<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended June 30, 1998 Commission File Number 0-20348
D & K HEALTHCARE RESOURCES, INC.
(Exact name of registrant as specified in its charter)
Delaware 43-1465483
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
8000 Maryland Avenue, Suite 920, St. Louis, Missouri 63105
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (314) 727-3485
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par
value $.01
(Title of Class)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes ___ No ___
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. /x/
State the aggregate market value of the voting stock held by
non-affiliates of the registrant: approximately $40,903,904 as of September 17,
1998.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest practicable date: As of
September 17, 1998, 3,756,775 shares of Common Stock, par value $.01, were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference in
the Part of this report indicated below:
Part II - Registrant's 1998 Annual Report to Stockholders
Part III - B Registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders
<PAGE> 2
PART I
Item 1. Business
FORWARD-LOOKING STATEMENTS
Statements herein regarding the Company's prospective
business, market position and growth opportunities are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as a
mended, and Section 21E of the Securities Exchange Act of 1934, as amended, and
involve substantial risks and uncertainties. Forward-looking statements include
statements contained in the "Business" section of this Form 10-K regarding
the Company's ability to: (i) optimize its sales mix among customers in the
various market segments of the industry; (ii) capitalize on trends in the
wholesale distribution industry, and (iii) achieve increased economies of scale
and greater cost-effectiveness. Forward-looking statements also include
statements relating to the Company or its operations that are preceded by terms
such as "expect", "believes", "intends" and similar expressions. The Company's
actual results of operations or financial performance may differ materially form
those implied by such forward-looking statements as a result of various factors,
including, without limitation, the following: The wholesale pharmaceutical
distribution industry is very competitive and many of the Company's competitors
have substantially greater resources than the Company. The Company's contracts
with its customers generally enable the customer to terminate the contract or
reduce purchasing levels on relatively short notice without penalty. The
Company=s relationships with its customers and suppliers, and its ability to
increase its operating margins, is dependent, to a large extent, upon the
efforts of its senior management and key sale personnel and the continued
availability of inventory investment buying opportunities.
OVERVIEW
The Company is a leading regional wholesale distributor of
pharmaceutical and related healthcare and beauty aid products to more than 700
retail and institutional customers in 20 states primarily in the Midwest and
South. The Company also offers a variety of value-added services to its
customers, particularly in the area of cost containment and inventory
management. The Company had net sales of $612.4 million in fiscal 1998, of which
49.3% were to independent pharmacies, 21.4% were to retail chains, including
national pharmacy chains and the pharmacy departments of supermarkets and mass
merchandisers, and 29.3% were to healthcare institutions, including hospitals,
alternate site care facilities, pharmacy benefit management companies and
managed care organizations. The Company operates three state-of-the-art
distribution facilities in Cape Girardeau, Missouri, Lexington, Kentucky and
Minneapolis, Minnesota.
Since its formation in 1987, the Company has expanded the
scope and breadth of its business by consistently providing the highest levels
of service to its customers and suppliers. The Company achieves such high levels
of service by (i) providing its customers with a full continuum of products,
value-added services and support, which enable its customers to compete more
effectively; (ii) focusing on flexibility, which allows the Company to respond
quickly to change and to customize systems to meet its customers' and suppliers'
requirements; (iii) strategically locating the Company's distribution centers
and satellite transfer depots throughout the Midwest and the South, which
enables the Company to ship products to and service its customers promptly and
efficiently; and (iv) attracting and motivating experienced and entrepreneurial
management personnel, who continually seek to improve and expand the Company's
business.
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In 1996, senior management of the Company initiated a plan to
reposition the Company and significantly improve operating performance. This
plan included: (i) identifying and focusing the Company's efforts on high-growth
niche markets; (ii) centralizing certain management functions, including
purchasing, marketing and information systems at its corporate offices, while
decentralizing executive, sales and operating functions at each of its
independently managed profit centers, including its three regional distribution
centers; (iii) enhancing the depth and breadth of the Company's management team;
(iv) creating new management and employee incentive plans; (v) upgrading the
Company's facilities; and (vi) enhancing the Company's corporate image. Since
implementing these strategic initiatives, net sales and net income have grown in
each of the last nine fiscal quarters as compared to the same periods in the
prior years.
The Company believes that its regional-market focus and high
level of customer service provide it with competitive advantages and position it
to benefit from trends impacting the industry. Management believes that the
increasing size of the wholesale pharmaceutical industry's larger participants
hampers the ability of these companies to deliver specialized services to all
their customers. The Company has successfully differentiated itself from its
national competitors through its ability to provide flexible and customized
services to its targeted customer segments. In addition, healthcare providers'
need for value-added services which help contain costs and effectively manage
inventory has given the Company the opportunity to capitalize on its cost
competitiveness and advanced systems. The location and quality of the Company's
distribution facilities and satellite transfer depots throughout the Midwest and
South allow the Company to service its customers' and suppliers' needs promptly
and efficiently. The Company has capitalized on the increased demand for
alternate care providers through its investment in PBI in fiscal 1996. PBI is
one of the nation's leading alternate site group purchasing organizations, and
the Company's investment in PBI provides it with access to a higher margin
business segment and insight into alternate site distribution.
The wholesale pharmaceutical distribution industry has
experienced rapid sales growth over the past twelve years, increasing from
approximately $14.0 billion in sales in 1985 to more than $73.0 billion in 1997.
In addition, the percentage of pharmaceutical sales made through wholesale
distributors rather than directly by manufacturers increased to approximately
83% in 1997, from 58% in 1985. The Company believes that there are several major
trends currently affecting the industry, including: (i) continued consolidation
of national and regional wholesale drug distribution companies; (ii) an
increasing emphasis on value-added services that lower healthcare providers'
administrative and other costs associated with medical supply management; (iii)
the growing importance of an efficient distribution model as customers become
more cost-conscious; and (iv) a shift in the delivery of healthcare services
from acute care settings to alternate sites, including physician offices and
extended care facilities.
PRODUCTS, SERVICES AND VALUE ADDED MARKETING SYSTEMS
The Company's product line consists of more than 25,000 SKUs,
including branded pharmaceuticals, multi-source generics, private label
products, repackaged pharmaceutical products and over-the-counter health and
beauty aids. The Company sells branded pharmaceuticals (approximately 89.7% of
net sales in fiscal 1998), generic pharmaceuticals (approximately 6.0% of net
sales in fiscal 1998) and over-the-counter health and beauty aids (approximately
4.3% of net sales in fiscal 1998).
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The Company strives to offer services which enhance the
operating efficiencies of its customers and assist them in competing
effectively. Principal elements in the Company's service offerings to its
customers include: (i) RESOURCE, a proprietary PC based order entry/order
confirmation system that completely automates all order creation, transmission
and confirmation operations; (ii) PARTNERS, a fully automated and customizable
replenishment software system which helps pharmacies more efficiently coordinate
product supply and demand; (iii) FOCUS, a contract management and reporting
software system designed for group purchasing and managed care organizations
which automates functions relating to corporate and group contracts; and (iv)
SCRIPTMASTER, a total pharmacy management software system that provides
prescription management functions, drug and allergy checks, instantaneous
connections to hundreds of third party insurance plans, "just in time" inventory
management, automated accounts receivable, quick pay program monitoring and
central office functions.
The Company offers a broad range of merchandising and
marketing services to its independent pharmacy customers under its "Med Plus"
program. Under this program, the Company plans and coordinates cooperative
advertising programs and provides for the availability of various promotional
products. The Company also offers new product introduction programs,
point-of-sale materials, calendars, blood pressure testing units, trial size
programs, automatic new product distribution, rack jobbing, store fixturing and
retail employee training programs. Other services offered to independent
pharmacies under Med Plus include: retail merchandising, inventory management
systems, electronic order entry, planogramming, shelf labels and price stickers,
private label products, monthly feature promotions, home healthcare marketing
programs, store layout assistance, business management reports, pharmacy
computer systems and monthly catalogs.
CUSTOMERS AND MARKETS
The Company's diverse customer base is comprised of over 700
independent pharmacies, retail chains and healthcare institutions. Independent
pharmacies generally are small, community-based pharmacies, which the Company
believes benefit the most from the Company's sales and value added services.
Retail chains, which the Company believes is the fastest growing segment of the
market, include national pharmacy chains and the pharmacy departments of
supermarkets and mass merchandisers. Healthcare institutions, which currently
comprise the largest segment of the market, consist of hospitals, nursing homes,
clinics and other alternate site care facilities, home health agencies, HMOs and
pharmacy benefit management companies.
The Company believes that diversifying its sales across the
various market segments enables the Company to capture greater market share in
the geographic areas it serves and better serve the faster growing segments of
the healthcare markets. The following table sets forth the Company's sales mix
by customer segment:
<TABLE>
<CAPTION>
NET SALES
-----------------------------------------------------------------------
FISCAL YEARS ENDED
-----------------------------------------------------------------------
MARCH 29, 1996 MARCH 28, 1997 JUNE 30, 1998
------------------------ --------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
---------- --------- -------- --------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Independent Pharmacies $ 207,423 48.8% $ 223,708 49.6% $ 301,536 49.3%
Retail Chains 134,427 31.6 131,343 27.4 131,233 21.4
Healthcare nstitutions 83,483 19.6 124,473 26.0 179,658 29.3
--------- ----- ---------- ----- ---------- -----
Total $ 425,333 100.0% $ 479,524 100.0% $ 612,427 100.0%
========= ===== ========== ===== ========== =====
</TABLE>
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The Company's senior management is actively involved in
identifying and developing opportunities to expand the Company's business with
customers in each of these market segments, including the preparation of
proposals which highlight customer benefits of the Company's
cost-competitiveness, advanced systems and value-added services. During fiscal
1997 and fiscal 1998, the Company's 10 largest customers accounted for
approximately 47.2% and 37.1%, respectively, of the Company's revenues. The
Company's largest customer during fiscal 1997 (with which the Company's
relationship was mutually terminated in September 1997) accounted for
approximately 20.0% of the Company's revenues during fiscal 1997 and Anthem
Prescription Management, Inc., its largest customer during fiscal 1998,
accounted for approximately 13.1% of the Company's revenues during that period.
SALES AND MARKETING
The Company employs sales representatives and customer service
representatives at each of its three distribution centers. In addition to base
salary, the Company's sales personnel receive incentive compensation based upon
increases in the Company's market share and market penetration. The corporate
vice president of sales and business development works closely with each
business unit to develop sales goals. The Company's sales program includes
regular training to improve customer service and to provide its sales and
customer service representatives with the skills and resources necessary to
increase business with existing customers and establish new customer
relationships. The Company also maintains a telephone service department staffed
with trained personnel who work with customers to answer questions and solve
problems.
The Company's marketing efforts are focused on developing new
primary relationships with its customers. The Company emphasizes frequent
personal interaction of its sales force with customers so that the customer
comes to rely on the Company's dependability, responsiveness, accuracy of order
filling and breadth of product line. Retail customers also rely on the Company's
sales force for consulting services on advertising, merchandising, stocking and
inventory management.
The Company believes that its customer service department is a
key element in its marketing program and differentiates it from its national
competitors. The decentralized customer service staff emphasizes rapid response
to customer inquiries and efficient order placement.
OPERATIONS
The Company is structured as an organization of locally
managed profit centers. Each of the Company's profit centers has an executive,
sales and operations staff with management compensation at each profit center
determined by its operating results. The profit centers utilize the Company's
corporate staff for procurement, marketing, financial, legal and executive
management resources and corporate coordination of assets and working capital
management. The Company's decentralized sales and distribution network, combined
with its centralized procurement and corporate support staff structure, enable
the Company to provide high levels of specialized, customer service while
minimizing administrative expenses and maximizing volume discounts for product
purchases.
The Company's distribution centers maintain data processing
systems and sophisticated materials handling equipment for receiving, storing
and distributing large quantities and varieties of products. The Company
continuously seeks to improve its warehouse automation technologies to maximize
operational efficiencies on a cost-effective basis. In 1996, the Company
developed state-of-the-art radio transmission and receiving procedures and
barcoding and scanning technologies at one of
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its distribution centers which significantly improved accuracy, efficiency and
productivity at that center. The Company subsequently exported this technology
to its other distribution centers.
The Company receives virtually 100% of its orders electronically and,
upon receipt of the customer's order at a distribution center, the Company's
warehouse-management system produces a "picking document" containing product
selection, loading and truck routing information. The system also provides
customized price information (geared to each customer's local market) or
individual package price stickers to accompany each shipment to facilitate the
customer's pricing of the items. Virtually all items ordered from the Company's
distribution centers are available and shipped by the Company within 24 hours
after the orders are placed by customers. Orders are delivered to customers by
the Company's fleet of trucks and vans or by contract carriers.
PURCHASING AND INVENTORY CONTROL
The Company utilizes sophisticated inventory-control and purchasing
software. The software perpetually tracks the Company's inventory, analyzes
demand history and projects future demand. The Company's system is designed to
enhance profit margins by eliminating the manual ordering process, allowing for
automatic inventory replenishment and identifying inventory buying
opportunities. The system also improves the Company's fill rate and enhances
inventory management and control.
The Company purchases products from approximately 1,000 manufacturers
for the wholesale purchase of pharmaceuticals and other products. The Company
initiates purchase orders with manufacturers through its information systems.
During fiscal 1997 and fiscal 1998, the Company's 10 largest suppliers accounted
for approximately 45% and 70%, respectively, of the Company's purchases by
dollar volume. Historically, the Company has not experienced difficulty in
purchasing desired products from suppliers. The majority of contracts with
suppliers are terminable by either party upon short notice and without penalty.
The Company believes that its relationships with its suppliers are good.
MANAGEMENT INFORMATION SYSTEMS
Each of the Company's distribution centers operates as a
distinct business with full system functionality: order processing, inventory
management, accounts receivable, accounts payable, general ledger, master file
maintenance, external and internal reporting. Each distribution center houses an
AS/400 system and several PCs. Another AS/400 resides in the Company's corporate
office, along with several PCs and a Local Area Network (LAN). The four AS/400s
are connected via data lines and information is transmitted between locations on
a regular basis. LANs are being installed in the Company's remaining locations
over the next fiscal year in order to facilitate file sharing and e-mail
delivery. The Company's purchasing system resides on the corporate host
computer.
COMPETITION
The wholesale distribution of pharmaceuticals, health and
beauty aids, and other healthcare products is highly competitive, with national
and regional distributors competing primarily on the basis of service and price.
Other competitive factors include delivery service, credit terms, breadth of
product line, customer support and merchandising and marketing programs. The
Company competes with large, national distributors such as McKesson Corporation,
Bergen Brunswig Corporation, Cardinal Health, Inc., Bindley-Western Industries,
Inc. and AmeriSource Health Corporation, as well as with local and regional
wholesalers, manufacturers and generic pharmaceutical
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<PAGE> 7
telemarketers and specialty distributors. The Company also competes with other
wholesale distributors for purchases of products and financial support in the
form of trade credit from manufacturers. Certain of the Company's competitors
have significantly greater financial and marketing resources than the Company.
EMPLOYEES
As of August 31, 1998, the Company employed 261 persons, 231
of whom were full-time employees. Approximately 25 of the Company's employees at
its Minneapolis, Minnesota distribution center are covered by a collective
bargaining agreement with the Miscellaneous Drivers, Helpers and Warehousemen's
Union, Local 638, which expires in March 2000. The Company believes that its
employee relations are good.
Item 2. Properties
The Company conducts its business from a total of eight
office, warehouse and satellite depot facilities. The Company's primary
operating facilities include:
<TABLE>
<CAPTION>
LOCATION DESCRIPTION SQUARE FOOTAGE
-------- ----------- --------------
<S> <C> <C>
Cape Girardeau, Distribution and administration 66,000
Missouri(1)
Lexington, Kentucky(2)... Distribution and administration 37,500
Minneapolis, Minnesota(2) Distribution and administration 63,000
St. Louis, Missouri(1)... Corporate offices 7,900
</TABLE>
- ----------
(1) Leased
(2) Owned
The Company also maintains warehouse and satellite depot
facilities in Missouri, Tennessee, Kentucky and Florida that enable it to
efficiently distribute product on a timely basis.
The Company believes its facilities are adequate to support
its present business plans.
Item 3. Legal Proceedings
No material legal proceedings are pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
The Company did not submit any matters to a vote of its
security holders during the quarter ended June 30, 1998.
Item 4A. Executive Officers of the Registrant
The name, age and position of each of the executive officers
of the Company are set forth below.
J. Hord Armstrong, III, 57, has served as the Chairman of the
Board, Chief Executive Officer and Treasurer and as a director of the Company
since December 1987. Prior to joining the Company, Mr. Armstrong served as Vice
President and Chief Financial Officer of Arch Mineral Corporation, a coal mining
and sales corporation, from 1981 to 1987 and as its Treasurer from 1978 to 1981.
Mr. Armstrong serves as a Trustee of the St. Louis College of Pharmacy.
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Martin D. Wilson, 37, has served as President and Chief
Operating Officer of the Company since January 1996, as Secretary since August
1993 and as a director since 1997. Mr. Wilson previously served as Executive
Vice President, Finance and Administration of the Company from May 1995 to
January 1996, as Vice President, Finance and Administration of the Company from
April 1991 to May 1995 and as Controller of the Company from March 1988 to April
1991. Prior to joining the Company, Mr. Wilson, a certified public accountant,
was associated with KPMG Peat Marwick, a public accounting firm.
Dennis A. White, 48, has served as Vice President, Chief
Information Officer of the Company since April 1996. From May 1988 to May 1996,
Mr. White served as Director of Customer Information Services and in various
other management positions with Bergen Brunswig Corporation, a national
wholesale drug distributor.
Daniel E. Kreher, 33, has served as Vice President, Finance
and Administration of the Company since November 1996. From August 1987 to
November 1996, Mr. Kreher, a certified public accountant, served as a senior
manager and in various other positions with Price Waterhouse LLP, a public
accounting firm.
Edward W. McManus, 50, has served as Vice President, Sales and
Business Development of the Company since May 1997. From March 1994 to April
1997, Mr. McManus served as Vice President Corporate Sales with Managed
Healthcare Associates, a group purchasing organization specializing in long-term
care. From January 1982 to February 1994, Mr. McManus served in various sales
management positions with Fujisawa, USA, a pharmaceuticals manufacturer.
Douglas E. Linton, 50, has served as Senior Vice President,
Pharmaceutical and Specialty Services of the Company since February 1998, and as
Vice President, Specialty Division from September 1997 to February 1998. Prior
thereto, Mr. Linton served as Vice President, Merchandising of Walker Drug
Company from October 1995 to August 1997, and as Senior Vice President, Supplier
Services for Cardinal Health, Inc. for more than the preceding 5 years.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters
The information set forth under the caption "Price Range Per
Common Share" on the inside back cover page of the registrant's 1998 Annual
Report to Stockholders is incorporated herein by this reference.
Item 6. Selected Financial Data
The information set forth under the caption "Financial
Highlights on page 3 of the registrant's 1998 Annual Report to Stockholders is
incorporated herein by this reference.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information set forth under the caption "Management's
Discussion and Analysis of Results of Operations and Financial Condition" in the
registrant's 1998 Annual Report to Stockholders is incorporated herein by this
reference.
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Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
The following financial statements and supplementary data,
included in the registrant's 1998 Annual Report to Stockholders, are
incorporated herein by this reference.
<TABLE>
<CAPTION>
ANNUAL REPORT REFERENCE
-----------------------
<C> <C>
Report of Independent Public Accountants Page 22
Consolidated Balance Sheets at June 30, 1998 and March 28, 1997 Page 23
Consolidated Statements of Operations for the years ended
June 30, 1998, March 28, 1997, and March 29, 1996 and for the Page 24
three months ended June 30, 1997
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1998, March 28, 1997, and March 29, 1996 and Page 25
for the three months ended June 30, 1997
Consolidated Statements of Cash Flows for the years ended
June 30, 1998, March 28, 1997, and March 29, 1996 and for the Page 26
three months ended June 30, 1997
Notes to Consolidated Financial Statements Page 27
</TABLE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information set forth under the captions "Election of
Directors" in the registrant's Proxy Statement for its 1998 Annual Meeting of
Stockholders (the "1998 Proxy Statement) is incorporated herein by this
reference. The Company will file the 1998 Proxy Statement with the Commission
pursuant to Regulation 14A within 120 days after the close of the fiscal year.
Information regarding executive officers is set forth in Part I of this report.
Item 11. Executive Compensation
The information set forth under the captions "Directors' Fees"
and "Compensation of Executive Officer" in the registrant's 1998 Proxy
Statement is incorporated herein by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information set forth under the captions "Voting
Securities and Principal Holders Thereof" and "Security Ownership By Management"
in the registrant's 1998 Proxy Statement is incorporated herein by this
reference.
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Item 13. Certain Relationships and Related Transactions
The information set forth under the caption "Certain
Transactions" in the registrant's 1998 Proxy Statement is incorporated herein by
this reference.
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form
8-K
(a)(1) Financial statements: Incorporated herein by
reference, are listed in Item 8 of this report.
(2) The following financial statement schedule and
auditors' report thereon are included in Part IV of this report:
Page
Report of Independent Public Accountants on Schedule 12
Schedule II - Valuation and Qualifying Accounts 13
Schedules other than those listed above have been omitted
because they are either not required or not applicable, or because the
information is presented in the consolidated financial statements or the notes
thereto.
(3) Exhibits.
See Exhibit Index.
(b) Reports on Form 8-K
None.
(c) See Item 14(a)(3) above.
(d) See Item 14(a)(2) above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
D & K HEALTHCARE RESOURCES, INC.
(Registrant)
By /s/ J. Hord Armstrong, III
--------------------------
J. Hord Armstrong, III, Chairman of the Board,
Chief Executive Officer and Treasurer
Date: September 28, 1998
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<C> <C> <C>
/s/ J. Hord Armstrong, III Chairman, Chief Executive Officer, September 28, 1998
- ------------------------------------ Treasurer and Director
J. Hord Armstrong, III (Principal Financial Officer)
/s/ Martin D. Wilson President, Chief Operating Officer,
- ------------------------------------ Secretary and Director September 28, 1998
Martin D. Wilson
/s/ Daniel E. Kreher Vice President, Finance & Administration September 28, 1998
- ------------------------------------ (Principal Accounting Officer)
Daniel E. Kreher
/s/ Richard F. Ford Director September 28, 1998
- ------------------------------------
Richard F. Ford
/s/ Bryan H. Lawrence Director September 28, 1998
- ------------------------------------
Bryan H. Lawrence
/s/ Elliot H. Stein Director September 28, 1998
- ------------------------------------
Elliot H. Stein
/s/ Robert E. Korenblat Director September 28, 1998
- ------------------------------------
Robert E. Korenblat
/s/ Thomas F. Patton Director September 28, 1998
- ------------------------------------
Thomas F. Patton
/s/ James M. Usdan Director September 28, 1998
- ------------------------------------
James M. Usdan
</TABLE>
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To D & K Healthcare Resources, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in the D & K Healthcare Resources,
Inc. Annual Report to Stockholders which is incorporated by reference in this
Form 10-K, and have issued our report thereon dated August 11, 1998. Our audit
was made for the purpose of forming an opinion on those statements taken as a
whole. Schedule II included in this Form 10-K is the responsibility of the
company's management and is presented for the purpose of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
August 11, 1998
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<PAGE> 13
D & K HEALTHCARE RESOURCES, INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS 1996, 1997,
THE THREE MONTHS ENDED JUNE 30, 1997 AND FISCAL 1998
<TABLE>
<CAPTION>
Additions
------------------
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Acquisitions Deductions of Period
----------- --------- -------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C>
Valuation Allowance for
Doubtful Receivables:
Fiscal Year 1996 $1,632,00 $136,000 $ 251,000 $(1,151,000) $ 868,000
========= ======== ============= =========== ===========
Fiscal Year 1997 $ 868,000 $ 65,000 $ -- $ (236,000) $ 697,000
========= ======== ============= =========== ===========
Three Monthd Ended
June 30, 1997 $ 697,000 $ -- $ -- $ -- $ 697,000
========= ======== ============= =========== ===========
Fiscal Year 1998 $ 697,000 $ 15,000 $ 28,000 $ (40,000) $ 700,000
========= ======== ============= =========== ===========
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
2.1 Stock Purchase and Redemption Agreement, dated as of
November 30, 1995, by and among Pharmaceutical Buyers,
Inc., J. David McCay, The J. David McCay Living Trust,
Robert E. Korenblat and the registrant filed as Exhibit
2.4 to the registrant's Annual Report on Form 10-K for
the year ended March 28, 1997 is incorporated herein by
this reference.
3.1 Restated Certificate of Incorporation, filed as Exhibit 3.2 to
registrant's Registration Statement on Form S-1 (Reg. No.
33-48730) is incorporated herein by this reference.
3.1a* Certificate of Amendment to the Restated Certificate of
Incorporation of D&K Wholesale Drug, Inc.
3.2 By-laws of the registrant, as currently in effect, filed as
Exhibit 3.3 to registrant's Registration Statement on Form S-1
(Reg. No. 33-48730) is incorporated herein by this reference.
4.1 Form of certificate for Common Stock, filed as Exhibit 4.1 to
registrant's Registration Statement on Form S-1 (Reg. No.
33-48730) is incorporated herein by this reference.
10.1 Note Agreement, dated December 29, 1987, regarding
$3,250,000.00 11% Joint and Several Subordinated Notes
due December 29, 1997, and $1,750,000.00 11% Joint and
Several Convertible Subordinated Notes due December 29,
1997, by and among registrant, Delta Wholesale Drug,
Inc., W. Kelly Company, Wholesale Management Services,
Inc. and Massachusetts Mutual Life Insurance Company, and
amendments thereto, filed as Exhibit 10.3 to the
registrant's Registration Statement on Form S-1 (Reg. No.
33-48730) is incorporated herein by this reference.
10.2 Note Agreement, dated December 29, 1987, regarding
$3,250,000.00 11% Joint and Several Subordinated Notes
due December 29, 1997, and $1,750,000.00 11% Joint and
Several Convertible subordinated Notes due December 29,
1997, by and among registrant, Delta Wholesale Drug,
Inc., W. Kelly Company, Wholesale Management Services,
Inc. and MassMutual Corporate Investors, and amendments
thereto, filed as Exhibit 10.4 to the registrant's
Registration Statement on Form S-1 (Reg. No.
</TABLE>
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<PAGE> 15
<TABLE>
<CAPTION>
Exhibit No. Description Page
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<S> <C> <C>
33-48730) is incorporated herein by this reference.
10.3 D & K Wholesale Drug, Inc. Amended and Restated 1992 Long Term
Incentive Plan, filed as Annex A to the registrant's 1995 Proxy
Statement is incorporated herein by this reference.
10.4 Wholesale Distribution Agreement, by and between registrant and
GLAXO INC., filed as Exhibit 10.14 to the registrant's
Registration Statement on Form S-1 (Reg. No. 33-48730) is
incorporated herein by this reference.
10.5 Wholesale Distribution Agreement, dated January 1, 1995,
by and between registrant and SmithKline Beecham
Pharmaceuticals, filed as Exhibit 10.7 to registrant's
Annual Report on Form 10-K for the year ended March 29,
1996 is incorporated herein by this reference.
10.6 Wholesale Prime Vendor Agreement, dated September 27,
1993, by and between registrant and Pfizer Inc., filed as
Exhibit 10.16 to the registrant's Annual Report on Form
10-K for the year ended April 1, 1994 is incorporated
herein by this reference.
10.7 Warehousing and Distribution Service Agreement, dated July 1,
1994, by and between registrant and Eli Lilly and Company, filed
as Exhibit 10.17 to the registrant's Annual Report on Form 10-K
for the year ended April 1, 1994 is incorporated herein by this
reference.
10.8 Amendment to Note Agreements, filed as Exhibit 10.21 to the
registrant's Registration Statement on Form S-1 (Reg. No.
33-48730) is incorporated herein by this reference.
10.9 Letter Agreement dated May 24, 1994, between registrant,
Massachusetts Mutual Life Insurance Company and
MassMutual Corporate Investors, filed as Exhibit 10.30 to
the registrant's Annual Report on Form 10-K for the year
ended April 1, 1994 is incorporated herein by this
reference.
10.10 Letter Agreement dated February 14, 1995, between
registrant, Massachusetts Mutual Life Insurance Company
and MassMutual Corporate Investors, filed as Exhibit
10.15 to the registrant's Annual Report on Form 10-K for
</TABLE>
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<PAGE> 16
<TABLE>
<CAPTION>
Exhibit No. Description Page
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<C> <C> <C>
the year ended March 31, 1995 is incorporated herein by
this reference.
10.11 Letter Agreement dated January 18, 1995, between
registrant, Massachusetts Mutual Life Insurance Company
and MassMutual Corporate Investors, filed as Exhibit
10.16 to the registrant's Annual Report on Form 10-K for
the year ended March 31, 1995 is incorporated herein by
this reference.
10.12 Letter Agreement dated June 10, 1994, between registrant,
Massachusetts Mutual Life Insurance Company and
MassMutual Corporate Investors, filed as Exhibit 10.17 to
the registrant's Annual Report on Form 10-K for the year
ended March 31, 1995 is incorporated herein by this
reference.
10.13 Letter Agreement dated October 10, 1994 between
registrant, Massachusetts Mutual Life Insurance Company
and MassMutual Corporate Investors, filed as Exhibit
10.18 to the registrant's Annual Report on Form 10-K for
the year ended March 31, 1995 is incorporated herein by
this reference.
10.14 Supply Agreement dated April 18, 1995 by and between
registrant and M & H Drugs, Inc., filed as Exhibit 10.19
to the registrant's Annual Report on Form 10-K for the
year ended March 31, 1995 is incorporated herein by this
reference.
10.15 Letter Agreement, dated August 31, 1993, by and between
registrant and W. VanMeter Alford, Jr. filed as Exhibit
10.28 to the registrant's Annual Report on Form 10-K for
the year ended April 1, 1994 is incorporated herein by
this reference.
10.16 Third Amended and Restated Loan and Security Agreement,
dated as of March 3, 1995, by and among registrant,
Northern Drug Company, Krelitz Industries, Inc. and
Shawmut Capital Corporation, filed as Exhibit 10.21 to
the registrant's Annual Report on Form 10-K for the year
ended March 31, 1995 is incorporated herein by this
reference.
10.17 First Amendment to Third Amended and Restated Loan and
Security Agreement, dated as of June 9, 1995, by and
among registrant, Northern Drug Company, Krelitz
</TABLE>
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<PAGE> 17
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<C> <C> <C>
Industries, Inc. and Shawmut Capital Corporation, filed
as Exhibit 10.22 to the registrant's Annual Report on
Form 10-K for the year ended March 31, 1995 is
incorporated herein by this reference.
10.18 Second Amendment to Third Amended and Restated Loan and
Security Agreement and Consent, dated as of November 29,
1995 by and among Shawmut Capital Corporation, the
registrant, Northern Drug Company and Krelitz Industries,
Inc., filed as Exhibit 10.22 to the registrant's Annual
Report on Form 10-K for the year ended March 29, 1996 is
incorporated herein by this reference.
10.19 Third Amendment to Third Amended and Restated Loan and
Security Agreement, Amendment to Pledge Agreement and
Waiver, dated as of July 1996, by and among Fleet Capital
Corporation, the registrant and Krelitz Industries, Inc.,
filed as Exhibit 10.23 to the registrant's Annual Report
on Form 10-K for the year ended March 29, 1996 is
incorporated herein by this reference.
10.20 D & K Wholesale Drug, Inc. 401(k) Profit Sharing Plan and
Trust, dated January 1, 1995, filed as Exhibit 10.25 to
the registrant's Annual Report on Form 10-K for the year
ended March 29, 1996 is incorporated herein by this
reference.
10.21 Amended and Restated Lease Agreement, dated as of January
16, 1996, by and between Morhaert Development, L.L.C. and
the registrant, filed as Exhibit 10.26 to the
registrant's Annual Report on Form 10-K for the year
ended March 29, 1996 is incorporated herein by this
reference.
10.22 Fourth Amendment to Third Amended and Restated Loan and
Security Agreement, dated as of May 1997, by an among
Fleet Capital Corporation, the registrant and Krelitz
Industries, Inc. filed as Exhibit 10.28 to the
registrant's Annual Report on Form 10-K for the year
ended March 28, 1997 is incorporated herein by this
reference.
</TABLE>
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<TABLE>
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EXHIBIT No. Description Page
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10.23 Loan Agreement dated as of December 23, 1996, by and
among registrant, Krelitz Industries, Inc. and Magna
Bank, N.A., filed as Exhibit 10.30 to the registrant's
Annual Report on Form 10-K for the year ended March 28,
1997 is incorporated herein by this reference.
10.24* Pharmaceutical Services Agreement between Anthem Prescription
Management, Inc. and D&K Wholesale Drug, Inc. dated July 16, 1996.
10.25* Renewal dated June 26, 1998, to Pharmaceutical Services Agreement
between Anthem Prescription Management, Inc. and D&K Wholesale
Drug, Inc. dated July 16, 1996.
10.26* Purchase and Sale Agreement dated as of August 7, 1998 between D&K
Healthcare Resources, Inc., certain of its subsidiaries and D&K
Receivables Corporation.
10.27* Receivables Purchase Agreement dated as of August 7, 1998
among D&K Receivables Corporation, D&K Healthcare
Resources, Inc., Blue Keel Funding, LLC and Fleet
National Bank.
10.28* Fourth Amended and Restated Loan and Security Agreement dated as
of August 7, 1998 among D&K Healthcare Resources, Inc., Jaron
Inc., and Fleet Capital Corporation.
13* Registrant's 1998 Annual Report to Stockholders.
21* Subsidiaries of the registrant.
23* Consent of Arthur Andersen LLP.
</TABLE>
* Filed herewith.
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<PAGE> 1
EXHIBIT 3.1a
CERTIFICATE OF AMENDMENT
TO THE
RESTATED CERTIFICATE OF INCORPORATION
OF
D & K WHOLESALE DRUG, INC.
--------------------------
D&K Wholesale Drug, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That at a duly noticed and convened meeting of the Board of
Directors of the Corporation at which a quorum was present and acting
throughout, the Board of Directors duly adopted resolutions proposing and
declaring advisable the following amendment to the Corporation's Restated
Certificate of Incorporation:
FIRST: The name of this corporation is D&K
Healthcare Resources, Inc.
SECOND: That at a duly noticed and convened meeting of the stockholders
of the Corporation held August 14, 1997, at which a quorum was present and
acting throughout in person or by proxy, the stockholders of the Corporation
have approved the aforesaid amendment.
THIRD: That the aforesaid amendment was duly adopted in accordance with
the applicable provisions of Section 242 of the General Corporation Law of the
State of Delaware.
IN WITNESS WHEREOF, D&K Wholesale Drug, Inc. has caused its corporate
seal to be hereunto affixed and this Certificate of Amendment to be signed by
Martin D. Wilson, its President, as of this 21st day of August, 1997.
(Corporate Seal) D&K WHOLESALE DRUG, INC.
/s/ MARTIN D. WILSON
-------------------------------
Martin D. Wilson, President
<PAGE> 1
EXHIBIT 10.24
PHARMACEUTICAL
SERVICES AGREEMENT
This Agreement ("Agreement") is entered into this 16th day of July, 1996, by and
between Anthem Prescription Management, Inc. (APM), 8845 Governor's Hill Drive,
Cincinnati, Ohio, 45249 and D&K Wholesale Drug, Inc., (D&K) 516 West Fourth
Street, Lexington, Kentucky, 40508.
WHEREAS, APM is an administrator of managed care pharmacy programs for persons
enrolled in health care plans;
WHEREAS, as a part of its managed care pharmacy programs, APM operates Priority
Rx ("Priority Rx"), a licensed mail service pharmacy, to dispense pharmaceutical
products to Members under certain terms and conditions;
WHEREAS, D&K is a wholesale distributor of pharmaceutical products;
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS
1.1 "Member" means all individuals enrolled in a APM administered managed
care pharmacy program as part of fully-insured, partially-insured,
self-insured or prepaid health benefit plans.
1.2 "Products" means the federally approved pharmaceutical drug products,
equipment, supplies and sundry items ordered and dispensed by APM to
Members.
1.3 "Acquisition Cost" means the lower of the contractual price negotiated
by APM with a drug manufacturer or the amount D&K pays for the Products
ordered by APM. In determining the amount D&K pays for Products, the
value of any and all rebates, free goods and cash discounts to which
D&K is entitled with respect to the Products sold by D&K to APM
hereunder shall be deducted from the price actually remitted to the
manufacturer by D&K.
2. RESPONSIBILITIES OF D&K
2.1 Sale of Products. D&K agrees to supply APM's requirements for Products
during the term of this Agreement. Such Products shall be dispensed
only to Members by Priority Rx for the personal use of such Members.
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<PAGE> 2
2.2 Contract Maintenance. D&K agrees to charge APM the contract price for
Products negotiated between APM and a pharmaceutical manufacturer. D&K
further agrees to notify APM in the event that lower pricing for
generically equivalent items to such Products becomes available.
2.3. Fill Rate Guarantee. Commencing on August 1, 1996, and continuing
through the term of this Agreement, D&K shall accurately fill at least
97% of all Products ordered by APM on a weekly basis. The fill rate
shall be determined by dividing the total number of Products (defined
by NDC number) ordered by and delivered to APM by the number of
Products ordered. In the event D&K is unable to procure a particular
Product from a manufacturer, the fill-rate on subsequent orders shall
exclude the unavailable Product from the calculation until such time as
the Product becomes available. Failure to meet the above fill rate
shall constitute a breach of a material term of this Agreement.
2.4 Customer Service. D&K shall provide the following customer service
resources to APM:
2.4.1 On-Site Representative: D&K agrees to provide a person to serve
as a primary contact person for resolution of all questions and
inquiries from APM. Such person will be available at APM's facility in
Cincinnati, Ohio at such times as requested by APM.
2.4.2 In-house Representative: D&K also agrees to designate a specific
employee to provide and/or coordinate all customer service activities
for APM within D&K's Lexington Distribution Center.
2.4.3 Emergency Phone Number: D&K shall be available to provide
emergency services to APM 24 hours per day, seven days a week. D&K
shall designate a means for communicating emergency needs via
telephone.
2.5 Shipping Terms. D&K agrees to ship Products to APM under the
following terms:
a. All shipments shall be F.O.B. APM's facility in Cincinnati, Ohio
b. All Products ordered will be delivered without substitution,
unless expressly approved by APM prior to shipment.
c. D&K shall notify APM on-line within one hour of all Products
ordered by APM that D&K is unable to provide.
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<PAGE> 3
d. All in-stock items ordered by APM before 8:00 p.m. will be
delivered by 6:30 a.m. the following morning, except that
Products obtained from D&K distribution centers located outside
of Lexington, Kentucky may be delivered up to 5:00 p.m. of the
day after the Products are ordered or up to 10:00 a.m. the
following day.
e. D&K will deliver order to APM Monday through Friday, except legal
holidays. Saturday delivery shall be available to APM upon
request at no additional charge to APM.
f. Emergency shipments shall be made within a reasonable time upon
APM's request.
g. D&K shall insure delivery of all Products which are schedule II
controlled substances to APM within 24 hours of ordering, except
for Saturdays and Sundays.
h. D&K shall, in the event of a stock outage, arrange for
drop-shipment of Products from manufacturers. In the event a
Product is not available from the manufacturer, D&K shall notify
APM of such outage and shall use its best efforts to find
alternative sources of such Product.
2.6 Systems Support. D&K agrees to provide (pursuant to D&K's licensing
agreements which are referenced in Exhibit C) and install at no charge
the following to APM, and or as dictated by business needs:
a. Three Resource(R) electronic ordering systems.
b. Three copies of the Partners(R) vendor managed inventory (VMI)
system.
c. Three copies of the Focus(R) group management information system.
d. On-site training, upon request by APM, for the Partners(R),
Resource(R) and Focus(R) systems.
e. The hardware described in Exhibit A. Upon termination, such
computer hardware shall be returned to D&K, or if APM leases
such hardware, to the lessor.
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<PAGE> 4
2.7 Reporting. D&K shall provide the following standard reports, examples
of which are included in Exhibit B, to APM upon request. In addition,
D&K agrees to make reasonable efforts to provide specialized,
non-standard reports to APM upon request.
a. Narcotic and Controlled Substances Report, on at least a
monthly basis.
b. Therapeutic Category Report.
c. Purchase History Report, on at least a monthly basis.
d. Item Price Change Report, on at least a monthly basis.
e. Inventory Report, on at least a semi-annual basis.
2.8 Credit and Returned Goods Policies. D&K will issue, upon notification
by APM, a full credit for damaged or mispicked Products delivered to
APM and for Products returned to D&K by APM. Such credit memo will
accompany the next shipment to APM. D&K will issue, pursuant to D&K's
returned goods policies and upon notification by APM, a credit for
Products returned for reasons other than damage or mispicks. All
credits for returned goods will be issued within three days of receipt
of the goods by D&K. D&K will maintain the capability to accept notice
of returned Products through electronic transmission. D&K represents
that the returned good and credit policies are in conformance with all
applicable laws, including the Prescription Drug Marketing Act of 1987.
2.9 Physical Inventory Assistance. D&K agrees to provide, in lieu of the
Resource(R) system described above, access to D&K's mainframe computer
system to allow for physical inventory reporting by APM. In addition,
D&K shall provide Telxon machines (or reasonable equivalent) and
inventory preparation training to APM upon request. D&K will provide an
electronic file containing physical inventory data requested by APM, or
it's designee, within twelve hours of D&K's receipt of data from APM.
2.10 Shelf Labels, Price Stickers and MSDS Sheets. D&K will provide, upon
request, laminated shelf labels with bar coding, material data safety
sheets and encoded price stickers.
2.11 Notice of Impairment. D&K shall give APM immediate notice in the event
of a major occurrence experienced by D&K that could impair its ability
to perform the duties of this Agreement. This shall include but not be
limited to any shutdown of any D&K distribution center.
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<PAGE> 5
2.12 Insurance. D&K agrees to obtain and maintain throughout the term of
this Agreement, general liability insurance in amounts of not less than
ten Million Dollars ($10,000,000) per aggregate.
2.12.1 D&K agrees to maintain in full force and effect general
liability insurance and other insurance in types and amounts
as are customary and usual within its industry or required by
law.
2.13 Competitive Circumstances. D&K warrants and represents that the pricing
provided herein would be available to other owners and operators of
mail service pharmacies on substantially the same terms and conditions,
provided that such mail service pharmacies performed substantially the
same services as APM and were similarly situated and whose volumes of
purchases were comparable to those of APM from D&K.
2.14 Warehousing Facility. D&K agrees to make available, as reasonably
needed and requested by APM, warehouse space to APM for the storage of
Products. Such space shall meet all reasonable specifications defined
by APM.
2.15 Compliance with Laws. D&K agrees to comply with all applicable state
and federal laws, including but not limited to Title VII of the Civil
Rights Act of 1964 (as amended), the Equal Pay Act of 1963 (sections 6,
7 and 12 of the Fair Labor Standards Act), the Age Discrimination and
Employment Act of 1967, all antitrust laws, Executive Orders 11246 and
11375, the Social Security Act Amendment of December 5, 1980 and the
Federal Acquisition Regulations (FAR) and Department of Defense
Acquisition Regulations (DFAR).
2.16 Implementation Plan. D&K agrees to comply with the terms and conditions
set forth in an implementation plan which will be mutually agreed upon.
Implementation will be completed within four weeks from the date of
execution of this agreement.
2.17 Audit & Inspection. D&K agrees to comply with all reasonable requests
made by APM to provide copies of records and reports related to this
Agreement for auditing purposes. Such records, may include without
limitation, financial records and reports relating to the purchase and
delivery of Products. Such profiles and records may be inspected
on-site during regular business hours, or, upon request, copies thereof
shall be sent to APM at no charge. The parties agree to keep all such
records confidential.
5
<PAGE> 6
Upon reasonable notice, APM may inspect D&K's premises, records and
operations to ensure that they are adequate to perform D&K's
obligations under this Agreement, are consistent with the intent and
purpose of this Agreement, and in conformance with applicable law.
a. D&K agrees that upon reasonable notice, APM, during regular
business hours, shall have free access for examination and
reproduction to all books, records of accounts, and other
documents, including without limitation computer files,
employee work schedules, invoices and prescription files, and
any other documents that may be required in the course of any
audit conducted pursuant to this Agreement, as requested by
APM.
b. All information obtained during any such audit shall be
maintained in confidence.
c. Audits may be performed at any time during the term of this
Agreement and up to one year following termination hereof.
3. RESPONSIBILITIES OF APM
3.1 Purchase Orders. APM shall provide, in a format acceptable to D&K,
purchase orders for Products. APM agrees to give D&K 30 days advance
notice of any expected increases in the volume of Products APM
reasonably expects to purchase from D&K.
3.2 Provision of Other Services. Other than the activities to be performed
by D&K pursuant to this Agreement, APM shall provide all required
public relations, legislative, marketing and operational support
necessary to ensure implementation and delivery of Products.
3.3 Notice of Impairment. APM shall give D&K immediate notice in the event
of a major occurrence experienced by APM that could impair APM's
ability to perform the duties of this Agreement.
3.4 Insurance. APM agrees to maintain in full force and effect general
liability insurance and other insurance in types and amounts as are
customary and usual within its industry.
3.5 Own Use. APM warrants and represents that Products shall be dispensed
only to Members by Priority Rx for the personal use of such Members.
6
<PAGE> 7
3.6 Credit Information. APM agrees to provide to D&K, upon request,
including reasonable financial information sufficient to allow for
D&K's evaluation of unsecured credit extended to APM.
4. COMPENSATION
4.1 Acquisition Costs and Fees. APM agrees to pay D&K the Acquisition Cost
for all Products ordered by APM and delivered by D&K pursuant to this
Agreement. In addition, APM agrees to pay D&K a fee of 0.1% of the
aggregate Acquisition Cost for services provided by D&K during the term
of this Agreement except as adjusted by section 4.3 below.
4.2 Timing of Payments. Payments to under Paragraph 4.1 shall be made by
APM weekly. Failure by APM to make payments due under Paragraph 4.1
shall be a material breach subject to Paragraph 5.2.1 of this
Agreement.
4.3 EFT Payment Discount. In the event that APM elects to make payments
pursuant to section 4.1 above, by means of an electronic funds transfer
method acceptable to D&K within one business day after receipt of
Products, D&K shall provide a discount to APM of 0.12% of the fees
specified in section 4.1.
4.4 Dock to Dock Shipment Discount. In the event that APM elects to utilize
"dock to dock" shipping arrangements, and provided that EFT payments
are made for such Products within 2 business days of receipt thereof,
D&K shall provide to APM a discount of 0.2% of the fees specified in
section 4.1.
4.5 Partners Shared Savings. APM agrees to negotiate, in good faith, an
agreement whereby D&K will receive compensation for any demonstrated
savings resulting to APM through the use of the Partners software
system.
5. TERM AND TERMINATION
5.1 Term. Except as provided in Section 5.2, the initial term of this
Agreement shall be from July 15, 1996 through June 30, 1998.
Thereafter, this Agreement shall be renewed for a successive 12 month
period upon mutual agreement of the parties. D&K agrees that APM may
extend this Agreement, at APM's option, for a period of 90 days
following the expiration of its term.
5.2 Termination. Either party may terminate this Agreement by giving the
other party at least 45 days written notice of its intention to
terminate the Agreement. In such event, APM shall purchase all Products
which are stocked solely for APM pursuant to Section 2.14 above.
7
<PAGE> 8
5.2.1 This Agreement may be terminated by either party for a
material breach of the agreement upon thirty (30) days advance
written notice specifying the facts and circumstances of the
breach if such is not cured within such thirty (30) day
period.
5.2.2 If any legislative enactment, court decision or regulatory
action by any governmental agency, or other circumstances
beyond the control of either party prevents such party from
performing its obligations hereunder, the failure to perform
shall not be considered a breach. Rather, the parties agree,
to negotiate the terms of this Agreement so that each party's
obligations may be performed in compliance with applicable
law. If, after the parties negotiate in good faith, no
agreement is reached, either party may terminate this
agreement upon giving thirty (30) days written notice to the
other party.
5.2.3 Notwithstanding any other provision of this Agreement, either
party to this Agreement shall have the right to cancel this
Agreement immediately and without prior notice, if the other
party is adjudicated bankrupt or makes an assignment for the
benefit of creditors without the other party's prior written
consent, or if a receiver is appointed for the other party, or
in the event the other party commits an illegal act that
affects the operation or management of services rendered under
this Agreement.
6. INDEMNIFICATION
6.1 APM will indemnify and hold harmless D&K, its successors and assigns,
officers and directors, employees, agents, affiliates and subsidiaries,
from any and all claims, demands, damages, judgments, liabilities and
expenses, including but not limited to reasonable attorney fees, that
arise directly or indirectly from any acts, omissions or negligence of
APM, or any failure of APM to perform its obligations under this
Agreement.
6.2 D&K will indemnify and hold harmless APM, its successors and assigns,
officers and directors, employees, agents, affiliates and subsidiaries,
from any and all claims, demands, damages, judgments, liabilities and
expenses, including but not limited to reasonable attorney fees, that
arise directly or indirectly from any acts, omissions or negligence of
D&K, or any failure of D&K to perform its obligations under this
Agreement.
8
<PAGE> 9
7. CONFIDENTIALITY
7.1 D&K and APM each agree to keep confidential and not to disclose to any
other party any or all information obtained or produced during the
performance of the Agreement, except that APM may provide
account-specific data to its accounts. Upon the request of the
disclosing party, the other party shall promptly return all such
information. Neither party shall release pricing information associated
with the Agreement to outside parties without the prior written consent
of the other party.
8. NON-EXCLUSIVITY
8.1 This is a non-exclusive agreement and either party shall have the right
to enter into similar agreements with other parties.
9. GENERAL PROVISIONS
9.1 Notice. Any notice required or permitted to be given in this Agreement
by either party to the other may be given by personal delivery in
writing, by facsimile transmission, or by registered or certified
mail, return receipt requested, to the following:
If to APM: If to D&K:
David Ayres D&K Wholesale Drug, Inc.
Pharmaceutical Purchaser 516 West Fourth Street
Priority Rx Lexington, Kentucky 40508
4800 Parkway Drive Attention: Lewis E. Mead
Suite 101
Mason, Ohio 45040-1092 With a copy to:
D&K Wholesale Drug, Inc.
8000 Maryland Ave.
Suite 1190
St. Louis, Missouri 63105
Attention: Martin D. Wilson
Notices delivered personally or by facsimile transmission will be
deemed communicated as of the time of actual receipt; mailed notices
will be deemed communicated as of three days after mailing.
9.2 Severability. If any of the provisions of this Agreement, or the
application of any provision to any person or any circumstance, shall
be determined to be invalid or unenforceable, then such determination
shall not affect any other provision of the
9
<PAGE> 10
Agreement or the application of said provision to any other person or
circumstance.
9.3 ServiceMarks and Tradenames. Each party agrees not to use any service
mark or tradename which the other party owns or to which it has rights
in any advertisement without the other's prior written consent.
9.4 Choice of Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
9.5 Assignment. This Agreement may not be assigned by either party without
the express written consent of the other party, except that either
party may assign this Agreement to another party that wholly owns it,
which it wholly owns or which is under common ownership with such
party.
9.6 Waiver. The failure of either party to enforce or insist upon
compliance with any provision of this Agreement in any instance shall
not be construed as or constitute a waiver of that party's right to
enforce or insist upon compliance with such provision, rule, or
regulation, either currently or in the future.
9.7 Headings. The subject headings of the provisions of this Agreement are
included for purposes of convenience only and shall not affect the
construction or interpretation of any of its provisions.
9.8 Incorporation of RFP. All terms, covenants and representations
contained in D&K's response to APM's request for proposals and
information provided to APM during site visits and presentation prior
to the award of this Agreement (collectively the "RFP Information") are
expressly included in this Agreement. In the event that the terms of
this Agreement and the RFP Information conflict, the terms of this
Agreement shall control. Other than the RFP Information, this Agreement
and its Exhibits supersede any and all agreements, either oral or
written, between the parties to this agreement with respect to the
subject matter contained in the Agreement, and contains all of the
covenants and agreements with respect to the purchase and sale of
Products within the scope of this Agreement.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
authorized representatives.
Anthem Prescription Management, Inc. D&K Wholesale Drug, Inc.
BY: /S/ MARGORIE W. DORR BY: /S/ J. HORD ARMSTRONG, III
----------------------- --------------------------
TITLE: CEO, PRESIDENT TITLE: CHAIRMAN & CEO
----------------------- --------------------------
DATE: 7/16/98 DATE: 7/16/98
----------------------- -------------------------
11
<PAGE> 1
EXHIBIT 10.25
RENEWAL OF
PHARMACEUTICAL SERVICES AGREEMENT
THIS RENEWAL AGREEMENT ("Renewal Agreement") is entered into as of this
26th day of June, 1998, by and between Anthem Prescription Management, Inc.
("APM"), 8990 Duke Boulevard, Mason, Ohio 45040 and D&K Healthcare Resources,
Inc. ("D&K"), formerly known as D&K Wholesale Drug, Inc., 516 West Fourth
Street, Lexington, Kentucky 40508.
RECITALS
A. APM and D&K entered into a Pharmaceutical Services Agreement
dated as of July 16, 1996 (the "Agreement").
B. The Agreement expires as of June 30, 1998 unless the parties
mutually agree to renew the Agreement.
C. Both parties desire to renew the Agreement for an additional
term of three (3) years.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. The parties hereby agree to renew the Agreement for an
additional term of three (3) years ("Renewal Term" and each one year period
during the Renewal Term commencing on July 1 and ending on June 30 shall be
referred to as a "Renewal Year"), so that the Agreement shall now extend
through June 30, 2001. Thereafter, the Agreement may be renewed for successive
twelve (12) month periods pursuant to Section 5.1 of the Agreement upon the
mutual agreement of both parties.
2. D&K agrees to reduce the distribution fee by .10% upon APM
achieving monthly net purchases from D&K of not less than $8,000,000 per month
for two consecutive months during the Renewal Term. Such reduction shall
commence with the month following such two consecutive month period during
which such net purchases have been made. If achieved, D&K will reduce the
distribution fee by an additional .05% upon APM achieving monthly net purchases
from D&K of not less than $10,000,000 per month for two consecutive months
during the Renewal Term. Such additional reduction shall commence with the
month following such two consecutive month period during which such net
purchases have been made.
3. D&K agrees to use diligent efforts to support APM's Unit-of-Use
Program during the Renewal Term of this Agreement. D&K reserves the right to
only stock and
1
<PAGE> 2
invoice products from manufacturers that carry adequate product liability
insurance and extend industry standard payment terms.
4. D&K agrees to undertake diligent efforts to develop a radio
frequency ("RF") order fulfillment system which APM will be allowed to use
during the Renewal Term once developed. This system will be designed to
achieve improved efficiencies in the receiving and stocking of product
purchased from D&K and to have the capability to transfer electronic records,
including shipping and invoice documents.
5. Termination. Either party may terminate this Agreement with or
without cause by giving the other party at least 60 days written notice of its
intention to terminate the Agreement. In such event, APM shall purchase any
extraordinary amounts of inventory that have been purchased by D&K specifically
to service Anthem in amounts up to 60 days worth of actual purchases, or 60
days estimated use as calculated by D&K based on historical purchase levels by
Anthem pursuant to Section 2.1.
6. All the remaining terms of the Agreement remain in full force
and effect.
IN WITNESS WHEREOF, the undersigned have caused this Renewal Agreement
to be executed by their duly authorized representatives as of the date set
forth above.
ANTHEM PRESCRIPTION MANAGEMENT, INC.
By: /s/TERRY SELREGONA
--------------------------------------
Title: Executive Director
-----------------------------------
D&K HEALTHCARE RESOURCES, INC.
By: /s/LAURA MISEL
---------------------------------------
Title: Vice President and General Manager
------------------------------------
2
<PAGE> 1
EXHIBIT 10.26
================================================================================
PURCHASE AND SALE AGREEMENT
among
D&K HEALTHCARE RESOURCES, INC.
as an Originator and initial Servicer,
CERTAIN OTHER SUBSIDIARIES OF D&K HEALTHCARE RESOURCES, INC.
THAT MAY BECOME PARTY HERETO,
as Originators
and
D&K RECEIVABLES CORPORATION,
as the Initial Purchaser
Dated as of August 7, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I AMOUNTS AND TERMS OF THE PURCHASES
SECTION 1.1. Agreement to Purchase and Sell................................................4
SECTION 1.2. Timing of Purchases...........................................................5
SECTION 1.3. No Recourse...................................................................6
SECTION 1.4. True Sales....................................................................6
SECTION 1.5. Consideration for Purchases...................................................7
SECTION 1.6. Initial Purchaser Agreement to Make
Demand Loans..................................................................7
SECTION 1.7. Addition of Originators.......................................................7
ARTICLE II CALCULATION OF PURCHASE PRICE
SECTION 2.1. Calculation of Purchase Price.................................................8
ARTICLE III PAYMENT OF PURCHASE PRICE
SECTION 3.1. The Initial Purchase Price Payment...........................................10
SECTION 3.2. Purchase Price Payments......................................................11
SECTION 3.3. Deemed Collections, Etc......................................................12
SECTION 3.4. Payments and Computations, Etc...............................................13
ARTICLE IV CONDITIONS TO PURCHASES
SECTION 4.1. Conditions Precedent to Initial
Purchase.....................................................................14
SECTION 4.2. Conditions Precedent to All Purchases........................................16
SECTION 4.3. Certification as to Representations
and Warranties...............................................................16
SECTION 4.4. Effect of Payment of Purchase Price..........................................16
ARTICLE V REPRESENTATIONS AND WARRANTIES
SECTION 5.1. Representations and Warranties...............................................17
ARTICLE VI COVENANTS
SECTION 6.1. Affirmative Covenants........................................................20
SECTION 6.2. Negative Covenants...........................................................22
SECTION 6.3. Separate Existence...........................................................23
ARTICLE VII INDEMNIFICATION
SECTION 7.1. Indemnities by the Originators...............................................23
SECTION 7.2. Contribution.................................................................26
SECTION 7.3. AfterTax Basis...............................................................26
</TABLE>
(i)
<PAGE> 3
ARTICLE VIII ADMINISTRATION AND COLLECTIONS; ADDITIONAL
RIGHTS AND OBLIGATIONS IN RESPECT OF THE
POOL RECEIVABLES
<TABLE>
<S><C>
SECTION 8.1. Servicing of Pool Receivables
and Related Rights...........................................................26
SECTION 8.2. Rights of the Initial Purchaser;
Enforcement Rights...........................................................27
SECTION 8.3. Responsibilities of the Originator...........................................28
SECTION 8.4. Further Action Evidencing Purchases..........................................29
ARTICLE IX MISCELLANEOUS
SECTION 9.1. Amendments, Etc..............................................................30
SECTION 9.2. Notices, Etc.................................................................30
SECTION 9.3. Acknowledgment and Consent...................................................31
SECTION 9.4. Binding Effect; Assignability................................................32
SECTION 9.5. Costs, Expenses and Taxes....................................................32
SECTION 9.6. No Proceedings; Limitation on Payments.......................................32
SECTION 9.7. GOVERNING LAW AND JURISDICTION...............................................33
SECTION 9.8. Execution in Counterparts....................................................33
SECTION 9.9. Survival of Termination......................................................34
SECTION 9.10. WAIVER OF JURY TRIAL.........................................................34
SECTION 9.11. Entire Agreement.............................................................34
SECTION 9.12. Headings.....................................................................34
</TABLE>
SCHEDULE 9.2 NOTICE ADDRESSES
SCHEDULE I LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
EXHIBIT A FORM OF PURCHASE REPORT
EXHIBIT B FORM OF INITIAL PURCHASER NOTE
EXHIBIT C FORM OF ORIGINATOR NOTE
(ii)
<PAGE> 4
PURCHASE AND SALE AGREEMENT
This PURCHASE AND SALE AGREEMENT (as amended, supplemented or otherwise
modified from time to time, this "Agreement") is entered into as of August 7,
1998, between D&K HEALTHCARE RESOURCES, INC., a Delaware corporation ("D&K" or,
together with the other Persons who may become parties hereto pursuant to
Section 1.7, an "Originator"), as seller and as initial Servicer, and D&K
RECEIVABLES CORPORATION, a Delaware corporation, as initial purchaser (the
"Initial Purchaser").
