January 24, 1995
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
1400 E. Schaaf Road
Brooklyn Heights, Ohio 44131
Gentlemen:
This letter agreement (the "Agreement") constitutes an agreement by and
between COMERICA BANK, a Michigan banking corporation ("Bank"), and CONTINENTAL
MANAGED PHARMACY SERVICES, INC. an Ohio corporation (the "Company"), pertaining
to certain loans and other credit which Bank has made or may from time to time
hereafter make available to the Company and its wholly-owned subsidiaries,
CONTINENTAL PHARMACY, INC., an Ohio corporation ("CPI"), PREFERRED RX, INC., an
Ohio corporation ("Preferred"), AUTOMATED SCRIPTS, INC., an Ohio corporation
("ASI"), and VALLEY PHYSICIANS SERVICES, INC., an Ohio corporation ("VPSI").
(CPI, Preferred, ASI and VPSI are sometimes collectively hereinafter referred to
as the "Subsidiaries") (the Company and the Subsidiaries are sometimes
collectively hereinafter referred to as "Borrower").
In consideration of all present and future loans and credit made available
by Bank to Borrower, and all present and future liabilities, obligations and
indebtedness of Borrower to Bank, howsoever created, evidenced, existing or
arising, whether direct or indirect, absolute or contingent, joint or several,
now or hereafter existing or arising, or due or to become due (herein
collectively called the "Liabilities"), Borrower covenants and agrees as
follows:
1. Each loan or other extension of credit made by Bank to or otherwise in
favor of Borrower shall be evidenced by and subject to a promissory note or
other agreement or evidence of indebtedness acceptable to Bank and executed and
delivered by Borrower and unto Bank (any and all notes, instruments, documents
and agreements at any time evidencing, governing, securing or otherwise relating
to any of the Liabilities, including this Agreement, are herein collectively
called the "Loan Documents").
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 2
2. Borrower hereby represents and warrants, and such representations and
warranties shall be deemed to be continuing representations and warranties
during the entire life of this Agreement and thereafter so long as any
Liabilities remain outstanding:
(a) Each of the Company and the Subsidiaries is a corporation
duly organized and existing in good standing under the laws
of the State of Ohio; is duly qualified and authorized to
do business as a foreign corporation in each jurisdiction
where the character of its assets or the nature of its
activities makes such qualification necessary; has the
legal power and authority to own its properties and assets
and to carry out its business as now being conducted in
each such jurisdiction wherein such qualification is
necessary. The execution, delivery and performance of this
Agreement and any and all other Loan Documents by each of
the Company and the Subsidiaries are within its corporate
powers, have been duly authorized by all requisite
corporate action, are not in contravention of the terms of
each of the Company's and the Subsidiaries' Articles of
Incorporation or Code of Regulations and are not, to the
Company's and the Subsidiaries' knowledge, in violation of
law and do not require the consent or approval of any
governmental body, agency or authority; and this Agreement
and any other Loan Documents contemplated hereby, when
issued and delivered, will be valid and binding and legally
enforceable against each of the Company and the
Subsidiaries in accordance with their terms.
(b) The execution, delivery and performance of this Agreement
and any other Loan Documents required under this Agreement,
and the issuance of this Agreement and such other Loan
Documents by each of the Company and the Subsidiaries, and
the borrowings contemplated hereby, are not in
contravention or violation of the terms of any indenture,
agreement or undertaking to which each is a party or by
which it or any of its property or assets is bound, and
will not result in the creation or imposition of any lien
or encumbrance of any nature whatsoever upon any of the
property or assets of the Company or the Subsidiaries,
except to or in favor of Bank.
Continental Managed Pharmacy Services. Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 3
(c) No litigation or other proceeding before any court or
administrative agency is pending, or to the knowledge of
the officers of the Company or the Subsidiaries, is
threatened against Company or the Subsidiaries, the outcome
of which could materially impair the Company's or the
Subsidiaries' financial condition or their ability to carry
on their business or their ability to pay and perform their
liabilities and obligations hereunder or otherwise in
respect of the Liabilities.
