SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended September 30,
1999.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the transition period from ____________ to
_____________.
Commission File Number: 0-20199
EXPRESS SCRIPTS, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1420563
(State of Incorporation) (I.R.S. employer identification no.)
13900 Riverport Dr., Maryland Heights, Missouri 63043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 770-1666
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Common stock outstanding as of October 31, 1999: 23,500,899 Shares Class A
15,020,000 Shares Class B
<PAGE>
EXPRESS SCRIPTS, INC.
INDEX
Page Number
Part I Financial Information 3
Item 1. Financial Statements (unaudited)
a) Consolidated Balance Sheet 3
b) Consolidated Statement of Operations 4
c) Consolidated Statement of Changes
in Stockholders' Equity 5
d) Consolidated Statement of Cash Flows 6
e) Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures About
Market Risks - 24
Part II Other Information
Item 1. Legal Proceedings 25
Item 2. Changes in Securities and Use of Proceeds -
(Not Applicable)
Item 3. Defaults Upon Senior Securities - (Not Applicable)
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 5. Other Information - (Not Applicable)
Item 6. Exhibits and Reports on Form 8-K 26
Signatures 27
Index to Exhibits 28
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
EXPRESS SCRIPTS, INC.
Unaudited Consolidated Balance Sheet
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands, except share data) 1999 1998
<S> <C> <C>
--------------- ----------------
Assets
Current assets:
Cash and cash equivalents $ 60,454 $ 122,589
Receivables, less allowance for doubtful
accounts of $14,835 and $17,806, respectively 656,146 433,006
Inventories 55,367 55,634
Deferred taxes 41,376 41,011
Prepaid expenses 3,537 4,667
--------------- ----------------
Total current assets 816,880 656,907
Property and equipment, less accumulated depreciation and amortization 95,912 77,499
Goodwill, less accumulated amortization 981,194 282,163
Other intangible assets, less accumulated amortization 173,871 61,761
Other assets 37,179 17,131
--------------- ----------------
Total assets $ 2,105,036 $ 1,095,461
=============== ================
Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ - $ 54,000
Claims and rebates payable 635,696 338,251
Accounts payable 72,335 60,247
Accrued expenses 134,157 86,798
--------------- ----------------
Total current liabilities 842,188 539,296
Long-term debt 673,836 306,000
Other liabilities 460 471
--------------- ----------------
Total liabilities 1,516,484 845,767
--------------- ----------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized, and
no shares issued
Class A Common Stock, $.01 par value, 150,000,000 shares authorized,
23,953,000 and 18,610,000 shares issued, respectively 240 186
Class B Common Stock, $.01 par value, 31,000,000 shares authorized,
15,020,000 shares issued 150 150
Additional paid-in capital 417,755 110,099
Accumulated other comprehensive income (26) (74)
Retained earnings 177,281 146,322
--------------- ----------------
595,400 256,683
Class A Common Stock in treasury at cost, 465,000 and 475,000
shares, respectively (6,848) (6,989)
--------------- ----------------
Total stockholders' equity 588,552 249,694
--------------- ----------------
Total liabilities and stockholders' equity $ 2,105,036 $ 1,095,461
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
EXPRESS SCRIPTS, INC.
Unaudited Consolidated Statement of Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share data) 1999 1998 1999 1998
<S> <C> <C> <C> <C>
----------------- ----------------- ----------------- -----------------
Net revenues $1,083,496 $807,319 $2,979,332 $1,986,087
----------------- ----------------- ----------------- -----------------
Cost and expenses:
Cost of revenues 958,987 738,544 2,652,623 1,820,593
Selling, general & administrative 78,761 43,153 207,098 101,245
Corporate restructuring - - 9,400 1,651
----------------- ----------------- ----------------- -----------------
1,037,748 781,697 2,869,121 1,923,489
----------------- ----------------- ----------------- -----------------
Operating income 45,748 25,622 110,211 62,598
----------------- ----------------- ----------------- -----------------
Interest income (expense):
Interest income 1,065 1,794 3,902 5,683
Interest expense (15,794) (6,912) (45,247) (13,793)
----------------- ----------------- ----------------- -----------------
(14,729) (5,118) (41,345) (8,110)
----------------- ----------------- ----------------- -----------------
Income before income taxes 31,019 20,504 68,866 54,488
Provision for income taxes 13,471 9,201 30,757 23,738
----------------- ----------------- ----------------- -----------------
Income before extraordinary item 17,548 11,303 38,109 30,750
Extraordinary loss on early retirement of
debt, net of taxes of $348 and $4,492,
respectively 553 - 7,150 -
================= ================= ================= =================
Net income $ 16,995 $11,303 $ 30,959 $ 30,750
================= ================= ================= =================
Basic earnings per share:
Before extraordinary item $ 0.46 $ 0.34 $ 1.08 $ 0.93
Extraordinary loss on early retirement of debt 0.02 - 0.20 -
================= ================= ================= =================
Net income $ 0.44 $ 0.34 $ 0.88 $ 0.93
================= ================= ================= =================
Weighted average number of common shares out-
standing during the period - Basic EPS 38,480 33,121 35,274 33,091
================= ================= ================= =================
Diluted earnings per share:
Before extraordinary item $ 0.45 $ 0.34 $ 1.06 $ 0.91
Extraordinary loss on early retirement of debt 0.02 - 0.20 -
================= ================= ================= =================
Net income $ 0.43 $ 0.34 $ 0.86 $ 0.91
================= ================= ================= =================
Weighted average number of common shares out-
standing during the period - Diluted EPS 39,354 33,682 36,148 33,635
================= ================= ================= =================
</TABLE>
See accompanying notes to consolidated financial statements.
EXPRESS SCRIPTS, INC.
Unaudited Consolidated Statement of Changes in Stockholders' Equity
<TABLE>
<CAPTION>
Number of Shares Amount
----------------------------------------------------------------------------------------------------
Accumulated
Class Class B Class A Class B Additional Other
A Common Common Common Paid-in Comprehensive Retained Treasury
(in thousands) Common Stock Stock Stock Capital Income Earnings Stock Total
Stock
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
----------------- --------------------------------------------------------------------------------
Balance at December 31, 1998 18,610 15,020 $ 186 $ 150 $ 110,099 $ (74) $146,322 $ (6,989) $249,694
----------------- --------------------------------------------------------------------------------
Comprehensive income:
Net income 30,959 30,959
Other comprehensive
income,
Foreign currency
translation
adjustment - - - - - 48 - - 48
----------------- --------------------------------------------------------------------------------
Comprehensive income - - - - - 48 30,959 - 31,007
Issuance of common stock 5,175 52 299,329 299,381
Exercise of stock options 168 2 5,227 5,229
Redemption of treasury stock 411 141 552
Tax benefit relating to
employee stock options - - - - 2,689 - - - 2,689
================= ================================================================================
Balance at September 30, 1999 23,953 15,020 240 $ 150 $ 417,755 $ (26) $177,281 $ (6,848) $588,552
================= ================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
EXPRESS SCRIPTS, INC.
Unaudited Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
(in thousands) 1999 1998
<S> <C> <C>
----------------- ----------------
Cash flows from operating activities:
Net income $ 30,959 $ 30,750
Adjustments to reconcile net
income to net cash provided by operating
activities:
Depreciation and amortization 50,756 18,254
Deferred income taxes 9,494 1,109
Bad debt expense 3,005 2,080
Tax benefit relating to employee stock options 2,689 1,048
Corporate restructuring charge, less cash payments 5,762 1,651
Extraordinary loss on early retirement of debt 11,642
Net changes in operating assets and liabilities,
net of changes resulting from acquisitions (25,690) 46,531
----------------- ----------------
Net cash provided by operating activities 88,617 99,772
----------------- ----------------
Cash flows from investing activities:
Purchases of property and equipment (25,924) (17,990)
Acquisitions, net of cash acquired (718,416) (460,137)
Short-term investments - 57,938
----------------- ----------------
Net cash (used in) investing activities (744,340) (420,189)
----------------- ----------------
Cash flows from financing activities:
Repayment of long-term debt (975,000) -
Proceeds from long-term debt 1,288,815 360,000
Net proceeds from issuance of common stock 299,381
Financing fees paid (25,437) (4,062)
Other, net 5,781 1,478
----------------- ----------------
Net cash provided by financing activities 593,540 357,416
---------------- ----------------
Effect of foreign currency translation adjustment 48 (54)
----------------- ----------------
Net (decrease) increase in cash and cash equivalents (62,135) 36,945
Cash and cash equivalents at beginning of period 122,589 64,155
----------------- ----------------
Cash and cash equivalents at end of period $ 60,454 $ 101,100
================= ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
EXPRESS SCRIPTS, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
Certain financial statement note disclosures, normally included in
financial statements prepared in conformity with generally accepted accounting
principles, have been omitted in this Form 10-Q pursuant to the Rules and
Regulations of the Securities and Exchange Commission. However, in the opinion
of the Company, the disclosures contained in this Form 10-Q are adequate to make
the information presented not misleading when read in conjunction with the notes
to consolidated financial statements included in the Company's Annual Report on
Form 10-K/A for the Year Ended December 31, 1998, as filed with the Securities
and Exchange Commission on June 10, 1999.
In the opinion of the Company, the accompanying unaudited consolidated
financial statements reflect all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the Unaudited Consolidated
Balance Sheet at September 30, 1999, the Unaudited Consolidated Statement of
Operations for the three months and nine months ended September 30, 1999, and
1998, the Unaudited Consolidated Statement of Changes in Stockholders' Equity
for the nine months ended September 30, 1999, and the Unaudited Consolidated
Statement of Cash Flows for the nine months ended September 30, 1999 and 1998.
Operating results for the three months and nine months ended September 30, 1999
are not necessarily indicative of the results that may be expected for the year
ending December 31, 1999.
Note 2 - Receivables
As of September 30, 1999 and December 31, 1998, unbilled receivables
were $274,281,000 and $209,334,000, respectively. Unbilled receivables are
billed to clients typically within 30 days based on the contractual billing
schedule agreed with the client.
Note 3 - Earnings Per Share
Basic earnings per share is computed using the weighted average number
of common shares outstanding during the period. Diluted earnings per share is
computed in the same manner as basic earnings per share but adds the number of
additional common shares that would have been outstanding for the period if the
dilutive potential common shares had been issued. The only difference between
the number of weighted average shares used in the basic and diluted calculation
for all years is stock options and stock warrants granted by the Company using
the "treasury stock" method.
Note 4 - Acquisition
On April 1, 1999 the Company completed its acquisition of Diversified
Pharmaceutical Services, Inc. and Diversified Pharmaceutical Services (Puerto
Rico) Inc. (collectively, "DPS"), from SmithKline Beecham Corporation and
SmithKline Beecham InterCredit BV (collectively, "SB") for approximately $718
million, which includes a purchase price adjustment for closing working capital
and transaction costs. The Company will file an Internal Revenue Code
ss.338(h)(10) election, making amortization expense of intangible assets,
including goodwill, tax deductible. The Company used approximately $48 million
of its own cash and financed the remainder of the purchase price and related
acquisition costs through a $1.05 billion credit facility and a $150 million
senior subordinated bridge credit facility (see Note 4). On June 18, 1999, SB
transferred ownership of Diversified Prescription Delivery L.L.C. ("DPD"), to
the Company, pursuant to the Company's agreement with SB in connection with the
acquisition of DPS.
The acquisition has been accounted for using the purchase method of
accounting. The results of operations of DPS have been included in the
consolidated financial statements and pharmacy benefit management ("PBM")
segment since April 1, 1999. The purchase price has been preliminarily allocated
based on the estimated fair values of net assets acquired at the date of the
acquisition. The excess of purchase price over tangible net assets acquired has
been preliminarily allocated to other intangible assets consisting of customer
contracts in the amount of $129,500,000 which are being amortized using the
straight-line method over the estimated useful lives of 1 to 20 years and are
included in other intangible assets, and goodwill in the amount of $730,309,000
which is being amortized using the straight-line method over the estimated
useful life of 30 years. In conjunction with the acquisition, DPS retained the
following liabilities:
(in thousands)
- --------------------------------------------------------------------------------
Fair value of assets acquired $1,004,599
Cash paid for the capital stock (718,416)
=======================
Liabilities retained $ 286,183
=======================
On April 1, 1998, the Company acquired all of the outstanding capital
stock of Value Health, Inc. and Managed Prescription Network, Inc.
(collectively, known as "ValueRx") from Columbia/HCA Healthcare Corporation
("Columbia") for approximately $460 million in cash (which includes transactions
costs and executive management severance costs of approximately $15 million),
approximately $360 million of which was obtained through a bank credit facility
(see Note 4) and the remainder from the Company's cash balances and short-term
investments.
The acquisition has been accounted for using the purchase method of
accounting and the results of operations of ValueRx have been included in the
consolidated financial statements and PBM segment since April 1, 1998. The
purchase price has been allocated based on the estimated fair values of net
assets acquired at the date of the acquisition. The excess of purchase price
over tangible net assets acquired has been allocated to other intangible assets
consisting of customer contracts and non-compete agreements in the amount of
$57,653,000 which are being amortized using the straight-line method over the
estimated useful lives of 2 to 20 years and are included in other assets, and
goodwill in the amount of $278,113,000 which is being amortized using the
straight-line method over the estimated useful life of 30 years. The
amortization expense from ValueRx goodwill and customer contracts is
non-deductible for income tax purposes. In conjunction with the acquisition, the
Acquired Entities and their subsidiaries retained the following liabilities:
(in thousands)
- ---------------------------------------------------------------------------
Fair value of assets acquired $ 659,166
Cash paid for the capital stock (460,137)
=======================
Liabilities retained $ 199,029
=======================
The following unaudited pro forma information presents a summary of
combined results of operations of the Company, DPS and ValueRx as if the
acquisitions had occurred at the beginning of the periods presented, along with
certain pro forma adjustments to give effect to amortization of goodwill, other
intangible assets, interest expense on acquisition debt and other adjustments.
The pro forma financial information is not necessarily indicative of the results
of operations as they would have been had the transaction been effected on the
assumed dates. Included in the pro forma information are certain integration
costs incurred by the Company that are being reported within selling, general
and administrative expenses in the statement of operations. The pro forma
information for the nine months ended September 30, 1998 assumes the debt
incurred to acquire DPS is outstanding for the nine months and excludes the
impact of the Company's recapitalization from its equity and debt offering (see
Note 5).
<TABLE>
<CAPTION>
Nine Months Ended Nine Months Ended
September 30, September 30,
(in thousands, except per share data) 1999 1998
- -------------------------------------------------------------------------------
<S> <C> <C>
Net revenues $3,044,698 $2,545,867
Income before extraordinary loss 39,283 17,671
Extraordinary loss 7,150
Net income 32,133 17,671
Basic earnings per share
Before extraordinary loss 1.11 0.53
Extraordinary loss 0.20
Net income 0.91 0.53
Diluted earnings per share
Before extraordinary loss 1.09 0.53
Extraordinary loss 0.20
Net income 0.89 0.53
</TABLE>
Note 5 - Financing
Long-term debt consists of:
<TABLE>
<CAPTION>
September 30, December 31,
(in thousands) 1999 1998
- --------------------------------------------------------------------------------------------------
Revolving credit facility due March 31, 2005
with an interest rate of 7.94% at September
<S> <C> <C>
30, 1999 $140,000 $ -
Term credit facility due April 15, 2003 360,000
Term A loans due March 31, 2005 with an interest
rate of 7.94% at September 30, 1999 285,000
9.625% Senior Notes due June 15, 2009
with an effective interest rate of 9.7%,
net of unamortized discount of $1,164 248,836 -
-----------------------------------------------
Total debt 673,836 360,000
Less current maturities - 54,000
===============================================
Long-term debt $673,836 $306,000
===============================================
</TABLE>
On April 1, 1999, the Company executed a $1.05 billion credit facility
("Credit Facility") with a bank syndicate led by Credit Suisse First Boston and
Bankers Trust Company, consisting of $750 million in term loans, including $285
million of Term A loans and $465 million of Term B loans, and a $300 million
revolving credit facility. The Credit Facility is secured by the capital stock
of each of the Company's existing and subsequently acquired domestic
subsidiaries, excluding Practice Patterns Science, Inc. ("PPS"), Great Plains
Reinsurance Company ("Great Plains"), ValueRx of Michigan, Inc., Diversified NY
IPA, Inc., and Diversified Pharmaceutical Services (Puerto Rico), Inc., and is
also secured by 65% of the stock of the Company's foreign subsidiaries. The
provisions of the Credit Facility require quarterly interest payments based on
several London Interbank Offered Rates ("LIBOR") or base rate options plus an
interest rate spread. The Credit Facility contains covenants that limit the
indebtedness the Company may incur, dividends paid and the amount of annual
capital expenditures. The covenants also establish a minimum interest coverage
ratio, a maximum leverage ratio, and a minimum fixed charge coverage ratio. In
addition, the Company is required to pay an annual fee of 0.5%, payable in
quarterly installments, on the unused portion of the revolving credit facility
($160 million at September 30, 1999). At September 30, 1999, the Company was in
compliance with all covenants associated with the Credit Facility.
Also on April 1, 1999, the Company executed a $150 million senior
subordinated bridge credit facility with Credit Suisse First Boston and Bankers
Trust Company. The proceeds from this facility and approximately $890 million in
proceeds from the Credit Facility were used to consummate the DPS acquisition
(see Note 3) and repay $360 million outstanding under the Company's pre-existing
$440 million credit facility. This facility was retired in June 1999, upon the
completion of the Company's equity offering (see Note 6).
