THIRD AMENDMENT
TO CREDIT AGREEMENT
AND LIMITED WAIVER
This THIRD AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER
(this "AMENDMENT") is dated as of May 14, 1999 between HORIZON Pharmacies, Inc.,
a Delaware corporation ("BORROWER"), and McKesson HBOC, Inc., a Delaware
corporation formerly known as McKesson Corporation ("MCKESSON").
RECITALS
WHEREAS, Borrower and McKesson are parties to that certain
Credit Agreement dated as of July 2, 1998, as amended by a First Amendment to
Credit Agreement dated as of July 20, 1998 and a Second Amendment to Credit
Agreement dated as of August 26, 1998 (as so amended, the "CREDIT AGREEMENT").
Capitalized terms used herein without definition shall have the same meanings
herein as set forth in the Credit Agreement.
WHEREAS, Borrower has requested that McKesson consent to the
amendment or waiver of certain covenants and other provisions set forth in the
Credit Agreement, and McKesson is willing to do so upon the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the promises and the
agreements, provisions and covenants herein contained, the parties hereto agree
as follows:
SECTION 1. AMENDMENTS TO THE CREDIT AGREEMENT
A. The Credit Agreement is hereby amended to add a new Section
1.9 to read as follows:
SECTION 1.9 GUARANTY OF BANK FACILITY. If requested by
Borrower, McKesson will provide a guaranty to Bank One (the
"McKesson Guaranty") of up to $7,000,000 of indebtedness under
an unsecured revolving credit facility from Bank One to
Borrower not in excess of $7,000,000 (the "Bank One
Facility"), subject to McKesson's reasonable approval of the
form of McKesson Guaranty and related documentation. If the
McKesson Guaranty is issued by McKesson, the figure
"$15,000,000" in Section 1.1(a) and in clause (i) of Section
1.8 above shall be reduced by the maximum amount of the
McKesson Guaranty. As a condition to McKesson's issuing the
McKesson Guaranty, Borrower shall execute and deliver to
McKesson an Indemnification Agreement substantially in the
form of Exhibit J hereto (the "Indemnification
1.
Agreement") and the Security Documents shall be amended as
appropriate so that Borrower's obligations under the
Indemnification Agreement are secured under the terms of the
Security Documents. If the McKesson Guaranty is issued by
McKesson, Borrower agrees to pay to McKesson a guaranty fee on
the maximum dollar amount guaranteed under the McKesson
Guaranty at a rate per annum equal to the Guaranty Fee Amount,
payable quarterly in arrears on the last Business Day of each
calendar quarter (commencing on the first such date after the
McKesson Guaranty is issued) and on the date the McKesson
Guaranty is released or otherwise terminated in accordance
with its terms.
B. Section 2.3(b)(i) of the Credit Agreement is hereby amended
by changing the figure of "$5,000,000" therein to "$8,000,000."
C. The Credit Agreement is hereby amended by adding a new
Section 4.3 to read as follows:
SECTION 4.3 CONDITIONS PRECEDENT TO LOANS AFTER APRIL 1, 1999.
The obligation of McKesson to make any Loan on or after April 1, 1999
shall be subject to
(a) McKesson's approval, which shall be in McKesson's sole
discretion, of Borrower's twelve month profitable operating plan for
the twelve months commencing January 1, 1999;
(b) The Warrant Purchase Agreement shall have been amended and
restated substantially in the form of Exhibit K hereto;
(c) Borrower shall have issued to McKesson a new Warrant under
the Warrant Purchase Agreement (as amended pursuant to clause (b)
above) for 101,500 shares of Borrower's Common Stock with an exercise
price of $5.71 per share in exchange for the cancellation of the
Warrant issued under the Warrant Purchase Agreement on July 2, 1998;
(d) Borrower shall have issued to McKesson a Warrant for
100,000 shares of Borrower's Common Stock in addition to those
described in clause (c) above but upon the same terms and conditions as
those described in clause (c) above; and
(e) Upon or promptly after McKesson's notice to Borrower that
the condition in clause (a) above has been met (the "Approval Notice"),
Borrower shall have issued a Warrant for 50,000 shares of Borrower's
Common Stock with an exercise price per share equal to the average
closing price on the American Stock Exchange of Borrower's Common Stock
for the five Business Day period commencing on the date on which
McKesson gives the Approval Notice and with a termination date on the
tenth anniversary of the date of the Approval Notice.
2.