(d) There are no security interests in, or liens, mortgages, or
other encumbrances on any of the Company's or the
Subsidiaries' property or assets, except those listed on
Schedule 1 to this Agreement or to or in favor of Bank.
(e) Each of the Company and the Subsidiaries has all licenses,
permits and governmental approvals necessary to operate a
pharmacy and all such licenses, permits and approvals are
in full force and effect
(f) There exists no condition or event which constitutes, or
with the giving of notice or the passage of time, or both,
would constitute, an Event of Default (as hereinafter
defined) under any of the Liabilities.
3. So long as any Liabilities remain outstanding, Borrower covenants and
agrees that it shall:
(a) (i) Furnish annually to Bank, in form satisfactory to Bank,
and within ninety (90) days after and as of the close of
each fiscal year of each of the Company and the
Subsidiaries, a balance sheet as of the close of each such
fiscal year, statements of income and retained earnings and
changes in financial position for each such year, and such
other comments and financial details as are usually
included in similar reports; (ii) furnish in form similar
to statements previously submitted to Bank, within thirty
(30) days after and as of the close of each month of each
fiscal year of each of the Company or the Subsidiaries,
financial statements containing the balance sheets and
statements of income and retained earnings and changes in
financial position
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 4
for the portion of the fiscal year up to the end of such
period; and (iii) promptly furnish Bank, in form and detail
satisfactory to Bank, such other information as Bank may
reasonably request from time to time. The annual statements
to be furnished to Bank pursuant to (i) above should be
prepared on an audited basis by independent certified
public accountants selected by Company and acceptable to
Bank, and the monthly financial statements to be furnished
to Bank pursuant to (ii) above should be certified by an
authorized officer of the Company and the Subsidiaries. All
of such financial statements should be prepared in
accordance with generally accepted accounting principles
consistent with prior periods ("GAAP").
(b) Preserve and keep in full force and effect each of the
Company's and the Subsidiaries' corporate existence in good
standing; continue to conduct and operate its business
substantially as presently conducted and operated and
maintain and protect all franchises and trade names and
preserve all the remainder of its property and assets used
or useful in the conduct of its business and keep the same
in good repair and condition.
(c) Promptly inform Bank of the occurrence of any Event of
Default, or any condition or event which, with the giving
of notice or the passage of time, or both, would constitute
an Event of Default, or of any condition or event which
could have a materially adverse effect upon the Company's
or the Subsidiaries' business, properties, financial
condition or ability to comply with their obligations
hereunder or otherwise in respect of any of the
Liabilities.
(d) Not affirmatively pledge or mortgage any of its property or
assets, whether now owned or hereafter acquired, or create,
suffer or permit to exist, any lien or security interest or
encumbrance thereon, except to or in favor of Bank,
Foxmeyer Drug Company ("Foxmeyer") or, except for leases
currently in place, for leased equipment in an amount not
to exceed $50,000 in the aggregate.
(e) Maintain in full force and effect all licenses, permits and
governmental approvals necessary to operate its business.
Continental Managed Pharmacy Services. Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 5
(f) Maintain at all times a Net Worth of not less than
$4,200,000. "Net Worth" shall mean the excess of (A) the
net book value of the assets of the Company after all
appropriate deductions in accordance with GAAP (including,
without limitation, reserves for doubtful receivables,
obsolescence, depreciation and amortization), over (B) all
liabilities of Company.
(g) Maintain, at all times a Debt to Net Worth Ratio of not
more than 2.5 to 1.0. "Debt to Net Worth Ratio" shall mean
the ratio of (i) total liabilities of the Company, as
determined in accordance with GAAP, to (ii) Net Worth.
(h) Maintain at all times a current ratio of not less than 1.0
to 1.0. "Current Ratio" shall mean the ratio of (i) current
assets of the Company, as determined in accordance with
GAAP, to (ii) current liabilities of the Company, excluding
any current portion of the Liabilities owing by the
Borrower to Bank pursuant to the Master Revolving Note, as
determined in accordance with GAAP.
