<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
(AMENDMENT NO. 1)
(MARK ONE)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
[X] FOR THE FISCAL YEAR ENDED JUNE 30, 1998
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
[ ] FOR THE TRANSITION PERIOD FROM _________________________
TO ___________________
COMMISSION FILE NUMBER 0-27602
NCS HEALTHCARE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 34-1816187
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) identification no.)
3201 Enterprise Parkway, Beachwood, Ohio 44122
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (216) 378-6800
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Class A
Common Stock, par value $.01 per share.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of June 30, 1998, the registrant had 13,355,751 shares of Class A
Common Stock, par value $.01 per share, and 6,463,244 shares of Class B Common
Stock, par value $.01 per share, issued and outstanding. As of that date, the
aggregate market value of these shares, which together constitute all of the
voting stock of the registrant, held by non-affiliates was $413,145,662 (based
upon the closing price of $28.50 per share of Class A Common Stock on the NASDAQ
National Market on June 30, 1998). For purposes of this calculation, the
registrant deems the 221,912 shares of Class A Common Stock and the 5,079,632
shares of Class B Common Stock held by all of its Directors and executive
officers to be the shares of Class A Common Stock and Class B Common Stock held
by affiliates.
1
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement to be used in
connection with its Annual Meeting of Stockholders to be held in 1998 are
incorporated by reference into Part III of this Form 10-K.
Except as otherwise stated, the information contained in this Form 10-K
is as of June 30, 1998.
2
<PAGE> 3
NCS HEALTHCARE, INC.
1998 ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I
<S> <C> <C>
ITEM 1. BUSINESS 1
ITEM 2. PROPERTIES 10
ITEM 3. LEGAL PROCEEDINGS 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY 10
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS 12
ITEM 6. SELECTED FINANCIAL DATA 13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS 14
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 17
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND
FINANCIAL DISCLOSURE 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY 42
ITEM 11. EXECUTIVE COMPENSATION 42
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 42
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 42
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 43
</TABLE>
3
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
NCS HealthCare, Inc. (the "Company" or "NCS") is a leading independent
provider of pharmacy services to long-term care institutions including skilled
nursing facilities, assisted living facilities and other institutional health
care settings. The Company purchases and dispenses prescription and
non-prescription pharmaceuticals and provides client facilities with related
management services, automated medical record keeping, drug therapy evaluation
and regulatory assistance. The Company also provides a broad array of ancillary
health care services to complement its core pharmacy services, including
infusion therapy, physical, speech and occupational therapies, nutrition
management, mobile diagnostics and other services. The Company is considered to
operate principally in one business segment.
NCS entered the long-term care pharmacy services industry in 1986 with
the acquisition of Modern Pharmacy Consultants, Inc. in Northeastern Ohio.
Through June 30, 1998, the Company had completed a total of 49 acquisitions
(other than fold-in acquisitions) including 11 acquisitions since the beginning
of fiscal 1998. As a result of these acquisitions, the Company has expanded its
geographic presence into 34 states serving approximately 248,000 residents.
On February 14, 1996, the Company issued 4,476,000 shares of Class A
Common Stock at $16.50 per share in connection with its initial public offering.
A portion of the net proceeds from the stock issuance were used to repay
approximately $27,000,000 of outstanding indebtedness under long and short-term
borrowings. The remaining proceeds were used to fund business acquisitions.
On October 4, 1996, the Company completed a public offering of
4,235,000 shares of Class A Common Stock at $31.00 per share in connection with
a public offering. A portion of the net proceeds were used to repay
approximately $7,000,000 of outstanding indebtedness under short-term
borrowings. The remaining proceeds were used to fund business acquisitions.
On August 13, 1997, the Company issued $100,000,000 of convertible
subordinated debentures due 2004. Net proceeds to the Company were approximately
$97,250,000 net of underwriting discounts and expenses. The debentures carry an
interest rate of 5-3/4 % and are convertible into shares of Class A Common Stock
at any time prior to maturity at $32.70 per share. A portion of the proceeds
from the debenture offering was used to repay approximately $21,000,000 of
outstanding indebtedness under short-term borrowings. The remaining proceeds
were used to fund business acquisitions.
MARKET OVERVIEW
Institutional pharmacies purchase, repackage and distribute
pharmaceuticals to residents of long-term care facilities such as skilled
nursing facilities, assisted living facilities and other institutional health
care settings. Unlike hospitals, most long-term care facilities do not have
on-site pharmacies but depend instead on outside sources to provide the
necessary products and services. In response to a changing regulatory
environment and other factors, the sophistication and breadth of services
required by long-term care facilities have increased dramatically in recent
years. Today, in addition to providing pharmaceuticals, institutional pharmacies
provide consultant pharmacy services, which include monitoring the control,
distribution and administration of drugs within the long-term care facility and
assisting in compliance with applicable regulations, as well as therapeutic
monitoring and drug utilization review services. With the average long-term care
facility patient taking six to eight medications per day, high quality,
cost-efficient systems for dispensing and monitoring patient drug regimens are
critical. Providing these services places the institutional pharmacy in a
central role of influencing the effectiveness and cost of care.
Based on data from industry sources, the Company estimates that the
U.S. market for pharmacy services (including consulting services and related
supplies) in long-term care and assisted living facilities will approximate $6
billion for 1998. The Company believes that the market is growing due primarily
to three factors. First, the number of long-term care facility residents is
rising as a result of demographic trends. According to the U.S. Bureau of the
Census, the number of persons over age 75 increased by approximately 30% from
1980 to 1990. In 1990, 6.1% of the population ages 75 to 84 and 24.5% of the
population ages 85 or older received care in long-term care facilities. The
segment of the population over age 85, which comprises the largest percentage of
residents at long-term care facilities, is the fastest growing segment of the
population and is expected to increase by more than 40% from 1990 to 2000.
The second factor creating growth in the institutional pharmacy market
is the increasing number of medications taken per day by long-term care facility
residents. This increase is due to (i) advances in medical technology which have
resulted in the availability of new drug therapy regimens and (ii) the generally
higher acuity levels of residents as a result of both payors' efforts to have
care delivered in the lowest cost setting and the generally older, and
consequently sicker, population of long-term care facility residents.
The third factor is that hospitals are discharging patients earlier due
to funding pressures and cost containment efforts. Therefore, an increasing
number of patients are now receiving care outside of traditional hospitals in
alternative settings such as long-term care facilities.
1
<PAGE> 5
In addition, the cost containment pressures in the hospital sector are
also beginning to create opportunities for institutional pharmaceutical
companies among rural hospitals as evidenced by an increasing trend towards
outsourcing pharmaceutical services in this market. Based on data from industry
sources, the Company estimates that the U.S. institutional pharmaceutical market
for rural hospitals will approximate $3.6 billion for 1998.
The Company believes that there are significant consolidation
opportunities in the institutional pharmacy market. Prior to the 1970's,
pharmacy needs of long-term care facilities were fulfilled by local retail
pharmacies. Since then, the pharmacy and information needs of long-term care
facilities have grown substantially and regulatory requirements and the
reimbursement environment have become more complex. Institutional pharmacy
companies, both independent and captive (those owned by an operator of long-term
care facilities), are better positioned to meet these changing market demands.
As a result, over the past 25 years the proportion of the market served by
retail pharmacies has steadily declined, and institutional pharmacies have
become the dominant providers of pharmacy services to the long-term care market.
Despite this shift, the independent institutional pharmacy market remains highly
fragmented. Faced with uncertainties related to health care reform, an
increasing need for capital resources and the necessity to provide a wide range
of specialized services, a growing number of retail and small institutional
pharmacies are seeking to affiliate with, or be acquired by, large institutional
pharmacies.
There are several factors driving the consolidation among providers of
long-term care pharmaceutical services. All of these factors relate to the
advantages that large institutional providers have over retail and small
institutional providers.
Scale Advantages. Larger pharmacies are able to (i) realize
advantages associated with size, including purchasing power, service
breadth, more sophisticated sales and marketing programs and formulary
management capabilities, (ii) achieve efficiencies in administrative
functions and (iii) access the capital resources necessary to invest in
critical computer systems and automation.
Ability to Serve Multi-site Customers and Managed Care Payors.
As a result of their ability to serve long-term care customers with
several physical locations, larger pharmacies possess a significant
competitive advantage over their smaller counterparts. Additionally,
the Company believes that there are significant opportunities for
full-service institutional pharmacies with a comprehensive range of
services and regional coverage to provide a spectrum of health care
products and services to managed care payors.
Regulatory Expertise and Systems Capabilities. Long-term care
facilities are demanding more sophisticated and specialized services
from pharmacy providers due, in part, to the implementation in 1990 of
the Omnibus Budget Reconciliation Act of 1987 ("OBRA"). The OBRA
regulations, which were designed to upgrade and standardize care in
nursing facilities, mandated strict new standards relating to planning,
monitoring and reporting on the progress of patient care to include,
among other things, prescription drug therapy. As a result, long-term
care administrators increasingly seek experienced pharmacists and
specialized providers with computerized information and documentation
systems designed to monitor patient care and control the facilities'
and payors' costs.
Changing Market. The long-term care market is undergoing
change as health care reform proposals are considered, cost-containment
initiatives are implemented, managed care organizations seek regional
coverage and consolidation takes place. Smaller providers are more
concerned with, and generally less capable of capitalizing on
opportunities created by these changes.
BUSINESS STRATEGY
NCS's strategy is to capitalize on industry trends and Company
expertise to strengthen its position as a leading provider of high quality,
integrated pharmacy and related services to institutional clients. The Company
intends to implement this strategy by continuing its acquisition and development
program, identifying and standardizing "best practices," cross marketing its
services across its customer base to generate internal growth, utilizing its
proprietary technology to deliver information and providing a broad array of
ancillary health care services to complement its core pharmacy services.
Acquisition and Development Program. NCS is continuing its
acquisition program to capitalize on consolidation opportunities in the
institutional pharmacy market. As of June 30, 1998, the Company had
completed 49 acquisitions (other than fold-in acquisitions), including
11 acquisitions since the beginning of fiscal 1998. Through
consolidation, the Company believes it can achieve substantial
economies of scale in areas such as drug purchasing and can create
efficiencies by consolidating administrative functions, centralizing
formulary management, providing management information systems support
and otherwise streamlining operations. In addition, by identifying
areas in which acquired companies outperform NCS and standardizing
these "best practices" company-wide, the Company strives to provide its
customers with the highest quality services possible.
In addition, NCS has developed the systems and competencies
necessary to open new market locations that have the breadth of
services and standards of quality of existing sites. To date, NCS
has developed new sites in eight locations, and the Company intends to
develop additional sites in markets in which competitive factors and
economics make a start-up preferable to an acquisition.
2
<PAGE> 6
SERVICES
The Company has traditionally provided institutional pharmacy and
infusion products and services to long-term care facility residents. In recent
years, NCS has developed an array of services which address the needs of
long-term care facilities to accommodate higher acuity admissions and manage
costs. NCS believes that it is one of the few companies capable of offering
customers the depth and breadth of these products and services. For the year
ended June 30, 1998, approximately 77% of the Company's revenues were derived
from providing pharmacy and consultant pharmacy services to long-term care
facilities. An additional 6% of revenues were derived from providing infusion
therapy services, 3% were derived from providing other therapy services and the
remaining 14% were primarily derived from providing various other products and
services, including nutrition management, oxygen and Medicare Part B services.
Pharmacy Services. The Company's core business is providing
pharmaceutical dispensing services to residents of long-term care facilities and
other institutions. The Company purchases, repackages and dispenses prescription
and non-prescription medication in accordance with physician orders and delivers
such prescriptions at least daily to long-term care facilities for
administration to residents by the nursing staffs of these facilities. The
Company typically serves facilities within a two hour drive time of its
distribution facility and provides 24 hour coverage 365 days per year. As of
June 30, 1998, the Company provided its services from 89 sites in 34 states. NCS
also provides its services through the management of third party institutional
pharmacies.
Upon receipt of a doctor's order, the information is entered into the
Company's management information system, which automatically reviews the order
for patient-specific allergies and potentially adverse interactions with other
medications the patient is receiving. Following this analysis, a report on each
order is produced for review by a Company pharmacist, who performs a prospective
drug utilization analysis of the order and, if appropriate, substitutes generic
drugs approved for equivalence by the U.S. Food and Drug Administration ("FDA").
In addition, subject to the prescribing physician's approval, the pharmacist may
make therapeutic substitutions based on guidelines established by the Company's
Therapeutic Formulary Committee.
NCS provides pharmaceuticals to its clients through a unit dose
distribution system. The Company divides the pharmaceuticals received in bulk
form from its suppliers into unit dose packages for its customers. The unit dose
format is designed to reduce errors, improve control over the distribution of
pharmaceuticals and save nursing administration time relative to the bulk
systems traditionally used by retail pharmacies.
At those sites at which Concord DX, the Company's proprietary computer
system, has been implemented, the Company utilizes its work flow control to
improve efficiencies and uses its bar-coding system to enhance safety. Under
this system, a bar code label is applied to each unit dose package. In most
cases, this step is executed by the Company. At the request of the Company,
certain manufacturers have begun to provide pharmaceuticals which are
pre-packaged and bar coded. Through bar coding, information relating to the
contents and destination of each unit dose package distributed can be
automatically entered into the Concord DX system. This bar code technology
enables the Company to monitor pharmaceuticals throughout the production and
distribution process, thereby reducing errors, improving pharmacy control and
enhancing production efficiency.
As an additional service, NCS furnishes its clients with information
captured by its computerized medical records and documentation system. This
system captures patient care information which is used to create monthly
management and quality assurance reports. The Company believes that this system
of information management, combined with the unit dose delivery system, improves
the efficiency and controls in nursing administration and reduces the likelihood
of drug-related adverse consequences.
Consultant Pharmacy Services. Federal and state regulations mandate
that long-term care facilities improve the quality of patient care by retaining
consultant pharmacist services to monitor and report on prescription drug
therapy. The OBRA legislation implemented in 1990 seeks to further upgrade and
standardize health care by setting forth more stringent standards relating to
planning, monitoring and reporting on the progress of prescription drug therapy
as well as facility-wide drug usage. Noncompliance with these regulations may
result in monetary sanctions as well as the potential loss of the facility's
ability to participate in Medicare and Medicaid reimbursement programs.
NCS provides consulting services that help clients comply with federal
and state regulations applicable to long-term care facilities. The Company's
services include: (i) reviewing each patient's drug regimen to assess the
appropriateness and efficacy of drug therapies, including a review of the
patient's medical records, monitoring drug reactions to other drugs or food,
monitoring lab results and recommending alternate therapies or discontinuing
unnecessary drugs; (ii) participating on the Pharmacy and Therapeutics, Quality
Assurance and other committees of the Company's clients; (iii) inspecting
medication carts and storage rooms each month; (iv) monitoring and reporting
monthly on facility-wide drug usage and drug administration systems and
practices; (v) developing and maintaining the client's pharmaceutical policy and
procedure manuals; and (vi) assisting the long-term care facility in complying
with state and federal regulations as they pertain to patient care.
3
<PAGE> 7
Additionally, NCS offers a specialized line of consulting services
which help long-term care facilities enhance care and reduce and contain costs
as well as comply with state and federal regulations. Under this service line,
the Company provides: (i) data required for OBRA and other regulatory purposes,
including reports on psychotropic drug usage (chemical restraints), antibiotic
usage (infection control) and other drug usage; (ii) plan of care programs which
assess each patient's state of health upon admission and monitor progress and
outcomes using data on drug usage as well as dietary, physical therapy and
social service inputs; (iii) counseling related to appropriate drug usage and
implementation of drug protocols; (iv) on-site educational seminars for the
long-term care facilities' staff on topics such as drug information relating to
clinical indications, adverse drug reactions, drug protocols and special
geriatric considerations in drug therapy, information and training on
intravenous drug therapy and updates on OBRA and other regulatory compliance
issues; (v) mock regulatory reviews for nursing staffs; and (vi) nurse
consultant services and consulting for dietary, social services and medical
records.
Infusion Therapy. Infusion therapy is the intravenous delivery of
medication. The Company's infusion therapy services include pain management,
antibiotic therapy and chemotherapy for long-term care residents and home care
patients. NCS received Joint Commission on the Accreditation of Healthcare
Organizations accreditation at four sites and accreditation with commendation at
another site. NCS prepares the product to be administered and delivers the
product to the long-term care facility for administration by the nursing staff.
Because the proper administration of infusion therapy requires a highly trained
nursing staff, the Company provides education and certification programs to its
clients in order to assure proper staff training and compliance with regulatory
requirements. NCS believes that, by enhancing the ability of client facilities
to administer infusion therapies, these programs have led to a greater use of
infusion therapies throughout the Company's long-term care facility customer
base.
Other Therapies. In 1993, the Company began providing physical, speech
and occupational therapy services. The Company currently provides these services
to residents of 107 long-term care facilities.
Nutrition Management. NCS assists long-term care facilities in menu
planning, purchasing and managing their dietary operations. Because the food
service area is typically one of the principal areas of regulatory violations,
this is an area of critical concern to long-term care facility operators.
Currently, NCS provides this service to over 300 long-term care facility
customers.
Other. The Company also provides long-term care facilities with
assistance in complying with regulations concerning healthy and sanitary
environments. The Company also assists its customers with various regulatory
compliance matters and products and services relating to durable medical
equipment ("DME"), oxygen, mobile diagnostics and Medicare Part B products and
services. Finally, NCS offers specialized educational services that aid
facilities in the training of their staffs. These services include surveys to
prepare facilities for state reviews and training on appropriate nursing
techniques in infusion therapy, wound care management and restorative nursing.
FORMULARY MANAGEMENT
NCS employs formulary management techniques designed to assist
physicians in making the best clinical choice of drug therapy for patients at
the lowest cost. Under the Company's formulary programs, NCS pharmacists assist
prescribing physicians in designating the use of particular drugs from among
therapeutic alternatives (including generic substitutions) and in the use of
more cost-effective delivery systems and dose forms. The formulary takes into
account such factors as pharmacology, safety and toxicity, efficacy, drug
administration, quality of life and other considerations specific to the elderly
population of long-term care facilities. The Company's formulary guidelines also
provide relative pharmaceutical cost information to residents, their insurers or
other payors of the pharmacy bill.
Successful implementation of formulary guidelines is dependent upon
close interaction between the pharmacist and the prescribing physician. NCS
seeks to attract and retain highly trained clinical pharmacists and encourages
their active participation in the caring for residents of long-term care
facilities, including consultation with the facilities' medical staff and other
prescribing physicians, to increase the likelihood that the most efficacious,
safe and cost-effective drug therapy is prescribed. The Company's formulary
program is directed by the NCS Formulary Committee, which is comprised of eight
pharmacists and two additional members. The NCS Formulary Committee is
responsible for establishing protocols and procedures for evaluating alternative
drug therapies. To facilitate adherence to the Company's formulary guidelines,
NCS annually publishes the NCS Formulary Guide, which presents the findings and
recommendations of the NCS Formulary Committee as well as reimbursement
information. The Company believes that adherence to the NCS formulary guidelines
improves drug therapy results, lowers costs for residents and strengthens the
Company's purchasing power with pharmaceutical manufacturers.
4
<PAGE> 8
ACQUISITION PROGRAM
The Company intends to continue to pursue a strategy of growth through
acquisitions and from internal growth through sales and marketing efforts to
new and existing customers. Between 1986 and June 30, 1998, NCS completed 49
acquisitions (other than fold-in acquisitions), including 11 acquisitions since
the beginning of fiscal 1998. The Company believes that through consolidation of
other institutional pharmacies it can provide a broad array of high quality
pharmacy and related services in a cost effective manner. Acquisition and
effective integration can result in efficiencies in service delivery,
management, marketing, information systems and administrative functions,
substantial increases in purchasing leverage, particularly with respect to drug
purchases, the ability to provide a broad range of ancillary services
complementary to the Company's core pharmacy services and the geographic scope
necessary to service multi-facility customers and market to managed care payors.
NCS targets acquisition candidates with strong management, a
demonstrated capacity for growth and opportunities to realize efficiencies
through consolidation and integration. The Company's philosophy is to create an
environment that maintains the importance of the entrepreneur in such key areas
as dispensing, consulting, marketing and customer service while consolidating
formulary management, purchasing, administration and information systems.
Central to the Company's integration strategy is implementation of NCS's
proprietary information systems, which improve communications between the
Company's sites and permit comparison of results, facilitating the
identification of "best practices." NCS further targets acquisition candidates
with management who intend to continue to participate in the operation of the
business but believe that there are more substantial opportunities in being
involved in a larger organization. The Company generally includes equity
in NCS as a component of the purchase price for an acquired company in order to
align the interests of the acquired company's management with those of NCS. The
Company typically values acquisition candidates based on number of beds served,
business mix, quality of management and whether the target is a regional hub or
a "fold-in."
Through its acquisition program, the Company seeks to expand its
presence into new geographical areas and to achieve efficiencies through
consolidation in existing markets. The Company has traditionally targeted
candidates that the Company believes will increase its ability to provide high
quality core pharmacy and ancillary services to multi-facility and managed care
providers. The Company continues to examine opportunities to acquire
institutional pharmacies and independent ancillary service providers in both new
and existing geographical markets.
MANAGEMENT INFORMATION SYSTEMS
An integral part of NCS's services mix is its proprietary management
information system called "Concord DX", which has extensive capabilities
designed to improve operating efficiencies and controls both internally and at
the customer level. In conjunction with the unit dose distribution system and
using a bar-coding label system on each unit dose package, Concord DX is able to
monitor pharmaceuticals within NCS throughout the production and distribution
process. At the customer level, Concord DX automatically screens prescription
orders received from physicians for patient-specific allergies and potentially
adverse reactions given other medications the patient may be receiving. Concord
DX is also used to create individual patient medical records and monthly
management and quality assurance reports for NCS's customers. To date, Concord
DX has been implemented in 40% of NCS's customer base.
In 1997, the Company acquired Rescot Systems Group, Inc. ("Rescot").
For the past 10 years, Rescot has developed one of the premier pharmacy systems
used for managing patient and pharmacy data. Rescot has been instrumental in the
design and implementation of Concord DX.
In addition to these internal capabilities, NCS has added a suite of
software applications named ASTRAL designed to address customers' needs. Each of
the Astral applications meets one of three goals: (1) improve the profitability
of the nursing home, (2) enhance the quality of care delivered, or (3) improve
the nursing home's ability to conform to regulatory requirements. NCS's current
ASTRAL modules are as follows:
NCS ON-LINE is the core product in ASTRAL. It improves profitability by
dramatically reducing nursing time associated with ordering medicines
and printing pharmacy reports. NCS On-Line provides a real time
connection to NCS for ordering, reviewing med sheets and generating
reports. Patient care is enhanced by reducing the amount of nursing
time associated with clerical functions.
PROVIEW improves a nursing home's profitability by enhancing the
facility's ability to make economic admission decisions. ProView
analyzes the costs and revenues associated with a resident prior to
admission. In the coming era of Prospective Pay, it is a valuable tool
for ensuring that a customer prospectively evaluates all financial
aspects related to admitting a resident.
OSCAR is an on-line survey tool which compares a facility's state
surveys over time and across regions. By using
5
<PAGE> 9
OSCAR, a nursing facility can quickly gain perspective as to how they
are performing relative to their history and their state, regional or
national competitors. NCS updates this quarterly and it has improved
their customers' ability to conform to regulations.
SURVEY ADVANTAGE anticipates possible enforcement remedies, tracks
informal and formal appeals and creates management reports to analyze
survey and enforcement status. In addition, it replaces manuals and
printed regulations while offering an extensive search capability for
finding regulations related to a word, phrase or tag number.
LIVEWELL is a clinical documentation and pharmacy ordering system
designed for the assisted living market. It enhances care by
electronically documenting the medical records and ordering functions.
In addition to the innovations currently being used by NCS customers,
the Company believes that the integration of other information systems within
the nursing home is a critical future customer need. The Company believes that
access to both clinical and financial information is a key factor in improving
care and managing costs. The Company believes that the ASTRAL system will
facilitate a unified NCS culture through improved site-to-site communication and
will enhance the Company's ability to deliver high quality, standardized
services throughout its geographic market.
SALES AND MARKETING
In marketing to existing customers, NCS has organized the selling
efforts of each formerly independent location into a single sales force
consisting of 49 field service representatives and eight sales managers. All
field sales representatives are trained in each of the Company's products and
services and sell these services throughout their respective geographic
territories. A typical territory consists of approximately 250 long-term care
facilities, and the salesperson follows an eight week call cycle. These
individuals are paid base salaries with commissions comprising up to 75% of a
successful salesperson's compensation. The Company believes that long-term care
facilities change institutional pharmacies fairly infrequently, but when a
change is made, it is generally the result of a competitor's ability to offer
better service or a broader array of products and services.
PURCHASING
NCS purchases pharmaceuticals primarily through a national wholesale
distributor, with whom it has negotiated a prime vendor contract, and directly
from certain pharmaceutical manufacturers. The Company also is a member of
industry buying groups that contract with manufacturers for volume-based
discounted prices which are passed through to the Company by its wholesale
distributor. The Company has numerous sources of supply available to it and has
not experienced any difficulty in obtaining pharmaceuticals or other products
and supplies used in the conduct of its business.
CUSTOMERS
At June 30, 1998, NCS had contracts to provide services to
approximately 248,000 residents in 34 states. These contracts, as is typical in
the industry, are generally for a period of one year but can be terminated by
either party for any reason upon thirty days written notice. Over the past
year, NCS has expanded its customer base to also include rural hospitals and at
June 30, 1998, NCS had contracts to manage hospital pharmacies in nineteen
states. As of June 30, 1998, no individual customer or market group represents
more than 5% of the total sales of the Company's institutional pharmacy
business.
COMPETITION
Competition among providers of pharmacy services to long-term care
facilities is intense, both regionally and nationally. The Company believes that
it is one of the top three independent institutional pharmacies in the Country.
Institutional pharmacies compete principally on the basis of service levels and
service breadth. In its program of acquiring institutional pharmacy providers,
NCS competes with several other companies with similar acquisition strategies,
some of which may have greater resources than the Company.
REIMBURSEMENT AND BILLING
As is generally the case for long-term care facility services, NCS
receives payments through reimbursement from Medicaid and Medicare programs and
directly from individual residents (private pay), private third-party insurers
and long-term care facilities. For the fiscal year ended June 30, 1998, the
Company's payor mix was approximately 37% Medicaid, 4% Medicare, 18% private
pay, 13% third-party insurance and other and 28% long-term care facilities,
including amounts for which the long-term care facility receives reimbursement
under Medicare Part A. Medicare and Medicaid are highly regulated. The failure
of NCS and/or its client institutions to comply with applicable reimbursement
regulations could adversely affect the Company's business.
Private Pay. For those residents who are not covered by
government-sponsored programs or private insurance, NCS generally bills the
patient or the patient's insurer or other responsible party on a monthly basis.
Depending upon local market practices, NCS may alternatively bill private
residents through the long-term care facility. Pricing for private pay residents
is
6
<PAGE> 10
based on prevailing regional market rates or "usual and customary" charges.
Medicaid. The Medicaid program is a federal-state cooperative program
designed to enable states to provide medical assistance to aged, blind or
disabled individuals, or to members of families with dependent children whose
income and resources are insufficient to meet the costs of necessary medical
services. State participation in the Medicaid program is voluntary. To become
eligible to receive federal funds, a state must submit a Medicaid "state plan"
to the Secretary of HHS for approval. The federal Medicaid statute specifies a
variety of requirements which the state plan must meet, including requirements
relating to eligibility, coverage of services, payment and administration. For
residents eligible for Medicaid, the Company bills the individual state Medicaid
program or, in certain circumstances state designated managed care or other
similar organizations. Medicaid programs are funded jointly by the federal
government and individual states and are administered by the states. The
reimbursement rates for pharmacy services under Medicaid are determined on a
state-by-state basis subject to review by the Health Care Financing
Administration and applicable federal law. Federal regulations and the
regulations of certain states establish "upper limits" for reimbursement for
prescription drugs under Medicaid. In most states pharmacy services are priced
at the lower of "usual and customary" charges or cost (which generally is
defined as a function of average wholesale price and may include a profit
percentage) plus a dispensing fee. In addition, most states establish a fixed
dispensing fee which is adjusted to reflect associated costs on an annual or
less frequent basis.
State Medicaid programs generally have long-established programs for
reimbursement which have been revised and refined over time and have not had a
material adverse effect on the pricing policies or receivables collection for
long-term care facility pharmacy services. Any future changes in such
reimbursement programs or in regulations relating thereto, such as reductions in
the allowable reimbursement levels or the timing of processing of payments,
could adversely affect the Company's business. The annual increase in the
federal share would vary from state to state based on a variety of factors. Such
provisions, if ultimately signed into law, could adversely affect the Company's
business.