DEFINITIONS
Unless otherwise defined herein or the context otherwise requires,
certain terms that are used throughout this Agreement (including the Exhibits
hereto) are defined in Appendix A to the Receivables Purchase Agreement, dated
as of even date herewith, among the Initial Purchaser, as Seller, D&K, as the
initial Servicer, Blue Keel Funding, LLC, as Purchaser, and Fleet National Bank,
as Administrator (as the same may be amended, modified or supplemented from time
to time, the "Receivables Purchase Agreement"). Any reference to "this
Agreement" or "the Purchase and Sale Agreement", including any such reference in
any Exhibit hereto, shall mean this Agreement in its entirety, including the
Exhibits and other attachments hereto, as amended, modified or supplemented from
time to time in accordance with the terms hereof.
Available Funds shall have the meaning assigned to such term in Section
3.2(a) hereof.
Contributed Receivables shall have the meaning assigned to such term in
Section 1.2(b) hereof.
Cost Discount shall have the meaning assigned to such term in Section
2.1 hereof.
Cost Rate shall have the meaning assigned to such term in Section 2.1
hereof.
Deemed Collection means amounts payable by an Originator pursuant to
Section 3.3.
Earned Discount Rate Percentage shall be equal to a fraction (expressed
as a percentage) (x) the numerator of which is the sum of the products obtained
by multiplying (A) each Earned Discount Rate applicable to any portion of the
Asset Interest as of the first day of such Settlement Period, times (B) the
amount of the Capital (or portion thereof) to which such Earned Discount Rate
<PAGE> 5
applied on such first day, and (y) the denominator of which is the Capital on
such first day.
Fair Market Value Discount Factor shall have the meaning assigned to
such term in Section 2.1 hereof.
Ineligible Receivable shall have the meaning assigned to such term in
Section 3.3(b) hereof.
Initial Closing Date shall have the meaning assigned to such term in
Section 1.2(a) hereof.
Initial Contributed Receivables shall have the meaning assigned to such
term in Section 1.1(b) hereof.
Initial Cut-Off Date means the Business Day immediately preceding the
Initial Closing Date.
Initial Purchaser Note shall have the meaning assigned to such term in
Section 3.1 hereof.
LIBO Rate shall have the meaning assigned to such term in Section 2.1
hereof.
Loss Discount shall have the meaning assigned to such term in Section
2.1 hereof.
Originator Loan shall have the meaning assigned to such term in Section
1.6 hereof.
Originator Note shall have the meaning assigned to such term in Section
1.6(a) hereof.
Payment Day means (i) the date hereof and (ii) each Business Day
thereafter that an Originator is open for business.
Purchase Price shall have the meaning assigned to such term in Section
2.1 hereof.
Purchase Report shall have the meaning assigned to such term in Section
2.1 hereof.
Related Rights shall have the meaning assigned to such term in Section
1.1(a) hereof.
Sale Indemnified Amounts shall have the meaning assigned to such term
in Section 7.1 hereof.
Sale Indemnified Party shall have the meaning assigned to such term in
Section 7.1 hereof.
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<PAGE> 6
Sale Termination Date shall be the Purchase Termination Date under the
Receivables Purchase Agreement.
Seller Material Adverse Effect means, with respect to any event or
circumstance:
(i) an effect on the assets, business, financial condition or
operations of D&K and its Subsidiaries, taken as a whole, which could
reasonably be expected to have a material adverse effect on the
creditworthiness of D&K;
(ii) a material adverse effect on the ability of any Originator
to perform its obligations under this Agreement or any other
Transaction Document to which such Originator, in its capacity as such,
is a party;
(iii) a material adverse effect on the validity or enforceability
as against any Originator of this Agreement or any other Transaction
Document to which any Originator, in its capacity as such, is a party;
(iv) a material adverse effect on the status, existence,
perfection, priority or enforceability of the Initial Purchaser's
interest in the Receivables Pool and the Related Rights; or
(v) a material adverse effect on the validity, enforceability
or collectibility of a material portion of the Receivables Pool.
PRELIMINARY STATEMENTS
1. The Initial Purchaser is a limited purpose corporation, all of the
issued and outstanding shares of capital stock of which are wholly owned by D&K.
2. Each Originator wishes to sell Receivables that it now owns and from
time to time hereafter will own to the Initial Purchaser, and the Initial
Purchaser is willing, on the terms and subject to the conditions contained in
this Agreement, to purchase such Receivables from such Originator at such time.
3. The Initial Purchaser has entered into the Receivables Purchase
Agreement, pursuant to which, among other things, the Initial Purchaser may sell
to the Administrator, for the benefit of Purchaser, undivided ownership
interests in the Receivables and certain Related Rights.
-3-
<PAGE> 7
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, the parties hereto agree as follows:
ARTICLE I
AMOUNTS AND TERMS OF THE PURCHASES
SECTION 1.1. Agreement to Purchase and Sell.
(a) On the terms and conditions hereinafter set forth, and in
consideration of the Purchase Price, each Originator agrees to sell to the
Initial Purchaser, and the Initial Purchaser agrees to purchase from such
Originator, at the times set forth in Section 1.2, but prior to the Sale
Termination Date, all of such Originator's right, title, and interest in and to:
(i) each Receivable (other than Initial Contributed Receivables)
of such Originator that existed and was owing to such Originator as of
the close of such Originator's business on the Initial Cut-Off Date, in
the case of D&K, or on the Business Day immediately preceding the day
on which such Originator became a party hereto pursuant to Section 1.7
in the case of each other Originator;
(ii) each Receivable (other than Contributed Receivables) created
or originated by such Originator from the close of such Originator's
business on the Initial CutOff Date, in the case of D&K, or on the
Business Day immediately preceding the day on which such Originator
became a party hereto pursuant to Section 1.7 in the case of each other
Originator, to and including the Sale Termination Date;
(iii) all rights to, but not the obligations under, all related
Contracts and all Related Security with respect thereto;
(iv) all monies due or to become due with respect to the
foregoing;
(v) all books and records related to any of the foregoing;
(vi) all Lock-Box Accounts, all amounts on deposit therein and
all related agreements between such Originator and the Lock-Box Banks,
in each case to the extent constituting or representing items described
in paragraph (vii) below; and
-4-
<PAGE> 8
(vii) all Collections in respect of, and other proceeds of,
Receivables or any other of the foregoing (as defined in the UCC)
received on or after the Initial Cut-Off Date, in the case of D&K, or
on the Business Day immediately preceding the day on which such
Originator became a party hereto pursuant to Section 1.7 in the case of
each other Originator, including, without limitation, all funds which
either are received by such Originator, the Initial Purchaser or the
Servicer from or on behalf of the Obligors in payment of any amounts
owed (including, without limitation, finance charges, interest and all
other charges) in respect of Receivables, or are applied to such
amounts owed by the Obligors (including, without limitation, insurance
payments, if any, that such Originator or the Servicer applies in the
ordinary course of its business to amounts owed in respect of any
Receivable and net proceeds of sale or other disposition of repossessed
goods or other collateral or property of the Obligors or any other
party directly or indirectly liable for payment of such Receivable and
available to be applied thereon).
All purchases and capital contributions hereunder shall be made without
recourse, but shall be made pursuant to and in reliance upon the
representations, warranties and covenants of the Originators set forth in each
Transaction Document. The proceeds and rights described in subsections (iii)
through (vii) of this Section 1.1(a) are herein collectively called the "Related
Rights".
(b) Agreement to Contribute. In consideration of the capital stock of
the Initial Purchaser issued to D&K, D&K agrees to contribute, and does hereby
contribute to the Initial Purchaser, and the Initial Purchaser agrees to accept,
and does hereby accept, from D&K, in each case, on the Initial Closing Date, all
of D&K's right, title and interest in and to (i) Receivables, and the Related
Rights with respect thereto, existing on the Initial Cut-Off Date, starting with
the oldest such Receivables such that the aggregate Unpaid Balance of all such
Receivables shall be as close as possible to, but not less than, $1,000,000 (the
"Initial Contributed Receivables") and (ii) all other Contributed Receivables.
SECTION 1.2. Timing of Purchases.
(a) Initial Closing Date Purchase. On the date of the first Purchase
under the Receivables Purchase Agreement (the "Initial Closing Date") D&K shall
sell to the Initial Purchaser, and the Initial Purchaser shall purchase,
pursuant to Section 1.1, D&K's entire right, title and interest in (i) each
Receivable (other than the Initial Contributed Receivables) that existed and was
owing to D&K as of the close of D&K's business on
-5-
<PAGE> 9
the Initial Cut-Off Date, and (ii) all Related Rights with respect thereto.
(b) Regular Purchases and Contributions. After the Initial Closing
Date, and continuing until the Sale Termination Date, each Receivable described
in Section 1.1(a)(ii) hereof, and all the Related Rights with respect thereto,
created or originated by each Originator shall be sold or contributed by such
Originator to the Initial Purchaser (without any further action) upon the
creation or origination of such Receivable. All such Receivables, other than
those Receivables indicated on a Purchase Report as having been contributed by
the related Originator to the Initial Purchaser (such other Receivables,
together with the Initial Contributed Receivables, the "Contributed
Receivables"), shall be sold to the Initial Purchaser on such date; all
Contributed Receivables shall be contributed by the related Originator to the
Initial Purchaser on such date.
SECTION 1.3. No Recourse. Except as specifically provided in this
Agreement, the purchase and sale of Pool Receivables and Related Rights under
this Agreement shall be without recourse to the related Originator; provided
that each Originator shall be liable to the Initial Purchaser for all
representations, warranties, covenants and indemnities made by such Originator
pursuant to the terms of this Agreement, it being understood that such
obligation of such Originator will not arise on account of the failure of the
Obligor for credit reasons to make any payment in respect of a Pool Receivable.
SECTION 1.4. True Sales.
(a) Each of each Originator and the Initial Purchaser intend the
transactions hereunder to constitute true sales (or in the case of Contributed
Receivables, conveyances in the form of capital contributions) of Pool
Receivables and the Related Rights by such Originator to the Initial Purchaser
providing the Initial Purchaser with the full benefits of ownership thereof, and
no party hereto intends the transactions contemplated hereunder to be, or for
any purpose to be characterized as, a loan from the Initial Purchaser to D&K.
(b) In the event (but only to the extent) that the conveyance of Pool
Receivables and Related Rights hereunder is characterized by a court or other
governmental authority as a loan rather than a sale or contribution, each
Originator shall be deemed hereunder to have granted to the Initial Purchaser,
and each Originator hereby grants to the Initial Purchaser, a security interest
in all of such Originator's right, title and interest in, to and under all of
the Pool Receivables and Related Rights originated by it, whether now or
hereafter owned, existing or arising. Such security interest shall secure all of
such
-6-
<PAGE> 10
Originator's obligations (monetary or otherwise) under this Agreement and the
other Transaction Documents to which it is a party, whether now or hereafter
existing or arising, due or to become due, direct or indirect, absolute or
contingent. The Initial Purchaser shall have, with respect to the property
described in this Section 1.4(b), and in addition to all the other rights and
remedies available to the Initial Purchaser under this Agreement and applicable
law, all the rights and remedies of a secured party under the UCC, and this
Agreement shall constitute a security agreement under Applicable Law.
SECTION 1.5. Consideration for Purchases. On the terms and subject to
the conditions set forth in this Agreement, the Initial Purchaser agrees to make
all Purchase Price payments to the Originators in accordance with Article III.
SECTION 1.6. Initial Purchaser Agreement to Make Demand Loans. On the
terms and subject to the conditions set forth in this Agreement and in the
Receivables Purchase Agreement, the Initial Purchaser agrees to make demand
loans (each such loan being herein called an "Originator Loan") to D&K prior to
the Sale Termination Date in such amounts as D&K may request from time to time;
provided, however, that:
(a) The Originator Loans made to D&K shall be evidenced by a demand
promissory note in the form of Exhibit C to this Agreement issued by D&K to the
order of the Initial Purchaser (such demand promissory note, as it may be
amended, supplemented, endorsed or otherwise modified from time to time in
accordance with the Transaction Documents, together with all promissory notes
issued from time to time in substitution therefor or renewal thereof in
accordance with the Transaction Documents, being called the "Originator Note");
and
(b) No Originator Loan shall be made to D&K to the extent that the
making of such Originator Loan would violate the Receivables Purchase Agreement.
SECTION 1.7. Addition of Originators. Subsidiaries of D&K may be
added as Originators under this Agreement provided that all of the following
conditions have been met:
(i) the conditions precedent set forth in paragraphs (b) through
(k) of Section 4.1 are satisfied with respect to such Subsidiary;
(ii) such Subsidiary executes a joinder agreement, in form and
substance satisfactory to the Initial Purchaser and Administrator,
pursuant to which such Subsidiary agrees to become an Originator
hereunder, assumes all of the obligations of an Originator hereunder
and under the other
-7-
<PAGE> 11
Transaction Documents and makes all of the representations
and warranties set forth in Section 5.1;
(iii) D&K executes and delivers a guaranty of such Subsidiary's
obligations hereunder and under the other Transaction Documents in form
and substance satisfactory to the Initial Purchaser and the
Administrator; and
(iv) the Initial Purchaser and the Administrator consent to such
addition in writing.
ARTICLE II
CALCULATION OF PURCHASE PRICE
SECTION 2.1. Calculation of Purchase Price. On each Reporting Date
(commencing with the first Reporting Date following the Initial Closing Date),
the Servicer shall deliver to the Initial Purchaser, the Administrator, the
Liquidity Agent and D&K (if the Servicer is other than D&K) a report in
substantially the form of Exhibit A (each such report being herein called a
"Purchase Report") with respect to the Initial Purchaser's purchases of
Receivables from the Originators
(a) that arose on or prior to the Initial Cut-Off Date (in the
case of the first Purchase Report to be delivered hereunder) and
(b) that arose during the Settlement Period immediately preceding
such Reporting Date (in the case of each successive Purchase Report).
Each Purchase Report shall designate the amount of such Receivables that were
Eligible Receivables on the date of origination (or, in the case of Receivables
transferred or contributed on the Initial Closing Date, on the Initial Closing
Date).
The "Purchase Price" (to be paid to the Originators in accordance with the terms
of Article III) for the Receivables and the Related Rights shall be determined
in accordance with the following formula:
PP = AUB - (AUB X FMVD)
where:
PP = Purchase Price (to be paid to the Originators in
accordance with the terms of Article III) as calculated
on the relevant Reporting Date;
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<PAGE> 12
AUB = (i) for purposes of calculating the Purchase Price on
the Initial Closing Date, the aggregate Unpaid Balance
of all Receivables that existed and were owing to D&K
as measured as at the Initial Cut-Off Date, less an
amount equal to the sum of the aggregate Unpaid Balance
of all Initial Contributed Receivables, and
(ii) for purposes of calculating the Purchase Price for
Receivables on each Reporting Date thereafter, the
aggregate Unpaid Balance of the Receivables described in
Section 1.1(a)(ii) hereof that were generated by the
related Originator during the immediately preceding
Settlement Period, less an amount equal to the sum of
the aggregate Unpaid Balance of all Contributed
Receivables, if any, indicated on the related Purchase
Report; and
FMVD = "Fair Market Value Discount Factor" on the
determination date, which is the sum of the Loss
Discount and the Cost Discount, in each case as
calculated on the most recent Reporting Date as set
forth in the definitions below.
"Loss Discount" as measured on the Initial Closing Date or any
Reporting Date means the ratio, expressed as a percentage, of (i) the losses
(i.e. write-offs to the bad debt reserve or other write-offs consistent with the
Credit and Collection Policy, in each case, net of recoveries) recognized for
all Pool Receivables during the period equal to twelve (12) months ending on the
CutOff Date immediately preceding the Initial Closing Date or such Reporting
Date, as the case may be, divided by (ii) the Collections on all Pool
Receivables received during such period.
"Cost Discount" as measured on the Initial Closing Date or any
Reporting Date means a percentage determined in accordance with the following
formula:
CD = (TD/360) x CR
where:
CD = the Cost Discount as measured on such date;
TD = the Days Sales Outstanding, as set forth in the
most recent Purchase Report; and
CR = the Cost Rate as measured on such Reporting Date.
"Cost Rate" as measured on the Initial Closing Date or any
Reporting Date means a per annum percentage rate equal to the sum
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<PAGE> 13
of (i) the LIBO Rate for the Initial Closing Date or the related Settlement
Period, as the case may be, plus (ii) 1.50%.
"LIBO Rate" for the Initial Closing Date or any Settlement Period means
the offered rate per annum (rounded upwards, if necessary, to the nearest 1/16th
of one percent) appearing in The Wall Street Journal for one month LIBOR loans
on the Initial Closing Date or the first Business Day of such Settlement Period,
as the case may be.
"Days Sales Outstanding" means a number of days calculated as (i) Sales
as of the end of the second preceding month divided by the Collections for the
preceding month multiplied by (ii) 30.
ARTICLE III
PAYMENT OF PURCHASE PRICE
SECTION 3.1. The Initial Purchase Price Payment.
(a) On or prior to the Initial Closing Date, the Initial Purchaser
shall pay the Purchase Price for the purchase to be made from D&K with respect
to the Receivables existing on or prior to the Initial Cut-Off Date (other than
the Initial Contributed Receivables) (i) in cash in an amount equal to the
amount received by the Initial Purchaser from the Purchaser in connection with
the first Purchase made pursuant to the Receivables Purchase Agreement and (ii)
by the issuance of a promissory note in the form of Exhibit B to this Agreement
payable to the order of D&K in the initial principal amount equal to the
remainder of the Purchase Price owing after subtracting the amount paid in cash
(such promissory note together with the promissory note issued to any other
Originator hereunder, as it may be amended, supplemented, endorsed or otherwise
modified from time to time, together with any promissory notes issued from time
to time in substitution therefor or renewal thereof in accordance with the
Transaction Documents, being called an "Initial Purchaser Note"), each of which
Initial Purchaser Note shall, in accordance with its terms, be subordinated to
all interests in Pool Receivables and Related Rights and all obligations of the
Initial Purchaser, of any nature, whether now or hereafter arising under or in
connection with the Receivables Purchase Agreement.
(b) The Servicer shall hold the Initial Purchaser Note for the benefit
of the related Originator, and shall make all appropriate record-keeping entries
with respect to the Initial Purchaser Note or otherwise to reflect payments on
and adjustments of the Initial Purchaser Note. The Servicer's books and records
shall constitute rebuttable presumptive evidence of
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<PAGE> 14
the principal amount of and accrued and unpaid interest on the Initial Purchaser
Note at any time. Each Originator hereby irrevocably authorizes the Servicer to
mark its Initial Purchaser Note "CANCELED" and to return such Initial Purchaser
Note to the Initial Purchaser upon the full and final payment thereof after the
Sale Termination Date.
SECTION 3.2. Purchase Price Payments. On each Business Day falling
after the date of the Initial Closing Date until the termination of this
Agreement pursuant to Section 9.4, on the terms and subject to the conditions of
this Agreement, the Initial Purchaser shall pay to each Originator the Purchase
Price for the Pool Receivables and Related Rights purchased from such Originator
during the immediately preceding Settlement Period as follows:
(i) First, by paying to such Originator a portion of the
Purchase Price due pursuant to Section 2.1 by depositing into such
account as such Originator shall specify immediately available funds
from monies held by or on behalf of the Initial Purchaser solely to the
extent that such monies do not constitute Collections that are required
to be segregated and held by the Servicer or distributed to the
Administrator or the Purchaser pursuant to the Receivables Purchase
Agreement on the next Settlement Date or required to be paid to the
Servicer as the Servicer's Fee on the next Settlement Date, or
otherwise necessary to pay current expenses of the Initial Purchaser
(in its reasonable discretion)(such available monies, the "Available
Funds"), subject to the terms of the Receivables Purchase Agreement.
Any Collections that have been paid to, or retained by, the related
Originator during such Settlement Period shall be credited towards the
Initial Purchaser's obligation pursuant to this clause first; provided,
however, that, if Collections paid to, or retained by, such Originator
exceed the Purchase Price for Pool Receivables and Related Rights
purchased from such Originator for such Settlement Period, or, absent a
cash payment, the Initial Purchaser shall not have sufficient cash to
meet its payment obligations pursuant to the Receivables Purchase
Agreement, such Originator shall turn over such excess to the Initial
Purchaser;
(ii) Second, to the extent any portion of the Purchase Price
remains unpaid, the principal amount outstanding under the related
Originator Note automatically shall be reduced and deemed paid in an
amount equal to such remaining Purchase Price, until such outstanding
principal amount is reduced to zero; and
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(iii) Third, to the extent any portion of the Purchase Price
remains unpaid, the principal amount outstanding under the Initial
Purchaser Note issued to such Originator automatically shall be
increased in an amount equal to such remaining Purchase Price.
To the extent that (x) the amount due pursuant to Section 2.1 with respect to
all Receivables created or originated by an Originator that arose during the
corresponding Settlement Period is exceeded by (y) the amount paid to such
Originator during such Settlement Period pursuant to the foregoing sentences for
such Receivables, such excess shall be treated as a reduction in the principal
amount of the Initial Purchaser Note, effective as of the last day of the
related Settlement Period; provided, however, that if at any time the unpaid
principal amount of the Initial Purchaser Note has been reduced to zero, such
Originator shall pay the Initial Purchaser the remainder owed with respect
thereto in immediately available funds.
SECTION 3.3. Deemed Collections, Etc.
(a) If on any day the Unpaid Balance of any Pool Receivable owed by an
Obligor is reduced or adjusted as a result of any defective, rejected or
returned merchandise or services, any cash discount, any credit, any incorrect
billing, pricing adjustment or any other adjustment by an Originator or any
Affiliate of an Originator, or is reduced or canceled as a result of a setoff in
respect of any claim by the Obligor thereof against an Originator or any
Affiliate of D&K (whether such claim arises out of the same or a related or
unrelated transaction) or as a result of any dispute or any obligation of an
Originator or any Affiliate of an Originator to pay to the related Obligor any
rebate or refund, or to rework any product or service, such Originator shall
deliver to the Servicer in same day funds an amount equal to the amount of such
reduction or adjustment, provided that, prior to the Sale Termination Date, such
amount may be paid by a reduction to the Purchase Price to be paid to such
Originator on the next occurring Reporting Date;
(b) if on any day any of the representations or warranties in Sections
5.1 (i), (k), and (u) hereto is not true with respect to any Pool Receivable
(each such Receivable, an "Ineligible Receivable"), the related Originator shall
deliver to the Servicer in same day funds an amount equal to the Unpaid Balance
of such Pool Receivable for application by the Servicer to the same extent as if
Collections of such Unpaid Balance had actually been received on such date,
provided that prior to the Sale Termination Date, such amount may be paid by a
reduction to the Purchase Price to be paid to such Originator on the next
occurring Reporting Date;
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(c) except as provided in paragraph (a) or (b) of this Section 3.3, or
as otherwise required by Applicable Law or the relevant Contract, all
Collections received from an Obligor of any Pool Receivables shall be applied to
the Pool Receivables of such Obligor in the order of the age of such Pool
Receivables, starting with the oldest such Pool Receivable, unless such Obligor
designates in writing its payment for application to specific Pool Receivables;
(d) if and to the extent that the Initial Purchaser shall be required
for any reason to pay over to an Obligor (or any trustee, receiver, custodian or
similar official in any Event of Bankruptcy) any amount received by it
hereunder, such amount shall be deemed not to have been so received but rather
to have been retained by the related Originator and, accordingly, the Initial
Purchaser shall have a claim against such Originator for such amount, payable
when and to the extent that any distribution from or on behalf of such Obligor
is made in respect thereof; and
(e) in the event that an Originator has paid (by effecting a Purchase
Price reduction or otherwise) to the Initial Purchaser the full Unpaid Balance
of any Receivable pursuant to this Section 3.3, the Initial Purchaser shall
reconvey such Receivable and all Related Rights with respect thereto to such
Originator, without recourse, representation or warranty, but free and clear of
all Liens created by the Initial Purchaser; such reconveyed Receivables and all
Related Rights shall no longer be subject to the terms of this Agreement
(including any obligation to turn over Collections with respect thereto).
SECTION 3.4. Payments and Computations, Etc.
(a) All amounts to be paid or deposited by an Originator or the
Servicer hereunder shall be paid or deposited no later than 11:00 a.m. (New York
time) on the day when due in same day funds. All amounts received after 11:00
a.m. (New York time) will be deemed to have been received on the immediately
succeeding Business Day.
(b) Each Originator shall, to the extent permitted by law, pay interest
on any amount not paid or deposited by such Originator (whether as Servicer, or
otherwise) when due hereunder, at an interest rate equal to 2.0% per annum above
the Alternate Base Rate, payable on demand.
(c) All computations of interest under Section 3.4(b) and all
computations of the Purchase Price, fees, and other amounts hereunder shall be
made on the basis of a 360-day year and actual days elapsed. Whenever any
payment or deposit to be made hereunder shall be due on a day other than a
Business Day, such payment or deposit shall be made on the next succeeding
Business
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Day and such extension of time shall be included in the computation of such
payment or deposit.
ARTICLE IV
CONDITIONS TO PURCHASES
SECTION 4.1. Conditions Precedent to Initial Purchase. The initial
Purchase under this Agreement is subject to the condition precedent that the
Initial Purchaser shall have received each of the following (with copies to the
Administrator), on or before the date of such purchase, each in form and
substance (including the date thereof) satisfactory to the Initial Purchaser and
the Administrator:
(a) The Receivables Purchase Agreement, duly executed by the
parties thereto, together with evidence reasonably satisfactory to the
Initial Purchaser that all conditions precedent to the initial Purchase
of an undivided interest thereunder (other than any condition relating
to the effectiveness of the purchase commitment under this Agreement)
shall have been met;
(b) A certificate of the Secretary of D&K certifying (i) a copy
of the resolutions of its Board of Directors approving this Agreement
and the other Transaction Documents to be delivered by it hereunder and
the transactions contemplated hereby; (ii) the names and true
signatures of the officers authorized on its behalf to sign this
Agreement and the other Transaction Documents to be delivered by it
hereunder (on which certificate the Administrator and Initial Purchaser
may conclusively rely until such time as the Administrator shall
receive from D&K a revised certificate meeting the requirements of this
subsection (b)); (iii) a copy of its by-laws; and (iv) all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to this Agreement and the other Transaction
Documents;
(c) The Articles of Incorporation of D&K, duly certified by the
Secretary of State of Delaware, as of a recent date acceptable to
Administrator;
(d) Acknowledgment copies or time stamped receipt copies, of the
proper financing statements (Form UCC-1) that have been duly executed
and name D&K as the debtor and seller and the Initial Purchaser as the
secured party and purchaser (and the Administrator, for the benefit of
the Purchaser, as assignee of the Initial Purchaser) of the Receivables
and the Related Rights or other, similar
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instruments or documents, as may be necessary or, in Servicer's or the
Administrators's opinion, desirable under the UCC or any comparable law
of all appropriate jurisdictions to perfect the Initial Purchaser's
ownership interest in all Receivables and Related Rights in which an
ownership interest may be assigned to it hereunder;
(e) A search report provided in writing to and approved by the
Administrator, listing all effective financing statements that name D&K
as debtor or assignor and that are filed in the jurisdictions in which
filings were made pursuant to subsection (d) above and in such other
jurisdictions that Administrator shall reasonably request, together
with copies of such financing statements (none of which shall cover any
Pool Assets), and tax and judgment lien search reports from a Person
satisfactory to Servicer and the Administrator showing no evidence of
such liens filed against D&K;
(f) Duly executed copies of the Lock-Box Agreements with the
Lock-Box Banks;
(g) A pro forma Purchase Report, prepared in respect of the
proposed initial Purchase, assuming an Initial CutOff Date of July 31,
1998;
(h) The Initial Purchaser Note in favor of D&K, duly executed by
the Initial Purchaser;
(i) A certificate from an officer of D&K to the effect that
Servicer and D&K have placed on the most recent, and have taken all
steps reasonably necessary to ensure that there shall be placed on
subsequent, summary master control data processing reports the
following legend (or the substantive equivalent thereof):
THE RECEIVABLES DESCRIBED HEREIN HAVE BEEN SOLD TO D&K
RECEIVABLES CORPORATION PURSUANT TO A PURCHASE AND SALE
AGREEMENT, DATED AS OF AUGUST 7, 1998, AS AMENDED FROM TIME TO
TIME, BETWEEN D&K HEALTHCARE RESOURCES, INC., CERTAIN
SUBSIDIARIES OF D&K AND D&K RECEIVABLES CORPORATION; AND AN
OWNERSHIP AND SECURITY INTEREST IN THE RECEIVABLES DESCRIBED
HEREIN HAS BEEN GRANTED AND ASSIGNED TO FLEET NATIONAL BANK, AS
ADMINISTRATOR, PURSUANT TO A RECEIVABLES PURCHASE AGREEMENT,
DATED AS OF AUGUST 7, 1998, AMONG D&K HEALTHCARE RESOURCES,
INC., D&K RECEIVABLES CORPORATION, BLUE KEEL FUNDING, LLC, AND
FLEET NATIONAL BANK, AS THE ADMINISTRATOR; and
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(j) Such other agreements, instruments, UCC financing
statements, certificates, opinions and other documents as the Initial
Purchaser or the Administrator may reasonably request.
SECTION 4.2. Conditions Precedent to All Purchases. Each purchase under
this Agreement is subject to the condition precedent that the agreement of the
Originator to sell Pool Receivables and Related Rights, and the agreement of the
Initial Purchaser to purchase Pool Receivables and Related Rights, shall not
have terminated pursuant to Section 9.4 of this Agreement, and shall be subject
further to the conditions precedent that:
(a) in the case of each purchase, the Servicer shall have
delivered to the Initial Purchaser on or prior to such purchase, a
completed Purchase Report with respect to the immediately preceding
calendar month, together with such additional information as may be
reasonably requested by the Initial Purchaser; and
(b) the representations and warranties contained in Article V
are correct on and as of such day as though made on and as of such day
and shall be deemed to have been made on such day (except that any such
representation or warranty that is expressly stated as being made only
as of a specified earlier date shall be true and correct in all
material respects as of such earlier date).
SECTION 4.3. Certification as to Representations and Warranties. Each
Originator, by accepting the Purchase Price (whether in cash or by an increase
in the principal amount outstanding under the Initial Purchaser Note or a
reduction of the Originator Note) paid for each purchase of Pool Receivables and
Related Rights on any day, shall be deemed to have certified that its
representations and warranties contained in Article V are true and correct on
and as of such day, with the same effect as though made on and as of such day.
SECTION 4.4. Effect of Payment of Purchase Price. Upon the payment of
the Purchase Price (whether in cash or by an increase in the principal amount
outstanding under an Initial Purchaser Note or a reduction of an Originator
Note) for any purchase of Pool Receivables and Related Rights, title to such
Pool Receivables and Related Rights shall vest in the Initial Purchaser, whether
or not the conditions precedent to such purchase were in fact satisfied;
provided that the Initial Purchaser shall not be deemed to have waived any claim
it may have under this Agreement for the failure by an Originator in fact to
satisfy any such condition precedent.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.1. Representations and Warranties. In order to induce the
Initial Purchaser to enter into this Agreement and to make purchases
thereunder, D&K hereby represents and warrants as follows:
(a) Organization and Good Standing. D&K has been duly organized
and is validly existing as a corporation in good standing under the
laws of the State of Delaware, with power and authority to own its
properties and to conduct its business as such properties are presently
owned and such business is presently conducted.
(b) Due Qualification. D&K is duly qualified to do business as a
foreign corporation in good standing, and has obtained all necessary
licenses and approvals, in all jurisdictions in which the ownership or
lease of property or the conduct of its business requires such
qualification, licenses or approvals except where the failure to so
qualify or have such licenses or approvals has not had, and could not
reasonably be expected to have, a Seller Material Adverse Effect.
(c) Power and Authority; Due Authorization. D&K (i) has all
necessary power, authority and legal right to (A) execute and deliver
this Agreement and the other Transaction Documents to which it is a
party, (B) carry out the terms of the Transaction Documents to which it
is a party, and (C) sell and assign the Receivables and Related Rights
on the terms and conditions herein provided and (ii) has duly
authorized by all necessary corporate action the execution, delivery
and performance of this Agreement and the other Transaction Documents
to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each
other Transaction Document to be signed by D&K when duly executed and
delivered will constitute, a legal, valid and binding obligation of D&K
enforceable in accordance with its terms, except as enforceability may
be limited by bankruptcy, insolvency, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and by
general principles of equity, regardless of whether such enforceability
is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which D&K is a party and the
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fulfillment of the terms hereof and thereof will not (i) conflict with,
result in any breach of any of the terms and provisions of, or
constitute (with or without notice or lapse of time or both) a default
under the D&K's articles of incorporation or by-laws or any Contractual
Obligation of D&K, (ii) result in the creation or imposition of any
Lien upon any of D&K's properties pursuant to the terms of any such
Contractual Obligation, other than this Agreement, or (iii) violate any
Applicable Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best of D&K's knowledge, threatened,
before any Governmental Authority or arbitrator (i) asserting the
invalidity of this Agreement or any other Transaction Document to which
D&K is a party, (ii) seeking to prevent the sale and assignment of the
Receivables and Related Rights, the collectibility of the Receivables
or the consummation of any of the other transactions contemplated by
this Agreement or any other Transaction Document, or (iii) seeking any
determination or ruling that could reasonably be expected to have a
Seller Material Adverse Effect.
(g) Government Approvals. No Governmental Action is required for
the due execution, delivery and performance by D&K of this Agreement or
any other Transaction Document to which it is a party, other than the
filing of the UCC financing statements referred to in Section 4.1, all
of which, at the time required in Section 4.1, shall have been duly
made and shall be in full force and effect.
(h) Securities Exchange Act. No proceeds of any purchase will be
used to acquire any equity security of a class which is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
(i) Quality of Title; Valid Sale; Etc. Upon its creation and
prior to its sale or contribution to the Initial Purchaser under this
Agreement, it is the legal and beneficial owner of each of the
Receivables and the Related Rights originated by it free and clear of
any Lien; and upon each purchase or contribution the Initial Purchaser
shall acquire a valid and enforceable ownership interest in each Pool
Receivable then existing or thereafter arising and in the Related
Rights with respect thereto, free and clear of any Lien, enforceable
against all creditors of, and purchasers from, D&K. Each Pool
Receivable constitutes an "account" as such term is defined in the UCC.
No effective financing statement or other instrument similar in effect
covering any Pool Receivable or Related Rights with respect thereto is
on file in any recording office, except those
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filed in favor of the Initial Purchaser pursuant to this Agreement and
in favor of the Administrator pursuant to the Receivables Purchase
Agreement.
(j) Accuracy of Information. Each report, information, exhibit,
financial statement, document, book, record or report furnished or to
be furnished at any time by or on behalf of it to the Initial Purchaser
or the Administrator in connection with this Agreement is or will be
accurate in all material respects as of its date or (except as
otherwise disclosed to the Administrator at such time) as of the date
so furnished, and no such item contains or will contain any untrue
statement of a material fact or omits or will omit to state a material
fact necessary in order to make the statements contained therein, in
the light of the circumstances under which they were made, not
materially misleading.
(k) Offices. The principal place of business and chief executive
office of D&K are located at the address of D&K referred to in Section
9.2, and the offices where D&K keeps all its books, records and
documents evidencing or relating to Pool Receivables are located at the
address of D&K referred to in Section 9.2 (or at such other locations,
notified to the Administrator in accordance with Section 6.1(e), in
jurisdictions where all action required by Section 8.4 has been taken
and completed).
(l) Bulk Sales Act. No transaction contemplated hereby requires
compliance with any bulk sales act or similar law.
(m) Margin Regulations. The use of all funds obtained by D&K
under this Agreement will not conflict with or contravene any of
Regulations G, T, U or X promulgated by the Federal Reserve Board from
time to time.
(n) Maintenance of Books and Records. It has accounted for each
sale of Pool Receivables and Related Rights in its books and financial
statements as sales, consistent with GAAP.
(o) Credit and Collection Policy. It has complied in all
material respects with the Credit and Collection Policy with regard to
each Receivable.
(p) Solvency. It is solvent; and at the time of (and immediately
after) each sale pursuant to this Agreement it shall be solvent.
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(q) Compliance with Transaction Documents. It, as Servicer or
Originator, has complied with all of the terms, covenants and
agreements contained in this Agreement and the other Transaction
Documents applicable to it.
(r) Corporate Name. D&K's complete corporate name is set forth
in the preamble to this Agreement, and, other than D&K Wholesale Drug,
Inc., D&K does not use and has not during the last six years used any
other corporate name, trade name, doing business name or fictitious
name.
(s) Investment Company Act. It is not, and is not controlled by,
an "investment company" registered or required to be registered under
the Investment Company Act of 1940, as amended.
(t) Eligible Receivables. Each Pool Receivable sold or
contributed by it to the Initial Purchaser hereunder that is designated
as an Eligible Receivable on a Purchase Report is in fact an Eligible
Receivable.
ARTICLE VI
COVENANTS
SECTION 6.1. Affirmative Covenants. From the date hereof
until the Final Payout Date:
(a) Compliance with Laws, Etc. Each Originator will comply in
all material respects with all Applicable Laws, including those with
respect to the Pool Receivables and the related Contracts, except where
noncompliance could not reasonably be expected to have a Seller
Material Adverse Effect.
(b) Preservation of Corporate Existence. Each Originator will
preserve and maintain its corporate existence, rights, franchises and
privileges in the jurisdiction of its formation, and qualify and remain
qualified in good standing as a foreign corporation in each
jurisdiction where the failure to preserve and maintain such existence,
rights, franchises, privileges and qualification could reasonably be
expected to have a Seller Material Adverse Effect.
(c) Audits. (i) Each Originator will at any time and from time
to time during regular business hours, permit the Administrator or any
of its agents or representatives, (A) to examine and make copies of and
abstracts from all books, records and documents (including, without
limitation,
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computer tapes and disks) in its possession or under its control
relating to Pool Receivables, (B) to visit its offices and properties
for the purpose of examining such materials described in clause (i)(A)
above, and to discuss matters relating to Pool Receivables or its
performance hereunder with any of its officers or employees having
knowledge of such matters, and (C) to verify the existence and amount
of the Pool Receivables; and (ii) without limiting the provisions of
clause (i) above, from time to time on request of Administrator, permit
certified public accountants or other auditors acceptable to the
Administrator to conduct, at such Originator's expense, a review of its
books and records with respect to the Pool Receivables; provided,
however that, unless a Liquidation Event has occurred and is
continuing, no Originator shall be obligated to pay for more than one
review in each calendar year.
(d) Keeping of Records and Books of Account. Each Originator
will maintain and implement administrative and operating procedures
(including, without limitation, an ability to recreate records
evidencing Pool Receivables in the event of the destruction of the
originals thereof), and keep and maintain all documents, books, records
and other information reasonably necessary or advisable for the
collection of all Pool Receivables (including, without limitation,
records adequate to permit the daily identification of each new Pool
Receivable and all Collections of and adjustments to each existing Pool
Receivable).
(e) Performance and Compliance with Receivables and Contracts.
Each Originator will, at its expense, timely and fully perform and
comply with all provisions, covenants and other promises required to be
observed by it under the Contracts related to the Pool Receivables and
all other agreements related to such Pool Receivables, except where
failure to do so would not materially adversely affect the validity,
enforceability or collectibility of the related Pool Receivable.
(f) Location of Records. Each Originator will keep its principal
place of business and chief executive office, and the offices where it
keeps its records concerning the Pool Receivables and all related
Contracts and all other agreements related to such Pool Receivables
(and all original documents relating thereto), at its address(es)
referred to in Section 9.2 or, upon 30 days' prior written notice to
the Administrator, at such other locations in jurisdictions where all
action required by Section 8.4 shall have been taken and completed.
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(g) Credit and Collection Policies. Each Originator, at its own
expense, will timely and fully perform and comply in all material
respects with the Credit and Collection Policy in regard to each Pool
Receivable and the related Contracts.
(h) Collections. Each Originator will instruct (i) all Obligors
to cause all Collections to be sent to a LockBox that is the subject of
a Lock-Box Agreement and (ii) each Lock-Box Bank to deposit all such
Collections directly into a Lock-Box Account that is the subject of a
Lock-Box Agreement. In the event that any Originator receives
Collections directly from any Obligor, any Originator shall deposit
such Collections into a Lock-Box Account within two Business Days of
receipt thereof.
SECTION 6.2. Negative Covenants. From the date hereof until the Final
Payout Date:
(a) Sales, Liens, Etc. No Originator will, except as otherwise
provided herein or in any other Transaction Document, sell, assign (by
operation of law or otherwise) or otherwise dispose of, or create or
suffer to exist any Lien upon or with respect to, any Pool Receivable
or any interest therein.
(b) Extension or Amendment of Receivables. No Originator will,
except as otherwise permitted in any other Transaction Document,
extend, amend or otherwise modify, or permit Servicer to extend, amend
or otherwise modify, the terms of any Pool Receivable; or amend, modify
or waive, or permit Servicer to amend, modify or waive, any term or
condition of any Contract related to a Pool Receivable.
(c) Change in Business or Credit and Collection Policy. No
Originator will make any change in the character of its business or in
the Credit and Collection Policy, which change could impair the
collectibility of any Pool Receivable or otherwise adversely affect the
interests or remedies of the Administrator, Purchaser or the Initial
Purchaser under this Agreement or any other Transaction Document.
(d) Change in Payment Instructions to Obligors. No Originator
will add or terminate any bank as a Lock-Box Bank or any Lock-Box
Account from those listed in Schedule I or make any change, or permit
Servicer to make any change, in its instructions to Obligors regarding
payments to be made to the Initial Purchaser or Servicer or payments to
be made to any Lock-Box Bank, unless the Administrator shall have
received notice of such addition, termination or change and
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duly executed copies of Lock-Box Agreements with each new Lock-Box Bank
or with respect to each new Lock-Box Account, as the case may be.
(e) Mergers, Acquisitions, Sales, etc. No Originator will (i) be
a party to any merger or consolidation, or purchase or otherwise
acquire all or any substantial part of the Properties of any other
Person without the consent of the Administrator (provided that the
consolidation of PBI with D&K shall not constitute a violation of this
covenant so long as such consolidation does not include a merger and so
long as D&K does not become directly or indirectly liable for any
Indebtedness of PBI), or (ii) sell, transfer, convey or lease all or
any substantial part of its assets, or sell or assign with or without
recourse any Receivables or any interest therein (other than pursuant
hereto or to the Receivables Purchase Agreement).
(f) Deposits to Special Accounts. No Originator will deposit or
otherwise credit, or cause or permit to be so deposited or credited, to
any Lock-Box Account cash or cash proceeds other than Collections of
Pool Receivables.
SECTION 6.3. Separate Existence. Each Originator hereby acknowledges
that Purchaser and the Administrator are entering into the transactions
contemplated by the other Transaction Documents in reliance upon the Initial
Purchaser's identity as a legal entity separate from each Originator. Therefore,
from and after the date hereof, each Originator shall take all steps
specifically required by the Transaction Documents or by the Initial Purchaser,
Purchaser or Administrator to continue the Initial Purchaser's identity as a
separate legal entity and to make it apparent to third Persons that the Initial
Purchaser is an entity with assets and liabilities distinct from those of such
Originator and any other Person, and is not a division of such Originator or any
other Person.
ARTICLE VII
INDEMNIFICATION
SECTION 7.1. Indemnities by the Originators. Without limiting any other
rights which the Initial Purchaser and each of its permitted assigns, officers,
directors, employees and agents (each of the foregoing Persons being
individually called a "Sale Indemnified Party") may have hereunder or under
applicable law, each Originator, jointly and severally, hereby agrees to
indemnify the Initial Purchaser and each Sale Indemnified Party
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from and against any and all damages, losses, claims, judgments, liabilities and
related costs and expenses, including reasonable attorneys' fees and
disbursements (all of the foregoing collectively being called "Sale Indemnified
Amounts") arising out of or resulting from this Agreement (whether directly or
indirectly) or the use of proceeds of purchases or the ownership of any Pool
Receivable or Related Rights, excluding, however, (a) Sale Indemnified Amounts
to the extent resulting from gross negligence or willful misconduct on the part
of the Initial Purchaser or such Sale Indemnified Party, (b) Sale Indemnified
Amounts to the extent the same includes losses in respect of Pool Receivables
and reimbursement therefor that would constitute credit recourse to the
Originators for the amount of any Pool Receivable or Related Rights not paid by
the related Obligor for credit reasons, or (c) any net income taxes or franchise
taxes imposed on the Initial Purchaser or such Sale Indemnified Party by the
jurisdiction under the laws of which such Sale Indemnified Party is organized or
any political subdivision thereof. Without limiting or being limited by the
foregoing, but subject to the exclusions set forth in the immediately preceding
sentence, each Originator, jointly and severally, shall pay on demand to the
Initial Purchaser and each Sale Indemnified Party any and all amounts necessary
to indemnify the Initial Purchaser and such Sale Indemnified Party from and
against any and all Sale Indemnified Amounts relating to or resulting from any
of the following:
(i) the transfer by any Originator of an interest in any
Receivable or Related Rights to any Person other than the Initial
Purchaser;
(ii) the failure of any information provided by any Originator,
as Servicer or otherwise, to the Initial Purchaser, the Purchaser, the
Administrator or the Servicer with respect to Pool Receivables or this
Agreement to be true, correct and complete;
(iii) the failure of any representation or warranty or statement
made or deemed made by any Originator (or any of its officers), as
Servicer or otherwise, under or in connection with this Agreement to
have been true and correct when made;
(iv) the failure by any Originator, as Servicer or otherwise,
to comply with any Applicable Law, with respect to any Pool Receivable
or Related Rights; or the failure of any Pool Receivable or Related
Rights to conform to any such Applicable Law;
(v) the failure to vest and maintain vested in the Initial
Purchaser a valid and enforceable ownership interest
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<PAGE> 28
in each Pool Receivable at any time existing and the Related Rights
with respect thereto, free and clear of any Lien, other than a Lien
arising solely as a result of an act of the Initial Purchaser, the
Purchaser, the Liquidity Agent or the Administrator, whether existing
as the time of purchase of such Pool Receivable or at any time
thereafter;
(vi) the failure of any Originator to have filed, or any delay
in filing, financing statements or other similar instruments or
documents under the UCC of any applicable jurisdiction or other
applicable laws with respect to any Pool Receivables and the Related
Rights in respect thereof, whether at the time of any purchase or at
any subsequent time;
(vii) any dispute, claim, offset or defense (other than
discharge in bankruptcy) of the Obligor to the payment of any Pool
Receivable (including, without limitation, a defense based on such Pool
Receivable or the related Contract not being a legal, valid and binding
obligation of such Obligor enforceable against it in accordance with
its terms), or any other claim resulting from the sale of the goods or
services related to such Pool Receivable or the furnishing or failure
to furnish such goods or services or relating to collection activities
with respect to such Pool Receivable (if such collection activities
were performed by any Originator or any of its Affiliates, acting as
Servicer or by any agent or independent contractor retained by any
Originator or any of its Affiliates);
(viii) any failure of any Originator, as Servicer or otherwise,
to perform its duties or obligations in accordance with the provisions
hereof or under the Receivables Purchase Agreement or to perform its
duties or obligations under the Contracts;
(ix) any products liability or other claim, investigation,
litigation or proceeding arising out of or in connection with
merchandise, insurance or services which are the subject of any
Contract;
(x) the commingling of Collections of Pool Receivables at any
time with other funds;
(xi) any investigation, litigation or proceeding related to
this Agreement or the use of proceeds of purchases or the ownership of
any Pool Receivable or Related Rights;
(xii) any tax or governmental fee or charge (but not including
taxes upon or measured by net income or
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<PAGE> 29
representing a franchise or unincorporated business tax on such Sale
Indemnified Party), all interest and penalties thereon or with respect
thereto, and all out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against the same,
which may arise by reason of the purchase or ownership of the
Receivables generated by any Originator or any Related Rights connected
with any such Receivables; or
(xiii) any requirement that all or a portion of the
distributions made to the Initial Purchaser pursuant to this Agreement
shall be rescinded or otherwise must be returned to any Originator for
any reason.
SECTION 7.2. Contribution. If for any reason the indemnification
provided above in this Article VII (and subject to the exceptions set forth
therein) is unavailable to the Initial Purchaser or a Sale Indemnified Party or
is insufficient to hold the Initial Purchaser or a Sale Indemnified Party
harmless, then the Originators shall contribute to the maximum amount of Sale
Indemnified Amounts payable or paid by the Initial Purchaser or such Sale
Indemnified Party in such proportion as is appropriate to reflect not only the
relative benefits received by the Initial Purchaser or such Sale Indemnified
Party on the one hand and the Originators on the other hand, but also the
relative fault of such Sale Indemnified Party (if any) and the Originators and
any other relevant equitable considerations.
SECTION 7.3. After-Tax Basis. Indemnification hereunder shall be in an
amount necessary to make the Sale Indemnified Party whole after taking into
account any tax consequences to the Sale Indemnified Party of the receipt of the
indemnity provided hereunder, including the effect of such tax or refund on the
amount of tax measured by net income or profits which is or was payable by the
Sale Indemnified Party.
ARTICLE VIII
ADMINISTRATION AND COLLECTIONS; ADDITIONAL RIGHTS
AND OBLIGATIONS IN RESPECT OF THE POOL RECEIVABLES
SECTION 8.1. Servicing of Pool Receivables and Related Rights.
Consistent with the Initial Purchaser's ownership of the Pool Receivables and
the Related Rights, the Initial Purchaser shall have the sole right to service,
administer and collect the Pool Receivables, to assign such right and to
delegate such right to others. In consideration of the Initial Purchaser's
purchase of the Pool Receivables and the Related Rights, each Originator agrees
to cooperate fully with the Initial Purchaser to facilitate the full and proper
performance of such duties and
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<PAGE> 30
obligations for the benefit of the Initial Purchaser, the Purchaser, and the
Administrator. To the extent that the Initial Purchaser, individually or
through the Servicer, has granted or grants powers of attorney to the
Administrator under the Receivables Purchase Agreement, each Originator hereby
grants a corresponding power of attorney on the same terms to the Initial
Purchaser. Each Originator hereby acknowledges and agrees that the Initial
Purchaser, in all of its capacities, shall assign to the Administrator for the
benefit of the Purchaser and the Administrator such powers of attorney and
other rights and interests granted by such Originator to the Initial Purchaser
hereunder, and agrees to cooperate fully with the Administrator in the exercise
of such rights.
SECTION 8.2. Rights of the Initial Purchaser; Enforcement
Rights.
(a) The Initial Purchaser shall have no obligation to account for, to
replace, to substitute or to return any Receivables and Related Rights to any
Originator. The Initial Purchaser shall have no obligation to account for, or to
return to any Originator, Collections, or any interest or other finance charge
collected pursuant thereto, without regard to whether such Collections and
charges are in excess of the Purchase Price for such Pool Receivables and
Related Rights.
(b) The Initial Purchaser shall have the unrestricted right to further
assign, transfer, deliver, hypothecate, subdivide or otherwise deal with the
Pool Receivables and Related Rights, and all of the Initial Purchaser's right,
title and interest in, to and under this Agreement, on whatever terms the
Initial Purchaser shall determine, pursuant to the Receivables Purchase
Agreement or otherwise.
(c) The Initial Purchaser shall have the sole right to retain any gains
or profits created by buying, selling or holding the Pool Receivables and
Related Rights and, except as expressly set forth in the Transaction Documents,
shall have the sole risk of and responsibility for losses or damages created by
such buying, selling or holding.
(d) At any time following the designation of a Servicer (other than
D&K) in accordance with the Receivables Purchase Agreement:
(i) the Administrator may direct the Obligors that payment of
all amounts payable under any Pool Receivable be made directly to the
Administrator or its designee;
(ii) the Administrator may instruct D&K to give notice of the
Initial Purchaser's interest in the Pool Receivables
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<PAGE> 31
or the Purchaser's interest in Pool Receivables to each Obligor, which
notice shall direct that payments with respect to Pool Receivables be
made directly to the Administrator or its designee, and upon such
instruction from the Administrator D&K shall give such notice at its
expense; provided, that if D&K fails to so notify each Obligor, the
Administrator may so notify the Obligors; and
(iii) the Administrator may request D&K to, and upon such
request D&K shall, (A) assemble all of the records necessary or
desirable to collect the Pool Receivables and the Related Rights
(including, without limitation, computer programs, tapes and disks,
other than excluded data), and make the same available to the
Administrator or its designee at a place selected by the Administrator,
and (B) segregate all cash, checks and other instruments received by it
from time to time constituting Collections with respect to the Pool
Receivables in a manner acceptable to the Administrator and, promptly
upon receipt, remit all such cash, checks and instruments, duly
endorsed or with duly executed instruments of transfer, to the
Administrator or its designee.
(e) Each Originator hereby authorizes the Initial Purchaser, and
irrevocably appoints the Initial Purchaser as its attorney-in-fact with full
power of substitution and with full authority in the place and stead of such
Originator, which appointment is coupled with an interest, to take any and all
steps in the name of such Originator and on behalf of such Originator necessary
or desirable, in the determination of the Initial Purchaser, to collect any and
all amounts or portions thereof due under any and all Pool Receivables or
Related Rights, including, without limitation, endorsing the name of such
Originator on checks and other instruments representing Collections and
enforcing such Pool Receivables and Related Rights.
SECTION 8.3. Responsibilities of the Originator. Anything
herein to the contrary notwithstanding:
(a) each Originator agrees to deliver directly to the Servicer (for the
Initial Purchaser's account), within two (2) Business Days of receipt thereof,
any Collections that it receives, in the form so received, and agrees that all
Collections shall be deemed to be received in trust for the Initial Purchaser
and shall be maintained and segregated separate and apart from all other funds
and moneys of such Originator until delivery of the Collections to the Servicer;
(b) each Originator agrees to instruct (i) all Obligors to cause all
Collections to be sent to a Lock-Box that is the subject of a Lock-Box Agreement
and (ii) each Lock-Box Bank to
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<PAGE> 32
deposit all such Collections directly into a Lock-Box Account that is the
subject of a Lock-Box Agreement; and
(c) each Originator shall (i) perform all of its obligations hereunder
and under the Contracts related to the Pool Receivables and Related Rights (and
under its agreements with the Lock-Box Banks) to the same extent as if the Pool
Receivables and Related Rights had not been sold hereunder, and the exercise by
the Initial Purchaser or its designee or assignee of the Initial Purchaser's
rights hereunder or in connection herewith shall not relieve such Originator
from such obligations and (ii) pay when due any taxes, including, without
limitation, any sales taxes payable in connection with the Pool Receivables and
their creation and satisfaction. Notwithstanding anything to the contrary in
this Agreement, none of the Initial Purchaser, the Administrator or the
Purchaser shall have any obligation or liability with respect to any Receivable
or Related Rights nor shall any of them be obligated to perform any of the
obligations of any Originator under any of the foregoing.
SECTION 8.4. Further Action Evidencing Purchases. Each Originator
agrees that from time to time, at its expense, it will promptly execute and
deliver all further instruments and documents, and take all further action, in
order to perfect, protect or more fully evidence the purchase of the Pool
Receivables and the Related Rights by the Initial Purchaser hereunder, or to
enable the Initial Purchaser to exercise or enforce any of its rights hereunder
or under any other Transaction Document. Each Originator further agrees from
time to time, at its expense, promptly to take all action that the Initial
Purchaser, the Servicer or the Administrator may reasonably request in order to
perfect, protect or more fully evidence such purchase of the Pool Receivables
and the Related Rights or to enable the Initial Purchaser or the Purchaser (as
assignee of the Initial Purchaser) or the Administrator to exercise or enforce
any of its or their respective rights hereunder or under any other Transaction
Document in respect of the Pool Receivables and the Related Rights. Without
limiting the generality of the foregoing each Originator will:
(a) execute and file such financing or continuation statements, or
amendments thereto or assignments thereof, and such other instruments or
notices, as the Initial Purchaser or the Administrator may reasonably determine
to be necessary or appropriate; and
(b) mark the master data processing records evidencing the Pool
Receivables and, if requested by the Initial Purchaser or the Administrator, to
the extent reasonably practicable, legend the related Contracts, to reflect the
sale of the Pool
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<PAGE> 33
Receivables and Related Rights pursuant to this Agreement and the Receivables
Purchase Agreement.
Each Originator hereby authorizes the Initial Purchaser or its designee
or assignee to file one or more financing or continuation statements, and
amendments thereto and assignments thereof, relative to all or any of the Pool
Receivables and Related Rights of such Originator, in each case whether now
existing or hereafter generated. If an Originator fails to perform any of its
agreements or obligations under this Agreement, the Initial Purchaser or its
designee or assignee may (but shall not be required to) itself perform, or cause
performance of, such agreement or obligation, and the reasonable expenses of the
Initial Purchaser or its designee or assignee incurred in connection therewith
shall be payable by the Originator under Section 7.1.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1. Amendments, Etc. No amendment or waiver of any provision
of this Agreement or consent to any departure by any Originator therefrom shall
be effective unless in a writing signed by the Initial Purchaser, and consented
to in writing by the Administrator, and any such waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given. No failure on the part of the Initial Purchaser or the Administrator to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right.
SECTION 9.2. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise expressly stated herein, be in
writing (including facsimile communication) and shall be personally delivered or
sent by certified mail, postage prepaid, or by facsimile, to the intended party
at the address or facsimile number of such party set forth on Schedule 9.2 or at
such other address or facsimile number as shall be designated by such party in a
written notice to the other parties hereto. All such notices and communications
shall be effective, (a) if personally delivered, when received, (b) if sent by
certified mail, three (3) Business Days after having been deposited in the mail,
postage prepaid, (c) if sent by overnight courier, one (1) Business Day after
having been given to such courier, and (d) if transmitted by facsimile, when
sent, receipt confirmed by telephone or electronic means.
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<PAGE> 34
SECTION 9.3. Acknowledgment and Consent.
(a) Each of D&K, as an Originator and as initial Servicer, and each
other Originator acknowledges that, contemporaneously herewith or at any time
hereafter, the Initial Purchaser is assigning or will assign to the
Administrator, for the benefit of the Purchaser, pursuant to the Receivables
Purchase Agreement, one or more undivided interests in all of the Initial
Purchaser's rights, title and interest in, to and under the Pool Receivables and
Related Rights, and all of the Initial Purchaser's right, title and interest in,
to and under this Agreement, it being understood that such assignment shall not
relieve any party hereto from (or require the Purchaser or the Administrator to
undertake) the performance of any term, covenant or agreement on the part of any
party hereto to be performed or observed under or in connection with this
Agreement. Each of D&K, as Originator and as initial Servicer, and each other
Originator hereby consents to such assignments, including, without limitation,
the assignment by the Initial Purchaser of (i) the right of the Initial
Purchaser, at any time, to enforce this Agreement against the Originators and
the obligations of the Originators hereunder, (ii) the right to appoint a
successor to the Servicer as set forth in the Receivables Purchase Agreement,
(iii) the right, at any time, to give or withhold any and all consents,
requests, notices, directions, approvals, demands, extensions or waivers under
or with respect to this Agreement, any other Transaction Document or the
obligations in respect of the Originators thereunder to the same extent as the
Initial Purchaser may do, and (iv) all of the Initial Purchaser's rights,
remedies, powers and privileges, and all claims of the Initial Purchaser against
each Originator, under or with respect to this Agreement and the other
Transaction Documents (whether arising pursuant to the terms of this Agreement
or otherwise available at law or in equity). Each of the parties hereto
acknowledges and agrees that the Purchaser, the Administrator and the other
Indemnified Parties are third party beneficiaries of the rights of the Initial
Purchaser arising hereunder and under the other Transaction Documents to which
any Originator is a party.
