<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO
SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) JUNE 1, 1999
-----------------------------
D & K HEALTHCARE RESOURCES, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
000-20348 43-1465483
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(Commission File Number) (IRS Employer Identification No.)
8000 MARYLAND AVENUE, SUITE 920, ST. LOUIS, MISSOURI 63105
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(Address of principal executive offices) (Zip Code)
(314) 727-3485
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(Registrant's telephone number, including area code)
N/A
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(Former name or former address, if changed since last report)
<PAGE> 2
D & K HEALTHCARE RESOURCES, INC.
FORM 8-K
ITEM 2: ACQUISITION OR DISPOSITION OF ASSETS.
On June 1, 1999, D&K Healthcare Resources, Inc. (the "Company") consummated the
acquisition of 100% of the outstanding stock of Jewett Drug Co. The Company
accomplished the acquisition pursuant to a Stock Purchase Agreement dated June
1, 1999 by and between the Company and Harvey C. Jewett, IV ("Mr. Jewett"), the
sole stockholder of Jewett Drug Co. The aggregate purchase price for this
acquisition was $34,000,000; the purchase price was determined by arm's length
negotiation between the Company and Mr. Jewett. At closing, the Company paid
$21,500,000 in cash and delivered 555,556 shares of its common stock to Mr.
Jewett. Mr. Jewett is expected to become a member of the Board of Directors of
the Company.
Funds for the cash portion of the purchase price were provided by the Company's
revolving loan facility with Fleet Capital Corporation.
Jewett Drug Co. is a pharmaceutical distribution company based in Aberdeen,
South Dakota, which provides comprehensive pharmaceutical distribution services
to over 250 customers in the Upper Midwest and Great Plains region. Jewett Drug
Co. will be operated as a wholly-owned subsidiary of the Company.
Also, on June 1, 1999, following the acquisition of Jewett Drug Co., the
Company entered into a Second Amendment to Fourth Amended and Restated Loan and
Security Agreement with Fleet Capital Corporation pursuant to which the
Company's revolving loan facility was increased from $75,000,000 to $95,000,000
and Jewett Drug Co. became a party to, and permitted borrower under, that
facility.
ITEM 7: FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Jewett Drug Co.
Report of Independent Public Accountants.
Balance Sheets as of December 31, 1997 and 1998 (audited) and March
31, 1999 (unaudited).
Statements of Income for the years ended December 31, 1996, 1997 and
1998 (audited) and the three months ended March 31, 1999
(unaudited).
2
<PAGE> 3
Statements of Cash Flows for the years ended December 31, 1996, 1997
and 1998 (audited) and the three months ended March 31, 1999
(unaudited).
Statements of Stockholder's Equity for the years ended December 31,
1996, 1997 and 1998 (audited) and the three months ended March
31, 1999 (unaudited).
Notes to Financial Statements.
(b) Pro Forma Financial Information
Pro Forma Financial Information is not included herein and will be
filed by amendment on or before August 16, 1999.
(c) Exhibits
2.1 Stock Purchase Agreement dated June 1, 1999 by and between D&K
Healthcare Resources, Inc. and Harvey C. Jewett, IV.
10.1 Second Amendment to Fourth Amended and Restated Loan and
Security Agreement.
23.1 Consent of Arthur Andersen LLP.
99.1 Press Release dated June 1, 1999.
3
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
D & K HEALTHCARE RESOURCES, INC.
Dated: June 14, 1999 By: /s/ Leonard R. Benjamin
-----------------------------------
Leonard R. Benjamin
Vice President, General Counsel
and Secretary
4
<PAGE> 5
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Jewett Drug Company, Inc.:
We have audited the accompanying balance sheets of Jewett Drug Company, Inc. (a
South Dakota corporation) as of December 31, 1997 and 1998, and the related
statements of income, cash flows and stockholder's equity for each of the three
years in the period ended December 31, 1998. 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 Jewett Drug Company, Inc. as of
December 31, 1997 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1998, in conformity
with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri,
April 29, 1999
<PAGE> 6
JEWETT DRUG COMPANY, INC.
BALANCE SHEETS
(Dollars in thousands, except share information)
<TABLE>
<CAPTION>
December 31
--------------------- March 31,
ASSETS 1997 1998 1999
--------- -------- ----------
(Unaudited)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,933 $ 11,194 $ 6,921
Accounts receivable, net of allowance for doubtful accounts of $3, $49 and
$49, respectively 4,722 4,295 8,264
Notes receivable 49 108 109
Inventories 15,926 21,704 23,829
Other current assets 35 6 6
--------- -------- ----------
Total current assets 22,665 37,307 39,129
PROPERTY AND EQUIPMENT, net 1,044 961 938
OTHER ASSETS 460 432 404
--------- -------- ----------
Total assets $ 24,169 $ 38,700 $ 40,471
========= ======== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable $ 11,986 $ 19,796 $ 23,744
Accrued expenses and other 620 906 762
Customer deposit 600 6,727 4,000
Current maturities of long-term debt - stockholder 230 73 12
--------- -------- ----------
Total current liabilities 13,436 27,502 28,518
LONG-TERM DEBT - STOCKHOLDER 73 - -
OTHER LONG-TERM LIABILITIES 971 1,026 994
--------- -------- ----------
Total liabilities 14,480 28,528 29,512
--------- -------- ----------
STOCKHOLDER'S EQUITY:
Common stock, $100 par value, 2,500 shares authorized, 1,694.67 shares
issued and outstanding 169 169 169
Additional paid-in capital 208 208 208
Retained earnings 9,312 9,795 10,582
--------- -------- ----------
Total stockholder's equity 9,689 10,172 10,959
--------- -------- ----------
Total liabilities and stockholder's equity $ 24,169 $ 38,700 $ 40,471
========= ======== ==========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE> 7
JEWETT DRUG COMPANY, INC.
STATEMENTS OF INCOME
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended Three Months
December 31 Ended March 31
------------------------------------ --------------------
1996 1997 1998 1998 1999
--------- --------- --------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
NET SALES $ 125,356 $ 165,301 $ 239,047 $ 52,400 $ 76,197
COST OF SALES 118,804 158,148 232,431 50,823 74,132
--------- --------- --------- -------- --------
Gross profit 6,552 7,153 6,616 1,577 2,065
DEPRECIATION AND AMORTIZATION 76 134 189 39 40
OPERATING EXPENSES 3,208 3,165 3,444 709 728
--------- --------- --------- -------- --------
Income from operations 3,268 3,854 2,983 829 1,297
--------- --------- --------- -------- --------
OTHER INCOME (EXPENSE):
Interest, net 127 15 143 (3) 50
Other, net 4 (24) (36) (1) -
--------- --------- --------- -------- --------
Other income (expense) 131 (9) 107 (4) 50
--------- --------- --------- -------- --------
Net income $ 3,399 $ 3,845 $ 3,090 $ 825 $ 1,347
========= ========= ========= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
JEWETT DRUG COMPANY, INC.
STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Three Months
Year Ended Ended
December 31 March 31
-----------------------------------------------------
1996 1997 1998 1998 1999
-------- ------- --------- -------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,399 $ 3,845 $ 3,090 $ 825 $ 1,347
Adjustments to reconcile net income to net cash provided
by (used in) operating activities-
Depreciation and amortization 76 134 189 39 40
Gain on sale of equipment (6) - - - -
Equity in net loss of Wholesale Alliance 2 18 30 - -
Changes in operating assets and liabilities-
(Increase) decrease in-
Accounts receivable (897) 54 427 (2,417) (3,969)
Notes receivable (169) (144) (2) 12 24
Inventories (3,456) (4,318) (5,778) (2,749) (2,125)
Increase (decrease) in-
Accounts payable 2,025 2,085 7,810 5,865 3,948
Accrued expenses 154 244 260 (163) (147)
Customer deposit 600 - 6,127 1,900 (2,727)
Other, net (38) 37 45 2 (13)
------- ------- --------- -------- ---------
Net cash provided by (used in) operating
activities 1,690 1,955 12,198 3,314 (3,622)
------- ------- --------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Wholesale Alliance (10) (45) - - -
Purchases of property and equipment (125) (94) (99) (50) (16)
Proceeds from sale of property and equipment 45 - 50 - -
------- ------- --------- -------- ---------
Net cash used in investing activities (90) (139) (49) (50) (16)
------- ------- --------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on capital lease obligations - (20) (51) (12) (14)
Principal payments on debt (195) (211) (230) (55) (61)
Distributions to stockholder (1,938) (2,095) (2,607) (659) (560)
------- ------- --------- -------- ---------
Net cash used in financing activities (2,133) (2,326) (2,888) (726) (635)
------- ------- --------- -------- ---------
Net (decrease) increase in cash and cash
equivalents (533) (510) 9,261 2,538 (4,273)
CASH AND CASH EQUIVALENTS, beginning of period
2,976 2,443 1,933 1,933 11,194
------- ------- --------- -------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,443 $ 1,933 $ 11,194 $ 4,471 $ 6,921
======= ======= ========= ======== =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ 51 $ 175 $ 206 $ 54 $ 47
======= ======= ========= ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 9
JEWETT DRUG COMPANY, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
(Dollars in thousands, except share information)
<TABLE>
<CAPTION>
Common Stock Additional Total
-------------------- Paid-In Retained Stockholder's
Shares Amount Capital Earnings Equity
---------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 1,694.67 $ 169 $ 208 $ 6,264 $ 6,641
Net income - 3,399 3,399
Distributions to stockholder - - (1,938) (1,938)
---------- ------ ------- ----------- ------------
BALANCE, December 31, 1996 1,694.67 169 208 7,725 8,102
Net income - - - 3,845 3,845
Distributions to stockholder - - - (2,095) (2,095)
Dividend of real estate to stockholder - - - (163) (163)
---------- ------ ------- ----------- ------------
BALANCE, December 31, 1997 1,694.67 169 208 9 ,312 9,689
Net income - - - 3,090 3,090
Distributions to stockholder - - - (2,607) (2,607)
---------- ------ ------- ----------- ------------
BALANCE, December 31, 1998 1,694.67 169 208 9,795 10,172
Net income (unaudited) - - - 1,347 1,347
Distributions to stockholder (unaudited)
- - - (560) (560)
---------- ------- ------- ----------- ------------
BALANCE, March 31, 1999 (unaudited) 1,694.67 $ 169 $ 208 $ 10,582 $ 10,959
========== ======= ======= =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 10
JEWETT DRUG COMPANY, INC.
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
1. BUSINESS AND ORGANIZATION:
Jewett Drug Company, Inc. (the Company), a South Dakota corporation, is a
full-service, regional wholesale drug distributor. The Company distributes a
broad range of pharmaceutical products, health and beauty aids, and related
products to its customers in the Upper Midwest and Great Plains. The Company's
customer base is primarily independent retail pharmacies and a mail order
prescription company. The Company presently operates in one business segment.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Interim Financial Information
The interim financial statements as of March 31, 1999, and for the three months
ended March 31, 1998 and 1999, are unaudited and have been prepared pursuant to
the rules and regulations of the Securities and Exchange Commission.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of the Company's management, the unaudited interim financial
statements contain all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for the
interim periods are not necessarily indicative of the results for the entire
year.
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.
Concentration of Credit Risk
The Company had one customer that comprised approximately 46%, 54% and 66% of
net sales for the three years ended December 31, 1996, 1997 and 1998,
respectively, and approximately 13% and -0-% of the accounts receivable balance
at December 31, 1997 and 1998, respectively.
Revenue Recognition
Revenue is recognized when products are shipped to customers.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
<PAGE> 11
- 2 -
Allowance for Doubtful Accounts
The Company provides an allowance for doubtful accounts based upon an estimate
of accounts receivable that are uncollectible as of the balance sheet dates.
Notes Receivable
The notes receivable are primarily from certain independent retail pharmacies.
The notes are collateralized by drug inventories and bear interest ranging from
7% to 9.75%. Interest income related to these notes was $6, $13 and $28 for the
years ended December 31, 1996, 1997 and 1998, respectively.
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 upon projected undiscounted
cash flows related to the asset over the remaining life, the carrying value of
the asset is reduced to its fair value.
Customer Deposit
The Company's largest customer is required to keep a deposit on hand with the
Company under the terms of the supply contract.
Income Taxes
The Company is an S Corporation for income tax purposes. Under this election,
the taxable income of the Company is included in the taxable income of the
stockholder. As such, no provision for federal or state income taxes has been
reflected in the accompanying financial statements. There are no significant
book and tax basis differences for income tax purposes.
3. INVENTORIES:
Inventories are comprised of pharmaceutical drugs and related over-the-counter
items which are stated at lower of cost or market. Cost is primarily determined
using the last-in, first-out (LIFO) method. If the Company had used the
first-in, first-out (FIFO) method of inventory valuation, which approximates
current replacement cost, inventories would have been $-0- and $1,035 higher
than reported at December 31, 1997 and 1998, respectively.
The Company does not record merchandise to be returned to a vendor or
merchandise previously returned to the vendor until verification of the credit
for returned merchandise has been received from the vendor. At that time,
merchandise returns are recorded at the amount of credit to be received from the
vendor.
4. PROPERTY AND EQUIPMENT:
Property and equipment are recorded at cost. Depreciation and amortization are
charged to operations primarily using accelerated depreciation methods over the
estimated useful lives of the various classes of assets, which vary from 5 to 31
years. Depreciation expense was $76, $134 and $189 for the years ended December
31, 1996, 1997 and 1998, respectively.
Expenditures for repairs and maintenance are charged to expense when incurred.
Expenditures for major renewals and betterments, which extend the useful lives
of existing equipment, are capitalized and depreciated. Upon retirement or
disposition of property and equipment, the cost and related accumulated
depreciation are removed from the accounts and any resulting gain or loss is
recognized in the statements of income.
<PAGE> 12
- 3 -
<TABLE>
<CAPTION>
Property and equipment consisted of the following:
December 31
--------------
1997 1998
----- -----
<S> <C> <C>
Building improvements $ 180 $ 182
Warehouse equipment 353 355
Furniture and fixtures 152 153
Data processing equipment 234 242
----- -----
919 932
Less- Accumulated depreciation (666) (710)
----- -----
Total $ 253 $ 222
===== =====
</TABLE>
The Company leases certain properties and equipment under capital leases.
Capital lease asset balances consisted of the following:
<TABLE>
<CAPTION>
December 31
--------------
1997 1998
----- -----
<S> <C> <C>
Office and warehouse space $ 855 $ 855
Equipment - 57
----- -----
855 912
Less- Accumulated amortization (64) (173)
----- -----
Total $ 791 $ 739
===== =====
</TABLE>
Future minimum lease payments under these capital leases at December 31, 1998,
are as follows:
<TABLE>
<CAPTION>
Future Minimum
Lease Payments
--------------
<S> <C>
1999 $ 240
2000 241
2001 225
2002 220
2003 220
Thereafter 600
--------------
Minimum lease payments 1,746
Less imputed interest component (904)
--------------
Present value of net minimum lease payments of which $61 is
included in current liabilities $ 842
==============
</TABLE>
<PAGE> 13
- 4 -
5. OTHER ASSETS:
Other assets consisted of the following:
<TABLE>
<CAPTION>
December 31
----------------
1997 1998
------ -----
<S> <C> <C>
Cash surrender value of life insurance $ 171 $ 200
Notes receivable, noncurrent portion 289 232
------ -----
Total $ 460 $ 432
====== =====
</TABLE>
The cash surrender value of the life insurance policy is maintained by the
Company as a deferred compensation agreement between the Company and its
president. Under the terms of the deferred compensation agreement, the cash
surrender value of the policy is transferable to the president upon his reaching
the age of 60, his retirement or a change in the ownership of the Company. A
corresponding liability equal to the cash surrender value has been established
and is included in other long-term liabilities.
6. LEASES:
The Company leases warehouse space and other equipment through noncancellable
operating leases. Rental expense under operating lease was $102, $110 and $105
in 1996, 1997 and 1998, respectively. Minimum rental payments under these leases
with initial or remaining terms of one year or more at December 31, 1998, are as
follows:
<TABLE>
<CAPTION>
Future Minimum
Lease Payments
--------------
<S> <C>
1999 $ 132
2000 100
2001 48
2002 -
2003 -
Thereafter -
--------------
Total $ 280
==============
</TABLE>
7. COMMITMENTS AND CONTINGENCIES:
Management of the Company is not aware of any pending claims or lawsuits.
8. PLEDGED ASSETS:
The assets of the Company are pledged as collateral on the stockholder's
personal note to the bank. The Company makes monthly principal and interest
payments on behalf of the stockholder in order to repay this debt. Accordingly,
this debt and the related interest expense of $51, $35 and $16 has been recorded
in the Company's financial statements for the years ended December 31, 1996,
1997 and 1998, respectively. The interest rate on the outstanding note at
December 31, 1998, was 8.25%. At December 31, 1997 and 1998, the fair value of
debt approximated its current carrying value.