Medicare. The Medicare program is a federally funded and administered
health insurance program for individuals age 65 and over or for certain
individuals who are disabled. The Medicare program consists of two parts:
Medicare Part A, which covers, among other things, inpatient hospital, skilled
long-term care facility, home health care and certain other types of health care
services; and Medicare Part B, which covers physicians' services, outpatient
services and certain items and services provided by medical suppliers. Medicare
Part B also covers a limited number of specifically designated prescription
drugs. Medicare Part A requires long-term care facilities to submit all of their
costs for patient care, including pharmaceutical costs, in a unified bill. Thus,
fees for pharmaceuticals provided to Medicare Part A patients are paid to the
Company by the long-term care facility on a monthly basis. Pricing is consistent
with that of private pay residents or is set between private pay rates and
Medicaid minimums. Medicare Part A has a cost-sharing arrangement under which
beneficiaries must pay a portion of their costs. These non-covered co-payments
are billed by the facility directly to residents or the state Medicaid plan, as
the case may be.
Medicare Part B provides benefits covering, among other things,
outpatient treatment, physicians' services, durable medical equipment ("DME"),
orthotics, prosthetic devices and medical supplies. Products and services
covered for Medicare Part B eligible residents in the long-term care facility
include, but are not limited to, enteral feeding products, ostomy supplies,
urological products, orthotics, prosthetics, surgical dressings, tracheostomy
care supplies and a limited number of other medical supplies. All claims for
DME, prosthetics, orthotics, prosthetic devices, including enteral therapy and
medical supplies ("DMEPOS") are submitted to and paid by four regional carriers
known as Durable Medical Equipment Regional Carriers ("DMERCs"). The DMERCs
establish coverage guidelines, allowable utilization frequencies and billing
procedures for DMEPOS. Payment is based on a fee schedule, which varies
depending on the state in which the patient receiving the items resides.
Payments for Medicare Part B products to eligible suppliers, which include
long-term care facilities and suppliers such as NCS, are made on a per-item
basis directly to the supplier. In order to receive Medicare Part B
reimbursement payments, suppliers must meet certain conditions set by the
federal government. NCS, as an eligible supplier, either bills Medicare directly
for Part B covered products for each patient or, alternatively, assists the
long-term care facility in meeting Medicare Part B eligibility requirements and
prepares bills on behalf of the facility. For Part B services, such as physical,
speech and occupational therapy, long-term care facilities bill Medicare for
reimbursement of the amounts paid to NCS for these services. Medicare limits
such reimbursement to the reasonable amount that would have been paid if
provider employees had furnished the services. To date, Medicare has published
"salary equivalency guidelines" for physical and respiratory therapy services.
Medicare does not currently have salary equivalency guidelines for other therapy
services, but may disallow payment for rates that substantially exceed rates
paid for such services by other providers in the same area. Moreover, Medicare
is likely to issue salary equivalency guidelines for occupational and speech
therapy services in the near future. Medicare Part B also has an annual
deductible as well as a co-payment obligation on behalf of the patient, and the
portion not covered by Medicare is billed directly to the patient or appropriate
secondary payor.
Third-Party Insurance. Third-party insurance includes funding for
residents covered by private plans, veterans' benefits, workers' compensation
and other programs. The resident's individual insurance plan is billed monthly
and rates are consistent with those for other private pay residents.
Long-Term Care Facilities. In addition to occasional private patient
billings and those related to drugs for Medicare eligible residents, long-term
care facilities are billed directly for consulting services, certain
over-the-counter medications and bulk house supplies.
7
<PAGE> 11
GOVERNMENT REGULATION
Institutional pharmacies, as well as the long-term care facilities they
service, are subject to extensive federal, state and local laws and regulations.
These laws and regulations cover required qualifications, day-to-day operations,
reimbursement and the documentation of activities. NCS continuously monitors the
effects of regulatory activity on its operations.
Licensure, Certification and Regulation. States generally require that
companies operating a pharmacy within that state be licensed by the state board
of pharmacy. The Company currently has pharmacy licenses in each of the states
in which it operates a pharmacy. In addition, the Company's pharmacies are
registered with the appropriate state and federal authorities pursuant to
statutes governing the regulation of controlled substances.
Long-term care facilities are also separately required to be licensed
in the states in which they operate and, if serving Medicare or Medicaid
patients, must be certified to ensure compliance with applicable program
participation requirements. Long-term care facilities are also subject to the
long-term care facility reforms of OBRA, which impose strict compliance
standards relating to the quality of care for long-term care operations,
including vastly increased documentation and reporting requirements. In
addition, pharmacists, nurses and other health professionals who provide
services on the Company's behalf are in most cases required to obtain and
maintain professional licenses and are subject to state regulation regarding
professional standards of conduct.
Federal and State Laws Affecting The Repackaging, Labeling and
Interstate Shipping of Drugs. Federal and state laws impose certain repackaging,
labeling and package insert requirements on pharmacies that repackage drugs for
distribution beyond the regular practice of dispensing or selling drugs directly
to patients at retail. A drug repackager must register with the FDA. The Company
believes that it holds all required registrations and licenses and that its
repackaging operations are in compliance with applicable state and federal
requirements.
Medicare and Medicaid. For an extensive period of time, the long-term
care facility pharmacy business has operated under regulatory and cost
containment pressures from state and federal legislation primarily affecting
Medicaid and, to a lesser extent, Medicare.
The Medicare program establishes certain requirements for participation
of providers and suppliers in the Medicare program. Pharmacies are not subject
to such certification requirements. Skilled long-term care facilities and
suppliers of DMEPOS, however, are subject to specified standards. Failure to
comply with these requirements and standards may adversely affect an entity's
ability to participate in the Medicare program and receive reimbursement for
services provided to Medicare beneficiaries. See "--Reimbursement and Billing."
Federal law and regulations contain a variety of requirements relating
to the furnishing of prescription drugs under Medicaid. First, states are given
broad authority, subject to certain standards, to limit or to specify conditions
as to the coverage of particular drugs. Second, federal Medicaid law establishes
standards affecting pharmacy practice. These standards include general
requirements relating to patient counseling and drug utilization review and more
specific requirements for long-term care facilities relating to drug regimen
reviews for Medicaid patients in such facilities. Recent regulations clarify
that, under federal law, a pharmacy is not required to meet the general
standards for drugs dispensed to long-term care facility residents if the
long-term care facility complies with the drug regimen review requirements.
However, the regulations indicate that states may nevertheless require
pharmacies to comply with the general standards, regardless of whether the
long-term care facility satisfies the drug regimen review requirement, and the
states in which the Company operates currently require its pharmacies to comply
therewith. Third, federal regulations impose certain requirements relating to
reimbursement for prescription drugs furnished to Medicaid residents. See
"--Reimbursement and Billing--Medicaid."
In addition to requirements imposed by federal law, states have
substantial discretion to determine administrative, coverage, eligibility and
payment policies under their state Medicaid programs which may affect the
Company's operations. For example, some states have enacted "freedom of choice"
requirements which prohibit a long-term care facility from requiring its
residents to purchase pharmacy or other ancillary medical services or supplies
from particular providers that deal with the long-term care facility. Such
limitations may increase the competition which the Company faces in providing
services to long-term care facility patients.
Prospective Payment System. The Balanced Budget Act of 1997 (BBA),
enacted on August 5, 1997, mandated the implementation of a prospective payment
system (PPS) for skilled nursing facilities (SNFs) providing care for Medicare
Part A patients, effective for all SNFs whose cost reporting period begins on or
after July 1, 1998.
Under the new PPS, SNFs will receive a single per diem payment for all
Medicare Part A covered SNF services. These payment rates will encompass all
costs of furnishing covered skilled nursing services (routine, ancillary and
capital-
8
<PAGE> 12
related costs) other than the costs of approved educational activities. Covered
SNF services include: 1) all items and services provided under Part A; and 2)
all items and services (except those specifically excluded by statute) which
were previously provided under Part B to SNF residents during a Part A stay. PPS
will incorporate payment for pharmacy within the nursing component (as a
non-therapy ancillary) of the federal per diem and adjust costs by the nursing
index.
Referral Restrictions. The Company is subject to federal and state laws
which govern financial and other arrangements between health care providers.
These laws include the federal anti-kickback statute, which prohibits, among
other things, knowingly and willfully soliciting, receiving, offering or paying
any remuneration directly or indirectly in return for or to induce the referral
of an individual to a person for the furnishing of any item or service for which
payment may be made in whole or in part under Medicare or Medicaid. Many states
have enacted similar statutes which are not necessarily limited to items and
services for which payment is made by Medicare or Medicaid. Violations of these
laws may result in fines, imprisonment and exclusion from the Medicare and
Medicaid programs or other state-funded programs. Federal and state court
decisions interpreting these statutes are limited, but have generally construed
the statutes broadly. Recent Federal legislation has increased the enforcement
and penalties for violation of these statutes.
Federal regulations establish "Safe Harbors," which give immunity from
criminal or civil penalties to parties in good faith compliance. While the
failure to satisfy all the criteria for a specific Safe Harbor does not
necessarily mean that an arrangement violates the federal statute, the
arrangement is subject to review by the HHS Office of Inspector General ("OIG"),
which is charged with administering the federal anti-kickback statute. Beginning
January 1, 1997, the Secretary of Health and Human Services began issuing
written advisory opinions regarding the applicability of certain aspects of the
anti-kickback statute to specific arrangements or proposed arrangements.
Advisory opinions will be binding as to the Secretary and the party requesting
the opinion.
The OIG has issued "Fraud Alerts" identifying certain questionable
arrangements and practices which it believes may implicate the federal
anti-kickback statute. The OIG has issued a Fraud Alert providing its views on
certain joint venture and contractual arrangements between health care
providers. The OIG has recently issued a Fraud Alert concerning prescription
drug marketing practices that could potentially violate the federal
anti-kickback statute. Pharmaceutical marketing activities may implicate the
federal anti-kickback statute because drugs are often reimbursed under the
Medicaid program. According to the Fraud Alert, examples of practices that may
implicate the statute include certain arrangements under which remuneration is
made to pharmacists to recommend the use of a particular pharmaceutical product.
In addition, a number of states have recently undertaken enforcement actions
against pharmaceutical manufacturers involving pharmaceutical marketing
programs, including programs containing incentives to pharmacists to dispense
one particular product rather than another. These enforcement actions arise
under state consumer protection laws which generally prohibit false advertising,
deceptive trade practices and the like. Further, a number of the states involved
in these enforcement actions have requested that the FDA exercise greater
regulatory oversight in the area of pharmaceutical promotional activities by
pharmacists. It is not possible to determine whether the FDA will act in this
regard or what effect, if any, FDA involvement would have on the Company's
operations.
The Company believes its contract arrangements with other health care
providers, its pharmaceutical suppliers and its pharmacy practices are in
compliance with these laws. There can be no assurance that such laws will not,
however, be interpreted in the future in a manner inconsistent with the
Company's interpretation and application.
Environmental Matters. In operating its facilities, NCS makes every
effort to comply with environmental laws. No major difficulties have been
encountered in effecting compliance. In addition, no material capital
expenditures for environmental control facilities are expected. While the
Company cannot predict the effect which any future legislation, regulations or
interpretations may have upon its operations, it does not anticipate any changes
that would have a material adverse impact on its operations.
General. In the ordinary course of its business, the Company is subject
to inspections, audits, inquiries and similar actions by governmental
authorities responsible for enforcing the laws and regulations to which the
Company is subject. In January 1997, governmental authorities requested
information from the Company in connection with an audit and investigation of
the circumstances surrounding the apparent drug-related homicide of a
non-management employee of one of the Company's pharmacies. The information
provided relates to the Company's inventory and the possible theft of
controlled substances from this pharmacy. The Company has cooperated fully with
the investigation. In addition, the Company has conducted an internal review
which identified inadequacies in record keeping and inventory control at this
pharmacy. In a meeting with governmental authorities in August 1997, the
Company discussed its findings and those of the government and documented
corrective measures taken by the Company. In September 1998, the Company was
advised that this matter had been referred to the United States Attorney for
possible legal action involving certain alleged violations of federal law and
invited the Company to contact the responsible U.S. Attorney in an effort to
resolve the matter. The Company has not been informed of the amount or nature
of the resolution or of the potential monetary penalties, if any, that may be
sought.
In January 1998, government authorities sought and obtained various
documents and records from a Herrin, Illinois pharmacy operated by a
wholly-owned subsidary of the Company. The Company was not informed of the
purpose of the inquiry, and no other operating unit of the company has been
contacted. The Company has cooperated fully and will continue to cooperate
fully with the government's inquiry.
EMPLOYEES
As of June 30, 1998, the Company had approximately 3,900 full-time
employees. None of the employees are represented by a union. The Company
considers relations with its employees to be good.
9
<PAGE> 13
ITEM 2. PROPERTIES
The Company presently maintains its executive offices in approximately
10,500 square feet of space in Beachwood, Ohio pursuant to a lease expiring in
2000 with an unaffiliated third party. NCS currently considers this space to be
sufficient for its corporate headquarters operations.
As of June 30, 1998, the Company leased or owned 106 properties in 34
states with a total square footage of 771,000 square feet ranging in size from
approximately 500 square feet to approximately 35,000 square feet. The terms of
the leases relating to these properties vary in length remaining, from one month
to ten years and, in some cases, include options to extend. For information
concerning the Company's rental obligations, see Note 5 (Operating Leases) of
the Notes to Consolidated Financial Statements, which is set forth at Item 8 of
this Annual Report on Form 10-K.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. The Company does not expect that any such proceedings
will have a material adverse effect on the Company's financial position or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE COMPANY*
The name, age and positions of each of the Company's executive officers
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Jon H. Outcalt 62 Chairman of the Board of Directors
Kevin B. Shaw 41 President, Chief Executive Officer and Director
Phyllis K. Wilson 57 Executive Vice President and Director
Jeffrey R. Steinhilber 41 Executive Vice President and Chief Operating Officer
Gerald D. Stethem 34 Chief Financial Officer
William B. Byrum 54 Vice President - Corporate Development
Marvin R. Richardson 41 Senior Vice President - Sales and Marketing
Patrick Morris 38 Senior Vice President
Thomas Bryant Mangum 47 Vice President - Materials and Procurement
A. Malachi Mixon III 58 Director
Richard L. Osborne 60 Director
Boake A. Sells 61 Director
</TABLE>
*Included pursuant to Instruction 3 to Item 401(b) of Regulation S-K.
Jon H. Outcalt, Chairman of the Board, is a founding principal of NCS
and has served as Chairman of the Board since 1986. He was a Senior Vice
President of Alliance Capital Management L.P., a global investment management
company, from 1975 to December 1995. Mr. Outcalt serves on the Board of
Directors of Myers Industries, Inc., a manufacturer of plastic and rubber parts
for the automotive and other industries, and Ohio Savings Financial Corporation,
a savings and loan holding company. He is a graduate of Trinity College (B.A.)
and the Wharton Graduate School of Business (M.B.A.).
Kevin B. Shaw, President, Chief Executive Officer and a Director of the
Company, is a founding principal of NCS and has served as President, Secretary
and a Director of the Company since 1986 and as Chief Executive Officer since
December 1995. Prior to joining the Company, he was employed by McKinsey &
Company and Owens Corning Fiberglas. Mr. Shaw is a graduate of Harvard College
(B.A.) and Stanford Graduate School of Business (M.B.A.).
Phyllis K. Wilson, R.PH., Executive Vice President and a Director of
the Company since November, 1993, is the founder of NCS's Columbus, Ohio
operation. From 1989 to June 1995, she was responsible for corporate development
and oversaw the Company's Ohio and Michigan operations. She is past President of
the Ohio State Board of Pharmacy and served on the Board from 1977 to 1985. Ms.
Wilson is a founding member of the American Society of Consultant Pharmacists
and is a graduate of Ohio State University with a B.S. in Pharmacy.
10
<PAGE> 14
Jeffrey R. Steinhilber, Executive Vice President and Chief Operating
Officer, joined NCS in August 1994 and served as Chief Financial Officer of
the Company until February 1998, at which time he was named Chief Operating
Officer. From 1988 to July 1994, Mr. Steinhilber was the Chief Financial
Officer of Austin Powder Company, a manufacturer of explosives for mining and
construction. He is a graduate of Duke University (B.A.) and Northwestern
Graduate School of Business (M.B.A.).
Gerald D. Stethem, Chief Financial Officer, joined NCS in November,
1994 and served as Controller of the Company until February 1998, at which time
he was named Chief Financial Officer. He was previously with Ernst & Young LLP
an auditing and accounting firm, where he served as a Manager in the firm's
Entrepreneurial Services Group. He is a graduate of Ohio State University with
a B.A. in Accounting.
William B. Byrum, Vice President--Corporate Development of the Company,
joined the Company in September 1995. From April 1993 to September 1995, Mr.
Byrum was President and Chief Executive Officer of Corinthian Healthcare
Systems, Inc., an institutional pharmacy, prior to its acquisition by the
Company. From 1991 to April 1993, he was Vice President of Development
(Acquisitions) for Hook-SupeRx, Inc. Prior to 1991, Mr. Byrum was Vice
President, Store Operations at the Hook Drug Division of Hook-SupeRx, Inc.,
serving in various management positions. Mr. Byrum is a graduate of Purdue
University with a B.S. in Pharmacy.
Marvin R. Richardson, Senior Vice President - Sales and Marketing for
the Company since March 1997, joined NCS in June 1995 as a Regional Vice
President. From 1991 to 1995, Mr. Richardson was the founder and President of
Quality Health Care of Indiana, an institutional pharmacy, prior to its
acquisition by the Company. He is a graduate of Purdue University with a B.S. in
Pharmacy.
Patrick Morris, Senior Vice President of the Company, joined the
Company in February 1997. Mr. Morris was with the law firm of Calfee, Halter &
Griswold LLP, Cleveland, Ohio from 1985 to February 1997, and was a partner in
such firm from 1993 to February 1997. Mr. Morris is a graduate of Trinity
College (B.A.) and Case Western Reserve University School of Law (J.D.).
Thomas Bryant Mangum, Vice President-Materials and Procurement, joined
the Company in June 1998. From November 1996 to June 1998, Mr. Mangum was Senior
Director of Pharmacy for Tenet HealthCare System, an owner and manager of acute
care hospitals. From November 1995 to November 1996, he was Vice President of
Pharmacy Services for Premier, Inc., a group purchasing organization for acute
care hospitals, where he had responsibility for pharmaceutical contract
negotiations. From 1990 to November 1995, Mr. Mangum was Associate Vice
President of Pharmacy and Nutrition Services for SunHealth, a group purchasing
organization for acute care hospitals. He is a graduate of University of North
Carolina Pharmacy School and currently serves on the Pharmacy School Board.
A. Malachi Mixon III, a Director of the Company since December 1994,
has been the Chief Executive Officer and a Director of Invacare Corporation
since 1979 and, since 1983, its Chairman of the Board. Mr. Mixon also served as
President of Invacare Corporation from 1979 to 1996. Invacare Corporation is a
leading worldwide manufacturer and distributor of home health care products. He
serves as a Director of Lamson & Sessions Co., a supplier of engineered
thermoplastic products, and Sherwin-Williams Company, a producer and distributor
of coatings and related products, and is Chairman of the Board of Trustees of
The Cleveland Clinic Foundation, one of the world's leading health care
institutions. Mr. Mixon is a graduate of Harvard College (B.A.) and the Harvard
Graduate School of Business (M.B.A.).
Richard L. Osborne, a Director of the Company since 1986, has served as
the Executive Dean of the Weatherhead School of Management, Case Western Reserve
University, Cleveland, Ohio, since 1971. Mr. Osborne serves on the Board of
Directors of Myers Industries, Inc., a manufacturer of plastic and rubber parts
for the automotive and other industries, New Horizons Worldwide, Inc., a
provider of computer training services, and Ohio Savings Financial Corporation,
a savings and loan holding company. He is a graduate of Bowling Green State
University (B.S.) and Case Western Reserve University (M.S.).
Boake A. Sells, a Director of the Company since November 1993, has been
a self-employed private investor since June 1992. He was Chairman of the Board,
President and Chief Executive Officer of Revco D.S., Inc. from September 1987 to
June 1992, and was formerly President and Chief Operating Officer of Dayton
Hudson Corporation and President and Chief Operating Officer of Cole National
Corporation. Mr. Sells is a Director of Harrah's Entertainment, Inc., a leading
casino gaming company. He is a graduate of University of Iowa (B.A.) and
Harvard Graduate School of Business (M.B.A.).
11
<PAGE> 15
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Class A Common Stock is traded on the Nasdaq National Market under
the symbol NCSS. The following table sets forth, for the two fiscal years ended
June 30, 1998, the high and low sale prices per share for the Class A Common
Stock, as reported on the Nasdaq National Market. These prices do not include
retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
1997
First Quarter $34.88 $23.25
Second Quarter 35.00 26.00
Third Quarter 35.25 22.25
Fourth Quarter 30.50 19.25
1998
First Quarter $29.13 $22.38
Second Quarter 27.50 22.25
Third Quarter 33.50 24.13
Fourth Quarter 32.88 27.00
</TABLE>
On September 25, 1998, the last sale price of the Class A Common Stock
as reported by Nasdaq was $19.00 per share. As of September 25, 1998, there were
approximately 266 holders of record of the Class A Common Stock.
The Company has never declared or paid cash dividends on its Class A
Common Stock. The Company currently intends to retain any earnings for use in
its business and therefore does not anticipate paying any dividends in the
foreseeable future. Any determination to pay cash dividends in the future will
be at the discretion of the Board of Directors after taking into account various
factors, including the Company's financial condition, results of operations,
current and anticipated cash needs and plans for expansion.
The following information is furnished as to all equity securities of
the Company sold during the fourth fiscal quarter that were not registered under
the Securities Act of 1933, as amended (the "Securities Act").
(a) On May 1, 1998 the Company issued 54,000 shares of its Class A Common Stock
to two stockholders in connection with the merger of JK Medical Services, Inc.
Exemption from registration is claimed under Section 4(2) of the Securities Act.
(b) On May 15, 1998 the Company issued 20,450 shares of its Class B Common
Stock to seven stockholders in connection with the merger of MedStar Pharmacy,
Inc. The Class B Common Stock is convertible into Class A Common Stock without
additional consideration by the holder thereof on a share-for-share basis.
Exemption from registration is claimed under Section 4(2) of the Securities
Act.
(c) On May 21, 1998 the Company issued 128,691 shares of its Class A Common
Stock to one stockholder in connection with the conversion of a Promissory Note.
Exemption from registration is claimed under Section 3(a)(9) of the Securities
Act.
12
<PAGE> 16
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Revenues $ 48,205 $ 65,602 $ 113,281 $ 275,040 $ 509,064
Cost of revenues 34,288 46,570 82,415 205,536 380,217
-------- -------- ------- ----------- ---------
Gross profit 13,917 19,032 30,866 69,504 128,847
Selling, general and
administrative
expenses 10,531 14,539 22,236 51,153 93,895
Nonrecurring charges (1) - - 2,811 - 8,862
</TABLE>
<TABLE>
<S> <C> <C> <C> <C> <C>
--------- -------- --------- ------------ ---------
Operating income 3,386 4,493 5,819 18,351 26,090
Interest expense
(income), net 525 1,089 1,611 (1,576) 5,745
--------- ---------- -------- ----------- --------
Income before
income taxes 2,861 3,404 4,208 19,927 20,345
Income tax expense 1,327 1,536 1,852 8,655 9,014
--------- -------- -------- --------- ---------
Net income $ 1,534 $ 1,868 $ 2,356 $ 11,272 $ 11,331
========= ======== ======== ========= =========
Net income per share - basic $ 0.28 $ 0.32 $ 0.28 $ 0.70 $ 0.59
========= ======== ======== ========= =========
Net income per share - diluted $ 0.24 $ 0.28 $ 0.26 $ 0.69 $ 0.58
========= ======== ======== ========= =========
Weighted average common
shares outstanding - basic 5,478 5,818 8,462 15,991 19,100
========= ======== ======== ========= =========
Weighted average common
shares outstanding - diluted 6,424 6,764 8,995 16,843 19,372
========= ======== ======== ========= =========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents $ 384 $ 286 $ 21,460 $ 8,160 $ 21,186
Working capital 5,920 10,616 48,336 53,164 149,362
Total assets 15,556 38,595 110,668 321,030 623,790
Line of credit - - - 10,285 147,800
Long-term debt,
excluding current
portion 4,608 18,505 1,961 8,043 3,879
Convertible
subordinated
debentures - 1,900 6,549 4,813 102,753
Stockholders'
equity 4,173 8,117 91,100 253,226 287,334
</TABLE>
(1) For 1996, represents a nonrecurring charge in connection with the
termination of certain compensation arrangements with the prior
owners of certain acquired businesses. For 1998, represents a
nonrecurring charge related to restructuring and other nonrecurring
expenses in connection with the implementation and execution of
strategic restructuring and consolidation initiatives of certain
operations and other nonrecurring items. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
13
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
items from the Company's Statements of Income, expressed as a percentage of
total revenues.
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Cost of revenues 72.8 74.7 74.7
----- ----- -----
Gross margin 27.2 25.3 25.3
Selling, general and administrative expenses 19.6 18.6 18.5
Nonrecurring charges 2.5 -- 1.7
----- ----- -----
Operating income 5.1 6.7 5.1
Interest expense (income), net 1.4 (0.6) 1.1
----- ----- -----
Income before income taxes 3.7 7.3 4.0
Income tax expense 1.6 3.2 1.8
----- ----- -----
Net income 2.1% 4.1% 2.2%
===== ===== =====
</TABLE>
YEARS ENDED JUNE 30, 1998 AND 1997
Revenues for the year ended June 30, 1998 increased 85.1% to $509.1
million from $275.0 million for the year ended June 30, 1997. The increase in
revenues over the prior fiscal year is primarily attributed to two factors: the
Company's acquisition program and internal growth. Of the $234.1 increase for
the year ended June 30, 1998, $69.2 million was due to the acquisitions of
Cheshire LTC Pharmacy, Inc. in August 1997, PharmaSource Healthcare, Inc. in
September 1997, Marco & Company, LLC in December 1997, MedStar Pharmacy, Inc. in
January 1998, Medical Pharmacy, Robcin Enterprises, Inc. and Greenwood Pharmacy
and Managed Pharmacy Services, affiliates of Eckerd Corporation in February
1998, Apple Institutional Services in March 1998 and the institutional pharmacy
assets of Walgreens Co. in June 1998. In addition, $87.8 million of the increase
is attributable to revenues for the fiscal year ended June 30, 1998 including a
full period of operations for fiscal 1997 acquisitions. These fiscal 1997
acquisitions include Advanced Rx Services, Inc. in July 1996, IPAC Pharmacy,
Inc., Medical Arts Pharmacy, Northside Pharmacy Inc., Med-Equip, Thrifty Medical
Supply, Inc. and Thrifty Medical of Tulsa L.L.C. in August 1996, Hudson Pharmacy
of Wichita, Inc. in September 1996, Spectrum Health Services, Inc. in October
1996, Clinical Health Systems in November 1996, Rescot Systems Group, Inc., W.P.
Malone, Inc., Long Term Care Pharmacy Services and Eakles Drug Store, Inc. in
January 1997, Pharmacare, Advanced Pharmaceutical Services, Inc. and Dahlin
Pharmacy, Inc. in February 1997, Stoll Services, Inc., Cooper Hall Pharmacy,
Inc., Hammer Incorporated, Daven Drug, and Medi-Centre Pharmacy in March 1997,
Vangard Labs, Inc. in April 1997, Long Term Care, Inc. in May 1997 and Look Drug
Store, Inc. and HLF Adult Home Pharmacy in June 1997. Internal growth accounted
for $77.1 million of the increase as the Company's existing operations continued
to grow through marketing efforts to new and existing clients, increased drug
utilization of long-term care facility residents, and the growth and integration
of new and existing products and services. The total number of beds serviced by
the Company as of June 30, 1998 increased 63% to 248,000 beds, from 152,000 beds
at June 30, 1997.
Cost of revenues for the year ended June 30, 1998 increased $174.7
million or 85.0% to $380.2 million from $205.5 million for the year ended June
30, 1997. Cost of revenues as a percentage of revenues were 74.7% for the years
ended June 30, 1998 and June 30, 1997. The Company's leverage associated with
purchasing pharmaceuticals, formulary management program and the leveraging of
production costs positively impacted gross margins during the year ended June
30, 1998. However, these improvements were offset by the lower margins of
companies acquired during the year ended June 30, 1998. At the time of
acquisition, the gross margins of the acquired companies are typically lower
than the Company as a whole; however, the Company is typically able to increase
the gross margins of the acquired companies through more advantageous purchasing
terms and the use of formulary management.