On June 16, 1999, the Company completed the offering of $250 million in
Senior Notes through a private placement under Rule 144A of the Securities Act
of 1933, as amended. The Company filed a registration statement (No. 333-83133),
which was declared effective on August 4, 1999, to exchange the privately placed
Senior Notes for registered Senior Notes on substantially the same terms. The
exchange was completed on September 21, 1999. The Senior Notes require interest
to be paid semi-annually on June 15th and December 15th. The Senior Notes also
provide the Company an opportunity to call the debt at specified rates beginning
in June 2004. The net proceeds from the Senior Notes offering, along with a
portion of the net proceeds from the equity offering and $23,901,000 of the
Company's own cash were used to repay $414,770,000 of the Term B loans. In July
1999, the Company paid off the remaining Term B principal balance of
$50,230,000. As a result of the refinancing of the $440 million credit facility
and the repayment of the Term B loans, the Company recognized a $7,150,000, net
of tax, extraordinary loss from the write-off of deferred financing fees. The
Senior Notes are guaranteed by the Company's domestic subsidiaries other than
Practice Patterns Science, Inc., Great Plains Reinsurance Company, ValueRx of
Michigan, Inc., Diversified NY IPA, and Diversified Pharmaceutical Services
(Puerto Rico). The following is a summary of financial position and results of
operations of the issuer, the guarantor subsidiaries and the non-guarantor
subsidiaries:
<TABLE>
<CAPTION>
Express Non-
(amounts in thousands) Scripts, Inc. Guarantors Guarantors Eliminations Consolidated
<S> <C> <C> <C> <C> <C>
------------- ---------- ----------- ------------ ------------
As of September 30, 1999
Current assets $ 332,746 $ 472,789 $ 11,345 $ - $ 816,880
Property and equipment, net 34,813 58,121 2,978 95,912
Investments in subsidiaries 785,950 74,296 264 (860,510)
Intercompany 404,626 (396,496) (8,130)
Goodwill, net 178 981,016 981,194
Other intangible assets, net 7,156 166,641 74 173,871
Other assets 12,160 24,754 563 298 37,179
--------------- --------------- -------------- ------------ ------------
Total assets $1,577,629 $1,381,121 $ 7,094 $ (860,808) $2,105,036
========== ========== ========= =========== ==========
Current liabilities $ 346,986 $ 491,679 $ 3,523 $ - $ 842,188
Long-term debt 673,836 673,836
Other liabilities (1,218) 423 1,255 460
Stockholders' equity 558,025 889,019 2,316 (860,808) 588,552
--------------- --------------- -------------- ------------ -----------
Total liabilities and
stockholders'equity $1,577,629 $1,381,121 $ 7,094 $ (860,808) $2,105,036
========== ========== ========= =========== ==========
As of December 31, 1998
Current assets $ 463,818 $ 188,978 $ 4,111 $ - $ 656,907
Property and equipment, net 27,375 46,817 3,307 77,499
Investments in subsidiaries 68,198 74,297 264 (142,759)
Intercompany 363,455 (361,202) (2,253)
Goodwill, net 210 281,953 282,163
Other intangible assets, net 8,317 53,333 111 61,761
Other assets 4,466 12,520 145 17,131
----------- --------------- -------------- ------------ ----------
Total assets $ 935,839 $ 296,696 $ 5,685 $ (142,759) $1,095,461
========= ========= ========= =========== ==========
Current liabilities $ 394,553 $ 141,433 $ 3,310 $ - $ 539,296
Long-term debt 306,000 306,000
Other liabilities 779 (251) (57) 471
Stockholders' equity 234,507 155,514 2,432 (142,759) 249,694
----------- -------------- -------------- ------------- -----------
Total liabilities and
stockholders' equity $ 935,839 $ 296,696 $ 5,685 $ (142,759) $1,095,461
========= ========= ========= =========== ==========
Three months ended September 30, 1999
Net revenues $ 548,405 $ 522,564 $ 12,527 $ - $1,083,496
Operating expenses 517,497 509,031 11,220 - 1,037,748
----------- -------------- -------------- ------------ -----------
Operating income (loss) 30,908 13,533 1,307 - 45,748
Interest income (expense) (14,759) (28) 58 (14,729)
----------- -------------- -------------- ------------ ----------
Income (loss) before tax provision 16,149 13,505 1,365 - 31,019
Income tax provision (benefit) 12,785 (237) 923 13,471
----------- --------------- -------------- ------------ ----------
Income (loss) before extraordinary 3,364 13,742 442 - 17,548
Extraordinary loss 553 - - - 553
----------- --------------- -------------- ------------ ----------
Net income (loss) $ 2,811 $ 13,742 $ 442 $ - $ 16,995
======== ========= ======== ======= =========
</TABLE>
<TABLE>
<CAPTION>
Express Non-
(amounts in thousands) Scripts, Inc. Guarantors Guarantors Eliminations Consolidated
Three months ended September 30, 1998
<S> <C> <C> <C> <C> <C>
Net revenues $ 419,627 $ 385,215 $ 2,477 $ - $ 807,319
Operating expenses 407,396 371,890 2,411 781,697
-------------- -------------- ----------- ------------ ------------
Operating income (loss) 12,231 13,325 66 - 25,622
Interest income (expense) (5,478) 332 28 (5,118)
-------------- -------------- ----------- ------------ ------------
Income (loss) before tax provision 6,753 13,657 94 - 20,504
Income tax provision (benefit) 4,675 4,314 212 - 9,201
-------------- -------------- ----------- ------------ ------------
Income (loss) before extraordinary 2,078 9,343 (118) - 11,303
Extraordinary loss - - - - -
Net income (loss) $ 2,078 $ 9,343 $ (118) $ - $ 11,303
========= ========= ========= =========== ============
Nine months ended September 30, 1999
Net revenues $1,555,908 $1,395,718 $ 27,706 $ - $2,979,332
Operating expenses 1,468,862 1,374,787 25,472 - 2,869,121
-------------- --------------- ----------- ----------- ------------
Operating income (loss) 87,046 20,931 2,234 - 110,211
Interest income (expense) (41,682) 183 154 (41,345)
-------------- --------------- ----------- ----------- ------------
Income (loss) before tax provision 45,364 21,114 2,388 - 68,866
Income tax provision (benefit) 24,351 5,035 1,371 - 30,757
--------------- --------------- ----------- ----------- ------------
Income (loss) before extraordinary 21,013 16,079 1,017 - 38,109
Extraordinary loss 7,150 - - - 7,150
----- - - - ------------
Net Income (loss) $ 13,863 $ 16,079 $ 1,017 $ - $ 30,959
========= ========= ======== ======= =========
Nine months ended September 30, 1998
Net revenues $1,181,199 $ 797,614 $ 7,274 $ - $1,986,087
Operating expenses 1,145,267 770,725 7,497 - 1,923,489
--------------- --------------- ----------- ------------ -----------
Operating income (loss) 35,932 26,889 (223) - 62,598
Interest income (expense) (8,670) 484 76 (8,110)
--------------- --------------- ----------- ------------ ------------
Income (loss) before tax provision 27,262 27,373 (147) - 54,488
Income tax provision (benefit) 13,707 9,871 160 - 23,738
--------------- --------------- ------------- -------------- ------------
Income (loss) before extraordinary 13,555 17,502 (307) - 30,750
Extraordinary loss - - - - -
Net Income (loss) $ 13,555 $ 17,502 $ (307) $ - $ 30,750
========= ======== ======== ======= =========
</TABLE>
The following represents the schedule of current maturities (in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------
<S> <C> <C>
1999 $ -
2000
2001 42,750
2002 57,000
2003 57,000
Thereafter 517,086
------------------
$673,836
==================
</TABLE>
To manage its interest rate risk the Company entered into an interest
rate swap agreement ("swap") with The First National Bank of Chicago, a
subsidiary of Bank One Corporation, on April 3, 1998. At September 30, 1999, the
swap had a notional principal amount of $333 million. Under the terms of the
swap, the Company agreed to receive a floating rate of interest on the amount of
the term loan facility based on a three-month LIBOR rate in exchange for payment
of a fixed rate of interest of 5.88% per annum. The notional principal amount of
the swap amortizes $27 million in October 1999, increasing to $36 million in
April 2000, to $45 million in April 2001 and to $48 million in April 2002. As a
result, the Company has, in effect, converted $333 million of its variable rate
debt under the Credit Facility to fixed rate debt at 5.88% per annum for the
first four years of the Credit Facility, plus the interest rate spread of 2.0%.
On June 17, 1999, the Company entered into an interest rate swap
agreement with Bankers Trust Company. The swap will not become effective until
April 2000 and carried no notional principal amount as of September 30, 1999.
Under the terms of the agreement, the Company agreed to receive a floating rate
of interest on the notional principal amount based on a three-month LIBOR rate
in exchange for payment of a fixed rate of interest of 6.25% per annum.
Beginning in April 2000, the notional principal amount will be $15 million and
will increase semi-annually up to an approximate $137.25 million in October
2002. For the remainder of the agreement's term, the notional principal amount
will amortize until the agreement terminate in April 2005. When the swap becomes
effective, the Company will, in effect, convert the notional principal amount of
our variable rate debt under our Credit Facility to fixed rate debt at 6.25% per
annum, plus the interest rate spread.
Note 6 - Restructuring
During the second quarter of 1999, the Company recorded a pre-tax
restructuring charge of $9,400,000 ($5,773,000 after taxes or $0.17 per basic
and diluted share) associated with the consolidation of the Company's Plymouth,
Minnesota facility into the Company's Bloomington, Minnesota facility. The
consolidation plan includes the relocation of all non-call center employees at
the Plymouth facility to the Bloomington facility beginning in August 1999 and
ending in February 2000. Included in the restructuring charge are anticipated
cash expenditures of approximately $5,700,000 for lease termination fees and
rent on unoccupied space and anticipated non-cash charges of approximately
$3,700,000 for the write-down of leasehold improvements and furniture and
fixtures. The restructuring charge does not include any costs associated with
the physical relocation of the employees.
During the second quarter of 1998, the Company recorded a pre-tax
restructuring charge of $1,651,000 ($1,002,000 after taxes or $0.03 per basic
and diluted share) associated with the Company closing the non-PBM service
operations of its wholly-owned subsidiary, PhyNet, Inc., and transferring
certain functions of its Express Scripts Vision Corporation to another vision
care provider. The Company completed the remainder of the restructuring actions
during the third quarter of 1999.
<TABLE>
<CAPTION>
Balance at Balance at
December 31, Utilized September 30,
(in thousands) 1998 Additions Cash Noncash 1999
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Write-down of long-lived assets $531 $3,700 $ - $(531) $3,700
Employee transition costs for 61 employees 232 (232)
Lease termination fees and rent - 5,700 (3,638) - 2,062
================= ============= ============ ============ =================
$763 $9,400 $(3,870) $(531) $5,762
================= ============= ============ ============ =================
</TABLE>
Both restructuring charges include tangible assets to be disposed of
being written down to their net realizable value, less cost of disposal.
Management expects recovery to approximate its cost of disposal. Considerable
management judgment is necessary to estimate fair value; accordingly, actual
results could vary from such estimates.
Note 7 - Common Stock
In June 1999, the Company consummated its offering of 5,175,000 shares
of its Class A common stock at a price of $61 per share. The net proceeds of
$299,381,000 were used to retire the $150 million senior subordinated bridge
credit facility and a portion of the Term B loans under the $1.05 billion credit
facility (see Note 5).
Note 8 - Segment Reporting
The Company is organized on the basis of services offered and has
determined that it has two reportable segments: PBM services and non-PBM
services. The Company manages the pharmacy benefit within an operating segment
that encompasses a fully integrated PBM service. The remaining three operating
service lines (IVTx, Specialty Distribution and Vision) have been aggregated
into a non-PBM reporting segment.
The following table presents information about the reportable segments
for the nine months ended September 30:
<TABLE>
<CAPTION>
(in thousands) PBM Non-PBM Total
<S> <C> <C> <C>
- ------------------------------------------------------------------------
1999
Net revenues $2,932,422 $ 46,910 $2,979,332
Income before income taxes 63,974 4,892 68,866
1998
Net revenues $1,943,426 $ 42,661 $1,986,087
Income before income taxes 50,486 4,002 54,488
</TABLE>
As of September 30, 1999 and December 31, 1998, total assets for the
PBM segment were $2,078,718 and $1,068,715,000, respectively, and the Non-PBM
segment were $26,318,000 and $26,746,000, respectively.
Note 9 - Subsequent Events
In October 1999, the Company completed its contribution of certain
operating assets constituting its e-commerce business ("YourPharmacy") in
prescription and non-prescription drugs and health and beauty aids to
PlanetRx.com, Inc. ("PlanetRx") in exchange for 19.9% of the common equity of
PlanetRx. As a result, the Company will record an after-tax gain of
approximately $101 million on the sale of these assets during the fourth quarter
of 1999. Additionally, during the fourth quarter of 1999, the Company will
record an after-tax stock compensation expense of approximately $12 million
related to employees of YourPharmacy. These amounts were determined using the
$16 per share initial offering price for PlanetRx's equity.
Item 2. Management's Discussion And Analysis Of Financial Condition And
Results Of Operations
In this Item 2, "we," "us," "our" and the "Company" refer to Express
Scripts, Inc. and its subsidiaries, unless the context indicates otherwise.
Information included in this Quarterly Report on Form 10-Q, and information that
may be contained in other filings by us with the Securities and Exchange
Commission (the "Commission") and releases issued or statements made by us,
contain or may contain forward-looking statements, including but not limited to
statements of our plans, objectives, expectations or intentions, including as to
Year 2000 issues. Such forward-looking statements necessarily involve risks and
uncertainties. Our actual results may differ significantly from those projected
or suggested in any forward-looking statements. Factors that might cause such a
difference to occur include, but are not limited to:
- - risks associated with successfully integrating the PlanetRx.com Internet
site with our system, and competition in the Internet pharmacy business
- - risks associated with the consummation and financing of acquisitions,
including our ability to successfully integrate the operations of the
acquired businesses with our existing operations(including successfully
managing the transition of the United Healthcare membership off of our
systems in 2000), client retention issues, and risks inherent in the
acquired entities' operations
- - risks associated with obtaining financing and capital
- - risks associated with our ability to manage growth
- - competition, including price competition, competition in the bidding and
proposal process and our ability to consummate contract negotiations with
prospective clients
- - the possible termination of contracts with certain key clients or providers
- - the possible termination of contracts with certain key pharmaceutical
manufacturers and changes in pricing, discount, rebate or other practices
of pharmaceutical manufacturers
- - adverse results in litigation
- - adverse results in regulatory matters, the adoption of adverse legislation
or regulations, more aggressive enforcement of existing legislation or
regulations, or a change in the interpretation of existing legislation or
regulations
- - developments in the healthcare industry, including the impact of increases
in healthcare costs, changes in drug utilization patterns and introductions
of new drugs
- - risks associated with the "Year 2000" issue
- - dependence on key members of management
- - our relationship with New York Life Insurance Company, which possesses
voting control of us
- - other risks described from time to time in our filings with the Commission.
We do not undertake any obligation to release publicly any revisions to
such forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.
Overview
On April 1, 1999, we completed our second major acquisition by
acquiring Diversified Pharmaceutical Services, Inc. and Diversified
Pharmaceutical Services (Puerto Rico) Inc. (collectively "DPS") from SmithKline
Beecham Corporation ("SmithKline Beecham") and SmithKline Beecham InterCredit BV
for approximately $718 million, which includes a purchase price adjustment for
closing working capital and transaction costs. On April 1, 1998, we consummated
our first major acquisition by acquiring Value Health, Inc. and Managed
Prescription Network, Inc. (collectively, "ValueRx"), the pharmacy benefit
management ("PBM") operations of Columbia/HCA Healthcare Corporation
("Columbia"), for approximately $460 million in cash, which includes transaction
costs and executive management severance costs of approximately $6.7 million and
$8.3 million, respectively. Consequently, our operating results include those of
DPS from April 1, 1999 and ValueRx from April 1, 1998. The net assets acquired
from DPS have been preliminarily recorded at their estimated fair value,
resulting in $730,309,000 of goodwill that is being amortized over 30 years. The
net assets acquired from ValueRx have been recorded at their estimated fair
value, resulting in $278,113,000 of goodwill that is being amortized over 30
years. Both acquisitions have been accounted for under the purchase method of
accounting.
As of September 30, 1999, our membership was approximately 37.5 million
members, excluding approximately 9.5 million members of health plans of United
HealthCare Corp. ("UHC") whose contract expires in May 2000, compared to 36.0
million members as of June 30, 1999 and to 23.0 million members as of October 1,
1998. The increase from June 30, 1999 is primarily due to the addition of Blue
Cross and Blue Shield of Massachusetts. The increase from October 1, 1998 is
primarily due to our acquisition of DPS. This acquisition enabled us to have one
of the largest managed care membership bases of any PBM. Although membership
counts are based on our electronic eligibility data file, they involve some
estimates, extrapolations and approximations. For example, some plan designs
allow for family coverage under one identification number, and we make
assumptions about the average number of persons per family in calculating our
total membership. Because these assumptions may vary between PBMs, membership
counts may not be comparable between our competitors and us. However, we believe
our membership count provides a reasonable estimation of the population we
serve. The acquisitions also increased the scale of our business, expanded our
client base, increased our penetration of PBM markets and expanded our product
and service offerings.
We derive our revenues primarily from the sale of PBM services in the
United States and Canada. Our PBM net revenues generally include administrative
fees, dispensing fees and ingredient costs of pharmaceuticals dispensed from
retail pharmacies included in one of our networks or from one of our mail
pharmacies (the "Gross Basis"). We then record the associated costs in cost of
revenues. Where we only administer the contracts between our clients and the
clients' retail pharmacy networks, or where we are not contractually obligated
to pay the pharmacy for the ingredient cost of dispensed drugs, we record as net
revenues only the administrative fees we receive from our activities (the "Net
Basis"). We also derive PBM net revenues from the sale of informed decision
counseling services through our Express Health LineSM division and the sale of
medical information management services, which include provider profiling,
formulary management support services and outcomes assessments, through our
Practice Patterns Science, Inc. subsidiary. Non-PBM net revenues are derived
from:
o The sale of pharmaceuticals for and the provision of infusion therapy
services through our IVTx, Inc. subsidiary, now operating under the name
Express Scripts Infusion Services
o Administrative fees received from drug manufacturers for the dispensing or
distribution of pharmaceuticals through our Specialty Distribution Services
division.
o Administrative fees received for members using our vision program through
our alliance with Cole Managed Vision ("Cole"), a subsidiary of Cole
National Corporation
<TABLE>
Results Of Operations
Net Revenues
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
(in thousands) 1999 % Increase 1998 1999 % Increase 1998
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBM $1,066,519 34.8% $791,412 $2,932,422 50.9% $1,943,426
Non-PBM 16,977 6.7% 15,907 46,910 10.0% 42,661
----------------------------------------------------------------------------------------
Net revenues $1,083,496 34.2% $807,319 $2,979,332 50.0% $1,986,087
========================================================================================
</TABLE>
Total net revenues for the third quarter of 1999 increased
$276,177,000, or 34.2%, compared to the third quarter of 1998. The increase is
primarily due to the increase in the number of retail pharmacy network claims
and mail pharmacy claims processed, and the acquisition of DPS. Although the DPS
acquisition approximately doubled the size of our membership base, it did not
double the size of our revenues because DPS records all of its revenues on the
Net Basis.
