV and the transactions permitted under SECTION 5.1 do not
exceed $15,000,000 at any time.
5.5 Tangible Net Worth. Have at any time a Tangible Net Worth of less
than $28,000,000. For purposes of this Agreement, "Tangible Net Worth" means,
for any period of determination, the sum of the common stock, preferred stock,
additional paid-in capital, and retained earnings of the Borrower, less the book
value of all assets of the Borrower that would be treated as intangibles under
generally accepted accounting principles, including, without limitation,
goodwill, licenses, patents, trademarks, treasury stock, unamortized debt
discount and expenses, leasehold improvements, cost of investments in excess of
net assets at the time of acquisition of the Borrower, and write-ups in the book
value of the assets of the Borrower resulting from a revaluation thereof.
SECTION 6 DEFAULTS.
6.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default:
(a) Payment. The Borrower shall fail to pay, when due, any obligations
hereunder or under the Note and such default shall continue unremedied
for 5 days.
(b) Other Indebtedness. The Borrower shall default in the payment of
any indebtedness to any other person or entity in excess of the
aggregate amount of $500,000 and such default causes or entitles such
person or entity to accelerate the maturity of such indebtedness.
(c) Negative Covenants. The Borrower shall default in the due
performance or observance of any covenant contained in SECTION 5 of
this Agreement.
(d) Other Covenants or Agreements Herein. Except as otherwise provided
in this SECTION 6.1, the Borrower shall default in the due performance
or observance of any term, covenant or agreement contained in this
Agreement, or in any other document or agreement delivered pursuant
hereto or in connection herewith, and such default shall continue
uncured for 30 days after written notice thereof from the Bank.
(e) Insolvency. The Borrower shall (i) become insolvent or unable to
pay its debts generally as they mature, (ii) suspend business, (iii)
make a general assignment for the benefit of creditors, (iv) admit in
writing its inability to pay its debts generally as they mature, (v)
file or have filed against it a petition in bankruptcy or a petition or
answer seeking a reorganization, arrangement with creditors or other
similar relief under the Federal bankruptcy laws or under any other
applicable law of the United States of America or any State thereof,
(vi) consent to the appointment of a trustee or receiver for the
Borrower or for a substantial part of its property, (vii) take any
corporate action for the purpose of effecting or consenting to any of
the foregoing, or (viii) have an order, judgment or decree entered
appointing, without its consent, a trustee or receiver for Borrower or
for a substantial part of its property, or approving a petition filed
against the Borrower seeking a reorganization, arrangement with
creditors or other similar relief under the Federal bankruptcy laws or
under any other applicable law of the United States of America or any
State hereof, which order, judgment or decree shall not be vacated or
set aside or stayed within 30 days from the date of entry.
(f) Representations and Warranties. Any representation or warranty
contained in this Agreement or any other document or any letter or
certificate furnished or to be furnished to the Bank proves to be false
as of the date the Agreement or such documents is executed or at the
time such letter or certificate is delivered to Bank.
(g) Judgments. Final judgments against the Borrower (which are
uninsured) for the payment of money totaling in excess of $5,000,000 be
outstanding for a period of 60 days without a stay of execution.
(h) Material Adverse Change. There shall occur a material adverse
change in the operations, business, properties, assets or conditions,
financial or otherwise, of the Borrower.
6.2 Bank's Right on Default. Upon the occurrence of an Event of Default
of the type described in SECTION 6.1(e) above, the Commitment shall
automatically terminate and all amounts outstanding under the Note shall be
automatically due and payable in full, in each case without any declaration,
notice, presentment, protest or demand of any kind (all of which are hereby
waived). Upon the occurrence of any other Event of Default, Bank may, at its
option and without notice: (a) refuse to advance against the Note; and (b)
accelerate amounts outstanding on the Note and demand their immediate payment in
full. In all instances, the Bank may, at its option and without notice, take
such other actions available under the terms of this Agreement and the Loan
Documents or such actions as may otherwise be available in equity or at law. All
remedies of the Bank shall be cumulative.
SECTION 7 MISCELLANEOUS.
7.1 Waiver and Amendment. No failure on the part of the Bank or the
holder of the Note to exercise and no delay in exercising any power or right
hereunder or under any other Loan Document shall operate as a waiver thereof;
nor shall any single or partial exercise of any power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
The remedies herein and in any other instrument, document or agreement delivered
or to be delivered to the Bank hereunder or in connection herewith are
cumulative and not exclusive of any remedies provided by law. No notice to or
demand on the Borrower not required hereunder or under the Note shall in any
event entitle the Borrower to any other or further notice or demand in similar
or other circumstances or constitute a waiver of the right of the Bank or the
holder of the Note to any other or further action in any circumstances without
notice or demand. No amendment, modification or waiver of any provision of this
Agreement or consent to any departure by the Borrower therefrom shall be
effective unless the same shall be in writing and signed by the Bank, and then
such amendment, modifications, waiver or consent shall be effective only in the
specific instances and for the specific purpose for which given.