(i) Maintain as of December 31 of each year, commencing
December 31, 1995, a Fixed Charge Coverage for the twelve
(12) months then ended of at least two times. "Fixed Charge
Coverage" shall be determined in accordance with GAAP and
shall mean (i) operating income plus depreciation plus
amortization plus interest divided by (ii) interest and the
current maturities of all long term debt.
(j) Pay the fees incurred by Bank in auditing the Company in
connection with the Liabilities. The fees to be paid by the
Company shall not exceed $3,000 per audit and the Company
shall have no obligation to pay for more than 3 audits in
any calendar year period. Notwithstanding the foregoing,
the Bank shall not be limited in the number of additional
audits it may undertake at its own expense in any calendar
year period.
(k) Provide Bank, within thirty (30) days after the end of each
quarter during the term of this Agreement, a statement,
signed by the president or chief financial officer of the
Company, certifying that each of the Company and the
Subsidiaries is in compliance with the covenants set forth
in this Agreement.
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 6
(1) Provide Bank promptly such other data and information
(financial and otherwise) as Bank, from time to time, may
reasonably require.)
4. An "Event of Default" shall be deemed to have occurred or exist under
this Agreement upon the occurrence and/or existence of any of the following
conditions or events:
(a) Borrower shall fail to pay the principal of or interest on
or shall otherwise fail to pay any other amount owing by
Borrower to Bank under any of the Liabilities, and such
default in payment shall continue unremedied or uncured for
a period of five (5) days after such payment was due;
(b) Any representation, warranty, certification or statement
made or deemed to have been made by Borrower herein or in
any certificate, financial statement or other document or
agreement delivered by Borrower to Bank, or by other on
behalf of Borrower, shall prove to be untrue in any
material respect;
(c) Borrower shall fail to observe or perform, in any material
respect, any condition, covenant or agreement of Borrower
set forth herein (other than as provided in subparagraph
(a) above), and, in the case of those covenants and
agreements set forth in paragraphs 3(a), (b), (e), (f) (g)
or (h) hereof, such default shall continue unremedied or
uncured for a period of thirty (30) days after the earlier
of the date of written notice thereof by Bank to Borrower
or the date Bank is notified, or should have been notified
by Borrower pursuant to Borrower's obligations under
paragraph 3(c) of this Agreement, of such default;
(d) Borrower shall fail to observe or perform, in any material
respect, any condition, covenant or agreement of Borrower
set forth in any other Loan Document (other than as
provided in subparagraphs (a) above), and such default
shall remain unremedied or uncured beyond any period of
grace or cure, if any, provided with respect thereto; or
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 7
(e) Upon the occurrence or existence of any "Default" or "Event
of Default", as the case may be, which continues uncured
beyond the expiration of any applicable grace period set
fort in any other Loan Document including, without
limitation, the Guaranty.
5. Upon the occurrence of any Event of Default, Bank may give notice to
Borrower declaring all outstanding Liabilities to be due and payable, whereupon
all such Liabilities then outstanding shall immediately become due and payable,
without further notice or demand, and any commitment or obligation, if any, on
the part of Bank to make loans or otherwise extend credit to Borrower shall
immediately terminate, all indebtedness then outstanding under the Liabilities
shall automatically become immediately due and payable, and any such commitment
or obligation on the part of Bank, if any, shall immediately terminate, in each
case without notice or demand, which are hereby expressly waived by Borrower.
Further, upon the occurrence of any Event of Default, Bank may collect, deal
with and dispose of all or any part of any security in any manner permitted or
authorized by the Ohio Uniform Commercial Code or other applicable law
(including public or private sale) and after deducting expenses (including
reasonable attorneys' fees and expenses), Bank may apply the proceeds and any
deposits or credits in part or fall payment of any of the Liabilities, whether
due or not, in any manner or order which Bank elects. Borrower shall remain
liable for any deficiency, which it shall pay to Bank immediately upon demand.
