<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 5, 1998
REGISTRATION NO. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
C.D. SMITH DRUG COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 5122 44-0437360
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
JURISDICTION CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
OF INCORPORATION OR 3907 S. 48TH TERRACE
ORGANIZATION) P.O. BOX 789
ST. JOSEPH, MO 64503
(816) 232-5471
(ADDRESS INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT C. FARLEY
CHIEF EXECUTIVE OFFICER
3907 S. 48TH TERRACE
P.O. BOX 789
ST. JOSEPH, MO 64503
(816) 232-5471
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
<TABLE>
<S> <C>
SHARI L. WRIGHT, ESQ. KATHERINE M. SEABORN, ESQ.
BLACKWELL SANDERS PEPER MARTIN LLP GARDERE & WYNNE, L.L.P.
TWO PERSHING SQUARE 1601 ELM STREET
2300 MAIN STREET, SUITE 1100 3000 THANKSGIVING TOWER
KANSAS CITY, MISSOURI 64108 DALLAS, TEXAS 75201-4761
(816) 983-8000 (214) 999-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement is declared effective.
If the securities being registered on this Form are being offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
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- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROPOSED
MAXIMUM
AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF OFFERING REGISTRATION
SECURITIES TO BE REGISTERED PRICE (1)(2) FEE
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<S> <C> <C>
Common Stock, par value $.01 per share............... $98,325,000 $29,005.88
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</TABLE>
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(1) In accordance with Rule 457(o) under the Securities Act of 1933, the
number of shares being registered and the proposed maximum offering price
per share are not included in this table.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457 under the Securities Act of 1933.
--------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATES AS
MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A
FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
, 1998
SHARES
C.D. SMITH DRUG COMPANY
[LOGO OF C.D. SMITH DRUG COMPANY APPEARS HERE]
COMMON STOCK
Of the shares of common stock, par value $0.01 per share (the
"Common Stock"), offered hereby (the "Offering"), shares are being
sold by C.D. Smith Drug Company (the "Company") and shares are being
sold by certain shareholders of the Company (the "Selling Shareholders"). The
Company will not receive any proceeds from the sale of shares by the Selling
Shareholders. See "Principal and Selling Shareholders."
Prior to the Offering, there has been no public market for the Common Stock.
It is currently estimated that the initial public offering price will be
between $ and $ per share. See "Underwriting" for information relating to
the factors to be considered in determining the initial public offering price.
Application has been made for the Common Stock to be approved for quotation
on the Nasdaq National Market ("Nasdaq") under the trading symbol "CDSH."
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS IN THE COMMON STOCK.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
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<CAPTION>
PRICE UNDERWRITING PROCEEDS PROCEEDS TO
TO THE DISCOUNTS AND TO THE THE SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) SHAREHOLDERS
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.................. $ $ $ $
Total(3)................... $ $ $ $
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</TABLE>
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option, exercisable within 30
days of the date hereof, to purchase up to additional shares of
Common Stock, at the Price to the Public less Underwriting Discounts and
Commissions, solely to cover over-allotments, if any. If such option is
exercised in full, the total Price to the Public, Underwriting Discounts
and Commissions and Proceeds to the Company will be $ , $ and
$ , respectively. See "Underwriting."
The shares of Common Stock are being offered by the several Underwriters,
subject to prior sale, when, as, and if delivered to and accepted by them,
subject to certain prior conditions including the right of the Underwriters to
reject orders in whole or in part. It is expected that delivery of such shares
will be in New York, New York on or about , 1998.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
WHEAT FIRST UNION
<PAGE>
[INSIDE FRONT COVER]
[MAP]
The Company intends to furnish its shareholders with annual reports
containing audited financial statements certified by an independent public
accounting firm and quarterly reports containing unaudited financial
statements for the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Investors should carefully consider the information set forth
under the heading "Risk Factors." Unless otherwise indicated, all information
in this Prospectus (i) assumes that the Underwriters' overallotment option is
not exercised, (ii) reflects the exercise of warrants (the "Churchill
Warrants") to purchase shares of Common Stock held by Churchill ESOP
Capital Partners ("Churchill") and (iii) has been adjusted to give effect to a
-for-1 Common Stock split. The exercise of the Churchill Warrants and the
Common Stock split will be effected immediately prior to consummation of the
Offering. References throughout this Prospectus to fiscal years refer to the
Company's fiscal years ending on the last day of February of such year. Unless
otherwise indicated, references to the "Company" or "C.D. Smith" refer to C.D.
Smith Drug Company and its subsidiaries.
THE COMPANY
C.D. Smith is a leading regional full-line, full-service wholesale
distributor of pharmaceuticals and related products. The Company distributes
over 25,000 SKUs to more than 3,000 customers located predominantly in the
midwestern United States and New England. The Company believes that it is the
primary supplier to a majority of its customers, which include independent
pharmacies, health care institutions and regional and national chain
pharmacies. According to the 1998 Drug Store Market Guide, the Company is the
second largest pharmaceutical wholesale distributor in metropolitan Kansas City
and Boston and the third largest in Chicago. For fiscal 1998, the Company's pro
forma net sales and operating income were $762.3 million and $13.9 million,
respectively.
Since being acquired by its management and employees in 1991, C.D. Smith has
grown from a small pharmaceutical distributor serving rural customers into a
full-line, full-service regional wholesale distributor with a major presence in
both rural and urban markets within its core territories. From 1994 through
fiscal 1998, the Company's net sales grew internally at a compound annual rate
of approximately 50.3%. The Company has achieved this growth principally by
gaining new customers within its territories, converting customer relationships
from secondary to primary supplier status and expanding its service
territories.
The Company attributes its success since 1991 primarily to the implementation
of a comprehensive program aimed at meeting the specific needs of its
customers. As a part of this program, the Company significantly expanded its
sales and customer service staff. At May 31, 1998, C.D. Smith employed 37
direct sales representatives with an average of 28 years of industry experience
who are supported by 25 telemarketers and customer service professionals. The
Company added multiple operating shifts to extend the hours for customer order
placement and to expand the territories in which it can offer reliable next-day
delivery. The Company also broadened its product offerings and upgraded its
customer ordering and information systems to enhance its ability to serve as a
primary supply source. In 1994, the Company built a state-of-the-art
distribution facility to accommodate its growth and has achieved key measures
of efficiency that significantly exceed industry averages. The Company believes
that providing exceptional customer service distinguishes C.D. Smith from other
wholesale distributors and is key to its continued growth.
In October 1997, the Company acquired General Drug Company, a full-service
wholesale distributor with operations in the greater Chicago and Boston markets
(the "General Drug Companies"). As part of this transaction (the "General Drug
Acquisition"), the Company also acquired SBS Pharmaceuticals, Inc. ("SBS"), a
pharmaceuticals repackaging and distribution business. C.D. Smith is currently
integrating the operations of the General Drug Companies and believes it will
realize substantial synergies by increasing the efficiency of the acquired
distribution facilities, obtaining greater volume purchasing discounts and
eliminating duplicative overhead functions. In addition, the Company is
implementing its program of enhanced customer service in Chicago and Boston,
which it believes will accelerate sales growth in those markets. In Chicago,
the Company doubled the size of its sales force and added a second operating
shift to accommodate late-day orders, commence Saturday deliveries and increase
the territories served by the facility. In Boston, the Company has divested the
3
<PAGE>
marginally profitable tobacco and candy business, which has provided
significant additional warehouse capacity for pharmaceuticals and related
products. The Company also intends to expand the sales force and add a second
operating shift in Boston.
The wholesale pharmaceutical distribution industry has experienced rapid
sales growth over the past twelve years, increasing from approximately $14.0
billion in sales in 1985 to over $73.0 billion in 1997. In addition, the
percentage of pharmaceutical sales through wholesale distributors increased to
approximately 80.0% in 1997, up from 45.0% in 1970. At the same time, there has
been substantial consolidation of full-line pharmaceutical wholesale
distributors in the United States, from approximately 139 at the end of 1980 to
approximately 54 at the end of 1997. Industry analysts expect this
consolidation trend to continue. The Company believes that it is well-
positioned to capitalize on industry consolidation and intends to make
additional selective acquisitions.
OPERATING STRATEGY
The Company's objective is to build on its position as a leading regional
wholesale distributor to become a national pharmaceutical services company. The
principal elements of the Company's strategy are as follows:
Provide High Levels of Customer Service. C.D. Smith believes that its
customer service focus is a significant competitive advantage, especially
with independent pharmacy customers who may not receive personalized
service from national wholesale distributors. C.D. Smith's experienced
direct sales force makes regular personal visits to current and prospective
customers and is supported by a knowledgeable in-house customer service
staff. The Company operates its distribution facilities to meet its
customers' requirements for accurate same-day or next-day delivery. The
Company believes that its commitment to customer service has enabled it to
achieve primary supplier status with many of its customers, resulting in
significant net sales growth.
Increase Sales from Existing Facilities. C.D. Smith intends to leverage
its existing infrastructure and expertise to increase sales from each of
its distribution facilities. Prior to their acquisition by the Company,
each of the Chicago and Boston facilities operated a single shift, served
customers within a small geographic area, and carried a more limited
inventory, which typically positioned them as secondary suppliers. The
Company believes that adding a second operating shift and developing a
customer-oriented sales force will enable both of these facilities to
increase net sales by achieving primary supply relationships with customers
in significantly expanded service territories. Similarly, C.D. Smith
believes it can apply the General Drug Companies' greater experience with
managed care and other institutional customers to increase net sales in its
midwestern region.
Continue Selective Acquisitions. The Company believes that it is well-
positioned to make selective acquisitions to expand into new territories
and to further penetrate current market territories. Through its
participation in national industry groups and OptiSourceSM, a Company-
operated generic pharmaceutical buying group that includes 16 other
regional wholesale distributors, C.D. Smith maintains significant contact
with numerous regional and local distributors and has identified several
attractive acquisition candidates.
Offer Broad Line of Products and Services. C.D. Smith provides its
customers a broad line of over 25,000 SKUs of branded and generic
pharmaceuticals, over-the-counter health care products and health and
beauty aids from more than 1,000 vendors. The Company believes its products
and services enable it to be the primary supplier to the majority of its
customers and to further leverage its regional presence by meeting the
secondary supply needs of many significant customers. Through OptiSource,
the Company obtains lower wholesale prices through volume purchasing and
maintains a major presence in the distribution of the rapidly growing
generic pharmaceutical product category. Through SBS, the Company buys
approximately 140 pharmaceuticals in bulk and repackages them into
quantities requested by selected wholesalers. The Company is also
developing its own private label program designed to help independent
pharmacies compete more aggressively with regional and national chain
pharmacies by providing store identification, promotional and advertising
programs and a private label brand of over-the-counter pharmaceuticals and
health and beauty aids.
4
<PAGE>
Expand Pharmaceutical Services. The Company intends to offer
pharmaceutical services beyond its current product and service offerings.
The Company believes that it can leverage its expertise in the
pharmaceutical industry and its large, concentrated customer base to offer
additional pharmacy-related services, such as pharmacy benefits management,
managed care pharmaceutical formulary management and health care
institution unit of use packaging. The Company intends to expand its
service offerings through internal development and selective acquisitions.
The Company is a Missouri corporation with its corporate headquarters located
at 3907 South 48th Terrace, St. Joseph, Missouri 64503. The telephone number is
(816) 232-5471.
THE OFFERING
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<S> <C>
Common Stock offered:
By the Company................................. shares
By the Selling Shareholders.................... shares
Total......................................... shares
Common Stock to be outstanding after this
Offering....................................... shares(1)
Use of Proceeds(2).............................. To repay certain outstanding indebtedness. See
"Use of Proceeds."
Proposed Nasdaq symbol.......................... CDSH
</TABLE>
- --------------------
(1) Excludes shares subject to options issued under the Company's
Amended and Restated 1996 Equity Compensation Plan, all of which are
immediately exercisable at a weighted average exercise price of $
per share. See "Management--Executive Compensation--Equity Incentive Plan."
(2) The Company will not receive any of the proceeds from the sale of Common
Stock by the Selling Shareholders. See "Principal and Selling
Shareholders."
RISK FACTORS
Prospective purchasers of the Common Stock should consider carefully all of
the information set forth in the Prospectus and in particular, should evaluate
the specific factors set forth under the caption "Risk Factors" hereinafter,
which provide a discussion of certain risks involved in an investment in the
Common Stock.
5
<PAGE>
SUMMARY CONSOLIDATED AND PRO FORMA FINANCIAL DATA
The following summary financial information sets forth selected consolidated
financial data and selected consolidated pro forma financial data with respect
to the Company. The pro forma Statement of Operations Data and Other Operating
Data, as adjusted, gives effect to the Offering, including the application of
the net proceeds therefrom, the exercise of the Churchill Warrants and the
General Drug Acquisition as if they occurred on March 1, 1997. The financial
data should be read in conjunction with the consolidated financial statements
of the Company and related notes thereto and the pro forma consolidated
statement of income of the Company and related notes thereto included elsewhere
in this Prospectus. The pro forma financial data is provided for comparative
purposes only and is not necessarily indicative of the results which would have
occurred had the General Drug Acquisition, the exercise of the Churchill
Warrants and the Offering been consummated on March 1, 1997, nor is it
necessarily indicative of future results.
<TABLE>
<CAPTION>
PRO FORMA AS
FISCAL YEAR ENDED ADJUSTED(3)
------------------------------------------------------------------ ------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28, FEBRUARY 28,
1994(1) 1995 1996 1997 1998(2) 1998
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $75,812 $171,977 $224,163 $301,523 $544,090 $762,259
Gross profit........... 3,902 7,751 10,682 14,739 27,423 38,455
Selling, general and
administrative
expense............... 4,138 7,868 7,975 9,986 15,879 22,848
Depreciation and
amortization.......... 111 155 221 279 923 1,731
Operating income
(loss)................ (347) (272) 2,486 4,474 10,621 13,876
Interest expense....... 280 1,041 1,478 1,571 4,646 2,870
Net income (loss)...... $ (601) $ (864) $ 634 $ 1,930 $ 3,997 $ 7,286
Net income (loss) per
share(4):
Basic................ $ $ $ $ $ $
======= ======== ======== ======== ======== ========
Diluted.............. $ $ $ $ $ $
======= ======== ======== ======== ======== ========
Shares used in
computing net income
(loss) per share(4):
Basic................
======= ======== ======== ======== ======== ========
Diluted..............
======= ======== ======== ======== ======== ========
OTHER OPERATING DATA:
Sales growth........... 25.9%(5) 126.8% 30.3% 34.5% 80.4% --
Same-store sales
growth(6)............. 25.9%(5) 126.8% 30.3% 34.5% 28.2% --
EBITDA(7).............. $ (362) $ (174) $ 2,748 $ 4,879 $ 11,833 $ 15,855
Days sales
outstanding(8)........ 26.3 19.5 17.8 17.2 20.8 23.9
Gross profit margin.... 5.1% 4.5% 4.8% 4.9% 5.0% 5.0%
Operating expenses as
a percentage of net
sales................. 5.6% 4.7% 3.7% 3.4% 3.0% 3.2%
Operating income
(loss) margin......... (0.5)% (0.2)% 1.1% 1.5% 2.0% 1.9%
</TABLE>
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1998
--------------------
AS
ACTUAL ADJUSTED(9)
(IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Current assets........................................... $133,995 $135,173
Working capital.......................................... 67,906 69,084
Total assets............................................. 168,702 168,963
Total indebtedness....................................... 95,929 41,433
Shareholders' equity..................................... 7,129 61,886
</TABLE>
6
<PAGE>
- --------------------
(1) In 1994, the Company changed its fiscal year end from September 30 to
February 28. This information represents the Statement of Operations Data
and Other Operating Data for the twelve-month period ended February 28,
1994 developed from the Company's internal unaudited financial statements.
In addition, prior to fiscal 1995, the Company valued its inventory using
the last-in, first-out ("LIFO") method. The 1994 Statement of Operations
Data and Other Operating Data have been restated to report the results of
operations as if inventory was determined using the first-in, first-out
("FIFO") method.
(2) Includes five months of operating results of the General Drug Companies
following their acquisition by the Company on October 3, 1997 (the
"Acquisition Date").
(3) Adjusted to give effect to the General Drug Acquisition, the exercise of
the Churchill Warrants and the Offering, including application of the net
proceeds therefrom, as though they occurred on March 1, 1997.
(4) See Notes 1 and 12 of notes to the consolidated financial statements of the
Company for information concerning the calculation of net income (loss) per
share.
(5) Represents sales and same-store sales growth for the twelve month period
ended February 28, 1994 as compared to the twelve month period ended
September 30, 1993.
(6) Reflects growth of net sales from distribution facilities that have been
operated by the Company for the full year in each comparable period.
(7) EBITDA represents income before interest expense, income taxes,
depreciation and amortization. EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting principles
and should not be used as an alternative to net income as an indicator of
operating performance or to cash flows as a measure of liquidity. See the
consolidated financial statements of the Company included elsewhere in this
Prospectus for a presentation of cash flows in accordance with generally
accepted accounting principles.
(8) Days sales outstanding is calculated using the average of the month-end
accounts receivable balances for the respective fiscal periods.
(9) Adjusted to give effect to the Offering, including the application of the
net proceeds therefrom and the exercise of the Churchill Warrants.
7
<PAGE>
RISK FACTORS
Prospective purchasers of the Common Stock offered hereby should consider
carefully the factors described in this section as well as the other
information contained in this Prospectus.
COMPETITION
The wholesale distribution of pharmaceuticals, health and beauty aids and
other health care products is highly competitive. The Company competes with
numerous national and regional distributors, some of which are larger and have
substantially greater financial resources than the Company. In addition, the
Company competes with numerous distributors, direct-selling manufacturers and
other specialty distributors. Competitive factors include price, service and
delivery, credit terms, breadth of product line, customer support and
marketing programs. A price decrease by a competitor, or an increase in the
other competitive factors, could have a material adverse effect on the
Company. There can be no assurance that the Company will not encounter
increased competition in the future that could adversely affect the Company's
business. See "Business--Competition."
EXPANSION THROUGH ACQUISITIONS
The Company intends to expand, in part, through selective acquisitions of
wholesale pharmaceutical distributors. The Company continually evaluates
strategic acquisition opportunities; however, the Company has no binding
commitments, understandings or other arrangements to acquire any business or
other material assets. There can be no assurance that the Company will be able
to identify attractive acquisition candidates or complete the acquisition of
any such candidate on terms favorable to the Company. Growth through
acquisitions involves numerous risks, including difficulties in the
integration of the operations, systems and personnel, including key
management, of the acquired businesses and the diversion of management's
attention from other business concerns. In the event that the Company acquires
businesses whose employees are parties to collective bargaining agreements,
the Company would be subject to risks inherent in such arrangements, including
strikes or work stoppages. A substantial portion of the Company's capital
resources could be used for acquisitions. The Company may require additional
debt or equity financing for future acquisitions, which additional financing
may not be available on terms favorable to the Company, if at all.
EXPANSION INTO NEW MARKETS
The General Drug Acquisition provided the Company greater access to certain
urban markets and different categories of customers than previously served.
Expansion into these markets and service of these customers presents different
challenges than the Company previously experienced in growing its net sales.
Accordingly, there can be no assurance that the Company will be able to grow
the operations acquired in the General Drug Acquisition at a similar rate to
that achieved in its St. Joseph operations, if at all.
PHARMACEUTICAL WHOLESALE DISTRIBUTION INDUSTRY
Like most wholesale distributors, the Company achieves small gross margins,
making it vulnerable to increases in its fixed operating costs and decreases
in its net sales, which could result from industry-wide price decreases,
customer losses or governmental regulation such as imposed price ceilings. In
addition, as a wholesale distributor, the Company is largely dependent on
service and financial support provided by a small number of pharmaceutical
manufacturers. A cessation or substantial decrease in the supply of products
or financial support provided to the Company by one or more of these
manufacturers could have a material adverse effect on the Company's operations
and financial results.
Although much of the Company's sales are delivered using internal
transportation, a substantial portion of sales is delivered to customers using
third-party shippers. In the event these third-party shippers were to become
unavailable for any reason, the Company could experience a material adverse
effect on its business operations and financial condition.
8
<PAGE>
DEPENDENCE ON KEY PERSONNEL; EMPLOYEES
The Company is dependent on its senior and regional management, the loss of
certain of whom could have a material adverse effect on the Company. The
Company maintains key personnel life insurance on Robert C. Farley in the
amount $1.0 million. In addition, the Company has long-term employment
agreements with its key executives that contain noncompetition clauses. There
can be no assurance that, over time, the Company will be able to retain all of
its senior and regional management. See "Management."
The Company has collective bargaining agreements covering approximately 80
employees, which subject the Company to risks inherent in such arrangements,
including strikes and work stoppages. See "Business--Employees."
CONCENTRATION ON INDEPENDENT PHARMACIES
Approximately 57.7% of the Company's net sales in fiscal 1998 (49.6%, pro
forma for the General Drug Acquisition) were to independent pharmacies. Due
primarily to industry consolidation, increased competition and pricing
pressures, the number of independent pharmacies in the United States has
decreased from approximately 32,000 in 1990 to approximately 21,000 in 1997.
Further reduction in the number of independent pharmacies in the Company's
markets could have a material adverse effect on the Company's business and
financial condition.
DEPENDENCE ON SYSTEMS
The Company's success depends, in part, on the accuracy and proper
utilization of its management information systems, as well as those of its
vendors and customers. The Company's ability to manage its inventory and
accounts receivable collection, to purchase, sell and ship on an efficient and
timely basis and maintain a cost-efficient operation is dependent upon the
quality and utilization of the information generated by its management
information systems. The Company believes that its management information
systems, coupled with planned enhancements, will be sufficient to sustain its
present operations and its anticipated growth for the foreseeable future,
although no assurance can be given to that effect. See "Business--Management
Information Systems."
The Company is in the process of modifying the software in its management
information systems to be Year 2000 compliant. There can be no assurance that
the Company will complete such modifications in a timely fashion. Failure of
the Company, its vendors or its customers to have in place Year 2000 compliant
systems could have a material adverse effect on the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Compliance."
COVENANT RESTRICTIONS IN CREDIT FACILITY
The Company's existing credit facility (the "Credit Facility") restricts the
Company from paying dividends, could limit the ability of the Company to
effect future debt or equity financings and may otherwise restrict corporate
activities, including the ability to respond to competitive market conditions,
to provide for capital expenditures beyond those permitted or to take
advantage of acquisitions or other business opportunities. See
"Capitalization" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
POTENTIAL VOLATILITY OF FUTURE QUARTERLY OPERATING RESULTS
The Company's results of operations have in the past and will in the future
fluctuate on a quarterly basis as a result of a number of factors, including
the sale of seasonal items, such as during the cold and flu season, the timing
and scope of new customer volumes, the timing and amounts of price
adjustments, the timing and amount of other cost changes and the impact of
interest rate changes. Fluctuations in quarterly operating results could have
a disproportionate impact on the Company's results of operations for the full
year and could affect the market price of the Common Stock in a manner
unrelated to the longer term operating performance of the Company.
9
<PAGE>
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Common Stock could be subject to wide fluctuations
in response to announcements of increases in the cost of inventory, new
products distributed by the Company or its competitors, acquisitions proposed
by the Company or its competitors, variations in the Company's quarterly
results of operations or changes in financial estimates by securities analysts
and other events or factors. The stock market has experienced extreme price
and volume fluctuations in recent years, often unrelated to the performance of
the companies affected. Stock market volatility unrelated to the operating
performance of the Company may adversely affect the market price of the Common
Stock.
SHARES ELIGIBLE FOR FUTURE SALE
No prediction can be made as to the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price of the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect prevailing market prices of the Common Stock. The shares held
by management and the Company's Employee Stock Ownership Plan (the "ESOP") are
subject to restrictions on any public sale or distribution of Common Stock for
a period of 180 days beginning on the effective date of the Registration
Statement. See "Shares Eligible for Future Sale."
CONCENTRATION OF OWNERSHIP
Upon completion of the Offering, the ESOP and certain members of management
of the Company will own beneficially an aggregate of approximately 56.0% of
the Company's outstanding Common Stock. If the ESOP, the ESOP participants and
the management shareholders were to vote all of their shares in a similar
manner, they would effectively control the Company. In most circumstances,
they would have sufficient voting power to elect the entire Board of Directors
of the Company and, in general, to determine (without the consent of the
Company's other shareholders) the outcome of any corporate transaction or
other matter submitted to the shareholders for approval, other than a merger,
consolidation, or the sale of all or substantially all of the Company's
assets, each of which, under Missouri law, requires the affirmative vote of
holders of two-thirds of the outstanding stock. See "Principal and Selling
Shareholders."
GOVERNMENT REGULATION
The wholesale drug distribution industry is subject to regulation by
federal, state and local governmental agencies. The distribution of controlled
substances and prescription pharmaceuticals requires licenses and permits as
well as the implementation of an oversight and compliance program mandated by
the Prescription Drug Marketing Act of 1987. In general, regulations pertain
to the purchase, safe storage and distribution of controlled substances and
pharmaceuticals that are monitored through periodic site inspections conducted
by the Food and Drug Administration (the "FDA") and the Drug Enforcement
Agency (the "DEA"). Failure to comply with these requirements and regulations
could have a material adverse effect on the Company by resulting in penalties
such as fines, restrictions on operations or closures.
Although the Company has implemented an extensive compliance program
administered by its Chief Compliance Officer, there can be no assurance that
the Company will be successful in complying with all applicable government
regulations or that the Company will obtain and maintain all material licenses
and permits applicable to the Company's business.
DILUTION
Purchasers of Common Stock in the Offering will experience immediate and
substantial dilution in net tangible book value per share of Common Stock from
the initial public offering price. The existing shareholders of the Company
will experience an increase in net tangible book value per share as a result
of the Offering. Assuming an offering price of $ per share (the midpoint
of the range of prices set forth on the cover of this Prospectus), the
dilution in net tangible book value to purchasers of Common Stock in the
Offering would be $ per share to new investors purchasing shares of
Common Stock in the Offering, and existing shareholders of the Company would
experience an increase in net tangible book value of $ per share as a
result of the Offering. See "Dilution" and "Principal and Selling
Shareholders."
10
<PAGE>
ABSENCE OF PUBLIC MARKET FOR THE COMMON STOCK
Prior to the Offering, there has been no public market for the Common Stock.
Although the Company has applied to list the Common Stock on Nasdaq, there can
be no assurance that an active or liquid trading market in the Common Stock
will develop upon completion of the Offering or, if developed, that it will be
sustained. The initial public offering price of the Common Stock will be
determined through negotiations between the Company and the Underwriters and
may not be indicative of the market price for the Common Stock after the
Offering. The market price for shares of the Company's Common Stock may be
highly volatile depending on changes in general market and industry
conditions. See "Underwriting."
CERTAIN ANTI-TAKEOVER EFFECTS
The Company's Amended Articles of Incorporation and Amended and Restated
Bylaws and Missouri statutes contain certain provisions that may discourage or
render more difficult an unfriendly tender offer, proxy contest, merger or
change in control of the Company, which could be in the best interests of the
Company's shareholders. These provisions include the ability to issue "blank
check" preferred stock, a classified board of directors and limitations on the
manner of calling and the matters to be considered at a meeting of
shareholders. See "Description of Capital Stock."
DILUTION
The net tangible book value of the Company at February 28, 1998, adjusted
for the exercise of the Churchill Warrants, was approximately $ per
share. Net tangible book value per share is determined by dividing the
tangible net worth of the Company (total tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. After giving
effect to the sale of shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $ per share and the
application by the Company of the estimated net proceeds therefrom, the pro
forma net tangible book value of the Company as of February 28, 1998, would
have been $ per share. This represents an immediate increase in net
tangible book value per share of $ to existing shareholders and an
immediate dilution of $ per share to new investors purchasing shares of
Common Stock in the Offering. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Net tangible book value per share before the
Offering............................................ $
Increase in net tangible book value per share
attributable to price paid by investors in the
Offering............................................
------
Pro forma net tangible book value per share after the
Offering.....................................................
------
Dilution in net tangible book value per share to investors in
the Offering................................................. $
======
</TABLE>
The following table sets forth the difference between the existing
shareholders and the purchasers of shares in this Offering with respect to the
number of shares purchased from the Company, the total cash consideration paid
to the Company for such shares and the average price per share paid (assuming
an initial public offering price of $ per share):
<TABLE>
<CAPTION>
SHARES TOTAL AVERAGE
PURCHASED CONSIDERATION PRICE PER
--------------- --------------- SHARE PAID
NUMBER PERCENT AMOUNT PERCENT
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)(2)... % $ % $
New investors.................
------- ------ ------- ------
Total..................... 100.0% $ 100.0%
======= ====== ======= ======
</TABLE>
- ---------------------
(1) Sales by the Selling Shareholders in this Offering will reduce the number
of shares held by existing shareholders of the Company to , or
% of the total number of shares outstanding after this Offering, and
will increase the number of shares held by new investors to
shares, or % of the total number of shares outstanding after this
Offering. See "Principal and Selling Shareholders."
(2) Excludes shares subject to options under the Company's Amended and
Restated 1996 Equity Compensation Plan, all of which are immediately
exercisable at a weighted average exercise price of $ per share. See
"Management--Executive Compensation--Equity Incentive Plan" and "Principal
and Selling Shareholders."
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock it is offering hereby (after deducting underwriting discounts and
commissions and estimated offering expenses) will be approximately $
million (approximately $ million if the Underwriters' over-allotment
option is exercised in full), assuming an initial public offering price of
$ per share. The net proceeds will be used (i) to retire the $12.0
million outstanding principal amount of the senior subordinated note due
Churchill, which has a maturity date of October 3, 2004 and bears interest at
a rate of 12.0% per annum and (ii) reduce the amount outstanding under the
Credit Facility (approximately $83.7 million as of February 28, 1998, with
varying interest rates) by approximately $ million. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources" for a description of the Credit Facility.
DIVIDEND POLICY
The timing, amount and form of dividends will be determined by the Company's
Board of Directors and will depend on, among other things, the Company's
results of operations, financial condition, cash and capital expenditure
requirements, certain corporate and tax law requirements and other factors
(including factors outside of the Company's control) deemed relevant by the
Board of Directors. It is currently anticipated that earnings will be retained
for use in the business and that no dividends will be paid in the foreseeable
future. The Credit Facility prohibits the Company from paying any cash or
stock dividends.
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
February 28, 1998, on an actual basis and as adjusted to give effect to the
sale by the Company of shares in the Offering at an assumed initial
public offering price of $ per share, less underwriters' discounts and
commissions and estimated offering expenses, and the application of the
estimated net proceeds therefrom as set forth in "Use of Proceeds." This table
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of the Company and notes thereto appearing elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FEBRUARY 28, 1998
---------------------
ACTUAL AS ADJUSTED
(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Revolving line of credit......................... $ 80,881 $ 38,617
Term notes payable, including current portion.... 2,816 2,816
Subordinated note payable(1)..................... 9,663 --
Churchill Warrants(1)............................ 2,569 --
-------- --------
Total indebtedness............................. 95,929 41,433
-------- --------
Shareholders' equity:
Preferred stock, par value $0.01 per share,
10,000,000 shares authorized, no shares issued
and outstanding................................. -- --
Common stock, par value $0.01 per share,
90,000,000 shares authorized, shares
issued, actual; shares issued, as
adjusted(2)..................................... 102 148
Additional paid-in capital....................... 98 56,885
Retained earnings(1)............................. 8,478 6,402
Treasury stock, shares, at cost............. (1,133) (1,133)
Note receivable from ESOP........................ (416) (416)
-------- --------
Total shareholders' equity..................... 7,129 61,886
-------- --------
Total capitalization......................... $103,058 $103,319
======== ========
</TABLE>
- ---------------------
(1) The subordinated note payable has a principal amount of $12.0 million but
was recorded net of a discount of $2.6 million, which was the value
allocated to the Churchill Warrants. Upon exercise of the Churchill
Warrants, the $2.6 million allocated value will be reclassified into
shareholders' equity. The subordinated note payable will be redeemed at
its principal amount of $12.0 million. This redemption will result in an
extraordinary charge of $2.1 million, net of taxes, which will reduce
retained earnings accordingly.
(2) Excludes shares subject to options under the Company's Amended and
Restated 1996 Equity Compensation Plan, all of which are immediately
exercisable at a weighted average exercise price of $ per share.
See "Management--Executive Compensation--Equity Incentive Plan" and
"Principal and Selling Shareholders."
13
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected financial data presented below under the captions "Statement of
Operations Data" and "Balance Sheet Data" as of and for each of the fiscal
years in the four-year period ended February 28, 1998 are derived from the
audited consolidated financial statements of the Company. The data for the
twelve-month period ended February 28, 1994 is derived from the unaudited
consolidated financial statements of the Company due to a change in the
Company's fiscal year in 1994 from September 30 to February 28. The fiscal
1998 information includes the results of operations of the General Drug
Companies since their acquisition on October 3, 1997. This table should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the consolidated financial statements
of the Company, including the notes thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
------------------------------------------------------------------
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1994(1) 1995 1996 1997 1998(2)
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $75,812 $171,977 $224,163 $301,523 $544,090
Cost of goods sold..... 71,910 164,226 213,481 286,784 516,667
------- -------- -------- -------- --------
Gross profit........... 3,902 7,751 10,682 14,739 27,423
Operating expenses:....
Selling, general and
administrative...... 4,138 7,868 7,975 9,986 15,879
Depreciation and
amortization........ 111 155 221 279 923
------- -------- -------- -------- --------
Operating income
(loss)................ (347) (272) 2,486 4,474 10,621
Other income
(expense):
Interest expense..... (280) (1,041) (1,478) (1,571) (4,646)
Other, net........... (126) (57) 41 126 289
------- -------- -------- -------- --------
Income (loss) before
income taxes.......... (753) (1,370) 1,049 3,029 6,264
Income tax provision
(benefit)............. (152) (506) 415 1,099 2,267
------- -------- -------- -------- --------
Net income (loss)...... $ (601) $ (864) $ 634 $ 1,930 $ 3,997
======= ======== ======== ======== ========
Net income (loss) per
share(3):.............
Basic................ $ $ $ $ $
======= ======== ======== ======== ========
Diluted.............. $ $ $ $ $
======= ======== ======== ======== ========
Shares used in
computing net income
(loss) per share(3):
Basic................
======= ======== ======== ======== ========
Diluted..............
======= ======== ======== ======== ========
OTHER OPERATING DATA:
Sales growth........... 25.9%(4) 126.8% 30.3% 34.5% 80.4%
Same-store sales
growth(5)............. 25.9%(4) 126.8% 30.3% 34.5% 28.2%
EBITDA(6).............. $ (362) $ (174) $ 2,748 $ 4,879 $ 11,833
Days sales
outstanding(7)........ 26.3 19.5 17.8 17.2 20.8
Gross profit margin.... 5.1% 4.5% 4.8% 4.9% 5.0%
Operating expenses as
a percentage of net
sales................. 5.6% 4.7% 3.7% 3.4% 3.0%
Operating income
(loss) margin......... (0.5)% (0.2)% 1.1% 1.5% 2.0%
BALANCE SHEET DATA:
Current assets......... $16,478 $ 25,108 $ 32,255 $ 46,811 $133,995
Working capital........ 2,663 10,304 11,696 20,811 67,906
Total assets........... 17,525 27,774 34,910 50,222 168,702
Total indebtedness..... 7,823 11,792 12,135 20,744 95,929
Shareholders' equity... 1,985 1,266 1,884 3,167 7,129
</TABLE>
14
<PAGE>
- ---------------------
(1) In 1994, the Company changed its fiscal year end from September 30 to
February 28. This information represents the Statement of Operations Data
and Other Operating Data for the twelve month period ended February 28,
1994 developed from the Company's internal unaudited financial statements.
In addition, prior to fiscal 1995, the Company valued its inventory using
the LIFO method. The 1994 Statement of Operations Data, Other Operating
Data and Balance Sheet Data have been restated to report the results of
operations as if inventory was determined using the FIFO method.
(2) Includes five months of operating results of the General Drug Companies
following their acquisition by the Company on October 3, 1997.
(3) See Notes 1 and 12 of notes to the consolidated financial statements of
the Company for information concerning the calculation of net income
(loss) per share.
(4) Represents sales and same-store sales growth for twelve month period ended
February 28, 1994 as compared to the twelve month period ended September
30, 1993.
(5) Reflects growth of net sales from distribution facilities that have been
operated by the Company for the full year in each comparable period.
(6) EBITDA is not intended to represent cash flow from operations as defined
by generally accepted accounting principles and should not be used as an
alternative to net income as an indicator of operating performance or to
cash flows as a measure of liquidity. See the consolidated financial
statements included elsewhere in this Prospectus for a presentation of
cash flows in accordance with generally accepted accounting principles.
(7) Days sales outstanding is calculated using the average of the month-end
accounts receivable balances for the respective fiscal periods.
15
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
The following unaudited pro forma consolidated statement of income gives
effect to the General Drug Acquisition, the exercise of the Churchill Warrants
and the Offering, including the application of the net proceeds therefrom, as
though they occurred on March 1, 1997. This pro forma information has been
prepared utilizing the audited consolidated financial statements of the
Company for the fiscal year ended February 28, 1998, the unaudited
consolidated financial statements of the General Drug Companies for the seven
months ended September 30, 1997 and the assumptions and adjustments described
in the accompanying notes. The General Drug Acquisition was accounted for
using the purchase method of accounting. This information should be read in
conjunction with the consolidated financial statements of the Company and
notes thereto that appear elsewhere herein. The pro forma financial data is
provided for comparative purposes only and is not necessarily indicative of
the results which would have occurred had the General Drug Acquisition, the
exercise of the Churchill Warrants and the Offering been consummated on March
1, 1997, nor is it necessarily indicative of future results.
<TABLE>
<CAPTION>
YEAR ENDED FEBRUARY 28, 1998
--------------------------------------------------------------------------
C.D. SMITH
DRUG GENERAL DRUG ACQUISITION OFFERING PRO FORMA
COMPANY(1) COMPANIES(2) ADJUSTMENTS PRO FORMA ADJUSTMENTS AS ADJUSTED
(DOLLARS AND SHARES IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $544,090 $218,169 $ -- $762,259 $ -- $762,259
Cost of goods sold...... 516,668 207,136 -- 723,804 -- 723,804
-------- -------- ------ -------- ------- --------
Gross profit........... 27,422 11,033 -- 38,455 -- 38,455
Operating expenses:
Selling, general and
administrative........ 15,878 6,970 -- 22,848 -- 22,848
Depreciation and
amortization.......... 923 509 299 (3) 1,731 -- 1,731
Covenants not to
compete............... -- 2,047 (2,047)(4) -- -- --
Employment agreements.. -- 3,340 (3,340)(5) -- -- --
Management fees........ -- 545 (545)(6) -- -- --
-------- -------- ------ -------- ------- --------
Operating income (loss). 10,621 (2,378) 5,633 13,876 -- 13,876
Other income (expense)..
Interest expense on
credit facilities..... (3,834) (2,026) (903)(7) (6,763) 3,893(10) (2,870)
Interest expense on
subordinated debt..... (812) -- (1,181)(8) (1,993) 1,993(10) --
Other income (expense). 289 (41) -- 248 -- 248
-------- -------- ------ -------- ------- --------
(4,357) (2,067) (2,084) (8,508) 5,886 (2,622)
-------- -------- ------ -------- ------- --------
Income (loss) before
income taxes........... 6,264 (4,445) 3,549 5,368 5,886 11,254
Income tax provision
(benefit).............. 2,267 (1,715) 1,285 (9) 1,837 2,131(11) 3,968
-------- -------- ------ -------- ------- --------
Net income (loss)....... $ 3,997 $ (2,730) $2,264 $ 3,531 $ 3,755 $ 7,286
======== ======== ====== ======== ======= ========
Net income per share:
Basic.................. $ $ $
======== ======== ========
Diluted................ $ $ $
======== ======== ========
Shares used in computing
net income per share:
Basic..................
======== ======== ========
Diluted................
======== ======== ========
EBITDA(12).............. $ 11,833 $ (1,910) $5,932 $ 15,855 $ 15,855
======== ======== ====== ======== ========
</TABLE>
16
<PAGE>
- ---------------------
(1) Represents the Company's consolidated results of operations for the fiscal
year ended February 28, 1998, including the General Drug Companies'
consolidated results of operations following their acquisition by the
Company on the Acquisition Date.
(2) Represents the General Drug Companies' consolidated results of operations
(unaudited) from March 1, 1997 through the Acquisition Date.
(3) Represents amortization of goodwill resulting from the General Drug
Acquisition for the period March 1, 1997 through the Acquisition Date, net
of the elimination of amortization expense related to goodwill and other
intangibles of the General Drug Companies amounting to $74,133.
(4) Represents payments under certain non-compete agreements entered into by
the former owners of the General Drug Companies which were contractually
paid and expensed by the Company in their entirety on the Acquisition
Date.
(5) Represents non-recurring payments by the Company which were contractually
required as a result of the General Drug Acquisition under certain
employment agreements entered into by the former owners of the General
Drug Companies. The employment agreements were eliminated upon acquisition
by the Company.
(6) Represents management fees paid by the General Drug Companies to a party
related to its former owner for no specifically identifiable service and
for which no continuing services are necessary.
(7) Represents the incremental interest and debt issuance cost amortization to
finance the acquisition of the General Drug Companies as of March 1, 1997,
net of $51,463 of amortization of debt issuance costs of the General Drug
Companies which is eliminated as if the General Drug Acquisition occurred
on March 1, 1997.
(8) Represents interest and amortization of the discount on the subordinated
note for the period March 1, 1997 to the Acquisition Date related to the
subordinated debt issued by the Company to finance the General Drug
Acquisition.
(9) Represents the tax effect of the pro forma acquisition adjustments above
using the Company's effective rate for fiscal 1998 of 36.2%, which
approximates the rate at which the income associated with the pro forma
acquisition adjustments would be taxed.
(10) Represents the reduced interest expense and elimination of the discount
on the subordinated note and debt issuance cost amortization expense
resulting from the use of net proceeds from the Offering to reduce
outstanding long-term indebtedness as of March 1, 1997. Excludes the
effect of an extraordinary loss of $2.1 million, net of taxes, on debt
extinguishment that will result from the repayment of the subordinated
note payable with the proceeds from the Offering.
(11) Represents the tax effect of the Offering adjustments described in Note
10 above, using the Company's effective rate for fiscal 1998 of 36.2%,
which approximates the rate at which the income associated with the
Offering adjustments would be taxed.
(12) The EBITDA calculation does not include any anticipated synergies from
the General Drug Acquisition. EBITDA is not intended to represent cash
flow from operations as defined by generally accepted accounting
principles and should not be used as an alternative to net income as an
indicator of operating performance or to cash flows as a measure of
liquidity. See the consolidated financial statements of the Company and
notes thereto included elsewhere in this Prospectus for a presentation of
cash flows in accordance with generally accepted accounting principles.
17
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" as well as the consolidated financial
statements of the Company and notes thereto contained elsewhere in this
Prospectus.
GENERAL
Founded in 1886, C.D. Smith was family-owned and operated until being
acquired by its management and employees in 1991. Since that time, the Company
has grown from a small pharmaceutical distributor serving rural customers into
a full-line, full-service regional wholesale distributor with a major presence
in both rural and urban markets within its core territories. For the twelve
month period ended February 28, 1994 through fiscal 1998, net sales grew from
approximately $75.8 million to approximately $386.7 million (excluding the
impact of the General Drug Acquisition), representing a compound annual growth
rate of approximately 50.3%. Over this time, gross margins have remained in
the range of 4.5% to 5.1%, while the operating leverage created by this
expanded sales base has enabled the Company to reduce operating expenses as a
percentage of net sales from 5.6% in 1994 to 3.0% in fiscal 1998.
In October 1997, the Company acquired the General Drug Companies for $28.0
million in cash and refinanced an additional $39.5 million of existing debt of
the General Drug Companies. The General Drug Companies are wholesale
distributors with operations in the greater Chicago and Boston markets, with
net sales for the twelve months ended February 28, 1998 of approximately
$375.6 million. The Company is in the process of integrating the operations of
the General Drug Companies, including eliminating duplicative functions and
integrating management information systems, adding additional sales personnel
and second operating shifts at the distribution facilities and evaluating the
profitability of and demand for certain product lines. In May 1998, the
Company sold the tobacco and candy business of the General Drug Companies,
which accounted for approximately $25.2 million of pro forma net sales for the
twelve months ended February 28, 1998 and did not contribute significantly to
operating income for that period.
The Company derives its net sales from the sale of branded pharmaceuticals
(approximately 84.0% in fiscal 1998), generic pharmaceuticals (approximately
9.0% in fiscal 1998), over-the-counter products and health and beauty aids
(approximately 3.5% in fiscal 1998) and sundries and miscellaneous items
(approximately 3.5% in fiscal 1998). Net sales constitute revenues less
returns and allowances.
Inventories for the C.D. Smith St. Joseph facility are accounted for at the
lower of cost or market, calculated under the FIFO method. Inventories for the
Chicago and Boston facilities are accounted for at the lower of cost or
market, calculated under the LIFO method.
18
<PAGE>
RESULTS OF OPERATIONS
The following table presents certain items from the statements of income of
the Company, on a consolidated basis, as a percentage of net sales:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998
<S> <C> <C> <C>
Net sales......................... 100.0% 100.0% 100.0%
Cost of goods sold................ 95.2 95.1 95.0
----- ----- -----
Gross profit...................... 4.8 4.9 5.0
Operating expenses:
Selling, general and
administrative................. 3.6 3.3 2.9
Depreciation and amortization... 0.1 0.1 0.1
----- ----- -----
Operating income.................. 1.1 1.5 2.0
Other income (expense):
Interest expense................ (0.7) (0.5) (0.9)
Other........................... 0.1 -- --
----- ----- -----
Income before income taxes........ 0.5 1.0 1.1
Provision for income taxes........ 0.2 0.4 0.4
----- ----- -----
Net income........................ 0.3% 0.6% 0.7%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED FEBRUARY 28, 1998 COMPARED TO FISCAL YEAR ENDED FEBRUARY
28, 1997
Net sales for fiscal 1998 were $544.1 million, an increase of 80.4% from
$301.5 million for fiscal 1997. Fiscal 1998 net sales included five months of
operations of the General Drug Companies, which contributed $157.4 million,
representing approximately 52.2% of the 80.4% fiscal 1998 net sales growth.
Net sales excluding the impact of General Drug Acquisition increased 28.2% to
$386.7 million in fiscal 1998 from $301.5 million in fiscal 1997. This growth
is attributable to market share gains in independent pharmacy customers,
increased penetration of the chain store and healthcare institution markets
and the addition of several new regional chain store customers.
Gross profit for fiscal 1998 was $27.4 million, an increase of 86.1% from
$14.7 million for fiscal 1997, primarily resulting from the increase in net
sales. Gross profit as a percentage of net sales increased in fiscal 1998 to
5.0% compared to 4.9% in fiscal 1997 due to the positive impact of the
slightly higher gross margin sales of the General Drug Companies.
Selling, general and administrative expense for fiscal 1998 was $15.9
million, an increase of 59.0% from $10.0 million for fiscal 1997, principally
due to the operating expenses associated with the General Drug Acquisition.
Selling, general and administrative expenses as a percentage of net sales
decreased to 2.9% for fiscal 1998 compared to 3.3% in fiscal 1997, reflecting
synergies achieved to date from the General Drug Acquisition.
Depreciation and amortization expense increased in fiscal 1998 to $0.9
million from $0.3 million in fiscal 1997. Depreciation expense increased to
$0.6 million from $0.3 million, reflecting five months of depreciation related
to the General Drug Acquisition. Amortization expense of $0.3 million in
fiscal 1998 reflects the amortization of goodwill related to the General Drug
Acquisition.
Operating income for fiscal 1998 was $10.6 million, an increase of 137.4%
from $4.5 million for fiscal 1997. Operating income as a percentage of net
sales increased to 2.0% in fiscal 1998 compared to 1.5% in fiscal 1997 due to
the increase in gross margin and the 0.3% decrease in operating expenses as a
percentage of net sales.
19
<PAGE>
Interest expense increased to $4.6 million for fiscal 1998 from $1.6 million
for fiscal 1997 due to increased borrowing under the Credit Facility and
interest on the subordinated note related to the General Drug Acquisition
financing.
Income tax expense increased to $2.3 million for fiscal 1998, reflecting an
effective tax rate of 36.2% compared to $1.1 million and an effective tax rate
of 36.3% in fiscal 1997. The Company's St. Joseph facility is located in a tax
enterprise zone where certain state and local tax abatement provisions have
reduced the effective tax rate.
FISCAL YEAR ENDED FEBRUARY 28, 1997 COMPARED TO FISCAL YEAR ENDED FEBRUARY
29, 1996
Net sales for fiscal 1997 were $301.5 million, an increase of 34.5% from
$224.2 million for fiscal 1996. Net sales growth was attributable to continued
customer expansion due to the hiring of additional sales representatives,
increased penetration of the healthcare institution market and the addition of
several chain store customers.
Gross profit for fiscal 1997 was $14.7 million, an increase of 38.0% from
$10.7 million for fiscal 1996, principally resulting from the increase in net
sales. Gross profit as a percentage of net sales increased in fiscal 1997 to
4.9% compared to 4.8% in fiscal 1996.
Selling, general and administrative expense for fiscal 1997 was $10.0
million, an increase of 25.2% from $8.0 million for fiscal 1996, principally
due to increased administrative expenses of $1.4 million in fiscal 1997.
Selling, general and administrative expense as a percentage of net sales
decreased to 3.3% for fiscal 1997 compared to 3.6% in fiscal 1996, principally
due to economies of scale associated with net sales increases.
Depreciation and amortization expense increased to $0.3 million in fiscal
1997 from $0.2 million in fiscal 1996.
Operating income for fiscal 1997 was $4.5 million, an increase of 80.0% from
$2.5 million for fiscal 1996. Operating income as a percentage of net sales
increased to 1.5% in fiscal 1997 compared to 1.1% in fiscal 1996 due to the
0.1% increase in gross margin and the 0.3% decrease in operating expenses as a
percentage of net sales.
Interest expense increased to $1.6 million for fiscal 1997 from $1.5 million
for fiscal 1996 due to increased borrowing on the Company's line of credit to
finance inventory increases necessitated by the increase in net sales.
Income tax expense increased to $1.1 million for fiscal 1997, reflecting an
effective tax rate of 36.3% compared to $0.4 million, and an effective tax
rate of 39.6%, in fiscal 1996. The lower effective tax rate in fiscal 1997 is
attributable to the effects of enterprise zone tax credits obtained and
utilized by the Company in that year.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital requirements through a
combination of internally generated funds, borrowings under a revolving credit
facility and trade credit. The Company actively monitors its accounts
receivable and inventory levels to reduce credit risk and optimize working
capital management. The following table illustrates certain key ratios the
Company uses to assess its working capital management:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------------------
FEBRUARY 29, FEBRUARY 28, FEBRUARY 28,
1996 1997 1998(1)
<S> <C> <C> <C>
Days Sales Outstanding(2).......... 17.8 17.2 20.8
Inventory Turns.................... 12.2 11.2 9.9
Current Ratio...................... 1.6 1.8 2.0
</TABLE>
- ---------------------
(1) Reflects the consolidated operations of the Company. Excluding the impact
of the General Drug Acquisition, fiscal 1998 days sales outstanding and
inventory turns were 16.7 and 11.3, respectively.
(2) Days sales outstanding is calculated using the average of the month-end
accounts receivable balances for the respective fiscal periods.
20
<PAGE>
Working capital at February 28, 1998 was $67.9 million, an increase of $47.1
million from working capital of $20.8 million on February 28, 1997. This
increase was due primarily to the acquisition of the General Drug Companies
(which had working capital of $33.1 million at the date of acquisition), as
well as increased inventory and receivables attributable to the growth in C.D.
Smith's business during the year. Management believes that it will be able to
bring its consolidated working capital utilization more in line with its
historical levels upon fully integrating the General Drug Companies. From
fiscal 1996 to fiscal 1997, working capital increased by $9.1 million due
primarily to increased net sales volumes.
Other than periodic investments in distribution facilities, the Company has
had relatively low capital expenditure requirements. The Company had $0.8
million and $1.1 million of capital expenditures in fiscal 1998 and fiscal
1997, respectively, primarily for distribution equipment and technology.
Historically, C.D. Smith has invested in technology-related assets financed
primarily by operating leases. The Company anticipates expending approximately
$1.3 million within the next year for the construction of new corporate
headquarters in St. Joseph.
In fiscal 1998, the Company acquired the equity interests of the General
Drug Companies for $28.0 million, which was financed through borrowing under
its Credit Facility of $16.0 million and the issuance of a subordinated note
for $12.0 million. In addition, the Company refinanced approximately $39.5
million of indebtedness of the General Drug Companies through its Credit
Facility.
The Credit Facility consists of a revolving line of credit and various term
notes which expire or mature in October 2000 and is secured by substantially
all of the assets of the Company. The revolving line of credit has a maximum
availability of $90.0 million based on eligible inventory and accounts
receivable. As of February 28, 1998, approximately $73.4 million was
outstanding on the revolving line of credit, excluding the net effects of bank
overdraft (checks issued but not presented at the bank) and unapplied lockbox
receipts totaling $7.5 million. The Company will use approximately $ of
the net proceeds from this Offering to reduce outstanding borrowings under its
Credit Facility. The revolving portion of the Credit Facility carries an
interest rate at the bank's prime rate or LIBOR plus 175 basis points.
Principal on the term notes, approximately $2.8 million at February 28, 1998,
is payable monthly based on an amortized term of seven to fifteen years plus
interest ranging from 50 basis points below prime to the bank's prime rate.
The Credit Facility contains certain financial covenants and other covenants
which restrict the Company's ability to pay dividends and take certain
extraordinary actions. The Company believes it is currently in compliance with
all covenants.
The $12.0 million subordinated note issued in conjunction with the General
Drug Acquisition bears interest at 12.0%, matures on October 3, 2004 and has
detachable warrants with a nominal exercise price to acquire shares of
Common Stock. The estimated fair value of the warrants at the time of issuance
was $2.6 million, and it was recorded as a discount on the subordinated note,
resulting in an effective interest rate of 17.9% on the subordinated note. The
Company will use $12.0 million of the net proceeds of the Offering to repay
the subordinated note.
The Company believes that it has adequate capital resources at its disposal
to meet currently anticipated capital expenditures, routine business growth
and current projected debt service requirements.
YEAR 2000 COMPLIANCE
The Company, its vendors and customers use software and related technologies
throughout their businesses that will be affected by the Year 2000 problem,
which is common to most businesses, and concerns the inability of information
systems, primarily computer software programs, to properly recognize and
process date-sensitive information as the year 2000 approaches. This inability
could result in a system failure or miscalculations causing disruptions of
operations, including among other things, a temporary inability to process
transactions, send invoices or engage in similar normal business activities.
Management has developed a plan to modify the Company's management
information systems to properly recognize the Year 2000 and believes that,
with modifications to existing software and conversions to new
21
<PAGE>
software, the Year 2000 issue can be mitigated. The Company will use both
internal and external resources to test and reprogram or replace the software
for Year 2000 modifications. Management currently expects the project to be
substantially complete by late 1998 and that the cost of the Year 2000
initiative, including both costs for modification of existing software and for
the conversions to new software, will not be material to the Company's results
of operations or financial position. Furthermore, this project is not expected
to have a significant effect on operations.
The Company will initiate formal communications with all of its significant
suppliers and large customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. However, there can be no assurance that the systems of other companies
will be timely converted.
The costs of the project and the date on which the Company plans to complete
the Year 2000 modifications are based on management's best estimates. However,
there can be no assurance that these estimates will be achieved and actual
results could differ materially from those plans. Specific factors that might
cause such material differences include, but are not limited to, the
availability and cost of personnel trained in this area, the ability to locate
and correct all relevant computer codes and similar uncertainties.
RECENTLY ISSUED PRONOUNCEMENTS
In October 1995, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123, "Accounting for Stock-Based Compensation" ("SFAS 123"), which
encourages (but does not require) companies to adopt a fair value based method
of accounting for stock-based compensation plans, in place of the provisions
of Accounting Principles Board ("APB") Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"). If the fair value based method of accounting
is not adopted, SFAS 123 requires companies to disclose pro forma calculations
in the notes to their financial statements of net income and net income per
share as if the fair value based method of accounting had been applied. The
Company has elected to follow APB 25 and related interpretations in accounting
for its employee stock options because the alternative fair value accounting
provided for under SFAS 123 requires use of option valuation models that were
not developed for use in valuing employee stock options. Under APB 25, because
the exercise price of the Company's employee stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share" ("SFAS
128"), which requires the presentation of earnings per share by all companies
that have issued common stock or potential common stock if those securities
trade in a public market either on a stock exchange or in the over-the-counter
market. This statement supersedes APB Opinion No. 15, "Earnings per Share."
The earnings per share amounts for all prior years have been presented as
required by SFAS 128.
Other recent pronouncements of the FASB, which are not required to be
adopted until 1998, include SFAS No. 130, "Reporting Comprehensive Income"
("SFAS 130"), and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information" ("SFAS 131"). SFAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general purpose financial statements. The statement requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed
with the same prominence as other financial statements. The Company does not
expect the adoption of this pronouncement to have any effect on required
disclosures within the Company's financial statements.
SFAS 131 supersedes SFAS No. 14, "Financial Reporting for Segments of a
Business Enterprise," and establishes new standards for the way that public
companies report selected information about operating segments in annual
financial statements and requires that those companies report selected
information about segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company has
not yet determined the effects, if any, the adoption will have on required
disclosures within the Company's financial statements.
22
<PAGE>
BUSINESS
OVERVIEW
C.D. Smith is a leading regional full-line, full-service wholesale
distributor of pharmaceuticals and related products. The Company distributes
over 25,000 SKUs to more than 3,000 customers located predominantly in the
midwestern United States and New England. The Company believes that it is the
primary supplier to a majority of its customers, which include independent
pharmacies, health care institutions and regional and national chain
pharmacies. According to the 1998 Drug Store Market Guide, the Company is the
second largest pharmaceutical wholesale distributor in metropolitan Kansas
City and Boston and the third largest in Chicago. For fiscal 1998, the
Company's pro forma net sales and operating income were $762.3 million and
$13.9 million, respectively.
Since being acquired by its management and employees in 1991, C.D. Smith has
grown from a small pharmaceutical distributor serving rural customers into a
full-line, full-service regional wholesale distributor with a major presence
in both rural and urban markets within its core territories. From 1994 through
fiscal 1998, the Company's net sales grew internally at a compound annual rate
of approximately 50.3%. The Company has achieved this growth principally by
gaining new customers within its territories, converting customer
relationships from secondary to primary supplier status and expanding its
service territories.
The Company attributes its success since 1991 primarily to the
implementation of a comprehensive program aimed at meeting the specific needs
of its customers. As a part of this program, the Company significantly
expanded its sales and customer service staff. At May 31, 1998, C.D. Smith
employed 37 direct sales representatives with an average of 28 years of
industry experience who are supported by 25 telemarketers and customer service
professionals. The Company added multiple operating shifts to extend the hours
for customer order placement and to expand the territories in which it can
offer reliable next-day delivery. The Company also broadened its product
offerings and upgraded its customer ordering and information systems to
enhance its ability to serve as a primary supply source. In 1994, the Company
built a state-of-the-art distribution facility to accommodate its growth and
has achieved key measures of efficiency that significantly exceed industry
averages. The Company believes that providing exceptional customer service
distinguishes C.D. Smith from other wholesale distributors and is key to its
continued growth.
In October 1997, the Company acquired General Drug Company, a full-service
wholesale distributor with operations in the greater Chicago and Boston
markets. As part of the General Drug Acquisition, the Company also acquired
SBS, a pharmaceuticals repackaging and distribution business. C.D. Smith is
currently integrating the operations of the General Drug Companies, and
believes it will realize substantial synergies by increasing the efficiency of
the acquired distribution facilities, obtaining greater volume purchasing
discounts and eliminating duplicative overhead functions. In addition, the
Company is implementing its program of enhanced customer service in Chicago
and Boston, which it believes will accelerate sales growth in those markets.
In Chicago, the Company doubled the size of its sales force and added a second
operating shift to accommodate late-day orders, commence Saturday deliveries
and increase the territories served by the facility. In Boston, the Company
has divested the marginally profitable tobacco and candy business, which has
provided significant additional warehouse capacity for pharmaceuticals and
related products. The Company also intends to expand the sales force and add a
second operating shift in Boston.
OPERATING STRATEGY
The Company's objective is to build on its position as a leading regional
wholesale distributor to become a national pharmaceutical services company.
The principal elements of the Company's strategy are as follows:
Provide High Levels of Customer Service. C.D. Smith believes that its
customer service focus is a significant competitive advantage, especially
with independent pharmacy customers who may not receive personalized
service from national wholesale distributors. C.D. Smith's experienced
direct sales force makes regular personal visits to current and prospective
customers and is supported by a knowledgeable in-house
23
<PAGE>
customer service staff. The Company operates its distribution facilities to
meet its customers' requirements for accurate same-day or next-day
delivery. The Company believes that its commitment to customer service has
enabled it to achieve primary supplier status with many of its customers,
resulting in significant net sales growth.
Increase Sales from Existing Facilities. C.D. Smith intends to leverage
its existing infrastructure and expertise to increase sales from each of
its distribution facilities. Prior to their acquisition by the Company,
each of the Chicago and Boston facilities operated a single shift, served
customers within a small geographic area and carried a more limited
inventory, which typically positioned them as secondary suppliers. The
Company believes that adding a second operating shift and developing a
customer-oriented sales force will enable both of these facilities to
increase net sales by achieving primary supply relationships with customers
in significantly expanded service territories. Similarly, C.D. Smith
believes it can apply the General Drug Companies' greater experience with
managed care and other institutional customers to increase net sales in its
midwestern region.
Continue Selective Acquisitions. The Company believes that it is well-
positioned to make selective acquisitions to expand into new territories
and to further penetrate current market territories. Through its
participation in national industry groups and OptiSourceSM, a Company-
operated generic pharmaceutical buying group that includes 16 other
regional wholesale distributors, C.D. Smith maintains significant contact
with numerous regional and local distributors and has identified several
attractive acquisition candidates.
Offer Broad Line of Products and Services. C.D. Smith provides its
customers a broad line of over 25,000 SKUs of branded and generic
pharmaceuticals, over-the-counter health care products and health and
beauty aids from more than 1,000 vendors. The Company believes its products
and services enable it to be the primary supplier to the majority of its
customers and to further leverage its regional presence by meeting the
secondary supply needs of many significant customers. Through OptiSource,
the Company obtains lower wholesale prices through volume purchasing and
maintains a major presence in the distribution of the rapidly growing
generic pharmaceutical product category. Through SBS, the Company buys
approximately 140 pharmaceuticals in bulk and repackages them into
quantities requested by selected wholesalers. The Company is also
developing its own private label program designed to help independent
pharmacies compete more aggressively with regional and national chain
pharmacies by providing store identification, promotional and advertising
programs and a private label brand of over-the-counter pharmaceuticals and
health and beauty aids.
Expand Pharmaceutical Services. The Company intends to offer
pharmaceutical services beyond its current product and service offerings.
The Company believes that it can leverage its expertise in the
pharmaceutical industry and its large, concentrated customer base to offer
additional pharmacy-related services, such as pharmacy benefits management,
managed care pharmaceutical formulary management and health care
institution unit of use packaging. The Company intends to expand its
service offerings through internal development and selective acquisitions.
INDUSTRY OVERVIEW
Industry Growth. Wholesale drug distributors are the most important
distribution channel for pharmaceutical manufacturers, handling approximately
80.0% of the $83.4 billion of prescription drug sales for the twelve months
ended June 1997. Wholesale pharmaceutical distribution industry sales
increased from $2.4 billion in 1970 to $30.2 billion in 1990 and reached
approximately $73.0 billion in 1997, representing a compound annual growth
rate of approximately 13.5%. The principal factors contributing to this growth
are (i) the aging of the population, (ii) introduction of new pharmaceuticals,
(iii) increased emphasis on effective drug therapies as a part of cost
containment efforts, (iv) increased utilization by pharmaceutical
manufacturers of wholesale distributors and (v) rising pharmaceutical costs.
Aging of Population. The number of individuals over 65 in the United States
has grown 68.2% from 20.1 million in 1970 to 33.8 million in 1996. This age
group, which is projected to grow to 39.6 million individuals by 2010,
spends approximately 3.7 times as much per capita on pharmaceuticals and
medical supplies as the rest of the population.
24
<PAGE>
Introduction of New Pharmaceuticals. The introduction of new pharmaceutical
compounds has led to consistent growth in their utilization and
corresponding increases in the sales volumes handled by wholesale
distributors. As new pharmaceutical compounds are approved by the FDA and
introduced into the market, this trend is expected to continue.
Cost Containment Efforts. In response to rising health care costs,
governmental and private payors have adopted cost containment measures that
encourage the use of efficient drug therapies to prevent or treat diseases.
While national attention has been focused on the overall increase in
aggregate health care costs, the Company believes that drug therapy has had
a beneficial impact on overall health care costs by reducing expensive
surgeries and prolonged hospital stays. Pharmaceuticals currently account
for approximately 8.0% of overall health care costs, and manufacturers'
emphasis on research and development is expected to continue the
introduction of cost effective drug therapies.
Increased Utilization of Wholesale Distributors. Over the past decade,
manufacturers of pharmaceuticals have significantly increased the
distribution of their products through wholesalers as the cost and
complexity of maintaining inventories and arranging for delivery of
pharmaceutical products has risen. Drug wholesalers offer their customers
and suppliers more efficient distribution and inventory management. As a
result, from 1980 to 1997, the percentage of total pharmaceutical sales
through wholesale distributors increased from approximately 57.0% to
approximately 80.0%.
Rising Pharmaceutical Costs. The Company believes that price increases by
pharmaceutical manufacturers will equal or exceed the overall Consumer
Price Index. The Company believes that this increase will be due in large
part to relatively inelastic demand in the face of higher prices charged
for patented drugs as manufacturers have attempted to recoup costs
associated with the development, clinical testing and FDA approval of new
products. For example, the average retail price of a prescription has
increased from $22.06 in 1990 to $32.12 in 1997.
Industry Consolidation. While sales by wholesale distributors have been
steadily increasing, the industry has been experiencing consolidation over the
last two decades. The number of full-service pharmaceutical wholesalers in the
United States has declined from approximately 139 at the end of 1980 to
approximately 54 at December 31, 1997. This trend has been driven in large
part by the significant economies of scale available to large regional and
national distributors. Industry analysts expect this trend to continue.
Market Segments and Customer Benefits. Wholesale distributors serve three
major market segments: independent pharmacies and drugstores (approximately
34.4% of the market), retail chains (approximately 25.7% of the market) and
health care institutions (approximately 36.4% of the market). These customers
benefit from the service of wholesale distributors because the distributors
provide access to a single source for pharmaceutical and health care products
from hundreds of different manufacturers. In addition, wholesale distributors
lower customer inventory costs, provide efficient and timely product delivery
and improve inventory and purchasing information. Customers also benefit from
value-added programs developed by wholesale distributors to reduce costs and
increase operating efficiencies for the customer. These programs include
packaging, stockless inventory and pharmacy computer systems. Industry
analysts estimate wholesale distributors save the health care delivery system
an estimated $17.0 billion per year compared to purchasing directly from
manufacturers.
25
<PAGE>
Independent pharmacies and drugstores are typically smaller, community
oriented businesses that are most reliant on marketing, merchandising and
support programs of wholesale distributors. Industry sales to independent
pharmacies have increased, in part, due to the improved competitiveness of
remaining stores, although the number of independent pharmacies has declined.
The following chart presents the number of independent pharmacies and industry
sales to those stores from 1988 to 1996:
[GRAPH APPEARS HERE]
# of Independent Sales Volume
Year Pharmacies ($Billions)
---- ---------- -----
1988 34,000 $9.81
1989 33,500 $10.29
1990 32,500 $10.99
1991 30,750 $12.38
1992 27,000 $13.57
1993 26,000 $14.20
1994 25,000 $14.27
1995 23,067 $16.42
1996 21,975 $18.54
Source: National Wholesale Druggists' Association
Retail chains include national and regional chain drugstores, supermarkets,
mass merchandisers and discount stores. The institutional market segment
includes a diverse group of medical care providers such as hospitals, nursing
homes, long-term care and rehabilitation facilities, clinics, HMOs and home
health care providers.
PRODUCTS AND SERVICES
The Company distributes over 25,000 SKUs of branded and generic
pharmaceuticals, over-the-counter health care products and health and beauty
aids. Branded and generic pharmaceutical products generate approximately 85.0%
and 8.0%, respectively, of the Company's net sales and comprise approximately
10,000 SKUs. In addition, the Company supplies a complete line of over-the-
counter health care products and health and beauty aids, including cosmetics,
toiletries, personal health products, home health products, sundries and
seasonal items.
Customers rely on C.D. Smith for dependable same-day or next-day delivery of
pharmaceuticals and other products. Customers may place orders through a
variety of means, including voice telephone interaction with an inside sales
representative, automated touch-tone telephone order placement, hand-held
electronic order entry devices or an interface to the Company's proprietary
CoDeS(R) PC-based customer ordering and information system. The CoDeS system
allows customers to obtain real-time pricing, product availability and
promotional information. CoDeS also allows customers to electronically enter
and track orders and review their purchasing histories.
The Company provides customers with a number of other value-added services
that it believes enhance independent pharmacies' ability to compete
effectively and create customer loyalty. These services include generic drug
sourcing, which allows customers to benefit from the lowest available pricing;
pharmaceutical repackaging; store modernization and planning services; OTC
merchandising, which includes shelf labeling and plan-o-grams; and various
customer reports, such as inventory tracking, regulatory compliance and
purchasing history.
26
<PAGE>
OptiSourceSM. C.D. Smith leads a collective generic buying program called
OptiSource which, as of May 31, 1998, included 16 other regional wholesale
distributors. The collective buying power of the consortium enables
participants to achieve lower purchase prices comparable to those obtained by
much larger competitors. The Company's operation of OptiSource has increased
its visibility with manufacturers and has allowed the Company to offer generic
pharmaceuticals at more competitive prices, an increasingly important element
of the gross margin mix.
SBS Pharmaceuticals. The Company operates SBS, a pharmaceutical repackaging
and distribution business acquired in the General Drug Acquisition. Through
this business, the Company achieves product cost savings by buying over 140
branded and generic pharmaceutical products in bulk and increases sales by
providing wholesale customers with product quantities and labeling at a lower
price than that available from the manufacturer. Management believes that it
can increase sales to present SBS customers and attract new customers by
expanding the number of pharmaceuticals offered for repackaging and increasing
its investment in inventory to facilitate timely delivery. In addition, the
Company intends to target chain pharmacies and health care institutions by
marketing existing services and offering unit of use packaging.
OPERATIONS
The Company operates three distribution centers with advanced material
handling systems for receiving, storing and distributing the approximately
25,000 SKUs which comprise its product offerings. The St. Joseph, Missouri
facility, built in 1994, was designed to minimize order fill time by
segregating products according to inventory turn rate. The facility operates
three shifts and employs bar code scanning technology to automate the
receiving process and update inventory levels. This facility's operating
efficiency, as measured by inventory turns, sales per square foot and sales
per employee, significantly exceeds the industry average. In most cases,
customer orders may be received as late as 9:00 p.m., and deliveries are made
six days per week.
The Company's Chicago and Boston facilities were acquired in the General
Drug Acquisition. In these facilities, the Company is implementing its
operating model, which includes the reorganization of inventory by turn rate
and other efficiencies to minimize order pick time. The Chicago distribution
center recently increased SKUs and added a second operating shift and a sixth
day of operation to increase customer service levels. The second shift enables
the Company to extend order deadlines and expand the territories in which
next-day deliveries can be provided. The Boston distribution center currently
operates one shift, five days per week. The Company anticipates adding a
second shift in the second quarter of this fiscal year to provide for similar
growth opportunities as those identified for the Chicago facility. In Boston,
the Company sold the tobacco and candy business in the first quarter of fiscal
1999 to provide significant additional warehouse capacity for pharmaceuticals
and related products.
The combination of investments in information technology, inventory
management systems and facility operations has increased the Company's order
fill rate in recent years. In fiscal 1998, the St. Joseph facility achieved an
order fill rate for branded pharmaceuticals, adjusted for manufacturers'
backorders, of approximately 99.6%, up from approximately 97.0% in 1994.
CUSTOMERS AND MARKETS
The Company's customer base consists of over 3,000 independent pharmacies,
regional and national chain pharmacies, supermarkets, mass merchandisers,
hospitals, nursing homes and health care institutions. The Company's ten
largest customers accounted for approximately 21.0% of pro forma fiscal 1998
net sales, with no one customer accounting for more than approximately 7.0%.
C.D. Smith believes it is the primary supplier to the majority of its
customers and derives a majority of its net sales from customers for whom it
provides in excess of 70.0% of their pharmaceutical and other needs. The
Company also serves as a secondary supplier to several large chain drugstores,
supermarkets and mass
27
<PAGE>
merchandisers for items the primary supplier does not carry or periodically
cannot supply. The secondary supply relationships typically have lower sales
volume per order but provide higher gross margins. The Company believes a
substantial percentage of the Company's sales growth has come from converting
customer relationships from secondary to primary supplier status.
The Company historically has focused its marketing efforts on independent
pharmacies, a customer base which the Company believes is not adequately
served by the largest national pharmaceutical wholesalers, who typically focus
on large chain customers and often require high minimum monthly purchases.
Since 1991, the Company has expanded from a principally rural customer base
into the major metropolitan areas of its core midwestern states and increased
market share with retail chains, health care institutions and mass
merchandisers. The General Drug Companies historically had strong
relationships with government and managed care customers who typically place a
greater emphasis on price, flexible delivery options and contract and
formulary support. Consequently, the General Drug Companies were less focused
on establishing primary supply relationships with independent pharmacies and
related marketing efforts were geographically limited. The Company believes
that it will be able to apply the areas of expertise of the acquired
operations, as well as its expertise with independent pharmacies, across all
of its geographic markets, thereby attracting new customers and increasing net
sales.
The table below presents pro forma fiscal 1998 net sales by class of trade
and distribution region as if the General Drug Acquisition occurred at the
beginning of the fiscal year. The pro forma information is provided for
comparative purposes only and is not necessarily indicative of the results
which would have occurred had the General Drug Acquisition been consummated on
March 1, 1997, nor is it necessarily indicative of future results. The net
sales information presented below for the St. Joseph distribution facility is
obtained by applying the percentages of net sales by class of trade for
calendar 1997 to total net sales for fiscal 1998.
<TABLE>
<CAPTION>
ST. % OF % OF % OF % OF % OF
JOSEPH TOTAL CHICAGO TOTAL BOSTON TOTAL SBS TOTAL CONSOLIDATED TOTAL
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Independent pharmacies.. $264,058 68.3% $ 59,877 43.6% $ 53,892 24.9% $ -- -- % $377,827 49.6%
Retail chains(1)........ 56,318 14.6% 7,553 5.5% 15,959 7.4% -- -- % 79,830 10.5%
Health care
institutions(2)........ 54,715 14.1% 21,565 15.7% 84,879 39.3% -- -- % 161,159 21.1%
Governments............. -- 0.0% 24,264 17.6% 4,721 2.2% -- -- % 28,985 3.8%
Miscellaneous........... 11,599 3.0% 24,223 17.6% 56,566(3) 26.2% 22,070 100.0% 114,458 15.0%
-------- ------ -------- ------ -------- ------ ------- ------ -------- ------
Total all classes...... $386,690 100.0% $137,482 100.0% $216,017 100.0% $22,070 100.0% $762,259 100.0%
======== ====== ======== ====== ======== ====== ======= ====== ======== ======
</TABLE>
- ---------------------
(1) Includes chain pharmacies, supermarkets and mass merchandisers.
(2) Includes clinics, nursing homes, hospitals and HMOs.
(3) Includes tobacco and candy business and dock to dock sales, which
accounted for $25.2 million and $25.9 million, respectively, of
consolidated net sales.
SUPPLIERS
C.D. Smith purchases pharmaceutical and other products from over 1,000
suppliers. The Company utilizes sophisticated inventory tracking and control
software to assist its purchasing personnel in analyzing demand history,
projecting future demand and identifying investment-buying opportunities. The
Company's system is automated to eliminate virtually all manual elements of
the purchase order process. In addition, the Company uses electronic data
interchange with its pharmaceutical suppliers for substantially all of its
purchases. Automatic inventory replenishment levels have been set for the
majority of non-seasonal SKUs. The Company believes that its strengthened
capitalization following the Offering will allow the Company to increase
investment buying of inventory in anticipation of supplier price increases,
potentially resulting in gross margin improvement.
28
<PAGE>
The Company's ten largest suppliers account for approximately 50.0% of its
purchases with no single supplier accounting for more than 10.0% of purchases.
Historically, the Company has not experienced significant difficulty in
obtaining desired products from suppliers. The Company believes that its
relationships with its suppliers are good.
SALES AND MARKETING
The Company has expanded its outside sales force contact with customers,
emphasizing frequent on-site personal interaction and consultation on
merchandising, stocking and inventory management. The Company believes that
customers have relied upon such consultation to improve marketing at the
retail level. The internal customer service staff emphasizes rapid response to
customer inquiries and efficient order placement.
Internal marketing programs are designed to give customers access to special
price and promotional offerings of the manufacturers to better plan inventory
investments. Information on manufacturer promotional programs is rapidly
disseminated to the Company's direct sales representatives to give them a
competitive advantage in customer interactions.
The Company has a combined sales, marketing, order entry and customer
service staff of 62 persons. The St. Joseph organization consists of 25
industry sales representatives supported by an order entry and customer
service staff of eight persons. The Chicago and Boston direct sales forces and
order entry staffs include 12 and 17 persons, respectively.
MANAGEMENT INFORMATION SYSTEMS
The Company invests in management information systems to increase
efficiency, improve customer access to information, decrease the time and
labor cost of receiving orders and improve the speed with which inventory is
received, stocked and monitored. The information systems are intended to
provide for a seamless, integrated tracking of customer order entry,
purchasing, restocking and invoice preparation.
The Company's proprietary on-line customer interface software, CoDeS, allows
direct customer connectivity to the Company's mainframe computer in St. Joseph
to obtain pricing, product availability and promotional information and on-
line order entry. The CoDeS software is designed to reside on a customer site
PC supported by dial-up modem. Complete customer order tracking and purchase
history is available through the software system.
The Company's information systems environment utilizes an IBM AS400
mainframe with integrated links to the PC-based local area network. The
Company has recently purchased an IBM AS400E server for intranet use, sales
force automation and intercompany communication. In the distribution centers,
laser scanners utilizing bar coding information update inventory receiving
data. Extensive use of electronic mail, paperless imaging systems and an
automated broadcast faxing system have reduced cost and labor associated with
customer and vendor interactions and increased the amount and timeliness of
information available to the external sales force. Electronic commerce and
other Internet applications will be implemented in the near future. The
Company has engaged various consultants and is implementing a plan to achieve
Year 2000 compliance by the end of calendar 1998.
COMPETITION
The wholesale distribution of pharmaceuticals, health and beauty aids and
other health care products is highly competitive. The Company competes with
numerous national and regional distributors, some of which are larger and have
substantially greater financial resources than the Company. The five largest
national
29
<PAGE>
pharmaceutical wholesale distributors are McKesson Corporation, Cardinal
Health, Inc., Bergen Brunswig Corporation, AmeriSource Health Corporation and
Bindley Western Industries, Inc. In addition, the Company competes with
numerous distributors, direct-selling manufacturers and other specialty
distributors. Competitive factors include price, service and delivery, credit
terms, breadth of product line, customer support and marketing programs.
EMPLOYEES
As of February 28, 1998, the Company employed approximately 318 persons, of
which approximately 310 were full-time employees. Approximately 80 of the
Company's employees in its Chicago and Boston distribution facilities are
covered by collective bargaining agreements. One of these agreements expired
on March 31, 1998. The previous contract terms are being honored during
negotiations, which are expected to be completed at the end of the summer. The
remaining agreements expire at various times through September 2000. The
Company believes that all remaining collective bargaining agreements will be
negotiated upon expiration on contract terms that will not have a material
adverse impact on the Company, and the Company believes that its relationship
with its employees is good.
FACILITIES
The Company owns its headquarters and distribution facility in St. Joseph.
The building encompasses 73,500 square feet with approximately 19,500 square
feet allocated to offices and 54,000 square feet of distribution and warehouse
space. The distribution facility is considered to be adequate for operations
for the foreseeable future, and the design of the facility allows for
additional expansion. The Company is in the process of designing and
constructing a facility for new corporate headquarters in St. Joseph which
will consist of approximately 10,000 square feet of office space.
The Company owns its Chicago distribution center, which includes two
adjoining buildings on a contiguous site totaling 62,000 square feet.
Approximately 16,000 square feet house the administrative and office function
and 46,000 square feet are used for warehouse and distribution functions. The
distribution facility is considered to be efficient and adequate for
operations for the foreseeable future.
The Boston facility includes 10,000 square feet of office space and a
distribution facility encompassing 35,000 square feet. The building is leased
by the Company through 2004 with a five-year renewal option, and it is
considered adequate for the foreseeable future.
GOVERNMENT REGULATION
The wholesale drug distribution industry is subject to regulation by
federal, state and local governmental agencies. The distribution of controlled
substances and prescription pharmaceuticals requires licenses and permits as
well as the implementation of an oversight and compliance program mandated by
the Prescription Drug Marketing Act of 1987. In general, regulations pertain
to the purchase, safe storage and distribution of controlled substances and
pharmaceuticals that are monitored through periodic site inspections conducted
by the FDA and the DEA. Failure to comply with these regulations could have a
material adverse effect on the Company by resulting in penalties such as
fines, restrictions on operations or closures.
The Company has implemented an extensive compliance program administered by
its Chief Compliance Officer. The Company believes that it is in material
compliance with all applicable government regulations and has all material
permits and licenses.
LITIGATION
The Company is a party from time to time in legal proceedings in the
ordinary course of business. There are no pending legal proceedings involving
the Company which have or are expected by management to have a material
adverse effect upon the business, financial condition or operations of the
Company.
30
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Set forth below is certain information concerning the executive officers and
directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert C. 52 Chief Executive Officer, President and Chairman of
Farley(1) the Board
S. Jeanne 43 Chief Financial Officer, Vice President, Treasurer and
Mathiesen Director
(2)
Delora J. 39 Chief Compliance Officer, Vice President, Secretary
Jamison(3) and Director
Richard M. 46 Vice President--Trade Relations
Meehan
Eric M. Far- 25 Vice President--Strategy and Corporate Development
ley
Richard H. 42 President--James Brudnick Company, Inc., a wholly
Brudnick owned subsidiary (Boston)
Joseph A. 46 President--General Drug Company, a wholly owned
Harris subsidiary (Chicago)
</TABLE>
- ---------------------
(1) Became a director in 1991; term expires in 2001.
(2) Became a director in 1995; term expires in 1999.
(3) Became a director in 1995; term expires in 2000.
The Company intends to add three outside directors by the end of June 1998.
Robert C. Farley, Chief Executive Officer, President and Chairman of the
Board. Mr. Farley became Chief Executive Officer in 1992. Prior to such time,
he was Chief Financial Officer of the Company since 1986. He serves on the
National Wholesale Druggists' Association ("NWDA") Board of Directors and the
NWDA Government Affairs Committee. Mr. Farley is a wholesaler advisor to the
Missouri Board of Pharmacy, is past Vice President of the Heart of America
ESOP Chapter and was named Ernst & Young LLP's 1996 Entrepreneur of the Year
for Kansas/Western Missouri. Mr. Farley is the father of Eric M. Farley.
S. Jeanne Mathiesen, Chief Financial Officer, Vice President, Treasurer and
Director. Ms. Mathiesen joined the Company in 1993 as Chief Financial Officer
and Treasurer. From 1991 until joining the Company, Ms. Mathiesen was an audit
manager and firm administrator with the accounting firm of Grant Thornton in
Kansas City, Missouri. She previously was a partner in an Orange County,
California, certified public accounting firm for ten years. Ms. Mathiesen is a
licensed CPA in the state of Missouri and is a member of the American
Institute of Certified Public Accountants and the Financial Executives
Institute.
Delora J. Jamison, Chief Compliance Officer, Vice President, Secretary and
Director. Ms. Jamison joined the Company in 1990, has served in various
executive capacities since that time and currently serves as the Company's
Chief Compliance Officer. She previously served as an executive with the St.
Joseph, Missouri YWCA. Ms. Jamison's responsibilities include oversight of the
Company's Corporate Ethics and Business Practices program and administration
of human resources, employee benefits and regulatory compliance. She is a
member of the Ethics Officer Association, national and local chapters of the
Society for Human Resource Management and currently serves on the NWDA Health
Care Information Privacy Task Force.
Richard M. Meehan, Vice President--Trade Relations. Mr. Meehan joined the
Company in 1991 following ten years with Twin City Wholesale Drug Company in
Minneapolis, Minnesota, where he was Group Vice President of Sales and
Marketing. His responsibilities include administering the OptiSource program.
He serves on the Manufacturing Committee for Wholesale Alliance Coalition and
serves from time to time on wholesale advisor boards for Novopharm USA Inc.,
Barr Laboratories, Inc., Glaxo Wellcome plc, Apothecon, Inc. and Geneva
Pharmaceuticals, Inc.
31
<PAGE>
Eric M. Farley, Vice President--Strategy and Corporate Development. Mr.
Farley joined the Company on a full-time basis in 1994 and has worked in
various functions on a part-time basis since 1988. In 1997 he became Vice
President of Purchasing and in May 1998 he assumed the duties of Vice
President--Strategy and Corporate Development. In that position, he is
responsible for acquisition consolidation in addition to his duties in
corporate purchasing. Mr. Farley is the son of Robert C. Farley.
Richard H. Brudnick, President--James Brudnick Company, Inc. Mr. Brudnick
joined the Company in October 1997 as a result of the General Drug
Acquisition. Mr. Brudnick has held the position of President of James Brudnick
Company, Inc. since 1985. He has overall responsibility for the Company's New
England operations. He is past chairman of the NWDA Government Affairs
Committee and past member of the NWDA OTC Marketing Committee. He has served
on the wholesale advisory boards of Eli Lilly and Company, Boehringer
Ingelheim Corporation, Parke-Davis, a division of Warner-Lambert Company and
Schering-Plough Corporation.
Joseph A. Harris, President, General Drug Company. Mr. Harris joined the
Company in October 1997 as a result of the General Drug Acquisition. Mr.
Harris has held the position of President of General Drug Company since 1994.
He joined General Drug Company in 1982 as sales manager and became Executive
Vice President in 1990. He is President of Premier Buying Group, a generic
pharmaceutical buying group and Board Vice President of the Generic Division
of National Pharmacy Alliance.
BOARD TERM AND COMMITTEES
The Company's Amended Articles of Incorporation provide for a staggered
Board of Directors, whereby the directors are divided into three classes (as
nearly equal in number as possible), to serve for terms of three years or
until their successors are elected and qualified.
In June 1998, the Board of Directors appointed a Compensation Committee to
make recommendations to the Board of Directors concerning salaries and
incentive compensation for officers and employees of the Company. The
Compensation Committee consists of . The Audit Committee of
the Board of Directors reviews the results and scope of audits and other
accounting related services. The Audit Committee consists of
.
COMPENSATION OF DIRECTORS
The current board of directors consists entirely of Company management who
receive no additional compensation for their service on the board. The Company
will develop and implement a compensation program for outside directors in
1998 that will consist of stock options and modest cash amounts for attendance
at board and committee meetings.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to the Chief Executive
Officer of the Company and each of the other four most highly compensated
executive officers of the Company during the fiscal year ended February 28,
1998 (the "Named Executive Officers").
32
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL LONG TERM
COMPENSATION COMPENSATION
----------------- ------------
SECURITIES
UNDERLYING OTHER
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS COMPENSATION
<S> <C> <C> <C> <C>
Robert C. Farley................... $227,603 $372,471 $3,200(1)
Chief Executive Officer
Lee Keith(2)....................... $151,077 $168,302 (2) --
President and Chief Operating
Officer
Richard M. Meehan.................. $135,719 $111,080 $3,200(1)
Vice President
S. Jeanne Mathiesen................ $120,273 $117,811 $3,200(1)
Chief Financial Officer
Delora J. Jamison.................. $ 91,552 $117,811 $3,082(1)
Chief Compliance Officer
</TABLE>
- ---------------------
(1) Company contributions to 401(k) plan.
(2) Mr. Keith resigned his positions as President and Chief Operating Officer
in April 1998. The grant of options to purchase shares was
rescinded at such time.
OPTION GRANTS DURING 1998 FISCAL YEAR
The following table represents the options granted to the Named Executive
Officers during the fiscal year ended February 28, 1998 and the value of the
options:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED IN GRANT DATE
NAME GRANTED FISCAL YEAR EXERCISE PRICE EXPIRATION DATE PRESENT VALUE
<S> <C> <C> <C> <C> <C>
Lee Keith(1)............ 45.0% $ N/A N/A
</TABLE>
- ---------------------
(1) Mr. Keith resigned his positions as President and Chief Operating Officer
in April 1998. The grant of options to purchase shares was
rescinded at such time.
1998 FISCAL YEAR-END OPTION VALUES
The following table sets forth information with respect to the Named
Executive Officers concerning unexercised options held at the end of fiscal
1998. No options were exercised during fiscal 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED IN-
UNDERLYING UNEXERCISED THE-MONEY OPTIONS AT
OPTIONS AT FEBRUARY 28, 1998 FEBRUARY 28, 1998
NAME EXERCISABLE/UNEXERCISABLE(1) EXERCISABLE/UNEXERCISABLE(2)
<S> <C> <C>
Robert C. Farley..... /0 $ /0
Lee Keith(3)......... /0 $ /0
Richard M. Meehan.... /0 $ /0
S. Jeanne Mathiesen.. /0 $ /0
Delora J. Jamison.... /0 $ /0
</TABLE>
- ---------------------
(1) Unless otherwise indicated, all options have an exercise price of $
per share and a term of ten years.
(2) Based on the proposed initial public offering price of $ per share.
(3) Mr. Keith resigned his positions as President and Chief Operating Officer
in April 1998. The grant of options to purchase shares was rescinded
at such time. The exercise price of Mr. Keith's options were $ .
33
<PAGE>
EQUITY INCENTIVE PLAN
The Company's Board of Directors and shareholders have approved the
Company's Amended and Restated 1996 Equity Compensation Plan (the "Equity
Incentive Plan"). Management believes that the Equity Incentive Plan is an
important part of the Company's management compensation program by helping to
attract and retain motivated, highly competent employees. By providing stock
options and other equity-related compensation, management believes that the
participants will have a strong incentive to create shareholder value.
The Equity Incentive Plan allows the grant of stock options and stock
appreciation rights (collectively, "Awards") to eligible participants. The
number of shares authorized to be issued pursuant to Awards granted under the
Equity Incentive Plan is 2,000,000. If an Award expires or is canceled without
having been fully exercised or vested, the unvested or canceled shares
generally will be available thereafter for grants of Awards. The number of
shares available for grant under the Equity Incentive Plan, as well as
outstanding Awards and the numerical limits for individual grants, will be
adjusted as appropriate to reflect any stock splits, stock dividends,
recapitalizations, reorganizations or other changes to the capital structure
of the Company.
The Equity Incentive Plan currently is administered by the Board of
Directors but may be administered by a committee designated by the Board of
Directors. Subject to the terms of the Equity Incentive Plan, the Board or the
Committee has the sole discretion to determine the employees who will be
granted Awards, the size and types of such Awards and the terms and conditions
of such Awards. The exercise price of options must be at least equal to the
fair market value of the Common Stock as of the date of grant. Employees of
the Company and its affiliates (i.e., any person or entity controlling,
controlled by or under common control with the Company) are eligible to be
selected to receive Awards.
Under the Equity Incentive Plan, the Board of Directors of the Company has
approved options for eight employees totaling shares. These options
have varying exercise prices and are all immediately exercisable. The Named
Executive Officers have received the following options: Mr. Farley-- ;
Mr. Keith-- (this option was rescinded effective with Mr. Keith's
resignation); Mr. Meehan-- ; Ms. Mathiesen-- ; and Ms. Jamison--
. The actual number of employees who will receive Awards under the
Equity Incentive Plan cannot be determined because selection for participation
in the Equity Incentive Plan is in the sole discretion of the Board of
Directors or the Committee.
EMPLOYMENT AND NONCOMPETE AGREEMENTS
Robert C. Farley, Chief Executive Officer, President and Chairman of the
Board of the Company, has an employment agreement for an initial term through
February 28, 1999, renewable for successive one-year terms thereafter unless
either Mr. Farley or the Company gives notice of nonrenewal at least 60 days
prior to the end of the initial term or any renewal thereof. The employment
agreement contains a noncompetition provision pursuant to which Mr. Farley has
agreed that during the period of his employment, and (i) if he elects to
receive severance payments pursuant to the provisions of the employment
agreement or (ii) if he resigns other than for good reason (as defined), or if
he is terminated for cause (as defined), for a period of two years, he will
not, directly or indirectly, compete with a business similar to that of the
Company. Mr. Farley has also agreed that for such time period he will not
directly or indirectly solicit or recruit the employees of the Company. If Mr.
Farley is terminated by the Company without cause (as defined), he may
receive, as severance, his salary for the remaining period of the employment
agreement. If Mr. Farley terminates his employment under certain
circumstances, he is entitled to receive a lump sum severance payment equal to
two year's current base salary.
Richard M. Meehan, Vice President--Trade Relations of the Company, has an
employment agreement on substantially the same terms as the agreement with Mr.
Farley, except that Mr. Meehan's employment agreement is annually extended by
one year (unless Mr. Meehan or the Company gives notice of nonrenewal at least
60 days prior to the end of such one-year period) so that the remaining term
of Mr. Meehan's employment agreement is always at most three years and at
least two years. In addition, the noncompetition and non-solicitation
severance period for Mr. Meehan is three years.
34
<PAGE>
S. Jeanne Mathiesen, Chief Financial Officer, Vice President and Treasurer
of the Company, has an employment agreement for an initial term through
February 28, 2000, renewable for successive one-year terms thereafter unless
either Ms. Mathiesen or the Company gives notice of nonrenewal at least 60
days prior to the end of the initial term or any renewal thereof. The
employment agreement contains a noncompetition provision pursuant to which Ms.
Mathiesen has agreed that during the period of her employment and for a two-
year period thereafter, she will not, directly or indirectly, compete with a
business similar to that of the Company. Ms. Mathiesen has also agreed that
for such time period she will not directly or indirectly solicit or recruit
the employees of the Company. If Ms. Mathiesen is terminated by the Company
without cause, she may receive, as severance, her salary for the remaining
period of the employment agreement. If Ms. Mathiesen terminates her employment
under certain circumstances, she is entitled to receive a lump severance
payment equal to one year's current base salary. The Company and Ms. Mathiesen
have also entered into a change in control severance agreement in which, if
Ms. Mathiesen's employment with the Company is terminated within the twelve
month period following any such change in control, she will receive a lump
severance payment equal to two year's current base salary upon a change in
control of the Company.
Delora J. Jamison, Chief Compliance Officer, Vice President and Secretary of
the Company, has an employment agreement and a change in control severance
agreement, both of which are on substantially the same terms as the agreements
with Ms. Mathiesen.
Richard H. Brudnick, President of James Brudnick Company, Inc., a wholly
owned subsidiary of the Company, has an employment agreement for an initial
term through February 28, 2000, renewable for successive two-year terms
thereafter unless either Mr. Brudnick or the subsidiary gives notice of
nonrenewal at least 180 days prior to the end of the initial term or any
renewal thereof. The employment agreement contains a noncompetition provision
pursuant to which Mr. Brudnick has agreed that during the period of his
employment and, if he elects to receive severance payments pursuant to the
provisions of the employment agreement, for a period of two years thereafter,
he will not, directly or indirectly, compete with a business similar to that
of James Brudnick Company, Inc. Mr. Brudnick also agrees that for such period
he will not directly or indirectly solicit or recruit the employees of such
subsidiary. If Mr. Brudnick is terminated by such subsidiary without cause, he
may receive, as severance, his salary for the remaining period of the
employment agreement. If Mr. Brudnick terminates his employment under certain
circumstances, he is entitled to receive a lump sum severance payment equal to
one year's current base salary. If Mr. Brudnick terminates his employment or
is terminated within six months following a change in control, he is entitled
to receive a lump sum severance payment of one year's current base salary.
Joseph A. Harris, President of the General Drug Company, a wholly owned
subsidiary of the Company, has an employment Agreement on substantially the
same terms as the employment agreement with Mr. Brudnick.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to June 1998, the Board of Directors did not have a Compensation
Committee. Previously, all executive compensation decisions were made by the
Board of Directors. The Compensation Committee currently consists of
. No members of the Compensation Committee are executive
officers of the Company.
CERTAIN TRANSACTIONS
On October 3, 1997, Churchill purchased a senior subordinated note in the
sum of $12.0 million to assist the Company in financing the General Drug
Acquisition. In connection therewith, the Company issued to Churchill a
warrant to purchase approximately 13.0% of the fully-diluted equity of the
Company for nominal consideration. The maturity date for the subordinated note
is October 3, 2004, with yearly payments of principal at the end of each
fiscal year of the Company commencing with the fiscal year ending February 28,
1999. Each installment is to be in an amount equal to 30.0% of the Company's
excess cash profit, as defined in the subordinated note. Interest is payable
at 12.0% per annum and certain penalty provisions are in place in the event of
late payment. The Company plans to repay the subordinated note with the
proceeds of the Offering. In addition, Churchill will exercise the Churchill
Warrant to purchase stock of the Company and sell the stock acquired thereby
in this Offering as a Selling Shareholder.
35
<PAGE>
The ESOP entered into an agreement with the Company in 1991 to borrow $1.4
million (the "ESOP Note") for the purpose of acquiring shares of Common
Stock. The maturity date for the ESOP Note is January 1, 2000, with monthly
payments of principal of $12,089, plus interest at 0.5% below the prime
lending rate defined in the ESOP Note. As of February 28, 1998, there was
$416,109 outstanding on the ESOP Note.
Joseph A. Harris, the President of General Drug Company, was a partner in a
family partnership which received $116,000 in connection with the cancellation
of a limited partnership interest as a result of the General Drug Acquisition.
Richard H. Brudnick, President of James Brudnick Company, Inc., received
$116,000 in connection with the cancellation of a limited partnership interest
as a result of the General Drug Acquisition. He held the limited partnership
interest with his wife, Cynthia L. Brudnick, as joint tenants with right of
survivorship.
For the five months ended February 28, 1998, the James Brudnick Company,
Inc. made aggregate lease payments of $61,465 to Irving S. Brudnick as Trustee
of the Bershim Realty Trust for its Boston distribution facility. Irving S.
Brudnick is the father of Richard H. Brudnick.
36
<PAGE>
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May , 1998 and as adjusted to reflect
the sale by the Company of shares offered hereby, by (i) each
shareholder of the Company who beneficially owns more than 5.0% of the Common
Stock, (ii) each director, (iii) each Named Executive Officer, (iv) another
member of management who will be a Selling Shareholder and (v) all executive
officers and directors as a group. Except as otherwise indicated, each named
beneficial owner has sole voting and investment power with respect to the
shares listed.
<TABLE>
<CAPTION>
SHARES PERCENT PERCENT
BENEFICIALLY OWNED OWNED
OWNED PRIOR PRIOR TO SHARES SOLD AFTER
NAME TO OFFERING OFFERING IN OFFERING OFFERING
<S> <C> <C> <C> <C>
ESOP(1)............................ 70.4% 48.9%
Robert C. Farley(2)................ 10.3% 6.5%
Lee Keith(3)....................... -- --
Richard M. Meehan(4)............... 5.3% 3.4%
S. Jeanne Mathiesen(5)............. 2.5% 1.5%
Delora J. Jamison(6)............... 3.6% 2.3%
Churchill ESOP Capital Partners(7). 13.6% --
2400 Metropolitan Centre
333 South Seventh St.
Minneapolis, MN 55402
Robert B. Orr(8)................... 3.7% 2.4%
All directors and executive
officers as a group (8
persons)(9)....................... 23.3% 14.8%
</TABLE>
- ---------------------
(1) Of the shares held of record by the ESOP, shares have been
allocated to 129 participants in the ESOP (the "Allocated Shares") as of
December 31, 1997 and shares are unallocated (the "Unallocated
Shares"). The Allocated Shares are voted by each participant to which the
shares are allocated. The Unallocated Shares are voted by George K. Baum &
Company Trust Company, the trustee of the ESOP, in accordance with its
fiduciary duties.
(2) Includes shares subject to immediately exercisable options and
shares allocated under the ESOP as of December 31, 1997. Mr.
Farley's address is the same as the Company's address.
(3) Mr. Keith resigned his position with the Company in April 1998.
(4) Includes shares subject to immediately exercisable options and
shares allocated under the ESOP as of December 31, 1997. All
shares sold in the Offering will be acquired pursuant to the exercise of
options. Mr. Meehan's address is the same as the Company's address.
(5) Includes shares subject to immediately exercisable options and
shares allocated under the ESOP as of December 31, 1997. All
shares sold in the Offering will be acquired pursuant to the exercise of
options.
(6) Includes shares subject to immediately exercisable options and
shares allocated under the ESOP as of December 31, 1997. All
shares sold in the Offering will be acquired pursuant to the exercise of
options.
(7) Shares subject to immediately exercisable warrants which will be exercised
concurrent with the closing of the Offering.
(8) Includes shares subject to immediately exercisable options and
shares allocated under the ESOP as of December 31, 1997. Mr. Orr
is a Vice President of the Company. All shares sold in the Offering will
be acquired pursuant to the exercise of options.
(9) Includes shares subject to immediately exercisable options and
shares allocated under the ESOP as of December 31, 1997.
37
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The following summary of certain provisions of the Common Stock does not
purport to be complete and is subject to, and qualified in its entirety by,
the provisions of the Company's Amended Articles of Incorporation, which are
included as an exhibit to the Registration Statement of which this Prospectus
is a part and by the provisions of applicable law.
COMMON AND PREFERRED STOCK
The Amended Articles of Incorporation of the Company provide for the
authorized capital stock of the Company of 90,000,000 shares of Common Stock
and 10,000,000 shares of Preferred Stock, the designation and terms of which
may be set by the Board of Directors.
Holders of Common Stock are entitled to one vote per share on all matters to
be voted upon by shareholders. In the event of a liquidation, dissolution or
winding up of the Company, the holders of Common Stock are entitled to share
ratably in all assets remaining after payment of liabilities, subject to prior
liquidation rights of holders of Preferred Stock then outstanding, if any.
Holders of shares of Common Stock are entitled to receive such dividends as
the Board of Directors may declare in its discretion out of funds legally
available therefor, subject to the prior rights of holders of Preferred Stock
then outstanding, if any.
The rights, preferences and privileges of holders of Common Stock will be
subject to and may be adversely affected by the rights of the holders of
shares of any series of preferred stock that the Company may designate and
issue in the future.
As of May , 1998, there were shares of Common Stock
outstanding (excluding shares subject to outstanding options, all of
which are immediately exercisable) held of record by three shareholders. Upon
the closing of the Offering and after giving effect to the sale of
shares pursuant to the Offering, there will be outstanding shares of
Common Stock (excluding shares subject to outstanding options, all of
which are immediately exercisable). There is no Preferred Stock currently
outstanding. Certain members of management will exercise options to purchase
shares in connection with the sale of such shares in the Offering.
LIMITATIONS ON CHANGE OF CONTROL
Certain provisions of the General and Business Corporation Law of Missouri
(the "MGBCL") and the Amended Articles of Incorporation could make more
difficult the acquisition of the Company by means of a tender offer, a proxy
contest or otherwise and the removal of incumbent officers and directors.
These provisions are expected to discourage certain types of coercive takeover
practices and inadequate takeover bids and to encourage persons seeking to
acquire control of the Company to first negotiate with the Company. The
Company believes that the benefits of increased protection of the Company's
potential ability to negotiate with the proponent of an unfriendly or
unsolicited proposal to acquire or restructure the Company outweigh the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
The Company's Board of Directors is divided into three classes, with
staggered three-year terms. The number of directors shall be not less than
three nor more than nine, with the classes to be as nearly equal in number as
possible. As a result, only one class of directors will be elected at each
annual meeting of shareholders of the Company, with the other classes
continuing for the remainder of their respective three-year terms. The
classification of the Board of Directors makes it more difficult for the
Company's existing shareholders to replace the Board of Directors as well as
for another party to obtain control of the Company by replacing the Board of
Directors. Because the Board of Directors has the power to retain and
discharge officers of the Company, these provisions could also make it more
difficult for existing shareholders or another party to effect a change in
management.
38
<PAGE>
The Amended Articles of Incorporation provide that shareholder action can be
taken only at an annual or a special meeting of shareholders and cannot be
taken by written consent and that special meetings of shareholders can be
called only by the President, the Board of Directors or holders of 50.0% of
the outstanding voting stock. The Company's Amended and Restated Bylaws
provide that the business permitted to be conducted at any special meeting of
shareholders will be limited to those matters specified in the notice of such
meeting authorized by the Board of Directors. The Amended and Restated Bylaws
set forth an advance notice procedure with regard to the nomination, other
than by or at the direction of the Board of Directors, of candidates for
election as directors and with regard to business to be brought before an
annual meeting of shareholders of the Company. Shareholders will not be
permitted to fill vacancies on the Board of Directors caused by resignation or
newly created directorships.
The Amended Articles of Incorporation contain provisions requiring the
affirmative vote of the holders of at least 80.0% of the voting stock of the
Company to amend the foregoing provisions of the Amended Articles of
Incorporation.
In addition to the provisions of the Amended Articles of Incorporation, the
MGBCL contains a business combination statute that protects domestic
corporations from unsolicited takeovers by prohibiting certain transactions.
The statute restricts certain "Business Combinations" between a corporation
and an "Interested Shareholder" and its "Affiliates" and "Associates" (as
defined therein). A "Business Combination" includes a merger or consolidation,
certain sales, leases, exchanges, mortgages, transfers, pledges and similar
dispositions of corporate assets or stock and any reclassifications,
recapitalization and reorganizations that increase the proportionate voting
power of the Interested Shareholder. An "Interested Shareholder" includes any
person or entity which beneficially owns or controls 20.0% or more of the
outstanding voting shares of the corporation. Pursuant to the Missouri
business combination statute, a Missouri corporation may not, for a period of
five years following the Interested Shareholder's stock acquisition date,
engage in a Business Combination with an Interested Shareholder other than (i)
a Business Combination approved by the board of directors prior to the date on
which the Interested Shareholder acquired such status, (ii) a Business
Combination approved by the holders of a majority of the outstanding voting
stock (other than voting stock beneficially owned by the Interested
Shareholder or its Affiliates or Associates) at a meeting called no earlier
than five years after the date on which the Interested Shareholder acquired
such status or (iii) a Business Combination that satisfies certain detailed
fairness and procedural requirements. Notwithstanding the foregoing, unless
the board of directors of the corporation approved such Business Combination
prior to the date on which the Interested Shareholder acquired such status, no
such Business Combination may be engaged in for a period of five years after
such date.
The MGBCL exempts from its business combination provisions: (i) corporations
not having a class of voting stock registered under Section 12 of the Exchange
Act, (ii) corporations which adopt provisions in their original articles of
incorporation or, under certain circumstances, adopt amendments to their
bylaws expressly electing not to be covered by the statute and (iii) certain
circumstances in which a shareholder inadvertently becomes an Interested
Shareholder.
The MGBCL also contains a control share acquisition statute which provides
that persons who acquire a specified percentage of the shares of a Missouri
corporation subject to this statute, unless acquired in an exempt transaction,
will not have the right to vote such shares, unless certain disclosure
requirements are met and the retention or restoration of voting rights is
approved by holders of a majority of the outstanding voting stock and a
majority of the outstanding voting stock after exclusion of the interested
shares.
TRANSFER AGENT AND REGISTRAR
The transfer agent and the registrar for the Company's Common Stock is UMB
Bank, n.a.
LISTING
The Company has applied for the quotation of the Common Stock on Nasdaq
under the symbol "CDSH."
39
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon closing of the Offering, the Company will have outstanding
shares of Common Stock (assuming no exercise of outstanding stock options). Of
these shares, the shares of Common Stock sold in the Offering will be
freely tradeable without restriction under the Securities Act of 1933 as
amended (the "Securities Act") by persons other than "affiliates" of the
Company. The remaining shares of Common Stock (the "Restricted
Shares") were acquired in transactions exempt from registration under the
Securities Act and may not be resold unless they are registered under the
Securities Act, or are sold pursuant to an applicable exemption from
registration, such as Rule 144 under the Securities Act. The existing
shareholders, including the ESOP and certain of its participants, are subject
to restrictions on any public sale or distribution of Common Stock for a
period of at least 180 days following the effective date of the Registration
Statement.
In general, under Rule 144 as currently in effect, a person who has
beneficially owned restricted securities for at least one year or any person
who may be deemed an affiliate of the Company is entitled, subject to certain
conditions, to sell within any three-month period a number of shares which
does not exceed the greater of (i) 1.0% of the Company's then outstanding
shares of Common Stock (approximately shares immediately after the
Offering, assuming no exercise of outstanding stock options) or (ii) the
average weekly trading volume of the Common Stock in the over-the-counter
market during the four calendar weeks preceding such sale. Sales under Rule
144 are also subject to certain manner-of-sale provisions, notice requirements
and the availability of public information about the Company.
Beginning 90 days after the date of this Prospectus, of the
Restricted Shares will be eligible for sale in the public market under Rule
144, provided the conditions of that rule have been met. A total of
of the Restricted Shares are subject to lock-up agreements with the
Underwriters that prohibit their sale or other disposition for 180 days from
the date of this Prospectus without the prior written consent of the
Representatives. An additional shares held in the ESOP and allocated to
participant accounts are not eligible for distribution until , 1999 at
the earliest.
Prior to the Offering, there has been no market for the Common Stock and no
predictions can be made as to the effect, if any, that market sales of shares
or the availability of shares for sale would have on the prevailing market
price. Nevertheless, sales of substantial amounts of the Common Stock in the
public market could adversely affect the prevailing market price and could
impair the Company's ability to raise capital at that time through the sale of
its equity securities.
40
<PAGE>
UNDERWRITING
Subject to the terms and conditions of an Underwriting Agreement, dated
, 1998 (the "Underwriting Agreement"), the Underwriters named
below, who are represented by Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), BT Alex. Brown and Wheat First Union, a division of Wheat
First Securities, Inc. (the "Representatives"), have severally agreed to
purchase from the Company and the Selling Shareholders the respective number
of shares of Common Stock set forth opposite their names below.
<TABLE>
<CAPTION>
NUMBER OF
SHARES TO
BE
UNDERWRITERS PURCHASED
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation............
BT Alex. Brown.................................................
Wheat First Securities, Inc....................................
----------
Total......................................................
==========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to purchase and accept delivery of the shares of Common Stock
offered hereby are subject to approval by their counsel of certain legal
matters and to certain other conditions. The Underwriters are obligated to
purchase and accept delivery of all the shares of Common Stock offered hereby
(other than those shares covered by the over-allotment option described below)
if any are purchased.
The Underwriters initially propose to offer the shares of Common Stock in
part directly to the public at the initial public offering price set forth on
the cover page of this Prospectus and in part to certain dealers (including
the Underwriters) at such price less a concession not in excess of $ per
share. The Underwriters may allow and such dealers may re-allow, to certain
other dealers a concession not in excess of $ per share. After the
initial offering of the Common Stock, the public offering price and other
selling terms may be changed by the Representatives at any time without
notice. The Underwriters do not intend to confirm sales to any accounts over
which they exercise discretionary authority.
The Company and the Selling Shareholders have granted to the Underwriters an
option, exercisable within 30 days after the date of this Prospectus, to
purchase, from time to time, in whole or in part, up to an aggregate of
additional shares of Common Stock at the initial public offering
price less underwriting discounts and commissions. The Underwriters may
exercise such option solely to cover over allotments, if any, made in
connection with the Offering. To the extent that the Underwriters exercise
such option, each Underwriter will become obligated, subject to certain
conditions, to purchase its pro rata portion of such additional shares based
on such Underwriter's percentage underwriting commitment as indicated in the
preceding table.
The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or to contribute to payments that the Underwriters may be
required to make in respect thereof.
Each of the Company, its executive officers and directors and certain
shareholders of the Company (including the Selling Shareholders) has agreed,
subject to certain exceptions, not to (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase or otherwise transfer
or dispose of, directly or indirectly, any shares of Common
41
<PAGE>
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other arrangement that transfers
all or a portion of the economic consequences associated with the ownership of
any Common Stock (regardless of whether any of the transactions described in
clause (i) or (ii) is to be settled by the delivery of Common Stock, or such
other securities, in cash or otherwise) for a period of 180 days after the
date of this Prospectus without the prior written consent of DLJ. In addition,
during such period, the Company has also agreed not to file any registration
statement with respect to, and each of its executive officers, directors and
certain shareholders of the Company (including the Selling Shareholders) has
agreed not to make any demand for, or exercise any right with respect to, the
registration of any shares of Common Stock or any securities convertible into
or exercisable or exchangeable for Common Stock without DLJ's prior written
consent.
Prior to the Offering, there has been no established trading market for the
Common Stock. The initial public offering price for the shares of Common Stock
offered hereby will be determined by negotiation among the Company and the
Representatives. The factors to be considered in determining the initial
public offering price include the history of and the prospects for the
industry in which the Company competes, the past and present operations of the
Company, the historical results of operations of the Company, the prospects
for future earnings of the Company, the recent market prices of securities of
generally comparable companies and the general condition of the securities
markets at the time of the Offering.
Application has been made for the Common Stock to be approved for quotation
on Nasdaq under the trading symbol "CDSH."
Other than in the United States, no action has been taken by the Company,
the Selling Shareholders or the Underwriters that would permit a public
offering of the shares of Common Stock offered hereby in any jurisdiction
where action for that purpose is required. The shares of Common Stock offered
hereby may not be offered or sold, directly or indirectly, nor may this
Prospectus or any other offering material or advertisements in connection with
the offer and sale of any such shares of Common Stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of such jurisdiction.
Persons into whose possession this Prospectus comes are advised to inform
themselves about and to observe any restrictions relating to the Offering of
the Common Stock and the distribution of this Prospectus. This Prospectus does
not constitute an offer to sell or a solicitation of an offer to buy any
shares of Common Stock offered hereby in any jurisdiction in which such an
offer or a solicitation is unlawful.
In connection with the Offering, the Underwriters may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot the Offering, creating a
syndicate short position. The Underwriters may bid for and purchase shares of
Common Stock in the open market to cover such syndicate short position or to
stabilize the price of the Common Stock. In addition, the underwriting
syndicate may reclaim selling concessions from syndicate members if the
syndicate repurchases previously distributed Common Stock in syndicate
covering transactions, in stabilization transactions or otherwise. These
activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage
in these activities and may end any of these activities at any time.
42
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered hereby
will be passed upon for the Company by Blackwell Sanders Peper Martin LLP,
Kansas City, Missouri. Certain legal matters will be passed upon for the
Underwriters by Gardere & Wynne, L.L.P., Dallas, Texas.
EXPERTS
The consolidated financial statements and schedules of the Company at
February 28, 1998 and 1997 and for each of the three years in the period ended
February 28, 1998, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their reports thereon appearing elsewhere herein and are included in reliance
upon such reports given upon the authority of such firm as experts in
accounting and auditing.
The consolidated financial statements of Gimbel Investor Group L.P. at April
30, 1997 and 1996 and for each of the three years in the period ended April
30, 1997, appearing in this Prospectus and Registration Statement have been
audited by Blackman Kallick Bartelstein, LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed a registration statement on Form S-1 (together with
all amendments, schedules and exhibits thereto, the "Registration Statement")
with the Securities and Exchange Commission (the "SEC") pursuant to the
Securities Act, with respect to the Common Stock offered hereby. This
Prospectus, which is a part of the Registration Statement, does not contain
all the information set forth in the Registration Statement, certain parts of
which have been omitted in accordance with the rules and regulations of the
SEC. The Registration Statement is available for inspection and copying at the
Public Reference Room of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Statements contained in this
Prospectus as to the contents of any contract or other document referred to
herein or therein are not necessarily complete and, in each instance,
reference is made to the copy of such contract or other document filed as an
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference. The SEC maintains
a World Wide Web site on the Internet at http:\\www.sec.gov that contains
information concerning the Company.
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES CONSOLIDATED FINANCIAL
STATEMENTS FOR THE FISCAL YEARS ENDED FEBRUARY 28, 1998, FEBRUARY 28,
1997 AND FEBRUARY 29, 1996
Report of Independent Auditors......................................... F-2
Consolidated Balance Sheets at February 28, 1998 and February 28, 1997. F-3
Consolidated Statements of Income for the Fiscal Years ended February
28, 1998, February 28, 1997 and February 29, 1996..................... F-4
Consolidated Statements of Shareholders' Equity for the Fiscal Years
ended February 28, 1998, February 28, 1997 and February 29, 1996...... F-5
Consolidated Statements of Cash Flows for the Fiscal Years ended
February 28, 1998, February 28, 1997 and February 29, 1996............ F-6
Notes to Consolidated Financial Statements............................. F-7
GIMBEL INVESTOR GROUP L.P. CONSOLIDATED FINANCIAL STATEMENTS FOR THE
FISCAL YEARS ENDED APRIL 30, 1997, 1996 AND 1995
Independent Auditors' Report........................................... F-17
Consolidated Balance Sheets at April 30, 1997 and 1996................. F-18
Consolidated Statements of Income for the Fiscal Years ended April 30,
1997, 1996 and 1995................................................... F-19
Consolidated Statements of Partners' Capital for the Fiscal Years ended
April 30, 1997, 1996 and 1995......................................... F-20
Consolidated Statements of Cash Flows for the Fiscal Years ended April
30, 1997, 1996 and 1995............................................... F-21
Notes to Consolidated Financial Statements............................. F-22
GIMBEL INVESTOR GROUP L.P. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE PERIOD FROM MAY 1, 1997 TO OCTOBER 3, 1997
Consolidated Statement of Operations for the period from May 1, 1997 to
October 3, 1997....................................................... F-28
Consolidated Statement of Cash Flows for the period from May 1, 1997 to
October 3, 1997....................................................... F-29
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
C.D. Smith Drug Company and Subsidiaries
We have audited the accompanying consolidated balance sheets of C.D. Smith
Drug Company and subsidiaries (the "Company") as of February 28, 1998 and
1997, and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years in the period ended February 28,
1998. These consolidated 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 consolidated 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 consolidated financial position of C.D. Smith
Drug Company and subsidiaries at February 28, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended February 28, 1998, in conformity with
generally accepted accounting principles.
Kansas City, Missouri
April 10, 1998, except for
Note 11 as to which the
date is , 1998
The foregoing report is in the form
that will be signed upon completion
of the change in the Company's
capital stock and the 51-for-1
common stock split as described in
Note 11 to the consolidated
financial statements.
Ernst & Young LLP
Kansas City, Missouri
June 1, 1998
F-2
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------------
1998 1997
------------ -----------
<S> <C> <C>
ASSETS (NOTE 4)
Current assets:
Cash.............................................. $ 42,243 $ 17,437
Trade accounts and notes receivable, less
allowance for doubtful receivables of $650,384 in
1998 and $248,933 in 1997........................ 56,059,092 15,400,134
Other receivables................................. 3,298,940 525,410
Refundable income taxes........................... 542,762 --
Merchandise inventory............................. 73,671,570 30,733,499
Prepaid expenses.................................. 380,307 134,677
------------ -----------
Total current assets............................ 133,994,914 46,811,157
Property and equipment, net (Note 3)................ 6,723,476 3,175,196
Other assets:
Goodwill, net of accumulated amortization of
$266,330 in 1998 (Note 2)........................ 25,301,231 --
Deferred income taxes (Note 7).................... 786,000 --
Debt issuance costs net of accumulated
amortization of $154,515 in 1998................. 1,502,196 --
Other............................................. 393,867 235,335
------------ -----------
Total assets.................................... $168,701,684 $50,221,688
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 60,554,993 $23,599,940
Accrued expenses.................................. 2,708,626 1,664,935
Income taxes payable.............................. -- 334,035
Deferred income taxes (Note 7).................... 2,380,000 96,000
Current portion of long-term debt (Note 4)........ 445,072 305,072
------------ -----------
Total current liabilities....................... 66,088,691 25,999,982
Line of credit (Note 4)............................. 80,880,927 19,436,574
Long-term debt, less current portion (Note 4)....... 2,371,036 1,002,777
Deferred income taxes............................... -- 615,000
Subordinated note payable (Note 5).................. 9,663,026 --
Common stock put warrants (Note 6).................. 2,569,000 --
Shareholders' equity (Notes 4, 8 and 12):
Preferred stock, $.01 par value:
Authorized shares--10,000,000
Issued and outstanding shares--none.............. -- --
Common stock, $.01 par value:
Authorized shares--90,000,000
Issued shares--10,200,000........................ 102,000 102,000
Additional paid-in capital........................ 98,000 98,000
Retained earnings................................. 8,478,444 4,481,731
Treasury stock, at cost, 4,295,730 shares in 1998
and 4,208,979 shares in 1997..................... (1,133,331) (953,195)
------------ -----------
7,545,113 3,728,536
Less note receivable from ESOP.................... (416,109) (561,181)
------------ -----------
7,129,004 3,167,355
------------ -----------
Total liabilities and shareholders' equity...... $168,701,684 $50,221,688
============ ===========
</TABLE>
See accompanying notes.
F-3
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------- ------------ ------------
<S> <C> <C> <C>
Net sales........................... $ 544,090,215 $301,523,181 $224,163,431
Cost of goods sold.................. 516,667,769 286,784,687 213,481,167
------------- ------------ ------------
Gross profit........................ 27,422,446 14,738,494 10,682,264
Operating expenses:
Selling, general and
administrative................... 15,724,144 9,985,350 7,975,655
Depreciation and amortization..... 1,077,693 279,280 220,609
------------- ------------ ------------
16,801,837 10,264,630 8,196,264
------------- ------------ ------------
Operating income.................... 10,620,609 4,473,864 2,486,000
Other income (expense):
Interest income................... 238,352 142,385 82,684
Interest expense on credit
facilities....................... (3,834,459) (1,571,214) (1,478,483)
Interest expense on subordinated
debt (Note 5).................... (812,026) -- --
Other, net........................ 51,101 (15,842) (40,720)
------------- ------------ ------------
(4,357,032) (1,444,671) (1,436,519)
------------- ------------ ------------
Income before income taxes.......... 6,263,577 3,029,193 1,049,481
Income tax provision (Note 7)....... 2,266,864 1,099,190 415,377
------------- ------------ ------------
Net income.......................... $ 3,996,713 $ 1,930,003 $ 634,104
============= ============ ============
Net income per share (Note 12):
Basic............................. $ 0.67 $ 0.29 $ 0.07
============= ============ ============
Diluted........................... $ 0.56 $ 0.28 $ 0.07
============= ============ ============
</TABLE>
See accompanying notes.
F-4
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY
<TABLE>
<CAPTION>
ADDITIONAL NOTE
COMMON PAID-IN RETAINED TREASURY RECEIVABLE
STOCK CAPITAL EARNINGS STOCK FROM ESOP TOTAL
-------- ---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Balance at March 1,
1995................... $102,000 $98,000 $1,917,624 $ -- $(851,325) $1,266,299
Net income............. -- -- 634,104 -- -- 634,104
Collections on note
receivable............ -- -- -- -- 145,072 145,072
Purchase of treasury
stock................. -- -- -- (161,400) -- (161,400)
-------- ------- ---------- ----------- --------- ----------
Balances at February 29,
1996................... 102,000 98,000 2,551,728 (161,400) (706,253) 1,884,075
Net income............. -- -- 1,930,003 -- -- 1,930,003
Collections on note
receivable............ -- -- -- -- 145,072 145,072
Purchase of treasury
stock................. -- -- -- (791,795) -- (791,795)
-------- ------- ---------- ----------- --------- ----------
Balances at February 28,
1997................... 102,000 98,000 4,481,731 (953,195) (561,181) 3,167,355
Net income............. -- -- 3,996,713 -- -- 3,996,713
Collections on note
receivable............ -- -- -- -- 145,072 145,072
Purchase of treasury
stock................. -- -- -- (180,136) -- (180,136)
-------- ------- ---------- ----------- --------- ----------
Balances at February 28,
1998................... $102,000 $98,000 $8,478,444 $(1,133,331) $(416,109) $7,129,004
======== ======= ========== =========== ========= ==========
</TABLE>
See accompanying notes.
F-5
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................... $ 3,996,713 $ 1,930,003 $ 634,104
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities:
Depreciation................... 653,478 279,280 220,609
Amortization................... 656,241 -- --
Net gain on sale of property
and equipment................. (7,775) -- --
Provision for doubtful
accounts...................... 200,825 222,900 37,480
Deferred income taxes.......... (44,496) 243,000 288,000
Changes in operating assets and
liabilities, net of the
effects from the General Drug
Acquisition:
Trade accounts and notes
receivable.................. (5,277,838) (4,856,823) (426,660)
Other receivables............ 1,826,376 (52,164) (371,735)
Refundable income taxes...... 808,531 -- --
Merchandise inventory........ (1,984,843) (10,110,601) (6,285,443)
Prepaid expenses............. 34,642 71,233 76,790
Other........................ 5,598 62,545 78,203
Accounts payable............. (1,627,988) 4,709,217 4,763,476
Accrued expenses............. (4,810,404) 245,963 965,724
Income taxes payable......... (334,035) 258,402 75,633
------------- ------------- -------------
Net cash provided by (used in)
operating activities............ (5,904,975) (6,997,045) 56,181
INVESTING ACTIVITIES
Purchases of property and
equipment....................... (819,275) (1,109,324) (288,634)
Proceeds from sale of property
and equipment................... 56,875 12,500 --
Collections on note receivable
from ESOP....................... 145,072 145,072 145,072
Net cash paid in the General Drug
Acquisition, including
transaction costs............... (29,097,392) -- --
------------- ------------- -------------
Net cash used in investing
activities...................... (29,714,720) (951,752) (143,562)
FINANCING ACTIVITIES
Borrowings on line of credit..... 576,864,146 306,643,441 223,438,779
Principal payments on line of
credit.......................... (551,639,405) (298,517,612) (222,864,039)
Proceeds from issuance of long-
term debt....................... 1,859,996 800,000 --
Principal payments on long-term
debt............................ (1,603,389) (271,440) (231,425)
Proceeds from issuance of
subordinated note payable with
common stock put warrants....... 12,000,000 -- --
Payments of debt issuance costs.. (1,656,711) -- --
Purchases of treasury stock...... (180,136) (791,795) (161,400)
------------- ------------- -------------
Net cash provided by financing
activities...................... 35,644,501 7,862,594 181,915
------------- ------------- -------------
Increase (decrease) in cash...... 24,806 (86,203) 94,534
Cash at beginning of year........ 17,437 103,640 9,106
------------- ------------- -------------
Cash at end of year.............. $ 42,243 $ 17,437 $ 103,640
============= ============= =============
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid during the year for:
Interest....................... $ 4,025,577 $ 1,523,760 $ 1,460,469
============= ============= =============
Income taxes................... $ 1,814,000 $ 597,788 $ 55,000
============= ============= =============
Cash received during the year
for:
Income tax refund.............. $ -- $ -- $ 58,962
============= ============= =============
</TABLE>
See accompanying notes.
F-6
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
C.D. Smith Drug Company ("C.D. Smith"), a Missouri corporation, and its
subsidiaries (collectively referred to as the "Company") are regional full-
line, full-service wholesale distributors of pharmaceuticals and related
products. The Company's customers consist primarily of independent pharmacies,
health care institutions and regional and national chain pharmacies located in
its core territories of the midwestern United States and New England.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include C.D. Smith and its wholly
owned subsidiaries, C.D.S. Transportation, Inc. and G.D. Holdings of Delaware,
Inc., ("Holdings"). Holdings owns 100% of the common stock of General Drug
Company and its wholly owned subsidiaries, James Brudnick Company, Inc. and
SBS Pharmaceuticals, Inc. (collectively referred to as "the General Drug
Companies"). All significant intercompany balances and transactions have been
eliminated upon consolidation. As discussed in Note 2, the General Drug
Companies were acquired in October 1997 (the "General Drug Acquisition") in
connection with the acquisition of Gimbel Investor Group, L.P. ("Gimbel").
INVENTORIES
Inventories for C.D. Smith are stated at the lower of cost, which
approximates the first-in, first-out ("FIFO") method, or market. Inventories
for the General Drug Companies are stated at the lower of cost or market using
the last-in, first-out ("LIFO") method. If the FIFO method of valuation had
been used for determining inventory costs for the General Drug Companies,
inventories in 1998 would have been approximately $502,000 higher than
reported in the accompanying consolidated balance sheet.
The General Drug Companies use the LIFO method of inventory valuation
because it results in a better matching of current costs and revenue. A number
of the Company's competitors use the FIFO method of inventory valuation. Had
the Company reported its LIFO inventories at values approximating current
cost, as would have resulted from using the FIFO method, had a 36.2% tax rate
been applied to changes in income resulting therefrom and had no other
assumptions been made as to changes in income, net income and shareholders'
equity would have been $4,316,175 ($0.72 per share-basic) and $7,448,466,
respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated on the basis of cost. Depreciation is
provided over the estimated useful lives of the assets, ranging from three to
40 years, using the straight-line method.
GOODWILL
Goodwill, resulting from the General Drug Acquisition, is being amortized
over its estimated life of 40 years using the straight-line method.
DEBT ISSUANCE COSTS
Debt issuance costs of approximately $1.6 million were incurred in obtaining
financing for the General Drug Acquisition (see Note 2). These financing costs
are being amortized to interest expense over the term of the different debt
instruments, which range from three to seven years, using the straight-line
method.
INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes."
Under SFAS No. 109, the liability method is used in
F-7
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
accounting for income taxes, whereby deferred tax assets and liabilities are
determined based on the differences between financial reporting and tax bases
of assets and liabilities and are measured using enacted tax rates and laws
that will be in effect when the differences are expected to reverse.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from those
estimates.
CREDIT CONCENTRATIONS
The Company performs ongoing credit evaluations of its customers' financial
condition and generally requires no collateral from its customers. Credit
losses are provided for in the Company's consolidated financial statements and
consistently have been within management's expectations.
FINANCIAL INSTRUMENTS
The carrying value of the Company's financial instruments, including cash,
trade accounts and notes receivable, accounts payable and long-term debt, as
reported in the accompanying consolidated balance sheets, approximates fair
value.
CASH
The Company maintains both a lockbox account for cash received from
customers and a controlled disbursement checking account. Cash received from
customers in the lockbox account is used to reduce borrowings on the revolving
line of credit (see Note 4). At February 28, 1998 and 1997, cash received from
customers in the lockbox account of $6,012,976 and $227,787, respectively, has
been recorded as a reduction in the balance of the revolving line of credit in
the accompanying consolidated balance sheets. The controlled disbursement
account allows for daily advances from the revolving line of credit in amounts
sufficient to cover checks presented for payment at the bank each day. The
amount of checks issued but not presented at the bank, totaling $13,492,420
and $3,289,327 at February 28, 1998 and 1997, respectively, has been included
in the balance of line-of-credit borrowings in the accompanying consolidated
balance sheets.
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has elected to follow Statement of Position ("SOP") 76-3,
"Accounting Practices for Certain Employee Stock Ownership Plans," issued by
the American Institute of Certified Public Accountants ("AICPA"). The amount
contributed or committed to be contributed to the C.D. Smith Drug Company
Employee Stock Ownership Plan ("ESOP") with respect to a given year is charged
to expense. The compensation and interest elements of the contribution are
separately reported. See Note 8.
STOCK-BASED COMPENSATION
The Company has elected to follow Accounting Principals Board ("APB")
Opinion No. 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its employee stock options because, as
discussed in Note 10, the alternative fair value accounting provided for under
SFAS No. 123, "Accounting for Stock-Based Compensation," requires the use of
option valuation models that were not developed for use in valuing employee
stock options. Under APB No. 25, compensation expense is recorded over the
related vesting period when the exercise price is less than the estimated fair
value of the stock at the date of grant. The Company
F-8
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
has established the exercise prices of options granted at fair value, as
determined by the Board of Directors, giving consideration to the valuation of
the Company's common stock completed by an independent appraiser within the
year in which the stock options were granted. In accordance with APB No. 25,
the Company has recorded no compensation expense related to options granted.
See Note 10.
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board ("FASB") issued SFAS No.
128, "Earnings Per Share." SFAS No. 128 replaced the calculation of primary
and fully diluted earnings per share with basic and diluted earnings per
share. Unlike primary earnings per share, basic earnings per share excludes
any dilutive effects of options, warrants and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where appropriate, restated to conform to SFAS No. 128
requirements.
The following table sets forth the computation of basic and diluted earnings
per share in accordance with SFAS No. 128:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY FEBRUARY FEBRUARY 29,
28, 1998 28, 1997 1996
---------- ---------- ------------
<S> <C> <C> <C>
Numerator (basic and diluted):
Net income.......................... $3,996,713 $1,930,003 $ 634,104
========== ========== =========
Denominator:
Denominator for basic earnings per
share--weighted average shares
outstanding........................ 5,963,481 6,699,564 9,499,821
Effect of dilutive securities:
Stock options..................... 697,272 172,635 --
Warrants.......................... 505,257 -- --
---------- ---------- ---------
Dilutive potential common shares...... 1,202,529 172,635 --
---------- ---------- ---------
Denominator for diluted earnings per
share................................ 7,166,010 6,872,199 9,499,821
========== ========== =========
Net income per share--basic........... $ .67 $ .29 $ .07
========== ========== =========
Net income per share--diluted......... $ .56 $ .28 $ .07
========== ========== =========
</TABLE>
All shares held by the ESOP are considered outstanding for purposes of
computing earnings per share.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1997 and 1996 consolidated
financial statements to conform to the 1998 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130
"Reporting Comprehensive Income," which requires that an enterprise report, by
major components and as a single total, the change in its net assets during
the period from nonowner sources, and SFAS No. 131 "Disclosures about Segments
of an Enterprise and Related Information," which establishes annual and
interim reporting standards for an enterprise's operating segments and related
disclosures about its products, services, geographic areas and major
customers. Adoption of these statements will not impact the Company's
consolidated financial position, results of operations or cash flows, and any
effect will be limited to the form and content of its disclosures. Both
statements are effective for the Company's fiscal year ending February 28,
1999, with earlier application permitted.
F-9
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. THE GENERAL DRUG ACQUISITION
Effective October 3, 1997, C.D. Smith consummated the General Drug
Acquisition, purchasing all outstanding partnership interests in Gimbel, which
owns 100% of the outstanding stock of Holdings, the parent company of the
General Drug Companies, for $28 million in cash. The transaction was accounted
for using the purchase method. The purchase price was allocated to net assets
acquired on the basis of their estimated fair values. The excess of the
purchase price, including approximately $1.1 million of transaction costs,
over the fair market value of the net assets acquired amounted to $25,567,561
and has been recorded as goodwill. All operations acquired from Gimbel are
conducted within the General Drug Companies. Gimbel and Holdings had no
material assets or liabilities aside from those related to their investment in
the General Drug Companies. The General Drug Companies' results of operations
have been included in the consolidated results of operations since the date of
acquisition.
The following unaudited pro forma information presents a summary of
consolidated results of operations of the Company and the General Drug
Companies as if the General Drug Acquisition had occurred at the beginning of
the fiscal year ended February 28, 1997. Pro forma adjustments principally
give effect to amortization of goodwill, interest expense on debt issued to
fund the acquisition, the exclusion of certain compensation and noncompete
expenses contractually required as a result of the General Drug Acquisition
and related income tax effects. The unaudited pro forma information has been
prepared for comparative purposes only and does not purport to be indicative
of the results of operations had this acquisition been completed as of these
dates or which may occur in the future.
<TABLE>
<CAPTION>
FEBRUARY 28,
-------------------------
1998 1997
------------ ------------
<S> <C> <C>
Net sales....................................... $762,259,269 $693,213,000
Gross profit.................................... 38,455,396 36,670,424
Operating income................................ 13,876,263 12,816,260
Net income...................................... 3,531,028 3,242,279
Net income per share:
Basic......................................... $ 0.59 $ 0.48
Diluted....................................... 0.49 0.47
</TABLE>
3. PROPERTY AND EQUIPMENT
Property and equipment at February 28, 1998 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1998 1997
----------- ----------
<S> <C> <C>
Land............................................. $ 273,500 $ 135,000
Building and improvements........................ 3,736,708 1,694,909
Machinery and equipment.......................... 1,398,209 908,542
Vehicles......................................... 326,102 180,009
Office equipment................................. 2,485,602 1,135,757
----------- ----------
8,220,121 4,054,217
Less accumulated depreciation.................... (1,496,645) (879,021)
----------- ----------
$ 6,723,476 $3,175,196
=========== ==========
</TABLE>
4. LINE OF CREDIT AND LONG-TERM DEBT
In connection with the General Drug Acquisition the Company refinanced its
senior credit facility with a group of lending institutions providing for a
revolving line of credit and certain term notes. All existing debt of the
General Drug Companies was refinanced through the new credit facility. Under
the terms of the new facility, which expires in October 2000, the Company may
borrow up to approximately $90 million, in addition to the
F-10
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
amounts outstanding under the term notes described below, based on eligible
inventory and accounts receivable balances (the "borrowing base"). At February
28, 1998, the borrowing base amounted to approximately $102 million. The
Company must pay an aggregate commitment fee of .2% per annum on the unused
balance of the credit facility plus an agency fee of $10,000 per month. At
February 28, 1998, availability under the revolving line of credit was
$16,747,000, excluding the effects of outstanding checks and lockbox receipts
included in outstanding line-of-credit borrowings, as discussed in Note 1.
Generally, advances bear interest at the lender's prime rate (8.5% at February
28, 1998) payable monthly. The Company has an option to pay interest on a
specified amount not less than $1 million at the London Interbank Offered Rate
(LIBOR) plus 1.75% if LIBOR loans are purchased. Such interest periods are of
a one-, two-, or three-month duration. The line of credit borrowings,
amounting to $80,880,927 and bearing interest at a weighted average LIBOR-
based rate of 7.79% at February 28, 1998, are collateralized by substantially
all assets of the Company and its subsidiaries. Beginning in October 2000, the
senior credit facility can be renewed for one-year terms upon mutual consent.
At February 28, 1997, C.D. Smith maintained a credit facility with a lending
institution providing for a revolving line of credit and two term notes. Under
the terms of the facility, which was to expire in February 2000, C.D. Smith
could borrow up to $32 million, including the amounts outstanding under the
term notes, based on eligible inventory and accounts receivable balances. At
February 28, 1997, the borrowing base amounted to approximately $27 million.
Interest on borrowings under the revolving line of credit was payable monthly
at the lender's prime rate (8.25% at February 28, 1997) plus 1.1%. Line-of-
credit borrowings of $19,436,574 at February 28, 1997 were collateralized by
substantially all assets of C.D. Smith and had been personally guaranteed up
to $1 million by the Chief Executive Officer ("CEO") of C.D. Smith.
The agreement governing the senior credit facility contains several
covenants which, among other things, restrict capital expenditures and
dividend payments and require the Company to maintain certain specified levels
of net worth, interest and debt service coverage and minimum levels of stock
ownership by the ESOP and the CEO. This agreement also limits cash dividends,
loans or cash transfers from the General Drug Companies to C.D. Smith, other
than purchases and sales between the companies in the normal course of
business. At February 28, 1998, restricted net assets of the General Drug
Companies were approximately $22.5 million.
The Company's long-term debt at February 28, all of which is due October
2000, unless extended by mutual consent of the Company and the lending
institutions, consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28,
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Notes payable to lending institutions under term note
provisions of the senior credit facility described
above, in monthly installments of $12,089, plus in-
terest at .5% below the bank's prime rate, collater-
alized by 1,575,900 shares of common stock held by
the ESOP............................................ $ 416,109 $ 561,181
Notes payable to lending institutions under term note
provisions of the senior credit facility described
above, in monthly installments of $16,667, plus in-
terest at the bank's prime rate, collateralized by
certain warehouse equipment......................... 933,332 746,668
Notes payable to lending institutions under term note
provisions of the senior credit facility described
above, in monthly installments aggregating $8,333,
plus interest at the bank's prime rate, collateral-
ized by certain real estate......................... 1,466,667 --
---------- ----------
2,816,108 1,307,849
Less current portion................................. 445,072 305,072
---------- ----------
$2,371,036 $1,002,777
========== ==========
</TABLE>
F-11
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The prime rate of the lending institutions providing the term debt discussed
above was 8.50% at February 28, 1998.
Principal maturities of long-term debt, other than borrowings under the line
of credit which expires in October 2000, for each of the next three years are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28 AMOUNT
----------- ----------
<S> <C>
1999.......................... $ 445,072
2000.......................... 445,072
2001.......................... 1,925,964
</TABLE>
5. SUBORDINATED NOTE PAYABLE
In conjunction with the General Drug Acquisition, C.D. Smith issued a
subordinated note payable due October 3, 2004 in the principal amount of $12
million with detachable stock warrants (see Note 6) to an investment group.
Interest at 12% per annum is payable quarterly. Principal installments are due
and payable 90 days after the end of each fiscal year, commencing with the
fiscal year ending February 28, 1999, in an amount equal to 30% of "Excess
Cash Flow" as defined below subject to certain conditions. "Excess Cash Flow"
is generally defined in the related agreement as consolidated earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA") minus
current tax liabilities, interest paid, principal payments and capital
expenditures. The estimated fair value of the warrants at October 3, 1997,
amounting to $2,569,000, was recorded as a discount on the subordinated debt.
The discount is being amortized to interest expense over the seven-year term
using the interest method resulting in an effective interest rate of 17.9% on
the subordinated debt. The amount of unamortized discount at February 28, 1998
is $2,336,974.