7.2 Expenses and Indemnities. Whether or not any Advance is made
hereunder, the Borrower agrees to reimburse the Bank upon demand for all
reasonable expenses paid or incurred by the Bank (including filing and recording
costs and fees and expenses of legal counsel, who may be employees of the Bank)
in connection with the preparation, review, execution, delivery, amendment,
modification, interpretation, collection and enforcement of the Loan Documents
(including without limitation those incurred in connection with any appeal of a
lower court order or judgment). The Borrower agrees to pay, and save the Bank
harmless from all liability for, any stamp or other taxes which may be payable
with respect to the execution or delivery of the Loan Documents. The Borrower
agrees to indemnify and hold the Bank harmless from any loss or expense which
may arise or be created by the acceptance of telephonic or other instructions
for making Advancess or disbursing the proceeds thereof. The obligations of the
Borrower under this SECTION 7.2 shall survive any termination of this Agreement.
7.3 Notices. Except when telephonic notice is expressly authorized by
this Agreement, any notice or other communication to any party in connection
with this Agreement shall be in writing and shall be sent by manual delivery,
telegram, telex, facsimile transmission, overnight courier or United States mail
(postage prepaid) addressed to such party at the address specified on the
signature page hereof, or at such other address as such party shall have
specified to the other party hereto in writing. All periods of notice shall be
measured from the date of delivery thereof if manually delivered, from the date
of sending thereof if sent by telegram, telex or facsimile transmission, from
the first Business Day after the date of sending if sent by overnight courier,
or from four days after the date of mailing if mailed, provided, however, that
any notice to the Bank under SECTION 1.5 hereof shall be deemed to have been
given only when received by the Bank.
7.4 Successors. This Agreement shall be binding upon the Borrower and
the Bank and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Bank and the successors and assigns of the Bank.
The Borrower shall not assign its rights or duties hereunder without the written
consent of the Bank.
7.5 Participations and Information. The Bank may sell participation
interests in any or all of the Advances and in all or any portion of the
Commitment to any person or entity. The Bank may furnish any information
concerning the Borrower in the possession of the Bank from time to time to
participants and prospective participants and may furnish information in
response to credit inquiries consistent with general banking practice; provided
that each such participant or prospective participant agrees to execute a
confidentiality agreement in substantially the same form as that between the
Borrower and the Bank.
7.6 Severability. Any provision of the Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
7.7 Captions. The captions or headings herein and any table of contents
hereto are for convenience only and in no way define, limit or describe the
scope or intent of any provision of this Agreement.
7.8 Entire Agreement. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrower and the Bank
with respect to the subject matter hereof and thereof. This Agreement supersedes
all prior agreements and understandings relating to the subject matter hereof.
7.9 Counterparts. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
7.10 GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND
GOVERNED BY THE SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS) OF THE STATE OF
MINNESOTA AND GIVING EFFECT TO LAWS GOVERNING NATIONAL BANKS.
7.11 VENUE. THE BORROWER HEREBY CONSENTS TO THE PERSONAL JURISDICTION
OF THE STATE AND FEDERAL COURTS LOCATED IN THE STATE OF MINNESOTA IN CONNECTION
WITH ANY CONTROVERSY RELATED TO THIS NOTE, WAIVES ANY ARGUMENT THAT VENUE IN
SUCH FORUMS IS NOT CONVENIENT AND AGREES THAT ANY LITIGATION INSTIGATED BY THE
BORROWER AGAINST THE BANK IN CONNECTION WITH THIS NOTE SHALL BE VENUED IN EITHER
THE DISTRICT COURTS OF HENNEPIN COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MINNESOTA, FOURTH DIVISION.
7.12 WAIVER OF JURY TRIAL. EACH OF THE BANK AND THE BORROWER WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS (a) UNDER THIS AGREEMENT, THE NOTE, OR UNDER ANY AMENDMENT, INSTRUMENT,
DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR THEREWITH OR (b) ARISING FROM ANY LENDING RELATIONSHIP
EXISTING IN CONNECTION WITH THIS AGREEMENT OR THE NOTE AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
If the foregoing accurately reflects your understanding of our
agreement, please so indicate by signing in the space provided below on the
enclosed copy of this letter and returning the same to the Bank.
FIRST BANK NATIONAL ASSOCIATION
By:_________________________________
Title:________________________________
Notice Address: First Bank Place
MPFP0601
601 Second Avenue South
Minneapolis, MN 55402-4302
Attention: Ms. Megan Mourning
Accepted and agreed to as of the date first above written.