(b) Each Originator hereby agrees to execute all agreements,
instruments and documents, and to take all other action, that the Initial
Purchaser or the Administrator determines is necessary or reasonably desirable
to evidence its consent described in Section 9.3(a).
(c) Each Originator hereby acknowledges that its obligations to the
Purchaser and the Administrator as assignees of the Initial Purchaser are and
shall be, to the extent permitted by Applicable Law or not prohibited by any
order of any court or administrative or regulatory authority, absolute and
unconditional under any and all circumstances and shall be
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<PAGE> 35
unaffected by any claims, offsets or other defenses such Originator may have
against the Initial Purchaser, and each Originator agrees that it shall not
assert or interpose any such claims, offsets or defenses as a defense to its
performance of its obligations under the Transaction Documents to which it is a
party.
SECTION 9.4. Binding Effect; Assignability. This Agreement shall be
binding upon and inure to the benefit of the Initial Purchaser, each Originator
and their respective successors and permitted assigns. No Originator may assign
its rights hereunder or any interest herein without the prior written consent of
the Initial Purchaser, the Administrator and the Liquidity Agent; subject to
Section 9.3, the Initial Purchaser may not assign its rights hereunder or any
interest herein without the prior written consent of D&K, the Administrator and
the Liquidity Agent. This Agreement shall create and constitute the continuing
obligations of the parties hereto in accordance with its terms, and shall remain
in full force and effect until the date after the Sale Termination Date on which
each Originator has received payment in full for all of its Receivables and
Related Rights conveyed pursuant to Section 1.1 hereof and has paid and
performed all of its obligations hereunder in full. The rights and remedies with
respect to any breach of any representation and warranty made by any Originator
pursuant to Article V shall be continuing and shall survive any termination of
this Agreement.
SECTION 9.5. Costs, Expenses and Taxes. In addition to the rights of
indemnification granted under Article VII, each Originator, jointly and
severally, agrees to pay on demand all costs and expenses in connection with the
preparation, execution, delivery and administration (including, without
limitation, periodic auditing of Pool Receivables) of this Agreement and the
other Transaction Documents, and any amendment, modification or waiver of or
consent to any of the foregoing, including, without limitation, attorneys' fees
for the Administrator, the Initial Purchaser and their respective Affiliates and
agents with respect thereto and with respect to advising the Administrator, the
Initial Purchaser and their respective Affiliates and agents as to their rights
and remedies under this Agreement and the other Transaction Documents, and all
costs and expenses, if any (including, without limitation, attorneys' fees
(including the allocated fees of in-house counsel)), of the Administrator, the
Initial Purchaser and their respective Affiliates and agents, in connection with
the enforcement of this Agreement and the other Transaction Documents.
SECTION 9.6. No Proceedings; Limitation on Payments.
(a) Each Originator hereby agrees that it will not institute against,
or join any other Person in instituting
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<PAGE> 36
against, the Initial Purchaser any bankruptcy, reorganization, arrangement,
insolvency or liquidation proceeding, or other proceeding under any federal or
state bankruptcy or similar law, for one year and one day after the latest
maturing Commercial Paper Note is paid in full. The foregoing shall not limit
any Originator's right to file any claim in or otherwise take any action with
respect to any insolvency proceeding that was instituted by any Person other
than an Originator.
(b) Notwithstanding any provisions contained in this Agreement to the
contrary, the Initial Purchaser shall not, and shall not be obligated to, pay
any amount pursuant to this Agreement unless the Initial Purchaser has excess
cash flow from operations or has received funds with respect to such obligation
which may be used to make such payment and, in each case, such payment is
permitted by the Receivables Purchase Agreement.
SECTION 9.7. GOVERNING LAW AND JURISDICTION.
(A) THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION (OR THE
EFFECT OF PERFECTION OR NON-PERFECTION) OF THE INTERESTS OF THE INITIAL
PURCHASER IN THE POOL RECEIVABLES AND THE RELATED RIGHTS IS GOVERNED BY THE LAWS
OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(B) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT MAY
BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK OR ANY UNITED STATES FEDERAL
COURT, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE PARTIES
HERETO CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE
JURISDICTION OF THOSE COURTS. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION TO
THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS, WHICH IT
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH
JURISDICTION IN RESPECT OF THIS AGREEMENT OR ANY TRANSACTION DOCUMENT. EACH
PARTY HERETO WAIVES PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS,
WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
SECTION 9.8. Execution in Counterparts. This Agreement may be executed
in any number of counterparts, each of which when so executed shall be deemed to
be an original and all of which when taken together shall constitute one and the
same agreement.
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<PAGE> 37
SECTION 9.9. Survival of Termination. The provisions of Section 1.4,
Article VII, Section 9.3, Section 9.5, Section 9.6, Section 9.7, Section 9.10
and this Section 9.9 shall survive any termination of this Agreement.
SECTION 9.10. WAIVER OF JURY TRIAL. EACH PARTY HERETO WAIVES ITS
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE. EACH PARTY HERETO AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL
BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE FOREGOING, EACH
OF THE PARTIES HERETO FURTHER AGREES THAT ITS RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR ANY OTHER TRANSACTION DOCUMENT OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
SECTION 9.11. Entire Agreement. This Agreement and the other
Transaction Documents embodies the entire agreement and understanding of the
parties hereto, and supersedes all prior or contemporaneous agreements and
understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof. The Exhibits, Schedules and Annexes to this Agreement
shall be deemed incorporated by reference into this Agreement as if set forth
herein.
SECTION 9.12. Headings. The captions and headings of this Agreement and
in any Exhibit hereto are for convenience of reference only and shall not affect
the interpretation hereof or thereof.
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<PAGE> 38
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
D&K HEALTHCARE RESOURCES, INC., as
Originator and as an initial
Servicer
By:________________________________
Name:
Title:
D&K RECEIVABLES CORPORATION, as
Initial Purchaser
By:________________________________
Name:
Title:
PURCHASE AND
SALE AGREEMENT
<PAGE> 39
SCHEDULE I
LOCK-BOX BANKS AND LOCK-BOX ACCOUNTS
Lock-Box Bank Lock-Box Account
<PAGE> 40
EXHIBIT A
FORM OF PURCHASE REPORT
PURCHASE REPORT
D&K Healthcare Resources, Inc.
D&K Receivables Corporation
As of____________________________________
<TABLE>
<CAPTION>
Cut-Off Date
<S> <C> <C> <C> <C>
Total Receivables UPB $ - Input
Initial Contributed Receivables $ Fixed
Aggregate Unpaid Balance of Receivables AUB $ Calculated
LIBOR 0.0000% Input
Days Sales Outstanding TD 0 Input
12 Month Losses $ - Input
12 Month Collections $ - Input
Purchaser's Total Investment PTI $ Fixed
Cost Rate (LIBOR +1.50%) CR Calculated
Cost Discount (TD/360)*CR CD 0 Calculated
Loss Discount (12 Month Losses/12 Month Coll) LD #DIV/0! Calculated
Fair Market Value Discount (LD+CD) FMVD #DIV/0! Calculated
Purchase Price (AUB-(AUB*FMVD)) PP #DIV/0! Calculated
Eligible Receivables $ - Input
Ineligible Receivables $ - Input
</TABLE>
A-1
<PAGE> 41
EXHIBIT B
FORM OF INITIAL PURCHASER NOTE
NON-NEGOTIABLE PROMISSORY NOTE
August 7, 1998
FOR VALUE RECEIVED, the undersigned, D&K RECEIVABLES CORPORATION, a
Delaware corporation (the "Initial Purchaser"), promises to pay to [NAME OF
ORIGINATOR], a _________________________________________________________________
_______ corporation (the "Originator"), at its office at _______________________
___________________________________________________ , on the terms and subject
to the conditions set forth herein and in the Purchase and Sale Agreement
referred to below, the aggregate unpaid Purchase Price of all Pool Receivables
and Related Rights of the Originator purchased and to be purchased by the
Initial Purchaser pursuant to the Purchase and Sale Agreement (subject to
adjustment pursuant to Section 3.3 of such Purchase and Sale Agreement). Such
amount as shown in the records of the Servicer will be rebuttable presumptive
evidence of the principal amount owing under this Note.
1. Purchase and Sale Agreement. This Note is an "Initial Purchaser
Note" described in, and is subject to the terms and conditions set forth in,
that certain Purchase and Sale Agreement, dated as of August 7, 1998 (as the
same may be amended, supplemented, or otherwise modified in accordance with its
terms, the "Purchase and Sale Agreement"), among the Originator and the Initial
Purchaser. Reference is hereby made to the Purchase and Sale Agreement for a
statement of certain other rights and obligations of the Initial Purchaser and
the Originator. In the case of any conflict between the terms of this Note and
the terms of the Purchase and Sale Agreement, the terms of the Purchase and Sale
Agreement shall control.
2. Definitions. Capitalized terms used (but not defined) herein have
the meanings ascribed thereto in the Purchase and Sale Agreement. In addition,
as used herein, the following terms have the following meanings:
"Final Maturity Date" means the date that falls ninety one (91)
days after the later of (x) the Sale Termination Date and (y) the Final
Payout Date.
"Junior Liabilities" means all obligations of the Initial
Purchaser to the Originator under this Note.
"Senior Agent" means the Administrator.
B-1
<PAGE> 42
"Senior Interests" means (a) the undivided percentage ownership
interests acquired by the Administrator pursuant to the Receivables
Purchase Agreement, and (b) all obligations of the Initial Purchaser to
the Senior Interest Holders, howsoever created, arising or evidenced,
whether direct or indirect, absolute or contingent, now or hereafter
existing, or due or to become due on or before the Final Maturity Date.
"Senior Interest Holders" means, collectively, the Purchaser, the
Administrator and the other Indemnified Parties.
"Subordination Provisions" means, collectively, clauses (a)
through (k) of Section 7 hereof.
3. Interest. Subject to the Subordination Provisions, the Initial
Purchaser promises to pay interest on the aggregate unpaid principal amount of
this Note outstanding on each day (a) prior to the final payment in full and in
cash of the Senior Interests, at a variable rate per annum equal to the Earned
Discount Rate Percentage, determined as of the then most recent Reporting Date,
and (b) after such final payment, at a variable rate per annum equal to the
Alternate Base Rate, as determined by the Servicer.
4. Interest Payment Dates. Subject to the Subordination Provisions,
the Initial Purchaser shall pay accrued interest on this Note on each Settlement
Date and on the Final Maturity Date (or, if any such day is not a Business Day,
the next succeeding Business Day). The Initial Purchaser also shall pay accrued
interest on the principal amount of each prepayment hereof on the date of each
such prepayment.
5. Basis of Computation. Interest accrued hereunder shall be
computed for the actual number of days elapsed on the basis of a 360-day year.
6. Principal Payment Dates. Subject to the Subordination Provisions,
any unpaid principal of this Note shall be paid on the Final Maturity Date (or,
if such date is not a Business Day, the next succeeding Business Day). Subject
to the Subordination Provisions, the principal amount of and accrued interest on
this Note may be prepaid on any Business Day without premium or penalty.
7. Subordination Provisions. The Initial Purchaser covenants and
agrees, and the Originator, by its acceptance of this Note, likewise covenants
and agrees, that the payment
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<PAGE> 43
of all Junior Liabilities is hereby expressly subordinated in right of payment
to the payment and performance of the Senior Interests to the extent and in the
manner set forth in the following clauses of this Section 7:
(a) No payment or other distribution of the Initial Purchaser's
assets of any kind or character, whether in cash, securities, or other
rights or property, shall be made on account of this Note except to the
extent such payment or other distribution is (i) permitted under the
Receivables Purchase Agreement or (ii) made pursuant to Sections 4 or 6
of this Note;
(b) (i) In the event of any Event of Bankruptcy involving the
Initial Purchaser, and (ii) on and after the occurrence of the Sale
Termination Date, the Senior Interests shall first be paid and
performed in full and in cash before the Originator shall be entitled
to receive and to retain any payment or distribution in respect of the
Junior Liabilities. In order to implement the foregoing: (x) all
payments and distributions of any kind or character in respect of the
Junior Liabilities to which the Originator would be entitled except for
this subsection 7(b) shall be made directly to the Senior Agent (for
the benefit of the Senior Interest Holders); and (y) the Originator
hereby irrevocably agrees that the Senior Agent, in the name of the
Originator or otherwise, may demand, sue for, collect, receive and
receipt for any and all such payments or distributions, and file, prove
and vote or consent in any such proceeding with respect to any and all
claims of the Originator relating to the Junior Liabilities, in each
case until the Senior Interests shall have been paid and performed in
full and in cash.
(c) In the event that the Originator receives any payment or other
distribution of any kind or character from the Initial Purchaser or
from any other source whatsoever, in respect of the Junior Liabilities,
other than as expressly permitted by the terms of this Note, such
payment or other distribution shall be received in trust for the Senior
Interest Holders and shall be turned over by the Originator to the
Senior Agent (for the benefit of the Senior Interest Holders) forthwith
until the Senior Interests have been paid in full. All payments and
distributions received by the Senior Agent in respect of this Note, to
the extent received in or converted into cash, may be applied by the
Senior Agent (for the benefit of the Senior Interest Holders) first to
the payment of any and all reasonable expenses (including, without
limitation, reasonable attorneys'
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<PAGE> 44
fees and other legal expenses) paid or incurred by the Senior Agent or
the Senior Interest Holders in enforcing these Subordination
Provisions, or in endeavoring to collect or realize upon the Junior
Liabilities, and any balance thereof shall, solely as between the
Originator and the Senior Interest Holders, be applied by the Senior
Agent toward the payment of the Senior Interests in a manner determined
by the Senior Agent to be in accordance with the Receivables Purchase
Agreement; but as between the Initial Purchaser and its creditors, no
such payments or distributions of any kind or character shall be deemed
to be payments or distributions in respect of the Senior Interests.
(d) Upon the final payment in full and in cash of all Senior
Interests, the Originator shall be subrogated to the rights of the
Senior Interest Holders to receive payments or distributions from the
Initial Purchaser that are applicable to the Senior Interests until the
Junior Liabilities are paid in full.
(e) These Subordination Provisions are intended solely for the
purpose of defining the relative rights of the Originator, on the one
hand, and the Senior Interest Holders, on the other hand. Nothing
contained in the Subordination Provisions or elsewhere in this Note is
intended to or shall impair, as between the Initial Purchaser, its
creditors (other than the Senior Interest Holders) and the Originator,
the Initial Purchaser's obligation, which is unconditional and
absolute, to pay the Junior Liabilities as and when the same shall
become due and payable in accordance with the terms hereof and of the
Purchase and Sale Agreement or to affect the relative rights of the
Originator and creditors of the Initial Purchaser (other than the
Senior Interest Holders).
(f) The Originator shall not, until the Senior Interests have been
finally paid and performed in full and in cash, (i) cancel, waive,
forgive, transfer or assign, or commence legal proceedings to enforce
or collect, or subordinate to any obligation of the Initial Purchaser,
howsoever created, arising or evidenced, whether direct or indirect,
absolute or contingent, or now or hereafter existing, or due or to
become due, other than the Senior Interests, the Junior Liabilities, or
any rights in respect thereof or (ii) convert the Junior Liabilities
into an equity interest in the Initial Purchaser, unless, in the case
of each of clauses (i) and (ii) above, the Originator shall have
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<PAGE> 45
received the prior written consent of the Administrator
in each case.
(g) The Originator shall not, without the advance written consent
of the Administrator, commence, or join with any other Person in
commencing, any proceedings related to an Event of Bankruptcy with
respect to the Initial Purchaser until at least one year and one day
shall have passed since the Senior Interests shall have been finally
paid and performed in full and in cash.
(h) If, at any time, any payment (in whole or in part) made with
respect to any Senior Interest is rescinded or must be restored or
returned by a Senior Interest Holder (whether in connection with any
Event of Bankruptcy or otherwise), these Subordination Provisions shall
continue to be effective or shall be reinstated, as the case may be, as
though such payment had not been made.
(i) Each of the Senior Interest Holders may, from time to time, at
its sole discretion, without notice to the Originator, and without
waiving any of its rights under these Subordination Provisions, take
any or all of the following actions: (i) retain or obtain an interest
in any property to secure any of the Senior Interests; (ii) retain or
obtain the primary or secondary obligations of any other obligor or
obligors with respect to any of the Senior Interests; (iii) extend or
renew for one or more periods (whether or not longer than the original
period), alter or exchange any of the Senior Interests, or release or
compromise any obligation of any nature with respect to any of the
Senior Interests; (iv) amend, supplement, or otherwise modify any
Transaction Document; and (v) release its security interest in, or
surrender, release or permit any substitution or exchange for all or
any part of any rights or property securing any of the Senior
Interests, or extend or renew for one or more periods (whether or not
longer than the original period), or release, compromise, alter or
exchange any obligations of any nature of any obligor with respect to
any such rights or property.
(j) The Originator hereby waives: (i) notice of acceptance of
these Subordination Provisions by any of the Senior Interest Holders;
(ii) notice of the existence, creation, non-payment or non-performance
of all or any of the Senior Interests; and (iii) all diligence in
enforcement, collection or protection of,
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<PAGE> 46
or realization upon the Senior Interests, or any thereof, or any
security therefor.
(k) These Subordination Provisions constitute a continuing offer
from the Initial Purchaser to all Persons who become the holders of, or
who continue to hold, Senior Interests; and these Subordination
Provisions are made for the benefit of the Senior Interest Holders, and
the Administrator may proceed to enforce such provisions on behalf of
each of such Persons.
8. Amendments, Etc. No failure or delay on the part of the Originator
in exercising any power or right hereunder shall operate as a waiver thereof,
nor shall any single or partial exercise of any such power or right preclude any
other or further exercise thereof or the exercise of any other power or right.
No amendment, modification or waiver of, or consent with respect to, any
provision of this Note shall in any event be effective unless (a) the same shall
be in writing and signed and delivered by the Initial Purchaser and the
Originator, and (b) all consents required for such actions under the Transaction
Documents shall have been received by the appropriate Persons.
9. Limitation on Interest. Notwithstanding anything in this Note to
the contrary, the Initial Purchaser shall never be required to pay unearned
interest on any amount outstanding hereunder, and shall never be required to pay
interest on the principal amount outstanding hereunder, at a rate in excess of
the maximum interest rate that may be contracted for, charged or received
without violating applicable federal or state law.
10. No Negotiation. This Note is not negotiable.
11. GOVERNING LAW. THIS NOTE SHALL GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF).
12. Captions. Paragraph captions used in this Note are provided solely
for convenience of reference only and shall not affect the meaning or
interpretation of any provision of this Note.
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<PAGE> 47
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed
by its officer thereunto duly authorized on the date first above written.
D&K RECEIVABLES CORPORATION
By:_______________________________
Title:____________________________
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<PAGE> 48
EXHIBIT C
FORM OF ORIGINATOR NOTE
DEMAND NOTE
August 7, 1998
The undersigned, [NAME OF ORIGINATOR], a ____________________________
________________corporation (the "Originator"), for value received, promises to
pay to the order of D&K RECEIVABLES CORPORATION, a Delaware corporation (the
"Initial Purchaser"), ON DEMAND, the aggregate unpaid principal amount of all
loans made by the Initial Purchaser to the Originator (the "Originator Loans")
together with accrued interest on such amounts from time to time outstanding
hereunder at the rate provided below. Such amounts as shown in the records of
the Servicer (as such term is defined in the Purchase and Sale Agreement
referred to below) will be rebuttable presumptive evidence of the principal
amount owing under this Demand Note.
The unpaid principal amount of each Originator Loan from time to time
outstanding shall bear interest (which also shall be payable ON DEMAND) from
(and including) the date on which such Originator Loan was made to (but
excluding) the date on which such Originator Loan is paid in full (a) prior to
the final payment in full and in cash of the Senior Interests (as such term is
defined in the Initial Purchaser Note), at a variable rate per annum equal to
the Earned Discount Rate Percentage, determined as of the then most recent
Payment Date, and (b) after such final payment, at a variable rate per annum
equal to the Alternative Base Rate, as determined by the Servicer. Interest
hereunder shall be computed for the actual number of days elapsed on the basis
of a year consisting of 360 days.
This Demand Note is an Originator Note described in, and is subject to
the terms and conditions set forth in, that certain Purchase and Sale Agreement,
dated as of August 7, 1998 (as the same may at any time be amended,
supplemented, or otherwise modified from time to time in accordance with its
terms, the "Purchase and Sale Agreement"), between the Initial Purchaser and the
Originator. Reference is hereby made to the Purchase and Sale Agreement for a
statement of certain other rights and obligations of the Initial Purchaser. All
capitalized terms used but not otherwise defined herein have the meanings
assigned thereto in the Purchase and Sale Agreement.
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<PAGE> 49
All payments of principal and interest hereunder are to be made in
lawful money of the United States of America in same day funds to the account
designated from time to time by the Servicer to the Initial Purchaser.
In addition to and not in limitation of the foregoing, the Originator
further agrees, subject to any limitation imposed by applicable law, to pay all
expenses, including without limitation reasonable attorney fees, incurred by the
holder of this Demand Note in seeking to collect any amounts payable hereunder
which are not paid when due.
No failure or delay on the part of the Initial Purchaser or any other
holder of this Demand Note in exercising any power or right hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such power or right preclude any other or further exercise thereof or the
exercise of any other power or right. No notice to or demand on the Originator
shall entitle it to any notice or demand in similar or other circumstances. No
amendment, modification or waiver of, or consent with respect to, any provision
of this Demand Note shall in any event be effective unless (i) the same shall be
in writing and signed and delivered by the holder hereof and (ii) all consents
required for such action under the Transaction Documents shall have been given
by the appropriate Persons.
Upon the occurrence of any Event of Bankruptcy with respect to the
Originator, the principal balance hereof and all interest accrued hereon shall
be immediately due and payable, without demand, presentment, protest or notice
of dishonor.
Notwithstanding anything in this Demand Note to the contrary, the
Originator shall never be required to pay unearned interest on any amount
outstanding hereunder, and shall never be required to pay interest on the
principal amount outstanding hereunder, at a rate in excess of the maximum
nonusurious interest rate that may be contracted for, charged or received under
applicable federal or state law.
THIS DEMAND NOTE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE CONFLICT
OF LAWS PRINCIPLES THEREOF).
[NAME OF ORIGINATOR]
By:_______________________________
Title:____________________________
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<PAGE> 50
PAY TO THE ORDER OF Fleet National Bank, as Administrator, pursuant to that
certain Receivables Purchase Agreement dated as of August 7, 1998, as the same
may be further amended, supplemented, or otherwise modified from time to time.
D&K RECEIVABLES CORPORATION
By:________________________________
Title:_____________________________
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<PAGE> 1
EXHIBIT 10.27
================================================================================
RECEIVABLES PURCHASE AGREEMENT
Dated as of August 7, 1998
Among
D&K RECEIVABLES CORPORATION
as Seller
and
D&K HEALTHCARE RESOURCES, INC.
as initial Servicer
and
BLUE KEEL FUNDING, LLC
as Purchaser
and
FLEET NATIONAL BANK
as Administrator
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
ARTICLE I
PURCHASES AND REINVESTMENTS
<S> <C> <C>
SECTION 1.01. Commitment to Purchase; Limits on
Purchaser's Obligations..............................................................2
SECTION 1.02. Purchase Procedures; Assignment of
Purchaser's Interests................................................................2
SECTION 1.03. Reinvestments of Certain Collections;
Payment of Remaining Collections.....................................................2
SECTION 1.04. Asset Interest.......................................................................4
SECTION 1.05. Voluntary Termination of Purchase and
Reinvestment Obligations or Reduction of
Purchase Limit.......................................................................5
ARTICLE II
COMPUTATIONAL RULES
SECTION 2.01. Computation of Capital...............................................................5
SECTION 2.02. Computation of Concentration Limit...................................................5
SECTION 2.03. Computation of Earned Discount.......................................................5
SECTION 2.04. Estimates of Earned Discount Rate,
Fees, Etc............................................................................6
ARTICLE III
SETTLEMENTS
SECTION 3.01. Settlement Procedures................................................................6
SECTION 3.02. Deemed Collections; Reduction of
Capital, Etc.........................................................................9
SECTION 3.03. Payments and Computations, Etc......................................................10
ARTICLE IV
FEES AND YIELD PROTECTION
SECTION 4.01. Fees................................................................................11
SECTION 4.02. Yield Protection....................................................................11
SECTION 4.03. Funding Losses......................................................................13
ARTICLE V
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
CONDITIONS TO PURCHASES
<S> <C> <C>
SECTION 5.01. Conditions Precedent to Initial Purchase............................................13
SECTION 5.02. Conditions Precedent to All Purchases
and Reinvestments...................................................................15
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Seller............................................16
SECTION 6.02. Representations and Warranties of Parent............................................20
ARTICLE VII
GENERAL COVENANTS
SECTION 7.01. Affirmative Covenants...............................................................22
SECTION 7.02. Reporting Requirements..............................................................25
SECTION 7.03. Negative Covenants..................................................................27
SECTION 7.04. Separate Existence..................................................................29
ARTICLE VIII
ADMINISTRATION AND COLLECTION
SECTION 8.01. Designation of Servicer.............................................................31
SECTION 8.02. Duties of Servicer..................................................................33
SECTION 8.03. Rights of the Administrator.........................................................34
SECTION 8.04. Responsibilities of Seller..........................................................35
SECTION 8.05. Further Action Evidencing Purchases and
Reinvestments.......................................................................36
SECTION 8.06. Application of Collections..........................................................37
ARTICLE IX
SECURITY INTEREST
SECTION 9.01. Grant of Security Interest..........................................................37
SECTION 9.02. Further Assurances..................................................................37
SECTION 9.03. Remedies............................................................................37
ARTICLE X
LIQUIDATION EVENTS
SECTION 10.01. Liquidation Events..................................................................38
SECTION 10.02. Remedies............................................................................40
</TABLE>
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<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE XI
THE ADMINISTRATOR
<S> <C> <C>
SECTION 11.01. Authorization and Action............................................................40
SECTION 11.02. Administrator's Reliance, Etc.......................................................40
SECTION 11.03. Fleet and Affiliates................................................................41
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
SECTION 12.01. Restrictions on Assignments.........................................................41
SECTION 12.02. Rights of Assignee..................................................................42
ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Indemnities.........................................................................42
ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Etc.....................................................................45
SECTION 14.02. Notices, Etc........................................................................45
SECTION 14.03. No Waiver; Remedies.................................................................45
SECTION 14.04. Binding Effect; Survival............................................................46
SECTION 14.05. Costs, Expenses and Taxes...........................................................46
SECTION 14.06. No Proceedings......................................................................47
SECTION 14.07. Confidentiality of Program Information..............................................47
SECTION 14.08. Confidentiality of Parent Information...............................................48
SECTION 14.09. Captions and Cross References.......................................................50
SECTION 14.10. Integration.........................................................................50
SECTION 14.11. Governing Law.......................................................................50
SECTION 14.12. Waiver Of Jury Trial................................................................50
SECTION 14.13. Consent To Jurisdiction; Waiver Of
Immunities..........................................................................51
SECTION 14.14. Execution in Counterparts...........................................................51
SECTION 14.15. No Recourse Against Other Parties...................................................51
</TABLE>
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<PAGE> 5
APPENDICES
APPENDIX A Definitions
SCHEDULES
SCHEDULE 6.01(m) List of Offices of Seller where Records Are
Kept
SCHEDULE 6.01(n) List of Lock-Box Banks
SCHEDULE 7.01(e) Forms of Contracts
SCHEDULE 7.01(g) Description of Credit and Collection Policy
SCHEDULE 14.02 Notice Addresses
EXHIBITS
EXHIBIT 1.02(a) Form of Purchase Notice
EXHIBIT 3.01(a)-1 Form of Servicer Report
EXHIBIT 3.01(a)-2 Form of Daily Report
EXHIBIT 5.01 Form of Lock-Box Agreement
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<PAGE> 6
RECEIVABLES PURCHASE AGREEMENT
Dated as of August 7, 1998
THIS IS A RECEIVABLES PURCHASE AGREEMENT, among D&K RECEIVABLES
CORPORATION, a Delaware corporation ("Seller"), D&K HEALTHCARE RESOURCES, INC.,
a Delaware corporation ("Parent"), as initial Servicer, BLUE KEEL FUNDING, LLC,
a Delaware limited liability company ("Purchaser"), and FLEET NATIONAL BANK, a
national banking association ("Fleet"), as administrator for Purchaser (in such
capacity, the "Administrator"). Unless otherwise indicated, capitalized terms
used in this Agreement are defined in Appendix A.
Background
1. The Originators are engaged in the business of distribution and sale
of pharmaceuticals and related products.
2. Seller is a single purpose corporation formed for the purpose of
purchasing, and accepting contributions of, Receivables generated by the
Originators in the ordinary course of its business.
3. Seller has, and expects to have, Pool Receivables in which Seller
intends to sell an undivided interest. Seller has requested Purchaser, and
Purchaser shall, subject to the terms and conditions contained in this
Agreement, fund the purchase of such undivided interest, referred to herein as
the Asset Interest, from Seller from time to time during the term of this
Agreement.
4. Seller and Purchaser also desire that, subject to the terms and
conditions of this Agreement, certain of the daily Collections in respect of the
Asset Interest be reinvested in Pool Receivables, which reinvestment shall
constitute part of the Asset Interest.
5. Parent has been requested, and is willing, to act as initial
Servicer.
6. Fleet has been requested, and is willing, to act as the
Administrator.
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
<PAGE> 7
ARTICLE I
PURCHASES AND REINVESTMENTS
SECTION 1.01. Commitment to Purchase; Limits on Purchaser's
Obligations. Upon the terms and subject to the conditions of this Agreement,
from time to time prior to the Termination Date, Seller may request that
Administrator, for the benefit of Purchaser, purchase from Seller an undivided
ownership interest in the Pool Assets (each being a "Purchase") and Purchaser
may, in its sole discretion, fund such Purchase; provided that no Purchase shall
be funded by Purchaser if, after giving effect thereto, either (a) the then
Capital would exceed an amount equal to $45,000,000 (the "Purchase Limit"), as
such amount may be decreased from time to time as provided in Section 1.05, or
(b) the Asset Interest would exceed 100% (the "Allocation Limit"); and provided
further that each Purchase made pursuant to this Section 1.01 shall have a
purchase price of at least $1,000,000.
SECTION 1.02. Purchase Procedures; Assignment of Interests.
(a) Notice of Purchase. Each Purchase from Seller shall be made on
notice from Seller to the Administrator received by the Administrator not later
than 11:00 a.m. (Boston, Massachusetts time) on the second Business Day next
preceding the date of such proposed Purchase. Each such notice of a proposed
Purchase shall be substantially in the form of Exhibit 1.02(a) (each a "Purchase
Notice"), and shall specify the desired amount and date of such Purchase, which
shall be a Settlement Date; provided, however, that Seller may give one
additional Purchase Notice each calendar month, specifying the desired amount,
which shall not exceed $10,000,000, and date of such Purchase, which shall be a
Business Day occurring on or before the 20th day of such calendar month, but
which need not be a Settlement Date, which Purchase Notice shall be given at
least three Business Days prior to the date of the proposed Purchase.
(b) Funding of Purchase. On the date of each Purchase, if Purchaser has
elected to fund such Purchase, Purchaser shall, upon satisfaction of the
applicable conditions set forth in Article V, make available to the
Administrator at the Administrator's Office the amount of its Purchase in
immediately available funds, and after receipt by the Administrator of such
funds, the Administrator will make such funds immediately available to Seller at
such office.
(c) Assignment of Asset Interest. Seller hereby sells, and transfers
to Administrator, for the benefit of Purchaser, the Asset Interest.
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<PAGE> 8
SECTION 1.03. Reinvestments of Certain Collections; Payment of
Remaining Collections. (a) On the close of business on each day during the
period from the date hereof to the Termination Date, Servicer will, out of all
Collections received on such day:
(i) determine the portion of Collections attributable on any
day to the Asset Interest by multiplying (x) the amount of all
Collections times (y) the Asset Interest;
(ii) out of the portion of Collections allocated to the Asset
Interest pursuant to clause (i), set aside and hold in trust for
Purchaser an amount equal to the sum of the estimated amount of Earned
Discount accrued in respect of the Capital (based on rate information
provided by the Administrator pursuant to Section 2.04), the accrued
Fees, all other amounts due to Purchaser, the Administrator, the
Affected Parties or the Indemnified Parties hereunder (other than the
Capital) and the Purchaser's Share of the Servicer's Fee (in each case,
accrued through such day) and not so previously set aside; provided
that unless the Administrator shall request it to do so in writing,
Servicer shall not be required to hold Collections that have been
set-aside in a separate deposit account containing only such
Collections;
(iii) apply the Collections allocated to the Asset Interest
pursuant to clause (i) and not set aside pursuant to clause (ii) to the
purchase from Seller of ownership interests in Pool Assets (each such
purchase being a "Reinvestment"); provided that (A) if the Excess
Amount exceeds zero, then Servicer shall not reinvest, but shall set
aside and hold for the benefit of Purchaser, a portion of such
Collections which, together with other Collections previously set aside
and then so held, shall equal the Excess Amount; and (B) if the
conditions precedent to Reinvestment in Section 5.02 are not satisfied,
then Servicer shall not reinvest any of such Collections;
(iv) pay to Seller (A) the portion of Collections not
allocated to the Asset Interest pursuant to clause (i), less the
Seller's Share of the Servicer's Fee, and (B) the Collections applied
to Reinvestment pursuant to clause (iii); and
(v) out of the portion of Collections not allocated to the
Asset Interest pursuant to clause (i), pay to the Servicer the Seller's
Share of the Servicer's Fee accrued through such day.
(b) Unreinvested Collections. Servicer shall set aside and
hold in trust for the benefit of Purchaser all Collections which
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<PAGE> 9
pursuant to clause (iii) of Section 1.03(a) may not be reinvested in Pool
Assets; provided that unless the Administrator shall request it to do so in
writing, Servicer shall not be required to hold Collections that have been
set-aside in a separate deposit account containing only such Collections. If,
prior to the date when such Collections are required to be paid to the
Administrator pursuant to Section 3.01, the amount of Collections set aside
pursuant to clause (iii) of Section 1.03(a) exceeds the Excess Amount, if any,
and the conditions precedent to Reinvestment set forth in Section 5.02 are
satisfied, then the Servicer shall apply such Collections (or, if less, a
portion of such Collections equal to the amount of such excess) to the making of
a Reinvestment.
SECTION 1.04. Asset Interest. (a) Components of Asset Interest.
On any date the Asset Interest will represent Administrator's (for the benefit
of Purchaser) combined undivided percentage ownership interest in (i) all then
outstanding Pool Receivables, (ii) all Related Security with respect to such
Pool Receivables, (iii) all of Seller's right and claims under the Purchase
Agreement, (iv) all Collections with respect to, and other proceeds of, the
foregoing as at such date, (v) all lock-boxes and lock-box or collection
accounts into which Collections of Pool Receivables are or may be deposited, and
all investments therein, and (vi) all books and records (including computer
disks, tapes and software) evidencing or relating to any of the foregoing, in
each case, whether now owned by Seller or hereafter acquired or arising, and
wherever located (all of the foregoing, collectively referred to as "Pool
Assets").
(b) Computation of Asset Interest. On any date, the Asset Interest
will be equal to a percentage, expressed as the following fraction:
C + RR
------
NPB
where:
C = the then Capital.
RR = the then Required Reserves.
NPB = the then Net Pool Balance;
provided, however, that from and after the Termination Date, the
Asset Interest will be 100%
(c) Frequency of Computation. The Asset Interest shall be computed as
of the Cut-Off Date for each Settlement Period. In addition, the Administrator
may require Servicer to provide a Servicer Report for purposes of computing the
Asset Interest as
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<PAGE> 10
of any other date, and the Servicer agrees to do so within two Business Days of
its receipt of the Administrator's request.
SECTION 1.05. Voluntary Termination of Purchase and Reinvestment
Obligations or Reduction of Purchase Limit. Seller may, upon at least 60 days'
prior written notice to the Administrator, either (a) terminate Purchaser's
commitment to fund Purchases and Reinvestments hereunder, or (b) reduce the
Purchase Limit to an amount not less than $25,000,000; provided, however, that
(i) each partial reduction of the Purchase Limit shall be in an amount equal to
$1,000,000 or an integral multiple thereof, and (ii) after giving effect to such
reduction, the Capital will not exceed the Purchase Limit as so reduced. The
Purchase Limit may be increased upon the request of Seller and the written
consent of the Administrator and Purchaser thereto, which consent may be granted
or withheld in their sole discretion and may be subject to such conditions as
they may require.
ARTICLE II
COMPUTATIONAL RULES
SECTION 2.01. Computation of Capital. In making any determination of
Capital, the following rules shall apply:
(a) Capital shall not be considered reduced by any allocation,
setting aside or distribution of any portion of Collections unless such
Collections shall have been actually delivered to the Administrator
pursuant hereto for application to the Capital; and
(b) Capital shall not be considered reduced by any
distribution of any portion of Collections if at any time such
distribution is rescinded or must otherwise be returned for any reason.
SECTION 2.02. Computation of Concentration Limit. In the case of any
Obligor that is an Affiliate of any other Obligor, the Concentration Limit and
the aggregate Unpaid Balance of Pool Receivables of such Obligors shall be
calculated as if such Obligors were one Obligor.
SECTION 2.03. Computation of Earned Discount. In making any
determination of Earned Discount, the following rules shall apply:
(a) no provision of this Agreement shall require the payment
or permit the collection of Earned Discount in excess of the maximum
permitted by Applicable Law; and
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(b) Earned Discount for any period shall not be considered
paid by any distribution if at any time such distribution is rescinded
or must otherwise be returned for any reason.
SECTION 2.04. Estimates of Earned Discount Rate, Fees, Etc. For
purposes of determining the amounts required to be set aside by Servicer
pursuant to Section 1.03, the Administrator shall notify Servicer from time to
time of the Earned Discount Rate applicable to the Capital and the rates at
which fees and other amounts are accruing hereunder. It is understood and agreed
that (i) the Earned Discount Rate may change from time to time, (ii) certain
rate information provided by the Administrator to Servicer shall be based upon
the Administrator's good faith estimate, (iii) the amount of Earned Discount
actually accrued with respect to the Capital during any Settlement Period may
exceed, or be less than, the amount set aside with respect thereto by Servicer,
and (iv) the amount of fees or other payables accrued hereunder with respect to
any Settlement Period may exceed, or be less than, the amount set aside with
respect thereto by Servicer. Failure to set aside any amount so accrued shall
not relieve Servicer of its obligation to remit Collections to the Administrator
with respect to such accrued amount, as and to the extent provided in Section
3.01.
ARTICLE III
SETTLEMENTS
SECTION 3.01. Settlement Procedures.
The parties hereto will take the following actions with respect to each
Settlement Period:
(a) Servicer Report. On or before the ninth calendar day (or
if such day is not a Business Day, the next Business Day) after each
Cut-Off Date (each, a "Reporting Date"), Servicer shall deliver to the
Administrator a report containing the information described in Exhibit
3.01(a)-1 (each, a "Servicer Report"). On or before 12:00 noon (Boston,
Massachusetts time) on each Business Day, Servicer shall deliver to the
Administrator a report containing the information described in Exhibit
3.01(a)-2 (each, a "Daily Report").
(b) Earned Discount; Other Amounts Due. Two Business Days
prior to each Reporting Date, the Administrator shall notify Servicer
of (i) the amount of Earned Discount that will have accrued in respect
of the Capital as of the next Settlement Date and (ii) all Fees and
other amounts that
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will have accrued and be payable by Seller under this Agreement on the
next Settlement Date (other than Capital).
(c) Settlement Date Procedure - Reinvestment Period. On the
second Business Day after each Reporting Date (each, a "Settlement
Date") prior to the Termination Date, the Servicer shall distribute
from Collections set aside pursuant to Sections 1.03(a)(i) through
(iii) during the immediately preceding Settlement Period the following
amounts in the following order:
(1) to the Administrator, an amount equal to the
Earned Discount accrued during such Settlement Period, plus
any previously accrued Earned Discount not paid on a prior
Settlement Date, which amount shall be distributed by the
Administrator to the Purchaser for application to such Earned
Discount;
(2) to the Administrator, an amount equal to the
Program Fee and Commitment Fee accrued during such Settlement
Period, plus any previously accrued amounts described in this
clause (2) not paid on a prior Settlement Date;
(3) to the Servicer, if the Servicer is not Parent,
an amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such Settlement Period, plus any previously
accrued Purchaser's Share of the Servicer's Fee not paid on a
prior Settlement Date;
(4) to the Administrator, all other amounts (other
than Capital) then due under this Agreement to the
Administrator, the Purchaser, the Affected Parties or the
Indemnified Parties;
(5) to the Administrator, an amount equal to the
Excess Amount, if any, which amount shall be distributed by
the Administrator to the Purchaser for application to the
Capital;
(6) to the Servicer, if the Servicer is Parent, an
amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such Settlement Period, plus any previously
accrued Purchaser's Share of the Servicer's Fee not paid on a
prior Settlement Day; and
(7) to the Seller, any remaining amounts.
(d) Settlement Date Procedure - Liquidation Period. On each Settlement
Date during the Liquidation Period, the Servicer shall distribute from
Purchaser's Share of Collections received
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or deemed received pursuant to Section 3.02 during the immediately preceding
Settlement Period the following amounts in the following order:
(1) to the Administrator, an amount equal to the
Earned Discount accrued during such Settlement Period, plus
any previously accrued Earned Discount not paid on a prior
Settlement Date, which amount shall be distributed by the
Administrator to the Purchaser for application to such Earned
Discount;
(2) to the Administrator, an amount equal to the
Program Fee and Commitment Fee accrued during such Settlement
Period, plus any previously accrued Program Fee and Commitment
Fee not paid on a prior Settlement Date;
(3) to the Servicer, if the Servicer is not Parent,
an amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such preceding Settlement Period, plus any
previously accrued Purchaser's Share of the Servicer's Fee not
paid on a prior Settlement Date;
(4) to the Administrator, an amount equal to the
remaining Purchaser's Share of Collections until the Capital
is reduced to zero, which amount shall be distributed by the
Administrator to the Purchaser for application to the Capital;
(5) to the Administrator, all other amounts (other
than Capital) then due under this Agreement to the
Administrator, the Purchaser, the Affected Parties or the
Indemnified Parties;
(6) to the Servicer, if the Servicer is Parent, an
amount equal to the Purchaser's Share of the Servicer's Fee
accrued during such Settlement Period, plus any previously
accrued Purchaser's Share of the Servicer's Fee not paid on a
prior Settlement Date; and
(7) to the Seller, any remaining amounts.
(e) Delayed Payment. If on any day described in this Section
3.01, because Collections during the relevant Settlement Period were
less than the aggregate amounts payable, Servicer does not make any
payment otherwise required, the next available Collections in respect
of the Asset Interest shall be applied to such payment, and no
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Reinvestment shall be permitted hereunder until such amount payable has
been paid in full.
SECTION 3.02. Deemed Collections; Reduction of Capital, Etc.
(a) Deemed Collections. If on any day
(i) a Dilution occurs or the Unpaid Balance of any Pool
Receivable is less than the amount included in calculating the Net Pool
Balance for purposes of any Servicer Report for any other reason, or
(ii) any of the representations or warranties of Seller set
forth in Section 6.01(k) or (o) with respect to any Pool Receivable
were not true when made with respect to any Pool Receivable, or any of
the representations or warranties of Seller set forth in Section
6.01(k) are no longer true with respect to any Pool Receivable, or
(iii) without duplication, Seller receives a Deemed Collection
pursuant to the Purchase Agreement,
then, on such day, Seller shall be deemed to have received a Collection of such
Pool Receivable
(I) in the case of clause (i) above, in the amount
of such Dilution or the difference between the actual Unpaid
Balance and the amount included in calculating such Net Pool
Balance, as applicable; and
(II) in the case of clause (ii) above, in the amount
of the Unpaid Balance of such Pool Receivable; and
(III) in the case of clause (iii) above, in the
amount of such Deemed Collection.
(b) Seller's Optional Reduction of Capital. Seller may at any time
elect to reduce the Capital as follows:
(i) Seller shall give the Administrator at least five (5)
Business Days' prior written notice of such reduction (including the
amount of such proposed reduction and the proposed date on which such
reduction will commence),
(ii) on the proposed date of commencement of such reduction
and on each day thereafter, Servicer shall refrain from reinvesting
Collections pursuant to Section 1.03 until the amount thereof not so
reinvested shall equal the desired amount of reduction, and
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(iii) Servicer shall hold such Collections in trust for
Purchaser, pending payment to the Administrator on the next Settlement
Date, as provided in Section 1.03;
provided that,
(A) the amount of any such reduction shall be not
less than $1,000,000, and the Capital after giving effect to
such reduction shall be not less than $25,000,000 (unless
Capital shall thereby be reduced to zero), and
(B) Seller shall use reasonable efforts to attempt to
choose a reduction amount, and the date of commencement
thereof, so that such reduction shall commence and conclude in
the same Settlement Period.
SECTION 3.03. Payments and Computations, Etc.
(a) Payments. All amounts to be paid or deposited by Seller or Servicer
to the Administrator or any other Person (other than to Seller, Parent or
Servicer) hereunder (other than amounts payable under Section 4.02) shall be
paid or deposited in accordance with the terms hereof no later than 10:00 a.m.
(Boston, Massachusetts time) on the day when due in lawful money of the United
States of America in immediately available funds to the Administrator at ABA#
011 000 138, account # 940 518 9033; attention: Blue Keel.
(b) Late Payments. Seller or Servicer, as applicable, shall, to the
extent permitted by law, pay to Purchaser or the Administrator, as the case may
be, interest on all amounts not paid or deposited when such amount is due
hereunder at 2% per annum above the Alternate Base Rate, payable on demand,
provided, however, that such interest rate shall not at any time exceed the
maximum rate permitted by Applicable Law.
(c) Method of Computation. All computations of interest, Earned
Discount and any fees payable hereunder shall be made on the basis of a year of
360 days for the actual number of days (including the first day but excluding
the last day) elapsed.
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ARTICLE IV
FEES AND YIELD PROTECTION
SECTION 4.01. Fees. Seller shall pay to the Administrator and Purchaser
the fees in the amounts and at the times set forth in the fee letter, dated as
of the date hereof, between the Administrator and Seller (as amended or
supplemented from time to time, the "Fee Letter").
SECTION 4.02. Yield Protection.
(a) If (i) Regulation D or (ii) any Regulatory Change occurring after
the date hereof
(A) shall subject an Affected Party to any tax, duty or other
charge with respect to any Asset Interest owned by or funded by it, or
any obligations or right to make Purchases or Reinvestments or to
provide funding therefor, or shall change the basis of taxation of
payments to the Affected Party of any Capital or Earned Discount owned
by, owed to or funded in whole or in part by it or any other amounts
due under this Agreement in respect of the Asset Interest owned by or
funded by it or its obligations or rights, if any, to make Purchases or
Reinvestments or to provide funding therefor (except for franchise
taxes or changes in the rate of tax on the overall net income of such
Affected Party imposed by the United States of America, by the
jurisdiction in which such Affected Party's principal executive office
is located and, if such Affected Party's principal executive office is
not in the United States of America, by the jurisdiction where such
Affected Party's principal office in the United States is located); or
(B) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the Federal
Reserve Board, special deposit, compulsory loan or similar requirement
against assets of any Affected Party, deposits or obligations with or
for the account of any Affected Party or with or for the account of any
affiliate (or entity deemed by the Federal Reserve Board to be an
affiliate) of any Affected Party, or credit extended by any Affected
Party, but excluding any reserve, special deposit or similar
requirement included in the determination of Earned Discount; or
(C) shall change the amount of capital maintained or required
or requested or directed to be maintained by any Affected Party; or
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(D) shall impose any other condition affecting any Asset
Interest owned or funded in whole or in part by any Affected Party, or
its obligations or rights, if any, to make Purchases or Reinvestments
or to provide funding therefor; or
(E) shall change the rate for, or the manner in which the
Federal Deposit Insurance Corporation (or a successor thereto)
assesses, deposit insurance premiums or similar charges;
and the result of any of the foregoing is
(x) to increase the cost to or to impose a cost on an Affected
Party funding or making or maintaining any Purchases or Reinvestments,
any purchases, reinvestments, or loans or other extensions of credit
under any Program Agreement, or any commitment of such Affected Party
with respect to any of the foregoing,
(y) to reduce the amount of any sum received or receivable by
an Affected Party under this Agreement, or under any Program Agreement
with respect thereto, or
(z) to reduce the rate of return on the capital of an Affected
Party as a consequence of its obligations hereunder or under any
Program Agreement or arising in connection herewith to a level below
that which such Affected Party could otherwise have achieved,
then within thirty days after demand by such Affected Party (which demand shall
be accompanied by a statement setting forth the basis for, calculation of, and
amount of such additional costs or reduced amount receivable; provided, however,
that no Affected Party shall be required to disclose any confidential or tax
planning information in any such statement), Seller shall pay directly to such
Affected Party such additional amount or amounts as will compensate such
Affected Party for such additional or increased cost or such reduction, but
without duplication of any other similar additional amounts due under any other
Program Agreement.
(b) Each Affected Party will notify Seller and the Administrator within
one year of the occurrence of any event of which it has knowledge which will
entitle such Affected Party to compensation pursuant to this Section 4.02.
(c) In determining any amount provided for or referred to in this
Section 4.02, an Affected Party may use any reasonable averaging and attribution
methods that it shall deem applicable. Any Affected Party when making a claim
under this Section 4.02
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shall submit to Seller a statement as to such increased cost or reduced return
(including a calculation thereof in reasonable detail), which statement shall,
in the absence of demonstrable error, be conclusive and binding upon Seller.
SECTION 4.03. Funding Losses. In the event that any Affected Party
shall incur any loss or expense (including any loss or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Affected Party to make or maintain any funding with respect to the Asset
Interest) as a result of (i) any settlement with respect to any portion of
Capital funded by such Affected Party being made on any day other than the
scheduled last day of an applicable Settlement Period with respect thereto, or
(ii) any Purchase not being made in accordance with a request therefor under
Section 1.02, then, within thirty days of written notice from the Administrator
to Seller, Seller shall pay to the Administrator for the account of such
Affected Party, the amount of such loss or expense. Such written notice (which
shall include calculations in reasonable detail) shall, in the absence of
demonstrable error, be conclusive and binding upon the Seller.
ARTICLE V
CONDITIONS TO PURCHASES
SECTION 5.01. Conditions Precedent to Initial Purchase. The initial
Purchase hereunder is subject to the condition precedent that the Administrator
shall have received, on or before the date of such Purchase, the following, each
(unless otherwise indicated) dated such date and in form and substance
satisfactory to the Administrator:
(a) Good standing certificates for each of Parent and Seller
issued by the Secretaries of State of the jurisdiction of its
incorporation and its principal place of business;
(b) A certificate of the Secretary of each of Seller and
Parent certifying (i) a copy of the resolutions of its Board of
Directors approving this Agreement and the other Transaction Documents
to be delivered by it hereunder and the transactions contemplated
hereby; (ii) the names and true signatures of the officers authorized
on its behalf to sign this Agreement and the other Transaction
Documents to be delivered by it hereunder (on which certificate the
Administrator and Purchaser may conclusively rely until such time as
the Administrator shall receive from Seller or Parent, as the case may
be, a revised certificate meeting the requirements of this subsection
(b)); (iii) a copy of
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its by-laws; and (iv) all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to
this Agreement and the other Transaction Documents;
(c) The Certificate of Incorporation or Articles of
Incorporation, as applicable, of each of Seller and Parent, duly
certified by the Secretary of State of the jurisdiction of its
incorporation, as of a recent date acceptable to Administrator;
(d) Acknowledgment copies, or time stamped receipt copies, of
proper financing statements (Form UCC-1), filed on or prior to the date
of the initial Purchase, naming (i) Parent as the debtor and seller of
Receivables, Seller as the secured party and purchaser and
Administrator, for the benefit of Purchaser, as the assignee and (ii)
Seller as the debtor and seller of Receivables or an undivided interest
therein and Administrator, for the benefit of Purchaser, as the secured
party and purchaser, or other, similar instruments or documents, as may
be necessary or, in the opinion of the Administrator, desirable under
the UCC or any comparable law of all appropriate jurisdictions to
perfect Seller's and Purchaser's interests in the Pool Assets;
(e) A search report provided in writing to and approved by the
Administrator listing all effective financing statements that name
Parent as debtor or assignor and that are filed in the jurisdictions in
which filings were made pursuant to subsection (d) above and in such
other jurisdictions that Administrator shall reasonably request,
together with copies of such financing statements (none of which shall
cover any Pool Assets, unless executed termination statements and/or
partial releases with respect thereto have been delivered to the
Administrator), and tax and judgment lien search reports from a Person
satisfactory to Servicer and the Administrator showing no evidence of
such liens filed against Parent;
(f) Duly executed copies of the Lock-Box Agreements with the
Lock-Box Banks;
(g) Favorable opinions of Armstrong, Teasdale, Schlafly &
Davis, counsel to Parent and Seller, in substantially the forms of
Exhibits 5.01(g)-1 and 5.01(g)-2, respectively;
(h) Such powers of attorney as the Administrator shall
reasonably request to enable the Administrator to collect all amounts
due under any and all Pool Assets;
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(i) A pro forma Servicer Report, prepared in respect of the
proposed initial Purchase, assuming a Cut-Off Date of July 31, 1998;
(j) Satisfactory results of a review and audit, conducted by
Fleet, of the Parent's collection, operating and reporting systems,
Credit and Collection Policy, historical receivables data and accounts,
including satisfactory results of a review of the Parent's operating
location(s) and satisfactory review and approval of the Eligible
Receivables in existence on the date of the initial Purchase;
(k) Evidence of payment of the Seller by all accrued and
unpaid fees (including those contemplated by the Fee Letter), costs and
expenses to the extent then due and payable on the date thereof,
together with attorneys' fees of the Administrator to the extent
invoiced prior to or on such date, plus such additional amounts of
attorneys' fees as shall constitute the Administrator's reasonable
estimate of attorneys' fees incurred or to be incurred by it through
the closing proceedings (provided that such estimate shall not
thereafter preclude final settling of accounts between the Seller and
the Administrator), including any such costs, fees and expenses arising
under or referenced in Section 14.05;
(l) The Liquidity Agreement, duly executed by Purchaser, the
Liquidity Agent and each Liquidity Bank;
(m) The Purchase Agreement, duly executed by Parent and
Seller, and a copy of all documents required to be delivered
thereunder; and
(n) Such other documents, certificates or opinions as the
Administrator may reasonably request.
SECTION 5.02. Conditions Precedent to All Purchases and Reinvestments.
Each Purchase (including the initial Purchase) and each Reinvestment hereunder,
shall be subject to the further conditions precedent that:
(a) in the case of each Purchase, the Servicer shall have
delivered to the Administrator on or prior to such purchase, in form
and substance satisfactory to the Administrator, a completed Servicer
Report with respect to the immediately preceding calendar month, dated
within two (2) Business Days prior to the date of such Purchase,
together with such additional information as may be reasonably
requested by the Administrator;
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(b) on the date of such Purchase or Reinvestment the
following statements shall be true (and Seller by accepting the amount
of such Purchase or by receiving the proceeds of such Reinvestment
shall be deemed to have certified that):
(i) the representations and warranties contained in
Article VI are correct on and as of such day as though made on
and as of such day and shall be deemed to have been made on
such day (except that any such representation or warranty that
is expressly stated as being made only as of a specified
earlier date shall be true and correct in all material
respects as of such earlier date),
(ii) no event has occurred and is continuing, or
would result from such Purchase or Reinvestment, that
constitutes a Liquidation Event or Unmatured
Liquidation Event,
(iii) after giving effect to each proposed Purchase
or Reinvestment, Capital will not exceed the Purchase Limit
and the Asset Interest will not exceed the Allocation Limit,
and
(iv) the Termination Date shall not have occurred;
(c) the Administrator shall have received such other
approvals, opinions or documents as it may reasonably request;
provided, however, the absence of the occurrence and continuance of an Unmatured
Liquidation Event shall not be a condition precedent to any Reinvestment.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
SECTION 6.01. Representations and Warranties of Seller. Seller
represents and warrants as follows:
(a) Organization and Good Standing. Seller has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with power and authority to
own its properties and to conduct its business as such properties are
presently owned and such business is presently conducted, and had at
all relevant times, and now has, all necessary power, authority, and
legal right to acquire and own the Pool Assets.
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(b) Due Qualification. Seller is duly qualified to do business
as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all other jurisdictions in which
the ownership or lease of property or the conduct of its business
requires such qualification, licenses or approvals has not had, and
except where the failure to so qualify or have such licenses or
approvals has not had, and could not reasonably be expected to have, a
Material Adverse Effect.
(c) Power and Authority; Due Authorization. Seller (i) has all
necessary power, authority and legal right to (A) execute and deliver
this Agreement and the other Transaction Documents to which it is a
party, (B) carry out the terms of the Transaction Documents to which it
is a party, and (C) sell and assign the Asset Interest on the terms and
conditions herein provided and (ii) has duly authorized by all
necessary corporate action the execution, delivery and performance of
this Agreement and the other Transaction Documents to which it is a
party and the sale and assignment of the Asset Interest on the terms
and conditions herein provided.
(d) Valid Transfer; Binding Obligations. This Agreement
constitutes a valid transfer and assignment of the Asset Interest to
the Administrator, for the benefit of Purchaser, enforceable against
creditors of, and purchasers from, Seller; and this Agreement
constitutes, and each other Transaction Document to be signed by Seller
when duly executed and delivered will constitute, a legal, valid and
binding obligation of Seller enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency,
reorganization or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding
in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which it is a party and the fulfillment of the terms hereof and thereof
will not (i) conflict with, result in any breach of any of the terms
and provisions of, or constitute (with or without notice or lapse of
time or both) a default under, the Seller's certificate of
incorporation or by-laws or any Contractual Obligation of Seller, (ii)
result in the creation or imposition of any Lien upon any of Seller's
properties pursuant to the terms of any such Contractual Obligation,
other than this Agreement, or (iii) violate any Applicable Law.
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(f) No Proceedings. There is no litigation, proceedings or
investigations pending, or to the best of Seller's knowledge,
threatened, before any Governmental Authority or arbitrator (i)
asserting the invalidity of this Agreement or any other Transaction
Document to which Seller is a party, (ii) seeking to prevent the sale
and assignment of the Asset Interest or the consummation of any of the
other transactions contemplated by this Agreement or any other
Transaction Document, or (iii) seeking any determination or ruling that
could reasonably be expected to have a Material Adverse Effect.
(g) Bulk Sales Act. No transaction contemplated hereby
requires compliance with any bulk sales act or similar law.
(h) Government Approvals. No Governmental Action is required
for the due execution, delivery and performance by Seller of this
Agreement or any other Transaction Document to which Seller is a party,
except for the filing of the UCC financing statements referred to in
Article V, all of which, at the time required in Article V, shall have
been duly made and shall be in full force and effect.
(i) Financial Condition. Since the date of Seller's formation,
there has been no material adverse change in Seller's financial
condition, business, assets or operations.
(j) Margin Regulations. The use of all funds obtained by
Seller under this Agreement will not conflict with or contravene any of
Regulations G, T, U and X promulgated by the Board of Governors of the
Federal Reserve System from time to time.