The subordinated note agreement contains several covenants which are similar
to the covenants associated with the Company's senior credit facility (see
Note 4).
6. COMMON STOCK PUT WARRANTS
The detachable common stock warrants to purchase 1,080,078 shares of common
stock of the Company discussed in Note 5 are subject to certain antidilution
and other adjustments, as defined in the related agreement. The warrants are
exercisable at a price of $0.0004 per share. After the fifth anniversary of
the closing of the General Drug Acquisition, the holders have an option to put
the warrants to the Company at a price based on a multiple of EBITDA less
indebtedness and certain other amounts as defined in the agreement. Once the
warrants have been put to the Company, the put price is payable no earlier
than 90 days but no later than 100 days of the put date. Additionally, after
the sixth anniversary of the closing, the Company has the option to exercise a
call right to purchase from the holders all or any portion of such warrant
securities, and the holders are obligated to sell at a price determined in a
similar manner to that of the put option. The $2,569,000 value of these put
warrants is presented as a liability in the accompanying consolidated balance
sheet due to the holder's option to require settlement in cash. The Company is
accreting the recorded amount of the warrants to the highest redemption price
of the put warrant using the interest method. No accretion was necessary at
February 28, 1998 as the redemption price calculated per the agreement did not
exceed the recorded amount of the warrants.
7. INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The Company files its
consolidated income tax return on a fiscal year ending September 30. However,
for purposes of computing deferred taxes in the accompanying consolidated
financial statements, the tax bases of assets and liabilities are determined
as if the Company were filing a tax return as of the balance sheet date.
F-12
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company's effective tax rate differed from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Federal income tax statutory rate.... 34.0% 34.0% 34.0%
State income taxes, net of federal
tax benefit......................... 2.5 2.0 4.3
Other, net........................... (.3) .3 1.3
----- ---- ----
36.2% 36.3% 39.6%
===== ==== ====
</TABLE>
The lower state income tax rate in 1998 and 1997 is attributable to the
effects of enterprise zone tax credits obtained and utilized by the Company in
those years.
Significant components of the Company's deferred tax assets and liabilities
as of February 28, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful receivables............. $ 241,000 $ 91,000
Uniform capitalization costs................... 95,000 53,000
Amortization of tax basis noncompete asset..... 1,677,000 --
Vacation accrual............................... 129,000 55,000
----------- ---------
Total deferred tax assets........................ 2,142,000 199,000
Deferred tax liabilities:
Inventory...................................... (3,259,000) (733,000)
Depreciation................................... (477,000) (177,000)
----------- ---------
Total deferred tax liabilities................... (3,736,000) (910,000)
----------- ---------
Net deferred tax liability....................... $(1,594,000) $(711,000)
=========== =========
</TABLE>
The income tax provision (benefit) for 1998, 1997 and 1996 consists of the
following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
---------- -------- ----------
<S> <C> <C> <C>
1998
Federal................................... $2,068,965 $(38,692) $2,030,273
State..................................... 242,395 (5,804) 236,591
---------- -------- ----------
$2,311,360 $(44,496) $2,266,864
========== ======== ==========
1997
Federal................................... $ 781,154 $224,816 $1,005,970
State..................................... 75,036 18,184 93,220
---------- -------- ----------
$ 856,190 $243,000 $1,099,190
========== ======== ==========
1996
Federal................................... $ 119,820 $226,965 $ 346,785
State..................................... 7,557 61,035 68,592
---------- -------- ----------
$ 127,377 $288,000 $ 415,377
========== ======== ==========
</TABLE>
F-13
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
8. EMPLOYEE BENEFIT PLANS
EMPLOYEE STOCK OWNERSHIP PLAN
The Company has an ESOP covering substantially all employees with over one
year of service. Under the ESOP, the Company initially obtained a term loan
from an outside bank in 1991 (see Note 4) and disbursed the proceeds to the
ESOP in exchange for a note receivable for purposes of acquiring shares from
the original shareholders. Shares held as collateral under the term loan are
released each year in the proportion of principal and interest paid in the
current year to the principal and interest remaining to be paid over the life
of the loan. The Company is obligated to make annual contributions sufficient
to enable the ESOP to repay the loan with interest at .5% below the prime
rate. The ESOP currently owns 5,582,970 shares of stock in the Company, of
which 4,007,070 are allocated. ESOP contributions totaling $145,072 were
expensed during each of the three years in the period ended February 28, 1998.
The estimated repurchase obligation for allocated shares which are vested at
February 28, 1998 is approximately $6.2 million. The loan and receivable are
recorded in the Company's consolidated balance sheets as long-term debt and a
reduction in shareholders' equity, respectively.
DEFINED CONTRIBUTION PLAN
The Company maintains a defined contribution 401(k) plan which covers
substantially all C.D. Smith employees with at least one year of service and,
effective January 1, 1998, substantially all nonunion employees of General
Drug Company with at least one year of prior service. Under the plan,
employees may elect to contribute a percentage of their annual salary subject
to Internal Revenue Code ("IRC") maximum limitations. The plan provides for
employer matching and discretionary contributions, the amounts of which are to
be determined annually by the Board of Directors. During the 1997 plan year,
the Company matched 50% of employee contributions up to 4% of qualified
compensation.
James Brudnick Company, Inc. also maintains a defined contribution plan
which covers substantially all employees with at least six months of service.
The plan provides for employer discretionary contributions, the amounts of
which are to be determined annually by the Company's Board of Directors.
Contribution expense, representing employer contributions under the above
plans, was $96,830 and $13,666 for the years ended February 28, 1998 and 1997,
respectively. No matching discretionary contributions were provided for the
year ended February 29, 1996.
MULTIEMPLOYER PLANS
The Company also participates in two multiemployer, union administered,
pension plans that principally cover warehouse workers and drivers at the
General Drug Companies. The Company recognizes as an expense the required
contributions for these plans, the amounts of which were insignificant for the
year ended February 28, 1998.
F-14
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASES
The Company has entered into noncancelable operating leases for certain
facilities, computer equipment and vehicles.
Future minimum rental payments under these noncancelable operating leases
are as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28 AMOUNT
----------- ----------
<S> <C>
1999........................................................... $ 494,698
2000........................................................... 372,032
2001........................................................... 246,823
2002........................................................... 189,371
2003........................................................... 160,189
Thereafter..................................................... 147,516
----------
Total.......................................................... $1,610,629
==========
</TABLE>
Total rent expense for the years ended February 28, 1998 and 1997 and
February 29, 1996 was $417,767, $285,129 and $353,859, respectively.
10. STOCK OPTIONS
The Company has established the C.D. Smith Drug Company 1996 Equity
Compensation Plan pursuant to which options to purchase up to 1,530,000 shares
of common stock may be granted to employees at prices which approximate the
fair value of the shares on the dates of grant. The terms and vesting
provisions of these options are determined by the Board of Directors and may
vary by optionee; however, no term may be longer than 10 years from the date
of grant.
In August 1996, C.D. Smith granted to certain members of management
nonqualified stock options to purchase 790,500 shares of common stock at $0.44
per share. In October 1997, C.D. Smith granted additional nonqualified stock
options to purchase 280,500 shares of common stock at $2.08 per share. The
weighted average exercise price of options outstanding at February 28, 1998 is
$0.87 per share.
No options were exercised or canceled during the years ended February 28,
1998 and 1997. All options become immediately exercisable upon the date of
grant. The weighted average fair values of options granted during the years
ended February 28, 1998 and 1997, determined in accordance with SFAS No. 123,
equaled $.12 and $0.58, respectively. The weighted-average remaining
contractual life at February 28, 1998 was 8.72 years.
The fair values of options granted were estimated at the date of grant using
the Minimum Value Option Pricing Model with the following weighted-average
assumptions: a risk-free interest rate of 6.10% and 6.50% for the years ended
February 28, 1998 and 1997, respectively, and a weighted-average expected life
of five years for each of the years ended February 28, 1998 and 1997. Under
the Minimum Value Option Pricing Model, the volatility factor is excluded. The
Company assumed a 0% dividend yield over the expected life of the options.
The Minimum Value Option Pricing Model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions. Because the Company's stock options have
characteristics significantly different from those of traded options and
because changes in the subjective input assumptions can materially affect the
fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options.
F-15
<PAGE>
C.D. SMITH DRUG COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
For purposes of the pro forma disclosures required under SFAS No. 123, the
estimated fair value of the options is expensed in the year of grant as the
options are immediately vested upon date of grant. For the years ended
February 28, 1998 and 1997, the Company's pro forma net income equals
$3,893,619 and $1,871,848, respectively, pro forma net income per share-basic
equals $0.65 and $0.28, respectively, and pro forma net income per share-
diluted equals $0.54 and $0.27, respectively.
11. PENDING PUBLIC OFFERING OF COMMON STOCK
During , 1998, the Company intends to file a registration
statement with the Securities and Exchange Commission for an underwritten
initial public offering of shares of common stock,
shares of which are to be offered by the Company (the Offering). Immediately
prior to the closing of the Offering, the Board of Directors and shareholders
are expected to approve a change in the Company's capital stock to authorize
90,000,000 shares of $.01 par value common stock and 10,000,000 shares of $.01
par preferred stock and to effect a 51-for-1 common stock split in the form of
a stock dividend. All share and per share information included in the
accompanying consolidated financial statements has been adjusted to give
retroactive effect to the common stock split.
F-16
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Partners
Gimbel Investor Group
Chicago, Illinois
We have audited the accompanying consolidated balance sheets of Gimbel
Investor Group, L.P. and Subsidiary (the "Group") as of April 30, 1997 and
1996, and the related consolidated statements of income, partners' capital and
cash flows for each of the three years in the period ended April 30, 1997.
These financial statements are the responsibility of the Group'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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Gimbel
Investor Group, L.P. and Subsidiary as of April 30, 1997 and 1996, and the
results of its operations and its cash flows for each of the three years in
the period ended April 30, 1997, in conformity with generally accepted
accounting principles.
Blackman Kallick Bartlestein, LLP
Chicago, Illinois
May 26, 1998
F-17
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
APRIL 30,
-----------------------
1997 1996
ASSETS ----------- -----------
<S> <C> <C>
Current Assets
Accounts receivable (net of allowance for doubtful
accounts of $456,335
and $616,544 for 1997 and 1996, respectively)....... $29,943,802 $30,122,633
Inventories.......................................... 35,072,165 37,062,079
Prepaid expenses and other current assets............ 532,072 485,104
----------- -----------
Total Current Assets............................... 65,548,039 67,669,816
Property and Equipment (net)........................... 2,522,880 2,399,466
Other Assets........................................... 3,320,270 3,122,515
----------- -----------
$71,391,189 $73,191,797
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities
Current portion of long-term debt.................... $ 249,246 $ 55,187
Accounts payable..................................... 28,238,551 33,500,230
Accrued expenses..................................... 636,511 1,171,117
----------- -----------
Total Current Liabilities.......................... 29,124,308 34,726,534
Long-Term Debt, less current portion................... 36,582,560 34,467,707
----------- -----------
Total Liabilities.................................. 65,706,868 69,194,241
Partners' Capital...................................... 5,684,321 3,997,556
----------- -----------
$71,391,189 $73,191,797
=========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-18
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales................................ $372,921,546 $347,545,827 $343,925,741
Cost of sales............................ 351,318,560 326,704,375 325,183,287
------------ ------------ ------------
Gross profit............................. 21,602,986 20,841,452 18,742,454
Operating expenses
Selling, general and administrative.... 11,584,734 10,883,847 9,283,265
Depreciation and amortization.......... 831,330 1,118,007 1,293,421
Covenants not to compete............... 1,050,000 1,110,000 1,292,320
Management fees........................ 818,777 754,502 706,451
------------ ------------ ------------
Operating Income..................... 7,318,145 6,975,096 6,166,997
------------ ------------ ------------
Other expenses
Interest expense....................... 3,464,141 3,324,016 3,629,922
Miscellaneous, net..................... 243,854 767,679 789,119
------------ ------------ ------------
Total Other Expenses................. 3,707,995 4,091,695 4,419,041
------------ ------------ ------------
Income before income taxes............... 3,610,150 2,883,401 1,747,956
Income taxes............................. 1,423,385 1,121,677 799,512
------------ ------------ ------------
Net income............................... $ 2,186,765 $ 1,761,724 $ 948,444
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-19
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
PARTNERS'
CAPITAL
----------
<S> <C>
Balance at April 30, 1994........................................... $1,997,388
Net Income........................................................ 948,444
----------
Balance at April 30, 1995........................................... 2,945,832
Contributed Capital............................................... 1,790,000
Partners' Distribution............................................ (2,500,000)
Net Income........................................................ 1,761,724
----------
Balance at April 30, 1996........................................... 3,997,556
Partners' Distribution............................................ (500,000)
Net Income........................................................ 2,186,765
----------
Balance at April 30, 1997........................................... $5,684,321
==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-20
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30
-------------------------------------------
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income....................... $ 2,186,765 $ 1,761,724 $ 948,444
Adjustments to reconcile net
income to net cash provided by
(used in) operating activities
Depreciation................... 636,388 566,097 515,954
Amortization................... 194,942 551,910 777,467
Loss on sale of property and
equipment..................... 25,759 35,055 16,584
Deferred income taxes.......... (313,641) (583,000) (83,120)
Changes in operating assets and
liabilities
Accounts receivable.......... 178,831 (890,221) 76,413
Inventories.................. 1,989,914 (4,829,427) (522,287)
Prepaid expenses and other
assets...................... (36,123) 66,598 11,012
Accounts payable............. (5,261,679) 8,546,533 (4,206,345)
Accrued expenses............. (534,606) 336,547 (200,749)
------------- ------------- -------------
Net cash provided by (used in)
operating activities............ (933,450) 5,561,816 (2,666,627)
------------- ------------- -------------
INVESTING ACTIVITIES
Purchase of assets of T & S
Wholesale, Inc.................. -- (461,685) --
Purchase of property and
equipment....................... (779,426) (751,074) (390,545)
Other............................ (6,263) 44,779 (46,985)
------------- ------------- -------------
Net cash used in investing
activities...................... (785,689) (1,167,980) (437,530)
------------- ------------- -------------
FINANCING ACTIVITIES
Proceeds from issuance of long-
term debt....................... 390,218,671 361,356,000 355,625,000
Repayments of long-term debt..... (387,909,759) (363,162,055) (351,894,366)
Financing fees................... (89,773) (87,781) (216,172)
Partners' distribution........... (500,000) (2,500,000) --
Payment to former Brudnick
stockholders.................... -- -- (410,305)
------------- ------------- -------------
Net cash provided by (used in)
financing activities............ 1,719,139 (4,393,836) 3,104,157
------------- ------------- -------------
Net change in cash............... -- -- --
Cash at beginning of year........ -- -- --
------------- ------------- -------------
Cash at end of year.............. $ -- $ -- $ --
============= ============= =============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-21
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BASIS OF PRESENTATION
The consolidated financial statements of Gimbel Investor Group, L.P. and
Subsidiary (the "Group") include the accounts of Gimbel Investor Group, L.P.
and its wholly owned subsidiary, GD Holdings Inc. ("Holdings").
General Drug Company ("General Drug") is a wholly owned subsidiary of
Holdings. James Brudnick Company, Inc. ("Brudnick") and SBS Pharmaceuticals,
Inc. ("SBS") are wholly owned subsidiaries of General Drug. All significant
intercompany accounts and transactions have been eliminated in consolidation.
In December 1995, General Drug formed a wholly owned subsidiary, SBS. SBS
obtained the rights to use Aligen Independent Laboratories' label on its brand
name repackaged products.
On July 24, 1995, the Group purchased substantially all of the assets and
the name of T&S Wholesale, Inc. ("T&S") for $2,429,811. T&S was a tobacco and
candy wholesaler that operated in the Boston area. A trade receivable in the
amount of approximately $2,000,000 was applied against the purchase price. The
purchase price was allocated as follows:
<TABLE>
<S> <C>
Accounts receivable............................................ $1,274,891
Inventory...................................................... 453,592
Fixed assets................................................... 65,000
Other assets................................................... 2,416
Goodwill....................................................... 633,912
</TABLE>
The results of operations from both acquisitions are included in the
consolidated income statement from the respective dates of acquisition.
NATURE OF BUSINESS
General Drug and Brudnick are wholesale distributors of prescription and
over-the-counter drugs and related products. Brudnick is also a distributor of
candy and tobacco products, which account for less than 5% of sales. SBS is a
repackager and distributor of brand name pharmaceuticals. All companies
routinely extend credit to their customers. General Drug's customers are
located throughout the midwestern United States. Brudnick operates in the
northeastern United States SBS's customers are national.
INVENTORIES
Inventories, consisting of goods sold for resale, are stated at the lower of
cost or market. Cost is determined by the last-in, first-out ("LIFO") method.
If the first-in, first-out ("FIFO") method, which approximates replacement
cost, had been used, inventories would have been approximately $4,700,000
greater as of April 30, 1997. As of April 30, 1996, inventories under the FIFO
method would have been approximately $3,550,000 greater. Cost for SBS's
inventory is determined by the last-in, first-out ("LIFO") method using 1996
as its base year. Therefore, there is no difference between the LIFO and FIFO
methods as of April 30, 1996.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets for
financial statement purposes, as indicated in the following tabulation:
<TABLE>
<CAPTION>
YEARS
<S> <C>
Warehouse equipment................................................. 5-10
Transportation equipment............................................ 4
Computer and office equipment....................................... 3-5
Building and building improvements.................................. 15-30
</TABLE>
F-22
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
COVENANTS NOT TO COMPETE
The Group's obligation for covenants not to compete is recognized on a
straight-line basis over the terms of the agreements. See Note 8.
GOODWILL
Goodwill purchased in connection with net asset purchases is being amortized
using the straight-line method over a 40-year life.
MANAGEMENT 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.
FINANCIAL INSTRUMENTS
A financial instrument is cash, evidence of an ownership interest in an
entity or certain contracts involving future conveyances of cash or other
financial instruments. The carrying values of the Group's financial
instruments approximate their fair values.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
SFAS No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes
standards for reporting and display of comprehensive income and its components
in the financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The Group is in the process of evaluating
the specific reporting requirements of SFAS No. 130; however, it believes the
adoption of SFAS No. 130 would have had no impact on the Group's consolidated
results of operations, financial position or cash flows.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to stockholders. It also establishes standards for related
disclosures about products and services, geographic areas and major customers.
SFAS No. 131 is effective for financial statements for fiscal years beginning
after December 15, 1997. The Group is in the process of evaluating the
disclosure requirements of SFAS No. 131; however, it believes that its
adoption will have no material impact on its future disclosure requirements.
NOTE 2--PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land.............................................. $ 139,043 $ 104,500
Warehouse equipment............................... 328,497 318,287
Transportation equipment.......................... 840,029 850,966
Computer and office equipment..................... 2,236,172 2,016,325
Building and building improvements................ 996,743 678,826
Construction in progress.......................... 81,807 --
---------- ----------
4,622,291 3,968,904
Less accumulated depreciation and amortization.... (2,099,411) (1,569,438)
---------- ----------
$2,522,880 $2,399,466
========== ==========
</TABLE>
F-23
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
NOTE 3--INTANGIBLE ASSETS
Intangible assets consist of the following and are included in the caption
other assets on the consolidated balance sheets as of April 30, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Goodwill arising from the acquisition of Brudnick. $ 2,492,590 $ 2,492,590
Goodwill arising from acquisition of T&S.......... 633,912 633,912
Other............................................. 70,032 55,113
------------ ------------
3,196,534 3,181,615
Less accumulated amortization..................... (327,288) (193,367)
------------ ------------
$ 2,869,246 $ 2,988,248
============ ============
NOTE 4--LONG-TERM DEBT
As of April 30, 1997 and 1996 long-term debt consisted of the following:
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Bank line-of-credit agreement--Borrowings not to
exceed $16,000,000 or the sum of 80% of eligible
accounts receivable and 65% of eligible inventory
($11,000,000 limit for inventory). Interest
payable at .75% over the bank's base rate (8.50%
as of April 30, 1997 and 8.25% as of April 30,
1996). The agreement expires May 1, 1998 and is
secured by substantially all of General Drug's
assets under a loan and security agreement. As of
April 30, 1997, additional borrowing capacity was
approximately $1,700,000 under this agreement.... $ 12,471,230 $ 11,599,007
Bank line-of-credit agreement--Borrowings not to
exceed $5,000,000 or the sum of 80% of eligible
accounts receivable and 65% of eligible inventory
($2,000,000 limit for inventory). Interest
payable at .75% over the bank's base rate (8.50%
as of April 30, 1997 and 8.25% as of April 30,
1996). The agreement expires May 1, 1998 and is
secured by substantially all of SBS's assets
under a loan and security agreement. As of April
30, 1997, additional borrowing capacity was
approximately $1,200,000 under this agreement.... 855,956 --
Bank line-of-credit agreement--Borrowings not to
exceed $30,000,000 or the sum of 85% of eligible
accounts receivable and 65% of eligible inventory
($18,000,000 limit for inventory). Borrowings are
subject to minimum excess availability of
$2,000,000. Interest payable at .75% over the
bank's base rate (8.50% as of April 30, 1997 and
8.25% as of April 30, 1996). The agreement
expires May 1, 1998 and is secured by
substantially all of Brudnick's assets under a
loan and security agreement. As of April 30,
1997, additional borrowing capacity was
approximately $5,400,000 under this agreement.... $22,556,351 $22,240,465
</TABLE>
F-24
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Mortgage note payable--Due in monthly
installments of $1,668 plus interest at .75%
over the bank's base rate, which was 8.50% as
of April 30, 1997 and 8.25% as of April 30,
1996. Final payment is due May 1, 1998.
Secured by building and limited guarantee of
certain related parties, which are related
through common ownership..................... 399,023 419,035
Series A subordinated promissory note--
Convertible to 1% equity interest in the
Group for each $220,000 of principal balance.
Interest payable semi-annually at 10%.
Principal payment due in full February 1999.
Subordinated to all bank and lending
institution debt. See Note 7................. 220,000 220,000
Community Development Block Grant float loan
demand note--Borrowings not to exceed
$920,000. Principal plus interest at 3.3% due
November 1998. Secured by an irrevocable
letter of credit. See Note 8. As of April 30,
1997, additional borrowing capacity was
$600,000 under this agreement................ 320,000 --
Other......................................... 9,246 44,387
----------- -----------
36,831,806 34,522,894
Less current portion.......................... (249,246) (55,187)
----------- -----------
$36,582,560 $34,467,707
=========== ===========
</TABLE>
Maturities on long-term debt are as follows as of April 30, 1997:
<TABLE>
<S> <C>
Year Ending April 30:
1998........................................................ $ 249,246
1999........................................................ 36,582,560
-----------
$36,831,806
===========
</TABLE>
Under the agreements, General Drug, Brudnick and SBS must maintain specified
minimum ratios and tangible net worth and pay annual agency fees totaling
$55,000. The agreements also impose certain restrictions relating to, among
other things, further indebtedness, liens, pledges or sales of assets, capital
expenditures, dividends, investments and transactions with affiliates.
NOTE 5--INCOME TAXES
The components of the provision for income taxes are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- --------
<S> <C> <C> <C>
Current income tax expense
Federal............................... $1,389,396 $1,315,227 $635,746
State................................. 347,630 389,450 246,886
Deferred income tax benefit............. (313,641) (583,000) (83,120)
---------- ---------- --------
$1,423,385 $1,121,677 $799,512
========== ========== ========
</TABLE>
Deferred income taxes are recognized for tax consequences of temporary
differences by applying enacted statutory tax rates, applicable to future
years, to differences between the financial reporting and the tax basis of
existing assets and liabilities.
F-25
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The consolidated balance sheets as of April 30, 1997 and 1996 include the
following tax effects of cumulative temporary differences:
<TABLE>
<CAPTION>
1997 1996
---------------------- --------------------
ASSETS LIABILITIES ASSETS LIABILITIES
<S> <C> <C> <C> <C>
Inventory..................... $ -- $780,543 $ -- $795,438
Depreciation.................. -- 123,935 -- 153,623
Noncompete and goodwill....... 1,079,717 -- 776,200 --
Accounts receivable........... 108,541 -- 158,756 --
Other......................... 41,410 -- 25,651 --
---------- -------- -------- --------
Total Deferred Taxes...... $1,229,668 $904,478 $960,607 $949,061
========== ======== ======== ========
</TABLE>
Principal reasons for variations between the statutory federal rate and the
effective rates were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
U.S. federal statutory income tax rate................. 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefit......... 5.5 5.5 5.5
Income taxes passed through to owners of partnership
and
S-corporation......................................... .1 2.0 4.5
Other.................................................. (.2) (2.6) 1.7
---- ---- ----
39.4% 38.9% 45.7%
==== ==== ====
</TABLE>
Gimbel Investor Group, L.P. is organized as a partnership and Holdings is
organized as an S-corporation under provisions of the Internal Revenue Code.
Accordingly, the accompanying financial statements do not reflect income
taxes, except for state replacement tax, for these entities.
NOTE 6--RELATED PARTY TRANSACTIONS
MANAGEMENT FEE
An annual management fee of $600,000 plus a percentage of earnings, subject
to certain minimum earnings criteria, is being paid to a company that is
related by common ownership. Management fee expense was $818,777, $754,502 and
$706,451 for the years ended April 30, 1997, 1996 and 1995, respectively.
HSS CONSULTING
HSS Consulting ("HSS") is related to the Group by common ownership. The
Group purchased approximately $740,000, $700,000 and $1,100,000 of goods from
HSS during the years ended April 30, 1997, 1996 and 1995, respectively, and
charged HSS certain shared expenses. HSS owed the Group approximately $45,710
and $78,000 as of April 30, 1997 and 1996, respectively.
See Note 7 for additional related party disclosures.
NOTE 7--CAPITAL TRANSACTIONS
During the year ended April 30, 1996, the Group converted $990,000 of Series
A Subordinated Promissory Notes for a 4.5% equity interest in the Group and
$800,000 of Series B Subordinated Promissory Notes for a 5% equity interest in
the Group.
On September 30, 1997, the remaining $220,000 of Series A Notes were
converted for a 1% equity interest in the Group.
F-26
<PAGE>
GIMBEL INVESTOR GROUP, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 8--COMMITMENTS AND CONTINGENCIES
NONCOMPETE AGREEMENTS
In February 1994, the Group entered into various noncompete agreements in
connection with an asset purchase. Per the agreements, monthly payments of
$87,500 must be paid for 60 months.
LETTER OF CREDIT
The Group entered into a $920,000 Community Development Block Grant float
loan demand note with the City of Chicago. See Note 4. The loan is
collateralized by an irrevocable letter of credit in the amount of $980,720
from American National Bank. The maximum available additional letter of credit
facility amounted to $369,280 as of April 30, 1997.
LEASES
The Group leases a facility under a lease expiring February 1999 for
$147,516 annually. The lease requires monthly rent payments with annual
increases and an annual rent adjustment based upon taxes and operating
expenses. Rent and real estate tax expense was $321,203, $267,787 and $247,532
for the years ended April 30, 1997, 1996 and 1995, respectively.
Future minimum lease payments for its facilities are as follows as of April
30, 1997:
<TABLE>
<S> <C>
Year Ending April 30:
1998............................................................. $155,150
1999............................................................. 112,500
--------
$267,650
========
</TABLE>
NOTE 9--OTHER CASH FLOW INFORMATION
Cash paid for:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income Taxes................................... $1,836,131 $1,402,500 $1,425,080
========== ========== ==========
Interest....................................... $3,851,670 $3,234,603 $3,561,462
========== ========== ==========
</TABLE>
NOTE 10--MAJOR CUSTOMER
For the year ended April 30, 1997, sales to one major customer amounted to
more than 10% of total sales. The amount of revenue from that customer was
$46,284,092. The receivable balance for the major customer was $3,887,961 as
of April 30, 1997. There were no major customers for the years ended April 30,
1996 and 1995.
NOTE 11--SUBSEQUENT EVENT
On October 3, 1997, CD Smith Drug Company purchased all outstanding
partnership interests in the Group.
F-27
<PAGE>
GIMBEL INVESTOR GROUP L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
FOR THE PERIOD FROM MAY 1, 1997 TO OCTOBER 3, 1997
<TABLE>
<S> <C>
Net sales........................................................ $157,827,598
Cost of goods sold............................................... 149,785,128
------------
Gross profit..................................................... 8,042,470
Operating expenses:
Selling, general and administrative............................ 5,127,741
Covenants not to compete....................................... 1,871,875
Employment agreements.......................................... 3,339,582
Management fees................................................ 254,395
Depreciation and amortization.................................. 339,550
------------
10,933,143
------------
Operating loss................................................... (2,890,673)
Other income (expense):
Interest expense............................................... (1,454,079)
Other, net..................................................... 16,691
------------
(1,437,388)
------------
Loss before income taxes......................................... (4,328,061)
Income tax benefit............................................... (1,671,009)
------------
Net loss......................................................... $ (2,657,052)
============
</TABLE>
F-28
<PAGE>
GIMBEL INVESTOR GROUP L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
FOR THE PERIOD FROM MAY 1, 1997 TO OCTOBER 3, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net loss........................................................ $ (2,657,052)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation.................................................. 283,229
Amortization.................................................. 108,439
Provision for doubtful accounts............................... 123,634
Deferred income taxes......................................... (736,108)
Changes in operating assets and liabilities:
Accounts receivable......................................... (3,458,262)
Other receivables........................................... (4,599,907)
Refundable income taxes..................................... (1,351,293)
Inventory................................................... (836,326)
Prepaid expenses............................................ 244,444
Other....................................................... (141,885)
Accounts payable............................................ 8,040,973
Accrued expenses............................................ 5,218,990
------------
Net cash provided by operating activities....................... 238,876
INVESTING ACTIVITIES
Purchases of property and equipment............................. (1,086,124)
------------
Net cash used in investing activities........................... (1,086,124)
FINANCING ACTIVITIES
Borrowings on line of credit.................................... 66,447,400
Principal payments on line of credit............................ (66,094,695)
Proceeds from issuance of long-term debt........................ 860,967
Principal payments on long-term debt............................ (337,584)
------------
Net cash provided by financing activities....................... 876,088
Increase in cash................................................ 28,840
Cash at beginning of period..................................... --
------------
Cash at end of period........................................... $ 28,840
============
</TABLE>
F-29
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
C.D. SMITH DRUG COMPANY
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
FEBRUARY 28,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Current assets:
Cash............................................... $ 24,202 $ 16,041
Trade accounts and notes receivable (including
$290,804 and $57,713 due from subsidiaries in 1998
and 1997, respectively), less allowances of
$261,179 in 1998 and $248,933 in 1997............. 21,390,200 15,457,847
Other receivables.................................. 525,384 525,410
Refundable income taxes............................ 542,762 --
Merchandise inventory.............................. 34,340,158 30,733,499
Prepaid expenses and other......................... 156,379 130,159
----------- -----------
Total current assets............................. 56,979,085 46,862,956
----------- -----------
Property and equipment............................. 4,388,383 3,874,208
Less accumulated depreciation...................... (1,098,916) (811,099)
----------- -----------
3,289,467 3,063,109
Debt issuance costs, net........................... 916,695 --
Other assets (principally investment in
subsidiaries)..................................... 23,078,091 274,629
----------- -----------
Total assets..................................... $84,263,338 $50,200,694
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable................................... $33,654,112 $23,599,940
Accrued expenses................................... 1,917,215 1,599,155
Income taxes payable............................... -- 334,035
Deferred income taxes.............................. 122,000 96,000
Current portion of long-term debt.................. 405,072 320,432
----------- -----------
Total current liabilities........................ 36,098,399 25,949,562
----------- -----------
Line of credit....................................... 26,440,540 19,436,574
Long-term debt, less current portion................. 1,824,369 1,032,203
Deferred income taxes................................ 539,000 615,000
Subordinated note payable............................ 9,663,026 --
Common stock put warrants............................ 2,569,000 --
Shareholders' equity:
Preferred stock, $.01 par value.................... -- --
Common stock, $.01 par value....................... 102,000 102,000
Additional paid-in capital......................... 98,000 98,000
Retained earnings.................................. 8,478,444 4,481,731
Treasury stock..................................... (1,133,331) (953,195)
----------- -----------
7,545,113 3,728,536
Less note receivable from ESOP..................... (416,109) (561,181)
----------- -----------
7,129,004 3,167,355
----------- -----------
Total liabilities and shareholders' equity....... $84,263,338 $50,200,694
=========== ===========
</TABLE>
S-1
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
C.D. SMITH DRUG COMPANY
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................ $386,689,291 $301,523,181 $224,163,431
Cost of goods sold................... 368,431,319 286,784,687 213,481,167
------------ ------------ ------------
Gross profit......................... 18,257,972 14,738,494 10,682,264
Operating expenses:
Selling, general and
administrative.................... 11,444,265 10,015,576 7,986,670
Depreciation and amortization...... 305,736 253,725 204,803
------------ ------------ ------------
11,750,001 10,269,301 8,191,473
------------ ------------ ------------
Operating income..................... 6,507,971 4,469,193 2,490,791
Other income (expense):
Income (loss) from subsidiaries.... 1,465,162 4,671 (4,791)
Interest expense on credit
facilities........................ (2,002,798) (1,571,214) (1,478,483)
Interest expense on subordinated
debt.............................. (812,026) -- --
Other, net......................... 255,425 126,543 41,964
------------ ------------ ------------
(1,094,237) (1,440,000) (1,441,310)
------------ ------------ ------------
Income before income taxes........... 5,413,734 3,029,193 1,049,481
Income tax provision................. 1,417,021 1,099,190 415,377
------------ ------------ ------------
Net income........................... $ 3,996,713 $ 1,930,003 $ 634,104
============ ============ ============
</TABLE>
S-2
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
C.D. SMITH DRUG COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
FEBRUARY 28, FEBRUARY 28, FEBRUARY 29,
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
CASH PROVIDED BY (USED IN) OPERATING
ACTIVITIES......................... $ 3,403,864 $ (7,067,552) $ 4,401
INVESTING ACTIVITIES
Net cash paid in the General Drug
Acquisition, including transaction
costs.............................. (29,097,392) -- --
Purchases of property and equipment. (532,094) (1,034,032) (240,769)
Collections on note receivable from
ESOP............................... 145,072 145,072 145,072
Other............................... -- 12,500 --
------------ ------------ ------------
Net cash used in investing
activities......................... (29,484,414) (876,460) (95,697)
FINANCING ACTIVITIES
Borrowings on line of credit........ 406,400,925 306,643,441 223,438,779
Principal payments on line of
credit............................. (391,396,959) (298,517,612) (222,864,039)
Proceeds from issuance of long-term
debt............................... 1,259,996 800,000 --
Principal payments on long-term
debt............................... (338,404) (271,440) (231,425)
Proceeds from issuance of
subordinated note payable with
common stock put warrants.......... 12,000,000 -- --
Payments of debt issuance costs..... (1,656,711) -- --
Purchases of treasury stock......... (180,136) (791,795) (161,400)
------------ ------------ ------------
Net cash provided by financing
activities......................... 26,088,711 7,862,594 181,915
Increase (decrease) in cash......... 8,161 (81,418) 90,619
Cash at beginning of year........... 16,041 97,459 6,840
------------ ------------ ------------
Cash at end of year................. $ 24,202 $ 16,041 $ 97,459
============ ============ ============
</TABLE>
S-3
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
C.D. SMITH DRUG COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
In the parent company-only financial statements, the Company's investment in
subsidiaries is stated at cost plus equity in undistributed earnings of
subsidiaries since the date of acquisition. The parent company-only financial
statements should be read in conjunction with the Company's consolidated
financial statements.
2. THE GENERAL DRUG ACQUISITION
Effective October 3, 1997, the Company purchased all outstanding partnership
interests in Gimbel Investor Group, L.P. ("Gimbel"), which owns 100% of the
outstanding stock of G.D. Holdings Inc. ("Holdings"), the parent company of
General Drug Company and subsidiaries (the "General Drug Companies"), for $28
million in cash ("the General Drug Acquisition"). The transaction was
accounted for using the purchase method. The purchase price was allocated to
net assets acquired on the basis of their estimated fair values. The excess of
the purchase price, including approximately $1.1 million of transaction costs,
over the fair market value of the net assets acquired, amounted to $25,567,561
and has been recorded as goodwill. All operations acquired from Gimbel are
conducted within the General Drug Companies. Gimbel and Holdings had no
material assets or liabilities aside from their investment in the General Drug
Companies. The General Drug Companies' results of operations have been
included in the consolidated results of operations since the date of
acquisition.
In accordance with the principles of push-down accounting, the Company
recorded all goodwill on the financial statements of the subsidiaries. In
addition, $8 million of acquisition indebtedness under the Company's
refinanced senior credit facility (see Note 3) was recorded on the
subsidiaries' financial statements, representing the approximate amount of the
subsidiaries' available borrowing base (see Note 3) at the time of the
acquisition. All debt issuance costs related to the subsidiaries' share of
borrowings under the refinanced credit facility were also pushed down to the
subsidiaries.
3. LINE OF CREDIT AND LONG-TERM DEBT
In connection with the General Drug Acquisition, the Company refinanced its
senior credit facility with a group of lending institutions providing for a
revolving line of credit and certain term notes. Under the terms of the new
facility, which expires in October 2000, the Company and its subsidiaries may
borrow up to approximately $90 million, in addition to the amounts outstanding
under the term notes described below, based on eligible inventory and accounts
receivable balances ("the borrowing base"). At February 28, 1998, the
consolidated borrowing base amounted to approximately $102 million. The
Company and its subsidiaries must pay an aggregate commitment fee of .2% per
annum on the unused balance of the credit agreement plus an agency fee of
$10,000 per month. At February 28, 1998, consolidated availability under the
line of credit was $16,747,000, excluding the effects of outstanding checks
and lockbox receipts included in outstanding line-of-credit borrowings.
Generally, advances bear interest at the lender's prime rate (8.5% at February
28, 1998) payable monthly. The Company has an option to pay interest on a
specified amount not less than $1 million at the London Interbank Offered Rate
(LIBOR) plus 1.75% if LIBOR loans are purchased. Such interest periods are of
a one-, two-, or three-month duration. The Company line of credit borrowings,
amounting to $26,440,540 and bearing interest at a weighted average LIBOR-
based rate of 7.79% at February 28, 1998, as well as the subsidiaries' line of
credit borrowings amounting to $54,440,387 at February 28, 1998, are
collateralized by substantially all assets of the Company and its
subsidiaries. Beginning in October 2000, the senior credit facility can be
renewed for one-year terms upon mutual consent.
At February 28, 1997, the Company maintained a credit facility with a
lending institution providing for a revolving line of credit and two term
notes. Under the terms of the facility, which was to expire in February
S-4
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
C.D. SMITH DRUG COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
2000, the Company could borrow up to $32 million, including the amounts
outstanding under the term notes, based on eligible inventory and accounts
receivable balances. At February 28, 1997, the borrowing base amounted to
approximately $27 million. Interest on borrowings under the revolving line of
credit was payable monthly at the lender's prime rate (8.25% at February 28,
1997) plus 1.1%. Line-of-credit borrowings of $19,436,574 at February 28, 1997
were collateralized by substantially all assets of the Company and had been
personally guaranteed up to $1 million by the Chief Executive Officer ("CEO")
of the Company.
The senior credit agreement contains several covenants which, among other
things, restrict capital expenditures and dividend payments and require the
Company and its subsidiaries to maintain certain specified levels of net
worth, interest and debt service coverage and minimum levels of stock
ownership by the C.D. Smith Drug Company Employee Stock Ownership Plan
("ESOP") and the CEO. This agreement also limits cash dividends, loans or cash
transfers from the General Drug Companies to the Company, other than purchases
and sales between the companies in the normal course of business. At February
28, 1998, the restricted net assets of the General Drug Companies were
approximately $22.5 million.
The Company's long-term debt at February 28, all of which is due October
2000, unless extended by mutual consent of the Company and the lending
institutions, consists of the following:
<TABLE>
<CAPTION>
FEBRUARY 28
---------------------
1998 1997
---------- ----------
<S> <C> <C>
Notes payable to lending institutions under term note
provisions of the senior credit facility described
above, in monthly installments of $12,089, plus
interest at .5% below the bank's prime rate,
collateralized by 30,900 shares of common stock held by
ESOP................................................... $ 416,109 $ 561,181
Notes payable to lending institutions under term note
provisions of the senior credit facility described
above, in monthly installments of $16,667, plus
interest at the bank's prime rate, collateralized by
certain warehouse equipment............................ 933,332 746,668
Notes payable to lending institutions under term note
provisions of the senior credit facility described
above, in monthly installments aggregating $5,000, plus
interest at the bank's prime rate, collateralized by
certain real estate.................................... 880,000 --
---------- ----------
2,229,441 1,307,849
Less current portion.................................... 405,072 305,072
---------- ----------
$1,824,369 $1,002,777
========== ==========
</TABLE>
The prime rate of the lending institutions providing the term debt discussed
above was 8.50% at February 28, 1998.
Principal maturities of long-term debt for each of the next three years are
as follows:
<TABLE>
<CAPTION>
YEAR ENDING
FEBRUARY 28 AMOUNT
----------- ----------
<S> <C>
1999.............................................................. $ 405,072
2000.............................................................. 405,072
2001.............................................................. 1,419,297
</TABLE>
S-5
<PAGE>
SCHEDULE I--CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED)
C.D. SMITH DRUG COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
4. SUBORDINATED NOTE PAYABLE
In conjunction with the General Drug Acquisition, the Company issued a
subordinated note payable due October 3, 2004 in the principal amount of $12
million with detachable stock warrants (see Note 5) to an investment group.
Interest at 12% per annum is payable quarterly. Principal installments are due
and payable 90 days after the end of each fiscal year, commencing with the
fiscal year ending February 28, 1999, in an amount equal to 30% of "Excess
Cash Flow" as defined below subject to certain conditions. "Excess Cash Flow"
is generally defined in the related agreement as consolidated earnings before
interest expense, income taxes, depreciation and amortization ("EBITDA") minus
current tax liabilities, interest paid, principal payments and capital
expenditures. The estimated fair value of the warrants at October 3, 1997,
amounting to $2,569,000, was recorded as a discount on the subordinated debt.
The discount is being amortized to interest expense over the seven-year term
using the interest method resulting in an effective interest rate of 17.9% on
the subordinated debt. The amount of unamortized discount at February 28, 1998
is $2,336,974.
The subordinated note agreement contains several covenants which are similar
to the covenants disclosed in connection with the Company's senior credit
facility (see Note 3).
5. COMMON STOCK PUT WARRANTS
The detachable common stock warrants to purchase 1,080,078 shares of common
stock of the Company discussed in Note 4 are subject to certain antidilution
and other adjustments, as defined in the related agreement. The warrants are
exercisable at a price of $0.0004 per share. After the fifth anniversary of
the closing, the holders have an option to put the warrants to the Company at
a price based on a multiple of EBITDA less indebtedness and certain other
amounts as defined in the agreement. Once the warrants have been put to the
Company, the put price is payable no earlier than 90 days but no later than
100 days of the put date. Additionally, after the sixth anniversary of the
closing, the Company has the option to exercise a call right to purchase from
the holders all or any portion of such warrant securities, and the holders are
obligated to sell at a price determined in a similar manner to that of the put
option. The $2,569,000 value of these put warrants is presented as a liability
in the accompanying consolidated balance sheet due to the holder's option to
require settlement in cash. The Company is accreting the recorded amount of
the warrants to the highest redemption price of the put warrant using the
interest method. No accretion was necessary at February 28, 1998 as the
redemption price calculated per the agreement did not exceed the recorded
amount of the warrants.
S-6
<PAGE>
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
C. D. SMITH DRUG COMPANY AND SUBSIDIARIES
FEBRUARY 28, 1998
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
BALANCE AT CHARGED TO DEDUCTIONS
BEGINNING CHARGED TO OTHER ACCOUNTS -- -- BALANCE AT
DESCRIPTION OF PERIOD COSTS AND EXPENSES DESCRIBE DESCRIBE END OF PERIOD
<S> <C> <C> <C> <C> <C>
Year Ended February 28,
1998: Deducted from
asset accounts:
Allowance for doubtful
accounts.............. $248,933 $200,825 $556,896(1) $356,270(2) $650,384
Year Ended February 28,
1997: Deducted from
asset accounts:
Allowance for doubtful
accounts.............. $110,088 $222,900 -- $ 84,055(2) $248,933
Year Ended February 29,
1996: Deducted from
asset accounts:
Allowance for doubtful
accounts.............. $ 87,063 $ 37,480 -- $ 14,455(2) $110,088
</TABLE>
(1) Addition to reserves as a result of the General Drug Acquisition.
(2) Uncollectible accounts written off, net of recoveries.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS PROSPEC-
TUS AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RE-
LIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR SOLICITATION OF AN OFFER TO
BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH
SUCH OFFER OR SOLICITATION IS NOT QUALIFIED OR TO ANY PERSON TO WHOM IT IS UN-
LAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PRO-
SPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS OR THAT THERE HAS BEEN NO CHANGE ON
THE AFFAIRS OF THE COMPANY SINCE SUCH DATE.
-----------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 8
Dilution.................................................................. 11
Use of Proceeds........................................................... 12
Dividend Policy........................................................... 12
Capitalization............................................................ 13
Selected Consolidated and Pro Forma
Financial Data........................................................... 14
Pro Forma Consolidated
Statement of Income...................................................... 16
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 18
Business.................................................................. 23
Management................................................................ 31
Certain Transactions...................................................... 35
Principal and Selling Shareholders........................................ 37
Description of Capital Stock.............................................. 38
Shares Eligible for Future Sale........................................... 40
Underwriting.............................................................. 41
Legal Matters............................................................. 43
Experts................................................................... 43
Additional Information.................................................... 43
Index to Consolidated Financial Statements................................ F-1
</TABLE>
-----------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION
TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRIT-
ERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SHARES
[LOGO OF C.D. SMITH DRUG COMPANY APPEARS HERE]
C.D. SMITH DRUG COMPANY
COMMON STOCK
---------------
PROSPECTUS
---------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
BT ALEX. BROWN
WHEAT FIRST UNION
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a list of the estimated expenses to be paid by the
Registrant in connection with the initial issuance and distribution of the
securities being registered, other than underwriting discounts and
commissions:
<TABLE>
<S> <C>
SEC Registration Fee.......................................... $ 29,005
NASD Fees..................................................... 10,333
Nasdaq Listing Fees........................................... 78,875
Printing and Engraving Expenses............................... 125,000
Legal Fees and Expenses....................................... 250,000
Accounting Fees and Expenses.................................. 250,000
Professional Advisory Fees.................................... 857,500
Blue Sky Qualification Fees and Expenses...................... 2,500
Transfer Agent and Registrar's Fees........................... 500
Miscellaneous................................................. 21,287
----------
Total..................................................... $1,625,000
==========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 351.355 of the Missouri Revised Statutes (1986) allows
indemnification of corporate directors and officers by a corporation under
certain circumstances as therein specified against liabilities, expenses,
counsel fees and costs reasonably incurred in connection with or arising out
of any action, suit, proceeding or claim in which such person is made a party
by reason of such person being or having been such director or officer.
Section 351.355 also permits such persons to seek indemnification under any
applicable bylaw, agreement, vote of shareholders or disinterested directors
or otherwise. Section 351.355 also permits corporations to maintain insurance
for officers and directors against liabilities incurred while acting in such
capacities whether or not the corporation would be empowered to indemnify such
person under this section.
The Company's Amended Articles of Incorporation and Amended and Restated
Bylaws contain a provision under which, in certain circumstances, the Company
may indemnify officers and directors from and against any and all of the
expenses, liabilities or other matters covered by said provision.
There is in effect for the Registrant an insurance policy providing
directors and officers with indemnification, subject to certain exclusions and
to the extent not otherwise indemnified by the Registrant, against loss
(including expenses incurred in the defense of claims in connection therewith)
arising from any negligent act, error, omission, misstatement, misleading
statement or breach of duty while acting in their capacity as directors and
officers of the Registrant. The policy also provides for the reimbursement of
the Registrant for liability incurred in the indemnification of its directors
and officers. The Registrant has purchased coverage for liability under the
Securities Act of 1933 (the "Securities Act") in connection with the purchase,
sale, offer or solicitation of an offer to purchase or sell any securities of
the Registrant or an affiliate of the Registrant.
The Underwriting Agreement, filed as Exhibit 1.1 to this Registration
Statement, provides for indemnification by the Underwriters of the
Registrant's directors, its officers who sign the Registration Statement and
its controlling persons and by the Registrant of the Underwriters' directors
and their controlling persons against certain liabilities, including
liabilities under the Securities Act, under certain circumstances.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following table sets forth the Company's sales of unregistered
securities in the last three years:
<TABLE>
<CAPTION>
SECURITIES SOLD PURCHASER EXEMPTION
<S> <C> <C>
$12,000,000 Senior Subordinated Note Churchill ESOP Capital Partners Section 4(2)
Warrants to Purchase shares of Churchill ESOP Capital Partners Section 4(2)
Common Stock (immediately exercisable)
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) A list of exhibits filed as part of this Registration Statement appears
at the end of this Registration Statement.
(b) Financial Statement Schedules
(I) Condensed Financial Information of the Registrant.
(II) Valuation and Qualifying Accounts
All other schedules are omitted because they are inapplicable or the
requested information is shown in the financial statement or noted therein.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
The undersigned Registrant hereby undertakes:
(1) to provide to the underwriters at the closing specified in the
underwriting agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(2) that for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the Registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this Registration Statement as of the time it was declared
effective.
(3) that for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT OR AMENDMENT THERETO TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED IN THE CITY OF ST.
JOSEPH, STATE OF MISSOURI, ON THIS 5TH DAY OF JUNE, 1998.
C.D. Smith Drug Company
/s/ Robert C. Farley
By:__________________________________
Robert C. Farley
Chief Executive Officer,
President, and Chairman of the
Board
POWER OF ATTORNEY
EACH PERSON WHOSE SIGNATURE APPEARS BELOW HEREBY APPOINTS ROBERT C. FARLEY
AND S. JEANNE MATHIESEN AND EACH OF THEM SEVERALLY, ACTING ALONE AND WITHOUT
THE OTHER, HIS OR HER TRUE AND LAWFUL ATTORNEY-IN-FACT AND AGENT, WITH FULL
POWER OF SUBSTITUTION AND RESUBSTITUTION, WITH THE AUTHORITY TO EXECUTE IN THE
NAME OF EACH SUCH PERSON AND TO FILE WITH THE SECURITIES AND EXCHANGE
COMMISSION, TOGETHER WITH ANY EXHIBITS THERETO AND OTHER DOCUMENTS THEREWITH,
ANY AND ALL AMENDMENTS (INCLUDING WITHOUT LIMITATION POST-EFFECTIVE
AMENDMENTS) TO THIS REGISTRATION STATEMENT NECESSARY OR ADVISABLE TO ENABLE
THE REGISTRANT TO COMPLY WITH THE SECURITIES ACT OF 1933, AS AMENDED AND ANY
RULES, REGULATIONS AND REQUIREMENTS OF THE SECURITIES AND EXCHANGE COMMISSION
IN RESPECT THEREOF, WHICH AMENDMENTS MAY MAKE SUCH OTHER CHANGES IN THE
REGISTRATION STATEMENT AS THE AFORESAID ATTORNEY-IN-FACT OR AGENT OR HIS
SUBSTITUTE AND SUBSTITUTES EXECUTING THE SAME DEEMS APPROPRIATE.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT THERETO HAS BEEN SIGNED BELOW BY THE
FOLLOWING PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
<S> <C> <C>
/s/ Robert C. Farley Chief Executive Officer, June 5, 1998
____________________________________ President, Chairman of the
Robert C. Farley Board and Director
(Principal Executive
Director)
/s/ S. Jeanne Mathiesen Chief Financial Officer, June 5, 1998
____________________________________ Treasurer and Director
S. Jeanne Mathiesen (Principal Financial and
Accounting Officer)
/s/ Delora J. Jamison Director June 5, 1998
____________________________________
Delora J. Jamison
</TABLE>
II-3
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<C> <S> <C>
1.1 Form of Underwriting Agreement.
*3.1 Form of Articles of Incorporation of C.D. Smith
Healthcare, Inc. (Amended in Their
Entirety)
3.2 Form of Amended and Restated Bylaws of C.D. Smith
Healthcare, Inc.
*4.1 Specimen of Common Stock Certificate.
4.2 Note Purchase Agreement, dated October 3, 1997, by and
between C.D. Smith Drug Company and Churchill ESOP Capi-
tal Partners.
4.3 Warrant Agreement, dated October 3, 1997, by and between
C.D. Smith Drug Company and Churchill ESOP Capital Part-
ners.
*5.1 Opinion of Blackwell Sanders Peper Martin LLP.
10.1 C.D. Smith Drug Company Employee Stock Ownership Plan,
dated December 10, 1991, as amended.
10.2 Amended and Restated 1996 Equity Compensation Plan.
10.3 Form of Non-Qualified Stock Option Award Agreement by and
between C.D. Smith Drug Company and the recipient.
10.4 Loan and Security Agreement, dated October 3, 1997, by
and among C.D. Smith Drug Company, General Drug Company,
SBS Pharmaceuticals, Inc. and James Brudnick Company,
Inc. as Borrowers and LaSalle Business Credit, Inc. as
Lender and Agent for the Lenders, Heller Financial, Inc.
as Lender, American National Bank & Trust Company of Chi-
cago as Lender and certain other financial institutions
signatories thereto.
10.5 First Amendment to Loan and Security Agreement, dated De-
cember 27, 1997, by and among C.D. Smith Drug Company,
General Drug Company, SBS Pharmaceuticals, Inc. and James
Brudnick Company, Inc. as Borrowers and LaSalle Business
Credit, Inc. as a Lender and Agent for the Lenders,
Heller Financial, Inc. as a Lender, American National
Bank & Trust Company of Chicago as a Lender and certain
other financial institutions signatories thereto.
10.6 Second Amendment to Loan and Security Agreement, dated
January 8, 1998, by and among C.D. Smith Drug Company,
General Drug Company, SBS Pharmaceuticals, Inc. and James
Brudnick Company, Inc. as Borrowers and LaSalle Business
Credit, Inc. as a Lender and Agent for the Lenders,
Heller Financial, Inc. as a Lender, American National
Bank & Trust Company of Chicago as a Lender and certain
other financial institutions signatories thereto.
10.7 Lease for Property Located at 219 Medford Street, Malden,
Massachusetts, dated February 11, 1994, by and between
Irving S. Brudnick as Trustee of the Bershim Realty Trust
and Brudnick Acquisition Corporation.
10.8 Employment Agreement, dated September 1, 1995, by and be-
tween Robert C. Farley and C.D. Smith Drug Company.
10.9 Employment Agreement, dated July 8, 1997 and effective as
of March 1, 1997, by and between Jeanne Mathiesen and
C.D. Smith Drug Company.
10.10 Employment Agreement, dated July 8, 1997 and effective as
of March 1, 1997, by and between Delora Jamison and C.D.
Smith Drug Company.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
<C> <S> <C>
10.11 Employment Agreement, dated as of November 22, 1996, by
and between Richard Meehan and C.D. Smith Drug Company.
10.12 Severance Compensation Agreement Following Change in Con-
trol, dated as of January 7, 1997, by and between Jeanne
Mathiesen and C.D. Smith Drug Company.
10.13 Severance Compensation Agreement Following Change in Con-
trol, dated as of January 7, 1997, by and between Delora
Jamison and C.D. Smith Drug Company.
10.14 Employment Agreement, dated October 3, 1997, by and be-
tween Joseph Harris and General Drug Company and, in a
limited capacity, C.D. Smith Drug Company.
10.15 Employment Agreement, dated October 3, 1997, by and be-
tween Richard Brudnick and James Brudnick Company, Inc.
and, in a limited capacity, C.D. Smith Drug Company.
10.16 Acquisition Agreement, dated as of September 11, 1997, by
and among C.D. Smith Drug Company, G.D. Holdings of Dela-
ware, Inc., Gimbel Investor Group L.P. and certain part-
ners of Gimbel Investor Group L.P.
10.17 First Amendment to Acquisition Agreement, dated as of Oc-
tober 3, 1997, by and among C.D. Smith Drug Company, G.D.
Holdings of Delaware, Inc., Gimbel Investor Group L.P.
and certain partners of Gimbel Investor Group L.P.
21.1 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP.
*23.2 Consent of Blackwell Sanders Peper Martin LLP (contained
in Exhibit 5.1).
23.3 Consent of Blackman Kallick Bartelstein, LLP.
24.1 Power of Attorney (set forth on the signature page to the
Registration Statement).
27.1 Financial Data Schedule.
</TABLE>
- ---------------------
*To be filed by amendment.
<PAGE>
Exhibit 1.1
-----------
FORM OF UNDERWRITING AGREEMENT
__________ Shares
C.D. Smith Drug Company
Common Stock
UNDERWRITING AGREEMENT
----------------------
__________, 1998
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
WHEAT FIRST UNION
As representatives of the several Underwriters
named in Schedule I hereto
c/o Donaldson, Lufkin & Jenrette Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
C.D. Smith Drug Company, a Missouri corporation (the "COMPANY"), proposes
to issue and sell to the several underwriters named in Schedule I hereto (the
"UNDERWRITERS"), and certain stockholders of the Company named in Schedule II
hereto (the "SELLING STOCKHOLDERS") severally propose to sell to the several
Underwriters, an aggregate of _______________ shares of the common stock, par
value $0.01 per share of the Company (the "FIRM SHARES"), of which _____________
shares are to be issued and sold by the Company and _____________ shares are to
be sold by the Selling Stockholders, each Selling Stockholder selling the amount
set forth opposite such Selling Stockholder's name in Schedule II hereto. The
Company also proposes to issue and sell to the several Underwriters not more
than an additional _______ shares of its common stock, par value $0.01 per share
(the "ADDITIONAL SHARES"), if requested by the Underwriters as provided in
Section 2 hereof. The Firm Shares and the Additional Shares are hereinafter
referred to collectively as the "SHARES". The shares of common stock of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "COMMON STOCK". The Company and the Selling
Stockholders are hereinafter sometimes referred to collectively as the
"SELLERS."
Section 1. Registration Statement and Prospectus. The Company has
prepared and filed with the Securities and Exchange Commission (the
"COMMISSION")
1
<PAGE>
in accordance with the provisions of the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder (collectively, the
"ACT"), a registration statement on Form S-1, including a prospectus, relating
to the Shares. The registration statement, as amended at the time it became
effective, including the information (if any) deemed to be part of the
registration statement at the time of effectiveness pursuant to Rule 430A under
the Act, is hereinafter referred to as the "REGISTRATION STATEMENT"; and the
prospectus in the form first used to confirm sales of Shares is hereinafter
referred to as the "PROSPECTUS". If the Company has filed or is required
pursuant to the terms hereof to file a registration statement pursuant to Rule
462(b) under the Act registering additional shares of Common Stock (a "RULE
462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any reference
herein to the term "Registration Statement" shall be deemed to include such Rule
462(b) Registration Statement.
Section 2. Agreements to Sell and Purchase and Lock-Up Agreements. On the
basis of the representations and warranties contained in this Agreement, and
subject to its terms and conditions, (i) the Company agrees to issue and sell
______________ Firm Shares, (ii) each Selling Stockholder agrees, severally and
not jointly, to sell the number of Firm Shares set forth opposite such Selling
Stockholder's name in Schedule II hereto and (iii) each Underwriter agrees,
severally and not jointly, to purchase from each Seller at a price per Share of
$______ (the "PURCHASE PRICE") the number of Firm Shares (subject to such
adjustments to eliminate fractional shares as you may determine) that bears the
same proportion to the total number of Firm Shares to be sold by such Seller as
the number of Firm Shares set forth opposite the name of such Underwriter in
Schedules I hereto bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to issue
and sell the Additional Shares and the Underwriters shall have the right to
purchase, severally and not jointly, up to _______ Additional Shares from the
Company at the Purchase Price. Additional Shares may be purchased solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. The Underwriters may exercise their right to purchase
Additional Shares in whole or in part from time to time by giving written notice
thereof to the Company within 30 days after the date of this Agreement. You
shall give any such notice on behalf of the Underwriters and such notice shall
specify the aggregate number of Additional Shares to be purchased pursuant to
such exercise and the date for payment and delivery thereof, which date shall be
a business day (i) no earlier than two business days after such notice has been
given (and, in any event, no earlier than the Closing Date (as hereinafter
defined)) and (ii) no later than ten business days after such notice has been
given. If any Additional Shares are to be purchased, each Underwriter,
severally and not jointly, agrees to purchase from the Company the number of
Additional Shares (subject to such adjustments to eliminate fractional shares as
you may determine) which bears the same proportion to the total number of
Additional Shares to be
2
<PAGE>
purchased from the Company as the number of Firm Shares set forth opposite the
name of such Underwriter in Schedule I bears to the total number of Firm Shares.
Each Seller hereby agrees not to (i) offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract to
sell, grant any option, right or warrant to purchase, or otherwise transfer or
dispose of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other arrangement that transfers all or a portion of the
economic consequences associated with the ownership of any Common Stock
(regardless of whether any of the transactions described in clause (i) or (ii)
is to be settled by the delivery of Common Stock, or such other securities, in
cash or otherwise), except to the Underwriters pursuant to this Agreement, for a
period of 180 days after the date of the Prospectus without the prior written
consent of Donaldson, Lufkin & Jenrette Securities Corporation. Notwithstanding
the foregoing, during such period (i) the Company may grant stock options
pursuant to the Company's existing stock option plan and (ii) the Company may
issue shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof. The Company also
agrees not to file any registration statement with respect to any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock for a period of 180 days after the date of the Prospectus
without the prior written consent of Donaldson, Lufkin & Jenrette Securities
Corporation. In addition, each Selling Stockholder agrees that, for a period of
180 days after the date of the Prospectus without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation, it will not make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for Common Stock. The Company shall, prior to or concurrently with the execution
of this Agreement, deliver an agreement executed by (i) each Selling
Stockholder, (ii) each of the directors and officers of the Company who is not a
Selling Stockholder and (iii) each stockholder listed on Annex I hereto to the
effect that such person will not, during the period commencing on the date such
person signs such agreement and ending 180 days after the date of the
Prospectus, without the prior written consent of Donaldson, Lufkin & Jenrette
Corporation, (A) engage in any of the transactions described in the first
sentence of this paragraph or (B) make any demand for, or exercise any right
with respect to, the registration of any shares of Common Stock or any
securities convertible into or exercisable or exchangeable for Common Stock.
Section 3. Terms of Public Offering. The Sellers are advised by you that
the Underwriters propose (i) to make a public offering of their respective
portions of the Shares as soon after the execution and delivery of this
Agreement as in your judgment is advisable and (ii) initially to offer the
Shares upon the terms set forth in the Prospectus.
Section 4. Delivery and Payment. The Shares shall be represented by
definitive certificates and shall be issued in such authorized denominations and
3
<PAGE>
registered in such names as Donaldson, Lufkin & Jenrette Securities Corporation
shall request no later than two business days prior to the Closing Date or the
applicable Option Closing Date (as defined below), as the case may be. The
Shares shall be delivered by or on behalf of the Sellers, with any transfer
taxes thereon duly paid by the respective Sellers, to Donaldson, Lufkin &
Jenrette Securities Corporation through the facilities of The Depository Trust
Company ("DTC"), for the respective accounts of the several Underwriters,
against payment to the Sellers of the Purchase Price therefore by wire transfer
of Federal or other funds immediately available in New York City. The
certificates representing the Shares shall be made available for inspection not
later than 9:30 A.M., New York City time, on the business day prior to the
Closing Date or the applicable Option Closing Date, as the case may be, at the
office of DTC or its designated custodian (the "DESIGNATED OFFICE"). The time
and date of delivery and payment for the Firm Shares shall be 9:00 A.M., New
York City time, on ________, 199_ or such other time on the same or such other
date as Donaldson, Lufkin & Jenrette Securities Corporation and the Company
shall agree in writing. The time and date of delivery and payment for the Firm
Shares are hereinafter referred to as the "CLOSING DATE". The time and date of
delivery and payment for any Additional Shares to be purchased by the
Underwriters shall be 9:00 A.M., New York City time, on the date specified in
the applicable exercise notice given by you pursuant to Section 2 or such other
time on the same or such other date as Donaldson, Lufkin & Jenrette Securities
Corporation and the Company shall agree in writing. The time and date of
delivery and payment for any Additional Shares are hereinafter referred to as
the "OPTION CLOSING DATE".
The documents to be delivered on the Closing Date or any Option Closing
Date on behalf of the parties hereto pursuant to Section 9 of this Agreement
shall be delivered at the offices of Gardere & Wynne, L.L.P. and the Shares
shall be delivered at the Designated Office, all on the Closing Date or such
Option Closing Date, as the case may be.
Section 5. Agreements of the Company. The Company agrees with you:
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of the suspension
of qualification of the Shares for offering or sale in any jurisdiction, or the
initiation of any proceeding for such purposes, (iii) when any amendment to the
Registration Statement becomes effective, (iv) if the Company is required to
file a Rule 462(b) Registration Statement after the effectiveness of this
Agreement, when the Rule 462(b) Registration Statement has become effective and
(v) of the happening of any event during the period referred to in Section 5(d)
below which makes any statement of a material fact made in the Registration
Statement or the Prospectus untrue or which requires any additions to or changes
in the Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue
4
<PAGE>
any stop order suspending the effectiveness of the Registration Statement, the
Company will use its best efforts to obtain the withdrawal or lifting of such
order at the earliest possible time.
(b) To furnish to you four signed copies of the Registration Statement
as first filed with the Commission and of each amendment to it, including all
exhibits, and to furnish to you and each Underwriter designated by you such
number of conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits, as you may reasonably request.
(c) To prepare the Prospectus, the form and substance of which shall be
satisfactory to you, and to file the Prospectus in such form with the
Commission within the applicable period specified in Rule 424(b) under the Act;
during the period specified in Section 5(d) below, not to file any further
amendment to the Registration Statement and not to make any amendment or
supplement to the Prospectus of which you shall not previously have been advised
or to which you shall reasonably object after being so advised; and, during such
period, to prepare and file with the Commission, promptly upon your reasonable
request, any amendment to the Registration Statement or amendment or supplement
to the Prospectus which may be necessary or advisable in connection with the
distribution of the Shares by you, and to use its best efforts to cause any such
amendment to the Registration Statement to become promptly effective.
(d) Prior to 10:00 A.M., New York City time, on the first business day
after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and any dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur or condition shall exist as a result of which, in the opinion of counsel
for the Underwriters, it becomes necessary to amend or supplement the Prospectus
in order to make the statements therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if, in the
opinion of counsel for the Underwriters, it is necessary to amend or supplement
the Prospectus to comply with applicable law, forthwith to prepare and file with
the Commission an appropriate amendment or supplement to the Prospectus so that
the statements in the Prospectus, as so amended or supplemented, will not in the
light of the circumstances when it is so delivered, be misleading, or so that
the Prospectus will comply with applicable law, and to furnish to each
Underwriter and to any dealer as many copies thereof as such Underwriter or
dealer may reasonably request.
(f) Prior to any public offering of the Shares, to cooperate with you
and counsel for the Underwriters in connection with the registration or
qualification of the
5
<PAGE>
Shares for offer and sale by the several Underwriters and by dealers under the
state securities or Blue Sky laws of such jurisdictions as you may request, to
continue such registration or qualification in effect so long as required for
distribution of the Shares and to file such consents to service of process or
other documents as may be necessary in order to effect such registration or
qualification; provided, however, that the Company shall not be required in
connection therewith to qualify as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action that would subject it to
general consent to service of process or taxation other than as to matters and
transactions relating to the Prospectus, the Registration Statement, any
preliminary prospectus or the offering or sale of the Shares, in any
jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its stockholders as soon as
practicable an earnings statement covering the twelve-month period ending July
31, 1999, that shall satisfy the provisions of Section 11(a) of the Act, and to
advise you in writing when such statement has been so made available.
(h) During the period of three years after the date of this Agreement,
to furnish to you as soon as available copies of all reports or other
communications furnished to the record holders of Common Stock or furnished to
or filed with the Commission or any national securities exchange on which any
class of securities of the Company is listed and such other publicly available
information concerning the Company and its subsidiaries as you may reasonably
request.
(i) Whether or not the transactions contemplated in this Agreement are
consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of the Sellers' obligations under this
Agreement, including: (i) the fees, disbursements and expenses of the Company's
counsel, the Company's accountants and any Selling Stockholder's counsel (in
addition to the Company's counsel) in connection with the registration and
delivery of the Shares under the Act and all other fees and expenses in
connection with the preparation, printing, filing and distribution of the
Registration Statement (including financial statements and exhibits), any
preliminary prospectus, the Prospectus and all amendments and supplements to any
of the foregoing, including the mailing and delivering of copies thereof to the
Underwriters and dealers in the quantities specified herein, (ii) all costs and
expenses related to the transfer and delivery of the Shares to the Underwriters,
including any transfer or other taxes payable thereon, (iii) all costs of
printing or producing this Agreement and any other agreements or documents in
connection with the offering, purchase, sale or delivery of the Shares, (iv) all
expenses in connection with the registration or qualification of the Shares for
offer and sale under the securities or Blue Sky laws of the several states and
all costs of printing or producing any Preliminary and Supplemental Blue Sky
Memoranda in connection therewith (including the filing fees and fees and
disbursements of counsel for the Underwriters in connection with such
registration or qualification and memoranda relating thereto), (v) the filing
fees and disbursements of counsel for the Underwriters in connection with the
review and clearance of the offering of the Shares by the
6
<PAGE>
National Association of Securities Dealers, Inc., (vi) all fees and expenses in
connection with the preparation and filing of the registration statement on Form
8-A relating to the Common Stock and all costs and expenses incident to the
listing of the Shares on the Nasdaq National Market and any other national
securities exchanges and foreign stock exchanges, (vii) the cost of printing
certificates representing the Shares, (viii) the costs and charges of any
transfer agent, registrar and/or depositary, and (ix) all other costs and
expenses incident to the performance of the obligations of the Company and the
Selling Stockholders hereunder for which provision is not otherwise made in this
Section. The provisions of this Section shall not supersede or otherwise affect
any agreement that the Company and the Selling Stockholders may otherwise have
for allocation of such expenses among themselves.
(j) To use its best efforts to list for quotation the Shares on the
Nasdaq National Market and to maintain the listing of the Shares on the Nasdaq
National Market for a period of three years after the date of this Agreement.
(k) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company prior to
the Closing Date or any Option Closing Date, as the case may be, and to satisfy
all conditions precedent to the delivery of the Shares.
(l) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Shares, to file a Rule 462(b)
Registration Statement with the Commission registering the Shares not so covered
in compliance with Rule 462(b) by 10:00 P.M., New York City time, on the date of
this Agreement and to pay to the Commission the filing fee for such Rule 462(b)
Registration Statement at the time of the filing thereof or to give irrevocable
instructions for the payment of such fee pursuant to Rule 111(b) under the Act.
Section 6. Representations and Warranties of the Company. The Company
represents and warrants to each Underwriter that:
(a) The Registration Statement has become effective (other than any Rule
462(b) Registration Statement to be filed by the Company after the effectiveness
of this Agreement); any Rule 462(b) Registration Statement filed after the
effectiveness of this Agreement will become effective no later than 10:00 P.M.,
New York City time, on the date of this Agreement; and no stop order suspending
the effectiveness of the Registration Statement is in effect, and no proceedings
for such purpose are pending before or threatened by the Commission.
(b) (i) The Registration Statement (other than any Rule 462(b)
Registration Statement to be filed by the Company after the effectiveness of
this Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement (other than
any Rule 462(b) Registration Statement to be filed
7
<PAGE>
by the Company after the effectiveness of this Agreement) and the Prospectus
comply and, as amended or supplemented, if applicable, will comply in all
material respects with the Act, (iii) if the Company is required to file a Rule
462(b) Registration Statement after the effectiveness of this Agreement, such
Rule 462(b) Registration Statement and any amendments thereto, when they become
effective (A) will not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading and (B) will comply in all material respects
with the Act and (iv) the Prospectus does not contain and, as amended or
supplemented, if applicable, will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this paragraph do
not apply to statements or omissions in the Registration Statement or the
Prospectus based upon information relating to any Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and warranties
set forth in this paragraph do not apply to statements or omissions in any
preliminary prospectus based upon information relating to any Underwriter
furnished to the Company in writing by such Underwriter through you expressly
for use therein.
(d) Each of the Company and its subsidiaries has been duly incorporated,
is validly existing as a corporation in good standing under the laws of its
jurisdiction of incorporation and has the corporate power and authority to carry
on its business as described in the Prospectus and to own, lease and operate its
properties, and each is duly qualified and is in good standing as a foreign
corporation authorized to do business in each jurisdiction in which the nature
of its business or its ownership or leasing of property requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
(e) There are no outstanding subscriptions, rights, warrants, options,
calls, convertible securities, commitments of sale or liens granted or issued by
the Company or any of its subsidiaries relating to or entitling any person to
purchase or otherwise to acquire any shares of the capital stock of the Company
or any of its subsidiaries, except as otherwise disclosed in the Registration
Statement.
(f) All the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly
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issued and are fully paid, non-assessable and not subject to any preemptive or
similar rights; and the Shares to be issued and sold by the Company have been
duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights.
(g) All of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature.
(h) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(i) Neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws or in default in the performance of any
obligation, agreement, covenant or condition contained in any indenture, loan
agreement, mortgage, lease or other agreement or instrument that is material to
the Company and its subsidiaries, taken as a whole, to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or their respective property is bound.
(j) The execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (i) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (ii) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (iii) violate or
conflict with any applicable law or any rule, regulation, judgment, order or
decree of any court or any governmental body or agency having jurisdiction over
the Company, any of its subsidiaries or their respective property or (iv) result
in the suspension, termination or revocation of any Authorization (as defined
below) of the Company or any of its subsidiaries or any other impairment of the
rights of the holder of any such Authorization.
(k) There are no legal or governmental proceedings pending or threatened
to which the Company or any of its subsidiaries is or could be a party or to
which any of their respective property is or could be subject that are required
to be described in the Registration Statement or the Prospectus and are not so
described; nor are there
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any statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not so described or filed as
required.
(l) Neither the Company nor any of its subsidiaries has violated any
foreign, federal, state or local law or regulation relating to the protection of
human health and safety, the environment or hazardous or toxic substances or
wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS"), any provisions of the
Employee Retirement Income Security Act of 1974, as amended, or any provisions
of the Foreign Corrupt Practices Act or the rules and regulations promulgated
thereunder, except for such violations which, singly or in the aggregate, would
not have a material adverse effect on the business, prospects, financial
condition or results of operation of the Company and its subsidiaries, taken as
a whole.
(m) Each of the Company and its subsidiaries has such permits, licenses,
consents, exemptions, franchises, authorizations and other approvals (each, an
"AUTHORIZATION") of, and has made all filings with and notices to, all
governmental or regulatory authorities and self-regulatory organizations and all
courts and other tribunals, including, without limitation, under any applicable
Environmental Laws, as are necessary to own, lease, license and operate its
respective properties and to conduct its business, except where the failure to
have any such Authorization or to make any such filing or notice would not,
singly or in the aggregate, have a material adverse effect on the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole. Each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole.
(n) There are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
Authorization, any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate, have a
material adverse effect on the business, prospects, financial condition or
results of operations of the Company and its subsidiaries, taken as a whole.
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(o) This Agreement has been duly authorized, executed and delivered by
the Company.
(p) Ernest & Young, L.L.P. are independent public accountants with
respect to the Company and its subsidiaries as required by the Act, and
Blackman, Kallick, Bartelstein, LLP are independent public accountants with
respect to the Company and its subsidiaries as required by the Act.
(q) The consolidated financial statements included in the Registration
Statement and the Prospectus (and any amendment or supplement thereto), together
with related schedules and notes, present fairly the consolidated financial
position, results of operations and changes in financial position of the Company
and its subsidiaries on the basis stated therein at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; the supporting schedules, if any, included in the
Registration Statement present fairly in accordance with generally accepted
accounting principles the information required to be stated therein; and the
other financial and statistical information and data set forth in the
Registration Statement and the Prospectus (and any amendment or supplement
thereto) are, in all material respects, accurately presented and prepared on a
basis consistent with such financial statements and the books and records of the
Company.
(r) The Company is not and, after giving effect to the offering and sale
of the Shares and the application of the proceeds thereof as described in the
Prospectus, will not be, an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended.
(s) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
file a registration statement under the Act with respect to any securities of
the Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(t) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there has not occurred any material adverse change or any development involving
a prospective material adverse change in the condition, financial or otherwise,
or the earnings, business, management or operations of the Company and its
subsidiaries, taken as a whole, (ii) there has not been any material adverse
change or any development involving a prospective material adverse change in the
capital stock or in the long-term debt of the Company or any of its subsidiaries
and (iii) neither the Company nor any of its subsidiaries has incurred any
material liability or obligation, direct or contingent.
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<PAGE>
(u) The Company and each of its subsidiaries are insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as are prudent and customary in the businesses in which they are
engaged; and neither the Company nor any of its subsidiaries (i) has received
notice from any insurer or agent of such insurer that substantial capital
improvements or other material expenditures will have to be made in order to
continue such insurance or (ii) has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers at a cost that would not
have a material adverse effect on the business, prospects, financial conditions
or results of operations of the Company and its subsidiaries, taken as a whole.
(v) No relationship, direct or indirect, exists between or among the
Company or any of its subsidiaries on the one hand, and the directors, officers,
stockholders, customers or suppliers of the Company or any of its subsidiaries
on the other hand, which is required by the Act to be described in the
Registration Statement or the Prospectus which is not so described.
(w) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus (and any supplement or amendment thereto) have been
prepared on a basis consistent with the historical financial statements of the
Company and its subsidiaries, give effect to the assumptions used in the
preparation thereof on a reasonable basis and in good faith and present fairly
the historical and proposed transactions contemplated by the Registration
Statement and the Prospectus. Such pro forma financial statements have been
prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission. The other pro forma financial and
statistical information and data set forth in the Registration Statement and the
Prospectus (and any supplement or amendment thereto) are, in all material
respects, accurately presented and prepared on a basis consistent with the pro
forma financial statements.
(x) The Company and each of its subsidiaries maintains a system of
internal accounting controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(y) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than those
filings being contested in good faith, and all material taxes, including
withholding taxes, penalties and interest, assessments, fees and other charges
due pursuant to such returns or
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<PAGE>
pursuant to any assessment received by the Company or any of its subsidiaries
have been paid, other than those being contested in good faith and for which
adequate reserves have been provided.
(z) Each certificate signed by any officer of the Company and delivered
to the Underwriters or counsel for the Underwriters shall be deemed to be a
representation and warranty by the Company to the Underwriters as to the matters
covered thereby.
Section 7. Representations and Warranties of the Selling Stockholders.
Each Selling Stockholder represents and warrants to each Underwriter that:
(a) Such Selling Stockholder is the lawful owner of the Shares to be
sold by such Selling Stockholder pursuant to this Agreement and has, and on the
Closing Date will have, good and clear title to such Shares, free of all
restrictions on transfer, liens, encumbrances, security interests, equities and
claims whatsoever.
(b) The Shares to be sold by such Selling Stockholder have been duly
authorized and are validly issued, fully paid and non-assessable.
(c) Such Selling Stockholder has, and on the Closing Date will have,
full legal right, power and authority, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement signed by
such Selling Stockholder and _________________________, as Custodian, relating
to the deposit of the Shares to be sold by such Selling Stockholder (the
"CUSTODY AGREEMENT") and the Power of Attorney of such Selling Stockholder
appointing certain individuals as such Selling Stockholder's attorneys-in-fact
(the "ATTORNEYS") to the extent set forth therein, relating to the transactions
contemplated hereby and by the Registration Statement and the Custody Agreement
(the "POWER OF ATTORNEY") and to sell, assign, transfer and deliver the Shares
to be sold by such Selling Stockholder in the manner provided herein and
therein.
(d) This Agreement has been duly authorized, executed and delivered by
or on behalf of such Selling Stockholder.
(e) The Custody Agreement of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms.
(f) The Power of Attorney of such Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this
Agreement and any other document that they, or any one of them, may deem
necessary or desirable in connection with the
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<PAGE>
transactions contemplated hereby and thereby and to deliver the Shares to be
sold by such Selling Stockholder pursuant to this Agreement.
(g) Upon delivery of and payment for the Shares to be sold by such
Selling Stockholder pursuant to this Agreement, good and clear title to such
Shares will pass to the Underwriters, free of all restrictions on transfer,
liens, encumbrances, security interests, equities and claims whatsoever.
(h) The execution, delivery and performance of this Agreement and the
Custody Agreement and Power of Attorney of such Selling Stockholder by or on
behalf of such Selling Stockholder, the compliance by such Selling Stockholder
with all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (i) require any consent,
approval, authorization or other order of, or qualification with, any court or
governmental body or agency (except such as may be required under the securities
or Blue Sky laws of the various states), (ii) conflict with or constitute a
breach of any of the terms or provisions of, or a default under, the
organizational documents of such Selling Stockholder, if such Selling
Stockholder is not an individual, or any indenture, loan agreement, mortgage,
lease or other agreement or instrument to which such Selling Stockholder is a
party or by which such Selling Stockholder or any property of such Selling
Stockholder is bound or (iii) violate or conflict with any applicable law or any
rule, regulation, judgment, order or decree of any court or any governmental
body or agency having jurisdiction over such Selling Stockholder or any property
of such Selling Stockholder.
(i) The information in the Registration Statement under the caption
"Principal and Selling Stockholders" which specifically relates to such Selling
Stockholder does not, and will not on the Closing Date, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(j) At any time during the period described in Section 5(d), if there is
any change in the information referred to in Section 7(i), such Selling
Stockholder will immediately notify you of such change.
(k) Each certificate signed by or on behalf of such Selling Stockholder
and delivered to the Underwriters or counsel for the Underwriters shall be
deemed to be a representation and warranty by such Selling Stockholder to the
Underwriters as to the matters covered thereby.
(l) Robert C. Farley and S. Jeanne Mathiesen each hereby represents and
warrants that all of the representations and warranties of the Company set forth
in Section 6 above are true and correct.
(m) Each of the Selling Stockholders (excluding Robert C. Farley and S.
Jeanne Mathiesen) hereby represents and warrants that he or she has read the
Prospectus and nothing has come to such Selling Stockholder's attention and such
Selling Stockholder has no reason to believe that at the time the Registration
Statement became effective or on the date of the Agreement, the Prospectus
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
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<PAGE>
Section 8. Indemnification. (a) The Sellers, jointly and severally, agree
to indemnify and hold harmless each Underwriter, its directors, its officers and
each person, if any, who controls any Underwriter within the meaning of Section
15 of the Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT"), from and against any and all losses, claims, damages,
liabilities and judgments (including, without limitation, any legal or other
expenses incurred in connection with investigating or defending any matter,
including any action, that could give rise to any such losses, claims, damages,
liabilities or judgments) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment thereto), the Prospectus (or any amendment or supplement thereto) or
any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages, liabilities or judgments are caused by any such untrue statement or
omission or alleged untrue statement or omission based upon information relating
to any Underwriter furnished in writing to the Company by such Underwriter
through you expressly for use therein provided, however, that the foregoing
indemnity agreement with respect to any preliminary prospectus shall not inure
to the benefit of any Underwriter who failed to deliver a Prospectus, as then
amended or supplemented, (so long as the Prospectus and any amendment or
supplement thereto was provided by the Company to the several Underwriters in
the requisite quantity and on a timely basis to permit proper delivery on or
prior to the Closing Date) to the person asserting any losses, claims, damages,
liabilities or judgments caused by any untrue statement or alleged untrue
statement of a material fact contained in such preliminary prospectus, or caused
by any omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading, if
such material misstatement or omission or alleged material misstatement or
omission was cured in the Prospectus, as so amended or supplemented, and such
Prospectus was required by law to be delivered at or prior to the written
confirmation of sale to such person. Notwithstanding the foregoing, the
aggregate liability of any Selling Stockholder pursuant to this Section 8(a)
shall be limited to an amount equal to the total proceeds (before deducting
underwriting discounts and commissions and expenses) received by such Selling
Stockholder from the Underwriters for the sale of the Shares sold by such
Selling Stockholder hereunder.
(b) Each Underwriter agrees, severally and not jointly, to indemnify and
hold harmless the Company, its directors, its officers who sign the Registration
Statement, each person, if any, who controls the Company within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act, each Selling
Stockholder and each person, if any, who controls such Selling Stockholder
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Sellers to such Underwriter
but only with reference to information relating to such Underwriter furnished in
writing to the Company by such Underwriter through you expressly for use in the
Registration Statement (or any amendment
15
<PAGE>
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 8(a) or 8(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 8(a) and 8(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 8(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the indemnified
party unless (i) the employment of such counsel shall have been specifically
authorized in writing by the indemnifying party, (ii) the indemnifying party
shall have failed to assume the defense of such action or employ counsel
reasonably satisfactory to the indemnified party or (iii) the named parties to
any such action (including any impleaded parties) include both the indemnified
party and the indemnifying party, and the indemnified party shall have been
advised by such counsel that there may be one or more legal defenses available
to it which are different from or additional to those available to the
indemnifying party (in which case the indemnifying party shall not have the
right to assume the defense of such action on behalf of the indemnified party).
In any such case, the indemnifying party shall not, in connection with any one
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for (i) the fees and expenses of more than one separate firm of attorneys
(in addition to any local counsel) for all Underwriters, their officers and
directors and all persons, if any, who control any Underwriter within the
meaning of either Section 15 of the Act or Section 20 of the Exchange Act, (ii)
the fees and expenses of more than one separate firm of attorneys (in addition
to any local counsel) for the Company, its directors, its officers who sign the
Registration Statement and all persons, if any, who control the Company within
the meaning of either such Section and (iii) the fees and expenses of more than
one separate firm of attorneys (in addition to any local counsel) for all
Selling Stockholders and all persons, if any, who control any Selling
Stockholder within the meaning of either such Section, and all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters, their officers and directors and such
control persons of any Underwriters, such firm shall be designated in writing by
Donaldson, Lufkin & Jenrette Securities Corporation. In the case of any such
separate firm for the Company and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the Company. In
the case of any such separate firm for the Selling Stockholders and such
control persons of any Selling Stockholders, such firm shall be designated in
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writing by the Attorneys. The indemnifying party shall indemnify and hold
harmless the indemnified party from and against any and all losses, claims,
damages, liabilities and judgments by reason of any settlement of any action (i)
effected with its written consent or (ii) effected without its written consent
if the settlement is entered into more than twenty business days after the
indemnifying party shall have received a request from the indemnified party for
reimbursement for the fees and expenses of counsel (in any case where such fees
and expenses are at the expense of the indemnifying party) and, prior to the
date of such settlement, the indemnifying party shall have failed to comply with
such reimbursement request. No indemnifying party shall, without the prior
written consent of the indemnified party, effect any settlement or compromise
of, or consent to the entry of judgment with respect to, any pending or
threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 8 is
unavailable to an indemnified party or insufficient in respect of any losses,
claims, damages, liabilities or judgments referred to therein, then each
indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Sellers on the one hand and the Underwriters on the other hand from the offering
of the Shares or (ii) if the allocation provided by clause 8(d)(i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause 8(d)(i) above but also the
relative fault of the Sellers on the one hand and the Underwriters on the other
hand in connection with the statements or omissions which resulted in such
losses, claims, damages, liabilities or judgments, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on the
one hand and the Underwriters on the other hand shall be deemed to be in the
same proportion as the total net proceeds from the offering (after deducting
underwriting discounts and commissions, but before deducting expenses) received
by the Sellers, and the total underwriting discounts and commissions received by
the Underwriters, bear to the total price to the public of the Shares, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault of the Sellers on the one hand and the Underwriters on the other
hand shall be determined by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
or the Selling Stockholders on the one hand or the Underwriters on the other
hand and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
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The Sellers and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 8(d) were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding paragraph.
The amount paid or payable by an indemnified party as a result of the losses,
claims, damages, liabilities or judgments referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such indemnified party in
connection with investigating or defending any matter, including any action,
that could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 8, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Shares underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 8(d) are several in proportion to the respective number
of Shares purchased by each of the Underwriters hereunder and not joint.
(e) The remedies provided for in this Section 8 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(f) Each Selling Stockholder hereby designates C.D. Smith Drug Company,
3907 S. 48th Terrace, P.O. Box 789, St. Joseph, Missouri 64503, as its
authorized agent, upon which process may be served in any action which may be
instituted in any state or federal court in the State of New York by any
Underwriter, any director or officer of any Underwriter or any person
controlling any Underwriter asserting a claim for indemnification or
contribution under or pursuant to this Section 8, and each Selling Stockholder
will accept the jurisdiction of such court in such action, and waives, to the
fullest extent permitted by applicable law, any defense based upon lack of
personal jurisdiction or venue. A copy of any such process shall be sent or
given to such Selling Stockholder, at the address for notices specified in
Section 12 hereof.
Section 9. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Firm Shares under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company contained in
this Agreement shall be true and correct on the Closing Date with the same force
and effect as if made on and as of the Closing Date.
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(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 P.M., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) You shall have received on the Closing Date a certificate dated the
Closing Date, signed by Robert C. Farley and S. Jeanne Mathieson, in their
capacities as the Chief Executive Officer and President and Chief Financial
Officer and Vice President of the Company, respectively, confirming the matters
set forth in Sections 6(t), 9(a) and 9(b) and that the Company has complied with
all of the agreements and satisfied all of the conditions herein contained and
required to be complied with or satisfied by the Company on or prior to the
Closing Date.
(d) Since the respective dates as of which information is given in the
Prospectus other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement), (i)
there shall not have occurred any change or any development involving a
prospective change in the condition, financial or otherwise, or the earnings,
business, management or operations of the Company and its subsidiaries, taken as
a whole, (ii) there shall not have been any change or any development involving
a prospective change in the capital stock or in the long-term debt of the
Company or any of its subsidiaries and (iii) neither the Company nor any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent, the effect of which, in any such case described in clause 9(d)(i),
9(d)(ii) or 9(d)(iii), in your judgment, is material and adverse and, in your
judgment, makes it impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
(e) All the representations and warranties of each Selling Stockholder
contained in this Agreement shall be true and correct on the Closing Date with
the same force and effect as if made on and as of the Closing Date and you shall
have received on the Closing Date a certificate dated the Closing Date from each
Selling Stockholder to such effect and to the effect that such Selling
Stockholder has complied with all of the agreements and satisfied all of the
conditions herein contained and required to be complied with or satisfied by
such Selling Stockholder on or prior to the Closing Date.
(f) You shall have received on the Closing Date an opinion (satisfactory
to you and counsel for the Underwriters), dated the Closing Date, of Blackwell
Sanders Peper Martin, LLP counsel for the Company and the Selling Stockholders,
to the effect that:
(i) each of the Company and its subsidiaries has been duly
incorporated, is validly existing as a corporation in good standing under
the laws of its jurisdiction of incorporation and has the corporate power
and
19
<PAGE>
authority to carry on its business as described in the Prospectus and to own,
lease and operate its properties;
(ii) each of the Company and its subsidiaries is duly qualified and is
in good standing as a foreign corporation authorized to do business in each
jurisdiction in which the nature of its business or its ownership or leasing of
property requires such qualification, except where the failure to be so
qualified would not have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(iii) all the outstanding shares of capital stock of the Company
(including the Shares to be sold by the Selling Stockholders) have been duly
authorized and validly issued and are fully paid, non-assessable and not subject
to any preemptive or similar rights;
(iv) the Shares to be issued and sold by the Company hereunder have
been duly authorized and, when issued and delivered to the Underwriters against
payment therefor as provided by this Agreement, will be validly issued, fully
paid and non-assessable, and the issuance of such Shares will not be subject to
any preemptive or similar rights;
(v) all of the outstanding shares of capital stock of each of the
Company's subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and are owned by the Company, directly or
indirectly through one or more subsidiaries, free and clear of any security
interest, claim, lien, encumbrance or adverse interest of any nature;
(vi) this Agreement has been duly authorized, executed and delivered by
the Company and by or on behalf of each Selling Stockholder;
(vii) the authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus;
(viii) the Registration Statement has become effective under the Act,
no stop order suspending its effectiveness has been issued and no proceedings
for that purpose are, to the best of such counsel's knowledge after due inquiry,
pending before or contemplated by the Commission;
(ix) the statements under the captions "Risk Factors - Covenant
Restrictions in Credit Facility", "Risk Factors - Shares Eligible for Future
Sale", "Risk Factors - Certain Anti-Takeover Results", "Management's Discussion
and Analysis of Financial Condition and Results of Operations -Liquidity and
Capital Resources with regard to descriptions of the Credit Facility and the
$12.0 million subordinated note issued in conjunction with the General Drug
Acquisition", "Management - Equity Incentive Plan",
20
<PAGE>
"Management - Employment and Noncompete Agreements", "Certain Transactions",
"Description of Capital Stock - Common and Preferred Stock", "Description of
Capital Stock - Limitations on Change of Control", "Shares Eligible For Future
Sale", and "Underwriting" in the Prospectus and Items 14 and 15 of Part II of
the Registration Statement, insofar as such statements constitute a summary of
the legal matters, documents or proceedings referred to therein, fairly present
the information called for with respect to such legal matters, documents and
proceedings;
(x) neither the Company nor any of its subsidiaries is in violation of
its respective charter or by-laws and, to the best of such counsel's knowledge
after due inquiry, neither the Company nor any of its subsidiaries is in default
in the performance of any obligation, agreement, covenant or condition contained
in any indenture, loan agreement, mortgage, lease or other agreement or
instrument that is material to the Company and its subsidiaries, taken as a
whole, to which the Company or any of its subsidiaries is a party or by which
the Company or any of its subsidiaries or their respective property is bound;
(xi) the execution, delivery and performance of this Agreement by the
Company, the compliance by the Company with all the provisions hereof and the
consummation of the transactions contemplated hereby will not (A) require any
consent, approval, authorization or other order of, or qualification with, any
court or governmental body or agency (except such as may be required under the
securities or Blue Sky laws of the various states), (B) conflict with or
constitute a breach of any of the terms or provisions of, or a default under,
the charter or by-laws of the Company or any of its subsidiaries or any
indenture, loan agreement, mortgage, lease or other agreement or instrument that
is material to the Company and its subsidiaries, taken as a whole, to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or their respective property is bound, (C) violate or conflict
with any applicable law or any rule, regulation, judgment, order or decree of
any court or any governmental body or agency having jurisdiction over the
Company, any of its subsidiaries or their respective property or (D) result in
the suspension, termination or revocation of any Authorization of the Company or
any of its subsidiaries or any other impairment of the rights of the holder of
any such Authorization;
(xii) after due inquiry, such counsel does not know of any legal or
governmental proceedings pending or threatened to which the Company or any of
its subsidiaries is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described, or of any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
21
<PAGE>
exhibits to the Registration Statement that are not so described or filed as
required;
(xiii) neither the Company nor any of its subsidiaries has violated any
Environmental Law, any provisions of the Employee Retirement Income Security Act
of 1974, as amended, or any provisions of the Foreign Corrupt Practices Act or
the rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a material adverse effect on
the business, prospects, financial condition or results of operation of the
Company and its subsidiaries, taken as a whole;
(xiv) each of the Company and its subsidiaries has such Authorizations
of, and has made all filings with and notices to, all governmental or regulatory
authorities and self-regulatory organizations and all courts and other
tribunals, including, without limitation, under any applicable Environmental
Laws, as are necessary to own, lease, license and operate its respective
properties and to conduct its business, except where the failure to have any
such Authorization or to make any such filing or notice would not, singly or in
the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole; each such Authorization is valid and in full
force and effect and each of the Company and its subsidiaries is in compliance
with all the terms and conditions thereof and with the rules and regulations of
the authorities and governing bodies having jurisdiction with respect thereto;
and no event has occurred (including, without limitation, the receipt of any
notice from any authority or governing body) which allows or, after notice or
lapse of time or both, would allow, revocation, suspension or termination of any
such Authorization or results or, after notice or lapse of time or both, would
result in any other impairment of the rights of the holder of any such
Authorization; and such Authorizations contain no restrictions that are
burdensome to the Company or any of its subsidiaries; except where such failure
to be valid and in full force and effect or to be in compliance, the occurrence
of any such event or the presence of any such restriction would not, singly or
in the aggregate, have a material adverse effect on the business, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole;
(xv) the Company is not and, after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described in
the Prospectus, will not be, an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended;
(xvi) to the best of such counsel's knowledge after due inquiry, there
are no contracts, agreements or understandings between the Company and any
person granting such person the right to require the Company to file a
registration statement under the Act with respect to any securities of the
22
<PAGE>
Company or to require the Company to include such securities with the Shares
registered pursuant to the Registration Statement;
(xvii) (A) the Registration Statement and the Prospectus and any
supplement or amendment thereto (except for the financial statements and other
financial data included therein as to which no opinion need be expressed) comply
as to form with the Act, (B) such counsel has no reason to believe that at the
time the Registration Statement became effective or on the date of this
Agreement, the Registration Statement and the prospectus included therein
(except for the financial statements and other financial data as to which such
counsel need not express any belief) contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary to make the statements therein not misleading and (C) such counsel
has no reason to believe that the Prospectus, as amended or supplemented, if
applicable (except for the financial statements and other financial data, as
aforesaid) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading;
(xviii) each Selling Stockholder is the lawful owner of the Shares to
be sold by such Selling Stockholder pursuant to this Agreement and has good and
clear title to such Shares, free of all restrictions on transfer, liens,
encumbrances, security interests, equities and claims whatsoever;
(xix) each Selling Stockholder has full legal right, power and
authority, and all authorization and approval required by law, to enter into
this Agreement and the Custody Agreement and the Power of Attorney of such
Selling Stockholder and to sell, assign, transfer and deliver the Shares to be
sold by such Selling Stockholder in the manner provided herein and therein;
(xx) the Custody Agreement of each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding agreement of such Selling Stockholder, enforceable in accordance
with its terms;
(xxi) the Power of Attorney of each Selling Stockholder has been duly
authorized, executed and delivered by such Selling Stockholder and is a valid
and binding instrument of such Selling Stockholder, enforceable in accordance
with its terms, and, pursuant to such Power of Attorney, such Selling
Stockholder has, among other things, authorized the Attorneys, or any one of
them, to execute and deliver on such Selling Stockholder's behalf this
Agreement and any other document they, or any one of them, may deem necessary or
desirable in connection with the transactions contemplated hereby and thereby
and to deliver the Shares to be sold by such Selling Stockholder pursuant to
this Agreement;
23
<PAGE>
(xxii) upon delivery of and payment for the Shares to be sold by
each Selling Stockholder pursuant to this Agreement, good and clear title
to such Shares will pass to the Underwriters, free of all restrictions on
transfer, liens, encumbrances, security interests, equities and claims
whatsoever; and
(xxiii) the execution, delivery and performance of this Agreement and
the Custody Agreement and Power of Attorney of each Selling Stockholder by
such Selling Stockholder, the compliance by such Selling Stockholder with
all the provisions hereof and thereof and the consummation of the
transactions contemplated hereby and thereby will not (A) require any
consent, approval, authorization or other order of, or qualification with,
any court or governmental body or agency (except such as may be required
under the securities or Blue Sky laws of the various states), (B) conflict
with or constitute a breach of any of the terms or provisions of, or a
default under, the organizational documents of such Selling Stockholder, if
such Selling Stockholder is not an individual, or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which such
Selling Stockholder is a party or by which any property of such Selling
Stockholder is bound or (C) violate or conflict with any applicable law or
any rule, regulation, judgment, order or decree of any court or any
governmental body or agency having jurisdiction over such Selling
Stockholder or any property of such Selling Stockholder.
The opinion of Blackwell Sanders Peper Martin, LLP described in Section
9(f) above shall be rendered to you at the request of the Company and the
Selling Stockholders and shall so state therein.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Gardere & Wynne, L.L.P., counsel for the Underwriters, as to
the matters referred to in Sections 9(f)(iv), 9(f)(vi) (but only with respect to
the Company), 9(f)(ix) (but only with respect to the statements under the
caption "Description of Capital Stock" and "Underwriting") and 9(f)(xvii).
In giving such opinions with respect to the matters covered by Section
9(f)(xvii), Blackwell Sanders Peper Martin, L.L.P. and Gardere & Wynne, L.L.P.
may state that their opinion and belief are based upon their participation in
the preparation of the Registration Statement and Prospectus and any amendments
or supplements thereto and review and discussion of the contents thereof, but
are without independent check or verification except as specified.
(h) You shall have received, on each of the date hereof and the Closing
Date, letters dated the date hereof or the Closing Date, as the case may be, in
form and substance satisfactory to you, from Ernest & Young and Blackman,
Kallick, Bartelstein, LLP, independent public accountants, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to
24
<PAGE>
Underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(i) The Company shall have delivered to you the agreements specified in
Section 2 hereof which agreements shall be in full force and effect on the
Closing Date.
(j) The Shares shall have been duly listed for quotation on the Nasdaq
National Market.
(k) The Company and the Selling Stockholders shall not have failed on or
prior to the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or the
Selling Stockholders, as the case may be, on or prior to the Closing Date.
(l) You shall have received on the Closing Date, a certificate of each
Selling Stockholder who is not a U.S. Person (as defined under applicable U.S.
federal tax legislation) to the effect that such Selling Stockholder is not a
U.S. Person, which certificate may be in the form of a properly completed and
executed United States Treasury Department Form W-8 (or other applicable form or
statement specified by Treasury Department regulations in lieu thereof).
The several obligations of the Underwriters to purchase any Additional
Shares hereunder are subject to the delivery to you on the applicable Option
Closing Date of such documents as you may reasonably request with respect to the
good standing of the Company, the due authorization and issuance of such
Additional Shares and other matters related to the issuance of such Additional
Shares.
Section 10. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
This Agreement may be terminated at any time on or prior to the Closing
Date by you by written notice to the Sellers if any of the following has
occurred: (i) any outbreak or escalation of hostilities or other national or
international calamity or crisis or change in economic conditions or in the
financial markets of the United States or elsewhere that, in your judgment, is
material and adverse and, in your judgment, makes it impracticable to market the
Shares on the terms and in the manner contemplated in the Prospectus, (ii) the
suspension or material limitation of trading in securities or other instruments
on the New York Stock Exchange, the American Stock Exchange, the Chicago Board
of Options Exchange, the Chicago Mercantile Exchange, the Chicago Board of Trade
or the Nasdaq National Market or limitation on prices for securities or other
instruments on any such exchange or the Nasdaq National Market, (iii) the
suspension of trading of any securities of the Company on any exchange or in the
over-the-counter market, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order
25
<PAGE>
of any court or other governmental authority which in your opinion materially
and adversely affects, or will materially and adversely affect, the business,
prospects, financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, (v) the declaration of a banking moratorium by
either federal or New York State authorities or (vi) the taking of any action by
any federal, state or local government or agency in respect of its monetary or
fiscal affairs which in your opinion has a material adverse effect on the
financial markets in the United States.
If on the Closing Date or on an Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase the Firm
Shares or Additional Shares, as the case may be, which it has or they have
agreed to purchase hereunder on such date and the aggregate number of Firm
Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase is not more
than one-tenth of the total number of Firm Shares or Additional Shares, as the
case may be, to be purchased on such date by all Underwriters, each non-
defaulting Underwriter shall be obligated severally, in the proportion which the
number of Firm Shares set forth opposite its name in Schedule I bears to the
total number of Firm Shares which all the non-defaulting Underwriters have
agreed to purchase, or in such other proportion as you may specify, to purchase
the Firm Shares or Additional Shares, as the case may be, which such defaulting
Underwriter or Underwriters agreed but failed or refused to purchase on such
date; provided that in no event shall the number of Firm Shares or Additional
Shares, as the case may be, which any Underwriter has agreed to purchase
pursuant to Section 2 hereof be increased pursuant to this Section 10 by an
amount in excess of one-ninth of such number of Firm Shares or Additional
Shares, as the case may be, without the written consent of such Underwriter. If
on the Closing Date any Underwriter or Underwriters shall fail or refuse to
purchase Firm Shares and the aggregate number of Firm Shares with respect to
which such default occurs is more than one-tenth of the aggregate number of Firm
Shares to be purchased by all Underwriters and arrangements satisfactory to
you, the Company and the Selling Stockholders for purchase of such Firm Shares
are not made within 48 hours after such default, this Agreement will terminate
without liability on the part of any non-defaulting Underwriter, the Company or
the Selling Stockholders. In any such case which does not result in
termination of this Agreement, either you or the Sellers shall have the right to
postpone the Closing Date, but in no event for longer than seven days, in order
that the required changes, if any, in the Registration Statement and the
Prospectus or any other documents or arrangements may be effected. If, on an
Option Closing Date, any Underwriter or Underwriters shall fail or refuse to
purchase Additional Shares and the aggregate number of Additional Shares with
respect to which such default occurs is more than one-tenth of the aggregate
number of Additional Shares to be purchased on such date, the non-defaulting
Underwriters shall have the option to (i) terminate their obligation hereunder
to purchase such Additional Shares or (ii) purchase not less than the number of
Additional Shares that such non-defaulting Underwriters would have been
obligated to purchase on such date in the absence of such default. Any action
taken under this
26
<PAGE>
paragraph shall not relieve any defaulting Underwriter from liability in respect
of any default of any such Underwriter under this Agreement.
Section 11. Agreements of the Selling Stockholders. Each Selling
Stockholder agrees with you and the Company:
(a) To pay or to cause to be paid all transfer taxes payable in
connection with the transfer of the Shares to be sold by such Selling
Stockholder to the Underwriters.
(b) To do and perform all things to be done and performed by such
Selling Stockholder under this Agreement prior to the Closing Date and to
satisfy all conditions precedent to the delivery of the Shares to be sold by
such Selling Stockholder pursuant to this Agreement.
Section 12. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company, to C.D.
Smith Drug Company, 3907 S. 48th Terrace, P.O. Box, 789, St. Joseph, Missouri
64503, (ii) if to the Selling Stockholders, to _______________ c/o_____________
______________ and (iii) if to any Underwriter or to you, to you c/o Donaldson,
Lufkin & Jenrette Securities Corporation, 277 Park Avenue, New York, New York
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters set forth in or made pursuant to this Agreement shall
remain operative and in full force and effect, and will survive delivery of and
payment for the Shares, regardless of (i) any investigation, or statement as to
the results thereof, made by or on behalf of any Underwriter, the officers or
directors of any Underwriter, any person controlling any Underwriter, the
Company, the officers or directors of the Company, any person controlling the
Company, any Selling Stockholder or any person controlling such Selling
Stockholder, (ii) acceptance of the Shares and payment for them hereunder and
(iii) termination of this Agreement.
If for any reason the Shares are not delivered by or on behalf of any
Seller as provided herein (other than as a result of any termination of this
Agreement pursuant to Section 10), the Sellers agree, jointly and severally, to
reimburse the several Underwriters for all out-of-pocket expenses (including the
fees and disbursements of counsel) incurred by them. Notwithstanding any
termination of this Agreement, the Company shall be liable for all expenses
which it has agreed to pay pursuant to Section 5(i) hereof. The Sellers also
agree, jointly and severally, to reimburse the several Underwriters, their
directors and officers and any persons controlling any of the Underwriters for
any and all fees and expenses (including, without limitation, the fees
disbursements of counsel) incurred by them in connection with enforcing their
rights hereunder (including, without limitation, pursuant to Section 8 hereof).
27
<PAGE>
Except as otherwise provided, this Agreement has been and is made solely
for the benefit of and shall be binding upon the Company, the Selling
Stockholders, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, the Company's directors and the
Company's officers who sign the Registration Statement and their respective
successors and assigns, all as and to the extent provided in this Agreement, and
no other person shall acquire or have any right under or by virtue of this
Agreement. The term "successors and assigns" shall not include a purchaser of
any of the Shares from any of the several Underwriters merely because of such
purchase.
This Agreement shall be governed and construed in accordance with the laws
of the State of New York.
This Agreement may be signed in various counterparts which together shall
constitute one and the same instrument.
28
<PAGE>
Please confirm that the foregoing correctly sets forth the agreement among
the Company, the Selling Stockholders and the several Underwriters.
Very truly yours,
C.D. Smith Drug Company
By:
--------------------------
Chief Execute Officer
and President
THE SELLING STOCKHOLDERS
NAMED IN SCHEDULE II
HERETO, ACTING
SEVERALLY
By:
--------------------------
Attorney-in-fact
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT ALEX. BROWN
WHEAT FIRST UNION
Acting severally on behalf of
themselves and the several
Underwriters named in
Schedule I hereto
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
-----------------------
29
<PAGE>
SCHEDULE I
----------
Underwriters Number of Firm Shares
to be Purchased
Donaldson, Lufkin & Jenrette Securities
Corporation
[Names of other underwriters]
Total
1
<PAGE>
SCHEDULE II
-----------
Selling Stockholders
--------------------
Name Number of Firm
Shares Being Sold
Total
2
<PAGE>
Annex I
[Names of stockholders of the Company who will be required to sign lock ups]
A-1
<PAGE>
Exhibit 3.2
-----------
AMENDED AND RESTATED
BYLAWS
OF
C.D. SMITH HEALTHCARE, INC.
Offices and Records
-------------------
1. Offices and Registered Agent.
----------------------------
(a) Registered Office and Registered Agent. The location of the
--------------------------------------
registered office and the name of the registered agent of the corporation in the
State of Missouri shall be such as shall be determined from time to time by the
board of directors and on file in the appropriate office of the State of
Missouri pursuant to applicable provisions of law. Unless otherwise permitted
by law, the address of the registered office of the corporation and the address
of the business office of the registered agent shall be identical.
(b) Corporate Offices. The corporation may have such corporate
-----------------
offices anywhere within or without the State of Missouri as the board of
directors from time to time may determine or the business of the corporation may
require. The "principal place of business" or "principal business" or
"executive" office or offices of the corporation may be fixed and so designated
from time to time by the board of directors, but the location or residence of
the corporation in Missouri shall be deemed for all purposes to be in the county
in which its registered office in Missouri is maintained.
2. Records.
-------
(a) Maintenance. The corporation shall keep at its registered office,
-----------
or principal place of business, in Missouri, original or duplicate books in
which shall be recorded the number of its shares subscribed, the names of the
owners of its shares, the numbers owned of record by them respectively, the
amount of shares paid, and by whom, the transfer of said shares with the date of
transfer, the amount of its assets and liabilities, minutes of proceedings of
its shareholders and directors, and the names and places of residence of its
officers, and from time to time such other or additional records, statements,
lists, and information as may be required by law.
(b) Inspection of Records. A shareholder, if he be entitled and
---------------------
demands to inspect the records of the corporation pursuant to any statutory or
other legal right, shall be privileged to inspect such records only during the
usual and customary hours of business and in such manner as will not unduly
interfere with the regular conduct of the business of the corporation. A
shareholder may delegate his right of inspection to an attorney or a certified
or
<PAGE>
public accountant. A shareholder must, as a condition precedent to any
inspection, agree that neither he nor his agent shall use, permit to be used or
acquiesce in the use by others of any information so obtained to the detriment
of the corporation, nor shall he furnish or permit to be furnished any
information so obtained to any competitor or prospective competitor of the
corporation. The corporation as a condition precedent to any shareholder's
inspection of the records of the corporation may require the shareholder to
indemnify the corporation, in such manner and for such amount as may be
determined by the board of directors, against any loss or damage which may be
suffered by it arising out of or resulting from any unauthorized disclosure made
or permitted to be made by such shareholder of information obtained in the
course of such inspection.
3. Corporate Seal. The corporate seal shall have inscribed thereon the
--------------
name of the corporation and the words: Corporate Seal--Missouri. Said seal may
be used by causing it or a facsimile thereof to be impressed or affixed or in
any manner reproduced. If deemed advisable by the board of directors, a
duplicate seal or duplicate seals may be provided and kept for the necessary
purposes of the corporation.
Shareholders' Meetings
----------------------
4. Place of Meetings. All meetings of the shareholders shall be held at
-----------------
the principal business office of the corporation in Missouri, except such
meetings as the board of directors to the extent permissible by law expressly
determine may be held elsewhere, in which case such meetings may be held, upon
notice thereof as hereinafter provided, at such other place or places, within or
without the State of Missouri, as the board of directors determine, and as shall
be stated in such notice; and, unless specifically prohibited by law, any
meeting may be held at any place and time, and for any purpose, if consented to
in writing by all of the shareholders entitled to vote thereat.
5. Meetings.
--------
(a) Annual Meetings. The annual meeting of shareholders shall be held
---------------
at 10:00 a.m., local time, on the second Wednesday in the fifth month of each
fiscal year, or on such other date or at such other time as the board of
directors may determine by resolution. The purpose of the annual meeting shall
be to elect directors and transact such other business as may come before the
meeting. If the day fixed for the annual meeting shall be a legal holiday, such
meeting shall be held on the next succeeding business day.
(b) Special Meetings. Special meetings of the shareholders may be
----------------
held for any purpose or purposes and may be called only as set forth in the
articles of incorporation of the corporation.
2
<PAGE>
6. Procedural Matters.
------------------
(a) Notice. Written or printed notice of each meeting of the
------
shareholders, whether annual or special, stating the place, day and hour of the
meeting, and, in case of a special meeting, the purpose or purposes thereof,
shall be given to each shareholder entitled to vote thereat, by or at the
direction of the chairman of the board, president, or secretary, either
personally or by mail, not less than ten (10) days or more than seventy (70)
days prior to the meeting, unless, as to a particular matter, other or further
notice is required by law, in which case such other or further notice shall be
given. Any notice of a shareholders' meeting sent by mail shall be deemed to be
delivered when deposited in the United States mail with postage thereon prepaid
addressed to the shareholder at his address as it appears on the records of the
corporation.
(b) Shareholder Proposals. Whenever any shareholder intends to take
---------------------
action to bring a matter to a vote at a meeting of the shareholders, such
shareholder shall provide notice of such matter and the purpose or purposes
thereof to the Chairman of the Board, President, or Secretary, either personally
or by mail not less than one-hundred and fifty (150) days prior to the meeting,
unless, as to a particular matter, other or further notice is required by law,
in which case such other or further notice shall be given. Any notice from a
shareholder to the corporation sent by mail shall be deemed to be delivered when
deposited in the United States mail with postage thereon prepaid and addressed
to the Chairman of the Board, President, or Secretary at his address at the
executive offices of the corporation.
(c) Shareholder Nomination of Directors. Shareholder nominations of
-----------------------------------
board of director candidates shall be made in writing to the Chairman of the
Board at the executive offices of the corporation not less than sixty (60) days
prior to the regular scheduled date of the annual meeting. Such nomination
shall include all information necessary to comply with Federal securities laws
and shall contain the written consent of the nominee.
(d) Waiver of Notice. Whenever any notice is required to be given
----------------
under the provisions of these bylaws, or of the articles of incorporation or of
any law, a waiver thereof in writing signed by the person or persons entitled to
such notice, whether before or after the time stated therein, shall be deemed
the equivalent to the giving of such notice. Attendance of a shareholder at any
meeting shall constitute a waiver of notice of such meeting except where a
shareholder attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
(e) Conduct of Meetings. The Chairman of the Board, if any, or in his
-------------------
absence the President, or in their absence any Vice President, shall call to
order meetings of shareholders and shall act as chairman of such meetings. The
board of directors, or, if the board fails to act, the shareholders, may appoint
any stockholder, director or officer of the corporation to act as chairman of
any meeting in the absence of the Chairman of the Board, the President and all
Vice Presidents. The Secretary of the corporation, or in his absence the
Assistant Secretary, shall act as Secretary of all meetings of shareholders,
but, in the absence of the Secretary and Assistant
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Secretary, the chairman of the meeting may appoint any other person to act as
secretary of the meeting. The board of directors of the corporation may adopt by
resolution such rules or regulations for the conduct of meetings of shareholders
as it shall deem appropriate. Except to the extent inconsistent with such rules
and regulations as adopted by the board of directors, the chairman of any
meeting of shareholders shall have the right and authority to prescribe such
rules, regulations and procedures and to do all such acts as, in the judgment of
such chairman, are appropriate for the proper conduct of the meeting. Such
rules, regulations or procedures, whether adopted by the board of directors or
prescribed by the chairman of the meeting, may include, without limitation, the
following: (1) the establishment of an agenda or order of business for the
meeting; (2) rules and procedures for maintaining order at the meeting; (3)
limitation on attendance at or participation in the meeting to shareholders of
record of the corporation, their duly authorized and constituted proxies or such
other persons as the chairman shall permit; (4) restrictions on entry to the
meeting after the time fixed for the commencement thereof; (5) whether the
election of directors shall be by written ballot; and (6) limitations on the
time allotted to questions or comments by participants. Unless and to the extent
determined by the board of directors or the chairman of the meeting, meetings of
shareholders shall not be required to be held in accordance with rules of
parliamentary procedure.
7. Business of Meetings.
--------------------
(a) Business which may be Transacted at Annual meetings. At each
---------------------------------------------------
annual meeting of the shareholders, the shareholders shall elect one-third of
the total number of the full board of directors. Such individuals shall hold
office for a three year term ending after the annual meeting held in the third
year after the year of election and after their successors shall have been
elected and qualified and shall elect to serve. Any other business conducted
shall be limited to the business brought before the meeting by the board of
directors.
(b) Business which may be Transacted at Special Meetings. Business
----------------------------------------------------
transacted at all special meetings shall be confined to the purposes stated in
the notice of such meeting.
8. Quorum. Except as otherwise may be provided by law or by the articles
------
of incorporation, the holders of a majority of the outstanding shares entitled
to vote thereat, present in person or by proxy, shall constitute a quorum for
the transaction of business at all meetings of the shareholders. Every decision
of a majority in amount of shares of such quorum shall be valid as a corporate
act, except in those specific instances in which a larger vote is required by
law or by the articles of incorporation. If, however, such quorum should not be
present at any meeting, the shareholders present and entitled to vote shall have
power successively to adjourn the meeting, without notice to any shareholder
other than announcement at the meeting, to a specified date not longer than 90
days after such adjournment. At any subsequent session of the meeting at which
a quorum is present in person or by proxy any business may be transacted which
could have been transacted at the initial session of the meeting if a quorum had
been present.
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9. Voting.
------
(a) Proxies. At any meeting of the shareholders, every shareholder
-------
entitled to vote at such meeting may vote either in person or by proxy executed
in writing by the shareholder or his duly authorized attorney in fact. Such
proxy shall be filed with the secretary of the corporation before or at the
time of the meeting. No proxy shall be valid after 11 months from the date of
its execution unless otherwise provided in the proxy. A duly executed proxy
shall be irrevocable if it states that it is irrevocable and if, and only so
long as, it is coupled with an interest sufficient in law to support an
irrevocable power. A shareholder may revoke any proxy which is not irrevocable
by attending the meeting and voting in person or by filing a written revocation
or another duly executed proxy bearing a later date with the secretary of the
corporation.
(b) Votes per Share. Subject to the terms of any outstanding
---------------
preferred stock, each shareholder shall have one vote for each share of common
stock entitled to vote under the provisions of the articles of incorporation and
which is registered in his name on the books of the corporation.
(c) Registered Shareholders--Exceptions--Stock Ownership Presumed. If
-------------------------------------------------------------
the board of directors shall not have closed the transfer books of the
corporation and there shall be no date fixed by the board of directors or by
statute for the determination of its shareholders entitled to vote, no person
shall be admitted to vote directly or by proxy except those in whose names the
shares of the corporation shall stand on the transfer books at the time of the
meeting. The corporation shall be entitled to treat the holders of the shares of
stock of the corporation, as recorded on the stock record or transfer books of
the corporation, as the holders of record and as the holders and owners in fact
thereof and, accordingly, the corporation shall not be required to recognize any
equitable or other claim to or interest in any such shares on the part of any
other person, firm, partnership, corporation or association, whether or not the
corporation shall have express or other notice thereof, except as is otherwise
expressly required by law, and the term "shareholder" as used in these bylaws
means one who is a holder of record of shares of the corporation; provided,
however, that if permitted by law,
(i) shares standing in the name of another corporation, domestic
or foreign, may be voted by such officer, agent or proxy as
the bylaws of such corporation may prescribe, or, in the
absence of such provision, as the board of directors of such
corporation may determine;
(ii) shares standing in the name of a deceased person may be
voted by his administrator or executor, either in person or
by proxy; and shares standing in the name of a guardian,
curator or trustee may be voted by such fiduciary, either in
person or by proxy, but no guardian, curator or trustee
shall be entitled, as such fiduciary, to vote shares held by
him without a transfer of such shares into his name;
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(iii) shares standing in the name of a receiver may be voted by
such receiver, and shares held by or under the control of
a receiver may be voted by such receiver without the
transfer thereof into his name if authority to do so be
contained in an appropriate order of the court by which
such receiver was appointed; or
(iv) except as limited by paragraph 9(b), a shareholder whose
shares are pledged shall be entitled to vote such shares
until the shares have been transferred of record into the
name of the pledgee, and thereafter the pledgee shall be
entitled to vote the shares so transferred.
10. Shareholders' Lists. A complete list of the shareholders entitled to
-------------------
vote at each meeting of the shareholders, arranged in alphabetical order, with
the address of, and the number of voting shares held by each, shall be prepared
by the officer of the corporation having charge of the stock transfer books of
the corporation, and shall, for a period of ten (10) days prior to the meeting,
be kept on file at the registered office of the corporation in Missouri and
shall at any time during the usual hours for business be subject to inspection
by any shareholder. Such list or a duplicate thereof shall also be produced and
kept open at the time and place of the meeting and shall be subject to the
inspection of any shareholder during the whole time of the meeting. The original
share ledger or transfer book, or a duplicate thereof kept in the State of
Missouri, shall be prima facie evidence as to who are the shareholders entitled
to examine such list, share ledger or transfer book or to vote at any meeting of
shareholders. Failure to comply with the foregoing shall not affect the
validity of any action taken at any such meeting.
Directors
---------
11. Directors--Number. The number of directors constituting the entire
-----------------
board of directors shall be not less than three nor more than nine. Subject to
the rights of the holders of any Preferred Stock then outstanding, the specific
number of directors within such minimum and maximum shall be authorized from
time to time by, and only by, a resolution duly adopted by a majority of the
total number of directors then constituting the entire board of directors.
12. Class of Directors. The board of directors shall be divided equally
------------------
into three classes, the directors in each class shall be elected for a three
year term, and only one class of directors shall be elected at each annual
meeting of the shareholders. At each annual meeting, directors to replace those
whose terms expire at such annual meeting shall be elected to hold office until
the third succeeding annual meeting. Each director shall hold office until such
director's successor shall have been elected and qualified. Directors need not
be residents of Missouri or shareholders of the corporation. Each director,
upon election, shall qualify by accepting the office of director and such
person's attendance at, or written approval of the minutes of, any meeting of
the board of directors held subsequent to election shall constitute acceptance.
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13. Powers of the Board. The property and business of the corporation
-------------------
shall be controlled and managed by the directors, acting as a board. The board
shall have and is vested with all and unlimited powers and authorities, except
as may be expressly limited by law, the articles of incorporation or these
bylaws, to do or cause to be done any and all lawful things for and in behalf of
the corporation, to exercise or cause to be exercised any or all of its power,
privileges and franchises, and to seek the effectuation of its objects and
purposes.
14. Meetings of the Newly Elected Board--Notice. The newly elected
-------------------------------------------
members of the board and those members of the board who continue in office shall
meet (i) at such time and place, either within or without the State of Missouri,
as shall be suggested or provided for by resolution of the shareholders at the
annual meeting and no notice of such meeting shall be necessary to such
directors in order legally to constitute the meeting, provided a quorum shall be
present, or (ii) if not so suggested or provided for by resolution of the
shareholders or if a quorum shall not be present, the members of such board may
meet at such time and place as shall be consented to in writing by a majority of
the directors, provided that written or printed notice of such meeting shall be
communicated to each of the other directors in the same manner as provided in
paragraph 16 of these bylaws with respect to the giving of notice for special
meetings of the board except that it shall not be necessary to state the purpose
of the meeting in such notice, or (iii) regardless of whether or not the time
and place of such meeting shall be suggested or provided for by resolution of
the shareholders at the annual meeting, the members of such board may meet at
such time and place as shall be consented to in writing by a majority of the
directors, which consent shall be deemed to exist for those directors attending
such meeting.
15. Regular Meetings--Notice. Regular meetings of the board or any
------------------------
committee thereof may be held without notice at such times and places either
within or without the State of Missouri as shall from time to time be fixed by
resolution adopted by the full board of directors in the case of the board or,
in the case of a committee of the board, by resolution adopted by the respective
committee. Any business may be transacted at a regular meeting.
16. Special Meetings--Notice. Special meetings of the board may be called
------------------------
at any time by the chairman of the board, the president, any vice president or
the secretary, or by any one or more of the directors. Special meetings of any
committee of the board may be called at any time by the chairman of the
committee or by any one or more of the members of the committee. The place may
be within or without the State of Missouri as designated in the notice.
Written or printed notice of each special meeting of the board, stating the
place, day and hour of the meeting, shall be mailed to each director at least
two (2) days before the day on which the meeting is to be held, or shall either
be sent to him by electronic or facsimile transmission or be hand delivered, in
either case during regular and customary business hours at least one full
business day in advance of the meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail with postage thereon,
addressed to the director at his residence or usual place of business. If
notice be given by delivery, such notice shall be deemed to be delivered when
the same is delivered by hand. If notice is given by electronic or facsimile
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<PAGE>
transmission, such notice shall be deemed to be delivered when transmitted as
set forth above to the director at his residence or usual place of business.
Written or printed notice of each special meeting of a committee of the
board, stating the place, day and hour of the meeting, shall be mailed to each
member of the committee at least two (2) days before the day on which the
meeting is to be held, or shall either be sent to him by electronic or facsimile
transmission or be hand delivered, in either case during regular and customary
business hours at least one full business day in advance of the meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail with postage thereon, addressed to the member of the committee at
his residence or usual place of business. If notice be given by delivery, such
notice shall be deemed to be delivered when the same is delivered by hand. If
notice is given by electronic or facsimile transmission, such notice shall be
deemed to be delivered when transmitted as set forth above to the member of the
committee at his residence or usual place of business.
"Notice" and "call" with respect to meetings of shareholders, the Board, or
committees of the Board shall be deemed to be synonymous.
17. Waiver of Notice. Whenever any notice is required to be given to any
----------------
director under the provisions of these bylaws, or of the articles of
incorporation or of any law, a waiver thereof in writing signed by such
director, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a director at any
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened.
18. Quorum. At all meetings of the board, a majority of the full board of
------
directors shall, unless a greater number as to any particular matter is required
by the articles of incorporation or these bylaws, constitute a quorum for the
transaction of business. The act of a majority of the directors present at any
meeting at which a quorum is present, except as may be otherwise specifically
provided by statute, the articles of incorporation, or these bylaws, shall be
the act of the board of directors.
19. Vacancies and Newly Created Directorships. Vacancies on the board of
-----------------------------------------
directors and newly created directorships resulting from any increase in the
number of directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director.
20. Telephone Meeting and Attendance By Telephone. Members of Board of
---------------------------------------------
directors or any committee of the board of directors may participate in any
meeting of the Board of directors or such committee by means of conference
telephone or similar communications equipment whereby all persons participating
in the meeting can hear each other, and participation in a meeting in this
manner shall constitute presence in person at the meeting.
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<PAGE>
21. Action Without A Meeting. Any action which is required to be or may
------------------------
be taken at a meeting of the board of directors or any committee of the board of
directors may be taken without a meeting if consents in writing, setting forth
the action so taken, are signed by all of the directors or of the committee
members as the case may be. The consents shall have the same force and effect
as a unanimous vote at a meeting held, and may be stated as such in any
certificate or document filed under the General Business and Corporation Law of
Missouri. The secretary shall file the consents with the minutes of the
meetings of the board of directors or of the committee as the case may be.
22. Indemnification of Officers and Directors.
-----------------------------------------
(a) Indemnification of Directors and Officers Against Liabilities and
-----------------------------------------------------------------
Expenses in Actions. Subject to Section (b), the corporation may indemnify any
- -------------------
person who is or was a director or officer of the corporation who is or was a
party, or is threatened to be made a party:
(i) to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or
investigative; or
(ii) to any threatened, pending or completed action or suit by or
in the right of the corporation to procure a judgment in its
favor,
by reason of the fact that such person is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, including service with respect to employee
benefit plans, against expenses, including attorneys' fees, judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in connection
with such action, suit or proceeding.
The corporation may maintain insurance, at its expense, to protect itself
and any director, officer, employee or agent of the corporation or any other
corporation, partnership, joint venture, trust or other enterprise against any
such expense, liability or loss, whether or not the corporation would have the
power to indemnify such person against such expense, liability or loss under the
General Business and Corporation Law of Missouri.
(b) Limits of Indemnification: No indemnification shall be made to
-------------------------
any person from or on account of such person's conduct which was finally
adjudged to have been knowingly fraudulent, deliberately dishonest or willful
misconduct. The corporation may in its discretion, by action of its board of
directors, deny to any person the indemnity provided in this Article in the
event that such person fails to notify the corporation within a reasonable
period of time of the commencement of any action, suit or proceeding or threat
thereof, is to be made against the corporation. The failure of such person to so
notify the corporation shall not relieve the corporation from any liability
which it may otherwise have under Mo. Rev. Stat. 351.355, or under any other
bylaw, any agreement or otherwise. The corporation shall be entitled to
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participate in any such action, suit, or proceeding at its own expense and may
employ its own counsel.
(c) Advancement of Expenses: Expenses incurred in defending a civil
-----------------------
or criminal action, suit or proceeding may be paid by the corporation in advance
of the final disposition of the action, suit or proceeding upon receipt of a
written undertaking by or on behalf of the director or officer to repay such
amount if it shall ultimately be determined that such person is not entitled to
be indemnified by the corporation as provided in this bylaw.
(d) Nonexclusive Right: The indemnification and advancement of
------------------
expenses provided by this bylaw shall not be deemed exclusive of any other
rights to which those seeking indemnification or advancement of expenses may be
entitled under the articles of incorporation or any other bylaw or any
agreement, vote of the shareholders or otherwise, both as to action in a
person's official capacity and as to action in another capacity while holding
the office of director or officer. The corporation is hereby expressly
authorized by the shareholders to enter into agreements with its present and
future directors and officers which provide further indemnification as granted
pursuant to this bylaw. Any such agreement providing for further indemnity
entered into pursuant to this bylaw after the date of approval of this bylaw by
the corporation's shareholders need not be further approved by the shareholders
of the corporation to be fully effective and enforceable. Such indemnification
(whether by agreement or otherwise) shall continue as to a person who has ceased
to be a director or officer and shall inure to the benefit of the heirs,
executors and administrators of such person.
(e) Liability to corporation: No director or officer of the
------------------------
corporation shall be liable to the corporation for any loss, damage, liability
or expense suffered by it on account of any action taken or omitted to be taken
by such person as a director or officer of the corporation, or of another
corporation, partnership, joint venture, trust or other enterprise (including
employee benefit plans) which such person serves as a director, officer,
employee or agent at the request of the corporation, if such person:
(i) exercised the same degree of care and skill as a prudent man
would have exercised under the circumstances in the conduct
of his own affairs, or
(ii) took or omitted to take such action in reliance upon advice
of counsel for the corporation, or for another corporation,
partnership, joint venture, trust or other enterprise or
upon statements made or information furnished by directors,
officers, employees or agents of the corporation, or of
another corporation, partnership, joint venture, trust or
other enterprise (including employee benefit plans) which
such person had no reasonable grounds to disbelieve.
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23. Board Committees. The board of directors may, by resolution or
----------------
resolutions adopted by a majority of the whole board of directors, designate an
executive committee, such committee to consist of two or more directors of the
corporation, which committee, to the extent provided in said resolution or
resolutions, shall have and may exercise all of the authority of the board of
directors in the management of the corporation; provided, however, that the
designation of such committee and the delegation thereto of authority shall not
operate to relieve the board of directors, or any member thereof, of any
responsibility imposed upon it or him by law. The board of directors may, by
resolution or resolutions adopted by a majority of the whole board of directors,
designate a compensation committee and an audit committee, each such committee
to consist of two or more directors of the corporation. The audit committee
shall have responsibility for working with the accounting firm retained by the
corporation to review the annual financial statements of the corporation and
related management letter and for periodic review with the chief financial
officer of the corporation of the financial performance of the corporation. The
compensation committee shall be responsible for at least annual review of the
compensation for the chief executive officer, chief financial officer, chief
operating officer and any senior vice president of the corporation.
Each committee shall keep regular minutes of its proceedings, which
minutes shall be recorded in the minute book of the corporation. The secretary
or an assistant secretary of the corporation may act as secretary for any
committee if the committee so requests.
In addition to the committees specifically provided for in these bylaws,
the board of directors, by resolution or resolutions adopted by a majority of
the whole board of directors, may designate and appoint two (2) or more
directors to constitute any other committee. Persons other than directors may
be designated to serve in an advisory capacity to any such committee. Each such
committee, to the extent provided in the resolution, shall have and may exercise
all of the authority provided in the resolutions designating and appointing any
such committee, or reasonably inferred therefrom, and the board of directors;
provided, however, that the designation of any such committee and the delegation
thereto of authority shall not operate to relieve the board of directors, or any
members thereof, of any responsibility imposed upon it or him by law. The board
of directors may also, by resolution adopted by a majority of the whole board of
directors, from time to time appoint special advisory committees, the member of
which may but need not be Directors and which shall serve at the pleasure of the
board of directors, which shall have such authority as may be conferred by the
board of directors and shall report and make recommendations to the board of
directors with respect to specified subjects.
24. Compensation of Directors and Committee Members. Directors and
-----------------------------------------------
members of all committees of the board shall receive such compensation for their
services as may be approved by the board from time to time, including a fixed
sum and expenses of attendance, paid in cash, stock or other securities of the
corporation or such other consideration as the board may select, if any, may be
allowed for attendance at each regular or special meeting of the board or
committee. In addition, nothing herein contained shall be construed to preclude
any director or committee member from serving the corporation in any other
capacity and receiving compensation therefor.
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Officers
--------
25. (a) Officers--Who Shall Constitute. The officers of the corporation
------------------------------
shall be a chairman of the board, a president, one or more vice presidents, a
secretary, a treasurer, one or more assistant secretaries, and one or more
assistant treasurers. The board shall elect or appoint a president and
secretary at its first meeting after each annual meeting of the shareholders.
The board then, or from time to time, may also elect or appoint one or more of
the other prescribed officers as it shall deem advisable, but need not elect or
appoint any officers other than a president and a secretary. The board may, if
it desires, designate any vice president as an executive or senior vice
president and may further identify or describe any one or more of such officers.
The officers of the corporation need not be members of the board of
directors. Any two or more offices may be held by the same person, except the
offices of president and secretary.
An officer shall be deemed qualified when he enters upon the duties of
the office to which he has been elected or appointed and furnishes any bond
required by the board; but the board may also require of such person his written
acceptance and promise to faithfully discharge the duties of such office.
(b) Term of Office and Vacancies. Each officer of the corporation
----------------------------
shall hold his office at the pleasure of the board of directors or for such
other period as the board may specify at the time of his election or
appointment, or until his death, resignation or removal by the board, whichever
first occurs. In any event, the term of office of each officer of the
corporation holding his office at the pleasure of the board shall terminate at
the annual meeting of the board next succeeding his election or appointment and
at which any officer of the corporation is elected or appointed, unless the
board provides otherwise at the time of his election or appointment. Any
vacancy occurring in the office of president or secretary of the corporation by
death, resignation, removal or otherwise may be filled for the unexpired portion
of the term by the board of directors at any regular or special meeting and any
vacancy occurring in any other office may be filled for the unexpired portion of
the term by the president.
(c) Other Agents. The board from time to time may also appoint such
------------
other agents for the corporation as it shall deem necessary or advisable, each
of whom shall serve at the pleasure of the board or for such period as the board
may specify, and shall exercise such powers, have such titles and perform such
duties as shall be determined from time to time by the board or by an officer
empowered by the board to make such determinations.
26. Removal and Resignation. Any officer or agent elected or appointed by
-----------------------
the board of directors, and any employee, may be removed or discharged by the
board whenever in its judgment the best interests of the corporation would be
served thereby, but such removal shall be without prejudice to the contract
rights, if any, of the person so removed. Any officer of the corporation may
resign at any time by giving written notice to the board of directors, the
president or the secretary of the corporation. Any such resignation shall take
effect at the time specified therein or, if the time is not specified therein,
then upon the receipt of the notice. The acceptance
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of such resignation shall not be necessary to make it effective. Such
resignation shall be without prejudice to the contract rights, if any, of the
corporation.
27. Salaries and Compensation. Salaries and compensation of all elected
-------------------------
officers of the corporation shall be fixed, increased or decreased by the board
of directors, but this power, except as to the salary or compensation of the
chairman of the board and the president, may, unless prohibited by law, be
delegated by the board to the chairman of the board, the president, or a
committee. Salaries and compensation of all appointed officers and agents, and
of all employees of the corporation, may be fixed, increased or decreased by the
board of directors, but until action is taken with respect thereto by the board
of directors, the same may be fixed, increased or decreased by the president or
by such other officer or officers as may be empowered by the board of directors
to do so.
28. Delegation of Authority to Hire, Discharge and Designate Duties. The
---------------------------------------------------------------
board from time to time may delegate to the chairman of the board, the president
or other officer or executive employee of the corporation, authority to hire,
discharge and fix and modify the duties, salary or other compensation of
employees of the corporation under their jurisdiction, and the board may
delegate to such officer or executive employee similar authority with respect to
obtaining and retaining for the corporation the services of attorneys,
accountants and other experts.
29. The Chairman of the Board. If a chairman of the board be elected or
-------------------------
appointed, he shall preside at all meetings of the shareholders and directors at
which he may be present and shall have such other duties, powers and authority
as may be prescribed elsewhere in these bylaws. The board of directors may
delegate such other authority and assign such additional duties to the chairman
of the board, other than those conferred by law exclusively upon the president,
as it may from time to time determine.
30. The President. Unless the board otherwise provides, the president
-------------
shall be the chief executive officer of the corporation with such general
executive powers and duties of supervision and management as are usually vested
in the office of the chief executive officer of a corporation, and he shall
carry into effect all directions and resolutions of the board. The president,
in the absence of the chairman of the board, or if there be no chairman of the
board, shall preside at all meetings of the shareholders and directors.
The president may execute all bonds, notes, debentures, mortgages and other
contracts requiring a seal, under the seal of the corporation and may cause the
seal to be affixed thereto, and all other instruments for and in the name of the
corporation.
Unless the board otherwise provides, the president, or any person
designated in writing by him, may (i) attend meetings of shareholders of other
corporations to represent this corporation thereat and to vote or take action
with respect to the shares of any such corporation owned by this corporation in
such manner as he or his designee may determine, and (ii) execute and deliver
waivers of notice and proxies for and in the name of the corporation with
respect to any such shares owned by this corporation.
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He shall have such other or further duties and authority as may be
prescribed elsewhere in these bylaws or from time to time by the board of
directors.
If a chairman of the board be elected or appointed and designated as the
chief executive officer of the corporation, as provided in paragraph 29 of these
bylaws, the president shall perform such duties as may be specifically delegated
to him by the board of directors and as are conferred by law exclusively upon
him, and in the absence, disability or inability to act of the chairman of the
board, the president shall perform the duties and exercise the powers of the
chairman of the board.
31. Vice Presidents. The vice presidents, in the order of their
---------------
seniority, as determined by the board, shall, in the absence, disability or
inability to act of the president, perform the duties and exercise the powers of
the president, and shall perform such other duties as the board of directors
shall from time to time prescribe.
32. The Secretary and Assistant Secretaries. The secretary shall attend
---------------------------------------
all sessions of the board and, all meetings of the shareholders, and shall
record or cause to be recorded all votes taken and the minutes of all
proceedings in a minute book of the corporation to be kept for that purpose. He
shall perform like duties for the executive and other standing committees when
requested by the board or any such committee to do so.
He shall see that all books, records, lists and information, or duplicates,
required to be maintained at the registered or some office of the corporation in
Missouri, or elsewhere, are so maintained.
He shall keep in safe custody the seal of the corporation, and when duly
authorized to do so shall affix the same to any instrument requiring it, and
when so affixed, he shall attest the same by his signature.
He shall perform such other duties and have such other authority as may be
prescribed elsewhere in these bylaws or from time to time by the board of
directors or the chief executive officer of the corporation, under whose direct
supervision he shall be.
He shall have the general duties, powers and responsibilities of a
secretary of a corporation.
Any assistant secretary, in the absence, disability or inability to act of
the secretary, may perform the duties and exercise the powers of the secretary,
and shall perform such other duties and have such other authority as the board
of directors may from time to time prescribe.
33. The Treasurer and Assistant Treasurers. The treasurer shall have
--------------------------------------
responsibility for the safekeeping of the funds and securities of the
corporation, shall keep or cause to be kept full and accurate accounts of
receipts and disbursements in books belonging to the corporation and shall keep,
or cause to be kept, all other books of account and accounting records of the
14
<PAGE>
corporation. He shall deposit or cause to be deposited all moneys and other
valuable effects in the name and to the credit of the corporation in such
depositories as may be designated by the board of directors or by any officer of
the corporation to whom such authority has been granted by the board of
directors.
He shall disburse, or permit to be disbursed, the funds of the corporation
as may be ordered, or authorized generally, by the board, and shall render to
the chief executive officer of the corporation and the directors whenever they
may require it, an account of all his transactions as treasurer and of those
under his jurisdiction, and of the financial condition of the corporation.
He shall perform such other duties and shall have such other responsibility
and authority as may be prescribed elsewhere in these bylaws or from time to
time by the board of directors.
He shall have the general duties, powers and responsibility of a treasurer
of a corporation and shall, unless otherwise provided by the board, be the chief
financial and accounting officer of the corporation.
If required by the board, he shall give the corporation a bond in a sum and
with one or more sureties satisfactory to the board, for the faithful
performance of the duties of his office, and for the restoration to the
corporation, in the case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control which belong to the corporation.