CHRONIMED, INC.,
a Minnesota corporation
By:_________________________________
Title:________________________________
Notice Address: 13911 Ridgedale Drive
Minnetonka, MN 55305
Attn: Mr. Norman A. Cocke
ACKNOWLEDGEMENTS
STATE OF MINNESOTA )
) ss.
COUNTY OF ________________ )
The foregoing Letter Agreement was acknowledged before me this _______
day of December, 1996, by _______________________________ as __________________
_____________________________ of Chronimed, Inc., a Minnesota corporation, on
behalf of said corporation.
[SEAL] _____________________________________________
Notary Public
STATE OF MINNESOTA )
) ss.
COUNTY OF _________________ )
The foregoing Letter Agreement was acknowledged before me this _______
day of December, 1996, by _______________________________ as __________________
______________________________ of First Bank National Association, a national
banking association, on behalf of said association.
[SEAL] _____________________________________________
Notary Public
SCHEDULE I
LITIGATION AND CONTINGENT LIABILITIES
NONE
SCHEDULE II
SUBSIDIARIES
Home Direct Medical, Inc.
British-American Medical, Inc.
Chronimed Holdings, Inc.
SCHEDULE III
EXISTING LIENS
UCC-1 filing No. 1549935 with the Minnesota Secretary of State listing the
Borrower as debtor and National City Bank of Minneapolis as secured party. (This
filing is to be terminated.)
SCHEDULE IV
EXISTING INVESTMENTS
NONE
EXHIBIT A
REVOLVING CREDIT NOTE
$15,000,000 Minneapolis, Minnesota
Due: December 31, 1997 December 31, 1996
FOR VALUE RECEIVED, the undersigned, CHRONIMED, INC., a Minnesota
corporation (the "Borrower") promises to pay to the order of FIRST BANK NATIONAL
ASSOCIATION, a national banking association (the "Bank"), its successors and
assigns, at its banking office at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302, or such other place as the holder hereof may
designate in writing from time to time, the principal sum of FIFTEEN MILLION AND
NO/100 DOLLARS ($15,000,000), or such lesser sum as may be outstanding from time
to time hereunder, in lawful money of the United States, together with interest
from the date hereof on the unpaid balance hereof from time to time outstanding
at the interest rate(s) set forth below.
INTEREST RATES. Advances outstanding hereunder shall bear interest at one or
more of the following interest rates, at the option of the Borrower pursuant to
the terms hereof:
1. A variable rate at all times equal to the Reference Rate plus the
Applicable Margin; or
2. A fixed rate equal to the Eurodollar Rate (Reserve Adjusted) plus
the Applicable Margin.
Interest hereon shall be computed on the actual number of days elapsed and a
360-day year. After the Termination Date (as defined in the Letter Agreement),
amounts outstanding hereunder shall bear interest at a variable annual rate at
all times equal to two percent (2%) per annum plus the interest rate(s)
otherwise applicable to the Advances outstanding hereunder until this Note is
paid in full. Such interest shall be due and payable upon demand.
REPAYMENT TERMS. This Note shall be payable in the following manner:
a. Accrued interest hereon shall be due and payable on the last day of
each calendar quarter, with the first such payment due March 31, 1997.
b. All outstanding principal and accrued and unpaid interest shall be
due and payable December 31, 1997.
DEFINITIONS. The following capitalized terms when used in this Note shall have
the meanings set forth below:
"Advance" means, singly and collectively, each Eurodollar Rate Advance
and Reference Rate Advance.
"Applicable Margin" means, for each Advance, the per annum rate set
forth below based upon the ratio of the Borrower's EBIT to its Interest Expense
("Interest Coverage Ratio"):
Applicable Margin
-----------------
Reference Rate Eurodollar Rate
Ratio Advances Advances
----- -------- --------
Less than
3.0 to 1.0 1.00% 2.25%
Greater than
3.0 to 1.0 but
less than or
equal to 5.0
to 1.0 0.50% 1.857%
Greater than
5.0 to 1.0 but
less than or
equal to 7.0
to 1.0 0.00% 1.50%
Greater than
7.0 to 1.0 but
less than or
equal to 10.0
to 1.0 0.00% 1.125%
Greater than
10.0 to 1.0 0.00% 0.75%
The Applicable Margin shall be determined by the Bank from time to time upon the
information set forth in the Compliance Certificates furnished to the Bank
pursuant to SECTION 4.1(c) of the Letter Agreement. Any change in the Applicable
Margin shall take effect on the Business Day following the day of delivery to
the Bank of the applicable Compliance Certificate, and the Applicable Margin, as
so determined, shall remain in effect until the earlier of: (a) the Business Day
following the Business Day of delivery to the Bank of a subsequent Compliance
Certificate containing an Interest Coverage Ratio requiring either a higher or
lower Applicable Margin from that then in effect, or (b) the day upon which the
Borrower fails to deliver to the Bank the applicable Compliance Certificate
within the time period provided under SECTION 4.1(c). Upon any failure of the
Borrower to deliver to the Bank the applicable Compliance Certificate within the
time provided by SECTION 4.1(c), the Applicable Margin shall be deemed to be
based upon an assumed Interest Coverage Ratio of less than 3.00 to 1.00 and such
Applicable Margin shall remain in effect until the Business Day following the
Business Day of delivery to the Bank of a Compliance Certificate reflecting an
Interest Coverage Ratio for which the lower Applicable Margin would be
applicable.