Selling, general and administrative expenses for the year ended June
30, 1998 increased $42.7 million or 83.4% to $93.9 million from $51.2 million
for the year ended June 30, 1997. Selling, general and administrative expenses
as a percentage of revenues decreased from 18.6% for the year ended June 30,
1997 to 18.4% for the year ended June 30, 1998. The percentage decrease for the
year ended June 30, 1998 is a result of creating operational efficiencies with
acquisitions and the ability to leverage overhead expenses over a larger revenue
base. At the time of acquisition, the selling, general and administrative
expenses of the acquired companies are typically higher than the Company as a
whole. The Company has been successful at
14
<PAGE> 18
creating operational efficiencies with acquisitions as selling, general and
administrative expenses as a percentage of revenues has decreased six quarters
in a row. The increase in selling, general, and administrative expenses in
absolute dollars is mainly attributable to expenses associated with the
operations of businesses acquired during the current and prior fiscal year.
Excluding the nonrecurring charge described below, operating income for
the year ended June 30, 1998 increased $16.6 million or 90.5% to $35.0 million
from $18.4 million for the year ended June 30, 1997. This improvement is
primarily attributable to increased sales volume generated during the year from
acquisitions and internal growth. Excluding the nonrecurring charge described
below, operating income as percentage of sales for the year ended June 30, 1998
increased slightly to 6.9% from 6.7% for the year ended June 30, 1997.
During the fourth quarter of fiscal 1998, the Company recorded a
nonrecurring charge of $8.9 million ($5.3 million net of tax) related to
restructuring and other nonrecurring expenses in connection with the
implementation and execution of strategic restructuring and consolidation
initiatives of certain operations and other nonrecurring items. As a result of
the plans described below, the Company expects to remove $1.5 million from its
cost structure in fiscal 1999. These savings are predominantly due to reduced
wage-related costs, reduced carrying costs of fixed assets, reduced rent
charges and other miscellaneous savings. The components of the nonrecurring
charge are described below.
During the fourth quarter of fiscal 1998, the Company adopted a formal
plan of restructuring to consolidate certain pharmacy sites in similar
geographies. The plan will combine pharmacies in close proximity in order to
improve operating efficiencies. As a result of the exit plan, 17 pharmacy sites
will be consolidated into either a new or existing location. The Company
recorded nonrecurring charges of $5.3 million related to the site
consolidations during the year ended June 30, 1998, which consists of $0.5
million related to employee severance costs in relation to the termination of
149 employees, $0.7 million related to lease termination costs and $4.1 million
related to asset impairments and other miscellaneous costs. As of June 30,
1998, five site consolidations had been completed with the remainder expected
to be completed by the end of fiscal 1999.
Approximately $0.9 million of the nonrecurring charge relates to the
buyout of existing employment agreements with the prior owners of certain
acquired businesses.
In June 1998 the Company entered into a new $150 million revolving
credit facility and a $50 million bridge facility (June 1998 facilities) that
replaced the existing $135 million revolving credit facility. The June 1998
facilities were replaced in July 1998 by a $245 million revolving credit
facility. Approximately $1.3 million of the nonrecurring charge relates to the
write-off of deferred financing fees on the $135 million revolving credit
facility and certain financing fees associated with the June 1998 facilities.
The remaining $1.4 million of the nonrecurring charge primarily
relates to additional acquisition related expenses.
Details of the nonrecurring charge are as follows:
<TABLE>
<CAPTION>
Restructuring Reserve
Description Cash/Non-Cash Charge Activity At /30/98
----------- ------------- ------ -------- ---------
(In Millions)
<S> <C> <C> <C> <C>
Site Consolidations
Severance packages cash $ .5 $ -- $ .5
Lease terminations cash .7 -- .7
Asset impairments non-cash 3.5 (3.5) --
Other cash .6 (.4) .2
Buyout of employment agreements cash .9 (.2) .7
Write-off financing fees non-cash 1.3 (1.3) --
Other
Cash 1.0 (.8) .2
Non-cash .4 (.4) --
------ ------- ------
Total $ 8.9 $ (6.6) $ 2.3
====== ======= ======
</TABLE>
The Company had net interest expense of $5.7 million for the year ended
June 30, 1998, compared to net interest income of $1.6 million during the year
ended June 30, 1997. The increase in expense in due to increased borrowings on
the line of credit and the issuance of $100 million of convertible subordinated
debentures in August 1997. These funds were used primarily for acquisitions.
The net interest income position in fiscal 1997 is primarily attributable to the
reduction of long-term debt with funds from the Company's initial public
offering completed on February 14, 1996 and interest income earned on funds from
a secondary public offering completed by the Company on October 4, 1996.
YEARS ENDED JUNE 30, 1997 AND 1996
Revenues for the year ended June 30, 1997 increased 142.7% to $275.0
million from $113.3 million for the year ended
15
<PAGE> 19
June 30, 1996. The increase in revenues over the prior fiscal year is primarily
attributable to two factors: the Company's acquisition program and internal
growth. Of the $161.7 million increase in revenues for the year ended June 30,
1997, $107.7 million was due to the acquisitions of Advanced Rx Services, Inc.
in July 1996, IPAC Pharmacy, Inc., Medical Arts Pharmacy, Northside Pharmacy
Inc., Med-Equip, Thrifty Medical Supply, Inc. and Thrifty Medical of Tulsa
L.L.C. in August 1996, Hudson Pharmacy of Wichita, Inc. in September 1996,
Spectrum Health Services, Inc. in October 1996, Clinical Health Systems in
November 1996, Rescot Systems Group, Inc., W.P. Malone, Inc., Long Term Care
Pharmacy Services and Eakles Drug Store, Inc. in January 1997, Pharmacare,
Advanced Pharmaceutical Services, Inc. and Dahlin Pharmacy, Inc. in February
1997, Stoll Services, Inc., Cooper Hall Pharmacy, Inc., Hammer Incorporated,
Daven Drug, and Medi-Centre Pharmacy in March 1997, Vanguard Labs, Inc. in April
1997, Long Term Care, Inc. in May 1997 and Look Drug Store, Inc. and HLF Adult
Home Pharmacy in June 1997. In addition, $34.9 million of the increase in
revenues is attributable to revenues for the fiscal year ended June 30, 1997
including a full period of operations for fiscal 1996 acquisitions. These fiscal
1996 acquisitions include Corinthian Healthcare Systems, Inc., acquired in
September 1995, The Apothecary, Inc. acquired in November 1995, DeMoss Rexall
Drugs, Inc., acquired in December 1995, Care Plus Pharmacy acquired in April
1996, Uni-Care Health Services Inc. and Uni-Care Health Services of Maine
acquired in May 1996, and Family Care Nursing Home Service, Inc. and Care
Unlimited, Inc. acquired in June 1996. Internal growth accounted for $19.1
million of the increase in revenues as the Company's existing operations
continued to grow through marketing efforts to new and existing clients,
increased drug utilization of long-term care facility residents, and the growth
and integration of new and existing products and services. The total number of
beds serviced by the Company as of June 30, 1997 increased 141.3% to 152,000
beds, from 63,000 beds at June 30, 1996.
Cost of revenues for the year ended June 30, 1997 increased $123.1
million or 149.4% to $205.5 million from $82.4 million for the year ended June
30, 1996. Cost of revenues as a percentage of revenues for the year ended June
30, 1997 increased to 74.7% from 72.8% for the year ended June 30, 1996. The
increase in cost of revenues as a percentage of revenues was primarily the
result of two factors; acquisitions and a change in the State of Pennsylvania
Medicaid reimbursement rates. First, at the time of acquisition, the gross
margins of the acquired companies are typically lower than the Company as a
whole. This is the result of several factors, including less advantageous
purchasing terms, lack of formulary management and higher production costs.
Second, during the second quarter of fiscal 1996, the State of Pennsylvania
changed the reimbursement methodology under the State Medicaid program which
resulted in a lower reimbursement percentage for Company's sites located in
Pennsylvania.
Selling, general and administrative expenses for the year ended June
30, 1997 increased $28.9 million or 130.2% to $51.1 million from $22.2 million
for the year ended June 30, 1996. Selling, general and administrative expenses
as a percentage of revenues for the year ended June 30, 1997 decreased to 18.6%
from 19.6% for the year ended June 30, 1996. The percentage decrease for the
year ended June 30, 1997 is the result of operational efficiencies and
continuing efforts to leverage corporate overhead over a larger revenue base.
The increase in selling, general, and administrative expenses in absolute
dollars is mainly attributable to expenses associated with the operations of
businesses acquired during fiscal year ended June 30, 1997.
A nonrecurring charge of $2.8 million for the year ended June 30, 1996
represents special compensation resulting from the termination of
compensation and performance incentive arrangements with the prior owners of
certain acquired businesses.
Operating income for the year ended June 30, 1997 increased $12.5
million or 215.4% to $18.4 million from $5.8 million for the year ended June 30,
1996. Excluding the one-time, nonrecurring charge described above, operating
income for the year ended June 30, 1997 increased $9.7 million or 112.6% from
$8.6 million for the year ended June 30, 1996. This improvement is attributable
to increased sales volume generated during the year from acquisitions and
internal growth. Operating income as percentage of sales for the year ended June
30, 1997 decreased slightly to 6.7% from 7.6% for the year ended June 30, 1996,
excluding the one-time nonrecurring charge.
The Company had net interest income of $1.6 million for the year ended
June 30, 1997, compared to net interest expense of $1.6 million during the year
ended June 30, 1996. This change is primarily attributable to the reduction of
long-term debt with funds from the Company's initial public offering completed
on February 14, 1996 and interest income earned on funds from a secondary public
offering completed by the Company on October 4, 1996.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by (used in) operating activities was $(2.1) million,
$8.3 million and $(14.8) million in fiscal 1996, 1997 and 1998, respectively.
Cash provided by operating activities decreased in fiscal 1998 due to increases
in trade accounts receivable and inventories primarily associated with
internal sales growth. These cash flow decreases were partially offset by
increases in trade accounts payable and accrued expenses. Cash provided by
operating activities increased during fiscal 1997 due to increased
profitability and an increase in trade accounts payable and accrued expenses.
The increase in accrued expenses resulted primarily from an increase in accrued
expenses associated with new acquisitions and the timing of payment of certain
accruals. These cash
16
<PAGE> 20
flow increases were offset by increases in trade accounts receivable and
inventory.
Net cash used in investing activities increased from $26.8 million in
fiscal 1996 to $150.0 million in fiscal 1997 to $202.8 million in fiscal 1998.
The increase is primarily the result of acquisitions, as well as an increase in
capital expenditures.
The Company made capital expenditures of $4.7 million in fiscal 1996,
$9.9 million in fiscal 1997 and $24.0 million in fiscal 1998. Significant
capital expenditures during the year ended June 30, 1998 included computer and
information systems equipment, computer software, furniture and fixtures at new
facilities in Pinellas Park, Florida and Van Nuys, California, leasehold
improvements, medication carts and delivery vehicles. The Company continues to
invest in converting all sites to a common operating system.
Net cash provided by financing activities increased from $50.0 million
in fiscal 1996 to $128.4 million in fiscal 1997 to $230.7 million in fiscal
1998. The increase in fiscal 1998 is primarily the result of funds received
from an offering of convertible subordinated debentures completed by the
Company on August 7, 1997 and an increase in funds borrowed under its revolving
credit facility. These funds were primarily utilized for acquisitions in fiscal
1998. The increase during fiscal 1997 is primarily the result of funds received
from a secondary public offering completed by the Company on October 4, 1996.
In August 1997, the Company issued $100 million of convertible
subordinated debentures due 2004. The debentures carry an interest rate of
5-3/4%. The debentures are obligations of the Company. The operations of the
Company are currently conducted principally through subsidiaries, which are
separate and distinct legal entities. The Company's ability to make payments of
principal and interest on the debentures will depend on its ability to receive
distributions of cash from its subsidiaries. Each of the Company's wholly-owned
subsidiaries has guaranteed the Company's payment obligations under the
debentures, so long as such subsidiary is member of an affiliated group (within
the meaning of sections 279(g) of the Internal Revenue Code of 1986, as
amended) which includes the Company. The satisfaction by the Company's
subsidiaries of their contractual guarantees, as well as the payment of
dividends and certain loans and advances to the Company by such subsidiaries,
may be subject to certain statutory or contractual restrictions, are contingent
upon the earnings of such subsidiaries and are subject to various business
considerations.
The Company expects to meet future financing needs principally through
the use of its revolving credit facility. In June 1998, the Company entered into
a four-year, $150 million revolving credit facility (new credit facility) with
a bank, which replaced the existing $135 million revolving credit facility.
Under the new credit facility, the Company also has available a $10 million
swing line revolving facility (swing line). Also in June 1998, the Company
entered into a $50 million bridge facility agreement (bridge facility) due
December 31 1998. The new credit facility contains certain debt covenants
including Interest Coverage Ratio and minimum consolidated net worth. As of
June 30, 1998 the Company had $94 million outstanding under the new credit
facility, $50 million outstanding under the bridge facility and $3.8 million
outstanding under the swing line. Effective July 13, 1998, the new credit
facility was amended increasing the total commitment from $150 million to $245
million and was syndicated to a consortium of 11 banks. This credit facility
bears interest at a variable rate based upon the Eurodollar rate plus a spread
of 37.5 to 162.5 basis points, dependent upon the Company's Interest Coverage
Ratio. Also effective July 13, 1998, the bridge facility was paid with funds
under the amended credit facility and was terminated. The Company believes that
its cash and available sources of capital, including funds available under its
revolving credit facility, are sufficient to meet its normal operating
requirements.
The Company's effective tax rates were 44.0%, 43.4% and 44.3% for the years
ended June 30, 1996, 1997 and 1998, respectively. The tax rates differ from the
federal statutory rate primarily as a result of state and local income taxes and
the non-deductibility of certain acquisition costs.
YEAR 2000 COMPLIANCE
Computer systems in use after the beginning of the year 2000 will need
to accept four-digit entries in the date code field in order to distinguish 21st
century dates from 20th century dates. Consequently, many companies face
significant uncertainties because of the need to upgrade or replace their
currently installed computer systems to comply with such "Year 2000"
requirements. Various systems could be affected ranging from complex information
technology (IT) computer systems to non-IT devices such as an individual
machine's programmable logic controller.
The Company has reviewed all internal systems and believes its
currently installed information systems are Year 2000 compliant. However, there
can be no assurance that coding errors or other defects will not be discovered
in the future. The total cost of the systems review has been immaterial to the
financial results of the Company. Future costs related to Year 2000 issues are
also expected to be immaterial to the financial results of the Company.
The Company is currently determining the extent to which it may be
impacted by any third parties' failure to remediate their own Year 2000 issues
The Company has initiated formal communications with all significant customers,
suppliers, payors and other third parties to determine the extent, if any, to
which the Company's interface systems could be impacted by those third-parties'
failure to remediate their own Year 2000 issues. The Company will continue these
communications throughout fiscal 1999. Although the Company currently does not
anticipate any material adverse impact on its operations as a result of Year
2000 issues of third parties, at this stage of the review no assurance can be
given that the failure by one or more third parties to become Year 2000
compliant will not have a material adverse impact on its operations.
Management of the Company believes it has an effective program in place
to resolve the Year 2000 issue in a timely manner. Nevertheless, since it is not
possible to anticipate all possible future outcomes, especially when third
parties are involved, there could be circumstances in which the Company's
operations could be interrupted. In addition, disruptions in the economy in
general resulting from Year 2000 issues could also adversely impact the Company.
The Company has contingency plans for certain critical applications and
are working on plans for others.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in or incorporated by reference into this
Annual Report on Form 10-K, including, but not limited to, those regarding the
Company's financial position, business strategy and other plans and objectives
for future operations and any other statements that are not historical facts
constitute "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other important factors that
could cause the actual results, performance or achievements of the Company, or
industry results, to differ materially from any future results, performance or
achievements expressed or implied by such forward-looking statements. Although
the Company believes that the expectations reflected in these forward-looking
statements are reasonable, there can be no assurance that the actual results or
developments anticipated by the Company will be realized or, even if
substantially realized, that they will have the expected effects on its business
or operations. Among the factors that could cause actual results to differ
materially from the Company's expectations include the availability and cost of
attractive acquisition candidates, continuation of various trends in the
long-term care market (including the trend toward consolidation), competition
among providers of long-term care pharmacy services, the availability of capital
for acquisitions and capital requirements, changes in regulatory requirements
and reform of the health care delivery system and other factors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements
Report of Independent Auditors 18
Consolidated Balance Sheets at June 30, 1997 and 1998 19
Consolidated Statements of Income for each of the three years
in the period ended June 30, 1998 21
Consolidated Statements of Stockholders' Equity for each of the
three years in the period ended June 30, 1998 22
Consolidated Statements of Cash Flows for each of the three years
in the period ended June 30, 1998 24
Notes to Consolidated Financial Statements 25
17
<PAGE> 21
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
NCS HealthCare, Inc.
We have audited the accompanying consolidated balance sheets of NCS
HealthCare, Inc. and subsidiaries as of June 30, 1997 and 1998, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended June 30, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NCS HealthCare, Inc. and subsidiaries at June 30, 1997 and 1998, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended June 30, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
August 6, 1998
Cleveland, Ohio
18
<PAGE> 22
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
--------
1997 1998
---- ----
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 8,160 $ 21,186
Trade accounts receivable, less allowance for
doubtful accounts of $13,275 and $18,427 as of
June 30, 1997 and 1998 70,476 142,325
Inventories 22,281 43,784
Deferred income taxes 5,582 10,458
Prepaid expenses and other current assets 988 3,766
-------- --------
Total current assets 107,487 221,519
PROPERTY, PLANT AND EQUIPMENT
Land 78 129
Buildings 1,606 2,090
Machinery, equipment and vehicles 17,937 27,498
Computer equipment 10,133 22,340
Furniture, fixtures and leasehold improvements 11,074 17,502
-------- --------
40,828 69,559
Less accumulated depreciation and amortization 17,519 25,966
-------- --------
23,309 43,593
Goodwill, less accumulated amortization of $5,119
and $12,317 as of June 30, 1997 and 1998 180,723 340,209
Other assets, less accumulated amortization of
$888 and $2,117 as of June 30, 1997 and 1998 9,511 18,469
-------- --------
TOTAL ASSETS $321,030 $623,790
======== ========
</TABLE>
See accompanying notes
19
<PAGE> 23
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30,
--------
1997 1998
---- ----
<S> <C> <C>
CURRENT LIABILITIES
Line of credit $ 10,285 $ --
Trade accounts payable 15,054 34,131
Accrued compensation and related expenses 12,332 17,360
Other accrued expenses 15,249 19,118
Current portion of long-term debt 1,403 1,548
-------- --------
Total current liabilities 54,323 72,157
Line of credit -- 147,800
Long-term debt, excluding current portion 8,043 3,879
Convertible subordinated debentures 4,813 102,753
Deferred income taxes -- 9,127
Other long-term liabilities 625 740
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value per share; 1,000,000
shares authorized; none issued -- --
Common stock, $.01 par value per share:
Class A -- 50,000,000 shares authorized; 11,313,638
and 13,334,639 shares issued and outstanding at
June 30, 1997 and 1998,respectively 113 133
Class B -- 20,000,000 shares authorized; 6,742,742
and 6,463,244 shares issued and outstanding
at June 30, 1997 and 1998,respectively 67 65
Paid-in capital 235,703 258,462
Retained earnings 17,343 28,674
-------- --------
253,226 287,334
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $321,030 $623,790
======== ========
</TABLE>
See accompanying notes
20
<PAGE> 24
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $ 113,281 $ 275,040 $ 509,064
Cost of revenues 82,415 205,536 380,217
--------- --------- ---------
Gross profit 30,866 69,504 128,847
Selling, general and administrative expenses 22,236 51,153 93,895
Nonrecurring charges 2,811 -- 8,862
--------- --------- ---------
Operating income 5,819 18,351 26,090
Interest expense (2,282) (1,143) (8,199)
Interest income 671 2,719 2,454
--------- --------- ---------
Income before income taxes 4,208 19,927 20,345
Income tax expense 1,852 8,655 9,014
--------- --------- ---------
Net income $ 2,356 $ 11,272 $ 11,331
========= ========= =========
Earnings per share data:
Earnings per common share - basic $ 0.28 $ 0.70 $ 0.59
========= ========= =========
Earnings per common share - diluted $ 0.26 $ 0.69 $ 0.58
========= ========= =========
Weighted average number of common
shares outstanding - basic 8,462 15,991 19,100
========= ========= =========
Weighted average number of common
shares outstanding - diluted 8,995 16,843 19,372
========= ========= =========
</TABLE>
See accompanying notes
21
<PAGE> 25
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1995 $ 1 $ 60 $ 4,341 $ 3,715 $ 8,117
Issuance of 7,467 shares
of Class A Common Stock -- -- 57 -- 57
Exercise of stock options
(890,333 shares of Class
B Common Stock) -- 9 3,366 -- 3,375
Conversion of 263,167
shares of Class B
Common Stock to 263,167
shares of Class A
Common Stock 3 (3) -- -- --
Issuance of 4,476,000
shares of Class A
Common Stock 45 -- 67,039 -- 67,084
Issuance of 124,088 shares
of Class A Common Stock
for purchases of
businesses 1 -- 1,835 -- 1,836
Conversion of convertible
subordinated debentures
(682,309 shares of Class
A Common Stock) 6 -- 8,269 -- 8,275
Net income -- -- -- 2,356 2,356
-------- -------- -------- -------- --------
Balance at June 30, 1996 56 66 84,907 6,071 91,100
Issuance of 4,235,000
shares of Class A
Common Stock 42 -- 123,584 -- 123,626
Issuance of 1,099,369
shares of Class A
Common Stock and
385,722 shares of
Class B Common Stock
for business
combinations 11 3 25,478 -- 25,492
</TABLE>
22
<PAGE> 26
<TABLE>
<CAPTION>
CLASS A CLASS B
COMMON COMMON PAID-IN RETAINED STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
----- ----- ------- -------- ------
<S> <C> <C> <C> <C> <C>
Conversion of 246,208
shares of Class B
Common Stock to
246,208 shares of
Class A Common Stock 2 (2) -- -- --
Conversion of convertible
subordinated debentures
(172,569 shares of Class
A Common Stock) 2 -- 1,734 -- 1,736
Net income -- -- -- 11,272 11,272
-------- -------- -------- -------- --------
Balance at June 30, 1997 113 67 235,703 17,343 253,226
Exercise of stock options
(2,637 shares of Class
A Common Stock) -- -- 20 -- 20
Issuance of 796,608
shares of Class A
Common Stock and
563,879 shares of
Class B Common Stock
for business combinations 8 6 16,798 -- 16,812
Conversion of 843,377
shares of Class B
Common Stock to
843,377 shares of
Class A Common Stock 8 (8) -- -- --
Conversion of convertible
subordinated debentures
and notes payable
(378,379 shares of Class
A Common Stock) 4 -- 5,941 -- 5,945
Net income -- -- -- 11,331 11,331
-------- -------- -------- -------- --------
Balance at June 30, 1998 $ 133 $ 65 $258,462 $ 28,674 $287,334
======== ======== ======== ======== ========
</TABLE>
See accompanying notes
23
<PAGE> 27
NCS HEALTHCARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 2,356 $ 11,272 $ 11,331
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Non-cash portion of nonrecurring charges 2,811 -- 5,229
Depreciation and amortization 3,217 8,885 16,454
Provision for doubtful accounts 841 1,325 2,279
Deferred income taxes 11 1,147 47
Changes in assets and liabilities, net of
effects of assets and liabilities acquired:
Trade accounts receivable (8,834) (22,932) (55,086)
Inventories 109 (3,796) (12,098)
Trade accounts payable (2,069) 2,447 18,040
Accrued expenses (239) 9,762 1,543
Prepaid expenses and other (260) 162 (2,585)
--------- --------- ---------
Net cash provided by (used in) operating
activities (2,057) 8,272 (14,846)
INVESTING ACTIVITIES
Capital expenditures for property, plant
and equipment (4,701) (9,893) (24,019)
Proceeds from sales of assets 40 247 1,183
Purchases of businesses (19,983) (137,080) (171,083)
Other (2,172) (3,237) (8,872)
--------- --------- ---------
Net cash used in investing activities (26,816) (149,963) (202,791)
FINANCING ACTIVITIES
Proceeds from issuance of long-term debt -- 159 13
Repayment of long-term debt (3,398) (5,679) (4,135)
Borrowings on line-of-credit 31,400 34,236 169,299
Payments on line-of-credit (48,900) (23,951) (31,784)
Proceeds from convertible subordinated debentures 5,000 -- 97,250
Proceeds from issuance of common stock and
exercise of stock options 68,878 123,626 20
Other (2,933) -- --
--------- --------- ---------
Net cash provided by financing activities 50,047 128,391 230,663
--------- --------- ---------
Net (decrease) increase in cash and
cash equivalents 21,174 (13,300) 13,026
Cash and cash equivalents at beginning of period 286 21,460 8,160
--------- --------- ---------
Cash and cash equivalents at end of period $ 21,460 $ 8,160 $ 21,186
========= ========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 2,282 $ 1,116 $ 5,076
========= ========= =========
Income taxes $ 1,724 $ 6,925 $ 8,533
========= ========= =========
</TABLE>
See accompanying notes
24
<PAGE> 28
NCS HEALTHCARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1996, 1997 AND 1998
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
NCS HealthCare, Inc. (the Company) operates in one primary business
segment providing a broad range of health care services primarily to long-term
care institutions including skilled nursing facilities, assisted living
facilities and other institutional health care settings. The Company purchases
and dispenses prescription and non-prescription pharmaceuticals and provides
client facilities with related management services, automated medical record
keeping, drug therapy evaluation and regulatory assistance. The Company also
provides a broad array of ancillary health care services to complement its core
pharmacy services, including infusion therapy, physical, speech and occupational
therapies, nutrition management and mobile diagnostics.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and its wholly-owned and majority-owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated in consolidation.
REVENUE RECOGNITION
Revenue is recognized when products or services are provided to the
customer. A significant portion of the Company's revenues from sales of
pharmaceutical and related products are reimbursable from Medicaid and Medicare
programs. The Company monitors its receivables from these and other third-party
payor programs and reports such revenues at the net realizable amount expected
to be received from third-party payors. Revenue from Medicaid and Medicare
programs accounted for 37% and 4%, respectively, of the Company's net patient
service revenue for the year ended June 30, 1998.
Movement of the allowance for doubtful accounts is as follows:
<TABLE>
<CAPTION>
Balance at Provision Write-offs Balance
Beginning for Doubtful Net of at End
of Period Accounts Acquisitions Recoveries of Period
--------- ------------ ------------ ---------- ---------
Fiscal Year
Ended June 30,
<S> <C> <C> <C> <C> <C>
1998 $13,275 $2,279 $6,354 $(3,481) $18,427
1997 3,629 1,325 9,846 (1,525) 13,275
1996 1,478 841 1,635 (325) 3,629
</TABLE>
CASH EQUIVALENTS
The Company considers all investments in highly liquid instruments with
original maturities of three months or less at the date purchased to be cash
equivalents. Investments in cash equivalents are carried at cost which
approximates market value.
INVENTORIES
Inventories for all business units consist primarily of purchased
pharmaceuticals and medical supplies and are stated at the lower of cost or
market. Cost is determined by using the last-in, first-out (LIFO) method for 8%
of the June 30, 1998 net inventory balance and by using the first-in, first-out
(FIFO) method for the remaining 92%. If the FIFO inventory valuation method had
been used, inventories would have been $627 and $619 higher at June 30, 1997 and
1998, respectively.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Depreciation on
property, plant and equipment is computed using the straight-line method over
the estimated useful lives of the assets which are as follows:
<TABLE>
<S> <C>
Buildings 30 years
Machinery, equipment and vehicles 5 - 10 years
Computer equipment 3 - 5 years
Furniture, fixtures and leasehold improvements 3 - 10 years
</TABLE>
Depreciation expense was $2,197, $4,347 and $7,813 for the years ended
June 30, 1996, 1997 and 1998, respectively.
GOODWILL, INTANGIBLES AND OTHER ASSETS
Intangible assets consist primarily of goodwill. Costs in excess of
the fair value of net assets acquired in purchase transactions are classified
as goodwill and amortized using the straight-line method over periods up to 40
years.
The carrying value of goodwill is evaluated if circumstances indicate a
possible impairment in value. If undiscounted cash flows over the remaining
amortization period indicate that goodwill may not be recoverable, the carrying
value of goodwill will be reduced by the estimated shortfall of cash flows on a
discounted basis.
Debt issuance costs are included in other assets and are amortized
using the affective interest rate method over the life of the related debt.
25
<PAGE> 29
INCOME TAXES
The Company follows Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." This accounting standard requires that the
liability method be used in accounting for income taxes. Under this accounting
method, deferred tax assets and liabilities are determined based on the
differences between the financial reporting basis and the tax basis of assets
and liabilities and are measured using the enacted tax rates and laws that apply
in the periods in which the deferred tax asset or liability is expected to be
realized or settled.