(k) Quality of Title. Each Pool Asset is legally and
beneficially owned by Seller free and clear of any Lien (other than any
Lien arising solely as the result of any action taken by Purchaser or
the Administrator); when the Administrator, for the benefit of
Purchaser, makes a Purchase or Reinvestment, it shall have acquired a
valid and enforceable perfected first priority undivided percentage
interest to the extent of the Asset Interest in each Pool Asset, free
and clear of any Lien (other than any Lien arising solely as the result
of any action taken by Purchaser or the Administrator), enforceable
against any creditor of, or purchaser from, Seller or any Originator;
and no financing statement or other instrument similar in effect
covering any Pool Asset is on file in any recording office except such
as may be filed (i) in favor of an Originator in accordance with the
Contracts, (ii) in favor
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of Seller in accordance with the Purchase Agreement, or (iii) in favor
of Purchaser or the Administrator in accordance with this Agreement or
in connection with any Lien arising solely as the result of any action
taken by Purchaser or the Administrator.
(l) Accurate Reports. No Servicer Report or Daily Report (if
prepared by Seller, or to the extent information therein was supplied
by Seller) or other information, exhibit, financial statement,
document, book, record or report furnished or to be furnished by or on
behalf of Seller to the Administrator or Purchaser in connection with
this Agreement was or will be inaccurate in any material respect as of
the date it was or will be dated or (except as otherwise disclosed to
the Administrator at such time) as of the date so furnished, or
contained or will contain any material misstatement of fact or omitted
or will omit to state a material fact or any fact necessary to make the
statements contained therein not materially misleading.
(m) Offices. The principal place of business and chief
executive office of Seller are located at the address of Seller
referred to in Section 14.02, and the offices where Seller keeps all
its books, records and documents evidencing or relating to Pool
Receivables are located at the addresses specified in Schedule 6.01(m)
(or at such other locations, notified to the Administrator in
accordance with Section 7.01(f), in jurisdictions where all action
required by Section 8.05 has been taken and completed).
(n) Lock-Box Accounts. The names and addresses of all the
Lock-Box Banks, together with the account numbers of the lock-box
accounts of Seller at such Lock-Box Banks, are specified in Schedule
6.01(n) (or have been notified to the Administrator in accordance with
Section 7.03(d)).
(o) Eligible Receivables. Each Receivable included in the Net
Pool Balance as an Eligible Receivable on the date of any Purchase,
Reinvestment or other calculation of Net Pool Balance shall be an
Eligible Receivable on such date.
(p) Accounting Sale. The Seller has accounted for each sale of
undivided percentage ownership interests in Receivables in its books
and financial statements as sales, consistent with GAAP.
(q) Credit and Collection Policy. The Seller has complied in
all material respects with the Credit and Collection Policy with regard
to each Receivable.
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(r) Corporate Name. The Seller's complete corporate name is
set forth in the preamble to this Agreement, and the Seller does not
use and has not during the last six years used any other corporate
name, trade name, doing business name or fictitious name.
SECTION 6.02. Representations and Warranties of Parent. Parent
represents and warrants as follows:
(a) Organization and Good Standing. Parent has been duly
organized and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with power and authority to
own its properties and to conduct its business as such properties are
presently owned and such business is presently conducted.
(b) Due Qualification. Parent is duly qualified to do business
as a foreign corporation in good standing, and has obtained all
necessary licenses and approvals, in all jurisdictions in which the
ownership or lease of property or the conduct of its business requires
such qualification, licenses or approvals, except where the failure to
so qualify or have such licenses or approvals has not had, and could
not reasonably be expected to have, a Material Adverse Effect.
(c) Power and Authority; Due Authorization. Parent (i) has all
necessary power, authority and legal right to (A) execute and deliver
this Agreement and the other Transaction Documents to which it is a
party and (B) carry out the terms of the Transaction Documents to which
it is a party and (ii) has duly authorized by all necessary corporate
action the execution, delivery and performance of this Agreement and
the other Transaction Documents to which it is a party.
(d) Binding Obligations. This Agreement constitutes, and each
other Transaction Document to be signed by Parent when duly executed
and delivered will constitute, a legal, valid and binding obligation of
Parent enforceable in accordance with its terms, except as
enforceability may be limited by bankruptcy, insolvency, reorganization
or other similar laws affecting the enforcement of creditors' rights
generally and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
(e) No Violation. The consummation of the transactions
contemplated by this Agreement and the other Transaction Documents to
which Parent is a party and the fulfillment of the terms hereof and
thereof will not (i)
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conflict with, result in any breach of any of the terms and provisions
of, or constitute (with or without notice or lapse of time or both) a
default under the Parent's articles of incorporation or by-laws or any
Contractual Obligation of Parent, (ii) result in the creation or
imposition of any Lien upon any of Parent's properties pursuant to the
terms of any such Contractual Obligation (other than any Lien created
pursuant to the Transaction Documents), or (iii) violate any Applicable
Law.
(f) No Proceedings. There is no litigation, proceedings or
investigations pending or, to the best of Parent's knowledge,
threatened, before any Governmental Authority or arbitrator (i)
asserting the invalidity of this Agreement or any other Transaction
Document to which Parent is a party, (ii) seeking to prevent the sale
and assignment of the Asset Interest or the consummation of any of the
other transactions contemplated by this Agreement or any other
Transaction Document, or (iii) seeking any determination or ruling that
could reasonably be expected to have a Material Adverse Effect.
(g) Government Approvals. No Governmental Action is required
for the due execution, delivery and performance by Parent of this
Agreement or any other Transaction Document to which it is a party,
other than the filing of the UCC financing statements referred to in
Article V, all of which, at the time required in Article V, shall have
been duly made and shall be in full force and effect.
(h) Financial Condition. (x) The consolidated balance sheets
of Parent and its consolidated Subsidiaries as at June 30, 1997, and
the related statements of earnings, shareholders' equity and cash flows
of Parent and its consolidated Subsidiaries for the fiscal year then
ended, certified by Arthur Andersen, and the consolidated balance
sheets of Parent and its consolidated Subsidiaries as at March 31,
1998, and the related statements of earnings, shareholders' equity and
cash flows of Parent and its consolidated Subsidiaries for the fiscal
quarter then ended, copies of which have been furnished to the
Administrator, fairly present the consolidated financial condition,
business and operations of Parent and its consolidated Subsidiaries as
at such dates and the consolidated results of the operations of Parent
and its consolidated Subsidiaries for the periods ended on such dates,
all in accordance with GAAP consistently applied, and (y) since June
30, 1997 there has been no material adverse change in any such
condition, business or operations.
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(i) Accurate Reports. No Servicer Report or Daily Report (if
prepared by Parent, or to the extent information therein was supplied
by Parent) or other information, exhibit, financial statement,
document, book, record or report furnished or to be furnished by or on
behalf of Parent to the Administrator or Purchaser, in connection with
this Agreement was or will be inaccurate in any material respect as of
the date it was or will be dated or (except as otherwise disclosed to
the Administrator at such time) as of the date so furnished, or
contained or will contain any material misstatement of fact or omitted
or will omit to state a material fact or any fact necessary to make the
statements contained therein not materially misleading.
ARTICLE VII
GENERAL COVENANTS
SECTION 7.01. Affirmative Covenants. From the date hereof until the
Final Payout Date:
(a) Compliance with Laws, Etc. Each of Seller and Parent will
comply in all material respects with all Applicable Laws, including
those with respect to the Pool Receivables and the related Contracts,
except where noncompliance could not reasonably be expected to have a
Material Adverse Effect.
(b) Preservation of Corporate Existence. Each of Seller and
Parent will preserve and maintain its corporate existence, rights,
franchises and privileges in the jurisdiction of its formation, and
qualify and remain qualified in good standing as a foreign corporation
in each jurisdiction where the failure to preserve and maintain such
existence, rights, franchises, privileges and qualification could
reasonably be expected to have a Material Adverse Effect.
(c) Audits. (i) Each of Parent and Seller will at any time and
from time to time during regular business hours, permit the
Administrator or any of its agents or representatives, (A) to examine
and make copies of and abstracts from all books, records and documents
(including, without limitation, computer tapes and disks) in its
possession or under its control relating to Pool Assets, (B) to visit
its offices and properties for the purpose of examining such materials
described in clause (i)(A) above, and to discuss matters relating to
Pool Assets or its performance hereunder with any of its officers or
employees having knowledge of such matters, and (C) to verify the
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existence and amount of the Receivables; and (ii) without limiting the
provisions of clause (i) above, from time to time on request of
Administrator, permit certified public accountants or other auditors
acceptable to the Administrator to conduct, at Seller's or Parent's, as
the case may be, expense, a review of its books and records with
respect to the Pool Receivables; provided, however that unless a
Liquidation Event has occurred and is continuing, Seller and Parent
shall not be obligated to pay for more than one such review in each
calendar year.
(d) Keeping of Records and Books of Account. Each of Seller
and Parent will maintain and implement administrative and operating
procedures (including, without limitation, an ability to recreate
records evidencing Pool Receivables in the event of the destruction of
the originals thereof), and keep and maintain all documents, books,
records and other information reasonably necessary or advisable for the
collection of all Pool Assets (including, without limitation, records
adequate to permit the daily identification of each new Pool Receivable
and all Collections of and adjustments to each existing Pool
Receivable).
(e) Performance and Compliance with Receivables and Contracts.
Seller will, at its expense, timely and fully perform and comply (or
cause an Originator to perform and comply pursuant to the Purchase
Agreement) with all provisions, covenants and other promises required
to be observed by it under the Contracts related to the Pool
Receivables and all other agreements related to such Pool Receivables,
except where failure to do so would not materially adversely affect the
validity, enforceability or collectibility of the related Pool
Receivable.
(f) Location of Records. Each of Seller and Parent will keep
its principal place of business and chief executive office, and the
offices where it keeps its records concerning the Pool Receivables and
all related Contracts and all other agreements related to such Pool
Receivables (and all original documents relating thereto), at its
address(es) referred to in Section 14.02 or, upon 30 days' prior
written notice to the Administrator, at such other locations in
jurisdictions where all action required by Section 8.05 shall have been
taken and completed.
(g) Credit and Collection Policies. Each of Seller and Parent,
at its own expense, will timely and fully perform and comply in all
material respects with the Credit and Collection Policy in regard to
each Pool Receivable and the related Contracts.
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(h) Collections. Each of Seller and Parent will instruct (i)
all Obligors to cause all Collections to be sent to a Lock-Box that is
the subject of a Lock-Box Agreement and (ii) each Lock-Box Bank to
deposit all such Collections directly into a Lock-Box Account that is
the subject of a Lock-Box Agreement. In the event that Parent or Seller
receives Collections directly from any Obligor, Parent or Seller, as
the case may be, shall deposit such Collections into a Lock-Box Account
within two Business Days of receipt thereof.
(i) Net Worth. Seller will maintain a Tangible Net Worth of
at least $1,000,000.
(j) Quality of Title. Each of Seller and Parent will take all
action necessary or desirable to establish and maintain a valid and
enforceable perfected first priority undivided percentage interest in
favor of the Administrator, for the benefit of the Purchaser, to the
extent of the Asset Interest in each Pool Asset, free and clear of any
Lien (other than any Lien arising solely as a result of any action
taken by Purchaser or the Administrator), enforceable against any
creditor of, or purchaser from, Seller or Parent.
(k) Financial Covenant. Parent will maintain at all times
during the periods specified below a Capital Base in an amount not less
than the amount shown below for the period corresponding thereto:
Period Amount
------ ------
July 1, 1998 through June 30, 1999 $10,000,000
July 1, 1999 through June 30, 2000 $12,500,000
July 1, 2000 and thereafter $15,000,000
SECTION 7.02. Reporting Requirements. From the date hereof the Final
Payout Date:
(a) Monthly Financial Statements. As soon as available and in
any event within 30 days after the end of each calendar month Parent
will furnish to the Administrator copies of the unaudited interim
financial statements of Parent and its Subsidiaries prepared on a
consolidated and consolidating basis, consisting of at least a balance
sheet as at the close of such month and statements of earnings for such
month and for the period from the beginning of the fiscal year to the
close of such month, in each case in conformity with GAAP (except for
footnote disclosures) and fairly presenting the consolidated financial
position and results of operations of Parent and its Subsidiaries for
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such month and period, duly certified by the principal financial
officer of Parent;
(b) Quarterly Financial Statements. As soon as available and
in any event within 45 days after the end of each of the first three
quarters of each fiscal year (i) Seller will furnish to the
Administrator copies of its financial statements, consisting of at
least a balance sheet as at the close of such quarter and statements of
earnings for such quarter and for the period from the beginning of the
fiscal year to the close of such quarter, in each case in conformity
with GAAP (except for footnote disclosures), duly certified by the
chief financial officer of Seller and (ii) Parent will furnish to the
Administrator copies of the financial statements of Parent and its
Subsidiaries prepared on a consolidated and consolidating basis,
consisting of at least a balance sheet as at the close of such quarter
and statements of earnings for such quarter and for the period from the
beginning of the fiscal year to the close of such quarter, in each case
in conformity with GAAP (except for footnote disclosures) and fairly
presenting the consolidated financial position and results of
operations of Parent and its Subsidiaries for such month and period,
duly certified by the principal financial officer of Parent;
(c) Annual Financial Statements. As soon as available and in
any event within 90 days after the end of each fiscal year (i) Seller
will furnish to the Administrator copies of its financial statements,
consisting of at least a balance sheet of Seller for such year and
statements of earnings, cash flows and shareholders' equity, in each
case in conformity with GAAP, consistently applied, setting forth in
each case in comparative form corresponding figures from the preceding
fiscal year, with all such statements duly certified by independent
certified public accountants of recognized standing selected by Seller
and (ii) Parent will furnish to the Administrator copies of the
unqualified audited financial statements of Parent and its Subsidiaries
prepared on a consolidated and consolidating basis, consisting of at
least a balance sheet of Parent and its Subsidiaries for such year and
consolidated and consolidating statements of earnings, cash flows and
shareholders' equity, in each case in conformity with GAAP,
consistently applied, setting forth in each case in comparative form
corresponding consolidated figures from the preceding fiscal year, with
all such statements duly certified by independent certified public
accountants of recognized standing selected by Parent, together with
copies of any and all letters, reports or other communications from
such accountants to management or to Parent's Board of Directors or any
committee thereof; provided that any
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accompanying consolidating schedules need not be separately
audited;
(d) Compliance Certificate. Together with each quarterly and
annual financial statement delivered in accordance with the preceding
paragraphs, Parent will furnish to the Administrator a compliance
certificate showing a calculation of the financial covenant set forth
in Section 7.01(k) certified by the principal financial officer of
Parent;
(e) Liquidation Events. Each of Seller and Parent will furnish
to the Administrator, as soon as possible and in any event within two
(2) Business Days after an officer of Seller or Parent obtains actual
knowledge of the occurrence of each Liquidation Event and each
Unmatured Liquidation Event, a written statement of the chief financial
officer or chief accounting officer of Seller or Parent, as the case
may be, setting forth details of such event and the action that Seller
or Parent, as the case may be, proposes to take with respect thereto;
(f) Litigation. Each of Seller and Parent will furnish to the
Administrator, as soon as possible and in any event within three
Business Days of Seller's or Parent's actual knowledge thereof, notice
of (i) any litigation, investigation or proceeding which may exist at
any time which could be reasonably expected to have a Material Adverse
Effect and (ii) any material adverse development in previously
disclosed litigation;
(g) Change in Credit and Collection Policy. Each of Seller
and Parent will furnish to the Administrator, prior to its effective
date, notice of any material change in the Credit and Collection
Policy;
(h) Change in Name. Seller will furnish to the Administrator,
at least thirty days prior to any change in the Seller's name, location
or any other change requiring the amendment of UCC financing
statements, a notice setting forth such changes and the effective date
thereof; and
(i) Other Information. Each of Seller and Parent will furnish
to the Administration such other information respecting the Receivables
or the condition or operations, financial or otherwise, of the Parent
or Seller or any of its Affiliates as the Administrator may from time
to time reasonably request.
SECTION 7.03. Negative Covenants. From the date hereof the Final
Payout Date:
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(a) Sales, Liens, Etc. Seller will not, except as otherwise
provided herein, sell, assign (by operation of law or otherwise) or
otherwise dispose of, or create or suffer to exist any Lien upon or
with respect to, any Pool Asset or any interest therein.
(b) Extension or Amendment of Receivables. Neither Parent nor
Seller will, except as otherwise permitted in Section 8.02, extend,
amend or otherwise modify, or permit Servicer to extend, amend or
otherwise modify, the terms of any Pool Receivable; or amend, modify or
waive, or permit Servicer to amend, modify or waive, any term or
condition of any Contract related to a Pool Receivable.
(c) Change in Business or Credit and Collection Policy.
Neither Parent nor Seller will make any change in the character of its
business or in the Credit and Collection Policy, which change could
materially impair the collectibility of any Pool Receivable or
otherwise materially adversely affect the interests or remedies of the
Administrator or Purchaser under this Agreement or any other
Transaction Document.
(d) Change in Payment Instructions to Obligors. Neither Parent
or Seller will add or terminate any bank as a Lock-Box Bank or any
Lock-Box Account from those listed in Schedule 6.01(n) or make any
change, or permit Servicer to make any change, in its instructions to
Obligors regarding payments to be made to Seller or Servicer or
payments to be made to any Lock-Box Bank, unless the Administrator
shall have received notice of such addition, termination or change and
duly executed copies of Lock-Box Agreements with each new Lock-Box Bank
or with respect to each new Lock-Box Account, as the case may be.
(e) Mergers, Acquisitions, Sales, etc. Neither Parent nor
Seller will (i) be a party to any merger or consolidation, or purchase
or otherwise acquire all or any substantial part of the Properties of
any other Person without the consent of the Administrator (provided
that the consolidation of PBI with Parent shall not constitute a
violation of this covenant so long as such consolidation does not
include a merger and so long as Parent does not become directly or
indirectly liable for any Indebtedness of PBI) or (ii) sell, transfer,
convey or lease all or any substantial part of its assets, or sell or
assign with or without recourse any Receivables or any interest therein
(other than pursuant hereto or to the Purchase Agreement). Parent will
not sell any of the capital stock of Seller, or permit any Lien to
exist thereon.
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(f) Deposits to Special Accounts. Neither Parent nor Seller
will deposit or otherwise credit, or cause or permit to be so deposited
or credited, to any Lock-Box Account cash or cash proceeds other than
Collections of Pool Receivables.
(g) Other Business. Seller will not (i) engage in any business
other than the transactions contemplated by the Transaction Documents;
(ii) incur any indebtedness, obligation, liability or contingent
obligation of any kind other than pursuant to this Agreement or the
Purchase Agreement; or (iii) form any Subsidiary or make any
investments in any other Person.
(h) Certificate of Incorporation; Purchase Agreement. Seller
will not amend, modify, terminate, revoke or waive any provision of its
certificate of incorporation, the Initial Purchaser Note or the
Purchase Agreement.
(i) Restricted Payments. Seller will not declare or make any
dividend or other distributions to any of its shareholders, redeem or
purchase any of its capital stock or make any loan or other payments to
any of its shareholders (other than (1) payments of the purchase price
of Receivables as set forth in the Purchase Agreement, (2) the
turn-over of Collections of Reconveyed Receivables to an Originator as
set forth in the Purchase Agreement, (3) payment of the Servicer's Fee
so long as Parent is the Servicer and (4) payment of reasonable
management fees and reimbursement of reasonable expenses of Parent
incurred in connection with managing Seller, so long as such fees and
expenses are in an amount not in excess of those that would be paid in
a similar arms'-length transaction) unless, in each case, no
Liquidation Event or Unmatured Liquidation Event has occurred and is
continuing or would result therefrom.
(j) Change of Name or Location. Seller will not change its
name or the location of its principal place of business or chief
executive office or its corporate structure, unless Seller has given
the Administrator at least thirty (30) days prior notice thereof, and
has taken all steps necessary or advisable under the UCC to continue
the perfection and priority of the Administrator's and Purchaser's
interest in the Pool Assets.
SECTION 7.04. Separate Existence. Each of Seller and Parent hereby
acknowledges that Purchaser, the Program Support Providers and the Administrator
are entering into the transactions contemplated by this Agreement and the other
Transaction Documents in reliance upon Seller's identity as a legal entity
separate from Parent. Therefore, from and after the
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date hereof, each of Seller and Parent shall take all steps specifically
required by this Agreement or by the Purchaser or Administrator to continue
Seller's identity as a separate legal entity and to make it apparent to third
Persons that Seller is an entity with assets and liabilities distinct from those
of Parent and any other Person, and is not a division of Parent or any other
Person. Without limiting the generality of the foregoing and in addition to and
consistent with the other covenants set forth herein, each of Seller and Parent
shall take such actions as shall be required in order that:
(a) Seller will be a limited purpose corporation whose primary
activities are restricted in its certificate of incorporation to
purchasing or otherwise acquiring from the Originators, owning,
holding, granting security interests, or selling interests, in Pool
Assets, entering into agreements for the selling and servicing of the
Receivables Pool, and conducting such other activities as it deems
necessary or appropriate to carry out its primary activities;
(b) Seller shall not engage in any business or activity, or
incur any indebtedness or liability other than as expressly permitted
by the Transaction Documents;
(c) Not less than one member of Seller's Board of Directors
shall be an Independent Director. The certificate of incorporation of
Seller shall provide that (i) Seller's Board of Directors shall not
approve, or take any other action to cause the filing of, a voluntary
bankruptcy petition or a merger or dissolution with respect to Seller
unless the Independent Director shall approve the taking of such action
in writing prior to the taking of such action and (ii) such provision
cannot be amended without the prior written consent of the Independent
Director;
(d) The Independent Director shall not at any time serve as a
trustee in bankruptcy for Seller, Parent or any Affiliate thereof;
(e) Any employee, consultant or agent of Seller will be
compensated from Seller's funds for services provided to Seller. Seller
will not engage any agents other than its attorneys, auditors and other
professionals, and a Servicer as contemplated by the Transaction
Documents for the Receivables Pool, which Servicer will be fully
compensated for its services by payment of the Servicer's Fee and a
manager, which manager will be fully compensated from Seller's funds;
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(f) Seller will not incur any material indirect or overhead
expenses for items shared with Parent (or any other Affiliate thereof)
which are not reflected in the Servicer's Fee or the fee to Parent in
its role as manager for Seller. To the extent, if any, that Seller (or
any other Affiliate thereof) share items of expenses not reflected in
the Servicer's Fee or the manager's fee, such as legal, auditing and
other professional services, such expenses will be allocated to the
extent practical on the basis of actual use or the value of services
rendered, and otherwise on a basis reasonably related to the actual use
or the value of services rendered, it being understood that Parent
shall pay all expenses relating to the preparation, negotiation,
execution and delivery of the Transaction Documents, including, without
limitation, legal and other fees;
(g) Seller's operating expenses will not be paid by Parent or
any other Affiliate thereof;
(h) Seller will have its own stationery;
(i) Seller's books and records will be maintained separately
from those of Parent and any other Affiliate thereof;
(j) All financial statements of Parent or any Affiliate
thereof that are consolidated to include Seller will contain detailed
notes clearly stating that (A) all of Seller's assets are owned by
Seller, and (B) Seller is a separate entity with creditors who have
received security interests in Seller's assets;
(k) Seller's assets will be maintained in a manner that
facilitates their identification and segregation from those of Parent
or any Affiliate thereof;
(l) Seller will strictly observe corporate formalities in its
dealings with Parent or any Affiliate thereof, and funds or other
assets of Seller will not be commingled with those of Parent or any
Affiliate thereof except as permitted by this Agreement in connection
with servicing the Pool Receivables. Seller shall not maintain joint
bank accounts or other depository accounts to which Parent or any
Affiliate thereof (other than Parent in its capacity as Servicer) has
independent access; and
(m) Seller will maintain arms'-length relationships with
Parent (and any Affiliate thereof). Any Person that renders or
otherwise furnishes services to Seller will be compensated by Seller at
market rates for such services it renders or otherwise furnishes to
Seller. Neither Seller
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nor Parent will be or will hold itself out to be responsible for the
debts of the other or the decisions or actions respecting the daily
business and affairs of the other. Seller and Parent will immediately
correct any known misrepresentation with respect to the foregoing, and
they will not operate or purport to operate as an integrated single
economic unit with respect to each other or in their dealing with any
other entity.
ARTICLE VIII
ADMINISTRATION AND COLLECTION
SECTION 8.01. Designation of Servicer.
(a) Parent as Initial Servicer. The servicing, administering and
collection of the Pool Receivables shall be conducted by the Person designated
as Servicer hereunder ("Servicer") from time to time in accordance with this
Section 8.01. Until the Administrator gives to Parent a Successor Notice, Parent
is hereby designated as, and hereby agrees to perform the duties and obligations
of, Servicer pursuant to the terms hereof.
(b) Successor Notice; Servicer Transfer Events. Upon Parent's receipt
of notice from the Administrator of the Administrator's designation of a new
Servicer (a "Successor Notice"), Parent agrees that it will terminate its
activities as Servicer hereunder in a manner that the Administrator reasonably
believes will facilitate the transition of the performance of such activities to
the new Servicer, and the new Servicer shall assume each and all of Parent's
obligations to service and administer such Pool Receivables, on the terms and
subject to the conditions herein set forth, and Parent shall use its best
efforts to assist the new Servicer in assuming such obligations. The
Administrator agrees not to give Parent a Successor Notice until after the
occurrence of a Liquidation Event (any such Liquidation Event being herein
called a "Servicer Transfer Event"), in which case such Successor Notice may be
given at any time in the Administrator's discretion.
(c) Resignation. The Parent acknowledges that the Administrator and
Purchaser have relied on the Parent's agreement to act as Servicer hereunder in
making their decision to execute and deliver this Agreement. Accordingly, the
Parent agrees that it will not voluntarily resign as Servicer.
(d) Subcontracts. Servicer may, with the prior consent of the
Administrator, subcontract with any other Person for servicing, administering or
collecting the Pool Receivables,
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provided that (i) such Sub-Servicer shall agree in writing to perform the duties
and obligations of the Servicer pursuant to the terms hereof; (ii) Servicer
shall remain primarily liable for the performance of the duties and obligations
of Servicer pursuant to the terms hereof, (iii) Seller, the Administrator and
Purchaser shall have the right to look solely to the Servicer for performance,
and (iv) any such subcontract may be terminated at the option of the
Administrator upon the occurrence of a Servicer Transfer Event.
(e) Servicing Programs. In the event that Servicer uses any software
program in servicing the Pool Receivables that it licenses from a third party,
Servicer shall use its best efforts to obtain whatever licenses or approvals are
necessary to allow the Administrator or the new Servicer to use such program.
SECTION 8.02. Duties of Servicer.
(a) Appointment; Duties in General. Each of Seller, Purchaser and the
Administrator hereby appoints as its agent Servicer, as from time to time
designated pursuant to Section 8.01, to enforce its rights and interests in and
under the Pool Assets. Servicer shall take or cause to be taken all such actions
as may be necessary or advisable to collect each Pool Receivable from time to
time, all in accordance with Applicable Law, with reasonable care and diligence
and in accordance with the Credit and Collection Policy.
(b) Allocation of Collections; Segregation. Servicer shall set aside
for the account of Seller and Purchaser their respective allocable shares of the
Collections of Pool Receivables in accordance with Section 1.03 but shall not be
required (unless otherwise instructed by the Administrator) to segregate the
funds constituting such portions of such Collections prior to the remittance
thereof in accordance with Section 3.01. If instructed by the Administrator,
Servicer shall segregate and deposit with a bank designated by the
Administrator, Purchaser's Share of Collections, on the second Business Day
following receipt by Servicer of such Collections in immediately available
funds.
(c) Modification of Receivables. So long as no Liquidation Event or
Unmatured Liquidation Event shall have occurred and be continuing, Servicer may
(i) in accordance with the Credit and Collection Policy, adjust the Unpaid
Balance of any Defaulted Receivable or extend the time for payment of any
Defaulted Receivable (but in no event to a date later than 120 days from the
date of the original invoice), provided that (A) such extension or adjustment
shall not alter the status of such Pool Receivable as a Delinquent Receivable or
a Defaulted Receivable or limit the rights of Purchaser or the Administrator
under this
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Agreement, and (B) the aggregate amount of all such adjustments made in any
Settlement Period, plus the aggregate Unpaid Balance of all Pool Receivables
that have been extended during such Settlement Period, shall not exceed 2% of
the aggregate Unpaid Balance of all Pool Receivables as at the Cut-Off Date for
such Settlement Period and (ii) adjust the Unpaid Balance of any Receivable to
reflect the reductions or cancellations described in the first sentence of
Section 3.02(a).
(d) Documents and Records. Seller shall deliver to Servicer, and
Servicer shall hold in trust for Seller and Purchaser in accordance with their
respective interests, all documents, instruments and records (including, without
limitation, computer tapes or disks) that evidence or relate to Pool
Receivables.
(e) Certain Duties to Seller. Servicer shall, as soon as practicable
following receipt, turn over to Seller (i) that portion of Collections of Pool
Receivables representing its undivided interest therein, less the Seller's Share
of the Servicer's Fee, and (ii) the Collections of any Receivable which is not a
Pool Receivable. Seller hereby directs Servicer to pay any Collections of any
Reconveyed Receivable directly to the related Originator to be applied pursuant
to the Purchase Agreement. Servicer shall, as soon as practicable upon demand,
deliver to Seller copies of documents, instruments and records in its possession
that evidence or relate to Pool Receivables.
(f) Termination. Servicer's authorization under this Agreement shall
terminate upon the Final Payout Date.
(g) Power of Attorney. Seller hereby grants to Servicer an irrevocable
power of attorney, with full power of substitution, coupled with an interest, to
take in the name of Seller all steps which are necessary or advisable to
endorse, negotiate or otherwise realize on any writing or other right of any
kind held or transmitted by Seller or transmitted or received by Purchaser
(whether or not from Seller) in connection with any Receivable. Notwithstanding
anything to the contrary contained herein, the Administrator may direct the
Servicer to commence or settle any legal action to enforce collection of any
Pool Receivable or to foreclose upon or repossess any Related Security;
provided, however, that no such direction may be given unless either (i) a
Liquidation Event has occurred or (ii) the Administrator believes is good faith
that failure to commence, settle, or effect such legal action, foreclosure or
repossession, could adversely affect Receivables constituting a material portion
of the Pool Receivables.
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SECTION 8.03. Rights of the Administrator.
(a) Notice to Obligors. At any time after the occurrence of a
Liquidation Event, the Administrator may notify the Obligors of Pool
Receivables, or any of them, of the ownership of the Asset Interest by the
Administrator, for the benefit of Purchaser.
(b) Notice to Lock-Box Banks. At any time following the earlier to
occur of (i) the occurrence of a Liquidation Event, and (ii) the commencement of
the Liquidation Period, the Administrator is hereby authorized to give notice to
the Lock-Box Banks, as provided in the Lock-Box Agreements, of the transfer to
the Administrator of dominion and control over the lock-boxes and Lock-Box
Accounts. Seller hereby transfers to the Administrator, effective when the
Administrator shall give notice to the LockBox Banks as provided in the Lock-Box
Agreements, the exclusive dominion and control over such lock-boxes and
accounts, and shall take any further action that the Administrator may
reasonably request to effect such transfer. Any proceeds of Pool Receivables
received by the Seller or Parent, as Servicer or otherwise, thereafter shall be
sent immediately to the Administrator.
(c) Rights on Servicer Transfer Event. At any time following the
designation of a Servicer other than Parent pursuant to Section 8.01:
(i) The Administrator may direct the Obligors of Pool
Receivables, or any of them, to pay all amounts payable under any Pool
Receivable directly to the Administrator or its designee.
(ii) Parent shall, at the Administrator's request and at
Parent's expense, give notice of such ownership to each said Obligor
and direct that payments be made directly to the Administrator or its
designee.
(iii) Parent and Seller shall, at the Administrator's request,
(A) assemble all of the documents, instruments and other records
(including, without limitation, computer programs, tapes and disks)
which evidence the Pool Receivables and the related Contracts and
Related Security, or which are otherwise necessary or desirable to
collect such Pool Receivables and make the same available to the
Administrator at a place selected by the Administrator, and (B)
segregate all cash, checks and other instruments received by it from
time to time constituting Collections in a manner acceptable to the
Administrator and promptly upon receipt, remit all such cash, checks
and instruments, duly
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endorsed or with duly executed instruments of transfer, to
the Administrator.
(iv) Each of Seller and Purchaser hereby authorizes the
Administrator, and grants to the Administrator an irrevocable power of
attorney, to take any and all steps in Seller's name and on behalf of
Seller and Purchaser which are necessary or desirable, in the
reasonable determination of the Administrator, to collect all amounts
due under any and all Pool Receivables including, without limitation,
endorsing Seller's name on checks and other instruments representing
Collections and enforcing such Pool Receivables and the related
Contracts.
SECTION 8.04. Responsibilities of Seller. Anything herein the
contrary notwithstanding:
(a) Contracts. Seller shall perform, or cause an Originator to
perform under the Purchase Agreement, all of its obligations under the
Contracts related to the Pool Receivables and under the other
agreements related thereto to the same extent as if the Asset Interest
had not been sold hereunder, and the exercise by the Administrator or
its designee of its rights hereunder shall not relieve Seller from such
obligations.
(b) Limitation of Liability. Neither the Administrator nor
Purchaser shall have any obligation or liability with respect to any
Pool Receivables, the related Contracts or any other related
agreements, nor shall any of them be obligated to perform any of the
obligations of Seller or any Originator thereunder.
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SECTION 8.05. Further Action Evidencing Purchases and Reinvestments.
(a) Further Assurances. The Seller shall, at its expense, take all
action necessary or desirable to establish and maintain a valid and enforceable
first priority perfected undivided ownership interest, to the extent of the
Asset Interest, in the Pool Assets, free and clear of any Lien, in favor of the
Administrator, for the benefit of Purchaser. Without limiting the generality of
the foregoing, Seller will upon the request of the Administrator or its designee
execute and file such financing or continuation statements, or amendments
thereto or assignments thereof, and such other instruments or notices, as may be
necessary or appropriate to evidence or perfect the interest described in the
previous sentence.
(b) Data Processing Records. Each of Parent and Seller will mark its
master data processing records evidencing the Pool Receivables with a legend,
acceptable to the Administrator, evidencing that the Asset Interest has been
sold in accordance with this Agreement.
(c) Additional Financing Statements; Performance by Administrator.
Seller hereby authorizes the Administrator or its designee to file one or more
financing or continuation statements, and amendments thereto and assignments
thereof, relative to all or any portion of the Asset Interest now existing or
hereafter arising in the name of Seller. If Seller or Parent fails to perform
any of its agreements or obligations under this Agreement, the Administrator or
its designee may (but shall not be required to), after notice to Seller or
Parent (unless immediate action is reasonably required to protect the interests
of the Administrator or Purchaser), itself perform, or cause performance of,
such agreement or obligation, and the expenses of the Administrator or its
designee incurred in connection therewith shall be payable by Seller or Parent,
as the case may be.
(d) Continuation Statements; Opinion. Without limiting the generality
of subsection (a), Seller will, not earlier than six (6) months and not later
than three (3) months prior to the fifth anniversary of the date of filing of
the financing statement referred to in Section 5.01(d) or any other financing
statement filed pursuant to this Agreement or in connection with any Purchase
hereunder, unless the Final Payout Date shall have occurred execute and deliver
and file or cause to be filed an appropriate continuation statement with respect
to such financing statement.
SECTION 8.06. Application of Collections. Any payment by Obligor in
respect of any indebtedness owed by it to Seller
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shall, except as otherwise specified by such Obligor, required by the underlying
Contract or law or unless the Administrator instructs otherwise, be applied,
first, as a Collection of any Pool Receivable or Receivables then outstanding of
such Obligor in the order of the age of such Pool Receivables, starting with the
oldest of such Pool Receivable and, second, to any other indebtedness of such
Obligor.
ARTICLE IX
SECURITY INTEREST
SECTION 9.01. Grant of Security Interest. To secure all obligations of
Seller arising in connection with this Agreement and each other Transaction
Document, whether now or hereafter existing, due or to become due, direct or
indirect, or absolute or contingent, including, without limitation, all
Indemnified Amounts, payments on account of Collections of Pool Receivables
received or deemed to be received and fees, Seller hereby assigns and grants to
Administrator, for the benefit of the Secured Parties, a security interest in
all of Seller's right, title and interest (including specifically any undivided
interest retained by Seller hereunder) now or hereafter existing in, to and
under all the Pool Assets.
SECTION 9.02. Further Assurances. The provisions of 8.05 shall apply
to the security interest granted under Section 9.01 as well as to the Purchases,
Reinvestments and the Asset Interest hereunder.
SECTION 9.03. Remedies. Upon the occurrence of a Liquidation Event,
the Administrator and Purchaser shall have, with respect to the collateral
granted pursuant to Section 9.01, and in addition to all other rights and
remedies available to Purchaser or the Administrator under this Agreement or
other applicable law, all the rights and remedies of a secured party upon
default under the UCC.
ARTICLE X
LIQUIDATION EVENTS
SECTION 10.01. Liquidation Events. The following events be
"Liquidation Events" hereunder:
(a) (i) Servicer (if Parent or its Affiliate is Servicer)
shall fail to perform or observe any material term, covenant or
agreement that is an obligation of
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Servicer hereunder (other than as referred to in clause (ii) next
following) and such failure shall remain unremedied for more than
three Business Days or (ii) Seller or Servicer (if Parent or its
Affiliate is Servicer) shall fail to make any payment or deposit to be
made by it hereunder within two (2) Business Days of when due; or
(b) Any representation or warranty made or deemed to be made
by Seller, Parent or any Originator under or in connection with this
Agreement, any other Transaction Document, any Daily Report or any
Servicer Report or other information or report delivered pursuant
hereto shall prove to have been false or incorrect in any material
respect when made; or
(c) Seller, Parent or any Originator shall fail to perform or
observe any other term, covenant or agreement contained in this
Agreement or any of the other Transaction Documents on its part to be
performed or observed and any such failure shall remain unremedied for
ten (10) Business Days after written notice thereof shall have been
given by the Administrator to Seller or Parent, as the case may be; or
(d) A default shall have occurred and be continuing under any
instrument or agreement evidencing, securing or providing for the
issuance of indebtedness for borrowed money in excess of $10,000 of, or
guaranteed by, Parent or any Subsidiary thereof, which default is a
payment default or if unremedied, uncured, or unwaived (with or without
the passage of time or the giving of notice or both) would permit
acceleration of the maturity of such indebtedness and such default
shall have continued unremedied, uncured or unwaived for a period long
enough to permit such acceleration; or any default under any agreement
or instrument relating to the purchase of receivables of Parent or any
Subsidiary thereof (other than this Agreement), if the effect of such
default is to terminate, or permit the termination of, the commitment
of any party to such agreement or instrument to purchase receivables or
the right of Parent or such Subsidiary to reinvest in receivables the
principal amount paid by any party to such agreement or instrument for
an interest in receivables; or
(e) This Agreement or any Purchase or any Reinvestment
pursuant to this Agreement shall for any reason (other than pursuant to
the terms hereof) (i) cease to create, or the Asset Interest shall for
any reason cease to be, a valid and enforceable perfected undivided
percentage interest to the extent of the Asset Interest in each Pool
Asset, free and clear of any other Lien or (ii) cease to create with
respect
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to the items described in Section 9.01, or the interest of the
Administrator (for the benefit of Purchaser) with respect to such
items shall cease to be, a valid and enforceable first priority
perfected security interest, free and clear of any other Lien; or
(f) An Event of Bankruptcy shall have occurred and remain
continuing with respect to Seller, Parent or any Subsidiary thereof; or
(g) The Sales-Based Dilution Ratio for any Cut-Off
Date exceeds 7%; or
(h) The Default Ratio for any Cut-Off Date exceeds 2%;
or
(i) On any Settlement Date, after giving effect to the
payments made under Section 3.01(c), the Asset Interest exceeds the
Allocation Limit; or
(j) The Delinquency Ratio for any Cut-Off Date is
greater than 5%; or
(k) There shall exist any event or occurrence that has caused,
or has a reasonable possibility of causing, a Material Adverse Effect;
or
(l) Seller, any Originator or Parent is subject to a
Change-in-Control; or
(m) The Internal Revenue Service shall file notice of a lien
pursuant to Section 6323 of the Internal Revenue Code with regard to
any of the assets of Seller or Parent and such lien shall not have been
released within 5 Business Days, or the Pension Benefit Guaranty
Corporation shall file notice of a lien pursuant to Section 4068 of the
Employee Retirement Income Security Act of 1974 with regard to any of
the assets of Seller or Parent and such lien shall not have been
released within 5 Business Days.
SECTION 10.02. Remedies.
(a) Optional Liquidation. Upon the occurrence of a Liquidation Event
(other than a Liquidation Event described in subsection (f) of Section 10.01),
the Administrator shall, at the request, or may with the consent, of Purchaser,
by notice to Seller declare the Purchase Termination Date to have occurred and
the Liquidation Period to have commenced.
(b) Automatic Liquidation. Upon the occurrence of a Liquidation Event
described in subsection (f) of Section 10.01,
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the Purchase Termination Date shall occur and the Liquidation Period shall
commence automatically.
(c) Additional Remedies. Upon any Purchase Termination Date occurring
pursuant to this Section 10.02, no Purchases or Reinvestments thereafter will be
made, and the Administrator and Purchaser shall have, in addition to all other
rights and remedies under this Agreement or otherwise, all other rights and
remedies provided under the UCC of each applicable jurisdiction and other
Applicable Law, which rights shall be cumulative.
ARTICLE XI
THE ADMINISTRATOR
SECTION 11.01. Authorization and Action. Pursuant to the Program
Agreements, Purchaser has appointed and authorized the Administrator (or its
designees) to take such action as agent on its behalf and to exercise such
powers under this Agreement as are delegated to the Administrator by the terms
hereof, together with such powers as are reasonably incidental thereto.
SECTION 11.02. Administrator's Reliance, Etc. The Administrator and
its directors, officers, agents or employees shall not be liable for any action
taken or omitted to be taken by it or them under or in connection with the
Transaction Documents (including, without limitation, the servicing,
administering or collecting of Pool Receivables as Servicer pursuant to Section
8.01), except for its or their own gross negligence or willful misconduct.
Without limiting the generality of the foregoing, the Administrator: (a) may
consult with legal counsel (including counsel for Seller), independent certified
public accountants and other experts selected by it and shall not be liable for
any action taken or omitted to be taken in good faith by it in accordance with
the advice of such counsel, accountants or experts; (b) makes no warranty or
representation to Purchaser or any other holder of any interest in Pool
Receivables and shall not be responsible to Purchaser or any such other holder
for any statements, warranties or representations made in or in connection with
any Transaction Document; (c) shall not have any duty to ascertain or to inquire
as to the performance or observance of any of the terms, covenants or conditions
of any Transaction Document on the part of Seller or Parent or to inspect the
property (including the books and records) of Seller, any Originator or Parent;
(d) shall not be responsible to Purchaser or any other holder of any interest in
Pool Receivables for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of any Transaction Document; and (e) shall
incur no liability under or in respect of this Agreement by acting upon any
notice
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(including notice by telephone), consent, certificate or other instrument or
writing (which may be by facsimile or telex) believed by it to be genuine and
signed or sent by the proper party or parties.
SECTION 11.03. Fleet and Affiliates. Fleet and any of its Affiliates
may generally engage in any kind of business with Seller, Parent, any Originator
or any Obligor, any of their respective Affiliates and any Person who may do
business with or own securities of Seller, Parent, any Originator or any Obligor
or any of their respective Affiliates, all as if Fleet were not the
Administrator, and without any duty to account therefor to Purchaser or any
other holder of an interest in Pool Receivables.
ARTICLE XII
ASSIGNMENT OF PURCHASER'S INTEREST
SECTION 12.01. Restrictions on Assignments.
(a) Neither Seller nor Parent may assign its rights, or delegate its
duties, hereunder or any interest herein without the prior written consent of
the Administrator. Purchaser may not assign its rights hereunder (although it
may delegate its duties hereunder as expressly indicated herein) or the Asset
Interest (or any portion thereof) to any Person without the prior written
consent of Seller, which consent shall not be unreasonably withheld; provided,
however, that Purchaser may assign all of its rights and interests in the
Transaction Documents, together with all its interest in the Asset Interest, to
(i) Fleet or any Affiliate thereof, or (ii) to any "bankruptcy remote" special
purpose entity the business of which is administered by Fleet or any Affiliate
thereof, so long as such entity has the ability to issue commercial paper notes,
or to cause the issuance of commercial paper notes, to fund the Asset Interest
or (iii) to any Program Support Provider. If Purchaser notifies Seller and
Parent that it has decided to assign its rights and delegate its duties
hereunder to one or more Program Support Providers (or an agent therefor),
Seller and Parent agree to enter into such amendments hereto and to the other
Transaction Documents as the Administrator may reasonably request to reflect
such assignment and delegation, provided that, unless a Liquidation Event
exists, the Administrator shall be responsible for all reasonable out-of-pocket
costs and expenses incurred by Seller and Parent in connection therewith.
(b) Seller agrees to advise the Administrator within five (5) Business
Days after notice to Seller of any proposed assignment by Purchaser of the Asset
Interest (or any portion thereof), not otherwise permitted under subsection (a),
of
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Seller's consent or non-consent to such assignment and if it does not consent,
the reasons therefor. If Seller does not respond in such time period, Seller
shall be deemed to have consented to such assignment. All of the aforementioned
assignments shall be upon such terms and conditions as Purchaser and the
assignee may mutually agree.
SECTION 12.02. Rights of Assignee. Upon the assignment by Purchaser in
accordance with this Article XII, the assignee receiving such assignment shall
have all of the rights of Purchaser with respect to the Transaction Documents
and the Asset Interest (or such portion thereof as has been assigned).
ARTICLE XIII
INDEMNIFICATION
SECTION 13.01. Indemnities.
(a) General Indemnity by Seller. Without limiting any other rights
which any such Person may have hereunder or under Applicable Law, Seller hereby
agrees to indemnify each of the Administrator, Purchaser, each Program Support
Provider, each of their respective Affiliates, and all successors, permitted
transferees, participants and permitted assigns and all officers, directors,
shareholders, controlling persons, employees and agents of any of the foregoing
(each an "Indemnified Party"), within ten (10) Business Days of demand, from and
against any and all damages, losses, claims, liabilities and related costs and
expenses, including reasonable attorneys' fees and disbursements (all of the
foregoing being collectively referred to as "Indemnified Amounts") awarded
against or incurred by any of them arising out of or relating to the Transaction
Documents or the ownership or funding of the Asset Interest or in respect of any
Receivable or any Contract, excluding, however, (a) Indemnified Amounts to the
extent resulting from gross negligence or willful misconduct on the part of such
Indemnified Party or (b) Indemnified Amounts which have the effect of recourse
for non-payment of the Pool Receivables due to credit problems of the Obligors
(except as otherwise specifically provided in this Agreement). Without limiting
the foregoing, Seller shall indemnify each Indemnified Party for Indemnified
Amounts arising out of or relating to:
(i) the transfer by Seller of any interest in any Pool
Receivable other than the transfer of an Asset Interest to the
Administrator, for the benefit of Purchaser, pursuant to this Agreement
and the grant of a security interest to the Administrator pursuant to
Section 9.01;
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(ii) any representation or warranty made by Seller under or
in connection with any Transaction Document, any Servicer Report, any
Daily Report or any other information or report delivered by or on
behalf of Seller pursuant hereto, which shall have been false,
incorrect or misleading in any respect when made or deemed made;
(iii) the failure by Seller to comply with any Applicable
Law, or the nonconformity of any Pool Receivable or the related
Contract with any Applicable Law;
(iv) the failure to vest and maintain vested in the
Administrator, for the benefit of Purchaser, an undivided percentage
ownership interest, to the extent of the Asset Interest, in the Pool
Assets, free and clear of any Lien, other than a Lien arising solely as
a result of an act of Purchaser or the Administrator, whether existing
at the time of any Purchase or Reinvestment of such Asset Interest or
at any time thereafter;
(v) the failure to file, or any delay in filing, financing
statements or other similar instruments or documents under the UCC of
any applicable jurisdiction or other applicable laws with respect to
any Pool Assets, whether at the time of any Purchase or Reinvestment or
at any time thereafter;
(vi) any dispute, claim, offset or defense (other than
discharge in bankruptcy or payment) of the Obligor to the payment of
any Receivable included in the Net Pool Balance (including, without
limitation, a defense based on such Receivable or the related Contract
not being a legal, valid and binding obligation of such Obligor
enforceable against it in accordance with its terms), or any other
claim resulting from the sale of the merchandise or services related to
such Receivable or the furnishing or failure to furnish such
merchandise or services;
(vii) any failure of Seller to perform its duties or
obligations in accordance with this Agreement;
(viii) any products liability claim arising out of or in
connection with merchandise or services that are the subject of any
Pool Receivable;
(ix) any litigation, proceedings or investigation against
Seller; or
(x) any tax or governmental fee or charge (but not
including taxes upon or measured by net income or representing a
franchise or unincorporated business tax of
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such Person), all interest and penalties thereon or with respect
thereto, and all out-of-pocket costs and expenses, including the
reasonable fees and expenses of counsel in defending against the same,
which may arise by reason of the purchase or ownership of any Asset
Interest, or any other interest in the Pool Receivables or in any goods
which secure any such Pool Receivables.
(b) Indemnity by Servicer. Without limiting any other rights which any
such Person may have hereunder or under applicable law, Servicer hereby agrees
to indemnify each Indemnified Party, forthwith on demand, from and against any
and all Indemnified Amounts awarded against or incurred by any of them arising
out of or relating to (i) any representation or warranty made by Servicer under
or in connection with any Transaction Document, any Servicer Report or any other
information or report delivered by or on behalf of Servicer pursuant hereto,
which shall have been false, incorrect or misleading in any material respect
when made or deemed made, (ii) the failure by Servicer to comply with any
Applicable Law, (iii) the failure of Servicer to perform its duties or
obligations in accordance with this Agreement or (iv) the commingling of any
Collections with other funds.
(c) After-Tax Basis. Indemnification hereunder shall be in an amount
necessary to make the Indemnified Party whole after taking into account any tax
consequences to the Indemnified Party of the receipt of the indemnity provided
hereunder, including the effect of such tax or refund on the amount of tax
measured by net income or profits which is or was payable by the Indemnified
Party.
(d) Contribution. If for any reason the indemnification provided above
in this Section 13.01 is unavailable to an Indemnified Party or is insufficient
to hold an Indemnified Party harmless, then Seller or Servicer, as the case may
be, shall contribute to the amount paid or payable by such Indemnified Party as
a result of such loss, claim, damage or liability in such proportion as is
appropriate to reflect not only the relative benefits received by such
Indemnified Party on the one hand and Seller or Servicer, as the case may be, on
the other hand but also the relative fault of such Indemnified Party as well as
any other relevant equitable considerations.
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ARTICLE XIV
MISCELLANEOUS
SECTION 14.01. Amendments, Etc. No amendment or waiver of any provision
of this Agreement nor consent to any departure by any party therefrom shall in
any event be effective unless the same shall be in writing and signed by (a)
Seller, the Administrator, Parent and Purchaser (with respect to an amendment)
or (b) the Administrator and Purchaser (with respect to a waiver or consent by
them) or Seller or Parent (with respect to a waiver or consent by it), as the
case may be, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given. The parties
acknowledge that, before entering into such an amendment or granting such a
waiver or consent, Purchaser may also be required to obtain the approval of some
or all of the Program Support Providers or to obtain confirmation from certain
rating agencies that such amendment, waiver or consent will not result in a
withdrawal or reduction of the ratings of the Commercial Paper Notes.
SECTION 14.02. Notices, Etc. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including facsimile communication) and shall be personally delivered or sent by
express mail or courier or by certified mail, postage prepaid, or by facsimile,
to the intended party at the address or facsimile number of such party set forth
under its name on Schedule 14.02 or at such other address or facsimile number as
shall be designated by such party in a written notice to the other parties
hereto. All such notices and communications shall be effective, (a) if
personally delivered or sent by express mail or courier or if sent by certified
mail, when received, and (b) if transmitted by facsimile, when sent, receipt
confirmed by telephone or electronic means.
SECTION 14.03. No Waiver; Remedies. No failure on the part of the
Administrator, any Affected Party, any Indemnified Party, Purchaser or any other
holder of the Asset Interest (or any portion thereof) to exercise, and no delay
in exercising, any right hereunder shall operate as a waiver thereof; nor shall
any single or partial exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right. The remedies herein
provided are cumulative and not exclusive of any remedies provided by law.
SECTION 14.04. Binding Effect; Survival. This Agreement shall be
binding upon and inure to the benefit of Seller, Parent, the Administrator,
Purchaser and their respective successors and assigns, and the provisions of
Section 4.02 and Article XIII
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shall inure to the benefit of the Affected Parties and the Indemnified Parties,
respectively, and their respective successors and assigns; provided, however,
nothing in the foregoing shall be deemed to authorize any assignment not
permitted by Section 12.01. This Agreement shall create and constitute the
continuing obligations of the parties hereto in accordance with its terms, and
shall remain in full force and effect until the Final Payout Date. The rights
and remedies with respect to any breach of any representation and warranty made
by Seller or Parent pursuant to Article VI and the indemnification and payment
provisions of Article XIII and Sections 4.02, 14.05, 14.06, 14.07, 14.08 and
14.15 shall be continuing and shall survive any termination of this Agreement.
SECTION 14.05. Costs, Expenses and Taxes. In addition to its
obligations under Article XIII, Seller or Parent, as the case may be, agrees to
pay within five Business Days of demand;
(a) all costs and expenses incurred (i) by the Administrator
and Purchaser, and their respective Affiliates, in connection with the
negotiation, preparation, execution and delivery of, and (ii) by the
Administrator, any Program Support Provider and Purchaser and their
respective Affiliates, in connection with the enforcement after the
occurrence of a Liquidation Event against Seller or Parent, as the case
may be, of, or any actual or claimed breach by Seller or Parent, as the
case may be, of, this Agreement and the other Transaction Documents,
including, without limitation (A) the reasonable fees and expenses of
counsel to any of such Persons incurred in connection with any of the
foregoing or in advising such Persons as to their respective rights and
remedies under any of the Transaction Documents, and (B) all reasonable
out-of-pocket expenses (including reasonable fees and expenses of
independent accountants incurred in connection with any review of
Seller's or Parent's, as the case may be, books and records either
prior to the execution and delivery hereof or pursuant to Section
7.01(c) or otherwise); and
(b) all stamp and other taxes and fees payable or determined
to be payable in connection with the execution, delivery, filing and
recording of this Agreement or the other Transaction Documents, and
agrees to indemnify each Indemnified Party against any liabilities with
respect to or resulting from any delay in paying or omission to pay
such taxes and fees.
SECTION 14.06. No Proceedings. Seller, Parent, Servicer and Fleet
(individually and as Administrator) each hereby agrees that it will not
institute against Purchaser, or join any other Person in instituting against
Purchaser, any insolvency
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proceeding (namely, any proceeding of the type referred to in the definition of
Event of Bankruptcy) so long as any Commercial Paper Notes shall be outstanding
or there shall not have elapsed one year plus one day since the last day on
which any such Commercial Paper Notes shall have been outstanding.
SECTION 14.07. Confidentiality of Program Information.
(a) Confidential Information. Each party hereto acknowledges that Fleet
regards the structure of the transactions contemplated by this Agreement to be
proprietary, and each such party severally agrees that:
(i) it will not disclose without the prior consent of Fleet
or as is required or authorized by the Transaction Documents (other
than to the directors, employees, agents, auditors, counsel or
affiliates (collectively, "representatives") of such party, each of
whom shall be informed by such party of the confidential nature of the
Program Information (as defined below) and of the terms of this Section
14.07), (A) any information regarding the pricing in, or copies of,
this Agreement or any transaction contemplated hereby, (B) any
information regarding the organization, business or operations of
Purchaser generally or the services performed by the Administrator for
Purchaser, or (C) any information which is furnished by Fleet to such
party and which is designated by Fleet to such party in writing or
otherwise as confidential or not otherwise available to the general
public (the information referred to in clauses (A), (B) and (C) is
collectively referred to as the "Program Information"); provided,
however, that such party may disclose any such Program Information (I)
to any other party to this Agreement for the purposes contemplated
hereby, (II) as may be required by any Governmental Authority having or
claiming to have jurisdiction over such party, (III) in order to comply
with Applicable Law, including, without limitation, by filing the
Transaction Documents with the Securities and Exchange Commission
(provided that neither Seller nor Parent shall file the Fee Letter, or,
if required by Applicable Law to file the Fee Letter, Parent or Seller,
as the case may be, shall request confidential treatment therefor) or
(IV) subject to subsection (c), in the event such party is legally
compelled (by interrogatories, requests for information or copies,
subpoena, civil investigative demand or similar process) to disclose
any such Program Information;
(ii) it will use the Program Information solely for the
purposes of evaluating, administering and enforcing the
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transactions contemplated by this Agreement and making any necessary
business judgments with respect thereto; and
(iii) it will, upon demand, return (and cause each of its
representatives to return) to Fleet, all documents or other written
material (other than documents executed by such party) received from
Fleet, as the case may be, in connection with (a)(i)(B) or (C) above
and all copies thereof made by such party which contain the Program
Information.
(b) Availability of Confidential Information. This Section 14.07 shall
be inoperative as to such portions of the Program Information which are or
become generally available to the public or such party on a nonconfidential
basis from a source other than Fleet or were known to such party on a
nonconfidential basis prior to its disclosure by Fleet.
(c) Legal Compulsion to Disclose. In the event that any party or anyone
to whom such party or its representatives transmits the Program Information is
requested or becomes legally compelled (by interrogatories, requests for
information or documents, subpoena, civil investigative demand or similar
process) to disclose any of the Program Information, such party will, to the
extent that it may legally do so,
(i) provide Fleet with prompt written notice so that Fleet
may seek a protective order or other appropriate remedy and/or waive
compliance with the provisions of this Section 14.07; and
(ii) unless Fleet waives compliance by such party with the
provisions of this Section 14.07, make a timely objection to the
request or confirmation to provide such Program Information on the
basis that such Program Information is confidential and subject to the
agreements contained in this Section 14.07.
In the event that such protective order or other remedy is not obtained, or
Fleet waives compliance with the provisions of this Section 14.07, such party
will furnish only that portion of the Program Information which (in such party's
good faith judgment) is legally required to be furnished and will exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded the Program Information.
(d) Survival. This Section 14.07 shall survive termination of this
Agreement.
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SECTION 14.08. Confidentiality of Parent Information.
(a) Confidential Information. Each party hereto acknowledges that
Parent regards certain information to be proprietary, and each such party
severally agrees that:
(i) it will not disclose without the prior consent of
Parent or as is required or authorized by the Transaction Documents
(other than to the directors, employees, agents, auditors, counsel or
affiliates (collectively, "representatives")of such party, each of whom
shall be informed by such party of the confidential nature of the
Parent Information (as defined below) and of the terms of this Section
14.08), any information which is furnished by Parent to such party and
which is designated by Parent to such party in writing or otherwise as
confidential or not otherwise available to the general public ("Parent
Information"); provided, however, that such party may disclose any such
Parent Information (I) to any other party to this Agreement for the
purposes contemplated hereby, (II) as may be required by any
Governmental Authority having or claiming to have jurisdiction over
such party, (III) in order to comply with any Applicable Law, (IV)
subject to subsection (c), in the event such party is legally compelled
(by interrogatories, requests for information or copies, subpoena,
civil investigative demand or similar process) to disclose any such
Program Information, (V) to any Affected Party, (VI) to the Rating
Agencies, or (VII) to any potential Liquidity Bank or any potential
assignee or participant of any Liquidity Bank, and any placement agent
for, or investor or potential investor in, the Commercial Paper Notes;
and
(ii) it will use the Parent Information solely for the
purposes of evaluating, administering and enforcing the transactions
contemplated by this Agreement and making any necessary business
judgments with respect thereto.