Any assistant treasurer, in the absence, disability or inability to act of
the treasurer, may perform the duties and exercise the powers of the treasurer,
and shall perform such other duties and have such other authority as the board
of directors may from time to time prescribe.
34. Duties of Officers May Be Delegated. If any officer of the
-----------------------------------
corporation be absent or unable to act, or for any other reason that the board
may deem sufficient, the board may delegate, for the time being, some or all of
the functions, duties, powers and responsibilities of any officer to any other
officer, or to any other agent or employee of the corporation or other
responsible person, provided a majority of the whole board of directors concurs
therein.
Shares of Stock
---------------
35. Payment for Shares of Stock. The corporation shall not issue shares
---------------------------
of stock except for money paid, labor done or property actually received;
provided, however, that shares may be issued in consideration of valid bona fide
antecedent debts.
36. Certificates for Shares of Stock. The certificates for shares of
--------------------------------
stock of the corporation shall be numbered, shall be in such form as may be
prescribed by the board of directors in conformity with law, and shall be
entered in the stock books of the corporation as they are issued. Such entries
shall show the name and address of the person, firm, partnership, corporation or
association to whom each certificate is issued. Each certificate shall have
printed,
15
<PAGE>
typed or written thereon the name of the person, firm, partnership, corporation
or association to whom it is issued and the number of shares represented
thereby. It shall be signed by the president or a vice president and the
secretary or an assistant secretary or the treasurer or an assistant treasurer
of the corporation, and sealed with the seal of the corporation, which seal may
be facsimile, engraved or printed. If the corporation has a transfer agent or a
transfer clerk who signs such certificates, the signatures of any of the other
officers above mentioned may be facsimiles, engraved or printed. In case any
such officer who has signed or whose facsimile signature has been placed upon
any such certificate shall have ceased to be such officer before such
certificate is issued, such certificate may nevertheless be issued by the
corporation with the same effect as if such officer were an officer at the date
of its issue.
37. Transfers of Shares--Transfer Agent--Registrar. Transfers of shares
----------------------------------------------
of stock shall be made on the stock record or transfer books of the corporation
only by the person named in the stock certificate, or by his attorney lawfully
constituted in writing, and upon surrender of the certificate therefor. The
stock record book and other transfer records shall be in the possession of the
secretary or of a transfer agent or transfer clerk for the corporation. The
corporation, by resolution of the board, may from time to time appoint a
transfer agent or transfer clerk, and, if desired, a registrar, under such
arrangements and upon such terms and conditions as the board deems advisable,
but until and unless the board appoints some other person, firm or corporation
as its transfer agent or transfer clerk (and upon the revocation of any such
appointment thereafter until a new appointment is similarly made), the secretary
of the corporation shall be the transfer agent or transfer clerk of the
corporation without the necessity of any formal action of the board, and the
secretary, or any person designated by him, shall perform all the duties
thereof.
38. Closing of Transfer Books. The board of directors shall have power to
-------------------------
close the stock transfer books of the corporation for a period not exceeding
seventy (70) days preceding the date of any meeting of the shareholders, or the
date of payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of shares shall go into effect;
provided, however, that in lieu of closing the stock transfer books as
aforesaid, the board of directors may fix in advance a date not exceeding
seventy (70) days preceding the date of any meeting of shareholders, or the date
for the payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of shares shall go into effect,
as a record date for the determination of the shareholders entitled to notice
of, and to vote at, any such meeting and any adjournment thereof, or entitled to
receive payment of any such dividend, or entitled to any such allotment of
rights, or entitled to exercise the rights in respect of any such change,
conversion or exchange of shares. In such case such shareholders and only such
shareholders as shall be shareholders of record on the date of closing of the
transfer books or on the record date so fixed shall be entitled to notice of,
and to vote at, such meeting, and any adjournment thereof, or to receive payment
of such dividend, or to receive such allotment of rights, or to exercise such
rights, as the case may be, notwithstanding any transfer of any shares on the
books of the corporation after such date of closing of the transfer books, or
such record date fixed as aforesaid.
16
<PAGE>
39. Lost or Destroyed Certificates. In case of the loss or destruction of
------------------------------
any certificate for shares of stock of the corporation, another may be issued in
its place upon proof of such loss or destruction and upon the giving of a
satisfactory bond of indemnity to the corporation and the transfer agent and the
registrar of such stock, if any, in such sum as the board of directors may
provide; provided, however, that a new certificate may be issued without
requiring a bond when in the judgment of the board it is proper so to do.
40. Regulations. The board of directors shall have power and authority to
-----------
make all such rules and regulations as it may deem expedient concerning the
issue, transfer, conversion and registration of certificates for shares of stock
of the corporation, not inconsistent with the laws of Missouri, the articles of
incorporation or these bylaws.
General
-------
41. Fixing of Capital--Transfers of Surplus. Except as may be
---------------------------------------
specifically otherwise provided in the articles of incorporation, the board of
directors is expressly empowered to exercise all authority conferred upon it or
the corporation by any law or statute, and in conformity therewith, relative to:
(i) the determination of what part of the consideration
received for shares of the corporation shall be stated
capital,
(ii) increasing stated capital,
(iii) transferring surplus to stated capital,
(iv) the consideration to be received by the corporation for its
shares, and
(v) all similar or related matters;
provided that any concurrent action or consent by or of the corporation and its
shareholders required to be taken or given pursuant to law, shall be duly taken
or given in connection therewith.
42. Dividends. Dividends upon the outstanding shares of the corporation,
---------
subject to the provisions of the articles of incorporation and of any applicable
law, may be declared by the board of directors at any meeting. Dividends may be
paid in cash, in property, or in shares of the corporation's stock.
Liquidating dividends or dividends representing a distribution of paid-in
surplus or a return of capital shall be made only when and in the manner
permitted by law.
17
<PAGE>
43. Creation of Reserves. Before the payment of any dividend, there may
--------------------
be set aside out of any funds of the corporation available for dividends such
sum or sums as the board of directors from time to time deems proper as a
reserve fund or funds to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for any other
purpose deemed by the board to be conducive to the interests of the corporation,
and the board may abolish any such reserve in the manner in which it was
created.
44. Checks. All checks and similar instruments for the payment of money
------
shall be signed by such officer or officers or such other person or persons as
the board of directors may from time to time designate. If no such designation
is made, and unless and until the board otherwise provides, the president and
secretary or the president and treasurer, shall have power to sign all such
instruments for, in behalf and in the name of the corporation which are executed
or made in the ordinary course of the corporation's business.
45. Fiscal Year. The board of directors shall have power to fix and from
-----------
time to time change the fiscal year of the corporation. In the absence of
action by the board of directors, however, the fiscal year of the corporation
shall end each year on the date which the corporation treated as the close of
its first fiscal year, until such time, if any, as the fiscal year shall be
changed by the board of directors.
46. Amendments. The bylaws of the corporation may from time to time be
----------
suspended, repealed, amended or altered, or new bylaws may be adopted, in the
manner provided in the articles of incorporation.
18
<PAGE>
CERTIFICATE
-----------
I, the undersigned, hereby certify that the foregoing bylaws are the duly
authorized bylaws of the Corporation and hereby further certify that the
foregoing constitute the bylaws of said Corporation effective as of
_____________________.
-----------------------------------
Delora Jamison,
Secretary
19
<PAGE>
10/03/97
Exhibit 4.2
-----------
NOTE PURCHASE AGREEMENT
BY AND BETWEEN
C.D. SMITH DRUG COMPANY
AND
CHURCHILL ESOP CAPITAL PARTNERS,
A MINNESOTA LIMITED PARTNERSHIP
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS................................................................. 1
1.01 Certain Definitions........................................... 1
ARTICLE II
PURCHASE AND SALE OF SECURITIES............................................. 5
2.01 Sale and Purchase............................................. 5
2.02 Use of Proceeds............................................... 5
2.03 Closing Fee................................................... 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................... 6
3.01 Organization, Standing and Qualification of Company........... 6
3.02 Subsidiaries and Investments.................................. 6
3.03 Execution, Delivery and Performance of Agreement; Authority... 6
3.04 Financial Statements.......................................... 7
3.05 No Material Adverse Change.................................... 7
3.06 Litigation.................................................... 7
3.07 Compliance with Laws and Other Instruments.................... 7
3.08 Title to and Liens on Properties.............................. 8
3.09 Purchase Agreement............................................ 8
3.10 Solvency...................................................... 8
3.11 Permits and Licenses.......................................... 9
3.12 Taxes......................................................... 9
3.13 Margin Securities............................................. 9
3.14 Not an Investment Company..................................... 9
3.15 Securities Laws............................................... 9
3.16 Environmental Protection...................................... 9
3.17 Insurance..................................................... 10
3.18 Employment or Severance Agreements............................ 10
3.19 Disclosure.................................................... 10
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHURCHILL................................. 10
4.01 Partnership Existence and Power............................... 10
4.02 Authorization................................................. 10
4.03 Investment Intent............................................. 11
i
<PAGE>
ARTICLE V
CLOSING CONDITIONS.......................................................... 11
5.01 Closing of Asset Acquisition.................................. 11
5.02 Representations and Warranties True........................... 11
5.03 Compliance with Agreement..................................... 11
5.04 No Event of Default........................................... 11
5.05 Certificate of Officer........................................ 11
5.06 Documents Required for the Closing............................ 11
5.07 Proceedings Satisfactory...................................... 13
ARTICLE VI
POST-CLOSING AFFIRMATIVE COVENANTS OF THE COMPANY........................... 13
6.01 Payment of Note............................................... 13
6.02 Reporting..................................................... 13
6.03 Books and Records; Inspection and Examination................. 16
6.04 Compliance with Laws.......................................... 17
6.05 Maintenance of Properties..................................... 17
6.06 Insurance..................................................... 17
6.07 Payment of Taxes and Claims................................... 17
6.08 Maintenance of Corporate Existence............................ 18
6.09 Financial Covenants........................................... 18
6.10 Board of Directors............................................ 18
6.11 Replacement of Certificates................................... 19
6.12 Retirement Plans.............................................. 19
6.13 Filing of Reports............................................. 19
6.14 Rule 144A..................................................... 19
6.15 Other Agreements.............................................. 20
ARTICLE VII
POST-CLOSING NEGATIVE COVENANTS OF THE COMPANY.............................. 20
7.01 Liens......................................................... 20
7.02 Indebtedness.................................................. 21
7.03 Guaranties.................................................... 22
7.04 Investments and Loans......................................... 22
7.05 Dividends and ESOP Contributions.............................. 22
7.06 Sale of Assets................................................ 23
7.07 Consolidation and Merger...................................... 23
7.08 Sale and Leaseback............................................ 23
7.09 Capital Expenditures.......................................... 23
7.10 Restrictions on Nature of Business............................ 23
7.11 Accounting.................................................... 23
7.12 Issuance of Equity Securities................................. 24
7.13 Change in Control............................................. 24
ii
<PAGE>
7.14 Conflicts of Interest......................................... 24
7.15 Transactions with Affiliates.................................. 24
7.16 Modification of Senior Credit Agreement....................... 24
7.17 Inconsistent Agreements....................................... 24
ARTICLE VIII
INDEMNIFICATION............................................................. 25
8.01 Indemnification by the Company................................ 25
8.02 Indemnification by Churchill.................................. 25
8.03 Notice........................................................ 25
8.04 Defense....................................................... 25
ARTICLE IX
EVENTS OF DEFAULT........................................................... 25
9.01 Events of Default............................................. 25
9.02 Remedies...................................................... 27
ARTICLE X
MISCELLANEOUS............................................................... 28
10.01 Survival of Representations and Warranties.................... 28
10.02 Expenses...................................................... 28
10.03 Governing Law................................................. 28
10.04 Notices....................................................... 28
10.05 Entire Agreement.............................................. 29
10.06 Severability of Invalid Provision............................. 29
10.07 Successors and Assigns........................................ 30
10.08 Rules of Construction......................................... 30
10.09 Counterparts.................................................. 30
10.10 No Waiver: Cumulative Remedies................................ 30
10.11 Non-exclusivity............................................... 30
10.12 Press Releases................................................ 30
10.13 Time is of the Essence........................................ 30
10.14 Consent to Jurisdiction; Jury Waiver.......................... 30
iii
<PAGE>
NOTE PURCHASE AGREEMENT
This Agreement (the "Agreement") is made as of October 3, 1997 by and
between C.D. Smith Drug Company, a Missouri corporation (the "Company") and
Churchill ESOP Capital Partners, A Minnesota Limited Partnership ("Churchill").
WHEREAS, the Company has requested that Churchill purchase the Company's
Senior Subordinated Note in the principal amount of $12,000,000 (the "Note");
WHEREAS, the Company will use the proceeds from the sale of the Note to
acquire all partnership interests in Gimbel Investor Group L.P., an Illinois
limited partnership (the "Partnership") and thereby obtain all of the
outstanding capital stock of G.D. Holdings of Delaware, Inc., a Delaware
corporation ("Holdings") pursuant to the Purchase Agreement (as defined herein);
and
WHEREAS, the Company and Churchill wish to specify in this Agreement the
terms on which Churchill is purchasing the Note;
NOW, THEREFORE, in consideration of the foregoing and mutual promises set
forth below, the parties agree as follows:
ARTICLE I
DEFINITIONS
1.01 Certain Definitions. As used herein, the following terms have the
-------------------
meanings indicated:
"Acquisition Documents" means the agreements and instruments delivered
pursuant to the Purchase Agreement to effect the purchase of the Partnership and
Holdings and the related transactions thereunder.
"Affiliate" means (i) any Person which directly, or indirectly through one
or more intermediaries, controls, or is controlled by, or is under common
control with, one or more of the Companies, (ii) any Person of which five
percent (5%) or more of the equity interest is held beneficially or of record by
any of the Companies, or (iii) a spouse of any shareholder of any of the
Companies or any business of which such spouse is a director, officer, employee
or equity holder. Control for purposes of this definition means the possession,
directly or indirectly, of the power to influence the direction of the
management and policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
<PAGE>
"Ancillary Agreements" means all the agreements executed and delivered by
any of the Companies to Churchill at the Closing, including without limitation
the Note, the Warrant Agreement, the Warrant and the Co-Sale Agreement.
"Articles of Incorporation" means the Company's Articles of Incorporation
as of the date of this Agreement.
"Balance Sheet Date" has the meaning stated in Section 3.04.
"Capital Expenditures" means, for any specified period, the aggregate of
all gross expenditures during such period for any assets, or for improvements,
replacements, substitutions or additions therefor or thereto, which are required
to be capitalized on the balance sheet of any of the Companies, including the
balance sheet amount of any capitalized lease obligations incurred during such
period.
"Closing" and "Closing Date" have the meanings given in Article II.
"Commission" means the U.S. Securities and Exchange Commission.
"Common Stock" means the Common Stock of the Company authorized by the
Articles of Incorporation, any additional Common Stock which may be authorized
in the future by the Company, and any stock into which such Common Stock may
hereafter be changed.
"Company" means C.D. Smith Drug Company, a Missouri corporation.
"Company ESOP" means the Company's Employee Stock Ownership Plan.
"Companies" means, the Company and C.D.S. Transportation, Inc., a Missouri
corporation, Holdings, General Drug Company, an Illinois corporation, James
Brudnick Company, Inc., a Delaware corporation, SBS Pharmaceuticals, Inc., a
Delaware corporation, H.H.S. Consulting Services, Incorporated, an Illinois
corporation, and any other Subsidiary or other Person in which the Company
acquires a direct or indirect material ownership interest.
"Co-Sale Agreement" means a Co-Sale Agreement in the form attached as
Exhibit C providing Churchill the fights specified therein to participate in any
sale of the Company's capital stock by the other parties to the Co-Sale
Agreement.
"Debt Service Coverage Ratio" means, with respect to any period, the ratio
of (i) the Company's consolidated net income after taxes for such period
(excluding after tax gains or losses on the sale of assets (other than the sale
of inventory in the ordinary course of business) and excluding other after tax
extraordinary gains or losses) plus depreciation and amortization deducted in
----
determining net income for such period, minus Capital Expenditures for such
-----
period not financed, minus any dividends paid or accrued and withdrawals paid or
-----
accrued to shareholders or other
2
<PAGE>
Affiliates of the Company for such period which were not calculated in
determining net income after taxes, to (ii) current principal maturities of long
--
term debt and capitalized leases paid, or scheduled to be paid during such
period, plus any prepayments on indebtedness owed to any Person (except trade
----
payables and revolving loans to the Senior Lenders) paid during such period.
Debt Service Coverage Ratio shall be calculated in accordance with GAAP on an
after tax FIFO basis.
"Disclosure Schedule" means the schedule of information prepared by the
Companies and attached hereto as the Disclosure Schedule.
"Environmental Laws" has the meaning set forth in Section 3.16.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the regulations adopted pursuant thereto.
"Event of Default" has the meaning as set forth in Section 9.01.
"Financial Statements" has the meaning as set forth in Section 3.04.
"Fixed Indebtedness" means, without duplication (i) all indebtedness for
borrowed money, (ii) all indebtedness secured by any mortgage, pledge, security
interest or lien existing on property owned subject to such mortgage, pledge,
security interest or lien whether or not the indebtedness secured thereby shall
have been assumed, (iii) all amounts representing the capitalization of rentals
in accordance with GAAP and (iv) all guarantees, endorsements and other
contingent obligations.
"GAAP" means generally accepted accounting principles consistently applied
with prior periods.
"Indebtedness" means, without duplication (i) all items which, in
accordance with GAAP, would be included on the liability side of a balance
sheet, as of the date such Indebtedness is to be determined, excluding capital
stock, surplus, capital and earned surplus, (ii) all indebtedness secured by any
mortgage, pledge, security interest or lien existing on property owned subject
to such mortgage, pledge, security interest or lien whether or not the
indebtedness secured thereby shall have been assumed, (iii) all amounts
representing the capitalization of rentals in accordance with GAAP, and (iv) all
guarantees, endorsements and other contingent obligations.
"Interest Coverage Ratio" means, with respect to any period, the ratio of
(i) the Company's consolidated net income after taxes for such period (excluding
after tax gains or losses on the sale of assets (other than the sale of
inventory in the ordinary course of business) and excluding other after tax
extraordinary gains or losses), plus interest, taxes, depreciation and
----
amortization deducted in determining net income for such period, minus interest
-----
income added in determining net income for such period, and minus Capital
-----
Expenditures for such period not financed, minus dividends paid or accrued and
-----
withdrawals paid or accrued to shareholders or other Affiliates of the Company,
to (ii)
- --
3
<PAGE>
interest expense on indebtedness deducted in determining net income for such
period. Interest Coverage Ratio shall be calculated in accordance with GAAP on
a pre tax FIFO basis.
"Interim Period Financial Statements" has the meaning provided in Section
3.04.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest, restriction on transfer or encumbrance of any kind in
respect of such asset.
"Material Adverse Event" means any condition or occurrence of any nature
(including, without limitation, any adverse determination in any litigation,
arbitration or governmental investigation or proceeding, adverse change in
applicable law, governmental regulation or governmental benefit plan, adverse
change in competitive position or conditions, breach of or default under an
agreement, termination of a business relationship, fire, explosion, accident,
act of God, strike, lock-out, flood, storm, earthquake, labor disturbance, riot,
activity of armed forces or of the public enemy, embargo or nationalization,
condemnation, or requisition or taking of property) which materially adversely
affects the business, properties, condition, operations or prospects of the
Company on a consolidated basis or materially impairs the ability of the Company
to perform its obligations under this Agreement or the Ancillary Agreements.
"Note" means the Senior Subordinated Note in the principal amount of Twelve
Million Dollars ($12,000,000), substantially in the form attached as Exhibit A,
issued jointly and severally by the Companies to the order of Churchill.
"Obligations" means all liabilities and obligations of the Companies
created under or existing pursuant to this Agreement, the Note, the Warrant
Agreement or the Warrant.
"Permitted Liens" has the meaning provided in Section 7.01.
"Person" means any individual, corporation, partnership, joint venture,
limited liability company, association, joint-stock company, trust,
unincorporated organization or government, or any agency or political
subdivision thereof.
"Plan" means an employee benefit plan or other plan maintained for
employees of any of the Companies and governed by Title IV of ERISA.
"Purchase Agreement" means the Acquisition Agreement dated September 11,
1997 as amended October 3, 1997 by and among the Company, Holdings, the
Partnership and the partners of the Partnership, including all schedules and
exhibits thereto, pursuant to which the Company is acquiring all equity
interests in the Partnership and thereby acquiring all of the outstanding
capital stock of Holdings.
"Reportable Event" has the meaning assigned to that term in Title IV of
ERISA.
"Securities" means, collectively, the Warrant and the Note.
4
<PAGE>
"Securities Act" has the meaning as set forth in Section 4.05.
"Senior Credit Agreement" means, collectively, the Company's agreements
with the Senior Lenders.
"Senior Indebtedness" means all indebtedness of the Company to the Senior
Lenders.
"Senior Lenders" means LaSalle Business Credit, Inc., Heller Financial,
Inc. and American National Bank & Trust Company.
"Subsidiary" means any corporation of which an aggregate of 50% or more of
the outstanding voting stock is at any time directly or indirectly owned by one
of the Companies, by one or more of its Subsidiaries, or by the Companies and
one or more of their respective Subsidiaries.
"Warrant" means the Warrant, substantially in the form of Annex A to the
Warrant Agreement, issued by the Company pursuant to the Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement, substantially in the form
attached as Exhibit B, providing for the issuance by the Company of the Warrant
to purchase Company Common Stock.
"Warrant Securities" means the Common Stock of the Company or other
securities issued upon exercise of the Warrant (as defined in the Warrant
Agreement).
ARTICLE II
PURCHASE AND SALE OF SECURITIES
2.01 Sale and Purchase. Subject to the terms and conditions of this
-----------------
Agreement and the Warrant Agreement, the Company hereby agrees to sell to
Churchill, and Churchill hereby agrees to purchase from the Company at the
closing (the "Closing") contemplated by this Agreement, the Note for a purchase
price of $9,431,000 and the Warrant for a purchase price of $2,569,000, for an
aggregate purchase price of $12,000,000 (the "Purchase Price"). The Closing
shall occur at the offices of Goldberg, Kohn, Bell, Black, Rosenbloom & Moritz,
Ltd. in Chicago, Illinois on October 3, 1997 ( the "Closing Date") or such later
date as all of the conditions precedent stated in Article V have been satisfied.
At the Closing, Churchill shall deliver by wire transfer to the Company (or, if
instructed in writing by the Company, to the Partnership for the account of the
Company) payment of the Purchase Price.
2.02 Use of Proceeds. The Company shall apply the proceeds of the sale
---------------
of the Securities, first, to the payment to the fees and expenses associated
with the transactions contemplated under this Agreement, and second, to payment
of the purchase price specified in the Purchase Agreement.
5
<PAGE>
2.03 Closing Fee. At the Closing the Company shall pay Churchill a
-----------
closing fee of $360,000.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Churchill that as of the date of
this Agreement and as of the Closing Date:
3.01 Organization, Standing and Qualification of Company. Each of the
---------------------------------------------------
Companies is a corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation. Each of the Companies has all
requisite corporate power and authority to carry on its business as now being
conducted and proposed to be conducted and to own, lease or operate its
properties as and in the places where such business is now conducted or proposed
to be conducted. Each of the Companies is duly qualified, licensed or
domesticated and in good standing as a foreign corporation in each state where
the nature of the activities conducted or proposed to be conducted by it, or the
character of the properties owned, leased or operated by it or being acquired
under the Purchase Agreement, require such qualification, licensing or
domestication, except where the failure to be so qualified, licensed or
domesticated would not have a material adverse effect on the Companies, taken as
a whole.
3.02 Subsidiaries and Investments. The Disclosure Schedule sets forth
----------------------------
for each of the Companies its (i) name, (ii) state of organization, (iii) state
and county in which its principal executive office is located, (iv) any other
names in which it has conducted business in the past five years, (v) the number
of shares of stock or other equity interests owned or held which constitute such
equity or ownership interest, and (vi) the percentage thereby represented of the
total outstanding shares or other units. The shares of stock or other equity
interests of the Companies other than the Company are fully paid for and
nonassessable and except for the pledge to the Senior Lenders are owned or held
free and clear of any mortgage, lien, pledge, security interest or other
encumbrance. The Company and the Persons identified or required to be
identified on the Disclosure Schedule pursuant to this Section 3.02 are
collectively referred to herein as the "Companies."
3.03 Execution, Delivery and Performance of Agreement, Authority. The
-----------------------------------------------------------
execution, delivery or performance of this Agreement and the Ancillary
Agreements by the Company, and the purchase of the property being purchased by
the Company under the Purchase Agreement, have been duly authorized by all
necessary corporate action on the part of the Company's Board of Directors and
stockholders and do not conflict with, result in a default, right to accelerate
or loss of rights under, or result in the creation of any lien, charge or
encumbrance pursuant to, any provision of the Articles of Incorporation or
Bylaws of any of the Companies or any agreement, law, rule or regulation or any
order, judgment or decree to which any of the Companies is a party or by which
any of the Companies or their respective properties is bound, except for any
such lien, charge or
6
<PAGE>
encumbrance created under or pursuant to this Agreement, the Ancillary
Agreements or the Senior Credit Agreement. The Company has full power and
authority to enter into this Agreement and the Ancillary Agreements and to carry
out the transactions contemplated hereby. This Agreement has been duly executed
and delivered on behalf of the Company and constitutes, and the Ancillary
Agreements when executed and delivered will constitute, valid and binding
obligations of the Company enforceable in accordance with their respective
terms, except to the extent that enforcement may be limited by applicable
bankruptcy, reorganization, moratorium or similar laws of general applicability
affecting the enforcement of creditors' fights and subject to general equitable
principles which may limit the fight to obtain equitable remedies.
3.04 Financial Statements. The Company has delivered to Churchill copies
--------------------
of the following consolidated and consolidating financial statements
(collectively, the "Financial Statements"): (a) the unaudited consolidated
balance sheet of the Company and Subsidiary as of August 31, 1997 (the"Balance
Sheet Date") and related consolidated statements of income and cash flows for
the six months then ended which are attached hereto as part of the Disclosure
Schedule (the "Interim Period Financial Statements"); and (b) the audited
consolidated financial statements of the Company and Subsidiaries for the fiscal
years ended February 28, 1997 and February 27, 1996. All of the Financial
Statements have been prepared from the books and records of the Company or its
Subsidiaries, as the case may be, in accordance with GAAP and fairly present the
financial condition of the Company and Subsidiary as of their respective dates
and the results of their operations for the periods covered thereby. The income
statements included in the Financial Statements do not contain any items of
special or nonrecurring income or any other income not earned in the ordinary
course of business except as expressly specified therein, and the Financial
Statements include all adjustments, which consist only of normal recurring
accruals, necessary for such fair presentation, subject in the case of the
interim Financial Statements to normal year-end adjustments.
3.05 No Material Adverse Change. Since the Balance Sheet Date there
--------------------------
has been no event or occurrence which has had or is reasonably likely to have a
Material Adverse Effect.
3.06 Litigation. Except as described on the Disclosure Schedule, there
----------
is no claim, legal action, suit, arbitration, governmental investigation or
other legal or administrative proceeding, nor any order, decree or judgment,
pending or (to the Company's knowledge) threatened against (i) any of the
Companies, (ii) the officers, directors or employees of any of the Companies for
acts or omissions relating to one or more of the Companies, (iii) the
properties, assets or business of any of the Companies, or (iv) the transactions
contemplated by this Agreement or the Purchase Agreement, and the Company knows
of no basis for any of the foregoing.
3.07 Compliance with Laws and Other Instruments. Each of the Companies
------------------------------------------
is in compliance in all material respects with all existing laws, rules,
regulations, ordinances, orders, judgments and decrees applicable to its
business, properties or currently proposed operations. Neither the ownership
nor use of any of the Companies' properties nor the conduct or currently
proposed conduct of its business conflicts with the rights of any other Person
or violates, or with or without the giving of notice or the passage of time, or
both, will violate, conflict with or result in a default,
7
<PAGE>
right to accelerate or loss of rights under, any terms or provisions of the
Articles of Incorporation or the Bylaws any of the Companies or any, material
agreement, law, ordinance, rule, regulation, zoning regulation or any material
order, judgment or decree to which any of the Companies is a party or by which
it or its assets are bound.
3.08 Title to and Liens on Properties. Each of the Companies has good,
--------------------------------
marketable and insurable title (which is of record as to any real estate) to all
the properties and assets which it owns or uses in its business or purports to
own (and upon the closing of the Purchase Agreement the Company will have good
and marketable title to all of the outstanding capital stock of Holdings),
including without limitation those properties and assets reflected in the
Interim Period Financial Statements as of the Balance Sheet Date, except to the
extent they have been sold or disposed of in the ordinary course of business
subsequent to the Balance Sheet Date. None of such properties and assets are
subject to any Lien, restriction, lease, license, easement, liability or adverse
claim of any nature whatsoever, direct or indirect, whether accrued, absolute,
contingent or otherwise, except: (i) those specifically identified on the
Disclosure Schedule, (ii) those imperfections of title and encumbrances, if any,
which (A) are not substantial in character, amount or extent and do not so
materially detract from the value of the properties subject thereto so as to
render the same unmarketable, (B) do not interfere with either the present and
continued use of such property or the conduct of normal operations and (C) have
arisen only in the ordinary course of business.
3.09 Purchase Agreement. The Company has delivered to Churchill a true
------------------
and correct copy of the Purchase Agreement, as amended through the date hereof,
and at the Closing will deliver to Churchill full and complete copies of all of
the Acquisition Documents. The Purchase Agreement, as amended through the date
hereof, and the Acquisition Documents are the legal, valid and binding
obligations of the Company and of Holdings, the Partnership and the partners of
the Partnership, in accordance with their terms (except to the extent that
enforcement may be limited by applicable bankruptcy, reorganization, moratorium
or similar laws of general applicability affecting the enforcement of creditors'
rights and subject to general equitable principles which may limit the right to
obtain equitable remedies), and there are no oral agreements or understandings
or other agreements modifying or waiving any of the provisions thereof. The
representations and warranties of the Company and of Holdings, the Partnership
and the partners of the Partnership contained in the Purchase Agreement are true
and correct in all material respects and may be relied upon by Churchill. All
conditions precedent to the closing provided for in the Purchase Agreement or
the Acquisition Documents have been satisfied or will be satisfied or waived on
or before the Closing of this Agreement.
3.10 Solvency. On the Closing Date after giving effect to the purchase
--------
under the Purchase Agreement and the sale of the Securities under this
Agreement, none of the Companies will be "insolvent" as defined in Section 101
of Title II of the United States Bankruptcy Code or Section 2 of the Uniform
Fraudulent Transfer Act, or any other applicable state law pertaining to
fraudulent transfers, or be unable to pay their respective debts generally as
such debts become due, or have any unreasonably low capital to engage in any
business or transaction, whether current or contemplated.
8
<PAGE>
3.11 Permits and Licenses. Except as set forth on the Disclosure
--------------------
Schedule, the Companies have all federal, state and local licenses and permits
required to be maintained in connection with and material to the operation of
their businesses, and all such licenses and permits are valid and fully
effective.
3.12 Taxes. The Companies have timely filed all federal, state and
-----
municipal tax returns which are required to be filed and has timely paid, or
made provision for the payment of, all taxes which have become due pursuant to
said returns or pursuant to any assessment received by any of the Companies,
except such taxes, if any, as are being contested in good faith and for which
adequate reserves have been provided. The Companies have further made payment
of all franchise and similar taxes in their respective jurisdictions of
incorporation, and in all of the respective jurisdictions in which any of them
is qualified as a foreign corporation, insofar as such taxes are due and
payable, except for any such taxes the validity of which are being contested in
good faith and for which reserves have been provided.
3.13 Margin Securities. None of the Companies is engaged in the business
-----------------
of extending credit for the purpose of buying or carrying margin securities, and
no part of the proceeds realized from the sale of the Securities will be used to
buy or carry any such margin securities or be used in a manner inconsistent with
the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System.
3.14 Not an Investment Company. None of the Companies is an "investment
-------------------------
company," or a company "controlled" by an "investment company," as such terms
are defined in the Investment Company Act of 1940, as amended.
3.15 Securities Laws. Neither the Company nor any agent on its behalf
---------------
has offered or will offer to sell any of the Securities, or solicited any offers
to acquire any of the Securities from, or otherwise approached or negotiated or
communicated in respect of any of the Securities with, any Person so as thereby
to bring the sale of the Securities within the registration requirements of the
Securities Act of 1933, as amended (the "Securities Act").
3.16 Environmental Protection. Except as set forth in the Disclosure
------------------------
Schedule, each of the Companies has obtained a material permits, licenses and
other authorizations which are required under federal, state and local laws
relating to pollution or protection of the environment, including laws relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, hazardous or toxic materials or wastes into ambient air, surface
water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or hazardous or toxic materials or wastes
("Environmental Laws"). Except as set forth in the Disclosure Schedule, each of
the Companies is in material compliance with all terms and conditions of such
required permits, licenses and authorizations and is also in material compliance
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules and timetables contained in the
Environmental Laws or contained in any plan, order, decree, judgment or notice
from any
9
<PAGE>
governmental authority to which any of the Companies is a party or by which any
of them is bound. Except as set forth in the Disclosure Schedule, none of the
Companies is aware of, nor have any of the Companies received notice from any
governmental authority of, any events, conditions, circumstances, activities,
practices, incidents, actions or plans which interferes with or prevents
continued compliance or which gives rise to any liability under any
Environmental Laws.
3.17 Insurance. The Companies have been and are insured by financially
---------
sound and reputable insurers with respect to their respective properties and the
conduct of their respective businesses in such amounts and against such risks as
is sufficient for their respective businesses and compliance with law. All
policies of insurance are currently in full force and effect, and no notice of
cancellation or termination has been received by the Company with respect to any
such policies. All premiums due and payable on such policies have been paid.
3.18 Employment or Severance Agreements. Except for those summarized on
----------------------------------
the Disclosure Schedule, none of the Companies is a party to or bound by (i) any
collective bargaining agreement, (ii) any agreement providing for a term of
employment or for any severance payment to any executive officer of one or more
of the Companies, or (iii) any agreement providing any deferred compensation,
bonus or profit sharing payment to any executive officer of one or more of the
Companies.
3.19 Disclosure. No representation or warranty by the Company in this
----------
Agreement or any of the Ancillary Agreements, nor any statement, document or
certificate furnished or to be furnished by the Company or its representatives
to Churchill or Churchill's representatives in connection with this Agreement or
any of the Ancillary Agreements, contains or will contain any untrue statement
of a material fact, or omits or will omit to state any material fact necessary
to make the facts stated therein not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CHURCHILL
Churchill hereby represents and warrants to the Company that:
4.01 Partnership Existence and Power. Churchill is a limited partnership
-------------------------------
duly organized, validly existing and in good standing under the laws of the
State of Minnesota and has full power and authority to execute and deliver this
Agreement and the Ancillary Agreements to which it is a party and purchase the
Securities as provided in this Agreement.
4.02 Authorization. All proceedings or partnership action required to be
-------------
taken by Churchill relating to its execution and performance of this Agreement
have been taken or will be taken at or prior to the Closing.
10
<PAGE>
4.03 Investment Intent. Churchill is an accredited investor, as defined
-----------------
under Rule 50l(a) of Regulation D of the Securities Act. The Securities are
being purchased by Churchill for its own account, not as a nominee or agent, and
not with a view to, or for resale in connection with, any distribution or public
offering thereof within the meaning of the Securities Act. Churchill does not
currently have any plan or intention of selling, granting any participation in,
or otherwise distributing the Securities. Churchill acknowledges that the
Securities have not been registered under the Securities Act by reason of the
exemption provided in Section 4(2) thereof, and that the reliance of the Company
upon this exemption is predicated in part upon this representation and warranty
by Churchill.
ARTICLE V
CLOSING CONDITIONS
Churchill's obligation to purchase and pay for the Securities is subject to
the following conditions, any of which may be waived in whole or in part by
Churchill in writing:
5.01 Closing of Purchase Agreement and Senior Credit Agreement. The
---------------------------------------------------------
closing of the transactions under the Purchase Agreement and the Senior Credit
Agreement shall have been consummated, subject only to the Company paying the
purchase price provided for in the Purchase Agreement.
5.02 Representations and Warranties True. The representations and
-----------------------------------
warranties of the Company in this Agreement shall be true in all material
respects on and as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of the Closing Date.
5.03 Compliance with Agreement. The Company shall have performed and
-------------------------
compiled in all material respects with all agreements or conditions required by
this Agreement to be performed and compiled with by it prior to or as of the
Closing Date.
5.04 No Event of Default. There shall exist at the time of Closing no
-------------------
condition or event which would constitute an Event of Default or which, after
notice or lapse of time or both, would constitute an Event of Default.
5.05 Certificate of Officer. The Company shall have delivered to
----------------------
Churchill a certificate, dated the Closing Date, executed by its Chief Executive
Officer and Chief Financial Officer, certifying that the conditions specified in
Sections 5.01 through 5.04 are true and correct.
5.06 Documents Required for the Closing. The Company shall have delivered
----------------------------------
to Churchill the following, duly executed as appropriate:
11
<PAGE>
(a) this Note Purchase Agreement;
(b) the Note;
(c) the Warrant Agreement and the Warrant;
(d) a Subordination Agreement with the Senior Lenders, in form and
substance acceptable to Churchill;
(e) the Co-Sale Agreement;
(f) the Officers' Certificate referred to in Section 5.05;
(g) a favorable opinion of the Companies' legal counsel as to the matters
referred to on Exhibit D;
(h) a copy, certified by the Company as true and correct of the executed
Purchase Agreement (including all exhibits and schedules) and the closing
documents related thereto;
(i) for each of the Companies, a Secretary's Certificate dated the Closing
Date, signed by its secretary and in form and substance satisfactory to
Churchill and its counsel, (i) certifying that resolutions have been duly
adopted by its Board of Directors (and to the extent necessary, its
shareholders) authorizing the execution of this Agreement or the Ancillary
Agreements, the issuance of the Securities (in the case of the Company), and all
of the other transactions to be consummated pursuant hereto, (ii) certifying as
to the names of the members of its Board of Directors and the names and
incumbency of its officers who are empowered to execute the foregoing documents
for and on behalf of it, (iii) certifying the authenticity of attached copies of
its Articles of Incorporation and Bylaws and (iv) certifying as to its continued
good standing in the jurisdiction of its incorporation, as evidenced by a
reasonably current Certificate of Good Standing;
(j) all environmental reports and documents regarding the Companies which
are requested by Churchill, including Phase I Environmental Assessment Reports
for all real property owned or leased by the Companies;
(k) a copy, certified by the Company as true and correct, of the Senior
Credit Agreement and the closing documents related thereto;
(l) copies of all other documentation evidencing material indebtedness of
any of the Companies for borrowed money;
(m) certificate(s) evidencing adequate property and liability insurance
coverage on all of the properties and business operations of the Companies;
12
<PAGE>
(n) a reasonably current search against each of the Companies for (i) liens
or security interests of record in each state where it maintains its principal
executive office or owns material assets, and (ii) judgments of record in the
state and federal courts sitting in the county where it has its principal
executive office;
(o) documents, in form reasonably acceptable to Churchill, evidencing the
obtaining of all necessary releases, consents or approvals for the transactions
contemplated by this Agreement and the Purchase Agreement;
(p) evidence satisfactory to Churchill as to the uses of the proceeds of
the Note;
(q) receipt by Churchill and by Churchill's counsel (as appropriate) of
payment of the fee referred to in Section 2.03 and the expenses referred to in
Section 10.02;
(r) copies of the collective bargaining agreements and employment,
severance, deferred compensation or bonus agreements of officers referred to in
Section 3.18; and
(s) such other documents, certificates, instruments or opinions as
Churchill or its legal counsel may reasonably request, in form reasonably
satisfactory to Churchill.
5.07 Proceedings Satisfactory. All proceedings to be taken in connection
------------------------
with the transactions contemplated by this Agreement and all documents incident
to such transaction shall be satisfactory in form and substance to Churchill and
its counsel.
ARTICLE VI
POST-CLOSING AFFIRMATIVE COVENANTS OF THE COMPANY
The Company agrees that from and after Closing so long as the Note shall
remain outstanding, unless Churchill otherwise consents in writing:
6.01 Payment of Note. The Companies shall punctually pay the principal
---------------
of and interest on the Note at the time and place and in the manner specified in
such Note.
6.02 Reporting. The Company shall furnish to Churchill:
---------
Annual
- ------
(a) as soon as available, and in any event within one hundred twenty (120)
days after the end of each fiscal year of the Company, a copy of the annual
audit report of the Company and Subsidiaries, which report shall be certified by
an independent certified public accountant who is selected by the Company and is
acceptable to Churchill, without qualification as to scope of audit or
13
<PAGE>
opinion, which annual report shall include a consolidated and consolidating
balance sheet of the Company and Subsidiaries as of the end of such fiscal year
and the related consolidated and consolidating statements of income, retained
earnings and cash flows of the Company and Subsidiaries for the fiscal year then
ended, all in reasonable detail and all prepared in accordance with GAAP,
together, with (i) a management letter from such accountants, if one is prepared
by them; and (ii) a Compliance Certificate of the chief executive officer and
chief financial officer of the Company in substantially the form of Exhibit E
stating that such financial statements have been prepared in accordance with
GAAP and whether or not any of them has knowledge of the occurrence of any Event
of Default hereunder and, if so, stating in reasonable detail the facts with
respect thereto;
(b) at least one month prior to the beginning of each fiscal year of the
Company, the Company shall prepare and submit to its board of directors, for its
review and approval, an annual plan for such year, which shall include major
operating goals and milestones, monthly profit and loss projections, cash flow
statements and monthly capital and operating expense budgets, itemized in such
detail as the board of directors may reasonably request; each annual plan shall
be modified as often as is necessary in the judgment of the board of directors
to reflect changes required as a result of operating results and other events
that occur, or may be reasonably expected to occur, during the year covered by
the annual plan, and copies of each such modification shall be submitted to the
board of directors; the Company with, simultaneously with the submission thereof
to the board of directors, deliver a copy of each annual plan and all
modifications thereof to Churchill;
Monthly
- -------
(c) within forty-five (45) days after the end of each month during the
twelve (12) month period immediately following the Closing and within thirty
(30) days after the end of each month thereafter, a consolidated and
consolidating balance sheet of the Company and Subsidiaries as of the end of
each month; consolidated and consolidating statements of income, retained
earnings and cash flows of the preceding month and for the period year-to-date;
and monthly budgets with variances from budget for the preceding month and for
the period year-to-date.
Other
- -----
(d) at the time of delivery of the statements required by (c) above witch
correspond with the first three fiscal quarters of the Company's fiscal year, a
Compliance Certificate signed by the chief financial officer as to whether or
not he or she has any knowledge of the occurrence of any Event of Default and,
if so, stating in reasonable detail the facts with respect thereto and the
computations as to whether the Company is in compliance with the requirements of
Section 6.09.
(e) to the extent not already delivered to Churchill, promptly upon their
distribution, copies of all financial statements, reports and proxy statements
which the Company delivers to its stockholders;
14
<PAGE>
(f) promptly after the sending or filing thereof, copies of all regular and
periodic financial reports which any of the Companies shall file with the
Commission or any national securities exchange;
(g) immediately after the commencement thereof, notice in writing of all
litigation and of all proceedings before any governmental or regulatory agency
to which the Company is or is threatened in writing to be made a party of the
type described in Section 3.06 or which seeks a monetary recovery against the
Company in excess of $50,000;
(h) as promptly as practicable (but in any event not later than five days)
after an officer of the Company obtains knowledge thereof, notice of the
occurrence of:
(i) any materially adverse development in any litigation, arbitration
or governmental investigation or proceeding previously disclosed by the
Companies to Churchill;
(ii) any event which constitutes an Event of Default; or
(iii) any condition or event regarding the business, properties,
condition or prospects (financial or otherwise) of any of the Companies
which has or may reasonably be expected to have a Material Adverse Effect;
together with a detailed statement by a responsible officer of the Company of
the steps being taken by the Company to cure the effect of such occurrence or
event;
(i) as soon as possible and in any event within thirty (30) days after any
of the Companies knows or has reason to know that any Reportable Event with
respect to any Plan has occurred, the statement of the chief financial officer
of the Company setting forth details as to such Reportable Event and the action
which the Company proposes to take with respect thereto, together with a copy of
the notice of such Reportable Event to the Pension Benefit Guaranty Corporation;
(j) copies of all borrowing base certificates and compliance certificates
required under any agreement governing Senior Indebtedness, as soon as such
reporting documents are available;
(k) immediately upon the receipt thereof from any creditor, copies of any
notices of default or other correspondence or information pertaining to any
alleged or actual default or noncompliance with any credit facility maintained
by any of the Companies with any creditor other than Churchill;
(1) as soon as available, with respect to each fiscal year of the Company
ending after the Closing Date, if requested by Churchill, a true and correct
copy of its consolidated federal income tax returns as filed and all schedules
thereto;
15
<PAGE>
(m) as soon as available, a copy of the annual valuation report prepared
for the Company ESOP;
(n) prior written notice, as far in advance as reasonably practical and not
less than is required by the Company's bylaws, of each meeting of the Company's
board of directors and copies of the minutes of meetings of, and written minutes
of action taken by, the board of directors or the shareholders of the Company,
promptly after each such meeting or action is taken; and
(o) not less than twenty (20) days prior written notice of each action or
event which would result in an adjustment of the Exercise Quantity purchasable
under the Warrant;
(p) Such other documents and information concerning any of the Companies
which is reasonably requested by Churchill from time to time.
6.03 Books and Records; Inspection and Examination.
---------------------------------------------
(a) The Company will keep, and cause each of the other Companies to keep,
accurate books of record and account for itself in which true and complete
entries will be made in accordance with GAAP (except for FEFO presentation on an
interim basis) and, upon request of Churchill, will give any representative of
Churchill access to, and permit such representative to examine, audit, copy or
make extracts from, any and all books, records and documents in any of the
Companies' possession, to inspect any of the Companies' properties and to
discuss any of the Companies' affairs, finances and accounts with any of the
Companies' principal officers or independent accountants, all at such times
during normal business hours and as often as Churchill may reasonably request.
The Company agrees to reimburse Churchill for the reasonable fees and charges
incurred in connection with any such inspection or audit, including costs of
personnel time and out-of-pocket expenses.
(b) Any information or document obtained by Churchill in any examination,
audit, inspection or discussion pursuant to this Section 6.03 shall be used by
Churchill only for those purposes Churchill believes to be appropriate to
protect its interests under this Agreement and the Ancillary Agreements or in
obtaining payment of amounts owed pursuant to the Note, provided that the
--------
foregoing shall not limit Churchill's use of such information or document (i) if
such information or document has become generally available to the public
through no fault of Churchill, (ii) if use of such information or document is
required or appropriate in any report, statement or testimony submitted to any
municipal, state or federal regulatory body having or claiming to have
jurisdiction over Churchill, (iii) if use of such information or document may be
required or appropriate in response to any summons or subpoena or in connection
with any litigation, (iv) if such information or document is disclosed or given
to Churchill in good faith by a third party who had independent rights to such
information or document, (v) if such information or document is obsolete, (vi)
if use of such information or document is believed by Churchill to be
appropriate in order to comply with any law, order, regulation or ruling
applicable to Churchill, or (vii) if such information or document is disclosed
or given to a prospective transferee in connection with any contemplated
transfer of any of the Securities; provided, further, that in the case of
-----------------
proposed disclosures pursuant to clauses (ii),
16
<PAGE>
(iii) or (vi) above Churchill shall endeavor to give the Company prior notice
before complying with such request or order so as to give the Company an
opportunity to appear and contest the disclosure of such information or
document.
6.04 Compliance with Laws. The Company will comply, and will cause each
--------------------
of the other Companies to comply, in all material respects, with all applicable
statutes, rules, regulations, orders of the United States of America, foreign
countries, states and municipalities and of any governmental department,
commission, board, regulatory authority, bureau, agency, and instrumentality of
the foregoing, and of any court, arbitrator or grand jury, in respect of the
conduct of the respective businesses and the ownership of its properties, except
such as are being contested in good faith or where failure to comply would not
have a material adverse effect on the Companies, taken as a whole.
6.05 Maintenance of Properties. The Company will keep and maintain, and
-------------------------
cause the other Companies to keep and maintain, its properties in good repair,
working order and condition, ordinary wear and tear excepted, and from time to
time make, or cause to be made, all repairs and renewals and replacements which
in the opinion of the Company are necessary and proper so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times. The Company will maintain or cause to be maintained back-up
copies of all valuable papers and software.
6.06 Insurance. The Company will obtain for itself and the other
---------
Companies insurance against loss or damage of the kinds customarily insured
against by corporations similarly situated, with reputable insurers, in such
amounts, with such deductibles and by such methods as shall be adequate, and in
any event in amounts not less than amounts generally maintained by other
companies engaged in similar businesses. The Company shall further promptly
provide to Churchill copies of all material notices received from or sent to any
of its insurers together with copies of all material correspondence related to
such insurance.
6.07 Payment of Taxes and Claims. The Company will, and will cause the
---------------------------
other Companies to, duly pay and discharge, as the same become due and payable,
all taxes, assessments and governmental and other charges, levies or claims
levied or imposed, which are, or which if unpaid might become, a Lien or charge
upon the properties, assets, earnings or business of the Company; provided,
---------
however, that nothing contained in this Section shall require the Company or the
- -------
other Companies to pay and discharge, or cause to be paid and discharged, any
such tax, assessment, charge, levy or claim so long as the Company in good faith
shall contest the validity thereof and shall set aside on its books adequate
reserves with respect thereto. In the event the Company or any of the other
Companies fails to satisfy its obligations under this Section, Churchill may but
is not obligated to satisfy such obligations in whole or in part and any
payments made and reasonable expenses incurred in doing so shall constitute, to
the extent satisfied by Churchill, an obligation by the Company immediately due
and payable to Churchill and such obligation shall be immediately paid by the
Company.
17
<PAGE>
6.08 Maintenance of Corporate Existence. The Company will, and will
----------------------------------
cause each of the other Companies to, at all times do or cause to be done all
things necessary to maintain, preserve and renew their respective corporate
charters and existence and their rights, patents and franchises, and comply with
all material laws applicable thereto; provided, however, that nothing contained
-----------------
in this Section shall (i) require the Companies to maintain, preserve or renew
any right, patent or franchise not necessary or desirable in the conduct of the
business of the Companies, (ii) prevent the termination of the corporate
existence of any Subsidiary if in the opinion of the Board of Directors of the
Company such termination is not disadvantageous to Churchill, or (iii) require
the Companies to comply with any law so long as the validity or applicability
thereof shall be contested in good faith by appropriate proceedings.
6.09 Financial Covenants. The Company will maintain on a consolidated
-------------------
basis, measured for the twelve (12) month period ending on the last day of each
fiscal quarter, beginning with the fiscal quarter ending February 28, 1998
(provided, that for the fiscal quarters ending February 28, 1998, May 31, 1998
and August 31, 1998 calculated for the period commencing December 1, 1997 and
ending on the last day of such fiscal quarter):
(a) a Debt Service Coverage Ratio of 1.125 to 1.0; and
(b) an Interest Coverage Ratio of 1.35 to 1.0.
For purposes of this Section 6.09, the aggregate annual amount of all Company
ESOP contribution expenses shall be excluded from the calculation for every
fiscal quarter.
6.10 Board of Directors. Within 90 days after the Closing Date the
------------------
Company shall deliver to Churchill a copy, certified by the Missouri Secretary
of State as having been filed with that office, of an amendment to the Company's
Articles of Incorporation which has been approved by the Company's board of
directors and shareholders and which provides as follows:
(a) The Company's board of directors shall consist of four directors who
are employees of the Company (the "Inside Directors"), two directors acceptable
to Churchill who are not affiliates of Churchill or any of the Companies (other
than by virtue of their directorships) and are independent of the Company (the
"Outside Directors"), and, if requested by Churchill in writing at any time, one
director designated by Churchill. If Churchill designates a board member, then
in the event of the death, resignation or removal of such director so nominated,
Churchill shall be entitled to nominate such director's successor. In the event
Churchill does not exercise its right to having its designee serve as a member
of the board of directors, then Churchill shall have the right to designate from
time to time an observer to attend all meetings of the board of directors.
(b) In addition to all other remedies available to the holder of the Note,
upon the occurrence of (a) an Event of Default as to payment of principal owed
on the Note which continues for thirty (30) days or (b) an Event of Default as
to payment of interest due on the Note which continues for sixty (60) days, or
(c) any Event of Default as to a financial covenant referred to in this
Agreement
18
<PAGE>
which continues for at least ninety (90) days, then upon notice by Churchill,
the Company's board of directors shall be immediately modified so that Churchill
has the right to two seats on the Company's Board of Directors and the remainder
of the Board consists of three Inside Directors and two Outside Directors.
The Company agrees to deliver with the certificate referred to in the
introduction to this Section 6.10 an opinion of the Company's outside legal
counsel, in form and substance reasonably acceptable to Churchill and its
counsel, to the effect that the amendment to the Articles of Incorporation
required by this Section 6.10 has been duly adopted for all necessary corporate
and shareholder action and has become enforceable in accordance with its terms.
The Company agrees to cause any nominee(s) designated by Churchill pursuant to
the provisions of (a) above to be immediately elected as a director.
6.11 Replacement of Certificates. Upon receipt of evidence reasonably
---------------------------
satisfactory to the Company of the loss, theft, destruction or mutilation of any
certificates representing the Securities, the Company will issue new
certificates representing the Securities, of like tenor, in lieu of such lost,
stolen, destroyed or mutilated certificates.
6.12 Retirement Plans. The Company will cause each retirement plan in
----------------
which any employees of the Companies participate that is subject to the
provisions of ERISA, and the documents and instruments governing each such plan,
to be conformed to, when necessary, and to be administered in a manner
consistent with, those provisions of ERISA which may, from time to time, become
effective and operative with respect to such plans; if requested by Churchill in
writing from time to time, furnish to Churchill a copy of any annual report with
respect to each such plan that any of the Companies files with the Secretary of
Labor pursuant to ERISA; maintain fiduciary liability insurance with respect to
its acts as ERISA fiduciary with respect to each employee benefit pension plan
governed by ERISA up to the amount of plan assets.
6.13 Filing of Reports. The Company will, from and after such time as it
-----------------
has securities registered pursuant to Section 12 of the Exchange Act, or has
securities registered pursuant to the Securities Act, make timely filing of such
reports as are required to be filed by it with the Commission so that Rule 144
under the Securities Act or any successor provision thereto will be available to
the security holders of the Company who are otherwise able to take advantage of
the provisions of such rule.
6.14 Rule 144A. The Company agrees that, upon the request of any holder
---------
of the Warrant or the Note or any prospective purchaser of such instruments, the
Company shall promptly provide (but in any case within 15 days of a request) to
such holder or potential purchaser the following information: (a) a brief
statement of the nature of the business of the Company and the other Companies
and the products and services they offer; (b) the Company's most recent
consolidated balance sheets and profit and loss and retained earnings
statements, and similar financial statements for such part of the two preceding
fiscal years prior to such request as the Company has been in
19
<PAGE>
operation (such financial information shall be audited, to the extent reasonably
available); and (c) such other information about the Company, the other
Companies and their business, financial condition and results of operations as
the requesting person shall request in order to comply with Rule 144A
promulgated under the Securities Act and the antifraud provisions of the federal
and state securities laws. The Company hereby represents and warrants to any
such requesting person that the information provided by the Company pursuant to
this Section will not contain any untrue statement of a material fact or omit to
state a material fact necessary in order to make the statements made, in light
of the circumstances under which they were made, not misleading.
6.15 Other Agreements. The Company will, and will cause each of the
----------------
other Companies to, faithfully observe, perform and discharge in all material
respects all of their respective covenants, agreements, conditions and
obligations under any and all material agreements, whether now existing or
hereafter created or arising, to which it is a party or under which it has any
obligation; provided, that a default which arises solely from non-compliance
with one or more of the financial ratio covenants of the Senior Credit
Agreement, but which does not constitute a default under Section 6.09 of this
Agreement, shall not constitute a breach of this Section 6.15.
ARTICLE VII
POST-CLOSING NEGATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees that from and after Closing, so
long as the Note shall remain outstanding, unless Churchill otherwise consents
in writing:
7.01 Liens. The Company will not, and will not permit any of the other
-----
Companies to, create, incur, assume or suffer to exist any Liens on any of their
respective assets now owned or hereafter acquired, or assign or otherwise convey
any right to receive income or give their consent to the subordination of any
right or claim of any of the Companies to any right or claim of any other
Person; excluding, however, the following ("Permitted Liens"):
--------- -------
(a) Liens for taxes or assessments or other governmental charges to the
extent not required to be paid by Section 6.07;
(b) Materialmen's, merchants', carriers', workmen's, repairmen's, or other
like liens arising in the ordinary course of business to the extent not required
to be paid by Section 6.07;
(c) Pledges or deposits to secure obligations under worker's compensation
laws, unemployment insurance and social security laws, or to secure the
performance of bids, tenders, contracts (other than for the repayment of
borrowed money) or leases or to secure statutory obligations or surety or appeal
bonds, or to secure indemnity, performance or other similar bonds, in each case
arising in the ordinary course of business;
20
<PAGE>
(d) Zoning restrictions, easements, licensees' restrictions on the use of
real property or minor irregularities in title thereto, which do not materially
impair the use of such property in the operation of the business or the value of
such property for the purpose of such business;
(e) Purchase money mortgages, liens, or security interests (which term for
purposes of this subsection shall include conditional sale agreements or other
title retention agreements and leases in the nature of title retention
agreements) upon or in property acquired after the date hereof, or mortgages,
liens or security interests existing in such property at the time of acquisition
thereof, provided that (unless Churchill otherwise consents in writing)
--------
(1) no such mortgage, lien or security interest extends or shall
extend to or cover any property of any of the Companies, other than the
property then being acquired and fixed improvements then or thereafter
erected thereon; and
(2) the aggregate principal amount of Fixed Indebtedness secured by
mortgages, liens and security interests described in this subsection (e) at
the time of acquisition of the property subject thereto shall not exceed
the lesser of (i) 100% of the cost of such property or (ii) the then fair
market value of such property as determined by the Board of Directors of
the Company;
(f) Liens granted to the Senior Lenders under the Senior Credit Agreement
to secure the Senior Indebtedness; and
(g) Liens arising out of a judgment against one of the Companies for the
payment of money not exceeding $100,000 in the aggregate with respect to which
an appeal is being prosecuted and a stay of execution pending such appeal has
been secured.
7.02 Indebtedness. The Company will not, and will not permit any of the
------------
other Companies to, incur, create, assume or permit to exist any Indebtedness,
except:
(a) Indebtedness evidenced by the Note;
(b) Senior Indebtedness in the amount not exceeding that existing on the
Closing Date, after giving effect to the closing of the Senior Credit Agreement
and this Agreement;
(c) unsecured trade credit incurred in the ordinary course of business;
(d) capitalized lease obligations which, in the aggregate, do not exceed
$150,000;
(e) purchase money indebtedness permitted by Section 7.01(e) which, in the
aggregate, does not exceed $750,000; and
(f) indebtedness to the partners of the Partnership for the purchase price
due under the Purchase Agreement.
21
<PAGE>
7.03 Guaranties. The Company will not, and will not permit any of the
----------
other Companies to assume, guarantee, endorse or otherwise become directly or
contingently liable in connection with any obligations of any Person, except:
(a) endorsements of negotiable instruments for deposit or collection in the
ordinary course of business;
(b) guaranties of not more than an aggregate of $150,000; and
(c) guaranties in favor of the Senior Lenders pursuant to the Senior Credit
Agreement.
7.04 Investments and Loans. The Company will not, and will not permit
---------------------
any of the other Companies to, purchase or hold beneficially any stock or other
securities or evidences of indebtedness of, make or permit to exist any loans or
advances to, or make any investment or acquire any interest whatsoever in, any
other Person, except:
(a) investments in direct obligations of the United States of America or
any agency or instrumentality thereof whose obligations constitute full faith
and credit obligations of the United States of America having a maturity of one
year or less, commercial paper issued by U.S. corporations rated "A-1" by
Standard & Poors Corporation or "P-1" by Moody's Investors Service or
certificates of deposit or bankers' acceptances having a maturity of one year or
less issued by members of the Federal Reserve System having deposits in excess
of $100,000,000;
(b) advances in the ordinary course of business in the form of progress
payments, prepaid rent or security deposits;
(c) the Company's investments in the other Companies as of the Closing
Date, after giving effect to the Closing of this Agreement and the closing of
the Purchase Agreement and the Senior Credit Agreement; or
(d) expense advances to officers and employees not exceeding $75,000 in
the aggregate.
7.05 Dividends and ESOP Contributions. (a) The Company will not declare
--------------------------------
or pay any dividends on any class of its stock or make any payment on account of
the purchase, redemption or other retirement of any shares or such stock or make
any distribution in respect thereof, either directly or indirectly, except for
redemptions by the Company of Company Common Stock which are required by the
terms of the Company ESOP or ERISA.
(b) The Company will not, and will not permit any of the Companies to, make
any contributions to the Company ESOP in excess of the amounts required to
amortize the Indebtedness for borrowed money of the Company ESOP existing at the
Closing Date in accordance with the then existing terms of such Indebtedness.
22
<PAGE>
7.06 Sale of Assets. The Company will not, and will not permit any of
--------------
the other Companies to, sell, lease, assign, transfer or otherwise dispose of
(whether in one transaction or in a series of transactions) all or a substantial
part of its assets to any Person; provided, however, that the restrictions
-------- -------
contained in this Section 7.06 shall not apply to or prevent sales or leases by
one or more of the Companies of its properties in the ordinary course of
business. For purposes of this Section 7.06, "substantial part" means ten
percent (10%) or more of the book value of the Company's consolidated assets,
determined in accordance with GAAP.
7.07 Consolidation and Merger. The Company will not, and will not permit
------------------------
any of the other Companies to, consolidate with or merge into any entity or
permit any entity to merge into it, or acquire (in a transaction analogous in
purpose or effect to a consolidation or merger) all or substantially all of the
assets of another Person having consolidated annual revenues greater than
$20,000,000.
7.08 Sale and Leaseback. The Company will not, and will not permit any
------------------
of the other Companies to, enter into any arrangement, directly or indirectly,
with any entity whereby it shall sell or transfer any real or personal property,
whether now owned or hereafter acquired, and then or thereafter rent or lease as
lessee such property or any part thereof or any other property which it intends
to use for substantially the same purpose or purposes as the property being sold
or transferred.
7.09 Capital Expenditures. The Company will not, and will not permit any
--------------------
of the other Companies to, make any Capital Expenditures which in the aggregate
would exceed $600,000 for the period from October 1, 1997 through February 28,
1998, or in excess of $1,250,000 in any fiscal year starting with the fiscal
year beginning March 1, 1998.
7.10 Restrictions on Nature of Business. The Companies, viewed as a
----------------------------------
consolidated entity, will not engage, directly or indirectly, in any line of
business materially different from that engaged in prior to the Closing.
7.11 Accounting. The Company will not, and will not permit any of the
----------
other Companies to, adopt, permit or consent to any material change in
accounting principles other than as required by GAAP, except as permitted by
GAAP and expressly concurred with by certified public accountants selected by
the Company and acceptable to Churchill and, in the event of any material change
in accounting principles, the Company shall, at Churchill's request, provide the
financial statements required by Section 6.02 hereof on a comparative basis
showing the financial condition and the results of operations of the Company
under both the prior accounting principle and the accounting principle as
changed, and the Company shall comply with the financial covenants of Section
6.09 hereof under the prior principles. The Company will not adopt, permit or
consent to any change in its fiscal year or file a consolidated tax return with
any other Person.
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<PAGE>
7.12 Issuance of Equity Securities. The Company will not, and will not
-----------------------------
permit any of the other Companies to, issue after the date of this Agreement any
additional capital stock, or any securities or rights exercisable, convertible
or exchangeable for capital stock, except for options or warrants to purchase
Company common stock which have an exercise price not less than fair market
value per share at the time the option or warrant is granted and which in the
aggregate do not permit purchase of more than five percent (5%) of the Company's
fully diluted common stock as of the Closing Date; subject to the same proviso
stated in Section 7.13 below.
7.13 Change in Control. The Company will not, and will not permit any of
-----------------
the other Companies, to enter into any agreement with any Person that confers
upon such Person the right or authority to control or direct a major portion
(viewed on a consolidated basis) of the business or assets of any of the
Companies, or which provides for or may reasonably be expected to result in a
change in the control of the Company; provided, that the Company conducting and
--------
closing an initial public offering of its Common Stock pursuant to a
registration statement under the Securities Act of 1933, as amended, which
results in gross cash proceeds to the Company of $20 million or more shall not
be deemed to violate this Section.
7.14 Conflicts of Interest. Except for the continuation of the business
---------------------
relationships described in the Disclosure Schedule on terms no less favorable to
the Company than those described in the Disclosure Schedule, the Company will
conduct, and will cause the other Companies to conduct, their business in such a
manner that no officer, director or employee shall have any direct or indirect
material equity interest in any entity which does business with any of the
Companies or in any property, asset or right which is used by any of the
Companies in the conduct of its business.
7.15 Transactions with Affiliates. The Company will not, and will not
----------------------------
permit any of the other Companies to, enter into or continue in effect any
transaction with any Affiliate nor with an officer or employee thereof except
transactions upon fair and reasonable terms no less favorable to the Company or
other Companies than would obtain in a comparable arm's length transaction with
a person not an Affiliate.
7.16 Modification of Senior Credit Agreement. The Company will not, and
---------------------------------------
will not permit any of the other Companies to, (i) amend the Senior Credit
Agreement to decrease or increase the Revolver Availability (as defined in the
Note) (ii) to modify the Companies' borrowing base thereunder, or (iii) take or
omit taking any action which has the purpose and effect of reducing the Revolver
Availability so as to reduce the amount of an installment payment under the
Note.
7.17 Inconsistent Agreements. The Company will not, and will not permit
-----------------------
any other the other Companies to, enter into any agreement containing any
provision which would be violated or breached by this Agreement or by the
performance by the Company of its obligations hereunder or under any document
executed pursuant hereto.
24
<PAGE>
ARTICLE VIII
INDEMNIFICATION
8.01 Indemnification by the Company. The Company agrees to defend,
------------------------------
indemnify and hold harmless Churchill and its directors, officers, employees,
partners and agents from and against any and all claims, causes of action,
losses, costs, damages, deficiencies or expenses, including reasonable
attorneys' fees (collectively "Damages") sustained by Churchill arising from or
related to any and all misrepresentations or breach of a representation,
warranty or covenant of the Company set forth in this Agreement, any of the
Ancillary Agreements, or any certificate, financial statement, document,
instrument or other material furnished to Churchill in connection with this
Agreement.
8.02 Indemnification by Churchill. Churchill agrees to defend, indemnify
----------------------------
and hold harmless the Company from and against any and all claims, causes of
action, losses, costs, damages, deficiencies or expenses, including reasonable
attorneys' fees (collectively "Damages") sustained by the Company arising from
or related to any and all misrepresentations or breach of a representation,
warranty or covenant of Churchill set forth in Article IV of this Agreement.
8.03 Notice. Each party agrees to give the other prompt written notice
------
of any event or assertion of which it has knowledge concerning any Damages or
other obligation and as to which it may request indemnification hereunder. A
failure to give timely notice or to provide copies of documents or to furnish
relevant data in connection with any third party claim by a party who suffers
Damages shall not constitute a defense (in part or in whole) to any claim for
indemnification by such party, except and only to the extent that such failure
shall result in material prejudice to the indemnifying party.
8.04 Defense. A party obligated to provide indemnification under this
-------
Article VII shall be entitled to participate in any investigation of any claim,
action or proceeding involving any third party and, upon written notice to the
indemnified party, assume the investigation and defense of such claim, action,
or proceeding with counsel of its choice at its expense, provided that such
counsel is reasonably acceptable to the indemnified party.
ARTICLE IX
EVENTS OF DEFAULT
9.01 Events of Default. An "Event of Default" means any of the
-----------------
following:
(a) Failure to pay principal owed under the Note when due; or
(b) Failure to pay any interest, fees or expenses or other amounts due
under the Note, this Agreement or any of the Ancillary Agreements within ten
(10) days after the date when due; or
25
<PAGE>
(c) Default by any of the Companies in the performance or observance of any
covenant, condition, undertaking or agreement contained in this Agreement or any
of the Ancillary Agreements (other than a default of a type specifically dealt
with elsewhere in this Section 9.01) and the continuance of such default for a
period of at least thirty (30) days after the Company has knowledge of the
occurrence thereof, provided that no such thirty (30) day period shall be
--------
provided in the case of a default under Section 6.10 relating to amendment of
the Articles of Incorporation; or
(d) Any warranty, representation or other statement by or on behalf of any
of the Companies contained in this Agreement or any of the Ancillary Agreements,
or in any instrument furnished in compliance with or in reference hereto or
thereto, shall be false or misleading in any material respect at the time made;
or
(e) Any event of default shall occur under the Senior Credit Agreement,
except for an event of default which arises solely from non-compliance with one
or more of the financial ratio covenants of the Senior Credit Agreement but
which does not constitute a default under the financial ratio covenants of
Section 6.09 of this Agreement;
(f) The Company or any of the other Companies shall: (i) file a petition
seeking relief for itself under the United States Bankruptcy Code, as now
constituted or hereafter amended, or file an answer consenting to, admitting the
material allegations of, or otherwise not controverting, or fail timely to
controvert a petition filed against it seeking relief under the United States
Bankruptcy Code, as now constituted or hereafter amended; or (ii) file such a
petition or answer with respect to relief under the provisions of any other now
existing or future applicable bankruptcy, insolvency or similar law of the
United States of America or any state thereof providing for the reorganization,
winding-up or liquidation of corporations or an arrangement, composition,
extension or adjustment with creditors, or
(g) An order for relief shall be entered against the Company or any of the
other Companies under the United States Bankruptcy Code, as now constituted or
hereafter amended, which order is not stayed; or upon the entry of an order,
judgment or decree by operation of law or by any court having jurisdiction in
the premises which is not stayed, adjudging it bankrupt or insolvent under, or
ordering relief against it under, or approving a properly filed petition seeking
relief against it under the provisions of any other now existing or future
applicable bankruptcy, insolvency or other similar law of the United States or
any state thereof providing for the reorganization, winding-up or liquidation of
corporations or any arrangement, composition, extension or adjustment with
creditors, or appointing a receiver, liquidator, assignee, sequestrator, trustee
or custodian of the Company or of any substantial part of its property, or
ordering the reorganization, winding-up or liquidation of its affairs, or upon
the expiration of sixty (60) days after the filing of any involuntary petition
against the Company seeking any of the relief specified in Sections 9.01(f) and
(g) hereof without the petition being dismissed prior to that time, or
(h) The Company or any of the other Companies shall: (i) make a general
assignment for the benefit of creditors; (ii) consent to the appointment of or
taking possession by a receiver,
26
<PAGE>
liquidator, assignee, sequestrator, trustee or custodian of all or a substantial
part of its property; (iii) admit its insolvency or inability to pay its debts
generally as such debts become due; (iv) fail generally to pay its debts as such
debts become due; or (v) take any action in furtherance of its dissolution or
liquidation; or
(i) Default by the Company or any of the other Companies under any
covenant, provision or condition contained in any material ($100,000 or more)
bond, debenture, note or other evidence of Indebtedness for borrowed money
(other than the Note) or under any indenture or other instrument under which any
such evidence of Indebtedness has been issued or by which it is governed and the
expiration of the applicable period of grace, if any, specified in such evidence
of Indebtedness, indenture or other instrument; provided, however, that if such
-----------------
default under such evidence of Indebtedness, indenture or other instrument shall
be timely cured, or waived by the holder of such Indebtedness, in each case as
may be permitted by such evidence of Indebtedness, indenture or other
instrument, then the Event of Default hereunder by reason of such default shall
be deemed likewise to have been thereupon cured or waived; or
(j) A judgment for the payment of money in excess of $200,000 shall be
rendered against the Company or any of the other Companies and continue
unsatisfied for a period of thirty (30) days without a stay of execution; or
(k) Any Reportable Event, which Churchill determines in good faith might
constitute grounds for the termination of any Plan or for the appointment by the
appropriate United States District Court of a trustee to administer any Plan,
shall have occurred and be continuing thirty (30) days after written notice to
such effect shall have been given to the Company by Churchill; or any Plan shall
have been terminated, or a trustee shall have been appointed by an appropriate
United States District Court to administer any Plan, or the Pension Benefit
Guaranty Corporation shall have instituted proceedings to terminate any Plan or
to appoint a trustee to administer any Plan; or
(l) Any audit report referred to in Section 6.02 shall contain a
qualification as to scope or continuance as a going concern.
9.02 Remedies. Upon the occurrence of any Event of Default, Churchill or
--------
the holder of the Note shall be entitled to:
(a) declare all indebtedness evidenced by the Note to be immediately due
and payable, and upon such acceleration the Note shall thereupon become
forthwith due and payable without any presentment, demand, protest or other
notice of any kind, all of which are hereby expressly waived;
(b) apply any and all amounts owed to the Company by Churchill or by the
holder of the Note to the payment of the Note;
(c) exercise and enforce its rights and remedies under this Agreement or
any of the Ancillary Agreements; and
27
<PAGE>
(d) proceed to protect and enforce its rights under applicable law;
provided, that if a petition is filed by or against the Company or any of the
- --------
other Companies under the United States Bankruptcy Code, the entire unpaid
principal amount of the Note then outstanding, all interest accrued and unpaid
thereon, and all other amounts payable under this Agreement shall be immediately
due and payable without presentment, demand, protest or notice of any kind.
ARTICLE X
MISCELLANEOUS
10.01 Survival of Representations and Warranties. The representations,
------------------------------------------
warranties, covenants and agreements set forth in this Agreement (including the
Disclosure Schedule), the Ancillary Agreements or in any writing delivered by or
on behalf of a party to this Agreement to another party to this Agreement in
connection with this Agreement, will survive the Closing Date and the
consummation of the transactions contemplated hereby and shall not be affected
by any examination or knowledge, or the acceptance of any certificate or
opinion.
10.02 Expenses. (a) At the Closing, or immediately upon failure by the
--------
Company to consummate this Agreement, the Company shall pay the reasonable
legal, accounting, environmental and other out-of-pocket expenses of Churchill
(and $5,000 for reimbursement of Churchill's internal administrative and
processing expenses) relating to the Company, this Agreement, and the Ancillary
Agreements. The foregoing amounts shall be paid to the extent possible from the
work deposits made by the Company pursuant to proposal letter and commitment
letter previously issued by Churchill to the Company, and the balance shall be
paid as provided in Section 2.01.
(b) The Company shall pay all reasonable out-of-pocket expenses incurred by
Churchill after the Closing in connection with monitoring and of the Companies,
the administration, exercise of Churchill's rights under or enforcement of this
Agreement, the Ancillary Agreements or any of the instruments and documents
delivered and to be delivered hereunder or thereunder, including all reasonable
fees and out-of-pocket expenses of legal counsel retained by Churchill with
respect thereto. The Company shall also promptly reimburse Churchill for all
costs and expenses, as they are incurred, associated with any amendment, waiver,
extension or restructuring of the loans or agreements or covenants contemplated
herein.
10.03 Governing Law. This Agreement and the Ancillary Agreements shall
-------------
be construed and enforced in accordance with the substantive laws of the State
of Minnesota.
10.04 Notices. All notices, consents, requests, instructions,
-------
approvals and other communications herein required shall be validly given, made
or served if in writing and delivered personally, sent by certified mail,
postage prepaid, or by a nationally recognized overnight delivery service,
addressed as follows:
28
<PAGE>
(a) If to Churchill, addressed to Churchill at:
Churchill ESOP Capital Partners
Attn: David Wakefield or Robert Davis
2400 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402-2435
with a copy to:
Lindquist & Vennum P.L.L.P.
Attn: Richard D. McNeil. Esq.
4200 IDS Center
Minneapolis, Minnesota 55402
(b) If to the Company, addressed to the Company at:
C.D. Smith Drug Company
Attn: Robert C. Farley
3907 South 48th Terrace
St. Joseph, Missouri 64503
with a copy to:
Blackwell Sanders Matheny Weary Lombardi LLP
Attn: Merry Evans, Esq.
Two Pershing Square
2300 Main Street, Suite 1100
Kansas City, Missouri 64108
or such other address as shall be furnished in writing by either party to the
other parties.
10.05 Entire Agreement. This Agreement and the Ancillary Agreements,
----------------
including the other documents referred to herein, contain the entire
understanding of the parties hereto with respect to the subject matter contained
herein. There are no restrictions, promises, warranties, covenants, or
undertakings, other than those expressly provided for herein. This Agreement
and the Ancillary Agreements supersede all prior agreements and undertakings
between the parties with respect to such subject matter. No waiver,
modification or amendment of any provision of this Agreement, or any consent by
Churchill, shall be effective unless specifically made in writing and duly
signed by the party to be bound thereby.
10.06 Severability of Invalid Provision. If any one or more covenants
---------------------------------
or agreements provided in this Agreement should be contrary to law, then such
covenant or covenants, agreement
29
<PAGE>
or agreements shall be null and void and shall in no way affect the validity of
this Agreement, which shall otherwise be fully effective and enforceable.
10.07 Successors and Assigns. This Agreement and the various
----------------------
instruments and agreements delivered in connection with the consummation of this
Agreement shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns.
10.08 Rules of Construction. Section headings contained in this
---------------------
Agreement are inserted only as a matter of convenience and in no way define,
limit, extend or describe the scope of this Agreement or the intent of any of
the provisions hereof. This Agreement and the Ancillary Agreements have been
negotiated on behalf of the parties with the advice of legal counsel and no
general rule of contract construction requiring an agreement to be more
stringently construed against the drafter or proponent of any particular
provision shall be applied in the construction or interpretation of this
Agreement or the Ancillary Agreements.
10.09 Counterparts. This Agreement may be executed in one or more
------------
counterparts, and shall become effective when one or more counterparts have been
signed by each of the parties.
10.10 No Waiver; Cumulative Remedies. No failure or delay on the part
------------------------------
of Churchill in exercising any right, power or remedy hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any such right,
power or remedy preclude any other or further exercise thereof or the exercise
of any other right, power or remedy hereunder. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
10.11 Non-exclusivity. The rights, remedies, powers and privileges
---------------
provided in this Agreement are cumulative and not exclusive and shall be in
addition to any and all other rights, remedies, powers and privileges granted by
law, rule, regulation or instrument.
10.12 Press Releases. The Company agrees not to issue any press
--------------
release or make any general public announcement or statement with respect to the
execution of this Agreement or the transactions hereunder unless the same,
including the content thereof, shall be approved by Churchill.
10.13 Time is of the Essence. Time is of the essence as to the payment
----------------------
and performance of all obligations and agreements of the Company hereunder.
10.14 Consent to Jurisdiction; Jury Waiver. AT THE OPTION OF
------------------------------------
CHURCHILL, THIS AGREEMENT, THE NOTE AND THE OTHER ANCILLARY AGREEMENTS MAY BE
ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN MINNEAPOLIS OR
ST. PAUL, MINNESOTA; AND THE COMPANY CONSENTS TO THE JURISDICTION AND VENUE OF
ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT VENUE IN SUCH FORUMS IS NOT
CONVENIENT. IN THE EVENT THE COMPANY COMMENCES ANY ACTION IN ANOTHER
JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR
INDIRECTLY FROM THE
30
<PAGE>
RELATIONSHIP CREATED BY THIS AGREEMENT OR THE ANCILLARY AGREEMENTS, OR ALLEGING
ANY BREACH OF THIS AGREEMENT OR ANY OF THE ANCILLARY AGREEMENTS, CHURCHILL AT
ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE
JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE. THE COMPANY HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION BASED ON OR PERTAINING TO THIS AGREEMENT OR ANY OF THE ANCILLARY
AGREEMENTS.
IN WITNESS WHEREOF, this Agreement has been duly executed by the parties
hereto on the day and year first above written.
CHURCHILL ESOP CAPITAL PARTNERS,
A MINNESOTA LIMITED PARTNERSHIP
By: Churchill Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner
By: Churchill Capital, Inc.
Its: General Partner
By /s/ David Wakefield
--------------------
A Principal
C.D. SMITH DRUG COMPANY
By /s/ Robert C. Farley
--------------------------
Robert C. Farley, Chairman
31
<PAGE>
Exhibit 4.3
WARRANT AGREEMENT
Between
CHURCHILL ESOP CAPITAL PARTNERS,
A MINNESOTA LIMITED PARTNERSHIP
And
C.D. SMITH DRUG COMPANY
-----------------------
Dated as of October 3, 1997
- ------------------------------------------------------------------------------
THIS AGREEMENT AND THE RIGHTS CONFERRED HEREUNDER HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE SECURITIES LAW.
THE RIGHTS CONFERRED HEREUNDER MAY BE OFFERED, SOLD OR TRANSFERRED ONLY IN
COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY APPLICABLE STATE
SECURITIES LAWS.
<PAGE>
TABLE OF CONTENTS
Page
----
RECITALS .................................................................... 1
I DEFINITIONS ............................................................... 1
Section 1.01 Defined Terms ......................................... 1
II THE WARRANT .............................................................. 5
Section 2.01 Warrant ............................................... 5
III REPRESENTATIONS AND WARRANTIES .......................................... 5
Section 3.01 Representations and Warranties of the Company ......... 5
IV COVENANTS ................................................................ 7
Section 4.01 Covenants of the Company .............................. 7
Section 4.02 Indemnification ....................................... 8
Section 4.03 Listing on Securities Exchange ........................ 9
Section 4.04 No Parity or Superior Rights .......................... 9
Section 4.05 Dividends and Distributions ........................... 9
Section 4.06 Repurchases and Redemptions ........................... 9
Section 4.07 Preemptive Right ..................................... 10
Section 4.08 Exercise Upon Qualified IOP .......................... 10
V ANTIDILUTION ............................................................. 10
Section 5.01 Initial Exercise Quantity, Adjustment for Initial
Errors ............................................... 10
Section 5.02 Notice to Warrant Holders of Adjustment Transactions . 10
Section 5.03 Adjustment Transactions Barred During Defaults ....... 11
Section 5.04 Adjustment of Exercise Price Upon Occurrence of an
Adjustment Transaction ............................... 11
Section 5.05 Adjustment of Exercise Quantity ...................... 11
Section 5.06 Reduction in Exercise Quantity for Certain Events
Within 18 Months ..................................... 11
Section 5.07 Protection of Warrant Holder Rights .................. 11
Section 5.08 Accountant's Certificate as to Adjustment
Computation .......................................... 12
VI REGISTRATION RIGHTS ..................................................... 12
Section 6.01 "Piggyback" Registration ............................. 12
Section 6.02 Required Registration ................................ 13
Section 6.03 Effectiveness ........................................ 14
Section 6.04 Further Obligations of the Company ................... 14
Section 6.05 Expenses ............................................. 14
Section 6.06 Transfer of Registration Rights ...................... 15
i
<PAGE>
Section 6.07 Termination of Registration Rights ................... 15
VII PUT AND CALL PROVISIONS; SUBSEQUENT EVENT ADJUSTMENT PAYMENT ......... 15
Section 7.01 Put Right of Holders of the Warrant Securities ....... 15
Section 7.02 Call Right of Company ................................ 16
Section 7.03 Calculation of Subsequent Event Adjustment Payment ... 17
Section 7.04 Termination of Put and Call Rights ................... 17
VIII RESTRICTIONS ON TRANSFER OF WARRANTS AND WARRANT SECURITIES .......... 18
Section 8.01 Restrictions on Transfer ............................. 18
Section 8.02 Bring Along Rights ................................... 18
Section 8.03 Legend on Warrant and Certificates ................... 19
Section 8.04 Termination of Restrictions .......................... 19
Section 8.05 Rule 144 and Rule 144A ............................... 19
IX MISCELLANEOUS ........................................................ 20
Section 9.01 Term ................................................. 20
Section 9.02 No Waiver Under Other Agreements ..................... 20
Section 9.03 Reliance ............................................. 20
Section 9.04 Notice ............................................... 20
Section 9.05 Enforcement .......................................... 21
Section 9.06 Equitable Relief ..................................... 22
Section 9.07 Interpretation, Headings, Severability ............... 22
Section 9.08 Survival of Covenants ................................ 22
Section 9.09 No Required Exercise ................................. 22
Section 9.10 Binding Effect ....................................... 23
Section 9.11 No Waiver by Action .................................. 23
Section 9.12 Waiver, Modification and Amendment ................... 23
Section 9.13 Entire Agreement ..................................... 23
Section 9.14 Governing Law; Consent to Jurisdiction; Waiver of
Jury Trial ........................................... 23
SCHEDULES
- ---------
I. List of Holders of Shares, Options and Rights
II. Agreements
ANNEXES
- -------
A. Form of Warrant
B. Notice of Put
C. Notice of Call
ii
<PAGE>
WARRANT AGREEMENT
-----------------
THIS WARRANT AGREEMENT (the "Agreement"), dated as of October 3, 1997,
between CHURCHILL ESOP CAPITAL PARTNERS, A MINNESOTA LIMITED PARTNERSHIP
("Churchill"), and C.D. SMITH DRUG COMPANY, a Missouri corporation (the
"Company").
WHEREAS, Churchill and the Company have entered into a Note Purchase
Agreement of even date hereof (the "Note Purchase Agreement") pursuant to which
Churchill has agreed to purchase the Company's Senior Subordinated Note in the
principal amount of $12,000,000 (the "Note") and the Company has agreed to grant
to Churchill a warrant in the form attached hereto as Annex A (the "Warrant") to
acquire shares of the Company's Common Stock (the "Common Stock"), and this
Agreement sets forth certain rights and obligations of Churchill and the Company
with respect to the Warrant;
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth below, the parties hereto agree as follows:
I. DEFINITIONS
-----------
Section 1.01 Defined Terms. As used in this Agreement, the following
-------------
capitalized terms shall have the meanings stated below, which shall be
applicable equally to the singular and plural forms of the terms so defined.
Capitalized terms used and not otherwise defined in this Agreement shall have
the meanings provided in the Note Purchase Agreement.
"Adjusted EBITDA" shall mean, for any period in question, the Company's
---------------
consolidated earnings before interest, federal, state and local income taxes,
depreciation and amortization expenses, contributions and dividends paid to the
Debtor's Employee Stock Ownership Plan, extraordinary items and executive
management bonuses for such fiscal year, as determined by the independent
certified public accounting firm serving the Company as of the date such
determination is made, in accordance with GAAP, applied on a basis consistent
with that used in preceding fiscal years.
"Affiliate" shall have the meaning provided in the Note Purchase Agreement.
---------
"Adjustment Transaction" shall mean any of (i) the issuance or sale of
----------------------
Common Stock or Common Stock Equivalents in addition to the number of shares
outstanding as of the date hereof as disclosed on Schedule I, except for (1) the
issuance after the date of this Agreement to directors, officers or other
employees of the Company or one of its Subsidiaries of options or warrants to
purchase not more than an aggregate of 5,875 shares of Common Stock for an
exercise price of not less than Fair Value per share at the date of grant or (2)
the sale by the Company for cash of Common Stock to any unrelated third party
for not less than Fair Value, (ii) the declaration of a Dividend upon, or
distribution in respect of, any of the Company's capital stock, payable in
Common Stock or Common Stock Equivalents, (iii) the subdivision or combination
by the Company of its outstanding
<PAGE>
Common Stock into a larger or smaller number of shares of Common Stock, as the
case may be, (iv) any capital reorganization or reclassification of the capital
stock of the Company, (v) the consolidation or merger of the Company or any
Subsidiary with or into another corporation, (vi) the sale or transfer or other
disposition of the property of the Company or any Subsidiary as (or
substantially as) an entirety, (vii) the dissolution, liquidation or winding up
of the Company or (viii) any event as to which the foregoing clauses are not
strictly applicable but the failure to make an adjustment in the Exercise Price
hereunder would not fairly protect the purchase rights, without dilution,
represented by the Warrants.
"Agreement" shall mean this Warrant Agreement, as the same may be
---------
supplemented, modified, amended or restated from time to time in the manner
provided herein.
"Business Day" shall mean any day except a Saturday, Sunday or other day on
------------
which commercial banks in the State of Minnesota are authorized or required by
law to close.
"Call Date" shall have the meaning assigned to it in Section 7.02(a) hereof.
---------
"Call Exercise Price" shall have the meaning assigned to it in Section 7.02(b)
-------------------
hereof.
"Call Period" means the period commencing on the sixth anniversary of the
-----------
Closing Date and terminating upon the expiration of the Exercise Period.
"Call Repurchase Date" shall have the meaning assigned to it in Section
--------------------
7.02(c) hereof.
"Call Right" shall have the meaning assigned to it in Section 7.02 hereof.
----------
"Closing Date" shall mean October 3, 1997, or such other date as may be agreed
------------
to by the parties hereto.
"Commission" shall mean the U.S. Securities and Exchange Commission.
----------
"Common Equity" shall mean the total equity interest in the Company
-------------
represented by the Common Stock of the Company and shall include Common Equity
resulting from any reorganization, reclassification of capital stock or
recapitalization of the Company or similar event.
"Common Stock Equivalents" shall mean all options, warrants (including the
------------------------
Warrant), convertible securities, securities and other rights (in each case
whether now existing or hereafter issued or arising) to acquire from Company
shares of Common Stock (without regard to whether such options, warrants,
convertible securities, securities and other rights are then exchangeable,
exercisable or convertible in full, in part or at all).
"Current Exercise Price" shall mean the Exercise Price, as the same may be
----------------------
adjusted from time to time pursuant to the terms of the Warrants and this
Agreement, in effect at any time.
2
<PAGE>
"Current Exercise Price" shall mean the Exercise Price, as the same may be
----------------------
adjusted from time to time pursuant to the terms of the Warrants and this
Agreement, in effect at any time.
"Dividend" means, as to any Person, any declaration or payment of any dividend
--------
(other than a stock dividend) on, or the making of any pro rata distribution,
loan, advance, or investment to or in any holder of, any shares of capital stock
of such Person.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations promulgated thereunder, and any successor provisions
thereto.
"Exercise Period" means the period commencing on the Closing Date and
---------------
terminating on the tenth anniversary of the Closing Date or, in the event the
tenth anniversary of the Closing is not a Business Day, the next succeeding
Business Day.
"Exercise Price" shall mean $.02 per share, as adjusted from time to time
--------------
pursuant to the terms of the Warrant and this Agreement.
"Exercise Quantity" shall mean the number of shares of Common Stock,
-----------------
determined from time to time, taking into account all shares of Common Stock
theretofore issued upon exercise of the Warrant, required to be issued by the
Company upon exercise of the Warrant. Exercise Quantity shall mean initially
24,260 shares of Common Stock, and shall be adjusted from time to time pursuant
to the provisions of the Warrant and this Agreement.
"Fair Value" means the fair value of the Company (or other security, property,
----------
assets, business or entity in question) determined as follows: (i) by mutual
agreement reached by the Holder and the Company or, (ii) in the event that the
Holder and the Company are unable to agree as to Fair Value, as determined by an
independent professional appraiser mutually selected by the Holder and the
Company, or (iii) in the event that the Holder and the Company are unable to
agree as to an appraiser, then the Holder and the Company shall each select an
independent professional appraiser who shall each conduct an appraisal and
jointly select a third independent professional appraiser to conduct a third
appraisal, and the Fair Value shall be the average of the two closer appraisals.
In making any of the appraisals referred to above, no appraiser shall apply any
discounts for illiquidity, lack of control or any other similar factors. All
costs associated with each such appraisal shall be borne by the Company.
Notwithstanding the foregoing, if the Company's Common Stock is listed and
trading on a national stock exchange or on the NASDAQ system and there exists
and is continuing for at least thirty (30) days a public float having a minimum
value of $20 million, Fair Value means, with reference to the Warrant Securities
on a per share basis, the average closing sale price per share of the Common
Stock for the ten trading days immediately preceding any date of determination.
"Holder" shall mean the Person(s) then registered as the owner of the Warrant
------
or Warrant Securities, as the case may be, on the books and records of the
Company.
3
<PAGE>
"Holders of Registrable Securities" shall have the meaning assigned to it in
---------------------------------
Section 6.01 hereof.
"Initial Public Offering" shall mean the Company's initial public offering of
-----------------------
its Common Stock for cash pursuant to a registration statement under the
Securities Act.
"Note Purchase Agreement" shall mean the Note Purchase Agreement, dated as of
-----------------------
the date hereof, between Churchill and the Company, as supplemented, modified,
amended or restated from time to time in the manner provided therein.
"Notice of Call" shall have the meaning assigned to it in Section 7.02(a)
--------------
hereof.
"Notice of Put" shall have the meaning assigned to it in Section 7.01(a)
-------------
hereof.
"Obligations" shall have the meaning assigned to it in the Note Purchase
-----------
Agreement.
"Original Issuance Date" shall mean the Closing Date, the date of the issuance
----------------------
of the Warrant.
"Person" shall have the meaning assigned to it in the Note Purchase Agreement.
------
"Put Date" shall have the meaning assigned to it in Section 7.01(a) hereof.
--------
"Put Event" shall mean, with respect to the Warrant or Warrant Securities held
---------
by any Holder, the earliest to occur of (i) the fifth anniversary of the
Closing; or (ii) a payment Event of Default under the Note Purchase Agreement;
or (iii) a violation of the affirmative and negative covenants therein which are
referenced in Section 4.01(g) of this Agreement which covenant violation remains
uncured for a period of thirty (30) days and which results in Churchill
accelerating the indebtedness under the Note Purchase Agreement.
"Put Exercise Price" shall have the meaning assigned to it in Section 7.01(c)
------------------
hereof.
"Put Repurchase Date" shall have the meaning assigned to it in Section 7.01(d)
-------------------
hereof.
"Put Right" shall have the meaning assigned to it in Section 7.01 hereof.
---------
"Registrable Securities" shall have the meaning assigned to it in Section 6.01
----------------------
hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, and the
--------------
rules and regulations promulgated thereunder, and any successor provisions
thereto.
"Senior Indebtedness" shall have the meaning assigned to it in the Note
-------------------
Purchase Agreement.
"Subsequent Event" shall mean the earliest to occur of (i) an Initial Public
----------------
Offering; (ii) the sale (in a transaction involving the transfer, assignment or
other disposal of the Company's capital stock for value, but not including any
pledge or other hypothecation of such capital stock) of more
4
<PAGE>
than 33% of the outstanding capital stock of the Company to any Person, other
than an existing shareholder of the Company as of the close of business on the
Call Repurchase Date, any "affiliate" of such shareholder (as such term is
defined in Rule l2b-2 of the rules and regulations promulgated under the
Exchange Act, as in effect from time to time) or any member of the immediate
family of such shareholder; (iii) the sale of all or substantially all of the
assets of the Company or any Subsidiary; (iv) a merger, consolidation or other
business combination involving the Company or any Subsidiary and another entity,
in which either the Company or any Subsidiary or such other entity or other
newly created entity is the surviving corporation; (v) the sale (in a
transaction involving the transfer, assignment or other disposal of the owning
entity's capital stock for value, but not including any pledge or other
hypothecation of such capital stock) of more than 50% of the outstanding capital
stock of a Subsidiary to any Person; provided, that the events referred to in
--------
(iii), (iv) and (v) shall constitute a Subsequent Event only if the sale or
merger involves a business having revenues of $80 million or more.
"Subsequent Event Adjustment Payment" shall have the meaning assigned to it in
-----------------------------------
Section 7.03 hereof.
"Subsequent Event Fair Value" shall have the meaning assigned to it in Section
---------------------------
7.03 hereof.
"Subsequent Event Notice" shall have the meaning assigned to it in Section
-----------------------
7.03 hereof.
"Subsidiary" shall mean any corporation as to which an aggregate of more than
----------
20% of the outstanding voting stock is at any time directly or indirectly owned
by the Company or by one or more of its Subsidiaries.
"Warrant Securities" shall mean the shares of Common Stock (or other
------------------
securities representing Common Stock) purchasable or purchased from time to time
under the Warrant or acquired upon any transfer of any such shares, together
with all additional securities received in payment of dividends or distributions
on or splits of those securities or received as a result of the adjustments
provided for in Article V hereof.
II. THE WARRANT
-----------
Section 2.01 Warrant. On the Closing Date the Company will grant to
-------
Churchill, in consideration for the purchase of the Note, a Warrant in the form
attached hereto as Annex A. Churchill and any subsequent Holders of the Warrant
and of Warrant Securities shall have the rights and obligations provided for in
the form of Warrant and in this Agreement. The representations and warranties
by Churchill in Sections 4.01, 4.02 and 4.03 of the Note Purchase Agreement are
hereby incorporated by reference.
III. REPRESENTATIONS AND WARRANTIES
------------------------------
Section 3.01 Representations and Warranties of the Company. The Company
---------------------------------------------
hereby represents and warrants as follows:
5
<PAGE>
(a) The execution and delivery of this Agreement and the Warrant have been
duly and properly authorized by all requisite corporate action of the Company,
its board of directors and shareholders, and no consent of any other Person is
required as a prerequisite to the validity and enforceability of this Agreement
and the Warrant that has not been obtained. The Company has the full legal
right, power and authority to execute and deliver this Agreement and the Warrant
and to perform its obligations hereunder and thereunder.
(b) The Company is not a party to or otherwise subject to any contract or
agreement which restricts or otherwise affects its right or ability to execute
and deliver this Agreement or the Warrant or to perform any obligation hereunder
or thereunder (including, without limitation, issuance of the Warrant
Securities). Neither the execution or delivery of this Agreement or the
Warrant, nor compliance therewith (including, without limitation, issuance of
the Warrant Securities) and honoring of the Company's put obligations hereunder,
will conflict with, or result in a breach of the terms, conditions or provisions
of, or constitute a default under, or result in any violation of, or result in
the creation of any lien upon any properties of the Company under, or require
any consent, approval, or other action by, notice to or filing with any court or
governmental body pursuant to, the Articles of Incorporation or Bylaws of the
Company, any award of any arbitrator, or any agreement, instrument or law to
which the Company is subject or by which it is bound.
(c) As of the date hereof, the authorized capitalization of the Company
consists of 200,000 shares of Common Stock, of which 117,471 shares are
outstanding. All such outstanding shares are validly issued, fully paid and
nonassessable and held of record and beneficially owned by those shareholders
identified on Schedule I hereto. Except as set forth on Schedule I hereto,
there are no rights, options or warrants of any kind outstanding to purchase or
acquire Common Stock or any other ownership interest in the Company, nor are
there other securities, obligations, agreements or rights of any kind
outstanding which are exercisable for, convertible into or exchangeable for any
Common Stock or any other ownership interests in the Company or under the terms
of which the parties thereto have the right to purchase or acquire Common Stock
or Common Stock Equivalents. The issuance by the Company of the Warrant and the
Warrant Securities is not subject to any preemptive or similar right of any
Person pursuant to statute, contract or understanding.
(d) Except as set forth on Schedule II and the repurchase obligations of the
Company ESOP, neither the Company nor any of its Subsidiaries is or will be
subject to any obligation to repurchase or otherwise acquire or retire any
shares of capital stock except as provided in this Agreement. Except as set
forth on Schedule II, there are no commitments of the Company to issue any
shares, warrants, options, or other such fights or to distribute to holders of
any class of its capital stock any evidences of indebtedness or assets, or to
pay any Dividend or make any other distribution in respect thereof.
(e) Except as set forth in Article VI hereof, no Person has a contractual
right to demand or other right to cause the Company to file any registration
statement under the Securities Act relating to any securities of the Company or
any right to participate in any offering of the Company's
6
<PAGE>
securities. Except as set forth on Schedule II hereto, there are also
no agreements between or among the Company's shareholders or buy-sell agreements
of any kind affecting the Company's securities.
(f) Neither the Company nor any Person authorized or employed by the Company
as agent, broker, dealer or otherwise, has offered the Warrant or the Warrant
Securities for sale to, or solicited any offers to buy the same from any Persons
other than Churchill, and neither the Company nor any Person acting on its
behalf has taken or will take any action which might subject the offering,
issuance or sale of the Warrant or the Warrant Securities to registration under
the Securities Act or violate the provisions of any securities or blue sky law
of any applicable jurisdiction.
(g) Assuming that the representations and warranties of Churchill contained in
Section 3.02 are true and correct, the Warrant is, and the Warrant Securities
will be, issued by the Company to Churchill in a transaction exempt from
registration and qualification under the applicable federal and state securities
laws.
(h) The representations and warranties of the Company contained in the Note
Purchase Agreement are true and correct as of the date hereof, and are hereby
incorporated by reference for the benefit of Churchill and the Holders of the
Warrant and the Warrant Securities to the same extent as if set forth in full
herein, and such representations and warranties shall survive the termination or
expiration of the Note Purchase Agreement and the satisfaction of any or all of
the Obligations thereunder.
IV. COVENANTS
---------
Section 4.01 Covenants of the Company. The Company hereby covenants and
------------------------
agrees that, during the term of this Agreement, unless Churchill (if it is a
Holder of any of the Warrant or any Warrant Securities) and the Holders of the
Warrant exercisable for a majority of the unissued underlying Warrant Securities
agree otherwise in writing:
(a) Each of the Warrant Securities issued and delivered upon the exercise of
the Warrant will be duly and validly authorized and issued, will be fully paid
and nonassessable, and will not be subject to any unpaid tax or any lien,
whether respecting their issuance to and purchase by the Holder of the Warrant
or otherwise.
(b) The Company shall reserve and at all times keep available for issuance an
authorized number of shares of Warrant Securities sufficient to permit the full
and immediate exercise of the Warrant and the full and immediate exercise,
exchange and conversion of all other securities, options, warrants and other
rights issued or granted by the Company.
(c) The Company shall within 90 days after the Closing Date amend its articles
of incorporation to reduce the par value of its Common Stock to be less than the
Exercise Price and thereafter shall take all such actions as may be necessary or
appropriate to ensure that the par value of the Common Stock does not exceed the
Exercise Price.
7
<PAGE>
(d) The Company shall not create or permit the existence of any class of
capital stock having voting rights, liquidation rights, Dividend rights or other
rights or preferences senior or superior to Common Stock.
(e) The Company shall deliver to the Holder of the Warrant and the Warrant
Securities copies of the reports, notices and financial statements referred to
in Section 6.02 of the Note Purchase Agreement at the times such therein
provided.
(f) The Company shall cooperate with the Holder of the Warrant and the Warrant
Securities in supplying such information as may be necessary for the Holder to
complete and file any information or other reporting forms from time to time
required by the Commission, relevant state authorities or any securities
exchange, securities quotation system or other self-regulatory organization,
including (without limitation) information pertaining to or required for the
availability of any exemption from the securities laws for the sale, transfer or
other disposition of the Warrant or any of the Warrant Securities.
(g) The affirmative and negative covenants contained in Articles VI and VII of
the Note Purchase Agreement are hereby incorporated by reference for the benefit
of Churchill and the Holders of the Warrant and the Warrant Securities to the
same extent as if set forth in full herein, and such covenants shall survive the
termination or expiration of the Note Purchase Agreement and the satisfaction of
any or all of the Obligations thereunder.
Section 4.02 Indemnification.
---------------
(a) The Company agrees that Churchill and each other Holder of the Warrant or
any Warrant Securities purchased hereunder, any underwriter(s), and their
respective directors, officers, employees, attorneys and agents as well as each
other Person (if any) controlling any of the foregoing Persons within the
meaning of Section 15 of the Securities Act, or Section 20 of the Exchange Act,
shall not incur any liability for acts and omissions arising out of or related
directly or indirectly to the Warrant, the Warrant Securities, this Agreement,
any registration statement or prospectus or any misstatement or omission of a
material fact therein (except for misstatements or omissions based on
information provided by such Person to the Company for use in such registration
statement or prospectus); and the Company hereby expressly waives any and all
claims and actions which it now has or may hereafter at any time have against
Churchill and each other Holder of the Warrant or underlying Warrant Securities,
and their respective directors, officers, employees, attorneys and agents,
arising out of or related directly or indirectly to any and all of the foregoing
acts, omissions and circumstances.
(b) The Company agrees to defend, indemnify and hold harmless Churchill and
each other Holder of the Warrant, this Agreement, or any Warrant Security
purchased hereunder, any underwriter(s), and their respective directors,
officers, employees, attorneys and agents as well as each other Person (if any)
controlling any of the foregoing Persons within the meaning of Section 15 of the
Securities Act, or Section 20 of the Exchange Act, from and against any and all
claims,
8
<PAGE>
liabilities, losses and expenses (including, without limitation, the
disbursements, expenses and fees of their respective attorneys) that may be
imposed upon, incurred by, or asserted against any of them, any of their
respective directors, officers, employees, attorneys and agents, or any such
control Person, arising out of or related directly or indirectly to the Warrant,
the Warrant Securities, any registration statement or prospectus, or any
misstatement or omission of a material fact therein, except such as are
occasioned by the indemnified Person's own gross negligence or willful
misconduct as finally determined pursuant to applicable law by a governmental
authority having jurisdiction. Promptly after receipt of notice of the
commencement of any action in respect of which indemnity may be sought against
the Company, the Company shall assume the defense of such action (including the
employment of counsel, who shall be counsel reasonably satisfactory to the party
seeking indemnity hereunder) and the payment of expenses insofar as such action
shall relate to any alleged liability in respect of which indemnity may be
sought against the Company. The Company shall not, except with the approval of
each party being indemnified under this Section 4.02, consent to entry of any
judgment or enter into any settlement that does not include as an unconditional
term thereof the giving by the claimant or plaintiff to the parties being so
indemnified of a release from all liability in respect to such claim or
litigation.
Section 4.03 Listing on Securities Exchange. If the Company shall list any
------------------------------
shares of Common Stock on any securities exchange it will, at its expense, list
thereon, maintain and increase when necessary such listing of all outstanding
Warrant Securities. The Company will also so list on each securities exchange,
and will maintain such listing of, any other securities which the holder of the
Warrant shall be entitled to receive upon the exercise thereof if at the time
any securities of the same class shall be listed on such securities exchange by
the Company.
Section 4.04 No Parity or Superior Rights. The Company will not grant
----------------------------
registration rights, rights to receive securities, put and call rights, or any
other rights to any other holder of its securities that are equal or superior to
the rights grant hereunder.
Section 4.05 Dividends and Distributions. The Company shall not declare,
---------------------------
make or pay any dividend or other distribution, whether in cash, securities or
other property, with respect to its Common Stock except that cash dividends
shall be permitted so long as (i) such additional dividends are not prohibited
by any contractual obligation of the Company, and (ii) a cash payment is made to
the Holder of the Warrant equal to the product of (A) the amount of cash plus
the Fair Value of any property or securities distributed with respect to each
outstanding share of Common Stock, multiplied by (B) the number of shares of
Common Stock then issuable upon exercise of the Warrant.
Section 4.06 Repurchases and Redemptions. Except for repurchases by the
---------------------------
Company required by the terms of the Company ESOP or ERISA, and repurchases of
Warrant Securities upon the exercise of the Put Rights or Call Rights herein
contained, the Company shall not repurchase or redeem any of its equity
securities or any securities convertible into or exchangeable for such equity
securities, or any warrants or other rights to purchase such equity securities
without the consent of the Holder.
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<PAGE>
Section 4.07 Preemptive Right. Except for the issuance after the date of
----------------
this Agreement to directors, officers or other employees of the Company or one
of its Subsidiaries of options or warrants to purchase not more than an
aggregate of 5,875 shares of Common Stock for an exercise price of not less than
Fair Value per share at the date of grant, in the event that at any time after
the date hereof the Company proposes to issue Common Stock or Common Stock
Equivalents, the Company shall give written notice to the Holders describing
such proposal at least 30 days in advance of such issuance. Each Holder of
Warrant or Warrant Securities shall then have the right, exercisable by written
notice given to the Company no later than 20 days after receipt of the Company's
notice, to purchase his pro rata share of the Common Stock or Common Stock
Equivalents proposed to be issued by the Company on the same price and terms as
are proposed by the Company.
Section 4.08 Exercise Upon Qualified IPO. Each Warrant shall be subject to
---------------------------
the requirement that in the event the Company closes an Initial Public Offering
underwritten on a firm commitment basis by an underwriter, or group or
underwriters which is represented by an underwriter or underwriters, which is a
member of the New York Stock Exchange and which results in gross proceeds to the
Company of at least $20 million, the Holder of any outstanding Warrant shall
fully exercise, as of the closing of such Initial Public Offering, any Warrant
as to which the Holder has not already delivered a Notice of Put to exercise the
Put Right pertaining to that Warrant.
V. ANTIDILUTION
------------
Section 5.01 Initial Exercise Quantity; Adjustment for Initial Errors. The
--------------------------------------------------------
Company hereby acknowledges that the number of shares of Common Stock
constituting the initial Exercise Quantity was calculated based upon an
intention that the full exercise of the Warrant would result in the Holder
obtaining shares of Common Stock constituting 15% of the Company's then
outstanding Common Stock and Common Stock Equivalents. If for any reason it
shall hereafter be determined by the Holder of the Warrant that the actual
number of shares of Common Stock and Common Stock Equivalents outstanding as of
the Closing Date caused the calculation of the Exercise Quantity to be
erroneous, then the Holder may notify the Company of such determination and the
Company shall forthwith reissue the Warrant with an appropriate proportional
increase in the Exercise Quantity to be effective from the Closing Date.
Section 5.02 Notice to Warrant Holders of Adjustment Transactions. In the
----------------------------------------------------
event the Company proposes to consider or engage in an Adjustment Transaction,
then, in each such event, the Company shall mail to the Holder of the Warrant
notice of such proposed action, which shall specify the date on which the stock
transfer books of the Company shall close, or a record shall be taken, for
determining the holders of Common Stock entitled to receive the benefit of such
transaction, or the date on which a reclassification, reorganization,
consolidation, merger, sale, transfer, other disposition, liquidation,
dissolution or winding up shall take place or commence, as the case may be, and
the date as of which it is expected that holders of Common Stock of record shall
be entitled to receive securities or other property deliverable upon such
action, if any such date is to be fixed. Such notice shall be mailed at least
thirty (30) days prior to the date upon which it is proposed that such
10
<PAGE>
action take place and twenty (20) days prior to any record date to determine
holders of Common Stock entitled to receive the benefit of such transaction.
Section 5.03 Adjustment Transactions Barred During Defaults. The Company
----------------------------------------------
shall not have the right to give a notice of a proposed Adjustment Transaction
or to conclude an Adjustment Transaction at any time when there has occurred and
is continuing an Event of Default under the Note Purchase Agreement or this
Agreement, unless the notice is given in connection with an Adjustment
Transaction the consummation of which will result in the satisfaction in full in
cash of all Obligations of the Company under the Note Purchase Agreement.
Section 5.04 Adjustment of Exercise Price Upon Occurrence of an Adjustment
-------------------------------------------------------------
Transaction. If the Adjustment Transaction occurs, the Exercise Price shall be
- -----------
adjusted by the Company so as to fairly preserve, without dilution, the purchase
rights represented by the Warrant to purchase a percentage of the Company's
equity in accordance with Section 5.01 and otherwise with the essential intent
and purposes hereof. If a Holder of Warrant disputes the adjustment of the
Exercise Price made by the Company and the parties cannot otherwise resolve the
dispute promptly and in good faith, then the Company shall appoint a firm of
independent public accountants of recognized national standing (which may be the
regular auditors of the Company), which shall give their opinion as to the
adjustment, if any, to be made to the Exercise Price as the result of the
relevant Adjustment Transaction. Upon receipt of such opinion, the Company
shall promptly mail a copy thereof to the Holder of the Warrant and shall make
the adjustment described therein. An adjustment made pursuant to this Article V
shall become effective immediately after the effective date of any such
Adjustment Transaction. Anything herein to the contrary notwithstanding, the
Company shall not be required to make any adjustment of the Exercise Price in
the case of the issuance of shares of Common Stock upon the exercise in whole or
part of the Warrant.
Section 5.05 Adjustment of Exercise Quantity. Upon any adjustment of the
-------------------------------
Exercise Price as provided in this Article V, the Exercise Quantity shall be
adjusted such that at the Exercise Price resulting from such adjustment, the new
Exercise Quantity shall be obtained by multiplying the former Exercise Quantity
by a fraction (i) the numerator of which shall be the Exercise Price in effect
immediately prior to such adjustment and (ii) the denominator of which shall be
the Exercise Price resulting from such adjustment.
Section 5.06 Reduction in Exercise Quantity for Certain Events Within 18
-----------------------------------------------------------
Months. In the event that within eighteen (18) months of the date of this
- ------
Agreement the Company (i) closes an Initial Public Offering which results in
gross cash proceeds to the Company of $20 million or more, or (ii) closes a
transaction consented to by the Holder involving a sale of all or substantially
all of the Company's assets (viewed on a consolidated basis) or a merger,
consolidation or recapitalization involving a change in control of the Company,
then the Exercise Quantity shall be reduced to 13/15th of the Exercise Quantity
prior to such event.
Section 5.07 Protection of Warrant Holder Rights. The Company will not, by
-----------------------------------
amendment of any of its organizational documents or through reorganization,
consolidation, merger, dissolution,
11
<PAGE>
issue or sale of securities, sale of assets or any other voluntary action, avoid
or seek to avoid the observance or performance of any of the terms of this
Agreement or the Warrant or impair the ability of the Holder to realize the full
intended economic value thereof, but will at all times in good faith assist in
the carrying out of all such terms, and of the taking of a such action as may be
necessary or appropriate in order to protect the rights of the Holder of the
Warrant against dilution or other impairment.
Section 5.08 Accountant's Certificate as to Adjustment Computation. Whenever
-----------------------------------------------------
the Current Exercise Price is adjusted as provided in this Article V, the
Company will, if requested, promptly obtain a certificate from a firm of
independent public accountants of recognized national standing selected by the
Board of Directors of the Company (who may be the regular auditors of the
Company) setting forth the Current Exercise Price, and the Exercise Quantity as
so adjusted, the computation of such adjustment and a brief statement of facts
accounting for such adjustment, and will deliver to the Holder of the Warrant a
copy of such certificate.
VI. REGISTRATION RIGHTS
-------------------
Section 6.01 "Piggyback" Registration. If at any time the Company shall
-----------------------
determine to register under the Securities Act (including pursuant to a demand
of any security holder of the Company exercising registration rights) any of its
Common Stock (except securities to be issued solely in connection with any
acquisition of any entity or business, shares issuable solely upon exercise of
stock options, shares issuable solely pursuant to employee benefit plans or
shares to be registered on any registration form that does not permit secondary
sales), it shall give Churchill and each Holder of Warrant and Warrant
Securities (collectively referred to in this Article VI as "Holder of
Registrable Securities") written notice of such determination at least thirty
(30) days prior to each such filing. If within fifteen (15) days after receipt
of such notice, any Holder shall so request in writing, the Company shall
include in such registration statement (to the extent permitted by applicable
regulation) all or any part of the Warrant and Warrant Securities (collectively
referred to in this Article VI as "Registrable Securities") that such Holder
requests to be registered. Any Registrable Securities which are included in any
underwritten offering under this Section 6.01 shall be sold upon such terms as
the managing underwriters shall reasonably request but in any event shall be
upon terms not less favorable than those upon which any other selling security
holder shall sell any of its securities. If any Holder of Registrable
Securities disapproves of the terms of such underwriting, such Holder may elect
to withdraw therefrom by written notice to the Company and the underwriter, if
any.
If the registration as to which notice is given as provided above is for a
public offering which is firmly underwritten by one or more underwriters, and if
in the good faith judgment of the managing underwriter of such underwritten
public offering the inclusion of the Registrable Securities covered by a request
for registration by the Holder of Registrable Securities would reduce the number
of shares to be offered by the Company or interfere with the successful
marketing of the shares offered by the Company, the number of Registrable
Securities to be included in the underwritten public offering may be reduced in
the following manner: the Common Stock held by persons other than the Holder of
Registrable Securities shall be excluded from the underwritten public offering
to the extent
12
<PAGE>
required by the managing underwriter, and if a further reduction in the number
of shares is required by the managing underwriter, such shares to be deleted
shall be selected pro rata from among the Holders of Registrable Securities
requesting inclusion in such registration. Those Registrable Securities which
are thus excluded from the underwritten public offering shall be withheld from
the public market by the holders thereof for a period, not to exceed 180 days,
which the managing underwriter reasonably determines is necessary in order to
effect the underwritten public offering.
Section 6.02 Required Registration. If one or more Holder of Registrable
---------------------
Securities shall notify the Company in writing that such Holders intend to offer
or cause to be offered for public sale an amount of Registrable Securities which
is equal to at least seventy-five percent (75%) in combined interest of the
Registrable Securities, the Company will so notify all Holders of Registrable
Securities, including all Holders who have a right to acquire Registrable
Securities. Upon written request of any Holder given within thirty (30) days
after the receipt by such Holder from the Company of such notification, the
Company will use its best efforts to cause all or any part of the Registrable
Securities that may be requested by any Holder thereof to be registered under
the Securities Act as expeditiously as possible. The Company shall be obligated
to make only one such required registration of the Registrable Securities, and
the Company shall be obligated to make such required registration only on or
after the second anniversary of the Closing Date. The registration right
provided in this paragraph shall terminate if ninety percent (90%) or more in
combined interest of the Registrable Securities have been registered and sold in
a registration pursuant to Section 6.01 above.
Notwithstanding the restrictions on the number of demand registrations imposed
by the preceding paragraph, the Holders of Registrable Securities shall be
entitled to demand up to two short form demand registrations on Form S-3, or its
successor forms, when such registration becomes available following an Initial
Public Offering, provided that only one short form registration may be demanded
in any six-month period. If the Company determines to include securities to be
sold by it In any registration request pursuant to this Section 6.02, such
registration shall be deemed to be an "incidental" piggyback registration under
Section 6.01 of this Article VI, subject to all of the provisions thereof, and
shall not affect the rights provided by this Section 6.02. No "incidental"
piggyback right under Section 6.01 shall be construed to limit any registration
required under this Section 6.02.
Notwithstanding the foregoing, (a) the Company shall not be obligated to
effect a registration pursuant to this Section 6.02 within sixty (60) days prior
to the Company's estimated date of filing of a registration statement pertaining
to an underwritten public offering of securities for the account of the Company,
provided that the Company is actively employing in good faith all reasonable
efforts to cause such registration statement to become effective and that the
Company's estimate of the date of filing such registration statement is made in
good faith and (b) if the Company shall furnish to such Holders a certificate
signed by the president of the Company stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its shareholders for a registration statement to be filed in the near future,
then the Company's obligation under this Section 6.02 to use its best efforts to
file a registration statement shall be deferred for a period not
13
<PAGE>
to exceed three (3) months; provided, however, that the Company shall not obtain
------------------
such a deferral more than once in any 13-month period.
Section 6.03 Effectiveness. If necessary to permit distribution of the
-------------
Registrable Securities, the Company will use its best efforts to maintain the
effectiveness for up to one hundred eighty (180) days of the registration
pursuant to which any of the Registrable Securities are being offered, and from
time to time will amend or supplement such registration statement and the
prospectus contained therein as and to the extent necessary to comply with the
Securities Act and any applicable state securities statute or regulation. The
Holder shall notify the Company promptly of the completion of the offering of
its Registrable Securities under any such effective registration statement.
Section 6.04 Further Obligations of the Company. Whenever under the
----------------------------------
preceding Sections of this Article VI the Company is required hereunder to
register Registrable Securities, it agrees that it shall also do the following:
(a) Furnish to each selling Holder such copies of each preliminary and final
prospectus and any other documents as such Holder may reasonably request to
facilitate the public offering of its Registrable Securities;
(b) Use its best efforts to register or qualify the Registrable Securities to
be registered pursuant to this Article VI under the applicable securities or
blue sky laws of such jurisdictions as any selling Holder may reasonably
request;
(c) Furnish to each selling Holder: (i) a signed counterpart of an opinion of
counsel for the Company, dated the effective date of the registration statement;
and (ii) a copy of any "comfort" letters signed by the Company's independent
public accountants who have examined and reported on the Company's financial
statements included in the registration statement, covering substantially the
same matters as are customarily covered in opinions of issuer's counsel and in
accountants' "comfort" letters delivered to the underwriters in underwritten
public offerings of securities;
(d) Permit each selling Holder or such Holder's counsel or other
representatives to inspect and copy such corporate documents and records as may
reasonably be requested by them in connection with such registration; and
(e) Furnish to each selling Holder, upon request, a copy of all documents
filed and all correspondence from or to the Commission in connection with any
such offering.
Section 6.05 Expenses. The Company shall bear all costs and expenses of each
--------
registration contemplated in Sections 6.01 and 6.02, including, but not limited
to, printing, legal and accounting fees and expenses of the Company's legal
counsel and accountants, Commission and NASD filing fees and blue sky fees and
expenses in any jurisdiction in which the securities to be offered are to be
registered or qualified. The Holder of Registrable Securities included in any
such registration shall bear the legal fees and expenses of its legal counsel.
14
<PAGE>
Section 6.06 Transfer of Registration Rights. The registration rights of the
-------------------------------
Holders of Registrable Securities under this Article VI shall inure to the
benefit of and be exercisable by any transferee of Registrable Securities.
Section 6.07 Termination of Registration Rights. The registration rights
----------------------------------
under this Article VI shall terminate one year after the issuance of the last
Warrant Securities obtainable by complete exercise of the Warrant.
VII. PUT AND CALL PROVISIONS; SUBSEQUENT EVENT
-----------------------------------------
ADJUSTMENT PAYMENT
------------------
Section 7.01 Put Right of Holders of the Warrant Securities. At any time and
------------------------------------------------
from time to time after the occurrence of a Put Event, any Holder of the Warrant
Securities she have the right to sell all or some of its Warrant Securities to
the Company, and the Company shall be obligated to purchase such Warrant
Securities, subject to the following terms and conditions (such fight is
hereinafter referred to as the "Put Right"):
(a) Ninety (90) days' written notice shall be given by the Holder to the
Company of such intention to exercise the Put Right, which notice shall be in
the form of Annex B attached hereto (the "Notice of Put"). The date upon which
such Notice of Put is issued is hereinafter referred to as the "Put Date."
(b) The Company shall give all other Holders of Warrant Securities written
notice of the Company's receipt of a Notice of Put. This notice shall be given
within five (5) Business Days after the Put Date and shall specify the amount of
Warrant Securities covered by the Notice of Put and the Put Repurchase Date, as
hereinafter defined. Such other Holders of Warrant Securities shall then have
the right, by written Notice of Put within five Business Days after receipt of
the Company's notice to such Holders under this Section 7.01(b), to require that
the Company repurchase all or some of such Holders' Warrant Securities on the
Put Repurchase Date on the same terms and at the same time as the Holder who
first gave Notice of Put under Section 7.01(a) hereof.
(c) The purchase price for any Warrant Securities that the Company may be
obligated to purchase upon the exercise of the Put Right by a Holder shall be
determined by multiplying the number of Warrant Securities subject to the Put
Right by the "Put Exercise Price," as hereinafter defined. The "Put Exercise
Price" shall be equal to the highest of: (i) six (6) times the Adjusted EBITDA
of the Company for the 12-month period that ended at the month-end immediately
prior to the Put Date, plus cash or cash equivalents on hand, less all
outstanding indebtedness of the Company for borrowed money, divided by the
number of shares of Common Stock and Common Stock Equivalents outstanding; (ii)
100% of the book value of the Company as of the end of the fiscal quarter
immediately prior to the Put Date, divided by the number of shares of Common
Stock and Common Stock Equivalents outstanding; and (iii) the Fair Value of the
Company, divided by the number, of shares of Common Stock and Common Stock
Equivalents outstanding.
15
<PAGE>
(d) The Company shall fix a date (to be not sooner than 90 nor later than 100
days after the Put Date) for repurchase of the Warrant Securities (the "Put
Repurchase Date"). The Company promptly shall notify each Holder with respect
to which a Notice of Put has been given of the fixing of the Put Repurchase Date
and shall specify in that notice the location to which such Warrant Securities
are to be presented and surrendered for repurchase. On the Put Repurchase Date,
the Company shall deliver payment in same day funds to the applicable Holder in
an amount equal to the amount of the Put Exercise Price applicable to such
Holder's Warrant Securities to be repurchased.
(e) At the option of the Holder, the Holder may elect to put the Warrant,
prior to exercise thereof, to the Company upon the same terms and conditions set
forth in this Section 7.01; provided, however, that the Put Exercise Price
-----------------
payable with respect to such Warrant, as computed under the provisions of
Section 7.01(c), shall be reduced by the Current Exercise Price in effect on the
Put Date.
(f) In the event of a partial exercise of a Put Right, the balance of the
Warrant Securities and Warrant shall continue to enjoy the same benefits
provided herein as they enjoyed immediately preceding the exercise.
(g) In the event the Company fails to pay the Holder(s) the Put Exercise Price
on the Put Repurchase Date, then in addition to all other rights and remedies of
the Holder(s), the amount of the unpaid Put Exercise Price shall bear interest
from the Put Repurchase Date until the date when paid in full at an interest
rate equal to that provided in the Note to apply during default.
Section 7.02 Call Right of the Company. Subject to Section 7.02(e) hereof,
-------------------------
at any time after the commencement of the Call Period, the Company shall have
the right to purchase from the Holders of Warrant Securities all or any portion
(pro rata among the Holders) of such Warrant Securities, and the Holders shall
be obligated to sell to the Company the Warrant Securities subject to the
following terms and conditions (such fight is hereinafter referred as the "Call
Right"):
(a) The Company shall give thirty (30) days' prior written notice to the
Holders of its intention to exercise the Call Right. Such notice shall be in
the form of Annex C attached hereto (the "Notice of Call"). The date upon which
such Notice of Call is issued is hereinafter referred to as the "Call Date."
(b) The purchase price for the Warrant Securities to be acquired by the
Company pursuant to the Call Right shall be determined by multiplying the number
of Warrant Securities subject to the Call Right by the "Call Exercise Price," as
hereinafter defined. The "Call Exercise Price" shall be equal to the highest of
(i) seven (7) times the Adjusted EBITDA of the Company for the 12-month period
that ended at the month-end immediately prior to the Call Date, plus cash or
cash equivalents on hand, less all outstanding indebtedness of the Company for
borrowed money, divided by the number of shares of Common Stock and Common Stock
Equivalents outstanding; (ii) 110% of the book value of the Company as of the
end of the fiscal quarter immediately prior to the Call Date, divided by the
number of shares of Common Stock and Common Stock Equivalents outstanding; and
16
<PAGE>
(iii) the Fair Value of the Company, divided by the number of shares of Common
Stock and Common Stock Equivalents outstanding.
(c) The Company shall fix a date in the Notice of Call (to be not sooner
than 30 nor later than 40 days after the Call Date) for repurchase of the
Warrant Securities (the "Call Repurchase Date"). The Notice of Call shall
further specify the location to which Warrant Securities are to be delivered for
repurchase. On the Call Repurchase Date, the Company shall deliver payment in
same day funds to the applicable Holder in an amount equal to the amount of the
Call Exercise Price applicable to such Holder's Warrant Securities to be
repurchased.
(d) At the option of the Company, the Company may elect to call the
Warrant, prior to exercise thereof, from the Holders upon the same terms and
conditions set forth in this Section 7.02; provided, however, that the Call
-----------------
Exercise Price payable with respect to such Warrant, as computed under the
provisions of Section 7.02(b), shall be reduced by the Current Exercise Price in
effect on the Call Date.
(e) The Company shall not have the right to give a Notice of Call or to
repurchase any Warrant or Warrant Securities under this Section 7.02 at any time
when there has occurred and is continuing an Event of Default under the Note
Purchase Agreement or this Agreement.
Section 7.03 Calculation of Subsequent Event Adjustment Payment. In the
--------------------------------------------------
event the Company shall exercise its Call Right with respect to the Warrant
Securities, and there shall occur a Subsequent Event at any time prior to the
first anniversary of the Call Repurchase Date, then the Holders of the Warrant
Securities on the Call Repurchase Date shall be entitled to receive a cash
payment in an amount per share of Warrant Securities that were acquired by the
Company pursuant to the Call Right equal to the "Subsequent Event Adjustment
Payment". As soon as practicable, but not less than sixty (60) days prior to
the effective date of any Subsequent Event, the Company shall deliver a written
notice (the "Subsequent Event Notice") to each Holder that it intends to
consummate a transaction that constitutes a Subsequent Event, which notice shall
describe in reasonable detail the Subsequent Event, the anticipated effective
date of such Subsequent Event and the estimated amount of the Subsequent Event
Adjustment Payment. The Subsequent Event Adjustment Payment shall be paid to
the Holders on the effective date of the Subsequent Event. The Subsequent Event
Adjustment Payment shall be equal to the difference between the "Subsequent
Event Fair Value," as hereinafter defined, and the Call Exercise Price. The
"Subsequent Event Fair Value" shall be equal to the per share Fair Value of the
capital stock of the Company, as determined in any transaction constituting a
Subsequent Event.
Section 7.04 Termination of Put and Call Rights. In the event the Company
----------------------------------
closes an Initial Public Offering, all Call Rights of the Company shall
immediately terminate. In the event that (i) the Company closes an Initial
Public Offering underwritten on a firm commitment basis by an underwriter, or
group of underwriters which is represented by an underwriter or underwriters,
which is a member of the New York Stock Exchange and results in gross proceeds
to the Company of at
17
<PAGE>
least $20 million, and (ii) all Obligations under the Note Purchase Agreement
and the Note are repaid, all Put Rights shall immediately terminate.
VIII. RESTRICTIONS ON TRANSFER OF WARRANTS AND
----------------------------------------
WARRANT SECURITIES
------------------
Section 8.01 Restrictions on Transfer. Except as otherwise permitted by
------------------------
Section 8.02, neither the Warrant nor any Warrant Securities shall be
transferable without the prior written consent of the Company except (a) to
Churchill's partners (or partners of those partners), (b) to an Affiliate of the
Holder thereof, (c) to a successor corporation or other business entity to the
Holder thereof as a result of a merger or consolidation with, or sale of all or
substantially all of the equity ownership interests or assets of, the Holder
thereof, (d) as is or may be required by the Holder thereof to comply with any
Federal or state law or any rule or regulation of any governmental or public
body or authority, (e) in a public offering pursuant to an effective
registration statement under the Securities Act or in a sale constituting an
exempt transaction under Rule 144 or Rule 144A, (f) pursuant to Section 7.01 or
Section 7.02 or (g) to any Person if the Holder thereof shall also transfer or
assign all or part of its interest in the Note to such Person.
Any notice given pursuant to this Section 8.01 by the Holder of the Warrant
or Warrant Securities shall contain (i) the name and address of the proposed
transferee of the Warrant, Warrant Securities or portion thereof, (ii) the
proposed consideration for such transfer, (iii) the number of shares of Common
Stock subject to or issuable pursuant to the Warrant or Warrant Securities
proposed to be transferred and (iv) a brief description of such proposed
transfer.
In the event that a Holder of the Warrant or Warrant Securities has given
the notice described in the preceding paragraph such Holder shall obtain an
opinion of counsel as to whether the proposed transfer may be effected without
registration or qualification under any Federal or state securities or blue sky
law. Such counsel shall, as promptly as practicable, provide the Company and the
Holder with such opinion and of the terms and conditions, if any, to be observed
in such transfer, whereupon the Company shall consent to such transfer and the
Holder shall be entitled to transfer this Warrant or Warrant Securities (or
portion thereof). In the event the Warrant shall be exercised as an incident to
such transfer, such exercise shall relate back and for a purposes of the Warrant
be deemed to have occurred as of the date of such notice regardless of delays
incurred by reason of the provisions of this paragraph, which may result in the
actual exercise on any later date.
Section 8.02 Bring Along Rights. In the event that the holders (other
------------------
than the Holders of the Warrant and the Warrant Securities) of that percentage
of shares of the Company's Common Stock that would be required under its
Articles of Incorporation or By-laws to convey all or substantially all of the
stock or assets of the Company propose to sell their shares of the Company
Common Stock to another Person other than another shareholder of the Company,
then, in that event, such holders shall have the right to demand of the Holders
a sale at the same price of their Warrant and the Warrant Securities. The
foregoing right to demand a bring along by the Holders of the Warrant and the
Warrant Securities is conditioned upon (i) the payment in full of all
Obligations
18
<PAGE>
whether then due or not due under the Note Purchase Agreement; (ii) full payment
in cash of all consideration payable to the Holders of the Warrant and Warrant
Securities on account of the proposed sale of the Company's Common Stock; and
(iii) reasonable assurance given to the Holders of the Warrant and Warrant
Securities that the proposed sale is at a per share price and upon terms
substantially the same as could be obtained in a good faith transaction with
unaffiliated third parties. Holders of the Warrant and Warrant Securities shall
receive not less than forty-five (45) days' prior written notice of any such
proposed sale of the Company's Common Stock.
Section 8.03 Legend on Warrant and Certificates. Each Warrant shall bear
----------------------------------
a legend in substantially the following form:
"This Warrant and any shares of Common Stock issuable upon the exercise of
this Warrant have not been registered under the Securities Act of 1933, as
amended, or any state securities law and neither this Warrant nor any such
shares may be transferred in the absence of such registration or an
exemption therefrom under such Act or law."
In case any shares are issued upon the exercise in whole or in part of this
Warrant or are thereafter transferred, in either case under such circumstances
that no registration under the Securities Act is required, each certificate
representing such shares shall bear the following legend:
"The shares represented by this certificate have not been registered under
the Securities Act of 1933, as amended, or any state securities law and may
not be transferred in the absence of such registration or an exemption
therefrom under such Act or law. In addition, any transfer of these shares
is subject to the conditions specified in the Warrant Agreement dated as of
October 3, 1997. A copy of the form of such Warrant Agreement is on file
with the Secretary of the Company and will be furnished without charge by
the Company to the holder of this certificate upon written request to the
Secretary of the Company."
Section 8.04 Termination of Restrictions. The restrictions imposed under
---------------------------
this Article VIII upon the transferability of this Warrant or of Warrant
Securities, shall cease when (a) a registration statement covering such issuable
Warrant Shares or Warrant Securities becomes effective under the Securities Act,
(b) the Company receives an opinion of counsel that such restrictions are no
longer required in order to ensure compliance with the Securities Act or (c) an
Event of Default as to any Obligation to pay principal or interest or other sum
of money has occurred and is continuing under the Note Purchase Agreement. When
such restrictions terminate, the Company shall, or shall instruct its transfer
agent and registrar to, issue new certificates in the name of the holder not
bearing the legends required under Section 8.04.
Section 8.05 Rule 144 and Rule 144A. After any Initial Public Offering,
----------------------
the Company covenants that it will file all reports required to be filed by it
with the Commission, and that it will take such further action as a Holder may
reasonably request, all to the extent required from time to
19
<PAGE>
time to enable such Holder to sell Warrant or Warrant Securities without
registration under the Securities Act pursuant to Rule 144 ("Rule 144") (or any
similar rule then in effect) promulgated by the Commission under the Securities
Act. Upon the request of a Holder, the Company will deliver to such Holder a
notice stating whether it has complied with such requirements. The Company
covenants that it will provide to each Holder or any prospective purchaser of
such Holder's Warrant or Warrant Securities the information required to be
delivered under paragraph (d)(4) of Rule 144A ("Rule 144A") (or any similar rule
then in effect) promulgated by the Commission under the Securities Act in
respect of a transaction qualifying for an exemption under Rule 144A and it will
take such further action as a holder may reasonably request, all to the extent
required from time to time, to enable such holder to sell its Warrant or Warrant
Securities without registration under the Securities Act pursuant to Rule 144A.
IX. MISCELLANEOUS
-------------
Section 9.01 Term. Except as otherwise expressly provided in this
----
Agreement, this Agreement shall expire ten years after the date of this
Agreement; provided that the Company's obligations to honor an exercise of the
Warrant or a Notice of Put given prior to such expiration or to perform any
obligation to make the Subsequent Event Adjustment Payment shall continue and
survive notwithstanding the expiration of this Agreement.
Section 9.02 No Waiver Under Other Agreements.
--------------------------------
(a) The terms and provisions contained in this Agreement are not intended
and shall not be construed to waive, modify, repeal, stay, diminish or otherwise
impair or affect in any manner whatsoever: (i) any right or remedy of Churchill
under the Company's Articles, By-laws or similar agreements, the Note Purchase
Agreement or any of the Ancillary Agreements; (ii) any duty or obligation of the
Company under the Note Purchase Agreement or any of the Ancillary Agreements, or
(iii) any obligation of any other party under any of the Ancillary Agreements
owing to or intended to confer a benefit upon Churchill or its successors or
assigns.
(b) The submission of a Notice of Put shall not constitute a waiver by
Churchill of any term or provision of the Note Purchase Agreement or any of the
Ancillary Agreements.
Section 9.03 Reliance. Each party to this Agreement shall be entitled to
--------
rely upon any notice, consent, certificate, affidavit, statement, paper,
document, writing or other communication reasonably believed by that party to be
genuine and to have been signed, sent or made by the proper person or persons.
Section 9.04 Notice. Unless otherwise specifically provided herein, all
------
communications under this Agreement and the Warrant shall be in writing and
shall be deemed to have been duly given (i) on the date of service if served
personally on the party to whom notice is to be given, (ii) on the day of
transmission if sent by facsimile transmission to the number given below, and
telephonic confirmation of receipt is obtained promptly after completion of
transmission, (iii) on the day after
20
<PAGE>
delivery to Federal Express or similar overnight courier, or (iv) on the fifth
day after mailing, if mailed to the party to whom notice is to be given, by
first class mail, registered or certified, postage prepaid, and properly
addressed, return receipt requested, to the party as follows:
If to Churchill: Churchill ESOP Capital Partners
2400 Metropolitan Centre
333 South Seventh Street
Minneapolis, Minnesota 55402
Attn: David Wakefield or Robert Davis
with a copy to: Lindquist & Vennum P.L.L.P.
(which shall not 4200 IDS Center
constitute notice) 80 South 8th Street
Minneapolis, Minnesota 55402
Attn: Richard D. McNeil, Esq.
If to the Company: C.D. Smith Drug Company
3907 South 48th Terrace
St. Joseph, Missouri 64503
Attn: President
with a copy to: Blackwell Sanders Matheny Weary Lombardi LLP
(which shall not Two Pershing Avenue
constitute notice) 2300 Main Street, Suite 1100
Kansas City, Missouri 64108
Attn: Merry Evans, Esq.
to any Holder of To the most recent address set
a Warrant or of forth in the Company's register
Registered Securities of Warrant or stock register,
(other than Churchill): as the case may be.
Any party hereto may change its address for purposes of this Section 9.04 by
giving the other party written notice of the new address in the manner set forth
above.
Section 9.05 Enforcement. The Company acknowledges that the Holders may
-----------
proceed to exercise or enforce any right, power, privilege, remedy or interest
that they may have under this Agreement or applicable law without notice except
as otherwise expressly provided herein, without pursuing, exhausting or
otherwise exercising or enforcing any other fight, power, privilege, remedy or
interest that they may have against or in respect of any other party, or any
other Person or thing, and without regard to any act or omission of such party
or any other Person.
21
<PAGE>
Section 9.06 Equitable Relief. Each party acknowledges and agrees that it
----------------
would be impossible to measure in money the damage in the event of a breach of
any of the terms and provisions of this Agreement by any party hereto, and that,
in the event of any such breach, there may not be an adequate remedy at law,
although the foregoing shall not constitute a waiver of any of the party's
rights, powers, privileges and remedies against or in respect of a breaching
party, any other person or thing under this Agreement or applicable law. It is
therefore agreed that, in addition to all other such rights, powers, privileges
and remedies that it may have, each party shall be entitled to injunctive
relief, specific performance or such other equitable relief as such party may
request to exercise or otherwise enforce any of the terms and provisions of this
Agreement and to enjoin or otherwise restrain any act prohibited thereby, and no
party will urge, and each party hereby waives, any defense that there is an
adequate remedy available at law.
Section 9.07 Interpretation, Headings, Severability.
--------------------------------------
(a) The parties acknowledge and agree that since each party and its counsel
have reviewed and negotiated the terms and provisions of this Agreement and have
contributed to its revision, the normal rule of construction to the effect that
any ambiguities are resolved against the drafting party shall not be employed in
the interpretation of this Agreement, and its terms and provisions shall be
construed fairly as to all parties hereto and not in favor of or against any
party, regardless of which party was generally responsible for the preparation
of this Agreement.
(b) The Section and other headings contained in this Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
this Agreement.
(c) In the event that any term or provision of this Agreement shall be
finally determined to be superseded, invalid, illegal or otherwise unenforceable
pursuant to applicable law by a governmental authority having jurisdiction and
venue, that determination shall not impair or otherwise affect the validity,
legality or enforceability (i) by or before that authority of the remaining
terms and provisions of this Agreement, which shall be enforced as if the
unenforceable term or provision were deleted, or (ii) by or before any other
authority of any of the terms and provisions of this Agreement.
(d) If any period of time specified in this Agreement expires on a day that
is not a Business Day, that period shall be extended to and expire on the next
succeeding Business Day.
Section 9.08 Survival of Covenants. Each of the covenants and other
---------------------
agreements of the parties contained in this Agreement shall be absolute and,
except as otherwise expressly provided, unconditional, shall survive the
execution and delivery of this Agreement and shall continue in full force and
effect until the term of this Agreement has expired, and thereafter with respect
to events occurring prior thereto.
Section 9.09 No Required Exercise. No term or provision of the Warrant or
--------------------
this Agreement is intended to require, nor shall any such term or provision be
construed as requiring, any Holder of the Warrant to exercise or put the
Warrant.
22
<PAGE>
Section 9.10 Binding Effect. This Agreement shall be binding upon and
--------------
enforceable against the, parties hereto and their respective successors and
assigns.
Section 9.11 No Waiver by Action. The failure or delay of a party at any
-------------------
time or times to require performance of, or to exercise its rights with respect
to, any term or provision of this Agreement (except as otherwise expressly
provided herein) shall not affect its right at a later time to enforce any such
provision.
Section 9.12 Waiver, Modification and Amendment. Each and every
----------------------------------
modification to and amendment of this Agreement shall be in writing and signed
by the Company, Churchill (if at that time Churchill is a Holder) and by the
Holders of two-thirds in interest of all issued and unissued Warrant Securities.