STOCK OPTIONS
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed in Note 9, the alternative fair value accounting provided under FASB
Statement No. 123, "Accounting for Stock-Based Compensation," (SFAS No. 123)
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, when 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.
EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS No. 128) which replaces the previously reported
primary and fully diluted earnings per share with basic and diluted earnings per
share. All share and per share information included in the accompanying
financial statements have been restated to conform to the requirements of SFAS
No. 128.
Basic earnings per share are computed based on the weighted average
number of shares of Class A and Class B shares outstanding during the period.
Diluted earnings per share include the dilutive effect of stock options and
subordinated convertible debentures. Stock options granted within a twelve-month
period preceding the Company's initial public offering in February, 1996 are
included in the calculation of earnings per share as if they were outstanding
for all periods presented prior to the Company's initial public offering, using
the treasury stock method (at the initial public offering price of $16.50 per
share).
On December 13, 1995, the Board of Directors approved an amendment to
the Company's Certificate of Incorporation to effect a corporate
recapitalization, including a 46-for-1 stock split of the Class A Common Stock
and Class B Common Stock. All share and per share information included in the
accompanying financial statements have been retroactively adjusted to give
effect to the stock split.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of all financial instruments of the Company approximates
the amounts presented on the consolidated balance sheet.
RECENTLY ISSUED ACCOUNTING STANDARDS
The Financial Accounting Standards Board recently issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". This
statement establishes standards for the reporting of financial information about
reportable segments in annual and interim financial statements. SFAS No. 131
also requires disclosure of revenues from each group of products and services,
geographic areas and major customers. Currently, the Company does not expect the
adoption of SFAS No. 131 to have a significant impact on the Company's
reporting and disclosures.
In April 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities." This SOP is effective for fiscal 2000 and requires that start-up
costs and organization costs be expensed as incurred and that such costs
capitalized previously be expensed as a cumulative effect of change in
accounting principle. The Company has not completed its evaluation of the
impact SOP 98-5 will have on its fiscal 2000 financial statements. The Company
will continue to capitalize start-up costs and organization costs during fiscal
1999.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
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 liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results can differ from these estimates.
26
<PAGE> 30
2. LINE OF CREDIT
In June 1998, the Company entered into a four-year, $150 million
revolving credit facility (new credit facility) with a bank, which replaced the
existing $135 million revolving credit facility. Under the new credit facility,
the Company also has available a $10 million swing line revolving facility
(swing line). Also in June 1998, the Company entered into a $50 million bridge
facility agreement (bridge facility) due December 31, 1998. The new credit
facility and bridge facility bear interest at a variable rate (7.152% and
7.652%, respectively, at June 30, 1998) based upon the Eurodollar rate plus a
spread of 37.5 to 162.5 basis points, dependent upon the Company's Interest
Coverage Ratio. The swing line bears interest at a money market rate (7.625% at
June 30, 1998). The new credit facility contains certain debt covenants
including Interest Coverage Ratio and minimum consolidated net worth. As of
June 30, 1998 the Company had $94,000 outstanding under the new credit
facility, $50,000 outstanding under the bridge facility and $3,800 outstanding
under the swing line.
Effective July 13, 1998, the new credit facility was amended
increasing the total commitment from $150 million to $245 million and was
syndicated to a consortium of 11 banks. Also effective July 13, 1998, the bridge
facility was paid with funds under the amended credit facility and was
terminated.
27
<PAGE> 31
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------
1997 1998
---- ----
<S> <C> <C>
Notes payable to former owners of acquired companies
maturing through July, 2001, at interest rates
ranging from 5% to 8% $7,552 $3,666
2% note payable to Pennsylvania Industrial Development
Authority due in monthly installments through
June, 2010, and secured through an interest
in a building of the Company 582 543
Collateralized lease obligations with interest ranging
from 6% to 16% due monthly through February, 2002 557 685
Other 755 533
------ ------
Total long-term debt 9,446 5,427
Less current portion 1,403 1,548
------ ------
Long-term debt, excluding current portion $8,043 $3,879
====== ======
</TABLE>
The aggregate maturities of the long-term debt for each of the five
years subsequent to June 30, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30, AMOUNT
- -------------------- ------
<S> <C>
1999 $1,548
2000 3,116
2001 149
2002 61
2003 58
Thereafter 495
------
$5,427
======
</TABLE>
28
<PAGE> 32
4. INCOME TAX EXPENSE
Income tax expense (benefit) for each of the three years ended
June 30, 1998 consists of:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL CURRENT DEFERRED TOTAL
------- -------- ----- ------- -------- ----- ------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Federal $ 1,439 $ 8 $ 1,447 $ 5,614 $ 887 $ 6,501 $ 6,792 $ 55 $ 6,847
State and local 402 3 405 1,894 260 2,154 2,175 (8) 2,167
------- ------- ------- ------- ------- ------- ------- ------- -------
$ 1,841 $ 11 $ 1,852 $ 7,508 $ 1,147 $ 8,655 $ 8,967 $ 47 $ 9,014
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
Reconciliations of income taxes at the United States Federal statutory
rate to the effective income tax rate for the three years ended June 30, 1998
are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Income taxes at the United States statutory rate $ 1,473 $ 6,974 $ 7,121
State and local income taxes 221 1,231 1,414
Goodwill amortization 203 521 604
Tax exempt interest (81) (13) --
Other -- net 36 (58) (125)
------- ------- -------
$ 1,852 $ 8,655 $ 9,014
======= ======= =======
</TABLE>
29
<PAGE> 33
The tax effects of temporary differences that give rise to significant
portions of the net deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30,
--------
1997 1998
---- ----
<S> <C> <C>
Deferred tax assets (liabilities):
Allowance for doubtful accounts $4,537 $ 6,872
Accrued expenses and other 2,137 7,205
Depreciable assets and other (134) (551)
Intangibles (958) (12,195)
------ ---------
Net deferred tax assets $5,582 $ 1,331
====== =========
</TABLE>
30
<PAGE> 34
5. OPERATING LEASES
The Company is obligated under operating leases primarily for
office facilities and equipment. Future minimum lease payments under
noncancelable operating leases as of June 30, 1998 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDING JUNE 30, AMOUNT
- -------------------- ------
<S> <C>
1999 $ 4,443
2000 3,983
2001 2,807
2002 2,302
2003 1,562
Thereafter 2,940
------
$18,037
======
</TABLE>
Total rent expense under all operating leases for the years ended June
30, 1996, 1997 and 1998 was $1,196, $2,338 and $6,577, respectively.
31
<PAGE> 35
6. PROFIT-SHARING PLAN
The Company maintains a profit sharing plan with an Internal Revenue
Code Section 401(k) feature covering substantially all of its employees. Under
the terms of the plan, the Company will match up to 20% of the first 10% of
eligible employee contributions.
The Company's aggregate contributions to the plan and related expense
were $192, $437 and $740 for the years ended June 30, 1996, 1997 and 1998,
respectively.
32
<PAGE> 36
7. RELATED PARTY TRANSACTIONS
The Company leases 14 of its facilities from entities affiliated with
former owners of certain businesses acquired, who are employees of the Company.
The buildings are used for operations of the Company. Rent expense of $559,
$1,004 and $1,128 was incurred under these leasing arrangements in the years
ended June 30, 1996, 1997 and 1998, respectively.
33
<PAGE> 37
8. STOCKHOLDER'S EQUITY
On February 14, 1996, the Company issued 4,476,000 shares of Class A
Common Stock at $16.50 per share in connection with an initial public offering.
A portion of the net proceeds from the stock issuance were used to repay
approximately $27,000 of outstanding indebtedness under long and short-term
borrowings.
On October 4, 1996, the Company completed a public offering of
4,235,000 shares of Class A Common Stock at $31 per share. The offering raised
approximately $123,600 (net of underwriting discounts and expenses). A portion
of the net proceeds from the stock issuance was used to repay approximately
$7,000 of outstanding indebtedness under short-term borrowings.
Holders of Class A Common Stock and holders of Class B Common Stock are
entitled to one and ten votes, respectively, in corporate matters requiring
approval of the shareholders of the Company. No dividend may be declared or paid
on the Class B Common Stock unless a dividend of equal or greater amount is
declared or paid on the Class A Common Stock.
During fiscal 1995, the Company issued $1,900 of 8% convertible
subordinated debentures (1995 debentures) due 1997. The 1995 debentures were
converted into 188,952 shares of Class A Common Stock during fiscal 1996. During
fiscal 1996, the Company issued $7,000 of 8% and $925 of 7% convertible
subordinated debentures due 1998 and $5,000 of 10% convertible subordinated
debentures due 1996 (collectively, 1996 debentures). During fiscal 1996,
$6,375 of the 1996 debentures were converted into 493,357 shares of Class A
Common Stock. During fiscal 1997, $1,736 of the 1996 debentures were converted
into 172,569 shares of Class A Common Stock. During fiscal 1998, $2,061 of the
1996 debentures were converted into 204,880 shares of Class A Common Stock. The
remaining $2,753 of the 1996 debentures were converted into 273,833 shares of
Class A Common Stock during July 1998.
On August 13, 1997, the Company issued $100,000 of convertible
subordinated debentures (1998 debentures) due 2004. Net proceeds to the Company
were approximately $97,250, net of underwriting discounts and expenses. The
debentures carry an interest rate of 5 3/4% and are convertible into shares of
Class A Common Stock at any time prior to maturity at $32.70 per share. A
portion of the proceeds from the debenture offering was used to repay
approximately $21,000 of outstanding indebtedness under short-term borrowings.
The debentures are obligations of the Company. The operations of the
Company are currently conducted principally through subsidiaries, which are
separate and distinct legal entities. Each of the Company's wholly-owned
subsidiaries has unconditionally guaranteed, jointly and severally, the
Company's payment obligations under the 1998 debentures. Accordingly, summarized
financial information regarding the guarantor subsidiaries has not been
presented because management of the Company believes that such information would
not be meaningful to investors.
During fiscal 1998, notes payable due to former owners of $3,884 were
exchanged for 173,499 shares of Class A Common Stock.
34
<PAGE> 38
9. STOCK OPTIONS
During the period from 1987 through 1995, the Company granted stock
options to certain directors and key employees which provide for the purchase of
1,054,890 common shares in the aggregate, at exercise prices ranging from $0.71
to $6.19 per share, which represented fair market values on the dates the grants
were made. For options granted in 1987 with a tax-offset cash bonus feature, the
Company recognized compensation expense of $175 for the year ended June 30,
1996. During the year ended June 30, 1996, options were exercised for the
purchase of 890,333 shares of Class B Common Stock.
During fiscal 1995, the Company adopted an Employee Stock Purchase and
Option Plan which authorized 100,000 shares of Class A Common Stock for awards
of stock options to certain key employees. During fiscal 1995 and 1996 the
Company granted 11,520 and 7,458 options, respectively, at an exercise price of
$6.19 and $7.33 per share, respectively, under the provisions of this plan.
These exercise prices represented fair market values on the dates the grants
were made.
In January 1996, the Company adopted a Long Term Incentive Plan (the
Plan) to provide up to 700,000 shares of Class A Common Stock for awards of
incentive and nonqualified stock options to officers and key employees of the
Company. During fiscal 1996 the Company granted 56,500 nonqualified stock
options and 27,540 incentive stock options, all at $16.50 per share, the price
at the initial public offering. The nonqualified stock options have a term of
five years and become exercisable in thirds on February 1, 1998, 1999 and 2000.
The incentive stock options have a term of six years and become exercisable in
fifths of each year on February 1, 1997, 1998, 1999, 2000 and 2001. During
fiscal 1997 the Company granted 301,250 nonqualified stock options at an
exercise price of $20.00 per share, the market value of the stock on the date
of the grant. These nonqualified stock options have a term of five years and
become exercisable in thirds on April 1, 1999, 2000 and 2001.
The Company's stock option activity and related information for the
years ended June 30 is summarized as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
OPTIONS EXERCISE OPTIONS EXERCISE OPTIONS EXERCISE
(000'S) PRICE (000'S) PRICE (000'S) PRICE
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of
year 1,066,410 $ 1.92 267,575 $ 8.84 566,825 $14.74
Granted 91,498 15.75 301,250 20.00 -- --
Exercised (890,333) 1.18 -- -- (2,637) 7.49
Forfeited -- -- (2,000) 16.50 (29,000) 19.64
--------- ------ ------- -------- ------- ------
Outstanding at
end of year 267,575 $ 8.84 566,825 $ 14.74 535,188 $14.64
========= ====== ======= ======== ======= ======
Exercisable at
end of year 97,110 141,658 185,604
========= ======= =======
</TABLE>
The weighted average fair value of options granted during fiscal 1996
and 1997 was $7.59 and $8.89 per share, respectively. Exercise prices for
options outstanding as of June 30, 1997 ranged from $7.33 to $20.00 for the
options granted in fiscal 1996 and 1997, and from $4.09 to $6.19 for the options
granted during the period from 1987 through 1995. The weighted-average remaining
contractual life of those options is 3.6 years for the options granted during
the fiscal years 1996 and 1997, and 4.6 years for the options granted during the
fiscal years 1987 through 1995.
Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, and has been determined as if the Company had
accounted for its employee stock options under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted average
assumptions: risk-free interest rates of 6.00%; a dividend yield of 0.00%; a
volatility factor of the expected market price of the Company's Class A Common
Stock of .482; and a weighted-average expected option life of 4 years.
The Black-Scholes option valuation 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 including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially
35
<PAGE> 39
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.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for the three years ended June 30, 1998 is as follows (in
thousands except for earnings per share information):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Net income - basic $ 2,325 $11,120 $10,876
Net income - diluted $ 2,325 $11,400 $10,876
Earnings per share - basic $ 0.27 $ 0.70 $ 0.57
Earnings per share - diluted $ 0.26 $ 0.68 $ 0.56
</TABLE>
36
<PAGE> 40
10. ACQUISITIONS
During fiscal 1996, the Company acquired Corinthian Healthcare Systems,
Inc. located in Indiana, The Apothecary, Inc. in Scranton, Pennsylvania, Demoss
Rexall Drugs, Inc. in Evansville, Indiana, Valu Pharmacy, Inc. (d/b/a/ Care Plus
Pharmacy) in Decatur, Illinois, Uni-Care Health Services, Inc. in Londonderry,
New Hampshire and Uni-Care Health Services of Maine, in Wells, Maine, Family
Care Nursing Home Service, Inc. and Care Unlimited, Inc. in Herrin, Illinois.
Significant acquisitions completed by the Company during fiscal 1997
include Advanced Rx Services, Inc. in Northfield, New Jersey, IPAC Pharmacy,
Inc. in Portland, Oregon, Medical Arts Pharmacy in Grand Rapids, Michigan,
Northside Pharmacy, Inc. and Thrifty Medical Supply, Inc. in Oklahoma City,
Oklahoma, Thrifty Medical of Tulsa L.L.C. in Tulsa, Oklahoma, Hudson Pharmacy of
Wichita, Inc. in Wichita, Kansas, Spectrum Health Services, Inc. in Tampa,
Florida, Clinical Health Systems in Vancouver, Washington, Rescot Systems Group,
Inc. in Philadelphia, Pennsylvania, W.P. Malone, Inc. in Arkadelphia, Arkansas,
Long Term Care Pharmacy Services in East Greenwich, Rhode Island, Eakles Drug
Store, Inc. in Hagerstown, Maryland, Pharmacare in Glendale, California,
Advanced Pharmaceutical Services, Inc. in Tujunga, California, Dahlin Pharmacy,
Inc. in Paramount, California, Stoll Services, Inc. in Modesto, California,
Cooper Hall Pharmacy, Inc. in Mount Pleasant, South Carolina, Hammer
Incorporated in Des Moines, Iowa, Daven Drug in Los Angeles, California,
Medi-Centre Pharmacy in Lansing, Michigan, Vangard Labs, Inc. in Glasgow,
Kentucky, Long Term Care, Inc. in Williston, Vermont, Look Drug Store, Inc. in
Kaukauna, Wisconsin and HLF Adult Home Pharmacy in Rochester, New York.
Significant acquisitions completed by the Company during fiscal 1998
include Cheshire LTC Pharmacy, Inc. in Cheshire, Connecticut, PharmaSource
Healthcare, Inc. in Norcross, Georgia, Marco & Company, LLC in Billings,
Montana, MedStar Pharmacy, Inc. in Benson, North Carolina, Greenwood Pharmacy
and Managed Pharmacy Services, affiliates of Eckerd Corporation based in Sharon,
Pennsylvania, Medical Pharmacy in Bakersfield, California, Robcin Enterprises,
Inc. in Independence, Missouri, Apple Institutional Services in Salisbury,
Maryland and the institutional pharmacy assets of Walgreen Co., an Illinois
corporation.
The Look Drug Store, Inc., HLF Adult Home Pharmacy, Cheshire LTC
Pharmacy, Inc. and MedStar Pharmacy, Inc. acquisitions were accounted for as
pooling of interests transactions, however the impact of these transactions on
the Company's historical financial statements is not material; consequently,
prior period financial statements have not been restated for these transactions.
All other acquisitions have been accounted for as purchase transactions.
The following table summarizes the aggregate purchase price for all businesses
acquired:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Cash $ 19,983 $137,080 $171,083
Convertible debentures 7,925 -- --
Debt -- 3,804 959
Class A Common Stock 1,836 25,492 16,812
-------- -------- --------
Total $ 29,744 $166,376 $188,854
======== ======== ========
</TABLE>
The results of operations of all businesses acquired have been included
in the consolidated financial statements of the Company from the dates of the
respective acquisitions. All of the businesses acquired provide substantially
similar services as the existing company.
Unaudited pro forma data as though the Company had completed its
secondary public offering and had purchased all businesses at the beginning of
each of the fiscal years ended June 30, 1997 and 1998 are set forth below:
<TABLE>
<CAPTION>
1997 1998*
---- -----
<S> <C> <C>
Revenues $ 527,040 $ 608,186
Net income $ 9,993 $ 10,433
Earnings per share - basic $ 0.52 $ 0.53
Earnings per share - diluted $ 0.51 $ 0.52
</TABLE>
* Includes a one time nonrecurring charge of $8,862 ($5,317 net of tax).
(See Note 11)
The pro forma information does not intend to be indicative of operating
results which would have occurred had the
37
<PAGE> 41
acquisitions been made at the beginning of the respective periods or of results
which may occur in the future. The primary pro forma adjustments reflect
amortization of goodwill acquired and interest costs. The pro forma information
does not give effect to any potential synergies anticipated by the Company as a
result of the acquisitions such as improvements in gross margin attributable to
the Company's purchasing leverage and increased operating efficiencies.
38
<PAGE> 42
11. NONRECURRING CHARGES
During the fourth quarter of fiscal 1998, the Company recorded a
nonrecurring charge of $8,900 ($5,300 net of tax) related to restructuring and
other nonrecurring expenses in connection with the implementation and execution
of strategic restructuring and consolidation initiatives of certain operations
and other nonrecurring items. The components of the 1998 nonrecurring charge
are described below.
During the fourth quarter of fiscal 1998, the Company adopted a formal
plan of restructuring to consolidate certain pharmacy sites in similar
geographies. The plan will combine pharmacies in close proximity in order to
improve operating efficiencies. As a result of the exit plan, 17 pharmacy sites
will be consolidated into either a new or existing location. The Company
recorded nonrecurring charges of $5,300 related to the site consolidations
which consists of $500 related to employee severance costs in relation to the
termination of 149 employees, $700 related to lease termination costs and $4,100
related to asset impairments and other miscellaneous costs. As of June 30, 1998,
five site consolidations had been completed with the remainder expected to be
completed by the end of fiscal 1999.
Approximately $900 of the nonrecurring charge relates to the buyout of
existing employment agreements with the prior owners of certain acquired
businesses.
In June, 1998 the Company's new credit facility and bridge facility
replaced the existing $135 million revolving credit facility. The new credit
facility and bridge facility were replaced in July 1998 by a $245 million
revolving credit facility (see Note 2). Approximately $1,300 of the nonrecurring
charge relates to the write-off of deferred financing fees on the $135 million
revolving credit facility and certain financing fees associated with the bridge
facility.
The remaining $1,400 of the 1998 nonrecurring charge primarily
relates to additional acquisition related expenses.
Details of the nonrecurring charge are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve
Description Cash/Non-Cash Charge Activity At June 30, 1998
----------- ------------- ------ -------- ----------
<S> <C> <C> <C> <C>
Site Consolidations
Severance packages cash $ 500 $ -- $ 500
Lease terminations cash 700 -- 700
Asset impairments non-cash 3,500 (3,500) --
Other cash 600 (400) 200
Buyout of employment agreements cash 900 (200) 700
Write-off financing fees non-cash 1,300 (1,300) --
Other
Cash 1,000 (800) 200
Non-cash 400 (400) --
-------- --------- --------
Total $ 8,900 $ (6,600) $ 2,300
======== ========= ========
</TABLE>
Effective September 30, 1995, the Company terminated certain
compensation arrangements with the prior owners of certain acquired businesses
which resulted in a special compensation expense and a related increase in debt
of $2,811.
39
<PAGE> 43
12. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per share - net income $ 2,356 $11,272 $11,331
Effect of dilutive securities:
Convertible debentures -- 280 --
------- ------- -------
Numerator for diluted earnings per share $ 2,356 $11,552 $11,331
======= ======= =======
Denominator:
Denominator for basic earnings per share -
weighted average common shares 8,462 15,991 19,100
Effect of dilutive securities:
Stock options 533 207 272
Convertible debentures -- 645 --
------- ------- -------
Dilutive potential common shares 533 852 272
------- ------- -------
Denominator for diluted earnings per share 8,995 16,843 19,372
======= ======= =======
Basic earnings per share $ 0.28 $ 0.70 $ 0.59
======= ======= =======
Diluted earnings per share $ 0.26 $ 0.69 $ 0.58
======= ======= =======
</TABLE>
The Company has $102,753 of convertible subordinated debentures outstanding at
June 30, 1998 that are convertible into 3,331,937 shares of Class A Common Stock
that were not included in the computation of diluted earnings per share as their
effect would be antidilutive. The Company had $6,549 of convertible subordinated
debentures outstanding at June 30, 1996 that were convertible into 651,284
shares of Class A Common Stock that were not included in the computation of
diluted earnings per share as their effect would be antidilutive.
40
<PAGE> 44
13. QUARTERLY DATA (UNAUDITED)
Selected quarterly data for the years ended June 30, 1997 and 1998:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1997
------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 43,042 $ 59,323 $ 78,539 $ 94,136 $ 275,040
Gross profit 11,188 15,031 19,672 23,613 69,504
Operating income 3,534 3,856 4,954 6,007 18,351
Net income $ 1,910 $ 2,889 $ 3,091 $ 3,382 $ 11,272
Earnings per share - basic $ 0.15 $ 0.17 $ 0.18 $ 0.19 $ 0.70
Earnings per share - diluted $ 0.15 $ 0.17 $ 0.18 $ 0.19 $ 0.69
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1998
------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -----
<S> <C> <C> <C> <C> <C>
Revenues $ 103,711 $ 114,508 $ 137,669 $ 153,177 $ 509,064
Gross profit 26,226 29,039 34,857 38,725 128,847
Nonrecurring charge (b) -- -- -- 8,862 8,862
Operating income 6,873 7,810 9,467 1,940 26,090
Net income (loss) $ 3,632 $ 4,022 $ 4,365 $ (689) $ 11,331
Earnings per share - basic (a) $ 0.20 $ 0.21 $ 0.22 $ (0.03) $ 0.59
Earnings per share - diluted (a) $ 0.20 $ 0.21 $ 0.22 $ (0.03) $ 0.58
</TABLE>
(a) Earnings per share is calculated independently for each quarter and the sum
of the quarters may not necessarily be equal to the full year earnings per
share amount.
(b) A nonrecurring charge of $8,862 before taxes and $5,317 after taxes, or
$0.28 per basic share and $0.27 per diluted share, was recorded during the
fourth quarter of 1998 related to restructuring and other nonrecurring
expenses in connection with the implementation and execution of strategic
restructuring and consolidation initiatives of certain operations and
other nonrecurring items. For the year ended June 30, 1998, net income,
excluding this nonrecurring charge, was $16,648 or $0.87 per basic share
and $0.86 per diluted share.
41
<PAGE> 45
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH AUDITORS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The information regarding Directors appearing under the caption
"Election of Directors" in the Company's Definitive Proxy Statement to be used
in connection with the Annual Meeting of Stockholders to be held in 1998 (the
"1998 Proxy Statement") is incorporated herein by reference, since such Proxy
Statement will be filed with the Securities and Exchange Commission not later
than 120 days after the end of the Company's fiscal year pursuant to Regulation
14A. Information required by this item as to the executive officers of the
Company is included as Item 4A of Part I of this Annual Report on Form 10-K as
permitted by Instruction 3 to Item 401(b) of Regulation S-K. Information
required by Item 405 of Regulation S-K is set forth in the 1998 Proxy Statement
under the heading "Section 16(a) Beneficial Ownership Reporting Compliance,"
which information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated herein by
reference to "Executive Compensation" in the 1998 Proxy Statement, since such
Proxy Statement will be filed with the Securities and Exchange Commission not
later than 120 days after the end of the Company's fiscal year pursuant to
Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is incorporated herein by
reference to "Stock Ownership of Principal Holders and Management" in the 1998
Proxy Statement, since such Proxy Statement will be filed with the Securities
and Exchange Commission not later than 120 days after the end of the Company's
fiscal year pursuant to Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
To the extent applicable the information required by this item is
incorporated herein by reference to "Compensation Committee Interlocks and
Insider Participation" and "Certain Transactions" in the 1998 Proxy Statement,
since such Proxy Statement will be filed with the Securities and Exchange
Commission not later than 120 days after the end of the Company's fiscal year
pursuant to Regulation 14A.
42
<PAGE> 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as part of this Form 10-K:
1. Financial Statements
The 1998 Consolidated Financial Statements of NCS HealthCare,
Inc. are included in Part II, Item 8.
2. Financial Statement Schedules. All financial statement
schedules for the Company and its subsidiaries have been
included in the consolidated financial statements or the
related footnotes, or they are either inapplicable or not
required.
3. Exhibits
See the Index to Exhibits at page E-1 of this Form 10-K.
(b) Reports on Form 8-K
1. On April 10, 1998, the Company filed a Current Report on Form
8-K relating to the execution of a definitive agreement to
acquire the long-term care pharmacy assets of Walgreen Co.
2. On June 1, 1998, the Company filed a Current Report on Form
8-K relating to the acquisition of certain assets of the
Extended Care Division of Walgreens Advance Care, Inc., a
wholly-owned subsidiary of Walgreen Co.
43
<PAGE> 47
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
NCS HEALTHCARE, INC.
By: /s/ Jon H. Outcalt
Jon H. Outcalt
Chairman of the Board of Directors
Date: October 1, 1998
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
Signature Title
Jon H. Outcalt /s/ Jon H. Outcalt
Chairman of the Board of Directors
Kevin B. Shaw President, Chief Executive Officer and Director
(Principal Executive Officer)
Gerald D. Stethem Chief Financial Officer (Principal Financial
and Accounting Officer)
Phyllis K. Wilson Director
A. Malachi Mixon III Director
Boake A. Sells Director
Richard L. Osborne Director
Date: October 1, 1998
44
<PAGE> 48
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
2.1 Asset Purchase Agreement, dated as of July 31, 1996, by and
among the Company, NCS HealthCare of Oregon, Inc., IPAC
Pharmacy, Inc. and Prestige Care, Inc. (A)
2.2 Agreement of Merger, dated August 13, 1996, by and among the
Company, Northside Pharmacy, Inc., Willis V. Smith, The
Willis Vernon Smith Unitrust, dated as of August 8, 1996,
Charles Oliver and NCS HealthCare of Oklahoma, Inc. (B)
2.3 Asset Purchase Agreement, dated August 13, 1996, by an among
NCS HealthCare of Oklahoma, Inc., an Oklahoma corporation,
Med-Equip Homecare Equipment Service, Inc., an Oklahoma
corporation, Gail Benjamin, Willis V. Smith and John Tarr (B)
2.4 Asset Purchase Agreement, dated August 13, 1996, by and
among Thrifty Medical of Tulsa, L.L.C., an Oklahoma limited
liability company, Willis V. Smith, Charles Oliver and NCS
HealthCare of Oklahoma, Inc., an Oklahoma corporation (B)
2.5 Stock Purchase Agreement, dated August 13, 1996, by and among
the Willis Vernon Smith Unitrust Dated August 8, 1996,
Charles Oliver, Willis V. Smith and the Registrant (B)
2.6 Asset Purchase Agreement, dated December 29, 1997, by and (C)
among the Company, NCS HealthCare of New York, Inc., Thrift
Drug, Inc., Fay's Incorporated and Eckerd Corporation
2.7 Asset Purchase Agreement, dated April 10, 1998, among the (D)
Company, NCS Acqusisiton Sub, Inc., Walgreens Advance Care, Inc.
and Walgreen Co.