Total net revenues for the nine months ended September 30, 1999
increased $993,245,000, or 50.0%, compared to the first nine months of 1998. The
increase is primarily due to the inclusion of ValueRx for the full nine months
of 1999 compared to only the second and third quarters of 1998, the increased
processing of retail pharmacy network claims and mail pharmacy claims, and the
acquisition of DPS.
The majority of the increase in net revenues for the third quarter of
1999 and the nine months ended 1999 were derived from our PBM services. Network
pharmacy claims processed increased 149.0% and 135.1% in the third quarter of
1999 over 1998 and the first nine months of 1999 over 1998, respectively. The
significant increase in the third quarter of 1999 network pharmacy claims
processed is primarily due to the acquisition of DPS and, to a lesser extent, a
larger membership base utilizing our network pharmacy services and increased
utilization by existing members. The significant increase in the nine months
ended September 30, 1999 network pharmacy claims is due to the factors above and
the inclusion of ValueRx for the full nine months of 1999 compared to only the
second and third quarters of 1998. The average net revenue per network pharmacy
claim decreased 47.8% and 35.9% in the third quarter of 1999 over 1998 and the
first nine months of 1999 over 1998, respectively. The decrease is due to the
acquisition of DPS, as DPS records revenue on the Net Basis which substantially
reduces the average net revenue per network pharmacy claim. Excluding DPS, the
average net revenue per network pharmacy claim increased 3.2% and 6.9% in the
third quarter of 1999 over 1998 and the first nine months of 1999 over 1998,
respectively. The increase for the first nine months of 1999 is primarily due to
the inclusion of ValueRx for the full nine months of 1999 compared to only the
second and third quarters of 1998. ValueRx recorded revenues on the Gross Basis
as substantially all ValueRx clients used retail pharmacy networks established
by ValueRx, rather than retail pharmacy networks established by its clients,
resulting in our recording dispensing fees and ingredient costs in net revenues
and cost of revenues, respectively. Excluding ValueRx and DPS, we historically
have recorded revenues under both the Gross Basis and the Net Basis. As a result
of the above factors, network pharmacy claims net revenues increased
$172,787,000, or 30.0%, and $713,309,000, or 50.7%, in the third quarter of 1999
over 1998 and the first nine months of 1999 over 1998, respectively.
Mail pharmacy claims processed increased 36.0% and 41.0% in the third
quarter of 1999 over 1998 and the first nine months of 1999 over 1998,
respectively. The significant increase for the third quarter of 1999 and the
first nine months of 1999 is primarily due to the acquisition of the DPD
facility and increased utilization by existing members. In addition, the
increase for the first nine months of 1999 is partially due to the inclusion of
ValueRx for the full nine months of 1999 compared to only the second and third
quarters of 1998. The average net revenue per mail pharmacy claim increased 8.2%
and 6.4% in the third quarter of 1999 over 1998 and the first nine months of
1999 over 1998, respectively. Due to the above factors, mail pharmacy net
revenues increased $98,263,000, or 47.2%, and $260,740,000 or 50.1%, in the
third quarter of 1999 over 1998 and the first nine months of 1999 over 1998,
respectively.
Net revenues from our non-PBM services increased 6.7% and 10.0% in the
third quarter of 1999 over 1998 and the first nine months of 1999 over 1998,
respectively. The increases were primarily due to a change in product mix sold,
which resulted in higher drug ingredient costs. These increases were partially
offset by the reduction in net revenues from our managed vision business due to
the restructuring of this operation.
<TABLE>
<CAPTION>
Cost and Expenses
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1999 % Increase 1998 1999 % Increase 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
PBM $ 945,907 30.2% $726,609 $2,615,937 46.3% $1,788,529
Percentage of PBM net revenues 88.7% 91.8% 89.2% 92.0%
Non-PBM 13,080 9.6% 11,935 36,686 14.4% 32,064
Percentage of non-PBM net 77.0% 75.0% 78.2% 75.2%
revenues
----------------------------------------------------------------------------
Cost of revenues 958,987 29.8% 738,544 2,652,623 45.7% 1,820,593
Percentage of net revenues 88.5% 91.5% 89.0% 91.7%
Selling, general and administrative 60,367 63.5% 36,929 164,124 85.0% 88,734
Percentage of net revenues 5.6% 4.5% 5.5% 4.4%
Depreciation and amortization (1) 18,394 195.5% 6,224 42,974 243.5% 12,511
Percentage of net revenues 1.7% 0.8% 1.5% 0.6%
Corporate restructuring - - 9,400 469.4% 1,651
Percentage of net revenues nm nm 0.3% 0.1%
============================================================================
Total cost and expenses $1,037,748 32.8% $781,697 $2,869,121 49.2% $1,923,489
============================================================================
Percentage of net revenues 95.8% 96.8% 96.3% 96.8%
<FN>
(1) Represents depreciation and amortization expense included in selling,
general and administrative expenses on our Statement of Operations. Cost of
revenues, above, also includes depreciation and amortization expense on property
and equipment of $2,060 and $1,486 for the three months ended September 30, 1999
and 1998, respectively, and $6,541 and $5,337 for the nine months ended
September 30, 1999 and 1998, respectively.
</FN>
</TABLE>
Our cost of revenues for PBM services as a percentage of PBM net
revenues decreased during the third quarter of 1999 over 1998 and during the
first nine months of 1999 over 1998 primarily due to the acquisition of DPS. As
previously stated, DPS records revenues under the Net Basis. In future periods,
we expect the gross margin percentage will be greater than prior periods until
we begin the process of converting DPS clients to our pharmacy networks, at
which time we will begin recording revenues on the Gross Basis and anticipate
that the gross margin percentage will begin to decline, although profitability
is not expected to be adversely affected by these changes. Excluding DPS, the
gross margin percentage for the third quarter of 1999 decreased to 7.3% from
8.2% for the third quarter of 1998. The decrease is primarily due to lower drug
ingredient margins resulting from our acquisition of DPD and the inclusion of
its results in our operations. The gross margin percentage for the first nine
months of 1999 decreased to 7.9% from 8.0% for the first nine months of 1998.
Cost of revenues for non-PBM services increased as a percentage of
non-PBM net revenues from the third quarter of 1999 over 1998 and during the
first nine months of 1999 over 1998. The increase during the third quarter is
primarily due to overhead costs expanding at a faster rate, and to a lesser
extent, the change in the product mix sold. The increase during the first nine
months of 1999 is due to the continued change in the product mix sold resulting
in additional costs of approximately $2,163,000 during the first nine months of
1999. This change was partially offset by our development of new business that
generated higher gross margins and the reduction of overhead costs, as a
percentage of non-PBM net revenues, due to the change in product mix sold.
Selling, general and administrative expenses, excluding depreciation
and amortization, increased $23,438,000, or 63.5%, for the third quarter of 1999
compared to 1998 and $75,390,000, or 85.0%, for the first nine months of 1999
over 1998. The increases are primarily due to our acquisition of DPS, costs
incurred during the integration of DPS and ValueRx, costs incurred in funding
our Internet operations, and costs required to expand the operational and
administrative support functions to enhance management of the pharmacy benefit.
The increase for the first nine months of 1999 over 1998 is also due to the
inclusion of ValueRx for the full nine months of 1999 compared to only the
second and third quarters of 1998. As a percentage of net revenues, selling,
general and administrative expenses, excluding depreciation and amortization,
for the third quarter of 1999 and for the first nine months of 1999 increased to
5.6% and 5.5% from 4.5% and 4.4% for the comparable periods in 1998,
respectively. The increase in the percentage of net revenues is primarily
attributed to DPS's recording revenue on the Net Basis, as discussed in
"Overview" and "--Net Revenues."
As part of our overall plan to achieve operating economies, we are
integrating DPS (including DPD) and ValueRx into our historical business. To
date, we have substantially met our integration goals. During the third quarter
of 1999, the manufacturing programs and processes were combined, the majority of
the DPD mail order volume was integrated into our existing mail pharmacies, our
Minneapolis facilities were substantially consolidated, we launched a new
corporate branding program to market the strengths of the combined organization,
and we completed the reorganization of the sales and client services teams to
become more responsive to client needs. During the third quarter of 1999 and the
first nine months of 1999, we capitalized $3,119,000 and $5,675,000 in new
systems development costs and we expensed $2,312,000 and $6,754,000 in
incremental integration costs, respectively.
Depreciation and amortization substantially increased during the third
quarter of 1999 over 1998 and the first nine months of 1999 over 1998 due
principally to the acquisition of DPS and, to a lesser extent, the inclusion of
ValueRx for the entire nine-month period. During the second and third quarters
of 1999, we recorded amortization expense for goodwill and other intangible
assets of $24,063,000 associated with the acquisition of DPS. The remaining
increase during the third quarter of 1999 and the first nine months of 1999 is
primarily due to the expansion of our operations and enhancement of our
information systems to better manage the pharmacy benefit.
The corporate restructuring charge for the first nine months of 1999 is
due to the consolidation of our Plymouth, Minnesota facility into our
Bloomington, Minnesota facility. The consolidation plan includes the relocation
of all non-call center employees at our Plymouth facility to our Bloomington
facility beginning in August 1999 and ending in February 2000. Included within
the restructuring charge are anticipated cash expenditures of approximately
$5,700,000 for lease termination fees and rent on unoccupied space and
anticipated non-cash charges of approximately $3,700,000 for the write-off of
leasehold improvements and furniture and fixtures. The restructuring charge does
not include any costs associated with the physical relocation of the employees.
<TABLE>
<CAPTION>
Interest Income (Expense), Net
Three Months Ended Nine Months Ended
September 30, September 30,
1999 % Increase/ 1998 1999 % Increase/ 1998
(in thousands) (Decrease) (Decrease)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 1,065 (40.6)% $ 1,794 $ 3,902 (31.3)% $ 5,683
Percentage of net revenues
Interest expense (1) (15,794) 128.5% (6,912) (45,247) 228.0% (13,793)
Percentage of net revenues
----------------------------------------------------------------------------
Interest income (expense), net $(14,729) 187.8% $(5,118) $(41,345) 409.8% $(8,110)
============================================================================
</TABLE>
Percentage of net revenues (1.4)% (0.6)% (1.4)% (0.4)% (1) Includes
amortization of deferred financing fees of $506,000 and $203,000 for the three
months ended September 30,1999 and 1998, respectively, and $1,501,000 and
$609,000 for the nine months ended September 30, 1999 and 1998, respectively.
The significant increase in interest expense is due to our financing of
the DPS acquisition with $890 million in borrowings under our $1.05 billion
credit facility and a $150 million bridge credit facility, as discussed in
"Liquidity and Capital Resources." The increase for the first nine months of
1999 over 1998 is also due to the acquisition of ValueRx occurring in the second
quarter of 1998. Interest expense for the first quarter of 1998 was nominal.
Interest income decreased during the first nine months of 1999 over 1998 due to
our investment of cash balances and short-term investments at higher interest
rates in 1998 than those received in 1999. Had our equity offering and Senior
Notes offering (see "Liquidity and Capital Resources") been completed as of
April 1, 1999, interest expense for the nine months ending September 30, 1999
would have been reduced by approximately $6,200,000.
<TABLE>
<CAPTION>
Provision for Income Taxes
Three Months Ended Nine Months Ended
September 30, September 30,
(in thousands) 1999 % Increase 1998 1999 % Increase 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Provision for income taxes $13,471 46.4% $ 9,201 $30,757 29.6% $23,738
Effective tax rate 43.4% 44.9% 44.7% 43.6%
</TABLE>
Our effective tax rate decreased for the third quarter of 1999 from
1998 primarily due to the increase in income before income taxes to reduce the
impact of the non-deductible goodwill and customer contract amortization
associated with our ValueRx acquisition. The goodwill and customer contract
amortization associated with our DPS acquisition is deductible for income tax
purposes due to the filing of a Internal Revenue Code section 338(h)(10)
election. Our effective tax rate increased for the first nine months of 1999
over 1998 primarily due to the lower income before income taxes resulting from
the one-time corporate restructuring charge for the Minneapolis facility
consolidation. Excluding this charge, our effective tax rate would have been
43.9% for the first nine months of 1999. The remaining increase in the effective
tax rate for the first nine months of 1999 is primarily due to non-deductible
goodwill and customer contracts amortization expense resulting from the ValueRx
acquisition which is included in the entire nine month period for 1999 compared
to only six months in 1998.
<TABLE>
<CAPTION>
Net Income and Earnings Per Share
Three Months Ended Nine Months Ended
September 30, September 30,
%Increase/
(in thousands) 1999 % Increase 1998 1999 (Decrease) 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $16,995 50.4% $11,303 $30,959 0.7% $30,750
Percentage of net revenue 1.6% 1.4% 1.0% 1.5%
Basic earnings per share $ 0.44 29.4% $ 0.34 $ 0.88 (5.4)% $ 0.93
Weighted average shares outstanding 38,480 33,121 35,274 33,091
Diluted earnings per share $ 0.43 26.5% $ 0.34 $ 0.86 (5.5)% $ 0.91
Weighted average shares outstanding 39,354 33,682 36,148 33,635
</TABLE>
Our net income increased $5,692,000, or 50.4%, and $209,000, or 0.7%,
for the third quarter of 1999 over 1998 and for the first nine months of 1999
over 1998, respectively. Net income for the nine months of 1999 was reduced due
to the following one-time charges:
o A corporate restructuring charge of $9,400,000 ($5,773,000 net of tax), or
$0.16 per basic and diluted share for the first nine months of 1999, as
discussed in "--Cost and Expenses."
o An extraordinary loss on the early retirement of debt of $7,150,000, net of
tax, or $0.20 per basic and diluted share for the first nine months of
1999. The extraordinary loss is associated with refinancing of the debt
incurred in connection with our acquisition of ValueRx, the refinancing of
the debt incurred in connection with our acquisition of DPS from the
proceeds of our equity and debt offerings, and repayment of the debt from
our own cash, as discussed in "Liquidity and Capital Resources" below.
Excluding one-time charges, net income for the third quarter of 1999
would have been $0.46 per basic share and $0.45 per diluted share compared to
$0.34 per basic and diluted share for the third quarter of 1998. For the first
nine months of 1999 net income excluding one-time charges would have been $1.08
per basic share and $1.06 per diluted share compared to $0.93 per basic share
and $0.91 per diluted share for the first nine months of 1998. On a pro forma
basis, excluding one-time charges and assuming our equity and debt offerings
occurred on April 1, 1999, net income per basic and diluted share for the first
nine months of 1999 would have been $1.30 and $1.27, respectively.
Liquidity and Capital Resources
During the first nine months of 1999, net cash provided by operations
decreased $11,155,000 to $88,617,000 from $99,772,000 in 1998 primarily due to
the payment of certain accruals from December 31, 1998 associated with our
ValueRx acquisition. Our investment in net working capital significantly
decreased to $(25,308,000) as of September 30, 1999 from $117,611,000 as of
December 31, 1998. This reduction is due to the payment cycles utilized by DPS.
Claims and rebate payable increased $297,445,000, or 87.9%, from December 31,
1998, while net receivables increased $223,140,000, or 51.5%, from December 31,
1998. The inclusion of DPS reduced our days sales outstanding ("DSO") to 30 days
at September 30, 1999 from 41 days at December 31, 1998 and 40 days at September
30, 1998. Gross revenues must be used to calculate the days sales outstanding
due to the impact of the Gross Basis versus the Net Basis of recording, as
discussed in "Overview" and "--Net Revenues." The accounts receivable balance
includes the cost of the pharmaceutical dispensed, which may not be included in
net revenues, as required by generally accepted accounting principles, based on
the contractual terms embedded in client and pharmacy contracts. The following
table presents our days sales outstanding for the quarters ending:
<TABLE>
<CAPTION>
September 30, June 30, March 31, December 31, September 30, June 30,
(in thousands, except DSO) 1999 1999 1999 1998 1998 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net revenues $1,083,496 $ 996,749 $ 899,087 $ 838,784 $ 807,319 $ 807,406
Client/pharmacy pass through 1,007,512 1,034,572 176,551 169,725 145,207 137,724
----------- ------------ ------------ ------------ ----------- ---------
Gross revenues 2,091,008 2,031,321 1,075,638 1,008,509 952,526 945,130
=========== ============ ============ ============ =========== =========
Gross receivables 70,981 576,833 461,336 450,812 417,813 373,492
=========== ============ ============ ============ =========== =========
DSO 30 26 39 41 40 36
=========== ============ ============ ============ =========== =========
</TABLE>
Our allowance for doubtful accounts has decreased $2,971,000, or 16.7%
to $14,835,000 at September 30, 1999 from $17,806,000 at December 31, 1998. The
decrease is primarily due to the final adjustment, in accordance with generally
accepted accounting principles, to the ValueRx opening balance sheet allowance
for doubtful accounts and goodwill based on the collection of ValueRx
receivables. As a percentage of at risk receivables (which represent receivables
for which there is no corresponding payable), the allowance for doubtful
accounts was 2.8% at September 30, 1999 compared to 4.3% at December 31, 1998
and 2.9% at December 31, 1997. The percentage reduction from December 31, 1998
to September 30, 1999 is attributable to the aforementioned final adjustment of
the ValueRx opening balance sheet.
During the fourth quarter of 1999, we expect to increase our inventory
balances to ensure adequate supply of prescription medications at our mail
pharmacies in anticipation of the Year 2000. Management expects to primarily
fund our future debt service, inventory purchases, integration costs, Year 2000
costs and other normal operating cash needs primarily with operating cash flow
or, to the extent necessary, with working capital borrowings under our $1.05
billion credit facility, discussed below.
Our capital expenditures in the first nine months of 1999 increased
$7,935,000, or 44.1% over the first nine months of 1998 primarily due to our
concerted effort to invest in information technology to enhance the services
provided to our clients and the acquisition of DPS. We expect to continue
investing in technology that will provide efficiencies in operations, manage
growth and enhance the services provided to our clients. We expect to fund
future anticipated capital expenditures primarily with operating cash flow or,
to the extent necessary, from working capital borrowings under our $300 million
revolving credit facility.
On April 1, 1999, we executed a $1.05 billion credit facility with a
bank syndicate led by Credit Suisse First Boston and Bankers Trust Company
consisting of $750 million in term loans, including $285 million of Term A loans
and $465 million of Term B loans, and a $300 million revolving credit facility.