<PAGE> 14
- 5 -
9. OTHER LONG-TERM LIABILITIES:
Other liabilities consisted of the following:
<TABLE>
<CAPTION>
December 31
--------------
1997 1998
----- -------
<S> <C> <C>
Capital lease obligations - long term $ 800 $ 781
Deferred compensation 171 200
Other - 45
----- ------
Total $ 971 $1,026
===== ======
</TABLE>
10. RELATED-PARTY TRANSACTIONS:
The Company pays a discretionary pension to the wife of the former owner,
totaling $40, $37 and $37 for the years ended December 31, 1996, 1997 and 1998,
respectively.
In 1997, the Company distributed its real estate assets in Aberdeen, South
Dakota, as a noncash dividend to the stockholder. These assets were immediately
leased back from the stockholder and are included in the Company's financial
statements as capital lease assets. Rental payments to the related party under
this capital lease totaled $100 for each of the years ended December 31, 1997
and 1998.
Beginning in July 1997, the Company leased additional warehouse space in Sioux
Falls, South Dakota, from the stockholder. Rental payments to the stockholder
under this capital lease totaled $60 and $120 for the years ended December 31,
1997 and 1998, respectively.
11. EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution 401(k) plan covering substantially all of
its employees. Plan participants may contribute 1% to 8% of their annual
compensation, subject to certain limitations. The Company contribution is
currently equivalent to 100% of employees contributions, plus an additional
discretionary amount allocated using formulas included in the plan agreement.
Expenses related to the plan were $100 in 1996, 1997 and 1998 and are included
in operating expenses in the statements of income.
The Company makes contributions to the Central States Pension, a multiemployer
pension plan, on behalf of its union employees in accordance with the union
agreement. Contributions to this plan were $15, $15 and $16 for the years ended
December 31, 1996, 1997 and 1998, respectively.
12. 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 American Institute of
<PAGE> 15
- 6 -
Certified Public Accountants recently issued SOP 98-1, "Accounting for the Costs
of Computer Software Developed or Obtained for Internal Use," which provides
guidance on the capitalization or expensing of internal use computer software.
The Company is required to adopt the provisions of SFAS 130, 131 and 132 and SOP
98-1 in fiscal 1999 and SFAS 133 in fiscal 2000. Adoption of these statements is
not expected to impact the Company's financial position, results of operations
or cash flows, and any effect will be limited to the form and content of its
disclosures.
13. SUBSEQUENT EVENT:
On February 16, 1999, the Company and D&K Healthcare Resources, Inc. (D&K)
announced the signing of a letter of intent whereby the Company would be
acquired in its entirety by D&K.
<PAGE> 1
EXHIBIT 2.1
================================================================================
STOCK PURCHASE AGREEMENT
BY AND BETWEEN
D & K HEALTHCARE RESOURCES, INC.
AND
HARVEY C. JEWETT, IV,
SOLE SHAREHOLDER OF
JEWETT DRUG CO.
JUNE 1, 1999
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Number
-----------
<C> <C>
1. Definitions..............................................................................................1
2. Purchase and Sale of Company Shares......................................................................5
(a) Basic Transaction...............................................................................5
(b) Purchase Price..................................................................................5
(c) The Closing.....................................................................................5
(d) Deliveries at the Closing.......................................................................6
(e) Purchase Price Adjustment.......................................................................6
3. Representations and Warranties Concerning the Transaction................................................6
(a) Representations and Warranties of the Seller....................................................6
(b) Representations and Warranties of the Buyer.....................................................8
4. Representations and Warranties Concerning the Company....................................................9
(a) Organization, Qualification, and Corporate Power................................................9
(b) Capitalization..................................................................................9
(c) Noncontravention...............................................................................10
(d) Brokers' Fees..................................................................................10
(e) Title to Assets................................................................................10
(f) Subsidiaries...................................................................................10
(g) Financial Statements...........................................................................10
(h) Events Subsequent to Most Recent Fiscal Year End...............................................10
(i) Undisclosed Liabilities........................................................................12
(j) Legal Compliance...............................................................................13
(k) Tax Matters....................................................................................13
(l) Real Property..................................................................................14
(m) Intellectual Property..........................................................................14
(n) Tangible Assets................................................................................16
(o) Inventory......................................................................................17
(p) Contracts......................................................................................17
(q) Notes and Accounts Receivable..................................................................18
(r) Powers of Attorney.............................................................................18
(s) Insurance......................................................................................18
(t) Litigation.....................................................................................19
(u) Employees......................................................................................19
(v) Employee Benefits..............................................................................20
(w) Guaranties.....................................................................................22
(x) Environment, Health, and Safety................................................................22
(y) Certain Business Relationships with the Company................................................23
(z) Year 2000 Warranty.............................................................................23
(aa) Disclosure.....................................................................................23
</TABLE>
i
<PAGE> 3
<TABLE>
<C> <C>
5. Pre-Closing Covenants...................................................................................23
(a) General........................................................................................23
(b) Notices and Consents...........................................................................23
(c) Operation of Business..........................................................................24
(d) Preservation of Business.......................................................................24
(e) Full Access....................................................................................24
(f) Notice of Developments.........................................................................24
(g) Exclusivity....................................................................................24
(h) Minimum Net Worth..............................................................................25
(i) Audit Fees.....................................................................................25
6. Post-Closing Covenants..................................................................................25
(a) General........................................................................................25
(b) Litigation Support.............................................................................25
(c) Transition.....................................................................................25
(d) Confidentiality................................................................................26
(e) Covenant Not to Compete........................................................................26
(f) Registration Rights............................................................................26
(g) Employees......................................................................................30
(h) Operation of Company...........................................................................30
7. Conditions to Obligation to Close.......................................................................30
(a) Conditions to Obligation of the Buyer..........................................................30
(b) Conditions to Obligation of the Seller.........................................................32
8. Remedies for Breaches of This Agreement.................................................................33
(a) Survival of Representations and Warranties.....................................................33
(b) Indemnification Provisions for Benefit of the Buyer............................................33
(c) Indemnification Provisions for Benefit of the Seller...........................................34
(d) Matters Involving Third Parties................................................................34
(e) Determination of Adverse Consequences..........................................................35
(f) Other Indemnification Provisions...............................................................35
(g) Limits on Indemnification......................................................................35
9. Tax Matters.............................................................................................35
(a) Section 338(h)(10) Election....................................................................36
(b) Allocation of Purchase Price...................................................................36
(c) S Corporation Status...........................................................................36
(d) Tax Periods Ending on or Before the Closing Date...............................................36
(e) Cooperation on Tax Matters.....................................................................36
(f) Certain Taxes..................................................................................37
10. Termination.............................................................................................37
(a) Termination of Agreement.......................................................................37
(b) Effect of Termination..........................................................................38
</TABLE>
ii
<PAGE> 4
<TABLE>
<C> <C>
11. Miscellaneous...........................................................................................38
(a) Press Releases and Public Announcements........................................................38
(b) No Third Party Beneficiaries...................................................................38
(c) Entire Agreement...............................................................................38
(d) Succession and Assignment......................................................................38
(e) Counterparts...................................................................................38
(f) Headings.......................................................................................38
(g) Notices........................................................................................38
(h) Governing Law..................................................................................39
(i) Amendments and Waivers.........................................................................39
(j) Severability...................................................................................39
(k) Expenses.......................................................................................39
(l) Construction...................................................................................40
(m) Incorporation of Exhibits and Schedules........................................................40
(n) Specific Performance...........................................................................40
(o) Facsimile and Telecopier Signatures............................................................40
</TABLE>
Exhibit A--Historical Financial Statements
Exhibit B--Forms of Side Agreements
B-1 --Consulting Agreement with Harvey C. Jewett, IV
B-2 --Employment Agreement with James D. Erickson
B-3 --Form of Employment Agreement - Standard
B-4 --Form of Employment Agreement - Non-Compete
Exhibit C--Form of Opinion of Counsel to the Seller
Exhibit D--Form of Opinion of Counsel to the Buyer
Disclosure Schedules--Exceptions to Representations and Warranties Concerning
the Company and Its Subsidiaries
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of the 1st day of June, 1999, by and among D & K HEALTHCARE RESOURCES, INC.,
a Delaware corporation (the "Buyer"), and HARVEY C. JEWETT, IV (the "Seller").
The Buyer and the Seller are referred to collectively herein as the "Parties."
RECITALS
A. The Seller owns all of the outstanding capital stock of Jewett Drug Co.,
a South Dakota corporation (the "Company").
B. This Agreement contemplates a transaction in which the Buyer will
purchase from the Seller, and the Seller will sell to the Buyer, all of the
outstanding capital stock of the Company in return for cash and the Buyer Stock.
NOW, THEREFORE, in consideration of the premises and the mutual promises
herein made, and in consideration of the representations, warranties, and
covenants herein contained, the Parties agree as follows.
1. Definitions.
"Accredited Investor" has the meaning set forth in Regulation D promulgated
under the Securities Act.
"Adverse Consequences" means all actions, suits, proceedings, hearings,
investigations, charges, complaints, claims, demands, injunctions, judgments,
orders, decrees, rulings, damages, dues, penalties, fines, costs, amounts paid
in settlement, Liabilities, obligations, Taxes, liens, losses, expenses, and
fees, including court costs and attorneys' fees and expenses.
"Affiliate" has the meaning set forth in Rule 12b-2 of the regulations
promulgated under the Securities Exchange Act.
"Affiliated Group" means any affiliated group within the meaning of Code
ss.1504 or any similar group defined under a similar provision of state, local
or foreign law.
"Applicable Rate" means the Prime Rate of interest announced from time to
time by Fleet Bank plus 1/4%.
"Basis" means any past or present fact, situation, circumstance, status,
condition, activity, practice, plan, occurrence, event, incident, action,
failure to act, or transaction that forms or could form the basis for any
specified consequence.
"Buyer" has the meaning set forth in the preface above.
<PAGE> 6
"Buyer Stock" means the common stock of D & K Healthcare Resources, Inc.,
par value $0.01 per share.
"Closing" has the meaning set forth in ss.2(c) below.
"Closing Date" has the meaning set forth in ss.2(c) below.
"Code" means the Internal Revenue Code of 1986, as amended.
"Company" has the meaning set forth in the preface above.
"Company Share" means any share of the Common Stock, par value $100.00 per
share, of the Company.
"Confidential Information" means any information concerning the businesses
and affairs of the Company that is not already generally available to the
public.
"Controlled Group of Corporations" has the meaning set forth in Code
ss.1563.
"Deferred Intercompany Transaction" has the meaning set forth in Treas.
Reg. ss.1.1502-13.
"Disclosure Schedule" has the meaning set forth in ss.4 below.
"Employee Benefit Plan" means any (a) nonqualified deferred compensation or
retirement plan or arrangement which is an Employee Pension Benefit Plan, (b)
Employee Pension Benefit Plan which is qualified under Code Section 401(a), (c)
Employee Welfare Benefit Plan or (d) other material employee benefit obligation,
other than regular salary, including stock option plans, severance pay policies,
bonus arrangements, and other fringe benefits.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA ss.3(1).
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings, and
charges thereunder) of federal, state, local, and foreign governments (and all
agencies thereof) concerning pollution or protection of the environment, public
health and safety, or employee health and safety, including laws relating to
emissions, discharges, releases, or threatened releases of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes
into ambient air, surface water, ground water, or lands or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport, or handling of pollutants, contaminants, or chemical, industrial,
hazardous, or toxic materials or wastes.
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<PAGE> 7
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Excess Loss Account" has the meaning set forth in Treas. Reg.
ss.1.1502-19.
"Extremely Hazardous Substance" has the meaning set forth in ss.302 of the
Emergency Planning and Community Right-to-Know Act of 1986, as amended.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"Financial Statement" has the meaning set forth in ss.4(g) below.
"GAAP" means United States generally accepted accounting principles as in
effect from time to time.
"Hart-Scott-Rodino Act" means the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended.
"Indemnified Party" has the meaning set forth in ss.8(d) below.
"Indemnifying Party" has the meaning set forth in ss.8(d) below.
"Intellectual Property" means (a) all inventions (whether patentable or
unpatentable and whether or not reduced to practice), all improvements thereto,
and all patents, patent applications, and patent disclosures, together with all
reissuances, continuations, continuations-in-part, revisions, extensions, and
reexaminations thereof, (b) all trademarks, service marks, trade dress, logos,
trade names, and corporate names, together with all translations, adaptations,
derivations, and combinations thereof and including all goodwill associated
therewith, and all applications, registrations, and renewals in connection
therewith, (c) all copyrightable works, all copyrights, and all applications,
registrations, and renewals in connection therewith, (d) all mask works and all
applications, registrations, and renewals in connection therewith, (e) all trade
secrets and confidential business information (including ideas, research and
development, know-how, formulas, compositions, manufacturing and production
processes and techniques, technical data, designs, drawings, specifications,
customer and supplier lists, pricing and cost information, and business and
marketing plans and proposals), (f) all computer software (including data and
related documentation), (g) all other proprietary rights, and (h) all copies and
tangible embodiments thereof (in whatever form or medium).
"Knowledge" means actual knowledge after reasonable investigation.
"Liability" means any liability (whether known or unknown, whether asserted
or unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), including
any liability for Taxes.
"Material Adverse Effect" means any Adverse Consequences or other events,
individually or taken together, that would have a material adverse effect on the
business, operations, results of
3
<PAGE> 8
operations, prospects, property or financial condition of the Company ("Company
Material Adverse Effect") or the Buyer ("Buyer Material Adverse Effect"), as the
case may be.
"Most Recent Balance Sheet" means the balance sheet contained within the
Most Recent Financial Statements.
"Most Recent Financial Statements" has the meaning set forth in ss.4(g)
below.
"Most Recent Fiscal Month End" has the meaning set forth in ss.4(g) below.
"Most Recent Fiscal Year End" has the meaning set forth in ss.4(g) below.
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"Ordinary Course of Business" means the ordinary course of business
consistent with past custom and practice (including with respect to quantity and
frequency).
"Party" has the meaning set forth in the preface above.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Transfer" has the meaning set forth in ss.3(a)(iv) below.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, an unincorporated organization,
or a governmental entity (or any department, agency, or political subdivision
thereof).
"Process Agent" has the meaning set forth in ss.10(p) below.
"Prohibited Transaction" has the meaning set forth in ERISA ss.406 and Code
ss.4975.
"Purchase Price" has the meaning set forth in ss.2(b) below.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Security Interest" means any mortgage, pledge, lien, encumbrance, charge,
or other security interest, other than (a) mechanic's, materialmen's, and
similar liens, (b) liens for Taxes not yet due and payable or for Taxes that the
taxpayer is contesting in good faith through appropriate proceedings, (c)
purchase money liens and liens securing rental payments under capital lease
arrangements, and (d) other liens arising in the Ordinary Course of Business and
not incurred in connection with the borrowing of money.
4
<PAGE> 9
"Seller" has the meaning set forth in the preface above.
"Subsidiary" means any corporation with respect to which a specified Person
(or a Subsidiary thereof) owns a majority of the common stock or has the power
to vote or direct the voting of sufficient securities to elect a majority of the
directors.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code ss.59A), customs
duties, capital stock, franchise, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not; provided, however, that except as
otherwise specifically provided in this Agreement, "Tax" shall not include any
stamp, transfer, sales taxes or other tax-related obligations of Buyer arising
out of the consummation of the transactions contemplated by this Agreement.
"Tax Return" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"Third Party Claim" has the meaning set forth in ss.8(d) below.
2. Purchase and Sale of Company Shares.
(a) Basic Transaction. On and subject to the terms and conditions of this
Agreement, the Buyer agrees to purchase from the Seller, and the Seller agrees
to sell to the Buyer, all of his Company Shares for the consideration specified
below in this ss.2.
(b) Purchase Price. The Buyer agrees to pay to the Seller at the Closing
Thirty-Four Million Dollars ($34,000,000.00) (the "Purchase Price") by delivery
of (i) Buyer Stock in the amount of Twelve Million Five Hundred Thousand Dollars
($12,500,000.00) based upon the average closing stock price of the Buyer Stock
on the NASDAQ National Market for the twenty (20) market closings immediately
preceding the Closing Date (the "Closing Price"); provided, however, that the
price shall not be less than $22.50 per share nor more than $27.50 per share
(the "Price Range") and, accordingly, shall be valued at $22.50 per share if the
Closing Price is below the Price Range and $27.50 per share if the Closing Price
is above the Price Range; and (ii) cash in the amount of Twenty-One Million Five
Hundred Thousand Dollars ($21,500,000.00) payable by wire transfer or delivery
of other immediately available funds.
(c) The Closing. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of Armstrong Teasdale
LLP in St. Louis, Missouri, commencing at 10:00 a.m. Central Time on June 1,
1999, or such other date as the Buyer and the Seller may mutually determine (the
"Closing Date"); provided, however, that the Closing Date shall be no earlier
than April 30, 1999. The Closing shall be effective as of 12:01 a.m. on the
Closing Date.