3.1 Amended and Restated Certificate of Incorporation of the
Company (E)
3.2 Amended By-Laws of the Company (E)
4.1 Specimen certificate of the Company's Class A Common Stock (E)
4.2 Specimen certificate of the Company's Class B Common Stock (E)
4.3 Form of 5-3/4% Convertible Subordinated Debentures due 2004 (F)
4.4 Indenture, dated August 13, 1997, between the Company and
National City Bank, as Trustee (F)
* 10.1 Deferred Compensation Agreement, dated as of January 1, 1994,
by and between Modern Pharmacy Consultants, Inc. and
Phyllis K. Wilson (E)
* 10.2 1996 Long Term Incentive Plan (E)
* 10.3 Aberdeen Group, Inc. 1995 Amended and Restated Employee Stock
Purchase and Option Plan (E)
* 10.4 Amended and Restated Stock Option Agreement, dated as of
December 3, 1993, by and between Aberdeen Group, Inc. and
Richard L. Osborne (E)
* 10.5 Amended and Restated Stock Option Agreement, dated as of
December 29, 1994, by and between Aberdeen Group, Inc. and
Jeffrey R. Steinhilber (E)
10.6 Lease Agreement, dated as of July 16, 1990, by and among
Crow-O'Brien-Woodhouse I Limited Partnership, Aberdeen Group,
Inc. and Van Cleef Properties, Inc. (E)
</TABLE>
E-1
<PAGE> 49
<TABLE>
<CAPTION>
SEQUENTIAL
EXHIBIT NO. DESCRIPTION PAGE
- ----------- ----------- ----
<S> <C> <C>
10.7 Lease Agreement, dated as of January 1, 1996, by and between
PR Realty and Nursing Center Services, Inc. (E)
10.8 Industrial Lease Agreement dated as of May 28, 1993 by and
between Industrial Developments International, Inc. and
Corinthian Pharmaceutical Systems, Inc. (E)
10.9 Lease Agreement, dated as of January 17, 1995, by and among
Calvin Hunsicker, Brenda Hunsicker and Aberdeen Group, Inc. (E)
10.10 Form of Indemnity Agreement by and between the Company and
each of its Directors and Executive Officers (E)
*10.11 Employment and Noncompetition Agreement, dated as of
September 1, 1996, by and between Aberdeen Group, Inc. and
William B. Bryum (E)
10.12 Credit Agreement, dated as of June 1, 1998, among the Company,
the lending institutions named therein and KeyBank National
Association, as the Swing Line Lender, Letter of Credit Issuer
and Administrative Agent.
10.13 Letter Agreement, dated June 1, 1998, between the Company and
KeyBank National Association regarding Capital Markets Bridge
Facility
10.14 Amendment No. 1, dated as of July 13, 1998, to the Credit
Agreement, dated as of June 1, 1998, among the Company, the
lending institutions named therein and KeyBank National
Association, as the Swing Line Lender, Letter of Credit Issuer
and Administrative Agent
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
27.1 Financial Data Schedule (including restated schedules for
adoption of SFAS No. 128)
</TABLE>
* Management contract or compensatory plan or arrangement identified
pursuant to Item 14(c) of this Form 10-K.
(A) Incorporated herein by reference to the appropriate exhibit to the
Company's Current Report on Form 8-K, dated August 1, 1996.
(B) Incorporated herein by reference to the appropriate exhibit to the
Company's Current Report on Form 8-K, dated August 15, 1996.
(C) Incorporated herein by reference to the appropriate exhibit to the
Company's Current Report on Form 8-K, dated January 30, 1998.
(D) Incorporated herein by reference to the appropriate exhibit to the
Company's Current Report on Form 8-K, dated June 1, 1998.
(E) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-1 declared effective on
February 13, 1996 (Reg. No. 33-80455).
(F) Incorporated herein by reference to the appropriate exhibit to the
Company's Registration Statement on Form S-3, as amended (Reg. No.
333-35551).
E-2
<PAGE> 1
EXHIBIT 10.12
================================================================================
CREDIT AGREEMENT
DATED AS OF
JUNE 1, 1998
AMONG
NCS HEALTHCARE, INC.
AS BORROWER
THE LENDING INSTITUTIONS NAMED THEREIN
AS LENDERS
KEYBANK NATIONAL ASSOCIATION
AS SWING LINE LENDER, LETTER OF CREDIT ISSUER
AND AS ADMINISTRATIVE AGENT
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1. DEFINITIONS AND TERMS..................................................................................1
1.1. CERTAIN DEFINED TERMS.....................................................................................1
1.2. COMPUTATION OF TIME PERIODS..............................................................................16
1.3. ACCOUNTING TERMS.........................................................................................16
1.4. TERMS GENERALLY..........................................................................................16
SECTION 2. AMOUNT AND TERMS OF LOANS.............................................................................17
2.1. COMMITMENTS FOR LOANS....................................................................................17
2.2. MINIMUM BORROWING AMOUNTS, ETC.; PRO RATA BORROWINGS.....................................................17
2.3. NOTICE OF BORROWING......................................................................................18
2.4. DISBURSEMENT OF FUNDS....................................................................................19
2.5. REFUNDING OF, OR PARTICIPATION IN, SWING LINE REVOLVING LOANS............................................19
2.6. NOTES....................................................................................................21
2.7. CONVERSIONS OF GENERAL REVOLVING LOANS...................................................................21
2.8. INTEREST.................................................................................................22
2.9. INTEREST PERIODS.........................................................................................24
2.10. INCREASED COSTS, ILLEGALITY, ETC........................................................................24
2.11. COMPENSATION............................................................................................26
2.12. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS........................................................26
SECTION 3. LETTERS OF CREDIT.....................................................................................27
3.1. LETTERS OF CREDIT........................................................................................27
3.2. LETTER OF CREDIT REQUESTS: NOTICES OF ISSUANCE...........................................................28
3.3. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS.............................................................28
3.4. LETTER OF CREDIT PARTICIPATIONS..........................................................................29
3.5. INCREASED COSTS..........................................................................................31
3.6. GUARANTY OF SUBSIDIARY LETTER OF CREDIT OBLIGATIONS......................................................31
SECTION 4. FEES; COMMITMENTS.....................................................................................32
4.1. FEES.....................................................................................................32
4.2. VOLUNTARY REDUCTION OF COMMITMENTS.......................................................................34
4.3. MANDATORY TERMINATION/ADJUSTMENTS OF COMMITMENTS, ETC....................................................34
4.4. EXTENSION OF MATURITY DATE...............................................................................35
SECTION 5. PAYMENTS..............................................................................................35
5.1. VOLUNTARY PREPAYMENTS....................................................................................35
5.2. MANDATORY PREPAYMENTS....................................................................................36
5.3. METHOD AND PLACE OF PAYMENT..............................................................................37
5.4. NET PAYMENTS.............................................................................................38
SECTION 6. CONDITIONS PRECEDENT..................................................................................38
6.1. CONDITIONS PRECEDENT AT CLOSING DATE.....................................................................38
6.2. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS................................................................40
SECTION 7. REPRESENTATIONS AND WARRANTIES........................................................................40
7.1. CORPORATE STATUS, ETC....................................................................................40
7.2. SUBSIDIARIES.............................................................................................40
7.3. CORPORATE POWER AND AUTHORITY, ETC.......................................................................40
7.4. NO VIOLATION.............................................................................................41
7.5. GOVERNMENTAL APPROVALS...................................................................................41
7.6. LITIGATION...............................................................................................41
7.7. USE OF PROCEEDS; MARGIN REGULATIONS......................................................................41
7.8. FINANCIAL STATEMENTS, ETC................................................................................41
7.9. NO MATERIAL ADVERSE CHANGE...............................................................................42
7.10. TAX RETURNS AND PAYMENTS................................................................................42
7.11. TITLE TO PROPERTIES, ETC................................................................................42
7.12. LAWFUL OPERATIONS, ETC..................................................................................42
7.13. ENVIRONMENTAL MATTERS...................................................................................43
7.14. COMPLIANCE WITH ERISA...................................................................................43
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
<S> <C>
7.15. INTELLECTUAL PROPERTY, ETC..............................................................................44
7.16. INVESTMENT COMPANY......................................................................................44
7.17. BURDENSOME CONTRACTS; LABOR RELATIONS...................................................................44
7.18. EXISTING INDEBTEDNESS...................................................................................44
7.19. YEAR 2000 PROBLEM.......................................................................................44
7.20. TRUE AND COMPLETE DISCLOSURE............................................................................44
SECTION 8. AFFIRMATIVE COVENANTS.................................................................................45
8.1. REPORTING REQUIREMENTS...................................................................................45
8.2. BOOKS, RECORDS AND INSPECTIONS...........................................................................47
8.3. INSURANCE................................................................................................48
8.4. PAYMENT OF TAXES AND CLAIMS..............................................................................48
8.5. CORPORATE FRANCHISES.....................................................................................48
8.6. GOOD REPAIR..............................................................................................48
8.7. COMPLIANCE WITH STATUTES, ETC............................................................................48
8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS.......................................................................49
8.9. FISCAL YEARS, FISCAL QUARTERS............................................................................49
8.10. CERTAIN SUBSIDIARIES TO JOIN IN SUBSIDIARY GUARANTY.....................................................49
8.11. PLEDGE OF ADDITIONAL STOCK; RELEASE OF COLLATERAL.......................................................50
8.12. MOST FAVORED COVENANT STATUS............................................................................50
8.13. SENIOR DEBT.............................................................................................51
SECTION 9. NEGATIVE COVENANTS....................................................................................51
9.1. CHANGES IN BUSINESS......................................................................................51
9.2. CONSOLIDATION, MERGER, ACQUISITIONS, AND SALE OF ASSETS, ETC.............................................51
9.3. LIENS....................................................................................................53
9.4. INDEBTEDNESS.............................................................................................54
9.5. ADVANCES, INVESTMENTS, LOANS AND GUARANTY OBLIGATIONS....................................................55
9.6. TOTAL INDEBTEDNESS/CAPITAL RATIO.........................................................................57
9.7. TOTAL SENIOR INDEBTEDNESS/CAPITAL RATIO..................................................................57
9.8. INTEREST COVERAGE RATIO..................................................................................57
9.9. MINIMUM CONSOLIDATED NET WORTH...........................................................................57
9.10. PREPAYMENTS AND REFINANCINGS OF SUBORDINATED DEBT, ETC..................................................57
9.11. TRANSACTIONS WITH AFFILIATES............................................................................57
9.12. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS............................................................58
9.13. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS..........................................................58
9.14. PLAN TERMINATIONS, MINIMUM FUNDING, ETC.................................................................58
SECTION 10. EVENTS OF DEFAULT....................................................................................58
10.1. EVENTS OF DEFAULT.......................................................................................58
10.2. ACCELERATION, ETC.......................................................................................60
10.3. APPLICATION OF LIQUIDATION PROCEEDS.....................................................................60
SECTION 11. THE ADMINISTRATIVE AGENT.............................................................................61
11.1. APPOINTMENT.............................................................................................61
11.2. DELEGATION OF DUTIES....................................................................................61
11.3. EXCULPATORY PROVISIONS..................................................................................61
11.4. RELIANCE BY ADMINISTRATIVE AGENT........................................................................62
11.5. NOTICE OF DEFAULT.......................................................................................62
11.6. NON-RELIANCE............................................................................................62
11.7. INDEMNIFICATION.........................................................................................63
11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY.........................................................63
11.9. SUCCESSOR ADMINISTRATIVE AGENT..........................................................................63
11.10. OTHER AGENTS...........................................................................................63
SECTION 12. MISCELLANEOUS........................................................................................64
12.1. PAYMENT OF EXPENSES ETC.................................................................................64
12.2. RIGHT OF SETOFF.........................................................................................65
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
<S> <C>
12.3. NOTICES.................................................................................................65
12.4. BENEFIT OF AGREEMENT....................................................................................65
12.5. NO WAIVER: REMEDIES CUMULATIVE..........................................................................67
12.6. PAYMENTS PRO RATA.......................................................................................67
12.7. CALCULATIONS: COMPUTATIONS..............................................................................67
12.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY TRIAL..................................67
12.9. COUNTERPARTS............................................................................................68
12.10. EFFECTIVENESS..........................................................................................68
12.11. HEADINGS DESCRIPTIVE...................................................................................68
12.12. AMENDMENT OR WAIVER....................................................................................68
12.13. SURVIVAL OF INDEMNITIES................................................................................69
12.14. DOMICILE OF LOANS......................................................................................69
12.15. CONFIDENTIALITY........................................................................................69
12.16. LENDER REGISTER........................................................................................69
12.17. LIMITATIONS ON LIABILITY OF THE LETTER OF CREDIT ISSUERS...............................................70
12.18. GENERAL LIMITATION OF LIABILITY........................................................................70
12.19. NO DUTY................................................................................................70
12.20. LENDERS AND AGENT NOT FIDUCIARY TO BORROWER, ETC.......................................................70
12.21. MARGIN STOCK...........................................................................................70
12.22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.............................................................71
</TABLE>
iii
<PAGE> 5
ANNEX I - INFORMATION AS TO LENDERS
ANNEX II - INFORMATION AS TO SUBSIDIARIES
ANNEX III - DESCRIPTION OF EXISTING INDEBTEDNESS
ANNEX IV - DESCRIPTION OF EXISTING LIENS
ANNEX V - DESCRIPTION OF EXISTING ADVANCES, LOANS,
INVESTMENTS AND GUARANTEES
ANNEX VI - DESCRIPTION OF LETTERS OF CREDIT DEEMED ISSUED UNDER THE
CREDIT AGREEMENT
EXHIBIT A-1 - FORM OF GENERAL REVOLVING NOTE
EXHIBIT A-2 - FORM OF SWING LINE REVOLVING NOTE
EXHIBIT B-1 - FORM OF NOTICE OF BORROWING
EXHIBIT B-2 - FORM OF NOTICE OF CONVERSION
EXHIBIT B-3 - FORM OF LETTER OF CREDIT REQUEST
EXHIBIT C-1 - FORM OF SUBSIDIARY GUARANTY
EXHIBIT C-2 - FORM OF PLEDGE AGREEMENT
EXHIBIT D - FORM OF OPINION OF SPECIAL COUNSEL TO THE BORROWER
EXHIBIT E - FORM OF ASSIGNMENT AGREEMENT
EXHIBIT F - FORM OF SECTION 5.4(b)(ii) CERTIFICATE
iv
<PAGE> 6
CREDIT AGREEMENT, dated as of June 1, 1998, among the following:
(i) NCS HEALTHCARE, INC., a Delaware corporation (herein,
together with its successors and assigns, the "BORROWER");
(ii) the lending institutions listed in Annex I hereto (each a
"LENDER" and collectively, the "LENDERS"); and
(iii) KEYBANK NATIONAL ASSOCIATION, a national banking
association, as the Lender (the "SWING LINE LENDER") under the Swing
Line Revolving Facility referred to herein, and as administrative agent
(the "ADMINISTRATIVE AGENT"):
PRELIMINARY STATEMENTS:
(1) Unless otherwise defined herein, all capitalized terms used herein
and defined in section 1 are used herein as so defined.
(2) The Borrower has applied to the Lenders for credit facilities in
order to refinance certain indebtedness of the Borrower, to finance Acquisitions
and in order to provide working capital and funds for other lawful purposes.
(3) The Borrower has requested that the credit facilities be secured by
the Pledge Agreement, covering only the stock presently owned by the Borrower in
its directly owned Wholly-Owned Subsidiaries, subject to the right of the
Borrower, as provided herein, to obtain the release of all Collateral covered by
the Pledge Agreement.
(4) Subject to and upon the terms and conditions set forth herein, the
Lenders are willing to make available to the Borrower the credit facilities
provided for herein.
(5) Contemporaneously herewith, the Borrower is entering into a letter
agreement, entitled "U.S.$50,000,000 Capital Markets Bridge Facility for NCS
HealthCare, Inc.", dated as of the date hereof (as from time to time in effect,
the "BRIDGE FACILITY AGREEMENT"). The obligations of the Borrower under the
Bridge Facility Agreement will be entitled to the benefits of the Subsidiary
Guaranty and the Security Documents on a PARRI PASSU basis with the Obligations
hereunder.
NOW, THEREFORE, it is agreed:
SECTION 1. DEFINITIONS AND TERMS.
1.1. CERTAIN DEFINED TERMS. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires:
"ACQUISITION" shall mean and include (i) any acquisition on a going
concern basis (whether by purchase, lease or otherwise) of any facility and/or
business operated by any person who is not a Subsidiary of the Borrower, and
(ii) acquisitions of a majority of the outstanding equity or other similar
interests in any such person (whether by merger, stock purchase or otherwise).
<PAGE> 7
"ADMINISTRATIVE AGENT" shall have the meaning provided in the first
paragraph of this Agreement and shall include any successor to the
Administrative Agent appointed pursuant to section 11.9.
"AFFILIATE" shall mean, with respect to any person, any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with such person. A person shall be deemed to control a second
person if such first person possesses, directly or indirectly, the power (i) to
vote 10% or more of the securities having ordinary voting power for the election
of directors or managers of such second person or (ii) to direct or cause the
direction of the management and policies of such second person, whether through
the ownership of voting securities, by contract or otherwise. Notwithstanding
the foregoing, (x) a director, officer or employee of a person shall not, solely
by reason of such status, be considered an Affiliate of such person; and (y)
neither the Administrative Agent nor any Lender shall in any event be considered
an Affiliate of the Borrower or any other Credit Party or any of their
respective Subsidiaries.
"AGREEMENT" shall mean this Credit Agreement, as the same may be from
time to time further modified, amended and/or supplemented.
"APPLICABLE EURODOLLAR MARGIN" shall have the meaning provided in
section 2.8(g).
"APPLICABLE FACILITY FEE RATE" shall have the meaning provided in
section 4.1(a).
"APPLICABLE LENDING OFFICE" shall mean, with respect to each Lender,
(i) such Lender's Domestic Lending Office in the case of Borrowings consisting
of Prime Rate Loans (or, in the case of any Borrowings of Swing Line Revolving
Loans consisting of Money Market Rate Loans), and (ii) such Lender's Eurodollar
Lending Office in the case of Borrowings consisting of Eurodollar Loans.
"ASSET SALE" shall mean the sale, transfer or other disposition
(including by means of mergers, consolidations, and liquidations of a
corporation, partnership or limited liability company of the interests therein
of the Borrower or any Subsidiary) by the Borrower or any Subsidiary to any
person other than the Borrower or any Subsidiary of any of their respective
assets, PROVIDED that the term Asset Sale specifically excludes sales, transfers
or other dispositions of obsolete or excess furniture, fixtures, equipment or
other property, tangible or intangible, in each case made in the ordinary course
of business.
"ASSIGNMENT AGREEMENT" shall mean an Assignment Agreement substantially
in the form of Exhibit E hereto.
"AUTHORIZED OFFICER" shall mean any officer or employee of the Borrower
designated as such in writing to the Administrative Agent by the Chief Financial
Officer, the Secretary or an Assistant Secretary of the Borrower.
"BANKRUPTCY CODE" shall have the meaning provided in section 10.1(h).
"BORROWER" shall have the meaning provided in the first paragraph of
this Agreement.
"BORROWING" shall mean the incurrence of General Revolving Loans or
Swing Line Revolving Loans, as the case may be, consisting of one Type of Loan,
by the Borrower from all of the Lenders having Commitments in respect thereof on
a PRO RATA basis on a given date (or resulting from conversions on a given
date), having in the case of Eurodollar Loans the same Interest Period.
"BRIDGE FACILITY AGREEMENT" shall have the meaning provided in the
Preliminary Statements of this Agreement.
"BUSINESS DAY" shall mean (i) for all purposes other than as covered by
clause (ii) below, any day excluding Saturday, Sunday and any day which shall be
in the city in which the Payment Office is located a legal holiday or a day on
which banking institutions are authorized by law or other governmental actions
to close and (ii)
2
<PAGE> 8
with respect to all notices and determinations in connection with, and payments
of principal and interest on, Eurodollar Loans, any day which is a Business Day
described in clause (i) and which is also a day for trading by and between banks
in U.S. dollar deposits in the interbank Eurodollar market.
"CAPITAL LEASE" as applied to any person shall mean any lease of any
property (whether real, personal or mixed) by that person as lessee which, in
conformity with GAAP, is accounted for as a capital lease on the balance sheet
of that person.
"CAPITALIZED LEASE OBLIGATIONS" shall mean all obligations under
Capital Leases of the Borrower or any of its Subsidiaries in each case taken at
the amount thereof accounted for as liabilities identified as "capital lease
obligations" (or any similar words) on a consolidated balance sheet of the
Borrower and its Subsidiaries prepared in accordance with GAAP.
"CASH EQUIVALENTS" shall mean (i) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (PROVIDED that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than one year from the date of acquisition, (ii) U.S. dollar denominated time
deposits, certificates of deposit, money market deposits and bankers'
acceptances of (x) any Lender or (y) any bank whose short-term commercial paper
rating from S&P is at least A-2 or the equivalent thereof or from Moody's is at
least P-2 or the equivalent thereof (any such bank, an "APPROVED BANK"), in each
case with maturities of not more than two years from the date of acquisition,
(iii) repurchase obligations with a term not more than 30 days for underlying
securities of the types described in clause (i) entered into with any Lender or
Approved Bank, (iv) commercial paper issued by any Lender or Approved Bank or by
the parent company of any Lender or Approved Bank and commercial paper issued
by, or guaranteed by, any industrial or financial company with a short-term
commercial paper rating of at least A-2 or the equivalent thereof by S&P or at
least P-2 or the equivalent thereof by Moody's, or guaranteed by any industrial
company with a long term unsecured and unsupported debt rating of at least A or
A2, or the equivalent of each thereof, from S&P or Moody's, as the case may be,
and in each case maturing within 270 days after the date of acquisition,
PROVIDED that the aggregate principal amount of commercial paper so acquired
which is issued by any single issuer shall not exceed $40,000,000, (v)
securities with maturities of one year or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least A by S&P or A by Moody's, (vi) investments in money market
funds substantially all the assets of which are comprised of securities of the
types described in clauses (i) through (v) above, and (vii) investments in money
market funds utilized by a Lender or an Approved Bank in conjunction with
"sweep" accounts maintained for commercial customers.
"CASH PROCEEDS" shall mean, with respect to any Asset Sale, the
aggregate cash payments (including any cash received by way of deferred payment
pursuant to a note receivable issued in connection with such Asset Sale, other
than the portion of such deferred payment constituting interest, but only as and
when so received) received by the Borrower and/or any Subsidiary from such Asset
Sale.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as the same may be amended from time to
time, 42 U.S.C. ss. 9601 ET SEQ.
"CHANGE OF CONTROL" shall mean and include any of the following:
(i) during any period of two consecutive calendar years,
individuals who at the beginning of such period constituted the
Borrower's Board of Directors (together with any new directors whose
election by the Borrower's Board of Directors, or whose nomination for
election by the Borrower's shareholders, was (prior to the date of the
proxy or consent solicitation), approved by a vote of at least
two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or
nomination for election was previously so approved), cease for any
reason to constitute a majority of the directors then in office,
3
<PAGE> 9
(ii) any person or group (as such term is defined in section
13(d)(3) of the 1934 Act), other than (x) the Borrower, (y) any trustee
or other fiduciary holding securities under an employee benefit plan of
the Borrower and/or any of its Subsidiaries, and/or (z) the Current
Holder Group, shall acquire, directly or indirectly, beneficial
ownership (within the meaning of Rule 13d-3 and 13d-5 of the 1934 Act)
of more than 30%, on a fully diluted basis, of the voting interest in
the Borrower's capital stock,
(iii) the Current Holder Group shall, for any reason, cease to
have, directly or indirectly, beneficial ownership (within the meaning
of Rule 13d-3 and 13d-5 of the 1934 Act) of at least 30%, on a fully
diluted basis, of the voting interest in the Borrower's capital stock,
(iv) the full time active employment of Kevin B. Shaw as chief
executive officer of the Borrower shall be voluntarily terminated by
the Borrower or Mr. Shaw (other than by reason of death or disability),
unless a successor acceptable to the Required Lenders shall have been
appointed or elected and actually taken office within six months
following any such termination, in which case the name of such
successor shall be substituted for the name of the person he or she
replaces for purposes of this clause (iv),
(v) the shareholders of the Borrower approve (A) a merger or
consolidation of the Borrower with any other person, other than a
merger or consolidation which would result in the voting securities of
the Borrower outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted or
exchanged for voting securities of the surviving or resulting entity)
more than 75% of the combined voting power of the voting securities of
the Borrower or such surviving or resulting entity outstanding after
such merger or consolidation, or (B) a merger or consolidation effected
to implement a recapitalization of the Borrower (or similar
transaction), other than any such transaction in which no person or
group (as hereinabove defined) not excepted from the provisions of
clause (ii) above acquires more than 30% of the combined voting power,
on a fully diluted basis, of the Borrower's then outstanding voting
securities,
(vi) the shareholders of the Borrower approve a plan of
complete liquidation of the Borrower or an agreement or agreements for
the sale or disposition by the Borrower of all or substantially all of
the Borrower's assets, and/or
(vii) any "Change of Control" or similar term as defined in
any other agreement or instrument evidencing or governing Indebtedness
of the Borrower or any Subsidiary.
As used herein, the term "CURRENT HOLDER GROUP" shall mean the members of the
Board of Directors and the executive officers of the Borrower as of the
Effective Date, their spouses, children, parents and siblings, the trustee of
any trust created for the benefit of any such member of the Board of Directors,
officer or family member, the executor or administrator (in his or her capacity
as such) of the estate of any such member of the Board of Directors, officer or
family member, and any person who receives Class B Common Stock of the Borrower
under the last will and testament of, or under the laws of descent and
distribution from, any such member of the Board of Directors, officer or family
member.
"CLOSING DATE" shall mean the date, on or after the Effective Date,
upon which the conditions specified in section 6.1 are satisfied.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder.
Section references to the Code are to the Code, as in effect at the Effective
Date and any subsequent provisions of the Code, amendatory thereof, supplemental
thereto or substituted therefor.
"COLLATERAL" shall mean any collateral covered by any Security
Document.
"COLLATERAL AGENT" shall mean the Administrative Agent acting as
Collateral Agent for the Lenders
4
<PAGE> 10
pursuant to the Security Documents.
"COMMITMENT" shall mean with respect to each Lender its General
Revolving Commitment or its Swing Line Revolving Commitment, or both, as the
case may be.
"CONSOLIDATED CAPITAL EXPENDITURES" shall mean, for any period, the
aggregate of all expenditures (whether paid in cash or accrued as liabilities
and including in all events amounts expended or capitalized under Capital Leases
but excluding any amount representing capitalized interest) by the Borrower and
its Subsidiaries during that period that, in conformity with GAAP, are or are
required to be included in the property, plant or equipment reflected in the
consolidated balance sheet of the Borrower and its Subsidiaries.
"CONSOLIDATED EBIT" shall mean, for any period,
(A) Consolidated Net Income for such period; PLUS
(B) the sum of the amounts for such period included in
determining such Consolidated Net Income of (i) Total Interest Expense,
(ii) Total Income Tax Expense, (iii) amortization or write-off of
deferred financing costs, and (iv) extraordinary (and other one-time)
non-cash losses and charges; LESS
(C) gains on sales of assets (excluding sales in the ordinary
course of business) and other extraordinary gains and other one-time
non-cash gains; all as determined for the Borrower and its Subsidiaries
on a consolidated basis in accordance with GAAP;
PROVIDED that Consolidated EBIT for any period shall include the appropriate
financial items for any person or business which has been acquired by the
Borrower for any portion of such period prior to the date of acquisition which
are covered by audited financial statements of such person or business unit (or
unaudited financial statements, if such unaudited financial statements are
included in other audited consolidated or combined financial statements) which
have been delivered to the Administrative Agent, except that if any portion of
such period is not so covered by such audited (or unaudited, as aforesaid)
financial statements, the most recent corresponding period which is so covered
by audited (or unaudited, as aforesaid) financial statements so delivered shall
be used.