(b) Availability of Confidential Information. This Section 14.08
shall be inoperative as to such portions of the Parent Information which are
or become generally available to the public or such party on a nonconfidential
basis from a source other than Parent or were known to such party on a
nonconfidential basis prior to its disclosure by Parent.
(c) Legal Compulsion to Disclose. In the event that any party or
anyone to whom such party or its representatives transmits the Parent
Information is requested or becomes legally compelled (by interrogatories,
requests for information or documents, subpoena, civil investigative demand or
similar
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process) to disclose any of the Parent Information, such party will, to the
extent that it may legally do so,
(i) provide Parent with prompt written notice so that
Parent may seek a protective order or other appropriate remedy and/or
waive compliance with the provisions of this Section 14.08; and
(ii) unless Parent waives compliance by such party with the
provisions of this Section 14.08, make a timely objection to the
request or confirmation to provide such Parent Information on the basis
that such Parent Information is confidential and subject to the
agreements contained in this Section 14.08.
In the event that such protective order or other remedy is not obtained, or
Parent waives compliance with the provisions of this Section 14.08, such party
will furnish only that portion of the Parent Information which (in such party's
good faith judgment) is legally required to be furnished and will exercise
reasonable efforts to obtain reliable assurance that confidential treatment will
be accorded the Parent Information.
(d) Survival. This Section 14.08 shall survive termination of this
Agreement.
SECTION 14.09. Captions and Cross References. The various captions
(including, without limitation, the table of contents) in this Agreement are
provided solely for convenience of reference and shall not affect the meaning or
interpretation of any provision of this Agreement. Unless otherwise indicated,
references in this Agreement to any Section, Appendix, Schedule or Exhibit are
to such Section of or Appendix, Schedule or Exhibit to this Agreement, as the
case may be, and references in any Section, subsection, or clause to any
subsection, clause or subclause are to such subsection, clause or subclause of
such Section, subsection or clause.
SECTION 14.10. Integration. This Agreement and the other Transaction
Documents contain a final and complete integration of all prior expressions by
the parties hereto with respect to the subject matter hereof and shall
constitute the entire understanding among the parties hereto with respect to the
subject matter hereof, superseding all prior oral or written understandings.
SECTION 14.11. GOVERNING LAW. THIS AGREEMENT, INCLUDING THE RIGHTS AND
DUTIES OF THE PARTIES HERETO, SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE
WITH, THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS
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PRINCIPLES THEREOF), EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE INTERESTS
OF THE ADMINISTRATOR IN THE POOL ASSETS IS GOVERNED BY THE LAWS OF THE
JURISDICTION OTHER THAN THE STATE OF NEW YORK.
SECTION 14.12. WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY
EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO
ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER TRANSACTION
DOCUMENT OR UNDER ANY AMENDMENT, INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY
BE IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR ARISING FROM ANY BANKING
OR OTHER RELATIONSHIP EXISTING IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER
TRANSACTION DOCUMENT AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE
TRIED BEFORE A COURT AND NOT A JURY TRIAL.
SECTION 14.13. CONSENT TO JURISDICTION; WAIVER OF IMMUNITIES. EACH OF
PARENT AND SELLER HEREBY ACKNOWLEDGES AND AGREES THAT:
(a) IT HEREBY IRREVOCABLY (I) SUBMITS TO THE NONEXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE OR UNITED STATES FEDERAL COURT
SITTING IN THE BOROUGH OF MANHATTAN, STATE OF NEW YORK, OVER ANY ACTION
OR PROCEEDING ARISING OUT OF OR RELATING TO ANY TRANSACTION DOCUMENT;
(II) AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY
BE HEARD AND DETERMINED IN SUCH STATE OR UNITED STATES FEDERAL COURT;
(III) WAIVES, TO THE FULLEST EXTENT IT MAY EFFECTIVELY DO SO UNDER
APPLICABLE LAW, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE
OF SUCH ACTION OR PROCEEDING; (IV) CONSENTS TO THE SERVICE OF ANY AND
ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
OF SUCH PROCESS TO SUCH PERSON AT ITS ADDRESS SPECIFIED IN SECTION
14.02; AND (V) TO THE EXTENT ALLOWED BY LAW, AGREES THAT A FINAL
JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY
BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 14.13 SHALL
AFFECT THE ADMINISTRATOR'S OR PURCHASER'S RIGHT TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW OR TO BRING ANY ACTION OR
PROCEEDING AGAINST ANY OF SELLER OR PARENT OR ITS PROPERTY IN THE
COURTS OF ANY OTHER JURISDICTIONS.
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(b) TO THE EXTENT THAT IT HAS OR HEREAFTER MAY ACQUIRE ANY
IMMUNITY FROM THE JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS
(WHETHER THROUGH SERVICE OR NOTICE, ATTACHMENT PRIOR TO JUDGMENT,
ATTACHMENT IN AID TO EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO
ITSELF OR ITS PROPERTY, IT HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN
RESPECT OF ITS OBLIGATIONS UNDER OR IN CONNECTION WITH THIS AGREEMENT.
SECTION 14.14. Execution in Counterparts. This Agreement may be
executed in any number of counterparts and by the different parties hereto in
separate counterparts, each of which when so executed shall be deemed to be an
original and all of which when taken together shall constitute one and the same
agreement.
SECTION 14.15. No Recourse Against Other Parties. No recourse under
any obligation, covenant or agreement of Purchaser contained in this Agreement
shall be had against any stockholder (solely in its capacity as stockholder),
employee, officer, director, member or incorporator of Purchaser, provided,
however, that nothing in this Section 14.15 shall relieve any of the foregoing
Persons from any liability which such Person may otherwise have for his/her or
its gross negligence or willful misconduct.
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<PAGE> 58
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
D&K RECEIVABLES CORPORATION, as
Seller
By:_____________________________________
Name Printed:___________________________
Title:__________________________________
D&K HEALTHCARE RESOURCES, INC., as
initial Servicer
By:_____________________________________
Name Printed:___________________________
Title:__________________________________
BLUE KEEL FUNDING, LLC,
as Purchaser
By:_____________________________________
Name Printed:___________________________
Title:__________________________________
FLEET NATIONAL BANK, as
Administrator
By:_____________________________________
Name Printed:___________________________
Title:__________________________________
RECEIVABLES PURCHASE
AGREEMENT
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<PAGE> 59
APPENDIX A
DEFINITIONS
This is Appendix A to the Receivables Purchase Agreement dated as of
August 7, 1998 among D&K Receivables Corporation, as Seller, Blue Keel Funding,
LLC, as Purchaser, D&K Healthcare Resources, Inc., as initial Servicer, and
Fleet National Bank, as Administrator (as amended, supplemented or otherwise
modified from time to time, the "Agreement"). Unless otherwise indicated, all
Section, Exhibit and schedule references in this Appendix are to Sections of and
Exhibits and Schedules to the Agreement.
A. Defined Terms. As used in the Agreement, unless the context
requires a different meaning, the following terms have the meanings indicated
hereinbelow:
"Accounts" means all accounts, contract rights, chattel paper,
instruments and documents, whether now owned or hereafter created or acquired by
Parent or in which Parent now has or hereafter acquires any interest.
"Administrator" has the meaning set forth in the preamble.
"Administrator's Office" means the office of the Administrator at One
Federal Street, Third Floor, Boston, Massachusetts 02211 or such other address
as shall be designated by the Administrator in writing to Seller and Purchaser.
"Affected Party" means each of Purchaser, each Program Support
Provider, any assignee or participant of Purchaser or any Program Support
Provider, Fleet, any successor to Fleet as Administrator, and any sub-agent of
the Administrator.
"Affiliate" when used with respect to a Person means any other Person,
directly or indirectly, controlling, controlled by, or under common control with
such Person, except, when used with respect to the Purchaser, Affiliate shall
mean the holder(s) of its limited liability company interests.
"Allocation Limit" has the meaning set forth in
Section 1.01.
"Alternate Base Rate" means, on any date, a fluctuating rate
of interest per annum equal to the higher of
(a) the rate of interest most recently announced by the Liquidity
Agent in Boston, Massachusetts, as its prime rate; and
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(b) the Federal Funds Rate most recently determined by the
Liquidity Agent plus 0.50% per annum.
The Alternate Base Rate is not necessarily intended to be the lowest rate of
interest determined by the Liquidity Agent in connection with extensions of
credit.
"Applicable Law" means all existing and future applicable laws, rules,
regulations (including proposed, temporary and final income tax regulations),
statutes, treaties, codes, ordinances, permits, certificates, orders and
licenses of and interpretations by any Governmental Authority, and applicable
judgments, decrees, injunctions, writs, orders or like action of any court,
arbitrator or other administrative, judicial or quasi-judicial tribunal or
agency of competent jurisdiction.
"Asset Interest" means an undivided ownership interest determined from
time to time as provided in Section 1.04(b) in all Pool Assets.
"Business Day" means a day other than a Saturday or a Sunday on which
both (a) the Administrator at its principal office in Boston, Massachusetts is
open for business and (b) commercial banks in New York City, Chicago, Illinois
and St. Louis, Missouri are not authorized or required to be closed for
business.
"Capital" means at any time with respect to the Asset Interest an
amount equal to (a) the aggregate of the amounts theretofore paid to Seller for
Purchases pursuant to Section 1.01, less (b) the aggregate amount of Collections
theretofore received and actually distributed to Purchaser on account of the
Capital pursuant to Section 3.01.
"Capital Base" at any date means the sum of (i) Consolidated Tangible
Net Worth, plus (ii) the principal amount of Subordinated Debt.
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by such Person as lessee which would,
in accordance with GAAP, be required to be classified and accounted for as a
capital lease on a balance sheet of such Person, other than, in the case of
Parent or any of its Subsidiaries, any such lease under which Parent or a
wholly-owned Subsidiary of Parent is the lessor.
"Capitalized Lease Obligation" means any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
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"Change in Control" means any of the following:
(a) in relation to Parent, the acquisition following the date
hereof by any person or group of persons (within the meaning of Section
13 or 14 of the Exchange Act) of beneficial ownership (within the
meaning of Rule 13d-3 promulgated by the Securities and Exchange
Commission under the Exchange Act) of issued and outstanding shares of
the capital stock of Parent entitled (without regard to the occurrence
of any contingency) to vote for the election of members of the board of
directors of Parent and having a then present right to exercise 20% or
more of the voting power for the election of members of the board of
directors of Parent attached to all such outstanding shares of capital
stock of Parent, unless otherwise agreed in writing by the Liquidity
Banks and the Administrator; or
(b) the creation or imposition of any Lien on any shares of
capital stock of Seller; or
(c) the failure by Parent to own all of the issued and
outstanding capital stock of Seller and each Originator (other than
Parent).
"Collections" means, with respect to any Receivable, all funds which
either (a) are received by Seller, Servicer, an Originator or any other Person
from or on behalf of the related Obligors in payment of any amounts owed
(including, without limitation, purchase prices, finance charges, interest and
all other charges) in respect of such Receivable, or applied to such amounts
owed by such Obligors (including, without limitation, insurance payments that
Seller, an Originator or Servicer applies in the ordinary course of its business
to amounts owed in respect of such Receivable and net proceeds of sale or other
disposition of repossessed goods or other collateral or property of the Obligor
or any other party directly or indirectly liable for payment of such Receivable
and available to be applied thereon), or (b) are deemed to have been received by
Seller or any other Person as a Collection pursuant to Section 3.02.
"Commercial Paper Holders" means the holders from time to time of the
Commercial Paper Notes.
"Commercial Paper Notes" means short-term promissory notes issued or to
be issued by Purchaser, or the proceeds of which are loaned to Purchaser, to
fund its investments in accounts receivable or other financial assets.
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"Commitment Fee" means, for each day, the amount equal to the product
of (x) the unused Liquidity Commitment Amount on such day, times (y) the
Commitment Fee Rate, times (z) 1/360.
"Commitment Fee Rate" has the meaning set forth in the Fee
Letter.
"Concentration Limit" for any Obligor at any time means an amount equal
to (i) the aggregate Unpaid Balance of all Eligible Receivables at such time
times (ii) the applicable percentage as set forth below opposite the appropriate
ratings of such Obligor's long-term and short-term unsecured debt, or, in the
case of any Obligor listed on Schedule A hereto, the percentage set forth
opposite such Obligor's name on such Schedule A. Any Obligor that has a split
rating shall be deemed to be in the lower rating category.
<TABLE>
<CAPTION>
Long Term Rating Short-Term Rating Applicable
- ---------------- ----------------- Percentage
----------
S&P Moody's S&P Moody's
- --- ------- --- -------
<S> <C> <C> <C> <C>
A+ or better A+ or better A-1 P-1 8.0%
BBB+ to A Baa1 to A2 A-2 P-2 6.0%
BBB- to BBB Baa3 to Baa2 A-3 P-3 4.0%
Not Rated Not Rated 2.0%
</TABLE>
"Consolidated" means the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
"Contract" means a contract between an Originator and any Person, or an
invoice from an Originator to any Person, or any purchase order from any Person
to an Originator pursuant to or under which such Person shall be obligated to
make payments to an Originator. A "related" Contract with respect to the
Receivables means a Contract under which Receivables in the Receivables Pool
arise, which evidence such Receivables, or which is relevant to the collection
or enforcement of such Receivables.
"Contractual Obligation" with respect to any Person, means any
provision of any securities issued by such Person or any indenture, mortgage,
deed of trust, contract, undertaking, agreement, instrument or other document to
which such Person is party or by which it or any of its property is bound or is
subject.
"Cost of Funds Rate" for any period means the sum of (i) the rate
equivalent to the rate (or if more than one rate, the weighted average of rates)
at which Commercial Paper Notes having a term equal to such period and to be
issued to fund or maintain
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the Capital may be sold by any placement agent or commercial paper dealer
selected by the Purchaser or a Program Support Provider, as agreed between each
such agent or dealer and the Purchaser or such Program Support Provider and
notified by the Purchaser to the Agent and the Servicer; provided, however, if
the rate (or rates) as agreed between any such agent or dealer and the Purchaser
with regard to any period is a discount rate (or rates), the "Cost of Funds
Rate" for such period shall be the rate (or if more than one rate, the weighted
average of the rates) resulting from converting such discount rate (or rates) to
an interest-bearing equivalent rate (or rates) per annum, plus (ii), without
duplication, the commissions and charges charged as a percentage of such face
amount and converted to an interest-bearing equivalent rate per anum.
"Credit and Collection Policy" means those credit and collection
policies and practices relating to Contracts and Receivables described in
Schedule 7.01(g), as modified without violating Section 7.03(c).
"Current Assets" at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets on a
balance sheet at such date in accordance with GAAP, except that amounts due from
Affiliates, investments in Affiliates and prepaid expenses shall be excluded
therefrom.
"Cut-Off Date" means the last day of each calendar month.
"Daily Report" has the meaning set forth in Section 3.01(a).
"Deemed Collection" has the meaning set forth in the
Purchase Agreement.
"Defaulted Receivable" means a Receivable: (a) as to which any payment,
or part thereof, remains unpaid for more than 90 days from the original due date
for such payment, (b) as to which the Obligor thereof is the subject of an Event
of Bankruptcy, or (c) which, consistent with the Credit and Collection Policy,
would be written off the Seller's books as uncollectible.
"Default Ratio" means the ratio (expressed as a percentage) computed as
of a Cut-Off Date by dividing (x) the aggregate Unpaid Balance of all Overdue
Receivables as of such Cut-Off Date by (y) the aggregate Unpaid Balance of all
Pool Receivables as of the Cut-Off Date for the third preceding month.
"Delinquency Ratio" means the ratio (expressed as a percentage)
computed as of a Cut-Off Date by dividing (x) the aggregate Unpaid Balance of
all Overdue Receivables on such CutOff Date by (y) the aggregate Unpaid Balance
of all Pool Receivables on such date.
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"Delinquent Receivable" means a Receivable that is not a Defaulted
Receivable and as to which any payment, or part thereof, remains unpaid for more
than 30 days from the original due date for such payment.
"Dilution" means any credit, adjustment, rebate, refund or setoff with
respect to any Receivable granted or allowed by Seller or any Affiliate of
Seller.
"Dilution Reserve" means, at any time, an amount equal to (i) the Net
Pool Balance at such time times (ii) greatest of (A) 4%, (B) the most recently
calculated Sales-Based Dilution Ratio and (C) the average of the three most
recently calculated Sales-Based Dilution Ratios times two.
"Dollars" means dollars in lawful money of the United States
of America.
"Dynamic Loss Reserve Percentage" shall be measured as an amount
calculated pursuant to the following formula:
DLRP = LR x LH x SF
where:
DLRP = the Dynamic Loss Reserve Percentage;
LR = the Loss Ratio, which shall be equal to the highest average
of the Sales-Based Default Ratios for any three consecutive
calendar months during the previous twelve calendar months;
LH = the Loss Horizon, which shall be equal to the cumulative
Sales over the previous three months divided by the Net Pool
Balance as of the most recent Cut-Off Date; and
SF = the Stress Factor, which shall be 2.
"Earned Discount" means for any Settlement Period:
C x ER x ED + LF
-----------
360
where:
C = the daily average (calculated at the close of business each
day) of the Capital during such Settlement Period,
ER = the Earned Discount Rate for such Settlement Period,
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ED = the actual number of days elapsed during such Settlement Period,
and
LF = the Liquidation Fee, if any, during such Settlement Period.
"Earned Discount Rate" means for any Settlement Period:
(a) in the case of any portion of the Capital funded by a
Liquidity Funding, the greater of (1) the sum of (i) the Eurodollar
Rate (Reserve Adjusted) for such Settlement Period, plus (ii) 2.00% per
annum and (2) the then applicable interest rate pursuant to the Loan
Agreement; and
(b) in the case of any portion of the Capital funded by any
Commercial Paper Notes, the LIBOR for such Settlement Period;
provided, however, that on any day during a Settlement Period when any
Liquidation Event or Unmatured Liquidation Event shall have occurred and be
continuing, the Earned Discount Rate for the Capital shall mean the "Default
Rate" as defined in the Loan Agreement plus 1.00% per annum or, if the Loan
Agreement is not then in effect, the higher of (i) the Alternate Base Rate in
effect on such day plus 2% per annum and (ii) the LIBOR for such Settlement
Period plus 3.50% per annum; provided, further that, unless the foregoing
proviso applies, with respect to any Incremental Capital, for the period from
the date of the related Purchase to the next Settlement Date, the Earned
Discount Rate shall be the Cost of Funds Rate for such period.
"Eligible Contract" means a Contract in one of the forms set forth in
Schedule 7.01(e) or otherwise approved by the Administrator.
"Eligible Receivable" means, at any time, a Receivable:
(a) which is originated by an Originator in the ordinary course
of its business for the sale of pharmaceuticals and related products;
(b) which constitutes an account as defined in the UCC;
(c) the Obligor of which is a resident of the United States, or
any of its possessions or territories, is not an Affiliate of Seller
and is not a Governmental Authority;
(d) which was purchased or otherwise acquired by Seller pursuant
to the Purchase Agreement and which was
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designated by the related Originator as an "Eligible
Receivable" pursuant to the Purchase Agreement;
(e) which is not a Delinquent Receivable or a Defaulted
Receivable;
(f) with respect to which the warranty of Seller in Section
6.01(k) is true and correct;
(g) the sale of which, or of an undivided interest in which, does
not contravene or conflict with Applicable Law, or require the consent
of the Obligor or any other Person;
(h) which is denominated and payable only in Dollars in the
United States;
(i) which arises under an Eligible Contract, which contract has
been duly authorized by the parties thereto and that, together with
such Receivable, is in full force and effect and constitutes the legal,
valid and binding obligation of the Obligor of such Receivable
enforceable against such Obligor in accordance with its terms and is
not subject to any defense whatsoever (other than discharge in
bankruptcy and payment);
(j) which, together with the Contract related thereto, does not
contravene in any material respect any Applicable Law and with respect
to which no party to the Contract related thereto is in violation of
any Applicable Law;
(k) which (i) satisfies all material applicable requirements of
the Credit and Collection Policy and (ii) complies with such other
criteria and requirements (other than those relating to the
collectibility of such Receivable) as the Administrator may from time
to time specify to Seller in the exercise of its reasonable business
judgment;
(l) as to which the payment terms have not been altered or
extended so as to materially affect the collectibility of such
Receivable;
(m) the Unpaid Balance of which is payable within 30 days or less
from the invoice date therefor;
(n) which are not Receivables owed by an Obligor for which more
than 20% of the aggregate Unpaid Balance of Receivables of such Obligor
constitute Defaulted Receivables;
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(o) which arise from the completion of the sale and delivery of
goods and services performed, and which do not represent an invoice in
advance of such completion; and
(p) which are not subject to any contingent performance
requirements of the Seller or the related Originator unless such
requirements are guaranteed or insured by third parties acceptable to
the Administrator.
"ERISA" means the U.S. Employee Retirement Income Security
Act of 1974, as amended from time to time.
"Eurodollar Rate (Reserve Adjusted)" means, with respect to any
Settlement Period and any portion of the Capital, a rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) determined pursuant to the
following formula:
Eurodollar Rate = Eurodollar Rate
(Reserve Adjusted) 1 - Eurodollar
Reserve Percentage
where:
"Eurodollar Rate" means, with respect to any Settlement Period and any
portion of the Capital, the rate per annum at which Dollar deposits in
immediately available funds are offered to the Eurodollar Office of the
Administrator two Eurodollar Business Days prior to the beginning of
such period by prime banks in the interbank eurodollar market at or
about 11:00 a.m., New York City time for delivery on the first day of
such Settlement Period, for the number of days comprised therein and in
an amount equal or comparable to the applicable portion of the Capital
for such Settlement Period.
"Eurodollar Business Day" means a day of the year on which dealings are
carried on in the eurodollar interbank market and banks are open for
business in London and are not required or authorized to close in New
York City.
"Eurodollar Reserve Percentage" means, with respect to any Settlement
Period, the then maximum reserve percentage (expressed as a decimal,
rounded upward to the nearest 1/100th of 1%) prescribed by the Federal
Reserve Board for determining the maximum reserve requirements
applicable to "Eurocurrency Liabilities" pursuant to Regulation D
having a term comparable to such Settlement Period.
"Event of Bankruptcy" shall be deemed to have occurred with respect to
a Person if either:
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(a) any case or other proceeding shall be commenced, without the
application or consent of such Person, in any court, seeking the
liquidation, reorganization, debt arrangement, dissolution, winding up,
or composition or readjustment of debts of such Person, the appointment
of a trustee, receiver, custodian, liquidator, assignee, sequestrator
or the like for such Person or all or substantially all of its assets,
or any similar action with respect to such Person under any law
relating to bankruptcy, insolvency, reorganization, winding up or
composition or adjustment of debts, and such case or proceeding shall
continue undismissed, or unstayed and in effect, for a period of 60
consecutive days; or an order for relief in respect of such Person
shall be entered in an involuntary case under the federal bankruptcy
laws or other similar laws now or hereafter in effect and shall either
not be contested or shall remain undismissed for 60 consecutive days;
or
(b) such Person shall commence a voluntary case or other
proceeding under any applicable bankruptcy, insolvency, reorganization,
debt arrangement, dissolution or other similar law now or hereafter in
effect, or shall consent to the appointment of or taking possession by
a receiver, liquidator, assignee, trustee, custodian, sequestrator (or
other similar official) for such Person or for any substantial part of
its property, or shall make any general assignment for the benefit of
creditors, or shall fail to, or admit in writing its inability to, pay
its debts generally as they become due, or, if a corporation or similar
entity, its board of directors shall vote to implement any of the
foregoing.
"Excess Amount" as of any date, means the amount, if any, by which the
sum of the Capital, plus the Required Reserves on such date exceeds the Net Pool
Balance, as most recently calculated.
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Federal Funds Rate" means, for any period, a fluctuating interest rate
per annum equal (for each day during such period) to
(a) the weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System arranged by
federal funds brokers, as published for such day (or, if such day is
not a Business Day, for the next preceding Business Day) by the Federal
Reserve Bank of New York; or
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(b) if such rate is not so published for any day which is a
Business Day, the average of the quotations for such day on such
transactions received by Fleet from three federal funds brokers of
recognized standing selected by it.
"Fee Letter" has the meaning set forth in Section 4.01.
"Fees" means the Commitment Fee and the Program Fee.
"Federal Reserve Board" means the Board of Governors of the Federal
Reserve System, or any successor thereto or to the functions thereof.
"Final Payout Date" means the date following the Termination Date on
which the Capital shall have been reduced to zero and all other amounts payable
by Seller to Purchaser, the Administrator, the Affected Parties and the
Indemnified Parties under the Transaction Documents shall have been paid in
full.
"Fleet" has the meaning set forth in the preamble.
"GAAP" means generally accepted accounting principles as in effect in
the United States from time to time.
"Governmental Action" means all permits, authorizations, registrations,
consents, approvals, waivers, exceptions, variances, orders, judgements,
decrees, licenses, exemptions, publications, filings, notices to and declaration
of or with, or required by, any Governmental Authority, or required by any
Applicable Law.
"Governmental Authority" means any foreign or domestic federal, state,
county, municipal or other governmental or regulatory authority, agency, board,
body, commission, instrumentality, court or any political subdivision thereof.
"Incremental Capital" means the amount paid to Seller for any Purchase
(other than the first Purchase) that is consummated on a day other than a
Settlement Date.
"Indebtedness" as applied to a Person means, without duplication,
(i) all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side of a
balance sheet of such Person as at the date as of which Indebtedness is
to be determined, including, without limitation, Capitalized Lease
Obligations,
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(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with letters of
credit or letter of credit guaranties issued for the account of such
Person, and
(iv) in the case of Parent (without duplication), the Obligations
(as defined in the Loan Agreement).
"Indemnified Amounts" has the meaning set forth in Section 13.01.
"Indemnified Party" has the meaning set forth in Section 13.01.
"Independent Director" shall mean an individual who is not, and never
was, (1) a member, stockholder, director, officer, employee, Affiliate, customer
or supplier of, or an individual that has received any benefit (excluding,
however, any compensation received in such individual's capacity as Independent
Director) in any form whatever from, or an individual who has provided any
service (excluding, however, any service provided by such individual in such
individual's capacity as Independent Director) in any form whatever to, the
Parent or any of its subsidiaries or Affiliates, or (2) an individual owning
beneficially, directly or indirectly, any interest in the Parent, or a
stockholder, director, officer, employee, Affiliate, customer or supplier
thereof, or an individual who has received any direct economic benefit
(excluding, however, any compensation received in such individual's capacity as
Independent Director) in any form whatever from, or an individual who has
provided any service (excluding, however, any service provided by such
individual in such individual's capacity as Independent Director) in any form
whatever to, such beneficial owner or any of such beneficial owner's Affiliates,
or (3) an individual who is a relative or spouse of an individual described in
clause (1) or (2) above.
"Interest Rate Contract" means all interest rate swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
insurance and other agreements and arrangements designed to provide protection
against fluctuations in interest rates, in each case as the same may be from
time to time amended, restated, renewed, supplemented or otherwise modified.
"LIBOR" means, with respect to any Settlement Period or portion
thereof, the rate of interest (expressed as an annual rate and rounded upwards,
if necessary, to the nearest 1/16th of 1%) at which deposits in Dollars would be
offered by principal
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London offices of banks at approximately 11:00 a.m. (London time) on the first
day of the Settlement Period or portion thereof for the period from that day to
the next Settlement Date. For periods which extend from one Settlement Date to
the next Settlement Date, the applicable rate will be the one-month LIBOR rate
which appears on Telerate page 3750 as of 9:00 a.m. (Boston time) or as soon
thereafter as practicable. For periods which begin on a day other than a
Settlement Date, the applicable rate will be the rate equal to the average
(rounded up to the nearest 1/16th of 1%) of the rates shown on the display
referred to as the "LIBO" page (or any display substituted therefor) of the
Telerate matrix (presently page 5) for a period of time from that day to the
next Settlement Date. The determination of the applicable LIBOR rate by
Purchaser shall be conclusive in the absence of demonstratable error.
"Lien" means any mortgage, lien, pledge, encumbrance, charge, title
retention or other security interest of any kind, whether arising under a
security agreement, mortgage, deed of trust, assignment, pledge or financing
statement or arising as a matter of law, judicial process or otherwise.
"Liquidation Event" has the meaning set forth in Section 10.01.
"Liquidation Fee" means, for each day in any Settlement Period during
the Liquidation Period following the occurrence of a Liquidation Event, the
amount, if any, by which:
(a) the additional Earned Discount (calculated without taking
into account any Liquidation Fee) which would have accrued on the
reductions of the Capital during such Settlement Period (as so
computed) if such reductions had not been made, exceeds
(b) the income, if any, received by Purchaser from investing the
proceeds of such reductions of the Capital.
"Liquidation Period" means the period commencing on the date on which
the conditions precedent to Purchases and Reinvestments set forth in Section
5.02 are not satisfied (or expressly waived by Purchaser) and the Administrator
shall have notified Seller and Servicer in writing that the Liquidation Period
has commenced, and ending on the Final Payout Date.
"Liquidity Agent" means Fleet, as agent for the Liquidity Banks under
the Liquidity Agreement, or any successor to Fleet in such capacity.
"Liquidity Agreement" means and includes the Liquidity Agreement dated
as of August 7, 1998 among Purchaser, Fleet, as
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Liquidity Agent, and certain other financial institutions, party thereto as
liquidity providers, and any other agreement hereafter entered into by Purchaser
providing for the making of loans, purchases or undivided interests or other
extensions of credit to Purchaser to support all or part of Purchaser's payment
obligations with respect to the Commercial Paper Notes or to provide an
alternate means of funding Purchaser's investments in accounts receivable or
other financial assets, and under which the amount available from such
extensions of credit is limited to an amount calculated by reference to the
value or eligible unpaid balance of such accounts receivable or other financial
assets or any portion thereof or the level of deal-specific credit enhancement
available with respect thereto.
"Liquidity Bank" means any one of, and "Liquidity Banks" means all of,
Fleet and the other financial institutions that are at any time parties to a
Liquidity Agreement as liquidity providers.
"Liquidity Commitment Amount" means, at any time, the then aggregate
amount of the Liquidity Banks' commitments under the Liquidity Agreement.
"Liquidity Funding" means a loan or purchase made by the Liquidity Bank
(or simultaneous loans or purchases made by the Liquidity Banks) pursuant to a
Liquidity Agreement.
"Loan Agreement" means the Fourth Amended and Restated Loan and
Security Agreement, dated as of August 7, 1998, among Fleet Capital Corporation,
Parent and Jaron, Inc.
"Lock-Box" means any post office box to which Collections of Pool
Receivables are sent.
"Lock-Box Account" means any bank account to which Collections of Pool
Receivables are sent or deposited.
"Lock-Box Agreement" means a letter agreement, in substantially the
form of Exhibit 5.01(f), among Seller, Parent and any Lock-Box Bank.
"Lock-Box Bank" means any of the banks holding one or more Lock-Box
Accounts for receiving Collections from Pool Receivables.
"Loss Reserve" means the product of (A) the greater of (1) 8%; and (2)
the Dynamic Loss Reserve Percentage and (B) the Net Pool Balance.
"Material Adverse Effect" with respect to any event or circumstance,
means a material adverse effect on:
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(i) the business, financial condition, assets, prospects or
operations of Seller or Parent;
(ii) the ability of Servicer or Parent to perform its obligations
under this Agreement or any other Transaction Document;
(iii) the validity, enforceability or collectibility of this
Agreement or any other Transaction Document or the validity,
enforceability or collectibility of the Receivables; or
(iv) the status, existence, perfection, priority or
enforceability of the Administrator's or Purchaser's interest in the
Pool Assets.
"Monthly Servicer's Fee" means the Servicer's Fee accrued in
a calendar month.
"Moody's" means Moody's Investors Service, Inc.
"Net Pool Balance" at any time means an amount equal to (i) the
aggregate Unpaid Balance of the Eligible Receivables in the Receivables Pool at
such time, minus (ii) the aggregate amount by which the aggregate Unpaid Balance
of the Eligible Receivables of each Obligor and its Affiliates exceeds the
Concentration Limit for such Obligor at such time.
"Obligor" means a Person obligated to make payments with respect to a
Receivable, including any guarantor thereof.
"Originator" means the Parent in its capacity as originator of
Receivables, together with the other originators party to the Purchase
Agreement.
"Overdue Receivable" means a Receivable that remains unpaid for more
than 60 days but no more than 90 days from the original due date for such
payment, or that has been charged off before it has become 91 days past due.
"Parent" has the meaning set forth in the preamble.
"Past Due Receivable" means a Receivable that remains unpaid for more
than 30 days but no more than 60 days from the original due date for such
payment, or that has been charged off before it has become 61 days past due.
"PBI" means Pharmaceutical Buyers, Inc., an Arkansas corporation.
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"Person" means an individual, partnership, corporation (including a
business trust), joint stock company, trust, unincorporated association, joint
venture, limited liability company, government or any agency or political
subdivision thereof or any other entity.
"Pool Assets" has the meaning set forth in Section 1.04(a).
"Pool Receivable" means a Receivable in the Receivables Pool.
"Program Agreement" means each Liquidity Agreement, each agreement
pursuant to which Purchaser obtains funding, through the issuance of Commercial
Paper Notes or otherwise, and each other agreement entered into by Purchaser in
connection with its securitization program.
"Program Fee" means, for each day, the amount equal to the product of
(x) the Capital on such day, times (y) the Program Fee Rate, times (z) 1/360.
"Program Fee Rate" has the meaning set forth in the Fee Letter.
"Program Information" has the meaning set forth in Section 14.07.
"Program Support Provider" means each of each entity that issues
Commercial Paper Notes, each Liquidity Bank and the Administrator.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Purchase" has the meaning set forth in Section 1.01.
"Purchase Agreement" means the Purchase and Sale Agreement, dated as of
August 7, 1998, among Seller and the Originators.
"Purchase Limit" has the meaning set forth in Section 1.01.
"Purchase Termination Date" means that day
(a) the Administrator declares a Purchase Termination Date in a
notice to Seller in accordance with Section 10.02(a); or
(b) in accordance with Section 10.02(b), becomes the Purchase
Termination Date automatically.
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"Purchaser" has the meaning set forth in the preamble.
"Purchaser's Share" of any amount means the then Asset Interest,
expressed as a percentage, (but not greater than 100%) times such amount.
"Rating Agencies" at any time means those rating agencies then rating
the Commercial Paper Notes.
"Receivable" means any right to payment from a Person, whether
constituting an account, chattel paper, instrument or general intangible,
arising under a Contract and includes the right to payment of any interest or
finance charges and other obligations of such Person with respect thereto.
Indebtedness and other obligations arising from any one transaction, including,
without limitation, indebtedness and other obligations represented by an
individual invoice or agreement, shall constitute a Receivable separate from a
Receivable consisting of the indebtedness and other obligations arising from any
other transaction.
"Receivables Pool" means at any time all then outstanding Receivables,
other than Reconveyed Receivables.
"Reconveyed Receivable" means a Receivable for which an Originator has
paid the full Unpaid Balance pursuant to the Purchase Agreement.
"Regulation D" means Regulation D of the Federal Reserve Board, or any
other regulation of the Federal Reserve Board that prescribes reserve
requirements applicable to nonpersonal time deposits or "Eurocurrency
Liabilities" as presently defined in Regulation D, as in effect from time to
time.
"Regulatory Change" means, relative to any Affected Party
(a) any change in (or the adoption, implementation, change in
phase-in or commencement of effectiveness of) any
(i) United States federal or state law or foreign law
applicable to such Affected Party;
(ii) regulation, interpretation, directive, requirement or
request (whether or not having the force of law) applicable to
such Affected Party of (A) any court, government authority charged
with the interpretation or administration of any law referred to
in clause (a)(i) or of (B) any fiscal, monetary or other authority
having jurisdiction over such Affected Party; or
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(iii) GAAP or regulatory accounting principles applicable to
such Affected Party and affecting the application to such Affected
Party of any law, regulation, interpretation, directive,
requirement or request referred to in clause (a)(i) or (a)(ii)
above; or
(b) any change in the application to such Affected Party of any
existing law, regulation, interpretation, directive, requirement,
request or accounting principles referred to in clause (a)(i), (a)(ii)
or (a)(iii) above.
"Reinvestment" has the meaning set forth in Section 1.03.
"Related Security" means, with respect to any Pool Receivable: (a) all
of Seller's or the related Originator's right, title and interest in and to all
Contracts that relate to such Pool Receivable; (b) all security interests or
liens and property subject thereto from time to time purporting to secure
payment of such Pool Receivable, whether pursuant to the Contract related to
such Pool Receivable or otherwise; (c) all UCC financing statements covering any
collateral securing payment of such Pool Receivable; (d) all guarantees and
other agreements or arrangements of whatever character from time to time
supporting or securing payment of such Pool Receivable whether pursuant to the
Contract related to such Pool Receivable or otherwise; and (e) all of Seller's
and the related Originator's interest in the merchandise (including returned
merchandise), if any, relating to the sale that gave rise to such Pool
Receivable.
"Reporting Date" has the meaning set forth in Section 3.01(a).
"Required Reserves" means, on any day, an amount equal to the sum of
(1) the Dilution Reserve, (2) the Loss Reserve, and (3) the Yield Reserve, in
each case as most recently calculated.
"Restricted Investment" means any investment made in cash or by
delivery of Property to any Person, whether by acquisition of stock,
Indebtedness or other obligation or Security, or by loan, advance or capital
contribution, or otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of Parent to the
extent existing on the date hereof;
(ii) Property to be used in the ordinary course of business;
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(iii) Current Assets arising from the sale of goods and services
in the ordinary course of business of Parent and its Subsidiaries;
(iv) investments in direct obligations of the United States of
America, or any agency thereof or obligations guaranteed by the United
States of America, provided that such obligations mature within one
year from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within one
year from the date of acquisition issued by a bank or trust company
organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least
$100,000,000;
(vi) investments made under and pursuant to the Transaction
Documents; and
(vii) investments in commercial paper given the highest rating by
a national credit rating agency and maturing not more than 270 days
from the date of creation thereof.
"S&P" means Standard & Poor's Ratings Services.
"Sales" means sales of the Originators which generate trade
receivables.
"Sales-Based Default Ratio" means, as of any Cut-Off Date, the ratio,
expressed as a percentage, of (i) the aggregate Unpaid Balance of all Past Due
Receivables for the two successive months occurring immediately prior to the
month ending on such Cut-off Date, divided by (ii) the aggregate billings for
the fourth and fifth preceding months. For example, as of April 30, the
numerator of the Sales-Based Default Ratio would be the aggregate Unpaid Balance
of all Pool Receivables that were Past Due Receivables as of February 28 and
March 31; the denominator of the Sales-Based Default Ratio would be the
aggregate billings for the months of December and January.
"Sales-Based Dilution Ratio" as of any Cut-Off Date means (a) the
aggregate reduction attributable to Dilutions occurring in the Unpaid Balance of
Pool Receivables which Dilutions were granted during the month ending on such
Cut-Off Date; divided by (b) the aggregate amount of Sales for the month
immediately preceding the month ending as of such Cut-Off Date.
"Secured Parties" means Purchaser, the Administrator, the
Indemnified Parties and the Affected Parties.
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"Security" shall have the meaning as in Section 2(l) of the Securities
Act of 1933, as amended.
"Seller" has the meaning set forth in the preamble.
"Seller's Share" of any amount means (x) 100% minus the Asset Interest
(but such Asset Interest shall not be greater than 100%) times (y) such amount.
"Servicer" has the meaning set forth in Section 8.01(a).
"Servicer Report" has the meaning set forth in Section 3.01.
"Servicer Transfer Event" has the meaning set forth in Section 8.01(b).
"Servicer's Fee" means, for each day, an amount equal to (x) the
Servicer's Fee Rate, times (y) the aggregate Unpaid Balance of all Pool
Receivables at the close of business on such day, times (z) 1/360.
"Servicer's Fee Rate" means .50% per annum or, in the event that Parent
is no longer the Servicer, such higher rate as may be charged by the successor
Servicer.
"Settlement Date" has the meaning set forth in Section 3.01(c).
"Settlement Period" means the period (i) in the case of the first
Settlement Period, from, and including, the date of the initial Purchase to, but
excluding the next Settlement Date and (ii) thereafter, from, and including,
each Settlement Date to, but excluding, the next Settlement Date.
"Subordinated Debt" means indebtedness of Parent that is expressly
subordinated to the Obligations (as defined in the Loan Agreement), including,
without limitation, Indebtedness evidenced by the Promissory Note of D&K in
favor of Steven B. Goldfine, as agent, issued in connection with the purchase of
Northern Drug Company.
"Subsidiary" means a corporation of which Parent and/or its other
Subsidiaries own, directly or indirectly, such number of outstanding shares as
have more than 50% of the ordinary voting power for the election of directors.
"Successor Notice" has the meaning set forth in Section 8.01(b).
"Tangible Assets" means all assets except:
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(i) any surplus resulting from any write-up of assets after
June 30, 1997;
(ii) deferred assets, other than prepaid insurance and prepaid
taxes;
(iii) patents, copyrights, trademarks, trade names, noncompete
agreements, franchises and other similar intangibles;
(iv) goodwill, including any amounts, however designated on a
Consolidated balance sheet of a Person and its Subsidiaries,
representing the excess of the purchase price paid for assets or stock
over the value assigned thereto on the books of such Person;
(v) Restricted Investments;
(vi) unamortized debt discount and expense;
(vii) assets located and notes and receivables due from obligors
outside the Untied States of America; and
(viii) accounts, notes and other receivables due from Affiliates
or employees.
"Tangible Net Worth" at any date means a sum equal to: (i) the net book
value (after deducting related depreciation, obsolescence, amortization,
valuation, and other proper reserves) at which the Tangible Assets of a Person
would be shown on a balance sheet at such date in accordance with GAAP, plus
(ii) such Person's LIFO reserve at such date (computed in accordance with GAAP)
minus (iii) the amount at which such Person's liabilities (other than capital
stock and surplus) would be shown on such balance sheet in accordance with GAAP,
and including as liabilities all reserves for contingencies and other potential
liabilities.
"Termination Date" means the earliest of
(a) the date of termination (whether by scheduled expiration,
termination on default or otherwise) of any Program Support Provider's
commitment under any Program Agreement;
(b) the Purchase Termination Date;
(c) August 7, 2001; and
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(d) the date on which Seller terminates Purchaser's right to make
Purchases and Reinvestments pursuant to Section 1.05.
"Transaction Documents" means this Agreement, the Lock-Box Agreements,
the Purchase Agreement, the Fee Letter and other documents to be executed and
delivered in connection herewith.
"Turnover Rate" means, as of any Cut-Off Date, the ratio (expressed as
a percentage) of (i) the aggregate Unpaid Balance of the Pool Receivables as of
such Cut-Off Date, divided by (ii) the aggregate Collections for the month
ending on such Cut-Off Date.
"UCC" means the Uniform Commercial Code as from time to time in effect
in the applicable jurisdiction or jurisdictions.
"Unmatured Liquidation Event" means any event which, with the giving of
notice or lapse of time, or both, would become a Liquidation Event.
"Unpaid Balance" of any Receivable means at any time the
unpaid principal amount thereof.
"Yield Reserve" means, at any time, an amount equal to the product of
(i) the Net Pool Balance on such day, times (ii) the sum of (A) the LIBOR for
the current Settlement Period, plus (B) 2.00%, plus (C) the Servicer's Fee Rate,
divided by (iii) 12, times (iv) 2, times (v) the most recently calculated
Turnover Rate.
B. Other Terms. All accounting terms not specifically defined herein
shall be construed in accordance with GAAP. All terms used in Article 9 of the
UCC in the State of New York, and not specifically defined herein, are used
herein as defined in such Article 9.
C. Computation of Time Periods. Unless otherwise stated in this
Agreement, in the computation of a period of time from a specified date to a
later specified date, the word "from" means "from and including" and the words
"to" and "until" each means "to but excluding".
D. Interpretation. In each Transaction Document, unless a clear
contrary intention appears:
(i) the singular number includes the plural number and vice
versa;
(ii) reference to any Person includes such Person's successors and
assigns but, if applicable, only if such
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successors and assigns are permitted by the Transaction Documents, and
reference to a Person in a particular capacity excludes such Person in
any other capacity or individually;
(iii) reference to any gender includes each other gender;
(iv) reference to any agreement (including any Transaction
Document), document or instrument means such agreement, document or
instrument as amended, supplemented or modified and in effect from time
to time in accordance with the terms thereof and, if applicable, the
terms of the other Transaction Documents and reference to any
promissory note includes any promissory note which is an extension or
renewal thereof or a substitute or replacement therefor; and
(v) reference to any Applicable Law means such Applicable Law as
amended, modified, codified, replaced or reenacted, in whole or in
part, and in effect from time to time, including rules and regulations
promulgated thereunder and reference to any section or other provision
of any Applicable Law means that provision of such Applicable Law from
time to time in effect and constituting the substantive amendment,
modification, codification, replacement or reenactment of such section
or other provision.
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SCHEDULE A
<TABLE>
<CAPTION>
Obligor Rating Percentage**
------- ------ ----------
<S> <C> <C>
Walmart A1/P1 25.00%
Kroger BBB-/Baa3 12.00%
American Drug Stores P2/F2 10.00%
Eckerd*/ A 10.00%
-
Schnucks N/R 7.00%
Pamida B1 5.00%
ARH N/R 5.00%
Anthem N/R 5.00%
</TABLE>
In addition, Schnucks, Pamida and ARH combined cannot exceed 15% during
any one month.
- --------
*/ If Eckerd is no longer a wholly owned Subsidiary of JC Penney's, the
Administrator may lower the listed percentage at any time at its
discretion.
**/ If any rating of any Obligor is lowered or withdrawn, or any Obligor is
placed on credit watch, the Administrator may lower the listed
percentage of such Obligor at any time at its discretion.
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EXHIBIT 10.28
FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
THIS FOURTH AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT is made as of
this 7th day of August, 1998, by and among FLEET CAPITAL CORPORATION ("Lender"),
a Rhode Island corporation with an office at One North Franklin, Suite 3600,
Chicago, IL 60606; and D & K HEALTHCARE RESOURCES, INC., a Delaware corporation
("D&K") and JARON, INC., a Florida corporation ("Jaron"), and each of which with
its chief executive office and principal place of business at 8000 Maryland
Avenue, St. Louis, Missouri 63105. (D&K and Jaron are sometimes hereinafter
referred to collectively as the "Borrowers" and individually as a "Borrower").
Capitalized terms used in this Agreement have the meanings assigned to them in
Appendix A, General Definitions. Accounting terms not otherwise specifically
defined herein shall be construed in accordance with GAAP consistently applied.
PRELIMINARY STATEMENT
A. D&K, certain of its former subsidiaries, and Lender entered into that
certain Third Amended and Restated Loan and Security Agreement dated as of March
3, 1995 (as amended from time to time, the "Third Restated Loan Agreement").
B. D&K owns all the issued and outstanding shares of stock of Jaron, and
now D&K and Jaron wish to provide for a credit facility for their respective
working capital needs.
C. Contemporaneously herewith, D&K, its subsidiary, D&K Receivables
Corporation ("Receivables"), and certain other subsidiaries of D&K are entering
into a Purchase and Sale Agreement relating to transfer of certain of their
Accounts and related rights to Receivables, and D&K, Receivables, Blue Keel
Funding, LLC ("Blue Keel") and Fleet National Bank ("Bank") are entering into a
Receivables Purchase Agreement pursuant to which the Bank for the benefit of
Blue Keel will purchase an interest in such Accounts and related rights from
Receivables. Lender is providing liquidity for such transaction pursuant to a
Liquidity Agreement among Blue Keel, Bank, and Lender. (The transactions to be
carried out pursuant to the Purchase and Sale Agreement, the Receivables
Purchase Agreement, and the Liquidity Agreement are hereinafter referred to as
the "Securitization," and such Agreements, together with any and all other
documents, instruments and agreements executed and delivered in connection
therewith [as well as all amendments, modifications, extensions, renewals or
successor facilities], are hereinafter collectively referred to as the
"Securitization Documents").
D. Borrowers have requested Lender's consent to the Securitization, and in
connection therewith Lender and Borrowers now desire to amend and restate the
Third Restated Loan Agreement in its entirety.
<PAGE> 2
SECTION
1. CREDIT FACILITY
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lender agrees to make a Total Credit Facility of up to $75,000,000
available upon Borrower's request therefor, as follows:
2. Revolving Credit Loans.
1. Loans and Reserves. Lender agrees, for so long as no Default or Event of
Default exists, to make Revolving Credit Loans to Borrowers from time to
time, as requested by D&K for itself or as agent for the Borrowers in the
manner set forth in subsection 3.1.1 hereof, up to a maximum principal amount
at any time outstanding equal to the Borrowing Base at such time minus
reserves, if any. Lender shall have the right to establish reserves in such
amounts, and with respect to such matters, as Lender shall deem necessary or
appropriate, against the amount of Revolving Credit Loans which Borrowers may
otherwise request under this subsection, including, without limitation, with
respect to (i) price adjustments, damages, unearned discounts, returned
products or other matters for which credit memoranda are issued in the
ordinary course of Borrowers' business; (ii) shrinkage, spoilage and
obsolescence of Inventory; (iii) slow moving Inventory; (iv) other sums
chargeable against Borrowers' Loan Account as Revolving Credit Loans under
any section of this Agreement; (v) amounts owing by any Borrower to any
Person to the extent secured by a Lien on, or trust over, any Property of
such Borrower; and (vi) such other matters, events, conditions or
contingencies as to which Lender, in its sole credit judgment, determines
reserves should be established from time to time hereunder. Borrowers may,
from time to time, enter into contracts or hedging programs, which provide
certain protections with respect to interest rate fluctuations. Lender may,
from time to time (but has no obligation to), provide certain limited
financial assurance to the provider of such products. In addition to the
foregoing, and notwithstanding anything herein to the contrary, if Lender
provides any such assurances, (w) and (A) such assurances are in favor of a
Person other than the Bank, or (B) a Default or Event of Default exists at
any time, Lender may, in its sole discretion, establish reserves for any and
all obligations, direct or indirect, liquidated or contingent, incurred by
Lender in connection with Borrowers, or either of them obtaining or Lender
guaranteeing any interest rate protection or hedging products (such
obligations of Lender are sometimes herein collectively referred to as
"Interest Rate Protection Obligations"), and (x) without, in any way limiting
any liability or other obligations which Borrowers shall have to Lender under
any other document, instrument or agreement, Borrowers shall be jointly and
severally liable to Lender to reimburse Lender for all Interest Rate
Protection Obligations incurred by Lender in connection with such products
and Lender may reimburse itself for any Interest Rate Protection Obligations
by making a Revolving Credit Loan without request, approval or consent of
Borrowers, and (y) the obligations of Borrowers to reimburse Lender for
Interest Rate Protection Obligations are, without limitation, "Obligations",
as defined in this Agreement, and (z) no Interest Rate Protection Obligations
shall extend beyond the Original Term.
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0.0.1. Use of Proceeds. The Revolving Credit Loans shall be used
solely for the expenses incurred in connection with closing this loan
transaction and the Securitization and for Borrowers' general operating capital
needs in a manner consistent with the provisions of this Agreement and all
applicable law.
0.1. Letters of Credit; LC Guaranties. Lender agrees, for so long as no
Default or Event of Default exists and if requested by D&K on its own behalf or
as agent for any Borrower, to (i) issue its, or cause to be issued its
Affiliate's, Letters of Credit for the account of any Borrower or (ii) execute
LC Guaranties by which Lender or its Affiliate shall guaranty the payment or
performance by any Borrower of its reimbursement obligations with respect to
Letters of Credit and letters of credit issued for Borrower's account by other
Persons in support of such Borrower's obligations (other than obligations for
the repayment of Money Borrowed), provided that the LC Amount at any time shall
not exceed $1,000,000. No Letter of Credit or LC Guarantee may have an
expiration date that is after the last day of the Original Term. Any amounts
paid by Lender under any LC Guaranty or in connection with any Letter of Credit
shall be treated as Revolving Credit Loans, shall be secured by all of the
Collateral and shall bear interest and be payable at the same rate and in the
same manner as Revolving Credit Loans.
0.1. All Loans to Constitute One Obligation; Joint and Several Liability.
All Loans and all other Obligations of the Borrowers hereunder shall constitute
one general obligation of Borrowers, and shall be secured by Lender's security
interest in and Lien upon all of the Collateral, and by all other security
interests and Liens heretofore, now or at any time or times hereafter granted by
any Borrower to Lender. The Borrowers shall be primarily and jointly and
severally liable for all Obligations hereunder. If and to the extent a Borrower
shall be deemed a guarantor of the other Borrowers hereunder, such Borrower's
joint liability for any Loans made to the other Borrowers shall be deemed to be
a guaranty of payment and performance, and not of collection. To the fullest
extent permitted by law, each Borrower hereby waives promptness, diligence,
notice of acceptance, and any other notices of any nature whatsoever with
respect to any of the Obligations, and any requirement that the Lender protect,
secure, perfect or insure any security interest or Lien on any property subject
thereto or exhaust any right or take any action against the other Borrowers or
any other Person or entity or any Collateral. Each Borrower hereby agrees that
it will not exercise any rights which it may acquire by way of subrogation
hereunder, by any payment made hereunder or otherwise, until all of the
Obligations shall have been paid in full and Lender shall be under no duty to
extend credit to or for the benefit of any Borrower. If any amount shall be paid
to a Borrower on account of such subrogation rights at any time when all of the
Obligations shall not have been paid in full, such amount(s) shall be held in
trust for the sole benefit of Lender and shall forthwith be paid to Lender to be
applied to the Obligations, whether matured or unmatured, in accordance with the
terms of this Agreement. If (i) any Borrower shall make payment to Lender of all
or any part of the Obligations and (ii) all the Obligations shall be paid in
full and Lender shall be under no duty to extend credit to or for the benefit of
any Borrower, then Lender will, at such Borrower's request, execute and deliver
to
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such Borrower appropriate documents, without recourse and without representation
or warranty, necessary to evidence the transfer by subrogation to such Borrower
of an interest in the Obligations resulting from such payment by such Borrower.
The liability of each Borrower under this Section shall be absolute and
unconditional irrespective of:
(i) any change in the time, manner or place of payment of, or in
any other term of, any of the Obligations, or any other amendment or waiver
of or any consent to departure from this Agreement;
(ii) any exchange, release or non-perfection of any Collateral or
any release or amendment or waiver of or consent to departure from any
other guaranty, for all or any of the Obligations; and
(iii) any other circumstance which might otherwise constitute a
defense available to, or discharge of, a Borrower or a guarantor of the
Obligations.
1. Appointment of D&K as Agent.
0.1. Appointment of Agent. Jaron hereby appoints its parent
corporation, D&K, as its agent and attorney-in-fact to take any action, execute
any document or instrument, consent or agree to any modification or amendment
hereto or waiver of or departure from any of the terms hereof, to perform any
Obligation of any Borrower hereunder, and to give or receive any notice by or
to any Borrower hereunder. Without limiting the generality of the foregoing,
D&K may request Loans or incur any other Obligation for the account of any
Borrower, may elect on behalf of the Borrowers to have interest accrued
pursuant to Section 2.1.3 hereof, shall prepare and deliver to Lender all
reports concerning the Collateral and all financial statements required by this
Agreement, and each Borrower shall be fully bound by the statements and actions
of D&K acting as agent hereunder. Lender shall be entitled to rely absolutely
and without duty of inquiry or investigation upon any agreement, request,
communication or other notice given by D&K hereunder. Any notice given by
Lender to D&K shall be deemed given to all Borrowers, whether or not this
Agreement specifically so provides. This appointment of D&K as agent shall be
irrevocable, and Lender shall have no duty to act in accordance with any
direction given by any other Borrower. This provision is intended, among other
things, to protect Lender against inconsistent directions given by individual
Borrowers. It shall be a condition to Lender's obligations hereunder that each
Borrower shall at all times have appointed a single entity as its agent, which
agent shall be acceptable to Lender in its sole discretion.
0.1. Revolving Credit Loans. Jaron directs the Lender to disburse the
proceeds of the Revolving Credit Loans to or at the direction of D&K as its
agent, as specifically set forth in Section 1.4.1 above. From time to time, D&K
may further distribute certain proceeds of the Revolving Loans to Jaron. D&K
shall maintain detailed accountings and records of all
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disbursements and payments made by Jaron with respect to the proceeds of the
Revolving Credit Loans. Not in any way in limitation of any other provisions set
forth herein, such books and records may be reviewed and copied by Lender, and
D&K shall provide copies of the same upon demand by Lender. Accounts receivable
carried on the books of D&K with respect to such distributions shall not be sold
pursuant to the Securitization Documents and shall be secured by the Jaron
Security Agreement and appropriate UCC-1 financing statements, executed and
delivered by Jaron, which shall constitute a lien on all of the Collateral of
Jaron subject only to the lien of Lender on the Collateral subject to the terms
hereof. Such accounts receivables and the collateral securing the same,
including all rights under or in connection the Jaron Security Agreement, shall,
in any event, be included in the Collateral and all financing statements
perfecting the subordinate lien of D&K shall be assigned, of record, to Lender.
0.1. Consent to Securitization and Securitization Documents. Lender
hereby consents to the Securitization and the Securitization Documents.
SECTION
1. INTEREST, FEES AND CHARGES
1. Interest.
0.1. INTEREST RATE. The Borrowers shall pay interest on the unpaid
principal amount of each Revolving Credit Loan and any other Obligation for
payment of money from the due date at the applicable interest rates set forth
below.
0.1. LIBO RATE LOANS. So long as no Default or Event of Default exists
hereunder, and except to the extent that D&K, on its own behalf and as agent for
Jaron, shall elect to pay interest on any Revolving Credit Loan pursuant to
Section 2.1.3 below, the Borrowers shall pay interest on (i) each Revolving
Credit Loan, from and including the date of such Loan and (ii) any other
Obligation under the Loan Documents for the payment of money from the due date
thereof, in either case at a fluctuating interest rate per annum in effect from
time to time equal to the LIBO Rate plus the Applicable Margin with respect to
the LIBO Rate. The foregoing rate of interest shall be increased or decreased,
as the case may be, by an amount equal to any increase or decrease in the LIBO
Rate, with such adjustments to be effective as of the opening of business on the
day that any such change in the LIBO Rate becomes effective. The LIBO Rate in
effect on the Closing Date shall be the LIBO Rate effective as of the opening of
business on the Closing Date.
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0.1. BASE RATE LOANS D&K, on its own behalf and as agent for Jaron, may
from time to time elect to have the interest on all (but not a portion of) the
outstanding Revolving Credit Loans determined and payable at a floating rate
equal to the Base Rate plus the Applicable Margin with respect to the Base Rate
by written notice to the Lender, such notice to be received by the Lender before
10:00 a.m. (Milwaukee, Wisconsin time) on the day on which such conversion is to
take effect. Notwithstanding any election by Borrowers, upon and after the
occurrence of an Event of Default, and during the continuation thereof, Lender
may at its sole option elect to have the interest of the outstanding Revolving
Credit Loans determined and payable at the Default Rate. After the date hereof,
the foregoing rate of interest shall be increased or decreased, as the case may
be, by an amount equal to any increase or decrease in the Base Rate, with such
adjustments to be effective as of the opening of business on the day that any
such change in the Base Rate becomes effective. The Base Rate in effect on the
date of the election to have the Revolving Credit Loans bear interest at the
Base Rate plus the Applicable Margin shall be the Base Rate effective as of the
opening of business on such date.