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<PAGE> 10
(d) Deliveries at the Closing. At the Closing, (i) the Seller will deliver
to the Buyer the various certificates, instruments, and documents referred to in
ss.7(a) below, (ii) the Buyer will deliver to the Seller the various
certificates, instruments, and documents referred to in ss.7(b) below, (iii) the
Seller will deliver to the Buyer stock certificates representing all of his
Company Shares, endorsed in blank or accompanied by duly executed assignment
documents, and (iv) the Buyer will deliver to the Seller the consideration
specified in ss.2(b) above.
(e) Purchase Price Adjustment. In the event Seller exercises his
registration rights pursuant to ss.6(f) below in a public offering in which
fifty percent (50%) of the aggregate number of shares of Buyer Stock received by
Seller hereunder become registered shares (the "Registered Shares"), and the
offering price for such Registered Shares to the public (the "Offering Price")
is less than the Closing Price, then Buyer shall provide Seller at the time of
closing of such public offering the number of shares of registered Buyer Stock
equal in value to: (i) the difference between the Closing Price and the Offering
Price, multiplied times the number of Registered Shares; (ii) less the amount of
all underwriting discounts and commissions paid by the Buyer, if any, in
connection with the offering of the Registered Shares. The terms of this ss.2(e)
shall apply only to first fifty percent (50%) of the shares of Buyer Stock which
are registered on Seller's behalf in a public offering by Buyer and shall not
apply to any subsequent registrations of shares of Buyer Stock or any shares of
Buyer Stock sold pursuant to Rule 144 transactions under the Securities Act of
1933.
3. Representations and Warranties Concerning the Transaction.
(a) Representations and Warranties of the Seller. The Seller represents and
warrants to the Buyer that the statements contained in this ss.3(a) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.3(a)).
(i) Authorization of Transaction. The Seller has full power and
authority to execute and deliver this Agreement and to perform his
obligations hereunder. This Agreement constitutes the valid and legally
binding obligation of the Seller, enforceable in accordance with its terms
and conditions. Except for notices or filings under the Hart-Scott-Rodino
Act and any applicable securities laws, the Seller need not give any notice
to, make any filing with, or obtain any authorization, consent, or approval
of any government or governmental agency in order to consummate the
transactions contemplated by this Agreement.
(ii) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Seller is
subject or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to
which the Seller is a party or by which he is bound or to which any of his
assets is subject.
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<PAGE> 11
(iii) Brokers' Fees. The Seller has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which the Buyer or the
Company could become liable or obligated.
(iv) Investment. The Seller (A) understands that the Buyer Stock has
not been, and will not be, registered under the Securities Act, or under
any state securities laws, and is being offered and sold in reliance upon
federal and state exemptions for transactions not involving any public
offering, (B) is acquiring the Buyer Stock solely for his own account for
investment purposes, and not with a view to the distribution thereof, (C)
is a sophisticated investor with knowledge and experience in business and
financial matters, (D) has received certain information concerning the
Buyer and has had the opportunity to obtain additional information as
desired in order to evaluate the merits and the risks inherent in holding
the the Buyer Stock, (E) is able to bear the economic risk and lack of
liquidity inherent in holding the Buyer Stock, and (F) is an Accredited
Investor. Seller understands, acknowledges and agrees that at the time of
his receipt thereof and except as provided in ss.6(f) below: (i) none of
the Buyer Stock will be registered under the Act and that all of the Buyer
Stock acquired by Seller hereunder will constitute "restricted securities"
as defined in Rule 144 (or its successor) under the Act; (ii) the Buyer
Stock must be held indefinitely unless it is registered under the Act or an
exemption from registration is available; (iii) except as provided in this
Agreement, Buyer is not under any obligation or has not made any commitment
to provide any such registration or to take such steps as are necessary to
permit sale without registration pursuant to Rule 144 under the Act or
otherwise; (iv) at such time as the Buyer Stock may be disposed of in
routine sales without registration in reliance on Rule 144 under the Act,
such disposition can be made only in limited amounts in accordance with all
of the terms and conditions of Rule 144; (v) if the Rule 144 exemption is
not available, compliance with some other exemption from registration will
be required; (vi) all certificates evidencing the Buyer Stock will bear an
appropriate legend concerning restrictions on transfer; (vii) the transfer
agent and registrar of Buyer will be advised by appropriate "stop-transfer"
instructions of the foregoing restrictions and instructed to advise Buyer
of any proposed transfer of certificate(s) evidencing the Buyer Stock; and
(viii) in addition to the foregoing restrictions, and except as otherwise
provided herein, no shares of the Buyer Stock may be sold or transferred
during the twelve months following the Closing; except, subject to the
foregoing restrictions, up to thirty percent (30%) of such shares may be
transferred by bona fide gift to members of Seller's immediate family or to
trusts created for their benefit and one hundred percent of such shares may
be transferred to Seller's estate, heirs and beneficiaries in the event of
Seller's death.
(v) Company Shares. The Seller holds of record and owns
beneficially all of the Company Shares, free and clear of any restrictions
on transfer (other than any restrictions under the Securities Act and state
securities laws), Taxes (other than those taxes payable by Buyer, if any,
in connection with the transfer of such Company Shares), Security
Interests, options, warrants, purchase rights, contracts, commitments,
equities, claims, and demands. The Seller is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
the Seller to sell, transfer, or otherwise dispose of any capital stock of
the Company (other than this Agreement). The Seller is not a party to any
voting
7
<PAGE> 12
trust, proxy, or other agreement or understanding with respect to the
voting of any capital stock of the Company.
(b) Representations and Warranties of the Buyer. The Buyer represents and
warrants to the Seller that the statements contained in this ss.3(b) are correct
and complete as of the date of this Agreement and will be correct and complete
as of the Closing Date (as though made then and as though the Closing Date were
substituted for the date of this Agreement throughout this ss.3(b)).
(i) Organization of the Buyer. The Buyer is a corporation duly
organized, validly existing, and in good standing under the laws of the
jurisdiction of its incorporation.
(ii) Authorization of Transaction. The Buyer has full power and
authority (including full corporate power and authority) to execute and
deliver this Agreement and to perform its obligations hereunder. This
Agreement constitutes the valid and legally binding obligation of the
Buyer, enforceable in accordance with its terms and conditions. Except for
notice and filings under the Hart-Scott-Rodino Act, the Buyer need not give
any notice to, make any filing with, or obtain any authorization, consent,
or approval of any government or governmental agency in order to consummate
the transactions contemplated by this Agreement.
(iii) Noncontravention. Neither the execution and the delivery of
this Agreement, nor the consummation of the transactions contemplated
hereby, will (A) violate any constitution, statute, regulation, rule,
injunction, judgment, order, decree, ruling, charge, or other restriction
of any government, governmental agency, or court to which the Buyer is
subject or any provision of its charter or bylaws or (B) except for
financing agreements with Fleet Capital Corporation, conflict with, result
in a breach of, constitute a default under, result in the acceleration of,
create in any party the right to accelerate, terminate, modify, or cancel,
or require any notice under any agreement, contract, lease, license,
instrument, or other arrangement to which the Buyer is a party or by which
it is bound or to which any of its assets is subject.
(iv) Brokers' Fees. The Buyer has no Liability or obligation to pay
any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement for which Seller could become
liable or obligated.
(v) Investment. The Buyer is not acquiring the Company Shares with
a view to or for sale in connection with any distribution thereof within
the meaning of the Securities Act.
(vi) Securities Filings. The Buyer has filed all documents required
to be filed by it pursuant to the Securities Act and the Securities
Exchange Act, has furnished copies of such documents to the Seller and such
documents and all other information provided by Buyer to Seller in writing
in connection with the transactions contemplated by this Agreement are
complete and correct in all material respects, contain no untrue statements
of
8
<PAGE> 13
material facts and do not omit to state any material fact required to be
stated therein in order to make the statement therein not misleading.
4. Representations and Warranties Concerning the Company. The Seller
represents and warrants to the Buyer that the statements contained in this ss.4
are correct and complete as of the date of this Agreement and will be correct
and complete as of the Closing Date (as though made then and as though the
Closing Date were substituted for the date of this Agreement throughout this
ss.4), except as set forth in the disclosure schedule delivered by the Seller to
the Buyer on the date hereof and initialed by the Parties (the "Disclosure
Schedule"). For purposes of any financial statement calculations relating to the
representations and warranties in this ss.4, such calculations shall be made on
the basis of financial statements prepared as set forth in the last sentence of
ss.4(g). Nothing in the Disclosure Schedule shall be deemed adequate to disclose
an exception to a representation or warranty made herein, however, unless the
Disclosure Schedule identifies the exception with particularity and describes
the relevant facts in detail. Without limiting the generality of the foregoing,
the mere listing (or inclusion of a copy) of a document or other item shall not
be deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty has to do with the existence of
the document or other item itself). The Disclosure Schedule will be arranged in
paragraphs corresponding to the lettered and numbered paragraphs contained in
this ss.4.
(a) Organization, Qualification, and Corporate Power. The Company is a
corporation duly organized, validly existing, and in good standing under the
laws of the jurisdiction of its incorporation. The Company is duly authorized to
conduct business and is in good standing under the laws of each jurisdiction
where such qualification is required, except where the failure to so qualify
would not have a Company Material Adverse Effect. The Company has full corporate
power and authority and all material licenses, permits, and authorizations
necessary to carry on the businesses in which it is engaged and in which it
presently proposes to engage and to own and use the properties owned and used by
it. Section 4(a) of the Disclosure Schedule lists the directors and officers of
the Company. The Seller has delivered to the Buyer correct and complete copies
of the charter and bylaws of the Company (as amended to date). The minute books
(containing the records of meetings of the stockholders, the board of directors,
and any committees of the board of directors), the stock certificate books, and
the stock record books of the Company are correct and complete. The Company is
not in default under or in violation of any provision of its charter or bylaws.
(b) Capitalization. The entire authorized capital stock of the Company
consists of Two Thousand Five Hundred (2,500) Company Shares, of which One
Thousand Six Hundred Ninety-Four and Two/Thirds (1,694 2/3) Company Shares are
issued and outstanding and Zero (0) Company Shares are held in treasury. All of
the issued and outstanding Company Shares have been duly authorized, are validly
issued, fully paid, and nonassessable, and are held of record by the Seller.
There are no outstanding or authorized options, warrants, purchase rights,
subscription rights, conversion rights, exchange rights, or other contracts or
commitments that could require the Company to issue, sell, or otherwise cause to
become outstanding any of its capital stock. Except as set forth in ss.4(b) of
the Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock, profit participation, or similar rights with
respect to the Company. There are no voting trusts, proxies, or other agreements
or understandings with respect to the voting of the capital stock of the
Company.
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<PAGE> 14
(c) Noncontravention. Neither the execution and the delivery of this
Agreement, nor the consummation of the transactions contemplated hereby, will
(i) violate any constitution, statute, regulation, rule, injunction, judgment,
order, decree, ruling, charge, or other restriction of any government,
governmental agency, or court to which the Company is subject or any provision
of the charter or bylaws of the Company or (ii) conflict with, result in a
breach of, constitute a default under, result in the acceleration of, create in
any party the right to accelerate, terminate, modify, or cancel, or require any
notice under any agreement, contract, lease, license, instrument, or other
arrangement to which the Company is a party or by which it is bound or to which
any of its assets is subject (or result in the imposition of any Security
Interest upon any of its assets). The Company does not need to give any notice
to, make any filing with, or obtain any authorization, consent, or approval of
any government or governmental agency in order for the Parties to consummate the
transactions contemplated by this Agreement.
(d) Brokers' Fees. The Company does not have any Liability or obligation to
pay any fees or commissions to any broker, finder, or agent with respect to the
transactions contemplated by this Agreement.
(e) Title to Assets. The Company has good and marketable title to, or a
valid leasehold interest in, the material properties and assets used by it,
located on its premises, or shown on the Most Recent Balance Sheet or acquired
after the date thereof, free and clear of all Security Interests, except for
properties and assets disposed of in the Ordinary Course of Business since the
date of the Most Recent Balance Sheet.
(f) Subsidiaries. The Company has no Subsidiaries.
(g) Financial Statements. Attached hereto as Exhibit A are the following
financial statements (collectively the "Financial Statements"): (i) balance
sheets and statements of income, changes in stockholders' equity, and cash flow
(the "Company Year End Financial Statements") as of and for the fiscal year
ended December 31, 1998 for the Company (the "Most Recent Fiscal Year End"); and
(ii) the Company's unaudited balance sheets and statements of income, changes in
stockholders' equity, and cash flow (the "Most Recent Financial Statements") as
of and for the three (3) months ended March 31, 1999 (the "Most Recent Fiscal
Month End") for the Company. The Financial Statements (including the notes
thereto) have been prepared on a consistent basis throughout the periods covered
thereby, present fairly the financial condition of the Company as of such dates
and the results of operations of the Company for such periods, are correct and
complete, subject, in the case of the Most Recent Financial Statements to
typical year-end adjustments, none of which will have a Company Material Adverse
Effect, and are consistent with the books and records of the Company (which
books and records are correct and complete).
(h) Events Subsequent to Most Recent Fiscal Year End. Except as set forth
in ss.4(h) of the Disclosure Schedule, since the Most Recent Fiscal Year End,
there has not been any adverse change in the business, financial condition,
operations, results of operations, or future prospects of the Company. Without
limiting the generality of the foregoing, since that date, except as set forth
in ss.4(h) of the Disclosure Schedule:
(i) the Company has not sold, leased, transferred, or assigned any
of its assets, tangible or intangible, other than for a fair consideration
in the Ordinary Course of Business;
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<PAGE> 15
(ii) the Company has not entered into any agreement, contract,
lease, or license (or series of related agreements, contracts, leases, and
licenses) either involving more than $50,000 or outside the Ordinary Course
of Business;
(iii) no party (including the Company) has accelerated, terminated,
modified, or cancelled any agreement, contract, lease, or license (or
series of related agreements, contracts, leases, and licenses) involving
more than $50,000 to which the Company is a party or by which it is bound;
(iv) the Company has not imposed any Security Interest upon any of
its assets, tangible or intangible;
(v) the Company has not made any capital expenditure (or series of
related capital expenditures) either involving more than $50,000 or outside
the Ordinary Course of Business;
(vi) the Company has not made any capital investment in, any loan
to, or any acquisition of the securities or assets of, any other Person (or
series of related capital investments, loans, and acquisitions) either
involving more than $50,000 or outside the Ordinary Course of Business;
(vii) the Company has not issued any note, bond, or other debt
security or created, incurred, assumed, or guaranteed any indebtedness for
borrowed money or capitalized lease obligation either involving more than
$50,000 singly or $200,000 in the aggregate;
(viii) the Company has not delayed or postponed the payment of
accounts payable and other Liabilities outside the Ordinary Course of
Business;
(ix) the Company has not cancelled, compromised, waived, or released
any right or claim (or series of related rights and claims) either
involving more than $50,000 or outside the Ordinary Course of Business;
(x) the Company has not granted any license or sublicense of any
rights under or with respect to any Intellectual Property;
(xi) there has been no change made or authorized in the charter or
bylaws of the Company;
(xii) the Company has not issued, sold, or otherwise disposed of any
of its capital stock, or granted any options, warrants, or other rights to
purchase or obtain (including upon conversion, exchange, or exercise) any
of its capital stock;
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(xiii) the Company has not declared, set aside, or paid any dividend
or made any distribution with respect to its capital stock (whether in cash
or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;
(xiv) the Company has not experienced any damage, destruction, or
loss (whether or not covered by insurance) to its property;
(xv) the Company has not made any loan to, or entered into any other
transaction with, any of its directors, officers, employees or affiliates
outside the Ordinary Course of Business;
(xvi) the Company has not entered into any employment contract or
collective bargaining agreement, written or oral, or modified the terms of
any existing such contract or agreement;
(xvii) the Company has not granted any increase in the base
compensation of any of its directors, officers, and employees outside the
Ordinary Course of Business;
(xviii) the Company has not adopted, amended, modified, or terminated
any bonus, profit-sharing, incentive, severance, or other plan, contract,
or commitment for the benefit of any of its directors, officers, and
employees (or taken any such action with respect to any other Employee
Benefit Plan);
(xix) the Company has not made any other change in employment terms
for any of its directors, officers, and employees outside the Ordinary
Course of Business;
(xx) the Company has not made or pledged to make any charitable or
other capital contribution outside the Ordinary Course of Business;
(xxi) there has not been any other occurrence, event, incident,
action, failure to act, or transaction outside the Ordinary Course of
Business involving the Company that would have a Company Material Adverse
Effect; and
(xxii) the Company has not committed to any of the foregoing.
(i) Undisclosed Liabilities. The Company has no Liability (and there is no
Basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand against any of them giving
rise to any Liability that would have a Company Material Adverse Effect), except
for (i) Liabilities set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) and (ii) Liabilities which have arisen after
the Most Recent Balance Sheet in the Ordinary Course of Business (none of which
results from, arises out of, relates to, is in the nature of, or was caused by
any breach of contract, breach of warranty, tort, infringement, or violation of
law).