"CONSOLIDATED NET INCOME" shall mean for any period, the net income (or
loss), without deduction for minority interests, of the Borrower and its
Subsidiaries on a consolidated basis for such period taken as a single
accounting period determined in conformity with GAAP, PROVIDED that there shall
be excluded therefrom (i) the income, (or loss) of any entity (other than
Subsidiaries of the Borrower) in which the Borrower or any of its Subsidiaries
has a joint interest, except to the extent of the amount of dividends or other
distributions actually paid to the Borrower or any of its Subsidiaries during
such period, (ii) the income (or loss) of any entity accrued prior to the date
it becomes a Subsidiary of the Borrower or is merged into or consolidated with
the Borrower or any of its Subsidiaries or on which its assets are acquired by
the Borrower or any of its Subsidiaries, and (iii) the income of any Subsidiary
of the Borrower to the extent that the declaration or payment of dividends or
similar distributions by that Subsidiary of that income is not at the time
permitted by operation of the terms of its charter or any agreement, instrument,
judgment, decree, order, statute, rule or governmental regulation applicable to
that Subsidiary.
"CONSOLIDATED NET WORTH" shall mean at any time for the determination
thereof all amounts which, in conformity with GAAP, would be included under the
caption "total stockholders' equity" (or any like caption) on a consolidated
balance sheet of the Borrower as at such date, PROVIDED that in no event shall
Consolidated Net Worth include any amounts in respect of Redeemable Stock.
"CONVERTIBLE SUBORDINATED DEBENTURES DUE 2004" shall mean the
$100,000,000 aggregate principal amount of the Borrower's Convertible
Subordinated Debentures due 2004, issued by the Borrower prior to the date
hereof.
"CREDIT DOCUMENTS" shall mean this Agreement, the Notes, the Subsidiary
Guaranty and any Letter of
5
<PAGE> 11
Credit Document.
"CREDIT EVENT" shall mean the making of any Loans and/or the issuance
of any Letter of Credit.
"CREDIT PARTY" shall mean the Borrower and each of its Subsidiaries
which is a party to any Credit Document.
"DEFAULT" shall mean any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"DEFAULTING LENDER" shall mean any Lender with, respect to which a
Lender Default is in effect.
"DESIGNATED HEDGE AGREEMENT" shall mean any Hedge Agreement to which
the Borrower or any of its Subsidiaries is a party which, pursuant to a written
instrument signed by the Required Lenders, has been designated as a Designated
Hedge Agreement so that the Borrower's or Subsidiaries's counterparty's credit
exposure thereunder will be entitled to share in the benefits of the Subsidiary
Guaranty and the Security Documents to the extent such Subsidiary Guaranty or
Security Documents provide guarantees or collateral for creditors of the
Borrower or any Subsidiary under Designated Hedge Agreements. The Required
Lenders may impose as a condition to any designation of a Designated Hedge
Agreement a requirement that the counterparty enter into an intercreditor or
similar agreement with the Administrative Agent under which recoveries from the
Borrower and its Subsidiaries with respect to such Designated Hedge Agreement
will be shared in a manner consistent with the provisions of section 10.3
hereof.
"DOLLARS", "U.S. DOLLARS", "DOLLARS" and the sign "$" each means lawful
money of the United States.
"DOMESTIC LENDING OFFICE" shall mean, with respect to any Lender, the
office of such Lender specified as its Domestic Lending Office in Annex I or in
the Assignment Agreement pursuant to which it became a Lender, or such other
office of such Lender as such Lender may from time to time specify to the
Borrower and the Administrative Agent.
"EFFECTIVE DATE" shall have the meaning provided in section 12.10.
"ELIGIBLE TRANSFEREE" shall mean and include a commercial bank,
financial institution or other "accredited investor" (as defined in SEC
Regulation D), in each case which
(i) is not disapproved in writing by the Borrower in a notice
given to a requesting Lender and the Administrative Agent, specifying
the reasons for such disapproval, within five Business Days following
the giving of notice to the Borrower of the identity of any proposed
transferee (any such disapproval by the Borrower must be reasonable, it
being understood that increased costs under section 2.10 hereof shall
be deemed a reasonable basis for disapproval), PROVIDED that the
Borrower shall not be entitled to exercise the foregoing right of
disapproval if and so long as any Event of Default shall have occurred
and be continuing, and PROVIDED, FURTHER, that for purposes of
transfers by the initial Lender prior to the Syndication Date, those
financial institutions which the Administrative Agent has identified to
the Borrower prior to the Effective Date as potential Lenders hereunder
and which the Borrower indicated at such time were acceptable to it,
shall be considered Eligible Transferees; and
(ii) is not a direct competitor of the Borrower or engaged in
the same or similar principal lines of business as the Borrower and its
Subsidiaries considered as a whole, and is not an Affiliate of any such
competitor of the Borrower and its Subsidiaries considered as a whole.
"ENVIRONMENTAL CLAIMS" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance or violation, investigations or proceedings relating
in any way to any Environmental Law or any permit issued under any such law
(hereafter "CLAIMS"),
6
<PAGE> 12
including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting from
the storage, treatment or Release (as defined in CERCLA) of any Hazardous
Materials or arising from alleged injury or threat of injury to health, safety
or the environment.
"ENVIRONMENTAL LAW" shall mean any applicable Federal, state, foreign
or local statute, law, rule, regulation, ordinance, code, binding and
enforceable guideline, binding and enforceable written policy and rule of common
law now or hereafter in effect and in each case as amended, and any binding and
enforceable judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment issued to or
rendered against the Borrower or any of its Subsidiaries relating to the
environment, employee health and safety or Hazardous Materials, including,
without limitation, CERCLA; RCRA; the Federal Water Pollution Control Act, 33
U.S.C. ss. 2601 ET SEQ.; the Clean Air Act, 42 U.S.C. ss. 7401 ET SEQ.; the Safe
Drinking Water Act, 42 U.S.C. ss. 3803 ET SEQ.; the Oil Pollution Act of 1990,
33 U.S.C. ss. 2701 ET SEQ.; the Emergency Planning and the Community
Right-to-Know Act of 1986, 42 U.S.C. ss. 11001 ET SEQ., the Hazardous Material
Transportation Act, 49 U.S.C. ss. 1801 ET SEQ. and the Occupational Safety and
Health Act, 29 U.S.C. ss. 651 ET SEQ. (to the extent it regulates occupational
exposure to Hazardous Materials); and any state and local or foreign
counterparts or equivalents, in each case as amended from time to time.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated and rulings issued
thereunder. Section references to ERISA are to ERISA, as in effect at the
Effective Date and any subsequent provisions of ERISA, amendatory thereof,
supplemental thereto or substituted therefor.
"ERISA AFFILIATE" shall mean each person (as defined in section 3(9) of
ERISA) which together with the Borrower or a Subsidiary of the Borrower would be
deemed to be a "single employer" (i) within the meaning of section 414(b),(c),
(m) or (o) of the Code or (ii) as a result of the Borrower or a Subsidiary of
the Borrower being or having been a general partner of such person.
"EURODOLLAR LENDING OFFICE" shall mean, with respect to any Lender, the
office of such Lender specified as its Eurodollar Lending Office in Annex I or
in the Assignment Agreement pursuant to which it became a Lender, or such other
office or offices for Eurodollar Loans of such Lender as such Lender may from
time to time specify to the Borrower and the Administrative Agent.
"EURODOLLAR LOANS" shall mean each Loan bearing interest at the rates
provided in section 2.8(a)(ii).
"EURODOLLAR RATE" shall mean with respect to each Interest Period for a
Eurodollar Loan, (A) either (i) the rate per annum for deposits in Dollars of
amounts in same day funds comparable to the outstanding principal amount of the
Eurodollar Loan for which an interest rate is then being determined for a
maturity most nearly comparable to such Interest Period which appears on page
3750 of the Dow Jones Telerate Screen as of 11:00 A.M. (local time at the Notice
Office) on the date which is two Business Days prior to the commencement of such
Interest Period, or (ii) if such a rate does not appear on such page, an
interest rate per annum equal to the average (rounded upward to the nearest
whole multiple of 1/16 of 1% per annum, if such average is not such a multiple)
of the rate per annum at which deposits in Dollars are offered to each of the
Reference Banks by prime banks in the London interbank Eurodollar market for
deposits of amounts in Dollars in same day funds comparable to the outstanding
principal amount of the Eurodollar Loan for which an interest rate is then being
determined with maturities comparable to the Interest Period to be applicable to
such Eurodollar Loan, determined as of 11:00 A.M. (London time) on the date
which is two Business Days prior to the commencement of such Interest Period, in
each case divided (and rounded upward to the nearest whole multiple of 1/16th of
1%) by (B) a percentage equal to 100% minus the then stated maximum rate of all
reserve requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves and without benefit of credits for
proration, exceptions or offsets which may be available from time to time)
applicable to any member bank of the Federal Reserve System in respect of
Eurocurrency liabilities as defined in Regulation D (or any successor category
of liabilities under Regulation D).
7
<PAGE> 13
"EVENT OF DEFAULT" shall have the meaning provided in section 10.1.
"EXISTING INDEBTEDNESS" shall have the meaning provided in section
7.18.
"EXISTING INDEBTEDNESS AGREEMENTS" shall have the meaning provided in
section 7.18.
"EXISTING LETTER OF CREDIT" shall have the meaning provided in section
3.1(d).
"FACILITY" shall mean the General Revolving Facility or the Swing Line
Revolving Facility, as applicable.
"FACILITY FEE" shall have the meaning provided in section 4.1(a).
"FACING FEE" shall have the meaning provided in section 4.1(c).
"FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any period, a
fluctuating interest rate equal for each day during such period to the weighted
average of the rates on overnight Federal Funds transactions with members of the
Federal Reserve System arranged by Federal Funds brokers, as published for such
day (or, if such day is not a Business Day, for the next preceding Business Day)
by the Federal Reserve Bank of New York, or, if such rate is not so published
for any day which is a Business Day, the average of the quotations for such day
on such transactions received by the Administrative Agent from three Federal
Funds brokers of recognized standing selected by the Administrative Agent.
"FEES" shall mean all amounts payable pursuant to, or referred to in,
section 4.1.
"FOREIGN SUBSIDIARY" shall mean any Subsidiary (i) which is not
incorporated in the United States and substantially all of whose assets and
properties are located, or substantially all of whose business is carried on,
outside the United States, or (ii) substantially all of whose assets consist of
Subsidiaries that are Foreign Subsidiaries as defined in clause (i) of this
definition.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time; it being understood and
agreed that determinations in accordance with GAAP for purposes of section 9,
including defined terms as used therein, are subject (to the extent provided
therein) to sections 1.3 and 12.7(a).
"GENERAL REVOLVING COMMITMENT" shall mean, with respect to each Lender,
the amount, if any, set forth opposite such Lender's name in Annex I as its
"General Revolving Commitment" as the same may be reduced from time to time
pursuant to section 4.2, 4.3 and/or 10.2 or adjusted from time to time as a
result of assignments to or from such Lender pursuant to section 12.4.
"GENERAL REVOLVING FACILITY" shall mean the facility evidenced by the
Total General Revolving Commitment.
"GENERAL REVOLVING FACILITY PERCENTAGE" shall mean at any time for any
Lender with a General Revolving Commitment, the percentage obtained by dividing
such Lender's General Revolving Commitment by the Total General Revolving
Commitment, PROVIDED, that if the Total General Revolving Commitment has been
terminated, the General Revolving Facility Percentage for each Lender with a
General Revolving Commitment shall be determined by dividing such Lender's
General Revolving Commitment immediately prior to such termination by the Total
General Revolving Commitment immediately prior to such termination.
"GENERAL REVOLVING LOAN" shall have the meaning provided in section
2.1(a).
"GENERAL REVOLVING NOTE" shall have the meaning provided in section
2.6(a)(i).
8
<PAGE> 14
"GUARANTY OBLIGATIONS" shall mean as to any person (without
duplication) any obligation of such person guaranteeing any Indebtedness
("PRIMARY INDEBTEDNESS") of any other person (the "PRIMARY OBLIGOR") in any
manner, whether directly or indirectly, including, without limitation, any
obligation of such person, whether or not contingent, (a) to purchase any such
primary Indebtedness or any property constituting direct or indirect security
therefor, (b) to advance or supply funds (i) for the purchase or payment of any
such primary Indebtedness or (ii) to maintain working capital or equity capital
of the primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (c) to purchase property, securities or services primarily for
the purpose of assuring the owner of any such primary Indebtedness of the
ability of the primary obligor to make payment of such primary Indebtedness, or
(d) otherwise to assure or hold harmless the owner of such primary Indebtedness
against loss in respect thereof, PROVIDED, HOWEVER, that the term Guaranty
Obligation shall not include endorsements of instruments for deposit or
collection in the ordinary course of business. The amount of any Guaranty
Obligation shall be deemed to be an amount equal to the stated or determinable
amount of the primary Indebtedness in respect of which such Guaranty Obligation
is made or, if not stated or determinable, the maximum reasonably anticipated
liability in respect thereof (assuming such person is required to perform
thereunder) as determined by such person in good faith.
"HEDGE AGREEMENT" shall mean (i) any interest rate swap agreement, any
interest rate cap agreement, any interest rate collar agreement or other similar
agreement or arrangement designed to protect against fluctuations in interest
rates, and (ii) any currency swap agreement, forward currency purchase agreement
or similar agreement or arrangement designed to protect against fluctuations in
currency exchange rates.
"HAZARDOUS MATERIALS" shall mean (i) any petrochemical or petroleum
products, radioactive materials, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation, transformers or other equipment that
contain dielectric fluid containing levels of polychlorinated biphenyls, and
radon gas; and (ii) any chemicals, materials or substances defined as or
included in the definition of "hazardous substances", "hazardous wastes",
"hazardous materials", "restricted hazardous materials", "extremely hazardous
wastes", "restrictive hazardous wastes", "toxic substances", "toxic pollutants",
"contaminants" or "pollutants", or words of similar meaning and regulatory
effect, under any applicable Environmental Law.
"INDEBTEDNESS" of any person shall mean without duplication:
(i) all indebtedness of such person for borrowed money;
(ii) all bonds, notes, debentures and similar debt securities
of such person;
(iii) the deferred purchase price of capital assets or
services which in accordance with GAAP would be shown on the liability
side of the balance sheet of such person;
(iv) the face amount of all letters of credit issued for the
account of such person and, without duplication, all drafts drawn
thereunder;
(v) all Indebtedness of a second person secured by any Lien on
any property owned by such first person, whether or not such
Indebtedness has been assumed, up to the greater of (A) the portion of
such Indebtedness equivalent to the fair value of such property, and
(B) if such Indebtedness has been assumed by such first person, the
amount thereof so assumed;
(vi) all Capitalized Lease Obligations of such person;
(vii) the present value, determined on the basis of the
implicit interest rate, of all basic rental obligations under all
"synthetic" leases (I.E. leases accounted for by the lessee as
operating leases under which the lessee is the "owner" of the leased
property for Federal income tax purposes);
(viii) all obligations of such person to pay a specified
purchase price for goods or services
9
<PAGE> 15
whether or not delivered or accepted, I.E., take-or-pay and similar
obligations;
(ix) all net obligations of such person under Hedge
Agreements;
(x) the full outstanding balance of trade receivables, notes
or other instruments sold with full or limited recourse, other than
solely for purposes of collection of delinquent accounts;
(xi) the stated value, or liquidation value if higher, of all
Redeemable Stock of such person; and
(xii) all Guaranty Obligations of such person,
PROVIDED that neither trade payables and accrued expenses, in each case arising
in the ordinary course of business, nor obligations in respect of insurance
policies or performance or surety bonds which themselves are not guarantees of
Indebtedness (nor drafts, acceptances or similar instruments evidencing the same
nor obligations in respect of letters of credit supporting the payment of the
same), shall constitute Indebtedness.
"INTEREST COVERAGE RATIO" shall mean, for any Testing Period, the ratio
of (i) Consolidated EBIT to (ii) Total Interest Expense, in each case on a
consolidated basis for the Borrower and its Subsidiaries for such Testing
Period.
"INTEREST PERIOD" with respect to any Eurodollar Loan shall mean the
interest period applicable thereto, as determined pursuant to section 2.9.
"KEYBANK" shall mean KeyBank National Association, a national banking
association, together with its successors and assigns.
"LEASEHOLDS" of any person means all the right, title and interest of
such person as lessee or licensee in, to and under leases or licenses of land,
improvements and/or fixtures.
"LENDER" shall have the meaning provided in the first paragraph of this
Agreement.
"LENDER DEFAULT" shall mean (i) the refusal (which has not been
retracted) of a Lender in violation of the requirements of this Agreement to
make available its portion of any incurrence of Loans or to fund its portion of
any unreimbursed payment under section 3.4(c) or (ii) a Lender having notified
the Administrative Agent and/or the Borrower that it does not intend to comply
with the obligations under section 2.1 and/or section 3.4(c), in the case of
either (i) or (ii) as a result of the appointment of a receiver or conservator
with respect to such Lender at the direction or request of any regulatory agency
or authority.
"LENDER REGISTER" shall have the meaning provided in section 12.16.
"LETTER OF CREDIT" shall have the meaning provided in section 3.1(a).
"LETTER OF CREDIT DOCUMENTS" shall have the meaning specified in
section 3.2(a).
"LETTER OF CREDIT FEE" shall have the meaning provided in section
4.1(b).
"LETTER OF CREDIT ISSUER" shall mean (i) in respect of each Existing
Letter of Credit, the Lender that has issued same as of the Effective Date; and
(ii) in respect of any other Letter of Credit, (1) KeyBank, and/or (2) such
other Lender that is requested, and agrees, to so act by the Borrower, and is
approved by the Administrative Agent. Unless otherwise agreed between the
Borrower and KeyBank, KeyBank will be the only Letter of Credit Issuer.
"LETTER OF CREDIT OUTSTANDINGS" shall mean, at any time, the sum,
without duplication, of (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings.
10
<PAGE> 16
"LETTER OF CREDIT REQUEST" shall have the meaning provided in section
3.2(a).
"LIEN" shall mean any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement or any lease
in the nature thereof).
"LOAN" shall have the meaning provided in section 2.1.
"MARGIN STOCK" shall have the meaning provided in Regulation U.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on the
business, operations, property, assets, liabilities, condition (financial or
otherwise) or prospects of, when used with reference to the Borrower or any of
its Subsidiaries, the Borrower and its Subsidiaries, taken as a whole, or when
used with reference to any other person, such person and its Subsidiaries, taken
as a whole, as the case may be.
"MATERIAL SUBSIDIARY" shall mean, at any time, with reference to any
person, any Subsidiary of such person that (x) has assets at such time
comprising 5% or more of the consolidated assets of such person and its
Subsidiaries or (y) had net income in the most recently ended fiscal year of
such person comprising 5% or more of the consolidated net income of such person
and its Subsidiaries for such fiscal year.
"MATURITY DATE" shall mean May 31, 2002, unless earlier terminated, or
extended in accordance with section 4.4.
"MINIMUM BORROWING AMOUNT" shall mean (i) for General Revolving Loans
which are (A) Prime Rate Loans, $3,000,000, with minimum increments thereafter
of $1,000,000 and (B) Eurodollar Loans, $3,000,000, with minimum increments
thereafter of $1,000,000; and (ii) for Swing Line Revolving Loans, $250,000,
with minimum increments thereafter of $100,000.
"MONEY MARKET RATE LOAN" shall mean each Swing Line Revolving Loan
bearing interest at a rate provided in section 2.8(b)(ii).
"MOODY'S" shall mean Moody's Investors Service, Inc. and its
successors.
"MULTIEMPLOYER PLAN" shall mean a multiemployer plan, as defined in
section 4001(a)(3) of ERISA to which the Borrower or any ERISA Affiliate is
making or accruing an obligation to make contributions or has within any of the
preceding three plan years made or accrued an obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" shall mean an employee benefit plan, other
than a Multiemployer Plan, to which the Borrower or any ERISA Affiliate, and one
or more employers other than the Borrower or an ERISA Affiliate, is making or
accruing an obligation to make contributions or, in the event that any such plan
has been terminated, to which the Borrower or an ERISA Affiliate made or accrued
an obligation to make contributions during any of the five plan years preceding
the date of termination of such plan.
"NET CASH PROCEEDS" shall mean, with respect to any Asset Sale, the
Cash Proceeds resulting therefrom net of (i) reasonable and customary expenses
of sale incurred in connection with such Asset Sale, and other reasonable and
customary fees and expenses incurred, and all state, and local taxes paid or
reasonably estimated to be payable by such person, as a consequence of such
Asset Sale and the payment of principal, premium and interest of Indebtedness
secured by the asset which is the subject of the Asset Sale and required to be,
and which is, repaid under the terms thereof as a result of such Asset Sale,
(ii) amounts of any distributions payable to holders of minority interests in
the relevant person or in the relevant property or assets and (iii) incremental
income taxes paid or payable as a result thereof.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
11
<PAGE> 17
"NON-DEFAULTING LENDER" shall mean each Lender other than a Defaulting
Lender.
"NOTE" shall mean a General Revolving Note or a Swing Line Revolving
Note, as the case may be.
"NOTICE OF BORROWING" shall have the meaning provided in section
2.3(a).
"NOTICE OF CONVERSION" shall have the meaning provided in section 2.7.
"NOTICE OFFICE" shall mean the principal office of the Administrative
Agent. Such office is presently at Key Center, 127 Public Square, Cleveland,
Ohio 44114, Attention: Large Corporate Group (facsimile: (216) 689-4981). If the
Administrative Agent changes its principal office, or a successor Administrative
Agent is appointed as provided herein, the Notice Office will be such other
principal office, located in a city in the United States Eastern Time Zone, as
the Administrative Agent may designate to the Borrower.
"OBLIGATIONS" shall mean all amounts, direct or indirect, contingent or
absolute, of every type or description, and at any time existing, owing by the
Borrower or any other Credit Party to the Administrative Agent or any Lender
pursuant to the terms of this Agreement or any other Credit Document.
"PARTICIPANT" shall have the meaning provided in section 3.4(a).
"PAYMENT OFFICE" shall mean the principal office of the Administrative
Agent. Such office is presently at Key Center, 127 Public Square, Cleveland,
Ohio 44114, Attention: Large Corporate Group (telephone: (216) 689-4448;
facsimile: (216) 689-4981). If the Administrative Agent changes its principal
office, or a successor Administrative Agent is appointed as provided herein, the
Payment Office will be such other principal office, located in a city in the
United States Eastern Time Zone, as the Administrative Agent may designate to
the Borrower.
"PBGC" shall mean the Pension Benefit Guaranty Corporation established
pursuant to section 4002 of ERISA, or any successor thereto.
"PERMITTED LIENS" shall mean Liens described in section 9.3.
"PERSON" shall mean any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other enterprise
or any government or political subdivision or any agency, department or
instrumentality thereof.
"PLAN" shall mean any multiemployer or single-employer plan as defined
in section 4001 of ERISA, which is maintained or contributed to by (or to which
there is an obligation to contribute by) the Borrower or a Subsidiary of the
Borrower or an ERISA Affiliate, and each such plan for the five year period
immediately following the latest date on which the Borrower, or a Subsidiary of
the Borrower or an ERISA Affiliate maintained, contributed to or had an
obligation to contribute to such plan.
"PLEDGE AGREEMENT" shall have the meaning provided in section 6.1(c).
"PRIME RATE" shall mean, for any period, a fluctuating interest rate
per annum as shall be in effect from time to time which rate per annum shall at
all times be equal to the greater of (i) the rate of interest established by
KeyBank in Cleveland, Ohio, from time to time, as its prime rate, whether or not
publicly announced, which interest rate may or may not be the lowest rate
charged by it for commercial loans or other extensions of credit; and (ii) the
Federal Funds Effective Rate in effect from time to time PLUS 1/2 of 1% per
annum.
"PRIME RATE LOAN" shall mean each Loan bearing interest at the rate
provided in section 2.8(a)(i) or 2.8(b)(i).
12
<PAGE> 18
"PROHIBITED TRANSACTION" shall mean a transaction with respect to a
Plan that is prohibited under section 4975 of the Code or section 406 of ERISA
and not exempt under section 4975 of the Code or section 408 of ERISA.
"QUOTED RATE" shall have the meaning provided in section 2.3(b).
"RCRA" shall mean the Resource Conservation and Recovery Act, as the
same may be amended from time to time, 42 U.S.C.ss. 6901 ET SEQ.
"REAL PROPERTY" of any person shall mean all of the right, title and
interest of such person in and to land, improvements and fixtures, including
Leaseholds.
"REDEEMABLE STOCK" shall mean, with respect to any corporation, any
capital stock of such corporation, and with respect to any person which is not a
corporation, any equity interests of such person which are similar to capital
stock, in any such case which (i) is by its terms subject to mandatory
redemption, in whole or in part, pursuant to a sinking fund, scheduled
redemption or similar provisions, at any time prior to the Maturity Date; or
(ii) otherwise is required to be repurchased or retired on a scheduled date or
dates, upon the occurrence of any event or circumstance, at the option of the
holder or holders thereof, or otherwise, at any time prior to the Maturity Date,
other than any such repurchase or retirement occasioned by a "change of control"
or similar event.
"REFERENCE BANKS" shall mean (i) KeyBank, and (ii) any other Lender or
Lenders selected as a Reference Bank by the Administrative Agent and the
Required Lenders, PROVIDED, that if any of such Reference Banks is no longer a
Lender, such other Lender or Lenders as may be selected by the Administrative
Agent acting on instructions from the Required Lenders.
"REGULATION D" shall mean Regulation D of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing reserve requirements.
"REGULATION U" shall mean Regulation U of the Board of Governors of the
Federal Reserve System as from time to time in effect and any successor to all
or a portion thereof establishing margin requirements.
"REPORTABLE EVENT" shall mean an event described in section 4043 of
ERISA or the regulations thereunder with respect to a Plan, other than those
events as to which the notice requirement is waived under subsections .22, .23,
.25, .27, .28, .30, .31, .32, .34, .35, .63, .64, .65 or .67 of PBGC Regulation
section 4043.
"REQUIRED LENDERS" shall mean Non-Defaulting Lenders whose outstanding
General Revolving Loans and Unutilized General Revolving Commitments constitute
at least 66+2/3% of the sum of the total outstanding General Revolving Loans and
Unutilized General Revolving Commitments of Non-Defaulting Lenders (PROVIDED
that, for purposes hereof, neither the Borrower, nor any of its Affiliates,
shall be included in (i) the Lenders holding such amount of the General
Revolving Loans or having such amount of the Unutilized General Revolving
Commitments, or (ii) determining the aggregate unpaid principal amount of the
General Revolving Loans or Unutilized General Revolving Commitments).
"SALE AND LEASE-BACK TRANSACTION" shall mean any arrangement with any
person providing for the leasing by the Borrower or any Subsidiary of the
Borrower of any property (except for temporary leases for a term, including any
renewal thereof, of not more than one year and except for leases between the
Borrower and a Subsidiary or between Subsidiaries), which property has been or
is to be sold or transferred by the Borrower or such Subsidiary to such person.
"S&P" shall mean Standard & Poor's Ratings Group, a division of McGraw
Hill, Inc., and its successors.
"SEC" shall mean the United States Securities and Exchange Commission.
"SEC REGULATION D" shall mean Regulation D as promulgated under the
Securities Act of 1933, as
13
<PAGE> 19
amended, as the same may be in effect from time to time.
"SECTION 5.4(B)(ii) CERTIFICATE" shall have the meaning provided in
section 5.4(b)(ii).
"SECURITY DOCUMENTS" shall mean the Pledge Agreement and each other
document pursuant to which any Lien or security interest is granted by any
Credit Party to the Collateral Agent as security for any of the Obligations.
"STATED AMOUNT" of each Letter of Credit shall mean the maximum
available to be drawn thereunder (regardless of whether any conditions or other
requirements for drawing could then be met, but taking into account any drawings
which have already been made thereunder).
"SUBSIDIARY" of any person shall mean and include (i) any corporation
more than 50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such corporation
(irrespective of whether or not at the time stock of any class or classes of
such corporation shall have or might have voting power by reason of the
happening of any contingency) is at the time owned by such person directly or
indirectly through Subsidiaries and (ii) any partnership, association, joint
venture or other entity in which such person directly or indirectly through
Subsidiaries, has more than a 50% equity interest at the time. Unless otherwise
expressly provided, all references herein to "Subsidiary" shall mean a
Subsidiary of the Borrower.
"SUBSIDIARY GUARANTOR" shall mean any Subsidiary which is a party to
the Subsidiary Guaranty.
"SUBSIDIARY GUARANTY" shall have the meaning provided in section
6.1(c).
"SUBORDINATED INDEBTEDNESS" shall mean (i) the Convertible Subordinated
Debentures due 2004, and (ii) any other Indebtedness which has been subordinated
to the Obligations in such manner and to such extent as the Administrative Agent
(acting on instructions from the Required Lenders) may require.
"SWING LINE LENDER" shall have the meaning provided in the introductory
paragraph of this Agreement.
"SWING LINE REVOLVING COMMITMENT" shall mean, with respect to the Swing
Line Lender, the amount set forth opposite the Swing Line Lender's name in Annex
I as its "Swing Line Revolving Commitment" as the same may be reduced from time
to time pursuant to section 4.2, 4.3 and/or 10.2 or adjusted from time to time
as a result of assignments to or from the Swing Line Lender pursuant to section
12.4.