0.1. ILLEGALITY; IMPRACTICALITY. If it shall become unlawful for Bank,
Lender or any Participating Lender to obtain funds in the London interbank
market in order to fund or maintain LIBO Rate Loans or otherwise to perform its
obligations hereunder with respect to any such Loans, upon at least five (5)
Business Days' notice by Lender to D&K the rate of interest on all such LIBO
Rate Loans shall thereupon be determined under Section 2.1.3, and the right of
D&K, on its own behalf and as agent for Jaron, to have interest accrue on any
Loan at the LIBO Rate plus the percentage set forth herein shall thereupon
terminate. Notwithstanding any other provision of this Agreement to the
contrary, if, during any period in which interest at the LIBO Rate plus a
percentage is to be charged on any Loan, (i) deposits in U.S. dollars for
thirty-day periods are not available to the Bank in the London interbank market,
or (ii) the LIBO Rate plus the percentage set forth herein will not adequately
and fairly reflect the cost to Lender or any Participating Lender of making or
maintaining the related LIBO Rate Loan, or (iii) by reason of national or
international financial, political or economic conditions or by reason of any
applicable law, treaty, rule or regulation (whether domestic or foreign) now or
hereafter in effect, or the interpretation or administration thereof by any
governmental authority, or compliance by the Bank, Lender or any Participating
Lender with any request or directive of such authority (whether or not having
the force of law), including without limitation exchange controls, it is
impracticable, unlawful or impossible for Bank, Lender or any Participating
Lender to make or continue the relevant LIBO Rate Loan, then D&K, on its own
behalf and as agent for Jaron, shall not be entitled, so long as such
circumstances continue, to continue to have interest accrue on any Loan be at
the LIBO Rate plus the Applicable Margin with respect to the LIBO Rate.
0.1. INCREASED COSTS. If, on or after the date hereof, the introduction
of or any change in, or in the interpretation of, any law or regulation or the
compliance by Lender
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or any Participating Lender with any guideline or request from any central bank
or other governmental authority (whether or not having the force of law) shall:
(i) impose, modify or deem applicable any reserve, special deposit
or similar requirement against all or any assets held by, deposits or
accounts with, or credit extended by or to, Lender or any Participating
Lender, or impose on Bank, Lender, any Participating Lender or the London
interbank market any other condition affecting the LIBO Rate Loans, or its
obligation to make LIBO Rate Loans; or
(ii) subject Bank, Lender or any Participating Lender to, or
cause the termination or reduction of a previously granted exemption with
respect to, any tax, levy, impost, deduction, charge or withholding with
respect to the LIBO Rate Loans, the Note or Lender's obligation to make
LIBO Rate Loans, or change the basis of taxation of payment to Lender or
any Participating Lender of the principal of or interest on its Loans or
any other amounts under this Agreement (except for a change in the rate of
tax on the overall net income of Lender or any Participating Lender
imposed by any applicable jurisdiction),
and the result of any of the foregoing events is to increase the cost to Bank,
Lender or any Participating Lender of agreeing to make or making, funding, or
maintaining its LIBO Rate Loans, or to reduce the amount of any sums received or
receivable by Lender under this Agreement or the Note, then, the Borrowers shall
from time to time, not later than thirty (30) days after Lender's demand
therefor, pay such additional amounts as will compensate Lender for such
increased cost or reduced amount. A certificate of Lender submitted to D&K,
setting forth the amounts of such increased costs or reduced amount and the
additional amounts to be paid to Lender or any Participating Lender (as
applicable) under this Section shall be conclusive in the absence of manifest
error.
0.0.1. MINIMUM INTEREST RATE. Notwithstanding the foregoing, in no
event shall the per annum rate of interest on any Revolving Credit Loan be less
than five percent (5.0%). Interest in all cases shall be calculated on a daily
basis (computed on the actual number of days elapsed over a year of 360 days),
commencing on the date hereof.
0.0.1. DEFAULT RATE. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the principal amount of the
Obligations under this Loan Agreement shall bear interest, calculated daily
(computed on the actual days elapsed over a year of 360 days), at a fluctuating
rate per annum equal to three and one-quarter percent (3.25%) above the interest
rate that would otherwise apply under Sections 2.1.2 and 2.1.3 hereof (the
"Default Rate").
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0.0.1. Usury. In no contingency or event whatsoever shall the aggregate
of all amounts deemed interest hereunder and charged or collected pursuant to
the terms of this Agreement exceed the highest rate permissible under any law
which a court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that such a court determines that Lender has
charged or received interest hereunder in excess of the highest applicable rate,
Lender shall apply any such excess to any Obligation hereunder then due and
payable and shall promptly refund amounts not so applied to Borrowers and such
rate shall automatically be reduced to the maximum rate permitted by such law.
0.1. Computation of Interest and Fees. Interest, Letter of Credit and LC
Guaranty fees, unused line fees and collection charges hereunder shall be
calculated daily and shall be computed on the actual number of days elapsed over
a year of 360 days. For the purpose of computing interest hereunder, all items
of payment received by Lender shall be deemed applied by Lender on account of
the Obligations (subject to final payment of such items) on the same Business
Day as receipt by Lender of such items in Lender's account located in Chicago,
Illinois.
0.1. Letter of Credit and LC Guaranty Fees. Borrowers shall pay to
Lender:
(i) for standby Letters of Credit and LC Guaranties of standby
Letters of Credit, a fee equal to 1.375% per annum of the aggregate face
amount of such Letters of Credit and LC Guaranties outstanding from time to
time during the term of this Agreement, which fee shall be deemed fully
earned upon issuance of each such Letter of Credit or LC Guaranty and shall
be due and payable upon the issuance of such Letter of Credit or execution
of such LC Guaranty, plus all normal and customary charges associated with
the issuance thereof, which charges shall be deemed fully earned upon
issuance of each such Letter of Credit or LC Guaranty, shall be due and
payable on the first Business Day of each month and shall not be subject to
rebate or proration upon the termination of this Agreement for any reason;
and
(ii) for documentary Letters of Credit and LC Guaranties of
documentary Letters of Credit, a fee equal to 1.375% per annum of the face
amount of each such Letter of Credit or LC Guaranty, and an additional fee
equal to 1.375% per annum of the face amount of such Letter of Credit or LC
Guaranty for each renewal and each extension thereof plus the normal and
customary charges associated with the issuance and administration of each
such Letter of Credit or LC Guaranty (which fees and charges shall be fully
earned upon issuance, renewal or extension (as the case may be) of each
such Letter of Credit or LC Guaranty, shall be due and payable on the first
Business Day of each month, and shall not be subject to rebate or proration
upon the termination of this Agreement for any reason).
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0.1. Reimbursement of Expenses. If, at any time or times regardless of
whether or not an Event of Default then exists, Lender incurs legal or
accounting expenses or any other costs or out-of-pocket expenses in connection
with (i) the negotiation and preparation of this Agreement or any of the other
Loan Documents, any amendment of or modification of this Agreement or any of the
other Loan Documents; (ii) the administration of this Agreement or any of the
other Loan Documents and the transactions contemplated hereby and thereby; (iii)
any litigation, contest, dispute, suit, proceeding or action (whether instituted
by Lender, any Borrower or any other Person) in any way relating to the
Collateral, this Agreement or any of the other Loan Documents or Borrowers'
affairs; (iv) any attempt to enforce any rights of Lender against any Borrower
or any other Person which may be obligated to Lender by virtue of this Agreement
or any of the other Loan Documents, including, without limitation, the Account
Debtors; or (v) any attempt to inspect, verify, protect, preserve, restore,
collect, sell, liquidate or otherwise dispose of or realize upon the Collateral;
then all such legal and accounting expenses, other costs and out of pocket
expenses of Lender shall be charged to Borrowers. All amounts chargeable to
Borrowers under this Section shall be Obligations secured by all of the
Collateral, shall be payable on demand to Lender or to such Participating
Lender, as the case may be, and shall bear interest from the date such demand is
made until paid in full at the rate applicable to Revolving Credit Loans from
time to time. Borrowers shall also reimburse Lender for expenses incurred by
Lender in its administration of the Collateral to the extent and in the manner
provided in Section 6 hereof.
SECTION
1. LOAN ADMINISTRATION.
0.1. Manner of Borrowing Revolving Credit Loans. Borrowings under the
credit facility established pursuant to Section 1 hereof shall be as follows:
0.0.1. Loan Requests. A request for a Revolving Credit Loan shall be
made, or shall be deemed to be made, in the following manner: (i) D&K on its own
behalf or as agent for any Borrower may give Lender notice of its intention to
borrow, in which notice D&K shall specify the amount of the proposed borrowing
and the proposed borrowing date, no later than 11:00 a.m. central time on the
proposed borrowing date, provided, however, that no such request may be made at
a time when there exists a Default or an Event of Default; and (ii) the becoming
due of any amount required to be paid under this Agreement, whether as interest
or for any other Obligation, shall be deemed irrevocably to be a request for a
Revolving Credit Loan on the due date in the amount required to pay such
interest or other Obligation. As an accommodation to D&K, Lender may permit
telephonic requests for loans and electronic transmittal of instructions,
authorizations, agreements or reports to Lender by D&K. Unless D&K specifically
directs Lender in writing not to accept or act upon telephonic or electronic
communications from any Borrower, Lender shall have no liability to any Borrower
for any loss or damage suffered by such Borrower as a result of Lender's
honoring
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of any requests, execution of any instructions, authorizations or agreements or
reliance on any reports communicated to it telephonically or electronically and
purporting to have been sent to Lender by D&K, for itself or as agent for any
Borrower, and Lender shall have no duty to verify the origin of any such
communication or the authority of the person sending it.
0.0.1. Disbursement. Borrowers hereby irrevocably authorize Lender to
disburse the proceeds of each Revolving Credit Loan requested, or deemed to be
requested, pursuant to this subsection as follows: (i) the proceeds of each
Revolving Credit Loan requested under subsection 3.1.1(i) shall be disbursed by
Lender in lawful money of the United States of America in immediately available
funds, in the case of the initial borrowing, in accordance with the terms of the
written disbursement letter from D&K, for itself and as agent for the Borrower,
and in the case of each subsequent borrowing, by wire transfer to such bank
account as may be agreed upon by D&K, for itself or as agent for any Borrower
and Lender from time to time or elsewhere if pursuant to a written direction
from D&K, for itself or as agent for any Borrower; and (ii) the proceeds of each
Revolving Credit Loan requested under subsection 3.1.1(ii) shall be disbursed by
Lender by way of direct payment of the relevant interest or other Obligation.
0.0.1. Authorization. Borrowers hereby irrevocably authorize Lender, in
Lender's sole discretion, to advance to Borrowers, and to charge to Borrowers'
Loan Account hereunder as a Revolving Credit Loan, a sum sufficient to pay all
interest accrued on the Obligations during the immediately preceding month and
to pay all costs, fees and expenses at any time owed by any Borrower to Lender
hereunder.
0.1 Payments. Except where evidenced by notes or other instruments issued
or made by any Borrower to Lender specifically containing payment provisions
which are in conflict with this Section (in which event the conflicting
provisions of said notes or other instruments shall govern and control), the
Obligations shall be payable as follows:
0.0.1. Principal. Principal payable on account of Revolving Credit
Loans shall be payable by Borrowers to Lender immediately upon the earliest of
(i) the receipt by Lender or Borrower of any proceeds of any of the Collateral
(after any prior liens thereon are paid in full), to the extent of said
proceeds, (ii) the occurrence of an Event of Default in consequence of which
Lender elects to accelerate the maturity and payment of the Obligations, or
(iii) termination of this Agreement pursuant to Section 4 hereof; provided,
however, that if an Overadvance shall exist at any time, Borrowers shall, on
demand, repay the Overadvance.
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0.0.1. Interest. Interest accrued on account of Revolving Credit Loans
shall be due on the earliest of (1) the first calendar day of each month (for
the immediately preceding month), computed through the last calendar day of the
preceding month, (2) the occurrence of an Event of Default in consequence of
which Lender elects to accelerate the maturity and payment of the Obligations or
(3) termination of this Agreement pursuant to Section 4 hereof.
0.0.1. Costs, Fees and Charges. Costs, fees and charges payable
pursuant to this Agreement shall be payable by Borrower as and when provided in
Section 2 hereof, to Lender or to any other Person designated by Lender in
writing.
0.0.1. Other Obligations. The balance of the Obligations requiring the
payment of money, if any, shall be payable by Borrowers to Lender as and when
provided in this Agreement, the Other Agreements or the Security Documents, or
on demand, whichever is later.
0.1. Prepayments.
0.0.1. Proceeds of Sale, Loss, Destruction or Condemnation of
Collateral. If any of the Collateral is lost, damaged or destroyed or taken by
condemnation, Borrower shall pay to Lender, unless otherwise agreed by Lender,
as and when received by Borrower and as a mandatory prepayment of the Loans, a
sum equal to the proceeds (including insurance payments) received by Borrowers
from such sale, damage, loss, destruction or condemnation.
0.0.1. Other Mandatory Prepayments. Borrowers shall pay to Lender,
unless otherwise agreed by Lender, as and when received by Borrower and as a
mandatory prepayment of the Loans, a sum equal to the proceeds received by
Borrowers as a result of any tax refund, indemnity payment, pension reversion or
issuance of additional debt or equity of the Borrowers.
0.1. Application of Payments and Collections. All items of payment received
by Lender by 12:00 noon, central time, on any Business Day shall be deemed
received on that Business Day. All items of payment received after 12:00 noon,
central time, on any Business Day shall be deemed received on the following
Business Day. Borrowers irrevocably waive the right to direct the application of
any and all payments and collections at any time or times hereafter received by
Lender from or on behalf of Borrowers, and Borrowers do hereby irrevocably agree
that Lender shall have the continuing exclusive right to apply and reapply any
and all such payments and collections received at any time or times hereafter by
Lender or
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its agent against the Obligations, in such manner as Lender may deem advisable,
notwithstanding any entry by Lender upon any of its books and records. If as the
result of collections of Accounts as authorized by this Agreement a credit
balance exists in the Loan Account, such credit balance shall not accrue
interest in favor of Borrowers, but shall be available to Borrowers at any time
or times for so long as no Default or Event of Default exists.
0.1. All Loans to Constitute One Obligation. The Loans shall constitute one
general Obligation of Borrowers, and shall be secured by Lender's Lien upon all
of the Collateral.
0.1. Loan Account. Lender shall enter all Loans as debits to the Loan
Account and shall also record in the Loan Account all payments made by Borrowers
on any Obligations and all proceeds of Collateral which are finally paid to
Lender, and may record therein, in accordance with customary accounting
practice, other debits and credits, including interest and all charges and
expenses properly chargeable to Borrowers.
0.1. Statements of Account. Lender will account to D&K monthly with a
statement of Loans, charges and payments made pursuant to this Agreement, and
such account rendered by Lender shall be deemed final, binding and conclusive
upon Borrowers unless Lender is notified by D&K in writing to the contrary
within 60 days of the date each accounting is mailed to D&K. Such notice shall
only be deemed an objection to those items specifically objected to therein.
SECTION
1. TERM AND TERMINATION
0.1. Term of Agreement. Subject to Lender's right to cease making Loans
to Borrowers upon or after the occurrence of any Default or Event of Default,
this Agreement shall be in effect for a period from the date hereof, through and
including August 6, 2001 (the "Original Term").
0.1. Termination.
0.0.1. Termination by Lender. Lender may terminate this Agreement
without notice upon or after the occurrence of an Event of Default.
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0.0.1. Termination by Borrower. Upon at least 30 days prior written
notice to Lender, D&K in its own behalf and as agent for the Borrowers, may, at
its option, terminate this Agreement; provided, however, no such termination
shall be effective until Borrowers have paid all of the Obligations in
immediately available funds and all Letters of Credit and LC Guaranties have
expired or have been secured by cash collateral to Lender's satisfaction. Any
notice of termination given by D&K shall be irrevocable unless Lender otherwise
agrees in writing, and Lender shall have no obligation to make any Loans or
issue or procure any Letters of Credit or LC Guaranties on or after the
termination date stated in such notice. Borrowers may elect to terminate this
Agreement in its entirety only, and no Borrower may terminate this Agreement or
its liability hereunder unless all Borrowers terminate this Agreement. No
section of this Agreement or type of Loan available hereunder may be terminated
singly.
0.0.1. Termination Charges. At the effective date of termination of
this Agreement prior to the end of the Original Term for any reason, Borrowers
shall pay to Lender (in addition to the then outstanding principal, accrued
interest and other charges owing under the terms of this Agreement and any of
the other Loan Documents) as liquidated damages for the loss of the bargain and
not as a penalty, an amount equal to 1.0% of the average of each month's Average
Monthly Loan Balance for the period from the date of this Agreement through the
effective date of such termination, provided, however, that the termination fee
shall not be less than $400,000 or more than $450,000, regardless of the Average
Monthly Loan Balance. If termination occurs on the last day of the Original Term
or any extension of the Original Term (provided, that Lender has no obligation
to extend the Original Term), no termination charge shall be payable.
0.0.1 Effect of Termination. All of the Obligations shall be
immediately due and payable upon the termination date stated in any notice of
termination of this Agreement. All undertakings, agreements, covenants,
warranties and representations of Borrowers contained in the Loan Documents
shall survive any such termination and Lender shall retain its Liens in the
Collateral and all of its rights and remedies under the Loan Documents
notwithstanding such termination until Borrowers have irrevocably paid
the Obligations to Lender, in full, in immediately available funds, together
with the applicable termination charge, if any. Notwithstanding the payment in
full of the Obligations, Lender shall not be required to terminate its security
interests in the Collateral unless, with respect to any loss or damage Lender
may incur as a result of dishonored checks or other items of payment received by
Lender from Borrowers or any Account Debtor and applied to the Obligations,
Lender shall, at its option, (i) have received a written agreement, executed by
Borrowers and by any Person whose loans or other advances to Borrowers are used
in whole or in part to satisfy the Obligations, indemnifying Lender from any
such loss or damage; or (ii) have retained such monetary reserves and Liens on
the Collateral for such period of time as
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Lender, in its reasonable discretion, may deem necessary to protect Lender from
any such loss or damage.
SECTION
1. SECURITY INTERESTS
0.1. Security Interest in Collateral. To secure the prompt payment and
performance to Lender of the Obligations, Borrowers hereby grant to Lender a
continuing Lien upon all of the following Property and interests in Property of
each of the Borrowers (but specifically excluding any Accounts and General
Intangibles and related rights which are, from time to time, owned or purported
to be owned by, or are subject to a security interest for the benefit of, a
party other than either of the Borrowers as a result of a transfer pursuant to
the Securitization Documents), whether now owned or existing or hereafter
created, acquired or arising and wheresoever located:
(i) Accounts;
(ii) Inventory;
(iii) General Intangibles;
(iv) Investment Property;
(v) All monies and other Property of any kind now or at any time
or times hereafter in the possession or under the control of Lender or a
bailee or Affiliate of Lender;
(vi) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (v) above,
including, without limitation, proceeds of and unearned premiums with
respect to insurance policies insuring any of the Collateral; and
(vii) All books and records (including, without limitation,
customer lists, credit files, computer programs, print-outs, and other
computer materials and records and all records of purchases and sales of
prescription drugs and controlled substances required to be kept by the
Federal or any state government or agency thereof) of Borrower pertaining
to any of (i) through (vi) above.
1. Lien Perfection; Further Assurances. Borrowers shall execute such UCC-1
financing statements as are required by the Code and such other instruments,
assignments or documents as are necessary to perfect Lender's Lien upon any of
the Collateral and shall take such other action as may be required to perfect or
to continue the perfection of Lender's Lien upon the Collateral.
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Unless prohibited by applicable law, each Borrower hereby authorizes Lender to
execute and file any such financing statement on Borrower's behalf. The parties
agree that a carbon, photographic or other reproduction of this Agreement shall
be sufficient as a financing statement and may be filed in any appropriate
office in lieu thereof. At Lender's request, Borrowers shall also promptly
execute or cause to be executed and shall deliver to Lender any and all
documents, instruments and agreements deemed necessary by Lender to give effect
to or carry out the terms or intent of the Loan Documents.
SECTION
1. COLLATERAL ADMINISTRATION
1. General
0.1. Location of Collateral. All Collateral, other than Inventory in
transit and motor vehicles, will at all times be kept by Borrowers and their
respective Subsidiaries at one or more of the business locations set forth in
EXHIBIT B hereto and shall not, without the prior written approval of Lender, be
moved therefrom except, prior to an Event of Default and Lender's acceleration
of the maturity of the Obligations in consequence thereof, for (i) sales of
Inventory in the ordinary course of business; and (ii) the storage of Inventory
at locations within the continental United States other than those shown on
EXHIBIT B if (A) Borrowers give Lender written notice of the new storage
location at least thirty (30) days prior to storing Inventory at such location,
(B) Lender's security interest in such Inventory is and continues to be a duly
perfected, first priority Lien thereon (subject only to Permitted Liens), (C)
neither Borrowers' nor Lender's right of entry upon the premises where such
Inventory is stored, or its right to remove the Inventory therefrom, in any way
is restricted, (D) the owner of such premises agrees in writing pursuant to a
waiver agreement, in form and substance acceptable to Lender, among other
things, not to assert any landlord's, bailee's or other Lien in respect of the
Inventory for unpaid rent or storage charges, and (E) all negotiable documents
and receipts in respect of any Collateral maintained at such premises are
delivered promptly to Lender.
0.1. Insurance of Collateral. Borrowers shall maintain and pay for
insurance upon all Collateral wherever located and with respect to Borrowers'
business, covering casualty, hazard, public liability and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Lender. Borrowers shall deliver the originals of such policies to Lender with
satisfactory lender's loss payable endorsements, naming Lender as sole loss
payee, assignee or additional insured, as appropriate. Each policy of insurance
or endorsement shall contain a clause requiring the insurer to give not less
than 30 days prior written notice to Lender in the event of cancellation of the
policy for any reason whatsoever and a clause specifying that the interest of
Lender shall not be impaired or invalidated by any act or neglect of Borrowers
or the owner of the Property or by the occupation of the premises for purposes
more hazardous than are permitted by said policy.
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In the event Borrowers, at any time, fail to provide Lender with evidence of the
insurance coverage as required by this Agreement, Lender may, but shall not be
obligated to, purchase the insurance coverage at Borrowers' expense to protect
Lender's interests in the Collateral. Such insurance may, but need not, protect
Borrowers' interests. The insurance coverage that Lender purchases on behalf of
Borrowers may not pay any claim that Borrowers make or any claim that is made
against Borrowers in connection with the Collateral. Borrowers may later cancel
any insurance coverage purchased by Lender, but only after providing Lender with
evidence that insurance coverage has been obtained as provided for in this
Agreement. In the event Lender purchases all or any portion of the insurance
coverage for the Collateral or as otherwise required hereunder, Borrowers will
be responsible for all costs and expenses of such insurance coverage, with the
purchase of the insurance coverage including, but not limited to interest and
any other charges imposed by Lender in connection with the purchase of the
insurance coverage until the effective date of the cancellation or expiration of
the insurance coverage. The costs and expenses of any insurance coverage
purchased by Lender shall be added to the Obligations. Borrowers acknowledge
that the costs and expenses of the insurance coverage purchased by Lender
pursuant hereto may be more than the cost of insurance Borrowers may be able to
obtain on their own. Borrowers shall deliver to Lender in kind, all instruments
representing proceeds of insurance received by Borrowers. Borrowers agree to
deliver to Lender, promptly as rendered, true copies of all reports made in any
reporting forms to insurance companies.
Pursuant to Mo. Rev. Stat. Section 427.120, Borrower acknowledges receipt of the
following notice: "Unless you [Borrower] provide evidence of the insurance
coverage required by your agreement with us [Lender], we may purchase insurance
at you expense to protect our interests in your collateral. This insurance may,
but need not, protect your interests. The coverage that we purchase may not pay
any claim that you make or any claim that is made against you in connection with
the collateral. You may later cancel any insurance purchased by us, but only
after providing evidence that you have obtained insurance as required by our
agreement. If we purchase insurance for the collateral, you will be responsible
for the costs of that insurance, including the insurance premium, interest and
any other charges we may impose in connection with the placement of the
insurance, until the effective date of the cancellation or expiration of the
insurance. The costs of the insurance may be added to your total outstanding
balance or obligation. The costs of the insurance may be more than the cost of
insurance you may be able to obtain on your own."
0.1. Protection of Collateral. All expenses of protecting, storing,
warehousing, insuring, handling, maintaining and shipping the Collateral, and
any and all excise, property, sales, and use taxes imposed by any state,
federal, or local authority on any of the Collateral or in respect of the sale
thereof shall be borne and paid by Borrowers. If Borrowers fail to promptly pay
any portion thereof when due, Lender may, at its option, but shall not be
required to, pay the same and charge Borrowers therefor. Lender shall not be
liable or responsible in any way for the safekeeping of any of the Collateral or
for any loss or damage thereto (except for reasonable care
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in the custody thereof while any Collateral is in Lender's actual possession) or
for any diminution in the value thereof, or for any act or default of any
warehouseman, carrier, forwarding agency, or other person whomsoever, but the
same shall be at Borrowers' sole risk.
1. Administration of Inventory.
0.1. Records and Reports of Inventory. Borrowers shall keep accurate
and complete records of all Inventory. Borrowers shall furnish to Lender
Inventory reports in form and detail satisfactory to Lender at such times as
Lender may request, but at least once each week, not later than each Monday, for
the immediately preceding week, or more frequently if requested by Lender.
Borrowers shall conduct a physical inventory no less frequently than annually
and shall provide to Lender a report based on each such physical inventory
promptly thereafter, together with such supporting information as Lender shall
request. No Inventory will at any time be misbranded or adulterated, and all
Inventory shall bear all labels and warnings required by all federal or state
laws, rules and regulations.
0.1. Returns of Inventory. If at any time or times hereafter any
Account Debtor returns to Borrowers any Inventory the shipment of which
generated an Account on which such Account Debtor is obligated in excess of
$250,000, Borrowers shall immediately notify Lender of the same, specifying the
reason for such return and the location, condition and intended disposition of
the returned Inventory.
1. Payment of Charges. All amounts chargeable to Borrowers under Section 6
hereof shall be Obligations secured by all of the Collateral, shall be payable
on demand and shall bear interest from the date such advance was made until paid
in full at the rate applicable to Revolving Credit Loans from time to time.
SECTION
1. REPRESENTATIONS AND WARRANTIES
1. General Representations and Warranties. To induce Lender to enter into
this Agreement and to make advances hereunder, Borrowers jointly and severally
warrant, represent and covenant to Lender that:
0.1 Organization and Qualification. Each Borrower and each of their
respective Subsidiaries is a corporation duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each
Borrower and each of their respective Subsidiaries is duly qualified and is
authorized to do business and is in good standing as a foreign corporation in
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each state or jurisdiction listed on EXHIBIT C hereto and in all other states
and jurisdictions where the character of its Properties or the nature of its
activities make such qualification necessary and in which the failure of such
Borrower or any of its Subsidiaries to be so qualified would have a material
adverse effect on the financial condition, business or Properties of such
Borrower or any of its Subsidiaries.
0.1. Corporate Power and Authority. Each Borrower and each of their
respective Subsidiaries is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and each of the other Loan Documents to which
it is a party. The execution, delivery and performance of this Agreement and
each of the other Loan Documents have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent or approval of
the shareholders of any Borrower or any of its Subsidiaries; (ii) contravene any
Borrower's or any of its Subsidiaries' charter, articles or certificate of
incorporation or by-laws; (iii) violate, or cause any Borrower or any of its
Subsidiaries to be in default under, any provision of any law, rule, regulation,
order, writ, judgment, injunction, decree, determination or award in effect
having applicability to such Borrower or any of its Subsidiaries; (iv) result in
a breach of or constitute a default under any indenture or loan or credit
agreement or any other agreement, lease or instrument to which any Borrower or
any of its Subsidiaries is a party or by which it or its Properties may be bound
or affected; or (v) result in, or require, the creation or imposition of any
Lien (other than Permitted Liens) upon or with respect to any of the Properties
now owned or hereafter acquired by any Borrower or any of its Subsidiaries.
0.1. Legally Enforceable Agreement. This Agreement is, and each of the
other Loan Documents when delivered under this Agreement will be, a legal, valid
and binding joint and several obligation of each Borrower and each of their
respective Subsidiaries enforceable against each such entity in accordance with
its respective terms.
0.1. Capital Structure. EXHIBIT D hereto states (i) the correct name of
each of the Subsidiaries of each Borrower, its jurisdiction of incorporation and
the percentage of its Voting Stock owned by such Borrower, (ii) the name of all
of each Borrower's corporate or joint venture Affiliates and the nature of the
affiliation, (iii) the number, nature and holder of all outstanding Securities
of each Borrower and each Subsidiary of such Borrower and (iv) the number of
authorized, issued and treasury shares of each Borrower and each Subsidiary of
such Borrower. Each Borrower has good title to all of the shares it purports to
own of the stock of each of its Subsidiaries, free and clear in each case of any
Lien other than Permitted Liens. All such shares have been duly issued and are
fully paid and non-assessable. There are no outstanding options to purchase, or
any rights or warrants to subscribe for, or any commitments or agreements to
issue or sell, or any Securities or obligations convertible into, or any powers
of attorney relating to, shares of the capital stock of any Borrower or any of
its Subsidiaries. There are no outstanding agreements or instruments binding
upon any of any Borrower's shareholders relating to the ownership of its shares
of capital stock.
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0.1. Corporate Names. Neither Borrowers nor any of their respective
Subsidiaries has been known as or used any corporate, fictitious or trade names
except those listed on EXHIBIT E hereto. Except as set forth on EXHIBIT E,
neither Borrowers nor any of their respective Subsidiaries has been the
surviving corporation of a merger or consolidation or acquired all or
substantially all of the assets of any Person.
0.1. Business Locations; Agent for Process. Each Borrower's and its
Subsidiaries' chief executive office and other places of business are as listed
on EXHIBIT B hereto. During the preceding one-year period, neither Borrowers nor
any of their respective Subsidiaries has had an office, place of business or
agent for service of process other than as listed on EXHIBIT B. Except as shown
on EXHIBIT B, no Inventory is stored with a bailee, warehouseman or similar
party, nor is any Inventory consigned to any Person.
0.1. Title to Properties; Priority of Liens. Each Borrower and its
Subsidiaries has good, indefeasible and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of the Collateral and all of its other Property,
in each case, free and clear of all Liens except Permitted Liens. Each Borrower
has paid or discharged all lawful claims, which, if unpaid, might become a Lien
against any of Borrower's Properties that is not a Permitted Lien. The Liens
granted to Lender under Section 5 hereof are first priority Liens, subject only
to Permitted Liens.
0.1. Financial Statements; Fiscal Year. The consolidated and
consolidating balance sheets of Borrowers and such other Persons described
therein (including the accounts of all Subsidiaries of Borrowers for the
respective periods during which a Subsidiary relationship existed) as of June
30, 1997, and the related statements of income, changes in stockholder's equity,
and changes in financial position for the periods ended on such dates, have been
prepared in accordance with GAAP, and present fairly the financial positions of
Borrowers and such Persons at such dates and the results of Borrowers'
operations for such periods. Since June 30, 1997, there has been no material
change in the condition, financial or otherwise, of Borrower and such other
Persons as shown on the Consolidated balance sheet as of such date and no change
in the aggregate value of Equipment and real Property owned by any Borrower or
such other Persons, except changes in the ordinary course of business, none of
which individually or in the aggregate has been materially adverse. The fiscal
year of each Borrower and its Subsidiaries ends on June 30 of each year.
0.1. Full Disclosure. The financial statements referred to in
subsection 7.1.8 hereof do not, nor does this Agreement or any other written
statement of Borrowers to Lender, contain any untrue statement of a material
fact or omit a material fact necessary to make the
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statements contained therein or herein not misleading. There is no fact
which Borrowers have failed to disclose to Lender in writing which materially
affects adversely or, so far as Borrowers can now foresee, will materially
affect adversely the Properties, business, prospects, profits or condition
(financial or otherwise) of any Borrowers or any of its Subsidiaries or the
ability of any Borrowers or its Subsidiaries to perform this Agreement or the
other Loan Documents.
0.1. Solvent Financial Condition. Each Borrower and its Subsidiaries is
now and, after giving effect to the Loans to be made and the Letters of Credit
and LC Guaranties to be issued hereunder, at all times will be, Solvent.
0.1. Surety Obligations. No Borrower nor any of its Subsidiaries is
obligated as surety or indemnitor under any surety or similar bond or other
contract issued or entered into any agreement to assure payment, performance or
completion of performance of any undertaking or obligation of any Person.
0.1. Taxes. D&K's federal tax identification number is 43-1465483.
Jaron's federal tax identification number is 65-0662045. The federal tax
identification number of each of Borrowers' Subsidiaries is shown on EXHIBIT F
hereto. Each Borrower and each of its Subsidiaries has filed all federal, state
and local tax returns and other reports it is required by law to file and has
paid, or made provision for the payment of, all taxes, assessments, fees, levies
and other governmental charges upon it, its income and Properties as and when
such taxes, assessments, fees, levies and charges that are due and payable,
unless and to the extent any thereof are being actively contested in good faith
and by appropriate proceedings and Borrowers maintain reasonable reserves on its
books therefor. The provision for taxes on the books of Borrowers and their
Subsidiaries are adequate for all years not closed by applicable statutes, and
for its current fiscal year.
0.1. Brokers. There are no claims for brokerage commissions, finder's
fees or investment banking fees in connection with the transactions contemplated
by this Agreement.
0.1. Patents, Trademarks, Copyrights and Licenses. Each Borrower and
its Subsidiaries owns or possesses all the patents, trademarks, service marks,
trade names, copyrights and licenses necessary for the present and planned
future conduct of its business without any known conflict with the rights of
others. All such patents, trademarks, service marks, tradenames, copyrights,
licenses and other similar rights are listed on EXHIBIT G hereto.
0.1. Governmental Consents. Each Borrower and its Subsidiaries has, and
is in good standing with respect to, all governmental consents, approvals,
licenses, authorizations,
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permits, certificates, inspections and franchises necessary to continue to
conduct its business as heretofore or proposed to be `conducted by it and to own
or lease and operate its Properties as now owned or leased by it.
0.1. Compliance with Laws. Each Borrower and its Subsidiaries has duly
complied with, and its Properties, business operations and leaseholds are in
compliance in all material respects with, the provisions of all federal, state
and local laws, rules and regulations applicable to such Borrower or such
Subsidiary, as applicable, its Properties or the conduct of its business and
there have been no citations, notices or orders of noncompliance issued to such
Borrower or any of its Subsidiaries under any such law, rule or regulation. Each
Borrower and its Subsidiaries has established and maintains an adequate
monitoring system to insure that it remains in compliance with all federal,
state and local laws, rules and regulations applicable to it. No Inventory has
been produced in violation of the Fair Labor Standards Act (29 U.S.C. Section
201 et seq.), as amended.
0.1. Restrictions. No Borrower nor any of such Borrower's Subsidiaries
is a party or subject to any contract, agreement, or charter or other corporate
restriction, which materially and adversely affects its business or the use or
ownership of any of its Properties. No Borrower nor any of such Borrower's
Subsidiaries is a party or subject to any contract or agreement which restricts
its right or ability to incur Indebtedness, other than as set forth on Exhibit H
hereto, none of which prohibit the execution of or compliance with this
Agreement or the other Loan Documents by such Borrower or any of its
Subsidiaries, as applicable.
0.1. Litigation. Except as set forth on EXHIBIT I hereto, there are no
actions, suits, proceedings or investigations pending, or to the knowledge of
any Borrower, threatened, against or affecting any Borrower or any of its
Subsidiaries, or the business, operations, Properties, prospects, profits or
condition of any Borrower or any of its Subsidiaries. No Borrower nor any of its
Subsidiaries is in default with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
0.1. No Defaults. No event has occurred and no condition exists which
would, upon or after the execution and delivery of this Agreement or Borrowers'
performance hereunder, constitute a Default or an Event of Default. No Borrower
nor any of its Subsidiaries is in default, and no event has occurred and no
condition exists which constitutes, or which with the passage of time or the
giving of notice or both would constitute, a default in the payment of any
Indebtedness to any Person for Money Borrowed.
0.1. Leases. EXHIBIT J hereto is a complete listing of all capitalized
leases of each Borrower and its Subsidiaries and EXHIBIT K hereto is a complete
listing of all operating
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leases of each Borrower and its Subsidiaries. Each Borrower and its Subsidiaries
is in full compliance with all of the terms of each of its respective
capitalized and operating leases.
0.1. Pension Plans. Except as disclosed on EXHIBIT L hereto, no
Borrower nor any of its Subsidiaries has any Plan. Each Borrower and each of its
Subsidiaries is in full compliance with the requirements of ERISA and the
regulations promulgated thereunder with respect to each Plan. No fact or
situation that could result in a material adverse change in the financial
condition of any Borrower or any of its Subsidiaries exists in connection with
any Plan. No Borrower nor any of its Subsidiaries has any withdrawal liability
in connection with a Multiemployer Plan.
O.1. Trade Relations. There exists no actual or threatened termination,
cancellation or limitation of, or any modification or change in, the business
relationship between any Borrower or any of its Subsidiaries and any customer or
any group of customers whose purchases individually or in the aggregate are
material to the business of such Borrower or any of its Subsidiaries, or with
any material supplier, and there exists no present condition or state of facts
or circumstances which would materially affect adversely any Borrower or any of
its Subsidiaries or prevent any Borrower or any of its Subsidiaries from
conducting such business after the consummation of the transaction contemplated
by this Agreement in substantially the same manner in which it has heretofore
been conducted.
0.1. Labor Relations. Except as described on EXHIBIT M hereto, no
Borrower nor any of its Subsidiaries is a party to any collective bargaining
agreement. There are no material grievances, disputes or controversies with any
union or any other organization of any Borrower's or any of its Subsidiaries'
employees, or threats of strikes, work stoppages or any asserted pending demands
for collective bargaining by any union or organization.
0.1. Environmental Matters. Except as described in EXHIBIT N, each
Borrower and its Subsidiaries and/or each property, operations and facility that
any Borrower or any Subsidiary may own, operate or control (i) is in compliance
with, in all material respects, all applicable Environmental Laws; (ii) is not
subject to any judicial or administrative proceeding or order alleging the
violation of any Environmental Law; (iii) has not received any written notice
(A) that it may be in violation of any Environmental Law, (B) threatening the
commencement of any proceeding relating to any Adverse Environmental Condition,
(C) alleging that it is or may be responsible (in whole or in part) for any
Adverse Environmental Condition, or (D) ordering or directing any Borrower or
any Subsidiary to take any action or refrain from taking any action because of
an Adverse Environmental Condition; (iv) to the best of each Borrower's
knowledge, is not the subject of any federal, state or local investigation
evaluating whether any investigation, remedial action or other response is
needed to respond to an Adverse Environmental Condition; and (v) has not filed
any notice indicating or reporting any Adverse Environmental Condition
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except for such notices or reports required by Environmental Laws as a result of
routine business operations.
0.1. Securitization. No default has occurred under any of the
Securitization Documents
0.1. Plotnik Subordinated Note. The Plotnik Subordinated Note was
retired and paid in full, and cancelled by Ricky Plotnik, effective June 30,
1998, in exchange for the issuance of common stock of D&K. D&K has no
Indebtedness to Ricky Plotnik.
1. Continuous Nature of Representations and Warranties. Each representation
and warranty contained in this Agreement and the other Loan Documents shall be
continuous in nature and shall remain accurate, complete and not misleading at
all times during the term of this Agreement, except for changes in the nature of
any Borrower's or its Subsidiaries' business or operations that would render the
information in any exhibit attached hereto either inaccurate, incomplete or
misleading, so long as Lender has consented to such changes or such changes are
expressly permitted by this Agreement.
1. Survival of Representations and Warranties. All representations and
warranties of Borrowers contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Lender
and the parties thereto and the closing of the transactions described therein or
related thereto.
SECTION
1 COVENANTS AND CONTINUING AGREEMENTS
1. Affirmative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, each Borrower covenants
that, unless otherwise consented to by Lender in writing, it shall:
0.1. Visits and Inspections. Permit representatives of Lender, from
time to time, as often as may be reasonably requested, but only during normal
business hours, to visit and inspect the Properties of each Borrower and each of
its Subsidiaries, inspect, audit (which shall, prior to a Default, be at
Lender's cost) and make extracts from its books and records, and discuss with
its officers, its employees and its independent accountants, such Borrower's and
each of its Subsidiaries' business, assets, liabilities, financial condition,
business prospects and results of operations.
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0.1. Notices. Promptly notify Lender in writing of the occurrence of
any event or the existence of any fact which renders any representation or
warranty in this Agreement or any of the other Loan Documents inaccurate,
incomplete or misleading.
0.1. Financial Statements. Keep, and cause each Subsidiary to keep,
adequate records and books of account with respect to its business activities in
which proper entries are made in accordance with GAAP reflecting all its
financial transactions; and cause to be prepared and furnished to Lender and to
each Participating Lender the following (all to be prepared in accordance with
GAAP applied on a consistent basis, unless such Borrower's certified public
accountants concur in any change therein and such change is disclosed to Lender
and is consistent with GAAP):
(i) not later than 90 days after the close of each fiscal year of
Borrowers, unqualified audited financial statements of each Borrower and
its Subsidiaries as of the end of such year, on a Consolidated and
consolidating basis, certified by a firm of independent certified public
accountants of recognized standing selected by Borrowers but acceptable to
Lender (except for a qualification for a change in accounting principles
with which the accountant concurs);
(ii) not later than 30 days after the end of each month hereafter,
including the last month of each Borrower's fiscal year, unaudited interim
financial statements of each Borrower and its Subsidiaries as of the end of
such month and of the portion of such Borrower's financial year then
elapsed, on a Consolidated and consolidating basis, certified by the
principal financial officer of such Borrower as prepared in accordance with
GAAP and fairly presenting the Consolidated financial position and results
of operations of each Borrower and its Subsidiaries for such month and
period subject only to changes from audit and year-end adjustments and
except that such statements need not contain notes;
(iii) as soon as possible, but no later than 30 days after the
close of each fiscal year of the Borrowers, quarterly Projections for all
Borrowers for the following year on a consolidated and consolidating basis;
(iv) promptly after the sending or filing thereof, as the case may
be, copies of any proxy statements, financial statements or reports which
any Borrower has made available to its shareholders and copies of any
regular, periodic and special reports or registration statements which any
Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or any national
securities exchange;
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(v) promptly after the filing thereof, copies of any annual report
to be filed with ERISA in connection with each Plan; and
(vi) such other data and information (financial and otherwise) as
Lender, from time to time, may reasonably request, bearing upon or related
to the Collateral or any Borrower's and any of such Borrower's
Subsidiaries' financial condition or results of operations.
Concurrently with the delivery of the financial statements described in
clause (i) of this subsection, each Borrower shall forward to Lender a copy of
the accountants' letter to such Borrower's management that is prepared in
connection with such financial statements and also shall cause to be prepared
and shall furnish to Lender a certificate of the aforesaid certified public
accountants certifying to Lender that, based upon their examination of the
financial statements of such Borrower and its Subsidiaries performed in
connection with their examination of said financial statements, they are not
aware of any Default or Event of Default, or, if they are aware of such Default
or Event of Default, specifying the nature thereof, and acknowledging, in a
manner satisfactory to Lender, that they are aware that Lender is relying on
such financial statements in making its decisions with respect to the Loans.
Concurrently with the delivery of the financial statements described in clauses
(i) and (ii) of this subsection, or more frequently if requested by Lender, each
Borrower shall cause to be prepared and furnished to Lender a Compliance
Certificate in the form of EXHIBIT O hereto executed by the Chief Financial
Officer of such Borrower.
0.0.1. Landlord and Storage Agreements. Provide Lender with copies of
all agreements between any Borrower or any of its Subsidiaries and any landlord
or warehouseman which owns any premises at which any Inventory may, from time to
time, be kept.
0.0.1. Year 2000. Take all action necessary to assure that at all times
Borrowers' computer-based systems are able to process data effectively,
including dates after December 31, 1999. At Lender's request, Borrowers shall
provide to Lender assurance reasonably acceptable to Lender that Borrowers'
computer-based systems are or will be, prior to June 20, 1999, year 2000
compatible.
0.0.1 Subordinations. Provide Lender with a debt subordination
agreement, in form and substance satisfactory to Lender, executed by such
Borrower and any Person who is an officer, director or Affiliate of such
Borrower to whom such Borrower is or hereafter becomes indebted for Money
Borrowed, subordinating in right of payment and claim all of such Indebtedness
and any future advances thereon to the full and final payment and performance of
the Obligations.
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0.0.1. Further Assurances. At Lender's request, promptly execute or
cause to be executed and delivered to Lender any and all documents, instruments
and agreements deemed necessary by Lender to perfect or to continue the
perfection of Lender's Liens, to facilitate the collection of the Collateral or
otherwise to give effect to or carry out the terms or intent of this Agreement
or any of the other Loan Documents. Without limiting the generality of the
foregoing, if any of the Accounts, the face value of which exceeds $10,000,
arises out of a contract with the United States of America, or any department,
agency, subdivision or instrumentality thereof, Borrowers shall promptly notify
Lender thereof in writing and shall execute any instruments and take any other
action required or requested by Lender to comply with the provisions of the
Federal Assignment of Claims Act.
0.0.1 Compliance with Subordination Agreements and Intercreditor
Agreement. Comply at all times (within any applicable grace or cure period) with
all the terms of the Subordination Agreements and the Intercreditor Agreement,
to the extent not inconsistent with this Agreement.
0.0.1 Retirement of Jaron Indebtedness to Capital Business Credit,
Inc.. Retire and irrevocably pay in full all of Jaron's outstanding Indebtedness
to Capital Business Credit, Inc. on or before August 31, 1998.
0.1. Negative Covenants. During the term of this Agreement, and thereafter
for so long as there are any Obligations to Lender, each Borrower covenants
that, unless Lender has first consented thereto in writing, it will not:
0.0.1. Mergers; Consolidations; Acquisitions. Except as otherwise
provided in this Section 8.2.1, merge or consolidate, or permit any Subsidiary
of any Borrower to merge or consolidate, with any Person; nor acquire, nor
permit any of its Subsidiaries to acquire, all or any substantial part of the
Properties of any Person; provided that the consolidation of PBI with D&K shall
not constitute a violation of this covenant so long as such consolidation does
not involve a merger and so long as D&K does not become directly or indirectly
liable for any Indebtedness of PBI; and further provided that the Borrowers may
make acquisitions of the Properties of any Person so long as the aggregate
purchase price (however structured or denominated) for all acquisitions by the
Borrowers for any fiscal year does not exceed $2,000,000.
0.0.1. Loans. Make, or permit any Subsidiary of any Borrower to make,
any loans or other advances of money (other than pursuant to the Securitization
Documents, and
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other than for salary, travel advances, advances against commissions and other
similar advances in the ordinary course of business) to any Person in excess of
$100,000.
0.0.1. Total Indebtedness. Create, incur, assume, or suffer to exist,
or permit any Subsidiary of any Borrower to create, incur or suffer to exist,
any Indebtedness, except:
(i) Obligations owing to Lender;
(ii) Subordinated Debt existing on the date of this Agreement;
(iii) Indebtedness of any Subsidiary of any Borrower to such
Borrower;
(iv) accounts payable to trade creditors and current operating
expenses (other than for Money Borrowed) which are not aged more than
60 days from billing date or more than 30 days from the due date, in
each case incurred in the ordinary course of business and paid within
such time period, unless the same are being actively contested in good
faith and by appropriate and lawful proceedings; and Borrower or such
Subsidiary shall have set aside such reserves, if any, with respect
thereto as are required by GAAP and deemed adequate by Borrower or such
Subsidiary and its independent accountants;
(v) Obligations to pay Rentals permitted by subsection
8.2.13;
(vi) Permitted Purchase Money Indebtedness;
(vii)contingent liabilities arising out of endorsements of
checks and other negotiable instruments for deposit or collection in
the ordinary course of business;
(viii) Indebtedness pursuant to the Securitization Documents;
(ix) Until August 31, 1998, Indebtedness of Jaron, Inc. to
Capital Business Credit, Inc., in an amount of up to $10,000,000; and
(x) the Indebtedness to Magna Bank, N.A., which is subject
to the Intercreditor Agreement.
0.0.1. Affiliate Transactions. Enter into, or be a party to, or permit
any Subsidiary of any Borrower to enter into or be a party to, any transaction
with any Affiliate of such Borrower or stockholder, except in the ordinary
course of and pursuant to the reasonable requirements of such Borrower's or such
Subsidiary's business and upon fair and reasonable terms which are fully
disclosed to Lender and are no less favorable to such Borrower than would obtain
in a comparable arm's length transaction with a Person not an Affiliate or
stockholder of such Borrower or such Subsidiary. The parties hereto acknowledge
that the conduct by
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Borrowers or their Subsidiaries of the transactions contemplated by and in
accordance with the Securitization Documents shall not violate the provisions of
this Section.
0.0.1. Limitation on Liens. Create or suffer to exist, or permit any
Subsidiary of any Borrower to create or suffer to exist, any Lien upon any of
its Property, income or profits, whether now owned or hereafter acquired,
except:
(i) Liens at any time granted in favor of Lender;
(ii) Liens for taxes (excluding any Lien imposed pursuant to any
of the provisions of ERISA) not yet due, or being contested in the manner
described in subsection 7.1.12 hereto, but only if in Lender's judgment
such Lien does not adversely affect Lender's rights or the priority of
Lender's Lien in the Collateral;
(iii) Liens arising in the ordinary course of Borrower's business
by operation of law or regulation, but only if payment in respect of any
such Lien is not at the time required and such Liens do not, in the
aggregate, materially detract from the value of the Property of Borrower or
materially impair the use thereof in the operation of Borrower's business;
(iv) Purchase Money Liens securing Permitted Purchase Money
Indebtedness;
(v) Liens securing Indebtedness of one of Borrower's Subsidiaries
to Borrower or another such Subsidiary;
(vi) such other Liens as appear on EXHIBIT O hereto;
(vii) Liens arising out of the Securitization Documents; and
(viii) such other Liens as Lender may hereafter approve in
writing.
0.0.1. Subordinated and Intercreditor Debt. Make, or permit any
Subsidiary of any Borrower to make, any payment of any part or all of any
Subordinated Debt or take any other action or omit to take any other action in
respect of any Subordinated Debt, except in accordance with the Subordination
Agreement relative thereto. Make, or permit any Subsidiary of any Borrower to
make, any amendment to the documents executed in connection with D&K's
Indebtedness to Magna Bank, N.A. which is subject to the Intercreditor Agreement
which would increase the amount or extend the maturity thereof.
0.0.1. Distributions. Declare or make, or permit any Subsidiary of
Borrower to declare or make, any Distributions, except for dividends of Jaron to
D&K, provided that not less
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than 5 business days prior to the payment of such dividend, D&K shall give
Lender written notice describing the amount of such dividend.
0.0.1. Capital Expenditures. Make Capital Expenditures (including,
without limitation, by way of capitalized leases) which, in the aggregate, as to
Borrower and its Subsidiaries, exceed $1,500,000 during any fiscal year of
Borrowers.
0.0.1. Disposition of Assets. Sell, lease or otherwise dispose of any
of, or permit any Subsidiary of any Borrower to sell, lease or otherwise dispose
any of, its Properties, including any disposition of Property as part of a sale
and leaseback transaction, to or in favor of any Person, except (i) sales of
Inventory in the ordinary course of business for so long as no Event of Default
exists hereunder, (ii) disposition of worn out, obsolete or damaged Equipment in
the ordinary course of business, (iii) transfer of Property to a Borrower by a
Subsidiary of such Borrower, (iv) dispositions expressly authorized by this
Agreement or (v) dispositions under or pursuant to the Securitization.
0.0.1. Stock of Subsidiaries. Permit any of its Subsidiaries to issue
any additional shares of its capital stock except director's qualifying shares.
0.0.1. Bill-and-Hold Sales, Etc. Make a sale to any customer on a
bill-and-hold, guaranteed sale, sale and return, sale on approval or consignment
basis, or any sale on a repurchase or return basis.
0.0.1 Restricted Investment. Make or have, or permit any Subsidiary of
any Borrower to make or have, any Restricted Investment.
0.0.1. Leases. Become, or permit any of its Subsidiaries to become, a
lessee under any operating lease (other than a lease under which a Borrower or
any of its Subsidiaries is lessor) of Property if the aggregate Rentals payable
during any current or future period of 12 consecutive months under the lease in
question and all other leases under which Borrowers or any of their Subsidiaries
is then lessee would exceed $1,000,000. The term "Rentals" means, as of the date
of determination, all payments, which the lessee is required to make by the
terms of any lease.
0.0.1. Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than a Subsidiary of D&K.
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0.0.1. Amendment of Securitization Documents. Request any waiver of or
consent to any default under the terms of the Securitization Documents.
0.0.1. API. Permit API, as a Subsidiary of D&K, to own any property
other than the real property currently owned by such Subsidiary.
0.1. Specific Financial Covenants. During the term of this Agreement, and
thereafter for so long as there are any Obligations to Lender, each Borrower
covenants that, unless otherwise consented to by Lender in writing, it and all
other Borrowers shall (all financial covenants being computed on a consolidated
basis):
(A) Current Ratio. Maintain at all times a ratio of Consolidated
Current Assets to Consolidated Current Liabilities of not less than 1.25 to 1.0.
For purposes of computing the ratio contemplated herein, the amount of
Borrowers' Inventory comprising Consolidated Current Assets shall be computed on
a first in, first out basis in accordance with GAAP.
(B) Interest Coverage Ratio. Maintain at all times for each period of
three (3) consecutive months (computed on a rolling-basis commencing with the
three month period ending March 31, 1995) a ratio of Net Cash Flow plus Interest
Expense to Interest Expense of not less than 1.75 to 1.00.
(C) Debt Service Coverage Ratio. Maintain for each fiscal year of
Borrowers a ratio of Net Cash Flow minus Capital Expenditures not financed by
Permitted Purchase Money Indebtedness to Debt Service of not less than 1.0 to
1.0.
(D) Maintenance of Capital Base. Maintain at all times during the
periods specified below a Capital Base in an amount not less than the amount
shown below for the period corresponding thereto:
Period Amount
July 1, 1998 through June 30, 1999 $10,000,000
July 1, 1999 through June 30, 2000 $12,500,000
July 1, 2000 and thereafter $15,000,000
SECTION
1. CONDITIONS PRECEDENT
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Notwithstanding any other provision of this Agreement or any of the other
Loan Documents, and without affecting in any manner the rights of Lender under
the other sections of this Agreement, Lender shall not be required to make any
Loan under this Agreement unless and until each of the following conditions has
been and continues to be satisfied:
0.1. Documentation. Lender shall have received, in form and substance
satisfactory to Lender and its counsel, a duly executed copy of this Agreement
and the other Loan Documents, together with such additional documents,
instruments, certificates and opinions of Borrowers' counsel as Lender and its
counsel shall require in connection therewith from time to time, all in form and
substance satisfactory to Lender and its counsel, including without limitation,
the Jaron Security Agreement along with all filed copies of all UCC-1 Financing
Statements naming D&K as the secured party, and assigned to Lender.
0.1. No Default. No Default or Event of Default shall exist.
0.1. Other Loan Documents. Each of the conditions precedent set forth in
the other Loan Documents shall have been satisfied.
0.1. No Litigation. No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain or prohibit, or to
obtain damages in respect of, or which is related to or arises out of this
Agreement or the consummation of the transactions contemplated hereby.
0.1. Securitization. The Securitization shall have been consummated
substantially in accordance with the terms of the Securitization Documents.
0.1. Environmental. Lender shall be satisfied as to the existing and
potential liability of the Borrowers and their respective Subsidiaries with
respect to any environmental matters including, without limitation, compliance
with Environmental Laws and regulations.
0.1. No Material Adverse Change. There shall have occurred no material
adverse change in the business, condition (financial or otherwise), operations,
performance, properties or prospects of the Borrower or its Subsidiaries since
June 30, 1997.
0.1. Fee Letter. Borrowers shall have paid to Lender the fees payable under
the Fee Letter which are due and payable on the Closing Date.
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SECTION
1. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
0.1. Events of Default. The occurrence of one or more of the following
events shall constitute an "Event of Default":
0.0.1. Default under Securitization Documents. Any default, liquidation
event, or termination (other than a voluntary termination by Borrower), or any
event giving rise to a right of liquidation or termination, shall occur under
the Securitization Documents.
0.0.1. Payment of Other Obligations. Borrowers shall fail to pay any of
the Obligations within ten (10) days after the due date thereof (whether due at
stated maturity, on demand, upon acceleration or otherwise).
0.0.1. Misrepresentations. Any representation, warranty or other
statement made or furnished to Lender by or on behalf of any Borrower or any
Subsidiary of any Borrower in this Agreement, any of the other Loan Documents or
any instrument, certificate or financial statement furnished in compliance with
or in reference thereto proves to have been false or misleading in any material
respect when made or furnished or when reaffirmed pursuant to Section 7.2
hereof.
0.0.1. Breach of Specific Covenants. Any Borrower shall fail or neglect
to perform, keep or observe any covenant contained in Sections 5.2, 6.1.1, 6.2,
8.1.1, 8.1.3, 8.1.8, 8.1.9, 8.2, or 8.3 hereof on the date that such Borrower is
required to perform, keep or observe such covenant.
0.0.1. Breach of Other Covenants. Any Borrower shall fail or neglect to
perform, keep or observe any covenant contained in this Agreement (other than a
covenant which is dealt with specifically elsewhere in Section 10.1 hereof) and
the breach of such other covenant is not cured to Lender's satisfaction within
30 days after the sooner to occur of D&K's receipt of notice of such breach from
Lender or the date on which such failure or neglect first becomes known to any
officer of such Borrower.
0.0.1. Default Under Security Documents/Other Agreements. Any event of
default shall occur under, or any Borrower shall default in the performance or
observance of any
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term, covenant, condition or agreement contained in, any of the Security
Documents; or the Other Agreements and such default shall continue beyond any
applicable grace period.
0.0.1. Other Defaults. There shall occur any default or event of
default on the part of any Borrower under any agreement, document or instrument
to which such Borrower is a party or by which such Borrower or any of its
Property is bound, creating or relating to any Indebtedness in excess of $10,000
(other than the Obligations) if the payment or maturity of such Indebtedness is
accelerated in consequence of such event of default or demand for payment of
such Indebtedness is made.
0.0.1. Uninsured Losses. Any material loss, theft, damage or
destruction of any of the Collateral not fully covered (subject to such
deductibles as Lender shall have permitted) by insurance.
0.0.1. Insolvency and Related Proceedings. Any Borrower shall cease to
be Solvent or shall suffer the appointment of a receiver, trustee, custodian or
similar fiduciary, or shall make an assignment for the benefit of creditors, or
any petition for an order for relief shall be filed by or against any Borrower
under the Bankruptcy Code (if against any Borrower, the continuation of such
proceeding for more than 60 days), or any Borrower shall make any offer of
settlement, extension or composition to their respective unsecured creditors
generally.
0.0.1. Business Disruption; Condemnation. There shall occur a cessation
of a substantial part of the business of any Borrower, or any Subsidiary of any
Borrower for a period which significantly affects Borrower's capacity to
continue its business, on a profitable basis; or any Borrower or any Subsidiary
of any Borrower shall suffer the loss or revocation of any material license or
permit now held or hereafter acquired by any Borrower or such Subsidiary which
is necessary to the continued or lawful operation of its business; or any
Borrower shall be enjoined, restrained or in any way prevented by court,
governmental or administrative order from conducting all or any material part of
its business affairs; or any material lease or agreement pursuant to which any
Borrower leases, uses or occupies any Property shall be canceled or terminated
prior to the expiration of its stated term; or any part of the Collateral shall
be taken through condemnation or the value of such Property shall be impaired
through condemnation.
0.0.1. ERISA. A Reportable Event shall occur which Lender, in its sole
discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if any Borrower, or any Subsidiary of any Borrower is in
"default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments
to a Multiemployer Plan
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resulting from such Borrower's, such Subsidiary's or such Guarantor's complete
or partial withdrawal from such Plan.