(j) Legal Compliance. The Company and its predecessors and Affiliates have
complied with all applicable laws (including rules, regulations, codes, plans,
injunctions, judgments, orders, decrees, rulings, and charges thereunder) of
federal, state, local, and foreign governments (and all agencies thereof), and
no action, suit, proceeding, hearing, investigation, charge, complaint, claim,
demand, or notice has been filed or commenced against any of them alleging any
failure so to comply which would have a Company Material Adverse Effect.
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<PAGE> 17
(k) Tax Matters.
(i) The Company has filed all Tax Returns that it was required to
file. To the Knowledge of the Seller and the directors and officers of the
Company, all such Tax Returns were correct and complete in all respects and
all Taxes owed by the Company (whether or not shown on any Tax Return) have
been paid. The Company is not currently the beneficiary of any extension of
time within which to file any Tax Return. No claim has ever been made by an
authority in a jurisdiction where the Company does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction. There are no
Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(ii) The Company has withheld and paid all Taxes required to have
been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third
party.
(iii) Neither the Seller nor any director or officer (or employee
responsible for Tax matters) of the Company expects any authority to assess
any additional Taxes for any period for which Tax Returns have been filed.
There is no dispute or claim concerning any Tax Liability of the Company
either (A) claimed or raised by any authority in writing or (B) as to which
any of the Seller and the directors and officers (and employees responsible
for Tax matters) of the Company has Knowledge based upon personal contact
with any agent of such authority. Section 4(k) of the Disclosure Schedule
lists all federal, state, local, and foreign income Tax Returns filed with
respect to any of the Company for taxable periods ended on or after
December 31, 1996, indicates those Tax Returns that have been audited, and
indicates those Tax Returns that currently are the subject of audit. The
Seller has delivered to the Buyer correct and complete copies of all
federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since December
31, 1996.
(iv) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(v) The Company has not filed a consent under Code ss.341(f)
concerning collapsible corporations. The Company has not made any payments,
is not obligated to make any payments, nor is it a party to any agreement
that under certain circumstances could obligate it to make any payments
that will not be deductible under Code ss.280G. The Company has been a
United States real property holding corporation within the meaning of Code
ss.897(c)(2) during the applicable period specified in Code ss.897(c)(1)(A)
(ii). The Company has disclosed on its federal income Tax Returns all
positions taken therein that could give rise to a substantial
understatement of federal income Tax within the meaning of Code ss.6662.
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a
consolidated federal income Tax Return (other than a group the common
parent of which was the Company) and (B) has no Liability for the Taxes of
any Person (other than the Company) under Treas. Reg. ss.1.1502-6 (or any
similar provision of state, local, or foreign law), as a transferee or
successor, by contract, or otherwise.
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(vi) Section 4(k) of the Disclosure Schedule sets forth the
following information with respect to the Company as of the most recent
practicable date (as well as on an estimated pro forma basis as of the
Closing giving effect to the consummation of the transactions contemplated
hereby): (A) the basis of the Company in its assets; (B) the amount of any
net operating loss, net capital loss, unused investment or other credit,
unused foreign tax, or excess charitable contribution allocable to the
Company; and (C) the amount of any deferred gain or loss allocable to the
Company arising out of any Deferred Intercompany Transaction.
(vii) The unpaid Taxes of the Company (A) did not, as of the Most
Recent Fiscal Month End, exceed the reserve for Tax Liability (rather than
any reserve for deferred Taxes established to reflect timing differences
between book and Tax income) set forth on the face of the Most Recent
Balance Sheet (rather than in any notes thereto) and (B) do not exceed that
reserve as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company in filing its
Tax Returns.
(viii) The Company (and any predecessor of Company) has been a validly
electing S corporation within the meaning of Code ss.ss.1361 and 1362 at
all times during its existence and the Company will be an S corporation up
to and including the time of Closing.
(ix) The Company will not be liable for any Tax under Code ss.1374
in connection with the deemed sale of Company's assets (including the
assets of any qualified subchapter S subsidiary) caused by the Section
338(h)(10) Election.
(l) Real Property. The Company does not own any real property.
(m) Intellectual Property.
(i) The Company owns or has the right to use pursuant to license,
sublicense, agreement, or permission all Intellectual Property necessary or
desirable for the operation of the businesses of the Company as presently
conducted and as presently proposed to be conducted. Except as set forth in
ss.4(m) of the Disclosure Schedule, each item of Intellectual Property
owned or used by the Company immediately prior to the Closing hereunder
will be owned or available for use by the Company on identical terms and
conditions immediately subsequent to the Closing hereunder. To the
Knowledge of the Seller and the directors and officers of the Company, the
Company has taken all actions reasonably necessary and desirable action to
maintain and protect each item of Intellectual Property that it owns or
uses.
(ii) To the Knowledge of the Seller and the directors and officers of
the Company, the Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of third parties, and none of the Seller and the directors
and officers (and employees with responsibility for Intellectual Property
matters) of the Company has ever received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that the Company must
license or refrain from using any Intellectual Property rights of any third
party). To the Knowledge of any of the Seller and the directors and
officers (and
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<PAGE> 19
employees with responsibility for Intellectual Property matters)
of the Company, no third party has interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual
Property rights of the Company.
(iii) Section 4(m)(iii) of the Disclosure Schedule identifies each
patent or registration which has been issued to the Company with respect to
any of its Intellectual Property, identifies each pending patent
application or application for registration which the Company has made with
respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Company has granted to any third
party with respect to any of its Intellectual Property (together with any
exceptions). The Company has delivered to the Buyer correct and complete
copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date) and has made available to
the Buyer correct and complete copies of all other written documentation
evidencing ownership and prosecution (if applicable) of each such item.
Section 4(m)(iii) of the Disclosure Schedule also identifies each trade
name or unregistered trademark used by the Company in connection with its
business. With respect to each item of Intellectual Property required to be
identified in ss.4(m)(iii) of the Disclosure Schedule:
(A) the Company possesses all right, title, and interest in and
to the item, free and clear of any Security Interest, license, or other
restriction;
(B) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(C) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, enforceability, use, or ownership of
the item; and
(D) the Company has never agreed to indemnify any Person for or
against any interference, infringement, misappropriation, or other
conflict with respect to the item.
(iv) Section 4(m)(iv) of the Disclosure Schedule identifies each item
of Intellectual Property that any third party owns and that the Company
uses pursuant to license, sublicense, agreement, or permission. The Seller
has delivered to the Buyer correct and complete copies of all such
licenses, sublicenses, agreements, and permissions (as amended to date). To
the Knowledge of the Seller and the directors and officers of the Company,
with respect to each item of Intellectual Property required to be
identified in ss.4(m)(iv) of the Disclosure Schedule:
(A) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect;
(B) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the Closing;
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<PAGE> 20
(C) no party to the license, sublicense, agreement, or permission
is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default or permit
termination, modification, or acceleration thereunder;
(D) no party to the license, sublicense, agreement, or permission
has repudiated any provision thereof;
(E) with respect to each sublicense, the representations and
warranties set forth in subsections (A) through (D) above are true and
correct with respect to the underlying license;
(F) the underlying item of Intellectual Property is not subject
to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(G) no action, suit, proceeding, hearing, investigation, charge,
complaint, claim, or demand is pending or is threatened which
challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
(H) the Company has not granted any sublicense or similar right
with respect to the license, sublicense, agreement, or permission.
(v) To the Knowledge of any of the Seller and the directors and
officers (and employees with responsibility for Intellectual Property
matters) of the Company will not interfere with, infringe upon,
misappropriate, or otherwise come into conflict with, any Intellectual
Property rights of third parties as a result of the continued operation of
its business as presently conducted and as presently proposed to be
conducted.
(n) Tangible Assets. The Company owns or leases all buildings, machinery,
equipment, and other tangible assets necessary for the conduct of its business
as presently conducted and as presently proposed to be conducted). To the
Knowledge of the Seller and the directors and officers of the Company, each such
tangible asset has been maintained in accordance with normal industry practice
and is in good operating condition and repair (subject to normal wear and tear).
(o) Inventory. All of the inventory of the Company is merchantable and fit
for the purpose for which it was procured, and none of such inventory is
slow-moving, obsolete, damaged, or defective, subject only to the reserve for
inventory writedown set forth on the face of the Most Recent Balance Sheet
(rather than in any notes thereto) as adjusted for the passage of time through
the Closing Date in accordance with the past custom and practice of the Company.
(p) Contracts. Section 4(p) of the Disclosure Schedule lists the following
contracts and other agreements to which the Company is a party:
(i) any agreement (or group of related agreements) for the lease of
personal property to or from any Person providing for lease payments in
excess of $50,000 per annum;
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<PAGE> 21
(ii) any agreement (or group of related agreements) for the purchase
or sale of supplies, products, inventory or other personal property, or for
the furnishing or receipt of services, the performance of which will extend
over a period of more than one year, result in a loss to the Company in
excess of 50,000, or involve consideration in excess of $200,000;
(iii) any agreement concerning a partnership or joint venture;
(iv) any agreement (or group of related agreements) under which it
has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation involving annual payments in
excess of $50,000;
(v) any agreement concerning confidentiality or noncompetition;
(vi) any collective bargaining agreement;
(vii) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual
compensation in excess of $50,000 or providing severance benefits;
(viii) any agreement under which it has advanced or loaned any amount
to any of its directors, officers, and employees outside the Ordinary
Course of Business;
(ix) any agreement under which the consequences of a default or
termination could have a Company Material Adverse Effect; or
(x) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $200,000.
The Company has delivered to the Buyer a correct and complete copy of each
written agreement listed in ss.4(p) of the Disclosure Schedule (as amended to
date) and a written summary setting forth the terms and conditions of each oral
agreement referred to in ss.4(p) of the Disclosure Schedule. With respect to
each such agreement: (A) the agreement is legal, valid, binding, enforceable,
and in full force and effect; (B) the agreement will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby; and to the
Knowledge of the Seller and the directors and officers of the Company, (C) no
party is in breach or default, and no event has occurred which with notice or
lapse of time would constitute a breach or default, or permit termination,
modification, or acceleration, under the agreement; and (D) no party has
repudiated any provision of the agreement.
(q) Notes and Accounts Receivable. All notes owned by the Company
and accounts receivable of the Company are reflected properly on its books and
records, are valid debts and receivables subject to no setoffs or counterclaims,
are current and collectible, and will be collected in accordance with their
terms at their recorded amounts, subject only to the reserve for bad debts set
forth on the face of the Most Recent Balance Sheet (rather than in any notes
thereto) as adjusted for the passage of time through the Closing Date in
accordance with the past custom and practice of the Company.
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<PAGE> 22
(r) Powers of Attorney. Except as disclosed in ss.4(r) of the Disclosure
Schedule, there are no outstanding powers of attorney executed on behalf of the
Company.
(s) Insurance. Section 4(s) of the Disclosure Schedule sets forth the
following information with respect to each insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage at any time within the past
three (3) years:
(i) the name, address, and telephone number of the agent;
(ii) the name of the insurer, the name of the policyholder, and the
name of each covered insured;
(iii) the policy number and the period of coverage;
(iv) the scope (including an indication of whether the coverage was
on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage; and
(v) a description of any retroactive premium adjustments or other
loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will continue
to be legal, valid, binding, enforceable, and in full force and effect on
identical terms following the consummation of the transactions contemplated
hereby; and to the Knowledge of the Seller and the directors and officers of the
Company, (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy; and (D) no party to the policy has repudiated
any provision thereof. The Company has been covered during the past three (3)
years by insurance in scope and amount customary and reasonable for the business
in which it has engaged during the aforementioned period. Section 4(s) of the
Disclosure Schedule describes any self-insurance arrangements affecting the
Company.
(t) Litigation. Section 4(t) of the Disclosure Schedule sets forth each
instance in which the Company (i) is subject to any outstanding injunction,
judgment, order, decree, ruling, or charge or (ii) is a party or is threatened
to be made a party to any action, suit, proceeding, hearing, or investigation
of, in, or before any court or quasi-judicial or administrative agency of any
federal, state, local, or foreign jurisdiction or before any arbitrator. None of
the actions, suits, proceedings, hearings, and investigations set forth in
ss.4(t) of the Disclosure Schedule could result in a Company Adverse Material
Effect. None of the Seller and the directors and officers (and employees with
responsibility for litigation matters) of the Company has any reason to believe
that any such action, suit, proceeding, hearing, or investigation may be brought
or threatened against the Company.
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<PAGE> 23
(u) Employees. Set forth on ss.4(u) of the Disclosure Schedule is, as of
the Closing Date, a list of all employees of the Company and each such
employee's date of hire and annual compensation. Except as set forth in ss.4(u)
of the Disclosure Schedule, to the Knowledge of Seller and the directors and
officers (and employees with responsibility for employment matters) of the
Company:
(i) No executive, key employee or group of employees of the Company
has any plans to terminate employment with the Company.
(ii) There is not pending or threatened any strike, walkout or other
work stoppage or any union organizing effort relating to employees of the
Company.
(iii) With respect to employees of the Company, the Company is in
compliance with all Federal and state laws with respect to employment and
employment practices, terms and conditions of employment, and wages and
hours, and is not engaged in any unfair labor practice, and there is no
unfair labor practice complaint against the Company with respect to its
employees pending before the National Labor Relations Board.
(iv) With respect to employees of the Company, no organized labor
representation questions exist and no grievance or any arbitration
proceeding is pending and no claim therefor exists.
(v) The Company has not experienced any labor stoppage, concerted
labor activity, or other material labor difficulty with respect to their
employees during the last three years.
(vi) No current or former employee of the Company has a formal or
informal claim against the Company, which is currently pending, on account
of or for:
(A) Overtime pay, other than overtime pay for the current payroll
period.
(B) Wages or salary for any period other than the current payroll
period.
(C) Vacation, time off or pay in lieu of vacation or time off,
other than that earned with respect to the current fiscal year.
(D) Any violation of any Federal, state or local
antidiscrimination statute, breach of terms of employment or wrongful
discharge whether arising under any contract or statute or any tort.
(vii) The Company has no outstanding commitment or agreement to
effect any general wage or salary increase for their employees, except in
the Ordinary Course of Business, has not increased the salary or wages of
any of their employees since the Most Recent Financial Statements and has
no plan or commitment to amend any Employee Benefit Plan.
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<PAGE> 24
(viii) Except for persons hired on a short term, temporary basis, none
of the persons employed by the Company is provided to the Company under a
contract with a third party.
(ix) With respect to its employees, the Company is not in violation
in any material respect of the Americans with Disabilities Act of 1990 or
any law, regulation or order relating to employment discrimination or
occupational safety, nor has the Company received any unresolved complaint
from any Federal or state agency alleging violations of any such laws or
regulations, nor is the Company subject to any orders or consent decrees
remedying any such prior violation.
(v) Employee Benefits.
(i) Section 4(v) of the Disclosure Schedule lists each Employee
Benefit Plan that the Company maintains or to which the Company
contributes.
(A) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
and other applicable laws.
(B) All required reports and descriptions (including Form 5500
Annual Reports, Summary Annual Reports and Summary Plan Descriptions)
have been timely filed or distributed appropriately with respect to
each such Employee Benefit Plan. The requirements of Part 6 of Subtitle
B of Title 1 of ERISA and of Code ss.4980B have been met with respect
to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan.
(C) All contributions (including all employer contributions and
employee salary reduction contributions) which are due have been paid
to each such Employee Benefit Plan which is an Employee Pension Benefit
Plan and all contributions for any period ending on or before the
Closing Date which are not yet due have been paid to each such Employee
Pension Benefit Plan or accrued in accordance with the past custom and
practice of the Company and its Subsidiaries. All premiums or other
payments for all periods ending on or before the Closing Date have been
paid with respect to each such Employee Benefit Plan which is an
Employee Welfare Benefit Plan.
(D) Each such Employee Benefit Plan which is an Employee Pension
Benefit Plan meets the requirements of a "qualified plan" under Code
ss.401(a).
(E) The Company has delivered to the Buyer correct and complete
copies of the plan documents and summary plan descriptions, the most
recent determination letter received from the Internal Revenue Service,
the three most recent Form 5500 Annual Reports, the three most recent
audited financial reports (with attorneys' responses to auditors'
requests) and all related trust agreements, insurance contracts, other
funding agreements which implement each such Employee Benefit Plan and
all personnel, payroll and employment manuals and policies.
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<PAGE> 25
(ii) With respect to each Employee Benefit Plan that the Company and
any Controlled Group of Corporations which includes the Company maintains
or ever has maintained or to which any of them contributes, ever has
contributed, or ever has been required to contribute:
(A) No such Employee Benefit Plan which is in Employee Pension
Benefit Plan (other than any Multiemployer Plan) has been completely or
partially terminated.