As of July 1999, the Term B loans have been paid off through net proceeds from
our equity and senior notes offerings and $74,131,000 of our own cash. As a
result, we recorded an extraordinary charge during the third quarter of 1999 and
the first nine months of 1999 for the write-off of the deferred financing fees
in the amount of $553,000 net of tax and $7,150,000 net of tax, respectively.
The Term A loans and the revolving credit facility mature on March 31, 2005. The
credit facility is secured by the capital stock of each of our existing and
subsequently acquired domestic subsidiaries, excluding Practice Patterns
Science, Great Plains Reinsurance, ValueRx of Michigan, Diversified NY IPA and
Diversified Pharmaceutical Services (Puerto Rico), and is also secured by 65% of
the stock of our foreign subsidiaries.
The credit facility requires us to pay interest quarterly on an
interest rate spread based on several London Interbank Offered Rates ("LIBOR")
or base rate options. Using a LIBOR spread, the Term A loans and the revolving
loan had an interest rate of 7.94% on September 30, 1999. Beginning in March
2001, we are required to make annual principal payments on the Term A loans of
$42,750,000 in 2001, $57,000,000 in 2002 and 2003, $62,700,000 in 2004 and
$65,550,000 in 2005. The credit facility contains covenants that limit the
indebtedness we may incur, dividends paid and the amount of annual capital
expenditures. The covenants also establish a minimum interest coverage ratio, a
maximum leverage ratio, and a minimum fixed charge coverage ratio. In addition,
we are required to pay an annual fee of 0.5%, payable in quarterly installments,
on the unused portion of the revolving credit facility ($160 million at
September 30, 1999). At September 30, 1999, we were in compliance with all
covenants associated with the $1.05 billion credit facility.
Additionally, on April 1, 1999, we executed a $150 million senior
subordinated bridge credit facility from Credit Suisse First Boston Corporation
and Bankers Trust Company. The proceeds from the bridge credit facility and $890
million in borrowings from the credit facility were used to consummate the DPS
acquisition, refinance our $440 million credit facility, of which $360 million
was outstanding, and other indebtedness and pay related fees and expenses.
In June 1999, we completed our equity offering to sell 5,175,000 shares
of our Class A common stock at an offering price of $61 per share. We also
completed our $250 million 9 5/8% Senior Notes due 2009 offering under Rule 144A
of the Securities Act of 1933, as amended. The Company filed a registration
statement, which was declared effective on August 4, 1999, to exchange the
privately placed Senior Notes for registered Senior Notes on substantially the
same terms. The net proceeds from the equity and debt offerings of $299,381,000
and $243,503,000, respectively, were used to retire the $150 million senior
subordinated bridge credit facility plus accrued interest and repay a portion of
the Term B portion of the credit facility plus accrued interest.
To alleviate interest rate volatility, we entered into an interest rate
swap arrangement for an original notional principal amount of $360 million,
effective April 3, 1998, with the First National Bank of Chicago, a subsidiary
of Bank One Corporation. Under the terms of the swap, we agreed to receive a
floating rate of interest on a portion of our term loans based on a three-month
LIBOR rate in exchange for payment of a fixed rate of interest of 5.88% per
annum. The notional amount of the swap amortizes, beginning April 1999, in
semi-annual installments of $27 million, increasing to $36 million in April
2000, to $45 million in April 2001 and to $48 million in April 2002. As of
September 30, 1999, the notional principal amount was $333 million. As a result,
we have, in effect, converted $333 million of our variable rate debt under the
Credit Facility to fixed rate debt at 5.88% per annum for the first four years
of the Credit Facility, plus the interest rate spread of 2.0%.
On June 17, 1999, we entered into another interest rate swap
arrangement with Bankers Trust Company, effective April 17, 2000 and terminating
on April 17, 2005. As of September 30, 1999, there is no notional principal
amount as the swap is not yet effective. Upon effectiveness, the swap will have
an initial notional principal amount of $15 million increasing to $137.25
million in October 2002. Beginning in April 2003, the notional principal amount
will amortize over the remaining term of the swap. Under the terms of the swap,
we agreed to receive a floating rate of interest on notional principal amount
based on a three-month LIBOR rate in exchange for payment of a fixed rate of
interest of 6.25% per annum. When the swap becomes effective, we will, in
effect, convert the notional principal amount of our variable rate debt under
our Credit Facility to fixed rate debt at 6.25% per annum, plus the interest
rate spread.
As of September 30, 1999, we had repurchased a total of 475,000 shares
of our Class A Common Stock under the open-market stock repurchase program
announced by us on October 25, 1996, although no repurchases occurred during the
first nine months of 1999. Our Board of Directors approved the repurchase of up
to 1,700,000 shares, and placed no limit on the duration of the program. Future
purchases, if any, will be in such amounts and at such times as we deem
appropriate based upon prevailing market and business conditions, subject to
restrictions on stock repurchases contained in our $1.05 billion credit facility
and the Indenture covering our Senior Notes. During the quarter ended September
30, 1999, we used 10,000 shares previously purchased under the above program to
satisfy obligations under our employee stock purchase program.
We have reviewed and currently intend to continue reviewing potential
acquisitions and affiliation opportunities. We believe that available cash
resources, bank financing or the issuance of additional common stock could be
used to finance such acquisitions or affiliations. However, there can be no
assurance we will make other acquisitions or affiliations in 1999 or thereafter.
Other Matters
On August 31, 1999, Express Scripts, Inc., and YourPharmacy.com,
Inc. ("YPC"), a wholly owned subsidiary of Express Scripts, entered into an
Asset Contribution and Reorganization Agreement (the "Contribution Agreement")
with PlanetRx.com, Inc. ("PlanetRx"), PRX Holdings, Inc. ("Holdings"), and PRX
Acquisition Corp. ("Acquisition Sub"). Pursuant to the Contribution Agreement,
YPC agreed to contribute certain operating assets constituting its e-commerce
business in prescription and non-prescription drugs and health and beauty aids
to Holdings in exchange for 19.9% of the post-initial public offering common
equity of Holdings (the "IPO"), and PlanetRx was also to assume certain
obligations of YPC. Simultaneously with this transaction, Acquisition Sub was to
merge into PlanetRx and PlanetRx shareholders would receive stock in Holdings,
which would change its name to "PlanetRx.com Inc." As a result of the
transactions, YPC would be a 19.9% shareholder in the new PlanetRx (formerly
Holdings), which would conduct business as an internet pharmacy.
On October 13, 1999, the transactions described in the Contribution
Agreement were consummated, YPC received 10,369,990 shares, or 19.9%, of the
common equity of PlanetRx, and PlanetRx assumed options granted to YPC employees
which converted into options to purchase approximately 1.8 million shares of
PlanetRx common stock. The consummation of the transaction occurred immediately
preceding the closing of PlanetRx's IPO of common stock. Based on the IPO price
of $16 per share, YPC received consideration valued at approximately $166
million. We will record a one-time after tax gain of approximately $101 million
on the transaction, and a one-time after tax stock compensation expense of
approximately $12 million relating to the employee stock options.
Also on August 31, 1999, Express Scripts entered into an Agreement with
PlanetRx pursuant to which Express Scripts has, subject to certain exceptions
set forth therein, designated PlanetRx as its exclusive internet pharmacy in the
United States for a term of five years, with a right to participate in its
pharmacy network for ten years. Under the Agreement, customers who are covered
under an Express Scripts pharmacy benefit plan will generally be able to fill
prescriptions at PlanetRx's website and will be entitled to receive the benefits
of the coverage under the Express Scripts pharmacy benefit plan. The Agreement
also provides for various co-operative marketing activities by Express Scripts
and PlanetRx. Pursuant to this Agreement, PlanetRx will make certain payments to
Express Scripts annually over the term of the Agreement, with a minimum payment
obligation of $11,650,000 annually for five years, plus reimbursement of certain
expenses, with a potential five year extension (subject to certain conditions),
plus an incremental fee based on Express Scripts' members' activity on
PlanetRx's website. Express Scripts has committed to exclusively co-brand and
co-market PlanetRx as Express Scripts's online pharmacy. Co-branding includes
but is not limited to placing PlanetRx's name, logo and other information about
PlanetRx on Express Scripts' website and marketing and sales materials.
Co-marketing includes Express Scripts promoting PlanetRx as Express Scripts'
online pharmacy in Express Scripts' marketing and sales activities. The
Agreement became effective on October 13, 1999. The Agreement contains customary
termination, default and indemnification provisions. As part of the
relationship, PlanetRx agreed to certain exclusivity provisions that precludes
it from directly or indirectly operating as a pharmacy benefit manager.
In June 1998, Statement of Financial Accounting Standards Statement
133, Accounting for Derivative Instruments and Hedging Activities ("FAS 133")
was issued. FAS 133 requires all derivatives to be recognized as either assets
or liabilities in the statement of financial position and measured at fair
value. In addition, FAS 133 specifies the accounting for changes in the fair
value of a derivative based on the intended use of the derivative and the
resulting designation. The effective date for FAS 133 was originally effective
for all fiscal quarters of fiscal years beginning after June 15, 1999. However,
the Financial Accounting Standards Board has deferred the effective date so that
it will begin for all fiscal quarters of fiscal years beginning after June 15,
2000, and will be applicable to our first quarter of fiscal year 2001. Our
present interest rate swap (see "--Liquidity and Capital Resources") will be
considered a cash flow hedge. Accordingly, the change in the fair value of the
swap will be reported on the balance sheet as an asset or liability. The
corresponding unrealized gain or loss representing the effective portion of the
hedge will be initially recognized in stockholders' equity and other
comprehensive income and subsequently any changes in unrealized gain or loss
from the initial measurement date will be recognized in earnings concurrent with
the interest expense on our underlying variable rate debt. If we had adopted FAS
133 as of September 30, 1999, we would have recorded the unrealized gain of
$2,600,000 as an asset and increase in stockholders' equity and other
comprehensive income.
Year 2000
Our operations rely heavily on computers and other information systems
technologies. In 1995, we began addressing the "Year 2000" issue, which refers
to the inability of certain computer systems to properly recognize calendar
dates beyond December 31, 1999. This arises as a result of systems having been
programmed with two digits rather than four digits to define the applicable year
in order to conserve computer storage space, reduce the complexity of
calculations and produce better performance. The two-digit system may cause
computers to interpret the year "00" as "1900" rather than as "2000," which may
cause system failures or produce incorrect results when dealing with
date-sensitive information beyond 1999.
We formed a Year 2000 task force to address this issue. The task force
has performed a self-assessment and developed a compliance plan that addresses:
o internally developed application software
o vendor developed application software
o operating system software
o utility software
o vendor/trading partner-supplied files
o externally provided data or transactions
o non-information technology devices that are material to our business
o adherence to applicable industry standards.
Our plan covers the traditional Express Scripts, ValueRx and DPS
systems. Progress in each area is monitored and management reports are given
periodically.
We have various applications and operating systems that are considered
critical to our operations. These systems have been successfully tested by us in
an integrated environment for Year 2000 readiness. Testing of the applications
and operating systems includes the adjudication process, the eligibility
process, the billing and remittance process, the communication process and the
reporting process, including financial reporting. In addition, beginning in
1995, new internally developed software has been developed to be Year 2000 ready
and will be fully tested during the remainder of 1999.
We are participating in a joint effort with other PBMs, retail pharmacy
chains, transaction routing companies and adjudication software vendors to test
Year 2000 readiness in the industry. The joint effort is called the "Y2K
Provider & Vendor Testing Coalition" and is being facilitated by The National
Health Information Network. The coalition has the support of major U.S. retail
pharmacies, including American Stores, CVS, Eckerd, Rite-Aid, Wal-Mart and
Walgreens. The inclusion of transaction routing vendors and software companies
could permit up to 95% of our pharmacy network to be tested (although there can
be no assurance that all parties who are invited to participate will actually
participate). The program allocates the retail pharmacy chains and software
vendors among the various PBMs who will be required to test the vendors' and
pharmacy chains' Year 2000 compliance. We successfully completed the testing
during the third quarter of 1999.
We have identified and communicated with critical suppliers to confirm
their Year 2000 readiness. Approximately 85% of critical vendors have responded
their intention to be ready by the end of the third quarter. We have also
contacted several hundred clients and several thousand pharmacies whose computer
systems appear to us not to be Year 2000 ready in an effort to increase
awareness of the problem and minimize or eliminate any disruption in data
transfer activity between any of these parties and us. We have developed date
windowing logic, which forces an entry into the century field of a computer
application if one is not provided by the user, which we believe will address
many issues concerning retail pharmacies and clients with non-ready systems. Due
to our contracts typically extending over several years and our receipt of
member eligibility information from clients that reflect dates beyond the Year
2000, we have been receiving information that would identify certain Year 2000
issues for several years. Any problems we have encountered to date have been
rectified by the client or, if necessary, by us using our windowing logic. There
can be no assurance, however, that all of these problems that may be encountered
in the future can be rectified with the windowing logic.
In addressing the Year 2000 issue, we have and will continue to incur
internal staff costs as well as external consulting and other expenses related
to infrastructure enhancements. As of September 30, 1999 we have incurred
approximately $4,400,000, excluding costs incurred by DPS prior to our
acquisition, which were funded by SmithKline Beecham, addressing the Year 2000
issue. We anticipate spending an additional $250,000 to $375,000 during the
remainder of 1999 addressing the Year 2000 issue. All expenditures are being
expensed as incurred. To date, these costs have not had a material adverse
effect on our results of operations or financial condition, and are not expected
to have a material adverse effect on our future results of operations or
financial condition.
In connection with our acquisition of DPS, we performed certain Year
2000 due diligence and received representations that DPS had implemented a Year
2000 plan for upgrading its computer systems and communicated with its
vendors/trading partners regarding their respective Year 2000 compliance. Based
on our due diligence and the representations we received, we believe DPS's
critical applications and operating systems have been successfully tested for
Year 2000 compliance. However, the DPS systems are scheduled for another Year
2000 test during November 1999.
We believe that, with appropriate modifications to existing computer
systems, updates by vendors and trading partners and conversion to new software
in the ordinary course of our business, the Year 2000 issue is not likely to
pose significant operational problems for us. However, if the above-described
conversions are not completed in a proper and timely manner by all affected
parties, or if our logic for communicating with non-ready systems is
ineffective, the Year 2000 issue could result in material adverse operational
and financial consequences to us. There can be no assurance that our efforts or
those of our vendors and trading partners, who are beyond our control, will be
successful in addressing the Year 2000 issue.
We have formalized our contingency plans to address potential Year
2000-related disruptions and risks, including risks of vendor/trading partner
non-readiness, as well as non-readiness of any of our critical operations. All
departments have submitted contingency plans for formal review and approval by
our internal audit department. The contingency plan addresses the processes to
be performed should our electronic systems fail, staffing requirements, client
and pharmacy communications. However, our contingency plans will modified as we
continue testing and receive updates from vendor/trading partners. In addition,
there can be no assurance that our contingency plans will successfully address
all potential circumstances or consequences.
Impact of Inflation
Changes in prices charged by manufacturers and wholesalers for
pharmaceuticals affect our net revenues and cost of revenues. To date we have
been able to recover price increases from our clients under the terms of our
agreements, although under selected arrangements in which we have performance
measurements on drug costs with our clients we could be adversely affected by
inflation in drug costs if the result is an overall increase in the cost of the
drug plan to the client. To date, changes in pharmaceutical prices have not had
a significant adverse effect on us.
Market Risk
To alleviate interest rate volatility, we entered into an interest rate
swap arrangement for an original notional principal amount of $360 million
effective April 3, 1998, with First National Bank of Chicago, a subsidiary of
Bank One Corporation. Under the swap arrangement, we agreed to receive a
floating rate of interest on an amount equal to a portion of the outstanding
principal balance of our term loans based on a three-month LIBOR rate in
exchange for payment of a fixed rate of interest of 5.88% per annum on such
amount. The weighted average variable rate received by us for the period January
1, 1999 to September 30, 1999, was 5.13%. The notional amount of the swap
amortizes, beginning in April 1999, in semi-annual installments of $27 million,
increasing to $36 million in April 2000, to $45 million in April 2001 and to $48
million in April 2002. As of September 30, 1999, the notional amount of the swap
was $333 million. The swap expires on April 3, 2003. At September 30, 1999, the
fair value of the swap was $1,238,000.
On June 17, 1999, we entered into another interest rate swap
arrangement with Bankers Trust Company, effective April 17, 2000 and terminating
on April 17, 2005. As of September 30, 1999, there is no notional principal
amount as the swap is not yet effective. Upon effectiveness, the swap will have
an initial notional principal amount of $15 million increasing to $137.25
million in October 2002. Beginning in April 2003, the notional principal amount
will amortize over the remaining term of the swap. Under the terms of the swap,
we agreed to receive a floating rate of interest on notional principal amount
based on a three-month LIBOR rate in exchange for payment of a fixed rate of
interest of 6.25% per annum. At September 30, 1999, the fair value of the swap
was $1,362,000.
Interest rate risk is monitored on the basis of changes in the fair
value and a sensitivity analysis is used to determine the impact interest rate
changes will have on the fair value of the interest rate swaps, measuring the
change in the net present value arising from the change in the interest rate.
The fair value of the swaps are then determined by calculating the present value
of all cash-flows expected to arise thereunder, with future interest rate levels
implied from prevailing mid-market yields for money-market instruments, interest
rate futures and/or prevailing mid-market swap rates. Anticipated cash-flows are
then discounted on the assumption of a continuously compounding zero-coupon
yield curve. A 10 basis point decline in interest rates at September 30, 1998,
would have caused the fair value of the swaps to decrease by $3,171,000,
resulting in a fair value of $(1,933,000).