D. Section 5.3(e) of the Credit Agreement is hereby amended
and restated as follows:
(e) by the twentieth day of each calendar month, a completed
Borrowing Base Certificate as of the last day of the preceding
calendar month duly executed by the Treasurer or Chief
Financial Officer of Borrower; PROVIDED, HOWEVER, that,
notwithstanding the foregoing, effective 30 days after the
date on which Borrower has installed the McKesson Pharmacy
Systems Multi-Site Back Office System ("Host System"),
Borrower shall deliver each such completed Borrowing Base
Certificate duly executed by the Treasurer or Chief Financial
Officer of Borrower by no later than the tenth day of each
calendar month;
E. Section 5.3 of the Credit Agreement is hereby further
amended by adding a new clause (g) at the end thereof to read as follows:
(g) Within 45 days after the end of each fiscal quarter, an
inventory report as to the pharmaceutical inventory of
Borrower and its Subsidiaries as of the end of such fiscal
quarter.
F. Section 6.1(a) of the Credit Agreement is hereby amended by
adding the word "Permitted" before "Acquisition" in clause (ii) thereof.
G. Section 6.9(d) of the Credit Agreement is amended by adding
the word "Permitted" before "Acquisition" in the last line thereof.
H. Section 8.1 of the Credit Agreement is amended by adding
the following definitions in appropriate alphabetical order:
"BANK ONE FACILITY" has the meaning set forth in Section 1.9.
"GUARANTY FEE AMOUNT" means, on any date, a rate per annum
(greater than zero) equal to the difference between (i) the rate of interest
that would apply to the principal amount of the Loans outstanding hereunder on
such date (regardless of whether any such amounts are then outstanding
hereunder) MINUS (ii) the rate of interest that would apply to the principal
amount of indebtedness outstanding under the Bank One Facility on such date
(regardless of whether any such amounts are then outstanding under the Bank One
Facility).
"INDEMNIFICATION AGREEMENT" has the meaning set forth in
Section 1.9.
"MCKESSON GUARANTY" has the meaning set forth in Section 1.9.
I. The definition of "Loan Documents" in Section 8.1 of the
Credit Agreement is amended to add ", the Indemnification Agreement" after "the
Warrant Documents."
3.
J. The definition of "Permitted Acquisition" in Section 8.1 of
the Credit Agreement is amended by inserting after the word "Borrower" in the
first line thereof the following:
(and, if after April 30, 1999, approved in writing by
McKesson)
K. The definition of "Permitted Guaranty" in Section 8.1 of
the Credit Agreement is amended by adding the word "Permitted" before
"Acquisition" in the last line thereof.
L. The definition of "Seller" in Section 8.1 of the Credit
Agreement is amended by adding the word "Permitted" before "Acquisition"
wherever that word appears in such definition.
M. Section 9.2(a) of the Credit Agreement is amended and
restated as follows:
If to Borrower:
HORIZON Pharmacies, Inc.
000 Xxxx Xxxx Xxxxxx
Xxxxxxx, XX 00000
Attn: Chief Financial Officer
Facsimile: (000) 000-0000
with a copy to:
Xxx X. Xxxxxx, Esq.
Xxxxxx & Xxxxxx
0000 Xxxx, Xxxxx 0000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
N. The Credit Agreement is hereby amended to add Exhibits J
and K attached hereto as Exhibits to the Credit Agreement.
SECTION 2. LIMITED WAIVER
McKesson hereby gives a limited one-time waiver as to:
(a) Borrower's failure to comply with Section 2.3(b)(i) at any
time prior to the date of this Amendment;
(b) Borrower's failure to comply with the conditions of
Section 4.2(d) with regard to any Loan made on or prior to March 31,
1999;
(c) Borrower's failure to comply with Section 5.3(d) of the
Credit Agreement insofar as Borrower has failed to timely deliver a
completed Compliance Certificate for
4.
the fiscal year ended December 31, 1998, duly executed by the Treasurer
or Chief Financial Officer of Borrower; PROVIDED that Borrower delivers
such completed and duly executed Compliance Certificate for the fiscal
year ended December 31, 1998, by no later than the Third Amendment
Date.
(d) Borrower's failure to comply with Section 5.3(e) of the
Credit Agreement with regard to the calendar month of April 1999 or any
prior calendar month, provided that (i) a completed Borrowing Base
Certificate as of the last day of April 1999 duly executed by the
Treasurer or Chief Financial Officer of Borrower be delivered to
McKesson by no later than May 20, 1999;
(e) Borrower's failure to comply with the requirements of
Section 5.9(b) of the Credit Agreement with respect to any fiscal
quarter ending on or before March 31, 1999;
(f) Borrower's failure to comply with the requirements of
Section 5.9(f) of the Credit Agreement with respect to any fiscal
quarter ending on or before March 31, 1999;
(g) Borrower's failure to comply with the requirements of
Section 5.9(g) of the Credit Agreement with respect to any fiscal
quarter ending on or before December 31, 1998; and
(h) The existence of a Material Adverse Change under Section
7.1(j) resulting from the loss of approximately $3,004,000 incurred by
Borrower during fiscal quarter ended December 31, 1998, and Borrower's
failure to comply with the conditions of Section 4.2(b) and 4.2(c) as a
result thereof.