(B) There have been no Prohibited Transactions with respect to any
such Employee Benefit Plan. No Fiduciary has any Liability for breach
of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any such
Employee Benefit Plan. No action, suit, proceeding, hearing, or
investigation with respect to the administration or the investment of
the assets of any such Employee Benefit Plan (other than routine claims
for benefits) is pending or threatened. None of the Seller and the
directors and officers (and employees with responsibility for employee
benefits matters) of the Company has any Knowledge of any Basis for any
such action, suit, proceeding, hearing, or investigation.
(iii) Except as set forth in ss.4(v) of this Disclosure Schedule,
none of the Company and any other members of any Controlled Group of
Corporations that includes the Company contributes to, ever has contributed
to, or ever has been required to contribute to any Multiemployer Plan or
has any Liability (excluding withdrawal liability under Title IV of ERISA)
under any Multiemployer Plan and no withdrawal or other event has occurred
prior to the Closing Date which has caused or, with the passage of time
will cause, the Company to incur a withdrawal liability under any
Multiemployer Plan.
(iv) The Company does not maintain and never has maintained or
contributed, never has contributed, and never has been required to
contribute to any Employee Welfare Benefit Plan providing medical, health,
or life insurance or other welfare-type benefits for current or future
retired or terminated employees, their spouses, or their dependents (other
than in accordance with Code ss.4980B).
(v) Neither the Company nor other members of any Controlled Group
of Corporations that includes the Company has ever sponsored or made
contributions to an Employee Pension Benefit Plan which is subject to Title
IV of ERISA (other than a Multiemployer Plan) and neither the Company nor
other members of any Controlled Group of Corporations of which the Company
is a member has any liability with respect to an Employee Benefit Pension
Plan under Title IV of ERISA (other than multiemployer plan withdrawal
liability).
(vi) To the Knowledge of the Seller and the directors, officers and
employees of the Company responsible for employee benefit matters, no event
has occurred which could result in a material increase in the premium costs
of the Employee Welfare Benefit Plans of the Company.
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(w) Guaranties. The Company is not a guarantor of and is not otherwise
liable for any Liability or obligation (including indebtedness) of any other
Person.
(x) Environment, Health, and Safety.
(i) The Company and its respective predecessors and Affiliates have
complied with all Environmental, Health, and Safety Laws, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand,
or notice has been filed or commenced against any of them alleging any
failure so to comply. Without limiting the generality of the preceding
sentence, each of the Company and its predecessors and Affiliates has
obtained and been in compliance with all of the terms and conditions of all
material permits, licenses, and other authorizations which are required
under, and has complied with all other limitations, restrictions,
conditions, standards, prohibitions, requirements, obligations, schedules,
and timetables which are contained in, all Environmental, Health, and
Safety Laws.
(ii) The Company has no Liability (and none of the Company and its
predecessors and Affiliates has handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any property
or facility in any manner that could form the Basis for any present or
future action, suit, proceeding, hearing, investigation, charge, complaint,
claim, or demand against the Company giving rise to any Liability) for
damage to any site, location, or body of water (surface or subsurface), for
any illness of or personal injury to any employee or other individual, or
for any reason under any Environmental, Health, and Safety Law.
(iii) All properties and equipment used in the business of the
Company and its Affiliates are free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2- trans-dichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
(y) Certain Business Relationships with the Company. Except as set forth in
ss.4(y) of the Disclosure Schedule, the Seller has not been involved in any
business arrangement or relationship with the Company within the past 12 months,
and the Seller does not own any asset, tangible or intangible, which is used in
the business of Company.
(z) Year 2000 Warranty. Section ss.4(z) of the Disclosure Schedule sets
forth the Company's plans to insure that the software and information
technology, and all updates thereto, of the Company will operate accurately
before, during and after the year 2000 with respect to date and time related
operations and the Company's current assessment of the status of the year 2000
compliance efforts of their suppliers, vendors and customers. To the Knowledge
of the Seller and the directors and officers of the Company (i) each of the
Company's customers is year 2000 complaint and no failure of a customer to be
year 2000 compliant will have a Company Material Adverse Effect, and (ii) the
Company is and will continue to be year 2000 compliant at January 1, 2000 and
beyond.
(aa) Disclosure. The representations and warranties contained in this ss.4
do not contain any untrue statement of a fact or omit to state any fact
necessary in order to make the statements and information contained in this ss.4
not misleading.
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5. Pre-Closing Covenants. The Parties agree as follows with respect to the
period between the execution of this Agreement and the Closing and, with respect
to ss.5(h) hereof, the period after the Closing:
(a) General. Each of the Parties will use his or its best efforts to take
all action and to do all things reasonably necessary, proper, or advisable in
order to consummate and make effective the transactions contemplated by this
Agreement (including satisfaction, but not waiver, of the closing conditions set
forth in ss.7 below).
(b) Notices and Consents. The Seller will cause the Company to give any
notices to third parties, and will cause the Company to use its best efforts to
obtain any third party consents, that the Buyer may request in connection with
the matters referred to in ss.4(c) above. Each of the Parties will (and the
Seller will cause the Company to) give any notices to, make any filings with,
and use its best efforts to obtain any authorizations, consents, and approvals
of governments and governmental agencies that any other party may request in
connection with the matters referred to in ss.3(a)(ii), ss.3(b)(ii), and ss.4(c)
above. Without limiting the generality of the foregoing, each of the Parties
will file (and the Seller will cause the Company to file) any Notification and
Report Forms and related material that he or it may be required to file with the
Federal Trade Commission and the Antitrust Division of the United States
Department of Justice under the Hart-Scott-Rodino Act, will use his or its best
efforts to obtain (and the Seller will cause the Company to use its best efforts
to obtain) an early termination of the applicable waiting period, and will make
(and the Seller will cause the Company to make) any further filings pursuant
thereto that may be necessary, proper, or advisable in connection therewith. The
Seller agrees personally to pay one-half (1/2) of all Hart-Scott-Rodino Act
filing fees incurred by Buyer in connection with the transactions contemplated
herein.
(c) Operation of Business. The Seller will not cause or permit the Company
to engage in any practice, take any action, or enter into any transaction
outside the Ordinary Course of Business. Without limiting the generality of the
foregoing, the Seller will not cause or permit the Company to (i) except as
permitted in ss.5(i) below, declare, set aside, or pay any dividend or make any
distribution with respect to its capital stock or redeem, purchase, or otherwise
acquire any of its capital stock or (ii) otherwise engage in any practice, take
any action, or enter into any transaction of the sort described in ss.4(h)
above.
(d) Preservation of Business. The Seller will cause the Company to keep its
business and properties substantially intact, including its present operations,
physical facilities, working conditions, and relationships with lessors,
licensors, suppliers, customers, and employees.
(e) Full Access. The Seller will permit, and the Seller will cause the
Company to permit, representatives of the Buyer to have full access to all
premises, properties, personnel, books, records (including Tax records),
contracts, and documents of or pertaining to the Company.
(f) Notice of Developments. The Seller will give prompt written notice to
the Buyer of any material adverse development causing a breach of any of the
representations and warranties in ss.4 above. Each Party will give prompt
written notice to the others of any material adverse development causing a
breach of any of his or its own representations and warranties in ss.3 above. No
disclosure by any Party pursuant to this ss.5(f), however, shall be deemed to
amend or supplement
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the Disclosure Schedule or to prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
(g) Exclusivity. The Seller will not (and the Seller will not cause or
permit the Company to) (i) solicit, initiate, or encourage the submission of any
proposal or offer from any Person relating to the acquisition of any capital
stock or other voting securities, or any substantial portion of the assets of,
the Company (including any acquisition structured as a merger, consolidation, or
share exchange) or (ii) participate in any discussions or negotiations
regarding, furnish any information with respect to, assist or participate in, or
facilitate in any other manner any effort or attempt by any Person to do or seek
any of the foregoing. The Seller will not vote his Company Shares in favor of
any such acquisition structured as a merger, consolidation, or share exchange.
The Seller will notify the Buyer immediately if any Person makes any proposal,
offer, inquiry, or contact with respect to any of the foregoing.
(h) Minimum Net Worth. At Closing, the Net Worth of the Company, determined
in a manner consistent with the Company Year End Financial Statements, shall
equal or exceed Five Million Eight Hundred Twenty-Eight Thousand Six Hundred
Sixty-Six Dollars ($5,828,666.00). "Net Worth," for purposes of this ss.5(h),
means the total assets of the Company minus the total liabilities of the
Company, each as determined in a manner consistent with the Company Year End
Financial Statements. The Net Worth at Closing will be reflected in financial
statements of the Company as of the Closing Date prepared by the Company prior
to June 7, 1999 (the "Closing Financial Statements"). The Closing Financial
Statements will reflect distributions payable of Four Million Six Hundred
Thousand Dollars ($4,600,000.00) and bonuses payable in the aggregate amount of
Two Million Six Hundred Thousand Dollars ($2,600,000.00). The distributions and
bonuses payable reflected on the Closing Financial Statements will be paid on or
before June 7, 1999.
(i) Audit Fees. In the event the Closing does not occur through no fault or
termination of Seller, the Buyer agrees to pay one-half of all audit fees
incurred by the Company in connection with its 1998 fiscal year audit and any
other audits of the Company done at the request of the Buyer.
6. Post-Closing Covenants. The Parties agree as follows with respect to
the period following the Closing.
(a) General. In case at any time after the Closing any further action is
necessary or desirable to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party may request, all at
the sole cost and expense of the requesting Party (unless the requesting Party
is entitled to indemnification therefor under ss.8 below). The Seller
acknowledges and agrees that from and after the Closing the Buyer will be
entitled to possession of all documents, books, records (including Tax records),
agreements, and financial data of any sort relating to the Company.
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(b) Litigation Support. In the event and for so long as any Party actively
is contesting or defending against any action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand in connection with (i) any
transaction contemplated under this Agreement or (ii) any fact, situation,
circumstance, status, condition, activity, practice, plan, occurrence, event,
incident, action, failure to act, or transaction on or prior to the Closing Date
involving the Company, each of the other Parties will cooperate with him or it
and his or its counsel in the contest or defense, make available their
personnel, and provide such testimony and access to their books and records as
shall be necessary in connection with the contest or defense, all at the sole
cost and expense of the contesting or defending Party (unless the contesting or
defending Party is entitled to indemnification therefor under ss.8 below).
(c) Transition. The Seller will not take any action that is designed or
intended to have the effect of discouraging any lessor, licensor, customer,
supplier, or other business associate of the Company from maintaining the same
business relationships with the Company after the Closing as it maintained with
the Company prior to the Closing. The Seller will refer all customer inquiries
relating to the businesses of the Company to the Buyer from and after the
Closing.
(d) Confidentiality. The Seller will treat and hold as such all of the
Confidential Information, refrain from using any of the Confidential Information
except in connection with this Agreement and the Consulting Agreement attached
hereto as Exhibit B-1, and deliver promptly to the Buyer or destroy, at the
request and option of the Buyer, all tangible embodiments (and all copies) of
the Confidential Information which are in his or its possession. In the event
that the Seller is requested or required (by oral question or request for
information or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, the Seller will notify the Buyer promptly of the request or
requirement so that the Buyer may seek an appropriate protective order or waive
compliance with the provisions of this ss.6(d). If, in the absence of a
protective order or the receipt of a waiver hereunder, the Seller is, on the
advice of counsel, compelled to disclose any Confidential Information to any
tribunal or else stand liable for contempt, the Seller may disclose the
Confidential Information to the tribunal; provided, however, that the Seller
shall use his best efforts to obtain, at the request of the Buyer, an order or
other assurance that confidential treatment will be accorded to such portion of
the Confidential Information required to be disclosed as the Buyer shall
designate. The foregoing provisions shall not apply to any Confidential
Information which is generally available to the public immediately prior to the
time of disclosure.
(e) Covenant Not to Compete. During and for a period of two (2) years after
the termination of the Seller's Consulting Agreement with the Company, Seller
shall not, anywhere within the United States, directly or indirectly, own,
manage, operate, control, advise, be employed by, or materially participate in,
or be materially involved in any manner with the ownership, management,
operation or control of any business that competes with the business then
conducted by Buyer or any of its affiliated companies or subsidiaries. If the
final judgment of a court of competent jurisdiction declares that any term or
provision of this ss.6(e) is invalid or unenforceable, the Parties agree that
the court making the determination of invalidity or unenforceability shall have
the power to reduce the scope, duration, or area of the term or provision, to
delete specific words or phrases, or to replace any invalid or unenforceable
term or provision with a term or provision that is valid and enforceable and
that comes closest to expressing the intention of the invalid or
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<PAGE> 30
unenforceable term or provision, and this Agreement shall be enforceable as so
modified after the expiration of the time within which the judgment may be
appealed.
(f) Registration Rights.
(i) Registration Statement. Subject to the limitations set forth in
subparagraph (f)(ii) below, in the event that (A) Buyer files or causes
to be filed a registration statement ("Registration Statement") under
the Securities Act in connection with the proposed underwritten offer
and sale for cash by it of shares of Buyer Stock (the "Registration"),
other than a registration on Form S-4 or Form S-8 promulgated under the
Securities Act or any successor or similar form and (B) the sale of the
Buyer Stock issued to the Seller remains restricted pursuant to Rule
144 of the Securities Act or by the terms of this Agreement, Buyer will
give written notice of its intention to effect the Registration to
Seller. Upon written request from the Seller or any Permitted
Transferee to Buyer within fifteen (15) days after the mailing of any
such notice from Buyer regarding the Registration, Buyer shall use its
best efforts to cause the shares of Buyer Stock as to which such
registration has been requested to be included in the Registration. For
purposes of this Agreement, and subject to Buyer's rights under
subparagraph (f)(ii) below, Buyer shall be deemed to have used its best
efforts to satisfy its obligations under this subparagraph (f) if it:
(A) prepares and files with the Securities and Exchange Commission a
Registration Statement with respect to the Buyer Stock for which
registration has been properly requested and to use its best efforts to
cause such Registration Statement to become and remain effective for
such period as may be necessary to permit the Seller to dispose of the
shares of Buyer Stock covered thereby; provided however, that Buyer not
need file any such Registration Statement (or cause same to become or
remain effective) after the date that such shares of Buyer Stock are
freely tradable without restriction under the Act by the Seller
pursuant to Rule 144(k) promulgated thereunder and under the terms of
this Agreement (the "Registration Expiration Date"); (B) prepares and
files with the Securities and Exchange Commission such amendments and
supplements to the Registration Statement and the prospectus used in
connection with the Registration Statement as may be necessary to
comply with the provisions of the Act with respect to the disposition
of all securities covered by the Registration Statement; (C) furnishes
to the Seller and any Permitted Transferee such numbers of copies of a
prospectus in conformity with the requirements of the Act, and such
other documents as the Seller may reasonably request in order to
facilitate the disposition of the Buyer Stock owned by the Seller; and
(D) uses it best efforts to register and qualify the securities covered
by the Registration Statement under such other securities or Blue Sky
law of such jurisdictions as shall be reasonably appropriate for the
distribution of the securities covered by the Registration Statement,
provided that Buyer shall not be required in connection therewith or as
a condition thereto to qualify to do business or to file a general
consent to service of process in any such states or jurisdictions.
Nothing contained herein shall be construed to confer any rights upon
the Seller or any Permitted Transferee to make an underwritten offering
of his Buyer Stock or to include his Buyer Stock in any registration
statement that includes securities to be issued by Buyer for its own
account that does not include shares of Buyer Stock. Notwithstanding
the foregoing, Seller shall have demand registration rights commencing
eighteen (18) months after the Closing for any shares of Buyer Stock
issued to the Seller which remain restricted pursuant to Rule 144 of
the Securities Act or by the terms of this Agreement; provided,
however, that such demand
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registration rights shall be subject to all of the terms and conditions
to registration provided in this ss.6(f).
(ii) Limitations on Registration Rights. Notwithstanding, the
provisions of subparagraph (f)(i) above: (A) the maximum number of
shares of Buyer Stock that may be included in any Registration
Statement within the twelve (12) month period following the Closing
Date shall not exceed fifty percent (50%) of the aggregate number of
shares of Buyer Stock received by Seller hereunder; (B) Buyer shall not
be obligated to include the Seller in more than two Registrations
pursuant to this Agreement; (C) Buyer shall have the right to require
Seller to include an aggregate of up to fifty percent (50%) of the
Buyer Stock in any Registration Statements filed by the Buyer following
the Closing Date; and (D) Buyer may postpone for up to six months the
filing or effectiveness of any Registration Statement if (1) Buyer
determines, in its reasonable discretion, that such registration would
have an adverse effect upon any pending or proposed transaction which
is or may become material to Buyer and its subsidiaries and affiliates,
taken as a whole, (2) in order to complete any registration,
distribution or lock-up period in connection with any underwritten
offering of any of Buyer's securities, or (3) if consistent with
Buyer's business purposes, to delay the disclosure to the public of any
material event.