6. Notwithstanding any other provision of this Agreement or any of the
other Loan Documents, and without affecting in any manner the rights of Bank
under the other Sections of this Agreement, it is understood and agreed that
Bank shall have no obligation to advance funds to Borrower at any time under the
Loan Documents unless and until each of the following conditions have been and
continue to be satisfied, all in form and substance satisfactory to Bank and its
counsel:
(a) Absence of Legal Actions. No legal action, proceeding,
investigation, regulation or legislation shall have been
instituted, threatened or proposed before any court,
governmental agency or legislative body which would have a
material adverse effect on the business, property or
condition of the Borrower or which seeks to enjoin,
restrain, or prohibit, or to obtain damages in respect of
this Agreement or any of the other Loan Documents or the
consummation of the transactions contemplated hereby or
thereby.
Continental Managed Pharmacy Services. Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 8
(b) Representations and Warranties. The representations and
warranties of Borrower in this Agreement and any of the
other Loan Documents are true and correct in all material
respects and no Event of Default or condition which, with
notice, lapse of time or both would constitute an Event of
Default then exists.
(c) Delivery of Documents. Bank shall have received the
following documents, each to be in form and substance
satisfactory to Bank and its counsel:
(i) The Master Revolving Note duly executed by Borrower;
(ii) The Advance Formula Agreement duly executed by
Borrower;
(iii) The Variable Rate Installment Note duly executed by
Borrower;
(iv) The Guaranty duly executed by Michael R. Erlenbach
(the "Guarantor"), and the Guarantor shall not have
terminated the Guaranty;
(v) The Security Agreement (Equipment) and the Security
Agreement (Accounts and Chattel Paper) in form and
substance acceptable to Bank, duly executed by
Borrower;
(vi) Intercreditor Agreement of Foxmeyer in form and
substance acceptable to Bank;
(vii) The written opinion of counsel to Borrower and the
Guarantor as to the transactions contemplated by
this Agreement in form and substance satisfactory to
Bank and its counsel;
(viii) Copies of all filing receipts or acknowledgements or
other oral or written evidence issued by any
governmental authority to evidence any filing or
recordation
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 9
necessary to perfect the liens of Bank in the
Collateral and evidence in a form acceptable to Bank
that such liens constitute valid and first priority
perfected liens;
(ix) Certified copies of the Company's and the
Subsidiaries' casualty and liability insurance
policies evidencing the existence of the insurance
coverage required pursuant to the Loan Documents,
together with all appropriate endorsements thereto
naming Bank as a loss payee and additional insured
in form and substance satisfactory to Bank;
(x) A Certificate of the Secretary or an Assistant
Secretary of each of the Company and the
Subsidiaries, dated as of the date Bank makes its
initial advance of loans pursuant to this Agreement,
certifying (a) that attached thereto is a true and
complete copy of the Articles of Incorporation and
Code of Regulations of each of the Company and the
Subsidiaries, as in effect on the date of such
certification, (b) that attached thereto is a true
and complete copy of resolutions, in form
satisfactory to Bank, adopted by the Board of
Directors of each of the Company and the
Subsidiaries, authorizing the execution, delivery
and performance of this Agreement and each of the
other Loan Documents to which it is a party and the
consummation of the transactions contemplated hereby
and thereby and that said resolutions are all
resolutions adopted with respect to said subject
matter and remain in fall force and effect without
modification, and (c) as to the incumbency and
genuineness of the signature of each officer of each
of the Company and the Subsidiaries executing this
Agreement and the other Loan Documents to which each
of the Company and the Subsidiaries is a party;
(xi) Good standing certificate for each of the Company
and the Subsidiaries issued by the Secretary of
State of Ohio;
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 10
(xii) A certificate signed by the President and Chief
Executive Officer of each of the Company and the
Subsidiaries and dated as of the date Bank makes its
initial advance of loans pursuant to this Agreement,
stating that (a) the representations and warranties
set forth in Section 2 of this Agreement are true
and correct on and as of such date, (b) each of the
Company and the Subsidiaries is on such date in
compliance with all the terms and provisions set
forth in this Agreement, and (c) on such date no
event or condition has occurred or is continuing