0.0.1. Challenge to Agreement. Any Borrower, or any Subsidiary of any
Borrower, or any Affiliate of any of them, shall challenge or contest in any
action, suit or proceeding the validity or enforceability of this Agreement, or
any of the other Loan Documents, the legality or enforceability of any of the
Obligations or the perfection or priority of any Lien granted to Lender.
0.0.1. Repudiation of or Default Under Guaranty. Any Guarantor shall
revoke or attempt to revoke any guaranty signed by such Guarantor, or shall
repudiate such Guarantor's liability thereunder or shall be in default under the
terms thereof.
0.0.1. Criminal Forfeiture. Any Borrower, or any Subsidiary of any
Borrower shall be criminally indicted or convicted under any law that could lead
to a forfeiture of any Property of Borrower, any Subsidiary of Borrower or any
Guarantor.
0.0.1. Change of Management. Armstrong shall cease to be employed by
D&K as its Chief Executive Officer, and to perform the duties ordinarily
attendant to such office.
0.0.1. Judgments. Any money judgment, writ of attachment or similar
process in an amount in excess of $1,000,000 is filed against any Borrower or
any Subsidiary of any Borrower, or any of their respective Property.
0.1. Acceleration of the Obligations. Without in any way limiting the
right of Lender to demand payment of any portion of the Obligations payable on
demand in accordance with this Agreement, upon or at any time after the
occurrence of an Event of Default, all or any portion of the Obligations shall,
at the option of Lender and without presentment, demand, protest or further
notice by Lender, become at once due and payable and Borrowers shall forthwith
pay to Lender, the full amount of such Obligations, provided, that upon the
occurrence of an Event of Default specified in subsection 10.1.9 hereof
(relating to insolvency), all of the Obligations shall become automatically due
and payable without declaration, notice or demand by Lender. In connection with
any Letter of Credit issued or guaranteed pursuant to this Agreement, Borrowers
shall deliver to Lender cash collateral to be held interest-free by Lender in
the aggregate maximum amount of all letters of Credit then issued and
outstanding. If Borrowers fail to so deliver cash collateral, Lender may sell
Collateral pursuant to this Agreement and hold the proceeds thereof as cash
collateral.
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0.1. Other Remedies. Upon and after the occurrence of an Event of Default,
Lender shall have and may exercise from time to time the following rights and
remedies:
0.0.1. All of the rights and remedies of a secured party under the Code
or under other applicable law, and all other legal and equitable rights to which
Lender may be entitled, all of which rights and remedies shall be cumulative and
shall be in addition to any other rights or remedies contained in this Agreement
or any of the other Loan Documents, and none of which shall be exclusive.
0.0.1. The right to take immediate possession of the Collateral, and to
(i) require Borrowers to assemble the Collateral, at Borrowers' expense, and
make it available to Lender at a place designated by Lender which is reasonably
convenient to both parties, and (ii) enter any premises where any of the
Collateral shall be located and to keep and store the Collateral on said
premises until sold (and if said premises be the Property of a Borrower, such
Borrower agrees not to charge Lender for storage thereof).
0.0.1. The right to sell or otherwise dispose of all or any Collateral
in its then condition, or after any further manufacturing or processing thereof,
at public or private sale or sales, with such notice as may be required by law,
in lots or in bulk, for cash or on credit, all as Lender, in its sole
discretion, may deem advisable. Borrowers agree that 10 days written notice to
D&K of any public or private sale or other disposition of Collateral shall be
reasonable notice thereof, and such sale shall be at such locations as Lender
may designate in said notice. Lender shall have the right to conduct such sales
on Borrowers' premises, without charge therefor, and such sales may be adjourned
from time to time in accordance with applicable law. Lender shall have the right
to sell, lease or otherwise dispose of the Collateral, or any part thereof, for
cash, credit or any combination thereof, and Lender may purchase all or any part
of the Collateral at public or, if permitted by law, private sale and, in lieu
of actual payment of such purchase price, may set off the amount of such price
against the Obligations. The proceeds realized from the sale of any Collateral
may be applied, after allowing 1 Business Day for collection, first to the
costs, expenses and attorneys' fees incurred by Lender in collecting the
Obligations, in enforcing the rights of Lender under the Loan Documents and in
collecting, retaking, completing, protecting, removing, storing, advertising for
sale, selling and delivering any Collateral, second to the interest due upon any
of the Obligations; and third, to the principal of the Obligations. If any
deficiency shall arise, Borrowers shall remain jointly and severally liable to
Lender therefor. In the event of a sale of Collateral on credit terms, the
Borrowers' Obligations shall be reduced only to the extent that Lender receives
cash payment in respect of such credit sale.
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0.0.1. Lender is hereby granted a license or other right to use,
without charge, Borrowers' labels, patents, copyrights, rights of use of any
name, trade secrets, tradenames, trademarks and advertising matter, or any
Property of a similar nature, as it pertains to the Collateral, in advertising
for sale and selling any Collateral and Borrowers' rights under all licenses and
all franchise agreements shall inure to Lender's benefit.
0.0.1. Lender may, at its option, require Borrowers to deposit with
Lender funds equal to the LC Amount and, if Borrower fails to promptly make such
deposit, Lender may advance such amount as a Revolving Credit Loan (whether or
not an Overadvance is created thereby). Any such deposit or advance shall be
held by Lender as a reserve to fund future payments on such LC Guaranties and
future drawings against such Letters of Credit. At such time as all LC
Guaranties have been paid or terminated and all Letters of Credit have been
drawn upon or expired, any amounts remaining in such reserve shall be applied
against any outstanding Obligations, or, if all Obligations have been
indefeasibly paid in full, returned to Borrowers.
0.1. Remedies Cumulative; No Waiver. All covenants, conditions, provisions,
warranties, guaranties, indemnities, and other undertakings of Borrowers
contained in this Agreement and the other Loan Documents, or in any document
referred to herein or contained in any agreement supplementary hereto or in any
schedule or in any guaranty given to Lender or contained in any other agreement
between Lender and any Borrower, heretofore, concurrently, or hereafter entered
into, shall be deemed cumulative to and not in derogation or substitution of any
of the terms, covenants, conditions, or agreements of Borrowers herein
contained. The failure or delay of Lender to require strict performance by any
Borrower of any provision of this Agreement or to exercise or enforce any
rights, Liens, powers, or remedies hereunder or under any of the aforesaid
agreements or other documents or security or Collateral shall not operate as a
waiver of such performance, Liens, rights, powers and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in full force
and effect until all Loans and all other Obligations owing or to become owing
from Borrowers to Lender shall have been fully satisfied. None of the
undertakings, agreements, warranties, covenants and representations of Borrowers
contained in this Agreement or any of the other Loan Documents and no Event of
Default by any Borrower under this Agreement or any other Loan Documents shall
be deemed to have been suspended or waived by Lender, unless such suspension or
waiver is by an instrument in writing specifying such suspension or waiver and
is signed by a duly authorized representative of Lender and directed to D&K, as
agent for the Borrowers.
SECTION
1. MISCELLANEOUS
0.1. Power of Attorney. Borrowers hereby irrevocably designate, make,
constitute and appoint Lender (and all Persons designated by Lender) as
Borrowers' true and lawful attorney
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<PAGE> 37
(and agent-in-fact) and Lender, or Lender's agent, may, without notice to any
Borrower and in either any Borrower's or Lender's name, but at the cost and
expense of Borrowers:
0.0.1. At such time or times upon or after the occurrence of a Default
or an Event of Default as Lender or said agent, in its sole discretion, may
determine, endorse any Borrower's name on any checks, notes, acceptances,
drafts, money orders or any other evidence of payment or proceeds of the
Collateral which come into the possession of Lender or under Lender's control.
0.0.1. At such time or times upon or after the occurrence of an Event
of Default as Lender or its agent in its sole discretion may determine: (i)
demand payment of any Accounts which are part of the Collateral from the Account
Debtors, enforce payment of such Accounts by legal proceedings or otherwise, and
generally exercise all of Borrower's rights and remedies with respect to the
collection of such Accounts; (ii) settle, adjust, compromise, discharge or
release any of such Accounts or other Collateral or any legal proceedings
brought to collect any of such Accounts or other Collateral; (iii) sell or
assign any of such Accounts and other Collateral upon such terms, for such
amounts and at such time or times as Lender deems advisable; (iv) take control,
in any manner, of any item of payment or proceeds relating to any Collateral;
(v) prepare, file and sign any Borrower's name to a proof of claim in bankruptcy
or similar document against any Account Debtor of an Account which is part of
the Collateral or to any notice of lien, assignment or satisfaction of lien or
similar document in connection with any of the Collateral; (vi) receive, open
and dispose of all mail addressed to any Borrower and to notify postal
authorities to change the address for delivery thereof to such address as Lender
may designate; (vii) endorse the name of any Borrower upon any of the items of
payment or proceeds relating to any Collateral and deposit the same to the
account of Lender on account of the Obligations; (viii) endorse the name of any
Borrower upon any chattel paper, document, instrument, invoice, freight bill,
bill of lading or similar document or agreement relating to the Accounts,
Inventory and any other Collateral; (ix) use any Borrower's stationery and sign
the name of any Borrower to verifications of the Accounts which are part of the
Collateral and notices thereof to Account Debtors; (x) use the information
recorded on or contained in any data processing equipment and computer hardware
and software relating to the Accounts, Inventory, Investment Property, and any
other Collateral; (xi) make and adjust claims under policies of insurance; and
(xii) do all other acts and things necessary, in Lender's determination, to
fulfill Borrowers' obligations under this Agreement.
0.0.1. Indemnity. Borrowers hereby jointly and severally agree to
indemnify and hold harmless each Indemnified Party from and against any
liability, loss, damage, suit, action or proceeding ever suffered or incurred by
such Indemnified Party (including reasonable attorneys fees and legal expenses)
arising out of or in connection with the Securitization Documents or the closing
of the transaction described therein, or as a result of any Borrower's failure
to observe, perform or discharge Borrower's duties hereunder. In addition,
Borrowers shall jointly and
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<PAGE> 38
severally be obligated to defend each Indemnified Party against and save it
harmless from all claims of any Person with respect to the Collateral. Without
limiting the generality of the foregoing, these indemnities shall extend to any
claims asserted against any Indemnified Party by any Person under any
Environmental Laws or similar laws by reason of any Borrower's or any other
Person's failure to comply with laws applicable to solid or hazardous waste
materials or other toxic substances. Notwithstanding any contrary provision in
this Agreement, the obligation of Borrowers under this Section shall survive the
payment in full of the Obligations and the termination of this Agreement.
0.0.1. Modification of Agreement; Sale of Interest. This Agreement may
not be modified, altered or amended, except by an agreement in writing signed by
Borrowers and Lender. Borrowers may not sell, assign or transfer any interest in
this Agreement, any of the other Loan Documents, or any of the Obligations, or
any portion thereof, including, without limitation, Borrowers' rights, title,
interests, remedies, powers, and duties hereunder or thereunder. Borrowers
hereby consent to Lender's participation, sale, assignment, transfer or other
disposition, at any time or times hereafter, of this Agreement and any of the
other Loan Documents, or of any portion hereof or thereof, including, without
limitation, Lender's rights, title, interests, remedies, powers, and duties
hereunder or thereunder. In the case of an assignment, the assignee shall have,
to the extent of such assignment, the same rights, benefits and obligations as
it would if it were "Lender" hereunder and in the case of a total assignment
Lender shall be relieved of all obligations hereunder upon any such assignments.
Each Borrower agrees that it will use its best efforts to assist and cooperate
with Lender in any manner reasonably requested by Lender to effect the sale of
participations in or assignments of any of the Loan Documents or any portion
thereof or interest therein, including, without limitation, assisting in the
preparation of appropriate disclosure documents. Each Borrower further agrees
that Lender may disclose credit information regarding such Borrower and its
Subsidiaries to any potential participant or assignee.
0.0.1. Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement shall be prohibited by or
invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
0.1. Successors and Assigns. This Agreement, the Other Agreements and the
Security Documents shall be binding upon and inure to the benefit of the
successors and assigns of Borrowers and Lender permitted hereunder.
0.1. Cumulative Effect; Conflict of Terms. The provisions of the Other
Agreements and the Security Documents are hereby made cumulative with the
provisions of this Agreement.
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<PAGE> 39
Except as otherwise provided in Section 3.2 hereof and except as otherwise
provided in any of the other Loan Documents by specific reference to the
applicable provision of this Agreement, if any provision contained in this
Agreement is in direct conflict with, or inconsistent with, any provision in any
of the other Loan Documents, the provision contained in this Agreement shall
govern and control.
0.1. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed and delivered shall be deemed to be an original
and all of which counterparts taken together shall constitute but one and the
same instrument, subject to Section 11.14.
0.1. Notice. Except as otherwise provided herein, all notices, requests and
demands to or upon a party hereto, to be effective, shall be in writing and
shall be sent by certified or registered mail, return receipt requested, by
personal delivery against receipt, by overnight courier or by facsimile and,
unless otherwise expressly provided herein, shall be deemed to have been validly
served, given or delivered immediately when delivered against receipt, one
Business Day after deposit in the mail, postage prepaid, or with an overnight
courier or, in the case of facsimile notice, when sent, addressed as follows:
If to Lender: Fleet Capital Corporation
20800 Swenson Dr., Suite 350
Waukesha, WI 53186
Attention: Loan Administration Manager
Facsimile No.: 414/798-4882
With a copy to: Husch & Eppenberger, LLC
100 N. Broadway, Suite 1300
St. Louis, MO 63102
Attention: Maury B. Poscover, Esq.
Facsimile No.: 314/421-0239
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<PAGE> 40
If to Borrowers: D & K Healthcare Resources, Inc.
8000 Maryland Avenue
St. Louis, MO 63105
Attention: J. Hord Armstrong
Facsimile No.:314/727-5759
With a copy to: Armstrong, Teasdale, Schlafly & Davis
One Metropolitan Square
Suite 2600
St. Louis, MO 63102
Attention: John L. Sullivan
Facsimile No.:314/621-5065
or to such other address as each party may designate for itself by no
in accordance with this Section; provided, however, that any notice, request or
demand to or upon Lender pursuant to subsection 3.1.1 or 4.2.2 hereof shall not
be effective until received by Lender.
0.1. Lender's Consent. Whenever Lender's consent is required to be obtained
under this Agreement, any of the Other Agreements or any of the Security
Documents as a condition to any action, inaction, condition or event, Lender
shall be authorized to give or withhold such consent in its sole and absolute
discretion and to condition its consent upon the giving of additional collateral
security for the Obligations, the payment of money or any other matter.
0.1. Credit Inquiries. Each Borrower hereby authorizes and permits Lender
to respond to usual and customary credit inquiries from third parties concerning
such Borrower or any of its Subsidiaries, subject to Section 11.14.
0.1. Time of Essence. Time is of the essence of this Agreement, the Other
Agreements and the Security Documents.
0.1. Entire Agreement. This Agreement and the other Loan Documents,
together with all other instruments, agreements and certificates executed by the
parties in connection therewith or with reference thereto, embody the entire
understanding and agreement between the parties hereto and thereto with respect
to the subject matter hereof and thereof and supersede all prior agreements,
understandings and inducements, whether express or implied, oral or written.
0.1. Interpretation. No provision of this Agreement or any of the other
Loan Documents shall be construed against or interpreted to the disadvantage of
any party hereto by
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<PAGE> 41
any court or other governmental or judicial authority by reason of such party
having or being deemed to have structured or dictated such provision.
0.1. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN NEGOTIATED,
EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN CHICAGO,
ILLINOIS. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF ILLINOIS: PROVIDED, HOWEVER, THAT IF ANY OF THE
COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN ILLINOIS, THE LAWS OF
SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE
OF LENDER'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF LENDER'S OTHER
REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF ILLINOIS. AS
PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF ANY PRESENT
OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF ANY BORROWER OR LENDER,
EACH BORROWER HEREBY CONSENTS AND AGREES THAT ANY STATE OR FEDERAL COURT LOCATED
IN THE CITY OR COUNTY OF ST. LOUIS, MISSOURI, SHALL HAVE EXCLUSIVE JURISDICTION
TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES BETWEEN ANY BORROWER AND LENDER
PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF OR RELATED TO THIS
AGREEMENT. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT, AND EACH
BORROWER HEREBY WAIVES ANY OBJECTION WHICH SUCH BORROWER MAY HAVE BASED UPON
LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND HEREBY
CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER PROCESS MAY BE MADE BY
REGISTERED OR CERTIFIED MAIL ADDRESSED TO ANY BORROWER AT THE ADDRESS SET FORTH
IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED UPON THE
EARLIER OF SUCH BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER DEPOSIT IN THE
U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT SHALL BE DEEMED OR
OPERATE TO AFFECT THE RIGHT OF LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY LENDER OF ANY JUDGMENT OR
ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF
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<PAGE> 42
ANY ACTION UNDER THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM
OR JURISDICTION.
0.1. WAIVERS BY BORROWERS. EACH BORROWER WAIVES (i) THE RIGHT TO TRIAL BY
JURY (WHICH LENDER HEREBY ALSO WAIVES) IN ANY ACTION, SUIT, PROCEEDING OR
COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF THE LOAN DOCUMENTS,
THE OBLIGATIONS OR THE COLLATERAL: (ii) PRESENTMENT, DEMAND AND PROTEST AND
NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY, RELEASE,
COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL PAPER,
ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND GUARANTIES
AT ANY TIME HELD BY LENDER ON WHICH EACH BORROWER MAY IN ANY WAY BE LIABLE AND
HEREBY RATIFIES AND CONFIRMS WHATEVER LENDER MAY DO IN THIS REGARD; (iii) NOTICE
PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND OR SECURITY
WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING LENDER TO EXERCISE ANY OF
LENDER'S REMEDIES; (iv) THE BENEFIT OF ALL VALUATION, APPRAISEMENT AND EXEMPTION
LAWS; AND (v) NOTICE OF ACCEPTANCE HEREOF. EACH BORROWER ACKNOWLEDGES THAT THE
FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO LENDER'S ENTERING INTO THIS
AGREEMENT AND THAT LENDER IS RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE
DEALINGS WITH BORROWER. EACH BORROWER WARRANTS AND REPRESENTS THAT IT HAS
REVIEWED THE FOREGOING WAIVERS WITH ITS LEGAL COUNSEL AND HAS KNOWINGLY AND
VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN
CONSENT TO A TRIAL BY THE COURT.
0.1. Private Sale; Commercial Reasonableness. The Borrowers acknowledge
that a significant portion of the Collateral consists of prescription drugs and
controlled substances that are subject to applicable federal and state
regulations which, among other things, restrict the right to sell and purchase
such drugs and controlled substances to certain licensed or otherwise authorized
Persons. In view of these restrictions on the ability to sell and purchase such
Collateral, the Borrowers acknowledge that a public sale of such Collateral
under the UCC would be legally impossible or otherwise impractical. Accordingly,
the Borrowers agree that a private sale of any such Collateral, and any other
Collateral sold in connection therewith, shall not be deemed a commercially
unreasonable sale under the UCC by virtue of the Lender selling, or offering to
sell, such Collateral only to Persons who are licensed or otherwise authorized
to purchase such Collateral. The Borrowers further recognize that, in connection
with the disposition of such Collateral subject to federal and state
regulations, the Lender may incur
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<PAGE> 43
additional costs and expenses such as, by way of example and not as a
limitation, obtaining certain federal and state licenses or other authorizations
to permit the Lender to sell or purchase such Collateral, retaining the services
of auctioneers or other persons licensed or otherwise authorized to dispose of
such Collateral, retaining legal counsel and experts in the area of prescription
drugs and controlled substances to advise Lender on the disposition of such
Collateral, and verifying that any purchasers of such Collateral are licensed or
otherwise authorized to acquire such Collateral. Any such reasonable additional
costs and expenses incurred by the Lender shall be added to the Obligations and
be payable on demand and shall not affect the commercial reasonableness of any
such sale. Borrowers hereby agree to cooperate with any such sale to the extent
reasonably requested by Lender.
0.1. Confidentiality. Lender agrees to take and to cause its Affiliates to
take normal and reasonable precautions and exercise due care to maintain the
confidentiality of all information identified as "confidential" or "secret" by
Borrower and provided to it by the Borrower or any Subsidiary, under this
Agreement or any other Loan Document, and neither such Lender nor any of its
Affiliates shall use any such information other than in connection with or in
enforcement of this Agreement and the others Loan Documents or in connection
with other business now or hereafter existing or contemplated with the Borrower
or any Subsidiary; except to the extent such information (i) was or becomes
generally available to the public other than as a result of disclosure by
Lender, or (ii) was or becomes available on a non-confidential basis from a
source other than the Borrower, provided that such source is not bound by a
confidentiality agreement with the Borrower or any Subsidiary known to Lender;
provided, however that any Lender may disclose such information (A) at the
request or pursuant to any requirement of any governmental authority to which
Lender is subject or in connection with an examination of Lender by any such
authority; (B) pursuant to subpoena or other court process; (C) when required to
do so in accordance with the provisions of any applicable requirement of law;
(D) to the extent reasonably required in connection with any litigation or
proceeding to which the Lender or any of their respective Affiliates may be
party; (E) to the extent reasonably required in connection with the exercise of
any remedy hereunder or under any other Loan Document; (F) to Lender's
independent auditors and other professional advisors; (G) to any participant or
assignee, actual or potential, provided that such Person agrees in writing to
keep such information confidential to the same extent required of the Lender
hereunder; (H) as to any Lender or its Affiliate, as expressly permitted under
the terms of any other document or agreement regarding confidentiality to which
the Borrower or any Subsidiary is party or is deemed party with Lender or Such
Affiliate; and (I) to its Affiliates.
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IN WITNESS WHEREOF, this Agreement has been duly executed on the day and
year specified at the beginning of this Agreement.
D & K HEALTHCARE RESOURCES, INC.
By: ________________________________
Name:
Title:
JARON, INC.
By: ________________________________
Name:
Title:
FLEET CAPITAL CORPORATION
By: ________________________________
Name:
Title:
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<PAGE> 45
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated as of August 7,
1998, by and among Fleet Capital Corporation, D & K Healthcare Resources, Inc.,
and Jaron, Inc., the following terms shall have the following meanings (terms
defined in the singular to have the same meaning when used in the plural and
vice versa):
Account Debtor - any Person who is or may become obligated under or on
account of an Account.
Accounts - all Accounts (as defined in the Code), contract rights,
chattel paper, instruments and documents, whether now owned or hereafter created
or acquired by Borrower or in which Borrower now has or hereafter acquires any
interest.
Adjusted Net Earnings From Operations - with respect to any fiscal
period, means the net earnings (or loss) after provision for income taxes for
such fiscal period of a Borrower, as reflected on the financial statement of
such Borrower supplied to Lender pursuant to the Agreement, but excluding:
(i) any gain or loss arising from the sale of capital
assets;
(ii) any gain arising from any write-up of assets;
(iii) earnings of any Subsidiary of any Borrower accrued
prior to the date it became a Subsidiary;
(iv) earnings of any corporation, substantially all the
assets of which have been acquired in any manner by a Borrower,
realized by such corporation prior to the date of such acquisition;
(v) net earnings of any business entity (other than a
Subsidiary of a Borrower) in which Borrower has an ownership interest
unless such net earnings shall have actually been received by a
Borrower in the form of cash distributions;
(vi) any portion of the net earnings of any Subsidiary of a
Borrower which for any reason is unavailable for payment of dividends
to such Borrower;
(vii) the earnings of any Person to which any assets of a
Borrower shall have been sold, transferred of disposed of, or into
which a Borrower shall have merged, or been a party to any
consolidation or other form of reorganization, prior to the date of
such transaction;
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(viii) any gain arising from the acquisition of any Securities
of a Borrower; and
(ix) any gain arising from extraordinary or non-recurring
items.
Adverse Environmental Condition shall mean (i) any release, spill,
emission, leaking, pumping, injection, presence, deposit, abandonment,
disposal, discharge, dispersal, emission, leaching or migration in, into,
on, or emanating from the indoor or outdoor environment (including, without
limitation, the air, ground, water, groundwater, or any surface) of any
substance, chemical, material, pollutant, hazardous material, gas, odor or
audible noise related to the conduct of a Borrower's or any of its
Subsidiaries' businesses; (ii) any complaint, citation, notice of violation,
request for information, claim, demand or order by any governmental
authority or any person for the personal injury, property damage, damage to
the environment, or adverse effect on the environmental resulting from (i)
above; and (iii) the violation, or alleged violation of, or liability under
any applicable Environmental Law, permits, approvals, directives,
injunctions, orders, licenses or judgments of, by or from any governmental
authority, agency, person or court relating to environmental matters
connected with any Borrower's or any of its Subsidiaries' businesses.
Affiliate - a Person (other than a Subsidiary): (i) which directly or
indirectly through one or more intermediaries Controls, or is Controlled by,
or is under common Control with, a Person; (ii) which beneficially owns or
holds 5% or more of any class of the Voting Stock of a Person; or (iii) 5%
or more of the Voting Stock (or in the case of a Person which is not a
corporation, 5% or more of the equity interest) of which is beneficially
owned or held by a Person or a Subsidiary of a Person.
Agreement - the Fourth Amended and Restated Loan and Security Agreement
referred to in the first sentence of this Appendix A, all Exhibits thereto
and this Appendix A.
API - Associated Pharmacies, Inc.
Applicable Margin - for any period or date, the margin with respect to
the Base Rate or the LIBO Rate as applicable, set forth in the chart below
corresponding to the Interest Coverage Ratio for the immediately preceding
12 month period ending each December 31 and June 30, as reflected by the
most recently delivered financial statements for the period ending on such
date, of Borrowers and their Subsidiaries pursuant to Section 8.1.3(i) (for
the twelve month periods ending on June 30 of each year) and pursuant to
Section 8.1.3(ii) (for the twelve month periods ending on December 31 of
each year). The Applicable Margin shall be effective from and after the date
of delivery of such financial statements:
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<TABLE>
<CAPTION>
Interest Coverage
Ratio for preceding Applicable Margin Applicable Margin
twelve month period Base Rate LIBO Rate
============================== ================================== ==================================
<S> <C> <C>
< 1.75 to 1.0 1.00% 2.25%
< 2.00 to 1.0 and 0.75% 2.00%
> 1.75 to 1.0
-
< 2.50 to 1.0 and 0.50% 1.70%
> 2.00 to 1.0
-
<3.00 to 1.0 and 0.00% 1.50%
>2.50 to 1.0
-
>3.00 to 1.0 0.00% 1.25%
-
- ------------------------------ ---------------------------------- ----------------------------------
</TABLE>
In calculating the Interest Coverage Ratio, Lender will calculate numbers to
hundredths, and amounts of .05 or greater will be rounded up to the next tenth.
For example (and not by way of limitation) 2.45 shall be rounded to 2.5, but
2.44 shall be rounded to 2.4.
Armstrong - J. Hord Armstrong III.
Average Monthly Loan Balance - The amount obtained by adding the unpaid
balance of all Loans owing by the Borrowers to Lender at the end of each day
for each day during the month in question and by dividing such sum by the
number of days in such month.
Bank - Fleet National Bank.
Base Rate - the rate of interest generally announced or quoted by Bank
from time to time as its base rate for commercial loans, whether or not such
rate is the lowest rate charged by Bank to its most preferred borrowers; and
if such base rate for commercial loans is discontinued by Bank as a
standard, a comparable reference rate designated by Bank as a substitute
therefor shall be the Base Rate.
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(i) $75,000,000; or
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(ii) an amount equal to 60% of the value of Eligible
Inventory at such date calculated on the basis of the lower of cost or
market with the cost of raw materials and finished goods calculated on
a first-in, first-out basis,
MINUS
an amount equal to the sum of (A) the face amount of all letters of credit
issued or guaranteed by Lender or any Affiliate of Lender for the account of a
Borrower and outstanding at such date, and (B) any amounts which Lender may be
obligated to pay in the future for the account of a Borrower.
Notwithstanding anything else herein to the contrary, Advances to or on
behalf of Jaron will be limited at all times to the sum of 60% of the value of
Jaron's Eligible Inventory, calculated as set forth above, MINUS the aggregate
amount of Indebtedness of Jaron to D&K.
Business Day - any day excluding Saturday, Sunday and any day which is
a legal holiday under the laws of the State of Missouri or the State of Illinois
or is a day on which banking institutions located in either of such states are
closed.
Capital Base - At any date means the sum of (i) Consolidated Tangible
Net Worth, plus (ii) the principal amount of Subordinated Debt.
Capital Expenditures - expenditures made and liabilities incurred for
the acquisition of any fixed assets or improvements, replacements, substitutions
or additions thereto which have a useful life of more than one year, including
the total payments with respect to Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
Closing Date - the date on which all of the conditions precedent in
Section 9 of the Agreement are satisfied and the initial Loan is made or the
initial Letter of Credit or LC Guaranty is issued under the Agreement.
Code - the Uniform Commercial Code as adopted and in force in the State
of Illinois, as from time to time in effect.
Collateral - all of the Property and interests in Property described in
Section 5 of the Agreement, and all other Property and interests in Property
that now or hereafter secure the payment and performance of any of the
Obligations.
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Consolidated - the consolidation in accordance with GAAP of the
accounts or other items as to which such term applies.
Control - means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of Voting Stock, by contract, or otherwise.
Current Assets - at any date means the amount at which all of the
current assets of a Person would be properly classified as current assets shown
on a balance sheet at such date in accordance with GAAP, except that amounts due
from Affiliates and investments in Affiliates and prepaid expenses shall be
excluded therefrom.
Current Liabilities - at any date means the amount at which all of the
current liabilities of a Person would be properly classified as current
liabilities on a balance sheet at such date in accordance with GAAP excluding
the Loans.
Debt Service - for any period, all scheduled principal payments payable
on Indebtedness, whether at maturity or regularly scheduled payments, mandatory
prepayments, by acceleration or otherwise.
Default - an event or condition the occurrence of which would, with the
lapse of time or the giving of notice, or both, become an Event of Default.
Default Rate - as defined in subsection 2.1.2 of the Agreement.
Distribution - in respect of any corporation means and includes: (i)
the payment of any dividends or other distributions on capital stock of the
corporation (except distributions in such stock) and (ii) the redemption or
acquisition of Securities unless made contemporaneously from the net proceeds of
the sale of Securities.
Eligible Inventory - such Inventory of a Borrower (other than packaging
materials and supplies) which Lender, in its sole credit judgment, deems to be
Eligible Inventory. Without limiting the generality of the foregoing, no
Inventory shall be Eligible Inventory if:
(i) it is not raw materials or finished goods, or
work-in-process that is, in Lender's opinion, readily marketable in its
current form; or
(ii) it is not in good, new and saleable condition; or
(iii) it is slow-moving, obsolete or unmerchantable; or
(iv) it does not meet all standards imposed by any
governmental agency or authority; or
5
<PAGE> 50
(v) it does not conform in all respects to the warranties
and representations set forth in the Agreement; or
(vi) it is not at all times subject to Lender's duly
perfected, first priority security interest and no other Lien except a
Permitted Lien;
(vii) it is not situated at a location in compliance with
the Agreement;
(viii) it consists of supplies or labels; or
(ix) in the case of Jaron, no Inventory shall be Eligible
Inventory while Jaron has any Indebtedness outstanding to Capital
Business Credit, Inc., has any commitment for credit from Capital
Business Credit, Inc., or any financing statement naming Capital
Business Credit, Inc. as secured party and Jaron as debtor remains
filed in any filing office.
Environmental Laws - all federal, state and local laws, rules,
regulations, ordinances, programs, permits, guidances, orders and consent
decrees relating to health, safety and environmental matters.
Equipment - all machinery, apparatus, equipment, fittings, furniture,
fixtures, motor vehicles and other tangible personal Property (other than
Inventory) of every kind and description used in any Borrower's operations or
owned by any Borrower in which any Borrower has an interest, whether now owned
or hereafter acquired by any Borrower and wherever located, and all parts,
accessories and special tools and all increases and accessions thereto and
substitutions and replacements thereof.
ERISA - the Employee Retirement Income Security Act of 1974, as
amended, and all rules and regulations from time to time promulgated thereunder.
Event of Default - as defined in Section 10.1 of the Agreement.
Fee Letter - that certain fee letter from Borrowers to Lenders dated on
or about the Closing Date.
GAAP - generally accepted accounting principles in the United States of
America in effect from time to time.
General Intangibles - all General Intangibles (as defined in the Code)
of Borrower, whether now owned or hereafter created or acquired by the Borrower,
including, without limitation, all choses in action, causes of action, corporate
or other business records, deposit accounts, inventions, designs, patents,
patent applications, trademarks, trade names, trade secrets, goodwill,
copyrights, registrations, licenses, franchises, customer lists, tax refund
claims, computer programs, all claims under guaranties, security interests
6
<PAGE> 51
or other security held by or granted to Borrower to secure payment of any of the
Accounts by an account debtor, all rights to indemnification and all other
intangible property of every kind and nature (other than Accounts).
Guarantor - Any Person who may hereafter guarantee payment or
performance of the whole or any part of the Obligations.
Indebtedness - as applied to a Person means, without duplication
(i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as at the date as of which
Indebtedness is to be determined, including, without limitation,
Capitalized Lease Obligations,
(ii) all obligations of other Persons which such Person has
guaranteed,
(iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the account
of such Person, and
(iv) in the case of any Borrower (without duplication), the
Obligations.
Indemnified Parties - the Lender and any Participating Lender and each
of their respective Affiliates and their respective officers, directors,
employees, agents and advisors.
Intercreditor Agreement - that certain Intercreditor Agreement between
Lender and Magna Bank, N.A., predecessor to Magna Bank, N.A., relating to a loan
made by such Bank to D&K in the original principal amount of $1,495,000, as the
same may be amended, restated, extended or modified from time to time.
Interest Coverage Ratio - with respect to any period of determination,
the ratio of Consolidated (i) Net Cash Flow for such period to (ii) Interest
Expense for such period, all as determined in accordance with GAAP.
Interest Expense - with respect to any fiscal period, the sum of (i)
the interest expense incurred for such period as determined in accordance with
GAAP, plus (ii) the Letter of Credit and LC Guaranty fees owing for such period,
and (iii) the Earned Discount charged under and defined in the Securitization
Documents.
Inventory - all of Borrower's Inventory (as defined in the Code),
whether now owned or hereafter acquired including, but not limited to, all goods
intended for sale or lease by Borrower, or for display or demonstration; all
work in process; all raw materials and other materials and supplies of every
nature and description used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising, selling, leasing or
furnishing of such goods or otherwise used or consumed in Borrower's
7
<PAGE> 52
business; and all documents evidencing and General Intangibles relating to any
of the foregoing, whether now owned or hereafter acquired by Borrower.
Investment Property - all of the Borrower's Investment Property (as
defined in the Code), whether now owned or hereafter acquired, including but not
limited to all securities, security entitlements, securities accounts, commodity
contracts, commodity accounts, stocks, bonds, mutual fund shares, money market
shares, and U.S. Government securities.
Jaron SecurityAgreement - that certain security agreement from Jaron,
in favor of D&K, securing Jaron's open account with D&K with respect to proceeds
of the Revolving Credit Loans pursuant to Section 1.4 of the Agreement.
LC Amount - at any time, the aggregate undrawn face amount of all
Letters of Credit and LC Guaranties then outstanding.
LC Guaranty - any guaranty pursuant to which Lender or any Affiliate of
Lender shall guaranty the payment or performance by Borrower of its
reimbursement obligation under any letter of credit.
Legal Requirement - any requirement imposed on Lender by any law,
regulation, order, interpretation, ruling or official directive (whether or not
having the force of law) of any board, central bank or governmental or
administrative agency, institution or authority.
Letter of Credit - any letter of credit issued by Lender or any of
Lender's Affiliates for the account of Borrower.
LIBO Rate - a fluctuating interest rate per annum equal to the rate
(rounded upwards, if necessary, to the next higher 1/16 of 1%) at which deposits
of U.S. Dollars approximately equal in principal amount to the outstanding
amount of Revolving Credit Loans are offered to Lender for a 30-day period by
Bank in the London interbank foreign currency deposits market at approximately
11:00 a.m., London time, on any Business Day. Each determination by Lender of
any LIBO Rate shall, in the absence of manifest error, be conclusive. The
foregoing notwithstanding, in the event deposits of U.S. dollars are not offered
to Lender by Bank for a 30-day period in the London Interbank foreign currency
deposits markets, then LIBO Rate shall mean London Interbank offered rate for a
30-day period as published from time to time by the Wall Street Journal, or if
not published in the Wall Street Journal, the Financial Times of London.
Lien - any interest in Property securing an obligation owed to, or a
claim by, a Person other than the owner of the Property, whether such interest
is based on common law, statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements, rights-of-way, covenants,
conditions, restrictions, leases and other title exceptions and encumbrances
affecting Property. For the purpose of the
8
<PAGE> 53
Agreement, Borrowers shall be deemed to be the owner of any Property which it
has acquired or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been retained by or
vested in some other Person for security purposes.
Loan Account - the loan account established on the books of Lender
pursuant to Section 3.6 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the Security
Documents.
Loans - all loans and advances of any kind made by Lender pursuant to
the Agreement.
Money Borrowed - means (i) Indebtedness arising from the lending of
money by any Person to a Borrower; (ii) Indebtedness, whether or not in any such
case arising from the lending by any Person of money to a Borrower, (A) which is
represented by notes payable or drafts accepted that evidence extensions of
credit, (B) which constitutes obligations evidenced by bonds, debentures, notes
or similar instruments, or (C) upon which interest charges are customarily paid
(other than accounts payable) or that was issued or assumed as full or partial
payment for Property; (iii) Indebtedness that constitutes a Capitalized Lease
Obligation; (iv) reimbursement obligations with respect to letters of credit or
guaranties of letters of credit and (v) Indebtedness of a Borrower under any
guaranty of obligations that would constitute Indebtedness for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by such Borrower.
Multiemployer Plan - has the meaning set forth in Section 4001(a)(3) of
ERISA. Net Cash Flow - For any period means Consolidated Adjusted Net Earnings
from Operations during such period, plus amounts deducted in the computation
thereof for depreciation, amortization and deferred taxes, plus or minus, as the
case may be, the net change in the D&K's Consolidated LIFO reserve during such
period.
Obligations - all Loans and all other advances, debts, liabilities,
obligations, covenants and duties, together with all interest, fees and other
charges thereon, owing, arising, due or payable from any Borrower to Lender of
any kind or nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, whether arising under the Agreement or any of the
other Loan Documents or otherwise whether direct or indirect (including those
acquired by assignment), absolute or contingent, primary or secondary, due or to
become due, now existing or hereafter arising and however acquired, and any
replacements, renewals, extensions or other modifications of any of them.
Original Term - as defined in Section 4.1 of the Agreement.
9
<PAGE> 54
Other Agreements - any and all agreements, instruments and documents
(other than the Agreement and the Security Documents), heretofore, now or
hereafter executed by any Borrower, any Subsidiary of any Borrower or any other
third party and delivered to Lender in respect of the transactions contemplated
by the Agreement, including, without limitation, the Jaron Security Agreement
and the Fee Letter.
Overadvance - the amount, if any, by which the outstanding principal
amount of Revolving Credit Loans plus the LC Amount exceeds the Borrowing Base.
Participating Lender - each Person who shall be granted the right by
Lender to participate in any of the Loans described in the Agreement and who
shall have entered into a participation agreement in form and substance
satisfactory to Lender.
PBI - Pharmaceutical Buyers, Inc., an Arkansas corporation.
Permitted Liens - any Lien of a kind specified in subsection 8.2.5 of
the Agreement.
Permitted Purchase Money Indebtedness - Purchase Money Indebtedness of
a Borrower incurred after the date hereof which is secured by a Purchase Money
Lien and which, when aggregated with the principal amount of all other such
Indebtedness and Capitalized Lease Obligations of all Borrowers at the time
outstanding, does not exceed $1,000,000. For the purposes of this definition,
the principal amount of any Purchase Money Indebtedness consisting of
capitalized leases shall be computed as a Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited liability
company, joint stock company, land trust, business trust, or unincorporated
organization, or a government or agency or political subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained for
employees of Borrower that is covered by Title IV of ERISA.
Plotnik Subordinated Note - that certain Promissory Note in the face
amount of $1,000,000 given by D&K to Ricky Plotnik and dated March 17, 1998, as
the same may be amended or restated from time to time, which such note was
retired and paid in full, effective June 30, 1998.
Projections - Borrowers' forecasted Consolidated and consolidating (a)
balance sheets, (b) profit and loss statements, (c) cash flow statements, and
(d) capitalization statements, all prepared on a consistent basis with
Borrowers' historical financial statements, together with appropriate supporting
details and a statement of underlying assumptions.
10
<PAGE> 55
Property - any interest in any kind of property or asset, whether real,
personal or mixed, or tangible or intangible.
Purchase Money Indebtedness - means and includes (i) Indebtedness
(other than the Obligations) for the payment of all or any part of the purchase
price of any fixed assets, (ii) any Indebtedness (other than the Obligations)
incurred at the time of or within 10 days prior to or after the acquisition of
any fixed assets for the purpose of financing all or any part of the purchase
price thereof, and (iii) any renewals, extensions or refinancings thereof, but
not any increases in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures Purchase
Money Indebtedness, but only if such Lien shall at all times be confined solely
to the fixed assets the purchase price of which was financed through the
incurrence of the Purchase Money Indebtedness secured by such Lien.
Rentals - as defined in subsection 8.2.13 of the Agreement.
Reportable Event - any of the events set forth in Section 4043(b) of
ERISA.
Restricted Investment - any investment made in cash or by delivery of
Property to any Person, whether by acquisition of stock, Indebtedness or other
obligation or Security, or by loan, advance or capital contribution, or
otherwise, or in any Property except the following:
(i) investments in one or more Subsidiaries of any Borrower
to the extent existing on the Closing Date;
(ii) Property to be used in the ordinary course of business;
(iii) Current Assets arising from the sale of goods and
services in the ordinary course of business of a Borrower and its
Subsidiaries;
(iv) investments in direct obligations of the United States
of America, or any agency thereof or obligations guaranteed by the
United States of America, provided that such obligations mature within
one year from the date of acquisition thereof;
(v) investments in certificates of deposit maturing within
one year from the date of acquisition issued by a bank or trust company
organized under the laws of the United States or any state thereof
having capital surplus and undivided profits aggregating at least
$100,000,000;
(vi) investments made under and pursuant to the
Securitization Documents; and
11
<PAGE> 56
(vii) investments in commercial paper given the highest
rating by a national credit rating agency and maturing not more than
270 days from the date of creation thereof.
Revolving Credit Facility - means the amounts available to be borrowed
under Section 1.1 of the Agreement.
Revolving Credit Loan - a Loan made by Lender as provided in Section
1.1 of the Agreement.
Security - shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
Security Documents - All the instruments and agreements now or at any
time hereafter securing the whole or any part of the Obligations.
Solvent - as to any Person, such Person (i) owns Property whose fair
saleable value is greater than the amount required to pay all of such Person's
Indebtedness (including contingent debts), (ii) is able to pay all of its
Indebtedness as such Indebtedness matures and (iii) has capital sufficient to
carry on its business and transactions and all business and transactions in
which it is about to engage.
Subordinated Debt - Indebtedness of Borrower that is subordinated to
the Obligations in a manner satisfactory to Lender, including, without
limitation, the Promissory Note of D&K in favor of Steven B. Goldfine, as agent,
issued in connection with the purchase of Northern Drug Company.
Subordination Agreements - the Subordination Agreements relating to
each of the notes evidencing the Subordinated Debt between Lender and the
holders of such notes.
Subsidiary - any corporation of which a Person owns, directly or
indirectly through one or more intermediaries, more than 50% of the Voting Stock
at the time of determination.
Tangible Assets - All assets except:
(i) any surplus resulting from any write-up of assets after
June 30, 1997;
(ii) deferred assets, other than prepaid insurance and
prepaid taxes;
(iii) patents, copyrights, trademarks, trade names,
non-compete agreements, franchises and other similar intangibles;
12
<PAGE> 57
(iv) goodwill, including any amounts, however designated on
a Consolidated balance sheet of a Person and its Subsidiaries,
representing the excess of the purchase price paid for assets or stock
over the value assigned thereto on the books of such Person;
(v) restricted Investments;
(vi) unamortized debt discount and expense;
(vii) assets located and notes and receivables due from
obligors outside of the United States of America; and
(viii) accounts, notes, and other receivables due from
Affiliates or employees.
Tangible Net Worth - At any date means a sum equal to: (i) the net book
value (after deducting related depreciation, obsolescence, amortization,
valuation, and other proper reserves) at which the Tangible Assets of a
Person would be shown on a balance sheet at such date in accordance with
GAAP, plus (ii) such Person's LIFO reserve at such date (computed in
accordance with GAAP) minus (iii) the amount at which such Person's
liabilities (other than capital stock and surplus) would be shown on such
balance sheet in accordance with GAAP, and including as liabilities all
reserves for contingencies and other potential liabilities.
Total Credit Facility - $75,000,000.
Voting Stock - Securities of any class or classes of a corporation the
holders of which are ordinarily, in the absence of contingencies, entitled
to elect a majority of the corporate directors (or Persons performing
similar functions).
Other Terms. All other terms contained in the Agreement shall have,
when the context so indicates, the meanings provided for by the Code to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein", "hereof" and
"hereunder" and other words of similar import refer to the Agreement as a whole
and not to any particular section, paragraph or subdivision. Any pronoun used
shall be deemed to cover all genders. The section titles, table of contents and
list of exhibits appear as a matter of convenience only and shall not affect the
interpretation of the Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all modifications thereto and any and all extensions or renewals thereof.
13
<PAGE> 58
LIST OF EXHIBITS
<TABLE>
<S> <C>
Exhibit A Omitted
Exhibit B Borrowers' and each Subsidiary's Business Locations
Exhibit C Jurisdictions in which each Borrower and each Subsidiary is Authorized to do Business
Exhibit D Capital Structure of Borrowers
Exhibit E Corporate Names
Exhibit F Tax Identification Numbers of Subsidiaries
Exhibit G Patents, Trademarks, Copyrights and Licenses
Exhibit H Contracts Restricting Borrowers' Right to Incur Debts
Exhibit I Litigation
Exhibit J Capitalized Leases
Exhibit K Operating Leases
Exhibit L Pension Plans
Exhibit M Labor Contracts
Exhibit N Environmental Matters
Exhibit O Compliance Certificate
Exhibit P Permitted Liens
</TABLE>
14
<PAGE> 59
EXHIBIT B
BUSINESS LOCATIONS
1. Each Borrower currently has the following business locations, and no
others:
Chief Executive Office:
Other Locations:
2. Each Borrower maintains its books and records relating to Accounts and
General Intangibles at:
3. Each Borrower maintains Inventory at the following locations owned or
leased by such Borrower:
Address Owner
4. Each Borrower has had no office, place of business or agent for process
located in any county other than as set forth above, except:
5. Each Subsidiary currently has the following business locations, and no
others:
Chief Executive Office:
Other Locations:
6. Each Subsidiary maintains its books and records relating to Accounts
and General Intangibles at:
1
<PAGE> 60
7. Each Borrower maintains Inventory at the following locations owned or
leased by such Borrower:
Address Owner
8. Each Subsidiary has had no office, place of business or agent for
process located in any county other than as set forth above, except:
9. The following bailees, warehouseman, similar parties and consignees
hold inventory of any Borrower or any Subsidiary:
<TABLE>
<CAPTION>
============================================================================================================================
Name and Address of Party Nature of Relationship Amount of Inventory Owner of Inventory
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
============================================================================================================================
</TABLE>
2
<PAGE> 61
EXHIBIT C
JURISDICTIONS IN WHICH EACH BORROWER
AND ITS SUBSIDIARIES
ARE AUTHORIZED TO DO BUSINESS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name of Entity Jurisdictions
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
</TABLE>
1
<PAGE> 62
EXHIBIT D
CAPITAL STRUCTURE
1. The classes and number of authorized shares of each Borrower and each
Subsidiary and the record owner of such shares are as follows:
Borrowers:
<TABLE>
<CAPTION>
==========================================================================================
Class of Stock Number of Shares Record Owners Number of Shares
Issued and Authorized but
Outstanding Unissued
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
==========================================================================================
</TABLE>
Subsidiaries:
<TABLE>
<CAPTION>
==========================================================================================
Class of Stock Number of Shares Record Owners Number of Shares
Issued and Authorized but
Outstanding Unissued
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------
==========================================================================================
</TABLE>
2. The number, nature and holder of all other outstanding Securities of
each Borrower and each Subsidiary are as follows:
3. The correct name and jurisdiction of incorporation of each Subsidiary
of each Borrower and the percentage of its issued and outstanding
shares owned by each Borrower are as follows:
1
<PAGE> 63
<TABLE>
<CAPTION>
====================================================================================
Name Jurisdiction of Incorporation Percentage of Shares Owned by Borrower
- ------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------
====================================================================================
</TABLE>
4. The name of each of any Borrower's corporate or joint venture
Affiliates and the nature of the affiliation are as follows:
2
<PAGE> 64
EXHIBIT E
CORPORATE NAMES
1. D&K's correct corporate name, as registered with the Secretary of State
of the State of Delaware, is:
2. In the conduct of its business, D&K has used the following names:
3. Of D&K's Subsidiaries, the correct corporate name, as registered with
the Secretary of State of the State of its incorporation of each, is:
4. In the conduct of its business, each Subsidiary of D&K has used the
following names:
5. Jaron's correct corporate name, as registered with the Secretary of
State of the State of Florida, is:
6. In the conduct of its business, Jaron has used the following names:
7. Of Jaron's Subsidiaries, the correct corporate name, as registered with
the Secretary of State of the State of its incorporation of each, is:
8. In the conduct of its business, each Subsidiary of Jaron has used the
following names:
1
<PAGE> 65
EXHIBIT F
TAX IDENTIFICATION NUMBERS OF SUBSIDIARIES
Subsidiary Number
1
<PAGE> 66
EXHIBIT G
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Each Borrower's and each Subsidiaries' patents:
<TABLE>
<CAPTION>
==================================================================================================
Patent Owner Status in Patent Federal Registration Date
Office Registration
Number
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
==================================================================================================
</TABLE>
2. Each Borrower's and each Subsidiaries' trademarks:
<TABLE>
<CAPTION>
==================================================================================================
Patent Owner Status in Patent Federal Registration Date
Office Registration
Number
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
==================================================================================================
</TABLE>
3. Each Borrower's and each Subsidiaries' copyrights:
<TABLE>
<CAPTION>
==================================================================================================
Patent Owner Status in Patent Federal Registration Date
Office Registration
Number
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
==================================================================================================
</TABLE>
1
<PAGE> 67
4. Each Borrower's and each Subsidiaries' licenses (other than routine
business licenses, authorizing them to transact business in local
jurisdictions):
<TABLE>
<CAPTION>
=======================================================================================================================
Name of License Nature of License Licensor Term of License
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
=======================================================================================================================
</TABLE>
2
<PAGE> 68
EXHIBIT H
CONTRACTS RESTRICTING ANY BORROWER'S RIGHT TO INCUR DEBTS
Contracts that restrict the right of any Borrower to incur
Indebtedness:
<TABLE>
<CAPTION>
========================================================================================================================
Title of Contract Identity of Parties Nature of Restriction Term of Contract
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
1
<PAGE> 69
EXHIBIT I
LITIGATION
1. Actions, suits, proceedings and investigations pending against any
Borrower or any Subsidiary:
<TABLE>
<CAPTION>
===========================================================================================================================
Title of Action Nature of Action Complaining Parties Jurisdiction or Tribunal
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------
===========================================================================================================================
</TABLE>
2. The only threatened actions, suits, proceedings or investigations of
which any Borrower or any Subsidiary is aware are as follows:
1
<PAGE> 70
EXHIBIT J
CAPITALIZED LEASES
Each Borrower and each Subsidiary has the following capitalized leases:
<TABLE>
<CAPTION>
========================================================================================================================
Lessee Lessor Term of Lease Property Covered
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
1
<PAGE> 71
EXHIBIT K
OPERATING LEASES
Each Borrower and each Subsidiary has the following operating leases:
<TABLE>
<CAPTION>
========================================================================================================================
Lessee Lessor Term of Lease Property Covered
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
1
<PAGE> 72
EXHIBIT L
PENSION PLANS
Each Borrower and each Subsidiary has the following Plans:
<TABLE>
<CAPTION>
================================================================================
Party Type of Plan
- --------------------------------------------------------------------------------
<S> <C>
Borrower
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[Subsidiaries]
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
1
<PAGE> 73
EXHIBIT M
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
1. Each Borrower and each Subsidiary is a party to the following
collective bargaining agreements:
<TABLE>
<CAPTION>
================================================================================
Type of Agreement Parties Term of Agreement
- --------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
2. Material grievances, disputes of controversies with employees are as
follows:
<TABLE>
<CAPTION>
================================================================================
Parties Involved Nature of Grievance,
Dispute or Controversy
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
3. Threatened strikes, work stoppages and asserted pending demands for
collective bargaining are as follows:
<TABLE>
<CAPTION>
================================================================================
Parties Involved Nature of Matter
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
1
<PAGE> 74
EXHIBIT N
ENVIRONMENTAL MATTERS
1
<PAGE> 75
EXHIBIT O
COMPLIANCE CERTIFICATE
[Letterhead of D&K]
__________________, 19__
Fleet Capital Corporation
20800 Swenson Drive, Suite 350
Waukesha, WI 53186
Attention: Loan Administration Manager
The undersigned, the chief financial officer of D & K Healthcare
Resources, Inc., a Delaware corporation ("D&K"), gives this certificate to Fleet
Capital Corporation ("Lender") in accordance with the requirements of subsection
8.1.2 of that certain Loan and Security Agreement dated ______________, 19__,
among D&K, Jaron, Inc. (collectively with D&K, the "Borrowers") and Lender
("Loan Agreement"). Capitalized terms used in this Certificate, unless otherwise
defined herein, shall have the meanings ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of income
of Borrowers for the [fiscal year] [quarterly period] ending __________________,
19__, copies of which are attached hereto, I hereby certify that:
(a) The Current Ratio is ____ to 1;
(b) The Interest Coverage Ratio is ____ to ____;
(c) Debt Service Coverage Ratio is ____ to ____;
(d) Capital Base is $_______; and
(e) Capital Expenditures during the period and for the fiscal
year to date total $__________ and $__________, respectively.
2. No Default exists on the date hereof, other than:
________________________________________________ [if none, so state]; and
3. No Event of Default exists on the date hereof, other than
____________________________________________________ [if none, so state].
1
<PAGE> 76
Very truly yours,
__________________________
Chief Financial Officer
2
<PAGE> 77
EXHIBIT P
PERMITTED LIENS
<TABLE>
<CAPTION>
================================================================================
Secured Party Nature of Lien
- --------------------------------------------------------------------------------
<S> <C>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
================================================================================
</TABLE>
1
<PAGE> 78
--------------------------------------------------
D & K HEALTHCARE RESOURCES, INC.
AND
JARON, INC.
--------------------------------------------------
==================================================
FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
Dated: as of August 7, 1998
$75,000,000.00
==================================================
================================================================================
FLEET CAPITAL CORPORATION
================================================================================
1
<PAGE> 79
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. CREDIT FACILITY............................................................2
1.1 Revolving Credit Loans...................................................2
1.2 Letters of Credit; LC Guaranties.........................................3
1.3 All Loans to Constitute One Obligation; Joint and Several Liability......3
1.4 Appointment of D&K as Agent..............................................4
SECTION 2. INTEREST, FEES AND CHARGES.................................................5
2.1 Interest.................................................................5
2.2 Computation of Interest and Fees.........................................7
2.5 Letter of Credit and LC Guaranty Fees....................................7
2.7 Reimbursement of Expenses................................................8
SECTION 3. LOAN ADMINISTRATION........................................................8
3.1 Manner of Borrowing Revolving Credit Loans...............................8
3.2 Payments.................................................................9
3.3 Prepayments.............................................................10
3.4 Application of Payments and Collections.................................10
3.5 All Loans to Constitute One Obligation..................................10
3.6 Loan Account............................................................11
3.7 Statements of Account...................................................11
SECTION 4. TERM AND TERMINATION......................................................11
4.1 Term of Agreement.......................................................11
4.2 Termination.............................................................11
SECTION 5. SECURITY INTERESTS.......................................................12
5.1 Security Interest in Collateral.........................................12
5.2 Lien Perfection; Further Assurances.....................................13
SECTION 6. COLLATERAL ADMINISTRATION.................................................13
6.1 General.................................................................13
6.2 Administration of Inventory.............................................15
6.3 Payment of Charges......................................................15
</TABLE>
i
<PAGE> 80
<TABLE>
<S> <C>
SECTION 7. REPRESENTATIONS AND WARRANTIES............................................15
7.1 General Representations and Warranties..................................15
7.2 Continuous Nature of Representations and Warranties.....................20
7.3 Survival of Representations and Warranties..............................20
SECTION 8. COVENANTS AND CONTINUING AGREEMENTS.......................................21
8.1 Affirmative Covenants...................................................21
8.2 Negative Covenants......................................................23
8.3 Specific Financial Covenants............................................26
SECTION 9. CONDITIONS PRECEDENT......................................................27
9.1 Documentation...........................................................27
9.2 No Default..............................................................27
9.3 Other Loan Documents....................................................27
9.4 No Litigation...........................................................27
9.5 Securitization..........................................................27
9.6. Environmental..........................................................28
9.7. No Material Adverse Change.............................................28
9.8. Fee Letter.............................................................28
SECTION 10. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT........................28
10.1 Events of Default......................................................28
10.2 Acceleration of the Obligations........................................30
10.3 Other Remedies.........................................................30
10.4 Remedies Cumulative; No Waiver.........................................31
SECTION 11. MISCELLANEOUS............................................................32
11.1 Power of Attorney......................................................32
11.2 Indemnity..............................................................33
11.3 Modification of Agreement; Sale of Interest............................33
11.4 Severability...........................................................33
11.5 Successors and Assigns.................................................34
11.6 Cumulative Effect; Conflict of Terms...................................34
11.7 Execution in Counterparts..............................................34
11.8 Notice.................................................................34
11.9 Lender's Consent.......................................................35
11.10 Credit Inquiries......................................................35
11.11 Time of Essence.......................................................35
11.12 Entire Agreement......................................................35
11.13 Interpretation........................................................35
11.14 GOVERNING LAW; CONSENT TO FORUM.......................................35
</TABLE>
ii
<PAGE> 81
<TABLE>
<S> <C>
11.15 WAIVERS BY BORROWERS..................................................36
11.16. Private Sale; Commercial Reasonableness..............................37
11.14 Confidentiality.......................................................38
</TABLE>
iii
<PAGE> 1
EXHIBIT 13
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Fiscal Year Ended
--------------------------------------------------------------
June 30, March 28, March 29, March 31, April 1,
1998(1) 1997 1996 1995 1994
--------------------------------------------------------------
INCOME STATEMENT DATA (in thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
Net sales $612,427 $479,524 $425,333 $319,958 $211,196
Gross profit 29,662 21,640 20,272 16,095 11,397
Income from operations 8,555 4,224 1,947 4,441 2,077
Net income (loss) 3,327 739 (1,109) 1,409 374
Basic earnings (loss) per share $0.99 $0.24 $(0.37) $0.55 $0.16
Diluted earnings (loss) per share $0.90 $0.24 $(0.37) $0.49 $0.16
Basic common shares outstanding 3,345,261 3,033,536 2,971,117 2,547,334 2,394,022
Diluted common shares outstanding 3,766,352 3,588,943 2,971,117 3,114,129 2,925,439
</TABLE>
<TABLE>
<CAPTION>
June 30, March 28, March 29, March 31, April 1,
1998(1) 1997 1996 1995 1994
--------------------------------------------------------------
BALANCE SHEET DATA (in thousands)
<S> <C> <C> <C> <C> <C>
Current assets $145,492 $74,932 $68,938 $73,338 $35,569
Working capital 52,250 24,270 25,224 27,395 14,154
Total assets 170,350 101,065 94,937 95,787 43,352
Long-term debt 61,156 41,530 43,190 39,991 17,858
Stockholders' equity 15,952 8,873 8,033 8,784 4,078
</TABLE>
[BAR GRAPH]
<TABLE>
<CAPTION>
94 95 96 97 98
------------ ------------ ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Net Sales ($) $ 211,196 $ 319,958 $ 425,333 $ 479,524 $ 612,427
Income From Operations ($) $ 2,077 $ 4,441 $ 1,947 $ 4,224 $ 8,555
Stockholders' Equity ($) $ 4,078 $ 8,784 $ 8,033 $ 8,873 $ 15,952
Gross Profit ($) $ 11,397 $ 16,095 $ 20,272 $ 21,640 $ 29,662
</TABLE>
(1) Fiscal year end changed to June 30.