"Authorized Officers" means the persons authorized to request Advances
hereunder as listed in a certificate signed by an authorized officer of the
Borrower. The Bank shall be entitled to rely on any writing purportedly signed
by a person so designated until the Bank receives written notification from the
Borrower that a person is no longer an Authorized Officer.
"Business Day" means any day on which First Bank is open for the
transaction of business of the type contemplated hereby and with respect to
Eurodollar Rate Advances, a day on which dealings in United States Dollars may
be carried on by First Bank in the interbank eurodollar market.
"Default" means any event which, with the passing of time, the giving
of notice, or both, would constitute an Event of Default under the Letter
Agreement.
"EBIT" means, for any period of determination, the net income of the
Borrower before provision for income taxes and interest expense (including,
without limitation, implicit interest expense on capitalized leases), all as
determined in accordance with generally accepted accounting principles,
excluding therefrom (to the extent included): (a) non-operating gains
(including, without limitation, extraordinary or nonrecurring gains, gains from
discontinuance of operations and gains arising from the sale of assets other
than inventory) during the applicable period; and (b) similar non-operating
losses during such period.
"Eurodollar Interbank Rate" means the offered rate for deposits in
United States Dollars (rounded upwards, if necessary, to the nearest 1/16 of
1%), for delivery of such deposits on the first day of an Interest Period, for
the number of days comprised therein, which appears on the Reuters Screen LIBO
Page as of 11:00 a.m., London time, on the day that is two Business Days
preceding the first day of the Interest Period. If at least two rates appear on
the Reuters Screen LIBO Page, the rate for such Interest Period shall be the
arithmetic mean of such rates (rounded as provided above). If fewer than two
rates appear, the rate for such Interest Period shall be determined by the Bank
based on rates offered to the eurodollar market. "Reuters Screen LIBO Page"
means the display designated as page "LIBO" on the Reuter 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 or major banks for United
States Dollar deposits).
"Eurodollar Rate Advance" means an Advance bearing interest at an
annual rate calculated using the Eurodollar Rate (Reserve Adjusted) as the
index.
"Eurodollar Rate (Reserve Adjusted)" means a rate per annum (rounded
upwards, if necessary, to the nearest 1/16th of 1%) calculated for the
applicable Interest Period in accordance with the following formula:
ERRA = Eurodollar Interbank Rate
-------------------------
1.00 - ERR
In such formula, "ERR" means "Eurodollar Reserve Rate" and "ERRA" means
"Eurodollar Rate (Reserve Adjusted)", in each instance determined by the Bank
for the applicable Interest Period. The Bank's determination of all such rates
for any Interest Period shall be conclusive in the absence of manifest error.
"Eurodollar Reserve Rate" means a percentage equal to the daily average
during such Interest Period of the aggregate maximum reserve requirements
(including all basic, supplemental, marginal and other reserves), as specified
under Regulation D of the Federal Reserve Board, or any other applicable
regulation that prescribes reserve requirements applicable to Eurocurrency
liabilities (as presently defined in Regulation D) or applicable to extensions
of credit by the Bank the rate of interest on which is determined with regard to
rates applicable to Eurocurrency liabilities. Without limiting the generality of
the foregoing, the Eurodollar Reserve Rate shall reflect any reserves required
to be maintained by the Bank against (a) any category of liabilities that
includes deposits by reference to which the Eurodollar Interbank Rate is to be
determined, or (b) any category of extensions of credit or other assets that
includes loans or advances having an interest rate based upon the Eurodollar
Interbank Rate.
"Event of Default" shall have the meaning ascribed to it in the Letter
Agreement.
"Interest Expense" means, for any period of determination, the
aggregate payments of interest expense made or accrued by the Borrower during
such period including, without limitation, the portion of any rent paid on a
capital lease which is allocable to interest expense in accordance with
generally accepted accounting principles.