(iii) Lock-Up Agreements. The Seller and any Permitted Transferee
agree that, if Buyer or the managing underwriter(s) of any underwritten
offering of Buyer's securities so requests, the Seller and any
Permitted Transferee will not, without the prior written consent of
Buyer or such underwriter(s), which consent may not be unreasonably
withheld, effect any sale, transfer or other disposition of any of the
shares of Buyer Stock, including sales pursuant to a Registration
Statement or under Rule 144, during the 10-day period prior to, and
during the 180-day period commencing on, the effective date of such
underwritten registration (or during such shorter period or periods as
such underwriter(s) may in writing permit).
(iv) Obligation to Furnish Information. It shall be a condition
precedent to the obligations of Buyer to take any action pursuant to
subparagraph (f)(i) hereof that the Seller or any Permitted Transferee
shall furnish to Buyer such information regarding the Seller or any
Permitted Transferee, the Buyer Stock held by him, and the intended
method of disposition of such securities as Buyer shall reasonably
request and as shall be required in connection with the actions to be
taken by Buyer.
(v) Expenses of Registration. All expenses incurred in connection
with the Registrations pursuant to subparagraph (f)(i) (excluding
underwriters' discounts and commission and brokerage or dealer
commissions), including without limitation all registration and
qualification fees, costs of complying with applicable blue sky and
other securities laws, printers' and accounting fees, and fees and
disbursements of counsel for Buyer shall be borne by Buyer; provided,
however, that Buyer shall not be required to pay for any such expenses
if the Seller subsequently withdraws his Buyer Stock from said
Registration other than at the request of Buyer or Buyer's underwriter.
(vi) Delay of Registration. Neither the Seller nor any Permitted
Transferee shall have any right to take any action to restrain, enjoin
or otherwise delay the Registration
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Statement as the result of any controversy that might arise with respect to the
interpretation or implementation of this subparagraph (f).
(vii) Indemnification. If any shares of Buyer Stock owned by the
Seller are included in a registration statement under this subparagraph (f):
(A) Indemnification of Seller. To the extent permitted by
law, Buyer will indemnify and hold harmless the Seller and any
Permitted Transferee requesting or joining in the Registration
Statement against any losses, claims, damages or liabilities, joint or
several, to which they may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based on any untrue or alleged
untrue statement of any material fact contained in such Registration
Statement, including any prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omission
or alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein not
misleading, or arise out of any violation by Buyer of any rule or
regulation promulgated under the Act applicable to Buyer and relating
to action or inaction required by Buyer in connection with any such
registration; and will reimburse the Seller for any legal or other
expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this
subparagraph (f)(vii)(A) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement
is effected without the consent of Buyer (which consent shall not be
unreasonably withheld) nor shall Buyer be liable in any such case for
any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in connection with such
registration statement, any prospectus, or amendments or supplements
thereto, in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by the
Seller.
(B) Indemnification of Buyer. To the extent permitted by
law, the Seller and any Permitted Transferee will indemnify and hold
harmless Buyer, each of its directors, each of its officers who have
signed the Registration Statement, each person, if any, who controls
Buyer within the meaning of the Act, and each agent for Buyer (within
the meaning of the Act) against any losses, claims, damages or
liabilities to which Buyer or any such directors, officer, controlling
person or agent may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Registration
Statement, including any prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based upon the omissions
or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, in each case to the extent that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
the Registration Statement, prospectus, or amendments or
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<PAGE> 33
supplements thereof, in reliance upon and in conformity with written
information furnished by the Seller for use in connection with such
registration; and the Seller and any Permitted Transferee will
reimburse any legal or other expenses reasonably incurred by Buyer or
any such director, officer, controlling person or agent in connection
with investigating or defending any such loss, claim, damage, liability
or action; provided, however, that the indemnity agreement contained in
this subparagraph (f)(vii)(B) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Seller (which consent
shall not be unreasonably withheld).
(viii) Transfer of Registration Rights. The registration rights of
the Seller under this Agreement may not be transferred to any third party
other than a Permitted Transferee.
(ix) Reports Under Exchange Act. With a view to making available
to the Seller the benefits of Rule 144 promulgated under the Act and any
other rule or regulation of the Securities and Exchange Commission that may
at any time permit the Seller to sell securities of Buyer to the public
without registration, Buyer agrees to use its best efforts to (A) make and
keep public information available, as those terms are understood and
defined in Rule 144, (B) file with the Securities and Exchange Commission
in a timely manner all reports and other documents required of Buyer under
the Act and the Securities Exchange Act and (C) furnish to Seller, so long
as Seller owns any of the Buyer Stock, a written statement by Buyer that it
has complied with the reporting requirements of Rule 144 and of the Act and
the Exchange Act, a copy of the most recent annual or quarterly report of
Buyer, and such other reports and documents so filed by Buyer as may be
reasonably requested in availing the Seller of any rule or regulation of
the Securities and Exchange Commission permitting the selling of any such
securities without registration.
(g) Employees. The Buyer agrees to cause the Company to extend offers of
employment to the following employees of the Company in accordance with the
terms of the form of Employment Agreement attached hereto as Exhibit B-3:
Merritt Blake; Gary Dunwoody; Kevin Kendall; Lori Kleine; Cyrece Kono; Jody
Lindsey; and Charles McGuire. The Buyer agrees to extend offers of employment to
the following employees of the Company in accordance with the terms of the form
of Employment Agreement attached hereto as Exhibit B-4: Ken Berreth; Tom Guhin;
Robb Harrington; and Jerry Michlitsch.
(h) Operation of Company. The Buyer agrees to operate the Company as a
wholly-owned subsidiary of Buyer for the lesser of: (i) the three (3) year
period following the Closing Date; or (ii) the actual term of James D.
Erickson's employment with the Company, and, during such period, shall operate
the Company in a manner consistent with past Company practices under the Company
name.
7. Conditions to Obligation to Close.
(a) Conditions to Obligation of the Buyer. The obligation of the Buyer to
consummate the transactions to be performed by it in connection with the Closing
is subject to satisfaction of the following conditions:
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(i) the representations and warranties set forth in ss.3(a) and
ss.4 above shall be true and correct in all material respects at and as of
the Closing Date;
(ii) the Seller shall have performed and complied with all of his
covenants hereunder in all material respects through the Closing;
(iii) the Company shall have procured all of the third party consents
specified in ss.5(b) above;
(iv) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction or before any arbitrator wherein an
unfavorable injunction, judgment, order, decree, ruling, or charge would
(A) prevent consummation of any of the transactions contemplated by this
Agreement, (B) cause any of the transactions contemplated by this Agreement
to be rescinded following consummation, (C) affect adversely the right of
the Buyer to own the Company Shares and to control the Company, or (D)
affect adversely the right of any of the Company and its Subsidiaries to
own its assets and to operate its businesses (and no such injunction,
judgment, order, decree, ruling, or charge shall be in effect);
(v) the Seller shall have delivered to the Buyer a certificate to
the effect that each of the conditions specified above in ss.7(a)(i)-(iv)
is satisfied in all respects;
(vi) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties, the Company, and its Subsidiaries shall have
received all other authorizations, consents, and approvals of governments
and governmental agencies referred to in ss.3(a)(ii), ss.3(b)(ii), and
ss.4(c) above;
(vii) the relevant parties shall have entered into consulting and
employment agreements in form and substance as set forth in Exhibits B-1
through B-2 attached hereto and the same shall be in full force and effect;
(viii) the relevant parties shall have entered into lease amendments,
in form and substance satisfactory to Buyer, in connection with the real
estate currently leased or owned by the Company;
(ix) the Buyer shall have received from counsel to the Seller an
opinion in form and substance as set forth in Exhibit C attached hereto,
addressed to the Buyer, and dated as of the Closing Date;
(x) the Buyer shall have received the resignations, effective as of
the Closing, of each director and officer of the Company and its
Subsidiaries other than those whom the Buyer shall have specified in
writing at least five (5) business days prior to the Closing;
(xi) the Buyer shall have obtained on terms and conditions
satisfactory to it all of the financing it needs in order to consummate the
transactions contemplated hereby and fund the working capital requirements
of the Company and its Subsidiaries after the Closing;
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(xii) the Buyer shall have obtained the approval of its Board of
Directors and all its lenders to enter into the transactions contemplated
herein;
(xiii) all actions to be taken by the Seller in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be satisfactory in form and substance
to the Buyer;
(xiv) the Buyer shall have received from the Company, in form and
substance satisfactory to Buyer; (i) a Power of Attorney in connection with
the Company's Drug Enforcement Administration registration; (ii) evidence
of the Company's application for registration with the Drug and Enforcement
Administration in connection with this transaction; and (iii) any such drug
distributor or wholesaler registration, license or other documentation
required by the State of South Dakota; and
(xv) no event shall have occurred which would, or reasonably could,
have Company Material Adverse Effect.
The Buyer may waive any condition specified in this ss.7(a) if it executes a
writing so stating at or prior to the Closing.
(b) Conditions to Obligation of the Seller. The obligation of the Seller to
consummate the transactions to be performed by him in connection with the
Closing is subject to satisfaction of the following conditions:
(i) the representations and warranties set forth in ss.3(b) above
shall be true and correct in all material respects at and as of the Closing
Date;
(ii) the Buyer shall have performed and complied with all of its
covenants hereunder in all material respects through the Closing;
(iii) no action, suit, or proceeding shall be pending before any
court or quasi-judicial or administrative agency of any federal, state,
local, or foreign jurisdiction wherein an unfavorable injunction, judgment,
order, decree, ruling, or charge would (A) prevent consummation of any of
the transactions contemplated by this Agreement or (B) cause any of the
transactions contemplated by this Agreement to be rescinded following
consummation (and no such injunction, judgment, order, decree, ruling, or
charge shall be in effect);
(iv) the Buyer shall have delivered to the Seller a certificate to
the effect that each of the conditions specified above in ss.7(b)(i)-(iii)
is satisfied in all respects;
(v) all applicable waiting periods (and any extensions thereof)
under the Hart-Scott-Rodino Act shall have expired or otherwise been
terminated and the Parties, the Company, and its Subsidiaries shall have
received all other authorizations, consents, and approvals of governments
and governmental agencies referred to in ss.3(a)(ii), ss.3(b)(ii), and
ss.4(c) above;
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(vi) the relevant parties shall have entered into consulting and
employment agreements in form and substance as set forth in Exhibits B-1
through B-2 and the same shall be in full force and effect;
(vii) the Seller shall have received from counsel to the Buyer an
opinion in form and substance as set forth in Exhibit D attached hereto,
addressed to the Seller, and dated as of the Closing Date;
(viii) all actions to be taken by the Buyer in connection with
consummation of the transactions contemplated hereby and all certificates,
opinions, instruments, and other documents required to effect the
transactions contemplated hereby will be reasonably satisfactory in form
and substance to the Seller; and
(ix) No event shall have occurred which would, or reasonably could,
have a Buyer Material Adverse Effect.
The Seller may waive any condition specified in this ss.7(b) if he executes a
writing so stating at or prior to the Closing.
8. Remedies for Breaches of This Agreement.
(a) Survival of Representations and Warranties. All of the representations
and warranties of the Parties contained in this Agreement shall survive the
Closing hereunder (even if the damaged Party knew or had reason to know of any
misrepresentation or breach of warranty at the time of Closing) and continue in
full force and effect thereafter (subject to any applicable statutes of
limitations) for a period of eighteen (18) months; provided, however, that the
representations and warranties contained in ss. 3(a) and ss.ss.4(a)-(f),
ss.4(k), ss.ss.4(t) and ss.4(x) shall continue in full force and effect for a
period of five (5) years following the Closing.
(b) Indemnification Provisions for Benefit of the Buyer.
(i) In the event the Seller breaches (or in the event any third party
alleges facts that, if true, would mean the Seller has breached) any of his
representations, warranties, and covenants contained herein, whether or not
such breach is material, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that the Buyer makes a written claim
for indemnification against the Seller pursuant to ss.11(g) below within
such survival period, then the Seller agrees to indemnify the Buyer from
and against the entirety of any Adverse Consequences the Buyer may suffer
through and after the date of the claim for indemnification (including any
Adverse Consequences the Buyer may suffer after the end of any applicable
survival period) resulting from, arising out of, relating to, in the nature
of, or caused by the breach (or the alleged breach).
(ii) The Seller agrees to indemnify the Buyer from and against the
entirety of any Adverse Consequences the Buyer may suffer resulting from,
arising out of, relating to, in the nature of, or caused by any Liability
of the Company for the unpaid Taxes of any Person (other than of the
Company) under Treas. Reg. ss.1.1502-6 (or any similar provision of state,
local, or foreign law), as a transferee or successor, by contract, or
otherwise.
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<PAGE> 37
(c) Indemnification Provisions for Benefit of the Seller. In the event the
Buyer breaches (or in the event any third party alleges facts that, if true,
would mean the Buyer has breached) any of its representations, warranties, and
covenants contained herein, and, if there is an applicable survival period
pursuant to ss.8(a) above, provided that the Seller makes a written claim for
indemnification against the Buyer pursuant to ss.11(g) below within such
survival period, then the Buyer agrees to indemnify the Seller from and against
the entirety of any Adverse Consequences the Seller may suffer through and after
the date of the claim for indemnification (including any Adverse Consequences
the Seller may suffer after the end of any applicable survival period) resulting
from, arising out of, relating to, in the nature of, or caused by the breach (or
the alleged breach).
(d) Matters Involving Third Parties.
(i) If any third party shall notify any Party (the "Indemnified
Party") with respect to any matter (a "Third Party Claim") which may give
rise to a claim for indemnification against any other Party (the
"Indemnifying Party") under this ss.8, then the Indemnified Party shall
promptly notify each Indemnifying Party thereof in writing; provided,
however, that no delay on the part of the Indemnified Party in notifying
any indemnifying Party shall relieve the Indemnifying Party from any
obligation hereunder unless (and then solely to the extent) the
Indemnifying Party thereby is prejudiced.
(ii) Any Indemnifying Party will have the right to defend the
Indemnified Party against the Third Party Claim with counsel of its choice
satisfactory to the Indemnified Party so long as (A) the Indemnifying Party
notifies the Indemnified Party in writing within fifteen (15) days after
the Indemnified Party has given notice of the Third Party Claim that the
Indemnifying Party will indemnify the Indemnified Party from and against
the entirety of any Adverse Consequences the Indemnified Party may suffer
resulting from, arising out of, relating to, in the nature of, or caused by
the Third Party Claim, (B) the Indemnifying Party provides the Indemnified
Party with evidence acceptable to the Indemnified Party that the
indemnifying Party will have the financial resources to defend against the
Third Party Claim and fulfill its indemnification obligations hereunder,
(C) the Third Party Claim involves only money damages and does not seek an
injunction or other equitable relief, (D) settlement of, or an adverse
judgment with respect to, the Third Party Claim is not, in the good faith
judgment of the Indemnified Party, likely to establish a precedential
custom or practice adverse to the continuing business interests of the
Indemnified Party, and (E) the Indemnifying Party conducts the defense of
the Third Party Claim actively and diligently.
(iii) So long as the Indemnifying Party is conducting the defense of
the Third Party Claim in accordance with ss.8(d)(ii) above, (A) the
Indemnified Party may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the
Indemnified Party will not consent to the entry of any judgment or enter
into any settlement with respect to the Third Party Claim without the prior
written consent of the Indemnifying Party (not to be withheld
unreasonably), and (C) the Indemnifying Party will not consent to the entry
of any judgment or enter into any settlement with respect to the Third
Party Claim without the prior written consent of the Indemnified Party.
(iv) In the event any of the conditions in ss.8(d)(ii) above is or
becomes unsatisfied, however, (A) the Indemnified Party may defend against,
and consent to the entry of any
33
<PAGE> 38
judgment or enter into any settlement with respect to, the Third Party
Claim in any manner it may deem appropriate (and the Indemnified Party need
not consult with, or obtain any consent from, any Indemnifying Party in
connection therewith), (B) the Indemnifying Party will reimburse the
Indemnified Party promptly and periodically for the reasonable costs of
defending against the Third Party Claim (including attorneys' fees and
expenses), and (C) the Indemnifying Parties will remain responsible for any
Adverse Consequences the Indemnified Party may suffer resulting from,
arising out of, relating to, in the nature of, or caused by the Third Party
Claim to the fullest extent provided in this ss.8.
(e) Determination of Adverse Consequences. The Parties shall take into
account the time cost of money (using the Applicable Rate as the discount rate)
and insurance proceeds to the Indemnified Party in determining Adverse
Consequences for purposes of this ss.8. All indemnification payments under this
ss.8 shall be deemed adjustments to the Purchase Price.