3
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION & RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Fiscal Year Ended June 30, 1998, compared with the Fiscal Year Ended March 28,
1997
NET SALES. Net sales increased $132.9 million, or 27.7%, for the fiscal year
ended June 30, 1998, compared with the fiscal year ended March 28, 1997. Sales
to healthcare institutions increased by $55.2 million, or 44.3%, compared with
fiscal 1997, due to increased sales to a prescription benefit management company
added as a customer in August 1996 coupled with higher sales to new and existing
hospital, clinic and nursing home accounts. Independent pharmacy sales increased
by $77.8 million, or 34.8%, compared with fiscal 1997, from higher sales to
existing and new retail accounts, including $53.6 million to an association of
retail pharmacies added as a customer in May 1997 and $6.2 million to
independent pharmacies that became customers as a result of the Company's
acquisition of a drug wholesaler in October 1997. The Company experienced a net
decrease in retail chain sales of $0.1 million, compared to fiscal 1997,
primarily due to the termination of the Company's relationship with a large
regional retail chain customer on September 30, 1997, (a decrease of
approximately $68.5 million) partially offset by increased sales to other
existing and new retail chain customers of approximately $68.4 million.
Excluding sales made to the former large regional retail chain customer from
both fiscal 1998 and fiscal 1997, net sales would have increased 52.2%. In
addition, during fiscal 1998, the Company made $62.1 million in "dock-to-dock"
sales, which are not included in net sales due to the Company's accounting
policy of recording only the commission on such transactions as a reduction of
cost of goods sold. There were no dock-to-dock sales in fiscal 1997.
Dock-to-dock sales represent bulk sales of pharmaceuticals to self-warehousing
retail chains for which the Company acts only as an intermediary in the order
and subsequent delivery of products to the customers' warehouses. The commission
on dock-to-dock sales is typically lower than the gross profit realized on sales
of products from inventory.
GROSS PROFIT. Gross profit increased 37.1%, to $29.7 million in fiscal 1998
compared with fiscal 1997. As a percentage of net sales, gross margin increased
from 4.51% to 4.84% in fiscal 1998 compared with fiscal 1997. The increase in
gross margin percentage was due mainly to a shift in customer mix to
higher-margin business, higher sales of more profitable generic pharmaceutical
products and sales of inventory acquired through advantageous purchasing.
OPERATING EXPENSES. Total operating expenses increased $3.7 million, or 21.2%,
to $21.1 million in fiscal 1998, compared with fiscal 1997. As a percentage of
net sales, total operating expenses decreased from 3.63% to 3.44% in fiscal 1998
compared with fiscal 1997. The increase in operating expenses in fiscal 1998
resulted primarily from incremental warehouse and distribution costs associated
with increased sales activity, higher personnel and occupancy costs related to
additional managerial positions in several major functional areas of the
Company, and legal fees associated with the conclusion of the Company's
relationship with its previously largest customer.
NET INTEREST EXPENSE. Net interest expense increased $184,000, or 5.4%, in
fiscal 1998, compared with fiscal 1997. As a percentage of net sales, net
interest expense decreased from 0.71% to 0.59% in fiscal 1998 compared to fiscal
1997. The increase in net interest expense was primarily the result of higher
average outstanding borrowings offset by lower interest rates on the Company's
line of credit. In addition, the collection of approximately $9.5
The table below sets forth for the years indicated certain statement of
operations data for the last three fiscal years expressed as a percentage of net
sales and in comparison to the prior fiscal year. Unless indicated to the
contrary, for purposes of this discussion, all references to "1998," "1997," and
"1996" shall mean the Company's fiscal years ended June 30, 1998, March 28,
1997, and March 29, 1996, respectively. See Note 1 of "Notes to Consolidated
Financial Statements."
<TABLE>
<CAPTION>
PERCENTAGE
CHANGE FROM
PERCENTAGE OF NET SALES PRIOR YEAR
- ----------------------------------------------------------------------------
1998 1997 1996 1997-98 1996-97
- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales 100.00% 100.00% 100.00% 27.7% 12.7%
Gross profit 4.84% 4.51% 4.77% 37.1% 6.7%
Total operating expenses (3.44%) (3.63%) (4.31%) 21.2% (5.0%)
---------------------------
Income from operations 1.40% 0.88% 0.46% 102.5% 116.9%
Interest expense, net (0.59%) (0.71%) (0.80%) 5.4% (0.3%)
Other income, net 0.08% 0.09% (0.01%) 16.5% --
Income tax provision (benefit) 0.35% 0.11% (0.09%) 302.6% --
Net income (loss) 0.54% 0.15% (0.26%) 350.2% 166.6%
---------------------------
</TABLE>
18
<PAGE> 3
million of accounts receivable on September 30, 1997, from the Company's then
largest customer, with which the Company's relationship was mutually terminated
in September 1997, reduced the Company's working capital requirements and its
borrowings.
OTHER INCOME, NET. Other income, net increased from $455,000 to $530,000 in
fiscal 1998 compared with fiscal 1997. The increase in other income, net, was
primarily due to gains on sales of investments partially offset by lower
recorded earnings from the Company's equity interest in the net income of PBI
during fiscal 1998, which totaled $389,000, compared with $410,000 in fiscal
1997.
The Company's effective income tax rates of 39.5% in fiscal 1998 and 42.2% in
fiscal 1997 differed from the statutory blended federal and state effective
rates primarily due to the impact of the amortization of intangible assets that
were not deductible for income tax purposes, partially offset by the Company's
equity in the net income of PBI, a portion of which was excludable from taxable
income.
The effect of price inflation, as measured by the excess of LIFO costs over
FIFO costs, was $1.0 million in fiscal 1998 and $1.2 million in fiscal 1997. The
decrease in the LIFO provision was due to changes in the Company's inventory mix
to include higher levels of generic pharmaceuticals and modifications made in
investment buying practices.
Fiscal Year Ended March 28, 1997, compared with the Fiscal Year Ended March 29,
1996
NET SALES. Net sales increased $54.2 million, or 12.7%, to $479.5 million in
fiscal 1997 compared with fiscal 1996. Sales to healthcare institutions
increased $41.0 million, or 49.1%, primarily due to the addition of a
prescription benefit management company in August 1996. Retail chain sales
decreased $3.1 million, or 2.3%, primarily due to a reduction of $13.7 million
in sales to a group of regional pharmacies which discontinued using the Company
as its primary supplier effective June 30, 1995, offset by a $10.6 million
increase in sales to several retail chains, including $6.0 million to a large
regional retail chain. The remaining increase in sales of $16.3 million in 1997
was due to the growth in sales to independent pharmacies.
GROSS PROFIT. Gross profit as a percentage of net sales declined from 4.77% in
fiscal 1996 to 4.51% in fiscal 1997. The decrease in gross margin in fiscal 1997
reflected the impact of sales to the new prescription benefit management company
which yielded relatively low selling margins but generated favorable working
capital benefits by reducing the Company's overall borrowing costs. In addition,
a significant reduction in sales to certain retail chain customers which carried
more favorable selling margins, combined with increased sales to other retail
chain customers which carried lower selling margins, contributed to the decline
in the gross margin in fiscal 1997. Despite the reduction in gross margin during
fiscal 1997, gross margin dollars increased $1.4 million, or 6.7%, due to
overall increased sales levels compared to the prior year. The Company believes
that the declining gross margin is consistent with the experience of the
industry as a whole.
OPERATING EXPENSES. As a percentage of net sales, total operating expenses
declined from 4.31% in fiscal 1996 to 3.63% in fiscal 1997. The decrease in
total operating expenses as a percentage of sales was attributable primarily to
$1.3 million of nonrecurring expenses incurred in fiscal 1996 in connection with
the Company's consolidation of its Minnesota facilities. The Company acquired
these facilities when it acquired Northern Drug Company ("Northern") and Krelitz
Industries, Inc. ("Krelitz") in fiscal 1995. The Company consolidated its
Northern and Krelitz operations to eliminate redundant fixed overhead expenses.
The improvement in total operating expenses as a percentage of net sales in
fiscal 1997 also reflected enhanced operating efficiencies in the warehouse and
delivery areas which were realized principally on sales to the Company's large
prescription benefit management company. In addition, the implementation of
various cost-management measures contributed to the decline in operating
expenses during fiscal 1997. Total operating expenses for fiscal 1997 reflected
additional selling, administrative, information services, and warehouse costs
associated with supporting increased sales levels. In fiscal 1997, the Company
made significant investments in personnel, computer hardware and software, and
warehouse systems. Management believes that these moves have positioned it to
realize continued improvements in its operating expense ratio in future periods.
Depreciation and amortization decreased from $1.8 million in fiscal 1996 to $1.5
million in fiscal 1997 due to certain adjustments made in fiscal 1996 to the
recorded Northern and Krelitz
19
<PAGE> 4
goodwill balances coupled with the discontinuance of depreciation on the
Northern property which had been held for sale since the 1996 consolidation of
the Company's Minnesota facilities.
NET INTEREST EXPENSE. As a percentage of net sales, net interest expense
decreased from 0.90% in fiscal 1996 to 0.78% in fiscal 1997. This decrease was
reflective of improved utilization of working capital in financing the Company's
increased sales levels and the reduction of relatively high interest term debt,
somewhat offset by the incremental interest cost associated with the Company's
November 1995 investment in PBI and the addition of an equipment loan in fiscal
1997. In addition, the weighted average of the Company's LIBOR and prime
borrowing rates were lower compared to the prior year due to reduced interest
rates which commenced during the last quarter of fiscal 1996 and continued to
fiscal 1997.
OTHER INCOME, NET. Other income, net increased $511,000 in fiscal 1997 compared
with fiscal 1996 primarily due to $410,000 of income in fiscal 1997 from the
Company's investment in PBI, compared with $88,000 in the prior year. These
amounts are net of amortization expense of $276,000 and $92,000, respectively,
for fiscal 1997 and fiscal 1996 associated with goodwill incurred in conjunction
with the Company's investment in PBI. In addition, the Company recorded a
$287,000 charge in fiscal 1996 to fully reserve for its investment in a
wholesale alliance, after the Company determined that the probability of fully
recovering its investment in the alliance was remote.
The effective tax rates (tax benefit in fiscal 1996) of 42.2% in fiscal 1997,
and (26.0%) in fiscal 1996 differed from the statutory blended federal and state
effective rates primarily due to the impact of the amortization of intangible
assets that were not deductible for income tax purposes, partially offset by the
Company's equity in the net income of PBI, a portion of which was excludable
from taxable income.
The effect of price inflation, as measured by the excess of LIFO costs over
FIFO costs, was $1.2 million in fiscal 1997 and $663,000 in fiscal 1996. The
increase in the LIFO provision was due to increased sales levels and to
comparatively higher product price inflation.
LIQUIDITY AND CAPITAL RESOURCES
The Company's working capital requirements generally are met through a
combination of internally generated funds, borrowings under the revolving line
of credit and trade credit from its suppliers. The following ratios are utilized
by the Company as key indicators of the Company's liquidity and working capital
management:
JUNE 30, 1998 MARCH 28, 1997
- -------------------------------------------------------------------
Working capital (000's) $52,250 $24,270
Current ratio 1.56 to 1 1.48 to 1
The $28.0 million increase in working capital at June 30, 1998 was due
primarily to an increase in inventories of $40.4 million and an increase in
accounts receivable of $28.2 million, offset by an increase in accounts payable
of $39.7 million. The increase in inventories was due to the increased level of
business and the expansion of inventory investment buying opportunities at
favorable prices during the current fiscal year. The increase in accounts
receivable was primarily due to an increase in net sales, including dock-to-dock
sales activity. The increase in accounts payable reflects higher inventory
levels and the timing of cash disbursements.
The Company invested $863,000 in capital assets in fiscal 1998 and $2.2
million in fiscal 1997. The fiscal 1997 investment included approximately $1.3
million of warehouse and computer equipment and leasehold and site improvements
at the Company's 66,000 square-foot warehouse facility located in Cape
Girardeau, Missouri. The Company believes that continued investment in capital
assets is necessary to achieve its goal of improving operating efficiency and
information services capabilities, thereby improving its productivity and ratio
of operating expenses to net sales.
During the three-month period ended June 30, 1997, the Company sold an idle
distribution facility with a carrying value of $0.7 million for net cash
proceeds of $0.9 million. The gain on the sale is included in other income, net,
in the consolidated statements of operations for the three months ended June 30,
1997.
In December 1996, the Company obtained a $1.5 million equipment loan from a
bank through the Missouri First Link program ("Missouri First") to finance
certain capital expenditures
20
<PAGE> 5
at its leased Cape Girardeau, Missouri, facility. During the first year of the
four-year agreement, the Missouri First loan required monthly interest payments.
In December 1997, the Company made a $182,500 principal payment to Missouri
First and in December 1998 is required to make a $437,500 principal payment.
Thereafter, the loan requires monthly principal payments of $36,458 plus
interest until maturity in December 2000. The Missouri First loan bears interest
at 70% of the bank's prime rate (8.5% at June 30, 1998) plus 1/2%, or 6.45%.
In November 1997, the Company's revolving line of credit was amended to
increase the maximum borrowings from $60 million to $75 million, including a $5
million supplemental facility that expired August 3, 1998. At June 30, 1998, and
March 28, 1997, the unused portions of the line of credit were $14.8 million and
$10.2 million, respectively,. Interest on borrowings under the line of credit
was reduced in April 1998 to daily LIBOR plus 1.25%. In August 1998, the
revolving line of credit was amended to be secured solely by eligible
inventories, to increase the facility to $75 million and to extend its maturity
through August 2001. Borrowings under the line of credit are limited to 60% of
eligible inventories.
In August 1998, the Company finalized a $45 million accounts receivable
purchase facility under an asset securitization structure (the "Securitization")
with its primary lender. The Securitization carries an initial term of three
years, with annual renewal options, and bears interest at the 30-day LIBOR rate
(5.6875% at June 30, 1998) plus program and liquidity fees of 0.71% payable
monthly. Under the Securitization, the Company's accounts receivable are being
sold on a non-recourse basis to a bankruptcy-remote subsidiary of the Company as
security for commercial paper issued by an affiliate of the lender. Based upon
the structure of the arrangement, the subsidiary's assets and liabilities,
consisting of accounts receivable and long-term debt, are no longer consolidated
with those of the Company. The Company believes that funds available under the
line of credit and the Securitization facility, together with internally
generated funds, will be sufficient to meet its capital requirements for the
foreseeable future.
YEAR 2000
The Company is dependent upon its software programs and operating systems for
internal operations (e.g., inventory and warehouse management) and for
processing product orders with its customers and suppliers. The Company has made
a preliminary determination that it will not incur any significant costs to make
the Company's software programs and operating systems Year 2000 compliant and is
making inquiries regarding the magnitude of any Year 2000 problems that may be
resident in the software programs and operating systems of its customers and
suppliers, or the impact that any such problems could have on the sales made and
services provided by the Company to such customers or suppliers. The Company is
in the process of modifying and testing its affected software programs and
operating systems to make them Year 2000 compliant and is developing a
contingency plan to address the possibility of Year 2000 related failures. The
Company expects these processes to be completed by the end of fiscal 1999. The
occurrence of Year 2000-related failures in the software programs and operating
systems of any of the Company's significant customers or suppliers could have a
material adverse effect on the Company's business, results of operations, or
financial condition.
NEW ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued SFAS No. 130 "Reporting
Comprehensive Income," which requires that an enterprise report, by major
component and as a single total, the change in its net assets during the period
from nonowner sources; SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers;
SFAS No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits," which standardizes the disclosure requirements for pension and other
postretirement benefits and expands disclosures on changes in benefit
obligations and fair values of plan assets; and SFAS No. 133 "Accounting for
Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value. The Company is required to adopt the
provisions of SFAS 130, 131 and 132 in fiscal 1999 and SFAS 133, in fiscal 2000.
Adoption of these statements is not expected to affect the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures.
21
<PAGE> 6
D&K HEALTHCARE
RESOURCES, INC. AND
SUBSIDIARIES
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To D&K Healthcare Resources, Inc.:
We have audited the accompanying consolidated balance sheets of D&K Healthcare
Resources, Inc. , (a Delaware corporation) and subsidiaries as of June 30, 1998,
and March 28, 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for the fiscal year ended June 30, 1998, for
the three months ended June 30, 1997, and for each of the two fiscal years in
the period ended March 28, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of D&K Healthcare Resources, Inc.,
and subsidiaries as of June 30, 1998, and March 28, 1997, and the results of
their operations and their cash flows for the fiscal year ended June 30, 1998,
for the three months ended June 30, 1997, and for each of the two fiscal years
in the period ended March 28, 1997, in conformity with generally accepted
accounting principles.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
St. Louis, Missouri
August 11, 1998
22
<PAGE> 7
D&K HEALTHCARE
RESOURCES, INC. AND
SUBSIDIARIES
CONSOLIDATED
BALANCE SHEETS
(in thousands, except share and per share data)
<TABLE>
<CAPTION>
JUNE 30, 1998 MARCH 28, 1997
- -----------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets
Cash (including restricted cash) $ 4,051 $ 2,213
Receivables, net of allowance for doubtful
accounts of
$700 and $697, respectively 50,496 22,247
Inventories 90,413 49,991
Prepaid expenses and other current assets 532 481
------------------------------
Total current assets 145,492 74,932
Property and Equipment, net of accumulated
depreciation and amortization of $5,990
and $5,038, respectively 5,924 6,242
Investment in PBI 4,129 4,039
Deferred Income Taxes 2,842 889
Other Assets 228 338
Intangible Assets, net of accumulated
amortization 11,735 14,625
------------------------------
Total assets $ 170,350 $ 101,065
==============================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Current maturities of long-term debt $ 6,448 $ 3,138
Accounts payable 80,659 41,009
Accrued expenses 3,161 2,673
Deferred income taxes 2,974 3,842
------------------------------
Total current liabilities 93,242 50,662
Long-Term Debt 61,156 41,530
------------------------------
Total liabilities 154,398 92,192
Stockholders' Equity
Preferred stock; no par value, 1,000,000 shares -- --
authorized, no shares issued or outstanding
Common stock; $.01 par value, 10,000,000 shares
authorized, 3,746,275 and 3,044,717 shares
issued and outstanding, respectively 37 30
Paid-in capital 15,075 11,693
Retained earnings (accumulated deficit) 840 (2,850)
------------------------------
Total stockholders' equity 15,952 8,873
------------------------------
Total liabilities and stockholders'
equity $170,350 $101,065
==============================
</TABLE>
The accompanying notes are an integral part of these statements.
23
<PAGE> 8
D&K HEALTHCARE
RESOURCES, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS
OF OPERATIONS
<TABLE>
<CAPTION>
(in thousands, except per share data)
For the Three
For the Years Ended Months Ended
- -----------------------------------------------------------------------------------------------
JUNE 30, 1998 MARCH 28, 1997 MARCH 29, 1996 JUNE 30, 1997
============================================================
<S> <C> <C> <C> <C>
Net Sales $612,427 $479,524 $425,333 $144,473
Cost of Sales 582,765 457,884 405,061 138,457
------------------------------------------------------------
Gross profit 29,662 21,640 20,272 6,016
Depreciation and Amortization 1,468 1,523 1,754 384
Nonrecurring Expenses -- -- 1,317 --
Operating Expenses 19,639 15,893 15,254 4,385
------------------------------------------------------------
Income from operations 8,555 4,224 1,947 1,247
------------------------------------------------------------
Other Income (Expense):
Interest expense (3,857) (3,738) (3,813) (903)
Interest income 273 338 424 83
Equity in net income of PBI 389 410 88 51
Other, net 141 45 (144) 165
------------------------------------------------------------
(3,054) (2,945) (3,445) (604)
------------------------------------------------------------
Income (loss) before income
tax provision (benefit) 5,501 1,279 (1,498) 643
Income Tax Provision (benefit) 2,174 540 (389) 280
------------------------------------------------------------
Net income (loss) $3,327 $739 $(1,109) $363
------------------------------------------------------------
Basic Earnings (loss) Per Share $0.99 $0.24 $(0.37) $0.12
------------------------------------------------------------
Diluted Earnings (loss) Per Share $0.90 $0.24 $(0.37) $0.11
------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements.
24
<PAGE> 9
D&K HEALTHCARE
RESOURCES, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS OF
STOCKHOLDERS' EQUITY
(in thousands)
- --------------------------------------------------------------------------------
RETAINED
EARNINGS
PAID-IN (ACCUMULATED
COMMON STOCK CAPITAL DEFICIT) TOTAL
- --------------------------------------------------------------------------------
BALANCE AT MARCH 31, 1995 $30 $11,234 $(2,480) $8,784
Common stock issued -- 122 -- 122
Stock option and warrant expense -- 15 -- 15
Stock options exercised -- 221 -- 221
Net loss -- -- (1,109) (1,109)
-------------------------------------------
BALANCE AT MARCH 29, 1996 30 11,592 (3,589) 8,033
Common stock issued -- 4 -- 4
Stock option and warrant expense -- 3 -- 3
Stock options exercised -- 94 -- 94
Net income -- -- 739 739
-------------------------------------------
BALANCE AT MARCH 28, 1997 30 11,693 (2,850) 8,873
Common stock issued -- 49 -- 49
Stock option and warrant expense -- 77 -- 77
Stock options exercised -- 16 -- 16
Net income -- -- 363 363
-------------------------------------------
BALANCE AT JUNE 30, 1997 30 11,835 (2,487) 9,378
Common stock issued upon debt
conversions 6 2,744 -- 2,750
Stock options and warrants
exercised 1 496 -- 497
Net income -- -- 3,327 3,327
-------------------------------------------
BALANCE AT JUNE 30, 1998 $37 $15,075 $840 $15,952
===========================================
The accompanying notes are an integral part of these statements.
25
<PAGE> 10
D&K HEALTHCARE
RESOURCES, INC. AND
SUBSIDIARIES
CONSOLIDATED
STATEMENTS
OF CASH FLOWS
<TABLE>
<CAPTION>
(in thousands)
For the Three
For the Years Ended Months Ended
- ---------------------------------------------------------------------------------------------------------------------
June 30, 1998 March 28, 1997 March 29, 1996 June 30, 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $3,327 $739 $(1,109) $363
Adjustments to reconcile net income (loss) to net cash
flows from operating activities -
Depreciation and amortization 1,468 1,523 1,754 384
Amortization of debt issuance costs 59 73 71 20
Stock option and warrant expense -- 3 15 77
(Gain) loss from sale of assets (32) (6) 2 (217)
Equity in net income of PBI (389) (410) (88) (51)
Deferred income taxes 1,241 363 655 105
(Increase) decrease in receivables, net (16,500) 3,214 3,197 (7,069)
(Increase) decrease in inventories (47,799) (10,491) 2,154 8,600
(Increase) decrease in prepaid expenses
and other current assets 633 1,884 (76) (160)
Increase (decrease) in accounts payable 31,491 4,318 (2,192) 6,529
Increase (decrease) in accrued expenses 213 754 (2,212) (69)
Other, net 154 22 866 9
----------------------------------------------------------
Net cash flows from operating activities (26,134) 1,986 3,037 8,521
----------------------------------------------------------
Cash Flows from Investing Activities
Payments for acquisitions, net of cash acquired (1,256) -- -- --
Investment in PBI -- -- (3,842) --
Cash dividend from PBI 350 300 -- --
Purchases of property and equipment (863) (2,198) (963) (180)
Proceeds from sale of assets 32 6 10 956
----------------------------------------------------------
Net cash flows from investing activities (1,737) (1,892) (4,795) 776
----------------------------------------------------------
Cash Flows from Financing Activities
Borrowings under revolving line of credit 427,164 306,471 307,623 82,138
Repayments under revolving line of credit (397,997) (306,471) (303,213) (91,990)
Net borrowings (repayments) under revolving
accounts receivable credit facility 2,267 -- -- --
Proceeds from equipment loan -- 1,495 -- --
Payments of long-term debt (1,571) (1,287) (1,563) (2)
Payments of capital lease obligations -- (94) (206) (10)
Proceeds from exercise of stock options and warrants 413 94 221 --
Payments of deferred debt costs -- (36) -- --
----------------------------------------------------------
Net cash flows from financing activities 30,276 172 2,862 (9,864)
----------------------------------------------------------
Increase (decrease) in cash 2,405 266 1,104 (567)
Cash, Beginning of Period 1,646 1,947 843 2,213
----------------------------------------------------------
Cash, End of Period $4,051 $2,213 $1,947 $1,646
==========================================================
Supplemental Disclosure of Cash Flow Information
Cash paid (refunded) during the period for --
Interest $3,601 $3,689 $3,914 $1,029
Income taxes, net $1,151 $(1,089) $427 $31
</TABLE>
The accompanying notes are an integral part of these statements.
26
<PAGE> 11
D&K HEALTHCARE
RESOURCES, INC. AND
SUBSIDIARIES
NOTES TO
CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of all divisions and
wholly owned subsidiaries of D&K Healthcare Resources, Inc. (the "Company"). All
significant intercompany accounts and transactions are eliminated.
CONCENTRATION OF CREDIT RISK
The Company is a full-service, regional wholesale drug distributor. From
facilities in Missouri, Kentucky, and Minnesota, the Company distributes a broad
range of pharmaceutical products, health and beauty aids, and related products
to its customers in more than 20 states. The Company focuses primarily on a
target market sector that includes independent retail, institutional, franchise,
chain store, and alternate site pharmacies in the Midwest and South. The Company
presently operates in one business segment.
The Company had one customer that comprised approximately 18%, 20% and 21%,
respectively, of net sales for the three months ended June 30, 1997, in 1997 and
1996 and approximately 22% of the March 28, 1997 accounts receivable balance.
The supply agreement with this customer was terminated on September 30, 1997,
upon the acquisition of the customer by a third party. Upon termination of the
supply agreement, the Company collected the entire amount of its then accounts
receivable due from this customer of approximately $9.5 million. In 1998, sales
to one customer represented approximately 13% of total net sales.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
CHANGE IN FISCAL YEAR
On June 30, 1997, the Company changed from a fiscal year ending the Friday
closest to March 31 in each year to a fiscal year ended June 30 of each year.
Therefore, fiscal 1998 ended on June 30, 1998. Fiscal years 1997 and 1996 ended
on March 28, 1997, and March 29, 1996, respectively, and each included 52 weeks.
References to years relate to fiscal years rather than calendar years unless
otherwise stated.
BULK PURCHASES
During 1996, the Company purchased pharmaceuticals from an industry trade
association of which an officer of the Company was formerly chairman of the
board of directors. Purchases of pharmaceuticals from this association amounted
to $5.1 million for 1996. No material balances were payable to or receivable
from this association at the end of any of the fiscal years presented.
NAME CHANGE TO D&K HEALTHCARE RESOURCES, INC.
In 1998, through an amendment to its Certificate of Incorporation and with the
approval of its stockholders, the Company changed its corporate name from D&K
Wholesale Drug, Inc., to D&K Healthcare Resources, Inc.
RESTRICTED CASH
Restricted cash of $4.0 million and $0.8 million, respectively, at June 30,
1998, and March 28, 1997, represents cash receipts from customers that must be
used to reduce borrowings under the revolving line of credit and are included in
cash.
REVENUE RECOGNITION
Revenue is recognized when products are shipped or services are provided to
customers. During 1998, the Company made $62.1 million in "dock-to-dock" sales,
which are excluded from net sales due to the Company's policy of recording only
the commission on such transactions as a reduction against cost of goods sold in
the consolidated statements of operations. Dock-to-dock sales represent large
volume sales of pharmaceuticals to major self-warehousing retail chain
pharmacies whereby the Company acts as an intermediary in the order and
subsequent delivery of products to the customers' warehouses. The Company had no
dock-to-dock sales during the three-month period ended June 30, 1997 or in 1997
or 1996.
27
<PAGE> 12
INVENTORIES
Inventories are comprised of pharmaceutical drugs and related over-the-counter
items which are stated at the lower of cost or market. Cost is primarily
determined using the last-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost. Depreciation and amortization are
charged to operations primarily using the straight-line method over the shorter
of the estimated useful lives of the various classes of assets, which vary from
2 to 30 years, or the lease term for leasehold improvements. For income tax
purposes, accelerated depreciation methods are used.
INTANGIBLE ASSETS
Intangible assets are stated at cost less accumulated amortization. Amortization
is determined using the straight-line method over the estimated useful lives of
the related assets.
LONG-LIVED ASSETS
If facts and circumstances suggest that a long-lived asset may be impaired, the
carrying value is reviewed. If this review indicates that the carrying value of
the asset will not be recovered, as determined based on projected undiscounted
cash flows related to the asset over its remaining life, the carrying value of
the asset is reduced to its estimated fair value.
INCOME TAXES
Deferred tax assets and liabilities are recognized for estimated future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective bases
for income tax purposes. Deferred tax assets and liabilities are measured and
recorded using enacted tax rates in effect for the year in which those temporary
differences are expected to be recovered or settled.
BOOK OVERDRAFTS
Accounts payable includes book overdrafts (outstanding checks) of $14.1 million
and $5.3 million at June 30, 1998 and March 28, 1997, respectively.
ACCOUNTING CHANGE
In 1998, the Company adopted SFAS No. 128 "Earnings Per Share," which requires a
dual presentation of basic and diluted earnings per share. Basic earnings per
share excludes dilution and is computed by dividing net income (loss) by the
weighted average number of common shares outstanding for the period. Diluted
earnings per share reflects the potential dilution that would occur if
securities or other contracts to issue common stock were exercised or converted
into common stock. All share and per share amounts have been restated in
accordance with the provisions of SFAS No. 128.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior years' financial
statements to conform to the current year presentation.
NOTE 2
ACQUISITIONS
During 1998, the Company made two acquisitions of pharmaceutical distribution
companies for aggregate consideration of $2.6 million, including cash payments
and the issuance of notes payable.
NOTE 3
INVENTORIES
Substantially all inventories are stated at the lower of last-in, first-out
(LIFO) cost or market. If the Company had used the first-in, first-out (FIFO)
method of inventory valuation, which approximates current replacement cost,
inventories would have been $8.0 million and $7.0 million higher than reported
at June 30, 1998 and March 28, 1997, respectively.
28
<PAGE> 13
NOTE 4
PROPERTY AND EQUIPMENT
Property and equipment consisted of the following
(in thousands):
JUNE 30, 1998 MARCH 28, 1997
- --------------------------------------------------------------------------------
Land $407 $528
Building and improvements 3,436 3,296
Fixtures and equipment 6,478 5,669
Leasehold improvements 749 735
Vehicles 844 1,052
- --------------------------------------------------------------------------------
11,914 11,280
Less - Accumulated
depreciation & amortization (5,990) (5,038)
- --------------------------------------------------------------------------------
$5,924 $6,242
================================================================================
During the three-month period ended June 30, 1997, the Company sold an idle
distribution facility, with a carrying value of $0.7 million, for cash proceeds
of $0.9 million. The gain on the sale is included in other, net, in the
consolidated statements of operations for the three months ended June 30, 1997.
NOTE 5
INVESTMENT IN PBI
In November 1995, the Company completed the purchase of 50% of the capital stock
of Pharmaceutical Buyers, Inc. ("PBI"), a Colorado-based group purchasing
organization. Pursuant to the transaction, the Company acquired 50% of the
voting and nonvoting common stock of PBI for $3.8 million in cash. The Company's
investment in PBI is accounted for under the equity method.
The Company's equity in the net income of PBI totaled $389,000, $410,000,
$88,000, and $51,000, respectively, for 1998, 1997, 1996, and for the three
months ended June 30, 1997, which is net of amortization of goodwill associated
with its investment in PBI of $276,000, $276,000, $92,000 and $69,000 for these
respective fiscal periods. The PBI goodwill is being amortized using the
straight line method over a period of 25 years. During 1998 and 1997, the
Company received cash dividends of $350,000 and $300,000, respectively, from
PBI, which were recorded as a reduction in the carrying amount of the
investment.
Summarized balance sheet information for PBI for its fiscal year ended
December 31, 1997, and unaudited information for the periods ended June 30, 1998
and 1997, included current assets of $3.0 million, $2.3 million and $2.5
million, noncurrent assets of $1.0 million, $0.8 million and $1.0 million,
current liabilities of $1.1 million, $1.0 million and $1.2 million and
noncurrent liabilities of $7.0 million, $6.3 million, and $7.1 million,
respectively. Summarized income statement information for PBI for its fiscal
year ended December 31, 1997, and unaudited information for the six months ended
June 30, 1998, and for the three months ended June 30, 1997 included net
revenues of $5.6 million, $2.8 million and $1.3 million and income from
continuing operations and net income of $1.3 million, $0.6 million and $0.3
million, respectively.
The remaining shareholders of PBI have the option to exchange their ownership
interests in PBI for shares of the Company's common stock under the terms of the
original purchase agreement. The potential impact of any such conversions has
been determined to be anti-dilutive in all periods presented.
NOTE 6
OTHER ASSETS
Other assets include deferred debt issuance costs of $0.7 million and $0.7
million, respectively, at June 30, 1998, and March 28, 1997, that are being
amortized over the periods the related debt is outstanding. Accumulated
amortization amounted to $0.6 million and $0.5 million, respectively, at June
30, 1998, and March 28, 1997. Amortization of deferred debt issuance costs
totaled $59,000 in 1998, $73,000 in 1997, $71,000 in 1996, and $20,000 for the
three-month period ended June 30, 1997, and is included in interest expense in
the consolidated statements of operations.
29
<PAGE> 14
NOTE 7
INTANGIBLE ASSETS
Intangible assets consisted of the following (in thousands):
JUNE 30, 1998 MARCH 28, 1997
Excess of purchase
price over fair value
of net assets acquired $14,065 $16,475
Less - Accumulated
amortization (2,330) (1,850)
- --------------------------------------------------------------------------------
$11,735 $14,625
================================================================================
The excess of purchase price over the fair value of net assets acquired is
being amortized using the straight-line method over periods of 20 to 40 years.
Amortization of intangible assets totaled $0.4 million in 1998, $0.4 million in
1997, $0.4 million in 1996, and $0.1 million for the three-month period ended
June 30, 1997.
During 1998, the excess of purchase price over the fair value of net assets
acquired was reduced by $4.1 million to reflect the reversal of the deferred tax
asset valuation allowance related to acquired net operating loss, alternative
minimum tax, and charitable contribution carryforwards.
NOTE 8
LONG-TERM DEBT
Long-term debt consisted of the following (in thousands):
JUNE 30, 1998 MARCH 28, 1997
Revolving line of credit with banks $60,185 $40,000
Revolving accounts receivable credit facility 5,139 --
Subordinated notes payable to insurance company -- 1,083
Convertible subordinated notes payable to insurance
company -- 1,750
Missouri First Link loan 1,312 1,495
Subordinated notes to former shareholders 217 325
Notes payable for acquired companies 331 --
Other, including capital lease obligations 420 15
- --------------------------------------------------------------------------------
$67,604 $44,668
Less - Current maturities (6,448) (3,138)
- --------------------------------------------------------------------------------
$61,156 $41,530
================================================================================
30
<PAGE> 15
As of June 30, 1998, the revolving line of credit had a maximum borrowing
capacity of $70 million, plus a supplemental facility in an aggregate amount of
up to $5 million expiring August 3, 1998. Under the loan agreement, the total
amount of loans and letters of credit outstanding at any time may not exceed the
lesser of an amount based on percentages of eligible inventories and accounts
receivable (the borrowing base formula), or $70 million, plus the supplemental
facility, if applicable. Generally, advances bear interest at the London
Interbank Offered Rate (LIBOR) plus 1.25% or at the prime rate (8.5% prime rate
at June 30, 1998) per annum payable monthly. At June 30, 1998, and March 28,
1997, the Company's borrowings under the revolving line of credit bore interest
at weighted average LIBOR-based rates of 6.938% and 7.938%, respectively. The
Company was required to pay annual facility fees of $289,000 and $223,000,
respectively, in 1998 and 1997. At June 30, 1998, and March 28, 1997, the
borrowing base formula amounted to $92.6 million and $50.7 million,
respectively. At June 30, 1998 and March 28, 1997, the unused portions of the
line of credit amounted to $14.8 million and $10.2 million, respectively. The
agreement expires December 10, 2000, and, therefore, the related debt has been
classified as long-term. The revolving line of credit is secured by eligible
accounts receivable and inventories. The Company also had a revolving accounts
receivable credit facility with a maximum borrowing capacity of $10 million at
June 30, 1998. Under the facility, the total amount of loans outstanding may not
exceed the lesser of eligible accounts receivable or $10 million. Advances bear
interest at the prime rate (8.5% at June 30, 1998) plus 2.0%. At June 30, 1998,
the unused portion of the facility was $4.6 million. The facility expires August
31, 1998, and therefore the related debt has been classified as current.
In the first quarter of fiscal 1999, the Company expects to finalize the
terms of a $45 million accounts receivable purchase facility under an asset
securitization structure (the "Securitization") with its primary lender. Once
finalized, the Securitization will have an initial term of three years, with
annual renewal options, and bear interest at the LIBOR rate (5.6875% at June 30,
1998) plus program and liquidity fees of 0.71% payable monthly. Under the
Securitization, accounts receivable will be sold on a nonrecourse basis to a
bankruptcy-remote subsidiary of the Company as security for commercial paper
issued by an affiliate of the lender. Based upon the structure of the
arrangement, the subsidiary's assets and liabilities, consisting of accounts
receivable and long-term debt, will not be consolidated with those of the
Company. Also, in conjunction with the Securitization, the revolving line of
credit will be amended to be secured solely by eligible inventories, to increase
the facility to $75 million, and to extend its maturity through August 2001.
The subordinated notes payable to an insurance company bore interest at 11%,
payable semiannually, and were comprised of nonconvertible notes of $1.1 million
and convertible notes of $1.75 million. Principal on the nonconvertible notes
was paid in full in December 1997, and the convertible notes payable were
converted into 530,978 shares of the Company's common stock. In June 1998, a
$1.0 million convertible note payable was converted into 59,880 shares of the
Company's common stock. The debt conversions were recorded as a component of
stockholders' equity in the June 30, 1998, consolidated balance sheets.
The Missouri First Link loan ("Missouri First") was used to finance and is
secured by certain capital expenditures at a leased distribution facility. The
Missouri First loan bears interest at a fixed rate of 70% of the bank's prime
rate (8.5% at June 30, 1998) plus 1/2%, or 6.45%. A $437,500 principal reduction
is required in December 1998; after such time, the loan requires monthly
payments of $36,458 plus interest until maturity in December 2000.
The Company is required under the terms of its debt agreements to comply with
certain financial covenants, including those related to the maintenance of
current ratio, tangible net worth, and debt service and interest coverage
ratios. The Company also is limited in its ability to make loans and
investments, to enter into leases, to make capital expenditures, and/or to incur
additional debt, among other things, without the consent of its lenders.
31
<PAGE> 16
At June 30, 1998, maturities of long-term debt, excluding capital lease
obligations, were as follows (in thousands):
FISCAL YEAR ENDING JUNE 30, 1999 $ 6,448
2000 731
2001 60,425
- --------------------------------------------------
$67,604
==================================================
At June 30, 1998, and March 28, 1997, the fair value of long-term debt
approximated its current carrying value.
NOTE 9
COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space and other equipment through
noncancelable operating leases. Rental expense under operating leases was $0.9
million, $0.7 million, $0.4 million, and $0.2 million in 1998, 1997, 1996, and
for the three-month period ended June 30, 1997, respectively. Minimum rental
payments under these leases with initial or remaining terms of one year or more
at June 30, 1998, are $2.8 million. Payments during the succeeding five years
are: 1999, $0.8 million; 2000, $0.6 million; 2001, $0.5 million; 2002, $0.5
million; 2003, $0.4 million.
There are various pending claims and lawsuits arising out of the normal
course of the Company's business. In the opinion of management, the ultimate
outcome of these claims and lawsuits will not have a material adverse effect on
the financial position or results of operations of the Company.
NOTE 10
NONRECURRING EXPENSES
In 1996, the Company completed the consolidation of the operations of two
acquired companies into one facility. As a result of the acquisition and
consolidation of the facilities, the Company incurred additional nonrecurring
expenses of $1.3 million. Prior to the consolidation, the Company incurred
approximately $0.8 million of fixed operating expenses at one of the acquired
companies, which were not expected to be incurred at the consolidated facility.
In addition, approximately $0.5 million of costs were incurred in conjunction
with the Company's decision to consolidate the facilities.
NOTE 11
STOCK OPTIONS
In April 1992, the Company adopted a Long-Term Incentive Plan that authorized
the Compensation Committee of the Board of Directors (the "Committee") to grant
key employees and officers of the Company incentive or nonqualified stock
options, stock appreciation rights, performance shares, restricted shares and
performance units. Options to purchase up to 200,000 shares of common stock were
authorized under the Long-Term Incentive Plan. The Committee determines the
price (generally no less than fair market value on the date of grant) and the
terms on which awards may be granted, along with the duration of the restriction
periods and performance targets. In 1998, the Company's shareholders approved an
amendment to the Plan to increase the number of shares available for grant to
500,000. Stock options granted under the Long-Term Incentive Plan are not
exercisable earlier than six months from the date of grant (except in the case
of death or disability of the employee holding the same), nor later than 10
years from the date of grant. In January 1997, 67,999 nonqualified and incentive
stock options outstanding under the Company's Long-Term Incentive Plan, with
exercise prices ranging from $3.875 to $7.00 per share, were canceled and
replaced with an equivalent number of non-qualified and incentive options with
an exercise price equal to the then fair market price of the stock, $3.75 per
share.
32
<PAGE> 17
In February 1993, the Board of Directors of the Company adopted the D&K
Wholesale Drug, Inc., 1993 Stock Option Plan ("the 1993 Plan") to grant key
employees of the Company non-qualified stock options to purchase up to 350,000
shares of the Company's common stock. The 1993 Plan is administered by the
Company's Board of Directors, which determines the price and terms by which
awards may be granted. Stock options granted under the 1993 Plan are immediately
exercisable from the date of grant and expire not later than 10 years from the
date of grant. The exercise price of all options granted pursuant to the 1993
Plan was equal to the fair market value of stock on the respective dates of
grant. In January 1997, 60,000 nonqualified stock options outstanding under the
1993 Plan, with exercise prices ranging from $3.875 to $7.00 per share, were
canceled and replaced with an equivalent number of nonqualified stock options
with an exercise price equal to the then fair market price of the stock, $3.75
per share.
Stock options exercisable at June 30, 1998, March 28, 1997, and March 29,
1996, were 409,998, 179,699 and 159,197, respectively, with a weighted average
exercise price of $6.43, $3.78 and $5.25, respectively. The weighted average
remaining contractual terms for all outstanding options was 8.35 years at June
30, 1998.
In accordance with the provisions of Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), the
Company has elected to account for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, no compensation expense has been recognized in the
consolidated financial statements for the stock option plans. If the Company had
elected to recognize compensation expense based upon the fair value of the
options granted at the grant date as prescribed by SFAS 123, pro forma net
income (loss) and earnings (loss) per share would have been as follows (in
thousands, except per share data):
CHANGES IN OPTIONS OUTSTANDING UNDER THE COMPANY'S LONG-TERM INCENTIVE PLAN AND
THE 1993 PLAN ARE AS FOLLOWS:
Number of Shares Weighted Average
Exercise Price
Outstanding at March 31, 1995 160,865 $4.42
Granted 1996 94,664 7.00
Exercised 1996 (43,834) 5.05
Canceled 1996 (19,998) 6.14
- -------------------------------------------------------------------------
Outstanding at March 29, 1996 191,697 5.35
Granted 1997 252,332 4.74
Canceled 1997 (209,164) 6.31
Exercised 1997 (25,666) 3.65
- -------------------------------------------------------------------------
Outstanding at March 28, 1997 209,199 3.84
Granted three months ended
June 30, 1997 86,000 5.63
- -------------------------------------------------------------------------
Outstanding at June 30, 1997 295,199 4.36
Granted 1998 175,999 11.30
Exercised 1998 (29,200) 4.26
- -------------------------------------------------------------------------
Outstanding at June 30, 1998 441,998 $7.13
=========================================================================
33
<PAGE> 18
Three
Months Ended
June 30,
1998 1997 1996 1997
- --------------------------------------------------------------------------------
Net income (loss)
--as reported $3,327 $739 $(1,109) $363
Net income (loss)
--pro forma $2,392 $464 $(1,398) $208
Earnings (loss)
per share:
Basic--as reported $0.99 $0.24 $(0.37) $0.12
Basic--pro forma $0.72 $0.15 $(0.47) $0.07
Diluted--as reported $0.90 $0.24 $(0.37) $0.11
Diluted--pro forma $0.65 $0.15 $(0.47) $0.07
The fair value of each option grant was estimated on the date of the grant using
the Black-Scholes option-pricing model and the following weighted-average
assumptions:
Three
Months Ended
June 30,
1998 1997 1996 1997
- --------------------------------------------------------------------------------
Risk free
interest rates 5.50% 5.78% 5.68% 5.49%
Expected life
of options (years) 5.0 6.2 6.1 6.8
Volatility of
stock price 138% 83% 85% 60%
Expected divided yield 0% 0% 0% 0%
Fair value of options $10.13 $3.43 $5.22 $3.59
Compensation expense based on the fair value of options granted prior to April
1, 1995, was not included in the preceding pro forma calculations. Therefore,
the resulting pro forma compensation cost may not be representative of that to
be expected in future years.
NOTE 12
WARRANTS
The Company has outstanding warrants to purchase 22,072 shares of common stock
at a price of $0.005 per share. These warrants are exercisable only at such time
as a principal investor receives, following a merger or sale of all or
substantially all of the assets of the Company, in excess of a 30% compounded
annual rate of return on its investment in common stock of the Company. The
warrants were not exercisable at June 30, 1998, and will expire in December
1999. The Company does not believe the conditions to the exercise of the
warrants will ever be satisfied.
In June 1994, the Company entered into a letter agreement with an independent
research firm to produce reports with respect to the Company's publicly traded
equity securities. The term of the agreement was 13 months. In consideration for
the research reports, the Company granted the firm warrants to purchase up to
70,000 shares of the Company's common stock at an exercise price equal to the
closing price of the stock on the date of the agreement, which was $4.125 per
share. The warrants were exercisable for a period of three years from the date
of the agreement. The research firm earned the warrants on a vesting schedule
over the 13-month term of its services. Fifty percent of the warrants vested on
the date of the agreement, an additional 25% vested upon issuance of a second
research report in November 1994, and the final 25% vested upon issuance of a
third research report in June 1995. The Company recorded total expense of
$70,000 ($9,000 in 1996) related to these warrants. During the three-month
period ended June 30, 1997, the Company agreed to extend the expiration of the
warrants through June 1998 in exchange for additional research reports. The
Company recorded expense of $77,000 based upon the estimated fair value of the
warrants, as amended, during the three-month period ended June 30, 1997. In
1998, the research firm exercised the warrants, resulting in the issuance of
70,000 shares of common stock of the Company, recorded at $288,750.
NOTE 13
OTHER INCOME (EXPENSE)
The Company recorded a $0.3 million charge in 1996 to fully reserve for its
investment in a wholesale alliance in which the probability of fully recovering
its investment was remote.
34
<PAGE> 19
NOTE 14
INCOME TAXES
The components of the income tax provision (benefit) were as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
1998 1997 1996 ENDED JUNE 30, 1997
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current tax provision (benefit) $ 933 $177 $(1,044) $175
Deferred tax provision 1,241 363 655 105
- -------------------------------------------------------------------------------------
Income tax provision (benefit) $2,174 $540 $(389) $280
=====================================================================================
</TABLE>
The actual income tax provision (benefit) differs from the expected income tax
provision (benefit), computed by applying the respective U.S. statutory federal
tax rates of 34% to income before income tax provision (benefit), as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS
1998 1997 1996 ENDED JUNE 30, 1997
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current expected income tax provision (benefit) $1,870 $435 $(509) $219
Amortization of intangible assets not deductible
for income tax purposes 222 234 172 58
Equity in net income of PBI not taxable for
income tax purposes (181) (186) (49) (33)
State income taxes, net of federal benefit 293 61 (49) 29
Other, net (30) (4) 46 7
- -----------------------------------------------------------------------------------------------------
$2,174 $540 $(389) $280
=====================================================================================================
</TABLE>
At June 30, 1998, and March 28, 1997, the tax effects of temporary differences
that give rise to significant portions of the Company's deferred tax assets and
liabilities were as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
- ------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowance for doubtful accounts $280 $299
Accrued liabilities 277 235
Capital lease obligations 41 29
Inventories 832 671
Net operating loss carryforwards 2,854 4,172
Alternative minimum tax and contribution carryforwards 331 201
Other 150 43
- ------------------------------------------------------------------------------------------
Total deferred tax assets $4,765 $5,650
==========================================================================================
DEFERRED TAX LIABILITIES:
Property and equipment $(302) $(167)
Inventories (4,167) (4,160)
Accounts receivable (346) --
Other (82) (45)
- ------------------------------------------------------------------------------------------
Total deferred tax liabilities $(4,897) $(4,372)
- ------------------------------------------------------------------------------------------
Valuation allowance -- (4,231)
- ------------------------------------------------------------------------------------------
Net deferred tax liabilities $(132) $(2,953)
==========================================================================================
</TABLE>
35
<PAGE> 20
In connection with the acquisitions of two companies in fiscal 1995, net
deferred tax liabilities of $4.1 million were established for the differences in
the income tax basis of assets and liabilities acquired and their carrying
amounts for financial reporting purposes. In addition, deferred tax assets of
$4.0 million were recorded with respect to net operating loss carryforwards,
contribution carryforwards, and alternative minimum tax carryforwards that were
generated by the companies prior to their acquisitions. The use of
pre-acquisition operating losses is subject to limitations imposed by the
Internal Revenue Code and if not utilized by the Company, the net operating loss
carryforwards will expire beginning in 2007. At March 28, 1997, the Company
recorded a valuation allowance of $4.2 million primarily due to the uncertainty
of utilizing the pre-acquisition operating losses and other carryforwards.
During the three-month period ended June 30, 1997, the Company utilized
$306,000 of the net operating loss carryforwards as a deduction against taxable
income for that period. Accordingly, the recorded valuation allowance and the
excess of purchase price over the fair value of net assets acquired were
adjusted by $122,000 to reflect the utilization at June 30, 1997.
In 1998, based upon its current and forecasted taxable earnings levels for
future years, the Company determined that it was more likely than not that the
remaining acquired net operating loss, contribution, and alternative minimum tax
credit carryforwards would be utilized against consolidated taxable income in
the current and future years. Therefore, the remaining valuation allowance of
$4.1 million was released. This resulted in a corresponding increase to deferred
tax assets and a reduction in the excess of purchase price over the fair value
of net assets acquired. The Company anticipates that it will be able to utilize
$3.2 million of the net operating loss carryforwards against its consolidated
taxable income in 1998. The annual net operating loss limitation for future
years is $1.0 million and begins to expire in 2007.
NOTE 15
EMPLOYEE BENEFIT PLANS
The Company has a defined contribution 401(k) plan covering substantially all of
its employees. Plan participants may contribute up to 20% of their annual
compensation, subject to certain limitations. The Company contribution is
discretionary and is currently equivalent to 25% of employees contributions up
to a maximum contribution based on 6% of eligible compensation. Expenses related
to the plan were $45,000 in 1998, $49,000 in 1997, $54,000 in 1996 and $20,000
for the three-month period ended June 30, 1997.
The Company also has an executive retirement benefit plan, implemented in
1998, that provides supplemental pre-retirement life insurance plus supplemental
retirement income to key executives. The life insurance benefit is calculated at
3 times annual salary as of the date of participant enrollment. The retirement
income benefit is provided through discretionary contributions to each
participant's account, which vest 20% annually and are fully vested upon
attaining age 65. Upon retirement, the accumulated account balance is paid to
the participant over 15 years in quarterly benefit payments. The Company's
expense related to the plan was $176,000 in 1998.
36
<PAGE> 21
NOTE 16
EARNINGS (LOSS) PER SHARE
The Company adopted SFAS 128 in 1998. All earnings and share amounts have been
restated in accordance with SFAS 128. The reconciliation of the numerator and
denominator of the basic and diluted earnings per common share computations are
as follows (in thousands, except for shares and per share amounts):
<TABLE>
<CAPTION>
1998
Income Shares Per-Share
Basic Earnings Per Share: (Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net income available to common shareholders $3,327 3,345,261 $0.99
Effect of Diluted Securities:
Options and warrants 138,940
Convertible subordinated notes 70 282,151
- ------------------------------------------------------------------------------
Diluted Earnings Per Share:
Net income available to common shareholders
plus assumed conversions $3,397 3,766,352 $0.90
- ------------------------------------------------------------------------------
1997
Income Shares Per-Share
Basic Earnings Per Share: (Numerator) (Denominator) Amount
Net income available to common shareholders $739 3,033,536 $0.24
Effect of Diluted Securities:
Options and warrants 24,429
Convertible subordinated notes 116 530,978
- ------------------------------------------------------------------------------
Diluted Earnings Per Share:
Net income available to common shareholders
plus assumed conversions $855 3,588,943 $0.24
- ------------------------------------------------------------------------------
1996
Income Shares Per-Share
Basic Earnings Per Share: (Numerator) (Denominator) Amount
Net income (loss) available to common
shareholders ($1,109) 2,971,117 $(0.37)
Effect of Diluted Securities:
Options and warrants(1)
Convertible subordinated notes(1)
- ------------------------------------------------------------------------------
Diluted Earnings Per Share:
Net income (loss) available to common
shareholders plus assumed conversions ($1,109) 2,971,117 $(0.37)
- ------------------------------------------------------------------------------
</TABLE>
(1)Effect of securities is anti-dilutive.
37
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, 1997
Income Shares Per-Share
BASIC EARNINGS PER SHARE: (Numerator) (Denominator) Amount
<S> <C> <C> <C>
Net income available to common shareholders $363 3,054,994 $0.12
EFFECT OF DILUTED SECURITIES:
Options and warrants 40,859
Convertible subordinated notes 29 530,978
- ------------------------------------------------------------------------------
DILUTED EARNINGS PER SHARE:
Net income available to common
shareholders plus assumed conversions $392 3,626,831 $0.11
- ------------------------------------------------------------------------------
</TABLE>
NOTE 17
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board recently issued SFAS No. 130,
"Reporting Comprehensive Income," which requires that an enterprise report, by
major component and as a single total, the change in its net assets during the
period from nonowner sources; SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," which establishes annual and interim
reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas, and major customers;
SFAS No. 132, "Employers' Disclosures about Pension and Other Postretirement
Benefits," which standardizes the disclosure requirements for pensions and other
postretirement benefits and expands disclosures on changes in benefit
obligations and fair values of plan assets; and SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities," which requires that all
derivatives be recognized as either assets or liabilities in the statement of
financial position at fair value. The Company is required to adopt the
provisions of SFAS 130, 131 and 132 in fiscal 1999 and SFAS 133 in fiscal 2000.
Adoption of these statements is not expected to impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures.
NOTE 18
SUBSEQUENT EVENT
In July 1998, the Company filed a Registration Statement on Form S-2 for the
offering of 1.63 million shares of the Company's common stock for sale to the
public (the Offering). The Offering includes 1.2 million shares to be sold by
the Company, 250,000 shares to be sold by existing shareholders, and 180,000
shares to be sold by the holder upon the Company's exchange of such shares for
an additional 18% equity interest in PBI to occur simultaneous with the
Offering. If consummation of this transaction occurs, the Company will own 68%
of the capital stock of PBI. Accordingly, the financial statements of PBI would
be consolidated with those of the Company for all periods subsequent to the
transaction.
38
<PAGE> 23
Price Range Per Common Share
The Company's common stock (symbol: "DKWD") is traded on the NASDAQ national
market. The number of beneficial holders of the Company's common stock is
approximately 1,450. Set forth below are the high and low transaction prices as
reported by the NASDAQ stock market for the periods indicated. Such prices
reflect interdealer prices, without retail markup, markdown, or commission:
1998
- -----------------------------------------
HIGH LOW
---- ---
First Quarter 8 1/8 5 1/8
Second Quarter 9 1/4 7 11/16
Third Quarter 14 3/4 8 3/8
Fourth Quarter 23 1/2 13 3/8
1997
- -----------------------------------------
HIGH LOW
---- ---
First Quarter 8 1/2 5 1/8
Second Quarter 6 1/8 4 5/8
Third Quarter 4 7/8 3 3/8
Fourth Quarter 5 7/8 3 9/16
Three Months
Ended 6/30/97 5 5/8 4 3/8
CORPORATE OFFICES:
D&K HEALTHCARE RESOURCES, INC.
8000 Maryland Ave., Suite 920
St. Louis, Missouri 63105
(314) 727-3485
Fax: (314) 727-5759
TRANSFER AGENT/REGISTRAR:
Harris Trust & Savings Bank
111 West Monroe Street
Chicago, Illinois 60690
(312) 461-2121
AUDITORS:
Arthur Andersen LLP
St. Louis, Missouri
COUNSEL:
Armstrong, Teasdale, Schlafly & Davis
St. Louis, Missouri
FORM 10-K:
Copies of form 10-K filed by D&K Healthcare Resources, Inc., for the year ended
June 30, 1998, are available without charge upon request. Requests should be
directed to the Company's corporate office address, marked attention: Investor
Relations.
<PAGE> 1
SUBSIDIARIES
EXHIBIT 21
<TABLE>
<CAPTION>
SUBSIDIARY NAME STATE OF INCORPORATION % OWNED
- --------------------------------------------------------------------------------------------------------------------
<C> <C> <C>
Associated Pharmacies, Inc. Arkansas 100%
VC Services, Inc. Minnesota 100%
Pharmaceutical Buyers, Inc. Arkansas 50%
Jaron, Inc. Florida 100%
Southwest Computer Systems, Inc. (inactive) Arkansas 100%
U.P.C., Inc. (inactive) Minnesota 100%
D&K Receivables Corporation Delaware 100%
</TABLE>
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports dated August 11, 1998, included in and incorporated by reference in this
Form 10-K for the year ended June 30, 1998, into the Company's previously
filed Registration Statements on Form S-3 (Nos. 333-56929, 33-99210 and
333-3262) and Form S-8 (Nos. 33-88714 and 333-24263).
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
September 28, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 4,051
<SECURITIES> 0
<RECEIVABLES> 51,196
<ALLOWANCES> 700
<INVENTORY> 90,413
<CURRENT-ASSETS> 145,492
<PP&E> 11,914
<DEPRECIATION> 5,990
<TOTAL-ASSETS> 170,350
<CURRENT-LIABILITIES> 93,242
<BONDS> 0
0
0
<COMMON> 37
<OTHER-SE> 15,915
<TOTAL-LIABILITY-AND-EQUITY> 170,350
<SALES> 612,427
<TOTAL-REVENUES> 612,957
<CGS> 582,765
<TOTAL-COSTS> 603,872
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,584
<INCOME-PRETAX> 5,501
<INCOME-TAX> 2,174
<INCOME-CONTINUING> 3,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,327
<EPS-PRIMARY> .99
<EPS-DILUTED> .90
</TABLE>