"Interest Period" means, for any Eurodollar Rate Advance, the period
commencing on the borrowing date of such Eurodollar Rate Advance, or the date a
Reference Rate Advance is converted into such Eurodollar Rate Advance, or the
last day of the preceding Interest Period for such Eurodollar Rate Advance, as
the case may be, and ending on the numerically corresponding day 1, 2, or 3
months thereafter, as selected by the Borrower pursuant to the applicable Note;
provided, that:
(a) any Interest Period which would otherwise end on a day which
is not a Business Day shall end on the next succeeding
Business Day unless such next succeeding Business Day falls in
another calendar month, in which case such Interest Period
shall end on the next preceding Business Day;
(b) any Interest Period which begins on the last Business Day of a
calendar month (or on a day for which there is no numerically
corresponding day in the calendar month at the end of such
Interest Period) shall end on the last Business Day of the
calendar month at the end of such Interest Period; and
(c) no Interest Period shall extend beyond the Termination Date.
"Letter Agreement" means that certain Letter Agreement dated December
31, 1996, between the Borrower and the Bank, as originally executed and as may
be amended, modified, supplemented or restated from time to time.
"Reference Rate" means the rate of interest established and publicly
announced by the Bank from time to time as its reference rate. The Bank may make
loans to its customers at, above or below the Reference Rate. In the event that
the Bank ceases to establish and announce a Reference Rate at any time during
the term of this Note, the Bank shall be entitled to designate a reasonably
comparable substitute index for the calculation of the interest rate hereon so
long as any amount remains outstanding hereunder. All changes in the rate of
interest applicable hereto shall become effective on the same day that the
change in said Reference Rate is announced.
"Reference Rate Advance" means any Advance bearing interest at an
annual rate calculated using the Reference Rate as the index.
Capitalized terms used in this Note which are not otherwise defined herein shall
have the meanings ascribed to them in the Letter Agreement.
ADVANCE OPTIONS. Amounts evidenced hereby shall be in the form of Reference Rate
Advances and Eurodollar Rate Advances, as shall be selected by the Borrower,
except as otherwise provided herein. Any combination of Advances may be
outstanding at the same time. Each Eurodollar Rate Advance shall be in a minimum
of $500,000 or in an integral multiple thereof.
BORROWING PROCEDURE. Any request by the Borrower for a Advance shall be in
writing, or by telephone promptly confirmed in writing (including a facsimile)
each signed by an Authorized Officer, and must be given so as to be received by
the Bank not later than:
(a) 1:00 o'clock, p.m., Minneapolis time, on the date of the requested
Advance, if the Advance shall be comprised of Reference Rate Advances;
or
(b) 10:00 o'clock, a.m., Minneapolis time, two (2) Business Days prior
to the date of the requested Advance, if the Advance shall be, or shall
include, a Eurodollar Rate Advance.
Each request for an Advance shall specify (i) the borrowing date (which shall be
a Business Day), (ii) the amount and type of each requested Advance and (iii) if
request shall include Eurodollar Rate Advances, the initial Interest Periods for
such Advances. Unless the Bank determines that any applicable condition
precedent specified in the Letter Agreement has not been satisfied, the Bank
shall deposit the amount of the Advance to the Borrower's account no.
17303115452 with the Bank on the date requested.
CONTINUATION OR CONVERSION. The Borrower may elect to (a) continue any
outstanding Eurodollar Rate Advance from one Interest Period to a subsequent
Interest Period to begin on the last day of the earlier Interest Period, or (b)
convert any outstanding Advance to another type of Advance (on the last day of
an Interest Period only, the case of a Eurodollar Rate Advance), by giving the
Bank notice in writing, or by telephone promptly confirmed in writing, given so
as to be received by the Bank not later than:
(a) 1:00 o'clock, p.m., Minneapolis time, on the date of the requested
continuation or conversion, if the continuing or converted Advance
shall be a Reference Rate Advance; or
(b) 10:00 o'clock, a.m., Minneapolis time, two (2) Business Days prior
to the date of the requested continuation or conversion, if the
continuing or converted Advance shall be a Eurodollar Rate Advance.
Each notice of continuation or conversion of an Advance shall specify (i) the
effective date of the continuation or conversion (which shall be a Business
Day), (ii) the amount(s) and the type(s) of Advance(s) following such
continuation or conversion (subject to the limitations on amounts set forth
under the section entitled "Advance Options" above, and (iii) for continuation
as, or conversion into, Eurodollar Rate Advances, the Interest Periods for such
Advances. Absent timely notice of continuation or conversion, each Eurodollar
Rate Advance shall automatically convert into a Reference Rate Advance on the
last day of an applicable Interest Period, unless paid in full on such last day.
No Advance shall be continued as, or converted into, a Eurodollar Rate Advance
if the shortest Interest Period for such Advance may not expire prior to the
Termination Date or if a Default or Event of Default shall exist.