(f) Other Indemnification Provisions. The Seller hereby agrees that he will
not make any claim for indemnification against the Company by reason of the fact
that he or it was a director, officer, employee, or agent of any such entity or
was serving at the request of any such entity as a partner, trustee, director,
officer, employee, or agent of another entity (whether such claim is for
judgments, damages, penalties, fines, costs, amounts paid in settlement, losses,
expenses, or otherwise and whether such claim is pursuant to any statute,
charter document, bylaw, agreement, or otherwise) with respect to any action,
suit, proceeding, complaint, claim, or demand brought by the Buyer against the
Seller, provided such action, suit, proceeding, complaint, claim, or demand is
pursuant to this Agreement.
(g) Limits on Indemnification. Notwithstanding the foregoing, neither Buyer
nor Seller shall be entitled to indemnification for Adverse Consequences
hereunder in an aggregate amount exceeding Eleven Million Nine Hundred Thousand
Dollars ($11,900,000.00); nor shall either Party be required to indemnify the
other with respect to any Adverse Consequences (except for claims arising under
ss.5(h) hereof) except to the extent that the amount of claims for
indemnification for Adverse Consequences exceeds Two Hundred Thousand Dollars
($200,000) in the aggregate and, in such event, the indemnifying Party shall be
obligated to indemnify the other Party for all Adverse Consequences in excess of
One Hundred Thousand ($100,000). Notwithstanding the foregoing, Seller agrees
that this ss.8(g) shall not apply to any claims for indemnification pursuant to
Seller's breach of the provisions of ss.5(h) hereof.
9. Tax Matters. The following provisions shall govern the allocation of
responsibility as between Buyer and Seller for certain tax matters following the
Closing Date:
(a) Section 338(h)(10) Election. At the Buyer's option, Company and the
Seller will join with Buyer in making an election under Section 338(h)(10) of
the Code (and any corresponding elections under state, local, and foreign tax
law) with respect to the purchase and sale of the stock of Company hereunder (a
"Section 338(h)(10) Election"). Seller will include any income, gain, loss,
deduction, or other tax item resulting from the Section 338(h)(10) Election on
its Tax Returns to the extent permitted by applicable law. Seller shall also pay
any Tax imposed on Company attributable to the making of the Section 338(h)(10)
Election, including, but not limited to, (i) any Tax imposed under Code ss.1374,
(ii) any Tax imposed under Reg. ss.1.338(h)(10)-1(e)(5), or (iii) any state,
local
34
<PAGE> 39
or foreign Tax imposed on Company's gain, and Seller shall indemnify Buyer
and the Company Company against any Adverse Consequences arising out of any
failure to pay any such Taxes.
(b) Allocation of Purchase Price. Buyer and Seller agree that the Purchase
Price and the liabilities of Company (plus other relevant items) will be
allocated to the assets of Company for all purposes (including Tax and financial
accounting) as shown on the Allocation Schedule agreed upon at Closing. Buyer,
Company, Company's Subsidiaries and Seller will all file Tax Returns (including
amended returns and claims for refund) and information reports in a manner
consistent with such allocation.
(c) S Corporation Status. Company and Seller will not revoke Company's
election to be taxed as an S corporation within the meaning of Code ss.ss.1361
and 1362. Company and Seller will not take or allow any action, other than the
sale of Company's stock pursuant to this Agreement, that would result in the
termination of Company's status as a validly electing S corporation within the
meaning of Code ss.ss.1361 and 1362.
(d) Tax Periods Ending on or Before the Closing Date. Buyer shall prepare
or cause to be prepared and file or cause to be filed all Tax Returns for the
Company for all periods ending on or prior to the Closing Date which are filed
after the Closing Date. To the extent permitted by applicable law, Seller shall
include any income, gain, loss, deduction or other tax items for such periods on
his Tax Returns in a manner consistent with the Schedule K-1s furnished by
Company to the Seller for such periods. Seller shall reimburse Buyer for any
Taxes of the Company with respect to such periods within fifteen (15) days after
payment by Buyer or the Company of such Taxes to the extent such Taxes are not
reflected in the reserve for Tax Liability (rather than any reserve for deferred
Taxes established to reflect timing differences between book and Tax income)
shown on the face of the Closing Balance Sheet.
(e) Cooperation on Tax Matters.
(i) Buyer, the Company and Seller shall cooperate fully, as and to
the extent reasonably requested by the other party, in connection with the
filing of Tax Returns pursuant to this Section and any audit, litigation or
other proceeding with respect to Taxes. Such cooperation shall include the
retention and (upon the other party's request) the provision of records and
information which are reasonably relevant to any such audit, litigation or
other proceeding and making employees available on a mutually convenient
basis to provide additional information and explanation of any material
provided hereunder. The Company and Seller agree (A) to retain all books
and records with respect to Tax matters pertinent to the Company relating
to any taxable period beginning before the Closing Date until the
expiration of the statute of limitations (and, to the extent notified by
Buyer or Seller, any extensions thereof) of the respective taxable periods,
and to abide by all record retention agreements entered into with any
taxing authority, and (B) to give the other party reasonable written notice
prior to transferring, destroying or discarding any such books and records
and, if the other party so requests, the Company or Seller, as the case may
be, shall allow the other party to take possession of such books and
records.
(ii) Buyer and Seller further agree, upon request, to use their best
efforts to obtain any certificate or other document from any governmental
authority or any other Person as
35
<PAGE> 40
may be necessary to mitigate, reduce or eliminate any Tax that could be
imposed (including, but not limited to, with respect to the transactions
contemplated hereby).
(f) Certain Taxes. All transfer, documentary, sales, use, stamp,
registration and other such Taxes and fees (including any penalties and
interest) incurred in connection with this Agreement (including any
corporate-level gains tax triggered by the sale of the Company stock and any
similar tax imposed in other states or subdivisions), shall be paid by Buyer
when due, and Buyer will, at his own expense, file all necessary Tax Returns and
other documentation with respect to all such transfer, documentary, sales, use,
stamp, registration and other Taxes and fees, and, if required by applicable
law, Seller will, and will cause its affiliates to, join in the execution of any
such Tax Returns and other documentation.
10. Termination.
(a) Termination of Agreement. Certain of the Parties may terminate this
Agreement as provided below:
(i) the Buyer and the Seller may terminate this Agreement by mutual
written consent at any time prior to the Closing;
(ii) the Buyer may terminate this Agreement by giving written notice
to the Seller at any time prior to the Closing (A) in the event the Seller
has breached any material representation, warranty, or covenant contained
in this Agreement in any material respect, the Buyer has notified the
Seller of the breach, and the breach has continued without cure for a
period of thirty (30) days after the notice of breach or (B) if the Closing
shall not have occurred on or before July 1,1999, by reason of the failure
of any condition precedent under ss.7(a) hereof (unless the failure results
primarily from the Buyer itself breaching any representation, warranty, or
covenant contained in this Agreement); and
(iii) the Seller may terminate this Agreement by giving written
notice to the Buyer at any time prior to the Closing (A) in the event the
Buyer has breached any material representation, warranty, or covenant
contained in this Agreement in any material respect, any of the Seller has
notified the Buyer of the breach, and the breach has continued without cure
for a period of thirty (30) days after the notice of breach or (B) if the
Closing shall not have occurred on or before July 1, 1999, by reason of the
failure of any condition precedent under ss.7(b) hereof (unless the failure
results primarily from the Seller breaching any representation, warranty,
or covenant contained in this Agreement).
(b) Effect of Termination. If any Party terminates this Agreement pursuant
to ss.10(a) above, all rights and obligations of the Parties hereunder shall
terminate without any Liability of any Party to any other Party (except for any
Liability of any Party then in breach).
11. Miscellaneous.
(a) Press Releases and Public Announcements. No Party shall issue any press
release or make any public announcement relating to the subject matter of this
Agreement prior to the Closing without the prior written approval of the Buyer
and the Seller; provided, however, that any Party
36
<PAGE> 41
may make any public disclosure it believes in good faith is required by
applicable law or any listing or trading agreement concerning its
publicly-traded securities (in which case the disclosing Party will use its best
efforts to advise the other Parties prior to making the disclosure).
(b) No Third Party Beneficiaries. Except with respect to Permitted
Transferees, this Agreement shall not confer any rights or remedies upon any
Person other than the Parties and their respective successors and permitted
assigns.
(c) Entire Agreement. This Agreement and the Consulting and Emploment
Agreements attached hereto as Exhibits (including the documents referred to
herein) constitute the entire agreement among the Parties and supersede any
prior understandings, agreements, or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.
(d) Succession and Assignment. This Agreement shall be binding upon and
inure to the benefit of the Parties named herein and their respective successors
and permitted assigns. Except as otherwise provided herein, no Party may assign
either this Agreement or any of his or its rights, interests, or obligations
hereunder without the prior written approval of the Buyer and the Seller;
provided, however, that the Buyer may (i) assign any or all of its rights and
interests hereunder to one or more of its Affiliates and (ii) designate one or
more of its Affiliates to perform its obligations hereunder (in any or all of
which cases the Buyer nonetheless shall remain responsible for the performance
of all of its obligations hereunder).
(e) Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.
(f) Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
(g) Notices. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice, request, demand, claim,
or other communication hereunder shall be deemed duly given if (and then two
business days after) it is sent by registered or certified mail, return receipt
requested, postage prepaid, and addressed to the intended recipient as set forth
below:
If to the Seller: Copy to:
Harvey C. Jewett, IV Dorsey & Whitney LLP
1104 N. Lincoln 220 South Sixth Street
Aberdeen, SD 57401 Minneapolis, MN 55402
Attn: William B. Payne
If to the Buyer: Copy to:
D & K Healthcare Resources, Inc. Armstrong Teasdale LLP
8000 Maryland Avenue One Metropolitan Square
Suite 920 Suite 2600
37
<PAGE> 42
St. Louis, MO 63105-3752 St. Louis, MO 63102
Attention: Leonard R. Benjamin Attention: Daniel J. Godar
Any Party may send any notice, request, demand, claim, or other communication
hereunder to the intended recipient at the address set forth above using any
other means (including personal delivery, expedited courier, messenger service,
telecopy, telex, ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed to have been duly
given unless and until it actually is received by the intended recipient. Any
Party may change the address to which notices, requests, demands, claims, and
other communications hereunder are to be delivered by giving the other Parties
notice in the manner herein set forth.
(h) Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Missouri without giving effect
to any choice or conflict of law provision or rule (whether of the State of
Missouri or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Missouri.
(i) Amendments and Waivers. No amendment of any provision of this Agreement
shall be valid unless the same shall be in writing and signed by the Buyer and
the Seller. No waiver by any Party of any default, misrepresentation, or breach
of warranty or covenant hereunder, whether intentional or not, shall be deemed
to extend to any prior or subsequent default, misrepresentation, or breach of
warranty or covenant hereunder or affect in any way any rights arising by virtue
of any prior or subsequent such occurrence.
(j) Severability. Any term or provision of this Agreement that is invalid
or unenforceable in any situation in any jurisdiction shall not affect the
validity or enforceability of the remaining terms and provisions hereof or the
validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.
(k) Expenses. Each of the Parties, the Company, and its Subsidiaries will
bear his or its own costs and expenses (including legal fees and expenses)
incurred in connection with this Agreement and the transactions contemplated
hereby. The Seller agrees that none of the Company and its Subsidiaries has
borne or will bear any of the Seller's costs and expenses (including any of
their legal fees and expenses) in connection with this Agreement or any of the
transactions contemplated hereby.
(l) Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question of intent
or interpretation arises, this Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof shall arise
favoring or disfavoring any Party by virtue of the authorship of any of the
provisions of this Agreement. Any reference to any federal, state, local, or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word "including" shall mean including without limitation. The Parties intend
that each representation, warranty, and covenant contained herein shall have
independent significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the fact that there
exists another representation, warranty, or covenant relating to the same
subject matter (regardless of the relative levels of specificity) which the
Party has not breached
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<PAGE> 43
shall not detract from or mitigate the fact that the Party is in breach of the
first representation, warranty, or covenant.
(m) Incorporation of Exhibits and Schedules. The Exhibits and Schedules
identified in this Agreement are incorporated herein by reference and made a
part hereof.
(n) Specific Performance. Each of the Parties acknowledges and agrees that
the other Parties would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the Parties agrees that
the other Parties shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court of the United States or any state thereof having jurisdiction over the
Parties and the matter, in addition to any other remedy to which they may be
entitled, at law or in equity.
(o) Facsimile and Telecopier Signatures. For purposes of executing this
Agreement, a document (or signature page thereto) signed and transmitted by
facsimile machine or telecopier is to be treated as an original document. The
signature of any party thereon, for purposes hereof, is to be considered as an
original signature, and the document transmitted is to be considered to have the
same binding effect as an original signature on an original document. At the
request of any party, any facsimile or telecopy document is to be reexecuted in
original form by the parties who executed the facsimile or telecopy document. No
party may raise the use of a facsimile machine or telecopier or the fact that
any signature was transmitted through the use of a facsimile or telecopier
machine as a defense to the enforcement of this Agreement or any amendment or
other document executed in compliance with this ss.11(o).
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of
the date first above written.
D & K HEALTHCARE RESOURCES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
- ----------------------------
Harvey C. Jewett, IV
39
<PAGE> 1
EXHIBIT 10.1
SECOND AMENDMENT TO FOURTH AMENDED AND RESTATED
LOAN AND SECURITY AGREEMENT
---------------------------
THIS SECOND AMENDMENT TO THE FOURTH AMENDED AND RESTATED LOAN AND
SECURITY AGREEMENT (this "Amendment") is made as of June 1, 1999, by and among
FLEET CAPITAL CORPORATION, a Rhode Island corporation (the "Lender"), and D&K
HEALTHCARE RESOURCES, INC. ("D & K"), JARON, INC. ("Jaron") and JEWETT DRUG CO.,
a South Dakota corporation ("Jewett") (D & K, Jaron and Jewett are sometimes
hereinafter referred to individually as "Borrower" and collectively as
"Borrowers").
Preliminary Statements
----------------------
Lender, D & K and Jaron are parties to that certain Fourth Amended and
Restated Loan and Security Agreement dated as of August 7, 1998 (as amended,
restated or renewed from time to time, the "Loan Agreement"). Capitalized terms
used herein and not otherwise defined shall have the meanings given them in the
Loan Agreement.
D & K has requested that Lender amend certain provisions of the Loan
Agreement and certain other Loan Documents to, among other things, (i) allow for
the acquisition by D&K of all the issued and outstanding shares of capital stock
of Jewett pursuant to that certain Purchase Agreement (the "Purchase Agreement")
dated June 1, 1999 between D & K and Harvey C. Jewett, IV (the "Acquisition"),
and (ii) to make Jewett, upon closing of the Acquisition, a Borrower under the
Loan Agreement.
Jewett will derive substantial benefits from becoming a Borrower under
the Loan Agreement, as it will borrow under the Loan Agreement from time to time
for operating capital and equipment purchases as part of its operations.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
1. Addition of Jewett as Borrower. Jewett hereby acknowledges that it
has reviewed, and that it understands and agrees to, the terms of that certain
Fourth Amended and Restated Loan and Security Agreement dated as of August 7,
1998 as amended by First Amendment dated as of November 25, 1998, each among
Lender, D & K, and Jaron, and joins in the Loan Agreement and the other Loan
Documents as a party thereto, hereby agreeing that it is jointly and severally
liable thereunder as a Borrower and hereby granting a continuing lien on certain
of its Property as provided therein.
2. Consents. Lender hereby consents to the Acquisition, to Jewett's
consolidation with D & K, to the joinder of Jewett as party to the
Securitization Documents, and D&K's guaranty of Jewett's obligations thereunder,
and to the Borrower's doing business at the locations described on Exhibit A
hereto, subject to the satisfaction of all conditions set forth in this
Amendment. This consent shall in no respect be deemed a consent to the
acquisition by D & K, Jaron, or Jewett of any property other than as
specifically described in the Purchase Agreement.
<PAGE> 2
3. Increase in Amount. The amount of the Total Credit Facility is
hereby increased to $95,000,000. Accordingly, all references in the Loan
Agreement to "$75,000,000" are hereby amended to "$95,000,000.
4. Letter of Credit Fees. Section 2.3 of the Loan Agreement [RELATING
TO LETTER OF CREDIT AND L/C GUARANTY FEES] is hereby deleted in its entirety and
replaced with the following new Section 2.3:
2.3 Letter of Credit and LC Guaranty Fees. Borrowers
shall pay to Lender:
(a) for standby Letters of Credit and LC Guaranties
of standby Letters of Credit outstanding from time to time
during the term of this Agreement, a per annum fee equal to
the product of (i) the Applicable Margin for LIBO Rate loans
in effect on the date of issuance of the Letter of Credit or
LC Guaranty times (ii) the aggregate face amount of each such
Letter of Credit and LC Guaranty, 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
(b) for documentary Letters of Credit and LC
Guaranties of documentary Letters of Credit outstanding from
time to time during the term of this Agreement, a per annum
fee equal to the product of (i) the Applicable Margin for LIBO
Rate loans in effect on the date of issuance of the Letter of
Credit or LC Guaranty times (ii) the aggregate face amount of
each such Letter of Credit and LC Guaranty, and an additional
per annum fee equal to the product of (x) the Applicable
Margin for LIBO Rate loans in effect on the date of issuance
of the Letter of Credit or LC Guaranty times (y) the aggregate
face amount of each such Letter of Credit and 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).