Each and every waiver of and consent to any departure from any term or provision
hereof (except as otherwise provided herein) shall be in writing and signed by
Churchill (if at that time it is a Holder) by the Holders of two-thirds in
interest of all issued and unissued Warrant Securities and by each party against
whom enforcement of the waiver or consent may be sought.
Section 9.13 Entire Agreement. This Agreement and the Warrant contain the
----------------
entire agreement of the parties concerning the subject matter hereof and
supersede all other representations, warranties, agreements and understandings,
oral or otherwise, among the parties hereto with respect to the matters
contained herein, except as otherwise provided herein.
Section 9.14 Governing Law: Consent to Jurisdiction; Waiver of Jury Trial.
------------------------------------------------------------
THIS AGREEMENT AND THE WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF MINNESOTA. AT THE OPTION OF THE HOLDER, THIS
AGREEMENT AND THE WARRANT MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA
STATE COURT SITTING IN MINNEAPOLIS OR ST. PAUL, MINNESOTA, AND THE COMPANY
CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT
THAT VENUE IN SUCH FORUMS IS NOT CONVENIENT. IN THE EVENT THE COMPANY COMMENCES
ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY
ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS AGREEMENT
OR THE WARRANT, OR ALLEGING ANY BREACH OF THIS AGREEMENT OR THE WARRANT, THE
HOLDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF
THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR IF SUCH TRANSFER CANNOT BE
ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT
PREJUDICE. THE COMPANY HEREBY WAIVES THE RIGHT TO A TRIAL BY JURY IN ANY ACTION
BASED ON OR PERTAINING TO THIS AGREEMENT OR THE WARRANT.
23
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Warrant Agreement
to be executed as of the day and year first above written.
CHURCHILL ESOP CAPITAL PARTNERS, C.D. SMITH DRUG COMPANY
A Minnesota Limited Partnership
By: Churchill Capital Investment Partners,
A Minnesota Limited Partnership
Its: General Partner By /s/ Robert C. Farley
----------------------------------
Its
-------------------------------
By: Churchill Capital, Inc.
Its: General Partner
By /s/ David Wakefield
---------------------------------------------------
A Principal
24
<PAGE>
SCHEDULE I
----------
LIST OF HOLDERS OF SHARES,
WARRANTS, OPTIONS AND RIGHTS
----------------------------
See attached.
25
<PAGE>
C.D. Smith Drug Company Stockholder List
Shares of
Cert # Common Stock Shareholder
- ------ ------------ -----------
279 3,875 C.D. Smith Drug Company Employee
Stock Ownership Plan
3907 South 48th Terrace
St. Joseph, Missouri 64503
(original fully paid shares)
286 6,300 Robert C. Farley
1809 Ashland
St. Joseph, Missouri 64506
299 42,620 C.D. Smith Drug Company Employee
Stock Ownership Plan
3907 South 48th Terrace
St. Joseph, Missouri 64503
(held as collateral by LaSalle)
300 64,676 C. D. Smith Drug Company Employee
Stock Ownership Plan
3907 South 48th Terrace
St. Joseph, Missouri 64503
<PAGE>
C.D. Smith Drug Company Stock Option Holders
Shares of
Common Stock Option Holder
------------ -------------
4,000 Robert C. Farley
1809 Ashland
St. Joseph, Missouri 64506
4,000 Richard Meehan
4322 North Mulberry
Kansas City, Missouri 64116
2,500 Jeanne Mathiesen
12918 NW 79th
Kansas City, Missouri 64152
2,500 Delora Jamison
71 Eastwood Drive
St. Joseph, Missouri 64506
2,500 Robert Orr
2915 Oakland Avenue
St. Joseph, Missouri 64506
2,500 Lee Keith
25 Wishbone Road
St. Joseph, Missouri 64506
1,000 Richard Brudnick
2 Stonecleave
Swampscott, Massachusetts 01907
1,000 Joseph Harris
23 Fabish
Buffalo Grove, Illinois 60089
<PAGE>
SCHEDULE II
-----------
OBLIGATIONS TO REPURCHASE,
ACQUIRE OR RETIRE SHARES
------------------------
See C.D. Smith Drug Company Stock Ownership Plan (summary plan description is
attached).
<PAGE>
SUMMARY PLAN DESCRIPTION
(1) General. The legal names, address and Federal employer identification
number of the Employer are -
C.D. SMITH DRUG COMPANY
P.O. Box 789
St. Joseph, MO 64502
44-0437360
The following employer has also adopted the Plan:
C.D.S. TRANSPORTATION, INC.
P.O. Box 789
St. Joseph, MO 64502
43-1462539
The Employer has previously established a retirement plan ("Plan") to supplement
your income upon retirement. That plan is an employee stock ownership plan
("ESOP"). On October 1, 1996, the board of directors adopted an amendment to the
ESOP. This revised summary plan description covers the ESOP, as amended. In
addition to retirement benefits, the Plan may provide benefits in the event of
your death or disability or in the event of your termination of employment prior
to normal retirement. If after reading this summary you have any questions,
please ask the Plan Administrator. We emphasize this summary plan description is
a highlight of the more important provisions of the Plan control.
(2) Identification of Plan. The Plan is known as -
C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
The Employer has assigned 002 as the Plan identification number. The plan year
is the period on which the Plan maintains its records: January 1 through
December 31.
(3) Type of Plan. The Plan is commonly known as an employee stock ownership
plan. Section (8), "Employer's Contributions," explains how you share in
the Employer's annual contributions to the trust fund and the extent to
which the Employer has an obligation to make annual contributions to the
trust fund.
Under this Plan, the trust fund is intended to be invested primarily, and
possibly exclusively, in Employer securities, to the extent they can be acquired
by the Plan. There are certain risks inherent in this type of plan because it
will not be as diversified in its investments as certain other types of
retirement plans. There may also be a lack of investment return in the event
that the Employer securities do not yield dividends, interest or other earnings.
However, the Plan is funded completely by Employer contributions and will enable
you to share in any appreciation in the Employer securities to the extent such
Employer securities are vested and allocated to your account. The Plan has been
established with the belief that by having a retirement plan which is based upon
the Employer's growth and success, this will stimulate all employees to work at
their full capacity for the best interests of the Employer.
<PAGE>
Annex A
-------
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR QUALIFIED UNDER APPLICABLE STATE
SECURITIES LAWS. THIS WARRANT AND SUCH SHARES MAY BE OFFERED, SOLD OR
TRANSFERRED ONLY IN COMPLIANCE WITH THE REQUIREMENTS OF SUCH ACT AND OF ANY
APPLICABLE STATE SECURITIES LAWS.
____________________
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF ARE SUBJECT TO
THE TERMS AND PROVISIONS OF A WARRANT AGREEMENT DATED AS OF OCTOBER 3, 1997
BETWEEN C.D. SMITH DRUG COMPANY (THE "COMPANY") AND CHURCHILL ESOP CAPITAL
PARTNERS, A MINNESOTA LIMITED PARTNERSHIP (AS THE SAME MAY BE SUPPLEMENTED,
MODIFIED, AMENDED, EXTENDED OR RESTATED FROM TIME TO TIME, THE "WARRANT
AGREEMENT"). AMONG OTHER THINGS, THE WARRANT AGREEMENT CONTAINS PROVISIONS FOR
PUTS, CALLS, RESTRICTIONS ON TRANSFER AND REGISTRATION RIGHTS. A COPY OF THE
WARRANT AGREEMENT IS AVAILABLE AT THE EXECUTIVE OFFICES OF THE COMPANY.
COMMON STOCK PURCHASE WARRANT
-----------------------------
October 3, 1997
Capitalized terms used and not otherwise defined in this Warrant shall have
the meanings respectively assigned to them in the Warrant Agreement referred to
in the legend above and in that in certain Note Purchase Agreement, dated as of
October 3, 1997 between Churchill ESOP Capital Partners, a Minnesota Limited
Partnership ("Churchill") and C.D. Smith Drug Company, a Missouri corporation
(the "Company"), as the same has been or may be supplemented, modified, amended,
renewed or restated from time to time (the "Note Purchase Agreement").
C.D. Smith Drug Company, a Missouri corporation, does hereby certify and
agree that Churchill or its successors and assigns are hereby entitled to
purchase from the Company an Exercise Quantity initially equal to 24,260 of the
Company's Common Stock (the "Common Stock"), all upon the terms and provisions
and subject to adjustment as provided in the Warrant Agreement and this Common
Stock Purchase Warrant (the "Warrant"). The exercise price per share of Common
Stock for which this Warrant is exercisable shall be $.02 per share, as adjusted
from time to time pursuant to the terms of this Warrant and the Warrant
Agreement (the "Exercise Price").
_____________________
<PAGE>
1 . Term of Warrant. The term of this Warrant commences as of the date
---------------
hereof and shall expire at 5:00 P.M., Minneapolis time, on the tenth anniversary
hereof, October 3, 2007. In the event that this Warrant would expire on a day
that is not a Business Day, then the term of this Warrant automatically shall be
extended to 5:00 P.M., Minneapolis time, on the next succeeding Business Day.
2. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised by the Holder of this Warrant at any
time during the term hereof in whole, or in part from time to time (but not for
fractional shares), by presentation and surrender of this Warrant to the
Company, together with the annexed Exercise Form duly completed and executed and
payment in the aggregate amount equal to the Exercise Price multiplied by the
number of shares of Common Stock being purchased. At the option of Holder,
payment of the Exercise Price may be made either by (i) check payable to the
order of the Company, (ii) surrender of certificates then held representing, or
deduction from the number of shares issuable upon exercise of this Warrant, that
number of shares which has an aggregate current market price on the date of
exercise equal to the aggregate Exercise Price for all shares to be purchased
pursuant to this Warrant or (iii) by any combination of the foregoing methods.
Upon the Company's receipt of this Warrant, the completed and signed Exercise
Form and the requisite payment, the Company shall issue and deliver (or cause to
be delivered) to the exercising Holder stock certificates aggregating the number
of shares of Common Stock purchased. In the event of a partial exercise of this
Warrant, the Company shall issue and deliver to the Holder a new Warrant at the
same time such stock certificates are delivered, which new Warrant shall entitle
the Holder to purchase the balance of the Exercise Quantity not purchased in
that partial exercise and shall otherwise be upon the same terms and provisions
as this Warrant.
(b) In the event the Holder of this Warrant desires that any or all of
the stock certificates to be issued upon the exercise hereof be registered in a
name or names other than that of the Holder of this Warrant, the Holder must so
request in writing at the time of exercise, and pay to the Company funds
sufficient to pay all stock transfer taxes (if any) payable in connection with
the transfer and delivery of such stock certificates.
(c) Upon the due exercise by the Holder of this Warrant, whether in
whole or in part, that Holder (or any other person to whom a stock certificate
is to be so issued) shall be deemed for all purposes to have become the Holder
of record of the shares of Common Stock for which this Warrant has been so
exercised, effective immediately prior to the close of business on the date this
Warrant, the completed and signed Exercise Form and the requisite payment were
duly delivered to the Company, irrespective of the date of actual delivery of
certificates representing such shares of Common Stock so issued.
<PAGE>
3. Surrender of Warrant, Expenses.
------------------------------
(a) Whether in connection with the exercise, exchange, registration of
transfer, replacement, put or call of this Warrant, surrender of this Warrant
shall be made to the Company during normal business hours on a Business Day
(unless the Company otherwise permits) at the executive offices of the Company
located at 3908 South 48th Terrace, St. Joseph, Missouri 64503 or to such other
office or duly authorized representative of the Company as from time to time may
be designated by the Company by written notice given to the Holder of this
Warrant.
(b) The Company shall pay all costs and expenses incurred in connection
with the exercise, registering exchange, transfer, replacement, put or call of
this Warrant, including the costs of preparation, execution and delivery of
warrants and stock certificates, and shall pay all taxes (other than any taxes
measured by the income of any Person other than the Company) and other charges
imposed by law payable in connection with the transfer or replacement of this
Warrant.
4. Warrant Register, Exchange, Transfer, Loss.
------------------------------------------
(a) The Company at all times shall maintain at its chief executive
offices an open register for all Warrants, in which the Company shall record the
name and address of each Person to whom a Warrant has been issued or
transferred, the number of shares of Common Stock or other securities
purchasable thereunder and the corresponding purchase prices.
(b) This Warrant may be exchanged for two or more warrants entitling the
Holder hereof to purchase the same aggregate Exercise Quantity at the same
Exercise Price per share and otherwise having the same terms and provisions as
this Warrant. The Holder may request such an exchange by surrender of this
Warrant to the Company, together with a written exchange request specifying the
desired number of warrants and allocation of the Exercise Quantity purchasable
under the existing Warrant.
(c) Subject to the provisions of Article VIII of the Warrant Agreement,
this Warrant may be transferred, in whole or in part, by the Holder or any duly
authorized representative of such Holder. A transfer may be registered with the
Company by submission to it of this Warrant, together with the annexed
Assignment Form duly completed and executed. Within five (5) Business Days after
the Company's receipt of this Warrant and the Assignment Form so completed and
executed, the Company will issue and deliver to the transferee a new Warrant
representing the portion of the Exercise Quantity transferred at the same
Exercise Price per share and otherwise having the same terms and provisions as
this Warrant, which the Company will register in the new Holder's name.
(d) In the event of the loss, theft or destruction of this Warrant, the
Company shall execute and deliver an identical new Warrant to the Holder in
substitution therefor upon the Company's receipt of (i) evidence reasonably
satisfactory to the Company of such event (with the affidavit of an
institutional Holder being sufficient evidence), and (ii) if requested by the
Company,
<PAGE>
an indemnity agreement from any institutional Holder or an indemnity bond from
anyone else reasonably satisfactory in form and amount to the Company.
5. Rights and Obligations of the Company and the Warrant Holder. The
------------------------------------------------------------
Company and the Holders of this Warrant are entitled to the rights and bound by
the obligations set forth in the Warrant Agreement, all of which rights and
obligations are hereby incorporated by reference herein. This Warrant shall not
entitle its Holder to any rights of a stockholder in the Company (other than as
provided in Section 2(c) of this Warrant).
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by
its duly authorized representative and its corporate seal, if any, to be
impressed hereupon and attested to by its Secretary or Assistant Secretary.
C.D. Smith Drug Company
By
---------------------------------
Its
-------------------------------
Attest:
- ----------------------
Secretary
<PAGE>
COMMON STOCK WARRANT
--------------------
EXERCISE FORM
-------------
C.D. Smith Drug Company
3907 South 48th Terrace
St. Joseph, Missouri 64503
Attention: President
The undersigned Holder of the within Warrant hereby irrevocably elects to
exercise the within Warrant to the extent of ______ shares of Common Stock of
the Company.
The undersigned herewith encloses the Warrant and:
[_] a check (payable to the order of the Company) in the amount of
$__________ in payment of the purchase price thereof, and/or
[_] the undersigned hereby authorizes the deduction of __________ shares in
payment of the Exercise Price.
Instructions For Registering The Securities
On The Stock Transfer Books Of The Company
Name of Transferee:
------------------------------
State of Organization (if applicable):
-----------------
Federal Tax Identification or
Social Security Number:
---------------------
Address:
----------------------------------------
If this exercise of the Warrant is not an exercise in full, then the
undersigned Holder hereby requests that a new Warrant of like tenor (exercisable
for the balance of the shares of Common Stock underlying this Warrant) be issued
and delivered to the undersigned Holder at the address on the warrant register
of the Company.
Dated:
---------------- ------------------------------------------
(Name of Registered Holder - Please Print)
By
----------------------------------------
(Signature of Registered Holder or
of Duly Authorized Signatory)
Title
-------------------------------------
<PAGE>
COMMON STOCK WARRANT
--------------------
ASSIGNMENT FORM
---------------
For Value Received, the undersigned Holder of the within Warrant hereby
sells, assigns and transfers unto the transferee whose name and address are set
forth below all of the rights of the undersigned under the within Warrant (to
the extent of the portion of the within Warrant being transferred hereby, which
portion is _________________).
Name of Transferee:
-----------------------------
State of Organization (if applicable):
----------------
Federal Tax Identification or
Social Security Number:
--------------------
Address:
---------------------------------------
If such portion of the Warrant being transferred shall not consist of all of
the within Warrant, then the undersigned hereby requests that, as provided in
the within Warrant, a new warrant of like tenor respecting the balance of the
Exercise Quantity not being transferred pursuant hereto be issued in the name of
and delivered to, the undersigned. The undersigned does hereby irrevocably
constitute and appoint ____________________________________________ attorney to
register the foregoing transfer on the books of the Company maintained for that
purpose, with full power of substitution in the premises.
Dated:
---------------- ------------------------------------------
(Name of Registered Holder - Please Print)
By
----------------------------------------
(Signature of Registered Holder or
of Duly Authorized Signatory)
Title
-------------------------------------
<PAGE>
Annex B
-------
NOTICE OF PUT
-------------
C.D. Smith Drug Company
3907 South 48th Terrace
St. Joseph, Missouri 64503
Attention: President
This Notice of Put is given pursuant to Section 7.01 of the Warrant
Agreement, dated as of October 3, 1997 (the "Agreement") between C.D. Smith Drug
Company (the "Company") and Churchill ESOP Capital Partners, A Minnesota Limited
Partnership ("Churchill"). Unless otherwise defined herein, terms used herein
shall have the meanings assigned to them in the Agreement.
The undersigned Holder of Warrant Securities hereby elects to exercise its
fight to put its Warrant as set forth below:
1. The total Put Exercise Price applicable to all of Holder's Warrant
Securities is $_____________, which has been calculated as set forth on the
attached schedule.
2. The amount to be paid to Holder for the Warrant Securities covered by
this Notice of Put is $_____________ (the "Put Payment").
3. The Warrant Securities covered by this Notice of Put are enclosed
herewith.
Please deposit the amount of the Put Payment to the account of the Holder at
______________________, Account No. _____________ by no sooner than ninety (90)
and no later than one hundred (100) calendar days from the date of this Notice.
Dated:
---------------- ------------------------------------------
(Name of Registered Holder - Please Print)
By
----------------------------------------
(Signature of Registered Holder or
of Duly Authorized Signatory)
Title
-------------------------------------
<PAGE>
Annex C
-------
NOTICE OF CALL
--------------
[Name of Holder]
[Holder's Address]
[City/State/Zip Code]
This Notice of Call is given pursuant to Section 7.02 of the Warrant
Agreement dated as of October 3, 1997 (the "Warrant Agreement") between C.D.
Smith Drug Company (the "Company") and Churchill ESOP Capital Partners, A
Minnesota Limited Partnership ("Churchill"). Unless otherwise defined herein,
terms used herein shall have the meanings assigned to them in the Agreement.
The Company hereby elects to exercise its right to call the Warrant
Securities to the extent set forth below:
1. The total Call Exercise Price applicable to all of Holder's Warrant
Securities is $______________, which has been calculated as set forth on the
attached schedule.
2. The amount to be paid to Holder for the Warrant Securities covered by
this Notice of Call is $__________ (the "Call Payment").
Please deliver the Warrant Securities covered by this Notice to
________________________________ [address for presentation and surrender] for
presentation and surrender by no later than ____________________ [the Call
Repurchase Date). Upon receipt of such Warrant Securities, the Company will
deposit the amount of the Call Payment to the account of the Holder at
____________________________, or to such other account as the Holder may direct,
no sooner than thirty (30) and no later than forty (40) calendar days from the
date of this Notice.
C.D. Smith Drug Company
By
---------------------------------
Its
-------------------------------
<PAGE>
Exhibit 10.1
------------
C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
C. D. SMITH DRUG COMPANY
------------------------
EMPLOYEE STOCK OWNERSHIP PLAN
-----------------------------
AMENDMENT DATED OCTOBER 1, 1992
-------------------------------
THIS AGREEMENT, made and entered into as of October 1, 1992, by and between
C. D. SMITH DRUG COMPANY, (hereinafter called the "Company"), and BOATMEN'S
TRUST COMPANY, (hereinafter called the "Trustee"):
WITNESSETH:
WHEREAS, the Company and Trustee heretofore entered into an employees stock
ownership plan, it is desirable to amend the plan in certain respects.
NOW, THEREFORE, in consideration of the premises and mutual covenants and
agreements herein contained, it is hereby agreed by and between the parties as
follows:
Section 1: The first sentence of Section 8.10 of the plan is amended to read as
follows:
8.10 Account Diversification. Except as provided in this Section 8.10
and in Section 8.11, a Participant does not have the right to direct the
Trustee with respect to the investment or re-investment of the assets
comprising the Participant's individual Account.
Section 2: A new Section 8.11 shall be added as follows:
8.11 Accounts Attributable to Plan Allocations While Plan Contained
Internal Revenue Code Section 401(k) Provisions -- Participant Direction of
Investment. A Participant has the right to direct the investment or re-
investment of the assets of his Account attributable to allocations to this
Plan during the period of time the Plan contained 401(k) provisions. The
Trustee will accept Participant directions from the Advisory Committee, or,
if consented to by the Trustee, from each Participant, on a written
election form (or other written agreement), as a part of this Plan,
containing such conditions, limitations and other provisions the Trustee
and the Advisory Committee deem appropriate. The Trustee or, with the
Trustee's consent, the Advisory Committee may establish written procedures,
incorporated specifically as part of this Plan, relating to Participant
direction of investment under this Section 8.11. The Trustee will maintain
a segregated investment Account to the extent a Participant's Account is
subject to Participant self-direction. The Trustee is not liable for any
loss, cost, damage or expense, nor is the Trustee liable for any breach,
resulting from or arising out of a Participant's direction of the
investment of any part of his directed Account, and the Trustee shall be
fully protected for acting in accordance with, or refraining from acting in
the absence of any such direction. The Company shall indemnify the Trustee
for any loss, cost, damage or expense arising out of any alleged or actual
act, or failure to act, on the part of the Company, the Advisory Committee
or any Participant in connection with any Participant directed investment
provided under this Plan.
If the Participant directs the investment of his Account, the Plan
shall treat any post-December 31, 1981, investment by a Participant's
directed Account in collectibles (as defined by Code (S)408(m)) as a deemed
distribution to the Participant for Federal income tax purposes.
<PAGE>
Section 3: The amendment to the adoption agreement embodied herein shall be
effective as of October 1, 1992.
The Company and the Trustee hereby agree to the provisions of this
amendment and, in witness of their agreement, the Company and the Trustee have
signified their acceptance, as of October 1, 1992.
C.D. SMITH DRUG COMPANY
By:
---------------------------------------------
"EMPLOYER"
BOATMEN'S TRUST COMPANY OF KANSAS CITY
By:
---------------------------------------------
"TRUSTEE"
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C> <C>
ARTICLE I - DEFINITIONS................................................................................... 1.1
1.01 "Plan"................................................................................. 1.1
1.02 "Employer"............................................................................. 1.1
1.03 "Trustee".............................................................................. 1.1
1.04 "Plan Administrator"................................................................... 1.1
1.05 "Advisory Committee"................................................................... 1.1
1.06 "Employee"............................................................................. 1.1
1.07 "Highly Compensated Employee".......................................................... 1.1
1.08 "Participant".......................................................................... 1.2
1.09 "Beneficiary".......................................................................... 1.3
1.10 "Compensation"......................................................................... 1.3
1.11 "Account".............................................................................. 1.4
1.12 "Accrued Benefit"...................................................................... 1.4
1.13 "Nonforfeitable"....................................................................... 1.4
1.14 "Plan Year"............................................................................ 1.4
1.15 "Effective Date"....................................................................... 1.4
1.16 "Plan Entry Date"...................................................................... 1.4
1.17 "Accounting Date"...................................................................... 1.4
1.18 "Trust"................................................................................ 1.4
1.19 "Trust Fund"........................................................................... 1.4
1.20 "Nontransferable Annuity".............................................................. 1.5
1.21 "ERISA"................................................................................ 1.5
1.22 "Code"................................................................................. 1.5
1.23 "Service".............................................................................. 1.5
1.24 "Hour of Service"...................................................................... 1.5
1.25 "Disability"........................................................................... 1.6
1.26 Service for Predecessor Employer....................................................... 1.6
1.27 Related Employers...................................................................... 1.6
1.28 Leased Employees....................................................................... 1.7
1.29 Determination of Top Heavy Status...................................................... 1.7
1.30 Plan Maintained by More Than One Employer.............................................. 1.9
1.31 "Disqualified Person".................................................................. 1.9
1.32 "Employer Securities".................................................................. 1.9
1.33 "Exempt Loan".......................................................................... 1.9
1.34 "Leveraged Employer Securities"........................................................ 1.9
ARTICLE II - EMPLOYEE PARTICIPANTS........................................................................ 2.1
2.01 Eligibility............................................................................ 2.1
2.02 Year of Service Participation.......................................................... 2.1
2.03 Break in Service - Participation....................................................... 2.2
2.04 Participation upon Re-employment....................................................... 2.2
ARTICLE III - EMPLOYER CONTRIBUTIONS AND FORFEITURES...................................................... 3.1
3.01 Amount................................................................................. 3.1
3.02 Determination of Contribution.......................................................... 3.2
3.03 Time of Payment of Contribution........................................................ 3.2
</TABLE>
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3.04 Contribution Allocation................................................................. 3.2
3.05 Forfeiture Allocation................................................................... 3.3
3.06 Accrual of Benefit...................................................................... 3.4
3.07 Limitations on Allocations to Participants' Accounts.................................... 3.5
3.08 Definitions - Article III............................................................... 3.6
ARTICLE IV - PARTICIPANT CONTRIBUTIONS........................................................................ 4.1
4.01 Participant Voluntary Contributions..................................................... 4.1
4.02 Participant Rollover Contributions...................................................... 4.1
ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING...................................................... 5.1
5.01 Normal Retirement Age................................................................... 5.1
5.02 Participant Disability or Death; Plant Shutdown or Sale or a Substantial
Reduction in Workforce................................................................ 5.1
5.03 Vesting Schedule........................................................................ 5.1
5.04 Cash-Out Distributions to Partially-Vested Participants/Restoration of Forfeited
Accrued Benefit....................................................................... 5.1
5.05 Segregated Account for Repaid Amount.................................................... 5.3
5.06 Year of Service - Vesting............................................................... 5.3
5.07 Break In Service - Vesting.............................................................. 5.3
5.08 Included Years of Service - Vesting..................................................... 5.3
5.09 Forfeiture Occurs....................................................................... 5.4
ARTICLE VI - TIME AND METHOD OF PAYMENT OF BENEFITS........................................................... 6.1
6.01 Time of Payment of Accrued Benefit...................................................... 6.1
6.02 Method of Payment of Accrued Benefit.................................................... 6.3
6.03 Benefit Payment Elections............................................................... 6.5
6.04 Annuity Distributions to Participants and Surviving Spouses............................. 6.6
6.05 Special Distribution and Payment Requirements........................................... 6.6
6.06 [Reserved].............................................................................. 6.7
6.07 Distributions under Domestic Relations Orders........................................... 6.7
ARTICLE VII - EMPLOYER ADMINISTRATIVE PROVISIONS.............................................................. 7.1
7.01 Information to Advisory Committee....................................................... 7.1
7.02 No Liability............................................................................ 7.1
7.03 Indemnity of Certain Fiduciaries........................................................ 7.1
7.04 Employer Direction of Investment........................................................ 7.1
7.05 Amendment to Vesting Schedule........................................................... 7.1
ARTICLE VIII - PARTICIPANT ADMINISTRATIVE PROVISIONS.......................................................... 8.1
8.01 Beneficiary Designation................................................................. 8.1
8.02 No Beneficiary Designation/Death of Beneficiary......................................... 8.1
8.03 Personal Data to Advisory Committee..................................................... 8.1
8.04 Address for Notification................................................................ 8.2
8.05 Assignment or Alienation................................................................ 8.2
8.06 Notice of Change in Terms............................................................... 8.2
8.07 Litigation against the Trust............................................................ 8.2
8.08 Information Available................................................................... 8.2
</TABLE>
ii
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8.09 Appeal Procedure for Denial of Benefits................................................ 8.2
8.10 Account Diversification................................................................ 8.3
ARTICLE IX - ADVISORY COMMITTEE - DUTIES WITH RESPECT TO PARTICIPANTS' ACCOUNTS............................ 9.1
9.01 Members' Compensation, Expenses........................................................ 9.1
9.02 Term................................................................................... 9.1
9.03 Powers................................................................................. 9.1
9.04 General................................................................................ 9.1
9.05 Funding Policy......................................................................... 9.2
9.06 Manner of Action....................................................................... 9.2
9.07 Authorized Representative.............................................................. 9.2
9.08 Interested Member...................................................................... 9.2
9.09 Individual Accounts.................................................................... 9.2
9.10 Value of Participant's Accrued Benefit................................................. 9.3
9.11 Allocation and Distribution of Net Income Gain or Loss................................. 9.3
9.12 Individual Statement................................................................... 9.4
9.13 Account Charged........................................................................ 9.5
9.14 Unclaimed Account Procedure............................................................ 9.5
ARTICLE X - CUSTODIAN/TRUSTEE, POWERS AND DUTIES........................................................... 10.1
10.01 Acceptance............................................................................ 10.1
10.02 Receipt of Contributions.............................................................. 10.1
10.03 Investment Powers..................................................................... 10.1
10.04 Records and Statements................................................................ 10.6
10.05 Fees and Expenses from Fund........................................................... 10.6
10.06 Parties to Litigation................................................................. 10.6
10.07 Professional Agents................................................................... 10.6
10.08 Distribution of Trust Fund; Valuation of Employer Securities.......................... 10.7
10.09 Distribution Directions............................................................... 10.7
10.10 Third Party/Multiple Trustees......................................................... 10.7
10.11 Resignation........................................................................... 10.7
10.12 Removal............................................................................... 10.7
10.13 Interim Duties and Successor Trustee.................................................. 10.8
10.14 Valuation of Trust.................................................................... 10.8
10.15 Participant Voting Direction Rights - Employer Securities............................. 10.8
10.16 Investment in Group Trust Fund........................................................ 10.8
10.17 Limitation on Liability - If Investment Manager Appointed............................. 10.8
ARTICLE XI - REPURCHASE OF EMPLOYER SECURITIES............................................................. 11.1
11.01 Put Option............................................................................ 11.1
11.02 Restriction on Employer Securities.................................................... 11.1
11.03 Lifetime Transfer/Right First Refusal................................................. 11.1
</TABLE>
iii
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11.04 Payment of Purchase Price............................................................. 11.1
11.05 Notice................................................................................ 11.2
11.06 Terms and Definitions................................................................. 11.2
ARTICLE XII - MISCELLANEOUS........................................................................... 12.1
12.01 Evidence.............................................................................. 12.1
12.02 No Responsibility for Employer Action................................................. 12.1
12.03 Fiduciaries not Insurers.............................................................. 12.1
12.04 Waiver of Notice...................................................................... 12.1
12.05 Successors............................................................................ 12.1
12.06 Word Usage............................................................................ 12.1
12.07 State Law............................................................................. 12.1
12.08 Employment Not Guaranteed............................................................. 12.1
ARTICLE XIII -EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION............................................... 13.1
13.01 Exclusive Benefit..................................................................... 13.1
13.02 Amendment by Employer................................................................. 13.1
13.03 Discontinuance........................................................................ 13.1
13.04 Full Vesting on Termination........................................................... 13.2
13.05 Merger/Direct Transfer................................................................ 13.2
13.06 Termination........................................................................... 13.3
</TABLE>
iv
<PAGE>
C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
C.D. SMITH DRUG COMPANY, a corporation organized under the laws of the
State of Missouri, makes this Agreement with BOATMEN'S TRUST COMPANY OF KANSAS
CITY, as Trustee.
WITNESSETH:
C.D. SMITH DRUG COMPANY continues, within this Trust Agreement, a Plan for
the administration and distribution of contributions made by the Employer for
the purpose of providing retirement benefits for eligible Employees. This Plan
is an amended plan, in restated form, the original plan being established on
January 1, 1989 as a 401(k) plan. The provisions of this Plan, as amended, apply
solely to an Employee whose employment with the Employer terminates on or after
the restated Effective Date of the Employer's Plan. If an Employee's employment
with the Employer terminates prior to the restated Effective Date, that Employee
is entitled to benefits under the Plan as the Plan existed on the date of the
Employee's termination of employment.
Now, therefore, in consideration of their mutual covenants, the Employer
and the Trustee agree as follows:
ARTICLE I - DEFINITIONS
1.01 "Plan" means the retirement plan established and continued by the
Employer in the form of this Agreement, designated as the C.D. SMITH DRUG
COMPANY EMPLOYEE STOCK OWNERSHIP PLAN. The Employer has designed this Plan to
invest primarily in Employer Securities.
1.02 "Employer" means C.D. SMITH DRUG COMPANY.
1.03 "Trustee" means BOATMEN'S TRUST COMPANY OF KANSAS CITY, or any
successor in office who in writing accepts the position of Trustee.
1.04 "Plan Administrator" is the Employer unless the Employer designates
another person to hold the position of Plan Administrator. In addition to his
other duties, the Plan Administrator has full responsibility for compliance with
the reporting and disclosure rules under ERISA as respects this Agreement.
1.05 "Advisory Committee" means the Employer's Advisory Committee as from
time to time constituted.
1.06 "Employee" means any employee of the Employer.
1.07 "Highly Compensated Employee" means an Employee who, during the Plan
Year or during the preceding 12-month period;
(a) is a more than 5% owner of the Employer (applying the constructive
ownership rules of Code (S)318, and applying the principles of Code (S)318,
for an unincorporated entity);
1.1
<PAGE>
(b) has Compensation in excess of $75,000 (as adjusted by the Commissioner
of Internal Revenue for the relevant year);
(c) has Compensation in excess of $50,000 (as adjusted by the Commissioner
of Internal Revenue for the relevant year) and is part of the top-paid 20%
group of employees (based on Compensation for the relevant year); or
(d) has Compensation in excess of 50% of the dollar amount prescribed in
Code (S)415(b)(1)(A) (relating to defined benefit plans) and is an officer
of the Employer.
If the Employee satisfies the definition in clause (b), (c) or (d) in the
Plan Year but does not satisfy clause (b), (c) or (d) during the preceding 12-
month period and does not satisfy clause (a) in either period, the Employee is a
Highly Compensated Employee only if he is one of the 100 most highly compensated
Employees for the Plan Year. The number of officers taken into account under
clause (d) will not exceed the greater of 3 or 10% of the total number (after
application of the Code (S)414(q) exclusions) of Employees, but no more than 50
officers. If no Employee satisfies the Compensation requirement in clause (d)
for the relevant year, the Advisory Committee will treat the highest paid
officer as satisfying clause (d) for that year.
For purposes of this Section 1.07, "Compensation" means Compensation as
defined in Section 1.10, except The Advisory Committee must make the
determination of who is a Highly Compensated Employee, including the
determinations of the number and identity of the top paid 20% group, the top 100
paid Employees, the number of officers includible in clause (d) and the relevant
Compensation, consistent with Code (S)414(q) and regulations issued under that
Code section. The Employer may make a calendar year election to determine the
Highly Compensated Employees for the Plan Year, as prescribed by Treasury
regulations. A calendar year election must apply to all plans and arrangements
of the Employer. For purposes of applying any nondiscrimination test required
under the Plan or under the Code, in a manner consistent with applicable
Treasury regulations, the Advisory Committee will treat a Highly Compensated
Employee and all family members (a spouse, a lineal ascendant or descendant, or
a spouse of a lineal ascendant or descendant) as a single Highly Compensated
Employee, but only if the Highly Compensated Employee is a more than 5% owner or
is one of the 10 Highly Compensated Employees with the greatest Compensation for
the Plan Year. This aggregation rule applies to a family member even if that
family member is a Highly Compensated Employee without family aggregation.
The term "Highly Compensated Employee" also includes any former Employee
who separated from Service (or has a deemed Separation from Service, as
determined under Treasury regulations) prior to the Plan Year, performs no
Service for the Employer during the Plan Year, and was a Highly Compensated
Employee either for the separation year or any Plan Year ending on or after his
55th birthday. If the former Employee's Separation from Service occurred prior
to January 1, 1987, he is a Highly Compensated Employee only if he satisfied
clause (a) of this Section 1.07 or received Compensation in excess of $50,000
during: (1) the year of his Separation from Service (or the prior year); or (2)
any year ending after his 54th birthday.
1.08 "Participant" is an Employee who is eligible to be and becomes a
Participant in accordance with the provisions of Section 2.01.
1.2
<PAGE>
1.09 "Beneficiary" is a person designated by a Participant who is or may
become entitled to a benefit under the Plan. A Beneficiary who becomes entitled
to a benefit under the Plan remains a Beneficiary under the Plan until the
Trustee has fully distributed his benefit to him. A Beneficiary's right to (and
the Plan Administrator's, the Advisory Committee's or a Trustee's duty to
provide to the Beneficiary) information or data concerning the Plan does not
arise until he first becomes entitled to receive a benefit under the Plan.
1.10 "Compensation". As long as the instructions to Form W-2, Box 10, are
consistent with the instructions for the 1991 Form W-2, the Employer may treat
the amount reported in Box 10 of the Form W-2, as issued by the Employer, as
satisfying the following definition of Compensation. If Form W-2 is revised in
the future resulting in the renumbering of the boxes, the box number which
contains Compensation reported in Box 10 of the 1991 Form W-2 shall be
substituted for any reference to Box 10 in this definition. Compensation also
includes all other payments to an Employee in the course of the Employer's trade
or business, for which the Employer must furnish the Employee a written
statement under Code (S)(S)6041(d) and 6051(a)(3).
Compensation also includes elective contributions made by the Employer on
the Employee's behalf. "Elective contributions" are amounts excludible from the
Employee's gross income under Code (S)(S)125, 402(a)(8), 402(h) or 403(b), and
contributed by the Employer, at the Employee's election, to a Code (S)401(k)
arrangement, a Simplified Employee Pension, cafeteria plan or tax sheltered
annuity. A Compensation payment includes Compensation by the Employer through
another person under the common paymaster provisions in Code (S)(S)3121(s) and
3306(p).
Any reference in this Plan to Compensation is a reference to the definition
in this Section 1.10, unless the Plan reference specifies a modification to this
definition. The Advisory Committee will take into account only Compensation
actually paid for the relevant period.
(A) Limitations on Compensation.
(1) Compensation dollar limitation. For any Plan Year beginning after
December 31, 1988, the Advisory Committee must take into account only the first
$200,000 (or beginning January 1, 1990, such larger amount as the Commissioner
of Internal Revenue may prescribe) of any Participant's Compensation.
(2) Application of compensation limitation to certain family members. The
$200,000 Compensation limitation applies to the combined Compensation of the
Employee and of any family member aggregated with the Employee under Section
1.07 who is either (i) the Employee's spouse; or (ii) the Employee's lineal
descendant under the age of 19. If, for a Plan Year, the combined Compensation
of the Employee and such family members who are Participants entitled to an
allocation for that Plan Year exceeds the $200,000 (or adjusted) limitation,
"Compensation" for each such Participant, for purposes of the contribution and
allocation provisions of Article III means his Adjusted Compensation. Adjusted
Compensation is the amount which bears the same ratio to the $200,000 (or
adjusted) limitation as the affected Participant's Compensation (without regard
to the $200,000 Compensation limitation) bears to the combined Compensation of
all the affected Participants in the family unit. If the Plan uses permitted
disparity, the Advisory Committee must determine the integration level of each
affected family member Participant prior to the proration of the $200,000
Compensation limitation, but the combined integration level of the affected
Participants may not exceed $200,000 (or the adjusted limitation). The combined
Excess Compensation of the affected Participants in the family unit may not
exceed $200,000 (or the adjusted limitation) minus
1.3
<PAGE>
the affected Participants' combined integration level (as determined under the
preceding sentence). If the combined Excess Compensation exceeds this
limitation, the Advisory Committee will prorate the Excess Compensation
limitation among the affected Participants in the family unit in proportion to
each such individual's Adjusted Compensation minus his integration level.
(B) Nondiscrimination. For purposes of determining whether the Plan
discriminates in favor of Highly Compensated Employees, Compensation means
Compensation as defined in this Section 1.10 except any exclusions from
Compensation, other than the exclusions described in paragraphs (a), (b), (c)
and (d), do not apply. The Employer may also elect to use an alternate
nondiscriminatory definition, in accordance with the requirements of Code
(S)414(s) and the regulations issued under that Code section. In determining
Compensation under this Section 1.10(B), the Employer may elect to include all
elective contributions made by the Employer on behalf of the Employees. The
Employer's election to include elective contributions must be consistent and
uniform with respect to Employees. The Employer may make this election to
include elective contributions for nondiscrimination testing purposes,
irrespective of whether this Section 1.10 includes elective contributions in the
general Compensation definition applicable to this Plan.
1.11 "Account" means the separate account(s) which the Advisory Committee
or the Trustee maintains for a Participant under the Plan.
1.12 "Accrued Benefit" means the amount standing in a Participant's
Account(s) as of any date derived from both Employer contributions and Employee
contributions, if any.
1.13 "Nonforfeitable" means a Participant's or Beneficiary's unconditional
claim, legally enforceable against the Plan, to the Participant's Accrued
Benefit.
1.14 "Plan Year" means the fiscal year of the Plan, a 12 consecutive month
period ending every December 31.
1.15 "Effective Date" of this Plan, as restated, is December 31, 1991;
however, no Employer contributions for the Employee Stock Ownership provisions
under Section 3.01 shall be made until the Plan Year commencing January 1, 1992.
The Plan as originally adopted was a 401(k) Plan. With this restatement, the
401(k) provisions have been removed and no further 401(k) contributions shall be
made to the Plan after December 31, 1991. Assets accumulated in the Plan prior
to January 1, 1992 shall be segregated and separately accounted for and shall
not be commingled with contributions made under this Employee Stock Ownership
Plan.
1.16 "Plan Entry Date" means the date(s) prescribed by Section 2.01.
1.17 "Accounting Date" is the last day of the Plan Year. Unless otherwise
specified in the Plan, the Advisory Committee will make all Plan allocations for
a particular Plan Year as of the Accounting Date of that Plan Year.
1.18 "Trust" means the separate Trust created under the Plan.
1.19 "Trust Fund" means all property of every kind held or acquired by the
Employer's Plan, other than incidental benefit insurance contracts. This Plan
creates a single Trust for all Employers participating under the C.D. SMITH DRUG
COMPANY EMPLOYEE STOCK OWNERSHIP PLAN. However, the Trustee will maintain
separate records of account in order to reflect properly each Participant's
Accrued Benefit derived from each participating Employer.
1.4
<PAGE>
1.20 "Nontransferable Annuity" means an annuity which by its terms
provides that it may not be sold, assigned, discounted, pledged as collateral
for a loan or security for the performance of an obligation or for any purpose
to any person other than the insurance company. If the Plan distributes an
annuity contract, the contract must be a Nontransferable Annuity.
1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
1.22 "Code" means the internal Revenue Code of 1986, as amended.
1.23 "Service" means any period of time the Employee is in the employ of
the Employer, including any period the Employee is on an unpaid leave of absence
authorized by the Employer under a uniform, nondiscriminatory policy applicable
to all Employees. "Separation from Service" means the Employee no longer has an
employment relationship with the Employer maintaining this Plan.
1.24 "Hour of Service" means:
(a) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment, for the performance of duties. The Advisory Committee credits
Hours of Service under this paragraph (a) to the Employee for the
computation period in which the Employee performs the duties, irrespective
of when paid;
(b) Each Hour of Service for back pay, irrespective of mitigation of
damages, to which the Employer has agreed or for which the Employee has
received an award. The Advisory Committee credits Hours of Service under
this paragraph (b) to the Employee for the computation period(s) to which
the award or the agreement pertains rather than for the computation period
in which the award, agreement or payment is made; and
(c) Each Hour of Service for which the Employer, either directly or
indirectly, pays an Employee, or for which the Employee is entitled to
payment (irrespective of whether the employment relationship is
terminated), for reasons other than for the performance of duties during a
computation period, such as leave of absence, vacation, holiday, sick
leave, illness, incapacity (including disability), layoff, jury duty or
military duty. The Advisory Committee will credit no more than 501 Hours
of Service under this paragraph (c) to an Employee on account of any single
continuous period during which the Employee does not perform any duties
(whether or not such period occurs during a single computation period).
The Advisory Committee credits Hours of Service under this paragraph (c) in
accordance with the rules of paragraphs (b) and (c) of Labor Reg.
(S)2530.200b-2, which the Plan, by this reference, specifically
incorporates in full within this paragraph (c).
The Advisory Committee will not credit an Hour of Service under more than
one of the above paragraphs. A computation period for purposes of this Section
1.24 is the Plan Year, Year of Service period, Break in Service period or other
period, as determined under the Plan provision for which the Advisory Committee
is measuring an Employee's Hours of Service. The Advisory Committee will
resolve any ambiguity with respect to the crediting of an Hour of Service in
favor of the Employee.
(A) Method of crediting Hours of Service. The Employer will credit every
Employee with Hours of Service on the basis of the "actual" method. For purposes
of the Plan, "actual" method means the
1.5
<PAGE>
determination of Hours of Service from records of hours worked and hours for
which the Employer makes payment or for which payment is due from the Employer.
(B) Maternity/paternity leave. Solely for purposes of determining whether the
Employee incurs a Break in Service under any provision of this Plan, the
Advisory Committee must credit Hours of Service during an Employee's unpaid
absence period due to maternity or paternity leave. The Advisory Committee
considers an Employee on maternity or paternity leave if the Employee's absence
is due to the Employee's pregnancy, the birth of the Employee's child, the
placement with the Employee of an adopted child, or the care of the Employee's
child immediately following the child's birth or placement. The Advisory
Committee credits Hours of Service under this paragraph on the basis of the
number of Hours of Service the Employee would receive if he were paid during the
absence period or, if the Advisory Committee cannot determine the number of
Hours of Service the Employee would receive, on the basis of 8 hours per day
during the absence period. The Advisory Committee will credit only the number
(not exceeding 501) of Hours of Service necessary to prevent an Employee's Break
in Service. The Advisory Committee credits all Hours of Service described in
this paragraph to the computation period in which the absence period begins or,
if the Employee does not need these Hours of Service to prevent a Break in
Service in the computation period in which his absence period begins, the
Advisory Committee credits these Hours of Service to the immediately following
computation period.
1.25 "Disability" means the Participant, because of a physical or mental
disability, will be unable to perform the duties of his customary position of
employment (or is unable to engage in any substantial gainful activity) for an
indefinite period which the Advisory Committee considers will be of long
continued duration. A Participant also is disabled if he incurs the permanent
loss or loss of use of a member or function of the body, or is permanently
disfigured, and incurs a Separation from Service. The Plan considers a
Participant disabled on the date the Advisory Committee determines the
Participant satisfies the definition of disability. The Advisory Committee may
require a Participant to submit to a physical examination in order to confirm
disability. The Advisory Committee will apply the provisions of this Section
1.25 in a nondiscriminatory, consistent and uniform manner.
1.26 Service for Predecessor Employer. If the Employer maintains the plan
of a predecessor employer, the Plan treats service of the Employee with the
predecessor employer as service with the Employer.
1.27 Related Employers. A related group is a controlled group of
corporations (as defined in Code (S)414(b)), trades or businesses (whether or
not incorporated) which are under common control (as defined in Code (S)414(c))
or an affiliated service group (as defined in Code (S)414(m) or in Code
(S)414(o)). If the Employer is a member of a related group, the term "Employer"
includes the related group members for purposes of crediting Hours of Service,
determining Years of Service and Breaks in Service under Articles II and V,
applying the Participation Test and the Coverage Test under Section 3.06(D),
applying the limitations on allocations in Part 2 of Article III, applying the
top heavy rules and the minimum allocation requirements of Article III, the
definitions of Employee, Highly Compensated Employee, Compensation and Leased
Employee, and for any other purpose required by the applicable Code section or
by a Plan provision. However, only an Employer described in Section 1.02 may
contribute to the Plan and only an Employee employed by an Employer described in
Section 1.02 is eligible to participate in this Plan.
1.6
<PAGE>
1.28 Leased Employees. The Plan treats a Leased Employee as an Employee of
the Employer. A Leased Employee is an individual (who otherwise is not an
Employee of the Employer) who, pursuant to a leasing agreement between the
Employer and any other person, has performed services for the Employer (or for
the Employer and any persons related to the Employer within the meaning of Code
(S)144(a)(3)) on a substantially full time basis for at least one year and who
performs services historically performed by employees in the Employer's business
field. If a Leased Employee is treated as an Employee by reason of this Section
1.25 of the Plan, "Compensation" includes Compensation from the leasing
organization which is attributable to services performed for the Employer.
(A) Safe harbor plan exception. The Plan does not treat a Leased Employee as an
Employee if the leasing organization covers the employee in a safe harbor plan
and, prior to application of this safe harbor plan exception, 20% or less of the
Employer's Employees (other than Highly Compensated Employees) are Leased
Employees. A safe harbor plan is a money purchase pension plan providing
immediate participation, full and immediate vesting, and a nonintegrated
contribution formula equal to at least 10% of the employee's compensation
without regard to employment by the leasing organization on a specified date.
The safe harbor plan must determine the 10% contribution on the basis of
compensation as defined in Code (S)415(c)(3) plus elective contributions (as
defined in Section 1.10).
(B) Other requirements. The Advisory Committee must apply this Section 1.28 in
a manner consistent with Code (S)(S)414(n) and 414(o) and the regulations issued
under those Code sections. The Advisory Committee will reduce a Leased
Employee's allocation of Employer contributions under this Plan by the Leased
Employee's allocation under the leasing organization's plan, but only to the
extent that allocation is attributable to the Leased Employee's service provided
to the Employer.
1.29 Determination of Top Heavy Status. If this Plan is the only qualified
plan maintained by the Employer, the Plan is top heavy for a Plan Year if the
top heavy ratio as of the Determination Date exceeds 60%. The Top Heavy Ratio is
a fraction, the numerator of which is the sum of the present value of Accrued
Benefits of all Key Employees as of the Determination Date and the denominator
of which is a similar sum determined for all Employees. The Advisory Committee
must include in the top heavy ratio, as part of the present value of Accrued
Benefits, any contribution not made as of the Determination Date but includible
under Code (S)416 and the applicable Treasury regulations, and distributions
made within the Determination Period. The Advisory Committee must calculate the
top heavy ratio by disregarding the Accrued Benefit (and distributions, if any,
of the Accrued Benefit) of any Non-Key Employee who was formerly a Key Employee,
and by disregarding the Accrued Benefit (including distributions, if any, of the
Accrued Benefit) of an individual who has not received credit for at least one
Hour of Service with the Employer during the Determination Period. The Advisory
Committee must calculate the top heavy ratio, including the extent to which it
must take into account distributions, rollovers and transfers, in accordance
with Code (S)416 and the regulations under that Code section.
If the Employer maintains other qualified plans (including a simplified
employee pension plan), or maintained another such plan which now is terminated,
this Plan is top heavy only if it is part of the Required Aggregation Group, and
the top heavy ratio for the Required Aggregation Group and for the Permissive
Aggregation Group, if any, each exceeds 60%. The Advisory Committee will
calculate the top heavy ratio in the same manner as required by the first
paragraph of this Section 1.29, taking into account all plans within the
Aggregation Group. To the extent the
1.7
<PAGE>
Advisory Committee must take into account distributions to a Participant, the
Advisory Committee must include distributions from a terminated plan which would
have been part of the Required Aggregation Group if it were in existence on the
Determination Date. The Advisory Committee will calculate the present value of
accrued benefits under defined benefit plans or simplified employee pension
plans included within the group in accordance with the terms of those plans,
Code (S)416 and the regulations under that Code section. If a Participant in a
defined benefit plan is a Non-Key Employee, the Advisory Committee will
determine his accrued benefit under the accrual method, if any, which is
applicable uniformly to all defined benefit plans maintained by the Employer or,
if there is no uniform method, in accordance with the slowest accrual rate
permitted under the fractional rule accrual method described in Code
(S)411(b)(1)(C). To calculate the present value of benefits from a defined
benefit plan, the Advisory Committee will use the actuarial assumptions
(interest and mortality only) prescribed by the defined benefit plan(s) to value
benefits for top heavy purposes. If an accredited plan does not have a valuation
date coinciding with the Determination Date, the Advisory Committee must value
the Accrued Benefits in the aggregated plan as of the most recent valuation date
falling within the twelve-month period ending on the Determination Date, except
as Code (S)416 and applicable Treasury regulations require for the first and
second plan year of a defined benefit plan. The Advisory Committee will
calculate the top heavy ratio with reference to the Determination Dates that
fall within the same calendar year.
Definitions. For purposes of applying the provisions of this Section 1.29:
(a) "Key Employee" means, as of any Determination Date, any Employee or
former Employee (or Beneficiary of such Employee) who, for any Plan Year in
the Determination Period: (i) has Compensation in excess of 50% of the
dollar amount prescribed in Code (S)415(b)(1)(A) (relating to defined
benefit plans) and is an officer of the Employer; (ii) has Compensation in
excess of the dollar amount prescribed in Code (S)415(c)(1)(A) (relating to
defined contribution plans) and is one of the Employees owning the ten
largest interests in the Employer; (iii) is a more than 5% owner of the
Employer; or (iv) is a more than 1% owner of the Employer and has
Compensation of more than $150,000. The constructive ownership rules of
Code (S)318 (or the principles of that section, in the case of an
unincorporated Employer,) will apply to determine ownership in the
Employer. The number of officers taken into account under clause (i) will
not exceed the greater of 3 or 10% of the total number (after application
of the Code (S)414(q) exclusions) of Employees, but no more than 50
officers. The Advisory Committee will make the determination of who is a
Key Employee in accordance with Code (S)416(i)(1) and the regulations under
that Code section.
(b) "Non-Key Employee" is an employee who does not meet the definition of
Key Employee.
(c) "Compensation" means Compensation as determined under Section 1.07 for
purposes of identifying Highly Compensated Employees.
(d) "Required Aggregation Group" means: (1) each qualified plan of the
Employer in which at least one Key Employee participates at any time during
the Determination Period; and (2) any other qualified plan of the Employer
which enables a plan described in clause (1) to meet the requirements of
Code (S)401(a)(4) or of Code (S)410.
1.8
<PAGE>
(e) "Permissive Aggregation Group" is the Required Aggregation Group plus
any other qualified plans maintained by the Employer, but only if such
group would satisfy in the aggregate the requirements of Code (S)401(a)(4)
and of Code (S)410. The Advisory Committee will determine the Permissive
Aggregation Group.
(f) "Employer" means the Employer that adopts this Plan and any related
employers described in Section 1.27.
(g) "Determination Date" for any Plan Year is the Accounting Date of the
preceding Plan Year or, in the case of the first Plan Year of the Plan, the
Accounting Date of that Plan Year. The "Determination Period" is the 5 year
period ending on the Determination Date.
1.30 Plan Maintained by More Than One Employer.
(a) Treatment of Employers. If more than one employer maintains this Plan,
then for purposes of determining Service and Hours of Service, the Plan
Administrator will treat all Employers maintaining this Plan as a single
employer.
(b) Plan Allocations. The Plan Administrator must allocate all Employer
contributions and forfeitures to each Participant in the Plan, in
accordance with Article III, without regard to which contributing Employer
employs the Participant. A Participant's Compensation includes Compensation
from all participating Employers, irrespective of which Employers are
contributing to the Plan.
1.31 "Disqualified Person" shall have the meaning ascribed to that term
under Code (S)4975(e)(2).
1.32 "Employer Securities" means common stock issued by the Employer, or
by a corporation which is a member of the same controlled group of corporations.
1.33 "Exempt Loan" means a loan made to this Plan by a Disqualified
Person, or a loan to this Plan which a Disqualified Person guarantees, provided
the loan satisfies the requirements of Treas. Reg. (S)54.4975-7(b).
1.34 "Leveraged Employer Securities" means Employer Securities acquired by
the Trust with the proceeds of an Exempt Loan and which satisfy the definition
of "qualifying employer securities" under Code (S)4975(e)(8).
* * * * * * * * * * * * * * * * * * *
1.9
<PAGE>
ARTICLE II - EMPLOYEE PARTICIPANTS
2.01 Eligibility. Each Employee (other than an Excluded Employee) becomes
a Participant in the Plan on the Plan Entry Date (if employed on that date)
immediately following the later of the date on which he completes one Year of
Service or attains age 21. "Plan Entry Date" means the Effective Date and each
January 1 and July 1. Each Employee who was a Participant in the Plan on the day
before the Effective Date of this restated Plan will not continue as a
Participant unless he has completed the conditions of this Section 2.01.
An Employee is an Excluded Employee if he is:
A member of a collective bargaining unit, unless the collective bargaining
agreement provides otherwise. An Employee is a member of a collective
bargaining unit if he is included with a unit of employees covered by an
agreement which the Secretary of Labor finds to be a collective bargaining
agreement between employee representatives and one or more employers if
there is evidence that retirement benefits were the subject of good faith
bargaining between such employee representatives and such employer or
employers. The term "employee representatives" does not include an
organization more than one half of the members of which are owners,
officers or executives of the Employer.
A nonresident alien who does not receive any earned income (as defined in
Code (S)911(d)(2)) from the Employer which constitutes United States source
income (as defined in Code (S)861(a)(31)).
Certain Employees (including any 25% or more shareholders and any Employee
who sells Employer stock in a Section 1042 sale) shall be excluded during
the nonallocation period as further described in Section 10.03(A)(1)
hereafter.
If a Participant has not incurred a Separation from Service but becomes an
Excluded Employee, then during the period such a Participant is an Excluded
Employee, the Advisory Committee will limit that Participant's sharing in the
allocation of Employer contributions and Participant forfeitures, if any, under
the Plan by disregarding his Compensation paid by the Employer for services
rendered in his capacity as an Excluded Employee. However, during such period of
exclusion, the Participant, without regard to employment classification,
continues to receive credit for vesting under Article V for each included Year
of Service and the Participant's Account continues to share fully in Trust Fund
allocations under Section 9.11.
If an Excluded Employee who is not a Participant becomes eligible to participate
in the Plan by reason of a change in employment classification, he will
participate in the Plan immediately if he has satisfied the eligibility
conditions of Section 2.01 and would have been a Participant had he not been an
Excluded Employee during his period of Service. Furthermore, the Plan takes into
account all of the Participant's included Years of Service with the Employer as
an Excluded Employee for purposes of vesting credit under Article V.
2.02 Year of Service - Participation. For purposes of an Employee's
participation in the Plan under Section 2.01, the Plan takes into account all of
his Years of Service with the Employer, except as provided in Section 2.03.
"Year of Service" means an eligibility computation period during
2.1
<PAGE>
which the Employee completes not less than 1000 Hours of Service. The initial
eligibility computation period is the first 12 consecutive month period measured
from the Employment Commencement Date. The Plan measures subsequent periods by
reference to the Plan Year, beginning with the Plan Year which includes the
first anniversary of the Employee's Employment Commencement Date. "Employment
Commencement Date" means the date on which the Employee first performs an Hour
of Service for the Employer.
2.03 Break in Service - Participation. For purposes of participation in
the Plan, the Plan does not apply any Break in Service rule.
2.04 Participation upon Re-employment. A Participant whose employment with
the Employer terminates will re-enter the Plan as a Participant on the date of
his reemployment. An Employee who satisfies the Plan's eligibility conditions
but who terminates employment with the Employer prior to becoming a Participant
will become a Participant on the later of the Plan Entry Date on which he would
have entered the Plan had he not terminated employment or the date of his
reemployment. Any Employee who terminates employment prior to satisfying the
Plan's eligibility conditions becomes a Participant in accordance with the
provisions of Section 2.01.
* * * * * * * * * * * * * * *
2.2
<PAGE>
ARTICLE III - EMPLOYER CONTRIBUTIONS AND FORFEITURES
Part 1. Amount of Employer Contributions and Plan Allocations: Sections 3.01
through 3.06
3.01 Amount. For each Plan Year, the Employer will contribute to the Trust
the amount which the Employer may from time to time deem advisable. The Employer
may contribute to this Plan irrespective of whether it has net profits. The
Employer intends the Plan to be an employee stock ownership plan for all
purposes of the Code. The Employer may not make a contribution to the Trust for
any Plan Year to the extent the contribution would exceed the Participants'
Maximum Permissible Amounts. See Part 2 of this Article III.
The Employer contributes to this Plan on the condition its contribution is
not due to a mistake of fact and the Revenue Service will not disallow the
deduction for its contribution. The Trustee, upon written request from the
Employer, must return to the Employer the amount of the Employer's contribution
made by the Employer by mistake of fact or the amount of the Employer's
contribution disallowed as a deduction under Code (S)404. The Trustee will not
return any portion of the Employer's contribution under the provisions of this
paragraph more than one year after:
(a) The Employer made the contribution by mistake of fact; or
(b) The disallowance of the contribution as a deduction, and then, only to
the extent of the disallowance.
Omission of Eligible Employee: If, in any Plan Year, any Employee who
should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after the close of the year has
occurred, the Employer shall make a subsequent contribution with respect to the
omitted Employee in the amount of the allocation which would have occurred on
account of forfeitures or by the amount which the Employer would have
contributed had the Participant not been omitted, or both. Such contribution
shall be made regardless of whether or not it is deductible in whole or in part
in any taxable year under applicable provisions of the Code.
Inclusion of Ineligible Employee: If, in any Plan Year, any person who
should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction is allowable with respect to such contribution. In
such event, the amount contributed with respect to the ineligible person shall
constitute an allocable amount in the Plan Year in which the discovery is made.
It shall then be allocated to the eligible Participants' accounts, or, if such
allocation cannot be made, then to a suspense account for future allocation to
Participants.
The Trustee will not increase the amount of the Employer contribution
returnable under this Section 3.01 for any earnings attributable to the
contribution, but the Trustee will decrease the Employer contribution returnable
for any losses attributable to it. The Trustee may require the Employer to
furnish it whatever evidence the Trustee deems necessary to enable the Trustee
to confirm the amount the Employer has requested be returned is properly
returnable under ERISA.
3.1
<PAGE>
The Employer may make its contribution in cash or in Employer Securities
(valued at fair market value on the date of contribution) as the Employer from
time to time may determine. Subject to the consent of the Trustee, the Employer
may make its contribution in property rather than in cash or in Employer
Securities, provided the contribution of property is not a prohibited
transaction under the Code or under ERISA.
3.02 Determination of Contribution. The Employer, from its records,
determines the amount of any contributions to be made by it to the Trust under
the terms of the Plan.
3.03 Time of Payment of Contribution. The Employer may pay its
contribution for each Plan Year in one or more installments without interest.
The Employer must make its contribution to the Plan within the time prescribed
by the Code or applicable Treasury regulations.
3.04 Contribution Allocation.
(A) Method of Allocation. Subject to any restoration required under Section
5.04, the Advisory Committee will allocate and credit each annual Employer
contribution (and Participant forfeitures, if any) to the Account of each
Participant who satisfies the conditions of Section 3.06.
The Advisory Committee will make this allocation in the same ratio that
each Participant's Compensation for the Plan Year bears to the total
Compensation of all Participants for the Plan Year. For purposes of this
Section 3.04(A), "Participant" means, in addition to a Participant who satisfies
the requirements of Section 3.06 for the Plan Year, any other Participant
entitled to a top heavy minimum allocation under Section 3.04(B), but such
Participant's allocation will not exceed 3% of his Compensation for the Plan
Year.
(B) Top Heavy Minimum Allocation.
(1) Minimum Allocation. If the Plan is top heavy in any Plan Year:
(a) Each Non-Key Employee who is a Participant and is employed by the
Employer on the last day of the Plan Year will receive a top heavy
minimum allocation for that Plan Year, irrespective of whether he
satisfies the Hours of Service condition under Section 3.06; and
(b) The top heavy minimum allocation is the lesser of 3% of the Non-Key
Employee's Compensation for the Plan Year or the highest contribution
rate for the Plan Year made on behalf of any Key Employee. However, if
a defined benefit plan maintained by the Employer which benefits a Key
Employee depends on this Plan to satisfy the antidiscrimination rules
of Code (S)401(a)(4) or the coverage rules of Code (S)410 (or another
plan benefiting the Key Employee so depends on such defined benefit
plan), the top heavy minimum allocation is 3% of the Non-Key Employee's
Compensation regardless of the contribution rate for the Key Employees.
(2) Special Definitions. For purposes of this Section 3.04(B), the term
"Participant" includes any Employee otherwise eligible to participate in the
Plan but who is not a Participant because of his failure to make elective
deferrals under a Code (S)401(k)
3.2
<PAGE>
arrangement or because of his failure to make mandatory employee contributions.
For purposes of clause (b), "Compensation" means Compensation as defined in
Section 1.10, except: (i) Compensation does not include elective contributions;
(ii) any exclusions from Compensation (other than the exclusion of elective
contributions) do not apply; and (iii) any modification to the definition of
Compensation in Section 3.06 does not apply.
(3) Determining Contribution Rates. For purposes of this Section 3.04(B), a
Participant's contribution rate is the sum of Employer contributions (not
including Employer contributions to Social Security) and forfeitures allocated
to the Participant's Account for the Plan Year divided by his Compensation for
the entire Plan Year. However, for purposes of satisfying a Participant's top
heavy minimum allocation in Plan Years beginning after December 31, 1988, a
Participant's contribution rate does not include any elective contributions
under a Code (S)401(k) arrangement nor any Employer matching contributions
necessary to satisfy nondiscrimination requirements of Code (S)401(k) or of Code
(S)401(m). To determine a Participant's contribution rate, the Advisory
Committee must treat all qualified top heavy defined contribution plans
maintained by the Employer (or by any related Employers described in Section
1.27) as a single plan.
(4) No Allocations. If, for a Plan Year, there are no allocations of
Employer contributions or forfeitures for any Key Employee, the Plan does not
require any top heavy minimum allocation for the Plan Year, unless a top heavy
minimum allocation applies because of the maintenance by the Employer of more
than one plan.
(5) Method of Compliance. The Plan will satisfy the top heavy minimum
allocation in accordance with this Section 3.04(B)(5). The Advisory Committee
first will allocate the Employer contributions (and Participant forfeitures, if
any) for the Plan Year in accordance with the allocation formula under Section
3.04(A). The Employer then will contribute an additional amount for the Account
of any Participant entitled under this Section 3.04(B) to a top heavy minimum
allocation and whose contribution rate for the Plan Year, under this Plan and
any other plan aggregated under paragraph (3), is less than the top heavy
minimum allocation. The additional amount is the amount necessary to increase
the Participant's contribution rate to the top heavy minimum allocation. The
Advisory Committee will allocate the additional contribution to the Account of
the Participant on whose behalf the Employer makes the contribution.
3.05 Forfeiture Allocation. The amount of a Participant's Accrued Benefit
forfeited under the Plan is a Participant forfeiture. Subject to any restoration
allocation required under Section 9.14, the Advisory Committee will allocate a
Participant forfeiture in accordance with Section 3.04, as an Employer
contribution for the Plan Year in which the forfeiture occurs, as if the
Participant forfeiture were an additional Employer contribution for that Plan
Year. The Advisory Committee will continue to hold the undistributed, non-vested
portion of a terminated Participant's Accrued Benefit in his Account solely for
his benefit until a forfeiture occurs at the specified in Section 5.09, or, if
applicable, until the time specified in Section 9.14. Except as provided under
Section 5.04, a Participant will not share in the allocation of a forfeiture of
any portion of his Accrued Benefit. In making a forfeiture allocation under this
Section 3.05, the Advisory Committee, must base forfeitures of Employer
Securities upon the fair market value of the Employer Securities as of the
Accounting Date of the forfeitures.
3.3
<PAGE>
3.06 Accrual of Benefit. The Advisory Committee will determine the accrual
of benefit (Employer Contributions and Participant forfeitures) on the basis of
the Plan Year.
(A) Compensation Taken Into Account. In allocation an Employer contribution to
a Participant's Account, the Advisory Committee, except for purposes of
determining the top heavy minimum contribution under Section 3.04(B), will
take into account only the Compensation determined for the portion of the
Plan Year in which the Employee actually is a Participant.
(B) Hours of Service Requirement. Subject to the top heavy minimum allocation
requirement of Section 3.04(B), the Advisory Committee will not allocate
any portion of an Employer contribution for a Plan Year to any
Participant's Account if the Participant does not complete a minimum of
1000 Hours of Service during the Plan Year, unless the Participant
terminates employment during the Plan Year because of death or disability
or because of the attainment of Normal Retirement Age in the current Plan
Year or in a prior Plan Year.
(C) Employment Requirement. A Participant who, during a particular Plan Year,
completes the Hours of Service requirement under Section 3.06(B) will share
in the allocation of Employer contributions and Participant forfeitures, if
any, for that Plan Year without regard to whether he is employed by the
Employer on the Accounting Date of that Plan Year.
(D) Suspension of Accrual Requirements. The Plan suspends the accrual
requirements under Sections 3.06(B) and (C) if, for any Plan Year beginning
after December 31, 1989, the Plan fails to satisfy the Participation Test
or the Coverage Test. A Plan satisfies the Participation Test if, on each
day of the Plan Year, the number of Employees who benefit under the Plan is
at least equal to the lesser of 50 or 40% of the total number of Includible
Employees as of such day. A Plan satisfies the Coverage Test if, on the
last day of each quarter of the Plan Year, the number of Nonhighly
Compensated Employees who benefit under the Plan is at least equal to 70%
of the total number of Includible Nonhighly Compensated Employees as of
such day. "Includible" Employees are all Employees other than: (1) those
Employees excluded from participating in the Plan for the entire Plan Year
by reason of the collective bargaining unit exclusion or the nonresident
alien exclusion described in the Code or by reason of the age and service
requirements of Article II; and (2) any Employee who incurs a Separation
from Service during the Plan Year and fails to complete at least 501 Hours
of Service for the Plan Year. A "Nonhighly Compensated Employee" is an
Employee who is not a Highly Compensated Employee and who is not a family
member aggregated with a Highly Compensated Employee pursuant to Section
1.07 of the Plan. For purposes of the Participation Test and the Coverage
Test, an Employee is benefiting under the Plan on a particular date if,
under Section 3.04, he is entitled to an allocation for the Plan Year.
If this Section 3.06((D)) applies for a Plan Year, the Advisory Committee
will suspend the accrual requirements for the Includible Employees who are
Participants, beginning first with the Includible Employee(s) employed with the
Employer on the last day of the Plan Year, then the Includible Employee(s) who
have the latest Separation from Service during the Plan Year, and continuing to
suspend in descending order the accrual requirements for each Includible
Employee who incurred an earlier Separation from Service, from the latest to the
earliest Separation from Service date, until the Plan satisfies both the
Participation Test and the Coverage Test for the Plan Year. If two or more
Includible Employees have a Separation from Service on the same day, the
Advisory Committee will suspend the accrual requirements for all such Includible
Employees, irrespective of whether the plan can satisfy the Participation Test
and the Coverage Test by accruing
3.4
<PAGE>
benefits for fewer than all such Includible Employees. If the Plan suspends the
accrual requirements for an Includible Employee, that Employee will share in the
allocation of Employer contributions and Participant forfeitures, if any,
without regarding to the number of Hours of Service he has earned for the Plan
Year and without regard to whether he is employed by the Employer on the last
day of the Plan Year.
Part 2. Limitations on Allocations: Sections 3.07 and 3.08
3.07 Limitations on Allocations to Participants' Accounts. The amount of
Annual Additions which the Advisory Committee may allocate under this Plan on a
Participant's behalf for a Limitation Year may not exceed the Maximum
Permissible Amount. If the amount the Employer otherwise would contribute to the
Participant's Account would cause the Annual Additions for the Limitation Year
to exceed the Maximum Permissible Amount, the Employer will reduce the amount of
its contribution so the Annual Additions for the Limitation Year will equal the
Maximum Permissible Amount. If an allocation of Employer contributions pursuant
to Section 3.04, would result in an Excess Amount (other than an Excess Amount
resulting from the circumstances described in Section 3.07(B) ) to the
Participant's Account, the Advisory Committee will reallocate the Excess Amount
to the remaining Participants who are eligible for an allocation of Employer
contributions for the Plan Year in which the Limitation Year ends. The Advisory
Committee will make this reallocation on the basis of the allocation method
under the Plan as if the Participant whose Account otherwise would receive the
Excess Amount is not eligible for an allocation of Employer contributions.
(A) Estimation of Compensation. Prior to the determination of the Participant's
actual Compensation for a Limitation Year, the Advisory Committee may
determine the Maximum Permissible Amount on the basis of the Participant's
estimated annual Compensation for such Limitation Year. The Advisory
Committee must make this determination on a reasonable and uniform basis
for all Participants similarly situated. The Advisory Committee must reduce
any Employer contributions (including any allocation of forfeitures) based
on estimated annual Compensation by any Excess Amounts carried over from
prior years. As soon as is administratively feasible after the end of the
Limitation Year, the Advisory Committee will determine the Maximum
Permissible Amount for such Limitation Year on the basis of the
Participant's actual Compensation for such Limitation Year.
(B) Disposition of Excess Amount. If, pursuant to Section 3.07(A), or because
of the allocation of forfeitures, there is an Excess Amount with respect to
a Participant for a Limitation Year, the Advisory Committee will dispose of
such Excess Amount as follows:
(a) The Advisory Committee will return any nondeductible voluntary Employee
contributions to the Participant to the extent the return would reduce the
Excess Amount.
(b) If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan covers the Participant at the end of the Limitation
Year, then the Advisory Committee will use the Excess Amount(s) to reduce
future Employer contributions (including any allocation of forfeitures)
under the Plan for the next Limitation Year and for each succeeding
Limitation Year, as is necessary, for the Participant. The Participant may
elect to limit his Compensation for allocation purposes to the extent
necessary to reduce his allocation for the Limitation Year to the Maximum
Permissible Amount and eliminate the Excess Amount.
3.5
<PAGE>
(c) If, after the application of paragraph (a), an Excess Amount still
exists, and the Plan does not cover the Participant at the end of the
Limitation Year, then the Advisory Committee will hold the Excess Amount
unallocated in a suspense account. The Advisory Committee will apply the
suspense account to reduce Employer Contributions (including allocation of
forfeitures) for all remaining Participants in the next Limitation Year,
and in each succeeding Limitation Year if necessary. Neither the Employer
nor any Employee may contribute to the Plan for any Limitation Year in
which the Plan is unable to allocate fully a suspense account maintained
pursuant to this paragraph (c).
(d) The Advisory Committee will not distribute any Excess Amount(s) to
Participants or to former Participants.
(C) Defined Benefit Plan Limitation. If the Participant presently participates,
or has ever participated under a defined benefit plan maintained by the
Employer, then the sum of the defined benefit plan fraction and the defined
contribution plan fraction for the Participant for that Limitation Year must not
exceed 1.0. To the extent necessary to satisfy this limitation, the Employer
will reduce its contribution or allocation on behalf of the Participant to the
defined contribution plan under which the Participant participates and then, if
necessary, the Participant's projected annual benefit under the defined benefit
plan under which the Participant participates.
3.08 Definitions - Article III. For purposes of Article III, the following
terms mean:
(a) "Annual Addition" - The sum of the following amounts allocated on
behalf of a Participant for a Limitation Year, of (i) all Employer
contributions; (ii) all forfeitures; and (iii) all Employee contributions.
Except to the extent provided in Treasury regulations, Annual Additions
include excess contributions described in Code (S)401(k), excess aggregate
contributions described in Code (S)401(m) and excess deferrals described in
Code (S)402(g), irrespective of whether the plan distributes or forfeits
such excess amounts. Annual Additions also include Excess Amounts reapplied
to reduce Employer contributions under Section 3.07. Amounts allocated
after March 31, 1984, to an individual medical account (as defined in Code
(S)415(l)(2)) included as part of a defined benefit plan maintained by the
Employer are Annual Additions. Furthermore, Annual Additions include
contributions paid or accrued after December 31, 1985, for taxable years
ending after December 31, 1985, attributable to post-retirement medical
benefits allocated to the separate account of a key employee (as defined in
Code (S)419A(d)(3)) under a welfare benefit fund (as defined in Code
(S)419(e)) maintained by the Employer, but only for purposes of the dollar
limitation applicable to the Maximum Permissible Amount.
"Annual Additions" do not include any Employer contributions applied by the
Advisory Committee (not later than the due date, including extensions, for
filing the Employer's Federal income tax return for the Plan Year) to pay
interest (charged to a Participant's Account) on an Exempt Loan, and any
Leveraged Employer Securities the Advisory Committee allocates as
forfeitures; provided however, the provisions of this sentence do not apply
in a Limitation Year for which the Advisory Committee allocates more than
one-third (1/3) of the Employer contributions applied to pay principal and
interest on an Exempt Loan to Highly Compensated Employee-Participants. The
Advisory Committee may reallocate the Employer contributions in accordance
with Section 3.04 to the Accounts of non-Highly
3.6
<PAGE>
Compensated Employee-Participants to the extent necessary in order to
satisfy this special limitation.
(b) "Compensation" - For purposes of applying the limitations of Part 2 of
this Article III, "Compensation" means Compensation as defined in Section
1.10, except Compensation does not include elective contributions and any
exclusion from Compensation (other than the exclusion of elective
contributions) does not apply.
(c) "Maximum Permissible Amount" - The lesser of (i) $30,000 (or, if
greater, one-fourth of the defined benefit dollar limitation under Code
(S)415(b)(1)(A)), or (ii) 25% of the Participant's Compensation for the
Limitation Year. [The dollar amount of clause (i) will increase by the
lesser of (1) 100% of the dollar amount in effect for the Limitation Year;
or (2) the amount of the Employer Securities allocated to the Participant's
Employer Securities Account as an Employer contribution for the Limitation
Year. The immediately preceding sentence does not apply for any Limitation
Year for which the Advisory Committee allocates more than one-third (1/3)
of Employer contribution to Highly Compensated Employee Participants, nor
to Limitation Years commencing after July 12, 1989.] If there is a short
Limitation Year because of a change in Limitation Year, the Advisory
Committee will multiply the $30,000 limitation (or larger limitation) by
the following fraction:
Number of months in the short Limitation Year
---------------------------------------------
12
(d) "Employer" - The Employer that adopts this Plan and any related
employers described in Section 1.27. Solely for purposes of applying the
limitations of Part 2 of this Article III, the Advisory Committee will
determine related employers described in Section 1.27 by modifying Code
(S)414(b) and (c) in accordance with Code (S)415(h).
(e) "Excess Amount" - The excess of the Participant's Annual Additions for
the Limitation Year over the Maximum Permissible Amount.
(f) "Limitation Year" - The Plan Year. If the Employer amends the
Limitation Year to a different 12 consecutive month period, the new
Limitation Year must begin on a date within the Limitation Year for which
the Employer makes the amendment, creating a short Limitation Year.
(g) "Defined contribution plan" - A retirement plan which provides for an
individual account for each participant and for benefits based solely on
the amount contributed to the participant's account, and any income,
expenses, gains and losses, and any forfeitures of accounts of other
participants which the plan may allocate to such participant's account. The
Advisory Committee must treat all defined contribution plans (whether or
not terminated) maintained by the Employer as a single plan. Solely for
purposes of the limitations of Part 2 of this Article III, the Advisory
Committee will treat employee contributions made to a defined benefit plan
maintained by the Employer as a separate defined contribution plan. The
Advisory Committee also will treat as a defined contribution plan an
individual medical account (as defined in Code (S)415(l)(2)) included as
part of a defined benefit plan maintained
3.7
<PAGE>
by the Employer and, for taxable years ending after December 31, 1985, a
welfare benefit fund under Code (S)419(e) maintained by the Employer to the
extent there are post-retirement medical benefits allocated to the separate
account of a key employee (as defined in Code (S)419A(d)(3)).
(h) "Defined benefit plan" - A retirement plan which does not provide for
individual accounts for Employer contributions. The Advisory Committee must
treat all defined benefit plans (whether or not terminated) maintained by
the Employer as a single plan.
(i) "Defined benefit plan fraction" -
Projected annual benefit of the Participant under the defined benefit plan(s)
-----------------------------------------------------------------------------
The lesser of (i) 125% (subject to the "100% limitation" in paragraph (1)) of
dollar limitation in effect under Code (S) 415(b)(1)(A) for the Limitation
Year, or (ii) 140% of the Participant's average Compensation for his
high three (3) consecutive Years of Service
To determine the denominator of this fraction, the Advisory Committee will
make any adjustment required under Code (S)415(b) and will determine a Year of
Service as a Plan Year in which the Employee completed at least 1,000 Hours of
Service. The "projected annual benefit" is the annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if the plan
expresses such benefit in a form other than a straight life annuity or qualified
joint and survivor annuity) of the Participant under the terms of the defined
benefit plan on the assumptions he continues employment until his normal
retirement age (or current age, if later) as stated in the defined benefit plan,
his compensation continues at the same rate as in effect in the Limitation Year
under consideration until the date of his normal retirement age and all other
relevant factors used to determine benefits under the defined benefit plan
remain constant as of the current Limitation Year for all future Limitation
Years.
Current Accrued Benefit. If the Participant accrued benefits in one or more
defined benefit plans maintained by the Employer which were in existence on May
6, 1986, the dollar limitation used in the denominator of this fraction will not
be less than the Participant's Current Accrued Benefit. A Participant's Current
Accrued Benefit is the sum of the annual benefits under such defined benefit
plans which the Participant had accrued as of the end of the 1986 Limitation
Year (the last Limitation Year beginning before January 1, 1987), determined
without regard to any change in the terms or conditions of the Plan made after
May 5, 1986, and without regard to any cost of living adjustment occurring after
May 5, 1986. This Current Accrued Benefit rule applies only if the defined
benefit plans individually and in the aggregate satisfied the requirements of
Code (S)415 as in effect at the end of the 1986 Limitation Year.
(j) "Defined contribution plan fraction" -
The sum, as of the close of the Limitation Year, of the Annual Additions
to the Participant's Account under the defined contribution plan(s)
------------------------------------------------------------------
The sum of the lesser of the following amounts determined
for the Limitation Year and for each prior Year of Service with
the Employer: (i) 125%
3.8
<PAGE>
(subject to the "100% limitation" in paragraph (1)) of the dollar limitation
in effect under Code (S)415(c)(1)(A) for the Limitation Year
(determined without regard to the special dollar Limitations
for employee stock ownership plans), or (ii) 35% of the
Participant's Compensation for the Limitation Year
For purposes of determining the defined contribution fraction, the Advisory
Committee will not recompute Annual Additions in Limitation Years beginning
prior to January 1, 1987, to treat all Employee contributions as Annual
Additions. If the Plan satisfied Code (S)415 for Limitation Years beginning
prior to January 1, 1987, the Advisory Committee will redetermine the defined
contribution plan fraction and the defined benefit plan fraction as of the end
of the 1986 Limitation Year, in accordance with this Section 3.19. If the sum of
the redetermined fractions exceeds 1.0, the Advisory Committee will subtract
permanently from the numerator of the defined contribution plan fraction an
amount equal to the product of (1) the excess of the sum of the fractions over
1.0, times (2) the denominator of the defined contribution plan fraction. In
making the adjustment, the Advisory Committee must disregard any accrued benefit
under the defined benefit plan which is in excess of the Current Accrued
Benefit. This Plan continues any transitional rules applicable to the
determination of the defined contribution plan fraction under the Employer's
Plan as of the end of the 1986 Limitation Year.
(k) "100% Limitation." If the 100% limitation applies, the Advisory
Committee must determine the denominator of the defined benefit plan
fraction and the denominator of the defined contribution plan fraction by
substituting 100% for 125%. The 100% limitation applies only if: (i) the
Plan's top heavy ratio exceeds 90%; or (ii) the Plan's top heavy ratio is
greater than 60%, and the Employer does not provide extra minimum benefits
which satisfy Code (S)416(h)(2).
* * * * * * * * * *
3.9
<PAGE>
ARTICLE IV - PARTICIPANT CONTRIBUTIONS
4.01 Participant Voluntary Contributions. The Plan does not permit nor
require Participant voluntary contributions.
4.02 Participant Rollover Contributions. The Plan does not permit
Participant rollover contributions.
4.1
<PAGE>
ARTICLE V - TERMINATION OF SERVICE - PARTICIPANT VESTING
5.01 Normal Retirement Age. A Participant's Normal Retirement Age is 65
years of age. A Participant's Accrued Benefit derived from Employer
contributions is 100% Nonforfeitable upon and after his attaining Normal
Retirement Age (if employed by the Employer on or after that date).
5.02 Participant Disability or Death; Plant Shutdown or Sale or a
Substantial Reduction in Workforce. If a Participant's employment with the
Employer terminates as a result of death or disability, the Participant's
Accrued Benefit derived from Employer contributions will be 100% Nonforfeitable.
Additionally, if and to the extent that the Employer so determines in its sole
discretion, a Participant's interest in his Employer Contributions Account may
become 100% Nonforfeitable in the event that the Participant's employment is
terminated due to a plant shutdown or sale or in the event of a substantial
reduction in the workforce of the Employer.
5.03 Vesting Schedule. Except as provided in Sections 5.01 and 5.02, for
each Year of Service, a Participant's Nonforfeitable percentage of his Accrued
Benefit derived from Employer contributions equals the percentage in the
following vesting schedule:
Percent of
Years of Service Nonforfeitable Interest
---------------- -----------------------
Less than 5............ 0%
5 or more ............. 100%
With respect to Plan Years for which the Plan is top heavy, the Advisory
Committee will calculate a Participant's Nonforfeitable Percentage under the
following schedule:
TOP HEAVY VESTING SCHEDULE
--------------------------
Percent of
Years of Service Nonforfeitable Interest
---------------- -----------------------
Less than 2 ........... 0%
2 ..................... 20%
3 ..................... 40%
4 ..................... 60%
5 ..................... 80%
6 or more.............. 100%
A Participant's Nonforfeitable Accrued Benefit will never be less than the
lesser of $25.00 or his entire Accrued Benefit, even if the application of the
vesting schedule would result in a smaller Nonforfeitable Accrued Benefit.
5.04 Cash-Out Distributions to Partially-Vested Participants/ Restoration
of Forfeited Accrued Benefit. If, pursuant to Article VI, a partially-vested
Participant receives a cash-out
5.1
<PAGE>
distribution before he incurs a Forfeiture Break in Service (as defined in
Section 5.08), the cash-out distribution will result in an immediate forfeiture
of the nonvested portion of the Participant's Accrued Benefit derived from
Employer contributions. See Section 5.09. A partially-vested Participant is a
Participant whose Nonforfeitable Percentage determined under Section 5.03 is
less than 100%. A cash-out distribution is a distribution of the entire present
value of the Participant's Nonforfeitable Accrued Benefit.
(A) Restoration and Conditions upon Restoration. A partially-vested Participant
who is re-employed by the Employer after receiving a cash-out distribution of
the Nonforfeitable percentage of his Accrued Benefit may repay the Trustee the
amount of the cash-out distribution attributable to Employer contributions,
unless the Participant no longer has a right to restoration by reason of the
conditions of this Section 5.04(A). If a partially-vested Participant makes the
cash-out distribution repayment, the Advisory Committee, subject to the
conditions of this Section 5.04(A), must restore his Accrued Benefit
attributable to Employer contributions to the same dollar amount as the dollar
amount of his Accrued Benefit on the Accounting Date, or other valuation date,
immediately preceding the date of the cash-out distribution, unadjusted for any
gains or losses occurring subsequent to that Accounting Date, or other valuation
date. Restoration of the Participant's Accrued Benefit includes restoration of
all Code (S)411(d)(6) protected benefits with respect to that restored Accrued
Benefit, in accordance with applicable Treasury regulations. The Advisory
Committee will not restore a re-employed Participant's Accrued Benefit under
this paragraph if:
(1) 5 years have elapsed since the Participant's first re-employment date
with the Employer following the cash-out distribution; or
(2) The Participant incurred a Forfeiture Break in Service (as defined in
Section 5.08). This condition also applies if the Participant makes
repayment within the Plan Year in which he incurs the Forfeiture Break in
Service and that Forfeiture Break in Service would result in a complete
forfeiture of the amount the Advisory Committee otherwise would restore.
(B) Time and Method of Restoration. If neither of the two conditions preventing
restoration of the Participant's Accrued Benefit applies, the Advisory Committee
will restore the Participant's Accrued Benefit as of the Plan Year Accounting
Date coincident with or immediately following the repayment. To restore the
Participant's Accrued Benefit, the Advisory Committee, to the extent necessary,
will allocate to the Participant's Account:
(1) First, the amount, if any, of Participant forfeitures the Advisory
Committee would otherwise allocate under Section 3.05;
(2) Second, the amount, if any, of the Trust Fund net income or gain for
the Plan Year; and
(3) Third, the Employer contribution for the Plan Year to the extent made
under a discretionary formula.
To the extent the amounts described in clauses (1), (2) and (3) are
insufficient to enable the Advisory Committee to make the required restoration,
the Employer must contribute, without regard to any requirement or condition of
Section 3.01, the additional amount necessary to enable the Advisory Committee
to make the required restoration. If, for a particular Plan Year, the Advisory
5.2
<PAGE>
Committee must restore the Accrued Benefit of more than one re-employed
Participant, then the Advisory Committee will make the restoration allocations
to each such Participant's Account in the same proportion that a Participant's
restored amount for the Plan Year bears to the restored amount for the Plan Year
of all re-employed Participants. The Advisory Committee will not take into
account any allocation under this Section 5.04 in applying the limitation on
allocations under Part 2 of Article III.
(C) 0% Vested Participant. The deemed cash-out rule applies to a 0% vested
Participant. A 0% vested Participant is a Participant whose Accrued Benefit
derived from Employer contributions is entirely forfeitable at the time of his
Separation from Service. Under the deemed cash-out rule, the Advisory Committee
will treat the 0% vested Participant as having received a cash-out distribution
on the date of the Participant's Separation from Service or, if the
Participant's Account is entitled to an allocation of Employer contributions for
the Plan Year in which he separates from Service, on the last day of that Plan
Year. For purposes of applying the restoration provisions of this Section 5.04,
the Advisory Committee will treat the 0% vested Participant as repaying his
cash-out "distribution" on the first date of his re-employment with the
Employer.
5.05 Segregated Account for Repaid Amount. Until the Advisory Committee
restores the Participant's Accrued Benefit, as described in Section 5.04, the
Trustee will invest the cash-out amount the Participant has repaid in a
segregated Account maintained solely for that Participant. The Trustee must
invest the amount in the Participant's segregated Account in Federally insured
interest bearing savings account(s) or time deposit(s) (or a combination of
both), or in other fixed income investments. Until commingled with the balance
of the Trust Fund on the date the Advisory Committee restores the Participant's
Accrued Benefit, the Participant's segregated Account remains a part of the
Trust, but it alone shares in any income it earns and it alone bears any expense
or loss it incurs. Unless the repayment qualifies as a rollover contribution,
the Advisory Committee will direct the Trustee to repay to the Participant as
soon as is administratively practicable the full amount of the Participant's
segregated Account if the Advisory Committee determines either of the conditions
of Section 5.04(A) prevents restoration as of the applicable Accounting Date,
notwithstanding the Participant's repayment.
5.06 Year of Service - Vesting. For purposes of vesting under Section
5.03, Year of Service means any Plan Year during which an Employee completes not
less than 1,000 Hours of Service with the Employer.
5.07 Break In Service - Vesting. For purposes of this Article V, a
Participant incurs a "Break in Service" if during any Plan Year he does not
complete more than 500 Hours of Service with the Employer.
5.08 Included Years of Service - Vesting.
(A) Included Years of Service. For purposes of determining "Years of Service"
under Section 5.06, the Plan takes into account all Years of Service an Employee
completes with the Employer, except:
(1) Any Year of Service during the period the Employer did not maintain
this Plan or a predecessor plan.
5.3
<PAGE>
(2) Any Year of Service before a Break in Service if the number of
consecutive Breaks in Service equals or exceeds the greater of 5 or the
aggregate number of the Years of Service prior to the Break. This exception
applies only if the Participant is 0% vested in his Accrued Benefit derived
from Employer contributions at the time he has a Break in Service.
Furthermore, the aggregate number of Years of Service before a Break in
Service does not include any Years of Service not required to be taken into
account under this exception by reason of any prior Break in Service.
(3) Any Year of Service earned prior to the effective date of ERISA if the
Plan would have disregarded that Year of Service on account of an
Employee's Separation from Service under a Plan provision adopted and in
effect before January 1, 1974.
(B) Forfeiture Break in Service. For the sole purpose of determining a
Participant's Nonforfeitable percentage of his Accrued Benefit derived from
Employer contributions which accrued for his benefit prior to a Forfeiture Break
in Service, the Plan disregards any Year of Service after the Participant first
incurs a Forfeiture Break in Service. The Participant incurs a Forfeiture Break
in Service when he incurs 5 consecutive Breaks in Service.
5.09 Forfeiture Occurs. A Participant's forfeiture, if any, of his Accrued
Benefit derived from Employer contributions occurs under the Plan on the earlier
of:
(a) The last day of the vesting computation period in which the
Participant first incurs a Forfeiture Break in Service; or
(b) The date the Participant receives a cash-out distribution.
The Advisory Committee determines the percentage of a Participant's Accrued
Benefit forfeiture, if any, under this Section 5.09 solely by reference to the
vesting schedule of Section 5.03. A Participant will not forfeit any portion of
his Accrued Benefit for any other reason or cause except as expressly provided
by this Section 5.09 or as provided under Section 9.14.
* * * * * * * * * *
5.4
<PAGE>
ARTICLE VI - TIME AND METHOD OF PAYMENT OF BENEFITS
6.01 Time of Payment of Accrued Benefit. Unless, pursuant to Section 6.03,
the Participant or the Beneficiary elects in writing to a different time or
method of payment, the Advisory Committee will direct the Trustee to commence
distribution of a Participant's Nonforfeitable Accrued Benefit in accordance
with this Section 6.01. A Participant must consent, in writing, to any
distribution required under this Section 6.01 if the present value of the
Participant's Nonforfeitable Accrued Benefit, at the time of the distribution to
the Participant, exceeds $3,500 and the Participant has not attained the later
of Normal Retirement Age or age 62. Furthermore, the Participant's spouse also
must consent, in writing, to any distribution, for which Section 6.04 requires
the spouse's consent. For all purposes of this Article VI, the term "Annuity
Starting Date" means the first day of the first period for which the Plan pays
an amount as an annuity or in any other form. A Distribution Date under this
Article VI, unless otherwise specified within the Plan, is the 60th day of the
Plan Year, or as soon as administratively practicable following a distribution
date. For purposes of the consent requirements under this Article VI, if the
present value of the Participant's Nonforfeitable Accrued Benefit, at the time
of any distribution, exceeds $3,500, the Advisory Committee must treat that
present value as exceeding $3,500 for purposes of all subsequent Plan
distributions to the Participant.
(A) Separation from Service For a Reason Other Than Death.
(1) Participant's Nonforfeitable Accrued Benefit Not Exceeding $3,500. If
the Participant's Separation from Service is for any reason other than death,
the Advisory Committee will direct the Trustee to distribute the Participant's
Nonforfeitable Accrued Benefit in a lump sum as soon as administratively
practicable following the close of the Plan Year in which the Participant's
Separation from Service occurs, but in no event later than the 60th day
following the close of the Plan Year in which the Participant attains Normal
Retirement Age. If the Participant is partially vested in his Accrued Benefit,
the distribution described in the preceding sentence may not occur earlier than
the date the Participant incurs a Forfeiture Break in Service, subject to the
requirement to make distribution no later than the 60th day following the
Participant's attainment of Normal Retirement Age.
(2) Participant's Nonforfeitable Accrued Benefit Exceeds $3,500. If the
Participant's Separation from Service is for any reason other than death, the
Advisory Committee will direct the Trustee to commence distribution of the
Participant's Nonforfeitable Accrued Benefit in a form and at the time elected
by the Participant, pursuant to Section 6.03 and Section 6.05 (as to
distributions of Employer Securities). In the absence of an election by the
Participant, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in a lump sum (or, if applicable,
the normal annuity form of distribution required under Section 6.04), on the
60th day following the close of the Plan Year in which the latest of the
following events occurs: (a) the Participant attains Normal Retirement Age; (b)
the Participant attains age 62; or (c) the Participant's Separation from
Service.
(3) Disability. If the Participant's Separation from Service is because of
his disability, the Advisory Committee will direct the Trustee to pay the
Participant's Nonforfeitable Accrued Benefit in lump sum, as soon as
administratively feasible after the Participant's Separation from Service,
subject to the notice and consent requirements of this Article VI and to the
applicable mandatory commencement dates described in Paragraph (1) or in
Paragraph (2).
6.1
<PAGE>
(B) Required Beginning Date. If any distribution commencement date described
under Paragraph (A) of this Section 6.01, either by Plan provision or by
Participant election (or nonelection), is later than the Participant's Required
Beginning Date, the Advisory Committee instead must direct the Trustee to make
distribution on the Participant's Required Beginning Date. A Participant's
Required Beginning Date is the April 1 following the close of the calendar year
in which the Participant attain age 70 1/2. However, if the Participant, prior
to incurring a Separation from Service, attained age 70 1/2 by January 1, 1988,
and, for the five Plan Year period ending in the calendar year in which he
attained age 70 1/2, and for all subsequent years, the Participant was not a
more than 5% owner, the Required Beginning Date is the April 1 following the
close of the calendar year in which the Participant separates from Service or,
if earlier, the April 1 following the close of the calendar year in which the
Participant becomes a more than 5% owner. Furthermore, if a Participant who was
not a more than 5% owner attained age 70 1/2 during 1988 and did not incur a
Separation from Service prior to January 1, 1989, his Required Beginning Date is
April 1, 1990. A mandatory distribution at the Participant's Required Beginning
Date will be in lump sum (or, if applicable, the normal annuity form of
distribution required under Section 6.04) unless the Participant, pursuant to
the provisions of this Article VI, makes a valid election to receive an
alternative form of payment.
(C) Death of the Participant. The Advisory Committee will direct the Trustee, in
accordance with this Section 6.01(C), to distribute to the Participant's
Beneficiary the Participant's Nonforfeitable Accrued Benefit remaining in the
Trust at the time of the Participant's death. Subject to the requirements of
Section 6.04, the Advisory Committee will determine the death benefit by
reducing the Participant's Nonforfeitable Accrued Benefit by any security
interest the Plan has against that Nonforfeitable Accrued Benefit by reason of
an outstanding Participant loan.
(1) Deceased Participant's Nonforfeitable Accrued Benefit Does Not Exceed
$3,500. The Advisory Committee, subject to the requirements of Section 6.04,
must direct the Trustee to distribute the deceased Participant's Nonforfeitable
Accrued Benefit in a single cash sum, as soon as administratively practicable
following the Participant's death or, if later, the date on which the Advisory
Committee receives notification of or otherwise confirms the Participant's
death.
(2) Deceased Participant's Nonforfeitable Accrued Benefit Exceeds $3,500.
The Advisory Committee will direct the Trustee to distribute the deceased
Participant's Nonforfeitable Accrued Benefit at the time and in the form elected
by the Participant or, if applicable by the Beneficiary, as permitted under this
Article VI. In the absence of an election, subject to the requirements of
Section 6.04, the Advisory Committee will direct the Trustee to distribute the
Participant's undistributed Nonforfeitable Accrued Benefit in a lump sum on the
first distribution date following the close of the Plan Year in which the
Participant's death occurs or, if later, the first distribution date following
the date the Advisory Committee receives notification of or otherwise confirms
the Participant's death.
If the death benefit is payable in full to the Participant's surviving
spouse, the surviving spouse, in addition to the distribution options provided
in this Section 6.01(C), may elect distribution at any time or in any form
(other than a joint and survivor annuity) this Article VI would permit for a
Participant.
(D) Default on a Loan. If a Participant or Beneficiary defaults on a loan made
pursuant to a loan policy adopted by the Advisory Committee pursuant to Section
9.04, the Plan treats the default as a distributable event. The Trustee, at the
time of the default, will reduce the Participant's Nonforfeitable Accrued
Benefit by the lesser of the amount in default (plus accrued interest) or the
Plan's security interest in that Nonforfeitable Accrued Benefit.
6.2
<PAGE>
6.02 Method of Payment of Accrued Benefit. Subject to the annuity
distribution requirements, if any, prescribed by Section 6.04, and any
restrictions prescribed by Section 6.03, a Participant or Beneficiary may elect
distribution as follows, subject to Section 10.08, and the other applicable
rules herein:
(i) If the Participant's benefit is $3,500 or less, the Trustee will pay
the entire benefit in cash in one lump sum payment as soon as
administratively practicable after the first day of the third month of
the Plan Year following the Plan Year in which the Participant
separates from service.
(ii) If the Participant's benefit is greater than $3,500, upon the
Participant's written consent, the Trustee will pay the benefit in
five substantially equal annual installments beginning as soon as
administratively practicable after the first day of the sixth Plan
Year following the Plan Year in which the Participant separates from
service, pursuant to Section 6.05.
Special Option For Participants Employed Prior to January 1, 1994:
Each Participant whose original date of employment was prior to
January 1, 1994, and whose Nonforfeitable Accrued Benefit exceeds
$3,500, may elect to have the Trustee distribute his entire benefit,
in one cash payment, as soon as administratively feasible following
his Separation from Service. Any Participant who elects this special
option and whose account receives an allocation of the Employer's
contribution for the plan year in which he separates from service,
shall receive an additional distribution of such additional allocation
in the first plan year following his separation from service. If this
special option is not elected, distribution to such Participant shall
be paid pursuant to Section 6.05.
The Employer retains the discretion to eliminate, with respect to all
participants, either the lump sum or installment distribution options provided
in this Section 6.02.
The distribution options permitted under this Section 6.02 are available
only if the present value of the Participant Nonforfeitable Accrued Benefit, at
the time of the distribution to the Participant, exceeds $3,500. To facilitate
installment payments under this Article VI, the Advisory Committee may direct
the Trustee to segregate all or any part of the Participant's Accrued Benefit in
a separate Account. The Trustee will invest the Participant's segregated Account
in Federally insured interest bearing savings account(s) or time deposit(s) (or
a combination of both), or in other fixed income investments. A segregated
Account remains a part of the Trust, but it alone shares in any income it earns,
and it alone bears any expense or loss it incurs. A Participant or Beneficiary
may elect to receive an installment distribution in the form of a
Nontransferable Annuity Contract. Under an installment distribution, the
Participant or Beneficiary, at any time, may elect to accelerate the payment of
all, or any portion, of the Participant's unpaid Nonforfeitable Accrued Benefit,
subject to the requirements of Section 6.04.
(A) Minimum Distribution Requirements for Participants. The Advisory Committee
may not direct the Trustee to distribute the Participant's Nonforfeitable
Accrued Benefit, nor may the Participant elect to have the Trustee distribute
his Nonforfeitable Accrued Benefit, under a method of payment which, as of the
Required Beginning Date, does not satisfy the minimum distribution requirements
under Code (S)401(a)(9) and the applicable Treasury regulations. The minimum
distribution for a calendar year equals the Participant's Nonforfeitable Accrued
Benefit as of the latest valuation date preceding the beginning of the calendar
year divided by the Participant's life
6.3
<PAGE>
expectancy or, if applicable, the joint and last survivor expectancy of the
Participant and his designated Beneficiary (as determined under Article VIII,
subject to the requirements of the Code (S)401(a)(9) regulations). The Advisory
Committee will increase the Participant's Nonforfeitable Accrued Benefit, as
determined on the relevant valuation date, for contributions or forfeitures
allocated after the valuation date and by December 31 of the valuation calendar
year, and will decrease the valuation by distributions made after the valuation
date and by December 31 of the valuation calendar year. For purposes of this
valuation, the Advisory Committee will treat any portion of the minimum
distribution for the first distribution calendar year made after the close of
that year as a distribution occurring in that first distribution calendar year.
In computing a minimum distribution, the Advisory Committee must use the unisex
life expectancy multiples under Treas. Reg. (S)1.72-9. The Advisory Committee,
only upon the Participant's written request, will compute the minimum
distribution for a calendar year subsequent to the first calendar year for which
the Plan requires a minimum distribution by redetermining the applicable life
expectancy. However, the Advisory Committee may not redetermine the joint life
and last survivor expectancy of the Participant and a nonspouse designated
Beneficiary in a manner which takes into account any adjustment to a life
expectancy other than the Participant's life expectancy.
If the Participant's spouse is not his designated Beneficiary, a method of
payment to the Participant (whether by Participant election or by Advisory
Committee direction) may not provide more than incidental benefits to the
Beneficiary. For Plan Years beginning after December 31, 1988, the Plan must
satisfy the Minimum Distribution Incidental Benefit ("MDIB") requirement in the
Treasury regulations issued under Code (S)401 (a)(9) for distributions made on
or after the Participant's Required Beginning Date and before the Participant's
death. To satisfy the MDIB requirement, the Advisory Committee will compute the
minimum distribution required by this Section 6.02(A) by substituting the
applicable MDIB divisor for the applicable life expectancy factor, if the MDIB
divisor is a lesser number. Following the Participant's death, the Advisory
Committee will compute the minimum distribution required by this Section 6.02(A)
solely on the basis of the applicable life expectancy factor and will disregard
the MDIB; factor. For Plan Years beginning prior to January 1, 1989, the Plan
satisfies the incidental benefits requirement if the distributions to the
Participant satisfied the MDIB requirement or if the present value of the
retirement benefits payable solely to the Participant is greater than 50% of the
present value of the total benefits payable to the Participant and his
Beneficiaries. The Advisory Committee must determine whether benefits to the
Beneficiary are incidental as of the date the Trustee is to commence payment of
the retirement benefits to the Participant, or as of any date the Trustee
redetermines the payment period to the Participant.
The minimum distribution for the first distribution calendar year is due by
the Participant's Required Beginning Date. The minimum distribution for each
subsequent distribution calendar year, including the calendar year in which the
Participant's Required Beginning Date occurs, is due by December 31 of that
year. If the Participant receives distribution in the form of a Nontransferable
Annuity Contract, the distribution satisfies this Section 6.02(A) if the
contract complies with the requirements of Code (S)401(a)(9) and the applicable
Treasury regulations.
(B) Minimum Distribution Requirements for Beneficiaries. The method of
distribution to the Participant's Beneficiary must satisfy Code (S)401(a)(9) and
the applicable Treasury regulations. If the Participant's death occurs after his
Required Beginning Date or, if earlier, the date the Participant commences an
irrevocable annuity pursuant to Section 6.04, the method of payment to the
Beneficiary must provide for completion of payment over a period which does not
exceed the payment period which had commenced for the Participant. If the
Participant's death occurs prior to his Required Beginning Date and the
Participant had not commenced an irrevocable annuity
6.4
<PAGE>
pursuant to Section 6.04, the method of payment to the Beneficiary, subject to
Section 6.04, must provide for completion of payment to the Beneficiary over a
period not exceeding: (i)5 years after the date of the Participant's death; or
(ii) if the Beneficiary is a designated Beneficiary, the designated
Beneficiary's life expectancy. The Advisory Committee may not direct payment of
the Participant's Nonforfeitable Accrued Benefit over a period described in
clause (ii) unless the Trustee will commence payment to the designated
Beneficiary no later than the December 31 following the close of the calendar
year in which the Participant's death occurred or, if later, and the designated
Beneficiary is the Participant's surviving spouse, December 31 of the calendar
year in which the Participant would have attained age 70 1/2. If the Trustee
will make distribution in accordance with clause (ii), the minimum distribution
for a calendar year equals the Participant's Nonforfeitable Accrued Benefit as
of the latest valuation date preceding the beginning of the calendar year
divided by the designated Beneficiary's life expectancy. The Advisory Committee
must use the unisex life expectancy multiples under Treas. Reg. (S)1.72-9 for
purposes of applying this paragraph. The Advisory Committee, only upon the
written request of the Participant or of the Participant's surviving spouse,
will recalculate the life expectancy of the Participant's surviving spouse not
more frequently than annually, but may not recalculate the life expectancy of a
nonspouse designated Beneficiary after the Trustee commences payment to the
designated Beneficiary. The Advisory Committee will apply this paragraph by
treating any amount paid to the Participant's child, which becomes payable to
the Participant's surviving spouse upon the child's attaining the age of
majority, as paid to the Participant's surviving spouse. Upon the Beneficiary's
written request, the Advisory Committee must direct the Trustee to accelerate
payment of all, or any portion, of the Participant's unpaid Accrued Benefit, as
soon as administratively practicable following the effective date of that
request.
6.03 Benefit Payment Elections. Not earlier than 90 days, but not later
than 30 days, before the Participant's annuity starting date, the Advisory
Committee must provide a benefit notice to a Participant who is eligible to make
an election under this Section 6.03. The benefit notice must explain the
optional forms of benefit in the Plan, including the material features and
relative values of those options, and the Participant's right to defer
distribution until he attains the later of Normal Retirement Age or age 62.
If a Participant or Beneficiary makes an election prescribed by this
Section 6.03, the Advisory Committee will direct the Trustee to distribute the
Participant's Nonforfeitable Accrued Benefit in accordance with that election.
Any election under this Section 6.03 is subject to the requirements of Section
6.02 and of Section 6.04. The Participant or Beneficiary must make an election
under this Section 6.03 by filing his election with the Advisory Committee at
any time before the Trustee otherwise would commence to pay a Participant's
Accrued Benefit in accordance with the requirements of Article VI.
(A) Participant Elections After Separation from Service. Distributions of
Employer Securities shall be made pursuant to Sections 6.02 and 6.05 and the
other applicable rules herein. In addition, the Participant may elect to have
the Trustee commence distribution as of any distribution date following his
attainment of the normal retirement age of 65. The Participant may reconsider an
election at any time prior to the annuity starting date and elect to commence
distribution as of any other distribution date, but not earlier than the date
described in the first sentence of this Paragraph (A). Following his attainment
of Normal Retirement Age, a Participant who has separated from Service may elect
distribution as of any distribution date, irrespective of the restrictions
otherwise applicable under this Section 6.03(A). If the Participant is
partially-vested in his Accrued Benefit, the Participant's earliest distribution
date under this Paragraph (A) is the first distribution date after the
Participant incurs a Forfeiture Break in Service (as defined in Section 5.08).
6.5
<PAGE>
(B) Participant Elections Prior to Separation from Service. During his
employment with the Employer, the Participant does not have any right to
commence distribution of his Nonforfeitable Accrued Benefit for any reason,
unless required by Section 6.01(B).
(C) Death Benefit Elections. If the present value of the deceased Participant's
Nonforfeitable Accrued Benefit exceeds $3,500, the Participant's Beneficiary may
elect to have the Trustee distribute the Participant's Nonforfeitable Accrued
Benefit in a form and within a period permitted under Section 6.02. The
Beneficiary's election is subject to any restrictions designated in writing by
the Participant and not revoked as of his date of death.
6.04 Annuity Distributions to Participants and Surviving Spouses. The joint
and survivor annuity requirements of the Code do not apply to this Plan. The
Plan does not provide any life annuity distributions to Participants. A transfer
agreement described in Section 13.05 may not permit a plan which is subject to
the provisions of Code (S)417 to transfer assets to this Plan.
6.05 Special Distribution and Payment Requirements. Unless the Participant
elects in writing to have the Trustee apply other distribution provisions of the
Plan, or unless other distribution provisions of the Plan require earlier
distribution of the Participant's Accrued Benefit, the Trustee must distribute
the portion of the Participant's Accrued Benefit attributable to Employer
Securities (the "Eligible Portion") no later than the time prescribed by this
Section 6.05, irrespective of any other provision of the Plan. The distribution
provisions of this Section 6.05 are subject to the consent and other
requirements of Articles V and VI of the Plan. But, for purposes of this Section
6.05, Employer Securities do not include any Employer Securities acquired with
the proceeds of an Exempt Loan until the close of the Plan Year in which the
borrower repays the Exempt Loan in full.
(a) If the Participant separates from Service by reason of the attainment
of Normal Retirement Age, death, or disability, the Advisory Committee will
direct the Trustee to commence distribution of the Eligible Portion not
later than one year after the close of the Plan Year in which the
applicable event occurs.
(b) If the Participant separates from Service for any reason other than by
reason of the attainment of Normal Retirement Age, death or disability, the
Advisory Committee will direct the Trustee to commence distribution of the
Eligible Portion not later than one year after the close of the fifth Plan
Year following the Plan Year in which the Participant separated from
Service. If the Participant resumes employment with the Employer on or
before the last day of the fifth Plan Year following the Plan Year of his
separation from Service, the mandatory distribution provisions of this
paragraph (b) do not apply.
(c) The Advisory Committee will direct the Trustee to make distributions
required under this Section 6.05 over a period not exceeding five years. If
a Participant's Eligible Portion exceeds $500,000, the maximum payment
period, subject to a contrary election by the Participant for a longer
payment period, is five years plus one additional year (but no more than
five additional years) for each $100,000 (or fraction of $100,000) by which
the Eligible Portion exceeds $500,000, as indexed by the applicable cost of
living adjustment. The Advisory Committee will apply this Section 6.05 by
adjusting the $500,000 and $100,000 limitations by the adjustment
factor prescribed by the Secretary of the Treasury under Code (S)415(d). In
no event will the distribution period exceed the period permitted under
Section 6.02 of the Plan.
6.06 [Reserved].
6.6
<PAGE>
6.07 Distributions under Domestic Relations Orders. Nothing contained in
this Plan prevents the Trustee, in accordance with the direction of the Advisory
Committee, from complying with the provisions of a Qualified Domestic Relations
Order (as defined in Code (S)414(p)). The Plan specifically does not permit
distribution to an alternate payee under a qualified domestic relations order
prior to the Participant's attainment of earliest retirement age (as defined
under Code (S)414(p)) under the Plan. Nothing in this Section 6.07 gives a
Participant a right to receive distribution at a time otherwise not permitted
under the Plan nor does it permit the alternate payee to receive a form of
payment not otherwise permitted under the Plan.
The Advisory Committee must establish reasonable procedures to determine
the qualified status of a domestic relations order. Upon receiving a domestic
relations order, the Advisory Committee promptly will notify the Participant and
any alternate payee named in the order, in writing, of the receipt of the order
and the Plan's procedures for determining the qualified status of the order.
Within a reasonable period of time after receiving the domestic relations order,
the Advisory Committee must determine the qualified status of the order and must
notify the Participant and each alternate payee, in writing, of its
determination. The Advisory Committee must provide notice under this paragraph
by mailing to the individual's address specified in the domestic relations
order, or in a manner consistent with Department of Labor regulations.
If any portion of the Participant's Nonforfeitable Accrued Benefit is
payable during the period the Advisory Committee is making its determination of
the qualified status of the domestic relations order, the Advisory Committee
must make a separate accounting of the amounts payable. If the Advisory
Committee determines the order is a qualified domestic relations order within 18
months of the date amounts first are payable following receipt of the order, the
Advisory Committee will direct the Trustee to distribute the payable amounts in
accordance with the order. If the Advisory Committee does not make its
determination of the qualified status of the order within the 18-month
determination period, the Advisory Committee will direct the Trustee to
distribute the payable amounts in the manner the Plan would distribute if the
order did not exist and will apply the order prospectively if the Advisory
Committee later determines the order is a qualified domestic relations order.
To the extent it is not inconsistent with the provisions of the qualified
domestic relations order, the Advisory Committee may direct the Trustee to
invest any partitioned amount in a segregated subaccount or separate account and
to invest the account in Federally insured, interest-bearing savings account(s)
or time deposit(s) (or a combination of both), or in other fixed income
investments. A segregated subaccount remains a part of the Trust, but it alone
shares in any income it earns, and it alone bears any expense or loss it incurs.
The Trustee will make any payments or distributions required under this Section
6.07 by separate benefit checks or other separate distribution to the alternate
payee(s).
* * * * * * * * * *
6.7
<PAGE>
ARTICLE VII - EMPLOYER ADMINISTRATIVE PROVISIONS
7.01 Information to Advisory Committee. The Employer must supply current
information to the Advisory Committee as to the name, date of birth, date of
employment, annual compensation, leaves of absence, Years of Service and date of
termination of employment of each Employee who is, or who will be eligible to
become, a Participant under the Plan, together with any other information which
the Advisory Committee considers necessary. The Employer's records as to the
current information the Employer furnishes to the Advisory Committee are
conclusive as to all persons.
7.02 No Liability. The Employer assumes no obligation or responsibility to
any of its Employees, Participants or Beneficiaries for any act of, or failure
to act, on the part of its Advisory Committee (unless the Employer is the
Advisory Committee).
7.03 Indemnity of Certain Fiduciaries. The Employer indemnifies and saves
harmless the Plan Administrator and the members of the Advisory Committee, and
each of them, from and against any and all loss resulting from liability to
which the Plan Administrator and the Advisory Committee, or the members of the
Advisory Committee, may be subjected by reason of any act or conduct (except
willful misconduct or gross negligence) in their official capacities in the
administration of this Trust or Plan or both, including all expenses reasonably
incurred in their defense, in case the Employer fails to provide such defense.
The indemnification provisions of this Section 7.03 do not relieve the Plan
Administrator or any Advisory Committee member from any liability he may have
under ERISA for breach of a fiduciary duty. Furthermore, the Plan Administrator
and the Advisory Committee members and the Employer may execute a letter
agreement further delineating the indemnification agreement of this Section
7.03, provided the letter agreement must be consistent with and does not violate
ERISA. The indemnification provisions of this Section 7.03 extend to the Trustee
(or to a Custodian, if any) solely to the extent provided by a letter agreement
executed by the Trustee (or Custodian) and the Employer.
7.04 Employer Direction of Investment. The Employer has the right to direct
the Trustee with respect to the investment and reinvestment of assets comprising
the Trust Fund only if the Trustee consents in writing to permit such direction.
If the Trustee consents to Employer direction of investment, the Trustee and the
Employer must execute a letter agreement as a part of this Plan containing such
conditions, limitations and other provisions they deem appropriate before the
Trustee will follow any Employer direction as respects the investment or
re-investment of any part of the Trust Fund.
7.05 Amendment to Vesting Schedule. Though the Employer reserves the right
to amend the vesting schedule at any time, the Advisory Committee will not apply
the amended vesting schedule to reduce the Nonforfeitable percentage of any
Participant's Accrued Benefit derived from Employer contributions (determined as
of the later of the date the Employer adopts the amendment, or the date the
amendment becomes effective) to a percentage less than the Nonforfeitable
percentage computed under the Plan without regard to the amendment. An amended
vesting schedule will apply to a Participant only if the Participant receives
credit for at least one Hour of Service after the new schedule becomes
effective.
7.1
<PAGE>
If the Employer makes a permissible amendment to the vesting schedule, each
Participant having at least 3 Years of Service with the Employer may elect to
have the percentage of his Nonforfeitable Accrued Benefit computed under the
Plan without regard to the amendment. For Plan Years beginning prior to January
1, 1989, the election described in the preceding sentence applies only to
Participants having at least 5 Years of Service with the Employer. The
Participant must file his election with the Advisory Committee within 60 days of
the latest of (a) the Employer's adoption of the amendment; (b) the effective
date of the amendment; or (c) his receipt of a copy of the amendment. The
Advisory Committee, as soon as practicable, must forward a true copy of any
amendment to the vesting schedule to each affected Participant, together with an
explanation of the effect of the amendment, the appropriate form upon which the
Participant may make an election to remain under the vesting schedule provided
under the Plan prior to the amendment and notice of the time within which the
Participant must make an election to remain under the prior vesting schedule.
The election described in this Section 7.05 does not apply to a Participant if
the amended vesting schedule provides for vesting at least as rapid at all times
as the vesting schedule in effect prior to the amendment. For purposes of this
Section 7.05, an amendment to the vesting schedule includes any Plan amendment
which directly or indirectly affects the computation of the Nonforfeitable
percentage of an Employee's rights to his Employer derived Accrued Benefit.
* * * * * * * * * *
7.2
<PAGE>
ARTICLE VIII - PARTICIPANT ADMINISTRATIVE PROVISIONS
8.01 Beneficiary Designation. Any Participant may from time to time
designate, in writing, any person or persons, contingently or successively, to
whom the Trustee will pay his Nonforfeitable Accrued Benefit (including any life
insurance proceeds payable to the Participant's Account) in the event of his
death and the Participant may designate the form and method of payment. The
Advisory Committee will prescribe the form for the written designation of
Beneficiary and, upon the Participant's filing the form with the Advisory
Committee, the form effectively revokes all designations filed prior to that
date by the same Participant.
A married Participant's Beneficiary designation is not valid unless the
Participant's spouse consents, in writing, to the Beneficiary designation. The
spouse's consent must acknowledge the effect of that consent and a notary public
or the Plan Administrator (or his representative) must witness that consent. The
spousal consent requirements of this paragraph do not apply if: (1) the
Participant and his spouse are not married throughout the one year period ending
on the date of the Participant's death; (2) the Participant's spouse is the
Participant's sole primary beneficiary; (3) the Plan Administrator is not able
to locate the Participant's spouse; (4) the Participant is legally separated or
has been abandoned (within the meaning of State law) and the Participant has a
court order to that effect; or (5) other circumstances exist under which the
Secretary of the Treasury will excuse the consent requirement. If the
Participant's spouse is legally incompetent to give consent, the spouse's legal
guardian (even if the guardian is the Participant) may give consent.
8.02 No Beneficiary Designation/Death of Beneficiary. If a Participant
fails to name a Beneficiary in accordance with Section 8.01, or if the
Beneficiary named by a Participant predeceases him, then the Trustee will pay
the Participant's Nonforfeitable Accrued Benefit in accordance with Section 6.02
in the following order of priority to:
(a) The Participant's surviving spouse;
(b) The Participant's surviving children, including adopted children, in
equal shares;
(c) The Participant's surviving parents, in equal shares; or
(d) The Participant's estate.
If the Beneficiary does not predecease the Participant, but dies prior to
distribution of the Participant's entire Nonforfeitable Accrued Benefit, the
Trustee will pay the remaining Nonforfeitable Accrued Benefit to the
Beneficiary's estate unless the Participant's Beneficiary designation provides
otherwise. The Advisory Committee will direct the Trustee as to the method and
to whom the Trustee will make payment under this Section 8.02.
8.03 Personal Data to Advisory Committee. Each Participant and each
Beneficiary of a deceased Participant must furnish to the Advisory Committee
such evidence, data or information as the Advisory Committee considers necessary
or desirable for the purpose of administering the Plan. The provisions of this
Plan are effective for the benefit of each Participant upon the condition
precedent that each Participant will furnish promptly full, true and complete
evidence, data and
8.1
<PAGE>
information when requested by the Advisory Committee, provided the Advisory
Committee advises each Participant of the effect of his failure to comply with
its request.
8.04 Address for Notification. Each Participant and each Beneficiary of a
deceased Participant must file with the Advisory Committee from time to time, in
writing, his post office address and any change of post office address. Any
communication, statement or notice addressed to a Participant, or Beneficiary,
at his last post office address filed with the Advisory Committee, or as shown
on the records of the Employer, binds the Participant, or Beneficiary, for all
purposes of this Plan.
8.05 Assignment or Alienation. Subject to Code (S)414(p) relating to
qualified domestic relations orders, neither a Participant nor a Beneficiary may
anticipate, assign or alienate (either at law or in equity) any benefit provided
under the Plan, and the Trustee will not recognize any such anticipation,
assignment or alienation. Furthermore, a benefit under the Plan is not subject
to attachment, garnishment, levy, execution or other legal or equitable process.
8.06 Notice of Change in Terms. The Plan Administrator, within the time
prescribed by ERISA and the applicable regulations, must furnish all
Participants and Beneficiaries a summary description of any material amendment
to the Plan or notice of discontinuance of the Plan and all other information
required by ERISA to be furnished without charge.
8.07 Litigation against the Trust. A court of competent jurisdiction may
authorize any appropriate equitable relief to redress violations of ERISA or to
enforce any provisions of ERISA or the terms of the Plan. A fiduciary may
receive reimbursement of expenses properly and actually incurred in the
performance of his duties with the Plan.
8.08 Information Available. Any Participant in the Plan or any Beneficiary
may examine copies of the Plan description, latest annual report, any bargaining
agreement, this Plan and Trust, contract or any other instrument under which the
Plan was established or is operated. The Plan Administrator will maintain all of
the items listed in this Section 8.08 in his office, or in such other place or
places as he may designate from time to time in order to comply with the
regulations issued under ERISA, for examination during reasonable business
hours. Upon the written request of a Participant or Beneficiary the Plan
Administrator must furnish him with a copy of any item listed in this Section
8.08. The Plan Administrator may make a reasonable charge to the requesting
person for the copy so furnished.
8.09 Appeal Procedure for Denial of Benefits. A Participant or a
Beneficiary ("Claimant") may file with the Advisory Committee a written claim
for benefits, if the Participant or Beneficiary determines the distribution
procedures of the Plan have not provided him his proper Nonforfeitable Accrued
Benefit. The Advisory Committee must render a decision on the claim within 60
days of the Claimant's written claim for benefits. The Plan Administrator must
provide adequate notice in writing to the Claimant whose claim for benefits
under the Plan the Advisory Committee has denied. The Plan Administrator's
notice to the Claimant must set forth:
(a) The specific reason for the denial;
(b) Specific references to pertinent Plan provisions on which the Advisory
Committee based its denial;
8.2
<PAGE>
(c) A description of any additional material and information needed for the
Claimant to perfect his claim and an explanation of why the material or
information is needed: and
(d) That any appeal the Claimant wishes to make of the adverse
determination must be in writing to the Advisory Committee within 75 days
after receipt of the Plan Administrator's notice of denial of benefits. The
Plan Administrator's notice must further advise the Claimant that his
failure to appeal the action to the Advisory Committee in writing within
the 75-day period will render the Advisory Committee's determination final,
binding and conclusive.
If the Claimant should appeal to the Advisory Committee, he, or his duly
authorized representative, may submit, in writing, whatever issues and comments
he, or his duly authorized representative, feels are pertinent. The Claimant, or
his duly authorized representative, may review pertinent Plan documents. The
Advisory Committee will re-examine all facts related to the appeal and make a
final determination as to whether the denial of benefits is justified under the
circumstances. The Advisory Committee must advise the Claimant of its decision
within 60 days of the Claimant's written request for review, unless special
circumstances (such as a hearing) would make the rendering of a decision within
the 60-day limit unfeasible, but in no event may the Advisory Committee render a
decision respecting a denial for a claim for benefits later than 120 days after
its receipt of a request for review.
The Plan Administrator's notice of denial of benefits must identify the
name of each member of the Advisory Committee and the name and address of the
person to whom the Claimant may forward his appeal.
8.1 Account Diversification. Except as provided in this Section 8.10, a
Participant does not have the right to direct the Trustee with respect to the
investment or re-investment of the assets comprising the Participant's
individual Account. Each Qualified Participant may direct the Trustee as to the
investment of 25% of the value of the Participant's Accrued Benefit attributable
to Employer Securities (the "Eligible Accrued Benefit") within 90 days after the
Accounting Date of each Plan Year (to the extent a direction amount exceeds the
amount to which a prior direction under this Section 8.10 applies) during the
Participant's Qualified Election Period. For the last Plan Year in the
Participant's Qualified Election Period, the Trustee will substitute "50%" for
"25%" in the immediately preceding sentence. The Qualified Participant must make
his direction to the Trustee in writing, the direction may be effective no later
than 180 days after the close of the Plan Year to which the direction applies,
and the direction must specify which, if any, of the investment options the
Participant selects.
A Qualified Participant may choose one of the following investment options:
(a) The distribution of the portion of his Eligible Accrued Benefit covered
by the election. The Trustee will make the distribution within 90 days
after the last day of the period during which the Qualified Participant may
make the election. The provisions of this Plan applicable to a distribution
of Employer Securities, including the put option requirements of Article
XI, apply to this investment option.
(b) The direct transfer of the portion of his Eligible Accrued Benefit
covered by the election to another qualified plan of the Employer which
accepts such transfers, but only if the transferee plan permits employee-
directed investment and does not invest in Employer
8.3
<PAGE>
Securities to a substantial degree. The Trustee will make the direct
transfer no later than 90 days after the last day of the period during
which the Qualified Participant may make the election.
For purposes of this Section 8.10, the following definitions apply:
(i) "Qualified Participant" means a Participant who has attained age 55
and who has completed at least 10 years of participation in the Plan.
A"year of participation" means a Plan Year in which the Participant
was eligible for an allocation of Employer contributions, irrespective
of whether the Employer actually contributed to the Plan for that Plan
Year.
(ii) "Qualified Election Period" means the 6-Plan-Year period beginning
with the Plan Year in which the Participant and becomes a Qualified
Participant.
A Participant's right under this Section 8.10 to direct the investment of
his Account applies solely to Employer Securities acquired by the Plan after
December 31, 1986.
**********
8.4
<PAGE>
ARTICLE IX - ADVISORY COMMITTEE - DUTIES WITH RESPECT TO
PARTICIPANTS' ACCOUNTS
9.01 Members' Compensation, Expenses. The Employer must appoint an
Advisory Committee to administer the Plan, the members of which may or may not
be Participants in the Plan, or which may be the Plan Administrator acting
alone. In the absence of an Advisory Committee appointment, the Plan
Administrator assumes the powers, duties and responsibilities of the Advisory
Committee. The members of the Advisory Committee will serve without compensation
for services as such, but the Employer will pay all expenses of the Advisory
Committee, except to the extent the Trust properly pays for such expenses,
pursuant to Article X.
9.02 Term. Each member of the Advisory Committee serves until the
appointment of his successor.
9.03 Powers. In case of a vacancy in the membership of the Advisory
Committee, the remaining members of the Advisory Committee may exercise any and
all of the powers, authority, duties and discretion conferred upon the Advisory
Committee pending the filing of the vacancy.
9.04 General. The Advisory Committee has the following, powers and duties:
(a) To select a Secretary, who need not be a member of the Advisory
Committee;
(b) To determine the rights of eligibility of an Employee to participate in
the Plan, the value of a Participant's Accrued Benefit and the
Nonforfeitable percentage of each Participant's Accrued Benefit;
(c) To adopt rules of procedure and regulations necessary for the proper
and efficient administration of the Plan provided the rules are not
inconsistent with the terms of this Agreement;
(d) To construe and enforce the terms of the Plan and the rules and
regulations it adopts, including interpretation of the Plan documents and
documents related to the Plan's operation;
(e) To direct the Trustee as respects the crediting and distribution of the
Trust;
(f) To review and render decisions respecting a claim for (or denial of a
claim for) a benefit under the Plan;
(g) To furnish the Employer with information which the Employer may require
for tax or other purposes;
(h) To engage the service of agents whom it may deem advisable to assist it
with the performance of its duties;
(i) To engage the services of an Investment Manager or Managers (as defined
in ERISA (S)3(38)), each of whom will have full power and authority to
manage, acquire or dispose (or direct the Trustee with respect to
acquisition or disposition) of any Plan asset under its control;
9.1
<PAGE>
(j) To establish and maintain a funding standard account and to make
credits and charges to the account to the extent required by and in
accordance with the provisions of the Code;
(k) To prepare or to assist the Trustee with the preparation of such
Direction Statements, disclosure statements or other materials as may be
necessary or appropriate in connection with the exercise by Participants of
the voting rights described in Section 10.15 hereof; and
(l) To direct the Trustee with respect to the purchase and sale of Employer
Securities, as more fully described in Section 10.03[A](1).
The Advisory Committee must exercise all of its powers, duties and
discretion under the Plan in a uniform and nondiscriminatory manner.
9.05 Funding Policy. The Advisory Committee will review, not less often
than annually, all pertinent Employee information and Plan data in order to
establish the funding policy of the Plan and to determine the appropriate
methods of carrying out the Plan's objectives. The Advisory Committee must
communicate periodically, as it deems appropriate, to the Trustee and to any
Plan Investment Manager the Plan's short-term and long-term financial needs so
investment policy can be coordinated with Plan financial requirements.
9.06 Manner of Action. The decision of a majority of the members appointed
and qualified controls.
9.07 Authorized Representative. The Advisory Committee may authorize any
one of its members, or its Secretary, to sign on its behalf any notices,
directions, applications, certificates, consents, approvals, waivers, letters or
other documents. The Advisory Committee must evidence this authority by an
instrument signed by all members and filed with the Trustee.
9.08 Interested Member. No member of the Advisory Committee may decide or
determine any matter concerning the distribution, nature or method of settlement
of his own benefits under the Plan, except in exercising an election available
to that member in his capacity as a Participant, unless the Plan Administrator
is acting alone in the capacity of the Advisory Committee.
9.09 Individual Accounts. The Advisory Committee will maintain, or direct
the Trustee to maintain, a separate Account, or multiple separate Accounts; in
the name of each Participant to reflect the Participant's Accrued Benefit under
the Plan. The Advisory Committee must maintain one Account designated as the
Employer Securities Account to reflect a Participant's interest in Employer
Securities held by the Trust and another Account designated as the General
Investments Account to reflect the Participant's interest in the Trust Fund
attributable to assets other than Employer Securities. If a Participant re-
enters the Plan subsequent to his having a Forfeiture Break in Service (as
defined in Section 5.08(B)), the Advisory Committee, or the Trustee, must
maintain a separate Account for the Participant's pre-Forfeiture Break in
Service Accrued Benefit and a separate Account for his post-Forfeiture Break in
Service Accrued Benefit unless the Participant's entire Accrued Benefit under
the Plan is 100% Nonforfeitable.
The Advisory Committee will make its allocations, or request the Trustee to
make its allocations, to the Accounts of the Participants in accordance with the
provisions of Section 9.11. The Advisory Committee may direct the Trustee to
maintain a temporary segregated investment Account
9.2
<PAGE>
in the name of a Participant to prevent a distortion of income, gain or loss
allocations under Section 9.11. The Advisory Committee shall maintain records of
its activities.
9.10 Value of Participant's Accrued Benefit. The value of each
Participant's Accrued Benefit consists of that proportion of the net worth (at
fair market value) of the Employer's Trust Fund which the net credit balance in
his Account bears to the total net credit balance in the Accounts of all
Participants. For purposes of a distribution under the Plan, the value of a
Participant's Accrued Benefit is its value as of the Accounting Date immediately
preceding the date of the distribution; provided, however, that if there has
been a special valuation of Employer Securities between an Accounting Date and a
distribution date, the value of Employer Securities for distribution purposes
shall be the value as of the date of such valuation. A special valuation of
Employer Securities shall not be treated as a "valuation date" for purposes of
Section 9.11.
9.11 Allocation and Distribution of Net Income Gain or Loss. A "valuation
date" under this Plan is each Accounting Date and each interim valuation date
determined under Section 10.14. As of each valuation date, the Advisory
Committee must adjust General Investment Accounts to reflect net income, gain or
loss since the last valuation date. The valuation period is the period beginning
the day after the last valuation date and ending on the current valuation date.
[A]. Employer Securities Account. As of the Accounting Date of each
Plan Year, the Advisory Committee first will reduce Employer Securities Accounts
for any forfeitures arising under Section 5.09 and then will credit the Employer
Securities Account maintained for each Participant with the Participant's
allocable share of Employer Securities (including fractional shares) purchased
and paid for by the Trust or contributed in kind to the Trust, with any
forfeitures of Employer Securities and with any stock dividends on Employer
Securities allocated to his Employer Securities Account. The Advisory Committee
will allocate Employer Securities acquired with an Exempt Loan under Section
10.03[C] in accordance with that Section, subject, however, to the provisions of
paragraph [C] of this section 9.11. Except as otherwise specifically provided in
Section 10.03[C], the Advisory Committee will base allocations to the
Participants' Accounts on dollar values expressed as shares of Employer
Securities or on the basis of actual shares where there is a single class of
Employer Securities. In making a forfeiture reduction under this Section 9.11,
the Advisory Committee, to the extent possible, first must forfeit from a
Participant's General Investments Account before making a forfeiture from his
Employer Securities Account.
[B]. General Investments Account. The allocation provisions of this
paragraph apply to all Participant General Investment Accounts other than
segregated investment Accounts. The Advisory Committee First will adjust the
Participant General Investment Accounts, as those Accounts stood at the
beginning of the current valuation period, by reducing the Accounts for any
forfeitures arising under Section 5.09 or under Section 9.14, for amounts
charged during the valuation period to the Accounts in accordance with Section
9.13 (relating to distributions) and for the amount of any General Investment
Account which the Trustee has fully distributed since the immediately preceding
valuation date. The Advisory Committee then, subject to the restoration
allocation requirements of Section 5.04 or Section 9.14, will allocate the net
income, gain or loss pro rata to the adjusted Participant General Investment
Accounts. The allocable net income, gain or loss, is the net income (or net
loss), including the increase or decrease in the fair market value of assets,
since the last valuation date. In making its allocations under this Section
9.11[B], the Advisory Committee will exclude Employer Securities allocated to
Employer Securities Accounts, Employer Securities held in a Suspense Account,
stock dividends on allocated
9.3
<PAGE>
Employer Securities and interest paid by the Trust on an Exempt Loan. The
Advisory Committee will include as income (available for payment on an Exempt
Loan) any cash dividends on Employer Securities except cash dividends which the
Advisory Committee has directed the Trustee to distribute in accordance with
Section 10.08 and cash dividends applied by the Trustee toward the payment of an
Exempt Loan.
[C] Dividends on Employer Securities. The Advisory Committee will
allocate any cash dividends the Employer pays with respect to Employer
Securities to the General Investments Accounts of Participants in the same
ratio, determined on the dividend declaration date, that the Employer Securities
allocated to a Participant's Employer Securities Account bear to the Employer
Securities allocated to all Employer Securities Accounts. Notwithstanding the
foregoing, the Advisory Committee will not allocate to the General Investments
Accounts any cash dividends the Employer directs the Trustee to apply to the
payment of an Exempt Loan nor any cash dividends the Advisory Committee directs
the Trustee to distribute in accordance with Section 10.08. If the Employer
directs the Trustee to apply cash dividends on Employer Securities to the
payment of principal or interest on an Exempt Loan, then, to the extent the
dividend is payable with respect to Employer Securities which are allocated to a
Participant's Employer Securities Account, the Advisory Committee shall allocate
to the Employer Securities Account of each such Participant, Employer Securities
with a fair market value of not less than the amount of the dividends which were
attributable to the Employer Securities allocated to the Employer Securities
Account of such Participant.
[D] Segregated Investment Accounts. A segregated investment Account
receives all income it earns and bears all expense or loss it incurs. As of the
valuation date, the Advisory Committee must reduce a segregated Account for any
forfeiture arising under Section 5.09 after the Advisory Committee has made all
other allocations, changes or adjustments to the Account for the Plan Year.
[E] Sale of Employer Securities. In the event the Trustee shall sell
or otherwise dispose of Employer Securities held in the trust, then (i) any
income, gain or loss realized with respect to Employer Securities which are
allocated to Participant's Employer Securities Accounts shall be allocated as
trust income, gain or loss to each Participant pro rata in accordance with such
Participants' Employer Securities Accounts as of the last day of the calendar
month preceding the month in which the sale or other disposition occurred; and
(ii) any income, gain or loss realized with respect to Employer Securities held
in the Suspense Account shall be treated as trust income, gain or loss and,
after the payment of any Exempt Loans [and any expenses eases described in
Section 10.05], shall be allocated among Participants pro rata in the proportion
that each Participant's Account bears to the total of all Participants' Accounts
as of the last day of the calendar month preceding the month in which the sale
or other disposition occurred.
[F] Additional Rules. An Excess Amount or suspense account described
in Part 2 of Article III does not share in the allocation of net income, gain or
loss described in this Section 9.11. This Section 9.11 applies solely to the
allocation of net income, gain or loss of the Trust. The Advisory Committee will
allocate the Employer contributions and Participant forfeitures, if any, in
accordance with Article III.
9.12 Individual Statement. As soon as practicable after the Accounting Date
of each Plan Year, but within the time prescribed by ERISA and the regulations
under ERISA, the Plan Administrator will deliver to each Participant (and to
each Beneficiary) a statement reflecting the condition of his Accrued Benefit in
the Trust as of that date and such other information ERISA
9.4
<PAGE>
requires be furnished the Participant or Beneficiary. No Participant, except a
member of the Advisory Committee, has the right to inspect the records
reflecting the Account of any other Participant.
9.13 Account Charged. The Advisory Committee will charge a Participant's
Account for all distributions made from that Account to the Participant, to his
Beneficiary or to an alternate payee. The Advisory Committee also will charge a
Participant's Account for any administrative expenses incurred by the Plan
directly related to that Account.
9.14 Unclaimed Account Procedure. The Plan does not require either the
Trustee or the Advisory Committee to search for, or to ascertain the whereabouts
of, any Participant or Beneficiary. At the time the Participant's or
Beneficiary's benefit becomes distributable under Article VI, the Advisory
Committee, by certified or registered mail addressed to his last known address
of record with the Advisory Committee or the Employer, must notify any
Participant, or Beneficiary, that he is entitled to a distribution under this
Plan. The notice must quote the provisions of this Section 9.14 and otherwise
must comply with the notice requirements of Article VI. If the Participant, or
Beneficiary, fails to claim his distributive share or make his whereabouts known
in writing to the Advisory Committee within 6 months from the date of mailing of
the notice, the Advisory Committee will treat the Participant's or Beneficiary's
unclaimed payable Accrued Benefit as forfeited and will reallocate the unclaimed
payable Accrued Benefit in accordance with Section 3.05. A forfeiture under this
paragraph will occur at the end of the notice period or, if later, the earliest
date applicable Treasury regulations would permit the forfeiture. Pending
forfeiture, the Advisory Committee, following the expiration of the notice
period, may direct the Trustee to segregate the Nonforfeitable Accrued Benefit
in a segregated Account and to invest that segregated Account in Federally
insured interest beaming savings accounts or time deposits (or in a combination
of both), or in other fixed income investments.