which with the giving of notice, the lapse of time,
or both, would constitute an Event of Default;
(xiii) Delivery by the Company of a check payable to Bank
in an amount equal to the sum of the fees incurred
by Bank for legal and audit services in connection
with this transaction and a Closing Fee in the
amount of $32,000, the receipt of $10,000 in
prepayment of these sums is hereby acknowledged;
(xiv) Written instructions from each of the Company and
the Subsidiaries directing the disbursement of
proceeds of the loans made pursuant to this
Agreement; and
(xv) Such other agreements, instruments and documents
including, without limitation, assignments, security
agreements, mortgages, deeds of trust, pledges,
guaranties and consents, which Bank may require to
be executed in connection with this Agreement
7. Provided Borrower has delivered to Bank a duly executed telephone notice
authorization in the Bank's standard form, Borrower may request an advance
pursuant to the Master Revolving Note by telephone request, in accordance with
such telephone notice authorization. Each such request for an advance shall be
made to Bank by 2:00 p.m. on the proposed date of advance. Once delivered to
Bank, such request for an advance shall not be revocable by Borrower. The Bank
may require the Borrower to execute a written request for advances, in the
Bank's standard form, as a condition to advances if, on the basis of reasonable
considerations, the Bank determines that written documentation regarding the
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24,1995
Page 11
request of the Borrower for advances is appropriate. Subject otherwise to the
terms hereof and the Loan Documents, Bank shall make available to Borrower the
amount of the advance so requested not later than 4:00 p.m. (Detroit time) on
the date of such advances by credit to an account of Borrower maintained with
Bank or to such other account or third party as Borrower may reasonably request.
8. No forbearance on the part of Bank in enforcing any of its rights or
remedies under this Agreement or any other Loan Document, nor any renewal,
extension or rearrangement of any payment or covenant to be made or performed by
Borrower hereunder or any such other Loan Document, shall constitute a waiver of
any of the terms of this Agreement or such Loan Document or of any such right or
remedy.
9. This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of Ohio. Notwithstanding the foregoing,
the parties acknowledge that the Liabilities created in and secured by the Loan
Documents were approved and made and the proceeds of the loans have been
disbursed in the State of Michigan
10. All covenants, agreements, representations and warranties made in
connection with this Agreement and any other Loan Documents shall survive the
borrowing hereunder or thereunder until such time as all of the Liabilities are
paid in full and shall be deemed to have been relied upon by Bank. All
statements contained in any certificate or other document delivered to Bank at
any time by or on behalf of the Company or the Subsidiaries pursuant hereto
shall constitute representations and warranties by the Company and the
Subsidiaries.
11. Borrower agrees that it will pay all costs and expenses in connection
with the preparation of this Agreement and any other Loan Documents contemplated
hereby, including, without limitation, reasonable attorneys' fees and
disbursements of counsel for the Bank.
12. BORROWER AND BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVE ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING TIE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS AGREEMENT OR THE LIABILITIES.
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 12
13. This Agreement shall inure to the benefit of and shall be binding upon
the parties hereto and their respective successors and assigns; provided,
however, that Borrower shall not assign, or transfer any of its rights or
obligations hereunder or otherwise in respect of any of the Liabilities without
the prior written consent of Bank.
If the foregoing is acceptable to Company, please indicate with the
authorized signature of Company as provided below.
Very truly yours,
COMERICA BANK
By: /s/ JAMES P. HANSON
Its: Vice President
ACCEPTED AND AGREED:
CONTINENTAL MANAGED PHARMACY
SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: Executive Vice President
CONTINENTAL PHARMACY, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: Executive Vice President
Dated: 1/24/95
Continental Managed Pharmacy Services, Inc.
Continental Pharmacy, Inc.
Preferred RX, Inc.
Automated Scripts, Inc.
Valley Physicians Services, Inc.
January 24, 1995
Page 13
PREFERRED RX, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: President
Dated: 1/24/95
AUTOMATED SCRIPTS, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: President
Dated: 1/24/95
VALLEY PHYSICIANS SERVICES, INC.
By: /s/ MICHAEL R. ERLENBACH
Its: Vice President
Dated: 1/24/95