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Response to this item is included in Item 2 "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Market Risk"
above, and incorporated by reference herein.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As discussed in detail in the Company's Quarterly Report on Form 10-Q
for the period ended June 30, 1998, filed with the Securities and Exchange
Commission on August 13, 1998 (the "Second Quarter 10-Q"), the Company acquired
all of the outstanding capital stock of Value Health, Inc., a Delaware
corporation ("VHI"), and Managed Prescription Network, Inc., a Delaware
corporation ("MPN") from Columbia HCA/HealthCare Corporation ("Columbia") and
its affiliates on April 1, 1998 (the "Acquisition"). VHI, MPN and/or their
subsidiaries (collectively, the "Acquired Entities"), were party to various
legal proceedings, investigations or claims at the time of the Acquisition. The
effect of these actions on the Company's future financial results is not subject
to reasonable estimation because considerable uncertainty exists about the
outcomes. Nevertheless, in the opinion of management, the ultimate liabilities
resulting from any such lawsuits, investigations or claims now pending will not
materially affect the consolidated financial position, results of operations or
cash flows of the Company. A brief update of the most notable of the proceedings
follows:
As discussed in detail in the Second Quarter 10-Q, the Company's
Quarterly Report on Form 10-Q for the period ended September 30, 1998, filed
with the Securities and Exchange Commission on November 16, 1998, the Company's
Annual Report on Form 10-K/A for the year ended December 31, 1998, filed with
the Securities and Exchange Commission on June 10, 1999, and the Company's
Quarterly Report on Form 10-Q for the period ended March 31, 1999, filed with
the Securities and Exchange Commission on May 14, 1999, VHI and one of its
subsidiaries are party to two securities litigation matters, Bash, et al. v.
Value Health, Inc., et al., No. 3:97cv2711 (JCH) (D.Conn.), and Freedman, et al.
v. Value Health, Inc., et al., No. 3:95 CV 2038 (JCH) (D.Conn). The two
lawsuits, filed in 1995, allege that VHI and certain other defendants made false
or misleading statements to the public in connection with VHI's acquisition of
Diagnostek, Inc. in 1995, and in connection with one of VHI's contracts. The
Bash lawsuit also alleges false or misleading statements by Diagnostek and
certain of its former officers and directors concerning its financial condition
prior to the merger with VHI. On April 24, 1998, the two lawsuits were
consolidated.
On February 18, 1999, the court granted plaintiffs' motions for class
certification and certified a class consisting of (i) all persons who purchased
or otherwise acquired shares of VHI during the period from April 3, 1995,
through and including November 7, 1995, including those who acquired shares
issued in connection with the Diagnostek merger; and (ii) all persons who
purchased or otherwise acquired shares of Diagnostek during the period from
March 27, 1995, through and including July 28, 1995. Fact discovery in the
consolidated lawsuit is complete. The parties are awaiting an order on motions
to dismiss the Bash lawsuit filed by Diagnostek and its former officers. The
parties are also awaiting an order from the court regarding the scheduling of
expert discovery and dispositive motions.
In connection with the Acquisition, Columbia has agreed to defend and
hold the Company and its affiliates (including VHI) harmless from and against
any liability that may arise in connection with either of the foregoing
proceedings. Consequently, the Company does not believe it will incur any
material liability in connection with the foregoing matters.
The Company is a named defendant in Allcare Health Management System,
Inc. v. Cerner Corporation, et al., No. 499-CV-0464-Y (N.D. TX). Plaintiff
Allcare Health Management System, Inc., commenced this action on or about June
11, 1999, alleging, inter alia, that the named defendants, including the Company
and its wholly-owned subsidiary, Diversified Pharmaceutical Services, Inc., were
infringing upon U.S. Patent No. 5,301,105 entitled "All Care Health Management
System" which is generally directed to an integrated and comprehensive health
management system. As the case was just recently commenced, and involves at
least thirteen parties, no discovery schedule has yet been ordered by the Court
and only minimal discovery has been conducted by one third-party and the
plaintiff to date. The Company intends to vigorously contest the plaintiff's
allegations of infringement as well as the alleged validity and enforceability
of the patent in suit.
Item 4. Submission of Matters to a Vote of Security Holders
On September 17, 1999, the Company initiated a consent solicitation
seeking approval of an amendment to the Indenture governing its $250 million 9
5/8% Senior Notes due 2009 (the "Notes"), in connection with its contribution of
certain assets of its wholly-owned subsidiary, YourPharmacy.com, Inc. ("YPC"),
to PlanetRx.com, Inc. ("PlanetRx") (see Item 2 - Management's Discussion and
Analysis of Financial Condition and Results of Operations - Other Matters).
Specifically, the proposed amendment to the Indenture would modifiy (i) the
definition of Asset Disposition contained therein to permit the Company to
transfer the specified assets of YPC without restriction under the Asset Sale
Covenant contained therein , and (ii) the definition of Permitted Investments
contained therein to make the PlanetRx stock which the Company received a
Permitted Investment. The consent solicitation expired on September 30, 1999,
and the proposed amendment was approved by the affirmative vote of holders of
97.168%, or $242,920,000, of the aggregate principal amount of the Notes
outstanding. A copy of the Supplemental Indenture containing the amendments is
filed as Exhibit 4.4 hereto.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits. See Index to Exhibits on page 28.
(b) Reports on Form 8-K.
(1) On July 1, 1999, the Company filed a Current Report on Form 8-K under
item 5 regarding a press release issued on behalf of the Company
concerning the completion of its Class A Common Stock offering.
(2) On July 1, 1999, the Company filed a Current Report on Form 8-K
under item 5 regarding a press release issued on behalf of the
Company concerning the completion of its Senior Notes offering.
(3) On July 1, 1999, the Company filed a Current Report on Form 8-K
under item 5 regarding the transfer of ownership of Diversified
Prescription Delivery, L.L.C. from SmithKline Beecham Corporation
to the Company.
(4) On August 3, 1999, the Company filed a Current Report on Form 8-K
under item 5 regarding a press release issued on behalf of the
Company concerning its second quarter 1999 financial performance.
(5) On September 2, 1999, the Company filed a Current Report on Form
8-K under item 5 regarding its asset contribution and
reorganization agreement with PlanetRx.com, Inc.
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.
EXPRESS SCRIPTS, INC.
(Registrant)
Date: November 12, 1999 By: /s/ Barrett A. Toan
Barrett A. Toan, President and
Chief Executive Officer
Date: November 12, 1999 By: /s/ George Paz
George Paz, Senior Vice
President and Chief
Financial Officer
INDEX TO EXHIBITS
(Express Scripts, Inc. - Commission File Number 0-20199)
Exhibit
Number Exhibit
2.1**Stock Purchase Agreement by and among SmithKline Beecham
Corporation, SmithKline Beecham InterCredit BV and Express
Scripts, Inc., dated as of February 9, 1999, and certain related
Schedules, incorporated by reference to Exhibit No. 2.1 to the
Company's Current Report on Form 8-K filed February 18, 1999.
2.2 Asset Contribution and Reorganization Agreement among Express
Scripts, Inc., yourPharmacy.com, Inc., PlanetRx.com, Inc., PRX
Holdings, Inc., and PRX Acquisition Corp. dated as of August 31,
1999, and related Exhibits and Schedules, incorporated by
reference to Exhibit No. 2.1 to the Company's Current Report on
Form 8-K dated August 31, 1999 (filed September 2, 1999).
3.1 Certificate of Incorporation of the Company, as amended,
incorporated by reference to Exhibit 3.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ending June 30,
1999.
3.2 Second Amended and Restated Bylaws, incorporated by reference to
Exhibit No. 3.3 to the Company's Quarterly Report on Form 10-Q
for the quarter ending September 30, 1998.
4.1 Form of Certificate for Class A Common Stock, incorporated by
reference to Exhibit No. 4.1 to the Company's Registration
Statement on Form S-1 filed June 9, 1992 (No. 33-46974).
4.2 Indenture, dated as of June 16, 1999, among the Company, Bankers
Trust Company, as trustee, and the Guarantors named therein,
incorporated by reference to Exhibit No. 4.1 to the Company's
Registration Statement on Form S-4 filed August 4, 1999 (No.
333-83133) (the "S-4 Registration Statement").
4.3 Registration Rights Agreement, dated as of June 11, 1999, among
the Company, Credit Suisse First Boston Corporation and Deutsche
Bank Securities Inc., incorporated by reference to Exhibit No.
4.2 to the Company's S-4 Registration Statement.
4.4* Supplemental Indenture, dated as of October 6, 1999, among the
Company, Bankers Trust Company, as trustee, and the Guarantors
named therein.
10.1*Amendment No. 1 to Credit Agreement dated as of April 1, 1999
among the Company, the Lenders listed therein, Credit Suisse
First Boston as Lead Arranger, Administrative Agent and
Collateral Agent, Bankers Trust Company as Syndication Agent, BT
Alex. Brown Incorporated as Co-Arranger, The First National Bank
of Chicago as Co-Documentation Agent, and Mercantile Bank, N.A.
as Co-Documentation Agent
10.2*Amendment No. 2 to Credit Agreement dated as of April 1, 1999
among the Company, the Lenders listed therein, Credit Suisse
First Boston as Lead Arranger, Administrative Agent and
Collateral Agent, Bankers Trust Company as Syndication Agent, BT
Alex. Brown Incorporated as Co-Arranger, The First National Bank
of Chicago as Co-Documentation Agent, and Mercantile Bank, N.A.
as Co-Documentation Agent
10.3*Amendment No. 3 and Waiver to Credit Agreement dated as of April
1, 1999 among the Company, the Lenders listed therein, Credit
Suisse First Boston as Lead Arranger, Administrative Agent and
Collateral Agent, Bankers Trust Company as Syndication Agent, BT
Alex. Brown Incorporated as Co-Arranger, The First National Bank
of Chicago as Co-Documentation Agent, and Mercantile Bank, N.A.
as Co-Documentation Agent
10.4*** Agreement dated August 31, 1999 by and among Express Scripts,
Inc. and PlanetRx.com, Inc., including form of Provider
Agreement, incorporated by reference to Exhibit No. 10.1 to the
Company's Current Report on Form 8-K dated October 14, 1999
(filed on October 27, 1999).
10.5*Swap Transaction Confirmation Agreement between the Company and
Bankers Trust Company dated June 17, 1999.
27.1*Financial Data Schedule (provided for the information of the
U.S.Securities and Exchange Commission only).
* Filed herein.
** The Company agrees to furnish supplementally a copy of any omitted
schedule to this agreement to the Commission upon request.
*** Confidential treatment requested for certain portions of this Exhibit.
EXPRESS SCRIPTS, INC.
as Issuer
THE GUARANTORS as defined herein
as Guarantors
and
BANKERS TRUST COMPANY
as Trustee
$250,000,000
9 5/8% SENIOR NOTES DUE 2009
--------------------------------
SUPPLEMENTAL INDENTURE
Dated as of October 6, 1999
to
INDENTURE
Dated as of June 16, 1999
--------------------------------
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of October
6, 1999, among Express Scripts, Inc. (the "Company"), the Guarantors as named in
the Indenture (as defined herein), and Bankers Trust Company as trustee (the
"Trustee").
WHEREAS, the Company and the Guarantors have heretofore executed and
delivered to the Trustee an Indenture dated as of June 16, 1999, among the
Company, the Guarantors and the Trustee (the "Indenture"), relating to
$250,000,000 aggregate principal amount at maturity of the Company's 9 5/8%
Senior Notes due 2009 (the "Notes");
WHEREAS, pursuant to Section 9.02 of the Indenture, the Company and the
Guarantors have requested to amend the Indenture and have received the requisite
consents of the Holders of the outstanding Notes to the amendments made hereby;
WHEREAS, the Company and each of the Guarantors are authorized to enter
into this Supplemental Indenture by resolution of the Board of Directors of the
Company or such Guarantor;
WHEREAS, the Company has delivered an Officers' Certificate and Opinion of
Counsel to the Trustee pursuant to Section 9.06 of the Indenture; and
WHEREAS, all other actions necessary to make this Supplemental Indenture a
legal, valid and binding obligation of the parties hereto in accordance with its
terms and the terms of the Indenture have been performed;
NOW, THEREFORE, in consideration of the promises contained herein and for
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the Company, the Guarantors and the Trustee hereby mutually
covenant and agree for the equal and proportionate benefit of all Holders of the
Notes as follows:
ARTICLE I
AMENDMENTS
Upon execution and effectiveness of this Supplemental Indenture, the terms
of the Notes and the Indenture shall be amended as follows:
SECTION I.1. Section 1.01 of the Indenture shall be amended as follows:
(a) by deleting clause (viii) of the definition of "Asset Disposition" and
substituting in lieu thereof the following:
"(viii) a disposition of any Capital Stock or assets of YourPharmacy.com,
Inc. or any corporation, partnership or limited liability company which is the
successor to the business conducted or contemplated to be conducted as of the
Issue Date by YourPharmacy.com, Inc.;" and
(b) by deleting clause (vi) of the definition of "Permitted Investments"
and substituting in lieu thereof the following:
"(vi) Investments made by the Company or its Restricted Subsidiaries as a
result of consideration received in connection with an Asset Disposition made in
compliance with, or a disposition of assets exempt from, Section 4.15;".
ARTICLE II
MISCELLANEOUS
SECTION II.1. For all purposes of this Supplemental Indenture, except as
otherwise herein expressly provided or unless the context otherwise requires:
(A) the terms and expressions used herein shall have the same meanings as
corresponding terms and expressions used in the Indenture and (B) the words
"herein," "hereof" and "hereby" and other words of similar import used in this
Supplemental Indenture refer to this Supplemental Indenture as a whole and not
any particular Article, Section or other subdivision.
SECTION II.2. Upon the effectiveness of this Supplement Indenture, the
Indenture shall be modified in accordance herewith, but except as expressly
amended hereby, the Indenture is in all respects ratified and confirmed and all
the terms, conditions and provisions thereof shall remain in full force and
effect.
SECTION II.3. Upon effectiveness, this Supplemental Indenture shall form a
part of the Indenture and the Supplemental Indenture and the Indenture shall be
read, taken and construed as one and the same instrument for all purposes, and
every holder of Notes heretofore or hereafter authenticated and delivered under
the Indenture shall be bound hereby.
SECTION II.4. This Supplemental Indenture shall become effective
immediately prior to the contribution of certain specified assets of
YourPharmacy.com, Inc. ("YPC"), a wholly-owned subsidiary of the Company, to
PlanetRx.com, Inc. ("PlanetRx") in exchange for common stock of PlanetRx
pursuant to the agreement between PlanetRx, YPC and the Company (the
"Transaction"). If the Transaction does not occur, then this Supplemental
Indenture will not become effective and will be void.
SECTION II.5. The Trustee accepts the amendment to the Indenture effected
by this Supplemental Indenture and agrees to execute the trust created by the
Indenture, as hereby amended, but only upon the terms and conditions set forth
in the Indenture, as hereby amended, including the terms and provisions defining
and limiting the liabilities and responsibilities of the Trustee, which terms
and provisions shall in like manner define and limit the Trustee's liabilities
in the performance of the trust created by the Indenture, as hereby amended.
Without limiting the generality of the foregoing, the Trustee has no
responsibility for the correctness of the recitals of fact herein contained
which shall be taken as the statements of the Company and makes no
representations as to the validity or sufficiency of this Supplemental
Indenture, except as to the due and valid execution hereof by the Trustee, and
shall incur no liability or responsibility in respect of the validity thereof.
The Trustee's execution of this Supplemental Indenture should not be construed
to be an approval or disapproval of the advisability of the amendments to the
Indenture provided herein.
SECTION II.6. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
AGREEMENTS MADE AND TO BE PERFORMED ENTIRELY IN SAID STATE.
SECTION II.7. This Supplemental Indenture may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original,
and all of such counterparts shall together constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the day and year first above written.
EXPRESS SCRIPTS, INC.
By: /s/ Barrett Toan
Name: Barrett Toan
Title:President and Chief Executive
Officer
DIVERSIFIED PHARMACEUTICAL
SERVICES, INC., ESI/VRX
SALES DEVELOPMENT CO.,
EXPRESS SCRIPTS VISION
CORPORATION, IVTX, INC.,
MANAGED PRESCRIPTION
NETWORK, INC., MHI, INC.,
VALUE HEALTH, INC.,
VALUERX, INC., VALUERX
PHARMACY PROGRAM, INC.,
YOURPHARMACY.COM, INC.,
HEALTH CARE SERVICES, INC.
By: /s/ Barrett Toan
Name: Barrett Toan
Title:President
BANKERS TRUST COMPANY, as Trustee
By: /s/ Susan Johnson
Name: Susan Johnson
Title:Assistant Vice President
AMENDMENT NO. 1
AMENDMENT NO. 1 ("Amendment No. 1") dated as of August 16, 1999 to the
Credit Agreement dated as of April 1, 1999 (the "Credit Agreement"), among
Express Scripts, Inc.; each of the Subsidiary Guarantors party thereto; each of
the Lenders party thereto; Credit Suisse First Boston, as Lead Arranger,
Administrative Agent and Collateral Agent; Bankers Trust Company, as Syndication
Agent; The First National Bank of Chicago, as Co-Documentation agent; and
Mercantile Bank, N.A., as Co-Documentation agent (capitalized terms not
otherwise defined in this Amendment No. 1 have the same meaning assigned to such
terms in the Credit Agreement).
W I T N E S S E T H :
WHEREAS, pursuant to Section 10.6 of the Credit Agreement, the Requisite
Lenders hereby agree to amend certain provisions of the Credit Agreement as set
forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION ONE - Amendment. (a) The definition of "Consolidated Net Income "in
the Credit Agreement shall be deleted in its entirety and replaced with the
following:
"Consolidated Net Income" means, for any period, the net income (or loss)
of Company and its Subsidiaries on a consolidated basis for such period taken as
a single accounting period determined in conformity with GAAP; provided that
there shall be excluded (i) the income (or loss) of any Person (other than a
Subsidiary of Company) in which any other Person (other than Company or any of
its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Company or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Company or is merged
into or consolidated with Company or any of its Subsidiaries or that Person's
assets are acquired by Company or any of its Subsidiaries, (iii) the income of
any Subsidiary of Company to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary, (iv) any after-tax gains or losses attributable
to Asset Sales or returned surplus assets of any Pension Plan, (v) for any
period that includes Fiscal Quarters ending on or prior to March 31, 2000, up to
$8.0 million in cash charges directly relating to the consolidation of
facilities in connection with the Acquisition.
(b) The definition of "Consolidated Fixed Charge Coverage Ratio" in the
Credit Agreement shall be deleted in its entirety and replaced with the
following:
"Consolidated Fixed Charge Coverage Ratio" shall mean, for any period, the
ratio of (a) Consolidated EBITDA for such period to (b) the sum, without
duplication, of (i) Consolidated Interest Expense for such period, (ii) the
aggregate amount of cash taxes paid by Company and its Subsidiaries during such
period, (iii) mandatory payments (other than with respect to the Loans) and
scheduled principal payments during such period in respect of any Indebtedness
of Company and its Subsidiaries, (iv) cash dividends on capital stock declared
by Company or any of its Subsidiaries during such period (excluding dividends
payable to Company or any of its Wholly Owned Subsidiaries), (v) the principal
component of obligations with respect to Capital Leases paid during such period
and (vi) Consolidated Capital Expenditures during such period (the items
referred to in the foregoing clauses (i) through (vi) being collectively called
"Consolidated Fixed Charges").