SECTION 3. CONDITIONS TO EFFECTIVENESS
This Amendment shall become effective as of the first date (the "THIRD
AMENDMENT DATE") on or before May 18, 1999 upon which the following conditions
have been satisfied:
(i) Borrower and McKesson shall have delivered to one another
duly executed counterparts of this Amendment;
(ii) all the representations and warranties in Section 4 below
(after giving effect to any amendments to the Representation Certificate
delivered to McKesson prior to the date of this Amendment) shall be true and
correct as of the date of this Amendment;
(iii) no Default shall have occurred and be continuing on the
date of this Amendment (other than Defaults which are not the subject of the
limited waiver in Section 2 above which might occur under Section 5.9 of the
Credit Agreement with respect to the fiscal quarter ending March 31, 1999, as to
which Borrower currently makes no representation and McKesson gives no waiver in
this Amendment) or will result from the consummation of this Amendment (after
giving effect to this Amendment);
5.
(iv) Borrower shall have executed and delivered UCC financing
statements satisfactory to McKesson for filing with appropriate officers of the
states of Illinois, Indiana and Kansas.
(v) Borrower and McKesson shall have executed and delivered to
one another the documentation concerning the Amended and Restated Warrant
Purchase Agreement and the Warrants described in clauses (b), (c) and (d) of
Section 4.3 of the Credit Agreement as added by this Amendment; and
(vi) Borrower shall have delivered to McKesson an opinion of
counsel, satisfactory to McKesson in form and substance, concerning the Amended
and Restated Warrant Purchase Agreement and the Warrants described in clauses
(b), (c) and (d) of Section 4.3 of the Credit Agreement as added by this
Amendment.
When and if this Amendment becomes effective, the amendments set forth in
Section 1 shall be deemed effective as of April 14, 1999.
SECTION 4. BORROWER'S REPRESENTATIONS AND WARRANTIES
In order to induce McKesson to enter into this Amendment, to amend the
Credit Agreement in the manner provided herein and to grant the waivers
contained herein, Borrower represents and warrants to McKesson that the
following statements are true, correct and complete:
A. CORPORATE POWER AND AUTHORITY. Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "AMENDED AGREEMENT").
B. AUTHORIZATION OF AGREEMENTS. The execution and delivery of
this Amendment and the performance of the Amended Agreement have been duly
authorized by all necessary corporate action on the part of Borrower.
C. NO CONFLICT. The execution and delivery by Borrower of this
Amendment does not and will not contravene (i) any law or any governmental rule
or regulation applicable to Borrower or any of its Subsidiaries, (ii) the
Certificate of Incorporation or Bylaws of Borrower, (iii) any order, judgment or
decree of any court or other agency of government binding on Borrower or any of
its Subsidiaries or (iv) any material agreement or instrument binding on
Borrower or any of its Subsidiaries.
D. GOVERNMENTAL CONSENTS. The execution and delivery by
Borrower of this Amendment and the performance by Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
6.
E. BINDING OBLIGATION. This Amendment and the Amended
Agreement have been duly executed and delivered by Borrower and are the binding
obligations of Borrower, enforceable against Borrower in accordance with their
respective terms, except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
F. INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Article III of the
Credit Agreement are and will be true, correct and complete in all material
respects on and as of the date of this Amendment to the same extent as though
made on and as of such date, except to the extent such representations and
warranties specifically relate to an earlier date, in which case they were true,
correct and complete in all material respects on and as of such earlier date.
G. ABSENCE OF DEFAULT. No event has occurred and is continuing
as of the date of this Amendment (other than Defaults which are not the subject
of the limited waiver in Section 2 above which might occur under Section 5.9 of
the Credit Agreement with respect to the fiscal quarter ending March 31, 1999,
as to which Borrower currently makes no representation and McKesson gives no
waiver in this Amendment) or will result from the consummation of the
transactions contemplated by this Amendment that would constitute a Default or
an Event of Default (as determined after giving effect to the amendments made by
this Amendment).