5. Leases. Section 8.2.13 [RELATING TO LEASES] is hereby deleted and
replaced with the following:
8.2.13 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
-2-
<PAGE> 3
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
$2,000,000. 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.
6. Securitization Document Termination. A new Section 8.2.17 [RELATING
TO TERMINATION OF SECURITIZATION DOCUMENTS] is hereby added to the Loan
Agreement as follows:
8.2.17 Termination of Securitization Documents. Upon
the termination of the Securitization Documents, fail to
execute and deliver at Lender's request therefor any
documents, instruments or agreements, including UCC Financing
Statements or amendments thereto, to ensure that Lender has a
perfected first lien on all of each Borrower's Accounts and
General Intangibles. Such assets had formerly been pledged or
transferred to a third party in connection with the
Securitization Documents, but the parties hereto acknowledge
and agree that all rights thereto should revert to Borrower,
with a first lien in favor of Lender, upon termination of the
Securitization Documents.
7. Financial Covenants. Section 8.3 of the Loan Agreement [RELATING TO
SPECIFIC FINANCIAL COVENANTS] is hereby deleted in its entirety and replaced
with the following new Section 8.3:
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, (i) the amount of
Borrowers' Inventory comprising Consolidated Current Assets
shall be computed on a first in, first out basis in accordance
with GAAP, and (ii) any transfers of assets made pursuant to
the Securitization Documents shall be ignored.
(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) 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 (excluding any purchases by D & K of its
own stock made between May 20, 1999 and June 1, 2000 pursuant
to a consent letter from Lender dated May 20, 1999):
-3-
<PAGE> 4
<TABLE>
<CAPTION>
PERIOD AMOUNT
------ ------
<S> <C>
June 1, 1999 through June 29, 2000 $ 3,000,000
June 30, 2000 through June 29, 2001 $10,000,000
June 30, 2001 and thereafter $20,000,000
</TABLE>
8. Definitions. Appendix A to the Loan Agreement [RELATING TO
DEFINITIONS] is hereby amended by replacing certain definitions therein with the
new ones set forth below, as follows:
Applicable Margin - For periods before delivery of the Borrowers'
financial statements for the twelve-month period ending June 30, 2000,
the Applicable Margin with respect to the Base Rate shall be 0.25%, and
the Applicable Margin with respect to the LIBO Rate shall be 1.75%. For
any period or date beginning with the delivery of the Borrowers'
financial statements for the twelve-month period ending June 30, 2000
and thereafter, the Applicable Margin with respect to the Base Rate and
the LIBO Rate, as applicable, shall be as 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:
<TABLE>
<CAPTION>
INTEREST COVERAGE RATIO APPLICABLE MARGIN APPLICABLE MARGIN
FOR PRECEDING TWELVE BASE RATE LIBO RATE
===============================================================================================
<S> <C> <C>
from 1.75 to 1.0 1.00% 2.50%
to 2.00 to 1.0
from 2.01 to 1.0 0.75% 2.25%
to 2.50 to 1.0
from 2.51 to 1.0 0.50% 2.00%
to 3.00 to 1.0
from 3.01 to 1.0 0.25% 1.75%
to 3.25 to 1.0
from 3.26 to 1.0 0.00% 1.50%
to 3.50 to 1.0
>3.50 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.
Availability - means, on any date, the excess of the Borrowing Base
over the sum of all outstanding Loans hereunder on such date.
-4-
<PAGE> 5
Borrowing Base - as at any date of determination thereof, an amount
equal to the lesser of:
(i) $95,000,000; or
(ii) an amount equal to 65% 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 65% of the
value of Jaron's Eligible Inventory, calculated as set forth above, MINUS the
aggregate amount of Indebtedness of Jaron to D&K; and Advances to or on behalf
of Jewett will be limited at all times to the sum of 65% of the value of
Jewett's Eligible Inventory, calculated as set forth above, MINUS the aggregate
amount of Indebtedness of Jewett to D&K.
Borrowers - collectively, D & K, Jaron, and Jewett, and
"Borrower" shall mean any one of them.
Default Rate - as defined in Subsection 2.1.7 of the
Agreement.
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 taxes, plus or minus, as
the case may be, the net change in the D & K's Consolidated LIFO reserve during
such period.
Jewett - Jewett Drug Co., a South Dakota corporation.
Total Credit Facility - $95,000,000.
9. Exhibits. Exhibits A and B to the Loan Agreement are hereby updated
to include the new addresses and jurisdictions contained on Exhibit A to this
Amendment.
10. Conditions Precedent. The Lender's consent to the Acquisition is
expressly conditioned upon the satisfaction by Borrowers of the following
conditions. Failure of Borrowers to deliver to Lender such documents,
instruments or agreements, each in form and substance acceptable to Lender, no
later than the delivery dates set forth herein, shall mean that the Lender's
consents and the amendments related thereto contained herein are ineffective and
void, and Borrowers shall be in default under the Loan Agreement:
-5-
<PAGE> 6
(a) Delivery of this Amendment, duly executed by all
Borrowers.
(b) Delivery of a Pledge Agreement from D&K pledging (i) all
the stock of D&K Receivables Corporation ("Receivables"), together with
all certificates of such stock and a stock power for each certificate,
duly endorsed in blank, and (ii) that certain Non-Negotiable Promissory
Note dated August 7, 1998 from Receivables to D&K, together with the
original of such Note, duly endorsed to the order of Lender, and any
and all replacements therefor and any additional notes executed and
delivered from time to time by Receivables to D&K pursuant to the
Securitization Documents.
(c) Delivery of a Pledge Agreement from D&K pledging all the
stock of Jewett, together with all certificates of such stock and a
stock power for each certificate, duly endorsed in blank.
(d) Delivery of such executed documents from Jewett or other
third parties as Lender may require to provide for a perfected first
lien in favor of Lender on all Collateral owned by Jewett or on
Collateral of any Borrower kept at any location where Jewett does
business, including, without limitation, (A) UCC-1 financing statements
from all Borrowers for all locations in which Jewett will do business,
(B) terminations of all liens on Jewett's assets other than those in
favor of Lender and those which would be Permitted Liens under the Loan
Agreement, and (C) executed processor's, warehouseman's, landlord's or
mortgagee's waivers for all locations at which Jewett does business.
(e) Delivery of evidence that each Borrower is qualified to do
business in the State of South Dakota, or evidence that such
qualification is not necessary.
(f) Delivery of a copy of the Purchase Agreement, all transfer
documents, the employment agreement between D & K and Jim Erickson, and
all other opinions, consents, documents, instruments and agreements
signed or received by D & K in connection with the Acquisition,
including, without limitation Jewett's articles of incorporation and
by-laws, together with all amendments thereto, authorizing resolutions
of Jewett and D & K executed in connection therewith, and any
instruments of transfer.
(g) Lender's satisfaction that all the terms and conditions of
the Acquisition, including, without limitation, all legal and tax
aspects thereof, the value and nature of the assets and liabilities of
Jewett, and any liabilities which D & K may have assumed, directly or
indirectly, thereunder, shall be as has been described to Lender upon
Lender's approval of the Acquisition, and shall be satisfactory in form
and substance to Lender.
(h) Without limiting the generality of the foregoing, Lender's
satisfaction with any existing and potential liability of Jewett with
respect to any environmental matters, including compliance with all
laws and regulations relating to environmental protection.
(i) Lender's satisfaction with the corporate and legal
structure of Jewett and all other Borrowers after the Acquisition,
including, without limitation, the articles of incorporation and bylaws
of each of them, and each agreement or instrument (including
-6-
<PAGE> 7
any shareholder's agreements, warrants, or similar documents) relating
thereto.
(j) No later than the effective date of the Acquisition,
delivery to Lender of an opinion or opinions of Borrowers' counsel as
to, among other things, the due organization and good standing of
Jewett, the authorization of Jewett to execute and deliver this
Amendment, and any and all other documents, instruments and agreements
executed and delivered in connection therewith, the enforceability of
all such documents, instruments and agreements against Jewett in
accordance with their respective terms, the enforceability of the
Purchase Agreement against Jewett and D & K, and the compliance of the
Acquisition with the articles of incorporation and by-laws of each of
them, and such other matters (including, without limitation, the tax
aspects thereof and compliance with all applicable securities laws) as
Lender shall require.
(k) Delivery of duly executed amendments and/or consents by
the parties to the Securitization Documents, containing such terms as
are acceptable to Lender to incorporate Jewett into the Securitization
and to allow for the Acquisition and for the amendments set forth
herein.
(l) Delivery of duly executed amendments and/or consents by
all participants in the Loans, containing such terms as are acceptable
to Lender to allow for the amendments set forth herein, including,
without limitation, an aggregate participation of $27,500,000 or more
in the Loans.
(m) After funding of any Advances made in connection with the
closing of the Acquisition, (including in such sum the full amount of
any closing costs, whether or not paid at closing and the L/C Amount on
the date thereof), there shall exist no Default or Event of Default
under the Loan Agreement, and Borrowers shall have Availability of not
less than $10,000,000.
(n) There shall have occurred no material adverse change in
the business, condition (financial or otherwise), operations,
performance, properties or prospects of any Borrower or any of their
Subsidiaries, taken as a whole, since December 31, 1998.
(o) 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 the Loan Agreement, the Purchase Agreement, or the
consummation of the transactions contemplated thereby.
(p) Lender's satisfaction with the amount, types and terms and
conditions of all insurance maintained by the Borrowers and their
Subsidiaries, and the Lender shall have received loss payable
endorsements for such insurance satisfactory to Lender.
(q) Delivery of a Landlord's Waiver for Jaron's facility
located in Sunrise, Florida.
-7-
<PAGE> 8
11. Representations and Warranties.
(a) Each Borrower hereby represents and warrants that no consent of
any federal, state or local governmental agency or entity is required
for the acquisition by D&K of all the issued and outstanding stock of
Jewett, or the continuing operation of Jewett's business as a
subsidiary of D&K, and that such acquisition and operation do not
violate any federal or applicable state antitrust laws, rules or
regulations, or any laws, rules or regulations relating to business
combinations, restraints of trade, or other similar matters.
(b) Jewett hereby joins in all the representations and warranties
set forth in the Loan Agreement with respect to it and its business,
each made as of the date of this Amendment. Without limiting the
generality of the foregoing, Jewett represents and warrants that it as
a South Dakota corporation, in good standing under the laws of its
state of incorporation, and duly qualified to do business in all states
where the nature of its business and properties makes such
qualification necessary or appropriate.
(c) D & K and Jaron hereby represent and warrant to Lender that all
the representations and warranties set forth in the Loan Agreement are
still true, complete and correct as if made as of the date of this
Amendment.
12. No Claims. Borrowers acknowledge that there are no existing claims,
defenses (personal or otherwise) or rights of set-off or recoupment whatsoever
with respect to any of the Loan Documents. Borrowers agree that this Amendment
in no way acts as a release or relinquishment of any Liens in favor of the
Lender securing payment of the Obligations.
13. Miscellaneous. Except as expressly set forth herein, there are no
agreements or understandings, written or oral, between any Borrower and Lender
relating to the Loan Agreement and the other Loan Documents that are not fully
and completely set forth herein or therein. Except to the extent specifically
waived or amended herein or in any of the documents, instruments, or agreements
delivered in connection herewith, all terms and provisions of the Loan Agreement
and the other Loan Documents are hereby ratified and reaffirmed and shall remain
in full force and effect in accordance with the respective terms thereof. This
Agreement may be executed in one or more counterparts, and by different parties
on different counterparts. All such counterparts shall be deemed to be original
documents and together shall constitute one and the same agreement. A signature
of a party delivered by facsimile or other electronic transmission shall be
deemed to be an original signature of such party.
-8-
<PAGE> 9
IN WITNESS WHEREOF, this Amendment has been executed and delivered by
the duly authorized representatives of the parties as of the date first above
written.
FLEET CAPITAL CORPORATION
By:
----------------------------
Name: Edward M. Bartkowski
Title: Vice President
D & K HEALTHCARE RESOURCES, INC.
By:
----------------------------
- ----------------------------
Name:
Title:
JARON, INC.
By:
----------------------------
Name:
Title:
JEWETT DRUG CO.
By:
----------------------------
- ----------------------------
Name:
Title:
-9-
<PAGE> 10
Exhibit A
<TABLE>
<CAPTION>
Supplemental List of Additional Business Locations and Jurisdictions Where Qualified
------------------------------------------------------------------------------------
<S> <C> <C>
Jewett: Chief Executive Office: 217 Railroad Avenue, SE
Box 1240
Aberdeen, SD 57402-1240
Other Locations for Collateral: 807 Benson Road
Sioux Falls, SD 57105
Jurisdictions Qualified: South Dakota, North Dakota
D & K: Other Locations for Collateral: none
Other Jurisdictions Qualified: none
Jaron: Other Locations for Collateral: none
Other Jurisdictions Qualified: none
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our report included in this Form 8-K, into D&K Healthcare Resources, Inc.'s
previously filed Registration Statements on Form S-8 (File Numbers 333-03262,
033-88714 and 333-24263).
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
St. Louis, Missouri
June 11, 1999
<PAGE> 1
EXHIBIT 99.1
FOR IMMEDIATE RELEASE
- ---------------------
D&K HEALTHCARE RESOURCES, INC.
COMPLETES ACQUISITION OF JEWETT DRUG CO.
----------------------------------------
ST. LOUIS, MISSOURI - JUNE 1, 1999 - D&K Healthcare Resources, Inc. (NASDAQ:
DKWD) announced today that it has successfully completed its acquisition of
privately held Jewett Drug Co. The Company accomplished the acquisition pursuant
to a Stock Purchase Agreement dated June 1, 1999 by and between D&K Healthcare
Resources, Inc. and Harvey C. Jewett, IV, the sole stockholder of Jewett Drug
Co. Under the terms of the acquisition, Jewett received $34 million in a
combination of cash and D&K common stock. Pursuant to the acquisition, Jewett
Drug Co. has become a wholly owned subsidiary of D&K Healthcare Resources, Inc.
and is operated under its own name from existing facilities. D&K expects Mr.
Jewett to join its Board of Directors and remain as Chairman of Jewett Drug Co.
Jim Erickson will remain as President and Chief Executive Officer of Jewett Drug
Co.
D&K Healthcare Resources, Inc. also reported today that it has entered into an
Amended and Restated Loan and Security Agreement with Fleet Capital Corporation
pursuant to which the revolving loan facility was increased from $75,000,000 to
$95,000,000.
Jewett Drug Co., based in Aberdeen, South Dakota, provides comprehensive
pharmaceutical distribution services to more than 250 outlets throughout the
Upper Midwest and Great Plains Region and a mail-order pharmacy program owned by
CIGNA. For the last twelve months, Jewett Drug Co. had revenues of $263 million,
positioning it among the twenty largest U.S. pharmaceutical distributors. In
business for 116 years, it has approximately 60 employees.
"The addition of Jewett Drug Co. furthers our ongoing strategy of expanding into
new geographic markets, increasing penetration of existing markets and achieving
a more balanced sales mix," said J. Hord Armstrong, III, Chairman and CEO of D&K
Healthcare Resources, Inc. "D&K will achieve further efficiencies while
significantly growing our market share in the Upper Midwest and the Great Plains
area."
Harvey C. Jewett, IV remarked, "We at Jewett Drug Co. are excited by the
transaction. Our customers should know they will continue working with the same
people and at the same locations as before. We believe that this transaction
will provide our customers with a broader base of supply and added programs. The
exceptional relationships and services we have established with and for our
customers during the past 115 years shall continue unchanged."
<PAGE> 2
This transaction is expected to be accretive to earnings in the first full year
without considering potential synergies.
D&K Healthcare Resources, Inc., of St. Louis, Missouri, is a full-service
regional wholesale drug distributor supplying customers from facilities in
Lexington, Kentucky; Minneapolis, Minnesota; Cape Girardeau, Missouri; and
Aberdeen, South Dakota. D&K owns a 50 percent interest in Pharmaceutical Buyers,
Inc., of Boulder, Colorado, one of the nation's leading alternate site group
purchasing organizations. D&K also invites all interested parties to visit its
Web site at http://www.dkwd.com.
The forward-looking statements contained in this news release are inherently
subject to risks and uncertainties. D&K's actual results could differ materially
from those currently anticipated due to a number of factors, including without
limitation, the competitive nature of the wholesale pharmaceutical drug
distribution industry, the evolving business and regulatory environment of the
healthcare industry in which D&K operates and other factors set forth in reports
and other documents filed by D&K with the Securities and Exchange Commission
from time to time.
FOR MORE INFORMATION, PLEASE CONTACT:
- -------------------------------------
Pia P. Koster, Investor Relations
(314) 727-3485
[email protected]