FUNDING LOSSES. The Borrower will indemnify the Bank upon demand against any
loss or expense which the Bank may sustain or incur (including, without
limitation, any loss or expense sustained or incurred in obtaining, liquidating
or employing deposits or other funds acquired to effect, fund or maintain any
Advance) as a consequence of (a) any failure of the Borrower to make any payment
when due or any amount due hereunder or under the Letter Agreement, (b) any
failure of the Borrower to borrow, continue or convert a Advance on a date
specified therefor in a notice thereof, or (c) any payment, including, without
limitation, any payment permitted or required prepayment or conversion of any
Eurodollar Rate Advance on a date other than the last day of the Interest Period
for such Advance. Determinations by the Bank for purposes of this paragraph of
the amount required to indemnify the Bank shall be conclusive in the absence of
manifest error.
INCREASED COSTS. If, as a result of any law, rule, regulation, treaty or
directive, or any change therein or in the interpretation or administration
thereof, or compliance by the Bank with any request or directive (whether or not
having the force of law) from any court, central bank, governmental authority,
agency or instrumentality, or comparable agency:
(a) any tax, duty or other charge with respect to any Advance, this
Note, or the Letter Agreement is imposed, modified or deemed
applicable, or the basis of taxation of payments to the Bank of
interest or principal of the Advances or the compensating balances
maintained pursuant to the Letter Agreement (other than taxes imposed
on the overall net income of the Bank by the jurisdiction in which the
Bank has its principal office) is charged;
(b) any reserve, special deposit, special assessment or similar
requirement against assets of, deposits with or for the account of, or
credit extended by, the Bank is imposed, modified or deemed applicable;
(c) any increase in the amount of capital required or expected to be
maintained by the Bank or any person or entity controlling the Bank is
imposed, modified or deemed applicable; or
(d) any other condition affecting the Advances, this Note or the Letter
Agreement is imposed on the Bank or the relevant funding markets;
and the Bank determines that, by reason thereof, the costs to the Bank of making
or maintaining the Advances is increased, or the amount of any sum receivable by
the Bank hereunder or under the Letter Agreement in respect of any Advance is
reduced;
then, the Bank shall promptly give the Borrower notice of such determination and
the Borrower shall pay to the Bank upon demand such additional amount or amounts
as will compensate the Bank (or the controlling person or entity in the instance
of (c) above) for such additional costs or reduction (provided that the Bank has
not been compensated for such additional costs or reduction in the calculation
of the Eurodollar Reserve Rate). Determinations by the Bank for purposes of this
paragraph of the additional amounts required to compensate the Bank shall be
conclusive in the absence of manifest error. In determining such amounts, the
Bank may use any reasonable averaging, attribution, and allocation methods.
DEPOSITS UNAVAILABLE OR INTEREST RATE UNASCERTAINABLE OR INADEQUATE;
IMPRACTICABILITY. If the Bank determines (which determination shall be
conclusive and binding on the parties hereto) that:
(a) deposits of the necessary amount for the relevant Interest Period
for any Eurodollar Rate Advance are not available to the Bank in the
relevant markets or that, by reason of circumstances affecting such
market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate, as the case may be, for such Interest Period;
(b) the Eurodollar Rate (Reserve Adjusted) will not adequately and
fairly reflect the cost to the Bank of making or funding the Eurodollar
Rate Advances for a relevant Interest Period; or
(c) the making or funding of Eurodollar Rate Advances, as the case may
be, has become impracticable as a result of any event occurring after
the date of this Note which, in the opinion of the Bank, materially and
adversely affects such Advances or the Bank's commitment to make such
Advances or the relevant market,
the Bank shall promptly give the Borrower notice of such determination, and (i)
any notice of a new Eurodollar Rate Advance, as the case may be, previously
given by the Borrower and not yet advanced, continued or converted shall be
deemed to be a notice to make a Advance of another type, as selected by the
Borrower, and (ii) the Borrower shall be obligated to either prepay in full any
outstanding Eurodollar Advances, as the case may be, without premium or penalty
on the last day of the current Interest Period with respect thereto or convert
any such Advance to an Advance of another available type, as selected by the
Borrower, on such last day.
CHANGES IN LAW RENDERING EURODOLLAR ADVANCES UNLAWFUL. If at any time due to the
adoption of any law, rule, regulation, treaty or directive, or any change
therein or in the interpretation or administration thereof by any court, central
bank, governmental authority, agency or instrumentality, or comparable agency
charged with the interpretation or administration thereof, or for any other
event arising subsequent to the date of this Note, it shall become unlawful or
impossible for the Bank to make or fund any Eurodollar Advance, the obligation
of the Bank to provide such Advance shall, upon the happening of such event,
forthwith be suspended for the duration of such illegality or impossibility. If
any such event shall make it unlawful or impossible for the Bank to continue any
Eurodollar Rate Advance previously made by it hereunder, the Bank shall, upon
the happening of such event, notify the Borrower thereof in writing, and the
Borrower shall, at the time notified by the Bank, either convert each such
unlawful Advance to an Advance of another available type or repay such Advance
in full, together with accrued interest thereon, subject to the provisions of
the paragraph entitled "Funding Losses" above.