(c) Section 2.2A of the Credit Agreement shall be amended by adding the
following proviso at the end of the penultimate paragraph thereof:
"; provided, further, that the adjustment of the applicable Base Rate
Margin and Eurodollar Rate Margin with respect to the delivery of the first
Compliance Certificate for the Fiscal Quarter ended June 30, 1999 shall
automatically be adjusted on the next succeeding Business Day following receipt
by Administrative Agent of a Compliance Certificate for such Fiscal Quarter
revised to reflect the effects of amendments approved by the Requisite Lenders."
SECTION TWO - Conditions to Effectiveness. This Amendment No. 1 shall
become effective as of the date first above written when, and only when, the
Administrative Agent shall have received counterparts of this Amendment No. 1
executed by the Company, the Subsidiary Guarantors and the Requisite Lenders or,
as to any of the Lenders, advice satisfactory to the Administrative Agent that
such Lender has executed this Amendment No. 1. The effectiveness of this
Amendment No. 1 (other than Sections Five and Seven hereof) is conditioned upon
the accuracy of the representations and warranties set forth in Section Three
hereof.
SECTION THREE - Representations and Warranties. In order to induce the
Lenders and the Agents to enter into this Amendment No. 1, the Company
represents and warrants to each of the Lenders and the Agents that after giving
effect to this Amendment No. 1, (i) no Default or Event of Default has occurred
and is continuing; and (ii) all of the representations and warranties in the
Credit Agreement, after giving effect to this Amendment No. 1, are true and
complete in all material respects on and as of the date hereof as if made on the
date hereof (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date).
SECTION FOUR - Reference to and Effect on the Credit Agreement and the
Notes. On and after the effectiveness of this Amendment No. 1, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement and each reference in each of the other
Credit Documents to the "Credit Agreement", "thereunder", "thereof" or words of
like import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement, as amended by this Amendment No. 1. The Credit Agreement,
the Notes and each of the other Credit Documents, as specifically amended by
this Amendment No. 1, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed.
SECTION FIVE - Costs, Expenses and Taxes. The Company agrees to pay all
reasonable costs and expenses of the Agents in connection with the preparation,
execution and delivery of this Amendment No. 1 and the other instruments and
documents to be delivered hereunder, if any (including, without limitation, the
reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with the
terms of Section 10.2 of the Credit Agreement. In addition, the Company shall
pay or reimburse any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Amendment No. 1
and the other instruments and documents to be delivered hereunder, if any, and
agrees to save each Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION SIX - Execution in Counterparts. This Amendment No. 1 may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment No. 1 by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment No. 1.
SECTION SEVEN - Governing Law. This Amendment No. 1 shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
New York (including Section 5-1401 of the General Obligations Law of the State
of New York), without giving effect to any provisions thereof relating to
conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 1 to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
EXPRESS SCRIPTS, INC.
By: /s/ George Paz
By: George Paz
Title:Senior Vice President and Chief Financial Officer
SUBSIDIARY GUARANTORS:
DIVERSIFIED PHARMACEUTICAL SERVICES, INC.
YOURPHARMACY.COM, INC.
ESI/VRX SALES DEVELOPMENT CO.
EXPRESS SCRIPTS VISION CORP.
HEALTH CARE SERVICES, INC.
IVTX, INC.
MANAGED PRESCRIPTION NETWORK, INC.
MHI, INC.
VALUE HEALTH, INC.
VALUERX, INC.
VALUERX PHARMACY PROGRAM, INC.
By:/s/ George Paz
Name: George Paz
Title:Senior Vice President and Chief Financial Officer
as one of the Requisite Lenders
(please type)
Bankboston, N.A.
By: /s/ Grace A. Barnett
Name: Grace A. Barnett
Title: Vice President
Bankers Trust Company
By: /s/ Mary Jo Jolly
Name: Mary Jo Jolly
Title: Assistant Vice President
Bank Leumi USA
By: /s/ Joung Hee Hong
Name: Joung Hee Hong
Title: Vice President
Bank of America, N.A. (formerly known as NationsBank, N.A.)
By: /s/ Larry J. Gordon
Name: Larry J. Gordon
Title: Vice President
Bank of Hawaii
By: /s/ Donna R. Parker
Name: Donna R. Parker
Title: Vice President
Bank of Monteal
By: /s/ Richard J. McClorey
Name: Richard J. McClorey
Title: Director
The Bank of New York
By: /s/ David G. Shedd
Name: David G. Shedd
Title: Vice President
Banque Nationale de Paris
By: /s/ Arnaud Collin du Bocage
Name: Arnaud Collin du Bocage
Title: Executive Vice President and General Manager
Chicago Branch
Bayerische Hypo-Und Vereinsbank AG, New York Branch
By: /s/ Erich Ebner von Eschenbach
Name: Erich Ebner von Eschenbach
Title: Managing Director
By: /s/ Steven Simons
Name: Steven Simons
Title: Associate Director
City National Bank
By: /s/ Patrick Cassidy
Name: Patrick Cassidy
Title: Vice President
Credit Agricole Indosuez
By: /s/ Raymond A. Falkenberg
Name: Raymond A. Falkenberg
Title: Vice President, Manager
By: /s/ Ernest V. Hodge
Name: Ernest V. Hodge
Title: Senior Relationship Manager
Credit Suisse First Boston
by: /s/ Todd C. Morgan
Name: Todd C. Morgan
Title: Director
By: /s/ Kristin Lepri
Name: Kristin Lepri
Title: Associate
Erste Bank Der Oesterreichischen Sparkassen AG
By: /s/ Rima Terradista
Name: Rima Terradista
Title: Vice President
By: /s/ David Manheim
Name: David Manheim
Title: Assistant Vice President
The First National Bank of Chicago
By: /s/ Christopher C. Cavaiani
Name: Christopher c. Cavaiani
Title: Vice President
Fleet National Bank
By: /s/ Lori H. Jou
Name: Lori H. Jou
Title: Assistant Vice President
The Fuji Bank, Limited
By: /s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Senior Vice President and Group Head
Heller Financial, Inc.
By: /s/ Sheila C. Weimer
Name: Sheila C. Weimer
Title: Vice President
Mellon Bank, N.A.
By: /s/ Louis E. Flori
Name: Louis E. Flori
Title: Vice President
Mercantile Bank N.A.
By: /s/ Mary Ann Lemonds
Name: Mary Ann Lemonds
Title: Vice President
Michigan National Bank
By: /s/ Draga Palincas
Name: Draga Palincas
Title: Commercial Relationship Manager
National City Bank
By: /s/ Joseph D. Robison
Name: Joseph D. Robison
Title: Vice President
Senior Debt Portfolio
By: Boston Management and Research as Investment Advisor
By: /s/ Barbara Campbell
Name: Barbara Campbell
Title: Vice President
Textron Financial Corporation
By: /s/ R. Rodney Weaver
Name: R. Rodney Weaver
Title: Vice President
UBS AG, Stamford Branch
By: /s/ Paula Mueller
Name: Paula Meuller
Title: Director
By: /s/ Wilfred Saint
Name: Wilfred Saint
Title: Associate Director
Union Bank of California
By: /s/ Virginia Hart
Name: Virginia Hart
Title: Vice President
AMENDMENT NO. 2
AMENDMENT NO. 2 ("Amendment No. 2") dated as of August 16, 1999 to the
Credit Agreement dated as of April 1, 1999 (the "Credit Agreement"), among
Express Scripts, Inc.; each of the Subsidiary Guarantors party thereto; each of
the Lenders party thereto; Credit Suisse First Boston, as Lead Arranger,
Administrative Agent and Collateral Agent; Bankers Trust Company, as Syndication
Agent; The First National Bank of Chicago, as Co-Documentation agent; and
Mercantile Bank, N.A., as Co-Documentation agent (capitalized terms not
otherwise defined in this Amendment No. 2 have the same meaning assigned to such
terms in the Credit Agreement).
W I T N E S S E T H :
WHEREAS, pursuant to Section 10.6 of the Credit Agreement, all of the
Lenders hereby agree to amend certain provisions of the Credit Agreement as set
forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION ONE - Amendment. Section 10.6A of the Credit Agreement shall be
amended by deleting the first sentence thereof and replacing it with the
following:
"No amendment, modification, termination or waiver of any provision of this
Agreement or of the Notes, and no consent to any departure by Company therefrom,
shall in any event be effective without the written concurrence of Requisite
Lenders; provided that any such amendment, modification, termination, waiver or
consent which: reduces the principal amount of any of the Loans; changes in any
manner the definition of "Pro Rata Share" or the definition of "Requisite
Lenders"; changes in any manner any provision of this Agreement which, by its
terms, expressly requires the approval or concurrence of all Lenders; postpones
the scheduled final maturity date of any of the Loans (but not the date of any
scheduled installment of principal); postpones the date on which any interest or
any fees are payable; decreases the interest rate borne by any of the Loans
(other than any waiver of any increase in the interest rate applicable to any of
the Loans pursuant to subsection 2.2E) or the amount of any fees payable
hereunder; increases the maximum duration of Interest Periods permitted
hereunder; reduces the amount or postpones the due date of any amount payable in
respect of any Letter of Credit; extends the required expiration date of any
Letter of Credit beyond the Revolving Commitment Termination Date; changes in
any manner the obligations of Lenders relating to the purchase of participations
in Letters of Credit; releases any Lien granted in favor of Administrative Agent
with respect to all or substantially all of the Collateral; releases any
Subsidiary Guarantor from its obligations under the Subsidiary Guaranty, in each
case other than in accordance with the terms of the Loan Documents (provided,
Express Online Inc. (Your.Pharmacy.com) shall be released from the Subsidiary
Guaranty executed by it on the Closing Date on such date as the Company shall
sell any or all of the capital stock of such Subsidiary Guarantor); or changes
in any manner the provisions contained in subsection 8.1 or this subsection 10.6
shall be effective only if evidenced by a writing signed by or on behalf of all
Lenders; provided, further, that no such amendment, modification, termination,
waiver or consent shall increase the Commitments of a Lender over the amount
hereof then in effect without the consent of such Lender; provided, further,
that if any matter described in the first proviso of this subsection 10.6A
relates only to (a) all Term Loans, the approval of all Term Lenders shall be
sufficient, (b) Tranche A Term Loans or Tranche B Term Loans, as the case may
be, the approval of all of the Lenders of the affected Term Loan shall be
sufficient; and (c) a Revolving Loan or Revolving Loan Commitment, the approval
of all Revolving Lenders shall be sufficient." SECTION TWO - Conditions to
Effectiveness. This Amendment No. 2 shall become effective as of the date first
above written when, and only when, the Administrative Agent shall have received
counterparts of this Amendment No. 2 executed by the Company, the Subsidiary
Guarantors and all of the Lenders or, as to any of the Lenders, advice
satisfactory to the Administrative Agent that such Lender has executed this
Amendment No. 2. The effectiveness of this Amendment No. 2 (other than Sections
Five and Seven hereof) is conditioned upon the accuracy of the representations
and warranties set forth in Section Three hereof.
SECTION THREE - Representations and Warranties. In order to induce the
Lenders and the Agents to enter into this Amendment No. 2, the Company
represents and warrants to each of the Lenders and the Agents that after giving
effect to this Amendment No. 2, (i) no Default or Event of Default has occurred
and is continuing; and (ii) all of the representations and warranties in the
Credit Agreement, after giving effect to this Amendment No. 2, are true and
complete in all material respects on and as of the date hereof as if made on the
date hereof (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date).
SECTION FOUR - Reference to and Effect on the Credit Agreement and the
Notes. On and after the effectiveness of this Amendment No. 2, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement and each reference in each of the other
Credit Documents to the "Credit Agreement", "thereunder", "thereof" or words of
like import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement, as amended by this Amendment No. 2. The Credit Agreement,
the Notes and each of the other Credit Documents, as specifically amended by
this Amendment No. 2, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed.
SECTION FIVE - Costs, Expenses and Taxes. The Company agrees to pay all
reasonable costs and expenses of the Agents in connection with the preparation,
execution and delivery of this Amendment No. 2 and the other instruments and
documents to be delivered hereunder, if any (including, without limitation, the
reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with the
terms of Section 10.2 of the Credit Agreement. In addition, the Company shall
pay or reimburse any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Amendment No. 2
and the other instruments and documents to be delivered hereunder, if any, and
agrees to save each Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION SIX - Execution in Counterparts. This Amendment No. 2 may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment No. 2 by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment No. 2.
SECTION SEVEN - Governing Law. This Amendment No. 2 shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
New York (including Section 5-1401 of the General Obligations Law of the State
of New York), without giving effect to any provisions thereof relating to
conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 2 to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
EXPRESS SCRIPTS, INC.
By: /s/ George Paz
By: George Paz
Title: Senior Vice President and
Chief Financial Officer
SUBSIDIARY GUARANTORS:
DIVERSIFIED PHARMACEUTICAL SERVICES, INC.
YOURPHARMACY.COM, INC.
ESI/VRX SALES DEVELOPMENT CO.
EXPRESS SCRIPTS VISION CORP.
HEALTH CARE SERVICES, INC.
IVTX, INC.
MANAGED PRESCRIPTION NETWORK, INC.
MHI, INC. VALUE HEALTH, INC.
VALUERX, INC.
VALUERX PHARMACY PROGRAM, INC.
By: /s/ George Paz
Name: George Paz
Title: Senior Vice President and Chief
Financial Officer
as one of the Requisite Lenders
(please type)
ABN Amro Bank, N.V.
By: /s/ Thomas M. Comfort
Name: Thomas M. Comfort
Title: Vice President
By: /s/ Mary L. Honda
Name: Mary L. Honda
Title: Vice President
Bankboston, N.A.
By: /s/ Grace A. Barnett
Name: Grace A. Barnett
Title: Vice President
Bankers Trust Company
By: /s/ Mary Jo Jolly
Name: Mary Jo Jolly
Title: Assistant Vice President
Bank Leumi USA
By: /s/ Joung Hee Hong
Name: Joung Hee Hong
Title: Vice President
Bank of America, N.A. (formerly known as NationsBank, N.A.)
By: /s/ Larry J. Gordon
Name: Larry J. Gordon
Title: Vice President
Bank of Hawaii
By: /s/ Donna R. Parker
Name: Donna R. Parker
Title: Vice President
Bank of Monteal
By: /s/ Richard J. McClorey
Name: Richard J. McClorey
Title: Director
The Bank of New York
By: /s/ David G. Shedd
Name: David G. Shedd
Title: Vice President
Banque Nationale de Paris
By: /s/ Arnaud Collin du Bocage
Name: Arnaud Collin du Bocage
Title: Executive Vice President and General Manager
Chicago Branch
Bayerische Hypo-Und Vereinsbank AG, New York Branch
By: /s/ Erich Ebner von Eschenbach
Name: Erich Ebner von Eschenbach
Title: Managing Director
By: /s/ Steven Simons
Name: Steven Simons
Title: Associate Director
City National Bank
By: /s/ Patrick Cassidy
Name: Patrick Cassidy
Title: Vice President
Credit Agricole Indosuez
By: /s/ Raymond A. Falkenberg
Name: Raymond A. Falkenberg
Title: Vice President, Manager
By: /s/ Sarah U. Johnson
Name: Sarah U. Johnson
Title: Senior Relationship Manager
Credit Suisse First Boston
by: /s/ Todd C. Morgan
Name: Todd C. Morgan
Title: Director
By: /s/ Kristin Lepri
Name: Kristin Lepri
Title: Associate
Erste Bank Der Oesterreichischen Sparkassen AG
By: /s/ Rima Terradista
Name: Rima Terradista
Title: Vice President
By: /s/ David Manheim
Name: David Manheim
Title: Assistant Vice President
The First National Bank of Chicago
By: /s/ Christopher C. Cavaiani
Name: Christopher c. Cavaiani
Title: Vice President
Fleet National Bank
By: /s/ Lori H. Jou
Name: Lori H. Jou
Title: Assistant Vice President
The Fuji Bank, Limited
By: /s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Senior Vice President and Group Head
Heller Financial, Inc.
By: /s/ Sheila C. Weimer
Name: Sheila C. Weimer
Title: Vice President
Mellon Bank, N.A.
By: /s/ Louis E. Flori
Name: Louis E. Flori
Title: Vice President
Mercantile Bank N.A.
By: /s/ Mary Ann Lemonds
Name: Mary Ann Lemonds
Title: Vice President
Michigan National Bank
By: /s/ Draga Palincas
Name: Draga Palincas
Title: Commercial Relationship Manager
National City Bank
By: /s/ Joseph D. Robison
Name: Joseph D. Robison
Title: Vice President
Paribas
By: /s/ Russell Pomerantz
Name: Russell Pomerantz
Title: Director
By: /s/ Brett Mehlman
Name: Brett Mehlman
Title: Director
Senior Debt Portfolio
By: Boston Management and Research as Investment Advisor
By: /s/ Payson F. Swaffield
Name: Payson F. Swaffield
Title: Vice President
Textron Financial Corporation
By: /s/ R. Rodney Weaver
Name: R. Rodney Weaver
Title: Vice President
UBS AG, Stamford Branch
By: /s/ Gregory Raue
Name: Gregory Raue
Title: Director
By: /s/ Robert H. Riley III
Name: Robert H. Riley III
Title: Executive Director
Union Bank of California
By: /s/ Virginia Hart
Name: Virginia Hart
Title: Vice President
AMENDMENT NO. 3 AND WAIVER
AMENDMENT NO. 3 AND WAIVER ("Amendment No. 3") dated as of October 7, 1999
to the Credit Agreement dated as of April 1, 1999 (the "Credit Agreement"),
among Express Scripts, Inc.; each of the Subsidiary Guarantors party thereto;
each of the Lenders party thereto; Credit Suisse First Boston, as Lead Arranger,
Administrative Agent and Collateral Agent; Bankers Trust Company, as Syndication
Agent; The First National Bank of Chicago, as Co-Documentation agent; and
Mercantile Bank, N.A., as Co-Documentation agent (capitalized terms not
otherwise defined in this Amendment No. 3 have the same meaning assigned to such
terms in the Credit Agreement).