"SWING LINE REVOLVING FACILITY" shall mean the facility evidenced by
the Swing Line Revolving Commitment.
"SWING LINE REVOLVING LOAN" shall have the meaning provided in section
2.1(b).
"SWING LINE REVOLVING NOTE" shall have the meaning provided in section
2.6(a)(ii).
"SYNDICATION DATE" shall mean the earlier of (i) the date which is 60
days after the Closing Date, and (ii) the date which the Administrative Agent
determines in its sole discretion (and notifies the Borrower) that the primary
syndication by the initial Lender hereunder of portions of its General Revolving
Commitments to new Lenders has been completed.
"TESTING PERIOD" shall mean for determination a single period
consisting of the four consecutive fiscal quarters of the Borrower then last
ended (whether or not such quarters are all within the same fiscal year), EXCEPT
that if a particular provision of this Agreement indicates that a Testing Period
shall be of a different specified duration, such Testing Period shall consist of
the particular fiscal quarter or quarters of the Borrower then last ended
(whether or not such quarters are all within the same fiscal year) which are so
indicated in such provision.
"TOTAL COMMITMENT" shall mean the sum of the Commitments of the
Lenders.
14
<PAGE> 20
"TOTAL GENERAL REVOLVING COMMITMENT" shall mean the sum of the General
Revolving Commitments of the Lenders.
"TOTAL INCOME TAX EXPENSE" shall mean, for any period, all provisions
for taxes based on the net income of the Borrower or any of its Subsidiaries
(including, without limitation, any additions to such taxes, and any penalties
and interest with respect thereto), and all franchise taxes of the Borrower and
its Subsidiaries, all as determined for the Borrower and its Subsidiaries on a
consolidated basis in accordance with GAAP.
"TOTAL INDEBTEDNESS" shall mean the sum (without duplication) of the
following, for the Borrower and/or any of its Subsidiaries, all as determined on
a consolidated basis of:
(i) all indebtedness for borrowed money,
(ii) all bonds, notes, debentures and similar debt securities,
(iii) the deferred purchase price of capital assets or
services which in accordance with GAAP would be shown on the liability
side of a consolidated balance sheet of the Borrower and its
Subsidiaries,
(iv) all Indebtedness of a second person secured by any Lien
on any property owned by such first person, whether or not such
Indebtedness has been assumed, up to the greater of (A) the portion of
such Indebtedness equivalent to the fair value of such property, and
(B) if such Indebtedness has been assumed by such first person, the
amount thereof so assumed,
(v) all Capitalized Lease Obligations,
(vi) the present value, determined on the basis of the
implicit interest rate, of all basic rental obligations under all
"synthetic" leases (i.e. leases accounted for by the lessee as
operating leases under which the lessee is the "owner" of the leased
property for Federal income tax purposes,
(vii) the full outstanding balance of trade receivables sold
with full or limited recourse, other than solely for purposes of
collection of delinquent accounts, PROVIDED that if the structure of
any receivables sales program provides for "over-collateralization",
the outstanding balance of the trade receivables attributable to the
"over-collateralization" may be excluded, and
(viii) the stated value, or liquidation value if higher, of
all Redeemable Stock of such person,
PROVIDED that neither trade payables and accrued expenses, in each case arising
in the ordinary course of business, nor obligations in respect of insurance
policies or performance or surety bonds which themselves are not guarantees of
Indebtedness, shall be included.
"TOTAL INTEREST EXPENSE" shall mean, for any period, total interest
expense (including that which is capitalized and that which is attributable to
Capital Leases, in accordance with GAAP) of the Borrower and its Subsidiaries on
a consolidated basis with respect to all outstanding Indebtedness of the
Borrower and its Subsidiaries including, without limitation, all commissions,
discounts and other fees and charges owed with respect to letters of credit and
net costs under Hedge Agreements, but excluding, however, any amortization of
deferred financing costs, all as determined in accordance with GAAP.
"TOTAL SENIOR INDEBTEDNESS" shall mean at any time (i) Total
Indebtedness at such time, LESS (ii) the sum of the then outstanding principal
amount of (x) the Convertible Subordinated Debentures due 2004, PLUS any other
Subordinated Indebtedness of the Borrower.
"TYPE" shall mean any type of Loan determined with respect to the
interest option applicable thereto, I.E., a Prime Rate Loan, Eurodollar Loan or
Money Market Rate Loan.
15
<PAGE> 21
"UCC" shall mean the Uniform Commercial Code.
"UNFUNDED CURRENT LIABILITY" of any Plan shall mean the amount, if any,
by which the actuarial present value of the accumulated plan benefits under the
Plan as of the close of its most recent plan year exceeds the fair market value
of the assets allocable thereto, each determined in accordance with Statement of
Financial Accounting Standards No. 87, based upon the actuarial assumptions used
by the Plan's actuary in the most recent annual valuation of the Plan.
"UNITED STATES" and "U.S." each means United States of America.
"UNPAID DRAWING" shall have the meaning provided in section 3.3(a).
"UNUTILIZED GENERAL REVOLVING COMMITMENT" for any Lender at any time
shall mean the excess of (i) such Lender's General Revolving Commitment at such
time over (ii) the sum of the principal amount of General Revolving Loans made
by such Lender and outstanding at such time and (y) such Lender's General
Revolving Facility Percentage of Letter of Credit Outstandings at such time.
"UNUTILIZED SWING LINE REVOLVING COMMITMENT" for the Swing Line Lender
at any time shall mean the excess of (i) the Swing Line Revolving Commitment at
such time over (ii) the principal amount of Swing Line Revolving Loans
outstanding at such time.
"UNUTILIZED TOTAL GENERAL REVOLVING COMMITMENT" shall mean, at any
time, the excess of (i) the Total General Revolving Commitment at such time over
(ii) the sum of (x) the aggregate principal amount of all General Revolving
Loans then outstanding plus (y) the aggregate Letter of Credit Outstandings at
such time.
"VALUE" shall mean, with respect to a Sale and Lease-Back Transaction,
as of any particular time, the amount equal to the greater of (i) the net
proceeds of the sale or transfer of the property leased pursuant to such Sale
and Lease-Back Transaction or (ii) the fair value in the opinion of the
Borrower, acting in good faith, of such property at the time of entering into
such Sale and Lease-Back Transaction.
"WHOLLY-OWNED SUBSIDIARY" shall mean each Subsidiary of the Borrower at
least 95% of whose capital stock, equity interests and partnership interests,
other than director's qualifying shares or similar interests, are owned directly
or indirectly by the Borrower.
"WRITTEN", "WRITTEN" or "IN WRITING" shall mean any form of written
communication or a communication by means of telex, facsimile transmission,
telegraph or cable.
1.2. COMPUTATION OF TIME PERIODS. In this Agreement in the computation
of periods of time from a specified date to a later specified date, the word
"from" means "from and including" and the words "to" and "until" each means "to
but excluding".
1.3. ACCOUNTING TERMS. Except as otherwise specifically provided
herein, all terms of an accounting or financial nature shall be construed in
accordance with GAAP, as in effect from time to time; PROVIDED that, if the
Borrower notifies the Administrative Agent that the Borrower requests an
amendment to any provision hereof to eliminate the effect of any change
occurring after the Effective Date in GAAP or in the application thereof to such
provision (or if the Administrative Agent notifies the Borrower that the
Required Lenders request an amendment to any provision hereof for such
purposes), regardless of whether any such notice is given before or after such
change in GAAP or in the application thereof, then such provision shall be
interpreted on the basis of GAAP as in effect and applied immediately before
such change shall have become effective until such notice shall have been
withdrawn or such provision amended in accordance with the requirements of this
Agreement.
1.4. TERMS GENERALLY. The definitions of terms herein shall apply
equally to the singular and plural
16
<PAGE> 22
forms of the terms defined. Whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms. The words
"include", "includes" and "including" shall be deemed to be followed by the
phrase "without limitation". The word "will" shall be construed to have the same
meaning and effect as the word "shall". Unless the context requires otherwise,
(a) any definition of or reference to any agreement, instrument or other
document herein shall be construed as referring to such agreement, instrument or
other document as from time to time amended, supplemented or otherwise modified
(subject to any restrictions on such amendments, supplements or modifications
set forth herein), (b) any reference herein to any person shall be construed to
include such person's successors and assigns, (c) the words "herein", "hereof"
and "hereunder", and words of similar import, shall be construed to refer to
this Agreement in its entirety and not to any particular provision hereof, (d)
all references herein to sections, Annexes and Exhibits shall be construed to
refer to sections of, and Annexes and Exhibits to, this Agreement, and (e) the
words "asset" and "property" shall be construed to have the same meaning and
effect and to refer to any and all real property, tangible and intangible assets
and properties, including cash, securities, accounts and contract rights, and
interests in any of the foregoing.
SECTION 2. AMOUNT AND TERMS OF LOANS.
2.1. COMMITMENTS FOR LOANS. Subject to and upon the terms and
conditions herein set forth, each Lender severally agrees to make a loan or
loans (each a "LOAN" and, collectively, the "LOANS") to the Borrower, and the
Borrower shall be entitled to obtain Loans from the Lenders, which Loans shall
be drawn, to the extent such Lender has a Commitment under a Facility for the
Borrower, under the applicable Facility, as set forth below:
(a) GENERAL REVOLVING FACILITY. Loans to the Borrower under
the General Revolving Facility (each a "GENERAL REVOLVING LOAN" and,
collectively, the "GENERAL REVOLVING LOANS") (i) may be made at any
time and from time to time on and after the Closing Date and prior to
the Maturity Date; (ii) shall be made only in U.S. Dollars; (iii)
except as otherwise provided, may, at the option of the Borrower, be
incurred and maintained as, or converted into, General Revolving Loans
which are either Prime Rate Loans or Eurodollar Loans, PROVIDED that
all General Revolving Loans made as part of the same Borrowing shall,
unless otherwise specifically provided herein, consist of General
Revolving Loans of the same Type; (iv) may be repaid or prepaid and
reborrowed in accordance with the provisions hereof; (v) may only be
made if after giving effect thereto the Unutilized Total General
Revolving Commitment exceeds the outstanding Swing Line Revolving
Loans; and (vi) shall not exceed for any Lender at any time outstanding
that aggregate principal amount which, when added to the product at
such time of (A) such Lender's General Revolving Facility Percentage,
TIMES (B) the aggregate Letter of Credit Outstandings, equals the
General Revolving Commitment of such Lender at such time.
(b) SWING LINE REVOLVING FACILITY. Loans to the Borrower under
the Swing Line Revolving Facility (each a "SWING LINE REVOLVING LOAN"
and, collectively, the "SWING LINE REVOLVING LOANS") (i) may be made at
any time and from time to time on and after the Closing Date and prior
to the Maturity Date; (ii) shall be made only in U.S. Dollars; (iii)
shall have a maturity of 30 days or less; (iv) shall only be made by
the Swing Line Lender; (v) except as otherwise provided, may, at the
option of the Borrower, be incurred as Swing Line Revolving Loans which
are either Prime Rate Loans or Money Market Rate Loans, PROVIDED that
all Swing Line Revolving Loans made as part of the same Borrowing
shall, unless otherwise specifically provided herein, consist of Swing
Line Revolving Loans of the same Type; (vi) may be repaid or prepaid
and reborrowed in accordance with the provisions hereof; (vii) may only
be made if after giving effect thereto the Unutilized Total General
Revolving Commitment exceeds the outstanding Swing Line Revolving
Loans; and (viii) shall not exceed for the Swing Line Lender at any
time outstanding the Swing Line Revolving Commitment at such time.
2.2. MINIMUM BORROWING AMOUNTS, ETC.; PRO RATA BORROWINGS. (a) The
aggregate principal amount of each Borrowing by the Borrower shall not be less
than the Minimum Borrowing Amount. More than one Borrowing may be incurred by
the Borrower on any day, PROVIDED that (i) if there are two or more Borrowings
on a single day under the same Facility which consist of Eurodollar Loans, each
such Borrowing shall have a different
17
<PAGE> 23
initial Interest Period, and (ii) at no time shall there be more than 15
Borrowings under the General Revolving Facility which are Eurodollar Loans
outstanding hereunder.
(b) All Borrowings under a Facility shall be made by the Lenders PRO
RATA on the basis of their respective Commitments under such Facility. It is
understood that no Lender shall be responsible for any default by any other
Lender in its obligation to make Loans hereunder and that each Lender shall be
obligated to make the Loans provided to be made by it hereunder, regardless of
the failure of any other Lender to fulfill its Commitment hereunder.
2.3. NOTICE OF BORROWING. (a) Whenever the Borrower desires to incur
Loans, it shall give the Administrative Agent at its Notice Office,
(A) in the case of any Borrowing under the General Revolving
Facility of Eurodollar Loans to be made hereunder, prior to 11:00 A.M.
(local time at its Notice Office), at least three Business Days' prior
written or telephonic notice thereof (in the case of telephonic notice,
promptly confirmed in writing if so requested by the Administrative
Agent),
(B) in the case of any Borrowing under the General Revolving
Facility of Prime Rate Loans to be made hereunder, prior to 11:00 A.M.
(local time at its Notice Office) on the proposed date thereof written
or telephonic notice thereof (in the case of telephonic notice,
promptly confirmed in writing if so requested by the Administrative
Agent), or
(C) in the case of any Borrowing under the Swing Line
Revolving Facility of any Loans to be made hereunder, prior to 2:00
P.M. (local time at its Notice Office) on the proposed date thereof
(which shall in the case of any Money Market Rate Loans be within such
period as the Administrative Agent shall have specified for the Quoted
Rate for such Money Market Rate Loans) written or telephonic notice
thereof (in the case of telephonic notice, promptly confirmed in
writing if so requested by the Administrative Agent).
Each such notice (each such notice, a "NOTICE OF BORROWING") shall (if requested
by the Administrative Agent to be confirmed in writing), be substantially in the
form of Exhibit B-1, and in any event shall be irrevocable and shall specify:
(i) the Facility under which the Borrowing is to be incurred; (ii) the aggregate
principal amount of the Loans to be made pursuant to such Borrowing; (iii) the
date of the Borrowing (which shall be a Business Day); (iv) whether the
Borrowing shall consist of Prime Rate Loans, Eurodollar Loans or Money Market
Rate Loans; (v) if the Borrowing consists of Swing Line Revolving Loans, the
maturity date thereof (which shall not be more than 30 days), and if such Swing
Line Revolving Loans are Money Market Rate Loans, the Quoted Rate therefor; and
(vi) if the requested Borrowing consists of Eurodollar Loans, the Interest
Period to be initially applicable thereto. If the Borrower fails to specify in a
Notice of Borrowing the maturity date of any Swing Line Revolving Loans, such
maturity date shall be deemed to be 30 days. The Administrative Agent shall
promptly give each Lender which has a Commitment under any applicable Facility
written notice (or telephonic notice promptly confirmed in writing) of each
proposed Borrowing under the applicable Facility, of such Lender's proportionate
share thereof and of the other matters covered by the Notice of Borrowing
relating thereto.
(b) Whenever the Borrower proposes to submit a Notice of Borrowing with
respect to Swing Line Revolving Loans which will be Money Market Rate Loans, it
will prior to submitting such Notice of Borrowing notify the Administrative
Agent of its intention and request the Administrative Agent to quote a fixed or
floating interest rate (the "QUOTED RATE") to be applicable thereto prior to the
proposed maturity thereof. The Administrative Agent will immediately so notify
the Swing Line Lender, and if the Swing Line Lender is agreeable to a particular
interest rate for the proposed maturity of such Money Market Rate Loans if such
Loans are made on or prior to a specified date, the Administrative Agent shall
quote such interest rate to the Borrower as the Quoted Rate applicable to such
proposed Money Market Rate Loans if made on or before such specified date for a
maturity as so proposed by the Borrower. The Swing Line Lender contemplates that
any Quoted Rate will be a rate of interest which reflects a margin corresponding
to (or greater than) the Applicable Eurodollar Margin in effect at the time of
quotation of
18
<PAGE> 24
any Quoted Rate, over the then prevailing Federal Funds Effective Rate, or a
commercial paper, call money, overnite repurchase or other commonly quoted
interest rate, in each case as selected by the Swing Line Lender. Nothing herein
shall permit or obligate any Lender other than the Swing Line Lender to approve
or agree to a Quoted Rate.
(c) Without in any way limiting the obligation of the Borrower to
confirm in writing any telephonic notice permitted to be given hereunder, the
Administrative Agent may act prior to receipt of written confirmation without
liability upon the basis of such telephonic notice believed by the
Administrative Agent in good faith to be from an Authorized Officer of the
Borrower entitled to give telephonic notices under this Agreement on behalf of
the Borrower. In each such case, the Administrative Agent's record of the terms
of such telephonic notice shall be conclusive absent manifest error.
2.4. DISBURSEMENT OF FUNDS. (a) No later than (x) 2:00 P.M. (local time
at the Payment Office) on the date specified in each Notice of Borrowing
relating to General Revolving Loans, or (y) 2:30 P.M. (local time at the Payment
Office) on the date specified in each Notice of Borrowing relating to Swing Line
Revolving Loans, each Lender with a Commitment under the Facility under which
any Borrowing pursuant to such Notice of Borrowing is to be made will make
available its PRO RATA share, if any, of each Borrowing under such Facility
requested to be made on such date in the manner provided below. All amounts
shall be made available to the Administrative Agent in U.S. dollars and
immediately available funds at the Payment Office and the Administrative Agent
promptly will make available to the Borrower by depositing to its account at the
Payment Office the aggregate of the amounts so made available in the type of
funds received. Unless the Administrative Agent shall have been notified by any
Lender prior to the date of Borrowing that such Lender does not intend to make
available to the Administrative Agent its portion of the Borrowing or Borrowings
to be made on such date, the Administrative Agent may assume that such Lender
has made such amount available to the Administrative Agent on such date of
Borrowing, and the Administrative Agent, in reliance upon such assumption, may
(in its sole discretion and without any obligation to do so) make available to
the Borrower a corresponding amount. If such corresponding amount is not in fact
made available to the Administrative Agent by such Lender and the Administrative
Agent has made available same to the Borrower, the Administrative Agent shall be
entitled to recover such corresponding amount from such Lender. If such Lender
does not pay such corresponding amount forthwith upon the Administrative Agent's
demand therefor, the Administrative Agent shall promptly notify the Borrower,
and the Borrower shall immediately pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to recover
from such Lender or the Borrower, as the case may be, interest on such
corresponding amount in respect of each day from the date such corresponding
amount was made available by the Administrative Agent to the Borrower to the
date such corresponding amount is recovered by the Administrative Agent, at a
rate per annum equal to (x) if paid by such Lender, the overnight Federal Funds
Effective Rate or (y) if paid by the Borrower, the then applicable rate of
interest, calculated in accordance with section 2.8, for the respective Loans
(but without any requirement to pay any amounts in respect thereof pursuant to
section 2.11).
(b) Nothing herein and no subsequent termination of the Commitments
pursuant to section 4.2 or 4.3 shall be deemed to relieve any Lender from its
obligation to fulfill its commitments hereunder and in existence from time to
time or to prejudice any rights which the Borrower may have against any Lender
as a result of any default by such Lender hereunder.
2.5. REFUNDING OF, OR PARTICIPATION IN, SWING LINE REVOLVING LOANS. (a)
If any Event of Default exists, the Swing Line Lender may, in its sole and
absolute discretion, direct that the Swing Line Revolving Loans owing to it be
refunded by delivering a notice to such effect to the Administrative Agent,
specifying the aggregate principal amount thereof (a "NOTICE OF SWING LINE
REFUNDING"). Promptly upon receipt of a Notice of Swing Line Refunding, the
Administrative Agent shall give notice of the contents thereof to the Lenders
with General Revolving Commitments and, unless an Event of Default specified in
section 10.1(h) in respect of the Borrower has occurred, the Borrower. Each such
Notice of Swing Line Refunding shall be deemed to constitute delivery by the
Borrower of a Notice of Borrowing requesting General Revolving Loans consisting
of Prime Rate Loans in the amount of the Swing Line Revolving Loans to which it
relates. Each Lender with a General Revolving Commitment (including the Swing
Line Lender, in its capacity as a Lender) hereby unconditionally agrees
(notwithstanding that any of the conditions specified in section 6.2 hereof or
elsewhere in this Agreement shall not have been satisfied,
19
<PAGE> 25
but subject to the provisions of paragraph (b) below) to make a General
Revolving Loan to the Borrower in an amount equal to such Lender's General
Revolving Facility Percentage of the aggregate amount of the Swing Line
Revolving Loans to which such Notice of Swing Line Refunding relates. Each such
Lender shall make the amount of such General Revolving Loan available to the
Administrative Agent in immediately available funds at the Payment Office not
later than 2:00 P.M. (local time at the Payment Office), if such notice is
received by such Lender prior to 11:00 A.M. (local time at its Domestic Lending
Office), or not later than 2:00 P.M. (local time at the Payment Office) on the
next Business Day, if such notice is received by such Lender after such time.
The proceeds of such General Revolving Loans shall be made immediately available
to the Swing Line Lender and applied by it to repay the principal amount of the
Swing Line Revolving Loans to which such Notice of Swing Line Refunding related.
The Borrower irrevocably and unconditionally agrees that, notwithstanding
anything to the contrary contained in this Agreement, General Revolving Loans
made as herein provided in response to a Notice of Swing Line Refunding shall
constitute General Revolving Loans hereunder consisting of Prime Rate Loans.
(b) If prior to the time a General Revolving Loan would otherwise have
been made as provided above as a consequence of a Notice of Swing Line
Refunding, any of the events specified in section 10.1(h) shall have occurred in
respect of the Borrower or one or more of the Lenders with General Revolving
Commitments shall determine that it is legally prohibited from making a General
Revolving Loan under such circumstances, each Lender (other than the Swing Line
Lender), or each Lender (other than the Swing Line Lender) so prohibited, as the
case may be, shall, on the date such General Revolving Loan would have been made
by it (the "PURCHASE DATE"), purchase an undivided participating interest in the
outstanding Swing Line Revolving Loans to which such Notice of Swing Line
Refunding related, in an amount (the "SWING LINE PARTICIPATION AMOUNT") equal to
such Lender's General Revolving Facility Percentage of such Swing Line Revolving
Loans. On the Purchase Date, each such Lender or each such Lender so prohibited,
as the case may be, shall pay to the Swing Line Lender, in immediately available
funds, such Lender's Swing Line Participation Amount, and promptly upon receipt
thereof the Swing Line Lender shall, if requested by such other Lender, deliver
to such Lender a participation certificate, dated the date of the Swing Line
Lender's receipt of the funds from, and evidencing such Lender's participating
interest in such Swing Line Revolving Loans and its Swing Line Participation
Amount in respect thereof. If any amount required to be paid by a Lender to the
Swing Line Lender pursuant to the above provisions in respect of any Swing Line
Participation Amount is not paid on the date such payment is due, such Lender
shall pay to the Swing Line Lender on demand interest on the amount not so paid
at the overnight Federal Funds Effective Rate from the due date until such
amount is paid in full.
(c) Whenever, at any time after the Swing Line Lender has received from
any other Lender such Lender's Swing Line Participation Amount, the Swing Line
Lender receives any payment from or on behalf of the Borrower on account of the
related Swing Line Revolving Loans, the Swing Line Lender will promptly
distribute to such Lender its General Revolving Facility Percentage of such
payment on account of its Swing Line Participation Amount (appropriately
adjusted, in the case of interest payments, to reflect the period of time during
which such Lender's participating interest was outstanding and funded);
PROVIDED, HOWEVER, that in the event such payment received by the Swing Line
Lender is required to be returned, such Lender will return to the Swing Line
Lender any portion thereof previously distributed to it by the Swing Line
Lender.
(d) Each Lender's obligation to make General Revolving Loans and/or to
purchase participations in connection with a Notice of Swing Line Refunding
(which shall in all events be within such Lender's Unutilized General Revolving
Commitment, taking into account all outstanding participations in connection
with Swing Line Refundings) shall be subject to the conditions that:
(i) such Lender shall have received a Notice of Swing Line
Refunding complying with the provisions hereof, and
(ii) at the time the Swing Line Revolving Loans which are the
subject of such Notice of Swing Line Refunding were made, the Swing
Line Lender had no actual written notice from another Lender that an
Event of Default had occurred and was continuing),
20
<PAGE> 26
but otherwise shall be absolute and unconditional, shall be solely for the
benefit of the Swing Line Lender, and shall not be affected by any circumstance,
including, without limitation, (A) any set-off, counterclaim, recoupment,
defense or other right which such Lender may have against any other Lender, any
Credit Party, or any other person, or any Credit Party may have against any
Lender or other person, as the case may be, for any reason whatsoever; (B) the
occurrence or continuance of a Default or Event of Default; (C) any event or
circumstance involving a Material Adverse Effect upon the Borrower; (D) any
breach of any Credit Document by any party thereto; or (E) any other
circumstance, happening or event, whether or not similar to any of the
foregoing.
2.6. NOTES. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made to it by each Lender shall be evidenced (i) if
General Revolving Loans, by a promissory note substantially in the form of
Exhibit A-1 with blanks appropriately completed in conformity herewith (each a
"GENERAL REVOLVING NOTE" and, collectively, the "GENERAL REVOLVING NOTES"), and
(ii) if Swing Line Revolving Loans, by a promissory note substantially in the
form of Exhibit A-2 with blanks appropriately completed in conformity herewith
(the "SWING LINE REVOLVING NOTE").
(b) The General Revolving Note issued to a Lender with a General
Revolving Commitment shall: (i) be executed by the Borrower; (ii) be payable to
the order of such Lender and be dated on or prior to the date the first Loan
evidenced thereby is made; (iii) be in a stated principal amount equal to the
General Revolving Commitment of such Lender and be payable in the principal
amount of General Revolving Loans evidenced thereby; (iv) mature on the Maturity
Date; (v) bear interest as provided in section 2.8 in respect of the Prime Rate
Loans and Eurodollar Loans, as the case may be, evidenced thereby; (vi) be
subject to mandatory prepayment as provided in section 5.2: and (vii) be
entitled to the benefits of this Agreement and the other Credit Documents.
(c) The Swing Line Revolving Note issued to the Swing Line Lender
shall: (i) be executed by the Borrower; (ii) be payable to the order of such
Lender and be dated on or prior to the date the first Loan evidenced thereby is
made; (iii) be in a stated principal amount equal to the Swing Line Revolving
Commitment of such Lender and be payable in the principal amount of Swing Line
Revolving Loans evidenced thereby; (iv) mature as to any Swing Line Revolving
Loan evidenced thereby on the maturity date, not later than the 30th day
following the date such Swing Line Revolving Loan was made, specified in the
applicable Notice of Borrowing; (v) bear interest as provided in section 2.8 in
respect of the Prime Rate Loans or Money Market Rate Loans, as the case may be,
evidenced thereby; (vi) be subject to mandatory prepayment as provided in
section 5.2; and (vii) be entitled to the benefits of this Agreement and the
other Credit Documents.
(d) Each Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of any Note, endorse on the reverse side thereof or the grid attached
thereto the outstanding principal amount of Loans evidenced thereby. Failure to
make any such notation or any error in any such notation shall not affect the
Borrower's obligations in respect of such Loans.
2.7. CONVERSIONS OF GENERAL REVOLVING LOANS. The Borrower shall have
the option to convert on any Business Day all or a portion at least equal to the
applicable Minimum Borrowing Amount of the outstanding principal amount of the
outstanding Loans comprising a Borrowing under the General Revolving Facility
into a Borrowing or Borrowings under the same Facility of the other Type of Loan
which can be made pursuant to such Facility, PROVIDED that: (i) no partial
conversion of a Borrowing of Eurodollar Loans shall reduce the outstanding
principal amount of the Eurodollar Loans made pursuant to such Borrowing to less
than the Minimum Borrowing Amount applicable thereto; (ii) any conversion of
Eurodollar Loans into Prime Rate Loans shall be made on, and only on, the last
day of an Interest Period for such Eurodollar Loans; (iii) Prime Rate Loans may
only be converted into Eurodollar Loans if no Default under section 10.1(a) or
Event of Default is in existence on the date of the conversion unless the
Required Lenders otherwise agree; and (iv) Borrowings of Eurodollar Loans
resulting from this section 2.7 shall conform to the requirements of section
2.2. Each such conversion shall be effected by the Borrower giving the
Administrative Agent at its Notice Office, prior to 11:00 A.M. (local time at
such Notice Office), at least three Business Days' (or prior to 11:00 A.M.