If a Participant or Beneficiary who has incurred a forfeiture of his
Accrued Benefit under the provisions of the first paragraph of this Section 9.14
makes a claim, at any time, for his forfeited Accrued Benefit, the Advisory
Committee must restore the Participant's or Beneficiary's forfeited Accrued
Benefit to the same dollar amount as the dollar amount of the Accrued Benefit
forfeited, unadjusted for any gains or losses occurring subsequent to the date
of the forfeiture. The Advisory Committee will make the restoration during the
Plan Year in which the Participant or Beneficiary makes the claim, first from
the amount, if any, of Participant forfeitures the Advisory Committee otherwise
would allocate for the Plan Year, then from the amount, if any, of the Trust
Fund net income or gain for the Plan Year and then from the amount, or
additional amount, the Employer contributes to enable the Advisory Committee to
make the required restoration. The Advisory Committee must direct the Trustee to
distribute the Participant's or Beneficiary's restored Accrued Benefit to him
not later than 60 days after the close of the Plan Year in which the Advisory
Committee restores the forfeited Accrued Benefit. The forfeiture revisions of
this Section 9.14 apply solely to the Participant's or to the Beneficiary's
Accrued Benefit derived from Employer contributions.
* * * * * * * * * *
9.5
<PAGE>
ARTICLE X - CUSTODIAN/TRUSTEE, POWERS AND DUTIES
10.01 Acceptance. The Trustee accepts the Trust created under the Plan and
agrees to perform the obligations imposed. The Trustee must provide bond for the
faithful performance of its duties under the Trust to the extent required by
ERISA.
10.02 Receipt of Contributions. The Trustee is accountable to the Employer
for the funds contributed to it by the Employer, but does not have any duty to
see that the contributions received comply with the provisions of the Plan. The
Trustee is not obliged to collect any contributions from the Employer, nor is
obliged to see that funds deposited with it are deposited according to the
provisions of the Plan.
10.03 Investment Powers.
(A) Trustee Powers. The Trustee has full discretion and authority with regard to
the investment of the Trust Fund, except with respect to a Plan asset under the
control or direction of a properly appointed Investment Manager or with respect
to a Plan asset subject to Employer, Participant or Advisory Committee direction
of investment. The Trustee must coordinate its investment policy with Plan
financial needs as communicated to it by the Advisory Committee. The Trustee is
authorized and empowered, but not by way of limitation, with the following
powers, rights and duties:
(1) To invest the Trust Fund primarily in Employer Securities
("primarily" meaning the authority to hold and to acquire up to but not
more than 100% of the Trust Fund in Employer Securities) and to invest any
part or all of the Trust Fund in any common or preferred stocks open-end or
closed-end mutual funds, put and call options traded on a national
exchange, United States retirement plan bonds, corporate bonds, debentures,
convertible debentures, commercial paper, U.S. Treasury bills, U.S.
Treasury notes and other direct or indirect obligations of the United
States Government or its agencies, improved or unimproved real estate
situated in the United States, limited partnerships, insurance contracts of
any type, mortgages, notes or other property of any kind, real or personal,
and to buy or sell options on common stock on a nationally recognized
exchange with or without holding the underlying common stock, and to make
any other investments the Trustee deems appropriate, as a prudent man would
do under like circumstances with due regard for the purposes of this Plan.
Any investment made or retained by the Trustee in good faith is proper but
must be of a kind (with the exception of Employer Securities) constituting
a diversification considered by law suitable for trust investments.
Notwithstanding the foregoing, the Plan Administrator, or the
Advisory Committee, if such responsibility shall have been delegated to the
Plan Administrative Committee, shall assume the responsibility for the
prudence in investments in Employer Securities directed by it, and the Plan
Administrator or the Advisory Committee, as the case may be, shall have the
full power to direct the Trustee to invest up to 100% of the assets of the
Plan in Employer Securities (except with respect to assets transferred to
the Plan as described in Section 4.03(i) hereof). If the Plan Administrator
or the Advisory Committee, as the case may be, shall direct the Trustee to
dispose of any Employer Securities under circumstances which require
registration and/or qualification of such securities under applicable
federal or state securities laws, then the Employer, at its own expense,
shall take,
10.1
<PAGE>
or cause to be taken, any and all such actions as may be necessary or
appropriate in order to effect such registration and/or qualification.
In the event an offer shall be received by the Trustee for the sale or
other disposition of Employer Securities owned by the Trust, whether such
offer shall be in the form of cash in exchange for such Employer Securities
pursuant to a proposed purchase and sale, or for cash and/or other property
pursuant to a proposed transfer, exchange, merger, consolidation or
otherwise, the Advisory Committee shall direct the Trustee with respect to
whether or not to accept such offer and to engage in such sale or other
disposition of Employer Securities, provided that the consideration to be
received by the Trust as a result of such sale or other disposition must be
at least equal to the fair market value of such Employer Securities, as
determined by an independent appraiser so long as such securities are not
readily tradable on an established securities market, as of the date of
such sale or other disposition (as determined in good faith by the Advisory
Committee) and the direction of the Advisory Committee must be approved by
the Board of Directors of the Employer. In the event that the Trustee is
unable to make payments of principal and/or interest on an Exempt Loan when
due, the Advisory Committee, with the approval of the board of directors of
the Employer, may direct the Trustee to sell any Leveraged Securities that
have not yet been allocated to Participants' Employer Securities Accounts
or to obtain another Exempt Loan in an amount sufficient to make such
payments.
To the extent the Plan acquires Employer Securities in a sale to
which Section 1042 of the Code applies, no portion of the assets of the
Plan attributable to (or allocable in lieu of) such Employer Securities may
accrue (or be allocated directly or indirectly) under any plan of the
Employer meeting the requirements of Section 401(a) during the "non-
allocation period" for the benefit of:
(i) Any taxpayer who makes an election under Section 1042(a) with
respect to Employer Securities;
(ii) Any individual who is related to such a taxpayer (within the
meaning of Section 267(b) of the Code); or
(iii) Any other person who owns (after application of Section 318(a))
more than 25% of any class of outstanding stock of the Employer
or of any corporation which is a member of the same controlled
group of corporations, or the total value of any class of any
outstanding stock of any such corporation.
For purposes of this paragraph, the term "non-allocation period" means the
period beginning on the date of the Section 1042 transaction and ending on the
later of the date which is 10 years after such transaction or the date of the
plan allocation attributable to the final payment of the acquisition
indebtedness occurred in connection therewith.
(2) To retain in cash so much of the Trust Fund as it may deem advisable to
satisfy liquidity needs of the Plan and to deposit any cash held in the Trust
Fund in a bank account at reasonable interest.
(3) To invest, if the Trustee is a bank or similar financial institution
supervised by the United States or by a State, in any type of deposit of the
Trustee (or of a
10.2
<PAGE>
bank related to the Trustee within the meaning of Code (S) 414(b)) at a
reasonable rate of interest or in a common trust fund, as described in Code
(S) 584, or in a collective investment fund, the provisions of which govern the
investment of such assets and which the Plan incorporates by this reference,
which the Trustee (or its affiliate, as defined in Code (S) 1504) maintains
exclusively for the collective investment of money contributed by the bank (or
the affiliate) in its capacity as trustee and which conforms to the rules of the
Comptroller of the Currency.
(4) Subject to the provisions of paragraph (1) of this Section 10.03(A)
relating to Employer Securities, to purchase, manage, sell, convey, exchange,
transfer, contract to sell, convey, exchange or transfer (whether pursuant to
sale, exchange, merger, reorganization or otherwise), abandon, improve, repair,
insure, lease for any term even though commencing in the future or extending
beyond the term of the Trust, and otherwise deal with all property, real or
personal, in such manner, for such consideration and on such terms and
conditions as the Trustee decides.
(5) Subject to the provisions of paragraph (l) of this Section 10.03(A)
with respect to Employer Securities, to enter into any contract for the sale or
other disposition of property held by the Trust, including Employer Securities,
and to enter into any contract pursuant to which the Employer would be
reorganized, recapitalized, consolidated with or merged with or into another
entity, and to do and perform any and all acts and to execute any necessary
documents associated therewith.
(6) To credit and distribute the Trust as directed by the Advisory
Committee. The Trustee is not obliged to inquire as to whether any payee or
distributee is entitled to any payment or whether the distribution is proper or
within the terms of the Plan, or as to the manner of making any payment or
distribution. The Trustee is accountable only to the Advisory Committee for any
payment or distribution made by it in a good faith on the order or direction of
the Advisory Committee.
(7) To borrow money, to assume indebtedness, extend mortgages and encumber
by mortgage or pledge.
(8) To compromise, contest, arbitrate or abandon claims and demands, in its
discretion.
(9) Subject to the provisions of Section 10.15, to have with respect to the
Trust all of the rights of an individual owner, including the power to give
proxies, to participate in any voting trusts, mergers, consolidations or
liquidations, and to exercise or sell stock subscriptions or conversion rights.
(10) To lease for oil, gas and other mineral purposes and to create mineral
severances by grant or reservation; to pool or unitize interests in oil, gas and
other minerals; and to enter into operating agreements and to execute division
and transfer orders.
(11) To hold any securities or other property in the name of the Trustee or
its nominee, with depositories or agent depositories or in another form as it
may deem best, with or without disclosing the trust relationship.
10.3
<PAGE>
(12) To perform any and all other acts in its judgment necessary or
appropriate for the proper and advantageous management, investment and
distribution of the Trust.
(13) To retain any funds or property subject to any dispute without
liability for the payment of interest, and to decline to make payment or
delivery of the funds or property until final adjudication is made by a court of
competent jurisdiction.
(14) To file all tax returns required of the Trustee.
(15) To furnish to the Employer, the Plan Administrator and the Advisory
Committee an annual statement of account showing the condition of the Trust Fund
and all investments, receipts, disbursements and other transactions effected by
the Trustee during the Plan Year covered by the statement and also stating the
assets of the Trust held at the end of the Plan Year, which accounts are
conclusive on all persons, including the Employer, the Plan Administrator and
the Advisory Committee, except as to any act or transaction concerning which the
Employer, the Plan Administrator or the Advisory Committee files with the
Trustee written exceptions or objections within 90 days after the receipt of the
accounts or for which ERISA authorizes a longer period within which to object.
(16) To begin, maintain or defend any litigation necessary in connection
with the administration of the Plan, except that the Trustee is not obliged or
required to do so unless indemnified to its satisfaction.
(17) Subject to the provisions of Section 10.15, to vote all voting stock
held by the Trust Fund as the Advisory Committee shall direct.
(18) At the direction of the Employer, to apply any cash dividends with
respect to Employer Securities toward the payment of an Exempt Loan, and at the
direction of the Advisory Committee, to distribute cash dividends with respect
to Employer Securities in accordance with Section 10.08.
(19) To invest in key person life insurance on the life of any
Participant(s) in the Plan.
(B) Participant Loans. This (S) 10.03[B] specifically authorizes the Trustee to
make loans on a nondiscriminatory basis to a Participant but only if the
Advisory Committee so provides in a separate writing, and in accordance with the
loan policy established by the Advisory Committee, provided: (1) the loan policy
satisfies the requirements of (S) 9.04; (2) any loan is adequately secured and
bears a reasonable rate of interest; (3) the loan provides for repayment within
a specified time; (4) the default provisions of the note prohibit offset of the
Participant's Nonforfeitable Accrued Benefit prior to the time the Trustee
otherwise would distribute the Participant's Nonforfeitable Accrued Benefit; (5)
the amount of the loan does not exceed (at the time the Plan extends the loan)
the present value of the Participant's Nonforfeitable Accrued Benefit; and (6)
the loan otherwise conforms to the exemption provided by Code (S) 4975(d)(1).
(C) Exempt Loan. This (S) 10.03(C) specifically authorizes the Trustee to enter
into an Exempt Loan transaction. The following terms and conditions will apply
to any Exempt Loan.
10.4
<PAGE>
(1) The Trustee will use the proceeds of the loan within a reasonable time
after receipt only for any or all of the following purposes: (i) to acquire
employer Securities, (ii) to repay such loan, or (iii) to repay a prior Exempt
Loan. Except as provided under Article XI, no Employer Security acquired with
the proceeds of an Exempt Loan may be subject to a put, call or other option, or
buy-sell or similar arrangement while held by and when distributed from this
Plan, whether or not this Plan is then an employee stock ownership plan.
(2) The interest rate of the loan may not be more than a reasonable rate of
interest, as determined by the Advisory Committee.
(3) Any collateral the Trustee pledges to the creditor must consist only of
the assets purchased by the borrowed funds and those assets the Trust used as
collateral on the prior Exempt Loan repaid with the proceeds of the current
Exempt Loan.
(4) The creditor may have no recourse against the Trust under the loan
except with respect to such collateral given for the loan, contributions (other
than contributions of Employer Securities) that the Employer makes to the Trust
to meet its obligations under the loan, and earnings attributable to such
collateral and the investment of such contributions. The payment made with
respect to an Exempt Loan by the Plan during a Plan Year must not exceed an
amount equal to the sum of such contributions and earnings (including earnings
on the sale of allocated Employer Securities and also of those in any Suspense
Account) received during or prior to the year less such payments in prior years.
The Advisory Committee and the Trustee must account separately for such
contributions and earnings in the books of account of the Plan until the Trust
repays the loan.
(5) In the event of default upon the loan, the value of Plan assets
transferred in satisfaction of the loan must not exceed the amount of the
default, and if the lender is a Disqualified Person, the loan must provide for
transfer of Plan assets upon default only upon and to the extent of the failure
of the Plan to meet the payment scheduled of the loan.
(6) The Trustee must add and maintain all assets acquired with the proceeds
of an Exempt Loan in a suspense Account. In withdrawing assets from the suspense
Account, the Trustee will apply the provisions of Treas. Reg. (S)(S) 54.4975-
7(b)(8) and (15) as if all securities in the suspense Account were encumbered.
Upon the payment of any portion of the loan, the Trustee will effect the release
of assets in the suspense Account from encumbrances. For each Plan Year during
the duration of the loan, the number of Employer Securities released must equal
the number of encumbered Employer Securities held immediately before release for
the current Plan Year multiplied by a fraction. The numerator of the fraction is
the amount of principal and interest paid for the Plan Year. The denominator of
the fraction is the sum of the numerator plus the principal and interest to be
paid for all future Plan Years. The number of future Plan Years under the loan
must be definitely ascertainable and must be determined without taking into
account any possible extension or renewal periods. If the interest rate under
the loan is variable, the interest to be paid in future Plan Years must be
computed by using the interest rate applicable as of the end of the Plan Year.
If collateral includes more than one class of Employer Securities, the number of
Employer Securities of each class to be released for a Plan Year must be
10.5
<PAGE>
determined by applying the same fraction to each such class. The Advisory
Committee will allocate assets withdrawn from the suspense Account to the
Accounts of Participants who otherwise share in the allocation of the Employer's
contribution for the Plan Year for which the Trustee has paid the portion of the
loan resulting in the release of the assets. The Advisory Committee consistently
will make this allocation as of each Accounting Date on the basis of non-
monetary units, taking into account the relative Compensation of all such
Participants for such Plan Year.
(7) The loan must be for a specific term and may not be payable at the
demand of any person except in the case of default.
(8) Notwithstanding the fact this Plan ceases to be an employee stock
ownership plan, Employer Securities acquired with the proceeds of an exempt loan
will continue after the Trustee repays the loan to be subject to the provisions
of Treas. Reg. (S)(S) 54.4975-7(b)(4), (10), (11) and (12) relating to put, call
or other options and to buy-sell or similar arrangements, except to the extent
these regulations are inconsistent with Code (S) 409(h).
10.04 Records and Statements. The records of the Trustee pertaining to the
Plan must be open to the inspection of the Plan Administrator, Advisory
Committee and the Employer at all reasonable times and may be audited from time
to time by any person or persons as the Employer, Plan Administrator or Advisory
Committee may specify in writing. The Trustee must furnish the Plan
Administrator or Advisory Committee with whatever information relating to the
Trust Fund the Plan Administrator or Advisory Committee considers necessary.
10.05 Fees and Expenses from Fund. The Trustee will receive reasonable
annual compensation as may be agreed upon from time to time between the Employer
and the Trustee. No person who is receiving full pay from the Employer may
receive compensation for services as Trustee. The Trustee will pay from the
Trust Fund all fees and expenses reasonably incurred by the Plan, and the
Trustee in connection with the Plan (including but not limited to litigation
expenses) to the extent such fees and expenses are for the ordinary and
necessary administration and operation of the Plan, unless the Employer pays
such fees and expenses. Any fee or expense paid, directly or indirectly, by the
Employer is not an Employer contribution to the Plan, provided the fee or
expense relates to the ordinary and necessary administration of the Fund.
10.06 Parties to Litigation. Except as otherwise provided by ERISA, no
Participant or Beneficiary is a necessary party or is required to receive notice
of process in any court proceeding involving the Plan, the Trust Fund or any
fiduciary of the Plan. Any final judgment entered in any proceeding will be
conclusive upon the Employer, the Plan Administrator, the Advisory Committee,
the Trustee, Custodian, Participants and Beneficiaries.
10.07 Professional Agents. The Trustee may employ and pay from the Trust
Fund reasonable compensation to agents, attorneys, accountants and other persons
to advise the Trustee as in its opinion may be necessary. The Trustee may
delegate to any agent, attorney, accountant or other person selected by it any
non-Trustee power or duty vested in it by the Plan, and the Trustee may act or
refrain from acting on the advice or opinion of any agent, attorney, accountant
or other person so selected.
10.6
<PAGE>
10.08 Distribution of Trust Fund; Valuation of Employer Securities. The
Trustee will make all distributions of benefits under the Plan in Employer
Securities valued at fair market value at the time of distribution as of the
last Accounting Date unless a special valuation is required. The Trustee will
pay in cash any fractional security share to which a Participant or his
Beneficiary is entitled. In the event the Trustee is to make a distribution in
shares of Employer Securities, the Trustee may apply any balance in a
Participant's General Investments Account to provide whole shares of Employer
Securities for distribution at the then fair market value.
If the Employer's charter or bylaws restrict ownership of
substantially all shares of Employer Securities to Employees and the Trust, as
described in Code (S) 409(h)(2), the Trustee will make the distribution of a
Participant's Accrued Benefit entirely in cash.
Notwithstanding the preceding provisions of this (S) 10.08, the
Trustee, if directed in writing by the Advisory Committee, will pay, in cash,
any cash dividends on Employer Securities allocated, or allocable to
Participants Employer Securities Accounts, irrespective of whether a Participant
is fully vested in his Employer Securities Account. The Advisory Committee's
direction must state whether the Trustee is to pay the cash dividend
distributions currently, or within the 90 day period following the close of the
Plan Year in which the Employer pays the dividends to the Trust. The Advisory
Committee may request the Employer to pay dividends on Employer Securities
directly to Participants.
10.09 Distribution Directions. If no one claims a payment or distribution
made from the Trust, the Trustee must promptly notify the Advisory Committee and
then dispose of the payment in accordance with the subsequent direction of the
Advisory Committee.
10.10 Third Party/Multiple Trustees. No person dealing with the Trustee is
obligated to see to the proper application of any money paid or property
delivered to the Trustee, or to inquire whether the Trustee has acted pursuant
to any of the terms of the Plan. Each person dealing with the Trustee may act
upon any notice, request or representation in writing by the Trustee, or by the
Trustee's duly authorized agent, and is not liable to any person in so acting.
The certificate of the Trustee that it is acting in accordance with the Plan
will be conclusive in favor of any person relying on the certificate. If more
than two persons act as Trustee, a decision of the majority of such persons
controls with respect to any decision regarding the administration or investment
of the Trust Fund or of any portion of the Trust Fund with respect to which such
persons act as Trustee. However, the signature of only one Trustee is necessary
to effect any transaction on behalf of the Trust.
10.11 Resignation. The Trustee may resign its position at any time by
giving 30 days' written notice in advance to the Employer and to the Advisory
Committee. If the Employer fails to appoint a successor Trustee within 60 days
of its receipt of the Trustee's written notice of resignation, the Trustee will
treat the Employer as having appointed itself as Trustee and as having filed its
acceptance of appointment with the former Trustee.
10.12 Removal. The Employer, by giving 30 days' written notice in advance
to the Trustee, may remove any Trustee. In the event of the resignation or
removal of a Trustee, the Employer must appoint a successor Trustee if it
intends to continue the Plan. If two or more persons hold the position of
Trustee, in the event of the removal of one such person, during any period the
selection of a replacement is pending, or during any period such person is
unable to serve for any reason, the remaining person or persons will act as the
Trustee.
10.7
<PAGE>
10.13 Interim Duties and Successor Trustee. Each successor Trustee succeeds
to the title to the Trust vested in his predecessor by accepting in writing his
appointment as successor Trustee and by filing the acceptance with the former
Trustee and the Advisory Committee without the signing or filing of any further
statement. The resigning or removed Trustee, upon receipt of acceptance in
writing of the Trust by the successor Trustee, must execute all documents and do
all acts necessary to vest the title of record in any successor Trustee. Each
successor Trustee has and enjoys all of the powers, both discretionary and
ministerial, conferred under this Agreement upon his predecessor. A successor
Trustee is not personally liable for any act or failure to act of any
predecessor Trustee, except as required under ERISA. With the approval of the
Employer and the Advisory Committee, a successor Trustee, with respect to the
Plan, may accept the account rendered and the property delivered to it by a
predecessor Trustee without incurring any liability or responsibility for so
doing.
10.14 Valuation of Trust. The Trustee must value the Trust Fund as of each
Accounting Date to determine the fair market value of each Participant's Accrued
Benefit in the Trust, and the Trustee also must value the Trust Fund on such
other dates, as directed by the Advisory Committee. With respect to activities
carried on by the Plan, an independent appraiser meeting requirements similar to
those prescribed by Treasury regulations under Code (S) 170(a)(1) must perform
all valuations of Employer Securities which are not readily tradeable on an
established securities market.
10.15 Participant Voting Direction Rights - Employer Securities. With
respect to the voting of Employer Securities which are not part of a
registration-type class of securities (as defined in Code (S) 409(e)(4)), a
Participant has the right to direct the Trustee regarding the voting of such
Employer Securities allocated to his Employer Securities Account with respect to
any corporate matter which involves the approval or disapproval of any corporate
merger or consolidation, recapitalization, reclassification, liquidation,
dissolution, sale of substantially all assets of a trade or business, or such
similar transaction as the Treasury may prescribe in regulations. As to any
Employer Securities allocated to the Participant's Employer Securities Account
which are part of a registration-type class of securities or any Employer
Securities which were acquired with the proceeds of a securities acquisition
loan (as defined in Section 133(b) of the Code) made after July 10, 1989, the
voting direction rights provided in this Section 10.15 extend to all corporate
matters requiring a vote of stockholders. The Advisory Committee shall direct
the Trustee with respect to the voting of Employer Securities which are not part
of a registration-type class of securities and which are held by the suspense
account (and not allocated to individual Participant Employer Securities
Accounts) or which are so allocated but which are not directed as to voting by
the respective Participant(s).
10.16 Investment in Group Trust Fund. The Trustee, for collective
investment purposes, may combine into one trust fund the Trust created under
this Plan with the Trust created under any other qualified retirement plan the
Employer maintains. However, the Trustee must maintain separate records of
account for the assets of each Trust in order to reflect properly each
Participant's Accrued Benefit under the plan(s) in which he is a Participant.
10.17 Limitation on Liability - If Investment Manager Appointed. The
Trustee is not liable for the acts or omissions of any Investment Manager or
Managers the Advisory Committee may appoint, nor is the Trustee under any
obligation to invest or otherwise manage any asset of the Plan which is subject
to the management of a properly appointed Investment Manager. The Advisory
Committee, the Trustee and any properly appointed Investment Manager may execute
a letter agreement as a part of this Plan delineating the duties,
responsibilities and liabilities of the Investment Manager with respect to any
part of the Trust Fund under the control of the Investment Manager.
* * * * * * * * * * * * *
10.8
<PAGE>
ARTICLE XI - REPURCHASE OF EMPLOYER SECURITIES
11.01 Put Option. The Employer will issue a "put option" to each
Participant receiving a distribution of Employer Securities from the Trust. The
put option will permit the Participant to sell the Employer Securities to the
Employer, at any time during two option periods, at the current fair market
value. The first put option period runs for a period of at least 60 days
commencing on the date of distribution of Employer Securities to the
Participant. The second put option period runs for a period of at least 60 days
commencing after the new determination of the fair market value of Employer
Securities by the Advisory Committee and notice to the Participant of the new
fair market value. If a Participant (Beneficiary) exercises his put option, the
Employer must purchase the Employer Securities at fair market value upon the
terms provided under Section 11.04. The Employer may grant the Trust an option
to assume the Employer's rights and obligations at the time a Participant
exercises an option under this Section 11.01.
11.02 Restriction on Employer Securities. Except upon the prior written
consent of the employer, no Participant (or Beneficiary) may sell, assign, give,
pledge, encumber, transfer or otherwise dispose of any Employer Securities now
owned or subsequently acquired by him without complying with the terms of this
Article XI. If a Participant (or Beneficiary) pledges or encumbers any Employer
Securities with the required prior written consent, any security holder's rights
with respect to such Employer Securities are subordinate and subject to the
rights of the Employer.
11.03 Lifetime Transfer/Right of First Refusal. If any Participant (or
Beneficiary) who receives Employer Securities under this Plan desires to dispose
of any of his Employer Securities for any reason during his lifetime (whether by
sale, assignment, gift or any other method of transfer), he first must offer the
Employer Securities for sale to the Employer. The Advisory Committee may require
a Participant (or Beneficiary) entitled to a distribution of Employer Securities
to execute an appropriate stock transfer agreement (evidencing the right of
first refusal) prior to receiving a certificate for Employer Securities.
In the case of an offer by a third party, the offer to the Employer is
subject to all the terms and conditions set forth in Section 11.04 based on the
price equal to the fair market value per share and payable in accordance with
the terms of (S) 11.04 unless the selling price and terms offered to the
Participant by the third party are more favorable to the Participant than the
selling price and terms of Section 11.04, in the event the selling price and
terms of the offer of the third party apply. The Employer must give written
notice to the offering Participant of its acceptance of the Participant's offer
within 14 days after the Participant has given written notice to the Employer or
the Employer's rights under this Section 11.03 will lapse. The Employer may
grant the Trust the option to assume the Employer's rights and obligations with
respect to all or any part of the Employer Securities offered to the Employer
under this (S) 11.03.
11.04 Payment of Purchase Price. If the Employer (or the Trustee, at the
direction of the Advisory Committee) exercises an option to purchase a
Participant's Employer Securities pursuant to an offer given under Section
11.03, the purchaser(s) must make payment in lump sum or, if the distribution to
the Participant (or to his Beneficiary) constitutes a Total Distribution, in
substantially equal installments over a period not exceeding 5 years. A "Total
Distribution" to a Participant (or to a Beneficiary) is the distribution, within
one taxable year of the recipient, of the entire balance to the Participant's
credit under the Plan. In the case of a distribution which is not a Total
Distribution or which is a Total Distribution with respect to which the
purchaser(s) will make payment in lump
11.1
<PAGE>
sum, the purchaser(s) must pay the Participant (or Beneficiary) the fair market
value of the Employer Securities repurchased no later than 30 days after the
date the Participant (or Beneficiary) exercises the option. In the case of a
Total Distribution with respect to which the purchaser(s) will make installment
payments, the purchaser(s) must make the first installment payment no later than
30 days after the Participant (or Beneficiary) exercises the put option. For
installment amounts no paid within 30 days of the exercise of the put option,
the purchaser(s) must evidence the balance of the purchase price by executing a
promissory note, delivered to the selling Participant at the Closing. The note
delivered at Closing must bear a reasonable rate of interest, determined as of
the Closing Date, and the purchaser(s) must provide adequate security. The note
must provide for equal annual installments with interest payable with each
installment, the first installment being due and payable one year after the
Closing Date. The note further must provide for acceleration in the event of 30
days' default of the payment on interest or principal and must grant to the
maker of the note the right to repay the note in whole or in part at any time or
times without penalty; provided however, the purchaser(s) may not have the right
to make any prepayment during the calendar year or fiscal year of the
Participant (Beneficiary) in which the Closing Date occurs.
11.05 Notice. A person has given Notice permitted or required under this
Article XI when the person deposits the Notice in the United States mail, first
class, postage prepaid, addressed to the person entitled to the Notice at the
address currently listed for him in the records of the Advisory Committee. Any
person affected by this Article XI has the obligation of notifying the Advisory
Committee of any change of address.
11.06 Terms and Definitions. For purposes of this Article XI:
(a) "Fair market value" means the value of the Employer Securities (i)
determined as of the date of the exercise of an option if the exercise is
by a Disqualified Person, or (ii) in all other cases, determined as of the
most recent Accounting Date. The Advisory Committee must determine fair
market value of Employer Securities for all purposes of the Plan by
engaging the services of an independent appraiser. See (S) 10.14.
(b) "Notice" means any offer, acceptance of an offer, payment or any other
communication.
(c) "Beneficiary" includes the legal representative of a deceased
Participant.
(d) "Closing" means the place, date and time ("Closing Date") to which the
selling Participant (or his Beneficiary) and purchaser may agree for
purposes of a sale and purchase under this Article XI, provided Closing
must take place not later than 30 days after the exercise of an offer under
(S) 11.01.
* * * * * * * * * * * * *
11.2
<PAGE>
ARTICLE XII - MISCELLANEOUS
12.01 Evidence. Anyone required to give evidence under the terms of the
Plan may do so by certificate, affidavit, document or other information which
the person to act in reliance may consider pertinent, reliable and genuine, and
to have been signed, made or presented by the proper party or parties. The
Advisory Committee and the Trustee are fully protected in acting and relying
upon any evidence described under the immediately preceding sentence.
12.02 No Responsibility for Employer Action. Neither the Trustee nor the
Advisory Committee has any obligation or responsibility with respect to any
action required by the Plan to be taken by the Employer, any Participant or
eligible Employee, or for the failure of any of the above persons to act or make
any payment or contribution, or to otherwise provide any benefit contemplated
under this Plan. Furthermore, the Plan does not require the Trustee or the
Advisory Committee to collect any contribution required under the Plan, or to
determine the correctness of the amount of any Employer contribution. Neither
the Trustee nor the Advisory Committee need inquire into or be responsible for
any action or failure to act on the part of the others, or on the part of any
other person who has any responsibility regarding the management, administration
or operation of the Plan, whether by the express terms of the Plan or by a
separate agreement authorized by the Plan or by the applicable provisions of
ERISA. Any action required of a corporate Employer must be by its Board of
Directors or its designate.
12.03 Fiduciaries not Insurers. The Trustee, the Advisory Committee, the
Plan Administrator and the Employer in no way guarantee the Trust Fund from loss
or depreciation. The Employer does not guarantee the payment of any money which
may be or becomes due to any person from the Trust Fund. The liability of the
Advisory Committee and the Trustee to make any payment from the Trust Fund at
any time and all times is limited to the then available assets of the Trust.
12.04 Waiver of Notice. Any person entitled to notice under the Plan may
waive the notice, unless the Code or Treasury regulations prescribe the notice
or ERISA specifically or impliedly prohibits such a waiver.
12.05 Successors. The Plan is binding upon all persons entitled to
benefits under the Plan, their respective heirs and legal representatives, upon
the Employer, its successors and assigns, and upon the Trustee, the Advisory
Committee, the Plan Administrator and their successors.
12.06 Word Usage. Words used in the masculine also apply to the feminine
where applicable, and wherever the context of the Employer's Plan dictates, the
plural includes the singular and the singular includes the plural.
12.07 State Law. MISSOURI law will determine all questions arising with
respect to the provisions of this Agreement except to the extent superseded by
Federal law.
12.08 Employment Not Guaranteed. Nothing contained in this Plan, or with
respect to the establishment of the Trust, or any modification or amendment to
the Plan or Trust, or in the creation of any Account, or the payment of any
benefit, gives any Employee, Employee-Participant or any Beneficiary any right
to continue employment, any legal or equitable right against the Employer, or
Employee of the Employer, or against the Trustee, or its agents or employees, or
against the Plan
12.1
<PAGE>
Administrator, except as expressly provided by the Plan, the Trust, ERISA or by
a separate agreement.
* * * * * * * * * * * * * *
12.2
<PAGE>
ARTICLE XIII - EXCLUSIVE BENEFIT, AMENDMENT, TERMINATION
13.01 Exclusive Benefit. Except as provided under Article III, the
Employer has no beneficial interest in any asset of the Trust and no part of any
asset in the Trust may ever revert to or be repaid to an Employer, either
directly or indirectly; nor, prior to the satisfaction of all liabilities with
respect to the Participants and their Beneficiaries under the Plan, may any part
of the corpus or income of the Trust Fund, or any asset of the Trust, be (at any
time) used for, or diverted to, purposes other than the exclusive benefit of the
Participants or their Beneficiaries.
13.02 Amendment by Employer. The Employer has the right at any time and
from time to time:
(a) To amend this Agreement in any manner it deems necessary or advisable
in order to qualify (or maintain qualification of) this Plan and the Trust
created under it under the provisions of Code (S)401(a);
(b) To amend the Plan to allow the Plan to operate under a waiver of the
minimum funding requirement; and
(c) To amend this Agreement in any other manner.
No amendment may authorize or permit any of the Trust Fund (other than the
part which is required to pay taxes and administration expenses) to be used for
or diverted to purposes other than for the exclusive benefit of the Participants
or their Beneficiaries or estates. No amendment may cause or permit any portion
of the Trust Fund to revert to or become a property of the Employer. The
Employer also may not make any amendment which affects the rights, duties or
responsibilities of the Trustee, the Plan Administrator or the Advisory
Committee without the written consent of the affected Trustee, the Plan
Administrator or the affected member of the Advisory Committee. The Employer
must make all amendments in writing. Each amendment must state the date to which
it is either retroactively or prospectively effective.
(A) Code (S)411(d)(6) Protected Benefits. An amendment (including the adoption
of this Plan as a restatement of an existing plan) may not decrease a
Participant's Accrued Benefit, except to the extent permitted under Code
(S)412(c)(8), and may not reduce or eliminate Code (S)411(d)(6) protected
benefits determined immediately prior to the adoption date (or, if later, the
effective date) of the amendment. An amendment reduces or eliminates Code
(S)411(d)(6) protected benefits if the amendment has the effect of either (1)
eliminating or reducing an early retirement benefit or a retirement-type subsidy
(as defined in Treasury regulations), or (2) except as provided by Treasury
regulations, eliminating an optional form of benefit. The Advisory Committee
must disregard an amendment to the extent application of the amendment would
fail to satisfy this paragraph. If the Advisory Committee must disregard an
amendment because the amendment would violate clause (1) or clause (2), the
Advisory Committee must maintain a schedule of the early retirement option or
other optional forms of benefit the Plan must continue for the affected
Participants.
13.03 Discontinuance. The Employer has the right, at any time, to suspend
or discontinue its contributions under the Plan, and to terminate, at any time,
this Plan and the Trust created under this Agreement. The Plan will terminate
upon the first to occur of the following:
13.1
<PAGE>
(a) The date terminated by action of the Employer;
(b) The dissolution or merger of the Employer, unless the successor makes
provision to continue the Plan, in which event the successor must
substitute itself as the Employer under this Plan. Any termination of the
Plan resulting from this paragraph (b) is not effective until compliance
with any applicable notice requirements under ERISA.
13.04 Full Vesting on Termination. Upon either full or partial termination
of the Plan, or, if applicable, upon complete discontinuance of contributions to
the Plan, an affected Participant's right to his Accrued Benefit is 100%
Nonforfeitable, irrespective of the Nonforfeitable percentage which otherwise
would apply under Article V.
13.05 Merger/Direct Transfer. The Trustee may not consent to, or be a
party to, any merger or consolidation with another plan, or to a transfer of
assets or liabilities to another plan, unless immediately after the merger,
consolidation or transfer, the surviving Plan provides each Participant a
benefit equal to or greater than the benefit each Participant would have
received had the Plan terminated immediately before the merger or consolidation
or transfer. The Trustee possesses the specific authority to enter into merger
agreements or direct transfer of assets agreements with the trustees of other
retirement plans described in Code (S)401(a), including an elective transfer,
and to accept the direct transfer of plan assets, or to transfer plan assets, as
a party to any such agreement.
The Trustee may accept a direct transfer of plan assets on behalf of an
Employee prior to the date the Employee satisfies the Plan's eligibility
conditions. If the Trustee accepts such a direct transfer of plan assets, the
Advisory Committee and Trustee must treat the Employee as a Participant for all
purposes of the Plan except the Employee is not a Participant for purposes of
sharing in Employer contributions or Participant forfeitures under the Plan
until he actually becomes a Participant in the Plan.
(A) Elective Transfers. The Trustee, after August 9, 1988, may not consent to,
or be a party to a merger, consolidation or transfer of assets with a defined
benefit plan, except with respect to an elective transfer, or unless the
transferred benefits are in the form of paid-up individual annuity contracts
guaranteeing the payment of the transferred benefits in accordance with the
terms of the transferor plan and in a manner consistent with the Code and with
ERISA. The Trustee will hold, administer and distribute the transferred assets
as a part of the Trust Fund and the Trustee must maintain a separate Employer
contribution Account for the benefit of the Employee on whose behalf the Trustee
accepted the transfer in order to reflect the value of the transferred assets.
Unless a transfer of assets to this Plan is an elective transfer, the Plan will
preserve all Code (S)411(d)(6) protected benefits with respect to those
transferred assets, in the manner described in Section 13.02. A transfer is an
elective transfer if: (1) the transfer satisfies the first paragraph of this
Section 13.06; (2) the transfer is voluntary, under a fully informed election by
the Participant; (3) the Participant has an alternative that retains his Code
(S)411(d)(6) protected benefits (including an option to leave his benefit in the
transferor plan, if that plan is not terminating); (4) the transfer satisfies
the applicable spousal consent requirements of the Code; (5) the transferor plan
satisfies the joint and survivor notice requirements of the Code, if the
Participant's transferred benefit is subject to those requirements; (6) the
Participant has a right to immediate distribution from the transferor plan, in
lieu of the elective transfer; (7) the transferred benefit is at least the
greater of the single sum distribution provided by the transferor plan for which
the Participant is eligible or the present value
13.2
<PAGE>
of the Participant's accrued benefit under the transferor plan payable at that
plan's normal retirement age; (8) the Participant has a 100% Nonforfeitable
interest in the transferred benefit; and (9) the transfer otherwise satisfies
applicable Treasury regulations. An elective transfer may occur between
qualified plans of any type.
(B) Distribution restrictions under Code (S)401(k). If the Plan receives a
direct transfer (by merger or otherwise) of elective contributions (or amounts
treated as elective contributions) under a Plan with a Code (S)401(k)
arrangement, the distribution restrictions of Code (S)(S)401(k)(2) and (10)
continue to apply to those transferred elective contributions.
13.06 Termination. Upon termination of the Plan, the distribution
provisions of Article VI remain operative, with the following exceptions:
(1) if the present value of the Participant's Nonforfeitable Accrued
Benefit does not exceed $3,500, the Advisory Committee will direct the Trustee
to distribute the Participant's Nonforfeitable Accrued Benefit to him in lump
sum as soon as administratively practicable after the Plan terminates; and
(2) if the present value of the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500, the Participant or the Beneficiary, in addition to the
distribution events permitted under Article VI, may elect to have the Trustee
commence distribution of his Nonforfeitable Accrued Benefit as soon as
administratively practicable after the Plan terminates.
To liquidate the Trust, the Advisory Committee will purchase a deferred
annuity contract for each Participant which protects the Participant's
distribution rights under the Plan, if the Participant's Nonforfeitable Accrued
Benefit exceeds $3,500 and the Participant does not elect an immediate
distribution pursuant to Paragraph (2).
If this paragraph applies, in lieu of the preceding provisions of this
Section 13.06 and the distribution provisions of Article VI, the Advisory
Committee will direct the Trustee to distribute each Participant's
Nonforfeitable Accrued Benefit, in lump sum, as soon as administratively
practicable after the termination of the Plan, irrespective of the present value
of the Participant's Nonforfeitable Accrued Benefit and whether the Participant
consents to that distribution. This paragraph applies only if: (1) the Plan does
not provide an annuity option; (2) the Plan is a profit sharing plan at the time
of its termination date; and (3) as of the period between the Plan termination
date and the final distribution of assets, the Employer does not maintain any
other defined contribution plan (other than an ESOP).
The Trust will continue until the Trustee in accordance with the direction
of the Advisory Committee has distributed all of the benefits under the Plan. On
each valuation date, the Advisory Committee will credit any part of a
Participant's Accrued Benefit retained in the Trust with its proportionate share
of the Trust's income, expenses, gains and losses, both realized and unrealized.
Upon termination of the Plan, the amount, if any, in a suspense account under
Article III will revert to the Employer, subject to the conditions of the
Treasury regulations permitting such a reversion. A resolution or amendment to
freeze all future benefit accrual but otherwise to continue maintenance of this
Plan, is not a termination for purposes of this Section 13.06.
13.3
<PAGE>
IN WITNESS WHEREOF, the Employer and the Trustee have executed this Plan
and Trust in ST. JOSEPH, MISSOURI this 10th day of December, 1991.
C.D. SMITH DRUG COMPANY
By: /s/ John T. Smith, Jr.
------------------------------------
John T. Smith, Jr.
"EMPLOYER"
13.4
<PAGE>
/s/ John A. Ovel 12/32/91
--------------------------------------
BOATMEN'S TRUST COMPANY OF KANSAS CITY
"TRUSTEE"
13.5
<PAGE>
ALPHABETICAL LISTING OF DEFINITIONS
<TABLE>
<CAPTION>
<S> <C>
Account.......................................... 1.4
Accounting Date.................................. 1.4
Accrued Benefit.................................. 1.4
Advisory Committee............................... 1.1
Annual Addition.................................. 3.6
Annuity Starting Date............................ 6.1
Beneficiary...................................... 1.3
Break in Service................................. 2.2
Cash-Out Distribution............................ 5.1
Code............................................. 1.5
Code (S)411(d)(6) Protected Benefits............. 13.1
Compensation.............................. 1.3,1.8,3.7
Defined benefit plan............................. 3.8
Defined contribution plan........................ 3.7
Determination Date............................... 1.9
Disability....................................... 1.6
Disqualified Person.............................. 1.9
Distribution Date................................ 6.1
Effective Date................................... 1.4
Elective contributions........................... 1.3
Elective Transfer................................ 13.2
Employee......................................... 1.1
Employer.................................. 1.1,1.9,3.7
Employer Securities.............................. 1.9
ERISA............................................ 1.5
Excess Amount.................................... 3.7
Exempt Loan...................................... 1.9
Forfeiture Break in Service...................... 5.4
Highly Compensated Employee...................... 1.1
Hour of Service.................................. 1.5
Key Employee..................................... 1.8
Leased Employees................................. 1.7
Leveraged Employer Securities.................... 1.9
Limitation Year.................................. 3.7
Maximum Permissible Amount....................... 3.7
Minimum Distribution Incidental Benefit.......... 6.4
Non-Key Employee................................. 1.8
Nonforfeitable................................... 1.4
Nontransferable Annuity.......................... 1.5
Normal Retirement Age............................ 5.1
Participant...................................... 1.2
Permissive Aggregation Group..................... 1.9
Plan............................................. 1.1
Plan Administrator............................... 1.1
Plan Entry Date.................................. 1.4
Plan Year........................................ 1.4
Predecessor Employer............................. 1.6
Qualified Domestic Relations Order............... 6.7
Related Employers................................ 1.6
Required Aggregation Group....................... 1.8
Required Beginning Date.......................... 6.2
Service.......................................... 1.5
Top Heavy Minimum Allocation..................... 3.2
Top Heavy Ratio.................................. 1.7
Trust............................................ 1.4
Trust Fund....................................... 1.4
Trustee.......................................... 1.1
Year of Service.................................. 2.1
</TABLE>
13.6
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
The undersigned Employer, by executing this Participant Agreement, elects
to continue as a Participating Employer in the Plan which has been restated as
the C.D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN, as if the
Participating Employer were an Adopting Employer under that Plan. The
Participating Employer accepts, and agrees to be bound by, all of the provisions
of the Plan as maintained by C.D. Smith Drug Company.
This is an adoption of the restatement of the above Plan, effective as of
December 31, 1991. The original effective date of the participation of the
undersigned Employer in this Plan, prior to its restatement, is January 1, 1989.
Dated as of the 31st day of December 1992.
Name of Participating Employer: C.D.S. TRANSPORTATION, INC.
By: /s/ Robert C. Farley
--------------------------------------
Robert Farley, President
EIN: 43-1462539
The Adopting Employer, C.D. Smith Drug Company, in witness of its
acceptance executes this Participation Agreement on the date signed above.
C.D. SMITH DRUG COMPANY
By: /s/ Robert C. Farley
---------------------------------------
Robert Farley, President
13.7
<PAGE>
PARTICIPATION AGREEMENT
-----------------------
The undersigned Employer, by executing this Participant Agreement, Elects
to be a Participating Employer in the Plan which is known as the C.D. Smith Drug
Company Profit Sharing 401(k) Plan, as if the Participating Employer were an
Adopting Employer under that Plan. The Participating Employer accepts, agrees to
be bound by, all of the provisions of the Plan as maintained by C.D. Smith Drug
Company.
This is an adoption of the above Plan, effective as of January 1, 1989.
Dated as of the 31st day of December 1989.
Name of Participating Employer: C.D.S. TRANSPORTATION, INC.
By: /s/ Robert C. Farley
----------------------------------
The Adopting Employer, C.D. Smith Drug Company, in witness of its
acceptance executes this Participation Agreement on the date signed above.
C.D. SMITH DRUG COMPANY
By: /s/ Robert C. Farley
------------------------------------
13.7
<PAGE>
C. D. SMITH DRUG COMPANY EMPLOYEE STOCK OWNERSHIP PLAN
ARTICLE A
APPENDIX TO PLAN AND TRUST AGREEMENT
This article is necessary to comply with the Unemployment Compensation
Amendments Act of 1992 and is an integral part of the plan and trust agreement.
Section 13.02 applies to any modification or amendment of this Article.
A-1. APPLICATIONS. This Article applies to distributions made on or after
January 1, 1993. Notwithstanding any provision of the Plan to the contrary that
would otherwise limit a distributee's election under this Article, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
A-2. DEFINITIONS.
(a) "Eligible rollover distribution." An eligible rollover distribution is
any distribution of all or any portion of the balance to the credit of the
distributee, except that an eligible rollover distribution does not include: any
distribution that is one of a series of substantially equal periodic payments
(not less frequently than annually) made for the life (or life expectancy) of
the distributee or the joint lives (or joint expectancies) of the distributee
and the distributee's designated beneficiary, or for a specified period of ten
years or more; any distribution to the extent such distribution is required
under Code Section 401(a)(9); and the portion of any distribution that is not
includible in gross income (determined without regard to the exclusion of net
unrealized appreciation with respect to employer securities).
(b) "Eligible retirement plan." An eligible retirement plan is an
individual retirement account described in Code Section 408(a), an individual
retirement annuity described in Code Section 408(b), an annuity plan described
in Code Section 403(a), or a qualified trust described in Code Section 401(a),
that accepts the distributee's eligible rollover distribution. However, in the
case of an eligible rollover distribution to the surviving spouse, an eligible
retirement plan is an individual retirement account or individual retirement
annuity.
(c) "Distributee." A distributee includes an Employee or former Employee.
In addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are distributees with regard to the interest of the spouse or former
spouse.
(d) "Direct rollover." A direct rollover is a payment by the Plan to the
eligible retirement plan specified by the distributee.
<PAGE>
ARTICLE B
APPENDIX TO PLAN AND TRUST AGREEMENT
SECTION 401(a)(17) AMENDMENT
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for plan years
beginning on or after January 1, 1994, the annual compensation of each employee
taken into account under the Plan shall not exceed the OBRA '93 annual
compensation limit. The OBRA '93 annual compensation limit is $150,000, as
adjusted by the Commissioner for increases in the cost of living in accordance
with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living
adjustment in effect for a calendar year applies to any period, not exceeding 12
months, over which compensation is determined (determination period) beginning
in such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 annual compensation limit will be multiplied by a fraction,
the numerator of which is the number of months in the determination period, and
the denominator of which is 12.
For plan years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under Section 401(a)(17) of the Code shall mean the OBRA
'93 annual compensation limit set forth in this provision.
If compensation for any prior determination period is taken into account in
determining an employee's benefits accruing in the current plan year, the
compensation for that prior determination period is subject to the OBRA '93
annual compensation limit in effect for that prior determination period. For
this purpose, for determination periods beginning before the first day of the
first plan year beginning on or after January 1, 1994, the OBRA '93 annual
compensation limit is $150,000.
<PAGE>
Exhibit 10.2
------------
AMENDED AND RESTATED
C.D. SMITH HEALTHCARE, INC.
1996 EQUITY COMPENSATION PLAN
SECTION 1
PURPOSE AND DURATION
1.1 Effective Date. This Plan permits the grant of Nonqualified Stock
Options, Incentive Stock Options, and Stock Appreciation Rights. This Plan
became effective on March 27, 1996, except for those provisions addressing
Incentive Stock Options which shall become effective upon the affirmative vote
of the holders of a majority of the Shares present in person or by proxy and
entitled to vote at a validly held meeting of the stockholders of the Company.
1.2 Purpose of this Plan. This Plan is intended to attract, motivate, and
retain employees of the Company and its Affiliates. This Plan also is designed
to further the growth and financial success of the Company and its Affiliates by
aligning the interests of the Participants, through the ownership of Shares and
through other equity based incentives, with the interests of the Company's
stockholders.
SECTION 2
DEFINITIONS
The following words and phrases shall have the following meanings unless a
different meaning is plainly required by the context:
2.1 "1933 Act" means the Securities Act of 1933, as amended. Reference to
a specific section of the 1933 Act or regulation thereunder shall include such
section or regulation, any valid regulation promulgated under such section, and
any comparable provision of any future legislation or regulation amending,
supplementing, or superseding such section or regulation.
2.2 "1934 Act" means the Securities Exchange Act of 1934, as amended.
Reference to a specific section of the 1934 Act or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing, or superseding such section or regulation.
2.3 "Administrator" means the Board or the Committee, as the case may be,
that is appointed in accordance with Section 3.1 to administer the Plan.
2.4 "Affiliate" means any corporation or any other entity, including
partnerships and joint ventures, which, directly or indirectly, controls, is
controlled by, or is under common control with, the Company, whether now or
hereafter existing.
<PAGE>
2.5 "Affiliated SAR" means a SAR which is granted in connection with, and
is related to, an Option, and which automatically will be deemed to be exercised
at the same time that such related Option is exercised.
2.6 "Award" means, individually or collectively, a grant under this Plan
of Nonqualified Stock Options, Incentive Stock Options, or SARs.
2.7 "Award Agreement" means the written agreement setting forth the terms
and provisions applicable to each Award granted under this Plan.
2.8 "Board" or "Board of Directors" means the Board of Directors of the
Company.
2.9 "Change in Control" shall have the meaning assigned to such term in
Section 10.2.
2.10 "Code" means the Internal Revenue Code of 1986, as amended.
Reference to a specific section of the Code or regulation thereunder shall
include such section or regulation, any valid regulation promulgated under such
section, and any comparable provision of any future legislation or regulation
amending, supplementing, or superseding such section or regulation.
2.11 "Committee" means the committee, if any, appointed by the Board
pursuant to Section 3.1 to administer this Plan. The Committee shall consist of
not less than two (2) Directors. The members of the Committee shall be
appointed from time to time by, and shall serve at the pleasure of, the Board of
Directors. The Committee shall be comprised solely of Directors who both are
(a) "disinterested persons" under Rule 16b-3, and (b) "outside directors" under
Section 162(m) of the Code.
2.12 "Company" means C.D. Smith Healthcare, Inc., a Missouri corporation,
and any successor thereto.
2.13 "Director" means any individual who is a member of the Board of
Directors of the Company.
2.14 "Disability" shall have the same meaning as given that term in the
long term disability insurance policy of the Company as in effect on the date in
question.
2.15 "Employee" means any employee of the Company or of an Affiliate,
whether now or hereafter employed.
2.16 "Exercise Price" means the price at which a Share may be purchased by
a Participant pursuant to the exercise of an Option.
-2-
<PAGE>
2.17 "Fair Market Value" means the value determined in good faith by the
Administrator in accordance with uniform and nondiscriminatory standards. For
federal, state and local income tax reporting purposes, fair market value shall
be determined by the Administrator or its delegate in accordance with uniform
and nondiscriminatory standards adopted by it from time to time.
2.18 "Fiscal Year" means the fiscal year of the Company.
2.19 "Freestanding SAR" means a SAR that is granted independently of any
Option.
2.20 "Grant Date" means, with respect to an Award, the date on which the
Award was granted.
2.21 "Incentive Stock Option" means an Option to purchase Shares which is
designated as an Incentive Stock Option, and is intended to meet the
requirements of Section 422 of the Code.
2.22 "Nonqualified Stock Option" means an Option to purchase Shares which
is not an Incentive Stock Option.
2.23 "Option" means an Incentive Stock Option or a Nonqualified Stock
Option granted pursuant to this Plan.
2.24 "Participant" means an Employee to whom an outstanding Award has been
granted.
2.25 "Plan" means the C.D. Smith Drug Company 1996 Equity Compensation
Plan, as set forth in this instrument and as hereafter amended from time to
time.
2.26 "Retirement" means, in the case of an Employee, a Termination of
Service by reason of the Employee's retirement at or after age sixty-five (65)
or pursuant to any early retirement program instituted by the Company.
2.27 "Rule 16b-3" means Rule 16b-3 promulgated under the 1934 Act, and any
future regulation amending, supplementing, or superseding such regulation.
2.28 "Section 16 Person" means a person who, with respect to the Shares,
is subject to Section 16 of the 1934 Act.
2.29 "Shares" means the shares of common stock of the Company.
2.30 "Stock Appreciation Right" or "SAR" means an Award, granted either
alone or in connection with a related Option, that is designated as a SAR
pursuant to Section 6.
2.31 "Subsidiary" means a "subsidiary corporation" as defined in Section
424(f) of the Code, whether now or hereafter existing.
-3-
<PAGE>
2.32 "Tandem SAR" means a SAR which is granted in connection with, or
related to, an Option, and which requires forfeiture of the right to purchase an
equal number of Shares under the related Option upon the exercise of such SAR;
or alternatively, which requires the cancellation of an equal amount of SAR upon
the purchase of the Shares subject to the Option.
2.33 "Termination of Service" or "Terminates" means a cessation of the
employee-employer relationship between an Employee and the Company or an
Affiliate for any reason, including, but not limited to, a cessation by
resignation, discharge, death, Disability, Retirement or the disaffiliation of
an Affiliate, but excluding any such cessation where there is a simultaneous
reemployment by the Company or by an Affiliate.
SECTION 3
ADMINISTRATION
3.1 The Administrator. Prior to the date, if any, upon which the Company
becomes subject to the 1934 Act, the Plan shall be administered by either the
Board or the Committee. After the date, if any, upon which the Company becomes
subject to the 1934 Act, the Plan and all Awards shall be administered by the
Committee.
3.2 Authority of the Administrator. It shall be the duty of the
Administrator to administer this Plan in accordance with the provisions hereof.
The Administrator shall have all powers and discretion necessary or appropriate
to administer this Plan and to control its operation, including, but not limited
to, the power to (a) determine which Employees shall be granted Awards, (b)
prescribe the terms and conditions of the Awards, (c) interpret the terms and
provision of this Plan and of the Awards, (d) adopt rules for the
administration, interpretation and application of this Plan, and (e) interpret,
amend, or revoke any such rules.
3.3 Delegation by the Administrator. The Administrator, in its sole
discretion and on such terms and conditions as it may provide, may delegate all
or any part of its authority and powers under this Plan to one or more directors
or officers of the Company; provided, however, that the Administrator may not
delegate its authority and powers (a) with respect to Section 16 Persons, or (b)
in any way which would jeopardize this Plan's qualification under Section 162(m)
of the Code or Rule 16b-3.
3.4 Decisions Binding. All determinations and decisions made by the
Administrator, the Board and any delegate of the Administrator appointed
pursuant to Section 3.3 shall be final, conclusive, and binding on all persons,
and shall be given the maximum deference permitted by law.
-4-
<PAGE>
SECTION 4
SHARES SUBJECT TO THIS PLAN
4.1 Number of Shares. Subject to adjustment as provided in Section 4.3,
the total number of Shares available for grant under this Plan shall not exceed
2,000,000. Shares granted under this Plan may be either authorized but unissued
Shares or treasury Shares, or any combination thereof.
4.2 Lapsed Awards. If an Award is cancelled, terminates, expires or lapses
for any reason (with the exception of the termination of a Tandem SAR upon
exercise of the related Option, or the termination of a related Option upon
exercise of the corresponding Tandem SAR), any Shares subject to such Award
thereafter shall be available to be the subject of a subsequent Award.
4.3 Adjustments in Awards and Authorized Shares. In the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, stock split, Share combination, or other change in
the corporate structure of the Company affecting the Shares, the Administrator
shall adjust the number and class of Shares which may be delivered under this
Plan, the number, class, and price of Shares subject to outstanding Awards, and
the numerical limits of Sections 4.1, 5.1, and 6.1.1 in such manner as the
Administrator in its sole discretion shall determine to be advisable or
appropriate to prevent the dilution or diminution of such Awards.
Notwithstanding the preceding, the number of Shares subject to any Award always
shall be a whole number.
4.4 Adjustments upon Merger or Asset Sale. In the event of a merger of the
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, the Board of Directors, in its discretion, may
require the successor corporation to either (i) assume each outstanding Award or
(ii) substitute an equivalent award by the successor corporation or a Parent or
Subsidiary of the successor corporation. If an Award is not assumed or
substituted in the event of a merger or sale of assets, the Award shall become
immediately exercisable and the Administrator shall notify the Participant that
the Award shall be fully exercisable for a period of fifteen (15) days from the
date of such notice, and the Award shall terminate upon the expiration of such
period unless exercised. For the purposes of this paragraph, the Award shall be
considered assumed if, following the merger or sale of assets, the Award or the
merger or acquisition agreement confers the right to purchase or receive, for
each Share subject to the Award immediately prior to the merger or sale of
assets, equal consideration (whether stock, cash, or other securities or
property) as received in the merger or sale of assets by holders of each Share
of common stock held on the effective date of the transaction (and if holders of
Shares were offered a choice of consideration, the type of consideration chosen
by the holders of a majority of the outstanding Shares); provided, however, that
if such consideration received in the merger or sale of assets was not solely
common stock of the successor corporation or its Parent, the Administrator may,
with the consent of the successor corporation, provide for the consideration to
be received upon the exercise of the Award, for each Share subject to the award,
to be solely
-5-
<PAGE>
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of common stock in the
merger or sale of assets.
SECTION 5
STOCK OPTIONS
5.1 Grant of Options. Subject to the terms and provisions of this Plan,
Options may be granted to Employees at any time and from time to time as
determined by the Administrator in its sole discretion. The Administrator in its
sole discretion shall determine the number of Shares subject to each Option. The
Administrator may grant Incentive Stock Options, Nonqualified Stock Options, or
any combination thereof.
5.2 Award Agreement. Each Option shall be evidenced by an Award
Agreement that shall specify the Exercise Price, the expiration date of the
Option, the number of Shares to which the Option pertains, any conditions to
exercise of the Option and such other terms and conditions as the Administrator
in its sole discretion shall determine. The Award Agreement also shall specify
whether the Option is intended to be an Incentive Stock Option or a Nonqualified
Stock Option.
5.3 Exercise Price. Subject to the provisions of this Section 5.3, the
Exercise Price per Share for each Option shall be determined by the
Administrator in its sole discretion.
5.3.1 Nonqualified Stock Options. In the case of a Nonqualified
Stock Option, the Exercise Price per Share shall be not less than one
hundred percent (100%) of the Fair Market Value of a Share on the Grant
Date.
5.3.2 Incentive Stock Options. In the case of an Incentive Stock
Option, the Exercise Price per Share shall be not less than one hundred
percent (100%) of the Fair Market Value of a Share on the Grant Date;
provided, however, that if on the Grant Date, the Employee (together with
persons whose stock ownership is attributed to the Employee pursuant to
Section 424(d) of the Code) owns stock possessing more than 10% of the
total combined voting power of all classes of stock of the Company or any
of its Subsidiaries, the Exercise Price per Share shall be not less than
one hundred ten percent (110%) of the Fair Market Value of a Share on the
Grant Date.
5.3.3 Substitute Options. Notwithstanding the provisions of Sections
5.3.1 and 5.3.2, in the event that the Company or an Affiliate consummates
a transaction described in Section 424(a) of the Code (e.g., the
acquisition of property or stock from an unrelated corporation), persons
who become Employees on account of such transaction may be granted Options
in substitution for options granted by such former employer. If such
substitute Options are granted, the Administrator, in its sole discretion
and consistent with Section 424(a) of the Code, may determine that such
substitute Options shall have an
-6-
<PAGE>
Exercise Price per Share less than one hundred (100%) of the Fair Market
Value of the Shares on the Grant Date.
5.4 Expiration of Options.
5.4.1 Expiration Dates. Each Option shall terminate upon the earlier
of the first to occur of the following events:
(a) The date for termination of the Option set forth in the
Award Agreement; or
(b) The expiration of ten (10) years from the Grant Date (except
as provided in Section 5.8 regarding Incentive Stock Options); or
(c) The expiration of one (1) year from the date of the
Optionee's Termination of Service for a reason other than the
Optionee's death, Disability or Retirement (except as provided in
Section 5.8 regarding Incentive Stock Options); or
(d) The expiration of three (3) years from the date of the
Optionee's Termination of Service by reason of Disability, death, or
Retirement (except as provided in Section 5.8 regarding Incentive
Stock Options).
5.4.2 Administrator Discretion. Subject to the limits of Section
5.4.1, the Administrator in its sole discretion (a) shall provide in each
Award Agreement when each Option expires and becomes unexercisable and (b)
may, after an Option is granted, extend the maximum term of the Option
(subject to Section 5.8 regarding Incentive Stock Options), provided
however, in the case of Incentive Stock Options, that the maximum term of
the Option may not be extended if the Fair Market Value per Share is
greater than the Exercise Price per Share.
5.5 Exercisability of Options. Options granted under this Plan shall be
exercisable at such times and be subject to such restrictions and conditions as
the Administrator shall determine in its sole discretion; provided however, that
all Options granted under this Plan shall become immediately exercisable upon
death or Disability or (subject to the limitations set forth in Section 10.1) as
of the first date that a Change in Control shall be deemed to have occurred.
After an Option is granted, the Administrator in its sole discretion may
accelerate the exercisability of the Option. However, in no event may any
Option granted to a Section 16 Person be exercisable until at least six (6)
months following the Grant Date or such shorter period as may be permissible
while maintaining compliance with Rule 16b-3.
5.6 Payment. Options shall be exercised by the Participant's delivery of
a written notice of exercise to the Secretary of the Company or its designee,
setting forth the number of Shares with respect to which the Option is to be
exercised, accompanied by full payment for the
-7-
<PAGE>
Shares. Upon the exercise of any Option, the Exercise Price shall be payable to
the Company in full in cash or by certified or cashiers check. The
Administrator in its sole discretion also may permit exercise (a) by tendering
previously acquired Shares having an aggregate Fair Market Value at the time of
exercise equal to the total Exercise Price, (b) by delivery of an executed
promissory note representing indebtedness of the Participant to the Company, (c)
by any other means which the Administrator in its sole discretion determines (i)
to provide legal consideration for the Shares, and (ii) to be consistent with
the purposes of this Plan, or (d) any combination of the methods of payment set
forth in this Section. As soon as practicable after receipt of a written
notification of exercise and full payment for the Shares purchased, the Company
shall deliver to the Participant or to the Participant's designated broker,
Share certificates (which may be in book entry form) representing such Shares.
5.7 Share Transferability. The Administrator may impose transfer
restrictions on any Shares acquired pursuant to the exercise of an Option as it
may deem advisable or appropriate in its sole discretion, including, but not
limited to, restrictions related to applicable Federal securities laws, the
requirements of any national securities exchange or system upon which Shares are
then listed or traded, and any blue sky or state securities laws.
5.8 Certain Additional Provisions for Incentive Stock Options.
5.8.1 Eligible Participants. Incentive Stock Options may be granted
only to persons who are employees of the Company or a Subsidiary on the
Grant Date.
5.8.2 Exercisability. The aggregate Fair Market Value of the Shares
(as determined on the applicable Grant Date) with respect to which
Incentive Stock Options are exercisable for the first time by any Employee
during any calendar year (under all plans of the Company and its
Subsidiaries) shall not exceed $100,000.
5.8.3 Termination of Service. No Incentive Stock Option may be
exercised more than three (3) months after the Participant's Termination of
Service for any reason other than Disability or death, unless (a) the
Participant dies during such three-month period, and (b) the Award
Agreement or the Administrator permits later exercise. No Incentive Stock
Option may be exercised more than one (1) year after the Participant's
termination of employment on account of Disability or death, unless (a) the
Participant dies during such one-year period, and (b) the Award Agreement
or the Administrator permits later exercise.
5.8.4 Expiration. No Incentive Stock Option may be exercised after
the expiration of ten (10) years from the Grant Date; provided, however,
that if the Option is granted to an Employee who, together with persons
whose stock ownership is attributed to the Employee pursuant to Section
424(d) of the Code, owns stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any of its
-8-
<PAGE>
Subsidiaries, the Option may not be exercised after the expiration of five
(5) years from the Grant Date.
SECTION 6
STOCK APPRECIATION RIGHTS
6.1 Grant of SARs. Subject to the terms and conditions of this Plan, a SAR
may be granted to Employees at any time and from time to time as shall be
determined by the Administrator in its sole discretion. The Administrator may
grant Affiliated SARs, Freestanding SARs, Tandem SARs, or any combination
thereof.
6.1.1 Number of Shares. The Administrator shall have complete
discretion to determine the number of SARs granted to any Participant,
provided that during any Fiscal Year, no Participant shall be granted SARs
covering more than 30,000 Shares.
6.1.2 Exercise Price and Other Terms. The Administrator, subject to
the provisions of this Plan, shall have complete discretion to determine
the terms and conditions of SARs granted under this Plan; provided,
however, that the exercise price per Share of a Freestanding SAR shall be
not less than one hundred percent (100%) of the Fair Market Value of a
Share on the Grant Date; provided further, that all SARs granted under this
Plan shall become immediately exercisable upon death or Disability or
(subject to the limitations set forth in Section 10.1) as of the first date
that a Change in Control shall be deemed to have occurred. The exercise
price per Share of Tandem or Affiliated SARs shall equal the Exercise Price
per Share of the related Option. In no event shall a SAR granted to a
Section 16 Person become exercisable until at least six (6) months after
the Grant Date or such shorter period as may be permissible while
maintaining compliance with Rule 16b-3.
6.2 Exercise of Tandem SARs. Tandem SARs may be exercised for all or part
of the Shares subject to the related Option upon the surrender of the right to
exercise the equivalent portion of the related Option. A Tandem SAR may be
exercised only with respect to the Shares for which its related Option is then
exercisable. With respect to a Tandem SAR granted in connection with an
Incentive Stock Option: (a) the Tandem SAR shall expire no later than the
expiration of the underlying Incentive Stock Option; (b) the value of the payout
with respect to the Tandem SAR shall be for no more than one hundred percent
(100%) of the difference between the Exercise Price per Share of the underlying
Incentive Stock Option and the Fair Market Value per Share of the Shares subject
to the underlying Incentive Stock Option at the time the Tandem SAR is
exercised; (c) the Tandem SAR shall be exercisable only when the Fair Market
Value per Share of the Shares subject to the Incentive Stock Option exceeds the
Exercise Price per Share of the Incentive Stock Option; and (d) any transfer of
the Tandem SAR shall be ineffective unless accompanied by a transfer of the
related Incentive Stock Option.
-9-
<PAGE>
6.3 Exercise of Affiliated SARs. An Affiliated SAR shall be deemed to be
exercised upon the exercise of the related Option. The deemed exercise of an
Affiliated SAR shall not necessitate a reduction in the number of Shares subject
to the related Option.
6.4 Exercise of Freestanding SARs. Freestanding SARs shall be exercisable
on such terms and conditions as the Administrator in its sole discretion shall
determine; provided, however, that no SAR granted to a Section 16 Person shall
be exercisable until at least six (6) months after the Grant Date or such
shorter period as may be permissible while maintaining compliance with Rule 16b-
3.
6.5 SAR Agreement. Each SAR grant shall be evidenced by an Award Agreement
that shall specify the exercise price per share, the term of the SAR, the
conditions of exercise, and such other terms and conditions as the Administrator
in its sole discretion shall determine.
6.6 Expiration of SARs. A SAR granted under this Plan shall expire on the
date set forth in the Award Agreement, which date shall be determined by the
Administrator in its sole discretion. Notwithstanding the foregoing, the terms
and provisions of Section 5.4 also shall apply to SARs.
6.7 Payment of SAR Amount. Upon exercise of a SAR, a Participant shall be
entitled to receive payment from the Company in an amount determined by
multiplying (i) the positive difference between the Fair Market Value of a Share
on the date of exercise and the exercise price per Share by (ii) the number of
Shares with respect to which the SAR is exercised. At the sole discretion of the
Administrator, the payment upon SAR exercise may be in cash, in Shares of
equivalent value, or in any combination thereof.
SECTION 7
MISCELLANEOUS
7.1 Deferrals. The Administrator in its sole discretion may permit a
Participant to defer receipt of the payment of cash or the delivery of Shares
that would otherwise be due to such Participant under an Award. Any such
deferral election shall be made at least one year prior to the due date, and
shall be subject to such rules and procedures as shall be determined by the
Administrator in its sole discretion.
7.2 No Effect on Employment or Service. Nothing in this Plan shall
interfere with or limit in any way the right of the Company to terminate any
Participant's employment at any time, with or without cause. For purposes of
this Plan, transfer of employment of a Participant between the Company and any
of its Affiliates (or between Affiliates) shall not be deemed a Termination of
Service. Employment with the Company and its Affiliates is on an at-will basis
only, unless otherwise provided by an applicable employment agreement between
the Participant and the Company or its Affiliate, as the case may be.
-10-
<PAGE>
7.3 Participation. No Employee shall have the right to be selected to
receive an Award under this Plan, or, having been so selected, to receive a
future Award.
7.4 Indemnification. Each person who is or shall have been a member of the
Committee or the Board shall be indemnified and held harmless by the Company
against and from (a) any loss, cost, liability or expense (including attorneys'
fees) that may be imposed upon or reasonably incurred by him or her in
connection with or resulting from any claim, action, suit or proceeding to which
he or she may be a party or in which he or she may be involved by reason of any
action taken or failure to act under this Plan or any Award Agreement, and (b)
from any and all amounts paid by him or her in settlement thereof, with the
Company's prior written approval, or paid by him or her in satisfaction of any
judgment in any such claim, action, suit, or proceeding against him or her;
provided, however, that he or she shall give the Company an opportunity, at its
own expense, to handle and defend the same before he or she undertakes to handle
and defend it on his or her own behalf. The foregoing right of indemnification
shall not be exclusive of any other rights of indemnification to which such
persons may be entitled under the Company's incorporation documents or Bylaws,
by contract, as a matter of law or otherwise, or under any power that the
Company may have to indemnify them or hold them harmless.
7.5 Successors. All obligations of the Company under this Plan, with
respect to Awards granted hereunder, shall be binding on any successor of the
Company, whether the existence of such successor is the result of a direct or
indirect purchase, merger, consolidation or otherwise, of all or substantially
all of the business or assets of the Company.
7.6 Beneficiary Designations. If permitted by the Administrator, a
Participant under this Plan may name a beneficiary or beneficiaries to whom any
vested but unpaid Award shall be paid in the event of the Participant's death.
Each such designation shall revoke all prior designations by the Participant,
and shall be effective only if given in a form and manner acceptable to the
Administrator. In the absence of any such designation, any vested benefits
remaining unpaid at the Participant's death shall be paid to the Participant's
estate and, subject to the terms of this Plan and of the applicable Award
Agreement, any unexercised vested Award may be exercised by the administrator or
executor of the Participant's estate. In each case, the named beneficiary or
beneficiaries or the executor of the Participant's estate, as the case may be,
shall have the right to exercise, pursuant to the terms hereof and the terms of
any applicable Award Agreement, the Awards made hereunder.
7.7 Nontransferability of Awards. Unless specifically provided otherwise
by the Administrator in the Award Agreement, no Award granted under this Plan
may be sold, transferred, pledged, assigned, or otherwise alienated or
hypothecated, other than by will, by the laws of descent and distribution, or to
the limited extent provided in Section 7.6. Unless otherwise provided for in the
Award Agreement, all rights with respect to an Award granted to a Participant
shall be available during his or her lifetime only to the Participant. In no
event may Incentive Stock Options be transferred, except as provided in this
Section 7.7.
-11-
<PAGE>
7.8 No Rights as Stockholder. No Participant nor any beneficiary thereof
shall have any of the rights or privileges of a stockholder of the Company with
respect to any Shares issuable pursuant to an Award or the exercise thereof,
unless and until certificates representing such Shares shall have been issued,
recorded on the records of the Company or its transfer agents or registrars, and
delivered to the Participant or his or her beneficiary.
SECTION 8
AMENDMENT, TERMINATION, AND DURATION
8.1 Amendment, Suspension, or Termination. The Board in its sole
discretion may amend or terminate this Plan, or any part thereof, at any time
and for any reason; provided, however, that if and to the extent required to
maintain this Plan's qualification under Rule 16b-3 or to comply with Section
422(b)(1) of the Code, any such amendment shall be subject to stockholder
approval. The amendment, suspension or termination of this Plan shall not,
without the consent of the Participant, alter or impair any rights or
obligations under any Award theretofore granted to such Participant. No Award
may be granted during any period of suspension or after termination of this
Plan.
8.2 Duration of this Plan. This Plan shall become effective on the date
specified herein, and subject to Section 8.1, shall remain in effect thereafter;
provided, however, that without further stockholder approval, no Incentive Stock
Option may be granted under this Plan after the tenth anniversary of the
effective date of this Plan.
SECTION 9
TAX WITHHOLDING
9.1 Withholding Requirements. Prior to the delivery of any Shares or cash
pursuant to an Award or the exercise thereof, the Company shall have the power
and the right to deduct or withhold, or require a Participant to remit to the
Company, an amount sufficient to satisfy Federal, state, and local taxes,
including the Participant's Social Security tax obligation, required to be
withheld with respect to such Award or the exercise thereof.
9.2 Withholding Arrangements. The Administrator, in its sole discretion
and pursuant to such procedures as it may specify from time to time, may permit
a Participant to satisfy such tax withholding obligation, in whole or in part,
by (a) electing to have the Company withhold otherwise deliverable Shares, or
(b) delivering to the Company Shares then owned by the Participant having a Fair
Market Value equal to the amount required to be withheld. The amount of the
withholding requirement shall be deemed to include any amount that the
Administrator agrees may be withheld at the time any such election is made, not
to exceed the amount determined by using the maximum federal, state, or local
marginal income tax rates applicable to the Participant with respect to the
Award on the date that the amount of tax to be withheld is to be determined. The
Fair Market Value of the Shares to be withheld or delivered shall be determined
as of the date that the taxes are required to be withheld.
-12-
<PAGE>
SECTION 10
CHANGE IN CONTROL
10.1 Change in Control. In the event of a Change in Control of the
Company, all Awards granted under this Plan that are then outstanding and not
then exercisable, or are then subject to restrictions, shall, unless otherwise
provided for in the Agreements applicable thereto, become immediately
exercisable as of the first date that the Change in Control shall be deemed to
have occurred, and shall remain as such for the remaining life of the Award as
provided herein and within the provisions of the related Agreements; provided
however, that the Board of Directors of the Company may limit the applicability
of this Section with respect to that portion of any Award to which Section 280G
of the Code is applicable.
10.2 Definition. For purposes of Section 10.1 above, a Change in Control
of the Company shall be deemed to have occurred if the conditions set forth in
any one or more of the following shall have been satisfied, unless such
condition shall have received prior approval of a majority vote of the
Continuing Directors, as defined below, indicating that Section 10.1 shall not
apply thereto:
(a) any "person" (as such term is used in Section 13(d) of the
Exchange Act, but excluding the Company, any trustee or other
fiduciary holding securities under an employee benefit plan of the
Company, or any corporation owned, directly or indirectly, by the
stockholders of the Company in substantially the same proportions as
their ownership of stock of the Company) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing thirty percent
(30%) or more of the combined voting power of the Company's then
outstanding securities;
(b) during any period of two consecutive years (not including
any period prior to the Effective Date of this Plan), individuals
("Existing Directors") who at the beginning of such period constitute
the Board of Directors, and any new director (an "Approved Director")
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
paragraph (a), (b) or (c) of this Section) whose election by the Board
of Directors or nomination for election by the Company's stockholders
was approved by a vote of a least two-thirds (2/3) of the directors
then still in office who either were directors at the beginning of the
period or whose election or nomination for election previously was so
approved (Existing Directors together with Approved Directors
constituting "Continuing Directors"), cease for any reason to
constitute at least a majority of the Board of Directors; or
(c) the stockholders of the Company approve a merger or
consolidation of the Company with any other person, other than (i) a
merger or consolidation which would result in the voting securities of
the Company outstanding
-13-
<PAGE>
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into voting securities for the
surviving entity) more than fifty percent (50%) of the combined voting
power of the voting securities of the Company or such surviving entity
outstanding immediately after such merger or consolidation, or (ii) a
merger in which no "person" (as defined in Section 10.2(a)) acquires
more than thirty percent (30%) of the combined voting power of the
Company's then outstanding securities; or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all or substantially all of the Company's assets or
any transaction having a similar effect.
SECTION 11
LEGAL CONSTRUCTION
11.1 Gender and Number. Except where otherwise indicated by the context,
any masculine term used herein also shall include the feminine, the plural shall
include the singular, and the singular shall include the plural.
11.2 Severability. In the event any provision of this Plan shall be held
illegal or invalid for any reason, the illegality or invalidity shall not affect
the remaining parts of this Plan, and this Plan shall be construed and enforced
as if the illegal or invalid provision had not been included.
11.3 Requirements of Law. The grant of Awards and the issuance of Shares
under this Plan shall be subject to all applicable laws, rules and regulations,
and to such approvals by any governmental agencies or national securities
exchanges as may be required from time to time.
11.4 Securities Law Compliance. With respect to Section 16 Persons, Awards
under this Plan are intended to comply with all applicable conditions of Rule
16b-3. To the extent any provision of this Plan, Award Agreement or action by
the Administrator fails to so comply, it shall be deemed null and void, to the
extent permitted by law and deemed advisable or appropriate by the Administrator
in its sole discretion.
11.5 Governing Law. This Plan and all Award Agreements shall be construed
in accordance with and governed by the laws of the State of Missouri, excluding
its conflict of laws provisions.
11.6 Captions. Captions are provided herein for convenience of reference
only, and shall not serve as a basis for interpretation or construction of this
Plan.
-14-
<PAGE>
Exhibit 10.3
------------
C.D. SMITH HEALTHCARE, INC.
---------------------------
NONQUALIFIED STOCK OPTION
AWARD AGREEMENT
THIS AWARD AGREEMENT (the "Agreement") is made and entered into effective
this ______ day of __________, 199___ between C.D. Smith Healthcare, Inc., a
Missouri corporation (the "Company"), and _________________________ (the
"Holder") in connection with the grant of an Option under the C.D. Smith
Healthcare, Inc. Amended and Restated 1996 Equity Compensation Plan (the
"Plan").
RECITAL
The Holder is an employee of the Company or one of its Affiliates and the
Company desires to encourage the Holder to own Shares, to give the Holder added
incentive to advance the interests of the Company, and to grant the Holder a
Nonqualified Stock Option to purchase shares of Stock of the Company under terms
and conditions established by the Administrator.
AGREEMENT
NOW, THEREFORE, in consideration of this premise, the parties agree that
the following shall constitute the Agreement between the Company and the Holder:
Section 1. Definitions
-----------
Capitalized terms used in this Agreement but not defined shall have the
meaning set forth in the Plan.
Section 2. Grant Of Nonqualified Stock Option And Termination
--------------------------------------------------
Subject to the terms and conditions set forth herein, the Company grants to
the Holder a Nonqualified Option to purchase from the Company during the period
ending ten (10) years from the date of this Agreement (the "Expiration Date")
________________ shares of Stock at an exercise price of $_____________ per
share, subject to adjustment as provided in Section 10 hereof.
<PAGE>
Section 3. Exercise
--------
During the Holder's lifetime, this Option may be exercised only by him or
her, as the case may be. This Option, except as specifically provided otherwise
herein, shall become exercisable as follows:
1. This Option shall be exercisable in whole or in part at any time the
Holder is an employee of the Company.
2. This Option shall become immediately exercisable upon the Holder's
death or Disability or, subject to the limitations set forth in Section
9.1 of the Plan and Section 16 hereof, as of the first date that a
Change in Control shall be deemed to have occurred.
Section 4. Notice Of Exercise
------------------
This Option may be exercised in whole or in part, from time to time, in
accordance with Sections 2 and 3 hereof, by written notice to the Secretary of
the Company at the address provided in Section 13 hereof, which notice shall:
(a) be in the form attached as Exhibit A hereto;
(b) if the person exercising this Option is not the Holder himself,
contain or be accompanied by evidence satisfactory to the Administrator of such
person's right to exercise this Option; and
(c) be accompanied by payment in full of the purchase price in the
form of (i) cash; or (ii) a certified or cashier's check to the order of the
Company.
Section 5. Nontransferability Of Awards
----------------------------
No Award granted under the Plan may be sold, transferred, pledged,
assigned, or otherwise alienated or hypothecated, other than by will, by the
laws of descent and distribution, or to the limited extent provided in Section
7.6 of the Plan. All rights with respect to an Award granted to a Participant
shall be available during his or her lifetime only to the Participant.
[ALTERNATIVE Section 5. Transferability of Options. The Grantee may transfer
the Option to (i) the spouse, children, or grandchildren of the Grantee
("Immediate Family Members"), (ii) a trust or trusts for the exclusive benefits
of such Immediate Family Members, or (iii) a partnership in which such Immediate
Family Members are the only partners, provided that (y) there may be no
consideration for any such transfer and (z) subsequent transfers of the Option
shall be prohibited, except by will or the laws of descent and distribution.
Following transfer, the Option shall continue to be subject to the same
2
<PAGE>
terms and conditions as were applicable immediately prior to transfer, provided
that for the purposes of the Option Agreement, the term "Grantee" shall be
deemed to refer to the transferee. The event of a Termination of Service shall
continue to be applied with respect to the original Grantee, following which the
Option shall be exercisable by the transferee only to the extent, and for the
periods, specified in Paragraph 2. Neither the Committee nor the Company shall
have any obligation to provide notice to a transferee of termination of the
Option under the terms of this Option Agreement.
5.1 Transferees of Stockholders. The Company shall not be required to
---------------------------
transfer any Shares on its books which shall have been sold, assigned or
otherwise transferred in violation of this Option Agreement, or to treat as
owner of such shares of stock, or to accord the right to vote as such owner or
to pay dividends to, any person or organization to which any such Shares shall
have been sold, assigned or otherwise transferred, from and after any sale,
assignment or transfer of any Share made in violation of this Option Agreement.
Any transfer in violation of the terms of this Option Agreement shall be deemed
null and void.]
Section 6. Status Of Holder
----------------
The Holder shall not be deemed a stockholder of the Company with respect to
any of the Shares subject to this Option, except to the extent that such Shares
shall have been purchased and issued to him or her. The Company shall not be
required to issue or transfer any certificates for Shares purchased upon
exercise of this Option until all applicable requirements of law have been
complied with and such Shares shall have been duly listed on any securities
exchange on which the Shares may then be listed.
Section 7. No Effect On Capital Structure
------------------------------
This Option shall not affect the right of the Company or any Affiliate
thereof to reclassify, recapitalize or otherwise change its capital or debt
structure or to merge, consolidate, convey any or all of its assets, dissolve,
liquidate, windup, or otherwise reorganize.
Section 8. Premature Expiration Of Option
------------------------------
8.1 Termination of Services - Disability. If the Holder is Terminated due
------------------------------------
to Disability, the portion, if any, of this Option that remains unexercised,
including that portion, if any, that is not yet exercisable, on the date of the
Holder's Termination shall be exercisable through 5:00 p.m. central time on the
date that is three years after the date of such Termination and thereafter this
Option shall terminate and cease to be exercisable.
8.2 Termination of Services - Death. If the Holder's Termination is due
-------------------------------
to his or her death, the portion, if any, of this Option that remains
unexercised, including that portion, if any, that is not yet exercisable, on the
date of the Holder's Termination shall be exercisable by the administrator or
executor of the Holder's estate or, if permitted by the Administrator under
3
<PAGE>
Section 7.6 of the Plan, by the designated beneficiary of the Holder through
5:00 p.m. central time on the date that is three years after the date of such
Termination and thereafter this Option shall terminate and cease to be
exercisable.
8.3 Termination of Services - Retirement. If the Holder is Terminated due
------------------------------------
to his Retirement, the portion, if any, of this Option that remains unexercised,
including that portion, if any, that is not yet exercisable, on the date of the
Holder's Termination shall terminate and cease to be exercisable at, from, and
after 5:00 p.m. central time on the date that is one year after the date of such
Termination and thereafter this Option shall terminate and cease to be
exercisable.
8.4 Termination of Service in General.
---------------------------------
(a) If the Holder voluntarily Terminates his employment, the portion,
if any, of this Option that remains unexercised, including that portion, if
any, that is not yet exercisable, on the date of the Holder's Termination
shall expire, terminate, and cease to be exercisable immediately upon such
Termination.
(b) If a Holder is Terminated (with or without cause) the portion, if
any, of this Option that remains unexercised, including that portion, if
any, that is not exercisable on the date of the Holder's Termination shall
expire, terminate, and cease to be exercisable immediately upon such
Termination.
Section 9. Adjustments
-----------
Notwithstanding any provision herein to the contrary, in the event of any
merger, reorganization, consolidation, recapitalization, separation,
liquidation, stock dividend, stock split, Share combination, or other change in
the corporate structure of the Company affecting the Shares, the Administrator
shall adjust the number, class, and price of Shares subject to this Award in
such manner as the Administrator in its sole discretion shall determine to be
advisable or appropriate to prevent the dilution or diminution of such Award.
Notwithstanding the preceding, the number of Shares subject to this Award always
shall be a whole number. In the event of a dispute concerning such adjustment,
the decision of the Administrator shall be conclusive.
Section 10. Administrator Authority
-----------------------
Any questions concerning the interpretation of this Agreement, any
adjustments required to be made under Section 9 of this Agreement, and any
controversy which arises under this Agreement shall be settled by the
Administrator in its sole discretion.
Section 11. Incentive Option Qualification
------------------------------
This Option is not intended to qualify as an "incentive stock option"
within the meaning of Section 422 of the Code, and shall not be so construed.
4
<PAGE>
Section 12. Plan Controls
-------------
The terms of this Agreement are governed by the terms of the Plan and in
the case of any inconsistency between the terms of this Agreement and the terms
of the Plan, the terms of the Plan shall control.
Section 13. Notice
------
Whenever any notice is required or permitted hereunder, such notice must be
in writing and personally delivered or sent by mail. Any notice required or
permitted to be delivered hereunder shall be deemed to be delivered on the date
which it was personally delivered, or, whether actually received or not, on the
third business day after it is deposited in the United States mail, certified or
registered, postage prepaid, addressed to the person who is to receive it at the
address which such person has theretofore specified by written notice delivered
in accordance herewith. The Company or Holder may change, at any time and from
time to time, by written notice to the other, the address previously specified
for receiving notices. Until changed in accordance herewith, the Company and
the Holder specify their respective addresses as set forth below:
Company: C.D. Smith Healthcare, Inc.
3907 South 48th Terrace
St. Joseph, Missouri 64503
Holder: ------------------------------------
------------------------------------
------------------------------------
Section 14. Information Confidential
------------------------
As partial consideration for the granting of this Option, the Holder agrees
that he or she will keep confidential all information and knowledge that he or
she has relating to the manner and amount of his or her participation in the
Plan; provided, however, that such information may be disclosed as required by
law and may be given in confidence to the Holder's spouse, tax and financial
advisors, or to a financial institution of the extent that such information is
necessary to secure a loan.
Section 15. Change In Control
-----------------
Upon the occurrence of a Change in Control, (i) this Option shall become
immediately exercisable, (ii) any and all restrictions or limitations on the
exercisability of this Option, including any vesting requirements hereof, shall
become void, (iii) any and all restrictions or limitations on the
transferability of any Shares acquired upon the exercise of this Option (whether
before or after such Change in Control) shall become void, and (iv) the
Company's repurchase
5
<PAGE>
right under Section 5.3 above shall terminate; provided, however, that the Board
of Directors may limit the applicability of this Section with respect to that
portion of any Award to which Section 280G of the Code is applicable.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
and the Holder has hereunto set his or her hand on the day and year first above
written.
C.D. SMITH HEALTHCARE, INC.
By:
------------------------------------
Title:
------------------------------------
HOLDER
--------------------------------------------
Name:
------------------------------------
6
<PAGE>
Exhibit 10.4
------------
LOAN AND SECURITY AGREEMENT
among
C.D. SMITH DRUG COMPANY,
as a Borrower
GENERAL DRUG COMPANY,
as a Borrower
SBS PHARMACEUTICALS, INC.,
as a Borrower
and
JAMES BRUDNICK COMPANY, INC.,
as a Borrower
and
LASALLE BUSINESS CREDIT, INC.,
as a Lender and Agent
HELLER FINANCIAL, INC.,
as a Lender
and
AMERICAN NATIONAL BANK & TRUST COMPANY OF CHICAGO,
as a Lender
Dated: October 3, 1997
<PAGE>
TABLE OF CONTENTS
Page
----
DEFINITIONS............................................................. 1
LOANS...................................................................13
FEES AND CHARGES........................................................15
GRANT OF SECURITY INTEREST TO LASALLE...................................15
PRESERVATION OF COLLATERAL AND PERFECTION OF
SECURITY INTERESTS THEREIN.........................................16
POSSESSION OF COLLATERAL AND RELATED MATTERS............................16
COLLECTIONS.............................................................17
SCHEDULES AND REPORTS...................................................19
TERMINATION.............................................................21
REPRESENTATIONS, WARRANTIES AND COVENANTS...............................21
ADDITIONAL COVENANTS OF BORROWERS.......................................27
DEFAULT.................................................................33
REMEDIES UPON AN EVENT OF DEFAULT.......................................35
INDEMNIFICATION.........................................................36
NOTICE..................................................................36
CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION..................37
INTENTIONALLY OMITTED...................................................38
HEADINGS OF SUBDIVISIONS................................................38
POWER OF ATTORNEY.......................................................38
WAIVER..................................................................38
INCOME TAXATION.........................................................39
Exhibit A - Special Provisions
Exhibit B - Business and Collateral Locations
Exhibit C - Letter of Credit (None)
Exhibit D - Assignment and Acceptance
Exhibit E - Officer's Certificate
<PAGE>
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (this "Agreement") made this 3rd day of
October, 1997 by and among LASALLE BUSINESS CREDIT, INC., a Delaware corporation
(in its individual capacity, ("LaSalle"), with an office at 135 South LaSalle
Street, Chicago, Illinois 60603, for itself, as a Lender, and as Agent for all
Lenders that are now or hereafter parties to this Agreement, HELLER FINANCIAL,
INC., a Delaware corporation (in its individual capacity, "Heller"), with an
office at 500 West Monroe Street Chicago, Illinois 60661, as a Lender, AMERICAN
NATIONAL BANK & TRUST COMPANY OF CHICAGO, a national banking association (in its
individual capacity, "ANB"), with an office at One North LaSalle Street,
Chicago, Illinois 60690, as a Lender, C.D. SMITH DRUG COMPANY, a Missouri
corporation ("CDS"), with its chief executive offices and principal place of
business at 3907 South 48th Terrace, St. Joseph, Missouri 64503, as a Borrower,
GENERAL DRUG COMPANY, an Illinois corporation ("GDC"), with an office at 200
North Fairfield, Chicago, Illinois 60612, as a Borrower, SBS PHARMACEUTICALS,
INC., a Delaware corporation ("SBS"), with an office at 200 North Fairfield,
Chicago, Illinois 60612, as a Borrower, and JAMES BRUDNICK COMPANY, INC., a
Delaware corporation ("JBC"), with an office at 219 Medford Street, Malden,
Massachusetts 02148, as a Borrower.
WITNESSETH:
WHEREAS, Borrowers may, from time to time, request Loans (as defined
herein) from Lenders, and the parties wish to provide for the terms and
conditions upon which such Loans, if made by Lenders, shall be made;
NOW, THEREFORE, in consideration of any Loan (including any Loan by renewal
or extension) heretofore or hereafter made to Borrowers by Lenders, and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged by Borrowers, the parties agree as follows:
1. DEFINITIONS.
(a) "Account," "Account Debtor," "Chattel Paper," "Documents,"
"Equipment," "General Intangibles," "Goods," "Instruments," and "Inventory,"
shall have the respective meanings assigned to such terms, as of the date of
this Agreement, in the Illinois Uniform Commercial Code.
(b) "Acquisition" shall mean the acquisition of all of the issued and
outstanding partnership interests of Gimbel Investor Group L.P. and the capital
stock of G.D. Holdings of Delaware, Inc. by CDS pursuant to the Acquisition
Agreement.
1
<PAGE>
(c) "Acquisition Agreement" shall mean the Acquisition Agreement by and
among CDS, G.D. Holdings of Delaware, Inc., Gimbel Investor Group L.P. and
certain partners of Gimbel Investor Group L.P. dated as of September 11, 1997.
(d) "Additional Payment Period" shall mean as to any Indemnitee, the period
from the earliest date as of which more than fifty percent (50%) of the interest
on such Indemnitee's ESOP Term Note is included in such Indemnitee's Federal
Gross Income as a result of one or more Gross-Up Events or, in the event that a
Gross-Up Event occurs as a result of a change in the Code, the effective date of
such change, until payment in full of such Indemnitee's ESOP Term Note, together
with accrued interest thereon.
(e) "Affiliate" shall mean any Person directly or indirectly controlling,
controlled by or under common control with a Borrower.
(f) "Agent" shall mean LaSalle or its successor appointed pursuant to
Paragraph 18 of Exhibit A, acting in its capacity as agent for, and on behalf of
all Lenders.
(g) "Benefit Plan" shall mean any "employee benefit plan", as defined in
Section 3(3) of ERISA, which a Borrower or any of its Subsidiaries maintains,
contributes to or has an obligation to contribute to on behalf of participants
who are or were employed by any of them, or with respect to which a Borrower or
any Subsidiary may incur any liability.
(h) "Blocked Account" shall have the meaning specified in Paragraph 7
hereof.
(i) "Business Day" shall mean any day other than a Saturday, a Sunday or
(i) with respect to all notices, determinations, fundings and payments in
connection with LIBOR Rate Loans, any date that banks in London or Chicago are
required or permitted to close, and (ii) with respect to all other matters, any
day that banks in the Chicago area are required or permitted to close.
(j) "Capital Expenditures" shall mean, with respect to any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including expenditures for capitalized lease obligations) by Borrowers
during such period that are required by generally accepted accounting principles
to be included in or reflected by property, plant or equipment or similar fixed
asset accounts in the consolidated balance sheet of CDS.
(k) "Change of Law" shall mean with respect to any Indemnitee, any
amendment to the Code or other statute enacted by the Congress of the United
States of America, or any temporary, proposed or final regulation promulgated by
the Treasury Department which, in the opinion of counsel for such Indemnitee,
(i) reduces any Tax Allowance allowable to, or (ii) imposes any federal tax
(including, but not limited to, preference or excise taxes) upon, extends any
such tax to or otherwise increases the liability for any such tax of the
Indemnitee by reason of owning, acquiring or disposing of obligations
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the interest on which is partially exempt from federal income taxation under
Section 133 of the Code or any similar or successor provision; provided, that a
Change of Law shall not include any change in the Statutory Exclusion.
(1) "Code" shall mean the Internal Revenue Code of 1986, as amended, or any
successor federal tax code, and any reference to any statutory provision shall
be deemed to be a reference to any successor provision or provisions.
(m) "Collateral" shall mean all of the property of Borrowers described in
Paragraph 4 hereof, together with all other property of any Obligor or any other
Person now or hereafter pledged to Agent, for the benefit of Agent and Lenders,
or any Lender to secure, either directly or indirectly, repayment of any of the
Liabilities.
(n) "Controlled Group" shall mean all members of a controlled group of
corporations and all trades or businesses (whether or not incorporated) under
common control which, together with a Borrower, are treated as a single employer
under Section 414 of the Code.
(o) "Debt Service Coverage Ratio" shall mean, with respect to any period,
the ratio of (i) CDS's consolidated net income after taxes for such period
(excluding after tax gains or losses on the sale of assets (other than the sale
of Inventory in the ordinary course of business) and excluding other after tax
extraordinary gains or losses), plus depreciation and amortization deducted in
determining net income for such period, minus Capital Expenditures for such
period not financed, minus any dividends paid or accrued and withdrawals paid or
accrued to shareholders or other Affiliates of CDS for such period which were
not calculated in determining net Income after taxes, to (ii) current principal
maturities of long term debt and capitalized leases paid, or scheduled to be
paid during such period, plus any prepayments on indebtedness owed to any Person
(except trade payables and revolving loans to Lenders) paid during such period.
Debt Service Coverage Ratio shall be calculated in accordance with generally
accepted accounting principles on an after tax FIFO basis.
(p) "Eligible Account" shall mean, with respect to a Borrower, an Account
owing to such Borrower which is acceptable to Agent in its sole reasonable
discretion for lending purposes. Without limiting the generality of the
foregoing, Agent shall consider an Account of a Borrower to be an Eligible
Account if it meets, and so long as it continues to meet, the following
requirements:
(i) it is genuine and in all respects what it purports to be;
(ii) it is owned by such Borrower and such Borrower has the right to
subject it to a security interest in favor of Agent or assign it to Agent;
(iii) it arises from (A) the performance of services by such Borrower
and such services have been fully and properly performed; or (B) the sale
or lease of Goods by such Borrower, and such Goods have been completed in
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accordance with the Account Debtor's specifications (if any) and delivered to
and accepted by the Account Debtor, such Account Debtor has not refused to
accept and has not returned or offered to return any of the Goods, or has not
refused to accept any of the services, which are the subject of such Account,
and such Borrower has possession of, or has delivered to Agent at Agent's
request, shipping and delivery receipts evidencing delivery of such Goods;
(iv) it is evidenced by an invoice rendered to the Account Debtor
thereunder which does not remain unpaid for more than ninety (90) days after the
invoice date; provided, that for up to One Million Dollars ($1,000,000) of
Accounts in the aggregate at any time, it may be evidenced by an invoice
rendered to the Account Debtor thereunder which is due and payable more than
thirty (30) days after invoice date and does not remain unpaid more than one
hundred twenty (120) days from the original date of invoice or more than thirty
(30) days after the due date of the invoice; provided further, however, that if
more than twenty-five percent (25%) of the aggregate dollar amount of invoices
owing by a particular Account Debtor (fifty percent (50%) for governmental
entities provided for in subparagraph (ix) hereafter which have total Accounts
owing to Borrower in excess of One Thousand Dollars ($1,000)) is ineligible
under the foregoing criteria, then all Accounts owing by that Account Debtor
shall be deemed ineligible;
(v) it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than Permitted Liens;
(vi) it is a valid, legally enforceable and unconditional obligation
of the Account Debtor thereunder, and is not subject to setoff, counterclaim,
credit, allowance or adjustment by such Account Debtor, or to any claim by such
Account Debtor denying liability thereunder in whole or in part;
(vii) it does not arise out of a contract or order which fails in any
material respect to comply with the requirements of applicable law;
(viii) the Account Debtor thereunder is not a director, officer,
employee or agent of a Borrower, or a Subsidiary, Parent or Affiliate, unless
the Account arises out of a transaction permitted by Paragraph 10(l) hereof and
is otherwise an Eligible Account;
(ix) it is not an Account with respect to which the Account Debtor
is the United States of America or any department, agency or instrumentality
thereof, unless such Borrower assigns its right to payment of such Account to
Agent pursuant to, and in full compliance with, the Assignment of Claims Act of
1940, as amended;
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(x) it is not an Account with respect to which the Account Debtor is
located in a state which requires such Borrower, as a precondition to commencing
or maintaining an action in the courts of that state, either to (A) receive a
certificate of authority to do business and be in good standing in such state,
or (B) file a notice of business activities report or similar report with such
state's taxing authority, unless (x) such Borrower has taken one of the actions
described in clauses (A) or (B), (y) the failure to take one of the actions
described in either clause (A) or (B) may be cured retroactively by such
Borrower at its election, or (z) such Borrower has proven, to Agent's
satisfaction, that it is exempt from any such requirements under any such
state's laws;
(xi) it is an Account which arises out of a sale made in the ordinary
course of such Borrower's business;
(xii) the Account Debtor is a resident or citizen of, and is located
within, the United States of America or, is a resident or citizen of and located
in a foreign country; provided, that in the latter case, the Account shall be
supported by an irrevocable letter of credit in form, substance and with a
financial institution acceptable to Agent and properly assigned to Agent;
(xiii) it is not an Account with respect to which the Account Debtor's
obligation to pay is conditional upon the Account Debtor's approval of the Goods
or services or is otherwise subject to any repurchase obligation, as with sales
made on a bill-and-hold, guaranteed sale, sale on approval, sale or return
(except pursuant to such Borrower's return policy attached hereto as Schedule 1
(p)(xiii)) or consignment basis;
(xiv) it is not an Account (A) with respect to which any representation or
warranty contained in this Agreement is untrue or (B) which violates any of the
covenants of such Borrower contained in this Agreement;
(xv) it is not an Account which, when added to a particular Account
Debtor's other indebtedness to such Borrower, exceeds ten percent (10%) of the
aggregate of such Borrower's Accounts or such other credit limit determined by
Agent in its sole reasonable discretion for that Account Debtor (except that
Accounts excluded from Eligible Accounts solely by reason of this Paragraph
1(p)(xv) hereof shall be Eligible Accounts to the extent of such credit limit);
and
(xvi) it is not an Account with respect to which the prospect of payment
or performance by the Account Debtor is or will be impaired, as determined by
Agent in its sole reasonable judgment.
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(q) "Eligible Inventory" shall mean, with respect to a Borrower, Inventory
of such Borrower which is acceptable to Agent in its sole reasonable judgment
for lending purposes. Without limiting the generality of the foregoing, Agent
shall consider Inventory of a Borrower to be Eligible Inventory if it meets, and
so long as it continues to meet, the following requirements:
(i) it is owned by such Borrower and such Borrower has the right to
subject it to a security interest in favor of Agent;
(ii) it is located on the premises listed on Exhibit B or is situated
at another location previously approved by Agent in writing, which approval
shall not be unreasonably withheld, accompanied by a Landlord's or
Mortgagee's waiver, as applicable, in form and substance reasonably
acceptable to Agent, and is not in transit;
(iii) it is not subject to any prior assignment, claim, lien,
security interest or encumbrance whatsoever, other than Permitted Liens;
(iv) if held for sale or lease or furnishing under contracts of
service, it is (except as Agent may otherwise consent in writing) new and
unused and free from defects which would, in Agent's sole reasonable
judgment, materially adversely affect its market value;
(v) it is not stored with a bailee, consignee, supplier,
warehouseman, processor or similar party unless Agent has given its prior
written approval and such Borrower has caused any such bailee, consignee,
supplier, warehouseman, processor or similar party to issue and deliver to
Agent, in form and substance acceptable to Agent, such UCC financing
statements, warehouse receipts, waivers and other documents as Agent shall
require;
(vi) Agent has determined in accordance with Agent's customary
business practices that it is not unmerchantable due to age, type, category
or quantity; and
(vii) it is not Inventory (A) with respect to which any of the
representations and warranties contained in this Agreement are untrue or
(B) which violates any of the covenants of Borrower contained in this
Agreement.
(r) "Employment Agreements" shall mean the Employment Agreement dated as of
July 1, 1997 between CDS and Lee Keith, as amended by an amendment dated as of
September 29, 1997, the Employment Agreement dated as of March 1, 1997 between
CDS and Delora Jamison, as amended by an amendment dated as of September 29,
1997, the Employment Agreement dated as of September 1, 1995 between CDS and
Robert C. Farley, as amended by an amendment dated as of September 29, 1997, the
Employment Agreement dated as of March 1, 1997 between CDS and Jeanne Mathieson,
as amended by an
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amendment dated as of September 29, 1997, the Employment Agreement dated as of
October 3, 1997 between JBC and Richard Brudnick and the Employment Agreement
dated as of October 3, 1997 between GDC and Joseph Harris, as each such
agreement is in effect on the date hereof.
(s) "Equipment Term Note" shall mean a term note of CDS, substantially in
the form of Schedule l(s) attached hereto, issued in favor of each Lender in an
amount equal to such Lender's Pro Rata Share multiplied by the original
principal amount of the term loan described in paragraph 1(c)(ii) of Exhibit A
as each such term note may hereafter be amended, modified, supplemented,
substituted or restated.
(t) "ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, or any successor provisions.
(u) "ESOP" shall mean the C.D. Smith Drug Company Employee Stock Ownership
Plan and the trust forming a part thereof, and its successors.
(v) "ESOP Stock Purchase Agreement" shall mean the ESOP Stock Purchase
Agreement effective as of December 31, 1991, between the ESOP and the Jean B.
Orr Trust, R. Wallace Orr Trust, and their respective trustees and
beneficiaries, as the same may be amended from time to time, and the stock
purchase made thereunder.
(w) "ESOP Term Note" shall mean a term note of CDS, substantially in the
form of Schedule 1(w) attached hereto, issued in favor of each Lender in an
amount equal to such Lender's Pro Rata Share multiplied by the original
principal amount of the term loan described in Paragraph 1 (c)(1) of Exhibit A
as each such term note may hereafter be amended, modified, supplemented,
substituted or restated.
(x) "Event of Default" shall have the meaning specified in Paragraph 12
hereof.
(y) "Exhibit A" shall mean the exhibit entitled Exhibit A - Special
Provisions, which is attached hereto and made a part hereof.
(z) "Exhibit B" shall mean the exhibit entitled Exhibit B - Business and
Collateral Locations, which is attached hereto and made a part hereof.
(aa) "Exhibit C" shall mean the exhibit entitled Exhibit C - Letters of
Credit, which is attached hereto and made a part hereof.
(bb) "Exhibit D" shall mean the exhibit entitled Exhibit D - Assignment and
Assumption Agreement, which is attached hereto and made a part hereof.
(cc) "Exhibit E" shall mean the exhibit entitled Exhibit E - Compliance
Certificate, which is attached hereto and made a part hereof.
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(dd) "Federal Gross Income" shall mean gross income for federal tax
purposes.
(ee) "Gross-Up Event" shall mean, with respect to any Indemnitee, a payment
of tax or estimated tax by such Indemnitee, a reduction of such Indemnitee's net
operating loss, an offset against any tax refund or other amount otherwise due
such Indemnitee or a utilization of an amount otherwise available to such
Indemnitee as a credit against tax caused by an inclusion in such Indemnitee's
Federal Gross Income of more than fifty percent (50%) of the Interest received
or accrued by such Indemnitee with respect to such Indemnitee's ESOP Term Note
as a result of any of the events set forth below:
(i) the failure by such Indemnitee to receive a Qualifying Opinion
of Counsel, requested pursuant to Paragraph 21(f), within forty-five (45)
days after the receipt by CDS of such request therefor;
(ii) the issuance of an IRS Notice to such Indemnitee, provided that
CDS shall have had the opportunity to exercise any applicable rights of
contest with respect thereto granted to it under Paragraph 21(d); or
(iii) the occurrence of a final and unappealable decision, judgment,
decree or other order by the Tax Court or by any other court of competent
jurisdiction with respect to such Indemnitee or any other Indemnitee,
provided that CDS shall have had the opportunity to exercise any applicable
rights of contest granted to it under Paragraph 21 (d); or
(iv) the execution of a closing agreement by such Indemnitee under
Section 7121 of the Code to which CDS has consented.
(ff) "Indemnified Party" shall have the meaning specified in Paragraph 14
hereof.
(gg) "Indemnitee" shall mean each Lender and its successors and assigns,
including any assignee, participant or other transferee of any Indemnitee's
interest under this Agreement (whether or not (i) the Indemnitee has an Interest
in an ESOP Term Note at the time amounts are payable to such Indemnitee
hereunder, or (ii) the Indemnitee is a disqualified person with respect to the
ESOP within the meaning of Section 4975(E) (2) of the Code) and any affiliated
group (within the meaning of Section 1504 or the Code) of which any Indemnitee
is a member; provided, that for purposes of a Gross-Up Event, the term
"Indemnitee" shall not include any transferee that (A) is not described, and is
not a member of an affiliated group which includes a holder of an interest in an
ESOP Term Note that is described in Section 133(a)(1), (2), (3) or (4) of the
Code or (B) acquires an interest in an ESOP Term Note less than the full
remaining term of such ESOP Term Note.
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(hh) "Indemnitee's Note" shall mean, with respect to any Indemnitee, the
ESOP Term Note (or any participation in such ESOP Term Note) held by such
Indemnitee at any time.
(ii) "Interest Coverage Ratio" shall mean, with respect to any period, the
ratio of (i) CDS's consolidated net income after taxes for such period
(excluding after tax gains or losses on the sale of assets (other than the sale
of Inventory in the ordinary course of business) and excluding other after tax
extraordinary gains or losses), plus interest, taxes, depreciation and
amortization deducted in determining net income for such period, minus interest
income added in determining net income for such period, and minus Capital
Expenditures for such period not financed, minus dividends paid or accrued and
withdrawals paid or accrued to shareholders or other Affiliates of CDS, to (ii)
interest expense on indebtedness deducted in determining net income for such
period. Interest Coverage Ratio shall be calculated in accordance with generally
accepted accounting principles on a FIFO basis.
(jj) "IPO" shall mean an initial public stock offering of the capital stock
of CDS in connection with which CDS receives net cash proceeds of at least
Thirty Million Dollars ($30,000,000).
(kk) "IRS Notice" means, with respect to any Indemnitee, a revenue agent's
report or notice of proposed adjustment or a notice of deficiency issued by the
Internal Revenue Service to such Indemnitee with respect to the inclusion in
Federal Gross Income of more than fifty percent (50%) of the interest on such
Indemnitee's ESOP Term Note.
(ll) "L/C Bank" shall mean LaSalle National Bank or any other bank selected
by CDS and acceptable to Agent for issuance of Letters of Credit.
(mm) "Letters of Credit" shall mean any standby letters of credit which are
now or hereafter at any time issued by L/C Bank at the request of and for the
account of Borrower pursuant to the terms of Paragraph (2) of Exhibit A and
which have not expired or been canceled or terminated. The Letters of Credit
shall include the letters of credit described on Exhibit C.
(nn) "Lenders" shall mean LaSalle, Heller, ANB and any other Person that
becomes, a Lender hereunder pursuant to the terms hereof.
(oo) "Lending Rate", as to any Indemnitee, shall mean the rate of interest
applicable to the Prime Rate Loans made pursuant to Paragraph 1 (a) of Exhibit
A.
(pp) "Liabilities" shall mean any and all obligations, liabilities and
indebtedness of each Borrower to Agent and/or Lenders or to any parent,
affiliate or subsidiary of Agent or any Lender of any and every kind and nature,
howsoever created, arising or evidenced and howsoever owned, held or acquired,
whether now or hereafter existing, whether now due or to become due, whether
primary, secondary, direct, indirect,
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absolute, contingent or otherwise (including, without limitation, obligations of
performance), whether several, joint or joint and several, and whether arising
or existing under written or oral agreement or by operation of law.
(qq) "LIBOR Rate Loans" shall mean the Loans bearing interest at the rates
set forth in Paragraph 4(b) of Exhibit A hereto.
(rr) "Loan" or "Loans" shall mean all advances made by or on behalf of
Lenders to a Borrower pursuant to Paragraph 2 hereof and all other loans,
advances and financial accommodations made by or on behalf or to or on behalf of
a Borrower hereunder
(ss) "Loan Limit" shall have the meaning specified in Paragraph 1 of
Exhibit A.
(tt) "Lock Box" shall have the meaning specified in Paragraph 7 hereof.
(uu) "Material Adverse Effect" shall mean with respect to any event, act,
condition or occurrence of whatever nature (including any adverse determination
in any litigation, arbitration or governmental investigation or proceeding),
whether singly or in conjunction with any other event or events, act or acts,
condition or conditions, occurrence or occurrences, whether or not related, a
material adverse change in, or a material adverse effect upon, any of the
business, property, assets, operations, condition (financial or otherwise) or
prospects of Borrowers and their subsidiaries taken as a whole.
(vv) "Maximum Lawful Rate" shall mean the maximum nonusurious interest
rate, if any, that at any time or from time to time may be contracted for,
taken, reserved, charged or received with respect to this Agreement, the ESOP
Term Notes, the Equipment Term Notes, the Real Estate Term Notes or any other
amounts, if any, due to a Lender under laws applicable to such Lender.
(ww) "Maximum Loan Amount" shall mean, with respect to any Lender, the
maximum amount of Loans which such Lender has agreed to make and Letters of
Credit with respect to which Lender has agreed to participate on an aggregate
basis, pursuant to the terms and conditions of this Agreement, to make available
to Borrowers, as set forth on the signature page hereto or in an Assignment and
Acceptance Agreement executed by such Lender.
(xx) "Multiemployer Plan" shall mean a "multiemployer plan" as defined in
Section 4001 (a)(3) of ERISA, as to which a Borrower or any other member of its
Controlled Group has or may incur any liability.
(yy) "Net Worth" shall have the meaning specified in Paragraph 11(o)
hereof.
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(zz) "Obligor" shall mean each Borrower and each Person who is or shall
become primarily or secondarily liable for any of the Liabilities.
(aaa) "Original Term" shall have the meaning specified in Paragraph 9
hereof.
(bbb) "Other Agreements" shall mean all agreements, instruments and
documents, including, without limitation, guaranties, mortgages, trust deeds,
pledges, powers of attorney, consents, assignments, contracts, notices, security
agreements, leases, financing statements and all other writings heretofore, now
or from time to time hereafter executed by or on behalf of a Borrower or any
other Person and delivered to Agent or any Lender or to any parent, affiliate or
subsidiary of Agent or any Lender in connection with the Liabilities or the
transactions contemplated hereby.
(ccc) "Parent" shall mean any Person now or at any time or times hereafter
owning or controlling (alone or with any other Person) at least a majority of
the issued and outstanding stock of CDS or any Subsidiary.
(ddd) "PBGC" shall mean the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
(eee) "Pension plan" shall mean at any time an employee pension benefit
plan that is covered by Title IV of ERISA or subject to the minimum funding
standards under Section 412 of the Code and is either (i) maintained by a member
of the Controlled Group for employees of a member of the Controlled Group or
(ii) maintained pursuant to a collective bargaining agreement or any other
arrangement under which more than one employer makes contributions and to which
a member of the Controlled Group is then making or accruing an obligation to
make contributions or has within the preceding five (5) plan years made
contributions.
(fff) "Permitted Liens" shall mean (i) statutory liens of landlord's,
carriers, warehousemen, mechanics, materialmen or suppliers incurred in the
ordinary course of business and securing amounts not yet past due or declared to
be due by the claimant thereunder, (ii) liens or security interests in favor of
Agent, (iii) zoning restrictions and easements, licenses, covenants and other
restrictions affecting the use of real property that do not individually or in
the aggregate have a material adverse effect on a Borrower's ability to use such
real property for its intended purpose in connection with such Borrower's
business, (iv) liens securing the payment of taxes or other governmental charges
not yet delinquent, (v) liens incurred or deposits made in the ordinary course
of a Borrower's business in connection with worker's compensation, unemployment
insurance, social security and other like laws, (vi) liens in connection with
capitalized leases or purchase money security interests for purchase of, and
applying only to, Equipment included in the Permitted Borrowings under Paragraph
10(q)(iv) or permitted as capital expenditures under, Paragraph 13 of Exhibit A,
the
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documents relating to such liens to be in form and substance reasonably
acceptable to Agent, and (vii) liens as set forth on Schedule 1(fff)(vii)
attached hereto.
(ggg) "Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization, association,
corporation, institution, entity, party or foreign or United States government
(whether federal, state, county, city, municipal or otherwise), including,
without limitation, any instrumentality, division, agency, body or department
thereof.
(hhh) "Prime Rate Loans" shall mean the Loans bearing interest at the
rates set forth in Paragraph 4(a) of Exhibit A hereto.
(iii) "Pro Rata Share" shall mean at any time, with respect to any Lender,
a fraction (expressed as a percentage in no more than four (4) decimal places),
the numerator of which shall be the Maximum Loan Amount of such Lender at such
time and the denominator of which shall be the aggregate amount of the Maximum
Loan Amounts of all Lenders at such time.
(jjj) Intentionally Omitted.
(kkk) "Qualified Plan" shall mean any Plan that is intended to be
qualified under Section 401(a) of the Code.
(111) "Qualifying Opinion of Counsel" shall mean a written opinion of
recognized tax counsel, selected by CDS and reasonably satisfactory to the
Indemnitee requesting such opinion, to the effect that while the issue is not
free from doubt, if a court were presented with the issue, it probably would
hold that at least fifty percent (50%) of each payment of interest on such
Indemnitee's ESOP Term Note is excludable from such Indemnitee's Federal Gross
Income during the applicable period under Paragraph 21(f).
(mmm) "Real Estate Term Note" shall mean a term note of CDS or GDC, as
applicable, substantially in the form of Schedule l(mmm) attached hereto, issued
in favor of each Lender in an amount equal to such Lender's Pro Rata Share
multiplied by the original principal amount of the term loans described in
paragraph l(c)(iii) of Exhibit A as each term note may hereafter be amended,
modified, supplemented, substituted or restated.
(nnn) "Renewal Term" shall have the meaning specified in Paragraph 9
hereof.
(ooo) "Reportable Event" shall mean an event described in Section 4043(b)
of ERISA and the regulations thereunder.
(ppp) "Requisite Lenders" shall mean at any time Lenders having, in the
aggregate, Pro Rata Shares of at least sixty-six percent (66%) at such time.
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(qqq) "Retiree Health Plan" shall mean an "employee welfare benefit plan"
(within the meaning of Section 3(l) of ERISA) that provides health care benefits
to persons after termination of employment, other than as required by Section
601 of ERISA.
(rrr) "Single-employer Plan" shall mean any employee benefit plan that is
a "single-employer plan" as defined in Section 4001(a)(15) of ERISA.
(sss) "Statutory Exclusion" as of any time shall mean a percentage equal
to the percentage of interest with respect to a securities acquisition loan,
within the meaning of Section 133 of the Code, that is excludable at such time
from Federal Gross Income by a recipient that is described in Section 133(a)
(1), (2), (3), or (4) of the Code.
(ttt) "Subordinated Debt Documents" shall mean (i) the Note Purchase
Agreement of even date herewith (the "Note Purchase Agreement") between CDS and
Churchill ESOP Capital Partners ("Churchill"), (ii) the Senior Subordinated Note
of even date herewith issued by Borrowers, H.S.S. Consulting Services,
Incorporated and C.D.S. Transportation, Inc. in favor of Churchill, (iii) the
Warrant Agreement of even date herewith between CDS and Churchill, and (iv) the
Warrant of even date herewith (the "Warrant") issued by CDS in favor of
Churchill.
(uuu) "Subsidiary" shall mean any corporation of which more than fifty
percent (50%) of the outstanding capital stock having ordinary voting power to
elect a majority of the board of directors of such corporation (irrespective of
whether at the time stock of any other class of such corporation shall have or
might have voting power by reason of the happening of any contingency) is at the
time, directly or indirectly, owned by a Borrower or by any partnership or joint
venture of which more than fifty percent (50%) of the outstanding equity
interests are at the time, directly or indirectly, owned by a Borrower.
(vvv) "Supplemental Payment Period" as to any Indemnitee, shall mean, with
respect to any Change of Law, the period from the earliest date as of which such
Change of Law is effective with respect to such Indemnitee, until payment in
full of such Indemnitee's ESOP Term Note, together with accrued interest
thereon.
(www) "Tax Allowance" shall mean any deduction, credit or other allowance
allowable in computing liability for any federal tax.
(xxx) "Unfunded Vested Liabilities" shall mean, with respect to any
Pension Plan at any time, the amount (if any) by which (i) the present value of
all vested nonforfeitable benefits under such Pension Plan exceeds (ii) the fair
market value of all Pension Plan assets allocable to such benefits, all
determined as of the then most recent valuation date for such Pension Plan, but
only to the extent that such excess represents a potential liability of a member
of the Controlled Group to the PBGC or the Pension Plan under Title IV of ERISA.
2. LOANS. Subject to the terms and conditions of this Agreement (including
Exhibit A) and the Other Agreements, during the Original Term and any Renewal
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Term, each Lender, severally and not jointly, agrees to make its Pro Rata Share
of such Loans to a Borrower, up to such Lender's Maximum Loan Amount, as such
Borrower shall from time to time request up to the Loan Limit set forth in
Exhibit A applicable to such Borrower; provided, that Agent may, but shall not
be obligated to make such Loans to such Borrower on behalf of Lenders as a
"Disproportionate Advance" (as defined). The aggregate unpaid principal of all
Loans outstanding at any one time shall not exceed the Loan Limit set forth in
Exhibit A and shall bear interest at the rates set forth in Exhibit A. Loans
shall be repaid as provided herein. It expressly understood and agreed that,
subject to the preceding sentences, each Lender shall be obligated to make its
Pro Rata Share of any Loan requested by a Borrower and approved by Agent. If at
any time the outstanding principal balance of the Loans of a Borrower exceeds
the Loan Limit applicable to such Borrower, or any portion of the Loans exceeds
any applicable sublimit set forth in Exhibit A, such Borrower shall immediately,
and without the necessity of a demand by Agent or Lenders, pay to Agent such
amount as may be necessary to eliminate such excess and Agent shall apply such
payment to the Liabilities in such order as Agent shall determine in its sole
discretion; provided, that if the outstanding principal balance of the Loans
with respect to Borrowers exceeds the Maximum Loan Limit or any portion of the
Loans with respect to a Borrower exceeds any applicable sublimit set forth in
Exhibit A (an "Interim Advance"), Agent may, in its sole discretion, so long as
no Event of Default exists as a result of a breach of Paragraph 11(o) of this
Agreement or Paragraphs 9, 10 and 11 of Exhibit A and no intercompany loans are
outstanding, permit such Interim Advance to remain outstanding and continue to
advance Loans to Borrowers on behalf of Lenders without the consent of any
Lender for a period of up to forty-five (45) calendar days, so long as (i) the
amount of the Interim Advance does not exceed Two Million Dollars ($2,000,000),
(ii) the aggregate outstanding principal balance of the Loans does not exceed
the aggregate Maximum Loan Amounts of all Lenders and (iii) Agent has not been
notified by Requisite Lenders to cease making such advances. Each Borrower
hereby authorizes Agent, in its sole discretion, to charge any of such
Borrower's accounts to make any payments of principal or interest required by
this Agreement. All Loans shall, in Agent's sole discretion, be evidenced by one
or more promissory notes delivered to each Lender in the amount of the maximum
amount of Loans that such Lender may make pursuant to the terms of this
Agreement, in form and substance satisfactory to Agent. However, if such Loans
are not so evidenced, such Loans may be evidenced solely by entries upon the
books and records maintained by Agent. Neither Agent nor any Lender shall be
responsible for any failure by any other Lender to perform its obligations to
make advances hereunder approved by Agent, and the failure of any Lender to make
its Pro Rata Share of any advance hereunder shall not relieve any other Lender
of its obligation, if any, to make its Pro Rata Share of Loans hereunder nor
require such other Lender to make more than its Pro Rata Share of any Loans
hereunder. If any Borrower makes a request for a Loan as provided herein and
Agent, at its option and in its sole and absolute discretion, shall do either of
the following:
(a) Advance the amount of the proposed Loan to such Borrower
disproportionately (a "Disproportionate Advance") out of Agent's own funds on
behalf of Lenders, and request settlement in accordance with Paragraph 17 of
Exhibit A such that upon
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such settlement each Lender's share of the outstanding Loans (including, without
limitation, the amount of any Disproportionate Advance) equals its Pro Rata
Share; or
(b) Notify each Lender by telecopy or other similar form of
teletransmission of the proposed advance on the same day Agent is notified by
such Borrower of such Borrower's request for an advance pursuant to this
Paragraph 2 of this Agreement. Each Lender shall remit, to the demand deposit
account designated by such Borrower, on or prior to twelve o'clock noon, Chicago
time, on the Business Day immediately succeeding the date of such notification
or with respect to an advance which is to be a LIBOR Rate Loan, on the date such
advance is to be made, immediately available funds in an amount equal to such
Lender's Pro Rata Share of such proposed advance.
If and to the extent that a Lender does not settle with Agent as required under
clause (a), each Borrower agrees to repay to Agent forthwith on demand such
amount required to be paid by such Lender to Agent with respect to such Loan to
such Borrower, together with interest thereon, for each day from the date such
amount is made available to such Borrower until the date such amount is repaid
to Agent, at the interest rate applicable at such time for such Loans; provided,
that each Borrower's obligation to repay such advance to Agent shall not relieve
Lender of its liability to Agent for failure to settle as provided in clause (a)
or relieve any Lender of its liability to Borrower for failure to make a Loan.
3. FEES AND CHARGES. Borrowers shall pay to Agent, for the benefit of
Agent and Lenders, in addition to all other amounts payable hereunder, the fees
and charges set forth in Exhibit A. It is the intent of the parties that the
rate of interest and the other charges to each Borrower under this Agreement
shall be lawful; therefore, if for any reason the interest or other charges
payable under this Agreement are found by a court of competent jurisdiction, in
a final determination, to exceed the limit which Agent or Lenders may lawfully
charge such Borrower, then the obligation to pay interest and other charges
shall automatically be reduced to such limit and, if any amount in excess of
such limit shall have been paid, then such amount shall be refunded to such
Borrower.
4. GRANT OF SECURITY INTEREST TO LASALLE. As security for the payment of
all Loans now or in the future made by Agent or Lenders hereunder and for the
payment or other satisfaction of all other Liabilities, each Borrower hereby
assigns to Agent, for the benefit of Agent and Lenders, and grants to Agent, for
the benefit of Agent and Lenders, a continuing security interest in the
following property of such Borrower, whether now or hereafter owned, existing,
acquired or arising and wherever now or hereafter located: (a) all Accounts
(whether or not Eligible Accounts) and all Goods whose sale, lease or other
disposition by such Borrower has given rise to Accounts and have been returned
to or repossessed or stopped in transit by such Borrower; (b) all Chattel Paper,
Instruments, Documents and General Intangibles (including, without limitation,
all patents, patent applications, trademarks, trademark applications,
tradenames, trade secrets, goodwill, copyrights, registrations, licenses,
franchises, customer lists, tax refund claims, claims against carriers and
shippers, guarantee claims, contracts rights, security interests, security
deposits
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and any rights to indemnification); (c) all Inventory (whether or not Eligible
Inventory); (d) all Goods (other than Inventory), including, without limitation,
Equipment (except for equipment designated on Schedule 4(d), attached hereto
which is the subject of an equipment lease), vehicles and fixtures; (e) all
deposits and cash and any other property of such Borrower now or hereafter in
the possession, custody or control of Agent or any Lender or any agent or any
parent, affiliate or subsidiary of Agent or any Lender or any participant with
any Lender in the Loans for any purpose (whether for safekeeping, deposit,
collection, custody, pledge, transmission or otherwise); and (f) all additions
and accessions to, substitutions for, and replacements, products and proceeds of
the foregoing property, including, without limitation, proceeds of all insurance
policies insuring the foregoing property, and all of such Borrower's books and
records relating to any of the foregoing and to such Borrower's business. All
liens granted to Agent hereunder and under the Other Agreements and all
Collateral delivered to Agent hereunder and under the Other Agreements shall be
deemed to have been granted and delivered to Agent, for the benefit of Agent and
Lenders, to secure the Liabilities.
5. PRESERVATION OF COLLATERAL AND PERFECTION OF SECURITY INTERESTS
THEREIN. Each Borrower shall, at Agent's request, at any time and from time to
time, execute and deliver to Agent such financing statements, documents and
other agreements and instruments (and pay the cost of filing or recording the
same in all public offices deemed necessary or desirable by Agent) and do such
other acts and things as Agent may deem necessary or desirable in order to
establish and maintain a valid, attached and perfected security interest in the
Collateral in favor of Agent (free and clear of all other liens, claims and
rights of third parties whatsoever, whether voluntarily or involuntarily
created, except Permitted Liens) to secure payment of the Liabilities, and in
order to facilitate the collection of the Collateral. Each Borrower irrevocably
hereby makes, constitutes and appoints Agent (and all Persons designated by
Agent for that purpose) as such Borrower's true and lawful attorney and
agent-in-fact to execute such financing statements, documents and other
agreements and instruments and do such other acts and things as may be necessary
to preserve and perfect Agent's security interest in the Collateral. Each
Borrower further agrees that a carbon, photographic, photostatic or other
reproduction of this Agreement or of a financing statement shall be sufficient
as a financing statement.
6. POSSESSION OF COLLATERAL AND RELATED MATTERS. Until an "Event of
Default" (as hereinafter defined) has occurred, each Borrower shall have the
right, except as otherwise provided in this Agreement, in the ordinary course of
such Borrower's business, to (a) sell, lease or furnish under contracts of
service any of such Borrower's Inventory normally held by such Borrower for any
such purpose, (b) use and consume any raw materials, work in process or other
materials normally held by such Borrower for such purpose; provided, however,
that a sale in the ordinary course of business shall not include any transfer or
sale in satisfaction, partial or complete, of a debt owed by such Borrower, and
(c) dispose of obsolete, defective or unnecessary Equipment, provided that all
proceeds resulting from said disposition of Equipment shall promptly be paid to
Agent to be credited to such Borrower's account.
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7. COLLECTIONS
(a) Each Borrower shall direct all of its Account Debtors to make all
payments on the Accounts directly to a post office box (the "Lock Box") with a
financial institution mutually acceptable to Agent and such Borrower, and in the
name and under exclusive control of Agent. Each Borrower shall establish an
account (the "Blocked Account") in Agent's name for the benefit of such Borrower
with a financial institution mutually acceptable to Agent and such Borrower,
into which all payments received in the Lock Box shall be deposited, and into
which such Borrower will immediately deposit all payments made for Inventory or
services and received by such Borrower in the identical form in which such
payments were made, whether by cash or check. If any Borrower, any Affiliate or
Subsidiary, or any shareholder, officer, director, employee or agent of any
Borrower or any Affiliate or Subsidiary, or any other Person acting for or in
concert with a Borrower shall receive any monies, checks, notes, drafts or other
payments relating to or as proceeds of Accounts or other Collateral, such
Borrower and each such Person shall receive all such items in trust for, and as
the sole and exclusive property of, Agent and, immediately upon receipt thereof,
shall remit the same (or cause the same to be remitted) in kind to the Blocked
Account pertaining to the Borrower to which such payments or proceeds pertain.
The financial institution with which the Blocked Account is established shall
acknowledge and agree, in a manner satisfactory to Agent, that the amounts on
deposit in such Blocked Account are the sole and exclusive property of Agent,
that such financial institution has no right to setoff against the Blocked
Account or against any other account maintained by such financial institution
into which the contents of the Blocked Account are transferred, and that such
financial institution shall wire, or otherwise transfer in immediately available
funds in a manner satisfactory to Agent, funds deposited in the Blocked Account
on a daily basis as such funds are collected. Each Borrower and Agent agree that
all payments made to the Blocked Account pertaining to such Borrower or
otherwise received by Agent, whether in respect of the Accounts of such Borrower
or as proceeds of other Collateral of such Borrower or otherwise, will be
applied on account of the Liabilities of such Borrower in accordance with the
terms of this Agreement. Each Borrower agrees to pay all fees, costs and
expenses which Agent incurs in connection with opening and maintaining the
Blocked Account. All of such fees, costs and expenses which remain unpaid by
such Borrower pursuant to any Lock Box or Blocked Account Agreement, shall
constitute Loans hereunder, shall be payable to Agent by such Borrower upon
demand and, until paid, shall bear interest at the highest rate then applicable
to Loans hereunder. All checks, drafts, instruments and other items of payment
or proceeds of Collateral of a Borrower delivered to Agent in kind shall be
endorsed by such Borrower to Agent and, if that endorsement of any such item
shall not be made for any reason, Agent is hereby irrevocably authorized to
endorse the same on such Borrower's behalf. For the purpose of this Paragraph,
each Borrower irrevocably hereby makes, constitutes and appoints Agent (and all
Persons designated by Agent for that purpose) as such Borrower's true and lawful
attorney and agent-in-fact to (i) endorse such Borrower's name upon said items
of payment and/or proceeds of Collateral and upon any Chattel Paper, document,
instrument, similar document or agreement relating to any Account of such
Borrower or goods pertaining thereto; (ii) take control in any manner of any
item of payment or proceeds thereof;
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and (iii) upon the occurrence and continuation of an Event of Default, have
access to any postal box into which any of such Borrower's mail is deposited,
and open and process all mail addressed to such Borrower and deposited therein
or in any Lock Box controlled by Agent.
(b) Agent may, with respect to each Borrower, at any time and from time to
time, whether before or after notification to any Account Debtor and whether
before or after the maturity of any of the Liabilities, (i) enforce collection
of any of such Borrower's Accounts or contract rights by suit or otherwise; (ii)
exercise all of such Borrower's rights and remedies with respect to proceedings
brought to collect any Accounts; (iii) surrender, release or exchange all or any
part of any Accounts of such Borrower, or compromise or extend or renew for any
period (whether or not longer than the original period) any indebtedness
thereunder; (iv) sell or assign any Account of such Borrower upon such terms,
for such amount and at such time or times as Agent deems advisable; (v) prepare,
file and sign such Borrower's name on any proof of claim in bankruptcy or other
similar document against any Account Debtor of such Borrower; and (vi) do all
other acts and things which are necessary, in Agent's sole reasonable judgment,
to fulfill such Borrower's obligations under this Agreement and to allow Agent
to collect the Accounts. In addition to any other provision hereof, Agent may
at any time after the occurrence of an Event of Default, at such Borrower's
expense, notify any parties obligated on any of the Accounts of such Borrower to
make payment directly to Agent of any amounts due or to become due thereunder.
(c) Agent shall, on the Business Day of receipt by Agent at its office in
Chicago, Illinois, of cash or other immediately available funds from collections
of items of payment and proceeds of any Collateral, apply the whole or any part
of such collections or proceeds against the Liabilities in such order as Agent
shall determine in its sole discretion.
(d) Agent, in its sole discretion, without waiving or releasing any
obligation, liability or duty of Borrowers under this Agreement or the Other
Agreements or any Event of Default, may at any time or times hereafter, but
shall not be obligated to, pay, acquire or accept an assignment of any security
interest, lien, encumbrance or claim asserted by any Person in, upon or against
the Collateral of a Borrower. All reasonable sums paid by Agent in respect
thereof and all reasonable costs, fees and expenses including, without
limitation, reasonable attorney fees, all court costs and all other charges
relating thereto incurred by Agent shall constitute Loans, payable by such
Borrower to Agent on demand and, paid, shall bear interest at the highest rate
then applicable to Loans hereunder.
(e) Immediately upon a Borrower's receipt of any portion of the Collateral
of such Borrower evidenced by an agreement, Instrument or Document Including,
without limitation, any Chattel Paper, such Borrower shall deliver the original
thereof to Agent together with an appropriate endorsement or other specific
evidence of assignment thereof to Agent (in form and substance acceptable to
Agent). If an endorsement or assignment of any such items shall not be made for
any reason, Agent is hereby irrevocably authorized, as such Borrower's attorney
and agent-in-fact, to endorse or assign the same on such Borrower's behalf.
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8. SCHEDULES AND REPORTS. Borrowers shall furnish or cause to
be furnished to Agent the following:
(a) Each Borrower shall provide Agent with an executed daily loan report
and certificate in Agent's then current form on each day on which such Borrower
requests a Loan, and in any event at least one (1) each week, which shall be
accompanied by copies of such Borrower's sales journal, cash receipts journal
and credit memo journal for the relevant period. Such report shall reflect the
activity of such Borrower with respect to Accounts for the immediately preceding
week, and shall be in a form and with such specificity as is satisfactory to
Agent and shall contain such additional information as Agent may reasonably
require concerning Accounts and Inventory of such Borrower included, described
or referred to in such report and any other documents in connection therewith
requested by Agent, including, without limitation, but only if specifically
requested by Agent, copies of all invoices prepared in connection with such
Accounts of such Borrower. In addition, each Borrower shall deliver to Agent,
at least once a week (or more frequently as requested by Agent), within two (2)
days after the end of each calendar week, a summary report with respect to such
Borrower's Inventory.
(b) As soon as practicable and in any event within thirty (30) days
following the end of each calendar month (except that for the calendar months
ending on or prior to September 30, 1998, within forty-five (45) days following
the end of such month): (1) consolidated and consolidating statements of income
and statements of cash flow of such Borrower for each such month and for the
period from beginning of the then current fiscal year of such Borrower to the
end of such month, (2) consolidated and consolidating balance sheets of such
Borrower as of the end of such month, and (3) with respect to such statements of
income and balance sheets, in comparative form, figures for the corresponding
periods in the preceding fiscal year of such Borrower and to the then current
budget disclosing the variances from such budget, in all reasonable detail and
certified by the chief financial officer of such Borrower that such statements
fairly present the financial condition of such Borrower in accordance with
generally accepted accounting principles, subject to changes resulting from
normal year-end adjustments (including, without limitation, LIFO adjustments)
and the absence of footnotes.
(c) In addition to any other reports, as soon as practicable and in any
event: (1) within ten (10) days after the end of each month, (a) a detailed aged
trial balance of such Borrower's Accounts, in form and substance reasonably
satisfactory to Agent, including, without limitation, the names and addresses of
all Account Debtors of such Borrower, and (b) a summary and detail of accounts
payable (such Accounts and accounts payable divided into such time intervals as
Agent may require in its sole discretion), including a listing of any held
checks; and (2) within fifteen (15) days after the end of each month, the
general ledger inventory account balance, a summary inventory report and Agent's
standard form of Inventory report then in effect or the form most recently
requested from such Borrower by Agent, for such Borrower by each category of
Inventory of such Borrower, together with a description of the monthly change in
each category of Inventory of such Borrower.
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(d) As soon as practicable and in any event within one hundred twenty
(120) days after the end of each fiscal year of CDS: (1) consolidated and
consolidating statements of income of CDS for such fiscal year, and a
consolidated and consolidating balance sheet of CDS as of the end of such fiscal
year, and (2) consolidated and consolidating statements of cash flow of CDS for
such fiscal year, such statements to be presented in accordance with generally
accepted accounting principles and certified by independent certified public
accountants of recognized national standing selected by CDS and satisfactory to
Agent, whose opinion shall be unqualified, in form and substance reasonably
satisfactory to agent.
(e) As soon as practicable and in any event prior to the beginning of each
fiscal year of such Borrower, projected balance sheets, statements of income and
cash flow for such Borrower, for each of the twelve (12) months during such
fiscal year, which shall include the assumptions used therein, together with
appropriate supporting details as reasonably requested by Agent.
(f) As soon as practicable and in any event within ten (10) days of
delivery to a Borrower, a copy of any letter issued by such Borrower's
independent public accountants or other management consultants with respect to
such Borrower's financial or accounting systems or controls, including all so-
called "management letters".
(g) In conjunction with the delivery of the annual presentation of
projections or budgets referred to in paragraph (e) above, a letter signed by
the President or a Vice President of CDS and by the Treasurer or Chief Financial
Officer of CDS, describing, comparing and analyzing, in detail, all changes and
developments between the anticipated financial results included in such
projections or budgets and the historical financial statements of each Borrower.
(h) With reasonable promptness, such other business or financial data,
reports, SEC reports, appraisals and projections as Agent may reasonably
request.
(i) Within ninety (90) days of the date following the date hereof, CDS
shall deliver to Agent an opening balance sheet dated as of the date hereof,
certified by their certified public accountants.
(j) All financial statements delivered to Agent pursuant to the
requirements of this paragraph shall be prepared in accordance with generally
accepted accounting principles (except that the financial statements referred to
in paragraph (b) above shall be subject to changes resulting from normal year-
end adjustments (including, without limitation, LIFO adjustments) as provided in
this Agreement. Together with each delivery of financial statements required by
paragraphs (b) and (d) above, CDS shall deliver to Agent an officer's
certificate in the form attached hereto as Exhibit E, which shall, for each
fiscal quarter, include a calculation of financial covenants in the schedule
attached to such officer's certificate in form satisfactory to Agent.
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9. TERMINATION. This Agreement shall be in effect from the date hereof
until October 3, 2000 (the "Original Term") and shall automatically renew itself
from year to year thereafter (each such one-(1) year renewal being referred to
herein as a "Renewal Term") unless: (a) the due date of the Liabilities is
accelerated pursuant to Paragraph 13 hereof; or (b) Borrowers elect to terminate
this Agreement at the end of the Original Term or at the end of any Renewal Term
by giving Agent written notice of such election at least ninety (90) days prior
to the end of the Original Term or the then current Renewal Term and by paying
all of the Liabilities in full on the last day of such term or any Lender elects
to terminate this Agreement at the end of the Original Term or at the end of any
Renewal Term by giving CDS and Agent written notice of such election at least
ninety (90) days prior to the end of the Original Term or the then current
Renewal Term. If one or more of the events specified in clauses (a) or (b)
occurs, this Agreement shall terminate on the date thereafter that the
Liabilities are paid in full, provided, however, that the security interests and
liens created under this Agreement and the Other Agreements shall survive such
termination until the payment of the Liabilities has become indefeasible. At
such time as Borrowers have repaid all of the Liabilities and this Agreement has
terminated, Borrowers shall deliver to Agent and Lenders a release, in form and
substance satisfactory to Agent, of all obligations and liabilities of Agent and
Lenders and their officers, directors, employees, agents, parents, subsidiaries
and affiliates to Borrowers, and if Borrowers are obtaining new financing from
another tender, Borrowers shall deliver such lender's indemnification of Agent
and Lenders, in form and substance satisfactory to Agent, for checks or other
forms of payment which Agent and Lenders have credited to Borrowers' accounts,
but which subsequently are dishonored for any reason. If, during the term of
this Agreement, Borrowers prepay all or any portion of the Liabilities, and in
connection therewith, either (a) permits any security agreement, financing
statement or analogous instrument to be executed or filed with respect to the
Collateral for the benefit of someone other than Agent, or (b) creates, incurs
or assumes any liability for borrowed money (except for borrowings from Agent
and borrowings permitted pursuant to Paragraph 10(q) hereof), Borrowers agree to
pay to Agent, for the benefit of Lenders, as a prepayment fee, in addition to
the payment of all other Liabilities, an amount determined in accordance with
Paragraph 5(d) of Exhibit A.