W I T N E S S E T H :
WHEREAS, Company has informed Lenders that it intends to enter into a
series of transactions pursuant to which, among other things, (i)
yourPharmacy.com, Inc. ("yourPharmacy.com") would transfer certain specified
assets to PlanetRx.com, Inc. ("PlanetRx") in exchange for common stock in
PlanetRx, and (ii) Company and PlanetRx would enter into an agreement (the
"Internet Pharmacy Agreement") detailing the ongoing relationships among the
parties, all as more further described on Annex I hereto;
WHEREAS, pursuant to Section 10.6 of the Credit Agreement, the Requisite
Lenders hereby agree to amend or waive certain provisions of the Credit
Agreement as set forth herein;
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION ONE - Amendments. (a) The definition of "Asset Sale "in Section 1.1
of the Credit Agreement shall be deleted in its entirety and replaced with the
following:
"Asset Sale" means the sale by Company or any of its Subsidiaries to any
Person other than Company or any of its Wholly Owned Subsidiaries of (i) any of
the stock of any of Company's Subsidiaries, (ii) substantially all of the assets
of any division or line of business of Company or any of its Subsidiaries (other
than the sale of assets contemplated in the PlanetRx Transactions), or (iii) any
other assets (whether tangible or intangible) of Company or any of its
Subsidiaries (other than (a) inventory sold in the ordinary course of business
(b) the Exempt PlanetRx Stock and (c) any such other assets to the extent that
the aggregate value of such assets sold in any single transaction or related
series of transactions is equal to $500,000 or less); provided, that, with
respect to any sale that would be otherwise deemed an Asset Sale pursuant to the
foregoing, if Company shall deliver an Officers' Certificate to Administrative
Agent at or prior to receipt of proceeds of such sale setting forth Company's
intent to use such proceeds to replace Plant Assets that are the subject of such
sale with other Plant Assets necessary or desirable for the conduct of its
business, or to exchange Plant Assets for other Plant Assets used in the conduct
of its business, within 180 days of such receipt and no Event of Default or
Potential Event of Default shall have occurred and shall be continuing at such
time, such sale shall not be deemed to constitute an Asset Sale, except to the
extent such Plant Assets or proceeds thereof are not so used within such 180-day
period, after which time such sale, to such extent, shall be deemed an Asset
Sale.
(b) The definition of "Permitted Acquisitions" in Section 1.1 of the Credit
Agreement shall be deleted in its entirety and replaced with the following:
"Permitted Acquisitions" means the acquisition of stock or other assets for
consideration (with non-cash consideration being valued at fair market value)
that results in acquired assets being owned by Company or a Wholly Owned
Subsidiary and (other than with respect to the acquisition of the PlanetRx Stock
in the PlanetRx Transactions), if such assets are equity interests in a Person,
such Person being a Wholly Owned Subsidiary, provided, however, that, on a pro
forma basis, after giving effect to any such acquisition or acquisitions for
aggregate consideration exceeding $5,000,000 in any Fiscal Year, the
Consolidated Leverage Ratio is less than 3.0 to 1.0.
(c) The definition of "Consolidated Net Income" in Section 1.1 of the
Credit Agreement shall be deleted in its entirety and replaced with the
following:
"Consolidated Net Income" means, for any period, the net income (or loss)
of Company and its Subsidiaries on a consolidated basis for such period taken as
a single accounting period determined in conformity with GAAP; provided that
there shall be excluded (i) the income (or loss) of any Person (other than a
Subsidiary of Company) in which any other Person (other than Company or any of
its Subsidiaries) has a joint interest, except to the extent of the amount of
dividends or other distributions actually paid to Company or any of its
Subsidiaries by such Person during such period, (ii) the income (or loss) of any
Person accrued prior to the date it becomes a Subsidiary of Company or is merged
into or consolidated with Company or any of its Subsidiaries or that Person's
assets are acquired by Company or any of its Subsidiaries, (iii) the income of
any Subsidiary of Company to the extent that the declaration or payment of
dividends or similar distributions by that Subsidiary of that income is not at
the time permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary, (iv) any after-tax gains or losses attributable
to Asset Sales or returned surplus assets of any Pension Plan, (v) for any
period that includes Fiscal Quarters ending on or prior to March 31, 2000, up to
$8.0 million in cash charges directly relating to the consolidation of
facilities in connection with the Acquisition, (vi) any after-tax gains or
losses, expenses and non-cash charges attributable to the PlanetRx Transactions
(including any non-cash charges relating to the issuance of equity to employees
of yourPharmacy.com, Inc.) as determined in conformity with GAAP, and (vii) any
after-tax gains in excess of related expenses attributable to transfers of the
Exempt PlanetRx Stock.
(d) Section 1.1 of the Credit Agreement shall be amended by adding the
following definitions, each in the appropriate alphabetical order of the
existing defined terms:
"Exempt PlanetRx Stock" means the 16 2/3% of the PlanetRx Stock which is
not subject to the Company Pledge Agreement.
"PlanetRx" means PlanetRx.com, Inc. a corporation organized under the laws
of Delaware.
"PlanetRx Transactions" means the transactions contemplated by, and
substantially in the form of, Annex I to Amendment No. 3 and Waiver to this
Agreement, dated as of October 7, 1999.
"PlanetRx Stock" means the number of shares of common stock of PlanetRx,
par value $.01 per share, to be acquired by Company pursuant to the PlanetRx
Transactions, and all dividends, cash, warrants, rights, instruments and other
property or proceeds from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the PlanetRx Stock.
"Pledged PlanetRx Stock" means the 83 1/3% of the PlanetRx Stock pledged as
collateral pursuant to the Company Pledge Agreement.
SECTION TWO - Waiver. Notwithstanding any other provision of the Credit
Agreement, the Lenders waive the application of Section 7.12 of the Credit
Agreement with respect to any of the PlanetRx Transaction Documents (as defined
below); provided that any amendment, supplement or waiver to any PlanetRx
Transaction Documents shall not be subject to the waiver contemplated by this
Section Two. "PlanetRx Transaction Documents" means the Internet Pharmacy
Agreement together with all exhibits, schedules and annexes thereto, or any
other agreements executed in connection therewith, as all such documents,
exhibits, schedules and annexes are in existence on the date the initial shares
of PlanetRx Stock (as defined in Section 1(c) hereof) are acquired by Company.
SECTION THREE - Conditions to Effectiveness. (a) This Amendment No. 3 shall
become effective as of the date first above written when, and only when:
Agents shall have received evidence satisfactory to them that Company shall
have taken or caused to be taken all such actions, executed and delivered or
caused to be executed and delivered all such agreements, documents and
instruments, and made or caused to be made all such filings, if any, that may be
necessary or, in the reasonable opinion of Agents, desirable in order to create
in favor of Agents, for the benefit of Lenders, a valid and perfected First
Priority Lien in the Pledged PlanetRx Stock (as defined in Section 1(d) hereof).
Such actions shall include the following: (a) Schedules to Collateral Documents.
Delivery to Agents of an accurate and complete amended schedule to the Company
Pledge Agreement;
(b) Stock Certificates. Delivery to Collateral Agent of certificates (which
certificates shall be accompanied by irrevocable undated stock powers, duly
endorsed in blank and otherwise satisfactory in form and substance to Collateral
Agent) representing such PlanetRx Stock;
the PlanetRx Transactions shall have been or shall simultaneously be
consummated in accordance with the terms hereof and of Annex I attached hereto
(without the waiver or amendment of any material condition); and
the Administrative Agent shall have received counterparts of this Amendment
No. 3 executed by the Company, the Subsidiary Guarantors and the Requisite
Lenders or, as to any of the Lenders, advice satisfactory to the Administrative
Agent that such Lender has executed this Amendment No. 3. (b) The effectiveness
of this Amendment No. 3 (other than Sections Four and Eight hereof) is
conditioned upon the accuracy of the representations and warranties set forth in
Section Four hereof.
SECTION FOUR - Representations and Warranties. In order to induce the
Lenders and the Agents to enter into this Amendment No. 3, the Company
represents and warrants to each of the Lenders and the Agents that after giving
effect to this Amendment No. 3, (i) no Default or Event of Default has occurred
and is continuing; and (ii) all of the representations and warranties in the
Credit Agreement, after giving effect to this Amendment No. 3, are true and
complete in all material respects on and as of the date hereof as if made on the
date hereof (or, if any such representation or warranty is expressly stated to
have been made as of a specific date, as of such specific date).
SECTION FIVE - Reference to and Effect on the Credit Agreement and the
Notes. On and after the effectiveness of this Amendment No. 3, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof" or words of like
import referring to the Credit Agreement and each reference in each of the other
Credit Documents to the "Credit Agreement", "thereunder", "thereof" or words of
like import referring to the Credit Agreement, shall mean and be a reference to
the Credit Agreement, as amended by this Amendment No. 3. The Credit Agreement,
the Notes and each of the other Credit Documents, as specifically amended by
this Amendment No. 3, are and shall continue to be in full force and effect and
are hereby in all respects ratified and confirmed.
SECTION SIX - Costs, Expenses and Taxes. The Company agrees to pay all
reasonable costs and expenses of the Agents in connection with the preparation,
execution and delivery of this Amendment No. 3 and the other instruments and
documents to be delivered hereunder, if any (including, without limitation, the
reasonable fees and expenses of Cahill Gordon & Reindel) in accordance with the
terms of Section 10.2 of the Credit Agreement. In addition, the Company shall
pay or reimburse any and all stamp and other taxes payable or determined to be
payable in connection with the execution and delivery of this Amendment No. 3
and the other instruments and documents to be delivered hereunder, if any, and
agrees to save each Agent and each Lender harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes.
SECTION SEVEN - Execution in Counterparts. This Amendment No. 3 may be
executed in any number of counterparts and by different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which taken together shall constitute but one and the same
agreement. Delivery of an executed counterpart of a signature page to this
Amendment No. 3 by telecopier shall be effective as delivery of a manually
executed counterpart of this Amendment No. 3.
SECTION EIGHT - Governing Law. This Amendment No. 3 shall be governed by,
and construed and enforced in accordance with, the internal laws of the State of
New York (including Section 5-1401 of the General Obligations Law of the State
of New York), without giving effect to any provisions thereof relating to
conflicts of law.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3 to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
EXPRESS SCRIPTS, INC.
By: /s/ George Paz
By: George Paz
Title: Senior Vice President and Chief Financial Officer
SUBSIDIARY GUARANTORS:
DIVERSIFIED PHARMACEUTICAL SERVICES, INC.
ESI/VRX SALES DEVELOPMENT CO.
EXPRESS SCRIPTS VISION CORP.
HEALTH CARE SERVICES, INC.
IVTX, INC.
MANAGED PRESCRIPTION NETWORK, INC.
MHI, INC.
VALUE HEALTH, INC.
VALUERX, INC.
VALUERX PHARMACY PROGRAM, INC.
By: /s/ George Paz
Name: George Paz
Title: Senior Vice President and Chief Financial Officer
as one of the Requisite Lenders
(please type)
as one of the Requisite Lenders
(please type)
ABN Amro Bank, N.V.
By: /s/ Thomas M. Comfort
Name: Thomas M. Comfort
Title: Vice President
By: /s/ Mary L. Honda
Name: Mary L. Honda
Title: Vice President
Bankboston, N.A.
By: /s/ Grace A. Barnett
Name: Grace A. Barnett
Title: Vice President
Bankers Trust Company
By: /s/ Mary Jo Jolly
Name: Mary Jo Jolly
Title: Assistant Vice President
Bank Leumi USA
By: /s/ Joung Hee Hong
Name: Joung Hee Hong
Title: Vice President
Bank of America, N.A. (formerly known as NationsBank, N.A.)
By: /s/ Larry J. Gordon
Name: Larry J. Gordon
Title: Vice President
Bank of Hawaii
By: /s/ Donna R. Parker
Name: Donna R. Parker
Title: Vice President
Bank of Monteal
By: /s/ Richard J. McClorey
Name: Richard J. McClorey
Title: Director
The Bank of New York
By: /s/ David G. Shedd
Name: David G. Shedd
Title: Vice President
Banque Nationale de Paris
By: /s/ Arnaud Collin du Bocage
Name: Arnaud Collin du Bocage
Title: Executive Vice President and General Manager
Chicago Branch
Bayerische Hypo-Und Vereinsbank AG, New York Branch
By: /s/ Erich Ebner von Eschenbach
Name: Erich Ebner von Eschenbach
Title: Managing Director
By: /s/ Steven Simons
Name: Steven Simons
Title: Associate Director
City National Bank
By: /s/ Randall F. Watsek
Name: Randall F. Watsek
Title: Vice President
Credit Agricole Indosuez
By: /s/ Susan Knight
Name: Susan Knight
Title: Vice President
By: /s/ Sarah U. Johnson
Name: Sarah U. Johnson
Title: Senior Relationship Manager
Credit Suisse First Boston
by: /s/ Todd C. Morgan
Name: Todd C. Morgan
Title: Director
By: /s/ Kristin Lepri
Name: Kristin Lepri
Title: Associate
Erste Bank
By: /s/ Rima Terradista
Name: Rima Terradista
Title: Vice President
By: /s/ John S. Runnion
Name: John S. Runnion
Title: First Vice President
The First National Bank of Chicago
By: /s/ Nathan L. Bloch
Name: Nathan L. Bloch
Title: First Vice President
Fleet National Bank
By: /s/ Carol Paige
Name: Carol Paige
Title: Senior Vice President
The Fuji Bank, Limited
By: /s/ Peter L. Chinnici
Name: Peter L. Chinnici
Title: Senior Vice President and Group Head
Heller Financial, Inc.
By: /s/ Sheila C. Weimer
Name: Sheila C. Weimer
Title: Vice President
Mellon Bank, N.A.
By: /s/ Louis E. Flori
Name: Louis E. Flori
Title: Vice President
Mercantile Bank N.A.
By: /s/ Mary Ann Lemonds
Name: Mary Ann Lemonds
Title: Vice President
Michigan National Bank
By: /s/ Draga Palincas
Name: Draga Palincas
Title: Commercial Relationship Manager
National City Bank
By: /s/ Joseph D. Robison
Name: Joseph D. Robison
Title: Vice President
Paribas
By: /s/ Russell Pomerantz
Name: Russell Pomerantz
Title: Director
By: /s/ Brett Mehlman
Name: Brett Mehlman
Title: Director
Senior Debt Portfolio
By: Boston Management and Research as Investment Advisor
By: /s/ Barbara Campbell
Name: Barbara Campbell
Title: Vice President
Textron Financial Corporation
By: /s/ R. Rodney Weaver
Name: R. Rodney Weaver
Title: Vice President
UBS AG, Stamford Branch
By: /s/ Paula Mueller
Name: Paula Meuller
Title: Director
By: /s/ Wilfred Saint
Name: Wilfred Saint
Title: Associate Director
Union Bank of California, N.A.
By: /s/ James L. Luchey
Name: James L. Luchey
Title: Vice President
<PAGE>
Annex 1
Description of the PlanetRx Transactions
PLANETRX.COM, INC.
and
EXPRESS SCRIPTS, INC.
Summary Outline of Equity Terms
Parties:
PlanetRx.com, Inc. ("PlanetRx I"), a newly formed entity
which changes its name to PlanetRx.com, Inc. ("PlanetRx II")
after completion of the Section 351 transaction described below,
Express Scripts, Inc. ("ESI") and its subsidiary,
YourPharmacy.com, Inc. ("YPC")
Transactions:
(i) YPC, ESI, PlanetRx I and PlanetRx II engage in a
transaction governed by Section 351 of the Internal Revenue Code
of 1986, as amended, whereby ESI contributes selected assets and
liabilities (schedule of assets and liabilities to be developed
by ESI and subject to approval of PlanetRx I) to PlanetRx II and
PlanetRx I merges into PlanetRx II (with PlanetRx II being the
survivor), or other similar structure such that the transaction
is tax deferred for ESI. ESI would receive common stock in
PlanetRx II equal to 19.9% (post-transaction and post-initial
public offering ("IPO")) of the fully diluted equity interests in
PlanetRx II. The former YPC assets that would be retained by ESI
would be (a) all rights to the names "yourPharmacy.com" and
DrugDigest.org, including all derivations thereof, (b) all rights
to the YPC website and the DrugDigest.org website, including the
URLs, and (c) all rights to develop, alter, etc. such sites and
all YPC and DrugDigest technology; provided the YPC site will be
linked to the PlanetRx website and all customers who wish to
place an order will be transferred to the PlanetRx website.
(ii) PlanetRx II shall employ and grant options to selected
former YPC employees at closing under its employee stock option
plan.
Registration
Rights:
ESI would have two demand registrations and unlimited "piggy
back" registrations; provided that the registration rights would
be no less than that given to the Series A, B and C Preferred
shareholders.
Consummation of
Transaction:
The transactions shall be consummated simultaneously with
the consummation of PlanetRx II's IPO. If said IPO is not
consummated within 4 months of the execution of definitive
transaction documentation, all agreements between the parties
with respect to the subject matter hereof shall, at ESI's option,
be rendered null and void, provided PlanetRx I shall pay ESI a
termination fee equal to $10,000,000.
Board Representation: So long as ESI owns, directly or
indirectly, more than 5% of the outstanding common equity
interests in PlanetRx II, ESI shall be entitled to have one Board
seat on the PlanetRx II Board.
Regulatory
Approvals:
The transaction is conditioned upon receipt of any necessary
regulatory approvals, including clearance under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, if
necessary.
Boardand Other
Approvals:
Notwithstanding anything to the contrary contained herein,
all terms and conditions of the transactions described herein are
expressly subject to the receipt of approval by the respective
Boards of Directors of ESI, YPC and PlanetRx I, in their sole
discretion, and in the case of ESI/YPC, to satisfactory tax and
accounting review of the proposed transactions contemplated
hereby, and, in the case of PlanetRx I, approval of the Series A,
B and C Preferred Shareholders, if necessary. All terms and
conditions are also subject to the approval of ESI's lenders and
release by ESI's lenders of YPC as a guarantor of ESI's
indebtedness, and review and receipt of a satisfactory
recommendation by ESI's investment banking representative, in
ESI's sole discretion.
PLANETRX.COM, INC.
and
EXPRESS SCRIPTS, INC.