H. CASH AND CASH EQUIVALENTS. Borrower would not have been in
violation of Section 2.3(b)(i) at any time prior to the date of this Amendment
if the figure of "$5,000,000" contained in such section had read "$8,000,000."
I. PERMITTED LIENS. Each of the following UCC financing
statements evidences a security interest securing only indebtedness permitted
under Section 6.9(d) of the Credit Agreement (as amended by this Amendment):
State File No. Secured Party
----- -------- -------------
New Mexico 981102069 Xxxxxx Xxxxxxx
New Mexico 981207058 Kenn's Pharmacy, Inc.
Texas 95001121142 Econo RX, Inc.
Texas 9800155379 Xxxxx XxXxxx
Texas 9800172367 Xxxxx'x Home Health Care, Inc.
Texas 9800177834 Xxxxxx Pharmacy, Inc.
7.
UCC Financing Statement 970903045 filed in New Mexico in favor of Checkpoint
Financial Services evidences a security interest in connection with a lease
permitted by Section 6.9(b) of the Credit Agreement. UCC Financing Statement
9700028567 filed in Texas in favor of Banker's Trust Company evidences a
security interest in connection with factoring arrangements with Pharmacy Fund
as to which all indebtedness has been paid by Borrower.
SECTION 5. RESERVATION OF RIGHTS
Borrower acknowledges and agrees that the execution and delivery by
McKesson of this Amendment shall not be deemed to create a course of dealing or
otherwise obligate McKesson to forebear or execute similar amendments under the
same or similar circumstances in the future.
SECTION 6. MISCELLANEOUS
A. Reference to and Effect on the Credit Agreement and the
Other Loan Agreements.
(i) On and after the Third Amendment Date, each reference in
the Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference in
the other Loan Documents to the "Credit Agreement", "thereunder", "thereof" or
words of like import referring to the Credit Agreement shall mean and be a
reference to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of
McKesson under, the Credit Agreement or any of the other Loan Documents nor to
create any course of dealing or otherwise obligate McKesson to forebear or
execute similar amendments or any waiver in similar circumstances in the future.
B. COSTS AND EXPENSES. The Company covenants to pay to or
reimburse McKesson, upon demand, for all costs, out-of-pocket expenses and
reasonable attorneys' fees expended or incurred by McKesson in connection with
the development, preparation, negotiation, execution and delivery of this
Amendment and the documents and transactions contemplated hereby.
C. HEADINGS. Section and subsection headings in this Amendment
are included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
D. APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND
SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE
8.
INTERNAL LAWS OF THE STATE OF CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
E. COUNTERPARTS. This Amendment may be executed in any number
of counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by a party of a facsimile transmitted document purportedly bearing
the signature of the other party shall bind the other party with the same force
and effect as the delivery of a hard copy original. Any failure by a party to
receive the hard copy executed original of such document shall not diminish the
binding effect of receipt of the facsimile transmitted executed original of such
document of the other party.
F. RELATION TO APRIL 14 LETTER. This Amendment, among other
things, implements the provisions of Section 2 of that certain letter dated
April 14, 1999 between Borrower and McKesson (the "April 14 Letter"). In the
event of any inconsistency between this Amendment and Section 2 of the April 14
Letter, this Amendment shall govern.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their respective officers
thereunto duly authorized as of the date first written above.
HORIZON PHARMACIES, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------
Title: CFO/Treasurer
---------------------------
McKESSON HBOC, INC.,
FORMERLY KNOW AS
McKESSON CORPORATION
By: /s/ Xxxx Xxxxxx
------------------------------
Title: Senior Vice President
Financial Services
---------------------------
9.
ACKNOWLEDGMENT AND CONSENT OF GUARANTOR
The undersigned in its capacity as a guarantor under that
certain Guaranty dated as of July 2, 1998 made in favor of McKesson hereby (i)
acknowledges and consents to the execution, delivery and performance by Borrower
of the foregoing Third Amendment to Credit Agreement and Limited Waiver (the
"Amendment"), (ii) acknowledges that the undersigned's consent is being sought
purely as a protective measure and understands that the terms of the Credit
Agreement dated as of July 2, 1998 may be amended without prior notice to or
consent of the undersigned and without discharging or otherwise affecting the
liability of the undersigned under the Guaranty, and (iii) reaffirms that it
will continue to be bound by all of the provisions of the Guaranty and that such
Guaranty will remain in full force and effect notwithstanding the execution and
delivery by Borrower of the Amendment referred to above.
HORIZON HOME CARE, INC.
By: /s/ Xxxx X. Xxxxxxx
------------------------------
Its: CFO/Treasurer
-----------------------------
10.