MANNER OF FUNDING. Notwithstanding any provision of this Note or the Letter
Agreement to the contrary, the Bank shall be entitled to fund and maintain its
funding of all or any part of the Advances in any manner it elects; it being
understood, however, that for purposes of this Note and the Letter Agreement,
all determinations hereunder and thereunder shall be made as if the Bank had
actually funded and maintained each Eurodollar Rate Advance during the Interest
Period for such Advance through the purchase of deposits having a term
corresponding to such Interest Period and bearing an interest rate equal, for
each Eurodollar Rate Advance, to the Eurodollar Rate for such Interest Period
(whether or not the Bank shall have granted any participations in such
Advances).
Notwithstanding any provision of this Note or the Letter Agreement to
the contrary, the Borrower acknowledges that the Bank may fund all or any part
of the Advances by sales of participations to various participants and agrees
that the Bank may, in invoking its rights under this Note, demand and receive
payment for costs and other amounts incurred by, or allocable to, any such
participant, or take other action arising from circumstances applicable to any
such participant, to the same extent that such participant could demand and
receive payments, or take other action, under this Note or the Letter Agreement
as if such participant were the Bank hereunder.
SECURITY. This Note is unsecured.
GENERAL TERMS. This Note is issued pursuant to the Letter Agreement and this
Note and the holder hereof are entitled to all of the benefits provided for in
the Letter Agreement or are referred to therein. Reference is made to the Letter
Agreement for a statement of the terms and conditions under which this
indebtedness was incurred and is to be repaid and under which the due date of
this Note may be accelerated. The provisions of the Letter Agreement are hereby
incorporated by reference with the same force and effect as if fully set forth
herein. All capitalized terms used in this Note which are not otherwise defined
herein shall have the meanings ascribed to them in the Letter Agreement.
If an Event of Default, as defined in the Letter Agreement or any other
agreement made by any party in connection with this Note, shall occur, the Bank
or other holder may, without notice, demand, presentment for payment and notice
of nonpayment, all of which Borrower hereby expressly waives, declare the
indebtedness evidenced hereby and all other indebtedness and obligations of the
Borrower to the Bank or holder hereof immediately due and payable and the Bank
or other holder hereof may, without notice, immediately exercise any right of
setoff and enforce any lien or security interest securing payment hereof. The
foregoing shall be in addition to the rights of acceleration that may be
provided in any loan agreement, security agreement, mortgage and/or other
writing relating to the indebtedness evidenced hereby. If this Note is placed
with any attorney(s) for collection upon any default, the Borrower agrees to pay
to the Bank or holder, its reasonable attorneys' fees and all lawful costs and
expenses of collection, whether or not a suit is commenced.
Time is of the essence. No delay or omission on the part of the Bank or
other holder hereof in exercising any right or remedy hereunder shall operate as
a waiver of such right or of any other right or remedy under this Note or any
other document or agreement executed in connection herewith. All waivers by the
Bank must be in writing to be effective and a waiver on any occasion shall not
be construed as a bar to or a waiver of any similar right or remedy on a future
occasion.
Any deposits or other sums at any time credited by or due from the Bank
to the Borrower and any securities or other property of the Borrower in the
possession of the Bank or other holder of this Note may at all times be held and
treated as collateral security for the payment of this Note. The Bank or other
holder hereof may apply or set off such deposits or other sums against the
obligations hereunder upon an Event of Default, without notice, which notice is
hereby expressly waived.
Any payment due on any non-banking day of the Bank shall be due upon
(and interest shall accrue to) the next banking day.
THIS NOTE REPRESENTS A LOAN NEGOTIATED, EXECUTED AND TO BE PERFORMED IN
THE STATE OF MINNESOTA AND SHALL BE CONSTRUED, INTERPRETED AND GOVERNED BY THE
SUBSTANTIVE LAWS (BUT NOT THE LAW OF CONFLICTS) OF SAID STATE AND GIVING EFFECT
TO LAWS GOVERNING NATIONAL BANKS.
THE BORROWER HEREBY CONSENTS TO THE PERSONAL JURISDICTION OF THE STATE
AND FEDERAL COURTS LOCATED IN THE STATE OF MINNESOTA IN CONNECTION WITH ANY
CONTROVERSY RELATED TO THIS NOTE, WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS
IS NOT CONVENIENT AND AGREES THAT ANY LITIGATION INSTIGATED BY THE BORROWER
AGAINST THE BANK IN CONNECTION WITH THIS NOTE SHALL BE VENUED IN EITHER THE
DISTRICT COURTS OF HENNEPIN COUNTY, MINNESOTA, OR THE UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MINNESOTA, FOURTH DIVISION.