Summary Outline of Agreement Terms
Parties:
PlanetRx.com, Inc. ("PlanetRx") and Express Scripts, Inc. ("ESI")
Transaction:
(i) ESI and PlanetRx enter into a 5 year extendible agreement
(the "Agreement") pursuant to which ESI grants PlanetRx the right to
be the exclusive "internet pharmacy" in its networks in the U.S.
(ii) ESI will not, directly or indirectly, own or operate an
internet pharmacy and will not co-market with another internet
pharmacy, or traditional pharmacy provider which utilizes internet
capabilities for order/reorder and mail delivery during the term of
the Agreement, except for its ownership interest in PlanetRx and
activities described in the Agreement.
(iii) Other terms of the Agreement shall be as set forth on
Attachment I hereto.
Compensation/Fees:
(i) Membership Fee to ESI. PlanetRx shall pay ESI a base fee and
an incremental fee (collectively, the "Membership Fee"), in quarterly
installments, based on the schedule attached hereto as Attachment II.
(ii)Order Fee to PlanetRx. ESI shall continue to fill all 90 day
prescriptions for its members, and shall pay PlanetRx an Order Fee, as
a result of the savings achieved by ESI due to (i) the on-line
ordering process, and (ii) economies of scale realized by ESI. The
Order Fee shall be based on volume and the level of ESI formulary
compliance and shall be paid for each 90 day prescription ordered by
an ESI member through PlanetRx and dispensed by ESI. PlanetRx will
remit all copayments collected to ESI.
(iii) Transfer Pricing/Reimbursement Rates to PlanetRx. The
transfer pricing/reimbursement rates (i.e., rates at which ESI shall
pay PlanetRx) for 30 day prescriptions dispensed to ESI members by
PlanetRx shall be based on a discount off of the average wholesale
price plus a nominal fee.
Effectiveness of
Agreement:
The Agreement shall take effect simultaneously with the
consummation of PlanetRx's IPO and the consummation of the
Section 351 Transaction (as defined below) between the parties.
If said IPO is not consummated within 4 months of the execution
of definitive transaction documentation, all agreements between
the parties with respect to the subject matter hereof shall, at
ESI's option, be rendered null and void.
Term:
The Agreement shall have an initial term of 5 years, and ESI
shall have the option to extend the term for an additional 5
years on the same terms and conditions provided ESI achieves
certain performance benchmarks. In addition, PlanetRx shall be
included in ESI's pharmacy network(s) for a period of ten years,
assuming consent of the plan sponsors.
ESI Internet Needs:
ESI will develop its own e-commerce functionality which may
support (i) its call center operations, (ii) account information,
(iii) the DrugDigest.org site, (iv) a pharmacy locator service,
(v) its disease management programs, (vi) its newsletters, (vii)
other PBM related services, and (viii) connectivity to the
PlanetRx site. PlanetRx will pay $3 million/year to ESI to fund
such activities by ESI throughout the term of the Agreement. ESI
shall establish a committee, to which PlanetRx shall be entitled
to appoint one member, which shall oversee such activities.
Co-Marketing
Effort:
ESI and PlanetRx will develop a co-marketing plan and agree
to the level of resources each will commit. The general
parameters of the plan will be as follows:
ESI will promote PlanetRx on its YPC website and link the
YPC site to the PlanetRx site, and PlanetRx will promote the YPC
website and link the PlanetRx site to the YPC site
Client/member materials will indicate that PlanetRx is ESI's
internet pharmacy provider (some plan sponsors have the right to
approve the form and content of communications to their members,
so these materials may be subject to client review and approval)
PlanetRx will market to ESI members (form and content
subject to ESI review and approval)
PlanetRx Relationship
With Other PBMs:
ESI will be PlanetRx's premier/preferred PBM partner and
will be designated as such on the PlanetRx site. PlanetRx will
have the right to contract with other PBMs. Any arrangement with
any other PBM will not adversely affect any financial arrangement
between ESI and PlanetRx. In addition, ESI shall be given "most
favored nation" financial terms compared to any other PBM, such
that the total economic package to ESI under this Agreement shall
be at least 20% better than that offered or given to any other
PBM with the same co-marketing type arrangement.
Change of Control
and Related Items:
If a "Change of Control" of either ESI or PlanetRx occurs,
then the Agreement may be terminated at the option of the party
which was not the subject of the Change of Control. If PlanetRx
is the subject of the Change of Control, ESI must exercise its
termination right prior to the consummation of the Change of
Control transaction and, if it does so exercise such right,
PlanetRx shall pay ESI a substantial termination payment. If ESI
is the subject of the Change of Control, PlanetRx must exercise
its termination right prior to the consummation of the Change of
Control transaction. Regardless of which party exercises its
termination right, the parties will have a transition period of 6
months prior to the actual termination date; provided that during
the transition period the parties co-marketing and co-branding
activities shall cease. If the agreement is not terminated, it
will continue in effect in accordance with its terms. For
purposes of the foregoing, "Change of Control" shall be defined
as the time at which a person, or two or more persons acting in
concert, acquire more than 50% of the voting power of the entity.
Events of Default
and Default:
Following is a non-exhaustive lists of events that shall be
considered "Events of Default" under the Agreement: (i) PlanetRx
shall engage in prescribing medicine or referring consumers to
physicians for prescriptions; (ii) PlanetRx shall fail to pay any
payment to ESI when due, or (iii) PlanetRx shall fail to maintain
its privacy structure in accordance with state and federal
regulatory requirements and industry standards, as may be
reflected in certification standards of organizations such as
Trustee, BBB, VIPPS, the NABP or similar organizations. Upon the
occurrence of an Event of Default, ESI shall have the option to
(along with any other rights it may have under the agreement, at
law or in equity): (a) terminate the Agreement; or (b) terminate
only the provisions of the Agreement which require ESI to name
PlanetRx as the exclusive internet pharmacy in its networks and
suspend any co-branding or co-marketing efforts. In addition,
upon the first payment default, ESI shall be entitled to
perpetual license rights in the PlanetRx software and technology
such that ESI may use, modify, etc. the software and technology
for its own purposes. If the first default remains uncured and a
subsequent payment default occurs, or if the initial default is
cured but two or more defaults occur within a twelve month
period, ESI shall have additional shares issued to it having a
value equal to two times the amount of all the defaulted
payments, and also be entitled to additional Board representation
such that it shall control a majority of the Board positions.
Pharmacy Chains:
ESI shall have the right, in cooperation with PlanetRx, to
negotiate any strategic alliance or equity participation in
PlanetRx by pharmacy chains, subject to review and approval of
PlanetRx's Board, in its sole discretion. PlanetRx shall not
grant such right to any other parties. Regulatory Approvals: The
transaction is conditioned upon receipt of any necessary
regulatory approvals.
Board and Other
Approvals:
Notwithstanding anything to the contrary contained herein,
all terms and conditions of the transactions described herein are
expressly subject to the receipt of approval by the respective
Boards of Directors of ESI and PlanetRx, in their sole
discretion, and in the case of ESI, to satisfactory tax and
accounting review of the proposed transactions contemplated
hereby, and, in the case of PlanetRx, approval of the Series A, B
and C Preferred Shareholders, if necessary.
Section 351 Transaction:
The transactions described herein are also subject to
consummation of the proposed transaction governed by Section 351
of the Internal Revenue Code of 1986, as amended, between the
parties whereby ESI contributes selected assets to a newly formed
entity ("NewCo") and PlanetRx merges into NewCo, with NewCo being
renamed "PlanetRx" immediately after the transaction (NewCo being
the entity referred to herein as "PlanetRx"), or other similar
structure such that the transaction is tax deferred for ESI, and
pursuant to which ESI receives common stock in PlanetRx equal to
19.9% (post-transaction and post-initial public offering ("IPO")
of the fully diluted equity interests.
Confidentiality:
The parties agree to seek confidential treatment for any
portions of the Agreement that are required to be filed with any
public documents.
Attachment I
(Other Terms of the Agreement)
- - For ESI members, PlanetRx will co-brand the website and offline collateral
materials, such as package inserts, in a mutually agreeable format
- The co-branding will include the main PlanetRx.com site and the
PlanetRx.com disease state domain sites
- ESI reserves the right to not have co-branding on designated areas
of any of the sites
- PlanetRx shall expend up to $100,000/year at ESI's request on
marketing efforts aimed at ESI's members
- - Site content, sponsorship and advertising may differ for ESI members and
non-ESI members
- - PlanetRx will cooperate with ESI to develop ways to demonstrate the sites
benefits to the ESI members, such as member savings on non-Rx purchases
- - ESI will use reasonable best efforts to provide PlanetRx with the
following ESI customer impressions per year, which may include collateral
materials, pharmacy cards with PlanetRx listed as an option or other media
that ESI uses in its normal client or member messaging, including a button
ona the ESI or YPC website linking to PlanetRx:
Year 1 50 million
Year 2 75 million
Year 3 100 million
Year 4 125 million
Year 5 150 million
- - Both parties agree to develop appropriate technology and web interfaces
to identify and trace ESI member usage of PlanetRx in a mutually agreed upon
manner
- - PlanetRx shall not take any actions to attempt to convert ESI members
using 90 day prescriptions to 30 day presscriptions
- - PlanetRx will not, directly or indirectly, engage in the pharmacy benefit
management business, and shall appoint ESI as its exclusive formulary manager,
which shall include negotiating with manufacturer's for rebates and filing
for said rebates. In addition, ESI shall be entitled to all revenues from
manufacturers relating to pharma ancillary programs, such as disease
management, drug and disease education and formulary management
- - PlanetRx will not contact any of ESI's clients without ESI's prior
written consent
- - PlanetRx shall agree to comply with specified performance level standards
for ESI members (a copy of which has been provided by ESI)
- - ESI may designate that certain shipping methods no be used for members
of certain plan sponsors
Attachment II
(Membership Fee)
A. Base Fee.
PlanetRx shall pay ESI a base fee of $11,650,000/year, payable in equal
quarterly installments.
B. Incremental Fee.
In addition to the Base Fee, PlanetRx shall pay ESI an incremental fee
each quarter calculated on an annualized basis upon the number of ESI members
making any type of purchase on the PlanetRx site during the year.
To: EXPRESS SCRIPTS, INC. ("Counterparty")
Attn: GEORGE PAZ
Fax: 314 770 1581
From: BANKERS TRUST COMPANY ("BT")
1 BANKERS TRUST PLAZA
130 LIBERTY STREET
NEW YORK, NEW YORK 10006
Date: June 17, 1999
CONFIRMATION
BT Transaction Ref. No: N000153765
The purpose of this communication is to set forth the terms and conditions of
the transaction entered into between us on the Trade Date specified below (the
"Transaction").
The definitions and provisions contained in the 1991 ISDA Definitions (as
supplemented by the 1998 Supplement), as published by the International Swaps
and Derivatives Association, Inc. are incorporated into this Confirmation. In
the event of any inconsistency between those definitions and provisions and this
Confirmation, this Confirmation will govern. This communication constitutes a
"Confirmation".
This Confirmation evidences a complete and binding agreement between BT and
Counterparty as to the terms of the Transaction to which this Confirmation
relates. In addition, Counterparty and BT agree to use all reasonable efforts to
negotiate, execute and deliver an agreement in the form of the ISDA Master
Agreement (Multicurrency-Cross Border) (the "ISDA Form") (as may be amended,
modified or supplemented from time to time, the "Agreement") with such
modifications as Counterparty and BT will in good faith agree. Upon execution by
the parties of such Agreement, this Confirmation will supplement, form a part of
and be subject to the Agreement. All provisions contained or incorporated by
reference in such Agreement upon its execution shall govern this Confirmation
except as expressly modified below.
Until Counterparty and BT execute and deliver the Agreement, this Confirmation,
together with all other documents referring to the ISDA Form (each a
"Confirmation") confirming Transactions (each a "Transaction") entered into
between us (notwithstanding anything to the contrary in a Confirmation) shall
supplement, form a part of, and be subject to an agreement in the form of the
ISDA Form as if BT had executed an agreement on the Trade Date of the first such
Transaction between us in such form, with the Schedule thereto (i) specifying
only that (a) the governing law is the laws of the State of New York, without
reference to choice of law doctrine, provided, that such choice of law shall be
superseded by any choice of law provision specified in the Agreement upon its
execution, and (b) the Termination Currency is U.S. Dollars and (ii)
incorporating the addition to the definition of "Indemnifiable Tax" contained in
(page 48 of ) the ISDA "User's Guide to the 1992 ISDA Master Agreements" with
the modifications contained herein. In the event of any inconsistency between
the terms of this Confirmation, and the terms of the Agreement, this
Confirmation will prevail for the purpose of this Transaction.
The terms of the particular Transaction to which this Confirmation relates are
as follows:
Notional Amount : USD 15,000,000.00
Trade Date : May 24, 1999
Effective Date : April 17, 2000
Termination Date : April 15, 2005, or such earlier date as
determined pursuant of the Additional
Provisions section of this Confirmation.
The Floating Rate Payer pays on each Payment Date an amount determined in
accordance with the following:
Floating Rate Payer : BANKERS TRUST COMPANY
Adjustment Schedule : The Notional Amount will vary in accordance
with the following schedule
Calculation Period Notional Amount Adjustment Effect)
Commencing
- ------------------ -------------------- -------------------
April 17, 2000 USD 15,000,000.00 ----
October 16, 2000 USD 51,000,000.00 36,000,000.00
April 17, 2001 USD 53,250,000.00 2,250,000.00
October 15, 2001 USD 98,250,000.00 45,000,000.00
April 15, 2002 USD 89,250,000.00 -9,000,000.00
October 15, 2002 USD 137,250,000.00 48,000,000.00
April 15, 2003 USD 128,250,000.00 -9,000,000.00
April 15, 2004 USD 65,550,000.00 -62,700,000.00
Payment Dates : Commencing on July 15, 2000 and quarterly
thereafter on the 15th calendar day of each
October, January, April
and July, up to and including April 15, 2005
Floating Rate Option : USD-LIBOR-BBA
Designated Maturity : 3 Months
Spread : Inapplicable
Rounding Factor : One hundred-thousandth of one percent
Floating Rate Day
Count Fraction : Actual/360
Compounding : Inapplicable
Reset Dates : The first day of each Calculation Period
The following cities are specified for use in the
Business Day : definition of "Business Day" as it applies to the
Floating Rate Payer:
London
New York City
Business Day
Convention : Modified Following
The Fixed Rate Payer pays on each Payment Date an amount determined in
accordance with the following:
Fixed Rate Payer : EXPRESS SCRIPTS, INC.
Adjustment Schedule : The Notional Amount will vary in accordance with
the following schedule
Calculation Period
Commencing Notional Amount (Adjustment Effect)
- ---------------------- -------------------------- ------------------------
April 17, 2000 USD 15,000,000.00 ----
October 16, 2000 USD 51,000,000.00 36,000,000.00
April 17, 2001 USD 53,250,000.00 2,250,000.00
October 15, 2001 USD 98,250,000.00 45,000,000.00
April 15, 2002 USD 89,250,000.00 -9,000,000.00
October 15, 2002 USD 137,250,000.00 48,000,000.00
April 15, 2003 USD 128,250,000.00 -9,000,000.00
April 15, 2004 USD 65,550,000.00 -62,700,000.00
Payment Dates:
Commencing on July 15, 2000 and quarterly thereafter on the
15th calendar day of each October, January, April and July, up to
and including Arpil 15, 2005
Fixed Rate:
6.250000 percent
Fixed Rate Day Count Fraction:
Actual/360
Business Day:
The following cities are specified for use in the definition
of "Business Day" as it applies to the Fixed Rate Payer:
London
New York City
Business Day Convention:
Modified Following
Additional Provisions:
Early Termination:
It shall constitute an Additional Termination Event with
Counterparty as the Affected Party if at any time Counterparty's
obligations to BT under this Transaction: (i) cease to be secured
prusuant to the Collateral Documents (as such term is defined
under the Credit Agreement); or (ii) cease to be equally and
ratably secured with Counterparty's obligations to the Lenders
(as such term is defined under the Credit Agreement) under the
Credit Agreement pursuant to their relevant Collateral Documents.
"Credit Agreement" means that certain Credit Agreement dated as
of April 1, 1999 by and among Counterparty, as Borrower, the
Lenders listed therein, as Lenders, Credit Suisse First Boston,
as Lead Arranger, Adminstrative Agent and Collateral Agent, BT,
as Syndication Agent, BT Alex.Brown Incorporated, as Co-Arranger,
The First National Bank of Chicago, as Co-Documentation Agent,
and Mercantile Bank, N.A., as Co-Documentation Agent, as such may
be amended, supplemented or modified from time to time.
Right to Transfer:
The parties agree that BT may transfer its rights and
obligations under this Transaction to any Affiliate of BT
provided that such assignment will not give rise to a Termination
Event or an Event of Default with respect to either Coutnerparty
or such assignee of BT.
For all USD payments,
We will pay you:
According to your instructions which must be forwarded under
separate cover as soon as possible. We shall make no payment
without such instructions.
For all USD payments
Please pay us at : BANKERS TRUST COMPANY, NEW YORK ABA #021001033
For the Account of : BANKERS TRUST INTERNATIONAL MAIN SWAP ACCOUNT
Account Number : 04-822-378
Each Party has agreed to make payments to the other in accordance with this
Confirmation. Please confirm that the foregoing correctly sets forth the terms
of our agreement by signing this Confirmation and returning it via fax to the
attention of the BT Confirmation Unit in New York, fax no. (212)250-7263.
Please check this Confirmation carefully and immediately upon receipt, so that
errors or discrepancies can be promptly identified and rectified.
We are very pleased to have concluded this Transaction with you.
Regards,
BANKERS TRUST COMPANY
By /s/ George Gammond
GEORGE GAMMOND
VICE PRESIDENT
Confirmed as of the date first above written:
EXPRESSS SCRIPTS, INC.
By /s/ George Paz
Name and Title: George Paz, Chief Financial Officer
Counterparty's
Deal Number :______________________
<TABLE> <S> <C>
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<CIK> 0000885721
<NAME> Express Scripts, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-Mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
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0
0
<COMMON> 390
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<TOTAL-LIABILITY-AND-EQUITY> 2,105,036
<SALES> 1,083,496
<TOTAL-REVENUES> 1,083,496
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<INCOME-TAX> 13,471
<INCOME-CONTINUING> 17,548
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<EXTRAORDINARY> 553
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<NET-INCOME> 16,995
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</TABLE>