10. REPRESENTATIONS, WARRANTIES AND COVENANTS. Each Borrower hereby
represents, warrants and covenants that (after giving effect to the
Acquisition):
(a) the financial statements delivered or to be delivered by such Borrower
to Agent or any Lender at or prior to the date of this Agreement and at all
times subsequent thereto accurately reflect the financial condition of such
Borrower, and there has been no material adverse change in the financial
condition, the operations or any other status of such Borrower since the date of
the most recent financial statements delivered to Agent prior to the date of
this Agreement;
(b) the office where such Borrower keeps its books, records and accounts
(or copies thereof) concerning the Collateral of such Borrower, such Borrower's
principal
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place of business and all of such Borrower's other places of business, locations
of Collateral of such Borrower and post office boxes are as set forth in Exhibit
B; such Borrower shall promptly (but in no event less than ten (10) days prior
thereto) advise Agent in writing of the proposed opening of any new place of
business, the closing of any existing place of business, any change in the
location of such Borrower's books, records and accounts (or copies thereof) or
the opening or closing of any post office box of such Borrower;
(c) the Collateral of such Borrower, including, without limitation, the
Equipment (except any part thereof which prior to the date of this Agreement
such Borrower shall have advised Agent in writing consists of Collateral
normally used in more than one state) is and shall be kept, or, in the case of
vehicles, based, only at the addresses set forth on the first page of this
Agreement or on Exhibit B, and at other locations within the continental United
States of which Agent has been advised by such Borrower in writing;
(d) such Borrower shall immediately give written notice to Agent of any
use of any Goods in any state other than a state in which such Borrower has
previously advised Agent such Goods shall be used, and such Goods shall not,
unless Agent shall otherwise consent in writing, be used outside of the
continental United States;
(e) no security agreement, financing statement or analogous instrument
exists or shall exist with respect to any of the Collateral other than any
security agreement, financing statement or analogous instrument evidencing
Permitted Liens;
(f) each Account or item of Inventory which such Borrower shall, expressly
or by implication, request Agent to classify as an Eligible Account or as
Eligible Inventory, respectively, shall, as of the time when such request is
made, conform in all respects to the requirements of such classification as set
forth in the respective definitions of "Eligible Account" and "Eligible
Inventory" as set forth herein and as otherwise established by Agent from time
to time, and such Borrower shall promptly notify Agent in writing if any such
Eligible Account or Eligible Inventory shall subsequently become ineligible;
(g) such Borrower is and shall at all times during the Original Term or
any Renewal Term be the lawful owner of all Collateral now purportedly owned or
hereafter purportedly acquired by such Borrower, free from all liens, claims,
security interests and encumbrances whatsoever, whether voluntarily or
involuntarily created and whether or not perfected, other than the Permitted
Liens,
(h) such Borrower has the right and power and is duly authorized and
empowered to enter into, execute and deliver this Agreement and the Other
Agreements and perform its obligations hereunder and thereunder; such Borrower's
execution, delivery and performance of this Agreement and the Other Agreements
does not and shall not conflict with the provisions of any statute, regulation,
ordinance or rule of law, or any agreement, contract or other document which may
now or hereafter be binding on such Borrower, and such Borrower's execution,
delivery and performance of this Agreement and the Other Agreements shall not
result in the imposition of any lien or other encumbrance upon any of such
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Borrower's property under any existing indenture, mortgage, deed of trust, loan
or credit agreement or other agreement or instrument by which such Borrower or
any of its property may be bound or affected other than Permitted Liens;
(i) Except as designated on Schedule 10(i) attached hereto, there are no
actions or proceedings which are pending or threatened against such Borrower
which might result in any material adverse change in its financial condition or
materially adversely affect the Collateral of such Borrower and such Borrower
shall, promptly upon becoming aware of any such pending or threatened action or
proceeding, give written notice thereof to Agent;
(j) such Borrower has obtained all licenses, authorizations, approvals and
permits, the lack of which would have a material adverse effect on the operation
of its business, and such Borrower is and shall remain in compliance in all
material respects with all applicable federal, state, local and foreign
statutes, orders, regulations, rules and ordinances (including, without
limitation, statutes, orders, regulations, rules and ordinances relating to
taxes, employer and employee contributions and similar items, securities,
employee retirement and welfare benefits, employee health and safety or
environmental matters), the failure to comply with which would have a material
adverse effect on its business, property, assets, operations or condition,
financial or otherwise;
(k) all written information now, heretofore or hereafter furnished by such
Borrower to Agent or any Lender is and shall be true and correct in all material
respects as of the date with respect to which such information was or is
furnished;
(1) such Borrower is not conducting, permitting or suffering to be
conducted, nor shall it conduct, permit or suffer to be conducted, any
activities pursuant to or in connection with which any of the Collateral of such
Borrower is now, or will (while any Liabilities remain outstanding) be owned by
any Affiliate; provided, however, that such Borrower may enter into transactions
with Affiliates in the ordinary course of business pursuant to terms that are no
less favorable to such Borrower than the terms upon which such transfers or
transactions would have been made had they been made to or with a Person that is
not an Affiliate and, in connection therewith, may transfer cash or property to
Affiliates for fair value;
(m) such Borrower's name has always been as set forth on the first page of
this Agreement and such Borrower uses no tradenames or division names in the
operation of its business, except as otherwise disclosed in writing to Agent;
such Borrower shall notify Agent in writing within ten (10) days of the change
of its name or the use of any tradenames or division names not previously
disclosed to Agent in writing;
(n) with respect to such Borrower's Equipment: (i) such Borrower has good
and indefeasible and merchantable title to and ownership of all such Equipment
including, without limitation, the Equipment of such Borrower described or
listed on the schedule of Equipment delivered to Agent concurrently with this
Agreement, except for equipment leased to such Borrower as designated on
Schedule 4(d); (ii) such Borrower shall keep and maintain
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the Equipment of such Borrower in good operating condition and repair and shall
make all necessary replacements thereof and renewals thereto so that the value
and operating efficiency thereof shall at all times be preserved and maintained;
provided, however, that nothing herein shall limit such Borrower's right to
dispose of obsolete, defective or unnecessary Equipment; (iii) such Borrower
shall not permit any such items to become a fixture to real estate or an
accession to other personal property; and (iv) such Borrower, promptly on demand
by Agent, shall deliver to Agent any and all evidence of ownership of including,
without limitation, certificates of title and applications of title to, any of
the Equipment of such Borrower;
(o) this Agreement and the Other Agreements to which such Borrower is a
party are the legal, valid and binding obligations of such Borrower and are
enforceable against such Borrower in accordance with their respective terms
except as may be limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws of general application affecting the
enforcement of creditors' rights and the availability of remedies which are
equitable in nature including, but not limited to, the remedies of specific
performance and injunctive relief;
(p) such Borrower is solvent, is able to pay its debts as they become due
and has capital sufficient to carry on its business, now owns property having a
value both at fair valuation and at present fair saleable value greater than the
amount required to pay its debts, and will not be rendered insolvent by the
execution and delivery of this Agreement or any of the Other Agreements or by
completion of the transactions contemplated hereunder or thereunder;
(q) other than a guaranty by GDC of up to One Hundred Fifty Thousand
($150,000) of credit extended to Chicago Medical Equipment and Supply Co., such
Borrower is not now obligated, nor shall it create, incur, assume or become
obligated (directly or indirectly), for any loans or other indebtedness for
borrowed money other than the Loans, except that such Borrower may: (i) borrow
money from a Person other than Lenders and the other Borrowers on an unsecured
and subordinated basis if a subordination agreement in favor of Agent and in
form and substance satisfactory to Requisite Lenders is executed and delivered
to Agent relative thereto; (ii) maintain any present indebtedness to any Person
which has been disclosed to Agent in writing and consented to in writing by
Requisite Lenders; (iii) incur unsecured indebtedness to trade creditors in the
ordinary course of such Borrower's business; (iv) incur secured indebtedness in
connection with the acquisition (by capitalized lease or purchase money
financing) of Equipment after the date hereof so long as such indebtedness is
only secured by the Equipment so acquired and the aggregate amount of such
secured indebtedness outstanding for all Borrowers at any time does not exceed
Seven Hundred Fifty Thousand ($750,000); and (v) borrow money from another
Borrower so long as no Event of Default exists and the aggregate intercompany
loans outstanding for all Borrowers at any time does not exceed the "Maximum
Intercompany Amount" (as defined below). "Maximum Intercompany Amount" means Two
Million Dollars ($2,000,000) during the period October 1 through January 31 and
One Million Dollars ($1,000,000) at all
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other times. The indebtedness allowed above shall be referred to herein as
"Permitted Borrowings";
(r) such Borrower does not own any margin securities, and none of the
proceeds of the Loans hereunder shall be used for the purpose of purchasing or
carrying any margin securities or for the purpose of reducing or retiring any
indebtedness which was originally incurred to purchase any margin securities or
for any other purpose not permitted by Regulation G or Regulation U of the Board
of Governors of the Federal Reserve System as in effect from time to time;
(s) except as otherwise disclosed in writing to Agent, such Borrower has no
Parents, Subsidiaries or divisions, nor is such Borrower engaged in any joint
venture or partnership with any other Person;
(t) if such Borrower is a corporation or partnership, such Borrower is duly
organized and in good standing in its state of organization and such Borrower is
duly qualified and in good standing in all states where the nature and extent of
the business transacted by it or the ownership of its assets makes such
qualification necessary;
(u) there is no Event of Default under this Agreement nor circumstances
that, with the passage of time or giving of notice, would result in an Event of
Default and such Borrower is not in default under any material contract, lease
or commitment to which it is a party or by which it is bound, nor does such
Borrower know of any dispute regarding any contract, lease or commitment which
is material to the continued financial success and well-being of such Borrower;
(v) there are no controversies pending or threatened between such Borrower
and any of its employees, other than employee grievances arising in the ordinary
course of business which are not, in the aggregate, material to the continued
financial success and well-being of such Borrower, and such Borrower is in
compliance in all material respects with all federal and state laws respecting
employment and employment terms, conditions and practices; and
(w) such Borrower possesses, and shall continue to possess, adequate
licenses, patents, patent applications, copyrights, service marks, trademarks,
trademark applications, trade styles and tradenames to continue to conduct its
business as heretofore conducted by it.
(x) the ESOP is an employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code and is qualified under Sections 401 (a) and
501(a) of the Code. The trust forming part of the ESOP has been duly constituted
in accordance with valid and binding trust instruments, is validly existing and
is qualified under Sections 401 (a) and 501 (a) of the Code. The execution,
delivery and performance of this Agreement and the ESOP Term Notes and the ESOP
Stock Purchase Agreement by the parties hereto and thereto and the consummation
of the transactions contemplated hereby and thereby will not constitute a
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violation of, or give rise to any liability under, Title I of ERISA or Section
4975 of the Code. The loan evidenced by the ESOP Term Notes will qualify as a
securities acquisition within the meaning of Section 133 of the Code, as amended
by the 1996 Small Business Job Protection Act.
(y) such Borrower has delivered to Agent true and correct copies of (i) all
documents governing the terms and administration of the ESOP, including its plan
description and all related trust instruments, and (ii) all agreements relating
to the ESOP Stock Purchase Agreement, together with all amendments or
modifications of the foregoing.
(z) As of the date of this Agreement, none of such Borrower or any member
of its Controlled Group maintains or contributes to any Benefit Plan,
Multiemployer Plan or any Retiree Health Plan, other than those listed on
Schedule 10(z) attached hereto. Each Benefit Plan has been and is being
maintained and funded in all material respects in accordance with its terms and
in compliance with all provisions of ERISA and the Code applicable thereto.
Such Borrower and each member of its Controlled Group have fulfilled in all
material respects their obligations related to the minimum funding standards of
ERISA and the Code for each Qualified Plan, are in compliance in all material
respects with the currently applicable provisions of ERISA and the Code relating
to the qualification with respect to each Qualified Plan intended to be so
qualified and have not incurred any material liability (other than routine
liability for premiums) under Title IV of ERISA. No Reportable Event has
occurred that has resulted in liability which either has not been satisfied or
is not reflected on such Borrower's financial statements nor has any other event
occurred that is likely to result in a Reportable Event that could reasonably be
expected to have a material adverse effect. No event or events have occurred in
connection with which such Borrower or any member of its Controlled Group or any
Benefit Plan, directly or indirectly, is likely to be subject to any liability
under ERISA, the Code or any other law, regulation or governmental order or
under any agreement, instrument, statute, rule of law or regulation pursuant to
or under which any such entity has agreed to indemnify or is required to
indemnify any person against liability incurred under, or for a violation or
failure to satisfy the requirements of, any such statute, regulation or order
which could reasonably be expected to have a material adverse effect. True,
correct and complete copies of the following documents have been made available
to Agent as of the date of this Agreement: (i) each Benefit Plan (or, where any
such plan is not in writing, a complete description thereof) (and if applicable,
related trust agreements or other funding instruments) and all amendments
thereto, all summary plan descriptions and summaries of material modifications,
(ii) the most recent determination letter issued by the Internal Revenue Service
with respect to each Qualified Plan; (iii) for the most recent plan year, Annual
Reports on Form 5500 Series required to be filed with any governmental agency
for each Benefit Plan; (iv) all actuarial reports prepared for the last three
(3) plan years for each Benefit Plan; (v) a listing of all Multiemployer Plans,
with the aggregate amount of the most recent annual contributions required to be
made by such Borrower and any member of its Controlled Group to each such plan
and copies of the collective bargaining agreements requiring such contributions;
(vi) any information that has been provided to such Borrower or any member of
its Controlled Group regarding withdrawal liability under any Multiemployer
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Plan; and (vii) the aggregate amount of the most recent annual payments made to
former employees of such Borrower or any member of its Controlled Group under
any Retiree Health Plan.
Each Borrower represents, warrants and covenants to Agent and Lenders that all
representations, warranties and covenants of such Borrower contained in this
Agreement (whether appearing in Paragraphs 10 or 11 hereof or elsewhere) shall
be true in all material respects at the time of such Borrower's execution of
this Agreement, shall survive the execution, delivery and acceptance hereof by
the parties hereto and the closing of the transactions described herein or
related hereto, shall remain true in all material respects until the repayment
in full of all of the Liabilities and termination of this Agreement, and shall
be remade by such Borrower at the time each Loan is made pursuant to this
Agreement.
11. ADDITIONAL COVENANTS OF BORROWERS. Until payment or satisfaction in
full of all Liabilities and termination of this Agreement, unless Borrowers
obtain Agent's prior written consent (which consent will not be given without
Requisite Lenders' prior written consent) waiving or modifying any of Borrowers'
covenants hereunder in any specific instance, each Borrower agrees as follows:
(a) such Borrower shall at all times keep accurate and complete books,
records and accounts with respect to all of such Borrower's business activities,
in accordance with sound accounting practices and generally accepted accounting
principles consistently applied, and shall keep such books, records and
accounts, and any copies thereof, only at the addresses indicated for such
purpose on Exhibit B;
(b) Intentionally omitted;
(c) such Borrower shall promptly advise Agent in writing of any material
adverse change in the business, assets or condition, financial or otherwise, of
such Borrower, the occurrence of any Event of Default hereunder or the
occurrence of any event which, if uncured, will become an Event of Default
hereunder after notice or lapse of time (or both);
(d) Agent, or any Persons designated by it (including without limitation
any Lender that has notified Agent of its desire to accompany Agent), shall have
the right, to call at such Borrower's places of business at any reasonable
times, and, without hindrance or delay, to inspect the Collateral and to
inspect, audit, check and make extracts from such Borrower's books, records,
journals, orders, receipts and any correspondence and other data relating to
such Borrower's business, the Collateral or any transactions between the parties
hereto, and shall have the right to make such verification concerning such
Borrower's business as Agent may consider reasonable under the circumstances
(without limiting the foregoing, Agent, through its officers, employees or
agents shall have the right, at any time and
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<PAGE>
from time to time request. Each Borrower authorizes Agent to discuss the
affairs, finances and business of such Borrower with any officers, employees or
directors of such Borrower or with any Affiliate or the officers, employees or
directors of any Affiliate, and to discuss the financial condition of such
Borrower with such Borrower's independent public accountants. Any such
discussions shall be without liability to Agent or to such Borrower's
independent public accountants. Each Borrower shall pay to Agent all customary
fees and out-of-pocket expenses incurred by Agent in the exercise of its rights
hereunder including, but not limited to, an auditing fee of Six Hundred Dollars
($600) per auditor per day, and all of such fees and expenses shall constitute
Loans hereunder, payable on demand and, until paid, shall bear interest at the
highest rate then applicable to Loans hereunder;
(e) such Borrower shall:
(i) keep the Collateral of such Borrower properly housed and shall
keep the Collateral insured for the full insurable value thereof against
loss or damage by fire, theft, explosion, sprinklers, collision (in the
case of motor vehicles) and such other risks as are customarily insured
against by Persons engaged in businesses similar to that of such Borrower
with such companies, in such amounts and under policies in such form as
shall be reasonably satisfactory to Agent. Original (or certified) copies
of such policies of insurance have been or shall be delivered to Agent
within fifteen (15) days after the date hereof, together with evidence of
payment of all premiums therefor, and shall contain an endorsement, in form
and substance reasonably acceptable to Agent, showing loss under such
insurance policies payable to Agent. Such endorsement, or an independent
instrument furnished to Agent, shall provide that the insurance company
shall give Agent at least thirty (30) days written notice before any such
policy of insurance is altered or canceled and that no act, whether willful
or negligent, or default of such Borrower or any other Person shall affect
the right of Agent to recover under such policy of insurance in case of
loss or damage. Each Borrower hereby directs all insurers under such
policies of insurance to pay all proceeds payable thereunder directly to
Agent. Each Borrower irrevocably, makes, constitutes and appoints Agent
(and all officers, employees or agents designated by Agent) as such
Borrower's true and lawful attorney (and agent-in-fact) for the purpose of
making, settling and adjusting claims under such policies of insurance,
endorsing the name of such Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and
making all determinations and decisions with respect to such policies of
insurance; provided, that so long as no Event of Default shall have
occurred, such Borrower shall be entitled to make, settle and adjust claims
under its policies of insurance if the total amount of any such claims is
less than One Hundred Thousand Dollars ($100,000) in the aggregate for all
claims of such Borrower during the immediately preceding twelve (12) month
period; and Agent agrees that if it receives proceeds of insurance with
respect to any loss of or damage to Collateral in an amount less
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than or equal to One Hundred Thousand Dollars ($100,000) in the aggregate
for all claims of such Borrower during the immediately preceding twelve
(12) month period, it will, at such Borrower's request, promptly make such
proceeds available to such Borrower for repair or replacement of the lost
or damaged Collateral of such Borrower.
(ii) maintain, at its expense, such public liability and third party
property damage insurance as is customary for Persons engaged in businesses
similar to that of such Borrower with such companies and in such amounts,
with such deductibles and under policies in such form as shall be
reasonably satisfactory to Agent and original (or certified) copies of such
policies have been or shall be delivered to Agent within fifteen (15) days
after the date hereof, together with evidence of payment of all premiums
therefor; each such policy shall contain an endorsement showing Agent and
Lenders as additional insured thereunder and providing that the insurance
company shall give Agent at least thirty (30) days written notice before
any such policy shall be altered or canceled.
If such Borrower at any time or times hereafter shall fail to obtain or
maintain any of the policies of insurance required above or to pay any premium
in whole or in part relating thereto, then Agent, without waiving or releasing
any obligation or default by such Borrower hereunder, may (but shall be under no
obligation to) obtain and maintain such policies of insurance and pay such
premiums and take such other actions with respect thereto as Agent deems
advisable. All sums disbursed by Agent in connection with any such actions,
including, without limitation, court costs, expenses, other charges relating
thereto and reasonable attorneys' fees, shall constitute Loans hereunder and
shall be payable on demand by such Borrower to Agent and, until paid, shall bear
interest at the highest rate then applicable to Loans hereunder;
(f) such Borrower shall not use the Collateral of such Borrower, or any
part thereof, in any unlawful business or for any unlawful purpose or use or
maintain any of the Collateral in any manner that does or could result in
material damage to the environment or a violation of any applicable
environmental laws, rules or regulations, shall keep the Collateral of such
Borrower in good condition, repair and order; shall permit Agent to examine any
of the Collateral at any reasonable time and wherever the Collateral may be
located; shall not permit the Collateral of such Borrower, or any part thereof,
to be levied upon under execution, attachment, distraint or other legal process,
shall not sell, lease, grant a security Interest in or otherwise dispose of any
of the Collateral of such Borrower except as expressly permitted by this
Agreement; and shall not secrete or abandon any of the Collateral of such
Borrower, or remove or permit removal of any of the Collateral of such Borrower
from any of the locations listed on Exhibit B or in any written notice to Agent
pursuant to Paragraph 10(b) hereof, except for the removal of Inventory sold in
the ordinary course of such Borrower's business and the disposition of obsolete,
defective or unnecessary Equipment of such Borrower, in each case as permitted
herein;
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(g) all monies and other property obtained by such Borrower from Lenders
pursuant to this Agreement will be used solely for business purposes of such
Borrower;
(h) such Borrower shall, at the request of Agent, indicate on its records
concerning the Collateral a notation, in form satisfactory to Agent, of the
security interest of Agent hereunder, and such Borrower shall not maintain
duplicates or copies of such records at any address other than such Borrower's
principal place of business set forth on the first page of this Agreement;
(i) such Borrower shall file all required tax returns and pay all of its
taxes when due, including, without limitation, taxes imposed by federal, state
or municipal agencies, and shall cause any liens for taxes to be promptly
released; provided, that such Borrower shall have the right to contest the
payment of such taxes in good faith by appropriate proceedings so long as (i)
the amount so contested is shown on such Borrower's financial statements, (ii)
the contesting of any such payment does not give rise to a lien for taxes, (iii)
such Borrower keeps on deposit with Agent (such deposit to be held without
interest) or as a reserve against revolving Loans provided for herein, an amount
of money which, in the sole judgment of Agent, is sufficient to pay such taxes
and any interest or penalties that may accrue thereon, and (iv) if such Borrower
fails to prosecute such contest with reasonable diligence, Agent may apply the
money so deposited in payment of such taxes. If such Borrower falls to pay any
such taxes and in the absence of any such contest by such Borrower, Agent may
(but shall be under no obligation to) advance and pay any sums required to pay
any such taxes and/or to secure the release of any lien therefor, and any sums
so advanced by Agent shall constitute Loans hereunder, shall be payable by such
Borrower to Agent on demand, and, until paid, shall bear interest at the highest
rate then applicable to Loans hereunder;
(j) other than a guaranty by GDC of up to One Hundred Fifty Thousand
($150,000) of credit extended to Chicago Medical Equipment and Supply Co., such
Borrower shall not assume, guarantee or endorse, or otherwise become liable in
connection with, the obligations of any Person, except by endorsement of
instruments for deposit or collection or similar transactions in the ordinary
course of business;
(k) such Borrower shall not enter into any merger or consolidation, or
sell, lease or otherwise dispose of all or substantially all of its assets, or
enter into any transaction outside the ordinary course of such Borrower's
business, including, without limitation, any purchase, redemption or retirement
of any shares of any class of its stock, and any issuance of any shares of, or
warrants or other rights to receive or purchase any shares of, any class of its
stock; except, (A) a Borrower shall be permitted, without the approval of
Lenders, to acquire companies (whether by acquisition of stock or assets or by
merger) so long as the following conditions are satisfied to the satisfaction of
Agent: (i) the acquired company is an operating company that engages in a line
of business substantially similar to the line of business of Borrowers and has
annual sales of not more than Twenty Million Dollars ($20,000,000); (ii) the
aggregate consideration (including without limitation cash purchase price,
liabilities assumed (excluding trade payables and ordinary course accruals of
expenses), deferred or financed purchase price and purchase price characterized
as consulting agreements, non-competition
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payments and the like) for all such acquisitions since the date hereof does not
exceed Five Million Five Hundred Thousand Dollars ($5,500,000); (iii) Borrowers
shall have excess availability pursuant to Paragraph 1 of Exhibit A after giving
effect to such acquisition and the anticipated working capital needs of the
acquired company (as determined by Agent in the sole reasonable discretion) of
at least Ten Million Dollars ($10,000,000), deeming all debts of Borrowers
current on a pro forma basis; (iv) no Event of Default shall exist before and
after giving effect to such acquisition; (v) to the extent such assets are to be
included in the borrowing availability of a Borrower, Agent shall have completed
a satisfactory field examination with respect to the working capital assets of
the acquired company; (vi) the acquired company (or any subsidiary formed to
consummate the acquisition) shall have executed any and all loan documentation
required by Agent; (vii) receipt by Agent of projections and other financial
information which demonstrate to Agent's satisfaction that Borrowers (including
the acquired company) shall be in pro forma compliance with all obligations to
repay the Liabilities and all financial covenant obligations); and (viii)
Borrowers shall have obtained all consents for such acquisition required under
law or under any agreement (including without limitation the consent of the
holders of the Subordinated Debt Documents); and (B) CDS may issue stock options
pursuant to the Employment Agreements and each such Borrower may provide loans
to customers who meet certain minimum credit requirements established by
Borrower and reasonably acceptable to Agent. Such credit requirements shall
include, without limitation, monthly principal (straight line) amortization not
to exceed twenty-four (24) months, interest at the rate of one and three-
quarters percent (1.75%) per annum in excess of the Prime Rate, and a second
priority security interest in the accounts and inventory of the customer. The
aggregate amount of loans for all such customers shall not, at any time, exceed
One Million Dollars ($1,000,000). The limitation set forth above shall not
apply to any purchase, retirement or redemption of any shares of any class of
its stock by CDS, so long as such purchase and redemption is permitted under all
applicable laws and is in connection with the exercise by an ESOP participant or
beneficiary of his put rights provided for under the terms of the ESOP or
applicable law, or in connection with the exercise by CDS of its right of first
refusal provided for under the terms of the ESOP;
(l) such Borrower shall not declare or pay any dividend or other
distribution (whether in cash or in kind) on any class of its stock (if such
Borrower is a corporation) or on account of any equity interest in such Borrower
(if such Borrower is a partnership or other type of entity);
(m) such Borrower shall not purchase or otherwise acquire, or contract to
purchase or otherwise acquire, the obligations or stock of any Person, other
than direct obligations of the United States;
(n) such Borrower shall not amend its articles of incorporation (except as
otherwise contemplated by Section 6.10 of the Note Purchase Agreement) or change
its fiscal year and CDS shall not amend or modify the Subordinated Debt
Documents;
(o) CDS's net worth shall not at any time be less than the amount set forth
in Paragraph (9) of Exhibit A; "Net Worth" (calculated on a FIFO basis) being
defined for purposes of this Paragraph as CDS's consolidated shareholders'
equity (including retained
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earnings) plus the amount of any consolidated debt subordinated to Agent in a
manner satisfactory to Agent, all as determined under generally accepted
accounting principles; and
(p) Borrowers shall reimburse Agent for all reasonable costs and expenses,
including, without limitation, legal expenses and reasonable attorneys' fees
(both in-house and outside counsel), incurred by Agent in connection with
documentation and consummation of this transaction and any other transactions
among Borrowers, Agent and Lenders, including, without limitation, Uniform
Commercial Code and other public record searches, lien filings, Federal Express
or similar express or messenger delivery, appraisal costs, surveys, title
insurance and environmental audit or review costs, and in seeking to collect,
protect or enforce any rights in or to the Collateral or incurred by Agent and
Lenders in seeking to collect any Liabilities and to administer and enforce any
of Agent's and Lenders' rights under this Agreement. Borrowers shall also pay
all normal service charges with respect to accounts maintained by Agent for the
benefit of Borrowers. All such costs, expenses and charges shall constitute
Loans hereunder, shall be payable by Borrower to Agent on demand and, until
paid, shall bear interest at the highest rate then applicable to Loans
hereunder.
(q) As soon as practicable and in any event within thirty (30) days after
such Borrower or any member of its Controlled Group knows or has reason to know
(i) that a Reportable Event has occurred with respect to a Pension Plan (which
is not a Multiemployer Plan), (ii) that an application is to be or has been made
to the Secretary of the Treasury for a waiver of the minimum funding standard or
the extension of any amortization period under Section 412 of the Code with
respect to a Pension Plan (which is not a Multiemployer Plan), (iii) that a
notice of termination has been filed with the PBGC with respect to a Pension
Plan (which is not a Multiemployer Plan), (iv) that proceedings are likely to be
or have been instituted by the PBGC to terminate a Pension Plan (which is not a
Multiemployer Plan), (v) that such Borrower or any member of its Controlled
Group will or may incur any liability to or on account of a Plan that is a
Single-employer Plan under Section 4062, 4063 or 4064, or on account of a
Pension Plan that is a Multiemployer Plan under Section 4201 or 4204 of ERISA,
(vi) that as of the last day of any plan year, the present value of the benefits
under any Pension Plan (which is not a Multiemployer Plan), as determined by the
Pension Plan's independent actuaries, exceeds the value as of such date, as
determined by such actuaries, of all assets of such Pension Plan by more than
One Hundred Thousand Dollars ($100,000), or (vii) that the aggregate present
value of the benefits under all Pension Plans (which are not Multiemployer
Plans) that do not satisfy clause (vi) above, as of the end of each Plan's plan
year, as determined by such Pension Plan's independent actuaries, exceeds the
aggregate value as of such date, as determined by such actuaries, of all assets
of all such Plans by more than One Hundred Thousand Dollars ($100,000), such
Borrower shall submit to Agent a certificate of the chief financial officer of
such Borrower setting forth details as to such occurrence and action, if any,
that such Borrower or any member of its Controlled Group is required or proposes
to take, together with any notices required or proposed to be filed by such
Borrower or any member of its Controlled Group with the PBGC or the plan
administrator with respect thereto.
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(r) such Borrower shall not, directly or indirectly, and shall not permit
and member of its Controlled Group to, directly or indirect, by reason of an
amendment or amendments to, or the adoption of, one or more Plans under Title IV
of ERISA, permit the present value of all benefit liabilities, as defined in
Title IV of ERISA (using the actuarial assumptions used by the PBGC upon
termination of a plan), to increase by more than One Hundred Thousand Dollars
($100,000); provided, however that this limitation shall not be applicable to
the extent that the fair market value of assets allocable to such benefits, all
determined as of the most recent valuation date for each such Title IV Plan, is
in excess of the benefit liabilities.
(s) such Borrower shall promptly advise Agent in writing of the occurrence
of any event including, but not limited to, the failure of the ESOP to retain
the minimum stock interest required by Section 133(b)(6) of the Code, that
causes or will cause the loan evidenced by the ESOP Term Notes to no longer
qualify as a "securities acquisition loan" within the meaning of Section 133 of
the Code.
12. DEFAULT. The occurrence of any one or more of the following events
shall constitute an "Event of Default" by Borrowers hereunder:
(a) the failure of any Obligor to pay when due, pursuant to the terms
hereof, any of the Liabilities:
(b) the failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
this Agreement or any of the Other Agreements;
(c) the failure of any Obligor to perform, keep or observe any of the
covenants, conditions, promises, agreements or obligations of such Obligor under
the Subordinated Debt Documents; or the failure of any Obligor to perform, keep
or observe any of the covenants, promises, agreements or obligations of such
Obligor under any other agreement with any Person if such failure under such
other agreement may have a material adverse effect on such Obligor's business,
property, assets, operations or condition, financial or otherwise;
(d) the making or furnishing by any Obligor to Agent or any Lender of any
representation, warranty, certificate, schedule, report or other communication
within or in connection with this Agreement or the Other Agreements or in
connection with any other agreement between such Obligor and Agent or such
Lender, which is untrue or misleading in any material respect;
(e) the loss, theft, damage or destruction of, or (except as permitted
hereby) sale, lease or furnishing under a contract of service of, any of the
Collateral, except for Collateral of a Borrower with a value of up to One
Hundred Thousand Dollars ($100,000) in the aggregate for such Borrower for the
prior twelve (12) month period which is fully insured and the proceeds of which
promptly are tendered to Agent;
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(f) the creation (whether voluntary or involuntary) of, or any attempt to
create, any lien or other encumbrance upon any of the Collateral, other than the
Permitted Liens, or the making or any attempt to make any levy, seizure or
attachment thereof;
(g) the commencement of any proceedings in bankruptcy by or against any
Obligor or for the liquidation or reorganization of any Obligor, or alleging
that such Obligor is insolvent or unable to pay its debts as they mature, or for
the readjustment or arrangement of any Obligor's debts, whether under the United
States Bankruptcy Code or under any other law, whether state or federal, now or
hereafter existing for the relief of debtors, or the commencement of any
analogous statutory or non-statutory proceedings involving any Obligor;
provided, however, that if such commencement of proceedings against such Obligor
is involuntary, such action shall not constitute an Event of Default unless such
proceedings are not dismissed within sixty (60) days after the commencement of
such proceedings;
(h) the appointment of a receiver or trustee for any Obligor, for any
material portion of the Collateral or for any substantial part of any Obligor's
assets or the institution of any proceedings for the dissolution, or the full or
partial liquidation, or the merger or consolidation, of any Obligor which is a
corporation or a partnership; provided, however, that if such appointment or
commencement of proceedings against such Obligor is involuntary, such action
shall not constitute an Event of Default unless such appointment is not revoked
or such proceedings are not dismissed within sixty (60) days after the
commencement of such proceedings;
(i) the entry of any judgment or order against any Obligor exceeding One
Hundred Thousand Dollars ($100,000) which remains unsatisfied or undischarged
and in effect for thirty (30) days after such entry without a stay of
enforcement or execution;
(j) the dissolution of any Obligor which is a partnership or corporation,
except that Borrower shall have sixty (60) days in which to provide a successor
plan to Agent, which Agent shall accept or reject in its sole reasonable
discretion;
(k) the occurrence of an event of default under, or the revocation or
termination of, any agreement, instrument or document executed and delivered by
any Person to Agent or any Lender pursuant to which such Person has guaranteed
to Agent or any Lender the payment of all or any of the Liabilities or has
granted Agent a security interest in or lien upon some or all of such Person's
real and/or personal property to secure the payment of all or any of the
Liabilities;
(l) the institution in any court of a criminal proceeding against any
Obligor, or the indictment of any Obligor for any crime;
(m) a Gross-Up Event shall have occurred for any reason other than a change
in the Statutory Exclusion or a prepayment of the ESOP Term Notes;
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<PAGE>
(n) a Borrower or any member of its Controlled Group shall fail to pay when
due an amount or amounts aggregating in excess of Fifty Thousand Dollars
($50,000) that it shall have become liable to pay to the PBGC or to a Pension
Plan under Title IV of ERISA; or notice of intent to terminate a Pension Plan or
Pension Plans (which are not Multiemployer Plans) having aggregate Unfunded
Vested Liabilities in excess of Fifty Thousand Dollars ($50,000) (collectively,
a "Material Plan") shall be filed under Title IV of ERISA by a Borrower or any
member of its Controlled Group, or any combination of the foregoing; or the PBGC
shall institute proceedings under Title IV of ERISA to terminate or to cause a
trustee to be appointed to administer any Material Plan or a proceeding shall be
instituted by a fiduciary of any Multiemployer Plan against a Borrower or any
member of its Controlled Group to enforce Section 515 or 4219(c)(5) of ERISA and
such proceedings shall not have been dismissed within thirty (30) days
thereafter; or a condition shall exist by reason of which the PBGC would be
entitled to obtain a decree adjudicating that any Material Plan must be
terminated; or
(o) the occurrence of any event or condition which has or is reasonably
likely to have a Material Adverse Effect.
13. REMEDIES UPON AN EVENT OF DEFAULT.
(a) Upon the occurrence of an Event of Default described in Paragraph 12(g)
hereof, all of the Liabilities shall immediately and automatically become due
and payable, without notice of any kind. Upon the occurrence of any other Event
of Default, all Liabilities may, at the option of Requisite Lenders, and without
demand, notice or legal process of any kind, be declared, and immediately shall
become, due and payable.
(b) Upon the occurrence of an Event of Default, Agent may exercise from
time to time any rights and remedies available to it under the Uniform
Commercial Code and any other applicable law in addition to, and not in lieu of,
any rights and remedies expressly granted in this Agreement or in any of the
Other Agreements and all of Agent's rights and remedies shall be cumulative and
non-exclusive to the extent permitted by law. In particular, but not by way of
limitation of the foregoing, Agent may, without notice, demand or legal process
of any kind, (i) cease (and cause Lenders to cease) advancing money or extending
credit to or for the benefit of Borrowers, implement any reserves which Agent
deems necessary and/or terminate this Agreement as to any future liability or
obligation of Agent and Lenders to Borrowers or (ii) take possession of any or
all of the Collateral (in addition to Collateral of which it already has
possession), wherever it may be found, and for that purpose may pursue the same
wherever it may be found, and may enter into any of a Borrower's premises where
any of the Collateral may be, and search for, take possession of, remove, keep
and store any of the Collateral until the same shall be sold or otherwise
disposed of, and Agent shall have the right to store the same at any of a
Borrower's premises without cost to Agent. At Agent's request, each Borrower
shall, at such Borrower's expense, assemble the Collateral and make it available
to Agent at one or more places to be designated by Agent and reasonably
convenient to Agent and such Borrower. Each Borrower recognizes that if such
35
<PAGE>
Borrower falls to perform, observe or discharge any of its Liabilities under
this Agreement or the Other Agreements, no remedy at law will provide adequate
relief to Agent and Lenders, and agrees that Agent and Lenders shall be entitled
to temporary and permanent injunctive relief in any such case without the
necessity of proving actual damages. Any notification of intended disposition of
any of the Collateral required by law will be deemed reasonably and properly
given if given at least five (5) calendar days before such disposition. Any
proceeds of any disposition by Agent of any of the Collateral may be applied by
Agent to the payment of expenses in connection with the Collateral including,
without limitation, legal expenses and reasonable attorneys' fees (both in-house
and outside counsel), and any balance of such proceeds may be applied by Agent
toward the payment of such of the Liabilities, and in such order of application,
as Agent may from time to time elect.
14. INDEMNIFICATION. Each Borrower agrees to defend (with counsel
reasonably satisfactory to Agent), protect, indemnify and hold harmless Agent
and each Lender, each affiliate or subsidiary of Agent and each Lender, and each
of their respective officers, directors, employees, attorneys and agents (each
an "Indemnified Party") from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs, expenses
and disbursements of any kind or nature (including, without limitation, the
reasonable disbursements and the reasonable fees of counsel for each Indemnified
Party in connection with any investigative, administrative or Judicial
proceeding, whether or not the Indemnified Party shall be designated a party
thereto), which may be imposed on, incurred by, or asserted against, any
Indemnified Party (whether direct, indirect or consequential and whether based
on any federal, state or local laws or regulations including, without
limitation, securities, environmental and commercial laws and regulations, under
common law or in equity, or based on contract or otherwise) in any manner
relating to or arising out of this Agreement or any Other Agreement, or any act,
event or transaction related or attendant thereto, the making and the management
of the Loans or any letters of credit or the use or intended use of the proceeds
of the Loans or any letters of credit; provided, however, that no Borrower shall
have any obligation hereunder to any Indemnified Party with respect to matters
caused by or resulting from the willful misconduct or gross negligence of such
Indemnified Party. To the extent that the undertaking to indemnify set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, each Borrower shall satisfy such undertaking to the maximum
extent permitted by applicable law. Any liability, obligation, loss, damage,
penalty, cost or expense covered by this indemnity shall be paid to each
Indemnified Party on demand, and, failing prompt payment, shall, together with
interest thereon at the highest rate then applicable to Loans hereunder from the
date incurred by each Indemnified Party until paid by such Borrower, be added to
the Liabilities of such Borrower and be secured by the Collateral of such
Borrower. The provisions of this Paragraph 14 shall survive the satisfaction and
payment of the other Liabilities and the termination of this Agreement.
15. NOTICE. All written notices and other written communications with
respect to this Agreement shall be sent by ordinary, certified or overnight
mail, by telecopy or delivered in person, and (i) in the case of Agent and
LaSalle shall be sent to it at 135 South
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LaSalle Street, Chicago, Illinois 60603, Attention: Credit Officer (C.D. Smith),
(ii) in the case of Heller shall be sent to it at 500 West Monroe Street,
Chicago, Illinois 60661, Attention: Elizabeth Geannopulos, (iii) in the case ANB
shall be sent to it at One North LaSalle Street, Chicago, Illinois 60690,
Attention: Dennis Harrison, and (iv) in the case of a Borrower shall be sent to
it at CDS's principal place of business set forth on the first page of this
Agreement.
16. CHOICE OF GOVERNING LAW; CONSTRUCTION; FORUM SELECTION. This Agreement
and the Other Agreements are submitted by Borrowers to Agent and Lenders for
Agent's and Lenders' acceptance or rejection at Agent's principal place of
business as an offer by Borrowers to borrow monies from Lenders now and from
time to time hereafter, and shall not be binding upon Agent or Lenders or become
effective until accepted by Agent and Lenders, in writing, at said place of
business. If so accepted by Agent and Lenders, this Agreement and the Other
Agreements shall be deemed to have been made at said place of business. THIS
AGREEMENT AND THE OTHER AGREEMENTS SHALL BE GOVERNED AND CONTROLLED BY THE
INTERNAL LAWS OF THE STATE OF ILLINOIS AS TO INTERPRETATION, ENFORCEMENT,
VALIDITY, CONSTRUCTION, EFFECT, AND IN ALL OTHER RESPECTS, INCLUDING, WITHOUT
LIMITATION, THE LEGALITY OF THE INTEREST RATE AND OTHER CHARGES, BUT EXCLUDING
PERFECTION OF THE SECURITY INTERESTS IN THE COLLATERAL, WHICH SHALL BE GOVERNED
AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION. If any provision of
this Agreement shall be held to be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or remaining
provisions of this Agreement.
To induce Agent and Lenders to accept this Agreement, each Borrower
irrevocably agrees that, subject to Agent's sole and absolute election, ALL
ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT, ARISING OUT OF OR FROM OR
RELATED TO THIS AGREEMENT, THE OTHER AGREEMENTS OR THE COLLATERAL SHALL BE
LITIGATED IN COURTS HAVING SITUS WITHIN THE CITY OF CHICAGO, STATE OF ILLINOIS.
EACH BORROWER HEREBY CONSENTS AND SUBMITS TO THE JURISDICTION OF ANY LOCAL,
STATE OR FEDERAL COURTS LOCATED WITHIN SAID CITY AND STATE; PROVIDED, THAT AGENT
SHALL USE ITS BEST EFFORTS TO PROCEED IN FEDERAL COURT WITHIN SAID CITY AND
STATE. Each Borrower hereby irrevocably appoints and designates CT Corporation
System, whose address is 208 South LaSalle Street Chicago, Illinois 60604 (or
any other person having and maintaining a place of business in such state whom
such Borrower may from time to time hereafter designate upon ten (10) days
written notice to Agent and who Agent has agreed in its sole reasonable
discretion in writing is satisfactory and who has executed an agreement in form
and substance satisfactory to Agent agreeing to act as such agent), as such
Borrower's duly authorized agent for acceptance of service of legal process.
Each Borrower agrees that service of such process upon such person shall
constitute personal service of such process upon such Borrower. EACH BORROWER
HEREBY WAIVES ANY RIGHT
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IT MAY HAVE TO TRANSFER OR CHANGE THE VENUE OF ANY LITIGATION BROUGHT AGAINST
SUCH BORROWER BY AGENT OR ANY LENDER IN ACCORDANCE WITH THIS PARAGRAPH.
17. INTENTIONALLY OMITTED.
18. HEADINGS OF SUBDIVISIONS. The headings of subdivisions in this
Agreement are for convenience of reference only, and shall not govern the
interpretation of any of the provisions of this Agreement.
19. POWER OF ATTORNEY. Each Borrower acknowledges and agrees that its
appointment of Agent as its attorney and agent-in-fact for the purposes
specified in this Agreement is an appointment coupled with an interest and shall
be irrevocable until all of the Liabilities are paid in full and this Agreement
is terminated.
20. WAIVER.
(a) EACH BORROWER HEREBY WAIVES ALL RIGHTS TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING WHICH PERTAINS DIRECTLY OR INDIRECTLY TO THIS AGREEMENT, ANY OF
THE OTHER AGREEMENTS, THE LIABILITIES, THE COLLATERAL, ANY ALLEGED TORTIOUS
CONDUCT BY SUCH BORROWER OR AGENT OR ANY LENDER OR WHICH, IN ANY WAY, DIRECTLY
OR INDIRECTLY, ARISES OUT OF OR RELATES TO THE RELATIONSHIP BETWEEN SUCH
BORROWER AND AGENT OR ANY LENDER. IN NO EVENT SHALL AGENT OR ANY LENDER BE
LIABLE FOR LOST PROFITS OR OTHER SPECIAL OR CONSEQUENTIAL DAMAGES.
(b) Each Borrower hereby waives demand, presentment, protest and notice of
nonpayment, and further waives the benefit of all valuation, appraisal and
exemption laws.
(c) EACH BORROWER HEREBY WAIVES ALL RIGHTS TO NOTICE AND HEARING OF ANY
KIND PRIOR TO THE EXERCISE BY AGENT OF ITS RIGHTS TO REPOSSESS THE COLLATERAL OF
SUCH BORROWER WITHOUT JUDICIAL PROCESS OR TO REPLEVY, ATTACH OR LEVY UPON SUCH
COLLATERAL WITHOUT PRIOR NOTICE OR HEARING.
(d) Agent's or Lender's failure, at any time or times hereafter, to require
strict performance by Borrowers of any provision of this Agreement or any of the
Other Agreements shall not waive, affect or diminish any right of Agent and
Lenders thereafter to demand strict compliance and performance therewith. Any
suspension or waiver by Agent and Lenders of an Event of Default under this
Agreement or any default under any of the Other Agreements shall not suspend,
waive or affect any other Event of Default under this Agreement or any other
default under any of the Other Agreements, whether the same is prior or
subsequent thereto and whether of the same or of a different kind or character.
No delay
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<PAGE>
on the part of Agent or Lenders in the exercise of any right or remedy under
this Agreement or any Other Agreement shall preclude other or further exercise
thereof or the exercise of any right or remedy. None of the undertakings,
agreements, warranties, covenants and representations of Borrowers contained in
this Agreement or any of the Other Agreements and no Event of Default under this
Agreement or default under any of the Other Agreements shall be deemed to have
been suspended or waived by Agent and Lenders unless such suspension or waiver
is in writing, signed by a duly authorized officer of Agent and Lenders and
directed to Borrowers specifying such suspension or waiver.
21. INCOME TAXATION.
(a) In the event that at any time (whether before or after payment of the
ESOP Term Note of an Indemnitee) a Gross-Up Event shall occur with respect to
such Indemnitee, CDS will pay to such Indemnitee in immediately available funds
at the time or times specified in subparagraph (c) below:
(i) an amount equal to the excess of
(A) the amount of interest which would have been payable on the unpaid
principal amount of such Indemnitee's interest in such Indemnitee's ESOP Term
Note during the Additional Payment Period if such ESOP Term Note had borne
interest at a rate per annum equal to the Lending Rate, over
(B) the amount of interest actually paid or payable under the terms of
such Indemnitee's ESOP Term Note during the Additional Payment Period; and
(ii) the sum of
(A) the amount of any interest and of any penalties, additions to tax and
additional amounts payable under Chapter 68 of the Code (such penalties,
additions to the tax and additional amounts being referred to as "Additions to
Tax") which are deductible for federal income tax purposes and which are payable
to the United States as a consequence of the failure to include more than fifty
percent (50%) of the interest referred to in subparagraph (i)(B) above in the
Federal Gross Income of such Indemnitee; and
(B) an amount which, after giving effect to all taxes attributable to the
inclusion of such amount in the gross income of such Indemnitee under the laws
of any federal, state or local governmental or other taxing authority (such
taxes to be calculated at the maximum statutory rate applicable to such
Indemnitee, after taking into account deductions attributable to imposition of
state and local taxes), shall be equal to the amount of any interest or
Additions to Tax which are not deductible for federal income tax purposes and
which are payable to the United States as a consequence of the failure to
include more than fifty percent (50%) of the interest referred to in
subparagraph (i)(B) above in the Federal Gross Income of such Indemnitee.
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(b) In the event that at any time (whether before or after payment of
the ESOP Term Note of an Indemnitee) a Change of Law shall occur with
respect to such Indemnitee, CDS will pay to such Indemnitee in immediately
available funds at the time or subparagraph (c)(ii) an amount with respect
to the applicable Supplemental Payment Period which, after giving effect to
all taxes attributable to the inclusion of such amount in the gross income
of such Indemnitee under the laws of any federal, state or local
governmental or other taxing authority, shall be equal to any tax related
to such Indemnitee's ESOP Term Note which arises (and for this purpose tax
arises, among other events, as a result of a reduction in any Tax
Allowance) solely as a result of such Change of Law (all such taxes to be
calculated at the maximum statutory rate applicable to such Indemnitee
after taking into account deductions attributable to the imposition of
state and local taxes).
(c) (i) Payments under subparagraph (a) attributable to the period for
which interest on the ESOP Term Note of an Indemnitee has become due and
payable shall be paid by CDS promptly on written demand by such Indemnitee,
and payments under subparagraph (a) attributable to any subsequent period
shall be payable on each date thereafter on which interest on the ESOP Term
Note is due and payable.
(ii) If CDS becomes obligated to make payments to an Indemnitee
pursuant to subparagraph (b), such Indemnitee shall notify CDS (A) of the
amount that is payable in respect of such portion of the Supplemental
Payment Period as had elapsed prior to the date such notice is given, which
sum shall be due and payable within thirty (30) days after the date of such
notice, and (B) at least annually, of the amount that will be payable on
such date or dates thereafter as set forth in such notice (each of which
shall be at least thirty (30) days after the date of such notice). The
computation of any amount payable under subparagraphs (a)(ii)(B) or (b)
shall be made in good faith by such Indemnitee and delivered to CDS, and
CDS shall have no right to examine the federal income tax returns or any
other returns, documents or records of such Indemnitee with respect
thereto.
(iii) If CDS shall fall to pay any amount payable under subparagraphs
(a) or (b) on the due date pursuant to this Paragraph, CDS shall also pay,
to the extent lawful, interest on such unpaid amount at a rate per annum
equal to the lesser of (A) the Maximum Lawful Rate and (B) the Lending
Rate, from such date until each amount is paid.
(d) (i) Each Indemnitee shall notify CDS in the event that it shall
receive any inquiry from the Internal Revenue Service (including a revenue
agent's report or notice of proposed adjustments) questioning the exemption
from Federal Gross Income of the Statutory Exclusion of the interest
accrued or received on its ESOP Term Note and shall provide CDS with all
information available to such Indemnitee with respect to such inquiry. Each
Indemnitee
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shall afford CDS an opportunity to discuss such inquiry with the Internal
Revenue Service and to make any written submissions to the Internal Revenue
Service which CDS deems desirable; provided, that if such Indemnitee shall,
in good faith and in its sole discretion, determine that the commencement
or continuance of any such discussions or submissions by CDS would extend
the audit or review of such Indemnitee's federal income tax return for any
taxable year beyond the period such audit or review would require but for
the commencement or continuance of such discussion or submission then, upon
receipt of notice by CDS from such Indemnitee to such effect, CDS shall
have no further right to commence or continue such discussions or
submissions, and such Indemnitee shall have the right to cause such audit
or review to be closed.
(ii) If any Indemnitee receives a notice of deficiency that allows the
exclusion of less than the Statutory Exclusion of the interest on ESOP Term
Note from Federal Gross Income and such Indemnitee determines in its sole
discretion not to pay the deficiency, it shall promptly notify CDS of its
determination and shall, at the request of CDS, file a petition in the Tax
Court and permit CDS to control the conduct of the proceedings before the
Tax Court insofar as it relates to the exclusion of less than the Statutory
Exclusion of interest on such Indemnitee's ESOP Term Note in Federal Gross
Income. Such Indemnitee shall have sole discretion to decide whether to
prosecute an appeal from an adverse determination with respect to the
exclusion of less than the Statutory Exclusion of the interest on such
Indemnitee's ESOP Term Note from Federal Gross Income by the Tax Court or
any court to which a Tax Court decision is appealed; provided, that in the
event such Indemnitee shall determine to prosecute an appeal with respect
to any other issue, then such Indemnitee shall at the request of CDS, also
prosecute an appeal with respect to such adverse determination and shall
permit CDS to control the conduct of the proceedings insofar as it relates
to the exclusion of less than the Statutory Exclusion of the interest on
such Indemnitee's ESOP Term Note from Federal Gross Income.
(iii) If CDS shall make payment to any Indemnitee pursuant to
subparagraph(a) hereof as a result of any event described in (i) or (ii) of
the definition of Gross-Up Event in Paragraph 1(aa), then such Indemnitee
shall, at the request of CDS, file a claim of refund with respect to the
tax attributable to the exclusion of less than the Statutory Exclusion of
the interest on such Indemnitee's ESOP Term Note from such Indemnitee's
Federal Gross Income. If any such claim shall not be allowed by the
Internal Revenue Service, such Indemnitee shall, at the request of CDS,
promptly commence a suit for refund (in a forum chosen by such Indemnitee
in its sole discretion). In the event of an adverse determination in such
suit on the exclusion of less than the Statutory Exclusion of the interest
on such Indemnitee's ESOP Term Note from Federal Gross Income, such
Indemnitee shall have sole discretion to decide whether to
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prosecute an appeal from such adverse determination, except that, in the event
(A) the pleadings in the suit for refund do not involve any issue other than the
exclusion of less than the Statutory Exclusion of the interest on such
Indemnitee's ESOP Term Note from Federal Gross Income, or (B) the pleadings in
the suit for refund involve one or more issues other than the exclusion of less
than the Statutory Exclusion of the interest on such Indemnitee's ESOP Term Note
from Federal Gross Income and such Indemnitee determines to prosecute an appeal
with respect to any such other issue, then such Indemnitee shall, at the request
of CDS, prosecute an appeal with respect to such adverse determination. Such
Indemnitee shall permit CDS to control the conduct of proceedings insofar as it
relates to the exclusion of less than the Statutory Exclusion of the interest on
such Indemnitee's ESOP Term Note from Federal Gross Income.
(iv) For all purposes of this subparagraph(d), the right of CDS to
control any proceeding shall mean the right (subject to the approval of
counsel for Indemnitee, which approval shall, taking into account the best
interest of Indemnitee, the timeliness of any request made by CDS and all
other relevant facts and circumstances, not be unreasonably withheld) to
control the submission and content of documentation, protests, memoranda of
fact and law and briefs, the conduct of oral arguments or presentations,
the selection of witnesses and the negotiation of stipulations of facts,
all as may be appropriate in proceedings before the Internal Revenue
Service, the tax Court, Claims Court, a federal District Court or any court
of appellate jurisdiction, as the case may be.
(v) As a condition precedent to the exercise by CDS of the rights of
contest granted to it under this subparagraph, CDS shall deliver to
Indemnitee an opinion of counsel satisfactory to such Indemnitee to the
effect that a meritorious claim exists with respect to the exemption of the
Statutory Exclusion of the interest on such Indemnitee's ESOP Term Note
from Federal Gross Income. In addition, CDS shall reimburse and hold
harmless such Indemnitee on an after-tax basis for all costs, and expenses
incurred in connection with any contest including, without limitation, all
fees and disbursements of attorneys, accountants and expert witnesses.
(e) If CDS shall make any payment to an Indemnitee pursuant to subparagraph
(a) and such Indemnitee shall thereafter, as a result of the exercise by CDS of
the rights of contest granted to it under subparagraph (d), receive a refund or
credit of tax pursuant to Section 6402 of the Code in respect of a claim that
for a certain period no more than one hundred percent (100%) minus the Statutory
Exclusion of the interest on such Indemnitee's ESOP Term Note was includable in
its Federal Gross Income, such Indemnitee shall pay to CDS (i) an amount which
bears the same proportion to the amount previously paid to such Indemnitee under
subparagraph (a)(i) with respect to the Interest to which such
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claim related (the "Disputed Interest") as such refund or credit received
(exclusive of interest) bears to the amount of tax paid by such Indemnitee with
respect to such Disputed Interest and with respect to which amounts were paid to
such Indemnitee under subparagraph (a)(i) (exclusive of interest), plus (ii) the
amount of any refund or credit received (exclusive of interest) of Additions to
Tax paid with respect to such Disputed Interest and which amount to such
Indemnitee under subparagraph (a) (i), plus (iii) interest on the amounts
described in (i) and (ii) above at a rate or rates equal to the rate or rates of
interest, if any, received on such amounts.
If CDS shall make any payment to an Indemnitee pursuant to subparagraph (b)
and, if in the federal income tax return of such Indemnitee or after any
adjustment of such return, the amount of the Tax Allowance or other amount by
reference to which the amount of the supplemental payments is determined differs
from the amount used to compute the amount of such payment, CDS promptly on
written demand shall pay to such Indemnitee any additional amount computed
pursuant to subparagraph (b), and Indemnitee shall refund to CDS any excess
amount id pursuant to subparagraph (b) attributable to such differences.
(f) If Indemnitee determines, in good faith after consultation with
counsel, that there is a substantial likelihood for any reason whatsoever
(including, without limitation, a Change of Law, issuance of temporary, proposed
or final Treasury Regulation, issuance of an Internal Revenue Service ruling, a
court decision or an actual or proposed prepayment) that it might be required to
include more than fifty percent (50%) of the interest on such Indemnitee's ESOP
Term Note in its Federal Gross Income, such Indemnitee shall be entitled to
request a Qualifying Opinion of Counsel with respect to such interest for a
period commencing with the date of issuance of such Indemnitee's ESOP Term Note
or for any lesser period specified in such Indemnitee's request.
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IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as
of the 3rd day of October, 1997.
C.D. SMITH DRUG COMPANY, as a
Borrower
By /s/ Robert C. Farley
---------------------
Title Chairman
--------
GENERAL DRUG COMPANY, as a
Borrower
By /s/ Robert C. Farley
--------------------
Title Chairman
--------
SBS PHARMACEUTICALS, INC., as a
Borrower
By /s/ Robert C. Farley
--------------------
Title Chairman
--------
JAMES BRUDNICK COMPANY, INC., as a Borrower
By /s/ Robert C. Farley
--------------------
Title Chairman
--------
LASALLE BUSINESS CREDIT, INC., as Agent and a Lender
By Catherine Saccani
-----------------
Title Vice President
--------------
Maximum Loan Amount: $32,964,466.61
HELLER FINANCIAL, INC., as a Lender
By Elizabeth Geannopulos
----------------------------------
Title Vice President
--------------
Maximum Loan Amount: $30,000,000
AMERICAN NATIONAL BANK &
TRUST COMPANY OF CHICAGO, as a
Lender
By /s/ M. Martha Gaskin
----------------------------------
Title Vice President
--------------
Maximum Loan Amount: $30,000,000
44
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EXHIBIT A - SPECIAL PROVISIONS
Attached to and made a part of that certain Loan and Security Agreement of
even date herewith ("Agreement") among LASALLE BUSINESS CREDIT, INC., a Delaware
corporation (in its individual capacity, ("LaSalle"), for itself, as a Lender,
and as Agent for all Lenders that are now or hereafter parties to this
Agreement, HELLER FINANCIAL, INC., a Delaware corporation (in its individual
capacity, "Heller"), as a Lender, AMERICAN NATIONAL BANK & TRUST COMPANY OF
CHICAGO, a national banking association (in its individual capacity, "ANB"), as
a Lender, C.D. SMITH DRUG COMPANY, a Missouri corporation ("CDS"), as a
Borrower, GENERAL DRUG COMPANY, an Illinois corporation ("GDC"), as a Borrower,
SBS PHARMACEUTICALS, INC., a Delaware corporation ("SBS"), as a Borrower, and
JAMES BRUDNICK COMPANY, INC., a Delaware corporation ("JBC"), as a Borrower.
CREDIT TERMS
- ------------
1. LOAN LIMIT: Each Lender, severally and not jointly, agrees to make its Pro
Rata Share of such Loans to each Borrower as such Borrower shall request
from time to time, in accordance with the terms and conditions hereof and
in the Agreement up to the sum of the following sublimits (the "Loan
Limit"):
(a) Up to eighty-five percent (85%) of the face amount (less maximum
discounts, credits and allowances which may be taken by or granted to
Account Debtors in connection therewith) of such Borrower's Eligible
Accounts; plus
(b) Up to seventy percent (70%) of the lower of the cost or market value
(on a FIFO basis) of such Borrower's Eligible Inventory consisting of
finished goods (provided, that during the period commencing on the
date hereof and ending October 1, 1998, in addition to the foregoing,
up to an additional five percent (5%) (the "Additional Inventory
Advance Rate") of the lower of cost or market value (on an FIFO basis)
of such Borrower's Eligible Inventory consisting of finished goods;
provided, further, that the Additional Inventory Advance Rate shall
reduce by one (1) percentage point on the first day of each month
commencing May 1, 1998 until reduced to zero); plus
(c) (i) a term loan in the original principal amount of Four Hundred
Sixty-Four Thousand Four Hundred Sixty-Six and 61/100 Dollars
($464,466.61), amortized over a period of forty-eighty (48) months at
Twelve Thousand Eighty-Nine and 33/100 Dollars ($12,089.33) per month
plus a final payment of all remaining amounts due. The term loan shall
be evidenced by, and repayable in accordance with, the ESOP Term
Notes; plus
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(ii) a term loan in the original principal amount of One Million
Dollars ($1,000,000), amortized over a period of sixty (60) months at
Sixteen Thousand Six Hundred Sixty-Seven Dollars ($16,667) per month
plus a final payment of all remaining amounts due. The term loan shall
be evidenced by, and repayable in accordance with, the Equipment Term
Notes; plus
(iii) a term loan in the original principal amount of Nine Hundred
Thousand Dollars ($900,000), amortized over a period of one hundred
eighty (180) months at Five Thousand Dollars ($5,000) per month plus a
final payment of all remaining amounts due and a term loan in the
original principal amount of Six Hundred Thousand Dollars ($600,000),
amortized over a period of one hundred eighty (180) months at Three
Thousand Three Hundred Thirty-Three and 33/100 Dollars ($3,333.33) per
month plus a final payment of all remaining amounts due. The term
loans shall be evidenced by, and repayable in accordance with, the
Real Estate Term Notes; minus
(d) Such reserves as Agent elects, in its sole discretion, to establish
from time to time including, without limitation, a reserve for
outstanding principal amount of the ESOP Term Note;
provided, that (i) the aggregate outstanding Loans to Borrowers advanced
pursuant to Paragraphs (1)(a) and (1)(b) hereof shall not exceed at any time an
amount equal to Ninety Million Dollars ($90,000,000), (ii) the aggregate
outstanding Loans to Borrowers advanced pursuant to Paragraph (1)(b) hereof
shall not exceed at any time an amount equal to Seventy Million Dollars
($70,000,000), (iii) the aggregate outstanding Loans to Borrowers advanced
pursuant to the proviso in Paragraph (1)(b) shall not exceed at any time an
amount equal to Four Million Dollars ($4,000,000), (iv) the Loans advanced
pursuant to Paragraphs (1)(c) of this Exhibit A shall only be advanced to CDS
(except the term loan in the original principal amount of Six Hundred Thousand
Dollars ($600,000) described in paragraph (1)(c)(iii) which shall be advanced to
GDC), (iv) the aggregate outstanding Loans to any Borrower (other than CDS and
GDC) shall not exceed the borrowing availability of such Borrower under
Paragraphs (1)(a) and (1)(b), the aggregate outstanding loans to GDC shall not
exceed the borrowing availability of GDC under Paragraphs 1(a) and 1(b) and the
term loan to GDC described in Paragraph (1)(c)(iii) and the aggregate
outstanding Loans to CDS shall not exceed the borrowing availability of CDS
under Paragraphs (1)(a) and (1)(b) and the term loan to CDS described in
Paragraph (1)(c)(iii) and (v) the aggregate outstanding Loans and Letters of
Credit to Borrowers shall in no event exceed Ninety-Two Million Nine Hundred
Sixty-Four Thousand Four Hundred Sixty-Six and 61/100 Dollars ($92,964,466.61)
(the "Maximum Loan Limit").
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2. LETTERS OF CREDIT:
(a) Subject to the terms and conditions of this Agreement, including this
Exhibit A and the Other Agreements, during the Original Term or any
Renewal Term, Agent may, in its sole discretion, from time to time,
request that L/C Bank issue, upon a Borrower's request, documentary
and standby letters of credit for the account of such Borrower,
provided that the aggregate undrawn face amount of all such Letters of
Credit issued on behalf of all Borrowers shall at no time exceed Five
Million Dollars ($5,000,000). The undrawn face amount of each
outstanding standby Letter of Credit for the account of a Borrower
shall automatically reduce, dollar for dollar, the amount which such
Borrower may borrow based upon the Loan Limit and the undrawn face
amount of each outstanding documentary Letter of Credit for the
account of a Borrower shall automatically reduce, by an amount equal
to thirty percent (30%) of such Letter of Credit, the amount which
such Borrower may borrow based upon the Loan Limit. Payments made by
Agent or Lenders to any Person on account of any Letter of Credit
shall constitute Loans hereunder. At no time shall the aggregate of
direct Loans by Agent and Lenders to Borrowers plus the contingent
liability of Lenders under the outstanding Letters of Credit be in
excess of the Loan Limit.
(b) Each Borrower agrees to pay to the L/C Bank, on demand by the L/C
Bank, the L/C Bank's normal and customary administrative charges in
effect, from time to time, for issuing and administering any Letters
of Credit for the account of such Borrower and if not so paid each
Lender shall, without regard to any other provision of this Agreement
or any of the Other Agreements, any defense that a Borrower may have
to its obligation to pay the L/C Bank in connection with such charges
or any defense any Lender may have in connection with the
participation described in subsection (d) below in connection with any
Letter of Credit, pay the Issuing Bank for such Lender's Pro Rata
Share of such charges, and any payments so made by Lenders to Issuing
Bank shall be deemed to be Loans. Each Borrower further agrees to pay
Agent, for the benefit of Lenders, a letter of credit fee equal to one
percent (1%) per annum of the daily average of the aggregate undrawn
face amount of the outstanding Letters of Credit for the account of
such Borrower which letter of credit fee shall be paid to Agent
monthly in arrears on each date that interest is due hereunder (but in
no event shall the letter of credit fee applicable to any Letter of
Credit be less than One Hundred Fifty Dollars ($150)).
(c) Each Borrower agrees to reimburse the L/C Bank, on demand by the L/C
Bank, for each payment made by the L/C Bank under or pursuant to any
Letter of Credit for the account of such Borrower and, if not so
reimbursed, each Lender shall, without regard to any other provision
of this Agreement or any of the Other Agreements, any defense that
Borrower may have to its obligation to reimburse the L/C Bank in
connection with such payment or any defense any Lender may have in
connection with such payment or any defense any Lender may have in
connection with the
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participation described in subsection (d) below in connection with any
Letter of Credit, reimburse the Issuing Bank for such Lender's Pro
Rata Share of such payment, and any payments so made by Lenders to
Issuing Bank shall be deemed to be Loans. Agent may provide for the
payment of any reimbursement obligations and any interest accrued
thereon by advancing the amount thereof to the L/C Bank on behalf of
the applicable Borrower as a Loan.
(d) Immediately upon the issuance of a Letter of Credit in accordance with
this Agreement, each Lender shall be deemed to have irrevocably and
unconditionally purchased and received from the Issuing Bank, without
recourse or warranty, an undivided interest and participation therein
to the extent of such Lender's Pro Rata Share (including, without
limitation, all obligations of Borrowers with respect thereto). Each
Borrower hereby indemnifies Agent and each Lender against any and all
liability and expense it may incur in connection with any Letter of
Credit for the account of such Borrower and agrees to reimburse Agent
and Lenders for any payment made by Agent or Lenders to the L/C Bank,
except for any liability incurred or payment made as a result of
Agent's or Lenders' gross negligence or willful misconduct.
3. INTENTIONALLY OMITTED.
4. INTEREST RATES: Subject to the terms and conditions set forth below, the
Loans made pursuant to Paragraph (1)(c)(i) of this Exhibit A shall bear
interest at the publicly announced prime rate of LaSalle National Bank of
Chicago, Illinois ("Bank") (which is not intended to be Bank's lowest or
most favorable rate in effect at any time) (the "Prime Rate") in effect
from time to time minus one-half of one percent (0.5%), and the Loans made
pursuant to Paragraph 1(a), (b), (c)(ii) and (c)(iii)) shall bear interest
at the per annual rate of interest set forth in subsection (a) or (b)
below:
(a) The Prime Rate in effect from time to time, payable on the last
Business Day of each month in arrears.
(b) The "Applicable Margin" (as defined below), in effect at such time, in
excess of the per annum rate of interest at which U.S. dollar deposits
of an amount comparable to the amount of the Loans and for a period
equal to the relevant Interest Period (as hereinafter defined) are
offered generally to Agent (rounded upward necessary to the nearest
1/16 of 1.00%) in the London Interbank Eurodollar market at 11:00 a.m.
(London time) two (2) Business Days prior to the commencement of each
Interest Period ("LIBOR"), such rate to remain fixed for such Interest
Period. "Interest Period" shall mean any continuous period of thirty
(30), sixty (60) or ninety (90) days, as selected from time to time by
a Borrower by irrevocable notice (in writing, by telex, telegram or
cable) given to Agent before 12:00 noon, Chicago time, not less than
three (3) Business Days prior to the first day of each respective
Interest Period (any notice received by Agent after 12:00 noon,
Chicago time, will
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be deemed received on the immediately succeeding Business Day)
commencing on the date hereof, provided, that: (i) each such period
occurring after such initial period shall commence on the day on which
the Immediately preceding period expires; (ii) the final Interest
Period shall be such that its expiration occurs on or before the end
of the Original Term or any Renewal Term; and (iii) if for any reason
a Borrower shall fail to timely select a period, then such Loans shall
continue as, or revert to, Prime Rate Loans. "Applicable Margin" shall
initially mean one hundred seventy-five (175) basis points; provided,
that the Applicable Margin shall be reduced to one hundred fifty (150)
basis points (i) if an IPO is consummated, or (ii) following Agent's
receipt of CDS's financial statements for any twelve (12) month period
ending on or after September 30, 1998, which demonstrate that CDS's
consolidated net income and cash flow exceed its budgeted consolidated
net income and cash flow for such period calculated in a manner
acceptable to Agent and pursuant to budgets approved by Agent. In the
event such financial statements are not audited and such financial
statements are subsequently adjusted such that CDS's consolidated net
income and cash flow do not exceed budgeted consolidated net income
and cash flow, Applicable Margin shall be increased to one hundred
seventy-five (175) basis points.
Interest on LIBOR Rate Loans shall be payable monthly in arrears the
last Business Day of each month. After Agent receives a notice from a
Borrower of the conversion or continuation of any LIBOR Rate Loan,
Agent shall provide a copy of such notice to each Lender before 3:00
p.m., Chicago time, on the date such notice is deemed given to Agent.
The rate of interest with respect to Prime Rate Loans increase or
decrease by an amount equal to each increase or decrease in the Prime
Rate effective on the effective date of each such change in the Prime
Rate.
Upon the occurrence of an Event of Default, and the continuance
thereof, each Loan shall bear interest at the rate of two percent (2%)
per annum in excess of the interest rate otherwise payable thereon,
which interest shall be payable on demand. All interest shall be
calculated upon the basis of a 360-day year, for the actual number of
days elapsed.
5. FEES AND CHARGES:
(a) Closing Fee: A closing fee, payable on the effective date of the Loans
herein, in the amount of one-half percent (0.5%) of the Maximum Loan
Limit.
(b) Unused Line Fee: An unused line fee of one-fifth of one percent (0.2%)
per annum (computed on the basis of a year of three hundred sixty
(360) days for the actual number of days elapsed) of the amount by
which the Maximum Loan Limit
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<PAGE>
exceeds the average monthly balance of the Loans and face amount of
outstanding Letters of Credit, payable monthly in arrears, on the
first day of each month.
(c) Agency Fee: An agency fee equal to Ten Thousand Dollars ($10,000) per
month, payable solely to Agent monthly in arrears on the first day of
each month.
(d) Prepayment Fee: Notwithstanding the provisions of Paragraph 9 of the
Agreement, if Borrowers elect to terminate this Agreement prior to the
termination date hereof, Borrowers shall pay to Agent, for the benefit
of Lenders, a prepayment fee equal to: (i) three percent (3%) of the
Maximum Loan Limit if this Agreement is terminated during the first
year of the Original Term; and (ii) two percent (2%) of the Maximum
Loan Limit if this Agreement is terminated during the second year of
the Loan Agreement; and (iii) one percent (1%) of the Maximum Loan
Limit if this Agreement is terminated during the third year of the
Original Term or during any Renewal Term; provided, that if pre-
payment is the result of an IPO and Borrowers do not obtain a secured
credit facility on or before October 3, 2000, no prepayment fee shall
be payable; provided, further, that if the prepayment is the result of
an IPO and in connection therewith Borrowers obtain a secured credit
facility (except for a secured credit facility from all the then
current Lenders in accordance With their then Pro Rata Shares). the
fee shall be one-half of one percent (0.5%) of the Maximum Loan Limit.
6. ENVIRONMENTAL AUDITS: Agent and Lenders rights under Paragraph 11(d) of the
Agreement shall include, without limitation, the night to cause
environmental audits of a Borrower's properties to be conducted from time
to time by environmental auditors satisfactory to Agent in its sole
reasonable judgment.
7. RESTRICTION ON MANAGEMENT FEES AND OTHER COMPENSATION: In addition to the
restrictions contained in Paragraph 11(1) of the Agreement, no Borrower
shall (i) pay any management or consulting fees to any Persons, except for
consulting fees in the aggregate of One Hundred Fifty Thousand Dollars
($150,000) per annum, or make any loan to any Person (except travel
advances made to employees in the ordinary course of business and loans to
employees not exceeding Seventy-Five Thousand Dollars ($75,000) in the
cumulative aggregate during the Original or any Renewal Term), (ii) pay
compensation to any employees covered by the Employment Agreements in
excess of the compensation set forth in such Employment Agreements as in
effect on the date hereof, subject to review of employment agreements, or
(iii) pay annual compensation, whether as salary or otherwise (except for
incentive compensation), to directors or officers of Borrowers (other than
those officers and directors covered by the Employment Agreements) in
excess of one hundred twenty percent (120%) of the aggregate compensation
in effect for those Persons on the date of this Agreement; provided, that
no incentive compensation for such officers and directors, whether in the
form of bonuses or otherwise, shall be granted without the prior written
approval of Requisite Lenders.
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8. CHECKING ACCOUNT PROVISIONS: CDS shall maintain its general checking
account with Bank. Normal charges shall be assessed thereon. Although no
compensating balance is required, CDS must keep monthly balances in order
to merit earnings credits which will cover Bank's service charges for
demand deposit account activities. The other Borrowers shall maintain
banking relations with financial institutions acceptable to Agent.
9. NET WORTH: Notwithstanding the provisions of Paragraph 11(o) of the
Agreement, Borrowers shall maintain at all times a minimum Net Worth
(calculated on a FIFO basis) equal to the greater of (A) ninety percent
(90%) of Net Worth as of the date hereof (after giving effect to the
Acquisition) and (B) Fourteen Million Dollars ($14,000,000), such greater
amount to be increased, effective as of the close of each fiscal quarter of
CDS, by an amount equal to fifty percent (50%) of CDS's consolidated net
after tax fiscal year-to-date profit (but not decreased for losses) for the
fiscal period (i.e. quarter, half-year) then ending.
10. INTEREST COVERAGE RATIO: Borrowers shall maintain an Interest Coverage
Ratio of not less than 1.50 to 1.00 measured for the twelve (12) month
period ending on the last day of each fiscal quarter, beginning with the
fiscal quarter ending February 28, 1998 (provided, that for the fiscal
quarters ending February 28, 1998, May 31, 1998, and August 31, 1998,
Interest Coverage Ratio shall be calculated for the period commencing
December 1, 1997 and ending on the last day of such fiscal quarter). For
purposes of this Paragraph, the aggregate annual amount of all ESOP
contribution expenses shall be excluded from the calculation for every
fiscal quarter.
11. DEBT SERVICE COVERAGE RATIO: Borrowers shall maintain a Debt Service
Coverage Ratio of not less than 1.25 to 1.00 measured for the twelve (12)
month period ending on the last day of each fiscal quarter, beginning with
the fiscal quarter ending February 28, 1998 (provided, that for the fiscal
quarters ending February 28, 1998, May 31, 1998, and August 31, 1998, Debt
Service Coverage Ratio shall be calculated for the period commencing
December 1, 1997 and ending on the last day of such fiscal quarter). For
purposes of this Paragraph, the aggregate annual amount of all ESOP
contribution expenses shall be excluded from the calculation for every
fiscal quarter.
12. ACQUISITION REPRESENTATION
(a) The Acquisition Agreement has been duly executed and delivered by the
parties thereto and the transactions contemplated thereunder have been
consummated in accordance with the terms thereof and all applicable
law. CDS has acquired and has good and marketable title to the
Partnership Interests (as defined in the Acquisition Agreement), free
and clear of all liens. Upon acquisition of the Partnership Interests
by CDS, the Partnership (as defined in the Acquisition Agreement) has
been dissolved and CDS has good and marketable title to the Shares (as
defined in the Acquisition Agreement), free and clear of all liens.
All conditions precedent set forth in the Acquisition Agreement have
been satisfied or
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<PAGE>
waived (but if waived by CDS, CDS has disclosed such waiver in writing
to Agent).
(b) All actions and proceedings required by the Acquisition Agreement and
applicable law (including compliance with the Hart-Scott-Rodino Anti-
Trust Improvements Act of 1976, as amended) have been taken.
(c) No governmental authority has issued any injunction, restraining order
or other order which prohibits consummation of the transactions
described in the Acquisition Agreement and no governmental or other
action or proceeding has been commenced or, to the best knowledge of
CDS, threatened, seeking any injunction, restraining order or other
order which seeks to void or otherwise modify the transactions
described in the Acquisition Agreement.
13. CAPITAL EXPENDITURES: Borrowers shall not make Capital Expenditures in
excess of Six Hundred Thousand Dollars ($600,000) for the period from
October 1, 1997 through February 28, 1998 or in excess of One Million Two
Hundred Fifty Thousand Dollars ($1,250,000) in any fiscal year starting
with CDS's 1999 fiscal year which begins on March 1, 1998.
14. OWNERSHIP: The ESOP and Robert C. Farley shall at all times individually
own, on a fully diluted basis, not less than sixty percent (60%) and
three and 15/100ths percent (3.15%), respectively, of the outstanding
capital stock (or any other equity securities) of CDS, which percentage, in
the case of the ESOP, shall be automatically reduced in accordance with any
purchase, retirement or redemption of such stock out of the ESOP by any
participant or beneficiary in accordance with the terms of the ESOP or
applicable law.
CONDITIONS TO CLOSING
- ---------------------
15. ADDITIONAL CONDITIONS TO CLOSING: Agent and Lenders shall be under no
obligation to consummate the transactions contemplated by this Agreement
until each of the conditions listed in this Paragraph 15 has been
satisfied. Whenever a condition contained herein requires delivery of an
agreement or other document to Agent and Lenders, each such agreement or
other document shall be in form and substance satisfactory to Agent and
Lenders in their sole discretion.
(a) Securities and Promissory Note as Collateral: CDS shall collaterally
assign to Agent (i) no less than forty-two thousand six hundred
twenty (42,620) shares of common stock of CDS pledged to CDS by C.D.
Smith Drug Company Employee Stock Ownership Plan and Trust (the
"ESOP") pursuant to a Third Amended and Restated Security Agreement
between CDS and the ESOP dated October 3, 1997, (ii) the Third Amended
and Restated Promissory Note from the ESOP to CDS dated October 3,
1997, in the original principal amount of Four Hundred Sixty-four
Thousand Four Hundred Sixty-Six 61/100 Dollars ($464,466.61), (iii)
the
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Third Amended and Restated Security Agreement between CDS and the ESOP
dated October 3, 1997, and (iv) the Third Amended and Restated Secured
Credit Agreement between CDS and the ESOP dated October 3, 1997, and
shall cause to be executed and delivered to Agent such documents as
Agent shall require to effectuate such assignment including, but not
limited to, a collateral assignment agreement together with all
certificates evidencing the securities so pledged and stock powers
relative thereto, executed in blank, and the original of the Third
Amended and Restated Promissory Note.
(b) Guaranty: Each Borrower shall cause to be executed in favor of Agent
and delivered to Agent its Continuing Unconditional Guaranty of any
and all indebtedness of the other Borrowers to Agent and Lenders.
(c) Excess Availability: Borrowers shall have availability Pursuant to
Paragraph 1 of this Exhibit A which at the time of disbursement of the
Loans exceeds by at least Ten Million Dollars ($10,000,000) the amount
of the initial disbursement of such Loans, deeming all debts of
Borrower current on a pro forma basis.
(d) Attorney's Opinion Letter: Borrowers shall cause to be executed and
delivered to Agent an Attorney's Opinion Letter concerning, among
other things, the authorization for, validity of and authenticity of
documents memorializing, the financing transaction the subject hereof.
(e) Insurance Binders: Borrowers shall provide Agent with originals or
certified copies of either the insurance policies covering the
Collateral, as set forth in Section 11 (e) of the Agreement, or
binders for same.
(f) Missouri Real Property as Collateral: As additional security for the
payment of all Loans now or in the future made by Lenders to Borrowers
and for the payment or other satisfaction of all other Liabilities,
CDS shall convey, mortgage, assign, transfer and pledge to Agent, for
the benefit of Agent and Lenders, that certain real property commonly
known as 3907 South 48th Terrace, St. Joseph Missouri 64503 ("Missouri
Property"). In connection therewith, CDS shall execute such
documentation with respect to each parcel as Agent, in its sole
discretion, deems necessary, including, without limitation, a Deed of
Trust or similar instrument. CDS shall also provide Agent with a copy
of all leases, if any, relative to said Missouri Property. Borrower
shall furnish Agent (i) a current ALTA survey of the Missouri Property
and certified to both Agent on behalf of Lenders and the title
insurance company, setting forth: (a) all easements, nights of way and
other encumbrances and matters of record affecting or appurtenant to
the Missouri Property; (b) the established building line(s) and side
yard line(s), if any; (c) the line of the street or streets abutting
the Missouri Property or any portion thereof; (d) any and all
encroachments (and the extent thereof in feet and inches) upon the
Missouri Property or any easement appurtenant thereto; (e) all
improvements on the Missouri
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Property; and (f) the area of the Missouri Property; and (ii) a
commitment for an ALTA Mortgagee's Policy of Title Insurance (the
"Title Policy") issued by a title insurance company acceptable to
Agent and Lenders (the "Title Company") in such amount and with such
exceptions and endorsements as Agent deems proper in its sole
discretion. CDS shall furnish evidence satisfactory to Agent that the
Missouri Property is not located in an area designated by the
Secretary of Housing and Urban Development as having special flood
hazards, or if it is located, furnish satisfactory evidence that flood
insurance is in effect.
(g) Illinois Real Property as Collateral: As additional security for the
payment of all Loans now or in the future made by Lenders to Borrowers
and for the payment or other satisfaction of all other Liabilities,
GDC and CDS shall convey, mortgage, assign, transfer and pledge to
Agent, for the benefit of Agent and Lenders, that certain real
property commonly known as 200 North Fairfield, Chicago, Illinois
60612 and 223 California, Chicago, Illinois 60612 ("Illinois
Property"). In connection therewith, GDC and CDS shall execute such
documentation with respect to each parcel as Agent, in its sole
discretion, deems necessary, including, without limitation, a Mortgage
or similar instrument. GDC and CDS shall also send the Agent with a
copy of all leases, if any, relative to said Illinois Property.
Borrower shall furnish Agent (i) a current ALTA survey of the Illinois
Property and certified to both Agent on behalf of Lenders and the
title insurance company, setting forth: (a) all easements, rights of
way and other encumbrances and matters of record affecting or
appurtenant to the Illinois Property; (b) the established building
line(s) and side yard line(s), if any; (c) the line of the street or
streets abutting the Illinois Property or any portion thereof; (d) any
and all encroachments (and the extent thereof in feet and inches) upon
the Illinois Property or any easement appurtenant thereto; (e) all
improvements on the Illinois Property; and (f) the area of the
Illinois Property; and (ii) a commitment for an ALTA Mortgagee's
Policy of Title Insurance (the "Title Policy") issued by a title
insurance company acceptable to Agent and Lenders (the "Title
Company") in such amount and with such exceptions and endorsements as
Agent deems proper in its sole discretion. GDC and CDS shall furnish
evidence satisfactory to Agent that the Illinois Property is not
located in an area designated by the Secretary of Housing and Urban
Development as having special flood hazards, or if it is located,
furnish satisfactory evidence that flood insurance is in effect.
(h) Landlord's Agreements. Borrowers shall cause to be executed and
delivered to Agent a Landlord's Agreement from each lessor of property
set forth on Exhibit B, which landlord's Agreements shall include a
copy of the relevant lease.
(i) Subordination Agreement. CDS shall cause its indebtedness to Churchill
to be subordinated to the indebtedness of CDS to Agent and Lenders on
terms acceptable
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to Agent and Lenders in their sole discretion and shall cause such
subordinated debtholder to execute and deliver to Agent a
Subordination Agreement.
(j) Acquisition: The Acquisition shall have been consummated in accordance
with the Acquisition Agreement and applicable law.
(k) Real Estate Appraisals: Agent shall have received new appraisal
reports for the Missouri Real Property and Illinois Real Property
based on acceptable evaluation methods and prepared by appraisers
acceptable to Agent, which are sufficient to the Loan describe in
Paragraph (1)(c)(iii) above.
(l) Subordinated Debt: CDS shall have received a minimum of $12,000,000 of
subordinated debt on terms and conditions acceptable to Agent and
Lenders.
(m) Environmental Report. Agent shall have received satisfactory results
of an updated environmental audit on all real estate owned by
Borrowers, conducted by an engineering firm acceptable to Agent.
(n) Stock Pledge. Each of CDS and GDC shall cause to be executed in favor
of Agent and delivered to Agent its Stock Pledge Agreement with
respect to the capital stock of the other Borrowers.
(o) Commitment Letter: All the conditions precedent set forth In the
commitment letter dated August 26, 1997 shall have been satisfied or
waived in a manner satisfactory to Agent.
16. OTHER LIBOR PROVISIONS:
(a) Subject to the provisions of this Agreement, each Borrower shall have
the option (i) as of any date, to convert all or any part of the Prime
Rate Loans to, or request that new Loans be made as, LIBOR Rate Loans
of various Interest Periods, (ii) as of the last day of any Interest
Period, to continue all or any portion of the relevant LIBOR Rate
Loans as LIBOR Rate Loans; (iii) as of the last day of any Interest
Period, to convert all of any portion of the LIBOR Rate Loans to Prime
Rate Loans; and (iv) at any time, to request new Loans as Prime Rate
Loans; provided, that Loans may not be continued as or converted to
LIBOR Rate Loans, if the continuation or conversion thereof would
violate the provisions of Paragraphs (16)(b) and (16)(c) of this
Exhibit A or if an Event of Default has occurred and is continuing.
(b) Agent's determination of LIBOR as provided above shall be conclusive,
absent manifest error. Furthermore, if Agent or any Lender determines,
in good faith (which determination shall be conclusive, absent
manifest error), prior to the commencement of any Interest Period that
(i) U.S. dollar deposits of sufficient amount and maturity for funding
the Loan are not available to Agent or any Lender in the London
Interbank Eurodollar market in the ordinary course of business, or
(ii) by
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reason of circumstances affecting the London Interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the rate of interest
to be applicable to the Loans requested by a Borrower to be LIBOR Rate
Loans or the Loans bearing interest at the rates set forth in Paragraph
(4)(b) of this Exhibit A shall not represent the effective pricing to
Lenders for U.S. dollar deposits of a comparable amount for the relevant
period (such as for example, but not limited to, official reserve
requirements required by Regulation D to the extent not given effect in
determining the rate), Agent shall promptly notify such Borrower (after
Agent is notified by any such Lender), and (x) all existing LIBOR Rate
Loans shall convert to Prime Rate Loans upon the end of the applicable
Interest Period, and (y) no additional LIBOR Rate Loans shall be made until
such circumstances are cured.
(c) If, after the date hereof, the introduction of, or any change in any
applicable law, treaty, rule, regulation or guideline or in the
interpretation or administration thereof by any governmental authority or
any central bank or other fiscal, monetary or other authority having
jurisdiction over Agent, any Lender or their respective lending offices (a
"Regulatory Change"), shall, in the opinion of counsel to Agent or any
Lender, make it unlawful for Agent or any Lender to make or maintain LIBOR
Rate Loans, then Agent shall promptly notify each Borrower and (i) the
LIBOR Rate Loans shall immediately convert to Prime Rate Loans on the last
Business Day of the then existing Interest Period or on such earlier date
as required by law and (ii) no additional LIBOR Rate Loans shall be made
until such circumstance is cured.
(d) If, for any reason, a LIBOR Rate Loan is paid prior to the last Business
Day of any Interest Period or if a LIBOR Rate Loan does not occur on a date
specified by a Borrower in its request (other than as a result of a default
by a Lender), Borrowers agree to indemnify Agents and Lenders against any
loss (including any loss on redeployment of the funds repaid), cost or
expense incurred by the Agents and Lenders as a result of such prepayment.
(e) If any Regulatory Change (whether or not having the force of law) shall (i)
impose, modify or deem applicable any assessment, reserve, special deposit
or similar requirement against assets held by, or deposits in or for the
account of or loans by, Agent or any Lender; (ii) subject Agent or any
Lender or the LIBOR Rate Loans to any tax, duty, charge, stamp tax or fee
or change the basis of taxation of payments to Agent or any Lender of
principal or interest due from Borrower to Agent and Lenders hereunder
(other than a change in the taxation of the overall net income of Agent or
any Lender); or (iii) impose on Agent or any Lender any other condition
regarding the LIBOR Rate Loans or Agent's or any Lender's funding thereof,
and Agent or any Lender shall determine (which determination shall be
conclusive, absent any manifest error) that the result of the foregoing is
to increase the cost to Agent or such Lender of making or maintaining the
LIBOR Rate Loans or to reduce the amount of principal or interest received
by the Agent or such Lender hereunder,
12
<PAGE>
then Borrowers shall pay to Agent or such Lender hereunder, on demand,
such additional amount as Agent and Lenders shall, from time to time,
determine are sufficient to compensate and indemnify Agent and Lenders
from such increased cost or reduced amount.
(f) Each request for LIBOR Rate Loans shall be in an amount not less than
One Million Dollars ($1,000,000), and in integral multiples of Five
Hundred Thousand Dollars ($500,000) thereafter.
(g) No more than five (5) LIBOR Rate Loans may be outstanding at any time.
(h) Unless otherwise specified by a Borrower, a Loans shall be Prime Rate
Loans.
17. SETTLEMENTS, DISTRIBUTIONS AND APPORTIONMENT OF PAYMENTS: On a weekly basis
(or more frequently if requested by Agent) (a "Settlement Date"), Agent shall
provide each Lender with a statement of the outstanding balance of the
Liabilities as of the end of the Business Day preceding the Settlement Date (the
"Pre-Settlement Determination Date") and the current balance of the Loans funded
by each Lender (whether made directly by such Lender to a Borrower or
constituting a settlement by such Lender of a previous Disproportionate Advance
made by Agent on behalf of such Lender to a Borrower). If such statement
discloses that such Lender's current balance of the Loans as of the Pre-
Settlement Determination Date exceeds such Lender's Pro Rata Share of the
Liabilities outstanding as of the Pre-Settlement Determination Date, then Agent
shall, one (1) Business Day after the Settlement Date, transfer, by wire
transfer, the net amount due to such Lender in accordance with such Lender's
instructions, and if such statement discloses that such Lender's current balance
of the Loans as of the Pre-Settlement Determination Date is less than such
Lender's Pro Rata Share of the Liabilities outstanding as of the Pre-Settlement
Determination Date, then such Lender shall, one (1) Business Day after the
Settlement Date, transfer, by wire transfer the net amount due to Agent in
accordance with Agent's instructions. In addition, payments actually received by
Agent With respect to the following items shall be distributed by Agent to
Lenders as follows;
(a) On the Business Day of receipt thereof by Agent, payments to be applied to
interest on the Loans shall be paid to each Lender in proportion to its Pro
Rata Share, subject to any adjustments for any Disproportionate Advance as
provided in Paragraph 2 of the Agreement so that Agent shall receive
interest on the Disproportionate Advances and Lenders shall only receive
interest on the amount of funds actually advanced by such Lender;
(b) On the Business Day of receipt thereof by Agent, payments to be applied to
the prepayment fee as provided in Paragraph 9 of the Agreement shall be
paid to each Lender in proportion to its Pro Rata Share; and
13
<PAGE>
(c) On the Business Day of receipt thereof by Agent, payments to be
applied to the Letter of Credit fee set as provided in Paragraph
(2)(b) of this Exhibit A shall be paid to each Lender in proportion to
its Pro Rata Share.
18. AGENT:
(a) Appointment of Agent:
(i) Each Lender hereby designates LaSalle as Agent to act as herein
specified. Each Lender hereby irrevocably authorizes Agent to
take such action on its behalf under the provisions of this
Agreement and the notes and any other instruments and agreements
referred to herein and to exercise such powers and to perform
such duties hereunder and thereunder as are specifically
delegated to or required of Agent by the terms hereof and thereof
and such other powers as are reasonably incidental thereto.
Except as otherwise provided herein, Agent shall hold all
Collateral and all payments of principal, Interest fees, charges
and expenses received pursuant to this Agreement or any of the
Other Agreements for the benefit of Lenders. Agent may perform
any of its duties hereunder by or through its agents or
employees.
(ii) The provisions of this Paragraph (18) are solely for the benefit
of Agent and Lenders, and no Borrower nor any other Obligor shall
have any rights as a third party beneficiary of any of the
provisions hereof. In performing its functions and duties under
this Agreement, Agent shall act solely as agent of Lenders and
does not assume and shall not be deemed to have assumed any
obligation toward or relationship of agency or trust With or for
any Obligor.
(b) Nature of Duties of Agent: Agent shall have no duties or
responsibilities except those expressly set forth in this Agreement.
Neither Agent nor any of its officers, directors, employees or agents
shall be liable for any action taken or omitted by it as such
hereunder or in connection herewith, unless caused by its or their
gross negligence or willful misconduct. The duties of Agent shall be
mechanical and administrative in nature; Agent shall not have by
reason of this Agreement a fiduciary relationship in respect of any
Lender; and nothing in this Agreement expressed or implied, is
intended to or she be so construed as to impose upon Agent any
obligations in respect of this Agreement except as expressly set forth
herein.
(c) Lack of Reliance on Agent
(i) Independently and without reliance upon Agent, each Lender, to
the extent it deems appropriate, has made and shall continue to
make (A) its own independent investigation of the financial or
other condition and affairs of
14
<PAGE>
Agent, each Obligor and any other Lender in connection with the
taking or not taking of any action in connection herewith and (B)
its own appraisal of the creditworthiness of Agent, each Obligor
and any other Lender, and, except as expressly provided in this
Agreement, Agent shall have no duty or responsibility, either
initially or on a continuing basis, to provide any Lender with
any credit or other information with respect thereto, whether
coming into its possession before the making of the Loans or at
any time or times thereafter.
(ii) Agent shall not be responsible to any Lender for any recitals,
statements, information, representations or warranties herein or
in any document, certificate or other writing delivered in
connection herewith or for the execution, effectiveness,
genuineness, validity, enforceability, collectibility, priority
or sufficiency of this Agreement or any notes or the financial or
other condition of any Obligor. Agent shall not be required to
make any inquiry concerning either the performance or observance
of any of the terms, provisions or conditions of this Agreement
or the notes, or the financial condition of any Obligor, or the
existence or possible existence of any Default or Event of
Default unless specifically requested to do so in writing by any
Lender.
(d) Certain Rights of Agent: Agent shall have the night to request
instructions from the Requisite Lenders or all Lenders, as applicable
pursuant to Paragraph 21 of this Exhibit A, by notice to each Lender.
If Agent shall request instructions from the Requisite Lenders or all
Lenders, as applicable, with respect to any act or action (including
the failure to act) in connection with this Agreement, Agent shall be
entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from the Requisite
Lenders or all Lenders, as applicable, and Agent shall not incur
liability to any Person by reason of so refraining. If Agent desires
to take action which requires the consent of all Lenders and requests
instructions from a Lender and within ten (10) days of such request a
Lender does not provide instructions objecting to such action, such
Lender shall be deemed to not prove to have consented to such action.
If such Lender objects to such action within such ten (10) day period,
Agent may (but shall not be obligated to) purchase (without the
consent of Borrowers or any Lender) such Lender's interest hereunder
within ten (10) days of such objection for a purchase price equal to
such Lender's Pro Rata Share of the Liabilities. Without limiting the
foregoing, no Lender shall have any right of action whatsoever against
Agent as a result of Agent acting or refraining from acting hereunder
in accordance with the instructions of the Requisite Lenders or all
Lenders, as applicable.
(e) Reliance by Agent. Agent shall be entitled to rely, and shall be fully
protected in relying, upon any note, writing, resolution, notice,
statement, certificate, telex, teletype or telecopier message,
cablegram, radiogram, order or other documentary,
15
<PAGE>
teletransmission or telephone message believed by it to be genuine and
correct and to have been signed, sent or made by the proper person.
Agent may consult with legal counsel (including counsel for any
Borrower with respect to matters concerning such Borrower),
independent public accountants and other experts reasonably selected
by it and shall not be liable for any action taken or omitted to be
taken by it in good faith in accordance with the advice of such
counsel, accountants or experts.
(f) Indemnification of Agent: To the extent Agent is not reimbursed and
indemnified by Borrowers, each Lender will reimburse and indemnify
Agent, in proportion to its Pro Rata Share, for and against any and
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including counsel fees and
disbursements) or disbursements of any kind or nature whatsoever which
may be imposed on, incurred by or asserted against Agent in performing
its duties hereunder, in any way relating to or arising out of this
Agreement; provided, that no Lender shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements resulting from
Agent's gross negligence or willful misconduct.
(g) Agent in its Individual Capacity: With respect to the Loans made by it
pursuant hereto, Agent shall have the same rights and powers hereunder
as any other Lender or holder of a note or participation interest and
may exercise the same as though it was not performing the duties
specified herein; and the terms "Lenders," "Requisite Lenders" or any
similar terms shall, unless the context clearly otherwise indicates,
include Agent in its individual capacity. Agent may accept deposits
from, lend money to, and generally engage in any kind of banking,
trust, financial advisor or other business with any Borrower or any
Affiliate of any Borrower as if it were not performing the duties
specified herein, and may accept fees and other consideration from any
Borrower for services in connection with this Agreement and otherwise
without having to account for the same to Lenders, to the extent such
activities are not in contravention of the terms of this Agreement.
(h) Holders of Notes: Agent may deem and treat the payee of any promissory
note as the owner thereof for all purposes hereof unless and until a
written notice of the assignment or transfer thereof shall have been
filed with Agent. Any request authority or consent of any Person who,
at the time of making such request or giving such authority or
consent, is the holder of any promissory note, shall be conclusive and
binding on any subsequent holder, transferee or assignee of such
promissory note or of any promissory note or notes issued in exchange
therefor.
(i) Successor Agent
(i) Agent may, upon five (5) Business Days' notice to Lenders and
Borrowers, resign at any time (effective upon the appointment of
a successor Agent
16
<PAGE>
pursuant to the provisions of this Paragraph (18)(i) by giving
written notice thereof to Lenders and Borrowers. Upon any such
resignation, the Lenders shall have the right, upon five (5)
days' notice, to appoint a successor Agent. If no successor Agent
shall have been so appointed by the Lenders and accepted such
appointment, within thirty (30) days after the retiring Agent's
giving of notice of resignation, then, upon five (5) days'
notice, the retiring Agent may, on behalf of Lenders, appoint a
successor Agent, which shall be a bank or a trust company or
other financial institution which maintains an office in the
United States, or a commercial bank organized under the laws of
the United States of America or of any State thereof, or any
Affiliate of such bank or trust company or other financial
institution which is engaged in the banking business, having a
combined capital and surplus of at least Fifty Million and No/100
Dollars ($50,000,000).
(ii) Upon the acceptance of any appointment as Agent hereunder by a
successor Agent, such successor Agent shall thereupon succeed to
and become vested with all the rights, powers, privileges and
duties of the retiring Agent, and the retiring Agent shall be
discharged from its duties and obligations under this Agreement.
After any retiring Agent's resignation hereunder as Agent, the
provisions of this Paragraph (18) she inure to its benefit as to
any actions taken or omitted to be taken by it while it was Agent
under this Agreement.
(j) Collateral Matters:
(i) Each Lender authorizes and directs Agent to enter into the Other
Agreements for the benefit of Lenders. Each Lender hereby agrees
that, except as otherwise set forth herein, any action taken by
the Requisite Lenders in accordance with the provisions of this
Agreement or the Other Agreements, and the exercise by the
Requisite Lenders of the powers set forth herein or therein,
together with such other powers as are reasonably incidental
thereto, shall be authorized and binding upon all Lenders. Agent
is hereby authorized on behalf of all Lenders, without the
necessity of any notice to or further consent from any Lender to
take any action with respect to any Collateral or Other
Agreements which may be necessary to perfect and maintain
perfected the security interest in and liens upon the Collateral
granted pursuant to the Other Agreements.
(ii) Agent will not, without the consent of all Lenders, which consent
shall (a) be in writing and (b) not be unreasonably withheld,
execute any release of Agent's security interest in any
Collateral except for releases relating to dispositions of
Collateral (x) permitted by this Agreement and (y) in connection
with the repayment in full of all of the Liabilities by Borrowers
and the termination of all obligations of Agent and Lenders under
this
17
<PAGE>
Agreement and the Other Agreements; provided, that Agent shall
not be required to execute any such release on terms which, in
Agent's opinion, would expose Agent to liability or create any
obligation or entail any consequence other than the release of
such liens without recourse or warranty. In the event of any
sale or transfer of any of the Collateral, Agent shall be
authorized to deduct all of the expenses reasonably incurred by
Agent from the proceeds of any such sale, transfer or
foreclosure.
(iii) Lenders hereby agree that the lien granted to Agent in any
property sold or disposed of in accordance with the provisions
of Paragraph 6 of the Agreement shall be automatically released;
provided, however that Agent's lien shall attach to and continue
for the benefit of Agent and Lenders in the proceeds and
products of such property arising from any such sale or
disposition.
(iv) To the extent, pursuant to the provisions of this Paragraph
(18)(iv), Agent's execution of a release is required to release
its lien upon any sale and transfer of Collateral which is
consented to in writing by the Requisite Lenders or all Lenders,
as applicable, and upon at least five (5) Business Days' prior
written request by a Borrower, Agent shall (and is hereby
irrevocably authorized by Lenders to) execute such documents as
may be necessary to evidence the release of the liens granted to
Agent for the benefit of Lenders herein or pursuant hereto upon
the Collateral that was sold or transferred.
(v) Agent shall have no obligation whatsoever to Lenders or to any
other Person to assure that the Collateral exists or is owned by
a Borrower or any other Obligor or is cared for, protected or
insured or that the liens granted to Agent herein or pursuant
hereto have been properly or sufficiently or lawfully created,
perfected, protected or enforced or are entitled to any
particular priority, or to exercise or to continue exercising at
all or in any manner or under any duty of care, disclosure or
fidelity any of the rights, authorities and powers granted or
available to Agent in this Paragraph (18) or in any of the Other
Agreements, it being understood and agreed that in respect of
the Collateral, or any act, omission or event related thereto,
Agent may act in any manner it may deem appropriate, in its sole
discretion, given Agent's own interest in the Collateral as one
of Lenders and that Agent shall have no duty or liability
whatsoever to Lenders, except for its gross negligence or
willful misconduct.
(k) Actions with Respect to Defaults: In addition to Agent's right to take
actions on its own accord as permitted under this Agreement, Agent
shall take such action with respect to an Event of Default as shall be
directed by the Requisite Lenders or all Lenders, as applicable
pursuant to Paragraph 21 of this Exhibit A; provided, that
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<PAGE>
until Agent she have received such directions, Agent may (but shall
not be obligated to) take such action, or refrain from taking such
action, with respect to such Event of Default as it shall deem
advisable and in the best interests of Lenders.
(l) Delivery of Information: Agent shall not be required to deliver to any
Lender originals or copies of any documents, instruments, notices,
communications or other information received by Agent from any
Borrower or any other Obligor, the Requisite Lenders, any Lender or
any other Person under or in connection with this Agreement or any
Other Agreement except (i) as specifically provided in this Agreement
or any Other Agreement, (ii) Agent shall deliver to Lenders within
five (5) days of receipt thereof from Borrower the reports referred to
in Paragraph 8 of the Agreement (except those reports to be delivered
on a daily basis which shall only be delivered to a Lender at its
request), and (iii) as specifically requested from time to time in
writing by any Lender with respect to a specific document, instrument,
notice or other written communication received by and in the
possession of Agent at the time of receipt of such request and then
only in accordance with such specific request.
(m) Demand: Agent shall make demand for repayment by Borrowers of all
Liabilities owing by Borrowers hereunder, after the occurrence of an
Event of Default, upon the written request of the Requisite Lenders.
Agent shall make such demand in such manner as it deems appropriate,
in its sole discretion, to effectuate the request of the Requisite
Lenders. Nothing contained herein shall limit the discretion of Agent
to make or not make Loans hereunder, to take reserves, to deem certain
Accounts and Inventory ineligible, or to exercise any other discretion
granted to Agent in this Agreement.
19. ASSIGNABILITY:
(a) No Borrower shall have the right to assign this Agreement or any
interest therein except with the prior written consent of Agent and
all Lenders.
(b) Any Lender may make, carry or transfer Loans at, to or for the account
of, any of its branch offices or the office of an Affiliate of such
Lender except to the extent such transfer would result in increased
costs to Borrowers. Except as provided in the immediately preceding
sentence, no Lender may assign its Loans without the consent of Agent
and Borrowers. In connection with a permitted assignment, the assignor
and assignee shall execute an Assignment and Acceptance Agreement in
the form of Exhibit D.
(c) Each Lender may sell participations (without the consent of Agent,
Borrowers or any other Lender) to one or more parties, in or to all or
a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Maximum Loan
Amount or the Loans owing to it); provided, that (i) such
19
<PAGE>
Lender's obligations under this Agreement (including, without
limitation, its Maximum Loan Amount hereunder) shall remain unchanged,
(ii) such Lender shall remain solely responsible to the other parties
hereto for the performance of such obligations, (iii) Borrowers, Agent
and the other Lenders shall continue to deal solely and directly with
such Lender in connection with such Lender's rights and obligations
under this Agreement, and (iv) such Lender shall not transfer, grant
assign or sell any participation under which the participant shall
have rights to approve any amendment or waiver of this Agreement
except to the extent such amendment or waiver would (A) extend the
final maturity date or the date for the payment of any installment of
fees or principal or interest of any Loans in which such participant
is participating, (B) reduce the amount of any installment of
principal of the Loans in which such participant is participating, (C)
reduce the interest rate applicable to the Loans in which such
participant is participating, or (D) reduce any fees payable
hereunder.
20. INDEMNIFICATION: Each Borrower hereby agrees that Agent and Lenders may
exchange any information concerning Borrowers, including, without
limitation, information relating to the creditworthiness of each Borrower
in the possession or control of Agent or Lenders, as the case may be; (i)
with any of their respective affiliates; (ii) to any regulatory authority
having jurisdiction over Agent or Lenders; (iii) to any representative or
agent of Agent or any Lender, in connection with the exercise of Agent's or
Lenders' rights hereunder or under any of the Other Agreements.
21. AMENDMENTS, ETC.: No amendment or waiver of any provision of this Agreement
or any of the Other Agreements, nor consent to any departure by any Obligor
therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Requisite Lenders, or if Lenders shall not be
parties thereto, by the parties thereto and consented to by the Requisite
Lenders, and each such amendment, waiver or consent shall be effective only
in the specific instance and for the specific purpose for which given;
provided, that no amendment, waiver or consent shall, unless in writing and
signed by Lenders, do any of the following: (i) increase the Maximum Loan
Amounts of Lenders or subject Lenders to any additional obligations to
extend credit to Borrowers, (ii) reduce the principal of, or interest on,
the Loans or any fees hereunder, (iii) postpone any date fixed for any
payment in respect of principal of, or interest on, the Loan or any fees
hereunder, (iv) change the Pro Rata Shares of Lenders, or any minimum
requirement necessary for Lenders or the Requisite Lenders to take any
action hereunder, (v) amend or waive this Paragraph 21, or change the
definition of the Requisite Lenders, (vi) amend or waive any of the
covenants set forth in Paragraph 11 (o) of the Agreement or Paragraphs 9,
10, 11 or 13 of this Exhibit A, (vii) increase the advance rates for
Eligible Account or Eligible Inventory above the percentages originally
stated herein or (viii) except in connection with the financing,
refinancing, sale or other disposition of any asset of Borrowers permitted
under this Agreement, release or subordinate any liens in favor of Agent,
for the benefit of Agent and Lenders, on any of the Collateral and provided
further, that no amendment, waiver or consent affecting the rights or
duties of Agent under this Agreement or any Other
20
<PAGE>
Agreement shall in any event be effective, unless in writing and signed by
Agent in addition to Lenders required hereinabove to take such action.
Notwithstanding any of the foregoing to the contrary, the consent of
Borrowers shall not be required for any amendment modification or waiver of
the provisions of Paragraph 18 of this Exhibit A.
22. NONLIABILITY OF AGENT AND LENDERS: The relationship between Borrowers and
Lenders and Agent shall be solely that of borrower and lender. Neither
Agent nor any Lender shall have any fiduciary responsibilities to
Borrowers. Neither Agent nor any Lender undertakes any responsibility to
Borrowers to review or inform Borrowers of any matter in connection with
any phase of either Borrower's business or operations.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this Exhibit A as
of the 3rd day of October, 1997.
C.D. SMITH DRUG COMPANY, as a
Borrower
By /s/ Robert C. Farley
---------------------------
Title Chairman
------------------------
GENERAL DRUG COMPANY, as a
Borrower
By /s/ Robert C. Farley
---------------------------
Title Chairman
------------------------
SBS PHARMACEUTICALS, INC., as a
Borrower
By /s/ Robert C. Farley
---------------------------
Title Chairman
------------------------
JAMES BRUDNICK COMPANY, INC.,
as a Borrower
By /s/ Robert C. Farley
---------------------------
Title Chairman
------------------------
LASALLE BUSINESS CREDIT, INC.,
as Agent and a Lender
By Catherine Saccani
---------------------------
Title Vice President
------------------------
Maximum Loan Amount: $32,964,466.61
HELLER FINANCIAL, INC., as a Lender
By Elizabeth Geannopulos
---------------------------
Title Vice President
------------------------
Maximum Loan Amount: $30,000,000
AMERICAN NATIONAL BANK &
TRUST COMPANY OF CHICAGO, as a
Lender
By /s/ M. Martha Gaskin
---------------------------
Title Vice President
------------------------
Maximum Loan Amount: $30,000,000
22
<PAGE>
EXHIBIT B - BUSINESS AND COLLATERAL LOCATIONS
Attached to and made a part of that certain Loan and Security Agreement of
even date herewith ("Agreement") by and among LASALLE BUSINESS CREDIT, INC., a
Delaware corporation (in its individual capacity, ("LaSalle"), for itself, as a
Lender, and as Agent for all Lenders that are now or hereafter parties to this
Agreement HELLER FINANCIAL, INC., a Delaware corporation (in its individual
capacity, "Heller"), as a Lender, AMERICAN NATIONAL BANK & TRUST COMPANY OF
CHICAGO, a national banking association (in its individual capacity, "ANB"), as
a Lender, C.D. SMITH DRUG COMPANY, a Missouri corporation ("CDS"), as a
Borrower, GENERAL DRUG COMPANY, an Illinois corporation ("GDC"), as a Borrower,
SBS PHARMACEUTICALS, INC., a Delaware corporation ("SBS"), as a Borrower, and
JAMES BRUDNICK COMPANY, INC., a Delaware corporation ("JBC"), as a Borrower.
A. CDS Business Locations (please indicate which location is the principal
place of business and at which locations originals and all copies of CDS's
books, records and accounts are kept).
3907 South 48th Terrace
St. Joseph, Missouri 64503
B. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of CDS. Please indicate the relationship of such location to CDS
(i.e. public warehouse, processor, etc.).
None
C. GDC Business Locations (please indicate which location is the principal
place of business and at which locations originals and all copies of GDC's
books, records and accounts are kept).
200 North Fairfield
Chicago, Illinois 60612
D. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of GDC. Please indicate the relationship of such location to GDC
(i.e. public warehouse, processor, etc.).
223 California Avenue
Chicago, Illinois 60612
<PAGE>
E. SBS Business Locations (please indicate which location is the principal
place of business and at which locations originals and all copies of SBS's
books, records and accounts are kept).
200 North Fairfield
Chicago, Illinois 60612
F. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of SBS. Please indicate the relationship of such location to SBS
(i.e. public warehouse, processor, etc.).
223 California Avenue
Chicago, Illinois 60612
Processor: 23883 Industrial Park
Farmington Hills, Michigan 48204
Processor: 2233 Tracy Road
Northwood, Ohio 43619
G. JBC Business Locations (please indicate which location is the principal
place of business and at which locations originals and all copies of JBC's
books, records and accounts are kept).
219 Medford Street
Malden, Massachusetts 02418
H. Other locations of Collateral (including, without limitation, warehouse
locations, processing locations, consignment locations) and all post office
boxes of JBC. Please indicate the relationship of such location to JBC
(i.e. public warehouse, processor, etc.).
None
2
<PAGE>
EXHIBIT C
Letters of Credit
None.
<PAGE>
EXHIBIT D
ASSIGNMENT AND ACCEPTANCE
THIS ASSIGNMENT AND ACCEPTANCE (this "Assignment and Acceptance") and is
executed as of _______, 1997 between ________ ("Assignor") and
_____________________ ("Assignee").
WITNESSETH:
----------
WHEREAS, Assignor is party to a Loan and Security Agreement dated as of
__________, 1997 (the "Loan Agreement") among Assignor, [LIST OTHER LENDERS],
C.D. Smith Drug Company, General Drug Company, SBS Pharmaceuticals, Inc. and
James Brudnick Company, Inc. (collectively, "Borrowers");
WHEREAS, Assignor has agreed to assign to Assignee a portion of its loans
and other financial accommodations to Borrowers pursuant to the Loan Agreement;
and
NOW, THEREFORE, in consideration of the mutual agreements herein contained,
the parties hereto agree as follows:
1. Defined Terms.
-------------
Capitalized terms not otherwise defined herein shall have the meanings
ascribed to such terms in the Loan Agreement.
2. Assignment and Assumption.
-------------------------
Assignor hereby assigns to Assignee, without recourse, representation or
warranty (other than as expressly provided herein), and Assignee hereby assumes,
all of Assignor's right, title and interest arising under the Loan Agreement and
the Other Agreements with respect to a portion of the outstanding Loans to
Borrowers equal to Assignee's Pro Rata Share of the outstanding Loans to
Borrowers; provided, that Assignee's obligations to Assignor, Borrowers or any
Lender are strictly limited to those obligations under the Loan Agreement unless
otherwise explicitly provided for herein.
3. Payments on Assignment Effective Date.
-------------------------------------
In consideration of the assignment by Assignor to Assignee pursuant to this
Assignment and Acceptance, Assignee agrees to pay to Assignor on or prior to the
Assignment Effective Date (as defined below) an amount specified by Assignor in
writing on or prior to the Assignment Effective Date which represents Assignee's
Pro Rata Share of the Loans to Borrowers outstanding on the Assignment Effective
Date.
4. Effectiveness.
-------------
This Assignment and Acceptance shall become effective upon (i) the full
execution and delivery of this Assignment and Acceptance and (ii) the date that
no overadvances exist under the Loan Agreement (the "Assignment Effective
Date").
<PAGE>
5. Representations and Warranties.
(a) Each of Assignor and Assignee represents and warrants to the
other party as follows:
(i) it has full power and authority, and has taken all action
necessary, to execute and deliver this Assignment and Acceptance and to
fulfill its obligations under, and to consummate the transactions
contemplated by, this Assignment and Acceptance;
(ii) the making and performance by it of this Assignment and
Acceptance and all documents required to be executed and delivered by it
hereunder do not and will not violate any law or regulation of the
jurisdiction of its incorporation or any other law or regulation applicable
to it;
(iii) this Assignment and Acceptance has been duly executed and
delivered by it and constitutes its legal, valid and binding obligation,
enforceable in accordance with its terms, except as limited by applicable
bankruptcy, reorganization, insolvency or similar laws affecting the
enforcement of creditors' rights generally and by general equity
principles; and
(iv) all approvals, authorizations, or other actions by, or filing
with, any governmental authority necessary for the validity or
enforceability of its obligations under this Assignment and Acceptance have
been obtained.
(b) Assignor represents and warrants to Assignee that Assignee's Pro Rata
Share of the Loan Limit and the outstanding Loans being assigned hereunder are
not subject to any liens or security interests created by or known to Assignor.
6. Miscellaneous.
(a) Assignor shall not be responsible to Assignee for the execution (by
any party other than Assignor), effectiveness, genuineness, validity,
enforceability, collectibility or sufficiency of the Loan Agreement, the Other
Agreements or any of the agreements, documents or instruments executed and/or
delivered in connection therewith (collectively, the "Loan Documents") or for
any representations, warranties, recitals or statements made therein or in any
written or oral statement or in any financial or other statements, instruments,
reports, certificates or any other documents made or furnished or made available
by Assignor to Assignee or by or on behalf of Borrowers or any other person
obligated under the Loan Documents (collectively, the "Credit Parties") to
Assignor or Assignee in connection with the Loan Documents and the trans actions
contemplated thereby. Except as otherwise set forth in the Loan Agreement,
Assignor shall not be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained in any of the Loan Documents or as to the use of the proceeds of the
Loans or as to the existence or possible existence of any default (matured or
unmatured) under the Loan Documents.
2
<PAGE>
(b) Assignee represents and warrants that it has made its own independent
investigation of the financial condition and affairs of the Credit Parties in
connection with the making of the Loans and the assignment by Assignor to
Assignee hereunder and has made and shall continue to make its own appraisal of
the creditworthiness of the Credit Parties. Assignor shall have no duty or
responsibility (except as expressly provided in the Loan Agreement) either
initially or on a continuing basis to make any such investigation or any such
appraisal on behalf of Assignee or to provide Assignee with any credit or other
information with respect thereto, whether coming into its possession before the
making of the Loans or at any time or times thereafter and shall further have no
responsibility with respect to the accuracy of, or the completeness of, any
information provided to Assignee, whether by Assignor or by or on behalf of any
Credit Party.
(c) Assignee (x) agrees that it will perform all of the obligations which
by the terms of the Loan Agreement are required to be performed by it as a
Lender and (y) represents that it is either (i) a corporation organized under
the laws of the United States or a state thereof or (ii) entitled to complete
exemption from United States withholding tax imposed on or with respect to any
payments to be made to it pursuant to the Loan Agreement.
(d) ANY DISPUTE BETWEEN ASSIGNOR AND ASSIGNEE ARISING OUT OF, CONNECTED
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN
CONNECTION WITH THIS ASSIGNMENT AND ACCEPTANCE AND WHETHER ARISING IN CONTRACT,
TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE INTERNAL
LAWS AND NOT THE CONFLICTS OF LAW PROVISIONS OF THE STATE OF ILLINOIS.
(e) No term or provision of this Assignment and Acceptance may be changed,
waived, discharged or terminated orally, but only by an instrument in writing
signed by the parties to this Assignment and Acceptance and Agent.
(f) This Assignment and Acceptance may be executed in one or more
counterparts, each of which shall be an original but all of which, taken
together, shall constitute one and the same instrument.
(g) All payments hereunder or in connection herewith shall be made in
United States Dollars and in immediately available funds, payable to the account
of Assignor at its office as designated in the Loan Agreement.
(h) This Assignment and Acceptance shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
Neither of the parties hereto may assign or transfer any of its rights or
obligations under this Assignment and Acceptance without the prior consent of
the other party. The preceding sentence shall not limit the right of Assignee to
assign all or part of its Pro Rata Share of the Loan Limit and any outstanding
Loans assigned under this Assignment and Acceptance in the manner contemplated
by the Loan Agreement.
3
<PAGE>
(i) All representations and warranties made herein and indemnities
provided for herein shall survive the consummation of the transactions
contemplated hereby.
IN WITNESS WHEREOF, the parties hereto have executed this Assignment and
Acceptance as the date first above written.
---------------------------------
By
------------------------------
Title
----------------------------
---------------------------------
By
------------------------------
Title
----------------------------
4
<PAGE>
EXHIBIT E
OFFICER'S CERTIFICATE
This Certificate is submitted pursuant to paragraph 8(j) of the Loan and
Security Agreement dated ___________________, 1997 ("Loan Agreement") among
LaSalle Business Credit, Inc., as a lender and as agent ("Agent") for all
lenders from time to time party thereto (the "Lenders"), the Lenders, C.D. Smith
Drug Company ("Smith"), General Drug Company, SBS Pharmaceuticals, Inc. and
James Brudnick Company, Inc. (collectively, the "Borrowers").
The undersigned hereby certifies to Agent and Lenders that as of the date
of this Agreement:
1. The undersigned is the _________ of Smith.
2. There exists no event or circumstance which is, or which with the
passage of time, the giving of notice, or both would constitute an Event of
Default, as that term is defined in the Loan Agreement, or, if such an event or
circumstance exists, a writing attached hereto specifies the nature thereof,
the period of existence thereof and the action that the appropriate Borrower has
taken or proposes to take with respect thereto.
3. No material adverse change in the condition, financial or otherwise,
business, property, or results of operations of any Borrower has occurred since
February 28, 1997, or, if such a change has occurred, a writing attached hereto
specifies the nature thereof and the action that such Borrower has taken or
proposes to take with respect thereto.
4. All insurance premiums payable by each Borrower due as of such date
have been paid.
5. All taxes of each Borrower due as of such date have been paid or, for
those taxes which have not been paid, or, if any taxes have not been paid, a
writing attached hereto describes the nature and amount of such taxes, and sets
forth such Borrower's rationale for not paying such taxes and the action that
such Borrower has taken or proposes to take with respect thereto.
6. To the best of the undersigned's knowledge, after appropriate inquiry,
except as previously disclosed to Agent in writing, no litigation, investigation
or proceeding, or injunction, writ or restraining order is pending or threatened
against any Borrower, or, if any litigation, investigation or proceeding, or
injunction, writ or restraining order is pending or threatened against any
Borrower, a writing attached hereto specifies the nature thereof and the action
that such Borrower has taken or proposes to take with respect thereto.
7. Each Borrower is in compliance with the representations and warranties
in all material respects, and is in compliance with the covenants, in the Loan
Agreement, or,
<PAGE>
if any Borrower is not in compliance with any representations or warranties in
any material respect or any covenants in the Loan Agreement, a writing attached
hereto specifies the nature thereof, the period of existence thereof and the
action that such Borrower has taken or proposes to take with respect thereto.
8. Attached hereto is a true and correct calculation of the financial
covenants contained in paragraph 11 of the Loan Agreement and in Exhibit A to
the Loan Agreement.
C.D. SMITH DRUG COMPANY
By (SEAL)
---------------------------
Name
-------------------------------
Title
------------------------------
2
<PAGE>
Exhibit 10.5
------------
FIRST AMENDMENT TO THE LOAN AND SECURITY AGREEMENT DATED AS
OF OCTOBER 3, 1997
AMONG C. D. SMITH DRUG COMPANY, GENERAL DRUG COMPANY,
SBS PHARMACEUTICALS, INC., JAMES BRUDNICK COMPANY, INC.,
LASALLE BUSINESS CREDIT, INC., AS A LENDER AND AS AGENT FOR THE
LENDERS, HELLER FINANCIAL, INC., AS A LENDER, AMERICAN
NATIONAL BANK & TRUST COMPANY OF CHICAGO, AS A
LENDER, AND CERTAIN OTHER FINANCIAL
INSTITUTIONS SIGNATORIES THERETO
THIS FIRST AMENDMENT is made as of the 24th day of December, 1997 to the
Loan and Security Agreement dated October 3, 1997 ("Loan Agreement;" unless
otherwise defined herein, capitalized terms used herein shall have the meanings
ascribed to them in the Loan Agreement) among C. D. Smith Drug Company, General
Drug Company, SBS Pharmaceuticals, Inc., James Brudnick Company, Inc.
(collectively, "Borrowers"), Heller Financial, Inc., as a Lender, American
National Bank & Trust Company of Chicago, as a Lender, certain financial
institutions signatories thereto from time to time (collectively, "Lenders"),
and LaSalle Business Credit, Inc. (individually as a Lender and, in its capacity
as agent for Lenders, "Agent").
WHEREAS, Borrowers have requested that Agent and Lenders amend the Loan
Agreement in certain respects, and Agent and Lenders have agreed to do so
subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants
herein contained, and such other consideration as the parties mutually agree,
the parties hereto agree as follows:
1. Amendment. Borrowers, Agent and Lenders agree to amend the Loan
---------
Agreement as follows:
(a) Section 1 of EXHIBIT A-SPECIAL PROVISIONS of the Loan Agreement is
hereby amended to (i) delete the reference to "Ninety Million Dollars
($90,000,000)" contained in the proviso and to replace it therein with a
reference to "Ninety-Five Million Dollars ($95,000,000) from December 24, 1997
through and including December 30, 1997; and Ninety Million Dollars
($90,000,000) at all times on and after December 31, 1997"; and (ii) delete the
reference to "Ninety-Two Million Nine-Hundred Sixty-Four Thousand Four Hundred
Sixty-Six and 61/100 Dollars ($92,964,466.61)" contained in the proviso and to
replace it therein with a reference to "Ninety-Seven Million Nine-Hundred Sixty-
Four Thousand Four Hundred Sixty-Six and 61/100 Dollars ($97,964,466.61) from
December 24, 1997 through and including December 30, 1997; and Ninety-Two
Million Nine-Hundred Sixty-Four Thousand Four Hundred Sixty-Six and 61/100
Dollars ($92,964,466.61) at all times on and after December 31, 1997".
2. Representations and Warranties of Borrowers. Each Borrower represents
-------------------------------------------
and warrants that, as of the date hereof, after giving effect to the
consummation of
<PAGE>
the transactions contemplated hereby and the other agreements executed in
connection herewith:
(a) Such Borrower has the right and power and is duly authorized to enter
into this Agreement and all other agreements executed in connection herewith;
(b) No Event of Default or an event or condition which upon notice, lapse
of time or both will constitute an Event of Default has occurred and is
continuing;
(c) The execution, delivery and performance by such Borrower of this
Agreement and the other agreements to which such Borrower is a party (i) have
been duly authorized by all necessary action on its part; (ii) do not and will
not, by the lapse of time, giving of notice or otherwise, violate the provisions
of the terms of its Articles of Certificate of Incorporation or By-Laws, or of
any mortgage, indenture, security agreement, contract, undertaking or other
agreement to which such Borrower is a party, or which purports to be binding on
such Borrower or any of its properties; (iii) do not and will not, by lapse of
time, the giving of notice or otherwise, contravene any governmental restriction
to which such Borrower or any of its properties may be subject, and (iv) do not
and will not, except as contemplated in the Loan Agreement, result in the
imposition of any lien, charge, security interest or encumbrance upon any of
such Borrower's properties under any indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument to which such Borrower is a
party or which purports to be binding on such Borrower or any of its properties;
(d) No consent, license, registration or approval of any governmental
authority, bureau or agency is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement and the
other agreements executed by any Borrower in connection herewith;
(e) This Agreement and the other agreements executed by any Borrower in
connection herewith have been duly executed and delivered by such Borrower and
are enforceable against such Borrower in accordance with their terms; and
(f) All information, reports and other papers and data heretofore furnished
to Agent by each Borrower in connection with this Agreement, the Loan Agreement
and Other Agreements are accurate and correct in all material respects and
complete insofar as may be necessary to give Agent true and accurate knowledge
of the subject matter thereof. Each Borrower has disclosed to Agent every fact
of which it is aware which would reasonably be expected to materially and
adversely affect the business, operations or financial condition of such
Borrower or the ability of such Borrower to perform its obligations under this
Agreement, the Loan Agreement or under any of the Other Agreements. None of the
information furnished to Agent by or on behalf of any Borrower contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained herein or therein not materially
misleading.
-2-
<PAGE>
3. Conditions Precedent. The amendments to the Loan Agreement set forth
--------------------
in this Agreement shall become effective as of the date of this Agreement upon
the satisfaction of the following conditions precedent in form and substance
satisfactory to Agent:
(a) Agent shall have received the reaffirmation of each of the Guarantees
executed by H.S.S. Consulting Services Incorporated and C.D.S. Transportation,
Inc., respectively, both dated as of October 3, 1997.
(b) No Event of Default or event which, with the giving of notice or the
passage of time, or both, would become an Event of Default, shall have occurred
and be continuing, and, after giving effect to the amendments contained herein,
no Event of Default or event which, with the giving of notice or the passage of
time, or both, would become an Event of Default, shall have occurred and be
continuing.
(c) Borrowers shall have executed and delivered all such other documents,
instruments and agreements as Agent shall require.
4. Fees and Expenses. Borrowers agree to pay all legal fees and other
-----------------
expenses, whether for in-house or outside counsel, incurred by Agent and Lenders
in connection with this Agreement and the transactions contemplated hereby.
5. Loan Agreement Remains in Force. Except as specifically amended
-------------------------------
hereby, all of the terms and conditions of the Loan Agreement shall remain in
full force and effect and this Agreement shall not be a waiver of any rights or
remedies which Agent or Lenders have provided for in the Loan Agreement and all
such terms and conditions are herewith ratified, adopted, approved and accepted.
6. No Novation. This Agreement and all other agreements executed by any
-----------
Borrower on the date hereof are not intended to nor shall be construed to create
a novation or accord and satisfaction, and shall only be a modification and
extension of the existing Obligations of such Borrower to Lenders.
7. Security Interest Extended. It is the express intent of Lenders and
--------------------------
Borrowers that the security interests granted to Agent, for the benefit of Agent
and Lenders, in the Collateral pursuant to the Loan Agreement extend to and
secure (among other things) the repayment of all amounts advanced to Borrowers
hereunder and all other obligations.
8. Additional Documents. Upon the request of Agent, Borrowers will cause
--------------------
to be done, executed, acknowledged and delivered all such further acts,
conveyances and assurances as Agent from time to time may reasonably request of
Borrowers for accomplishing the transaction referred to herein.
9. Entire Agreement. This Amendment and the other documents it refers to
----------------
comprise the entire agreement relating to the subject matter they cover and
supersede any and all prior written or oral agreements among Agent, Lenders and
Borrowers relating thereto.
-3-
<PAGE>
10. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
11. Maximum Loan Amount. The Maximum Loan Amount of each Lender shall be
-------------------
as follows: (a) LaSalle Business Credit, Inc.: $34,737,466.61 from December 24,
1997 through and including December 30, 1997; and $32,964,466.61 at all times on
and after December 31, 1997; (b) Heller Financial, Inc.: $31,613,500 from
December 24, 1997 through and including December 30, 1997; and $30,000,000 at
all times on and after December 31, 1997; (c) American National Bank & Trust
Company of Chicago: $31,613,500 from December 24, 1997 through and including
December 30, 1997; and $30,000,000 at all times on and after December 31, 1997.
Except as expressly provided for herein, the terms and conditions of the
Loan Agreement shall remain in full force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, Borrowers and Lenders have caused this Agreement to be
duly executed in their proper duly authorized officers as of the day and year
first set forth above.
C. D. SMITH DRUG COMPANY LASALLE BUSINESS CREDIT, INC., AS
AGENT AND LENDER
By /s/ Jeanne Mathiesen By /s/ Catherine Saccani
------------------------------- --------------------------------------
Its CFO Its Vice President
------------------------------- -------------------------------------
SBS PHARMACEUTICALS, INC. AMERICAN NATIONAL BANK & TRUST
COMPANY OF CHICAGO
By /s/ Jeanne Mathiesen By /s/ M. Martha Gaskin
------------------------------- --------------------------------------
Its Treasurer Its Vice-President
------------------------------ -------------------------------------
GENERAL DRUG COMPANY HELLER FINANCIAL, INC., AS A
LENDER
By /s/ Jeanne Mathiesen By /s/ Elizabeth Geannopulos
------------------------------- --------------------------------------
Its Treasurer Its Vice President
------------------------------ -------------------------------------
JAMES BRUDNICK COMPANY, INC.
By /s/ Jeanne Mathiesen
-------------------------------
Its Treasurer
------------------------------
-5-
<PAGE>
Exhibit 10.6
------------
SECOND AMENDMENT TO THE LOAN AND SECURITY AGREEMENT DATED AS
OF OCTOBER 3, 1997
AMONG C. D. SMITH DRUG COMPANY, GENERAL DRUG COMPANY,
SBS PHARMACEUTICALS, INC., JAMES BRUDNICK COMPANY, INC.,
LASALLE BUSINESS CREDIT, INC., AS A LENDER AND AS AGENT FOR THE
LENDERS, HELLER FINANCIAL, INC., AS A LENDER, AMERICAN
NATIONAL BANK & TRUST COMPANY OF CHICAGO, AS A
LENDER, AND CERTAIN OTHER FINANCIAL
INSTITUTIONS SIGNATORIES THERETO
THIS SECOND AMENDMENT is made as of the 8th day of January, 1998 to the
Loan and Security Agreement dated October 3, 1997 (as amended from time to time,
the "Loan Agreement;" unless otherwise defined herein, capitalized terms used
herein shall have the meanings ascribed to them in the Loan Agreement) among
C. D. Smith Drug Company, General Drug Company, SBS Pharmaceuticals, Inc., James
Brudnick Company, Inc. (collectively, "Borrowers"), Heller Financial, Inc., as a
Lender, American National Bank & Trust Company of Chicago, as a Lender, certain
financial institutions signatories thereto from time to time (collectively,
"Lenders"), and LaSalle Business Credit, Inc. (individually as a Lender and, in
its capacity as agent for Lenders, "Agent").
WHEREAS, Borrowers have requested that Agent and Lenders amend the Loan
Agreement in certain respects, and Agent and Lenders have agreed to do so
subject to the terms and conditions hereof.
NOW, THEREFORE, in consideration of the foregoing, and the mutual covenants
herein contained, and such other consideration as the parties mutually agree,
the parties hereto agree as follows:
1. Amendment. Borrowers, Agent and Lenders agree to amend the Loan
---------
Agreement as follows:
(a) Section 1 of EXHIBIT A-SPECIAL PROVISIONS of the Loan Agreement is
hereby amended to (i) delete the reference to "Ninety Million Dollars
($90,000,000)" contained in the proviso and to replace it therein with a
reference to "One Hundred Million Dollars ($100,000,000) from January 1, 1998
through and including January 30, 1998; and Ninety Million Dollars ($90,000,000)
at all times on and after January 30, 1998"; and (ii) delete the reference to
"Ninety-Two Million Nine-Hundred Sixty-Four Thousand Four Hundred Sixty-Six and
61/100 Dollars ($92,964,466.61)" contained in the proviso and to replace it
therein with a reference to "One Hundred Two Million Nine-Hundred Sixty-Four
Thousand Four Hundred Sixty-Six and 61/100 Dollars ($102,964,466.61) from
January 1, 1998 through and including January 30, 1998; and Ninety-Two Million
Nine-Hundred Sixty-Four Thousand Four Hundred Sixty-Six and 61/100 Dollars
($92,964,466.61) at all times on and after January 30, 1998".
2. Representations and Warranties of Borrowers. Each Borrower represents
-------------------------------------------
and warrants that, as of the date hereof, after giving effect to the
consummation of
<PAGE>
the transactions contemplated hereby and the other agreements executed in
connection herewith:
(a) Such Borrower has the right and power and is duly authorized to enter
into this Agreement and all other agreements executed in connection herewith;
(b) No Event of Default or an event or condition which upon notice, lapse
of time or both will constitute an Event of Default has occurred and is
continuing;
(c) The execution, delivery and performance by such Borrower of this
Agreement and the other agreements to which such Borrower is a party (i) have
been duly authorized by all necessary action on its part; (ii) do not and will
not, by the lapse of time, giving of notice or otherwise, violate the provisions
of the terms of its Articles of Certificate of Incorporation or By-Laws, or of
any mortgage, indenture, security agreement, contract, undertaking or other
agreement to which such Borrower is a party, or which purports to be binding on
such Borrower or any of its properties; (iii) do not and will not, by lapse of
time, the giving of notice or otherwise, contravene any governmental restriction
to which such Borrower or any of its properties may be subject, and (iv) do not
and will not, except as contemplated in the Loan Agreement, result in the
imposition of any lien, charge, security interest or encumbrance upon any of
such Borrower's properties under any indenture, mortgage, deed of trust, loan or
credit agreement or other agreement or instrument to which such Borrower is a
party or which purports to be binding on such Borrower or any of its properties;
(d) No consent, license, registration or approval of any governmental
authority, bureau or agency is required in connection with the execution,
delivery, performance, validity or enforceability of this Agreement and the
other agreements executed by any Borrower in connection herewith;
(e) This Agreement and the other agreements executed by any Borrower in
connection herewith have been duly executed and delivered by such Borrower and
are enforceable against such Borrower in accordance with their terms; and
(f) All information, reports and other papers and data heretofore furnished
to Agent by each Borrower in connection with this Agreement, the Loan Agreement
and Other Agreements are accurate and correct in all material respects and
complete insofar as may be necessary to give Agent true and accurate knowledge
of the subject matter thereof. Each Borrower has disclosed to Agent every fact
of which it is aware which would reasonably be expected to materially and
adversely affect the business, operations or financial condition of such
Borrower or the ability of such Borrower to perform its obligations under this
Agreement, the Loan Agreement or under any of the Other Agreements. None of the
information furnished to Agent by or on behalf of any Borrower contained any
material misstatement of fact or omitted to state a material fact or any fact
necessary to make the statements contained herein or therein not materially
misleading.
-2-
<PAGE>
3. Conditions Precedent. The amendments to the Loan Agreement set forth
--------------------
in this Agreement shall become effective as of the date of this Agreement upon
the satisfaction of the following conditions precedent in form and substance
satisfactory to Agent:
(a) Agent shall have received the reaffirmation of each of the Guarantees
executed by H.S.S. Consulting Services Incorporated and C.D.S. Transportation,
Inc., respectively, both dated as of October 3, 1997.
(b) No Event of Default or event which, with the giving of notice or the
passage of time, or both, would become an Event of Default, shall have occurred
and be continuing, and, after giving effect to the amendments contained herein,
no Event of Default or event which, with the giving of notice or the passage of
time, or both, would become an Event of Default, shall have occurred and be
continuing.
(c) Borrowers shall have executed and delivered all such other documents,
instruments and agreements as Agent shall require.
4. Fees and Expenses. Borrowers agree to pay (i) to Lenders a $5,000
-----------------
fee, in cash, in consideration for entering into this Agreement, and (ii) all
legal fees and other expenses, whether for in-house or outside counsel, incurred
by Agent and Lenders in connection with this Agreement and the transactions
contemplated hereby.
5. Loan Agreement Remains in Force. Except as specifically amended
-------------------------------
hereby, all of the terms and conditions of the Loan Agreement shall remain in
full force and effect and this Agreement shall not be a waiver of any rights or
remedies which Agent or Lenders have provided for in the Loan Agreement and all
such terms and conditions are herewith ratified, adopted, approved and accepted.
6. No Novation. This Agreement and all other agreements executed by any
-----------
Borrower on the date hereof are not intended to nor shall be construed to create
a novation or accord and satisfaction, and shall only be a modification and
extension of the existing Obligations of such Borrower to Lenders.
7. Security Interest Extended. It is the express intent of Lenders and
--------------------------
Borrowers that the security interests granted to Agent, for the benefit of Agent
and Lenders, in the Collateral pursuant to the Loan Agreement extend to and
secure (among other things) the repayment of all amounts advanced to Borrowers
hereunder and all other obligations.
8. Additional Documents. Upon the request of Agent, Borrowers will cause
--------------------
to be done, executed, acknowledged and delivered all such further acts,
conveyances and assurances as Agent from time to time may reasonably request of
Borrowers for accomplishing the transaction referred to herein.
-3-
<PAGE>
9. Entire Agreement. This Amendment and the other documents it refers to
----------------
comprise the entire agreement relating to the subject matter they cover and
supersede any and all prior written or oral agreements among Agent, Lenders and
Borrowers relating thereto.
10. Severability. Any provision of this Agreement that is prohibited or
------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
11. Maximum Loan Amount. The Maximum Loan Amount of each Lender shall be
-------------------
as follows: (a) LaSalle Business Credit, Inc.: $36,510,375.15 from January 1,
1998 through and including January 30, 1998; and $32,964,466.61 at all times on
and after January 30, 1998; (b) Heller Financial, Inc.: $33,227,045.23 from
January 1, 1998 through and including January 30, 1998; and $30,000,000 at all
times on and after January 30, 1998; (c) American National Bank & Trust Company
of Chicago: $33,227,045.23 from January 1, 1998 through and including January
30, 1998; and $30,000,000 at all times on and after January 30, 1998.
Except as expressly provided for herein, the terms and conditions of the
Loan Agreement shall remain in full force and effect.
-4-
<PAGE>
IN WITNESS WHEREOF, Borrowers and Lenders have caused this Agreement to be
duly executed in their proper duly authorized officers as of the day and year
first set forth above.