EACH OF THE BORROWER AND THE BANK WAIVES ANY RIGHT TO A TRIAL BY JURY
IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS (a) UNDER THE LETTER
AGREEMENT, THIS NOTE OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT
DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION THEREWITH OR
HEREWITH OR (b) ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION
WITH THE LETTER AGREEMENT OR THIS NOTE AND AGREES THAT ANY SUCH ACTION OR
PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
IN WITNESS WHEREOF, the Borrower has executed and delivered this Note
to the Bank as of the day and year first above written.
CHRONIMED, INC., a Minnesota corporation
By_______________________________________
Its ___________________________________
ACKNOWLEDGEMENT
STATE OF MINNESOTA )
) ss.
COUNTY OF ______________ )
The foregoing Revolving Credit Note was acknowledged before me this
_______ day of December, 1996, by ______________________________ as ___________
__________________________________ of Chronimed, Inc., a Minnesota corporation,
on behalf of said corporation.
[SEAL] ___________________________________________
Notary Public
EXHIBIT B
COMPLIANCE CERTIFICATE
This Compliance Certificate is being submitted pursuant to SECTION
4.1(c) of the Letter Agreement dated as of December 31, 1996 (as originally
executed and as may be amended, modified, supplemented or restated from time to
time, the "Agreement") by and between Chronimed, Inc., a Minnesota corporation
(the "Borrower") and First Bank National Association (the "Bank"). The
undersigned, being a duly acting and authorized officer of the Borrower and
familiar with its books and records, hereby certifies that, to the best of his
knowledge after reasonable investigation no Default or Event of Default has
occurred and is continuing, except as follows:
[Here state the nature of the Default or Event of Default
specifying the section of the Loan Document under which the
Default or Event of Default occurred and the action the
Borrower has taken or proposes to take to cure said Default or
Event of Default.]
1. SECTION 5.5 TANGIBLE NET WORTH. For the period being reported, the
Borrower's actual Tangible Net Worth is $ ___________________. Minimum
Permitted: $28,000,000.
2. INTEREST COVERAGE RATIO. For the period being reported, the ratio of
the Borrower's EBIT to its Interest Expense (as defined in the Note) was
___________ to 1.00.
All capitalized terms not otherwise defined herein shall have the meanings
ascribed to them in the Agreement or other Loan Documents.
Dated __________________, 199___.
CHRONIMED, INC.,
a Minnesota corporation
By: ___________________________________
Its: __________________________________
EXHIBIT 11.1
<TABLE>
<CAPTION>
CHRONIMED INC.
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
DEC. 27, DEC. 29, DEC. 27, DEC. 29,
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary
Average shares outstanding ......................... 12,138 12,180 12,306 12,092
Net effect of dilutive stock options
and warrants -- based on the treasury
stock method using average market price ......... 557 871 581 817
------- ------- ------- -------
Total ....................................... 12,695 13,051 12,887 12,909
======= ======= ======= =======
Net income ........................................... $ 1,763 $ 1,622 $ 3,016 $ 2,346
======= ======= ======= =======
Net income per share ................................. $ .14 $ .12 $ .23 $ .18
======= ======= ======= =======
Fully Diluted
Average shares outstanding ......................... 12,138 12,180 12,306 12,092
Neteffect of dilutive stock options
and warrants -- based on the treasury
stock method using the higher of average
or ending market price .......................... 557 898 581 899
------- ------- ------- -------
Total ....................................... 12,695 13,078 12,887 12,991
======= ======= ======= =======
Net income ........................................... $ 1,763 $ 1,622 $ 3,016 $ 2,346
======= ======= ======= =======
Net income per share ................................. $ .14 $ .12 $ .23 $ .18
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-END> DEC-27-1996
<CASH> 563,000
<SECURITIES> 1,418,000
<RECEIVABLES> 23,331,000
<ALLOWANCES> 890,000
<INVENTORY> 16,117,000
<CURRENT-ASSETS> 41,898,000
<PP&E> 10,678,000
<DEPRECIATION> 4,281,000
<TOTAL-ASSETS> 64,614,000
<CURRENT-LIABILITIES> 16,292,000
<BONDS> 0
0
0
<COMMON> 118,000
<OTHER-SE> 48,204,000
<TOTAL-LIABILITY-AND-EQUITY> 64,614,000
<SALES> 31,332,000
<TOTAL-REVENUES> 31,332,000
<CGS> 22,634,000
<TOTAL-COSTS> 28,682,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 419,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,841,000
<INCOME-TAX> 1,078,000
<INCOME-CONTINUING> 1,763,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,763,000
<EPS-PRIMARY> .14
<EPS-DILUTED> .14
</TABLE>