C. D. SMITH DRUG COMPANY LASALLE BUSINESS CREDIT, INC., AS
AGENT AND LENDER
By /s/ Jeanne Mathiesen
---------------------------
Its CFO By /s/ Catherine Saccani
--------------------------- -------------------------------
Its Vice-President
------------------------------
SBS PHARMACEUTICALS, INC.
AMERICAN NATIONAL BANK & TRUST
COMPANY OF CHICAGO
By /s/ Jeanne Mathiesen
----------------------------
Its Treasurer
---------------------------
By /s/ M. Martha Gaskin
-------------------------------
Its Vice-President
------------------------------
GENERAL DRUG COMPANY
HELLER FINANCIAL, INC., AS A
By /s/ Jeanne Mathiesen LENDER
----------------------------
Its Treasurer
---------------------------
By /s/ Elizabeth Geannopulos
-------------------------------
Its Vice President
------------------------------
JAMES BRUDNICK COMPANY, INC.
By /s/ Jeanne Mathiesen
----------------------------
Its Treasurer
---------------------------
-5-
<PAGE>
ACKNOWLEDGMENT AND ACCEPTANCE
Each of the undersigned has executed and delivered to Agent a Guaranty
dated October 3, 1997 (each, a "Guaranty") with respect to the Liabilities of C.
D. Smith Drug Company, Inc., General Drug Company, SBS Pharmaceuticals, Inc. and
James Brudnick Company, Inc. (collectively, "Borrowers") under the Loan and
Security Agreement dated October 3, 1997 among Borrowers, Agent and Lenders (as
amended from time to time, the "Loan Agreement"). Each of the undersigned
hereby acknowledges receipt of the foregoing Second Amendment to Loan and
Security Agreement (the "Amendment"), accepts and agrees to be bound by the
terms thereof, ratifies and confirms all obligations under its Guaranty, and
agrees that its Guaranty shall continue in full force and effect upon the
effectiveness of the Amendment. Terms used but not defined herein shall have the
meaning ascribed to such terms in the Loan Agreement.
Acknowledged and Agreed to this ____ day of
January, 1998.
H.S.S. CONSULTING SERVICES
INCORPORATED
By /s/ Jeanne Mathiesen
---------------------------------
Its Treasurer
--------------------------------
C.D.S. TRANSPORTATION, INC.
By /s/ Jeanne Mathiesen
---------------------------------
Its Treasurer
--------------------------------
-6-
<PAGE>
Exhibit 10.7
------------
LEASE OF
219 MEDFORD STREET
MALDEN, MASSACHUSETTS
Table of Contents
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
1.1 INTRODUCTION................................ 1
1.2 BASIC DATA.................................. 1
1.3 ADDITIONAL DEFINITIONS...................... 2
ARTICLE II
2.1 LEASE OF PREMISES........................... 3
ARTICLE III
3.1 BASIC RENT.................................. 3
3.2 RENT ADJUSTMENT............................. 3
ARTICLE IV
4.1 COMMENCEMENT DATE........................... 4
4.2 CONDITION OF THE PREMISES................... 4
ARTICLE V
5.1 PERMITTED USE............................... 4
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT..... 5
ARTICLE VI
6.1 PROHIBITION................................. 6
ARTICLE VII
7.1 LANDLORD REPAIRS............................ 7
7.2 TENANT'S AGREEMENT.......................... 8
7.3 UTILITIES................................... 8
ARTICLE VII
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES.... 8
8.2 ABATEMENT................................... 9
8.3 ALTERNATE TAXES............................. 10
ARTICLE IX
9.1 DEFINITIONS................................. 10
9.2 TENANT'S PAYMENTS........................... 10
</TABLE>
<PAGE>
ARTICLE X
10.1 LANDLORD'S INDEMNITY....................... 10
10.2 TENANT'S INDEMNITY......................... 11
10.3 PUBLIC LIABILITY INSURANCE................. 11
10.4 TENANT'S RISK.............................. 11
10.5 INJURY CAUSED BY THIRD PARTIES............. 12
ARTICLE XI
11.1 LANDLORD'S RIGHTS.......................... 12
ARTICLE XII
12.1 ABATEMENT OF RENT.......................... 12
12.2 RIGHT OF TERMINATION....................... 13
12.3 RESTORATION................................ 13
12.4 AWARD...................................... 13
ARTICLE XIII
13.1 TENANT'S DEFAULT........................... 14
13.2 LANDLORD'S DEFAULT......................... 17
ARTICLE XIV
14.1 HAZARDOUS SUBSTANCES....................... 17
14.2 WAIVER..................................... 18
14.3 COVENANT OF QUIET ENJOYMENT................ 18
14.4 LANDLORD'S LIABILITY....................... 18
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR....... 19
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE.. 19
14.7 RULES AND REGULATIONS...................... 20
14.8 ADDITIONAL CHARGES......................... 20
14.9 INVALIDITY OF PARTICULAR PROVISIONS........ 20
14.10 PROVISIONS BINDING, ETC.................... 20
14.11 RECORDING.................................. 20
14.12 NOTICES.................................... 21
14.13 WHEN LEASE BECOMES BINDING................. 21
14.14 PARAGRAPH HEADINGS......................... 21
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR....... 21
14.16 STATUS REPORT.............................. 22
14.17 SECURITY DEPOSIT........................... 22
14.18 REMEDYING DEFAULTS......................... 22
14.19 HOLDING OVER............................... 23
14.20 WAIVER OF SUBROGATION...................... 23
14.21 SURRENDER OF PREMISES...................... 23
14.22 BROKERAGE.................................. 24
14.23 GOVERNING LAW.............................. 24
ARTICLE XV
<PAGE>
15.1 TENANT'S RIGHT............................. 24
15.2 BASIC RENT................................. 24
15.3 GUARANTEES................................. 24
Exhibit LD - Legal Description of Premises
Exhibit OS - Operating Standards for Tenant's Conduct of Business
<PAGE>
L E A S E
THIS INSTRUMENT IS A LEASE, dated as of February 11, 1994 in which the
Landlord and the Tenant are the parties hereinafter named, and which relates to
the property located at 219 Medford Street, Malden, Massachusetts. The parties
to this instrument hereby agree with each other as follows:
ARTICLE I
BASIC LEASE PROVISIONS
1.1 INTRODUCTION. The following set forth basic data and, where appropriate,
constitute definitions of the terms hereinafter listed.
1.2 BASIC DATA.
Landlord: Irving S. Brudnick, as Trustee of Bershim Realty Trust.
Landlord's Original Address: c/o 219 Medford Street, Malden,
Massachusetts.
Tenant: Brudnick Acquisition Corp., a Delaware corporation.
Tenant's Original Address: c/o General Drug Company, 200 North
Fairfield Avenue, Chicago, Illinois 60612.
Guarantors: GD Holdings of Delaware, Inc. and General Drug Company,
Inc.
Basic Rent: The sum of $135,000 per annum, payable at the rate of
ELEVEN THOUSAND TWO HUNDRED FIFTY AND 00/100 DOLLARS ($11,250) per
calendar month, and proportionately at such rate for any partial month.
Premises Rentable Area: Agreed to be approximately 45,000 square feet.
Permitted Uses: Warehouse and distribution space, with auxiliary
office space.
Initial Term: Five (5) years commencing on the Commencement Date and
expiring at the close of the day immediately preceding the fifth (5th)
anniversary of the Commencement Date, except that if the Commencement Date
shall be other than the first day of a calendar month, the expiration of
the Initial Term shall be at the close of the day on the last day of the
calendar month on which such anniversary shall fall.
Lease Year: The first Lease Year shall be the period consisting of the
first twelve full calendar months, plus the partial month, if any,
immediately following the Commencement Date. For example, if the
Commencement Date occurred on April 15, 1992, the first Lease Year would
run from April 15, 1992 to April 30, 1993.
<PAGE>
Each succeeding Lease Year shall be the next consecutive twelve (12) month
period, except that the final Lease Year shall end on the date of the
termination of this Lease.
Security Deposit: None.
Broker: None.
1.3 ADDITIONAL DEFINITIONS.
Additional Charges: The amounts prescribed in Sections 8.1, 9.2 and
14.18.
Commencement Date: As defined in Section 4.1.
Default of Tenant: As defined in Section 13.1.
Environmental Regulations: As defined in Section 14.1.
Extended Term: As defined in Section 15.1.
Force Majeure: Collectively and individually, strike or other labor
trouble, fire or casualty, governmental preemption of priorities or other
controls in connection with a national or other public emergency or shortages of
fuel, supplies or labor resulting therefrom, or any other cause, whether similar
or dissimilar, beyond Landlord's reasonable control.
Hazardous Substances: As defined in Section 14.1.
Initial Public Liability Insurance: $5,000,000.00 per occurrence
(combined single limit) for property damage, personal injury or death.
Operating Expenses: As determined in accordance with Section 9.1.
Operating Year: As defined in Section 9.1.
Premises: The building (the "Building") located at 219 Medford Street,
Malden, Massachusetts and the land (the "Land") on which it is located as
described on Exhibit LD annexed hereto.
Rent Adjustment: As defined in Section 3.2.
Tax Year: As defined in Section 8.1.
Taxes: As determined in accordance with Section 8.1.
Tenant's Removable Property: As defined in Section 5.2.
2
<PAGE>
Term of this Lease: The Initial Term and any extension thereof in
accordance with the provisions hereof.
ARTICLE II
PREMISES
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant for the
Term of this Lease and upon the terms and conditions hereinafter set forth,
and Tenant hereby accepts from Landlord, the Premises.
ARTICLE III
BASIC RENT
3.1 BASIC RENT. (a) Tenant agrees to pay to Landlord, or as directed by
Landlord, commencing on the Commencement Date without offset, abatement
(except as provided in Section 12.1), deduction or demand, the Basic Rent.
Such Basic Rent shall be payable in equal monthly installments, in advance,
on the first day of each and every calendar month during the Term (and any
Extended Term) of this Lease, at Landlord's Original Address, or at such
other place as Landlord shall from time to time designate by notice, in
lawful money of the United States. In the event that any installment of
Basic Rent is not paid when due, Tenant shall pay, in addition to any
charges under Section 14.18, at Landlord's request an administrative fee
equal to five percent (5%) of the overdue payment.
(b) Basic Rent for any partial month shall be pro-rated on a daily
basis, and if the first day on which Tenant must pay Basic Rent shall be
other than the first day of a calendar month, the first payment which
Tenant shall make to Landlord shall be equal to a proportionate part of the
monthly installment of Basic Rent for the partial month from the first day
on which Tenant must pay Basic Rent to the last day of the month in which
such day occurs, plus the installment of Basic Rent for the succeeding
calendar month.
3.2 RENT ADJUSTMENT. At the commencement of each Lease Year (including any year
during an Extended Term) subsequent to the first Lease Year, Basic Rent
shall be adjusted by multiplying the amount of Basic Rent payable for the
immediately preceding Lease Year by 100% plus the percentage increase in
the "Consumer Price Index" (as hereinafter defined) from, as the case may
be, each anniversary of the Commencement Date if the same occurs on the
first day of a calendar month and, if the Commencement Date does not occur
on the first day of a calendar month, the anniversary of the commencement
of the first full calendar month succeeding the Commencement Date to the
date of determination, provided, however, that the Basic Rent shall never
be less than the amount being paid therefor at the commencement of
3
<PAGE>
each Lease Year of the Term. "Consumer Price Index" as used herein shall mean
the 1978 Revised Consumer Price Index for Urban Wage Earners and Clerical
Workers, Boston, Massachusetts, all items, 1982-84=100 (the "CPI") and shall be
used in determining the percentage increase in the CPI for the first Lease Year
and each other Lease Year of the Initial Term and the Extended Term. If the
level of the CPI is not published for a particular month, then such
determination shall be made based on the nearest month prior to such month for
which the level of the CPI is published. The CPI is presently published by the
United States Bureau of Labor Statistics. In the event such publication ceases,
the adjustment of Basic Rent hereunder shall be computed on the basis of
whatever index published by the United States Department of Labor or any
successor agency thereto is most comparable as a measure of general changes in
the cost of living for the Boston area.
ARTICLE IV
COMMENCEMENT AND CONDITION
4.1 COMMENCEMENT DATE. The Commencement Date shall be the date set forth in the
preamble hereof. If Landlord shall be unable to give possession of the
Premises on the Commencement Date for any reason, Landlord shall not be
subject to any liability therefor whatsoever. Under such circumstances, the
Basic Rent to be paid herein shall not commence until the Premises are
available for occupancy, and no such failure to give possession on the
Commencement Date shall in any way affect the validity of this Lease or the
obligations of Tenant hereunder, nor shall the same be construed in any way
to extend the Term of this Lease or change the Commencement Date.
4.2 CONDITION OF THE PREMISES. The Premises are being leased to Tenant AS IS
WITHOUT REPRESENTATION OR WARRANTY. Tenant acknowledges that it has
inspected the Premises and has found the same to be satisfactory.
ARTICLE V
USE OF PREMISES
5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall be used and
occupied by Tenant only for Permitted Uses.
(b) Tenant agrees to conform to the following provisions during the
Term of this Lease:
(i) Tenant will not place on the Premises (including both
interior and exterior surfaces of doors and windows) any
signs, symbol, advertisement or the like unless such signs,
symbols or
4
<PAGE>
advertisements comply with all local zoning and other
applicable ordinances;
(ii) Tenant shall not perform any act or carry on any practice
which may injure the Premises, or cause any offensive
odors or loud noise or constitute a nuisance or a menace;
(iii) Tenant shall, in its use of the Premises, comply with the
requirements of all applicable governmental laws, rules
and regulations;
(iv) Tenant shall throughout the Term of this Lease (1)
continuously use and occupy the Premises for Permitted
Uses and (2) operate the Premises in strict accordance
with the Operating Standards prescribed in Exhibit OS
hereto.
(c) (i) Tenant acknowledges that its continuous use and occupancy of
the Premises, and the regular conduct of its business therein for Permitted
Uses in accordance with the provisions of this Article V hereof are of
utmost importance to the Landlord in maintaining the character, quality and
integrity of the Premises. Tenant acknowledges that Landlord is executing
this Lease in reliance upon these covenants and that the covenants set
forth herein are a material element of consideration inducing Landlord to
execute and deliver this Lease. Tenant further agrees that if it vacates
the Premises or fails to so conduct its business therein in accordance with
the terms hereof at any time during the Term of this Lease, and if Tenant
is not otherwise in default of any of its obligations under the terms of
this Lease (which condition Landlord may waive at any time), Landlord shall
have the right to terminate this Lease at any time upon not less than sixty
(60) days' prior notice.
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT. (a) Tenant shall make no
alterations, additions or improvements in or to the Premises other than
those required and covered by Section 7.2 of this Lease, without Landlord's
prior written consent provided, however, that Tenant may make, without
Landlord's prior consent, any alterations, additions or improvements which
are decorative or nonstructural in nature, which do not affect the
Premises' operating systems, and which do not exceed in the aggregate
$25,000. Any such alterations, additions or improvements shall (i) be in
accordance with complete plans and specifications approved by Landlord,
(ii) be performed in a good and workmanlike manner and in compliance with
all applicable laws, (iii) be made only by contractors or mechanics
approved by Landlord, (iv) be made at Tenant's sole expense and at such
times and in such manner as Landlord may from time to time designate, and
(v) become part of the Premises and the property of Landlord. If any
alterations or improvements shall involve the removal of fixtures,
equipment or other property in the Premises which are not Tenant's
Removable Property, such fixtures, equipment or property shall be promptly
replaced by Tenant at its expense with new fixtures, equipment or property
of like utility and of at least equal quality.
5
<PAGE>
(b) Provided that no Default of Tenant shall have occurred and be
continuing, all articles of personal property and all business fixtures,
machinery and equipment and furniture owned or installed by Tenant solely
at its expense in the Premises ("Tenant's Removable Property") shall remain
the property of Tenant and may be removed by Tenant at any time prior to
the expiration of this Lease, provided that Tenant, at its expense, shall
repair any damage to the Premises caused by such removal.
(c) Notice is hereby given that Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit, and
that no mechanic's or other lien for any such labor or materials shall
attach to or affect the reversion or other estate or interest of Landlord
in and to the Premises. Whenever and as often as any mechanic's lien shall
have been filed against the Premises based upon any act or interest of
Tenant or of anyone claiming through Tenant, Tenant, within thirty (30)
days after notice of the filing thereof, shall cause the same to be
discharged. If Tenant shall fail to cause such lien to be discharged,
Tenant shall have either (i) bonded the same or (ii) insured over the same
with a title insurance company or companies satisfactory to Landlord.
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 PROHIBITION. (a) Tenant covenants and agrees that whether voluntarily,
involuntarily, by operation of law or otherwise, neither this Lease nor the
term and estate hereby granted, nor any interest herein or therein, will be
assigned, mortgaged, pledged, encumbered or otherwise transferred and that
neither the Premises nor any part thereof will be encumbered in any manner
by reason of any act or omission on the part of Tenant, or used or occupied
or permitted to be used or occupied, by anyone other than Tenant, or for
any use or purpose other than a Permitted Use, or be sublet (which term,
without limitation, shall include granting of concessions, licenses and the
like) in whole or in part, or be offered or advertised for assignment or
subletting.
(b) Anything in the foregoing Section 6.1(a) to the contrary
notwithstanding, Tenant shall not assign or sublet or permit to be assigned
or subletted all or any portion of or interest in the Lease without the
prior written consent of Landlord, which consent shall not be unreasonably
withheld or delayed, provided that: (i) any proposed assignee or subtenant
has a credit rating and financial standing reasonably acceptable to
Landlord; (ii) any proposed assignee or subtenant will use the Premises
only for Permitted Uses; (iii) such assignment or sublease shall have a
term equal to the remainder of the Term of this Lease (not including any
unexercised option to extend); (iv) the assignee or subtenant agrees
directly with Landlord, by written instrument satisfactory to Landlord, to
be bound by all the obligations of Tenant hereunder, including, without
limitation, the covenant against further assignment and subletting; (v) in
no event shall Tenant be released from its obligations
6
<PAGE>
under this Lease, and (vi) not later than thirty (30) days prior to the
proposed commencement of such assignment or sublease, Landlord shall have
received information reasonably sufficient to determine compliance with the
foregoing conditions.
(c) Except as otherwise expressly permitted in this Article VI, if
this Lease be assigned, or if the Premises or any part thereof be sublet or
occupied by anyone other than Tenant, Landlord may, at any time and from
time to time, collect rent and other charges from the assignee, subtenant
or occupant, and apply the net amount collected to the rent and other
charges herein reserved, but no such assignment, subletting, occupancy,
collection or modification of any provisions of this Lease shall be deemed
a waiver of this covenant, or the acceptance of the assignee, subtenant or
occupant as a tenant or a release of the original named Tenant from the
further performance by the original named Tenant hereunder. No assignment
or subletting hereunder shall relieve Tenant from its obligations hereunder
and Tenant shall remain fully and primarily liable therefor. No assignment,
subletting, or occupancy shall affect or be contrary to Permitted Uses.
ARTICLE VII
RESPONSIBLE FOR REPAIRS AND CONDITION OF PREMISES
7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease, Landlord
agrees to keep in good order, condition and repair the roof and external
structure of the Building, all insofar as they affect the Premises, except
that Landlord shall in no event be responsible to Tenant for the condition
of glass, doors or windows on the Premises or for any condition of the
Premises caused by any act or neglect of Tenant, its invitees or
contractors. It is understood that Landlord's obligations are expressly
limited as aforesaid, and Landlord shall not be responsible to make any
improvements or repairs to the Premises other than as expressly provided in
this Section 7.1.
(b) Landlord shall never be liable for any failure to make repairs
which Landlord has undertaken to make under the provisions of this Section
7.1 or elsewhere in this Lease, unless Tenant has given notice to Landlord
of the need to make such repairs, and Landlord has failed to commence to
make such repairs within a reasonable time after receipt of such notice, or
fails to proceed with reasonable diligence to complete such repairs.
(c) If repairs are required to be made by Landlord pursuant to the
terms hereof, Tenant may demand Landlord make the same forthwith and if
Landlord refuses or neglects to commence such repairs within sixty (60)
days of delivery of written notice from Tenant and complete the same with
reasonable dispatch after delivery of such notice (except in the case of an
emergency in which case Tenant may make such repairs twenty four hours
following delivery of notice to Landlord) Tenant may (but shall not be
required to do so) to make or cause such repairs to be made and charge
Landlord therefor.
7
<PAGE>
7.2 TENANT'S AGREEMENT. (a) Tenant will keep neat and clean and maintain in
good order, condition and repair the Premises and every part thereof,
excepting only those specific repairs for which Landlord is responsible
under the terms of this Lease, reasonable wear and tear of the Premises,
and damage by fire or other casualty and as a consequence of the exercise
of the power of eminent domain, and shall surrender the Premises at the end
of the Term of this Lease in such condition. Without limitation, Tenant
shall continually during the Term of this Lease maintain the Premises,
including, without limitation, all doors, windows, plate glass, awnings,
signs, lighting, fixtures, walls, floors, ceilings, parking areas,
landscaped areas, paving, striping, curbs and all plumbing, electrical,
mechanical and HVAC systems, in accordance with all laws, codes and
ordinances from time to time in effect and all directions, rules and
regulations of the proper officers of governmental agencies having
jurisdiction, and of the applicable board of fire underwriters, and shall,
at Tenant's own expense, obtain all permits, licenses and the like required
by applicable law. Notwithstanding the foregoing or the provisions of
Article XII, but subject to the provisions of Section 14.20, Tenant shall
be responsible for the cost of repairs which may be made necessary by
reason of damage to the Premises caused by any act or neglect of Tenant, or
its contractors or invitees (including any damage by fire or any other
casualty arising therefrom).
(b) If repairs are required to be made by Tenant pursuant to the terms
hereof, Landlord may demand that Tenant make the same forthwith, and if
Tenant refuses or neglects to commence such repairs and complete the same
with reasonable dispatch, after such demand (except in the case of an
emergency, in which event Landlord may make such repairs), Landlord may
(but shall not be required to do so) make or cause such repairs to be made
(the provisions of Section 14.18 being applicable to the costs thereof),
and shall not be responsible to Tenant for any loss or damage that may
accrue to Tenant's stock or business by reason thereof.
7.3 UTILITIES. Tenant shall provide for the supply of, and pay for, any and
all utilities, including, without limitation, electricity, heat, water,
sewer, steam, gas and telephone, necessary or appropriate to the operation
of Tenant's business at the Premises.
ARTICLE VIII
------------
REAL ESTATE TAXES
-----------------
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES. (a) For the purposes of this
Article, the term "Tax Year" shall mean the twelve-month period commencing
on the July 1 immediately preceding the Commencement Date and each twelve-
month period thereafter commencing during the Term of this Lease; and the
term "Taxes" shall mean all real estate taxes assessed and any fee, tax or
charge imposed by any governmental authority, including linkage payments,
with respect to the Premises for any Tax Year.
8
<PAGE>
(b) Tenant shall pay or cause to be paid, before the same become
delinquent, all and any Taxes which at any time during the Term of this
Lease may be assessed, levied, imposed upon, or become due or payable out
of or in respect of, or become a lien on, the Premises or any part thereof
or any appurtenance thereof. If, by law, any Taxes may at the option of
the taxpayer be paid in installments. Tenant may exercise the option to
pay the same at any time before the same become delinquent in installments
and, in such event, shall pay such installments as may be allocable to the
Term of this Lease as the same respectively become due and before they
become delinquent.
(c) Tenant shall have the right to contest the amount or validity, in
whole or in part, of any Taxes, or to seek a reduction in the valuation of
the Premises as assessed for real estate or personal property tax purposes
by appropriate proceedings diligently conducted in good faith so long as:
(i) neither the Premises nor any part thereof would by reason of such
postponement or deferment be in danger of being forfeited or lost; and (ii)
Tenant shall have deposited with Landlord (in cash, by letter of credit or
other money equivalent instrument reasonably satisfactory to Landlord) the
amount so contested and unpaid, together with all interest and penalties in
connection therewith and all charges that may or might be assessed against
or become a charge on the Premises, or any part thereof, in such
proceedings. Any funds held hereunder by Landlord shall be maintained in a
segregated account. Upon the termination of any such proceeding, Tenant
shall pay, or shall direct Landlord to pay from Tenant's funds held under
this Section, any amount due as finally determined in such proceeding,
together with all costs, fees, interest, penalties or other liabilities in
connection therewith, and upon such payment, Landlord shall return to
Tenant any amount deposited with it (and not previously applied by it as
herein provided) with respect to such Taxes.
(d) Tenant shall furnish Landlord with proof of the payment of such
Taxes within seven (7) days of the date of payment. If Tenant fails to pay
such Taxes when due or to furnish such proof to Landlord, Landlord may, by
sending Tenant five (5) days written notice, demand that Tenant pay such
Taxes and if Tenant refuses or neglects to do so, Landlord may pay such
Taxes and send Tenant a bill for Taxes paid, plus any penalties imposed
thereon, which Tenant shall pay within ten (10) days of receipt. If Tenant
fails to pay such bill from Landlord, Landlord shall have the right to
terminate this Lease upon not less than thirty (30) days prior notice.
8.2 ABATEMENT. If Landlord shall receive any tax refund or reimbursement of
Taxes or sum in lieu thereof with respect to any Tax Year, then out of any
balance remaining thereof after deducting Landlord's expenses reasonably
incurred in obtaining such refund, Landlord shall pay to Tenant, provided
there does not then exist a Default of Tenant, an amount equal to such
refund or reimbursement or sum in lieu thereof (exclusive of any interest);
provided that in no event, shall Tenant be entitled to receive more than
the payments made by Tenant on account of Taxes for such Tax Year pursuant
to paragraph (b) of Section 8.1. Any costs of obtaining an abatement which
do not result in an abatement, refund or otherwise shall be included in
Operating Expenses.
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<PAGE>
8.3 ALTERNATE TAXES. (a) If some method or type of taxation shall replace the
current method of assessment of real estate taxes in whole or part, or the
type thereof, or if additional types of taxes are imposed upon the Premises
or Landlord, Tenant agrees that such taxes or other charges shall be deemed
to be, and shall be, Taxes hereunder and Tenant shall pay such amount.
(b) If a tax, (other than a Federal or State net income tax) is
assessed on account of the rents or other charges payable by Tenant to
Landlord under this Lease, Tenant agrees to pay the same as an additional
charge within ten (10) days after billing therefor, unless applicable law
prohibits the payment of such tax by Tenant.
ARTICLE IX
----------
OPERATING EXPENSES
------------------
9.1 DEFINITIONS. For the purposes of this Article, the following terms shall
have the following respective meanings:
Operating Year: Each calendar year in which any part of the Term of
this Lease shall fall.
Operating Expenses: The aggregate costs or expenses reasonably
incurred by Tenant with respect to the insurance, operation (including
without limitation all charges for utilities furnished to the Premises),
administration, cleaning, repair, snowplowing, groundskeeping, landscaping,
maintenance and management of the Premises.
9.2 TENANT'S PAYMENTS. Tenant shall pay any and all Operating Expenses
relating in any way to the use, operation and maintenance of the Premises
which may arise or become due during the Term of this Lease, it being the
intention of the parties hereto that under no circumstances shall Landlord
have any obligation or responsibility with respect to any of the Operating
Expenses. In the event of any non-payment of any of the Operating Expenses
by Tenant, Landlord shall have, in addition to all other rights and
remedies, all of the rights and remedies provided for herein or by law in
the case of the non-payment of Basic Rent, Additional Charges or other
charges due under this Lease.
ARTICLE X
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INDEMNITY AND PUBLIC LIABILITY INSURANCE
----------------------------------------
10.1 LANDLORD'S INDEMNITY. Landlord agrees to indemnify and save harmless
Tenant from and against all claims, loss, cost, damage or expense of
whatever nature arising from any accident, injury or damage occurring
outside of the Premises or on the property where such accident, damage or
injury results from negligence on the
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part of Landlord or Landlord's agents or employees or independent
contractors or Landlord's failure to perform its obligations under Section
7.1. This indemnity and hold harmless agreement shall include indemnity
against all losses, costs, damages, expenses and liabilities incurred in or
in connection with any such claim or proceeding brought thereon, and the
defense thereof, including, without limitation, reasonable attorney's fees
and costs at both the trial and appellate levels.
10.2 TENANT'S INDEMNITY. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to indemnify and save harmless
Landlord from and against all claims, loss, cost, damage or expense of
whatever nature arising: (i) from any accident, injury or damage
whatsoever to any person, or to the property of any person, occurring in or
about the Premises; (ii) from any accident, injury or damage occurring
outside of the Premises but on the property where such accident, damage or
injury results or is claimed to have resulted from an act or omission on
the part of Tenant or Tenant's agents or employees or independent
contractors; (iii) in connection with the conduct or management of the
Premises or of any business therein, or any thing or work whatsoever done,
or any condition created (other than by Landlord) in or about the Premises;
or (iv) from any breach of Section 14.1 hereof; and, in any case, occurring
after the date of this Lease until the end of the Term of this Lease and
thereafter so long as Tenant is in occupancy of any part of the Premises.
This indemnity and hold harmless agreement shall include indemnity against
all losses, costs, damages, expenses and liabilities incurred in or in
connection with any such claim or proceeding brought thereon, and the
defense thereof, including, without limitation, reasonable attorneys' fees
and costs at both the trial and appellate levels.
10.3 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force from
the date upon which Tenant first enters the Premises for any reason,
throughout the Term of this Lease, and thereafter so long as Tenant is in
occupancy of any part of the Premises, a policy of general liability and
property damage insurance (including broad form contractual liability,
independent contractor's hazard and completed operations coverage) under
which Tenant is named as an insured and Landlord (and such other persons as
are in privity of estate with Landlord as may be set out in a notice from
time to time) are named as additional insureds, and under which the insurer
agrees to indemnify and hold Landlord and those in privity of estate with
Landlord, harmless from and against all cost, expense and/or liability
arising out of or based upon any and all claims, accidents, injuries and
damages set forth in Section 10.2. Each such policy shall be non-
cancelable and non-amendable with respect to Landlord, and Landlord's said
designees without thirty (30) days' prior notice and shall be in at least
the amounts of the Initial Public Liability Insurance specified in Section
1.3 or such greater amounts as Landlord shall from time to time request,
and a duplicate original or certificate thereof shall be delivered to
Landlord.
10.4 TENANT'S RISK. Tenant agrees to use and occupy the Premises at Tenant's
own risk. To the maximum extent this agreement may be made effective
according to law, Landlord shall have no responsibility or liability for
any loss of or damage to Tenant's Removable Property. Tenant shall carry
"all-risk" property insurance at a
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"replacement cost" basis but in any event whatever is required to prevent
Tenant from being a coinsured thereunder (including, without limitation,
all contents, glass in windows and doors, so-called improvements and
betterments), and provide a waiver of subrogation as required in Section
14.20. The provisions of this Section 10.4 shall be applicable from and
after the execution of this Lease and until the end of the Term of this
Lease, and during such further period as Tenant may use or be in occupancy
of any part of the Premises.
10.5 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this agreement may
be made effective according to law, Tenant agrees that Landlord shall not
be responsible or liable to Tenant, or to those claiming by, through or
under Tenant, for any loss or damage that may be occasioned by or through
the acts or omissions of persons occupying adjoining premises or any part
of the premises adjacent to or connecting with the Premises or otherwise.
ARTICLE XI
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LANDLORD'S ACCESS TO PREMISES
-----------------------------
11.1 LANDLORD'S RIGHTS. Landlord shall have the right to enter the Premises
during business hours upon reasonable notice to Tenant (except in the case
of emergency) for the purpose of inspecting or making repairs to the same,
and Landlord shall also have the right to make access available at all
reasonable hours to prospective or existing mortgagees, purchasers or
tenants of any part of the Premises. At Landlord's request, Tenant shall
provide Landlord with keys and security codes which may be necessary to
gain such access to the Premises. For a period commencing one (1) year
prior to the end of the Term of this Lease, Landlord shall have the right
to display and to post any signs on and about the Premises advertising the
Premises for sale and/or lease.
ARTICLE XII
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FIRE, EMINENT DOMAIN, ETC.
-------------------------
12.1 ABATEMENT OF RENT. If the Premises shall be damaged by fire or casualty
not caused by the negligence or other misconduct of Tenant, Basic Rent and
Additional Charges payable by Tenant shall abate proportionately for the
period in which, by reason of such damage, there is substantial
interference with Tenant's use of the Premises, having regard to the extent
to which Tenant may be required to discontinue Tenant's use of all or a
portion of the Premises, but such abatement or reduction shall end if and
when Landlord shall have substantially restored the Premises (excluding any
alterations, additions or improvements made by Tenant pursuant to Section
5.2) to the condition in which they were prior to such damage. If the
Premises shall be affected by any exercise of the power of eminent domain,
Basic Rent and Additional Charges payable by Tenant shall be justly and
equitably abated and reduced according
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to the nature and extent of the loss of use thereof suffered by Tenant. In
no event shall Landlord have any liability for damages to Tenant for
inconvenience, annoyance, or interruption of business arising from such
fire, casualty or eminent domain.
12.2 RIGHT OF TERMINATION. If the Premises or the Building are substantially
damaged by fire or casualty (the term "substantially damaged" meaning
damage of such a character that the same cannot, in ordinary course,
reasonably be expected to be repaired within sixty (60) days from the time
that repair work would commence), or if any part of the Building is taken
by any exercise of the right of eminent domain, then Landlord and Tenant
shall each have the right to terminate this Lease (even if Landlord's
entire interest in the Premises may have been divested) by giving the other
party notice of its election so to do within thirty (30) days after the
occurrence of such casualty or the effective date of such taking, whereupon
this Lease shall terminate on the date of such notice with the same force
and effect as if such date were the date originally established as the
expiration date hereof.
12.3 RESTORATION. If this Lease shall not be terminated pursuant to Section
12.2, Landlord shall thereafter use due diligence to restore the Premises
(excluding any alterations, additions or improvements made by Tenant
pursuant to Section 5.2) to proper condition for Tenant's use and
occupation, provided that Landlord's obligation shall be limited to the
amount of insurance proceeds available therefor. If, for any reason, such
restoration shall not be substantially completed within six (6) months
after the expiration of the 30-day period referred to in Section 12.2
(which six-month period may be extended for such periods of time as
Landlord is prevented from proceeding with or completing such restoration
for any cause beyond Landlord's reasonable control, but in no event for
more than an additional three (3) months), Tenant shall have the right to
terminate this Lease by giving notice to Landlord thereof within thirty
(30) days after the expiration of such period (as so extended). Upon the
giving of such notice, this Lease shall cease and come to an end without
further liability or obligation on the part of either party unless, within
such 30-day period, Landlord substantially completes such restoration.
Such right of termination shall be Tenant's sole and exclusive remedy at
law or in equity for Landlord's failure so to complete such restoration.
12.4 AWARD. Landlord shall have and hereby reserves and excepts, and Tenant
hereby grants and assigns to Landlord, all rights to recover for damages to
the Premises and the leasehold interest hereby created, and to compensation
accrued or hereafter to accrue by reason of such taking, damage or
destruction, and by way of confirming the foregoing, Tenant hereby grants
and assigns, and covenants with Landlord to grant and assign to Landlord,
all rights to such damages or compensation, and covenants to deliver such
further assignments and assurances thereof as Landlord may from time to
time request, and Tenant hereby irrevocably appoints Landlord its attorney-
in-fact to execute and deliver in Tenant's name all such assignments and
assurances. Nothing contained herein shall be construed to prevent Tenant
from prosecuting in any condemnation proceedings a claim for the value of
any of Tenant's Removable Property installed in the Premises by Tenant at
Tenant's expense and for relocation
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expenses, provided that such action shall not affect the amount of compensation
otherwise recoverable by Landlord from the taking authority.
ARTICLE XIII
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DEFAULT
-------
13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this Lease
any one or more of the following events (herein referred to as a "Default
of Tenant") shall happen:
(i) Tenant shall fail to pay the Basic Rent, Additional Charges or
other charges hereunder when due and payable and such default
shall continue for a period of five (5) days after receipt of
notice from Landlord; or
(ii) Tenant shall neglect or fail to perform or observe any other
covenant herein contained on Tenant's part to be performed or
observed and Tenant shall fail to remedy the same within thirty
(30) days after notice to Tenant specifying such neglect or
failure, or if such failure is of such a nature that Tenant
cannot reasonably remedy the same within such thirty (30) day
period, Tenant shall fail to commence promptly to remedy the
same and to prosecute such remedy to completion with diligence
and continuity; or
(iii) Tenant's leasehold interest in the Premises shall be taken on
execution or by other process of law directed against Tenant;
or
(iv) Tenant shall make an assignment for the benefit of creditors or
shall file a voluntary petition in bankruptcy or shall be
adjudicated bankrupt or insolvent, or shall file any petition
or answer seeking any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief for
itself under any present or future Federal, State or other
statute, law or regulation for the relief of debtors, or shall
seek or consent to or acquiesce in the appointment of any
trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties, or shall admit in writing
its inability to pay its debts generally as they become due; or
(v) A petition shall be filed against Tenant in bankruptcy or under
any other law seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or similar
relief under any present or future, Federal, State or other
statute, law or regulation and shall remain undismissed or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive), or if any debtor in possession (whether or not
Tenant), trustee, receiver or liquidator of Tenant or of
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all or any substantial part of its properties or of the
Premises shall be appointed without the consent or acquiescence
of Tenant and such appointment shall remain unvacated or
unstayed for an aggregate of sixty (60) days (whether or not
consecutive); or
(vi) If a Default of Tenant of the kind set forth in clauses (i) or
(ii) above shall occur and if either (x) Tenant shall cure such
Default within any applicable grace period or (y) Landlord
shall, in its sole discretion, permit Tenant to cure such
Default after any applicable grace period has expired, and an
event which would constitute a similar Default if not cured
within the applicable grace period shall occur more than once
within the next 365 days, whether or not such event is cured
within the applicable grace period; then in any such case
Landlord may terminate this Lease by notice to Tenant,
specifying a date not less than five (5) days after the giving
of such notice on which this Lease shall terminate and this
Lease shall come to an end on the date specified therein as
fully and completely as if such date were the date herein
originally fixed for the expiration of the Term of this Lease,
and Tenant will then quit and surrender the Premises to
Landlord, but Tenant shall remain liable as hereinafter
provided.
(b) If this Lease shall have been terminated as provided in this
Article, or if any execution or attachment shall be issued against Tenant
or any of Tenant's property whereupon the Premises shall be taken or
occupied by someone other than Tenant, then Landlord may, without notice,
re-enter the Premises, either by force, summary proceedings, ejectment or
otherwise, and remove and dispossess Tenant and all other persons and any
and all property from the same, as if this Lease had not been made, and
Tenant hereby waives the service of notice of intention to re-enter or to
institute legal proceedings to that end.
(c) In the event of any termination, Tenant shall pay the Basic Rent,
Additional Charges, and other sums payable hereunder up to the time of such
termination, and thereafter Tenant, until the end of what would have been
the Term of this Lease in the absence of such termination, and whether or
not the Premises shall have been relet, shall be liable to Landlord for,
and shall pay to Landlord, as liquidated current damages, in addition to
the costs and expenses set forth in Section 13.1(h): (i) the Basic Rent,
Additional Charges and other sums which would be payable hereunder if such
termination had not occurred, less the net proceeds, if any, of any
reletting of the Premises, after deducting all expenses in connection with
such relenting, including, without limitation, all repossession costs,
brokerage commissions, legal expenses, attorneys' fees, advertising,
expenses of employees, alteration costs and expenses of preparation for
such reletting, and (ii) if, in accordance with Section 3.1(a), Tenant
commenced payment of the full amount of Basic Rent on any day other than
the Commencement Date, the amount of Basic Rent that would have been
payable during the period beginning on the Commencement Date and ending on
the day Tenant commenced payment of the full amount of Basic Rent under
such Section 3.1(a). Tenant shall pay the portion of such current damages
referred to in clause (i)
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above to Landlord monthly on the days on which the Basic Rent would have
been payable hereunder if this Lease had not been terminated, and Tenant
shall pay the portion of such current damages referred to in clause (ii)
above to Landlord upon such termination.
(d) At any time after such termination, whether or not Landlord shall
have collected any such current damages, as liquidated final damages and in
lieu of all such current damages beyond the date of such demand, at
Landlord's election, Tenant shall pay to Landlord an amount equal to the
excess, if any, of the Basic Rent, Additional Charges and other sums as
hereinbefore provided which would be payable hereunder from the date of
such demand (assuming that, for the purposes of this paragraph, annual
payments by Tenant on account of Taxes and Operating Expenses would be the
same as the payments required for the immediately preceding Operating or
Tax Year) for what would be the then unexpired Term of this Lease if the
same remained in effect, over the then fair net rental value of the
Premises for the same period.
(e) Anything in this Section 13.1 to the contrary notwithstanding, in
case of any Default of Tenant, re-entry, expiration and dispossession by
summary proceedings or otherwise, upon Tenant's specific request in
writing, Landlord shall use reasonable efforts to re-let the Premises or
any part or parts thereof, either in the name of Landlord or otherwise,
provided, however, that Tenant surrenders the Premises, delivers the keys
to the Premises to Landlord, is current in its obligations to pay rent
hereunder, and cooperates with Landlord in its efforts to re-let the
Premises for a term or terms which may at Landlord's option be equal to or
less than or exceed the period which would otherwise have constituted the
balance of the Term of this Lease and may grant concessions or free rent to
the extent that Landlord considers advisable and necessary to re-let the
same and (ii) may make such reasonable alterations, repairs and decorations
in the Premises as Landlord in its sole judgment considers advisable and
necessary for the purpose of reletting the Premises; and the making of such
alterations, repairs and decorations shall not operate or be construed to
release Tenant from liability hereunder as aforesaid. Landlord shall in no
event be liable in any way whatsoever for failure to re-let the Premises,
or, in the event that the Premises are re-let, for failure to collect the
rent, under such re-letting. Tenant hereby expressly waives any and all
rights of redemption granted by or under any present or future laws in the
event of Tenant being evicted or dispossessed, or in the event of Landlord
obtaining possession of the Premises, by reason of the violation by Tenant
of any of the covenants and conditions of this Lease.
(f) If a Guarantor of this Lease is named in Section 1.2, the
happening of any of the events described in paragraphs (a)(iv) or (a)(v) of
this Section 13.1 with respect to the guarantor shall constitute a Default
of Tenant hereunder.
(g) The specified remedies to which Landlord may resort hereunder are
not intended to be exclusive of any remedies or means of redress to which
Landlord may at any time be entitled lawfully, and Landlord may invoke any
remedy (including the remedy of specific performance) allowed at law or in
equity as if specific remedies were not herein provided for.
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(h) All costs and expenses incurred by or on behalf of Landlord or
Tenant (including, without limitation, attorneys' fees and expenses at both
the trial and appellate levels) in enforcing its rights hereunder or
occasioned by any Default of Tenant shall be paid by the party against whom
any arbitration award or judgment is entered. The parties specifically
waive any and all rights to a jury trial. Interest on any sums due from one
party to the other under any arbitration award or judgment shall accrue
from the date such monies are due at the interest rate provided in Section
14.18 hereof.
13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the
performance of any of Landlord's obligations hereunder unless and until
Landlord shall have failed to perform such obligations within thirty (30)
days, or such additional time as is reasonably required to correct any such
default, after notice by Tenant to Landlord specifying wherein Landlord has
failed to perform any such obligations.
ARTICLE XIV
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MISCELLANEOUS PROVISIONS
------------------------
14.1 HAZARDOUS SUBSTANCES. Tenant shall not store, locate, generate, produce,
process, treat, transport, discharge, emit, release, deposit or dispose of
any dangerous, toxic or hazardous pollutants, contaminants, chemicals,
wastes, materials or substances, as defined in or governed by the
provisions of any applicable law, statute, code, ordinance, regulation,
requirement or rule relating thereto (hereinafter collectively called
"Environmental Regulations"), and also including ureaformaldehyde,
polychlorinated biphenyls, asbestos, asbestos containing materials, nuclear
fuel or waste, radioactive materials, explosives, carcinogens and petroleum
products, or any other waste, material, substance, pollutant or contaminant
(hereinafter collectively called "Hazardous Substances") (but specifically,
excluding any drugs and other items in Tenant's inventory which are a part
of Tenant's permitted use under this Lease and which are stored, located,
generated, produced, processed, treated, transported, discharged, emitted,
released, deposited or disposed of on the Premises in compliance with
Environmental Regulations) in, upon, under, over or from the Premises. In
no event shall Tenant store, locate, generate, produce, process, treat,
transport, discharge, emit, release, deposit or dispose of any Hazardous
Substance in a manner which would subject Landlord to any damages,
penalties or liabilities under any applicable Environmental Regulation.
Tenant shall (a) not permit any Hazardous Substances to be stored, located,
generated, produced, processed, treated, transported, discharged, emitted,
released, deposited or disposed of or to escape therein, thereupon,
thereunder, thereover or therefrom, (b) cause Hazardous Substances found
thereon as a direct result of the Tenant's operation of its business at, or
occupancy of the Premises, to be properly removed therefrom and properly
disposed of in accordance with all applicable Environmental Regulations,
(c) not install or permit to be installed any underground storage tank
therein or thereunder, and (d) comply with all Environmental Regulations
which are applicable to the Premises.
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14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of any
action or non-action on the part of the other, no matter how long the same
may continue, shall never be a waiver by Tenant or Landlord, respectively,
of any of the other's rights hereunder. Further, no waiver at any time of
any of the provisions hereof by Landlord or Tenant shall be construed as a
waiver of any of the other provisions hereof, and a waiver at any time of
any of the provisions hereof shall not be construed as a waiver at any
subsequent time of the same provisions. The consent or approval of Landlord
or Tenant to or of any action by the other requiring such consent or
approval shall not be construed to waive or render unnecessary Landlord's
or Tenant's consent or approval to or of any subsequent similar act by the
other.
(b) No payment by Tenant, or acceptance by Landlord, of a lesser
amount than shall be due from Tenant to Landlord shall be treated otherwise
than as a payment on account of the earliest installment of any payment due
from Tenant under the provisions hereof. The acceptance by Landlord of a
check for a lesser amount with an endorsement or statement thereon, or upon
any letter accompanying such check, that such lesser amount is payment in
full, shall be given no effect, and Landlord may accept such check without
prejudice to any other rights or remedies which Landlord may have against
Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant, subject to the terms and provisions
of this Lease, on payment of the Basic Rent and Additional Charges and
observing, keeping and performing all of the other terms and provisions of
this Lease on Tenant's part to be observed, kept and performed, shall
lawfully, peaceably and quietly have, hold, occupy and enjoy the Premises
during the term hereof, without hindrance or ejection by any persons
lawfully claiming under Landlord to have title to the Premises superior to
Tenant; the foregoing covenant of quiet enjoyment is in lieu of any other
covenant, express or implied.
14.4 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look solely to
Landlord's then equity interest (including the rents and profits therefrom)
in the Premises at the time owned, for recovery of any judgment from
Landlord, it being specifically agreed that Landlord (original or
successor) shall never be personally liable for any such judgment, or for
the payment of any monetary obligation to Tenant. The provision contained
in the foregoing sentence is not intended to, and shall not, limit any
right that Tenant might otherwise have to obtain injunctive relief against
Landlord or Landlord's successors in interest, or to take any action not
involving the personal liability of Landlord (original or successor) to
respond in monetary damages from Landlord's assets other than Landlord's
equity interest in the Premises.
(b) With respect to any services or utilities to be furnished by
Landlord to Tenant, Landlord shall in no event be liable for failure to
furnish the same when prevented from doing so by strike, lockout,
breakdown, accident, order or regulation of or by any governmental
authority, or failure of supply, or failure whenever and for so long as may
be necessary by reason of the making of repairs or changes which Landlord
is required or is permitted by this Lease or by law to make or in good
faith
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deems necessary, or inability by the exercise of reasonable diligence to
obtain supplies, parts or employees necessary to furnish such services, or
because of war or other emergency, or for any other cause beyond Landlord's
reasonable control, or for any cause due to any act or neglect of Tenant or
Tenant's servants, agents, employees, licensees or any person claiming by,
through or under Tenant, nor shall any such failure give rise to any claim
in Tenant's favor that Tenant has been evicted, either constructively or
actually, partially or wholly.
(c) In no event shall Landlord ever be liable to Tenant for any loss
of business or any other indirect or consequential damages suffered by
Tenant from whatever cause.
(d) Where provision is made in this Lease for Landlord's consent and
Tenant shall request such consent and Landlord shall fail or refuse to give
such consent, Tenant shall not be entitled to any damages for any
withholding by Landlord of its consent, it being intended that Tenant's
sole remedy shall be an action for specific performance or injunction, and
that such remedy shall be available only in those cases where Landlord has
expressly agreed in writing not to unreasonably withhold its consent.
Furthermore, whenever Tenant requests Landlord's consent or approval
(whether or not provided for herein), Tenant shall pay to Landlord, on
demand, as an additional charge, any expenses incurred by Landlord
(including, without limitation, legal fees and costs, if any) in connection
therewith. Notwithstanding anything contained herein to the contrary, in
the event that it is finally adjudicated that Landlord's consent was
unreasonably withheld and the Tenant prevails in an action for specific
performance or injunction, Landlord shall pay all costs incurred by Tenant
in any such proceedings.
(e) With respect to any repairs or restoration which are required or
permitted to be made by Landlord, the same may be made during normal
business hours and Landlord shall use reasonable efforts not to interfere
with Tenant's business and shall have no liability for damages to Tenant
for inconvenience, annoyance or interruption of business arising therefrom.
14.5 NOTICE TO MORTGAGEE OR GROUND LESSOR. After receiving notice from any
person, firm or other entity that it holds a mortgage or a ground lease
which includes the Premises, no notice from Tenant to Landlord alleging any
default by Landlord shall be effective unless and until a copy of the same
is given to such holder or ground lessor (provided Tenant shall have been
furnished with the name and address of such holder or ground lessor), and
the curing of any of Landlord's defaults by such holder or ground lessor
shall be treated as performance by Landlord.
14.6 ASSIGNMENT OF RENTS AND TRANSFER OF TITLE. (a) With reference to any
assignment by Landlord of Landlord's interest in this Lease, or the rents
payable hereunder, conditional in nature or otherwise, which assignment is
made to the holder of a mortgage on property which includes the Premises,
Tenant agrees that the execution thereof by Landlord, and the acceptance
thereof by the holder of such mortgage shall never be treated as an
assumption by such holder of any of the
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obligations of Landlord hereunder unless such holder shall, by notice sent
to Tenant, specifically otherwise elect and that, except as aforesaid, such
holder shall be treated as having assumed Landlord's obligations hereunder
only upon foreclosure of such holder's mortgage and the taking of
possession of the Premises.
(b) In no event shall the acquisition of Landlord's interest in the
Premises by a purchaser which, simultaneously therewith, leases Landlord's
entire interest in the Premises back to the seller thereof be treated as an
assumption by operation of law or otherwise, of Landlord's obligations
hereunder, but Tenant shall look solely to such seller-lessee, and its
successors from time to time in title, for performance of Landlord's
obligations hereunder. In any such event, this Lease shall be subject and
subordinate to the lease to such purchaser. For all purposes, such seller-
lessee, and its successors in title, shall be the Landlord hereunder unless
and until Landlord's position shall have been assumed by such purchaser-
lessor.
(c) Except as provided in paragraph (b) of this Section, in the event
of any transfer of title to the Premises by Landlord, Landlord shall
thereafter be entirely freed and relieved from the performance and
observance of all covenants and obligations thereafter accruing hereunder.
14.7 RULES AND REGULATIONS. Intentionally Omitted.
14.8 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums under
this Lease designated as an Additional Charge or other charge, Landlord
shall have the same rights and remedies as Landlord has hereunder for
failure to pay Basic Rent.
14.9 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance, shall be
invalid or unenforceable, the remainder of this Lease, or the application
of such term or provision to persons or circumstances other than those as
to which it is held invalid or unenforceable, shall not be affected
thereby, and each term and provision of this Lease shall be valid and be
enforced to the fullest extent permitted by law.
14.10 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms
hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant (except in
the case of Tenant, only such assigns as may be permitted hereunder) and,
if Tenant shall be an individual, upon and to his heirs, executors,
administrators, successors and permitted assigns. Each term and each
provision of this Lease to be performed by Tenant shall be construed to be
both a covenant and a condition. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to assignment by
Tenant, but has reference only to those instances in which Landlord may
later give consent to a particular assignment as required by those
provisions of Article VI hereof.
14.11 RECORDING. Tenant agrees not to record this Lease, but, if the Term of
this Lease (including any extended term) is seven (7) years or longer,
each party hereto agrees, on the request of the other, to execute a so-
called notice of lease in recordable form
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and complying with applicable law and reasonably satisfactory to
Landlord's attorneys. In no event shall such document set forth the rent
or other charges payable by Tenant under this Lease; and any such document
shall expressly state that it is executed pursuant to the provisions
contained in this Lease, and is not intended to vary the terms and
conditions of this Lease.
14.12 NOTICES. Whenever, by the terms of this Lease, notices shall or may
be given either to Landlord or to Tenant, such notice shall be in writing
and shall be sent by registered or certified mail, postage prepaid and
return receipt requested: If intended for Landlord, addressed to Landlord
at Landlord's Original Address (or to such other address or addresses as
may from time to time hereafter be designated by Landlord by like notice).
If intended for Tenant, addressed to Tenant at Tenant's Original Address
until the Commencement Date and thereafter to the Premises (or to such
other address or addresses as may from time to time hereafter be
designated by Tenant by like notice). All such notices shall be effective
when deposited in the United States Mail within the Continental United
States, provided that the same are received in ordinary course at the
address to which the same were sent.
14.13 WHEN LEASE BECOMES BINDING. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall
become effective and binding only upon the execution hereof by both
Landlord and Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein and
this Lease expressly supersedes any proposals or other written documents
relating hereto. This Lease may be modified or altered only by written
agreement between Landlord and Tenant, and no act or omission of any
employee or agent of Landlord shall alter, change or modify any of the
provisions hereof.
14.14 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument are
for convenience and reference only, and the words contained therein shall
in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meaning of the provisions of this Lease.
14.15 RIGHTS OF MORTGAGEE OR GROUND LESSOR. This Lease shall be subordinate
to any mortgage or ground lease from time to time encumbering the
Premises, whether executed and delivered prior to or subsequent to the
date of this Lease, if the holder of such mortgage or ground lease shall
so elect. If this Lease is subordinate to any mortgage or ground lease and
the holder thereof (or successor) shall succeed to the interest of
Landlord, at the election of such holder (or successor) Tenant shall
attorn to such holder and this Lease shall continue in full force and
effect between such holder (or successor) and Tenant. Tenant agrees to
execute such instruments of subordination or attornment in confirmation of
the foregoing agreement as such holder may request, and Tenant hereby
appoints such holder as Tenant's
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<PAGE>
attorney-in-fact to execute such subordination or attornment agreement
upon default of Tenant in complying with such holder's request. At
Tenant's request, Landlord shall use its best efforts to obtain a non-
disturbance agreement from the holder of such mortgage or ground lease.
14.16 STATUS REPORT. Recognizing that both parties may find it necessary to
establish to third parties, such as accountants, banks, mortgagees, ground
lessors, or the like, the then current status of performance hereunder,
either party, on the request of the other made from time to time, will
promptly furnish to Landlord, or the holder of any mortgage or ground
lease encumbering the Premises, or to Tenant, as the case may be, a
statement of the status of any matter pertaining to this Lease, including,
without limitation, acknowledgments that (or the extent to which) each
party is in compliance with its obligations under the terms of this Lease.
14.17 SECURITY DEPOSIT. If, in Section 1.2 hereof, a security deposit is
specified, Tenant agrees that the same will be paid upon execution and
delivery of this Lease, and that Landlord shall hold the same throughout
the Term of this Lease as security for the performance by Tenant of all
obligations on the part of Tenant hereunder. Landlord shall have the right
from time to time without prejudice to any other remedy Landlord may have
on account thereof, to apply such deposit, or any part thereof, to
Landlord's damages arising from, or to cure, any Default of Tenant. If
Landlord shall so apply any or all of such deposit, Tenant shall
immediately deposit with Landlord the amount so applied to be held as
security hereunder. There then existing no Default of Tenant, Landlord
shall return the deposit, or so much thereof as shall have theretofore not
been applied in accordance with the terms of this Section 14.17, to Tenant
on the expiration or earlier termination of the Term of this Lease and
surrender of possession of the Premises by Tenant to Landlord at such
time. While Landlord holds such deposit, Landlord shall have no obligation
to pay interest on the same and shall have the right to commingle the same
with Landlord's other funds. If Landlord conveys Landlord's interest under
this Lease, the deposit, or any part thereof not previously applied, may
be turned over by Landlord to Landlord's grantee, and, if so turned over,
Tenant agrees to look solely to such grantee for proper application of the
deposit in accordance with the terms of this Section 14.17, and the return
thereof in accordance herewith. The holder of a mortgage shall not be
responsible to Tenant for the return or application of any such deposit,
whether or not it succeeds to the position of Landlord hereunder, unless
such deposit shall have been received in hand by such holder.
14.18 REMEDYING DEFAULTS. Landlord shall have the right, but shall not be
required, to pay such sums or do any act which requires the expenditure of
monies which may be necessary or appropriate by reason of the failure or
neglect of Tenant to perform any of the provisions of this Lease, and in
the event of the exercise of such right by Landlord, Tenant agrees to pay
to Landlord forthwith upon demand all such sums (including, without
limitation, attorneys' fees), together with interest thereon at a rate
equal to three percent (3%) over the base rate in effect from time to time
at The First National Bank of Boston (but in no event less than eighteen
percent (18%) per annum), as an additional charge. Any payment of Basic
Rent, Additional Charges or
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<PAGE>
other sums payable hereunder not paid when due shall, at the option of
Landlord, bear interest at a rate equal to three percent (3%) over the
base rate in effect from time to time at The First National Bank of Boston
(but in no event less than eighteen percent (18%) per annum) from the due
date thereof and shall be payable forthwith on demand by Landlord, as an
additional charge.
14.19 HOLDING OVER. Any holding over by Tenant after the expiration of the Term
of this Lease shall be treated as a daily tenancy at sufferance at a rate
equal to two (2) times the Basic Rent then in effect plus Escalation
Charges and other charges herein provided (prorated on a daily basis).
Tenant shall also pay to Landlord all damages, direct and/or indirect,
sustained by reason of any such holding over. Otherwise, such holding over
shall be on the terms and conditions set forth in this Lease insofar as
the same may be applicable. Landlord may, but shall not be required to,
and only on written notice to Tenant after the expiration of the Term of
this Lease, elect to treat such holding over as a renewal of one (1) year,
to be on the terms and conditions set forth in this Section 14.19.
14.20 WAIVER OF SUBROGATION. Insofar as, and to the extent that, the following
provision shall not make it impossible to secure insurance coverage
obtainable from responsible insurance companies doing business in the
locality in which the Premises is located (even though extra premium may
result therefrom), Landlord and Tenant mutually agree that any property
damage insurance carried by either shall provide for the waiver by the
insurance carrier of any right of subrogation against the other, and they
further mutually agree that, with respect to any damage to property, the
loss from which is covered by insurance then being carried by them,
respectively, the one carrying such insurance and suffering such loss
releases the other of and from any and all claims with respect to such
loss to the extent of the insurance proceeds paid with respect thereto.
14.21 SURRENDER OF PREMISES. Upon the expiration or earlier termination of the
Term of this Lease, Tenant shall peaceably quit and surrender to Landlord
the Premises in neat and clean condition and in good order, condition and
repair, together with all alterations, additions and improvements attached
directly or indirectly or in any manner to the Premises, which may have
been made or installed in, on or to the Premises prior to or during the
Term of this Lease, excepting only ordinary wear and use and damage by
fire or other casualty for which, under other provisions of this Lease,
Tenant has no responsibility of repair or restoration. At Landlord's
request, Tenant shall remove all of Tenant's Removable Property and, to
the extent specified by Landlord, all alterations and additions made by
Tenant and all partitions wholly within the Premises provided no Default
of Tenant shall have occurred and be continuing; and Tenant shall repair
any damages to the Premises caused by such removal. Any of Tenant's
Removable Property which shall remain in or on the Premises after the
expiration or termination of the Term of this Lease shall be deemed
conclusively to have been abandoned, and either may be retained by
Landlord as its property or may be disposed of in such manner as Landlord
may see fit, at Tenant's sole cost and expense.
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<PAGE>
14.22 BROKERAGE. Tenant warrants and represents that Tenant has dealt with no
broker in connection with the consummation of this Lease other than
Broker (as such term is defined in Section 1.2 hereof), and, in the event
of any brokerage claims against Landlord predicated upon prior dealings
with Tenant, Tenant agrees to defend the same and indemnify Landlord
against any such claim (except any claim by Broker).
14.23 GOVERNING LAW. This Lease shall be governed exclusively by the provisions
hereof and by the laws of The Commonwealth of Massachusetts, as the same
may from time to time exist.
ARTICLE XV
----------
OPTIONS TO EXTEND
-----------------
15.1 TENANT'S RIGHT. Provided that at the time of each exercise (i) there
exists no Default of Tenant, (ii) this Lease is then in full force and
effect, and (iii) Tenant is in actual occupancy of the entire Premises
demised hereunder, Tenant shall have the right and option to extend the
Term of this Lease for two (2) extended terms (each such extended term,
an "Extended Term") of five (5) years each. Each Extended Term shall
commence on the date immediately succeeding the expiration date of the
Initial Term or the preceding Extended Term, as the case may be, and
shall end on the day immediately preceding the fifth (5th) anniversary of
the first day of the applicable Extended Term. Tenant shall exercise such
option to extend by giving written notice to Landlord not later than
twelve (12) months prior to the expiration date of the Initial Term or
the preceding Extended Term, as the case may be. The giving of such
notice by Tenant shall automatically extend the Term of this Lease for
the applicable Extended Term and no instrument of renewal need be
executed. In the event that Tenant fails to give such notice to Landlord,
this Lease shall automatically terminate at the end of the Initial Term
or the preceding Extended Term, as the case may be, and Tenant shall have
no further option to extend the Term of this Lease, it being agreed that
time shall be of the essence with respect to the giving of such notice.
Each Extended Term shall be on all the terms and conditions of this
Lease, except that (a) the provisions of this Section 15.1 shall not be
effective with respect to the subsequent Extended Term, and (b) the Basic
Rent for each Extended Term shall be determined pursuant to Section 15.2
hereof.
15.2 BASIC RENT. The Basic Rent for each Extended Term shall be determined as
set forth in Sections 3.1 and 3.2 hereof.
15.3 GUARANTEES. The Tenant shall cause each Guarantor to execute and deliver
a Lease Guaranty guarantying the payment and performance of all
obligations of the Tenant hereunder.
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IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be duly
executed, under seal, by persons hereunto duly authorized, in multiple copies,
each to be considered an original hereof, as of the date first set forth above.
LANDLORD:
--------
BERSHIM REALTY TRUST
By /s/ Martha Brudnick By /s/ Irving S. Brudnick
------------------------- -------------------------
Martha Brudnick, as Trustee Irving S. Brudnick, as Trustee
and not individually and not individually
TENANT:
------
BRUDNICK ACQUISITION CORP.
By /s/ Sidney Gimbel
-------------------------
President
By /s/ Sidney Gimbel
-------------------------
Treasurer
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EXHIBIT LD
LEGAL DESCRIPTION OF PREMISES
-----------------------------
See Deed Attached
<PAGE>
EXHIBIT OS
OPERATING STANDARDS FOR TENANT'S CONDUCT OF BUSINESS
----------------------------------------------------
1. Garbage Removal. Tenant shall cause all garbage from the Premises to
be removed from the Premises on a daily basis or such other basis as may
reasonably be required by Landlord. Under no circumstance whatsoever is garbage
to be stored in front of the Building. Tenant shall keep the area around any
dumpsters within the Premises clean and free from garbage and other debris at
all times. Tenant shall contract to have garbage removed from the Premises as
necessary, but not less than on a daily basis or such other basis as may
reasonably be required by Landlord. Upon request, Landlord shall have the right
to require that any garbage which may produce offensive odors or be likely to
attract vermin or rodents be refrigerated.
2. Snow and Ice Removal. At all times snow and ice removal from entryways
and sidewalks in use by Tenant and Tenant's clientele shall be the sole
responsibility of Tenant. During such times, Tenant shall keep such entryways
and sidewalks free of snow and ice by shoveling, salting and sanding as
necessary to keep such entryways and sidewalks safe for use by Tenant, Tenant's
employees, Tenant's clientele, and the public.
<PAGE>
Exhibit 10.8
------------
C.D. SMITH DRUG COMPANY
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is effective as of September 1, 1995, and is
executed as of January 7, 1997 by and between C.D. SMITH DRUG COMPANY, a
Missouri corporation (the "Company") and ROBERT C. FARLEY (the "Executive").
WHEREAS, the Company believes it to be in its best interest to provide for
continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive is
willing to render his services to the Company on the terms and conditions with
respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon the terms and conditions
hereinafter set forth.
2. Exclusive Services. The Executive shall devote all necessary working
time, ability and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services to any business, corporation, or organization whether for compensation
or otherwise, without the prior knowledge of the Board of Directors of the
Company (hereinafter referred to as the "Board").
3. Duties. The Executive is hereby employed as President and Chief
Executive Officer of the Company and shall render his services at the principal
business offices of the Company, as such may be located from time to time,
unless otherwise agreed between the Board and the Executive. The Executive
shall have such authority and shall perform such duties as are specified by the
bylaws of the Company for the office of President; subject, however, to such
limitations, instructions, directions, and control as the Board may specify from
time to time in its sole discretion.
4. Term. This Agreement shall have an initial term through February 28,
1999, and shall renew for successive one year terms thereafter unless either
party gives notice of nonrenewal at least 60 days prior to the end of the
initial term or of any renewal term; provided, however, that this Agreement is
always subject to termination as provided in Paragraph 13, below.
<PAGE>
5. Compensation. As compensation for his services rendered under this
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule. The Base Salary component of the compensation shall not be reduced by
the Company during the term hereof except in accordance with a general Base
Salary reduction implemented across all executive level positions.
a. Base Salary. Base salary shall be paid in 26 equal installments during
the term of this Agreement, prorated for any partial employment month.
Such salary ("Base Salary") may be increased (but not decreased except as
provided above) by the Board in its sole discretion.
b. Additional Compensation. The Executive shall be paid such additional
compensation and bonuses, as may be determined and authorized in the sole
discretion of the Board.
6. Benefits. In addition to the compensation to be paid to the Executive
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled to
participate in any health, disability, group term life insurance plan, any
pension, retirement or profit sharing plan, executive bonus plan or any
other fringe benefits which may be extended generally from time to time to
senior management employees of the Company. In addition, the Executive
shall be entitled to the supplemental benefits described on the attached
Supplemental Benefits Schedule.
b. Disability Salary Continuation. If the Executive becomes disabled
during the term of this Agreement, the Company shall continue to pay the
Executive his Base Salary during the first 90 day period of such disability
and shall continue to pay the Executive, but at the rate of forty percent
(40%) of his Base Salary, for second 90 day period of such disability.
"Disability" as used herein shall have the same meaning as given that term
in the long term disability insurance policy of the Company as in effect
from time to time. All payments under this Paragraph shall cease upon the
expiration or other termination of this Agreement or of the Executive's
employment.
c. Vacation. The Executive shall be entitled to three weeks vacation with
full salary and benefits each year, measured from the anniversary of his
original employment with the Company. No cash or other payment will be
due, however, for unused vacation and vacation may not be carried over from
each such year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
from time to time are specified by the Company, the Company shall reimburse the
Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
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<PAGE>
8. Confidentiality/Trade Secrets. The Executive acknowledges that his
position with the Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the trade
secrets and confidential and proprietary business information of the Company.
Both during the term of this Agreement and thereafter, the Executive covenants
and agrees as follows:
a. he shall use his best efforts and exercise utmost diligence to protect
and safeguard the trade secrets and confidential and proprietary
information of the Company including but not limited to the identity of its
customers and suppliers, its arrangements with customers and suppliers, and
its technical and financial data, records, compilations of information,
processes, recipes and specifications relating to its customers, suppliers,
products and services;
b. he shall not disclose any of such trade secrets and confidential and
proprietary information, except as may be required in the course of his
employment with the Company or by law; and
c. he shall not use, directly or indirectly, for his own benefit or for the
benefit of another, any of such trade secrets and confidential and
proprietary information.
All files, records, documents, drawings, specifications, memoranda, notes,
or other documents relating to the business of the Company, whether prepared by
the Executive or otherwise coming into his possession, shall be the exclusive
property of the Company and shall be delivered to the Company and not retained
by the Executive upon termination of his employment for any reason whatsoever or
any other time upon request of the Board.
9. Discoveries. The Executive covenants and agrees that he will fully
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which he has now or may
hereafter have during his employment with the Company and which pertain or
relate to the business of the Company or to any experimental work, products,
services or processes of the Company in progress or planned for the future,
whether conceived by the Executive alone or with others, and whether or not
conceived during regular working hours or in conjunction with the use of any
Company assets. All such Discoveries shall be the exclusive property of the
Company whether or not patent or trademark applications are filed thereon. The
Executive shall assist the Company, at any time during or after his employment,
in obtaining patents on all such Discoveries deemed patentable by the Company
and shall execute all documents and do all things necessary to obtain letters
patent, vest the Company with full and exclusive title thereto, and protect the
same against infringement by others. If such assistance takes place after his
employment is terminated the Executive shall be paid by the Company at a
reasonable rate for any time actually spent in rendering such assistance at the
request of the Company.
10. Noncompetition. Taking into consideration the nature, scope and
volume of the Company's operations, the Executive agrees that during the period
of his employment and (i) if
3
<PAGE>
he elects to receive a Severance Payment pursuant to Section 13(b) or 13(f) then
also for the Severance Payment Period, or (ii) if he resigns other than for Good
Reason, as defined below, or if he is terminated for Cause as defined below,
then for a period of two years after such resignation or termination, he will
not, within the United States or any other country in which the Company,
directly or indirectly, owns or operates a business engaged in the distribution
or wholesale of pharmaceuticals, medicines, health aids or sundries, directly or
indirectly, own, manage, operate, control, or be employed by, participate in, or
be connected in any matter with the ownership (other than ownership of
securities of publicly held corporations of which Executive owns less than 2% of
any class of outstanding securities), management, operation, or control of any
business engaged in the distribution or wholesale of pharmaceuticals, medicines,
health aids or sundries.
11. Nonsolicitation. The Executive agrees that during the period of his
employment and the Severance Payment Period he will not, either directly or
indirectly, for himself or for any third party, solicit, induce, recruit, or
cause another person in the employ of the Company to terminate his/her
employment for the purpose of joining, associating or becoming employed with any
other business or activity. The Company and the Executive specifically
acknowledge and agree that the foregoing covenants of the Executive in Sections
10 and 11 are reasonable in content and scope and are given by the Executive for
adequate consideration.
12. Remedies for Breach of Covenants of the Executive. The covenants set
forth in Paragraphs 8 and 9 of this Agreement shall continue to be binding upon
the Executive, notwithstanding the termination of his employment with the
Company for any reason whatsoever. Such covenants shall be deemed and construed
as separate agreements independent of any other provisions of this Agreement and
any other agreement between the Company and the Executive. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any or all of such covenants. It is expressly
agreed that the remedy at law for the breach of any such covenant is inadequate
and injunctive relief shall be available to prevent the breach or any threatened
breach thereof.
13. Termination.
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. The Executive may either resign upon 30 days
written notice to the Company or may terminate this Agreement and his
employment hereunder with Good Reason at any time. Upon any termination of
this Agreement and the Executive's employment hereunder, all benefits
provided pursuant to Paragraph 6 hereof shall cease.
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive (i)
any bonus amounts as may be payable and accrued but held back pursuant to
the terms
4
<PAGE>
of any written plans in which the Executive was a participant prior to the
effective date of the termination, (ii) all bonus payments determined as of
the end of the fiscal year in which the termination occurred, as if the
Executive had remained employed throughout such year, and (iii) a Severance
Payment for each month through the remaining term of this Agreement as
provided in Paragraph 4, above, beginning with and prorated for the month
in which the termination occurs.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall only
be entitled to receive his salary through such date and any bonus amounts
as may be payable pursuant to the terms of any written plans in which the
Executive was a participant immediately prior to the effective date of the
termination. The Executive shall also be entitled to exercise his rights
under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of a criminal offense
constituting a felony or involving dishonesty, deceit or moral
turpitude; or
(ii) The Executive breaches any material provision of this
Agreement or fails to perform his duties, or breaches his fiduciary
duty to the Company, and such breach or neglect is not corrected
within 10 days after receipt of written notice from the Company; or
(iii) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this
Agreement.
e. The provisions of Paragraphs 8, 9, 10, 11, 12, 14, 15, 16 and 17
shall survive any termination for Cause.
f. The Executive shall have Good Reason to effect a termination in
the event the Company (i) breaches its obligations to pay any salary,
benefit or bonus due hereunder, (ii) requires the Executive to relocate
more than 50 miles from the greater St. Joseph, Missouri area, (iii)
substantially diminishes the responsibilities of the Executive, or (iv)
substantially increases the Executive's required travel schedule. Upon any
such termination, the Executive shall be entitled to receive a lump sum
payment equal to a Severance Payment multiplied by 12, and the provisions
of Paragraphs 8, 9, 10, 11, 12, 14, 15, 16, and 17 shall survive the
termination. If the Executive waives his right to receive such lump sum
payment, only the provisions of Paragraphs 8, 9, 12, 14, 15, 16 and 17
shall survive the termination. The Executive shall also be entitled to
exercise his rights under COBRA. No termination may be effected by the
Executive for Good Reason unless he shall have delivered written notice to
the Company of the breach and the Company shall not have cured such breach
within 10 days thereafter.
5
<PAGE>
g. A "Severance Payment" is an amount equal to one-twelfth of the
sum of the Executive's base salary at the last effective annual rate.
h. A "Severance Payment Period" is any month in which the Executive
receives a Severance Payment or in the event of a termination under
Paragraph 13(f), the Severance Payment Period is 12 months.
14. Arbitration of Disputes.
a. Any dispute or claim arising out of or relating to this Agreement
or any termination of the Executive's employment shall be settled by final
and binding arbitration in St. Joseph, Missouri in accordance with the
Commercial Arbitration rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
b. In the event that the Company does not submit to arbitration
hereunder or submits to arbitration but seeks to nullify or reverse the
effect of such arbitration by alleging that arbitration is unenforceable
against it, the Company shall pay all costs (including expenses and
attorneys' fees) incurred by the Executive as a result of such action by
the Company.
c. Except as contemplated in subparagraph b., above, the Company
shall reimburse the Executive for any attorneys' fees and expenses incurred
by the Executive related to any arbitration hereunder, and including any
actions taken by either party to appeal or enforce the judgment rendered
therein, up to a maximum amount of $10,000.00 if the Executive is
determined by the arbitration panel to have substantially prevailed in the
arbitration proceeding. Such reimbursement shall be made by direct payment
to the Executive upon delivery to the Company of valid invoices and/or
receipts relating to such attorneys' fees and expenses.
d. Except as contemplated in subparagraph b., the fees and expenses
of the arbitration panel shall be borne by the Company.
e. In the event the Executive does not submit to arbitration
hereunder or submits to arbitration but later seeks to nullify or reverse
the effect of such arbitration by alleging that arbitration is
unenforceable against him, then the Company shall be relieved of all
payment obligations under subparagraph c., above.
15. Mitigation. The Executive shall have no duty to attempt to mitigate
the level of benefits payable by the Company to him hereunder but the Company
shall be entitled to set off against the amounts payable hereunder any amounts
received by the Executive from any other employment or consulting source.
6
<PAGE>
16. Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
a. If to the Company:
C.D. Smith Drug Company
3907 S. 48th Terrace
St. Joseph, Missouri 64503
b. If to the Executive:
Robert C. Farley
RR4 - Box 214
Chillicothe, Missouri 64601
Either party may change its address for notice by giving notice in accordance
with the terms of this Paragraph 16.
17. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed
in accordance with the laws of the State of Missouri.
b. Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such
illegal, invalid, or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and
still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions, warranties, other than those contained
herein, and no amendments or modifications hereto shall be binding unless
made in writing and signed by the parties hereto. All pre-existing
employment agreements (including earlier versions of this agreement) are
hereby superseded and null and void.
d. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not be
assigned by the Executive.
7
<PAGE>
e. Waiver. The waiver by either party hereto of a breach of any term
or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
EXECUTIVE: C.D. SMITH DRUG COMPANY
/s/ Robert C. Farley By: /s/ Jeanne Mathiesen
------------------------ --------------------------
ROBERT C. FARLEY Title: CFO
------------------------
8
<PAGE>
Exhibit 10.9
------------
C.D. SMITH DRUG COMPANY
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is effective as of March 1, 1997, and is
executed as of July 8, 1997 by and between C.D. SMITH DRUG COMPANY, a Missouri
corporation (the "Company") and Jeanne Mathiesen (the "Executive").
WHEREAS, the Company believes it to be in its best interest to provide
for continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive is
willing to render his services to the Company on the terms and conditions with
respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth.
2. Exclusive Services. The Executive shall devote all necessary working
------------------
time, ability and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services to any business, corporation, or organization whether for compensation
or otherwise, without the prior knowledge of the Board of Directors of the
Company (hereinafter referred to as the "Board").
3. Duties. The Executive is hereby employed as Chief Financial Officer
------
of C.D. Smith Drug Co. and shall render her services at the principal business
offices of the Company, as such may be located from time to time, unless
otherwise agreed between the Board and the Executive. The Executive shall have
such authority and shall perform such duties as are specified by the Company for
the office of Chief Financial Officer subject, however, to such limitations,
instructions, directions, and control as the Board may specify from time to time
in its sole discretion.
4. Term. This Agreement shall have an initial term through February 28,
----
2000, and shall renew for successive one year terms thereafter unless either
party gives notice of nonrenewable at least 60 days prior to the end of the
initial term or of any renewal term: provided, however, that this Agreement is
-------- -------
always subject to termination as provided in Paragraph 13, below.
5. Compensation. As compensation for her services rendered under this
------------
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule. The Base Salary component of the compensation shall not be reduced by
the Company during the term hereof except in accordance with a general Base
Salary reduction implemented across all executive level positions.
a. Base Salary. Base salary shall be paid in 26 equal installments
-----------
during the term of this Agreement, prorated for any partial employment
month. Such salary ("Base Salary") may be increased (but not decreased
except as provided above) by the Board in its sole discretion.
b. Additional Compensation. The Executive shall be paid such
-----------------------
additional compensation and bonuses as may be determined and authorized
in the sole discretion of Board.
1
<PAGE>
6. Benefits. In addition to the compensation to be paid to the Executive
--------
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled
-------------------------------
to participate in any health, disability, group term life insurance plan,
any pension, retirement or profit sharing plan, executive bonus plan or
any other fringe benefits which may be extended generally from time time
to senior management employees of the Company. In addition, the Executive
shall be entitled to the supplemental benefits described on the attached
Supplemental Benefits Schedule.
b. Disability Salary Continuation. If the Executive becomes disabled
------------------------------
during the term of this Agreement, the Company shall continue to pay the
Executive his Base Salary during the first 90 day period of such
disability and shall continue to pay the Executive, but at the rate of
forty percent (40%) of his Base Salary, for second 90 day period of such
disability. "Disability" as used herein shall have the same meaning as
given that term in the long term disability insurance policy of the
Company as in effect from time to time. All payments under this Paragraph
shall cease upon the expiration or other termination of this Agreement or
of the Executive's employment.
c. Vacation. The Executive shall be entitled to three weeks vacation
--------
in full salary and benefits each year, measured from the anniversary of
his original employment with the Company. No cash or other payment will
be due, however, for unused vacation and vacation may not be carried over
from each such year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
-------------------------
from time to time are specified by the Company, the Company shall reimburse the
Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
8. Confidentiality/Trade Secrets. The Executive acknowledges that her
-----------------------------
position with the Company is one of the highest trust and confidence both by
reason of her position and by reason of her access to and contact with the trade
secrets and confidential and proprietary business information of the Company and
its affiliates Both during the term of this Agreement and thereafter, the
Executive covenants and agrees as follows:
a. she shall use her best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company and its affiliates including but not limited
to the identity of its customers and suppliers, its arrangements with
customers and suppliers, and its technical and financial data, records,
compilations of information, processes, recipes and specifications
relating to its customers, suppliers, products and services;
b. she shall not disclose any of such trade secrets and confidential
and proprietary information, except as may be required in the course of
her employment with the Company or by law; and
c. she shall not use, directly or indirectly for his own benefit or
for the benefit of another, any of such trade secrets and confidential
and proprietary information,
All files, records, documents, drawings, specification, memoranda, notes,
or other documents relating to the business of the Company and its affiliates,
whether prepared by the Executive or otherwise coming into his possession, shall
be the exclusive property of the Company and its affiliates and shall be
delivered to the Company and not retained by the Executive upon termination of
his employment for any reason whatsoever or any other time upon request of the
Board.
2
<PAGE>
9. Discoveries. The Executive covenants and agrees that she will fully
-----------
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which she has now or may
hereafter have during her employment with the Company and which pertain or
relate to the business of the Company or its affiliates or to any experimental
work, products, services or processes of the Company in progress or planned for
the future, whether conceived by the Executive alone or with others, and whether
or not conceived during regular working house or in conjunction with the use of
any Company assets. All such Discoveries shall be the exclusive property of the
Company whether or not patent or trademark applications arc filed thereon. The
Executive shall assist the Company, at any time during or after her employment,
in obtaining patents on all such Discoveries deemed patentable by the Company
and shall execute all documents and do all things necessary to obtain letters
patent, vest the Company with full and exclusive title thereto, and protect the
same against infringement by others. If such assistance takes place after her
employment is terminated the Executive shall be paid by the Company at a
reasonable rate for any time actually spent in rendering such assistance at the
request of the Company.
10. Noncompetition. Taking into consideration the nature, scope and
--------------
volume of the Company's operations, the Executive agrees that during the
period of her employment and (1) if she elects to receive a Severance Payment
pursuant to Section 13(b) or 13(f) then also for the Severance Payment Period,
or (ii) if she resigns other than for Good Reason, as defined below, or if she
is terminated for Cause as defined below, then for a period of two years after
such resignation or termination, she will not, within the United States or any
other country in which the Company, directly or indirectly, owns or operates a
business engaged in the distribution or wholesale of pharmaceuticals, medicines,
health aids or sundries, directly or indirectly, own, manage, operate, control,
or be employed by, participate in, or be connected in any matter with the
ownership (other than ownership of securities of publicly held corporations of
which Executive owns less that 2% of any class of outstanding securities),
management, operation, or control of any business engaged in the distribution or
wholesale of pharmaceuticals, medicines, health aids or sundries.
11. Nonsolicitation. The Executive agrees that during the period of her
---------------
employment and for two years thereafter she will not, either directly or
indirectly, for herself or for any third party, solicit, induce, recruit, or
cause another person in the employ of the Company to terminate his/her
employment for the purpose of joining, associating or becoming employed with any
other business or activity. The Company and the Executive specifically
acknowledge and agree that the foregoing covenants of the Executive in Sections
10 and 11 are reasonable in content and scope and are given by the Executive for
adequate consideration.
12. Remedies For Breach of Covenants of the Executive. The covenants set
-------------------------------------------------
forth in Paragraphs 8, 9 and 11 of this Agreement shall continue to be binding
upon the Executive, notwithstanding the termination of his employment with the
Company for any reason whatsoever. Such covenants and the covenant contained in
Section 10 shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
Company and the Executive. The existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all such covenants. It is expressly agreed that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall be
available to prevent the breach or any threatened breach thereof.
13. Termination.
-----------
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. The Executive may either resign upon 30 days
written notice to the Company or may terminate this agreement and his
employment hereunder with Good Reason at any time. Upon any termination
3
<PAGE>
of this Agreement and the Executive's employment hereunder, all benefits
provided pursuant to Paragraph 6 hereof shall cease.
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive (i)
any bonus amounts as may be payable and accrued but held back pursuant to
the terms of any written plans in which the Executive was a participant
prior to the effective date of the termination, (ii) all bonus payments
determined as of the end of the fiscal year in which the termination
occurred, as if the Executive had remained employed throughout such year,
and (iii) a Severance Payment for each month through the remaining term
of this Agreement as provided in Paragraph 4, above, beginning with and
prorated for the month in which the termination occurs.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall only
be entitled to receive his salary through such date and any bonus amounts
as may be payable pursuant to the terms of any written plans in which the
Executive was a participant immediately prior to the effective date of
the termination. The Executive shall also be entitled to exercise his
rights under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of or pleads "nolo contendre" to
a criminal offense constituting a felony or involving dishonesty,
deceit or moral turpitude; or
(ii) The Executive breaches any material provision of this
Agreement or fails to perform his duties, or breaches his fiduciary
duty to the Company, and such breach or neglect is not corrected
within 10 days after receipt of written notice from the Company; or
(iii) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this
Agreement.
e. The provisions of Paragraphs 8, 9, 10, 11, 12, 14, 15, 16, and 17
shall survive any termination for Cause.
f. The Executive shall have Good Reason to effect a termination in
the event the Company breaches its obligations to pay any salary, benefit
or bonus due hereunder. Upon any such termination, the Executive shall be
entitled to receive a lump sum payment equal to a Severance Payment
multiplied by 12, and the provisions of Paragraphs 8, 9, 10, 11, 12, 14,
15, 16, and 17 shall survive the termination. If the Executive waives his
right to receive such lump sum payment, only the provisions of Paragraphs
8, 9, 11, 12, 14, 15, 16, and 17 shall survive the termination. The
Executive shall also be entitled to exercise his rights under COBRA. No
termination may be effected by the Executive for Good Reason unless he
shall have delivered written notice to the Company of the breach and the
Company shall not have cured such breach within 10 days thereafter.
g. A "Severance Payment" is an amount equal to one-twelfth of the
sum of the Executive's base salary at the last effective annual rate.
h. A "Severance Payment Period" is any month in which the Executive
receives a Severance Payment or in the event of a termination under
Paragraph 13(f), the Severance Payment Period is 12 months.
4
<PAGE>
14. Arbitration of Disputes.
-----------------------
a. Any dispute or claim arising out of or relating to this Agreement
or any termination of the Executive's employment shall be settled by
final and binding arbitration in St. Joseph, Missouri in accordance with
the Commercial Arbitration rules of the American Arbitration Association,
and judgment upon the award rendered by the arbitrators may be entered in
any court having jurisdiction thereof.
b. In the event that the Company does not submit to arbitration
hereunder or submits to arbitration but seeks to nullify or reverse the
effect of such arbitration by alleging that arbitration is unenforceable
against it, the Company shall pay all costs (including expenses and
attorney's fees) incurred by the Executive as a result of such action by
the Company.
c. Except as contemplated in subparagraph b., above, the Company
shall reimburse the Executive for any attorney's fees and expenses
incurred by the Executive related to any arbitration hereunder, and
including any actions taken by either party to appeal or enforce the
judgment rendered therein, up to a maximum amount of $10,000.00 if the
Executive is determined by the arbitration panel to have substantially
prevailed in the arbitration proceeding. Such reimbursement shall be made
by direct payment to the Executive upon delivery to the Company of valid
invoices and/or receipts relating to such attorney's fees and expenses.
d. Except as contemplated in subparagraph b., the fees and expenses
of the arbitration panel shall be borne by the Company.
e. In the event the Executive does not submit to arbitration
hereunder of submits to arbitration but later seeks to nullify or reverse
the effect of such arbitration by alleging that arbitration is
unenforceable against him, then the Company shall be relieved of all
payment obligations under subparagraph c., above.
15. Mitigation. The Executive shall have a duty to attempt to mitigate
----------
the level of benefits payable by the Company to him hereunder and the Company
shall be entitled to set off against the amounts payable hereunder any amounts
received by the Executive from any other employment or consulting source.
16. Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
a. If to the Company:
C.D. Smith Drug Company
3907 S. 48th Terrace
St. Joseph, MO 64503
b. If to the Executive:
Jeanne Mathiesen
12919 NW 79th
Kansas City, MO 64152
5
<PAGE>
Either party may change its address for notice by giving notice in accordance
with the terms of this Paragraph 16.
17. General Provisions.
------------------
a. Law Governing. This Agreement shall be governed by and
-------------
construed in accordance with the laws of the State of Missouri.
b. Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision there shall be
added automatically as a part of this Agreement a provision as similar in
terms to such illegal, invalid, or unenforceable provision as may be
possible and still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions, warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto. All pre-
existing employment agreements (including earlier versions of this
agreement) are hereby superseded and null and void.
d. Binding Effect. This Agreement shall extend to and be binding
--------------
upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not be
assigned by the Executive.
e. Waiver. The waiver by either party hereto of a breach of any term
------
or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of
the breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
g. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
6
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
EXECUTIVE: C.D. SMITH DRUG COMPANY
/s/ Jeanne Mathiesen By: /s/ Robert C. Farley
- -------------------- -------------------------
Jeanne Mathiesen Title: Chairman
----------------------
7
<PAGE>
JEANNE MATHIESEN
SUPPLEMENTAL BENEFITS SCHEDULE
The following benefits are to be provided pursuant to Jeanne Mathiesen's
employment contract:
. Car phone. Company will pay 100% of the car phone set up fee and a
monthly 120 minute usage package. Business calls over the 120 minutes
will be reimbursed.
. Company Car. The Company will purchase or lease a new automobile for the
use of Executive, with expenses paid according to the C.D. Smith
Executive Auto Policy. In addition to the expenses paid according to the
C.D. Smith Executive Auto Policy, Company will also furnish gas for the
vehicle.
8
<PAGE>
EXECUTIVE INDIVIDUAL SALARY AND INCENTIVE PLAN SCHEDULE
Annual Base Salary $115,000
To increase at the beginning of each fiscal year in relation to the Consumer
Price Index, All Urban Wage Earners and Clerical Workers Report published by the
Bureau of National Labor Statistics
Incentive Plan, effective with the fiscal year beginning 3/1/97. Annual bonus
to be computed as 1.75% of the excess of pre-tax, pre-bonus net income over 15%
of the return on equity. Return on equity is defined as follows:
Total Net Worth (combined balance sheet)
Add: Treasury Stock
ESOP Note Balance
Sub-Debt
---------------
Adjusted Net Worth
The bonus will be the amount of pretax, pre-bonus profits which exceed a 15%
return on the adjusted Net Worth.
The bonus will be paid quarterly in cash up to 125% of base salary. The amount
of bonus that exceeds the cash limit will be granted in stock options.
This Incentive Plan may be changed by the Company in the event the Company has
an IPO (Initial Public Offering).
"Pre-bonus" is defined as before deduction of any bonus or any other year end
performance bonuses, but not including sales representative and buyer bonuses
which are part of their normal compensation package.
9
<PAGE>
JEANNE MATHIESEN
EXECUTIVE INDIVIDUAL SALARY AND INCENTIVE PLAN SCHEDULE
Annual Base Salary $115,000
To increase at the beginning of each fiscal year in relation to the Consumer
Price Index, All Urban Wage Earners and Clerical Workers Report published by
the Bureau of National Labor Statistics
Incentive Plan, effective % with the fiscal year beginning 3/1/97. Annual bonus
to be computed as l.75% of the excess of pre-tax, pre-bonus net income over 15%
of the return on equity. Return on equity is defined as follows:
Total Net Worth (combined balance sheet)
Add: Treasury Stock
ESOP Note Balance
Sub-Debt
---------------
Adjusted Net Worth
The bonus will be the amount of pretax, pre-bonus profits which exceed a 15%
return on the adjusted Net Worth.
The bonus will be paid quarterly in cash up to 125% of base salary. The amount
of bonus that exceeds the cash limit will be granted in stock options.
This Incentive Plan may be changed by the Company in the event the Company has
an IPO (Initial Public Offering).
"Pre-bonus" is defined as before deduction of any bonus or any other year end
performance bonuses, but not including sales representative and buyer bonuses
which are part of their normal compensation package.
Amended September 29, 1997:
Annual Base Salary effective September 22, 1997: $130,000
10
<PAGE>
Exhibit 10.10
-------------
C. D. SMITH DRUG COMPANY
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is effective as of March 1, 1997, and is executed
as of July 8, 1997 by and between C.D. SMITH DRUG COMPANY, a Missouri
corporation (the "Company") and Delora Jamison (the "Executive").
WHEREAS, the Company believes it to be in its best interest to provide for
continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive is
willing to render his services to the Company on the terms and conditions with
respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon the terms and conditions
hereinafter set forth.
2. Exclusive Services. The Executive shall devote all necessary working
time, ability and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services to any business, corporation, or organization whether for compensation
or otherwise, without the prior knowledge of the Board of Directors of the
Company (hereinafter referred to as the "Board").
3. Duties. The Executive is hereby employed as Chief Compliance Officer
of C.D. Smith Drug Co. and shall render her services at the principal business
offices of the Company, as such may be located from time to time, unless
otherwise agreed between the Board and the Executive. The Executive shall have
such authority and shall perform such duties as are specified by the Company for
the office of Chief Compliance Officer subject, however, to such limitations,
instructions, directions, and control as the Board may specify from time to time
in its sole discretion.
4. Term. This Agreement shall have an initial term through February 28,
2000, and shall renew for successive one year terms thereafter unless either
party gives notice of nonrenewal of at least 60 days prior to the end of the
initial term or of any renewal term; provided, however, that this Agreement is
always subject to termination as provided in Paragraph 13, below.
5. Compensation. As compensation for her services rendered under this
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule. The Base Salary component of the compensation shall not be reduced by
the Company during the term hereof except in accordance with a general Base
Salary reduction implemented across all executive level positions.
a. Base Salary. Base salary shall be paid in 26 equal installments
during the term of this Agreement, prorated for any partial employment
month. Such salary ("Base Salary") may be increased (but not decreased
except as provided above) by the Board in its sole discretion.
b. Additional Compensation. The Executive shall be paid such
additional compensation and bonuses, as may be determined and authorized in
the sole discretion of Board.
<PAGE>
6. Benefits. In addition to the compensation to be paid to the Executive
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled
to participate in any health, disability, group term life insurance plan,
any pension, retirement or profit sharing plan, executive bonus plan or any
other fringe benefits which may be extended generally from time to time to
senior management employees of the Company. In addition, the Executive
shall be entitled to the supplemental benefits described on the attached
Supplemental Benefits Schedule.
b. Disability Salary Continuation. If the Executive becomes disabled
during the term of this Agreement, the Company shall continue to pay the
Executive his Base Salary during the first 90 day period of such disability
and shall continue to pay the Executive, but at the rate of forty percent
(40%) of his Base Salary, for second 90 day period of such disability.
"Disability" as used herein shall have the same meaning as given that term
in the long term disability insurance policy of the Company as in effect
from time to time. All payments under this Paragraph shall cease upon the
expiration or other termination of this Agreement or of the Executive's
employment.
c. Vacation. The Executive shall be entitled to three weeks vacation
in full salary and benefits each year, measured from the anniversary of his
original employment with the Company. No cash or other payment will be due,
however, for unused vacation and vacation may not be carried over from each
such year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
from time to time are specified by the Company, the Company shall reimburse
the Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
8. Confidentiality/Trade Secrets. The Executive acknowledges that her
position with the Company is one of the highest trust and confidence both by
reason of her position and by reason of her access to and contract with the
trade secrets and confidential and proprietary business information of the
Company and its affiliates. Both during the term of this Agreement and
thereafter, the Executive covenants and agrees as follows:
a. she shall use her best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company and its affiliates including but not limited
to the identity of its customers and suppliers, its arrangements with
customers and suppliers, and its technical and financial data, records,
compilations of information, processes, recipes and specifications
relating to its customers, suppliers, products and services;
b. she shall not disclose any of such trade secrets and confidential
and proprietary information, except as may be required in the course of her
employment with the Company or by law; and
c. she shall not use, directly or indirectly, for her own benefit or
for the benefit of another, any of such trade secrets and confidential and
proprietary information.
All files, records, documents, drawings, specifications, memoranda, notes,
or other documents relating to the business of the Company and its affiliates,
whether prepared by the Executive or otherwise coming into his possession, shall
be the exclusive property of the Company and its affiliates and shall be
delivered to the Company and not retained by the Executive upon termination of
his employment for any reason whatsoever or any other time upon request of the
Board.
<PAGE>
9. Discoveries. The Executive covenants and agrees that she will fully
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which she has now or
may hereafter have during her employment with the Company and which pertain
or relate to the business of the Company or its affiliates or to any
experimental work, products, services or processes of the Company in progress
or planned for the future, whether conceived by the Executive alone or with
others, and whether or not conceived during regular working hours or in
conjunction with the use of any Company assets. All such Discoveries shall be
the exclusive property of the Company whether or not patent or trademark
applications are filed thereon. The Executive shall assist the Company, at
any time during or after her employment, in obtaining patents on all such
Discoveries deemed patentable by the Company and shall execute all documents
and do all things necessary to obtain letters patent, vest the Company with
full and exclusive title thereto, and protect the same against infringement
by others. If such assistance takes place after her employment is terminated
the Executive shall be paid by the Company at a reasonable rate for any time
actually spent in rendering such assistance at the request of the Company.
10. Noncompetition. Taking into consideration the nature, scope and
volume of the Company's operations, the Executive agrees that during the
period of her employment and (i) if she elects to receive a Severance Payment
pursuant to Section 13(b) or 13(f) then also for the Severance Payment
Period, or (ii) if she resigns other than for Good Reason, as defined below,
or if she is terminated for Cause as defined below, then for a period of two
years after such resignation or termination, she will not, within the United
States or any other country in which the Company, directly or indirectly,
owns or operates a business engaged in the distribution or wholesale of
pharmaceuticals, medicines, health aids or sundries, directly or indirectly,
own, manage, operate, control, or be employed by, participate in, or be
connected in any matter with the ownership (other than ownership of
securities of publicly held corporations of which Executive owns less than 2%
of any class of outstanding securities), management, operation, or control of
any business engaged in the distribution or wholesale of pharmaceuticals,
medicines, health aids or sundries.
11. Nonsolicitation. The Executive agrees that during the period of
her employment and for two years thereafter she will not, either directly or
indirectly, for herself or for any third party, solicit, induce, recruit or
cause another person in the employ of the Company to terminate his/her
employment for the purpose of joining, associating or becoming employed with
any other business or activity. The Company and the Executive specifically
acknowledge and agree that the foregoing covenants of the Executive in
Sections 10 and 11 are reasonable in content and scope and are given by the
Executive for adequate consideration.
12. Remedies for Breach of Covenants of the Executive. The covenants
set forth in Paragraphs 8, 9 and 11 of this Agreement shall continue to be
binding upon the Executive, notwithstanding the termination of his employment
with the Company for any reason whatsoever. Such covenants and the covenant
contained in Section 10 shall be deemed and construed as separate agreements
independent of any other provisions of this Agreement and any other agreement
between the Company and the Executive. The existence of any claim or cause of
action by the Executive against the Company, whether predicated on this
Agreement or otherwise, shall not constitute a defense to the enforcement by
the Company of any or all such covenants. It is expressly agreed that the
remedy at law for the breach of any such covenant is inadequate and
injunctive relief shall be available to prevent the breach or any threatened
breach thereof.
13. Termination.
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. The Executive may either resign upon 30 days
written notice to the Company or may terminate this agreement and his
employment hereunder with Good Reason at any time. Upon any termination
<PAGE>
of this Agreement and the Executive's employment hereunder, all benefits
provided pursuant to Paragraph 6 hereof shall cease.
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive
(i) any bonus amounts as may be payable and accrued but held back
pursuant to the terms of any written plans in which the Executive was a
participant prior to the effective date of the termination, (ii) all
bonus payments determined as of the end of the fiscal year in which the
termination occurred, as if the Executive had remained employed
throughout such year, and (iii) a Severance Payment for each month
through the remaining term of this Agreement as provided in Paragraph 4,
above, beginning with and prorated for the month in which the
termination occurs.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall
only be entitled to receive his salary through such date and any bonus
amounts as may be payable pursuant to the terms of any written plans in
which the Executive was a participant immediately prior to the effective
date of the termination. The Executive shall also be entitled to
exercise his rights under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of or pleads "nolo contendere"
to a criminal offense constituting a felony or involving
dishonesty, deceit or moral turpitude; or
(ii) The Executive breaches any material provision of this
Agreement or fails to perform his duties, or breaches his fiduciary
duty to the Company, and such breach or neglect is not corrected
within 10 days after receipt of written notice from the Company; or
(iii) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this
Agreement.
e. The provisions of Paragraphs 8, 9 10, 11, 12, 14, 15, 16 and 17
shall survive any termination for Cause.
f. The Executive shall have Good Reason to effect a termination in
the event the Company breaches its obligations to pay any salary,
benefit or bonus due hereunder. Upon any such termination, the Executive
shall be entitled to receive a lump sum payment equal to a Severance
Payment multiplied by 12, and the provisions of Paragraphs 8, 9, 10, 11,
12, 14, 15, 16 and 17 shall survive the termination. If the Executive
waives his right to receive such lump sum payment, only the provisions
of Paragraphs 8, 9, 11, 12, 14, 15, 16 and 17 shall survive the
termination. The Executive shall also be entitled to exercise his rights
under COBRA. No termination may be effected by the Executive for Good
Reason unless he shall have delivered written notice to the Company of
the breach and the Company shall not have cured such breach within 10
days thereafter.
g. A "Severance Payment" is an amount equal to one-twelfth of the
sum of the Executive's base salary at the last effective annual rate.
h. A "Severance Payment Period" is any month in which the
Executive receives a Severance Payment or in the event of a termination
under Paragraph 13(f), the Severance Payment Period is 12 months.
<PAGE>
14. Arbitration of Disputes.
-----------------------
a. Any dispute or claim arising out of or relating to this
Agreement or any termination of the Executive's employment shall be
settled by final and binding arbitration in St. Joseph, Missouri in
accordance with the Commercial Arbitration rules of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrators may be entered in any court having jurisdiction thereof.
b. In the event that the Company does not submit to arbitration
hereunder or submits to arbitration but seeks to nullify or reverse the
effect of such arbitration by alleging that arbitration is unenforceable
against it, the Company shall pay all costs (including expenses and
attorney's fees) incurred by the Executive as a result of such action by
the Company.
c. Except as contemplated in subparagraph b., above, the Company
shall reimburse the Executive for any attorney's fees and expenses
incurred by the Executive related to any arbitration hereunder, and
including any actions taken by either party to appeal or enforce the
judgment rendered therein, up to a maximum amount of $10,000.00 if the
Executive is determined by the arbitration panel to have substantially
prevailed in the arbitration proceeding. Such reimbursement shall be
made by direct payment to the Executive upon delivery to the Company of
valid invoices and/or receipts relating to such attorney's fees and
expenses.
d. Except as contemplated in subparagraph b., the fees and
expenses of the arbitration panel shall be borne by the Company.
e. In the event the Executive does not submit to arbitration
hereunder or submits to arbitration but later seeks to nullify or
reverse the effect of such arbitration by alleging that arbitration is
unenforceable against him, then the Company shall be relieved of all
payment obligations under subparagraph c., above.
15. Mitigation. The Executive shall have a duty to attempt to mitigate
the level of benefits payable by the Company to him hereunder and the Company
shall be entitled to set off against the amounts payable hereunder any
amounts received by the Executive from any other employment or consulting
source.
16. Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested.
Mailed notices shall be addressed as follows:
a. If to the Company:
C. D. Smith Drug Company
3907 S. 48th Terrace
St. Joseph, MO 64503
b. If to the Executive:
Delora Jamison
71 Eastwood Drive
St. Joseph, MO 64506
<PAGE>
Either party may change its address for notice by giving notice in accordance
with the terms of this Paragraph 16.
17. General Provisions.
a. Law Governing. This Agreement shall be governed by and
construed in accordance with the laws of the State of Missouri.
b. Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force
and effect and shall not be affected by the illegal, invalid, or
unenforceable provision or by its severance herefrom. Furthermore, in
lieu of such illegal, invalid, or unenforceable provision there shall
be added automatically as a part of this Agreement a provision as
similar in terms to such illegal, invalid, or unenforceable provision
as may be possible and still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject
matter hereof. No terms, conditions, warranties, other than those
contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto. All
pre-existing employment agreements (including earlier versions of this
agreement) are hereby superseded and null and void.
d. Binding Effect. This Agreement shall extend to and be binding
upon and insure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not
be assigned by the Executive.
e. Waiver. The waiver by either party hereto of a breach of any
term or provision of this Agreement shall not operate or be construed
as a waiver of a subsequent breach of the same provision by any party
or of the breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
<PAGE>
THIS AGREEMENT CONTAINS A BINDING ARBITRATION
PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
EXECUTIVE: C. D. SMITH DRUG COMPANY
/s/ Delora Jamison By: /s/ Robert C. Farley
------------------ --------------------
Delora Jamison Title: Chairman
----------------
<PAGE>
EXHIBIT 10.11
-------------
C.D. SMITH DRUG COMPANY
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made as of November 22, 1996, by and between
C. D. SMITH DRUG COMPANY, a Missouri corporation (the "Company") and RICHARD
MEEHAN (the "Executive").
WHEREAS, the Company believes it to be in its best interest to provide for
continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive is
willing to render his services to the Company on the terms and conditions with
respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the
----------
Executive hereby accepts employment with the Company upon the terms and
conditions hereinafter set forth.
2. Exclusive Services. The Executive shall devote all necessary working
------------------
time, ability and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services to any business, corporation, or organization other than the Company,
whether for compensation or otherwise, without the prior consent of the Board of
Directors of the Company (hereinafter referred to as the "Board").
3. Duties. The Executive is hereby employed as Executive Vice President
------
of the Company and shall render his services at the principal business offices
of the Company, as such may be located from time to time, unless otherwise
agreed between the Board and the Executive. The Executive shall have such
authority and shall perform such duties as are consistent with the title of his
office; subject, however, to such limitations, instructions, directions, and
control as the Board or President of the Company may specify from time to time.
4. Term. This Agreement shall have an initial term through February 28,
----
1999, and at the end of each year of such term (and all extensions thereof),
unless either party gives at least 60 days prior notice of nonextension, the
term of this Agreement shall be extended for one year, so that the remaining
term of this Agreement shall always be at most three years and at least two
years; provided, however, that this Agreement is always subject to termination
-------- -------
as provided in Paragraph 13, below.
<PAGE>
5. Compensation. As compensation for his services rendered under this
------------
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule. The Base Salary component of the compensation shall not be reduced by
the Company during the term hereof except in accordance with a general Base
Salary reduction implemented across all executive level positions.
a. Base Salary. Base salary shall be paid in 26 equal installments
-----------
during the term of this Agreement, prorated for any partial employment
month. Such salary ("Base Salary") may be increased (but not decreased
except as provided above) by the Board in its sole discretion.
b. Additional Compensation. The Executive shall be paid such
-----------------------
additional compensation and bonuses, as may be determined and authorized in
the sole discretion of the Board.
6. Benefits. In addition to the compensation to be paid to the Executive
--------
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled
-------------------------------
to participate in any health, disability, group term life insurance plan,
any pension, retirement or profit sharing plan, executive bonus plan or any
other fringe benefits which may be extended generally from time to time to
senior management employees of the Company.
b. Disability Salary Continuation. If the Executive becomes disabled
------------------------------
during the term of this Agreement, the Company shall continue to pay the
Executive his Base Salary during the first 90 day period of such disability
and shall continue to pay the Executive, but at the rate of forty percent
(40%) of his Base Salary, for second 90 day period of such disability.
"Disability" as used herein shall have the same meaning as given that term
in the long term disability insurance policy of the Company as in effect
from time to time. All payments under this Paragraph shall cease upon the
expiration or other termination of this Agreement or of the Executive's
employment.
c. Vacation. During the term hereof, the Executive shall be entitled
--------
to three weeks vacation with full salary and benefits each calendar year;
provided, however, that for the portion of calendar year 1996 remaining
from and after the date hereof, the Executive shall be entitled to three
weeks vacation with full salary and benefits less the number of days of
vacation with full salary and benefits taken by the Executive as an
employee of the Company during 1996 prior to the date hereof; and, provided
further, that the Executive shall receive no vacation under this
Subparagraph 6(c) for that portion of any calendar year after which (i) the
Executive has given notice to the Company of his resignation pursuant to
Subparagraph 13(a) below, or (ii) either the Executive or the Company has
given notice of the nonrenewal of this Agreement pursuant to Paragraph 4
-2-
<PAGE>
above. No cash or other payment will be due for unused vacation and
vacation may not be carried over from one calendar year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
-------------------------
from time to time are specified by the Company, the Company shall reimburse the
Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
8. Confidentiality/Trade Secrets. The Executive acknowledges that his
-----------------------------
position with the Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the trade
secrets and confidential and proprietary business information of the Company.
Both during the term of this Agreement and thereafter, the Executive covenants
and agrees as follows:
a. He shall use his best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company including but not limited to the identity of its
customers and suppliers, its arrangements with customers and suppliers, and
its technical and financial data, records, compilations of information,
processes, recipes and specifications relating to its customers, suppliers,
products and services;
b. He shall not disclose any of such trade secrets and confidential
and proprietary information, except as may be required in the course of his
employment with the Company or by law; and
c. He shall not use, directly or indirectly, for his own benefit or
for the benefit of another, any of such trade secrets and confidential and
proprietary information.
All files, records, documents, drawings, specifications, memoranda, notes,
or other documents relating to the business of the Company, whether prepared by
the Executive or otherwise coming into his possession, shall be the exclusive
property of the Company and shall be delivered to the Company and not retained
by the Executive upon termination of his employment for any reason whatsoever or
any other time upon request of the Board.
9. Discoveries. The Executive covenants and agrees that he will fully
-----------
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which he has now or may
hereafter have during his employment with the Company and which pertain or
relate to the business of the Company or to any experimental work, products,
services or processes of the Company in progress or planned for the future,
whether conceived by the Executive alone or with others, and whether or not
conceived during regular working hours or in conjunction with the use of any
Company assets. All such Discoveries shall be the exclusive property of the
Company whether or not patent or trademark applications are filed thereon. The
Executive shall assist the Company, at any time during or after
-3-
<PAGE>
his employment, in obtaining patents on all such Discoveries deemed patentable
by the Company and shall execute all documents and do all things necessary to
obtain letters patent, vest the Company with full and exclusive title thereto,
and protect the same against infringement by others. If such assistance takes
place after his employment is terminated the Executive shall be paid by the
Company at a reasonable rate for any time actually spent in rendering such
assistance at the request of the Company.
10. Noncompetition. Taking into consideration the nature, scope and
--------------
volume of the Company's operations, the Executive agrees that during the period
of his employment and for a three (3) year period thereafter, he will not,
within any state of the United States (and each state contiguous thereto) or any
other country in which the Company, directly or indirectly, owns or operates a
business engaged in the distribution or wholesale of pharmaceuticals, medicines,
health aids or sundries, directly or indirectly, own, manage, operate, control,
or be employed by, participate in, or be connected in any matter with the
ownership (other than ownership of securities of publicly held corporations of
which Executive owns less than 2% of any class of outstanding securities),
management, operation, or control of any business (a "Competing Business")
engaged in the distribution or wholesale of pharmaceuticals, medicines, health
aids or sundries.
11. Nonsolicitation. The Executive agrees that during the period of his
---------------
employment and for a three (3) year period thereafter he will not, either
directly or indirectly, for himself or for any third party, solicit, induce,
recruit, or cause another person in the employ of the Company to terminate
his/her employment for the purpose of joining, associating or becoming employed
with any other business or activity. The Company and the Executive specifically
acknowledge and agree that the foregoing covenants of the Executive in
Paragraphs 10 and 11 are reasonable in content and scope and are given by the
Executive for adequate consideration.
12. Remedies for Breach of Covenants of the Executive. The covenants set
-------------------------------------------------
forth in Paragraphs 8 and 9 of this Agreement shall continue to be binding upon
the Executive, notwithstanding the termination of his employment with the
Company for any reason whatsoever. Such covenants shall be deemed and construed
as separate agreements independent of any other provisions of this Agreement and
any other agreement between the Company and the Executive. The existence of any
claim or cause of action by the Executive against the Company, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by the Company of any or all of such covenants. It is expressly
agreed that the remedy at law for the breach of any such covenant is inadequate
and injunctive relief shall be available to prevent the breach or any threatened
breach thereof.
13. Termination.
-----------
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. The Executive may either resign upon 30 days
written notice to the Company
-4-
<PAGE>
or may terminate this Agreement and his employment hereunder with Good
Reason at any time. Upon any termination of this Agreement and the
Executive's employment hereunder, all benefits provided pursuant to
Paragraph 6 hereof shall cease.
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive (i)
any bonus amounts as may have been earned but not yet paid pursuant to the
terms of any written plans in which the Executive was a participant prior
to the effective date of the termination, and (ii) a Severance Payment for
each month through the remaining term of this Agreement as provided in
Paragraph 4, above, beginning with and prorated for the month in which the
termination occurs.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall only
be entitled to receive his salary through such date and any bonus amounts
as may be payable pursuant to the terms of any written plans in which the
Executive was a participant immediately prior to the effective date of the
termination. The Executive shall also be entitled to exercise his rights
under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of a criminal offense
constituting a felony; or
(ii) As reasonably determined by the Board, the Executive
engages in an act involving dishonesty, deceit, or moral turpitude
which may either (a) be disruptive to the Company's affairs, or (b)
expose the Company to a liability;
(iii) The Executive breaches any material provision of this
Agreement or fails to perform his duties, or breaches his fiduciary
duty to the Company, and such breach or neglect is not corrected
within 10 days after receipt of written notice from the Company; or
(iv) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this
Agreement.
e. The Executive shall have Good Reason to effect a termination in
the event the Company (i) breaches its obligations to pay any salary,
benefit or bonus due hereunder, or (ii) requires the Executive to relocate
more than 50 miles from the greater St. Joseph, Missouri area. Upon any
such termination, the Executive shall be entitled to receive a lump sum
payment equal to a Severance Payment multiplied by 12. The
-5-
<PAGE>
executive shall also be entitled to exercise his rights under COBRA. No
termination may be effected by the Executive for Good Reason unless he
shall have delivered written notice to the Company of the breach and the
Company shall not have cured such breach within 10 days thereafter.
f. A "Severance Payment" is an amount equal to one-twelfth of the sum
of the Executive's base salary at the last effective annual rate.
g. The provisions of Paragraphs 8, 9, 10, 11, 12, 14, 15, 16, and 17
shall survive any termination of this Agreement.
14. Arbitration of Disputes.
-----------------------
a. Any dispute or claim arising out of or relating to this Agreement
or any termination of the Executive's employment shall be settled by final
and binding arbitration in St. Joseph, Missouri in accordance with the
Commercial Arbitration rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
b. In the event that the Company does not submit to arbitration
hereunder or submits to arbitration but later seeks to nullify or reverse
the effect of such arbitration by alleging that arbitration is
unenforceable against it, the Company shall pay all costs (including
expenses and attorneys' fees) incurred by the Executive as a result of such
action by the Company.
c. Except as contemplated in subparagraph b., above, the Company
shall reimburse the Executive for any attorneys' fees and expenses incurred
by the Executive related to any arbitration hereunder, and including any
actions taken by either party to appeal or enforce the judgment rendered
therein, up to a maximum amount of $10,000.00 if the Executive is
determined by the arbitration panel to have substantially prevailed in the
arbitration proceeding. Such reimbursement shall be made by direct payment
to the executive upon delivery to the Company of valid invoices and/or
receipts relating to such attorneys' fees and expenses.
d. Except as contemplated in subparagraph b., the fees and expenses
of the arbitration panel shall be borne by the Company.
e. In the event the Executive does not submit to arbitration
hereunder or submits to arbitration but later seeks to nullify or reverse
the effect of such arbitration by alleging that arbitration is
unenforceable against him, then the Company shall be relieved of all
payment obligations under subparagraph c., above.
-6-
<PAGE>
15. Mitigation. The Executive shall have no duty to attempt to mitigate
----------
the level of benefits payable by the Company to him hereunder but the Company
shall be entitled to set off against the amounts payable hereunder any amounts
received by the Executive from any other employment or consulting source.
16. Notices. Any notices to be given hereunder by either party to the
-------
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
a. If to the Company:
C.D. Smith Drug Company
3907 S. 48th Terrace
St. Joseph, Missouri 64503
b. If to the Executive:
Richard Meehan
4322 N. Mulberry
Kansas City, MO 64116
Either party may change its address for notice by giving notice in accordance
with the terms of this Paragraph 16.
17. General Provisions.
------------------
a. Law Governing. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Missouri.
b. Invalid Provisions. If any provision of this Agreement is held to
------------------
be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance here from. Furthermore, in lieu of such
illegal, invalid, or unenforceable provision, there shall be added
automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and
still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
----------------
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions, warranties, other than
-7-
<PAGE>
those contained herein, and no amendments or modifications hereto shall be
binding unless made in writing and signed by the parties hereto.
d. Binding Effect. This Agreement shall extend to and be binding
--------------
upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not be
assigned by the Executive.
e. Waiver. The waiver by either party hereto of a breach of any term
------
or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
------
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
g. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
EXECUTIVE: C.D. SMITH DRUG COMPANY
/s/ Richard Meehan By: /s/ Jeanne Matheison
- -------------------------- ----------------------------
RICHARD MEEHAN Title: C.F.O.
----------------------------
-8-
<PAGE>
Exhibit 10.12
-------------
C.D. SMITH DRUG COMPANY
SEVERANCE COMPENSATION AGREEMENT
--------------------------------
FOLLOWING CHANGE IN CONTROL
---------------------------
This Severance Compensation Agreement is made as of January 7, 1997, by and
between C.D. SMITH DRUG COMPANY, a Missouri corporation (the "Company") and
Jeanne Mathiesen (the "Executive").
WHEREAS, the Company believes it to be in its best interest to reinforce
and encourage the continued attention and dedication of selected members of the
Company's management, including the Executive, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company; and
WHEREAS, this Agreement sets forth the severance compensation which the
Company agrees it will pay to the Executive if the Executive's employment with
the Company terminates following a Change in Control, pursuant to the terms and
definitions herein.
NOW, THEREFORE, in consideration of these promises, the parties agree that
the following shall constitute the Agreement between the Company and the
Executive:
1. Definitions
-----------
1.1 Change in Control. For purposes of this Agreement, a "Change in
Control" means any one of the following: (a) Continuing Directors no longer
constitute at least 2/3 of the Board of Directors; (b) any person or group of
persons (as defined in Rule 13d-5 under the Securities Exchange Act of 1934 (the
"Exchange Act")), together with its affiliates (other than the C.D. Smith Drug
Company Employee Stock Ownership Plan), becomes the beneficial owner (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of
the Company's then outstanding Common Stock or 30% or more of the combined
voting power of the Company's then outstanding securities (calculated in
accordance with Section 13(d)(3) or 14(d) of the Exchange Act) entitled
generally to vote for the election of the Company's Directors; (c) the approval
by the Company's stockholders of the merger or consolidation of the Company with
any other corporation, the sale of substantially all of the assets of the
Company, or the liquidation or dissolution of the Company, unless, in the case
of a merger or consolidation, the Continuing Directors in office immediately
prior to such merger or consolidation will constitute at least 2/3 of the Board
of Directors of the surviving corporation of such merger or consolidation and
any parent (as such term is defined in Rule 12b-2 under the Exchange Act) of
such corporation; or (d) at least 2/3 of the then Continuing Directors in office
immediately prior to any other action proposed to be taken by the Company's
stockholders or by the Company's Board of Directors determine that such proposed
action, if taken, would constitute a Change in Control of the Company and such
action is taken.
<PAGE>
1.2 Continuing Director. For purposes of this Agreement, "Continuing
Director" means any individual who either (a) was a member of the Company's
Board of Directors on the date hereof, or (b) was designated (before or at the
time of his or her initial election as a Director) as a Continuing Director by a
majority of the then Continuing Directors.
2. Termination After Change in Control. In the event of any Change in Control
event, as defined above, any termination of Executive's employment with the
Company within the 12-month period following any such Change in Control, whether
by Executive or by the Company and whether with or without cause shall result in
the following:
2.1 The Company shall pay as severance pay in a lump sum on the tenth
(10th) business day following the date of termination, an amount equal to two
times the Executive's base salary for the fiscal year ending before the Change
in Control of the Company.
2.2 The Executive, at the Company's cost, shall be entitled to
continuation of coverage for 24 months (beginning with the month subsequent to
the effective date of the termination) under all Company paid or partially paid
health, disability, or group life insurance plans or any retirement, pension, or
profit sharing plans, in each case at such level as had been available to the
Executive immediately prior to the Change in Control.
3. Arbitration of Disputes.
------------------------
3.1 Any dispute or claim arising out of or relating to this Agreement or
any termination of the Executive's employment shall be settled by final and
binding arbitration in St. Joseph, Missouri in accordance with the Commercial
Arbitration rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
3.2 In the event the Executive is determined by the arbitration panel to
have substantially prevailed in the arbitration proceeding, the Company shall
reimburse the Executive for any attorneys' fees and expenses incurred by the
Executive related to any arbitration hereunder, and including any actions taken
by either party to appeal or enforce the judgment rendered therein, up to a
maximum amount of $10,000.00. Such reimbursement shall be made by direct payment
to the Executive upon delivery to the Company of valid invoices and/or receipts
relating to such attorneys' fees and expenses.
3.3 In the event that the Company does not submit to arbitration hereunder
or submits to arbitration but seeks to nullify or reverse the effect of such
arbitration by alleging that arbitration is unenforceable against it, the
Company shall pay all costs (including expenses and attorneys' fees) incurred by
the Executive as a result of such action by the Company.
3.4 Except as contemplated in subparagraph 3.5, the fees and expenses of
the arbitration panel shall be borne by the Company.
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3.5 In the event the Executive does not submit to arbitration hereunder or
submits to arbitration but later seeks to nullify or reverse the effect of such
arbitration by alleging that arbitration is unenforceable against him, then the
Company shall be relieved of all payment obligations under subparagraph 3.2 and
3.4, above.
4. Mitigation. The Executive shall have no duty to attempt to mitigate the
level of benefits payable by the Company to him hereunder, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by the Executive as the result of employment by another employer after
the date of termination or otherwise.
5. General Provisions.
-------------------
5.1 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without regard to the choice
of law rules of such state.
5.2 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as is legal, valid, or enforceable.
5.3 Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements or understandings, whether
written or oral, with respect to the subject matter hereof. No terms,
conditions, warranties, other than those contained herein, and no amendments or
modifications hereto, shall be binding unless made in writing and signed by the
parties hereto.
5.4 Binding Effect; Assignment. This Agreement shall extend to and be
binding upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and permitted assigns. This Agreement may not
be assigned by the Executive.
5.5 Waiver. The waiver by either party hereto of a breach of any term or
provision of this Agreement shall not operate or be construed as a waiver of a
subsequent breach of the same provision by any party or of the breach of any
other term or provision of this Agreement.
5.6 Interpretation. Titles of the paragraphs herein are used solely for
convenience and shall not be to interpret or construe any paragraph, provision,
or clause of this Agreement. As used herein and where the context requires, the
masculine gender shall be deemed to include the feminine and neuter genders and
vice versa.
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<PAGE>
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
THE COMPANY:
C.D. SMITH DRUG COMPANY
/s/ Robert C. Farley
------------------------------------------
Name: Robert C. Farley
------------------------------------
Title: President
----------------------------------
THE EXECUTIVE:
/s/ Jeanne Mathiesen
------------------------------------------
Name: Jeanne Mathiesen
------------------------------------
Title: Treasurer
----------------------------------
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Exhibit 10.13
-------------
C.D. SMITH DRUG COMPANY
SEVERANCE COMPENSATION AGREEMENT
--------------------------------
FOLLOWING CHANGE IN CONTROL
---------------------------
This Severance Compensation Agreement is made as of January 7, 1997, by and
between C.D. SMITH DRUG COMPANY, a Missouri corporation (the "Company") and
Delora Jamison (the "Executive").
WHEREAS, the Company believes it to be in its best interest to reinforce
and encourage the continued attention and dedication of selected members of the
Company's management, including the Executive, to their assigned duties without
distraction in potentially disturbing circumstances arising from the possibility
of a change in control of the Company; and
WHEREAS, this Agreement sets forth the severance compensation which the
Company agrees it will pay to the Executive if the Executive's employment with
the Company terminates following a Change in Control, pursuant to the terms and
definitions herein.
NOW, THEREFORE, in consideration of these promises, the parties agree that
the following shall constitute the Agreement between the Company and the
Executive:
1. Definitions
1.1 Change in Control. For purposes of this Agreement, a "Change in
Control" means any one of the following: (a) Continuing Directors no longer
constitute at least 2/3 of the Board of Directors; (b) any person or group of
persons (as defined in Rule 13d-5 under the Securities Exchange Act of 1934 (the
"Exchange Act")), together with its affiliates (other than the C.D. Smith Drug
Company Employee Stock Ownership Plan), becomes the beneficial owner (as defined
in Rule 13d-3 under the Exchange Act), directly or indirectly, of 30% or more of
the Company's then outstanding Common Stock or 30% or more of the combined
voting power of the Company's then outstanding securities (calculated in
accordance with Section 13(d)(3) or 14(d) of the Exchange Act) entitled
generally to vote for the election of the Company's Directors; (c) the approval
by the Company's stockholders of the merger or consolidation of the Company with
any other corporation, the sale of substantially all of the assets of the
Company, or the liquidation or dissolution of the Company, unless, in the case
of a merger or consolidation, the Continuing Directors in office immediately
prior to such merger or consolidation will constitute at least 2/3 of the Board
of Directors of the surviving corporation of such merger or consolidation and
any parent (as such term is defined in Rule 12b-2 under the Exchange Act) of
such corporation; or (d) at least 2/3 of the then Continuing Directors in office
immediately prior to any other action proposed to be taken by the Company's
stockholders or by the Company's Board of Directors determine that such proposed
action, if taken, would constitute a Change in Control of the Company and such
action is taken.
<PAGE>
1.2 Continuing Director. For purposes of this Agreement, "Continuing
Director" means any individual who either (a) was a member of the Company's
Board of Directors on the date hereof, or (b) was designated (before or at the
time of his or her initial election as a Director) as a Continuing Director by a
majority of the then Continuing Directors.
2. Termination After Change in Control. In the event of any Change in Control
event, as defined above, any termination of Executive's employment with the
Company within the 12-month period following any such Change in Control, whether
by Executive or by the Company and whether with or without cause shall result in
the following:
2.1 The Company shall pay as severance pay in a lump sum on the tenth
(10th) business day following the date of termination, an amount equal to two
times the Executive's base salary for the fiscal year ending before the Change
in Control of the Company.
2.2 The Executive, at the Company's cost, shall be entitled to
continuation of coverage for 24 months (beginning with the month subsequent to
the effective date of the termination) under all Company paid or partially paid
health, disability, or group life insurance plans or any retirement, pension, or
profit sharing plans, in each case at such level as had been available to the
Executive immediately prior to the Change in Control.
3. Arbitration of Disputes.
3.1 Any dispute or claim arising out of or relating to this Agreement or
any termination of the Executive's employment shall be settled by final and
binding arbitration in St. Joseph, Missouri in accordance with the Commercial
Arbitration rules of the American Arbitration Association, and judgment upon the
award rendered by the arbitrators may be entered in any court having
jurisdiction thereof.
3.2 In the event the Executive is determined by the arbitration panel to
have substantially prevailed in the arbitration proceeding, the Company shall
reimburse the Executive for any attorneys' fees and expenses incurred by the
Executive related to any arbitration hereunder, and including any actions taken
by either party to appeal or enforce the judgment rendered therein, up to a
maximum amount of $10,000.00. Such reimbursement shall be made by direct payment
to the Executive upon delivery to the Company of valid invoices and/or receipts
relating to such attorneys' fees and expenses.
3.3 In the event that the Company does not submit to arbitration hereunder
or submits to arbitration but seeks to nullify or reverse the effect of such
arbitration by alleging that arbitration is unenforceable against it, the
Company shall pay all costs (including expenses and attorneys' fees) incurred by
the Executive as a result of such action by the Company.
3.4 Except as contemplated in subparagraph 3.5, the fees and expenses of
the arbitration panel shall be borne by the Company.
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<PAGE>
3.5 In the event the Executive does not submit to arbitration hereunder or
submits to arbitration but later seeks to nullify or reverse the effect of such
arbitration by alleging that arbitration is unenforceable against him, then the
Company shall be relieved of all payment obligations under subparagraph 3.2 and
3.4, above.
4. Mitigation. The Executive shall have no duty to attempt to mitigate the
level of benefits payable by the Company to him hereunder, nor shall the amount
of any payment provided for under this Agreement be reduced by any compensation
earned by the Executive as the result of employment by another employer after
the date of termination or otherwise.
5. General Provisions.
5.1 Law Governing. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, without regard to the choice
of law rules of such state.
5.2 Invalid Provisions. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable, such provision shall be fully severable and
this Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof; and the remaining
provisions hereof shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its severance
herefrom. Furthermore, in lieu of such illegal, invalid, or unenforceable
provision there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid, or unenforceable
provision as is legal, valid, or enforceable.
5.3 Entire Agreement. This Agreement sets forth the entire understanding
of the parties and supersedes all prior agreements or understandings, whether
written or oral, with respect to the subject matter hereof. No terms,
conditions, warranties, other than those contained herein, and no amendments or
modifications hereto, shall be binding unless made in writing and signed by the
parties hereto.
5.4 Binding Effect; Assignment. This Agreement shall extend to and be
binding upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and permitted assigns. This Agreement may
not be assigned by the Executive.
5.5 Waiver. The waiver by either party hereto of a breach of any term or
provision of this Agreement shall not operate or be construed as a waiver of a
subsequent breach of the same provision by any party or of the breach of any
other term or provision of this Agreement.
5.6 Interpretation. Titles of the paragraphs herein are used solely for
convenience and shall not be to interpret or construe any paragraph, provision,
or clause of this Agreement. As used herein and where the context requires, the
masculine gender shall be deemed to include the feminine and neuter genders and
vice versa.
3
<PAGE>
5.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH
MAY BE ENFORCED BY THE PARTIES.
THE COMPANY:
C.D. SMITH DRUG COMPANY
/s/ Robert C. Farley
-------------------------------------------
Name: Robert C. Farley
-----------------------------------
Title: President
-----------------------------------
THE EXECUTIVE:
/s/ Delora Jamison
-------------------------------------------
Name: Delora Jamison
-----------------------------------
Title: Vice President
-----------------------------------
4
<PAGE>
Exhibit 10.14
-------------
JOSEPH HARRIS
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement entered this 3rd day of October, 1997, by and
between General Drug Company, an Illinois corporation (the "Company") and Joseph
Harris (the "Executive"), and as to Section 5(c) only, C.D. Smith Drug Company
(the "Parent"),
WITNESSETH:
WHEREAS, the Company believes it to be in its best interest to provide for
continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive is
willing to render his services to the Company on the terms and conditions with
respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon the terms and conditions
hereinafter set forth.
2. Exclusive Services. The Executive shall devote all necessary working
time, ability and attention to the business of the Company during the term of
this Agreement and shall not, directly or indirectly, render any material
services to any business, corporation, or organization without the prior
approval of the Board of Directors of the Company (hereinafter referred to as
the "Board"); provided, however, that the Executive will be free to work with
civic or charitable organizations so long as such involvement does not interfere
with the performance of his duties for the Company.
3. Duties. The Executive is hereby employed as President and Chief
Operating Officer of the Company and shall render his services at the principal
business offices of the Company, as such may be located from time to time,
unless otherwise agreed between the Board and the Executive. The Executive
shall have such authority and shall perform such duties as are specified by the
Company for the office of Vice President subject, however, to such limitations,
instructions, directions, and control as the Board
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<PAGE>
may specify from time to time in its sole discretion. The Executive will not be
required to relocate his personal residence outside of the Chicago, Illinois
area in order to perform the services hereunder.
4. Term. This Agreement shall have an initial term through February 28,
2000, and shall renew for a two year term thereafter unless either party gives
notice of nonrenewal at least 180 days prior to the end of the initial term;
provided, however, that this Agreement is always subject to termination as
provided in Paragraph 13, below.
5. Compensation. As compensation for his services rendered under this
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule ("Compensation Schedule"). The term "Base Salary" as used herein shall
refer to the amount initially designated as such on the Compensation Schedule as
the same may be increased from time to time hereafter pursuant to the terms of
that Compensation Schedule or otherwise. The Base Salary component of the
compensation shall not be reduced by the Company during the term hereof except
in accordance with a general Base Salary reduction implemented across all
executive level positions.
a. Base Salary. Base Salary shall be paid in substantially equal
semi-monthly installments during the term of this Agreement, prorated for
any partial employment month. Such Base Salary may be increased (but not
decreased except as provided above) by the Board in its sole discretion.
b. Additional Compensation. The Executive shall be paid such
additional compensation and bonuses, as may be determined and authorized in
the sole discretion of Board.
c. Stock Options. The Executive shall be granted the options to
purchase shares of common stock of the Parent as described on the attached
Supplemental Benefits Schedule ("Benefits Schedule").
6. Benefits. In addition to the compensation to be paid to the Executive
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled
to participate in any health, disability, group term life insurance plan,
any pension, retirement or profit sharing plan, executive bonus plan or any
other fringe benefits which may be extended generally from time to time to
senior management employees of the Parent and its subsidiaries. In
addition, the Executive shall be entitled to the supplemental benefits
described on the attached Benefits Schedule.
2
<PAGE>
b. Disability Salary Continuation. If the Executive becomes disabled
during the term of this Agreement, the Company shall continue to pay the
Executive his Base Salary during the first 90 day period of such disability
and shall continue to pay the Executive, but at the rate of forty percent
(40%) of his Base Salary, for second 90 day period of such disability.
"Disability" as used herein shall have the same meaning as given that term
in the long term disability insurance policy of the Company as in effect
from time to time. All payments under this Paragraph shall cease upon the
expiration or other termination of this Agreement or of the Executive's
employment; however, disability payments shall continue as provided under
this Section 6(b) if the cause of termination is "permanent disability" as
the phrase is used in Section 13(d)(iii).
c. Vacation. The Executive shall be entitled to three weeks vacation
with full salary and benefits each calendar year and prorated for 1997. No
cash or other payment will be due, however, for unused vacation and
vacation may not be carried over from each such year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
from time to time are specified by the Company, the Company shall reimburse the
Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
8. Confidentiality/Trade Secrets. The Executive acknowledges that his
position with the Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the trade
secrets and confidential and proprietary business information of the Company and
its affiliates. Both during the term of this Agreement and thereafter, the
Executive covenants and agrees as follows:
a. he shall use his best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company and its affiliates including but not limited to
the identity of its customers and suppliers, its arrangements with
customers and suppliers, and its technical and financial data, records,
compilations of information, processes, recipes and specifications relating
to its customers, suppliers, products and services;
b. he shall not disclose any of such trade secrets and confidential
and proprietary information, except as may be required in the course of his
employment with the Company or by law; and
c. he shall not use, directly or indirectly, for his own benefit or
for the benefit of another, any of such trade secrets and confidential and
proprietary information.
3
<PAGE>
All files, records, documents, drawings, specifications, memoranda, notes,
or other documents relating to the business of the Company and its affiliates,
whether prepared by the Executive or otherwise coming into his possession, shall
be the exclusive property of the Company and its affiliates and shall be
delivered to the Company and not retained by the Executive upon termination of
his employment for any reason whatsoever or any other time upon request of the
Board.
9. Discoveries. The Executive covenants and agrees that he will fully
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which he has now or may
hereafter have during his employment with the Company and which pertain or
relate to the wholesale pharmaceutical business of the Company or its affiliates
or to any experimental work, products, services or processes of the Company in
progress or planned for the future, whether conceived by the Executive alone or
with others, and whether or not conceived during regular working hours or in
conjunction with the use of any Company assets. All such Discoveries shall be
the exclusive property of the Company whether or not patent or trademark
applications are filed thereon. The Executive shall assist the Company, at any
time during or after his employment, in obtaining patents on all such
Discoveries deemed patentable by the Company and shall execute all documents and
do all things necessary to obtain letters patent, vest the Company with full and
exclusive title thereto, and protect the same against infringement by others.
If such assistance takes place after his employment is terminated the Executive
shall be paid by the Company at a reasonable rate for any time actually spent in
rendering such assistance at the request of the Company.
10. Non competition. Taking into consideration the nature, scope and
volume of the Company's operations, the Executive agrees that during the period
of his employment and (i) if he elects to receive a Severance Payment pursuant
to Section 13(b) or 13(f) then also for the Severance Payment Period, or (ii) if
he resigns other than for Good Reason, as defined below, or if he is terminated
for Cause as defined below, then for a period of two years after such
resignation or termination, he will not, within the United States, directly or
indirectly, own, manage, operate, control, or be employed by, participate in, or
be connected in any matter with the ownership (other than ownership of
securities of publicly held corporations of which Executive owns less that 2% of
any class of outstanding securities), management, operation, or control of any
business engaged in the distribution or wholesale of pharmaceuticals, medicines,
or health aids.
11. Nonsolicitation. The Executive agrees that if he resigns other than
for Good Reason, as defined below, or if he is terminated for Cause, as defined
below, then during the period of his employment and for two years thereafter he
will not, either directly or indirectly, for himself or for any third party,
solicit, induce, recruit, or cause another person in the employ of the Company
to terminate his/her employment for the purpose of joining, associating or
becoming employed with any other business or activity. The Company and the
Executive specifically acknowledge and agree that the foregoing
4
<PAGE>
covenants of the Executive in Sections 10 and 11 are reasonable in content and
scope and are given by the Executive for adequate consideration.
12. Remedies for Breach of Covenants of the Executive. The covenants set
forth in Paragraphs 8, 9 and 11 of this Agreement shall continue to be binding
upon the Executive, notwithstanding the termination of his employment with the
Company for any reason whatsoever. Such covenants and the covenant contained in
Section 10 shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
Company and the Executive. The existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all such covenants. It is expressly agreed that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall be
available to prevent the breach or any threatened breach thereof.
13. Termination.
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. The Executive may either resign upon 30 days
written notice to the Company or may terminate this agreement and his
employment hereunder with Good Reason at any time. Upon any termination of
this Agreement and the Executive's employment hereunder, all benefits
provided pursuant to Paragraph 6 hereof shall cease.
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive (i)
any bonus amounts as may be payable and accrued but held back pursuant to
the terms of any written plans in which the Executive was a participant
prior to the effective date of the termination, (ii) all bonus payments
determined as of the end of the fiscal year in which the termination
occurred, as if the Executive had remained employed throughout such year,
and (iii) a Severance Payment for each month through the remaining initial
term of this Agreement as provided in Paragraph 4, above, beginning with
and prorated for the month in which the termination occurs.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall only
be entitled to receive his Base Salary through such date and any bonus
amounts as may be payable pursuant to the terms of any written plans in
which the Executive
5
<PAGE>
was a participant immediately prior to the effective date of the
termination. The Executive shall also be entitled to exercise his rights
under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of or pleads "nolo contendre"
to a criminal offense constituting a felony or involving dishonesty, deceit
or moral turpitude; or
(ii) The Executive breaches any material provision of this
Agreement or fails to perform his duties, or breaches his fiduciary duty to
the Company, and such breach or neglect is not corrected within 10 days
after receipt of written notice from the Company; or
(iii) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this Agreement.
For the purposes hereof, the phrase "permanently disabled" shall mean the
inability to perform his duties hereunder for a period of six (6)
consecutive months or six (6) months in any twelve (12) consecutive months
as the result of physical or mental incapacity, as certified by a
physician.
e. The provisions of Paragraphs 6(b), 8, 9, 10, 11, 12, 14, 15, 16
and 17 shall survive any termination for Cause; except that in the case of
termination under Section 13(d)(iii) the provisions of Sections 10 and 11
will not survive.
f. The Executive shall have Good Reason to effect a termination in
the event the Company breaches its obligations to pay any salary, benefit
or bonus due hereunder. Upon any such termination, the Executive shall be
entitled to receive a lump sum payment equal to a Severance Payment
multiplied by 12, and the provisions of Paragraphs 8, 9, 10, 12, 14, 15,
16, and 17 shall survive the termination. If the Executive waives his
right to receive such lump sum payment, only the provisions of Paragraphs
8, 9, 11, 12, 14, 15, 16, and 17 shall survive the termination. The
Executive shall also be entitled to exercise his rights under COBRA. No
termination may be effected by the Executive for Good Reason unless he
shall have delivered written notice to the Company of the breach and the
Company shall not have cured such breach within 10 days thereafter.
g. A "Severance Payment" is an amount equal to one-twelfth of the
sum of the Executive's base salary at the last effective annual rate.
h. A "Severance Payment Period" is any month in which the Executive
receives a Severance Payment or in the event of a termination under
Paragraph 13(f), the Severance Payment Period is 12 months.
6
<PAGE>
14. Arbitration of Disputes.
a. Any dispute or claim arising out of or relating to this Agreement
or any termination of the Executive's employment shall be settled by final
and binding arbitration in Chicago, Illinois in accordance with the
Commercial Arbitration rules of the American Arbitration Association, and
judgment upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof.
b. In the event that the Company does not submit to arbitration
hereunder or submits to arbitration but seeks to nullify or reverse the
effect of such arbitration by alleging that arbitration is unenforceable
against it, the Company shall pay all costs (including expenses and
attorney's fees) incurred by the Executive as a result of such action by
the Company.
c. Except as contemplated in subparagraph b., above, the Company
shall reimburse the Executive for any attorney's fees and expenses incurred
by the Executive related to any arbitration hereunder, and including any
actions taken by either party to appeal or enforce the judgment rendered
therein, up to a maximum amount of $10,000.00 if the Executive is
determined by the arbitration panel to have substantially prevailed in the
arbitration proceeding. Such reimbursement shall be made by direct payment
to the Executive upon delivery to the Company of valid invoices and/or
receipts relating to such attorney's fees and expenses.
d. Except as contemplated in subparagraph b., the fees and expenses
of the arbitration panel shall be borne by the Company.
e. In the event the Executive does not submit to arbitration
hereunder of submits to arbitration but later seeks to nullify or reverse
the effect of such arbitration by alleging that arbitration is
unenforceable against him, then the Company shall be relieved of all
payment obligations under subparagraph c., above.
15. Mitigation. The Executive shall have a duty to attempt to mitigate the
level of benefits payable by the Company to him hereunder and the Company shall
be entitled to set off against the amounts payable hereunder any amounts
received by the Executive from any other employment or consulting source.
16. Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid, with return receipt requested. Mailed
notices shall be addressed as follows:
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a. If to the Company:
General Drug Company
c/o C.D. Smith Drug Company
3907 S. 48th Terrace
St. Joseph, MO 64503
Attn: Robert C. Farley
b. If to the Executive:
Joseph Harris
43 Fabish Drive
Buffalo Grove, IL 60089
Either party may change its address for notice by giving notice in accordance
with the terms of this Paragraph 16.
17. General Provisions.
a. Law Governing. This Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois.
b. Invalid Provisions. If any provision of this Agreement is held to
be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such
illegal, invalid, or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and
still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof. No terms, conditions, warranties, other than those contained
herein, and no amendments or modifications hereto shall be binding unless
made in writing and signed by the parties hereto. All pre-existing
employment agreements, including the Employment Agreement dated February
13, 1995 between the Executive and the Company (the "1995 Agreement"), are
hereby superseded and null and void.
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d. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not be
assigned by the Executive.
e. Waiver. The waiver by either party hereto of a breach of any term
or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
18. Change of Control.
a. Notwithstanding anything to the contrary herein, if Executive
resigns from the Company or is terminated by the Company without Cause upon
or within six (6) months following a Change of Control as defined below,
Company will pay to Executive one times the Executive's Base Salary plus
bonus for the year in which such Change of Control occurs (calculated as if
the maximum bonus for that year is earned), as of the date of the Change of
Control as severance pay and the provisions of Sections 10 and 11 shall be
null and void.
b. For purposes of this Agreement, "Change of Control" means any one
of the following: (i) any person or group (as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934 as in effect on August 1, 1997
acquiring beneficial ownership of 30% or more of the Parent's then
outstanding Common Stock or 30% or more of the combined voting power of the
Parent's then outstanding securities (calculated in accordance with section
13(d)(3) or 14(d) of the Exchange Act) entitled generally to vote for the
election of the Parent's Directors; (ii) the approval by the Parent's
stockholders of the merger or consolidation of the Parent with any other
corporation, the sale of substantially all of the assets of the Parent or
the liquidation or dissolution of the Parent, unless, in the case of a
merger or consolidation, the then Continuing Directors in office
immediately prior to such merger or consolidation will constitute at least
2/3 of the Board of Directors of the surviving corporation of such merger
or consolidation and any parent (as such term is defined in Rule 12b-2
under the Exchange Act) of such corporation; (iii) at least 2/3 of the then
Continuing Directors in office
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immediately prior to any other action proposed to be taken by the Parent's
stockholders or by the Parent's Board of Directors determine that such
proposed action, if taken, would constitute a Change in Control of the
Parent and such action is taken, or (iv) Continuing Directors no longer
constitute at least 2/3 of the Board of Directors.
c. "Continuing Director" means any individual who either (i) was
member of the Parent's Board of Directors on the date hereof, or (ii) was
designated (before initial election as a Director) as a Continuing Director
by 2/3 of the then Continuing Directors.
d. If any payment or the receipt of any benefit under this Agreement
shall be deemed to constitute an "excess parachute payment" as such term is
described in Section 280G of the Internal Revenue Code of 1986 ("Code"), so
as to result in the loss of a deduction to the Company under Code Section
280G or in the imposition of an excise tax on the Executive under Code
Section 4999, or any successor section thereto, then the amounts payable or
the benefits provided under this Agreement shall be reduced to the minimum
extent necessary so that no such deduction will be lost by the Company and
no such excise tax will be imposed on the Executive. The Company, in its
sole discretion, shall determine whether or not an "excess parachute
payment" would otherwise occur and shall determine the amount and method of
the foregoing reduction.
19. Enforceability. The parties acknowledge that this Agreement is being
executed in connection with the acquisition by Parent of Gimbel Investor Group
L.P. or G.D. Holdings of Delaware, Inc. and that this Agreement shall not be
deemed effective unless and until such acquisition has been consummated pursuant
to that certain Acquisition Agreement dated September 11, 1997 and upon the
satisfaction in full of the obligations to the Executive under Section 11 of the
1995 Agreement as acknowledged in writing by the Executive.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement to be effective as of the Closing Date.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION
WHICH MAY BE ENFORCED BY THE PARTIES.
EXECUTIVE: GENERAL DRUG COMPANY
/s/ Joseph Harris By: /s/ Robert C. Farley
- --------------------------- ---------------------------
Joseph Harris
Name: Robert C. Farley
C.D. SMITH DRUG COMPANY
(as to Section 5(c) only)
By: /s/ Robert C. Farley
---------------------------
11
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Exhibit 10.15
-------------
RICHARD BRUDNICK
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement entered into this 3rd day of October, 1997, by
and among James Brudnick Company, Inc., a Delaware corporation (the "Company")
and Richard Brudnick (the "Executive"), and as to Section 5(c) only, C.D. Smith
Drug Company (the "Parent"),
WITNESSETH:
WHEREAS, the Company believes it to be in its best interest to provide for
continuity of management and to provide protection for its valuable trade
secrets and confidential information; and
WHEREAS, the Company desires to employ the Executive and the Executive is
willing to render his services to the Company on the terms and conditions with
respect to such employment hereinafter set forth.
NOW, THEREFORE, in consideration of premises and the mutual terms and
conditions hereof, the Company and the Executive hereby agree as follows:
1. Employment. The Company hereby employs the Executive and the Executive
hereby accepts employment with the Company upon the terms and conditions
hereinafter set forth.
2. Exclusive Services. The Executive shall devote his full working time,
ability and attention to the business of the Company during the term of this
Agreement and shall not, directly or indirectly, render any material services to
any business, corporation, or organization without the prior approval of the
Board of Directors of the Company (hereinafter referred to as the "Board");
provided, however, that the Executive will be free to work with civic or
charitable organizations so long as such involvement does not materially
interfere with the performance of his duties for the Company.
3. Duties. The Executive is hereby employed as President of the Company
and shall render his services at the principal business offices of the Company,
as such may be located from time to time subject to the restriction set forth in
the last sentence of this Section 3, unless otherwise agreed between the Board
and the Executive. The Executive shall have such authority and shall perform
such duties as are specified by the Company
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for the office of President subject, however, to such limitations, instructions,
directions, and control as the Board may specify from time to time in its sole
discretion. The Executive's duties shall be substantially similar to those
historically required of him in his position as President of the Company. The
Executive will not be required to relocate his personal residence outside of the
Boston, Massachusetts area in order to perform the services required hereunder.
4. Term. This Agreement shall have an initial term through February 28,
2000, and shall renew for a two year term thereafter unless either party gives
notice of nonrenewal at least 180 days prior to the end of the initial term;
provided, however, that this Agreement is always subject to termination as
provided in Paragraph 13, below.
5. Compensation. As compensation for his services rendered under this
Agreement, the Executive shall be entitled to receive the initial compensation
set forth on the attached Executive Individual Salary and Incentive Plan
Schedule ("Compensation Schedule"). The term Base Salary as used herein shall
refer to the amount initially designated as such in the Compensation Schedule as
the same may be increased from time to time hereafter pursuant to the terms of
that Compensation Schedule or otherwise. The Base Salary component of the
compensation shall not be reduced by the Company during the term hereof except
in accordance with a general Base Salary reduction implemented across all
executive level positions.
a. Base Salary. Base Salary, payable in accordance with the attached
Compensation Schedule or in effect from time to time, shall be paid in 26
equal bi-weekly installments during the term of this Agreement, prorated
for any partial employment month. Such Base Salary may be increased (but
not decreased except as provided above) by the Board in its sole
discretion.
b. Additional Compensation. The Executive shall be paid such
additional compensation and bonuses, as may be determined and authorized in
the sole discretion of Board.
c. Stock Options. The Executive shall be granted the options to
purchase shares of common stock of the Parent as described on the attached
Supplemental Benefits Schedule ("Benefits Schedule").
6. Benefits. In addition to the compensation to be paid to the Executive
pursuant to Paragraph 5 hereof, the Executive shall further be entitled to
receive the following:
a. Participation in Employee Plans. The Executive shall be entitled
to participate in any health, disability, group term life insurance plan,
any pension, retirement or profit sharing plan, executive bonus plan or any
other fringe benefits
2
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which may be extended generally from time to time to senior management
employees of the Parent. The health insurance benefits provided to the
Executive shall not be substantially less than those provided by the
Company at the effective date of this Agreement. In addition, the Executive
shall be entitled to the supplemental benefits described on the Benefits
Schedule.
b. Disability Salary Continuation. If the Executive becomes
disabled during the term of this Agreement, the Company shall continue to
pay the Executive his Base Salary during the first 90 day period of such
disability and shall continue to pay the Executive, but at the rate of
forty percent (40%) of his Base Salary, for second 90 day period of such
disability. "Disability" as used herein shall have the same meaning as
given that term in the long term disability insurance policy of the Company
as in effect from time to time. All payments under this Paragraph shall
cease upon the expiration or other termination of this Agreement or of the
Executive's employment; however, disability payments shall continue as
provided under this Section 6(b) if the Cause of termination is "permanent
disability" as the phrase is used in Section 13(d)(iii). Notwithstanding
the foregoing, the Executive shall also be entitled to any disability
benefits accorded for senior management employees of the Parent under any
disability insurance plans which the Parent may have from time to time.
c. Vacation. The Executive shall be entitled to three weeks vacation
with full salary and benefits each year, measured from the anniversary of
his original employment with the Company. No cash or other payment will be
due, however, for unused vacation and vacation may not be carried over from
each such year to the next.
7. Reimbursement of Expenses. Subject to such rules and procedures as
from time to time are specified by the Company, the Company shall reimburse the
Executive on a monthly basis for reasonable business expenses necessarily
incurred in the performance of his duties under this Agreement.
8. Confidentiality/Trade Secrets. The Executive acknowledges that his
position with the Company is one of the highest trust and confidence both by
reason of his position and by reason of his access to and contact with the trade
secrets and confidential and proprietary business information of the Company and
its affiliates. Both during the term of this Agreement and thereafter, the
Executive covenants and agrees as follows:
a. he shall use his best efforts and exercise utmost diligence to
protect and safeguard the trade secrets and confidential and proprietary
information of the Company and its affiliates including but not limited to
the identity of its customers and suppliers, its arrangements with
customers and suppliers, and its technical and
3
<PAGE>
financial data, records, compilations of information, processes, recipes
and specifications relating to its customers, suppliers, products and
services;
b. he shall not disclose any of such trade secrets and confidential
and proprietary information, except as may be required in the course of his
employment with the Company or by law; and
c. he shall not use, directly or indirectly, for his own benefit or
for the benefit of another, any of such trade secrets and confidential and
proprietary information.
All files, records, documents, drawings, specifications, memoranda, notes,
or other documents relating to the business of the Company and its affiliates,
whether prepared by the Executive or otherwise coming into his possession, shall
be the exclusive property of the Company and its affiliates and shall be
delivered to the Company and not retained by the Executive upon termination of
his employment for any reason whatsoever or any other time upon request of the
Board.
9. Discoveries. The Executive covenants and agrees that he will fully
inform the Company of and disclose to the Company all inventions, designs,
improvements, discoveries and processes ("Discoveries") which he has now or may
hereafter have during his employment with the Company and which pertain or
relate to the wholesale pharmaceutical business of the Company or its affiliates
or to any experimental work, products, services or processes of the Company in
progress or planned for the future, whether conceived by the Executive alone or
with others, and whether or not conceived during regular working hours or in
conjunction with the use of any Company assets. All such Discoveries shall be
the exclusive property of the Company whether or not patent or trademark
applications are filed thereon. The Executive shall assist the Company, at any
time during or after his employment, in obtaining patents on all such
Discoveries deemed patentable by the Company and shall execute all documents and
do all things necessary to obtain letters patent, vest the Company with full and
exclusive title thereto, and protect the same against infringement by others.
If such assistance takes place after his employment is terminated the Executive
shall be paid by the Company at a reasonable rate for any time actually spent in
rendering such assistance at the request of the Company.
10. Non competition. Taking into consideration the nature, scope and
volume of the Company's operations, the Executive agrees that during the period
of his employment and (i) if he elects to receive a Severance Payment pursuant
to Section 13(b) or 13(f) then also for the Severance Payment Period, or (ii) if
he resigns other than for Good Reason, as defined below, or if he is terminated
for Cause as defined below, then for a period of two years after such
resignation or termination, he will not, within the United States, directly or
indirectly, own, manage, operate, control, or be employed by, participate in, or
be connected in any matter with the ownership (other than ownership
4
<PAGE>
of securities of publicly held corporations of which Executive owns less that 2%
of any class of outstanding securities), management, operation, or control of
any business engaged in the distribution or wholesale of pharmaceuticals,
medicines, or health aids.
11. Nonsolicitation. The Executive agrees that if he resigns other than
for Good Reason, as defined below, or if he is terminated for Cause, as defined
below, then during the period of his employment and for two years thereafter he
will not, either directly or indirectly, for himself or for any third party,
solicit, induce, recruit, or cause another person in the employ of the Company
to terminate his/her employment for the purpose of joining, associating or
becoming employed with any other business or activity. The Company and the
Executive specifically acknowledge and agree that the foregoing covenants of the
Executive in Sections 10 and 11 are reasonable in content and scope and are
given by the Executive for adequate consideration.
12. Remedies for Breach of Covenants of the Executive. The covenants set
forth in Paragraphs 8, 9 and 11 of this Agreement shall continue to be binding
upon the Executive, notwithstanding the termination of his employment with the
Company for any reason whatsoever. Such covenants and the covenant contained in
Section 10 shall be deemed and construed as separate agreements independent of
any other provisions of this Agreement and any other agreement between the
Company and the Executive. The existence of any claim or cause of action by the
Executive against the Company, whether predicated on this Agreement or
otherwise, shall not constitute a defense to the enforcement by the Company of
any or all such covenants. It is expressly agreed that the remedy at law for
the breach of any such covenant is inadequate and injunctive relief shall be
available to prevent the breach or any threatened breach thereof.
13. Termination.
-----------
a. The Company may terminate this Agreement and the Executive's
employment hereunder at any time, with or without Cause, upon written
notice to the Executive. The Executive may either resign upon 30 days
written notice to the Company or may terminate this agreement and his
employment hereunder with Good Reason at any time. Upon any termination of
this Agreement and the Executive's employment hereunder, all benefits
provided pursuant to Paragraph 6 hereof shall cease, except as expressly
provided otherwise herein.
b. In the event of termination by the Company without Cause, the
effective date thereof shall be stated in a written notice to the
Executive, which shall not be earlier than 30 days from the date such
notice is delivered to the Executive. In the event the Company effects a
termination without Cause, the Executive shall be entitled to receive (i)
any bonus amounts as may be payable and accrued but held back pursuant to
the terms of any written plans in which the Executive was a participant
prior to the effective date of the termination, (ii) all bonus payments
5
<PAGE>
determined as of the end of the fiscal year in which the termination
occurred, as if the Executive had remained employed throughout such year,
(iii) a Severance Payment for each month through the remaining initial term
of this Agreement as provided in Paragraph 4, above, beginning with and
prorated for the month in which the termination occurs, and (iv) continued
participation, at the Company's expense, in all group health insurance
plans for 12 months and thereafter such continuation at his own expense as
provided by COBRA.
c. Upon the effective date of any termination by the Company for
Cause, or upon the resignation of the Executive, the Executive shall only
be entitled to receive his Base Salary through such date and any bonus
amounts as may be payable pursuant to the terms of any written plans in
which the Executive was a participant immediately prior to the effective
date of the termination. The Executive shall also be entitled to exercise
his rights under COBRA.
d. The following shall constitute "Cause":
(i) The Executive is convicted of or pleads "nolo contendre" to a
criminal offense constituting a felony or involving dishonesty, deceit or
moral turpitude; or
(ii) The Executive breaches any material provision of this
Agreement or materially fails to perform his duties, or breaches his
fiduciary duty to the Company, and such breach or neglect is not corrected
within 10 days after receipt of written notice from the Company; or
(iii) The Executive dies or becomes permanently disabled from
continuing to provide the level of service required under this Agreement.
For purposes hereof, the phrase "permanently disabled" shall mean the
inability to perform his duties hereunder for a period of six (6)
consecutive months or six (6) months in any twelve (12) consecutive months
as the result of physical or mental incapacity, as certified by a
physician.
e. The provisions of Paragraphs 8, 9, 10, 11, 12, 14, and 15 shall
survive any termination for Cause; except that in the case of termination
under Section 13(d)(iii) the provisions of Sections 10 and 11 will not
survive.
f. The Executive shall have Good Reason to effect a termination in
the event the Company (i) breaches its obligations to pay any salary,
benefit or bonus due hereunder, as the same may be adjusted from time to
time or the Company fails to continue the Executive's participation in any
incentive compensation plan (or any substitute comparable arrangement),
(ii) substantially reduces, without the Executive's written consent, the
Executive's working conditions, perquisites or
6
<PAGE>
status, resulting in a significant adverse change in the nature or scope of
the Executive's authority, functions, duties, or responsibilities, or (iii)
requires that the Executive relocate to a location outside of the Boston,
Massachusetts area. Upon any such termination, the Executive shall be
entitled to receive a lump sum payment equal to a Severance Payment
multiplied by 12, and the provisions of Paragraphs 8, 9, 10, 12, 14, and 15
shall survive the termination. If the Executive waives his right to receive
such lump sum payment, only the provisions of Paragraphs 8, 9, 11, 12, 14,
and 15 shall survive the termination. The Executive shall also be entitled
to continue at the Company's expense his participation in all group health
insurance plans for 12 months and thereafter will be entitled to exercise
his rights under COBRA. No termination may be effected by the Executive for
Good Reason unless he shall have delivered written notice to the Company of
the breach and the Company shall not have cured such breach within 10 days
thereafter.
g. A "Severance Payment" is an amount equal to one-twelfth of the
sum of the Executive's base salary at the last effective annual rate.
h. A "Severance Payment Period" is any month in which the Executive
receives a Severance Payment or in the event of a termination under
Paragraph 13(f), the Severance Payment Period is 12 months.
14. Notices. Any notices to be given hereunder by either party to
the other may be effected either by personal delivery in writing or by
mail, registered or certified, postage prepaid, with return receipt
requested. Mailed notices shall be addressed as follows:
a. If to the Company:
James Brudnick Company, Inc.
c/o C.D. Smith Drug Company
3907 S. 48th Terrace
St. Joseph, MO 64503
Attn: Robert C. Farley
b. If to the Executive:
Richard Brudnick
_______________________
_______________________
_______________________
Either party may change its address for notice by giving notice in
accordance with the terms of this Paragraph 14.
7
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15. General Provisions.
------------------
a. Law Governing. This Agreement shall be governed by and construed
in accordance with the laws of the Commonwealth of Massachusetts.
b. Invalid Provisions. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable, such provision shall be fully
severable and this Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part
hereof; and the remaining provisions hereof shall remain in full force and
effect and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom. Furthermore, in lieu of such
illegal, invalid, or unenforceable provision there shall be added
automatically as a part of this Agreement a provision as similar in terms
to such illegal, invalid, or unenforceable provision as may be possible and
still be legal, valid or enforceable.
c. Entire Agreement. This Agreement sets forth the entire
understanding of the parties and supersedes all prior agreements or
understandings, whether written or oral, with respect to the subject matter
hereof including, but not limited to, that certain Employment Agreement
dated February 11, 1994 (the "1994 Employment Agreement"), by and between
the Brudnick Acquisition Corp. and the Executive. No terms, conditions,
warranties, other than those contained herein, and no amendments or
modifications hereto shall be binding unless made in writing and signed by
the parties hereto. All pre-existing employment agreements (including
earlier versions of this agreement) are hereby superseded and null and
void.
d. Binding Effect. This Agreement shall extend to and be binding
upon and inure to the benefit to the parties hereto, their respective
heirs, representatives, successors and assigns. This Agreement may not be
assigned by the Executive.
e. Waiver. The waiver by either party hereto of a breach of any
term or provision of this Agreement shall not operate or be construed as a
waiver of a subsequent breach of the same provision by any party or of the
breach of any other term or provision of this Agreement.
f. Titles. Titles of the paragraphs herein are used solely for
convenience and shall not be used for interpretation or construing any
work, clause, paragraph, or provision of this Agreement.
8
<PAGE>
g. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but which together
shall constitute one and the same instrument.
16. Change of Control.
-----------------
a. Notwithstanding anything to the contrary herein, if Executive
resigns from the Company or is terminated by the Company without Cause upon
or within six (6) months following a Change of Control as defined below,
Company will pay to Executive one times the Executive's Base Salary plus
bonus for the year in which such Change of Control occurs (calculated as if
the maximum bonus for that year is earned), as of the date of the Change of
Control as severance pay and the provisions of Sections 10 and 11 shall be
null and void.
b. For purposes of this Agreement, "Change of Control" means any one
of the following: (i) any person or group (as defined in Section 13(d)(3)
of the Securities Exchange Act of 1934 as in effect on August 1, 1997
acquiring beneficial ownership of 30% or more of the Parent's or the
Company's then outstanding Common Stock or 30% or more of the combined
voting power of the Parent's or the Company's then outstanding securities
(calculated in accordance with section 13(d)(3) or 14(d) of the Exchange
Act) entitled generally to vote for the election of the Parent's Directors;
(ii) the approval by the Parent's or the Company's stockholders of the
merger or consolidation of the Parent or of the Company with any other
corporation (except for a corporation owned or controlled by the Parent),
the sale of substantially all of the assets of the Parent or the
liquidation or dissolution of the Parent or of the Company, unless, in the
case of a merger or consolidation, the then Continuing Directors in office
immediately prior to such merger or consolidation will constitute at least
2/3 of the Board of Directors of the surviving corporation of such merger
or consolidation and any parent (as such term is defined in Rule 12b-2
under the Exchange Act) of such corporation; (iii) at least 2/3 of the then
Continuing Directors in office immediately prior to any other action
proposed to be taken by the Parent's stockholders or by the Parent's Board
of Directors determine that such proposed action, if taken, would
constitute a Change in Control of the Parent and such action is taken, or
(iv) Continuing Directors no longer constitute at least 2/3 of the Board of
Directors.
c. "Continuing Director" means any individual who either (i) was
member of the Parent's Board of Directors on the date hereof, or (ii) was
designated (before initial election as a Director) as a Continuing Director
by 2/3 of the then Continuing Directors.
d. If any payment or the receipt of any benefit under this Agreement
shall be deemed to constitute an "excess parachute payment" as such term is
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described in Section 280G of the Internal Revenue Code of 1986 ("Code"), so
as to result in the loss of a deduction to the Company under Code Section
280G or in the imposition of an excise tax on the Executive under Code
Section 4999, or any successor section thereto, then the amounts payable or
the benefits provided under this Agreement shall be reduced to the minimum
extent necessary so that no such deduction will be lost by the Company and
no such excise tax will be imposed on the Executive. The Company, in its
sole discretion, shall determine whether or not an "excess parachute
payment" would otherwise occur and shall determine the amount and method of
the foregoing reduction.
17. Enforceability. The parties acknowledge that this Agreement is
being executed in connection with the acquisition by Parent of Gimbel Investor
Group L.P. or G.D. Holdings of Delaware, Inc. and that this Agreement shall not
be deemed effective unless and until such acquisition has been consummated
pursuant to that certain Acquisition Agreement dated September 11, 1997 and upon
the satisfaction in full of the obligations to the Executive under Section 5 of
the 1994 Employment Agreement as acknowledged in writing by the Executive.
IN WITNESS WHEREOF, the Company and the Executive have executed this
Agreement as of the date and year first above written above.
EXECUTIVE: JAMES BRUDNICK COMPANY, INC.
/s/ Richard Brudnick By:/s/ Robert C. Farley
- ------------------------- ------------------------------
Richard Brudnick
Name: Robert C. Farley
C. D. SMITH DRUG COMPANY, INC.
(as to Section 5(c) only)
By:/s/ Robert C. Farley
------------------------------
Name: Robert C. Farley
10
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Exhibit 10.16
-------------
ACQUISITION AGREEMENT
BY AND AMONG
C.D. SMITH DRUG COMPANY,
G.D. HOLDINGS OF DELAWARE, INC.,
GIMBEL INVESTOR GROUP L.P.
AND
CERTAIN PARTNERS OF GIMBEL INVESTOR GROUP L.P.
SEPTEMBER 11, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE I
PURCHASE AND SALE OF THE SHARES OR PARTNERSHIP INTERESTS................1
Section 1.1 Purchase of the Shares or Partnership Interests............1
Section 1.2 Purchase Price.............................................2
Section 1.3 Payment of Purchase Price..................................2
Section 1.4 Date, Time and Place of Closing............................3
Section 1.5 Deliveries by the Partnership at Closing...................3
Section 1.6 Deliveries by Buyer at Closing.............................3
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HOLDINGS,THE PARTNERSHIP
AND THE PARTNERS........................................................3
Section 2.1 Organization...............................................3
Section 2.2 The Partnership............................................4
Section 2.3 Capitalization.............................................4
Section 2.4 Authority..................................................5
Section 2.5 Consents and Approvals.....................................5
Section 2.6 Financial Statements.......................................5
Section 2.7 Absence of Certain Changes.................................6
Section 2.8 No Undisclosed Liabilities.................................8
Section 2.9 Title to Assets; Inventory................................10
Section 2.10 [Reserved.................................................10
Section 2.11 Benefit Plans; ERISA......................................10
Section 2.12 Litigation................................................13
Section 2.13 Compliance with Laws......................................14
Section 2.14 Tax Returns...............................................14
Section 2.15 Indebtedness..............................................15
Section 2.16 Banks.....................................................15
Section 2.17 Contracts.................................................15
Section 2.18 Titles, Real Property Matters.............................16
Section 2.19 Environmental Matters.....................................16
Section 2.20 Broker's Fees.............................................17
Section 2.21 Labor Matters.............................................17
Section 2.22 Conflicts of Interest.....................................18
Section 2.23 Patents, Trademarks, Miscellaneous Intellectual Property..18
Section 2.24 Insurance Coverage........................................19
Section 2.25 Customers.................................................19
Section 2.26 Suppliers.................................................19
Section 2.27 Accounts..................................................20
Section 2.28 Full Disclosure...........................................20
<PAGE>
Section 2.29 Correct Records...........................................20
ARTICLE III
COVENANTS OF HOLDINGS, THE PARTNERSHIP AND THE PARTNERS................20
Section 3.1 Maintenance of Business...................................20
Section 3.2 Negative Covenants........................................20
Section 3.3 Organization, Goodwill....................................21
Section 3.4 Access to Facilities, Files and Records...................21
Section 3.5 Third Party Consents......................................22
Section 3.6 Notice of Proceedings.....................................22
Section 3.7 Delivery of Partner Lists.................................22
Section 3.8 Confidentiality...........................................22
Section 3.9 No Solicitation...........................................23
Section 3.10 Adverse Events............................................23
Section 3.11 Employees.................................................23
Section 3.12 Estimate of Bonus Commitments, Etc........................24
Section 3.13 Expenses..................................................24
Section 3.14 Partnership Approval......................................24
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER................................25
Section 4.1 Corporate Existence.......................................25
Section 4.2 Corporate Power and Authority.............................25
Section 4.3 Execution and Delivery Permitted..........................25
Section 4.4 Binding Effect............................................25
Section 4.5 Due Diligence.............................................26
ARTICLE V
COVENANTS OF BUYER.....................................................26
Section 5.1 Corporate Action..........................................26
Section 5.2 Confidentiality...........................................26
Section 5.3 Notice of Proceedings.....................................26
Section 5.4 Adverse Events............................................26
Section 5.5 Broker's Fees.............................................27
Section 5.6 Existing Bonus Commitments, etc...........................27
Section 5.7 Third Party Consents......................................27
ARTICLE VI
CONDITIONS TO CLOSING..................................................27
Section 6.1 Buyer Conditions to Closing...............................27
Section 6.2 Holdings and Partnership Conditions to Closing............30
ii
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ARTICLE VII
INDEMNIFICATION........................................................32
Section 7.1 Indemnification by the Partnership and the Partners.......32
Section 7.2 Indemnification by Buyer..................................33
Section 7.3 Indemnification Procedure.................................33
Section 7.4 Limitations on Indemnification............................33
Section 7.5 Time to Assert Claims.....................................35
ARTICLE VIII
MISCELLANEOUS..........................................................35
Section 8.1 Survival..................................................35
Section 8.2 Termination of Transactions...............................35
Section 8.3 Effect of Termination or Abandonment......................36
Section 8.4 Liabilities...............................................36
Section 8.5 Assignment................................................37
Section 8.6 Further Assurances........................................37
Section 8.7 Notices...................................................37
Section 8.8 Entire Agreement..........................................38
Section 8.9 Rules of Construction.....................................39
Section 8.10 Law Governing.............................................39
Section 8.11 Waiver of Provisions......................................39
Section 8.12 Successors................................................39
Section 8.13 Counterparts..............................................40
Section 8.14 Public Statements or Releases.............................40
Section 8.15 Severability..............................................40
Section 8.16 No Third Party Beneficiaries..............................40
LIST OF EXHIBITS AND SCHEDULES..............................................37
iii
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ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT (the "Agreement") is made and entered into as of
the 11th day of September, 1997, by and among C.D. SMITH DRUG COMPANY, a
Missouri corporation ("Buyer"), G.D. HOLDINGS OF DELAWARE, INC., a Delaware
corporation ("Holdings"), GIMBEL INVESTOR GROUP L.P., an Illinois limited
partnership (the "Partnership"), and the partners of the Partnership who have
executed this Agreement (collectively, the "Partners").
WHEREAS, the Partnership owns 1,000 shares (collectively, the "Shares") of
the common stock, par value $.01 per share (the "Common Stock"), of Holdings,
which Shares in the aggregate represent all of the issued and outstanding shares
of capital stock of Holdings;
WHEREAS, Buyer desires to purchase, and the Partnership desires to sell,
the Shares for the consideration set forth below, subject to the terms and
conditions of this Agreement; and
WHEREAS, in the event that 100% of the partners of the Partnership execute
counterparts of and become parties to this Agreement, the Partners shall have
the right, but not the obligation, to sell all of the issued and outstanding
partnership interests of the Partnership (the "Partnership Interests") to the
Buyer for the consideration set forth below, in lieu of the Partnership selling
the Shares for the consideration set forth below, subject to the terms and
conditions of this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements, covenants, representations, warranties and promises set forth
herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF THE SHARES OR PARTNERSHIP INTERESTS
SECTION 1.1 PURCHASE OF THE SHARES OR PARTNERSHIP INTERESTS. Subject to
-----------------------------------------------
and upon the terms and conditions of this Agreement, at the closing of the
transactions contemplated by this Agreement (the "Closing"), the Partnership
shall sell, transfer, assign, convey and deliver to Buyer, free and clear of all
adverse claims, security interests, liens, and encumbrances, and Buyer shall
purchase, accept and acquire from the Partnership, all of the Shares (the "Share
Purchase"); provided that if, prior to the Closing, all of the partners of the
Partnership execute counterparts of and become parties to this Agreement, the
Partnership shall have the right (but not the obligation) to sell the
Partnership Interests to the Buyer, and, subject to and upon the terms and
conditions of this Agreement, at the Closing, the Partners shall sell, transfer,
assign, convey and deliver to Buyer and, if Buyer elects, an entity to be formed
by Buyer ("Buyer Sub"), free and clear of all adverse claims, security
interests, liens, and encumbrances, and Buyer and Buyer Sub shall purchase,
accept and acquire from the Partners, all of the Partnership Interests in such
proportions as Buyer and Buyer Sub shall elect (the "Partnership Purchase");
provided, however,
<PAGE>
that if the Partnership wishes to consummate the Partnership Purchase, it shall
provide written notice of such election no later than the close of business on
the date that is ten (10) days prior to the Closing Date (as defined below).
Failure to provide such notice within such time period shall be deemed an
election by the Partnership to consummate the Share Purchase rather than the
Partnership Purchase. At the Closing, (a) in the event of the Share Purchase,
the Partnership shall deliver to Buyer certificates evidencing the Shares duly
endorsed in blank or with stock powers duly executed by the Partnership, and (b)
in the event of the Partnership Purchase, the Partners shall deliver to Buyer
and Buyer Sub instruments evidencing the assignments of the Partnership
Interests duly executed by the Partners. In addition, at the Closing, in the
event of the Share Purchase, the Partnership shall contribute, transfer and
assign to Holdings, and Holdings shall receive, accept and assume for no
additional consideration, the assets and liabilities of the Partnership listed
on Schedule 1.1 attached hereto (the "Partnership's Related Assets and
Liabilities"), and the Partnership and Holdings shall deliver to Buyer
instruments evidencing the assignment to, and assumption by, Holdings of the
Partnership's Related Assets and Liabilities.
SECTION 1.2 PURCHASE PRICE. The total purchase price for the Shares or
--------------
the Partnership Interests shall be $28,000,000 (the "Base Purchase Price"); plus
if the Closing occurs after the later of thirty-five (35) days from (i) the date
of execution of this Agreement or (ii) the date Buyer files its Premerger
Notification and Report Form under the HSR Act (as defined below) for approval
of the transactions contemplated hereunder, and such delay in the Closing is not
attributable to (i) delay in obtaining any governmental consent or approval of
the transactions contemplated hereunder, (ii) the failure of Holdings, the
Partnership or the Partners to deliver any document, certificate or other item
required to be delivered pursuant to Section 1.5 or 6.1 hereunder, or (iii) any
claim, action or lawsuit against any of the parties hereto that would restrict
or prohibit such party from consummating the transactions contemplated herein,
an amount equal to $5,000 multiplied by the number of days from but not
including such date to and including the Closing Date (the "Incremental Purchase
Price," and, together with the Base Purchase Price, the "Purchase Price").
SECTION 1.3 PAYMENT OF PURCHASE PRICE. The Purchase Price shall be paid
-------------------------
as follows:
(a) In the event of the Share Purchase, at the Closing, Buyer shall
deliver to the Partnership a One Day Promissory Note (the "One Day Note")
in a form reasonably acceptable to Buyer and the Partnership (including an
irrevocable letter of credit securing the One Day Note in form reasonably
satisfactory to the parties, with all fees and expenses related to such
letter of credit to be paid by the Partnership or, in the case of the
Partnership Purchase, by the Partners), in the principal amount of
$23,500,000 plus the Incremental Purchase Price (if any).
(b) In the event of the Partnership Purchase, at the Closing, Buyer
shall deliver to the Partners the sum of $23,500,000 plus the Incremental
Purchase Price (if any) by wire transfer of immediately available funds to
an account designated in writing by the Partnership at least three business
days prior to Closing.
2
<PAGE>
(c) In any event, at the Closing, the Buyer shall deliver to a
commercial bank or other financial institution mutually acceptable to Buyer
and the Partnership, as escrow agent (the "Escrow Agent"), the sum of
$4,500,000 to be held in an escrow account pursuant to the terms of the
Escrow Agreement, substantially in the form attached hereto as Exhibit
1.3(c) (the "Escrow Agreement").
SECTION 1.4 DATE, TIME AND PLACE OF CLOSING. The Closing shall be held
-------------------------------
on the fifth business day following the satisfaction or waiver of all of the
conditions set forth in Article VI hereof, beginning at 9:00 a.m. Central Time
in the offices of Blackwell Sanders Matheny Weary & Lombardi LLP, 2300 Main
Street, Suite 1100, Kansas City, Missouri 64108 or at such other place, time and
date as the Buyer and Partnership shall mutually agree. The date of the Closing
is referred to herein as the "Closing Date."
SECTION 1.5 DELIVERIES BY THE PARTNERSHIP AT CLOSING. At the Closing,
----------------------------------------
the Partnership and Partners shall deliver to Buyer the various certificates,
instruments and documents referred to in Section 1.1 and Section 6.1, and after
Closing shall deliver such certificates, instruments and documents as Buyer
shall reasonably request.
SECTION 1.6 DELIVERIES BY BUYER AT CLOSING. At the Closing, Buyer shall
------------------------------
deliver to the Partnership or the Partners, as the case may be, the Purchase
Price in the amount, form and manner set forth in Section 1.3 hereof, and the
various certificates, instruments and documents referred to in Section 6.2, and
after Closing shall deliver such certificates, instruments and documents as the
Partners shall reasonably request.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF HOLDINGS,
THE PARTNERSHIP AND THE PARTNERS
Holdings, the Partnership and the Partners hereby jointly and severally
make the representations and warranties set forth in this Article II to Buyer.
Holdings, the Partnership and the Partners acknowledge that (i) these
representations and warranties are made by them as an inducement to Buyer to
enter this Agreement and to consummate the transactions contemplated hereby; and
(ii) Buyer has entered into this Agreement specifically in reliance upon each of
such representations and warranties.
SECTION 2.1 ORGANIZATION. Holdings has no subsidiary corporations or
------------
any other interest in any corporation, partnership, association, joint venture
or other business, other than as described on Schedule 2.1. Holdings and each
of the entities listed on Schedule 2.1 are referred to collectively herein as
the "Companies." Each of the Companies is duly organized, validly existing and
in good standing under the laws of its state of organization and is duly
qualified and in good standing, and is certified or licensed in each other state
and jurisdiction where such qualification, certification or licensing is
necessary or required to conduct its business, as set forth on Schedule 2.1,
except where the failure to be so qualified would not have a material
3
<PAGE>
adverse effect on the business, financial condition, operations or results of
operations of the Companies taken as a whole (a "Material Adverse Effect"). Each
of the Companies has all necessary power and authority to own and operate its
property and assets and to carry on its business as now conducted. Certified
copies of the Certificate of Incorporation and Bylaws of Holdings and of the
Certificate or Articles of Incorporation and Bylaws of each of the other
Companies, as amended to date, have been previously delivered to Buyer, are
complete and correct, and no amendments have been made thereto or have been
authorized since the date thereof.
SECTION 2.2 THE PARTNERSHIP. Certified copies of the Partnership's
---------------
Certificate of Limited Partnership and of its Amended and Restated Partnership
Agreement dated as of April 30, 1992, as amended to date (the "Partnership
Agreement"), have been previously delivered to Buyer, are complete and correct,
and no amendments have been made thereto or have been authorized since the date
thereof, and in the event any amendment thereto is made between the date hereof
and the Closing, the Partnership will promptly provide Buyer a certified copy of
such amendment; provided, however, that any such amendment that may affect the
Partnership's or its partners' ability or authority to consummate the
transactions contemplated hereunder shall require Buyer's prior written consent.
SECTION 2.3 CAPITALIZATION.
--------------
(a) The authorized capital stock of each of the Companies is as set
forth on Schedule 2.1. There are no other classes of equity, options,
warrants, calls, rights, notes or commitments or any other agreements of
any character relating to the sale, issuance or voting of any shares of
capital stock of any of the Companies, or any securities convertible into
or evidencing the right to purchase any shares of capital stock of any of
the Companies. All issued and outstanding shares of capital stock of the
Companies are validly issued, fully paid and nonassessable. All of the
outstanding capital stock of Holdings is held of record and beneficially by
the Partnership, and all of the outstanding capital stock of the other
Companies is held of record and beneficially as set forth on Schedule 2.1.
There are no restrictions imposed by the Certificate or Articles of
Incorporation or Bylaws of any of the Companies, and there are no other
agreements, understandings or commitments, which would in any way affect or
impair the transactions contemplated hereby.
(b) The Shares and the capital stock of the other Companies, and the
Partnership Interests, are now and as of the Closing will be free and clear
of any claims, pledges, security interests, liens or encumbrances or other
restrictions or limitations of any kind, other than those arising under
this Agreement. Neither the Partnership nor any of the Companies or any of
the Partners is a party to, or bound by, any shareholder agreement, voting
agreement, voting trust, buy-sell agreement, option agreement or any
similar agreement, understanding or commitment with respect to any of the
Shares or capital stock of any of the other Companies.
4
<PAGE>
SECTION 2.4 AUTHORITY. This Agreement and each other agreement
---------
required to be executed and delivered by Holdings, the Partnership or the
Partners in connection herewith, when executed and delivered, will be the legal,
valid and binding obligation of Holdings, the Partnership or the Partners, as
applicable, enforceable against them in accordance with their terms, except as
enforceability may be limited by (i) applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors'
rights generally, and (ii) general equitable principles (regardless of whether
enforceability is considered in a proceeding in equity or at law).
SECTION 2.5 CONSENTS AND APPROVALS. Except as set forth on Schedule
----------------------
2.5, the execution, delivery and performance of this Agreement and the other
agreements contemplated hereby and the consummation of the transactions
contemplated hereby or thereby will not violate or result in a breach of any
term of Holdings' Certificate of Incorporation or Bylaws or the Partnership's
Partnership Agreement, result in a breach of or constitute a default under any
term in any material agreement or other material instrument to which any of the
Companies, the Partnership or any of the Partners is a party or by which they
are bound, violate in any material respect any law or any order, rule or
regulation applicable to any of the Companies, the Partnership or any of the
Partners of any court or any regulatory body, administrative agency or other
governmental instrumentality having jurisdiction over the properties of any of
the Companies, the Partnership or any of the Partners and will not result in the
creation or imposition of any lien, charge, or encumbrance of any nature
whatsoever upon any of their assets or the Shares, which lien, charge or
encumbrance has not been removed prior to Closing. Holdings, the Partnership
and any corporate Partner have each taken all actions required by law and by its
Certificate or Articles of Incorporation and Bylaws, or Partnership Agreement,
as applicable, to authorize the execution and delivery of this Agreement,
together with its Schedules and Exhibits, and the consummation of the
transactions contemplated by this Agreement or by any of the Exhibits. Except
as set forth on Schedule 2.5, none of the execution, delivery or performance of
this Agreement or any of the other agreements executed in connection herewith,
or the consummation of the transactions contemplated hereby or thereby by any of
the Companies, the Partnership or any of the Partners requires any filing with
or the consent or approval of any third party, including but not limited to any
governmental body or entity, other than any filing required under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"), and
the expiration of any applicable waiting periods thereunder. Neither the
Partnership nor any of the Companies or any of the Partners is required to
obtain the consent or approval of any other person or entity with respect to the
transactions contemplated hereunder, except as set forth on Schedule 2.5.
SECTION 2.6 FINANCIAL STATEMENTS.
--------------------
(a) (i) The audited consolidated balance sheet of General Drug Company
and subsidiaries ("General") as of April 30, 1997, and (ii) the related
consolidated statements of income, stockholders' equity and cash flows for
the twelve month period then ended of General, together with the notes
thereon, audited by the independent certified public
5
<PAGE>
accountants of General, have been delivered by Holdings to Buyer. Such
audited financial statements and notes were prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied
during the periods involved, are in accordance with the books and records
of General, including pro forma information as to effects on net income,
net worth and working capital presented on a first-in, first-out ("FIFO")
basis, and present fairly in all material respects the financial condition
of General on a consolidated basis as of such date and the results of
operations, changes in stockholders' equity, and cash flows of General on a
consolidated basis for such period. For purposes of this Agreement, the
Balance Sheet of General at April 30, 1997 is sometimes referred to as the
"Balance Sheet" and the date thereof is referred to as the "Balance Sheet
Date."
(b) Holdings shall deliver to Buyer the unaudited consolidated
financial statements of General as of and for the period ended July 31,
1997 no later than forty-five (45) days after the last day of such month
(the "Interim Financial Statements"). The Interim Financial Statements
will be prepared in accordance with GAAP for interim financial statements
consistently applied during the periods involved, except for the LIFO
adjustment, will be in accordance with the books and records of General,
including information as to effects on net income, net worth and working
capital presented on a FIFO basis, and will present fairly in all material
respects the financial condition of General on a consolidated basis as of
such date and the results of operations, changes in stockholders' equity,
and cash flows of General on a consolidated basis for such period, and
except as set forth on Schedule 2.6(b) will include all normal year-end
adjustments. For purposes of this Agreement, the Balance Sheet of General
at July 31, 1997 is sometimes referred to as the "Latest Balance Sheet" and
the date thereof is referred to as the "Latest Balance Sheet Date."
SECTION 2.7 ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule
--------------------------
2.7, since the Balance Sheet Date, there has not been:
(a) Any material adverse change in the financial condition,
operations, business or prospects of the Companies, taken as a whole,
including, but not limited to, any state or federal regulatory
investigation or proceedings of which the Companies have "knowledge" (as
defined below) which could culminate in an order or other action which
could have such an adverse change;
(b) Any physical damage or destruction, whether or not covered by
insurance, which would have a Material Adverse Effect;
(c) Any labor dispute or, to the Companies' knowledge, threat thereof
with respect to employees of any of the Companies;
6
<PAGE>
(d) Any direct or indirect redemption, purchase or other acquisition
by Holdings of any of the Shares, or declaration of or payment or
distribution of any kind of cash or other assets to the Partnership or any
partner of the Partnership;
(e) Any employment, severance, consulting or other compensation
contract entered into by any of the Companies with any director, officer or
employee, or any increase of compensation payable or to become payable to
any of its officers, employees or agents;
(f) Any communication, whether oral or written, to any of the
Companies or the Partnership or Partners from any agencies regulating any
of the Companies, or any oral or written communication to any of the
Companies, the Partnership or the Partners from a material customer or
supplier of any of the Companies that indicates that such customer or
supplier may have a material dispute with one of the Companies; nor does
Holdings, the Partnership or any Partner have any knowledge of any
potential development affecting any of the Companies which would reasonably
lead it or any of them to expect a Material Adverse Effect on its business;
(g) Any satisfaction or discharge of any lien by any of the Companies
or payment by any of the Companies of any obligation or liability, other
than an obligation or liability included in the Balance Sheet of General,
current liabilities incurred since the Balance Sheet Date in the ordinary
course of business, liabilities incurred in carrying out the transactions
contemplated by this Agreement and obligations and liabilities under the
contracts and agreements listed in Schedule 2.17 hereof and obligations and
liabilities under the contracts and agreements not required to be listed in
Schedule 2.17;
(h) Any guaranty, endorsement or indemnification by any of the
Companies of the obligations of any third person, firm or corporation
either (i) not made in the ordinary course of the Companies' business or
(ii) in an amount greater than $25,000;
(i) Any sale or transfer of any assets or cancellation by any of the
Companies of debts or claims having a value, in the aggregate, of more than
$25,000, except, in each case, in the ordinary course of business;
(j) Any knowing waiver by any of the Companies of any rights having a
value in excess of $25,000 other than returns and allowances (i) by the
Companies' customers in the ordinary course of business or (ii) to the
Companies' suppliers in the ordinary course of business;
(k) Any transactions entered into or events or occurrences related to
the operation of the business of the Companies, other than in the ordinary
course of business;
7
<PAGE>
(l) Any mortgage, pledge or lien or other encumbrance of any of its
assets, tangible or intangible, other than Permitted Liens (as defined
below);
(m) Any contract or agreement entered into by any of the Companies
with the Partnership, any of the Partners or any director, officer,
employee, or any relative or other affiliate of any of them; or
(n) Any assignment, sale or transfer of any patent, trademark, trade
name, trade secret, copyright or any other material intangible asset.
For purposes of this Agreement, the term "knowledge" shall mean, with
respect to the Companies, the Partnership or the Partners, the actual knowledge
of facts that could reasonably be expected to form the basis for the matter
described or actual knowledge of any such matter by any of the following
individuals: Sidney Gimbel, Stuart Gimbel, Leone Reschke, Basil Falcone, Seymour
Stoller, Michael Garvey, Joseph Harris, Richard Brudnick, Jim Nagle and Bill
Goltz.
"Permitted Liens" means (i) liens with respect to indebtedness identified
on the Schedules to this Agreement; (ii) liens incurred or deposits made in the
ordinary course of business in connection with worker's compensation,
unemployment insurance and other types of social security benefits, or to secure
the performance of statutory obligations, surety and appeal bonds, leases and
other similar obligations; (iii) liens for taxes, assessments or governmental
charges not yet due and delinquent or the validity of which is being contested
in good faith and in either case as to which the Companies have established
adequate reserves on their books; (iv) liens arising in the ordinary course of
the Companies' business, including encumbrances of record in the nature of use
restrictions, easements, rights and restrictions are not yet due and payable and
which do not materially interfere with the conduct of the business of the
Companies; (v) liens incidental to the conduct of the Companies' business or the
Companies' ownership of properties and assets (but not including mechanics'
liens, materialmen's liens and carriers' liens); and (vi) precautionary filings
under the Uniform Commercial Code by bailors, lessors or consignors.
SECTION 2.8 NO UNDISCLOSED LIABILITIES. Except as set forth on Schedule
--------------------------
2.8 attached hereto and made a part hereof, as of July 31, 1997, none of the
Companies had any material liabilities, absolute or contingent, which are not
shown on the Latest Balance Sheet or disclosed in the accompanying footnotes,
except other liabilities and obligations disclosed, or other liabilities and
obligations arising under any written or oral contract, agreement or instrument
disclosed, in the other Schedules referred to in this Agreement or not required
to be disclosed on such Schedules. Except as set forth on Schedule 2.8, all
liabilities, absolute or contingent, of any of the Companies incurred subsequent
to July 31, 1997 will have been incurred only in the ordinary course of
business. Notwithstanding anything herein to the contrary, to the extent any
other Section of this Agreement contains representations or warranties which
address a specific subject matter (e.g., Section 2.19 for environmental
matters), this Section 2.8 shall be deemed to exclude such subject matter and
the sole representations and warranties made with respect to such subject matter
shall be those contained in such other Section.
8
<PAGE>
SECTION 2.9 TITLE TO ASSETS; INVENTORY. The Companies have full right,
--------------------------
title and interest in and to, or a valid leasehold interest in or license to,
all furnishings, fixtures, equipment and other tangible and intangible assets
used in and necessary to the operation of the businesses of the Companies, free
and clear of all claims, rights and encumbrances of any other person, other than
Permitted Liens. Such right, title and interest shall not be adversely affected
by the consummation of the transactions contemplated by this Agreement. Except
as set forth on Schedule 2.9, the Companies have full right, title and interest
in and to all goods held as inventories other than Permitted Liens, and such
inventories are of such type and quantities as reasonably necessary to operate
the businesses of the Companies in accordance with the historical ordinary
course of business.
SECTION 2.10 [RESERVED].
SECTION 2.11 BENEFIT PLANS; ERISA.
--------------------
(a) (i) Schedule 2.11(a)(i) lists all contracts, agreements,
arrangements and understandings, whether written or oral, with respect to
the payment or delivery to any person of compensation, bonuses,
perquisites, benefits and other items of value by any of the Companies; and
(ii) Schedule 2.11(a)(ii) lists all collective bargaining and other labor
agreements to which Holdings or any of its subsidiaries is a party.
(b) Schedule 2.11(b) lists each employee of any of the Companies with
aggregate annual salary and benefits of $50,000 or greater and identifies
the salary, commissions, bonuses, perquisites and benefits to which each
such employee is entitled. Such Schedule also sets forth the names of all
directors and officers of each of the Companies and a description of any
agreement with respect to the election or tenure of any of them as such.
(c) Except as set forth on Schedule 2.11(c), no employee of any of the
Companies will be entitled to severance pay solely by virtue of the
transactions contemplated by this Agreement. Schedule 2.11(c) sets forth
each employee of the respective Companies who has any right to severance
pay for any reason, listing the employee name, severance amount or method
of calculation, and the basis for such right.
(d) Schedule 2.11(d) contains a true and complete list of each
pension, profit sharing, other deferred compensation, bonus, incentive
compensation, stock purchase, stock option, retirement, supplemental
retirement, severance or termination pay, cafeteria or other plan intended
to comply with Section 125 of the Internal Revenue Code of 1986, as amended
(the "Code"), educational assistance, legal assistance, medical,
hospitalization, life insurance, dental, disability, salary continuation,
vacation, supplemental unemployment benefits plan, program, arrangement or
contract, and each other employee benefit plan, program, arrangement or
contract, maintained, contributed to, or required to be contributed to, at
any time during the current or preceding ten (10) calendar years
9
<PAGE>
by any of the Companies or any Related Party (hereinafter defined) for the
benefit of any current or former employee, director or agent of any of the
Companies or any Related Party, whether or not any of the foregoing is
funded, whether formal or informal, whether or not subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively,
the "Benefit Plans"). The Companies and their Related Parties do not have
any express or implied commitment or contract to create any additional
Benefit Plan or modify any existing Benefit Plan, other than as may be
required to comply with ERISA or the Code. Holdings has delivered to Buyer,
with respect to each applicable Benefit Plan (i) true and complete copies
of all documents embodying or relating to each Benefit Plan including,
without limitation, the plan and trust or other funding arrangement
relating thereto, summary plan descriptions, insurance contracts, employee
handbooks or personnel manuals, and all amendments and supplements thereto;
(ii) the most recent annual report (Series 5500 and all schedules thereto),
if any, required by ERISA; (iii) the most recent determination letter
received from the Internal Revenue Service ("IRS"), if any; and (iv) any
filings made with any governmental agency, or any correspondence with or
from any governmental agency, regarding termination of any Benefit Plan.
"Related Party" means any member of a controlled group of corporations, a
group of trades or businesses under common control or an affiliated service
group, within the meaning of Section 414(b), (c), (m) or (o) of the Code,
of any of the Companies.
(e) Any Benefit Plan that is intended by any of the Companies or any
Related Party to meet, or is required to meet, the requirements of Section
401(a) of the Code has been determined by the Internal Revenue Service
("IRS") to so qualify since its inception, and any trust created thereunder
has been determined by the IRS to be exempt from tax since its inception
under Section 501(a) of the Code.
(f) Each of the Companies and any Related Party have performed the
material obligations required to be performed by them under, and are not in
material default under or in material violation of, any and all of the
Benefit Plans and any and all statutes, orders or governmental rules and
regulations applicable to such Benefit Plans, and each Benefit Plan has
been operated in all material respects in accordance with the requirements
of all applicable laws and regulations. Neither any Benefit Plan or
fiduciary nor any of the Companies or any Related Party has taken any
action, or failed to take any action, that could subject it or any other
person to any material liability for any excise tax under Chapter 43 of the
Code or for breach of fiduciary duty with respect to or in connection with
a Benefit Plan.
(g) Except as set forth on Schedule 2.11(g), at no time has any of the
Companies or any Related Party been required to contribute to any
"multiemployer plan" (within the meaning of Section 3(37) of ERISA). The
Companies and their Related Parties have no liability (contingent or
otherwise) relating to the withdrawal or partial withdrawal from a
multiemployer plan. The Companies and their Related Parties do not
participate in any "multiple employer plan," within the meaning of ERISA.
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(h) No Benefit Plan provides or is required to provide group health,
medical, death or survivor benefits to any former or retired employee of
any of the Companies or beneficiary thereof, except to the extent (i)
required under any state insurance law providing for a conversion option
under a group insurance policy or (ii) under Section 601 of ERISA.
(i) No Benefit Plan or fiduciary has, nor do any of the Companies or
any Related Party have, any liability to any participant, beneficiary or
other person under any provision of ERISA or any other applicable law by
reason of any payment of, or failure to pay, benefits or other amounts with
respect to or in connection with any Benefit Plan.
(j) Except as set forth on Schedule 2.11(j), each Benefit Plan may be
terminated by the respective Companies or their Related Parties within a
period of thirty (30) days following the Closing Date without acceleration
or additional vesting of any benefits and without payment of any amount as
a penalty, bonus, premium, severance pay or other compensation or amount.
(k) Except as set forth on Schedule 2.11(k) attached hereto, none of
the Benefit Plans which have been or are subject to Title IV of ERISA have
been or will be prior to the Closing terminated in whole or in part within
the meaning of ERISA or the Code and no proceeding was or has been
initiated by the Pension Benefit Guaranty Corporation ("PBGC") to terminate
any such Benefit Plan or to appoint a Trustee to administer any such
Benefit Plan. Any Benefit Plan that was subject to Title IV of ERISA and
has been terminated was terminated in a "standard termination" (as defined
in ERISA) and in accordance with all applicable laws and regulations, and
no liability to the PBGC was incurred in connection with such termination.
No Benefit Plan that was or is subject to Part 3 of Subtitle B of Title I
of ERISA or Section 412 of the Code, or both, has incurred any "accumulated
funding deficiency" (as defined in ERISA), whether or not waived; nor have
any of the Companies or any Related Party failed to pay any amounts due and
owing as required by the terms of any Benefit Plan.
(l) With respect to each Benefit Plan which is a qualified profit
sharing or stock bonus plan, as defined in ERISA, all employer
contributions accrued for plan years ending prior to the Closing Date under
the Plan terms and applicable law have been made by the Companies. All
premiums or other payments required by the terms of any group or individual
insurance policies and programs maintained by the Companies with respect to
all periods up to and including the Closing Date have been fully paid for
the length of the obligation.
(m) Except as set forth on Schedule 2.11(m) attached hereto, all
assets held pursuant to any Benefit Plan are either readily tradeable on an
established securities market or may be readily liquidated pursuant to
contractual liquidation rights within thirty (30) days of a request to
liquidate by an authorized party and, if such sale or liquidation were
11
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to occur, no penalties, fees or charges would be assessed in connection
with such transaction.
SECTION 2.12 LITIGATION. Except as set forth in Schedule 2.12:
----------
(a) There are no claims, suits, actions, or proceedings of any nature
whatsoever in law or in equity, pending before any court, governmental
department, commission, agency, instrumentality or authority or any
arbitrator, or, to the knowledge of Holdings, the Partnership and the
Partners, threatened, nor are there, to the knowledge of Holdings, the
Partnership and the Partners, any investigations, whether or not
purportedly on behalf of any of the Companies, complaints or reviews by any
court, governmental department, commission, agency, instrumentality or
authority or any arbitrator pending or threatened against, relating to or
affecting any of the Companies.
(b) None of the Companies is operating under or subject to, and is not
in default with respect to, any order, writ, injunction, garnishment, levy
or decree of any federal, state, municipal or other governmental court,
department, commission, board, bureau, agency or instrumentality. The use
or ownership of the Companies' assets, the use or occupancy of the
Companies' real property, and any interests related thereto, and the
transactions contemplated hereunder do not constitute a default thereunder.
(c) During the past five (5) years, there has not been nor is there
now pending, any claim(s) against any person in his or her capacity as
either a director or officer of any of the Companies. The Partnership and
the Partners have no knowledge of any act, error, or omission which would
give rise to such a claim. During the past five (5) years, neither the
Companies nor the Partnership or the Partners have been involved in, and
none of them has knowledge of any facts or circumstances involving the
following which would give rise to such a claim: (i) antitrust, copyright,
trade name, trademark or patent claims or litigation; (ii) charges in any
civil or criminal action or administrative proceeding involving a violation
of any federal or state security law or regulation; (iii) charges in any
civil or criminal action or administrative proceeding involving a violation
of any federal or state antitrust or fair trade law or consumer protection
law or regulation; or (iv) actions involving representative actions, class
actions or derivative suits.
(d) None of the Companies, the Partnership or the Partners have
knowledge of any claim, or the basis of any claim, against any of the
Companies for injury to person or property of employees or any third party
suffered as a result of the sale of any product or the performance of any
service by any of the Companies, including claims arising out of any
alleged defective nature of its products or services.
(e) There is no claim, legal action, suit, arbitration, governmental
investigation or other legal or other administrative proceeding, including
any bankruptcy proceeding, nor any order, decree or judgment in progress,
pending, in effect or, to the knowledge of
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Holdings, the Partnership or the Partners threatened, against or relating
to any of the Companies, the Partnership or the Partners, which would
negatively affect the transactions contemplated by this Agreement.
(f) There is not pending nor, to the knowledge of Holdings, the
Partnership or the Partners, threatened, a recall or investigation of any
product sold by any of the Companies.
SECTION 2.13 COMPLIANCE WITH LAWS. Each of the Companies has all
--------------------
requisite licenses, permits and certificates from federal, state and local
authorities necessary to conduct its business and own and operate its respective
assets (collectively, the "Permits"). Schedule 2.13 attached hereto sets forth
a true, correct and complete list of all material Permits, copies of which have
previously been delivered by Holdings to Buyer. None of the Companies is in
violation in any material respect of any law, regulation or ordinance
(including, without limitation, laws, regulations or ordinances relating to
building, zoning, land use or similar matters) relating to its properties or
business. The businesses of the Companies as conducted since the Balance Sheet
Date have not violated, and on the date hereof do not violate, in any material
respect, any federal, state, local or foreign laws, regulations or orders
(including, but not limited to, any of the foregoing relating to labor, wage or
benefit payments, employment discrimination, occupational safety, governmental
contracts, environmental protection, controlled substances, health care, tobacco
sales, hazardous waste, conservation, restraint of trade or corrupt practices).
During the past six years, none of the Companies, the Partnership or the
Partners has had any notice or communication from any federal, state or local
governmental or regulatory authority or otherwise of any such violation or
noncompliance. Notwithstanding anything herein to the contrary, to the extent
any other Section of this Agreement contains representations or warranties which
address a specific area of law (e.g., Section 2.19 for environmental matters),
this Section 2.13 shall be deemed to exclude such area of law and the sole
representations and warranties made with respect to such area of law shall be
those contained in such other Section.
SECTION 2.14 TAX RETURNS.
-----------
(a) All federal income tax returns, and other federal tax returns of
every nature, and all state, county, local and foreign tax returns and
declarations of estimated tax or estimated tax deposit forms required to be
filed by the Companies, have been duly and timely filed, were true, correct
and complete, and the Companies have paid all taxes which have become due
and owing or pursuant to any assessment received by them and have paid all
installments of estimated tax due. Where such returns and reports have not
been audited and approved or settled, there has not been any waiver or
extension of any applicable statute of limitations, and none of the
Companies has received any notice of deficiency or adjustment. The Latest
Balance Sheet contains liabilities which are and will be sufficient for the
payment of all respective federal, state, county, local and foreign taxes,
whether current or deferred.
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(b) All taxes and other assessments and levies which the Companies are
required by law to withhold or to collect have been duly withheld and
collected, and have been paid over to the proper governmental authorities
or are held by the Companies for such payment. All statements and reports
required to be filed under any chapter of the Code or any state, county,
local or foreign tax laws or regulations by any of the Companies have been
duly filed.
(c) (i) Except as set forth on Schedule 2.14(c), there is not now and
at no time since the Balance Sheet Date has there been pending or, to the
Companies' knowledge, under contemplation, any audit of any payment, return
or report made or filed by any of the Companies or of any claimed failure
to pay or report any kind of tax which may be assessed by any taxing
authority against any of the Companies and there are no outstanding waivers
or extensions of any applicable statute of limitations; and (ii) with
respect to any matter described on Schedule 2.14(c), the Internal Revenue
Service has not indicated in any manner that there is any item that is
incorrect in the tax returns subject to audit.
SECTION 2.15 INDEBTEDNESS. Schedule 2.15 is a correct and complete list
------------
of all instruments, agreements or arrangements pursuant to which any of the
Companies has borrowed any money, guaranteed or incurred any indebtedness or
established any line of credit which represents any liability, contingent or
otherwise, of any of the Companies on the date hereof. True and complete copies
of all such written instruments, agreements or arrangements have been delivered
to Buyer prior to the date of this Agreement.
SECTION 2.16 BANKS. Schedule 2.16 is a correct and complete list setting
-----
forth the name of each bank in which any of the Companies has an account or safe
deposit box, the names of all persons authorized to draw thereon or to have
access thereto, and the name of each person holding a power of attorney from any
of the Companies.
SECTION 2.17 CONTRACTS. Schedule 2.17 lists (and in the case of oral
---------
agreements, accurately describes): (i) each contract for the future purchase of
materials, services, supplies or equipment which (a) has a term in excess of one
year or (b) obligates any of the Companies to pay, in one installment or in the
aggregate over its term or one year, whichever is shorter, an amount in excess
of $50,000 (except for ordinary course supplier purchase orders); (ii) each
contract and letter of authorization with a customer made in the ordinary course
of business which (a) has a term in excess of one year or (b) generates revenues
for any of the Companies over its term or in any one twelve (12) month period,
whichever is shorter, in excess of $50,000 (except for ordinary course customer
purchase orders); (iii) each employment, severance and consulting contract; (iv)
each noncompetition agreement; (v) each contract with a governmental entity;
(vi) each contract with any labor union or other labor organization; (vii) each
guarantee and accommodation; (viii) each agreement to loan or borrow money; (ix)
each license or franchise relating to the business of any of the Companies; (x)
each lease of real or personal property which (a) has a term in excess of one
year or (b) obligates any of the Companies to pay, in one installment or in the
aggregate over its term or one year, whichever is shorter, an amount in
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excess of $50,000; (xi) each managed care contract; and (xii) each contract and
agreement with affiliates of any of the Companies, including the Partnership and
the Partners. Except as set forth on Schedule 2.17 hereto, (i) the Companies
have each performed in all material respects all obligations required to be
performed by them to date and have not breached in any material respect and are
not in material default under any agreement listed or described in Schedule
2.17, (ii) all of the same are enforceable against the Companies in accordance
with their terms, and (iii) none of the Companies, the Partnership or the
Partners has any knowledge of any breach or default by any other party thereto.
SECTION 2.18 TITLES, REAL PROPERTY MATTERS. Schedule 2.18 contains
-----------------------------
descriptions by categories of the Companies' owned or leased real property
(including all plants and structures located thereon) (the "Real Property").
Except as set forth in Schedule 2.18, each of the Companies has good and
marketable title in fee simple to such properties, free and clear of all liens
and encumbrances and use restrictions except Permitted Liens. The Companies own
or lease all the furniture, equipment and leasehold improvements located in the
structures referred to in Schedule 2.18. All other assets and property used in
the business of the Companies, and all assets and property reflected in the
Balance Sheet, or acquired after the Balance Sheet Date (other than assets or
property sold or otherwise disposed of in the ordinary course of its business
subsequent to such date) are in each case free and clear of all security
interests, mortgages, pledges, liens, conditional sales, agreements, leases,
encumbrances or charges of any nature whatsoever except for Permitted Liens and
except as expressly stated in Schedule 2.18. All Real Property owned or leased
by the Companies, its uses, appurtenances and improvements substantially comply
with all applicable ordinances and regulations, building, and zoning laws.
Except as set forth on Schedule 2.18, the buildings, machinery and equipment of
the Companies are in good and serviceable condition, reasonable wear and tear
excepted.
SECTION 2.19 ENVIRONMENTAL MATTERS. Except as set forth on Schedule
---------------------
2.19:
(a) Hazardous Materials (as defined below) have never been generated,
stored, discharged, disposed of, spilled, dumped, poured, emptied, or
released by the Companies at, on, in, above or under the Real Property in
violation of Environmental Laws and no contingent liability exists in
connection with any release of any Hazardous Material in violation of
Environmental Laws by the Companies. To the Companies' knowledge,
underground storage tanks are not and have never been located on the Real
Property.
(b) Operations conducted at the Real Property by the Companies at all
times complied in all material respects with Environmental Laws (as defined
below). The Companies have obtained all governmental authorizations and
permits under Environmental Laws necessary for their operations. The
Companies are in material compliance with such authorizations and permits.
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(c) The Real Property and the Companies' operations thereon are not
subject to (i) to the Companies' knowledge, any federal, state, or local
investigation, (ii) any judicial or administrative proceeding alleging the
violation of or liability under any Environmental Law, or (iii) any
outstanding written order or agreement with any governmental authority or
private party relating to any Environmental Law.
(d) For the purpose of this Agreement, the term "hazardous materials"
shall include, but not be limited to:
any substance defined as "hazardous substances," "hazardous air
pollutant," "pollutants," "contaminants," "hazardous materials," "hazardous
wastes," "toxic chemicals," "petroleum or petroleum products," "toxics,"
"hazardous chemicals," "extremely hazardous substances," "pesticides" or
related materials, including but not limited to radon and asbestos, as now,
in the past, or hereafter defined in any applicable federal, state or local
law, regulation, ordinance, policy or directive, including, but not limited
to, the Comprehensive Environmental Response, Compensation and Liability
Act of 1980, as amended by the Superfund Amendments and Reauthorization Act
of 1986; the Emergency Planning and Community Right-to-Know Act; the
Resource Conservation and Recovery Act; the Hazardous Materials
Transportation Act of 1974; the Federal Buyer Pollution Control Act; the
Clean Air Act; the Federal Insecticide, Fungicide and Rodenticide Act; the
Safe Drinking Buyer Act; the Toxic Substances Control Act; the Oil
Pollution Act of 1990; any laws regulating the use of biological agents or
substances including medical or infectious wastes, each as amended or
supplemented, and any analogous present local, state and federal statutes,
regulations and ordinances promulgated pursuant thereto which may be
applicable, as any such acts have been heretofore amended ("Environmental
Laws").
SECTION 2.20 BROKER'S FEES. No person or entity has been authorized by
-------------
the Partnership, any of the Partners or Holdings to act as a broker, finder,
financial advisor or in any other similar capacity as to give rise to any claim
for brokerage or finder's fees or commissions with respect to the transactions
contemplated hereby by anyone claiming to have acted on behalf of the
Partnership, the Partners or Holdings.
SECTION 2.21 LABOR MATTERS. Except as set forth on Schedule 2.21:
-------------
(a) No group of employees of any of the Companies is presently
organized into a collective bargaining unit.
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(b) To the Companies' knowledge, no labor union has recently
attempted, or is presently attempting, to organize any of the Companies'
employees into a collective bargaining unit.
(c) No employees of any of the Companies are on strike or, to the
Companies' knowledge, threatening to strike.
(d) There is no labor grievance or dispute pending or, to the
Companies' knowledge, threatened against any of the Companies.
(e) There is no unfair labor practice complaint against any of the
Companies pending before, or, to the Companies' knowledge, threatened to be
filed with, the National Labor Relations Board or any state or local
agency.
(f) There are no pending arbitration proceedings arising out of or
under any collective bargaining agreement or other labor agreement to which
any of the Companies is a party, or, to the Companies' knowledge, any basis
for which a claim may be made under any collective bargaining agreement or
other labor agreement to which any of the Companies is a party.
SECTION 2.22 CONFLICTS OF INTEREST. Except as set forth on Schedule
---------------------
2.22, neither the Partnership nor the Partners nor any director, officer,
employee or any relative or other affiliate of any of them, or any director,
officer or employee of any of the Companies or any relative or other affiliate
of any of them has (i) loaned money, or guaranteed the loan of a third party, to
any of the Companies or borrowed any money from any of the Companies, (ii)
engaged in any other transaction related to the business or operations of any of
the Companies, or (iii) any interest in any property, real or personal whether
owned or leased, tangible or intangible, including but not limited to, software,
inventions, patents, trade names or trademarks used in connection with or
pertaining to the business of any of the Companies or any lender, supplier,
customer, sales representatives or distributor of any of the Companies;
provided, however, that the Partnership and Partners or such director, officer,
or employee or relative or other affiliate thereof shall not be deemed to have
such interest solely by virtue of the ownership of less than five percent (5%)
of any stock or indebtedness of any publicly-held company, the stock or
indebtedness of which is traded on a recognized stock exchange. All such
transactions were entered into on an arms-length basis on terms no less
favorable to the Companies than would have been obtained from an unaffiliated
party.
SECTION 2.23 PATENTS, TRADEMARKS, MISCELLANEOUS INTELLECTUAL PROPERTY.
--------------------------------------------------------
Schedule 2.23 sets forth a correct and complete list of all trade names and all
registered copyrights, patents and trademarks applied for, issued to or owned by
Holdings or any of its subsidiaries or under which any of the Companies is
licensed or franchised, all of which are valid, in good standing and
uncontested. Except as set forth on Schedule 2.23, the Companies possess
adequate rights, licenses or other authority to use all copyrights, patents,
trademarks and trade
17
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names necessary to conduct their businesses as presently conducted or presently
proposed to be conducted. During the past five (5) years, none of the Companies
has received any notice or other information with respect to any alleged
infringement or unlawful use of any software license, copyright, patent,
trademark, trade name, process, invention or formula or other intangible
property right owned by it or by others. No director, officer or employee of any
of the Companies, the Partnership or the Partners or any director, officer or
employee of any of them has any interest in any such copyright, patent,
trademark, trade name, process, invention or formula. None of the Companies has
granted any outstanding licenses or other rights and has no obligations to grant
licenses or other rights with respect to any copyright, patent, invention,
formula, process, trademark or trade name listed in Schedule 2.23, except as
specifically stated in Schedule 2.23.
SECTION 2.24 INSURANCE COVERAGE. Schedule 2.24 is a correct and complete
------------------
list of all casualty insurance held by the Companies including the policy
number, name of carrier, coverage, term, expiration date and premium. The
Companies have their buildings, plants and properties insured for their
replacement cost against loss or damage by fire, theft and all other hazards and
risks of the character usually insured against by persons operating similar
properties in the localities where such properties are located. The Companies
also carry general liability, excess liability, workers' compensation, business
interruption and automobile insurance in such amounts as are customary and
adequate for their businesses (and contribute to state workers' compensation
funds, as required by applicable laws). All such insurance is carried under
valid and enforceable policies issued by insurers of recognized responsibility.
Such insurance coverage will be continued in full force and effect through the
Closing. None of the Companies has been refused any insurance by an insurance
carrier to which it has applied for insurance during the past three years.
SECTION 2.25 CUSTOMERS. Schedule 2.25 sets forth a true, correct and
---------
complete list of the names of the top twenty-five (25) customers of the
Companies taken as a whole (as determined by gross receipts), for the fiscal
year ended April 30, 1997. Except as set forth on Schedule 2.25, the Companies
have good relations with all of the customers listed on Schedule 2.25 and to the
knowledge of the Companies, the Partnership or the Partners, the Companies'
relations with such customers will not materially change in the foreseeable
future.
SECTION 2.26 SUPPLIERS. Schedule 2.26 sets forth a true, correct and
---------
complete list of the names of the top ten (10) suppliers of the Companies taken
as a whole based upon dollar volume of purchases for the fiscal year ended April
30, 1997. Except as set forth on Schedule 2.26, the Companies have good
relations with all of the suppliers listed on Schedule 2.26, and none of the
Companies, the Partnership or the Partners has knowledge that (i) relations with
such suppliers will materially change in the foreseeable future or (ii) the
suppliers who are material to the Companies and who provide favorable terms or
assistance to the Companies, such as but not limited to extended payment terms,
intend to cease providing such favorable terms or assistance to the Companies.
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SECTION 2.27 ACCOUNTS. The accounts, notes and other receivables,
--------
whether current or non-current, of any of the Companies shown on the most recent
Interim Financial Statements before the Closing, and all such receivables of the
Companies as at the Closing represent or will represent valid obligations
arising from sales actually made or services actually performed in the ordinary
course of business.
SECTION 2.28 FULL DISCLOSURE. No representation or warranty by any of
---------------
the Companies, the Partnership or the Partners in this Agreement, nor in any
document or certificate delivered to Buyer pursuant to Section 1.5 or 6.1 of
this Agreement, contains any untrue statement of material fact, or omits to
state any material fact necessary to make any statement contained therein not
misleading.
SECTION 2.29 CORRECT RECORDS. The financial records, ledgers, account
---------------
books, minute books, stock certificate books, stock registers, and other
corporate records of the Companies are current, correct and complete in all
material respects and all signatures therein are the true signatures of the
persons who are purported to have signed.
ARTICLE III
COVENANTS OF HOLDINGS, THE PARTNERSHIP AND THE PARTNERS
Holdings, the Partnership and the Partners jointly and severally covenant
and agree that from the date hereof to and including the Closing:
SECTION 3.1 MAINTENANCE OF BUSINESS. The Companies shall use
-----------------------
commercially reasonable efforts to carry on their businesses, maintain their
plants and equipment and keep their books of account, records and files in
substantially the same manner as heretofore, except that Holdings shall obtain
Buyer's consent (which consent shall not be unreasonably withheld) prior to any
of the Companies incurring any expense other than in the ordinary course of
business or any capital expenditure not listed on Schedule 3.1, which
individually or in the aggregate would exceed $25,000. The Companies will
maintain in full force and effect insurance policies in effect as of the date of
this Agreement.
SECTION 3.2 NEGATIVE COVENANTS. Except for the permitted actions of the
------------------
Companies set forth on Schedule 3.2, without the prior written consent of Buyer
(which consent shall not be unreasonably withheld), the Companies shall not (and
in the case of (h) below, the Partnership shall not), and the Partnership and
Partners shall do all things and take all reasonable and proper action to
provide that the Companies (and Partnership) shall not:
(a) Issue, sell, purchase or redeem, or grant options to purchase or
otherwise agree to sell, purchase or redeem any shares of capital stock of
any of the Companies or any other securities of any of the Companies, or
dispose of any assets of any of the Companies, other than in the ordinary
course of business;
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(b) Amend their Certificate or Articles of Incorporation or Bylaws;
(c) Pay or guarantee any obligation or liability other than
obligations or liabilities reflected in the Balance Sheet, when due,
liabilities incurred since the Balance Sheet Date in the ordinary course of
business and obligations under contracts and agreements listed in Schedule
2.17 annexed hereto or contracts or agreements not required to be listed in
Schedule 2.17;
(d) Adopt or modify any severance, consulting, bonus, pension, profit
sharing, benefit, collective bargaining agreement or other compensation
plan or arrangement or increase their overall work force, other than in the
normal course of business, or enter into any contract of employment;
(e) Enter into or modify any contract or commitment, incur any
material liability, absolute or contingent, waive or fail to enforce any
right or enter into any other transactions, other than in the ordinary
course of business;
(f) Intentionally take any action that would or might reasonably be
expected to result in any representation or warranty set forth in this
Agreement being or becoming untrue in any respect or in any of the
conditions to the consummation of the transactions contemplated by this
Agreement set forth in Article VI hereof not being satisfied;
(g) Make or become obligated to make any dividend payment or other
distribution to the Partnership or any partner of the Partnership (as such)
or any other person or entity holding an equity interest in the Partnership
(as such); or
(h) Amend the Partnership Agreement in a manner that may affect the
Partnership's or its partners' ability or authority to consummate the
transactions contemplated hereunder, or dissolve or take any irrevocable
steps toward dissolving the Partnership.
SECTION 3.3 ORGANIZATION, GOODWILL. Holdings shall use commercially
----------------------
reasonable efforts to preserve its and the other Companies' business
organizations intact, and use its best efforts to (i) retain the services of
their present officers, (ii) substantially retain the Companies' present
employees, and (iii) preserve the goodwill of the Companies' suppliers,
customers and others having business relations with them.
SECTION 3.4 ACCESS TO FACILITIES, FILES AND RECORDS. From the date of
---------------------------------------
this Agreement to the Closing Date, Holdings shall afford the officers,
employees, accountants, counsel and authorized representatives of Buyer full
access to (i) all of the property, accounts, books and other financial records,
minute books, deeds, title papers, insurance policies, certificates, licenses,
agreements, contracts, commitments, tax returns, records and files of every
character, employees, equipment, machinery, fixtures, furniture, vehicles, notes
and accounts payable and receivable
20
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and inventories of the Companies; (ii) all such other information concerning the
affairs of the Companies as Buyer may reasonably request; (iii) consult with the
independent auditors of and counsel to Holdings and the Partnership with respect
to all matters, including, but not limited to, the financial condition of the
Companies and the audit of General's financial statements and any legal and
regulatory matters affecting the Companies; (iv) at Buyer's own cost and
expense, the facilities, properties and operations of the Companies in order to
perform a Phase I environmental audit (the "Environmental Audit"). The
Environmental Audit, if conducted, shall be instituted within thirty (30) days
after this Agreement is fully executed by both parties. A copy of the report of
the Environmental Audit will be delivered promptly to the Partnership and the
Partnership shall, at its expense, be afforded an opportunity (but shall not be
required) to undertake a Phase II audit, if necessary, to prove to Buyer's
satisfaction that no hazards exist. The Partnership, at its expense, shall be
afforded a thirty (30) day period after delivery of the Environmental Audit to
cure (but shall not be obligated to cure) any environmental hazards which the
Environmental Audit discloses exist and Buyer shall keep confidential all
information regarding any such hazards unless legally required to disclose it.
SECTION 3.5 THIRD PARTY CONSENTS. Holdings, the Partnership and the
--------------------
Partners will use commercially reasonable efforts to obtain or cause to be
obtained the consent of any third party whose consent is required in order that
the transactions contemplated by this Agreement may be consummated without
violation of any representation, warranty or covenant made by any of them in
this Agreement; provided, however, that none of the Companies shall be required
to make, or incur any obligation to make, any payments to third parties in order
to obtain any such consent (other than normal internal expenses and reasonably
necessary legal fees); provided further that none of the Companies shall make,
or incur any obligation to make, any such third party payments (other than
normal internal expenses and reasonably necessary legal fees) in order to obtain
any such consent without the prior written approval of Buyer.
SECTION 3.6 NOTICE OF PROCEEDINGS. The Partnership and the Partners
---------------------
will, upon obtaining knowledge of any order or decree or any complaint praying
for an order or decree restraining or enjoining the consummation of the
Agreement or the transactions contemplated hereunder, or upon receiving any
notice from any governmental department, court, agency or commission of its
intention to institute an investigation into, or institute a suit or proceeding
to restrain or enjoin the consummation of this Agreement or such transactions,
or to nullify or render ineffective this Agreement or such transactions if
consummated, promptly notify Buyer in writing of such order, decree, complaint
or notice.
SECTION 3.7 DELIVERY OF PARTNER LISTS. Prior to the Closing, the
-------------------------
Partnership will deliver to Buyer an updated list of its partners and their
partnership interests.
SECTION 3.8 CONFIDENTIALITY. Each of the Companies, the Partnership and
---------------
the Partners and their directors, officers, employees, agents or representatives
shall maintain all information gained from Buyer in connection with the
transactions contemplated by this Agreement and the terms of this Agreement (the
"Buyer Confidential Information") in strict confidence, and shall
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take all precautions necessary to prevent disclosure, access to, or transmission
of the Buyer Confidential Information, or any part thereof, to any third party,
except (i) for the exclusive purpose of evaluating the transactions contemplated
hereunder, and (ii) as required by law or order of any court having competent
jurisdiction. The Buyer Confidential Information shall be used only for the
purposes of evaluating the transactions contemplated hereby and in the event the
Closing does not occur for any reason, the Companies, the Partnership and each
Partner shall, immediately upon Buyer's request, return all copies and
recordings of the Buyer Confidential Information in their possession or under
their control and delete all records thereof in any data storage system
maintained by or for the Companies, the Partnership or such Partner.
SECTION 3.9 NO SOLICITATION. None of the Companies, the Partnership, the
---------------
Partners or any of their directors, officers, employees, agents or
representatives shall prior to the Closing, directly or indirectly, solicit,
initiate or encourage (including by way of furnishing or disclosing information)
inquiries or proposals concerning any merger, consolidation or acquisition or
purchase of all or any substantial portion of the assets or capital stock of any
of the Companies or of the Partnership or any interest therein (an "Acquisition
Transaction") or negotiate or enter into any discussions or other communications
with any prospective purchaser (other than Buyer or its affiliates) with respect
to any Acquisition Transaction. Holdings shall immediately advise Buyer of any
inquiries or proposals relating to any Acquisition Transaction.
SECTION 3.10 ADVERSE EVENTS. Promptly after the Companies obtain
--------------
knowledge of the occurrence, or failure to occur, of any event (i) the
occurrence or failure of which would materially adversely affect, or could
reasonably be expected to materially adversely affect, the assets, properties,
operations, business, prospects, or condition (financial or otherwise) of any of
the Companies or the ability of the Partnership, any Partner or Holdings to
perform any of their obligations under this Agreement, or (ii) which, if known
as of the date of this Agreement, would have been required to be disclosed to
Buyer or (iii) which causes any representation or warranty contained in this
Agreement or any Schedule or Exhibit hereto to be untrue or inaccurate at any
time from the date of this Agreement to and including the Closing, Holdings
and/or the Partnership or such Partner shall provide to Buyer in writing all
relevant information related thereto, which writing shall be delivered in
accordance with Section 8.7, below, and shall specifically refer to this Section
3.10. Except for purposes of Section 6.1(a), any information provided to Buyer
pursuant to and in the manner provided by this Section 3.10 will be deemed to
have amended the Schedules to this Agreement and to have qualified the
representations and warranties contained in Article II hereof.
SECTION 3.11 EMPLOYEES. On or before the Closing Date, Holdings shall
---------
deliver to Buyer a list of the Companies' employees as of the end of the
calendar month immediately preceding the Closing, indicating the following
information:
(a) for each employee whose annual salary exceeds $30,000, his or her
compensation and any applicable severance arrangement;
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(b) whether each employee is remunerated on an hourly, weekly, or
monthly basis;
(c) date of most recent commencement of service of each employee with
the respective Company; and
(d) accrued holiday, vacation, sick leave, long service entitlement
(if any) and permitted time-off due as compensation for additional time
worked of each employee.
SECTION 3.12 ESTIMATE OF BONUS COMMITMENTS, ETC. The Partnership shall
-----------------------------------
deliver to Buyer, within five business days of the execution date of this
Agreement, its estimate of the amounts due and payable under the covenants not
to compete and bonus arrangements listed on Schedule 5.6 as obligations of the
Buyer. The estimate will be as of September 30, 1997, will show the basis of
calculation thereof and will be based on the Partnership's reasonable
interpretation of such commitments and its reasonable estimate of the criteria
on which such commitments are based.
SECTION 3.13 EXPENSES. The Partnership (or, in the case of the
--------
Partnership Purchase, the Partners) shall pay all legal and financial advisor
fees and expenses incurred on behalf of the Companies, the Partnership or any of
the partners of the Partnership, and all fees and expenses incurred in
connection with the solicitation of the approval of the partners of the
Partnership, in connection with the transactions contemplated hereunder. All
other reasonable fees and expenses (if any) incurred on behalf of the Companies
or the Partnership (but not of the individual partners of the Partnership) in
connection with the transactions contemplated hereunder shall be paid by the
Companies. The Partnership and the Partners shall indemnify and hold harmless
Buyer and the Companies in respect of any fees and expenses not expressly
described in this Section 3.13 as the Companies' responsibility.
SECTION 3.14 PARTNERSHIP APPROVAL. The Partnership has taken, or will
--------------------
take no later than the Closing, all action necessary in accordance with
applicable law, and the Partnership's Partnership Agreement, to consider and
vote upon the approval of this Agreement and the sale of the Shares. The
requisite number of partners of the Partnership as required under the
Partnership Agreement and applicable law have voted or will vote in favor of
this Agreement and sale of the Shares hereunder in the case of the Share
Purchase. All of the partners of the Partnership will be signatories to this
Agreement in the case of the Partnership Purchase.
SECTION 3.15 UPDATED DISCLOSURE SCHEDULES. If the Partnership wishes to
----------------------------
deliver to Buyer updated Schedules to this Agreement, it may only do so on or
prior to the fifth day before the Closing Date.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
As an inducement to the Partnership and the Partners to enter into this
Agreement and to consummate the transactions contemplated hereby, Buyer
represents and warrants to the Partnership and the Partners as follows:
SECTION 4.1 CORPORATE EXISTENCE. Buyer is a corporation duly organized,
-------------------
validly existing and in good standing under the laws of the state of Missouri
and is qualified as a foreign corporation in each other jurisdiction in which it
is lawfully required to qualify to conduct business.
SECTION 4.2 CORPORATE POWER AND AUTHORITY. Buyer has all requisite
-----------------------------
corporate power and authority to own its properties and assets, and to carry on
the business in which it is now engaged. Buyer has the corporate power and
authority to execute and deliver this Agreement and the other agreements
contemplated hereby, and to perform the covenants of Buyer set forth in this
Agreement.
SECTION 4.3 EXECUTION AND DELIVERY PERMITTED. The execution, delivery
--------------------------------
and performance of this Agreement will not violate or result in a breach of any
term of Buyer's Articles of Incorporation or Bylaws or result in a breach of
constitute a default under any term in any material agreement or other
instrument to which Buyer is a party, such default having not been previously
waived by the other party to such agreements, or violate in any material respect
any law or any order, rule or regulation applicable to it, of any court or any
regulatory body, administrative agency or other governmental instrumentality
having jurisdiction over it or its properties. Buyer's Board of Directors has
taken all action required by law, and by its Articles of Incorporation and
Bylaws, and otherwise, to authorize the execution, delivery and performance of
this Agreement and the consummation of the transactions contemplated by this
Agreement. Neither the execution, delivery or performance of this Agreement or
any of the other agreements executed in connection herewith, or the consummation
of the transactions contemplated hereby or thereby requires any filing with or
the consent or approval of any third party, including but not limited to any
governmental body or entity, other than any filing required under the HSR Act,
and the expiration of any applicable waiting periods thereunder.
SECTION 4.4 BINDING EFFECT. This Agreement, and each other agreement
--------------
required to be delivered by Buyer in connection herewith, when executed and
delivered will be the legal, valid and binding obligation of Buyer, enforceable
against it in accordance with its terms, except as enforceability may be limited
by (i) applicable bankruptcy, reorganization, insolvency, moratorium and similar
laws affecting the enforcement of creditors' rights generally and (ii) general
equitable principles (regardless of whether enforceability is considered in a
proceeding in equity or at law).
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SECTION 4.5 DUE DILIGENCE. Prior to the date hereof, the Buyer has made
-------------
and conducted a reasonable investigation of the Companies. Buyer is entering
into this transaction based on such investigation and, except for the specific
representations and warranties made by Holdings, the Partnership and the
Partners in Article II, is not relying upon any representation or warranty of
Holdings, the Partnership or any Partner or any affiliate, officer, director,
employee, agent or advisor of any of them, nor upon the accuracy of any record,
projection or statement made available or given to Buyer in the performance of
such investigation.
ARTICLE V
COVENANTS OF BUYER
Buyer covenants and agrees that:
SECTION 5.1 CORPORATE ACTION. Subject to the provisions of this
----------------
Agreement, Buyer shall take all necessary corporate and other action required of
it to carry out the transactions contemplated by this Agreement.
SECTION 5.2 CONFIDENTIALITY. Buyer and its directors, officers,
---------------
employees, agents or representatives shall maintain all information gained from
the Companies, the Partnership or the Partners in connection with the
transactions contemplated by this Agreement and the terms of this Agreement (the
"Holdings Confidential Information") in strict confidence, and shall take all
precautions necessary to prevent disclosure, access to, or transmission of the
Holdings Confidential Information, or any part thereof, to any third party,
except (i) for the exclusive purpose of evaluating the purchase of the Shares or
the Partnership Interests, (ii) for information given to Buyer's creditors,
including vendors who extend Buyer credit, under appropriate confidentiality
agreements, (iii) for information given to prospective investors in or lenders
to Buyer, under appropriate confidentiality agreements, and (iv) as required by
law or an order of any court having competent jurisdiction. In the event the
Closing does not occur for any reason, Buyer shall, immediately upon Holdings'
request, return all copies and recordings of the Holdings Confidential
Information in its possession or under its control and delete all records
thereof in any data storage system maintained by or for Buyer.
SECTION 5.3 NOTICE OF PROCEEDINGS. Buyer will, upon obtaining knowledge
---------------------
of any order or decree or any complaint praying for an order or decree
restraining or enjoining the consummation of this Agreement or the transactions
contemplated hereunder, or upon receiving any notice from any governmental
department, court, agency or commission of its intention to institute an
investigation into, or institute a suit or proceeding to restrain or enjoin the
consummation of this Agreement or such transactions if consummated, promptly
notify Holdings in writing of such order, decree, complaint or notice.
SECTION 5.4 ADVERSE EVENTS. Promptly after the occurrence, or failure
--------------
to occur, of any event, the occurrence or failure of which would materially
adversely affect, or could reasonably be expected to materially adversely
affect, the ability of Buyer to perform any of its obligations
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under this Agreement, Buyer shall provide to Holdings in writing all relevant
information related thereto.
SECTION 5.5 BROKER'S FEES. Buyer shall indemnify and hold harmless the
-------------
Partnership in respect of any claim for brokerage or finder's fees or
commissions with respect to the transactions contemplated herein by anyone
claiming to have acted on behalf of Buyer.
SECTION 5.6 EXISTING BONUS COMMITMENTS, ETC. Buyer shall pay, or cause
-------------------------------
the Companies to pay, at the Closing, all amounts owing pursuant to the
covenants not to compete and bonus arrangements listed on Schedule 5.6 attached
hereto, which payments shall not exceed, in the aggregate, $5.5 million.
SECTION 5.7 THIRD PARTY CONSENTS. Buyer will use commercially
--------------------
reasonable efforts to obtain or cause to be obtained the consent of any third
party whose consent is required in order that the transactions contemplated by
this Agreement may be consummated without violation of any representation,
warranty or covenant made by it in this Agreement. Buyer shall file its
Premerger Notification and Report Form under the HSR Act no later than the close
of business on the first business day after the execution date of this
Agreement.
ARTICLE VI
CONDITIONS TO CLOSING
SECTION 6.1 BUYER CONDITIONS TO CLOSING. The obligations of Buyer
---------------------------
hereunder are subject to the satisfaction of each of the following conditions at
or before Closing, the occurrence of which may, at the option of Buyer, be
waived:
(a) All representations and warranties of Holdings, the Partnership
and the Partners in this Agreement and any certificate, Exhibit or Schedule
to be delivered pursuant hereto, shall be true and accurate in all material
respects on the date made and on and as of the Closing (without taking into
account any revisions or updates to such Schedules);
(b) There shall have been no material adverse change in the operations
of the business of the Companies taken as a whole from the date hereof
through the Closing Date;
(c) Holdings, the Partnership and the Partners shall have performed
and complied in all material respects with all of their obligations under
this Agreement which are to be performed or complied with by each of them
prior to the Closing Date;
(d) Holdings, the Partnership and the Partner shall have delivered to
Buyer all of the documents required to be delivered by them prior to the
Closing Date pursuant to this Agreement.
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(e) Buyer and Buyer's counsel shall have approved (which approval
shall not be unreasonably withheld) the form and substance of the documents
delivered by Holdings, the Partnership and the Partners pursuant to this
Agreement;
(f) There shall be no claims, actions or suits pending or threatened
against any party hereto that would restrict or prohibit such party from
consummating the transactions contemplated herein;
(g) The requisite number of the Partnership Interests in the
Partnership shall have been voted in favor of this Agreement and the sale
of the Shares or Partnership Interests hereunder as required by Section
3.14;
(h) From the date hereof through the Closing Date, there shall not
have occurred any damage, destruction or loss to any of the assets owned,
leased, possessed or used by any of the Companies exceeding $50,000 in the
aggregate that is not covered by insurance;
(i) (i) Each of the Companies' issued and outstanding capital stock
shall be as set forth in Schedule 2.1, and (ii) none of the Companies shall
have any agreement, obligation or commitment of any character to issue
shares of its capital stock, or debentures, bonds, or other evidences of
indebtedness convertible, in whole or in part, into shares of its capital
stock;
(j) Holdings shall have delivered to Buyer certified copies of
resolutions duly adopted by the Board of Directors of Holdings, the
Partnership and the partners of the Partnership authorizing, approving and
consenting to the execution and delivery of this Agreement, to the
consummation of the transactions contemplated herein, and to performance of
the agreements set forth herein;
(k) Holdings shall have delivered to Buyer a Certificate of Good
Standing (or its equivalent) issued by the Delaware Secretary of State to
the effect that Holdings is duly incorporated and in good standing under
the laws of the State of Delaware, as of the Closing Date; and Certificates
of Good Standing (or their equivalent) issued by the respective states of
incorporation of each other Company and the states where each other Company
is qualified as a foreign corporation as set forth on Schedule 2.1, as of
the Closing Date;
(l) Holdings shall have furnished to Buyer a copy of its Certificate
of Incorporation, including all amendments thereto, which shall have been
certified by the Delaware Secretary of State, and a copy of each of the
other Companies' Certificate or Articles of Incorporation, which shall have
been certified by the applicable Secretary of State, each as of a date
reasonably near the Closing Date;
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(m) Holdings shall have furnished to Buyer a copy of the Bylaws of
each of the Companies which shall have been certified by the Secretary of
each Company, as applicable, as of the Closing Date;
(n) The Partnership shall have furnished to Buyer a copy of its
Partnership Agreement, including all amendments thereto, a copy of its
Certificate of Limited Partnership, including all amendments thereto, and a
Certificate of Good Standing or its equivalent from the state of Illinois,
as of the Closing Date;
(o) The waiting period under the HSR Act shall have expired or a
notification of early termination of the waiting period shall have been
received by Buyer;
(p) The respective Companies shall have entered into a written
memorandum of understanding signed by Warehouse, Mail Order, Office,
Technical and Professional Employees Union, Local 743, describing a new
collective bargaining agreement on terms that are reasonably acceptable to
Buyer;
(q) The stockholders of H.S.S. Consulting Services Incorporated
("HSS") shall have delivered to Buyer certificates evidencing all of the
issued and outstanding shares of capital stock of HSS, duly endorsed in
blank or with stock powers duly executed by such stockholders (it being
understood that the tangible net worth of HSS as of Closing shall be zero,
with the tangible net worth calculated by netting (i) the sum of the book
value of HSS' cash, net accounts receivable and inventory over (ii) the sum
of the book value of HSS' accounts payable and accrued expenses, as shown
on the books of HSS as of Closing; the stockholders of HSS (rather than
Buyer) shall receive and retain all cash and cash equivalents held by HSS
at or prior to the Closing in excess of the tangible net worth of HSS as of
Closing);
(r) Buyer shall have received at Buyer's expense title insurance
policies on all of the Real Property reasonably satisfactory to Buyer and
its lenders;
(s) Buyer shall have received certificates of insurance, dated as of
the Closing Date, covering each of the locations set forth on Schedule 2.24
hereto in the amounts set forth on Schedule 2.24;
(t) Holdings or the Partnership will have obtained the consent of any
third party whose consent is required in order that the transactions
contemplated by this Agreement may be consummated without violation of any
representation, warranty or covenant made by any of them in this Agreement,
the failure of which to obtain would result in a Material Adverse Effect on
the Companies, taken as a whole, it being understood that the licenses and
permits listed on Schedule 2.5 are deemed to be required pursuant to this
Section 6.1(t);
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(u) Buyer shall have received an opinion of the Partnership's counsel
reasonably acceptable to Buyer dated as of the Closing Date (which opinion
shall also be addressed to Buyer's lenders);
(v) Buyer shall have received an Escrow Agreement, duly executed by
the Partnership or its partners, as the case may be;
(w) Buyer shall have received Employment Agreements duly executed by
Seymour Stoller and Joseph Harris, containing the terms set forth in
Exhibits 6.1(w)-1 and -2 hereto (the "Employment Agreements");
(x) Buyer shall have received a certificate of the secretary of each
of the Companies certifying as to the existence and location of all
corporate minute books, stock ledger and transfer books and all other books
and records, and the corporate seal of Holdings and each of its
subsidiaries;
(y) Buyer shall have received evidence satisfactory to it that all of
the agreements and relationships identified on the Schedules hereto as
matters to be terminated as of the Closing have been so terminated;
(z) The Partners shall have paid in full prior to Closing, or shall
pay out of the cash portion of the Purchase Price delivered at Closing, and
shall deliver to Buyer satisfactory evidence of such payment, the Series A
Subordinated Promissory Notes listed on Schedule 2.7 hereto;
(aa) Buyer shall have received resignations (i) from each director of
the respective Companies and (ii) from each officer of the Companies as
Buyer shall have requested prior to the Closing Date;
(bb) Buyer shall have received such other documents as Buyer or its
counsel may reasonably request; and
(cc) The Partnership and the Partners shall have delivered to Buyer a
certificate, certifying as to the matters set forth in 6.1(a), (b), (c),
(d), (f), (g), (h) and (j).
SECTION 6.2 HOLDINGS AND PARTNERSHIP CONDITIONS TO CLOSING. The
----------------------------------------------
obligations of Holdings, the Partnership and the Partners hereunder are subject
to the satisfaction of each of the following conditions at or before Closing,
the occurrence of which may, at the option of the Partnership, be waived:
(a) All representations and warranties of Buyer in this Agreement
shall be true in all material respects on the date hereof and on and as of
the Closing;
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(b) Buyer shall have performed and complied in all material respects
with all of its obligations under this Agreement which are to be performed
or complied with by Buyer prior to or on the Closing Date;
(c) Buyer shall have delivered all of the documents and payments
required to be delivered by it prior to the Closing pursuant to this
Agreement;
(d) The Partnership and Partnership's counsel shall have approved
(which approval shall not be unreasonably withheld) the form and substance
of the documents delivered by Buyer pursuant to this Agreement;
(e) There shall be no claims, actions or suits pending or threatened
against any party hereto that would restrict or prohibit such party from
consummating the transactions contemplated herein;
(f) Holdings or the Partnership will have obtained the consent of any
third party whose consent is required in order that the transactions
contemplated by this Agreement may be consummated without violation of any
representation, warranty or covenant made by any of them in this Agreement;
(g) Buyer shall have delivered to the Partnership and the Partners
certified copies of resolutions adopted by Buyer adopting and approving
this Agreement;
(h) Buyer shall have furnished to the Partnership and the Partners a
copy of its Articles of Incorporation, including all amendments thereto,
which shall have been certified by the Missouri Secretary of State as of a
date reasonably near the Closing Date;
(i) Buyer shall have furnished to the Partnership and the Partners a
copy of the Bylaws of Buyer which shall have been certified by the
Secretary of Buyer as of the Closing Date;
(j) The waiting period under the HSR Act shall have expired or a
notification of early termination of the waiting period shall have been
received by Buyer;
(k) The Partnership shall have received an opinion of Buyer's counsel
reasonably acceptable to the Partnership dated as of the Closing Date
(which opinion shall also be addressed to Buyer's lenders);
(l) The Partnership shall have received an Escrow Agreement, duly
executed by Buyer;
(m) The stockholders of HSS shall have received the proceeds (if any)
described in Section 6.1(q) above;
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(n) In the event of the Partnership Purchase, as of immediately prior
to the Closing, the Partnership shall have distributed to its partners the
excess of (i) the sum of the book values of its cash and net accounts
receivable over (ii) the sum of the book values of its accounts payable and
accrued expenses, as shown on the books of the Partnership as of Closing;
(o) In the event of the Share Purchase, the Partnership and the
Partnership's partners, or, in the event of the Partnership Purchase, the
Partnership's partners, shall have been released from the guarantees and
obligations with respect to any indebtedness of the Companies or other
contractual obligations of the Companies listed on Schedule 6.2(o);
provided, however, that if the Partnership or a partner has guaranteed an
obligation directly related to the business of the Companies prior to the
date hereof and such obligation was inadvertently omitted from Schedule
6.2(o), Buyer shall either effect the cancellation of the Partnership's or
partner's guarantor obligation, or indemnify the Partnership or partner, as
the case may be, to the extent of such obligation;
(p) The Partnership shall have received such other documents as the
Partnership or its counsel may reasonably request; and
(q) Buyer shall have delivered to the Partnership and the Partners a
certificate, certifying as to the matters set forth in 6.2(a), (b), (c),
and (e);
ARTICLE VII
INDEMNIFICATION
SECTION 7.1 INDEMNIFICATION BY THE PARTNERSHIP AND THE PARTNERS.
---------------------------------------------------
Subject to Section 7.4 and 7.5, the Partnership and Partners jointly and
severally agree to defend, indemnify, and hold harmless Buyer and its officers,
directors, agents, employees and affiliates, against and in respect of any and
all loss, liability, lien, damage, cost and expense incurred or resulting from
any misrepresentation, breach of warranty, or non-fulfillment of any covenant or
agreement on the part of Holdings, the Partnership or the Partners under or in
connection with this Agreement.
In addition, in the event of the Partnership Purchase, the Partners jointly
and severally agree to defend, indemnify, and hold harmless Buyer and its
officers, directors, agents, employees and affiliates, against and in respect of
any liabilities and obligations of the Partnership in existence or accruing as
of the Closing other than the Partnership's Related Assets and Liabilities,
including without limitation, liabilities and obligations arising out of failure
of a partner to have good, unencumbered title to such partner's Partnership
Interest and claims by partners dissenting to the sale of the Shares or the
Partnership Interests, as the case may be (collectively, the "Partnership
Liabilities").
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SECTION 7.2 INDEMNIFICATION BY BUYER. Buyer agrees to defend,
------------------------
indemnify, and hold harmless the Partnership and the Partners against and in
respect of any and all loss, liability, lien, damage, cost and expense incurred
or resulting from any misrepresentation, breach of warranty or non-fulfillment
of any covenant on the part of Buyer under or in connection with this Agreement.
SECTION 7.3 INDEMNIFICATION PROCEDURE. An indemnified person shall
-------------------------
promptly notify the indemnifying party of the existence of any claim, demand, or
other matter to which indemnification obligations would apply (the "Indemnified
Claim"), and shall give the indemnifying party the opportunity to defend the
same at its own expense and with counsel of its own selection, provided that
such indemnified person shall at all times also have the right to participate
fully in the defense of the Indemnified Claim at his, her or its own expense.
If the indemnifying party shall fail to defend such Indemnified Claim adequately
and reasonably, and such indemnified person is entitled to such defense, such
indemnified person shall have the right, but not the obligation, to undertake
the defense of, and to compromise or settle (exercising reasonable business
judgment) such Indemnified Claim on behalf, for the account, and the sole risk
and expense (subject to the limitations on indemnification set forth in this
Agreement), of the indemnifying party. If the indemnified party elects to
undertake the defense of such Indemnified Claim pursuant to the preceding
sentence, the indemnified party shall reimburse the indemnifying party for fees,
costs and expenses incurred by the indemnifying party in defending such
Indemnified Claim prior to the indemnified party's assumption of, and in
connection with the indemnifying party's orderly withdrawal from, the defense of
such Indemnified Claim. Such reimbursement shall be made as soon as practicable
after the indemnifying party delivers reasonably satisfactory evidence of such
fees, costs and expenses to the indemnified party.
SECTION 7.4 LIMITATIONS ON INDEMNIFICATION.
------------------------------
(a) Except as set forth herein, the Partnership and the Partners shall
not be responsible to Buyer with respect to any Claims as to which Buyer is
otherwise entitled to indemnity under Section 7.1 unless and until the
aggregate amount of such Claims exceeds $450,000. If the aggregate amount
of such Claims exceeds $450,000, the Partnership and the Partners shall be
liable for such Claims to the extent the aggregate amount of such Claims
exceeds $450,000; provided, however, that individual Claims of $5,000 or
less shall not be included in such $450,000 minimum and the Partnership and
Partners shall not be liable therefor. Claims under Section 2.14(c)(ii),
3.2(a), 3.2(g) and 3.13; Claims for Partnership Liabilities and Claims for
dividends or other payments to the stockholders of HSS in excess of those
allowed under Section 6.1(q) are not subject to the limitations of this
Section 7.4.
(b) To the knowledge of Buyer, the representations and warranties
concerning the Partners, the Partnership and the Companies made in this
Agreement are true and correct. Buyer hereby agrees that, to the extent
any such representation or warranty herein is, to the actual knowledge of
Buyer, untrue or incorrect, if Buyer still elects to
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close, (i) Buyer will have no rights under this Agreement to the extent of
such untruth or inaccuracy and (ii) any such representation or warranty
shall be deemed to be amended to the extent necessary to render it
consistent with such actual knowledge of Buyer.
(c) Any payment made by an indemnifying party to an indemnified party
pursuant to this Article VII in respect of any claim shall be net of any
insurance proceeds realized by and paid to the indemnified party in respect
of such claim and (ii) shall be reduced by an amount equal to any tax
benefits attributable to such claim. The indemnified party shall use its
reasonable efforts to make insurance claims relating to any claim for which
it is seeking indemnification pursuant to this Article VII. The
indemnifying party shall be subrogated to all rights of the indemnified
party in respect of any loss borne by the indemnifying party.
(d) No indemnified party shall be entitled to recover from an
indemnifying party for any losses, costs, expenses, or damages as to which
indemnification is provided under this Agreement any amount in excess of
the actual compensatory damages, court costs and reasonable attorney fees,
suffered by such party, except in the case of fraud by an indemnifying
party; and subject to the foregoing, each party hereto waives any right to
recover punitive, special, exemplary and consequential damages arising in
connection with or with respect to the indemnification provisions hereof.
(e) Each person or entity entitled to indemnification hereunder shall
take all reasonable steps to mitigate all losses, costs, expenses and
damages after obtaining knowledge of any event which could reasonably be
expected to give rise to any losses, costs, expenses and damages that are
indemnifiable or recoverable hereunder or in connection herewith.
(f) Notwithstanding anything in this Agreement to the contrary, the
Partnership and the Partners shall not be responsible for any liability or
obligation resulting from the failure of Buyer or the Companies to comply
with applicable law or the rights of third parties after the Closing even
if the Companies are operated after the Closing in the same manner in which
the Companies were operated prior to Closing.
(g) Subject to Section 8.4 and except in the case of fraud by an
indemnifying party, the sole recourse and exclusive remedy of Buyer
pursuant to this Agreement (other than the Partnership Liabilities) shall
be to assert a claim against the escrow provided for pursuant to the Escrow
Agreement and Buyer shall not be entitled to assert any claims directly
against the Partnership or any of the Partners.
(h) The indemnifications under this Article VII shall be sole and
exclusive remedies of the parties hereto, each against the other, with
respect to matters arising under this Agreement, of any kind or nature, or
relating to the Companies. Each party hereby waives and releases any other
rights, remedies, causes of action or claims that they have
33
<PAGE>
or that may arise against the other with respect to matters arising under
this Agreement, of any kind or nature, or relating to the Companies.
SECTION 7.5 TIME TO ASSERT CLAIMS. Claims for indemnification hereunder
---------------------
must be asserted within the following time limits: (i) Claims that can be
discovered through an audit of the Companies must be asserted no later than
December 31, 1998; and (ii) all other Claims must be asserted no later than the
second anniversary of the Closing Date. Any matters as to which a Claim has
been asserted on or before the applicable deadline shall continue to be covered
by Section 7.1, until finally terminated or resolved.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.1 SURVIVAL. The several representations and warranties of the
--------
parties contained in or made pursuant to this Agreement shall be deemed to have
been made on and as of the Closing and shall remain operative and in full force
and effect as set forth in Section 7.5, regardless of any investigation or
statement as to the results thereof, made by or on behalf of any such party.
Except for the provisions of Articles VII, and Sections 8.6, 8.7, 8.9, 8.12 and
8.14, inclusive, of this Agreement, the several covenants and agreements of the
parties contained in this Agreement shall expire on the Closing Date and, except
for the provisions of Sections 8.3, 8.4, 8.6, 8.7, 8.9, and 8.12, inclusive, of
this Agreement, the several covenants and agreements of the parties contained in
this Agreement shall expire on the termination or abandonment of this Agreement.
SECTION 8.2 TERMINATION OF TRANSACTIONS. The transactions contemplated
---------------------------
hereby may be abandoned, and this Agreement terminated, upon notice, at any time
after the date of this Agreement, but not later than the Closing, by:
(a) The mutual consent of the Partnership and Buyer; or
(b) Buyer, if Holdings, the Partnership or any Partner is in breach of
any of its representations, warranties, covenants or agreements under this
Agreement in any material respect; or
(c) The Partnership, if Buyer is in breach of any of its
representations, warranties, covenants or agreements under this Agreement
in any material respect; or
(d) The Partnership or Buyer if the Closing has not occurred on or
before October 29, 1997; or
(e) Buyer, within five days after Buyer's receipt of the Latest
Balance Sheet, if the Latest Balance Sheet Date Net Worth (as defined
below), as shown on the Latest Balance Sheet, is less than $9,050,000; or
34
<PAGE>
(f) Buyer, within five days after Buyer's receipt of the Latest
Balance Sheet, if the Latest Balance Sheet Date Working Capital (as defined
below), as shown on the Latest Balance Sheet, is less than $39,570,000; or
(g) Buyer, to the extent that the aggregate indebtedness of the
Companies as of Closing is greater than $40,000,000.
For purposes of clause (e) above, "Latest Balance Sheet Date Net Worth" is
defined to mean the excess of (1) the Companies' total assets as shown on the
Latest Balance Sheet, calculated on a consolidated basis in accordance with
GAAP, over (2) the Companies' total liabilities as shown on the Latest Balance
Sheet, calculated on a consolidated basis in accordance with GAAP; provided that
Latest Balance Sheet Date Net Worth shall be adjusted to a FIFO basis by adding
back LIFO reserves less tax liabilities on such reserves (using an assumed tax
rate of 40%).
For purposes of clause (f) above, "Latest Balance Sheet Date Working Capital" is
defined to mean (i) the excess of (1) the Companies' current assets as shown on
the Latest Balance Sheet, calculated on a consolidated basis in accordance with
GAAP, over (2) the Companies' current liabilities as shown on the Latest Balance
Sheet, calculated on a consolidated basis in accordance with GAAP, plus (ii) the
----
amount by which the indebtedness for borrowed money of the Companies as of the
Latest Balance Sheet Date is less than (or minus the amount by which it is
greater than) the indebtedness for borrowed money of the Companies as of the
Balance Sheet Date, plus (iii) $780,000; provided that (x) Latest Balance Sheet
Date Working Capital shall be adjusted to a FIFO basis by adding back LIFO
reserves less tax liabilities on such reserves (using an assumed tax rate of
40%), and (y) all indebtedness for borrowed money of the Companies shall be
treated as non-current liabilities.
SECTION 8.3 EFFECT OF TERMINATION OR ABANDONMENT. If for any reason
------------------------------------
the transactions contemplated hereby are terminated or abandoned pursuant to
Section 8.2 hereof, all written schedules and other information and all copies
of material from the books and records of any party heretofore furnished to any
other party shall be returned promptly to the party furnishing the same.
Termination of this Agreement shall terminate all obligations of the parties
hereunder except for the obligations under Sections 3.8, 3.13, 5.2, Article VII,
Sections 8.2, 8.3, 8.4, 8.7, 8.8, 8.9, 8.10, 8.11, 8.12, 8.14 and 8.15.
SECTION 8.4 LIABILITIES. In the event this Agreement is terminated and
-----------
the contemplated transactions are abandoned pursuant to Section 8.2 hereof, no
party hereto shall have any duty or liability to the other either for costs,
expenses, loss of anticipated profits or otherwise, except as set forth in this
Section 8.4. If Buyer elects not to proceed with Closing because (x) the
Partnership has delivered updated Schedules to this Agreement that have been
revised to contain matters that should have been disclosed on the Schedules
delivered upon the execution of this Agreement, and (y) in the absence of such
updates to the Schedules, the representations and warranties of Holdings, the
Partnership and the Partners in this Agreement would not be true and accurate in
all material respects on the date made and on and as of the Closing, then the
35
<PAGE>
Partnership and Partners shall reimburse Buyer for the following expenses: (i)
Buyer's HSR Act filing fee, (ii) fees, costs and expenses incurred by Buyer in
connection with environmental investigations, survey and title work from and
after the execution date of this Agreement and (iii) lender fees, costs and
expenses incurred by Buyer in obtaining financing for the transactions
contemplated hereunder from and after the execution date of this Agreement;
provided, however, that the reimbursement obligation pursuant to (ii) and (iii)
above shall not exceed $150,000 and shall be in addition to the reimbursement
obligation pursuant to (i) above.
SECTION 8.5 ASSIGNMENT. Except as expressly contemplated herein, (a)
----------
none of Holdings, the Partnership or any Partner may assign or delegate any of
its rights or obligations under this Agreement without the prior written consent
of Buyer, and (b) Buyer may not assign or delegate any of its rights or
obligations under this Agreement without the prior written consent of the
Partnership, except that (i) Buyer may assign its rights (but not its
obligations) hereunder to a wholly-owned subsidiary of Buyer and (ii) Buyer may
assign to its lenders, or create a security interest in favor of its lenders in,
Buyer's rights and interests under this Agreement, in each case without the
prior written consent of Holdings, the Partnership or the Partners.
Notwithstanding the foregoing, Buyer understands and agrees that in the event of
the Share Purchase, the Partnership will be liquidated immediately following the
Closing and that as a result, among other things, the One Day Note will be
distributed to the Partnership's partners (pro rata based on their percentage
interests in the Partnership).
SECTION 8.6 FURTHER ASSURANCES. From time to time prior to, at and
------------------
after the Closing, the Partnership, the Partners, Holdings and Buyer will and
will cause their respective partners, directors and officers to execute all such
instruments and take all such actions as the Partnership, the Partners, Buyer or
Holdings, being advised by counsel, shall reasonably request in connection with
the carrying out and effectuating of the intent and purpose hereof and all
transactions and things contemplated by this Agreement including, without
limitation, the execution and delivery of any and all confirmatory and other
instruments in addition to those to be delivered on the Closing, and any and all
actions which may reasonably be necessary or desirable to complete the
transactions contemplated hereby.
SECTION 8.7 NOTICES. All notices, demands and other communications
-------
which may or are required to be given hereunder or with respect hereto shall be
given by the Partnership on behalf of Holdings, the Partnership or the Partners,
and by Buyer on behalf of itself. All such notices, demands and other
communications shall be in writing, shall be given either by personal delivery
or by nationally recognized overnight courier or by telecopier, and shall be
deemed to have been given or made when personally delivered, one business day
after delivered to a nationally recognized overnight courier, postage prepaid
and receipt requested, or one business day after transmission by telecopier,
receipt confirmed, addressed as follows:
36
<PAGE>
(i) If to Buyer:
C.D. Smith Drug Company
3907 South 48th Terrace
St. Joseph, MO 64503
Attention: Robert C. Farley
Fax: (816) 232-2187
with a copy to:
Blackwell Sanders Matheny Weary Lombardi LLP
Two Pershing Square
2300 Main Street, Suite 1100
Kansas City, MO 64108
Attention: Merry Evans, Esq.
Fax: (816) 983-9160
or to such other address as Buyer may from time to time designate by notice
to Holdings and the Partnership;
(ii) If to the Partnership or the Partners:
c/o Sidney Gimbel
10155 Collins Avenue, PH 7
Bal Harbour, FL 33154
with a copy to:
Kirkland & Ellis
200 East Randolph Drive
Chicago, IL 60601
Attention: Sanford E. Perl, Esq.
Fax: (312) 861-2200
or to such other address as Holdings and the Partnership may from time to
time designate by notice to Buyer.
SECTION 8.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
----------------
agreement between the parties and supersedes and cancels any and all prior
agreements between the parties relating to the subject matter hereof.
37
<PAGE>
SECTION 8.9 RULES OF CONSTRUCTION. This Agreement shall be construed
---------------------
as follows:
(a) except as otherwise defined in this Agreement, words shall be
given their commonly understood meaning in agreements of this nature,
except that accounting terms shall be given the meaning ascribed thereto by
generally accepted accounting principles and interpretations;
(b) this Agreement has been negotiated on behalf of the parties hereto
with the advice of counsel and no general rule of contract construction
requiring an agreement to be more stringently construed against the drafter
or proponent of any particular provision shall be applied in construction
of this Agreement;
(c) the captions of Articles and Sections hereof are for convenience
only and shall not control or affect the meaning or construction of any of
the provisions of this Agreement;
(d) throughout this Agreement, the masculine, feminine or neuter
genders shall be deemed to include the masculine, feminine and neuter, and
the singular and plural, and vice versa; and
(e) any information set forth in any Schedule attached to this
Agreement which is apparent on its face as being applicable to any other
Schedule to this Agreement shall be considered to have been set forth in
such other Schedule.
SECTION 8.10 LAW GOVERNING. This Agreement shall be governed by and
-------------
construed and enforced in accordance with the laws of the State of Illinois, but
not including the choice of law rules thereof.
SECTION 8.11 WAIVER OF PROVISIONS. The terms, covenants,
--------------------
representations, warranties or conditions of this Agreement may be waived only
by a written instrument executed by the party waiving compliance. The failure of
any party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by any party of any condition, or the breach of any provision, term
covenant, representation or warranty contained in this Agreement, whether by
conduct or otherwise, in any one or more instances shall be deemed to be or
construed as a further or continuing waiver of any such condition or of the
breach of any other provision, term, covenant, representation or warranty of
this Agreement.
SECTION 8.12 SUCCESSORS. All of the terms and conditions of this
----------
Agreement shall be binding upon and inure to the benefit of the successors and
permitted assigns of Buyer, Holdings the Partnership and the Partners. For the
purpose of this Agreement, the term "successors" shall include but not be
limited to heirs, legatees and devisees.
38
<PAGE>
SECTION 8.13 COUNTERPARTS. This Agreement may be executed in several
------------
counterparts, and all so executed shall constitute one agreement, binding on all
of the parties hereto, notwithstanding that all parties are not signatory to the
original or the same counterpart.
SECTION 8.14 PUBLIC STATEMENTS OR RELEASES. Holdings, the Partnership,
-----------------------------
the Partners and Buyer each agree not to make, issue or release any public
announcement, statement or acknowledgment of the existence of, or reveal the
terms, conditions and status of, the transactions provided for in this
Agreement, without first attempting to the extent reasonably possible (and in
all cases with regard to written matters) to clear such announcement, statement,
acknowledgment or revelation with the other parties hereto. Each party agrees
that it will not unreasonably withhold any such consent or clearance from
another party.
SECTION 8.15 SEVERABILITY. In the event that any provision in this
------------
Agreement be held invalid or unenforceable, by a court of competent
jurisdiction, such provision shall be severable from, and such invalidity or
unenforceability shall not be construed to have any effect on, the remaining
provisions of this Agreement, unless such provision goes to the essence of this
Agreement in which case the entire Agreement may be declared invalid and not
binding upon any of the parties.
SECTION 8.16 NO THIRD PARTY BENEFICIARIES. This Agreement and the
----------------------------
obligations of the parties hereunder shall operate exclusively for the benefit
of the parties executing this Agreement and their permitted successors and
assigns and not for the benefit of any other person or entity, including,
without limitation, any other shareholder, partner, creditor, employee or former
employee of any of the parties hereto and no such person or entity shall have
any rights or remedies hereunder.
[SIGNATURE PAGE FOLLOWS]
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on this
day, month and year first above written.
C.D. SMITH DRUG COMPANY
By: /s/ Robert C. Farley
-----------------------------------------------
Name: Robert C. Farley
Title: Chairman
G.D. HOLDINGS OF DELAWARE, INC.
By: /s/ Sidney Gimbel
-----------------------------------------------
Name: Sidney Gimbel
Title: President
GIMBEL INVESTOR GROUP, L.P. by Sidney Gimbel, a
General Partner
By: /s/ Sidney Gimbel
-----------------------------------------------
Name: Sidney Gimbel
Title: General Partner
40
<PAGE>
PARTNERS:
/s/ Sidney Gimbel
--------------------------------------------------
Sidney Gimbel
/s/ Stuart Gimbel
--------------------------------------------------
Stuart Gimbel
RESCAP CORPORATION
By: /s/ Leone J. Reschke
-----------------------------------------------
Name: Leone J. Reschke
Title: President
41
<PAGE>
ACQUISITION AGREEMENT
DATED SEPTEMBER 11, 1997
BY AND AMONG
C.D. SMITH DRUG COMPANY
GD HOLDINGS OF DELAWARE, INC.,
GIMBEL INVESTOR GROUP, L.P.
AND
CERTAIN PARTNERS OF GIMBEL INVESTOR GROUP, L.P.
SIGNATURE PAGE
IN WITNESS WHEREOF, for good and valuable consideration, the receipt
and sufficiency of which is hereby acknowledged, the undersigned hereby
severally executes the Acquisition Agreement, dated September 11, 1997, by and
among C.D. Smith Drug Company, GD Holdings of Delaware, Inc., Gimbel Investor
Group, L.P. and certain Partners of Gimble Investor Group, L.P. (the
"Acquisition Agreement" ) and agrees to become a party to and to be bound as a
"Partner" for all purposes under the Acquisition Agreement to the same extent as
if the undersigned were an original party thereto. The undersigned agrees that a
pro rata portion of his, her or its proceeds pursuant to the Acquisition
Agreement shall be (1) deposited in escrow pursuant to that certain Escrow
Agreement attached as an exhibit to the Acquisition Agreement to the same extent
as the deposits into such escrow are made by the other Partners (as defined in
the Acquisition Agreement) and (2) used to pay the Partnership's sale expenses.
Intending to be legally bound, the undersigned hereby executes this
Signature Page as of this 17-22nd day of September and 1-3 of October, 1997.
Signature: /s/ Bruce L. Glover
------------------------------------------
Name: Bruce L. Glover
Signature: /s/ Ernest A. Kaplan
------------------------------------------
Name: Ernest A. Kaplan
Signature: /s/ Larry Robinson /s/ Marilyn Robinson
------------------------------------------
Name: Larry Robinson Marilyn Robinson
Signature: /s/ Cheryl Fey TTE /s/ Clint Fey TTE
------------------------------------------
Name: Cheryl Fey, TTE Clint Fey TTE
Signature: /s/ Cynthia L. Brudnick
------------------------------------------
<PAGE>
Name: Cynthia L. Brudnick
Signature: /s/ Richard Brudnick
------------------------------------------
Name: Richard Brudnick
Signature: /s/ William Brudnick
------------------------------------------
Name: William Brudnick
Signature: /s/ Stuart Gimbel
------------------------------------------
Name: Stuart Gimbel
Signature: /s/ Edward Fox
------------------------------------------
Name: Edward Fox
Signature: /s/ Michael Kriozere
------------------------------------------
Name: Michael Kriozere
Signature: /s/ Michael Kriozere - Defined Benefit
------------------------------------------
Pension Plan
------------------------------------------
Name: Michael Kriozere
Signature: /s/ Sidney L. Gimbel
------------------------------------------
Name: Sidney L. Gimbel
Signature: /s/ Sidney L. Gimbel, Trustee of the
------------------------------------------
Barry Gimbel Trust
------------------------------------------
Name: Sidney L. Gimbel, Trustee of the Barry
Gimbel Trust
Signature: /s/ Sidney L. Gimbel, Trustee of the
------------------------------------------
Bruce Gimbel Trust
------------------------------------------
Name: Sidney L. Gimbel, Trustee of the Bruce
Gimbel Trust
Signature: /s/ Sidney L. Gimbel, Trustee of the
------------------------------------------
Robert Evans Trust
------------------------------------------
Name: Sidney L. Gimbel, Trustee of the Robert
------------------------------------------
Evans Trust
Signature: /s/ Ann Wolk Krouse
------------------------------------------
Name: Ann Wolk Krouse
Signature: /s/ Arnold B. Rubenstein MD
------------------------------------------
Name: Arnold B. Rubenstein MD
<PAGE>
Signature: /s/ Arnold B. Rubenstein
------------------------------------------
Name: Arnold B. Rubenstein for GA Urol. Profit
Sharing Plan
------------------------------------------
Signature: /s/ Julius M. Sarnat
------------------------------------------
Name: Julius M. Sarnat
Signature: /s/ Sheldon R. Nissen
------------------------------------------
Name: Sheldon R. Nissen for Sheldon R. Nissen
Retirement Plan & Trust
Signature: /s/ Lee Gimbel
------------------------------------------
Name: Lee Gimbel
Signature: /s/ Jeffrey L. Bernstein
------------------------------------------
Name: Jeffrey L. Bernstein
Signature: /s/ Albert Byster
------------------------------------------
Name: Albert Byster
Signature: /s/ Morton B. Rubenstein
------------------------------------------
Name: Morton B. Rubenstein
Signature: /s/ Sherwin G. Kite
------------------------------------------
Name: Sherwin G. Kite Trustee
Signature: /s/ Stuart Kobrovsky
------------------------------------------
Name: Stuart Kobrovsky
Signature: /s/ R.A. Hirschmann
------------------------------------------
Name: R.A. Hirschmann
Signature: /s/ Leone J. Reschke
------------------------------------------
Name: Leone J. Reschke
Signature: /s/ Sheldon Pekin
------------------------------------------
Name: Sheldon Pekin
<PAGE>
Signature: By F&K, Inc. Jeffrey A. Krause, Pres.
------------------------------------------
Name: Jeffrey A. Krause
Signature: /s/ H. Jablin
------------------------------------------
Name: H. Jablin
Signature: /s/ Edward B. Smith, Jr.
------------------------------------------
Name: Edward B. Smith, Jr.
Signature: /s/ Marvin B. Brooks, M.D.
------------------------------------------
Name: Marvin B. Brooks, M.D.
Signature: /s/ Ronald A. Fragen
------------------------------------------
Name: Ronald A. Fragen
Signature: /s/ Leonard S. Goldstein, TTee dated
------------------------------------------
11/13/95
------------------------------------------
Name: Leonard S. Goldstein
Signature: /s/ Phillip Giannino
------------------------------------------
Name: Phillip Giannino
Signature: /s/ Ronald A. Fragen MD Trustee Ronald
------------------------------------------
A. Fragen MD Inc. Profit Sharing Plan
------------------------------------------
Name: Ronald A. Fragen
Signature: /s/ Seymour Stoller
------------------------------------------
Name: Seymour Stoller
Signature: /s/ Joseph R. Harris
------------------------------------------
Name: Joseph R. Harris
Signature: /s/ John Korff
------------------------------------------
Name: John Korff
Signature: /s/ Alan Yurman
------------------------------------------
Name: Alan Yurman
Signature: /s/ Neil Allen M.D.
------------------------------------------
Name: Neil Allen M.D.
Signature: /s/ Edward A. Fox
------------------------------------------
Name: Edward A. Fox
<PAGE>
Signature: /s/ Sherryl A. Fox
------------------------------------------
Name: Sherryl A. Fox
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
------------------------------
EXHIBITS
- --------
1.3(c) Escrow Agreement
6.1(w) Employment Agreements
SCHEDULES
- ---------
1.1 Partnership's Related Assets and Liabilities
2.1 Subsidiaries or Other Interests
2.5 Consents and Approvals
2.6(b) Year-End Adjustments Not Included on Interim Financial Statements
2.7 Certain Changes
2.8 Undisclosed Liabilities
2.9 Inventory
2.11(a)(i) Employment Agreements
2.11(a)(ii) Collective Bargaining Agreements
2.11(b) Employees
2.11(c) Severance Pay
2.11(d) Employee Benefit Plans
2.11(g) Multiemployer Plans
2.11(j) Acceleration of Benefits, etc.
2.11(k) Terminated Plans
2.11(m) Plan Assets
2.12 Litigation
2.13 Permits
2.14(c) Tax Audit
2.15 Indebtedness
2.16 Banks
2.17 Contracts
2.18 Real Property
2.21 Labor Matters
2.22 Conflicts of Interest
2.23 Patents, Trademarks, Miscellaneous Intellectual Property
2.24 Insurance Coverage
2.25 Customers
2.26 Suppliers
3.1 Permitted Capital Expenditures
3.2 Permitted Actions
5.6 Existing Bonus Commitments, etc.
6.2(o) Terminated Guarantees and Contractual Obligations
<PAGE>
Exhibit 10.17
-------------
FIRST AMENDMENT TO ACQUISITION AGREEMENT
THIS FIRST AMENDMENT, dated as of October 3, 1997 (this "Amendment"), is
made to the Acquisition Agreement, dated as of September 11, 1997 (the
"Agreement"), by and among C.D. SMITH DRUG COMPANY, a Missouri corporation
("Buyer"), G.D. HOLDINGS OF DELAWARE, INC., a Delaware corporation
("Holdings"), GIMBEL INVESTOR GROUP, L.P., an Illinois limited partnership (the
"Partnership"), and the partners of the Partnership who have executed the
Agreement (collectively, the "Partners"). Terms used and not otherwise defined
herein have the meanings accorded to such terms in the Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
1. Restatement of Section 1.2. Section 1.2 of the Agreement is hereby
deleted in its entirety and the following provision is hereby substituted in
lieu thereof:
"Section 1.2 Purchase Price. The total purchase price for the Shares
of the Partnership Interests shall be $28,000,000 (as such amount may
be reduced pursuant to the final sentence of Section 3.13 below, the
"Base Purchase Price"); plus if the Closing occurs after the later of
thirty-five (35) days from (i) the date of execution of this Agreement
or (ii) the date Buyer files it Premerger Notification and Report Form
under the HSR Act (as defined below) for approval of the transactions
contemplated hereunder, and such delay in the Closing is not
attributable to (i) delay in obtaining any governmental consent or
approval of the transactions contemplated hereunder, (ii) the failure
of Holdings, the Partnership or the Partners to deliver any document,
certificate or other item required to be delivered pursuant to Section
1.5 or 6.1 hereunder, or (iii) any claim, action or lawsuit against
any of the parties hereto that would restrict or prohibit such party
from consummating the transactions contemplated herein, an amount
equal to $5,000 multiplied by the number of days from but not
including such date to and including the Closing Date (the
"Incremental Purchase Price," and, together with the Base Purchase
Price, the "Purchase Price")."
2. Restatement of Section 1.3. Section 1.3 of the Agreement is hereby
deleted in its entirety and the following provision is hereby substituted in
lieu thereof:
"Section 1.3 Payment of Purchase Price. The Purchase Price shall be
paid as follows:
(a) In the event of the Share Purchase, at the Closing, Buyer
shall deliver to the Partnership (i) a One Day Promissory Note (the
"One Day Note") in a form reasonably acceptable to Buyer and the
Partnership
<PAGE>
(including an irrevocable letter of credit securing the One Day Note
in form reasonably satisfactory to the parties, with all fees and
expenses related to such letter of credit to be paid by the
Partnership on behalf of the Partners electing to receive a portion of
such One Day Note in proportion to the principal amount to be received
by each such Partner), in such principal amount as the Partnership
shall elect (the "One Day Note Principal Amount"); provided that in no
event shall the One Day Note Principal Amount exceed the Purchase
Price minus $4,500,000 (the "Maximum Closing Amount"), and (ii) a
January 2, 1998 Note (the "1/2/98 Note") in a form reasonably
acceptable to Buyer and the Partnership (including an irrevocable
letter of credit securing the 1/2/98 Note in form reasonably
satisfactory to the parties, with all fees and expenses related to
such letter of credit to be paid by the Partnership on behalf of the
Partners electing to receive a portion of such 1/2/98 Note in
proportion to the principal amount to be received by each such
Partner), in a principal amount equal to the excess of the Maximum
Closing Amount over the One Day Note Principal Amount.
(b) In the event of the Partnership Purchase, at the Closing,
Buyer shall deliver to Sidney Gimbel, as paying agent for the Partners
(i) a 1/2/98 Note in a form reasonably acceptable to Buyer and the
Partnership (including an irrevocable letter of credit securing the
1/2/98 Note in form reasonably satisfactory to the parties, with all
fees and expenses related to such letter of credit to be paid by the
Partnership on behalf of the Partners electing to receive a portion of
such 1/2/98 Note in proportion to the principal amount to be received
by each such Partner), in such principal amount as the Partnership
shall elect (the "1/2/98 Note Principal Amount"); provided that in no
event shall the 1/2/98 Note Principal Amount exceed the Maximum
Closing Amount, and (ii) a transitory promissory note in form
reasonably acceptable to Buyer and the Partnership in a principal
amount equal to the excess of the Maximum Closing Amount over the
1/2/98 Note Principal Amount (the "Transitory Note") which shall be
payable in full immediately upon funding of the loans under that
certain Loan and Security Agreement, dated as of October 3, 1997,
among Buyer, certain other borrowers and the lenders named therein by
wire transfer of immediately available funds to an account designated
in writing by the Partnership at least one business day prior to
Closing.
(c) In any event, at the Closing, the Buyer shall deliver to a
commercial bank or other financial institution mutually acceptable to
Buyer and the Partnership, as escrow agent (the "Escrow Agent"), the
sum of $4,500,000 to be held in an escrow account pursuant to the
terms of the Escrow Agreement, substantially in the form attached
hereto as Exhibit 1.3(c) (the "Escrow Agreement")."
-2-
<PAGE>
3. Restatement of Section 3.13. Section 3.13 of the Agreement is hereby
deleted in its entirety and the following provision is hereby substituted in
lieu thereof:
"Section 3.13 Expenses. The Partnership (or, in the case of the
Partnership Purchase, the Partners) shall pay all legal and financial
advisor fees and expenses incurred on behalf of the Companies or the
Partnership, all fees and expenses incurred in connection with the
solicitation of the approval of the partners of the Partnership, and
all fees and expenses related to the letters of credit referred to in
Section 1.3, in each case, in connection with the transactions
contemplated hereunder (collectively, "Partnership Expenses"). All
other reasonable fees and expenses (if any) incurred on behalf of the
Companies or the Partnership (but not of the individual partners of
the Partnership) in connection with the transactions contemplated
hereunder shall be paid by the Companies. The Partnership and the
Partners shall indemnify and hold harmless Buyer and the Companies in
respect of any fees and expenses not expressly described in this
Section 3.13 as the Companies' responsibility.
4. Restatement of Section 6.1. Section 6.1(w) of the Agreement is hereby
deleted in its entirety and the following provision is hereby substituted in
lieu thereof:
"(w) Buyer shall have received an Employment Agreement duly executed
by Joseph Harris, containing the terms set forth in Exhibit 6.1w-2
hereto (the "Employment Agreement")."
In addition, the term "Employment Agreements" shall be deleted throughout
the Agreement and replaced with the term "Employment Agreement."
5. Waivers
(a) The Partnership has (i) transferred (or on the Closing will
transfer) the real property owned by it at 223 North California, Chicago,
Illinois to General Drug Company and (ii) paid (or on the Closing will pay) the
indebtedness owed to the City of Chicago under that certain CDB Float Loan
Demand Note due 11/15/98. Buyer waives any breach, violation or default under
the Agreement with respect to the transactions referred to in the previous
sentence.
(b) In lieu of the requirements of Holdings under Section 3.11, Buyer
agrees to accept copies of the payroll register for the period ended September
30, 1997, setting forth the names of the Companies' employees.
6. Full Force and Effect. Except as expressly amended or modified
hereby, the Agreement will and does remain in full force and effect.
-3-
<PAGE>
7. Governing Law. This Amendment will be governed by and construed in
accordance with the domestic laws of the State of Illinois, without giving
effect to any choice of law or conflict provision or rule (whether of the State
of Illinois or any other jurisdiction) that would cause the laws of any
jurisdiction other that the State of Illinois to be applied. In furtherance of
the foregoing, the internal law of the State of Illinois will control the
interpretation and construction of this Amendment, even if under such
jurisdiction's choice of law or conflict of law analysis, the substantive law of
some other jurisdiction would ordinarily apply.
8. Counterparts. This Amendment may be executed simultaneously in two or
more counterparts, any one of which need not contain the signatures of more than
one party, but all such counterparts taken together shall constitute one and the
same Amendment.
* * * *
-4-
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this First Amendment to
Acquisition Agreement as of the date first written above.
C.D. SMITH DRUG COMPANY
By: /s/ Robert C. Farley
---------------------------------
Name: Robert C. Farley
Title: Chairman
G.D. HOLDINGS OF DELAWARE, INC.
By: /s/ Sidney Gimbel
---------------------------------
Name: Sidney Gimbel
Title: President
GIMBEL INVESTOR GROUP, L.P.
By: /s/ Sidney Gimbel
---------------------------------
Name: Sidney Gimbel
Title: General Partner
By: /s/ Stuart Gimbel
---------------------------------
Name: Stuart Gimbel
Title: General Partner
RESCAP CORPORATION
Title: General Partner
By: /s/ Leone Reschke
---------------------------------
Name: Leone Reschke
Title: President
/s/ Sidney Gimbel
-------------------------------------
Sidney Gimbel, as attorney in fact
for the Partners
-5-
<PAGE>
Exhibit 21.1
------------
LIST OF SUBSIDIARIES OF C.D. SMITH HEALTHCARE
<TABLE>
<CAPTION>
State of Other Names Under Which
Subsidiary Name Incorporation Subsidiary Does Business
- --------------- ------------- ------------------------
<S> <C> <C>
C.D.S. Transportation Missouri N/A
G.D. Holdings of Delaware Missouri N/A
General Drug Company Illinois N/A
H.S.S. Consulting Services Illinois N/A
Incorporated
James Brudnick Company, Delaware N/A
Inc.
SBS Pharmaceutical, Inc. Delaware N/A
</TABLE>
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our reports dated April 10, 1998 (except Note 12, as to which the date is
, 1998), in the Registration Statement (Form S-1 No. 33- ) and related
Prospectus of C.D. Smith Drug Company for the registration of shares of its
common stock.
Ernst & Young LLP
Kansas City, Missouri
The foregoing consent is in the form that will be signed upon the completion of
the change in the Company's capital stock and the common stock split described
in Note 12 to the consolidated financial statements.
/s/ Ernst & Young LLP
Ernst & Young LLP
Kansas City, Missouri
June 1, 1998
<PAGE>
Exhibit 23.3
[LETTERHEAD OF BLACKMAN KALLICK BARTELSTEIN, LLP APPEARS HERE]
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 26, 1998 in the Registration Statement (Form S-1 No.
33- ) and related Prospectus of C.D. Smith Drug Company for the registration
of shares of its common stock.
/s/ Blackman Kallick Bartelstein, LLP
-------------------------------------
Blackman Kallick Bartelstein, LLP
Chicago, Illinois
June 3, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> FEB-28-1998
<CASH> 42,243
<SECURITIES> 0
<RECEIVABLES> 56,709,476
<ALLOWANCES> (650,384)
<INVENTORY> 73,671,570
<CURRENT-ASSETS> 133,994,914
<PP&E> 8,220,121
<DEPRECIATION> (1,496,645)
<TOTAL-ASSETS> 168,701,684
<CURRENT-LIABILITIES> 66,088,691
<BONDS> 0
0
0
<COMMON> 2,000
<OTHER-SE> 7,127,004
<TOTAL-LIABILITY-AND-EQUITY> 168,701,684
<SALES> 544,090,215
<TOTAL-REVENUES> 544,090,215
<CGS> (516,667,769)
<TOTAL-COSTS> (16,801,837)
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (4,646,485)
<INCOME-PRETAX> 6,263,577
<INCOME-TAX> (2,266,864)
<INCOME-CONTINUING> 3,996,713
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,996,713
<EPS-PRIMARY> 34.18
<EPS-DILUTED> 28.74
</TABLE>