(local time at such Notice Office) same Business Day's, in the case of a
conversion into Prime Rate Loans) prior written notice (or telephonic notice
promptly confirmed in writing if so requested by the Administrative Agent) (each
a "NOTICE OF CONVERSION"), substantially in
21
<PAGE> 27
the form of Exhibit B-2, specifying the Loans to be so converted, the Type of
Loans to be converted into and, if to be converted into a Borrowing of
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Administrative Agent shall give each Lender prompt notice of any such proposed
conversion affecting any of its Loans. For the avoidance of doubt, the
prepayment or repayment of any Loans out of the proceeds of other Loans by the
Borrower is not considered a conversion of Loans into other Loans.
2.8. INTEREST. (a) The unpaid principal amount of each General
Revolving Loan which is (i) a Prime Rate Loan shall bear interest from the date
of the Borrowing thereof until maturity (whether by acceleration or otherwise)
at a fluctuating rate per annum which shall at all times be equal to the Prime
Rate in effect from time to time; and (ii) a Eurodollar Loan shall bear interest
from the date of the Borrowing thereof until maturity (whether by acceleration
or otherwise) at a rate per annum which shall at all times be the Applicable
Eurodollar Margin (as defined below) for such General Revolving Loan PLUS the
relevant Eurodollar Rate.
(b) The unpaid principal amount of each Swing Line Revolving Loan which
is (i) a Prime Rate Loan shall bear interest from the date of the Borrowing
thereof until maturity (whether by acceleration or otherwise) at a fluctuating
rate per annum which shall at all times be equal to the Prime Rate in effect
from time to time; and (ii) a Money Market Rate Loan shall bear interest from
the date of the Borrowing thereof until maturity (whether by acceleration or
otherwise) at a rate per annum which shall be equal to the Quoted Rate therefor.
(c) Notwithstanding the above provisions, if a Default under section
10.1(a) is in existence, or an Event of Default is in existence and the
Administrative Agent or any Lender shall have notified the Borrower thereof in
writing, all outstanding amounts of principal and, to the extent permitted by
law, all overdue interest, in respect of each Loan shall bear interest, payable
on demand, at a rate per annum equal to 2% per annum above the interest rate
otherwise applicable thereto. If any amount (other than the principal of and
interest on the Loans) payable by the Borrower under the Credit Documents is not
paid when due, such amount shall bear interest, payable on demand, at a rate per
annum equal to the Prime Rate in effect from time to time PLUS 2% per annum.
(d) Interest shall accrue from and including the date of any Borrowing
to but excluding the date of any prepayment or repayment thereof and shall be
payable:
(i) in the case of any Swing Line Revolving Loan, (A) in
advance on a nonrefundable basis, if so agreed by the Borrower, or (B)
in all other cases, on any prepayment (on the amount prepaid), at
maturity (whether by acceleration or otherwise) and, after such
maturity, on demand; and
(ii) in the case of any General Revolving Loan, (A) which is a
Prime Rate Loan, quarterly in arrears on the last Business Day of
March, June, September and December, (B) which is a Eurodollar Loan, on
the last day of each Interest Period applicable thereto and, in the
case of an Interest Period in excess of three months, on the dates
which are successively three months after the commencement of such
Interest Period, and (C) in respect of each Loan, on any prepayment or
conversion (on the amount prepaid or converted), at maturity (whether
by acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in accordance
with section 12.7(b).
(f) Each Reference Bank agrees to furnish the Administrative Agent
timely information for the purpose of determining the Eurodollar Rate for any
Borrowing consisting of Eurodollar Loans. If any one or more of the Reference
Banks shall not timely furnish such information, the Administrative Agent shall
determine the Eurodollar Rate on the basis of timely information furnished by
the remaining Reference Banks. The Administrative Agent upon determining the
interest rate for any Borrowing shall promptly notify the Borrower and the
Lenders thereof.
(g) As used herein, the term "APPLICABLE EURODOLLAR MARGIN", as applied
to any Loan which is a Eurodollar Loan, means the particular rate per annum
determined by the Administrative Agent in accordance with the Pricing Grid Table
which appears below, based on the Borrower's Interest Coverage Ratio for its
most recent
22
<PAGE> 28
Testing Period which consists of a single fiscal quarter, and the following
provisions:
(i) Initially, until changed hereunder in accordance with the
following provisions, the Applicable Eurodollar Margin will be 150
basis points per annum.
(ii) Commencing with the fiscal quarter of the Borrower ended
on or nearest to June 30, 1998, and continuing for each fiscal quarter
thereafter, the Administrative Agent will determine the Applicable
Eurodollar Margin for any Loan in accordance with the Pricing Grid
Table, based on the Borrower's Interest Coverage Ratio for its most
recent Testing Period which consists of a single fiscal quarter.
Changes in the Applicable Eurodollar Margin based upon changes in such
ratio shall become effective on the first day of the month following
the receipt by the Administrative Agent pursuant to section 8.1(b) of
the quarterly financial statements of the Borrower, accompanied by the
certificate and calculations referred to in section 8.1(c),
demonstrating the computation of such ratio, based upon the ratio in
effect at the end of the Testing Period which is covered by such
quarterly financial statements, PROVIDED, HOWEVER, that if any such
quarterly financial statements, or the related certificate referred to
in section 8.1(c), are not timely delivered, the Administrative Agent
may determine the Applicable Eurodollar Margin based upon a good faith
estimate by the Borrower of its Interest Coverage Ratio for its most
recent Testing Period which consists of a single fiscal quarter,
PROVIDED, FURTHER, that if upon delivery of such delinquent quarterly
financial statements and related certificate, such financial statements
indicate that such good faith estimate was incorrect and, as a result
thereof, the Applicable Eurodollar Margin for any Loans was too low at
such determination, the Applicable Eurodollar Margin for such Loans
shall be increased, as appropriate, with retroactive effect to the date
of the change made on the basis of such determination, and the Borrower
will immediately pay to the Administrative Agent, for the account of
the Lenders having Commitments in respect of the Facility under which
such Loans were incurred all additional interest due by reason of such
increased Applicable Eurodollar Margin.
(iii) Any changes in the Applicable Eurodollar Margin shall be
determined by the Administrative Agent in accordance with the above
provisions and the Administrative Agent will promptly provide notice of
such determinations to the Borrower and the Lenders. Any such
determination by the Administrative Agent pursuant to this section
2.8(g) shall be conclusive and binding absent manifest error.
PRICING GRID TABLE
(EXPRESSED IN BASIS POINTS)
<TABLE>
<CAPTION>
====================================================================================================================
APPLICABLE APPLICABLE
INTEREST COVERAGE RATIO EURODOLLAR FACILITY
FOR A TESTING PERIOD MARGIN FEE RATE
CONSISTING OF A SINGLE FISCAL QUARTER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[greater than or equal to] 5.00 to 1.00 37.50 12.50
- --------------------------------------------------------------------------------------------------------------------
[greater than or equal to] 4.00 to 1.00 and [less than] 5.00 to 1.00 62.50 12.50
- --------------------------------------------------------------------------------------------------------------------
[greater than or equal to] 3.50 to 1.00 and [less than] 4.00 to 1.00 102.50 17.50
- --------------------------------------------------------------------------------------------------------------------
[greater than or equal to] 3.00 to 1.00 and [less than] 3.50 to 1.00 125.00 25.00
- --------------------------------------------------------------------------------------------------------------------
[greater than or equal to] 2.50 to 1.00 and [less than] 3.00 to 1.00 137.50 37.50
- --------------------------------------------------------------------------------------------------------------------
[greater than or equal to] 2.25 to 1.00 and [less than] 2.50 to 1.00 150.00 50.00
====================================================================================================================
</TABLE>
23
<PAGE> 29
<TABLE>
<CAPTION>
====================================================================================================================
APPLICABLE APPLICABLE
INTEREST COVERAGE RATIO EURODOLLAR FACILITY
FOR A TESTING PERIOD MARGIN FEE RATE
CONSISTING OF A SINGLE FISCAL QUARTER
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
[less than] 2.25 to 1.00 162.50 50.00
====================================================================================================================
</TABLE>
2.9. INTEREST PERIODS. (a) At the time the Borrower gives a Notice of
Borrowing or Notice of Conversion in respect of the making of, or conversion
into, a Borrowing of Eurodollar Loans (in the case of the initial Interest
Period applicable thereto) or prior to 11:00 A.M. (local time at the applicable
Notice Office) on the third Business Day prior to the expiration of an Interest
Period applicable to a Borrowing of Eurodollar Loans, it shall have the right to
elect by giving the Administrative Agent written or telephonic notice (in the
case of telephonic notice, promptly confirmed in writing if so requested by the
Administrative Agent) of the Interest Period applicable to such Borrowing, which
Interest Period shall, at the option of the Borrower, be a one, two, three or
six month period. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Prime Rate
Loans) and each Interest Period occurring thereafter in respect of such
Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, PROVIDED that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iv) subject to the foregoing clauses (i) through (iii), (A)
only a one month Interest Period shall be available to be selected
prior to the Syndication Date; and (B) all General Revolving Loans
which constitute Eurodollar Loans and are outstanding during said
period shall have been incurred or converted into one or more
Borrowings, with all such Borrowings to have an Interest Period which
commences and ends on the same date;
(v) no Interest Period for any Loan may be selected which
would end after the Maturity Date; and
(vi) no Interest Period may be elected at any time when a
Default under section 10.1(a) or an Event of Default is then in
existence unless the Required Lenders otherwise agree.
(b) If upon the expiration of any Interest Period the Borrower has
failed to (or may not) elect a new Interest Period to be applicable to the
respective Borrowing of Eurodollar Loans as provided above, the Borrower shall
be deemed to have elected to convert such Borrowing to Prime Rate Loans
effective as of the expiration date of such current Interest Period.
2.10. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that (x) in
the case of clause (i) below, the Administrative Agent or (y) in the case of
clauses (ii) and (iii) below, any Lender, shall have determined on a reasonable
basis (which determination shall, absent manifest error, be final and conclusive
and binding upon all
24
<PAGE> 30
parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder in an
amount which such Lender deems material with respect to any Eurodollar
Loans (other than any increased cost or reduction in the amount
received or receivable resulting from the imposition of or a change in
the rate of taxes or similar charges) because of (x) any change since
the Effective Date in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the
force of law), or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves includable in the Eurodollar Rate pursuant
to the definition thereof) and/or (y) other circumstances adversely
affecting the interbank Eurodollar market or the position of such
Lender in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by such Lender in
good faith with any change since the Effective Date in any law,
governmental rule, regulation, guideline or order, or the
interpretation or application thereof, or would conflict with any
thereof not having the force of law but with which such Lender
customarily complies or has become impracticable as a result of a
contingency occurring after the Effective Date which materially
adversely affects the interbank Eurodollar market;
THEN, and in any such event, such Lender (or the Administrative Agent in the
case of clause (i) above) shall (x) on or promptly following such date or time
and (y) within 10 Business Days of the date on which such event no longer exists
give notice (by telephone confirmed in writing) to the Borrower and to the
Administrative Agent of such determination (which notice the Administrative
Agent shall promptly transmit to each of the other applicable Lenders).
Thereafter (x) in the case of clause (i) above, Eurodollar Loans shall no longer
be available until such time as the Administrative Agent notifies the Borrower
and the Lenders that the circumstances giving rise to such notice by the
Administrative Agent no longer exist, and any Notice of Borrowing or Notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred or converted shall be deemed rescinded by the Borrower or, in
the case of a Notice of Borrowing, shall, at the option of the Borrower, be
deemed converted into a Notice of Borrowing for Prime Rate Loans to be made on
the date of Borrowing contained in such Notice of Borrowing, (y) in the case of
clause (ii) above, the Borrower shall pay to such Lender, upon written demand
therefor, such additional amounts (in the form of an increased rate of, or a
different method of calculating, interest or otherwise as such Lender shall
determine) as shall be required to compensate such Lender, for such increased
costs or reductions in amounts receivable hereunder (a written notice as to the
additional amounts owed to such Lender, showing the basis for the calculation
thereof, which basis must be reasonable, submitted to the Borrower by such
Lender shall, absent manifest error, be final and conclusive and binding upon
all parties hereto) and (z) in the case of clause (iii) above, the Borrower
shall take one of the actions specified in section 2.10(b) as promptly as
possible and, in any event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in section 2.10(a)(ii) or (iii), the Borrower may (and
in the case of a Eurodollar Loan affected pursuant to section 2.10(a)(iii) the
Borrower shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, by giving the Administrative Agent telephonic notice
(confirmed promptly in writing) thereof on the same date that the Borrower was
notified by a Lender pursuant to section 2.10(a)(ii) or (iii), cancel said
Borrowing, convert the related Notice of Borrowing into one requesting a
Borrowing of Prime Rate Loans or require the affected Lender to make its
requested Loan as a Prime Rate Loan, or (ii) if the affected Eurodollar Loan is
then outstanding, upon at least one Business Day's notice to the Administrative
Agent, require the affected Lender to convert each such Eurodollar Loan into a
Prime Rate Loan, PROVIDED that if more than one Lender is affected at any time,
then all affected
25
<PAGE> 31
Lenders must be treated the same pursuant to this section 2.10(b).
(c) If any Lender shall have determined that after the Effective Date,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by such Lender or its parent corporation with any request or
directive regarding capital adequacy (whether or not having the force of law) of
any such authority, central bank, or comparable agency, in each case made
subsequent to the Effective Date, has or would have the effect of reducing by an
amount reasonably deemed by such Lender to be material the rate of return on
such Lender's or its parent corporation's capital or assets as a consequence of
such Lender's commitments or obligations hereunder to a level below that which
such Lender or its parent corporation could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration such Lender's or
its parent corporation's policies with respect to capital adequacy), then from
time to time, within 15 days after demand by such Lender (with a copy to the
Administrative Agent), the Borrower shall pay to such Lender such additional
amount or amounts as will compensate such Lender or its parent corporation for
such reduction. Each Lender, upon determining in good faith that any additional
amounts will be payable pursuant to this section 2.10(c), will give prompt
written notice thereof to the Borrower, which notice shall set forth, in
reasonable detail, the basis of the calculation of such additional amounts,
which basis must be reasonable, although the failure to give any such notice
shall not release or diminish any of the Borrower's obligations to pay
additional amounts pursuant to this section 2.10(c) upon the subsequent receipt
of such notice.
(d) Notwithstanding anything in this Agreement to the contrary, (i) no
Lender shall be entitled to compensation or payment or reimbursement of other
amounts under section 2.10 or 3.5 for any amounts incurred or accruing more than
90 days prior to the giving of notice to the Borrower of additional costs or
other amounts of the nature described in such sections, and (ii) no Lender shall
demand compensation for any reduction referred to in section 2.10(c) or payment
or reimbursement of other amounts under section 3.5 if it shall not at the time
be the general policy or practice of such Lender to demand such compensation,
payment or reimbursement in similar circumstances under comparable provisions of
other credit agreements.
2.11. COMPENSATION. The Borrower shall compensate each applicable
Lender, upon its written request (which request shall set forth the detailed
basis for requesting and the method of calculating such compensation), for all
reasonable losses, expenses and liabilities (including, without limitation, any
loss, expense or liability incurred by reason of the liquidation or reemployment
of deposits or other funds required by such Lender to fund its Eurodollar Loans
or Money Market Rate Loans) which such Lender may sustain: (i) if for any reason
(other than a default by such Lender or the Administrative Agent) a Borrowing of
Eurodollar Loans or Money Market Rate Loans does not occur on a date specified
therefor in a Notice of Borrowing or Notice of Conversion (whether or not
withdrawn by the Borrower or deemed withdrawn pursuant to section 2.10(a)); (ii)
if any repayment, prepayment or conversion of any of its Eurodollar Loans or
Money Market Rate Loans occurs on a date which is not the last day of an
Interest Period applicable thereto (in the case of Eurodollar Loans) or the
maturity date thereof (in the case of any Money Market Rate Loans), as the case
may be; (iii) if any prepayment of any of its Eurodollar Loans or Money Market
Rate Loans, as the case may be, is not made on any date specified in a notice of
prepayment given by the Borrower; or (iv) as a consequence of (x) any other
default by the Borrower to repay its Eurodollar Loans or Money Market Rate Loans
when required by the terms of this Agreement or (y) an election made pursuant to
section 2.10(b).
2.12. CHANGE OF LENDING OFFICE; REPLACEMENT OF LENDERS. (a) Each Lender
agrees that, upon the occurrence of any event giving rise to the operation of
section 2.10(a)(ii) or (iii), 2.10(c) or 3.5 with respect to such Lender, it
will, if requested by the Borrower, use reasonable efforts (subject to overall
policy considerations of such Lender) to designate another Applicable Lending
Office for any Loans or Commitment affected by such event, PROVIDED that such
designation is made on such terms that such Lender and its Applicable Lending
Office suffer no economic, legal or regulatory disadvantage, with the object of
avoiding the consequence of the event giving rise to the operation of any such
section.
26
<PAGE> 32
(b) If any Lender requests any compensation, reimbursement or other
payment under section 2.10(a)(ii) or (iii), 2.10(c) or 3.5 with respect to such
Lender, or if any Lender is a Defaulting Lender, then the Borrower may, at its
sole expense and effort, upon notice to such Lender and the Administrative
Agent, require such Lender to assign and delegate, without recourse (in
accordance with the restrictions contained in section 12.4(b)), all its
interests, rights and obligations under this Agreement to an assignee that shall
assume such obligations (which assignee may be another Lender, if a Lender
accepts such assignment); PROVIDED that (i) the Borrower shall have received the
prior written consent of the Administrative Agent, which consent shall not be
unreasonably withheld, (ii) such Lender shall have received payment of an amount
equal to the outstanding principal of its Loans, accrued interest thereon,
accrued fees and all other amounts payable to it hereunder, from the assignee
(to the extent of such outstanding principal and accrued interest and fees) or
the Borrower (in the case of all other amounts), and (iii) in the case of any
such assignment resulting from a claim for compensation, reimbursement or other
payments required to be made under section 2.10(a)(ii) or (iii), 2.10(c) or 3.5
with respect to such Lender, such assignment will result in a reduction in such
compensation, reimbursement or payments. A Lender shall not be required to make
any such assignment and delegation if, prior thereto, as a result of a waiver by
such Lender or otherwise, the circumstances entitling the Borrower to require
such assignment and delegation cease to apply.
(c) Nothing in this section 2.12 shall affect or postpone any of the
obligations of the Borrower or the right of any Lender provided in section 2.10
or 3.5.
SECTION 3. LETTERS OF CREDIT.
3.1. LETTERS OF CREDIT. (a) Subject to and upon the terms and
conditions herein set forth, the Borrower may request a Letter of Credit Issuer
at any time and from time to time on or after the Closing Date and prior to the
date that is 15 Business Days prior to the Maturity Date to issue, for the
account of the Borrower or any of its Subsidiaries and in support of (i) trade
obligations of the Borrower and its Subsidiaries incurred in the ordinary course
of business, and/or (ii) worker compensation, liability insurance, releases of
contract retention obligations, contract performance guarantee requirements and
other bonding obligations of the Borrower or any such Subsidiary incurred in the
ordinary course of its business, and such other standby obligations of the
Borrower and its Subsidiaries that are acceptable to the Letter of Credit
Issuer, and subject to and upon the terms and conditions herein set forth, such
Letter of Credit Issuer agrees to issue from time to time, irrevocable
documentary or standby letters of credit denominated in Dollars in such form as
may be approved by such Letter of Credit Issuer and the Administrative Agent
(each such letter of credit (and each Existing Letter of Credit described in
section 3.1(d)), a "LETTER OF CREDIT" and collectively, the "LETTERS OF
CREDIT").
(b) Notwithstanding the foregoing, (i) no Letter of Credit shall be
issued the Stated Amount of which, when added to the Letter of Credit
Outstandings at such time, would exceed either (x) $15,000,000 or (y) when added
to the aggregate principal amount of all General Revolving Loans then
outstanding, plus the portion of the Total General Revolving Commitment reserved
for possible refunding of outstanding Swing Line Revolving Loans, an amount
equal to the Total General Revolving Commitment at such time; (ii) no individual
Letter of Credit (other than any Existing Letter of Credit) shall be issued
which has an initial Stated Amount less than $100,000 unless such lesser Stated
Amount is acceptable to the Letter of Credit Issuer; and (iii) each Letter of
Credit shall have an expiry date (including any renewal periods) occurring not
later than the earlier of (A) one year from the date of issuance thereof, unless
a longer period is approved by the relevant Letter of Credit Issuer and Lenders
(other than any Defaulting Lender) holding a majority of the Total General
Revolving Commitment, and (B) 15 Business Days prior to the Maturity Date, in
each case on terms acceptable to the Administrative Agent and the relevant
Letter of Credit Issuer.
(c) Notwithstanding the foregoing, in the event a Lender Default
exists, no Letter of Credit Issuer shall be required to issue any Letter of
Credit unless either (i) such Letter of Credit Issuer has entered into
arrangements satisfactory to it and the Borrower to eliminate such Letter of
Credit Issuer's risk with respect to the participation in Letters of Credit of
the Defaulting Lender or Lenders, including by cash collateralizing such
Defaulting Lender's or Lenders' General Revolving Facility Percentage of the
Letter of Credit Outstandings; or (ii)
27
<PAGE> 33
the issuance of such Letter of Credit, taking into account the potential failure
of the Defaulting Lender or Lenders to risk participate therein, will not cause
the Letter of Credit Issuer to incur aggregate credit exposure hereunder with
respect to General Revolving Loans and Letter of Credit Outstandings in excess
of its General Revolving Commitment, and the Borrower has undertaken, for the
benefit of such Letter of Credit Issuer, pursuant to an instrument satisfactory
in form and substance to such Letter of Credit Issuer, not to thereafter incur
Loans or Letter of Credit Outstandings hereunder which would cause the Letter of
Credit Issuer to incur aggregate credit exposure hereunder with respect to Loans
and Letter of Credit Outstandings in excess of its Commitment.
(d) Annex VI hereto contains a description of all letters of credit
outstanding on, and to continue in effect after, the Closing Date. Each such
letter of credit issued by a bank that is or becomes a Lender under this
Agreement on the Effective Date (each, an "EXISTING LETTER OF CREDIT") shall
constitute a "Letter of Credit" for all purposes of this Agreement, issued, for
purposes of section 3.4(a), on the Closing Date, and the Borrower, the
Administrative Agent and the applicable Lenders hereby agree that, from and
after such date, the terms of this Agreement shall apply to such Letters of
Credit, superseding any other agreement theretofore applicable to them to the
extent inconsistent with the terms hereof.
3.2. LETTER OF CREDIT REQUESTS: NOTICES OF ISSUANCE. (a) Whenever it
desires that a Letter of Credit be issued, the Borrower shall give the
Administrative Agent and the Letter of Credit Issuer written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing if so
requested by the Administrative Agent) which, if in the form of written notice
shall be substantially in the form of Exhibit B-3, or transmit by electronic
communication (if arrangements for doing so have been approved by the Letter of
Credit Issuer), prior to 11:00 A.M. (local time at its Notice Office) at least
three Business Days (or such shorter period as may be acceptable to the relevant
Letter of Credit Issuer) prior to the proposed date of issuance (which shall be
a Business Day) (each a "LETTER OF CREDIT REQUEST"), which Letter of Credit
Request shall include such supporting documents that such Letter of Credit
Issuer customarily requires in connection therewith (including, in the case of a
Letter of Credit for an account party other than the Borrower, an application
for, and if applicable a reimbursement agreement with respect to, such Letter of
Credit). Any such documents executed in connection with the issuance of a Letter
of Credit, including the Letter of Credit itself, are herein referred to as
"LETTER OF CREDIT DOCUMENTS". In the event of any inconsistency between any of
the terms or provisions of any Letter of Credit Document and the terms and
provisions of this Agreement respecting Letters of Credit, the terms and
provisions of this Agreement shall control. The Administrative Agent shall
promptly notify each Lender of each Letter of Credit Request.
(b) Each Letter of Credit Issuer shall, on the date of each issuance of
a Letter of Credit by it, give the Administrative Agent, each applicable Lender
and the Borrower written notice of the issuance of such Letter of Credit,
accompanied by a copy to the Administrative Agent of the Letter of Credit or
Letters of Credit issued by it. Each Letter of Credit Issuer shall provide to
the Administrative Agent a quarterly (or monthly if requested by any applicable
Lender) summary describing each Letter of Credit issued by such Letter of Credit
Issuer and then outstanding and an identification for the relevant period of the
daily aggregate Letter of Credit Outstandings represented by Letters of Credit
issued by such Letter of Credit Issuer.
3.3. AGREEMENT TO REPAY LETTER OF CREDIT DRAWINGS. (a) The Borrower
hereby agrees to reimburse (or cause any Subsidiary for whose account a Letter
of Credit was issued to reimburse) each Letter of Credit Issuer, by making
payment directly to such Letter of Credit Issuer in immediately available funds
at the payment office of such Letter of Credit Issuer, for any payment or
disbursement made by such Letter of Credit Issuer under any Letter of Credit
(each such amount so paid or disbursed until reimbursed, an "UNPAID DRAWING")
immediately after, and in any event on the date on which, such Letter of Credit
Issuer notifies the Borrower (or any such Subsidiary for whose account such
Letter of Credit was issued) of such payment or disbursement (which notice to
the Borrower (or such Subsidiary) shall be delivered reasonably promptly after
any such payment or disbursement), such payment to be made in Dollars, with
interest on the amount so paid or disbursed by such Letter of Credit Issuer, to
the extent not reimbursed prior to 1:00 P.M. (local time at the payment office
of the Letter of Credit Issuer) on the date of such payment or disbursement,
from and including the date paid or disbursed to but not including the date such
Letter of Credit Issuer is reimbursed therefor at a rate per annum which shall
be the rate then applicable to General Revolving Loans which are Prime Rate
Loans (plus an additional 3% per annum if not reimbursed by the third Business
Day
28
<PAGE> 34
after the date of such payment or disbursement), any such interest also to be
payable on demand.
(b) The Borrower's obligation under this section 3.3 to reimburse, or
cause a Subsidiary to reimburse, each Letter of Credit Issuer with respect to
Unpaid Drawings (including, in each case, interest thereon) shall be absolute
and unconditional under any and all circumstances and irrespective of any
setoff, counterclaim or defense to payment which the Borrower may have or have
had against such Letter of Credit Issuer, the Administrative Agent, any other
Letter of Credit Issuer or any Lender, including, without limitation, any
defense based upon the failure of any drawing under a Letter of Credit to
conform to the terms of the Letter of Credit or any non-application or
misapplication by the beneficiary of the proceeds of such drawing, PROVIDED,
HOWEVER, that the Borrower shall not be obligated to reimburse, or cause a
Subsidiary to reimburse, a Letter of Credit Issuer for any wrongful payment made
by such Letter of Credit Issuer under a Letter of Credit as a result of acts or
omissions constituting willful misconduct or gross negligence on the part of
such Letter of Credit Issuer.
3.4. LETTER OF CREDIT PARTICIPATIONS. (a) Immediately upon the issuance
by a Letter of Credit Issuer of any Letter of Credit (and on the Closing Date
with respect to any Existing Letter of Credit), such Letter of Credit Issuer
shall be deemed to have sold and transferred to each Lender with a General
Revolving Commitment, and each such Lender (each a "PARTICIPANT") shall be
deemed irrevocably and unconditionally to have purchased and received from such
Letter of Credit Issuer, without recourse or warranty, an undivided interest and
participation, to the extent of such Lender's General Revolving Facility
Percentage, in such Letter of Credit, each substitute letter of credit, each
drawing made thereunder, the obligations of the Borrower under this Agreement
with respect thereto (although Letter of Credit Fees shall be payable directly
to the Administrative Agent for the account of the Lenders as provided in
section 4.1(b) and the Participants shall have no right to receive any portion
of any fees of the nature contemplated by section 4.1(c)), the obligations of
any Subsidiary of the Borrower under any Letter of Credit Documents pertaining
thereto, and any security for, or guaranty pertaining to, any of the foregoing.
Upon any change in the Commitments of the Lenders pursuant to section 12.4(b),
it is hereby agreed that, with respect to all outstanding Letters of Credit and
Unpaid Drawings, there shall be an automatic adjustment to the participations
pursuant to this section 3.4 to reflect the new General Revolving Facility
Percentages of the assigning and assignee Lender.
(b) In determining whether to pay under any Letter of Credit, a Letter
of Credit Issuer shall not have any obligation relative to the Participants
other than to determine that any documents required to be delivered under such
Letter of Credit have been delivered and that they appear to comply on their
face with the requirements of such Letter of Credit. Any action taken or omitted
to be taken by a Letter of Credit Issuer under or in connection with any Letter
of Credit if taken or omitted in the absence of gross negligence or willful
misconduct, shall not create for such Letter of Credit Issuer any resulting
liability.
(c) In the event that a Letter of Credit Issuer makes any payment under
any Letter of Credit and the Borrower shall not have reimbursed (or caused any
applicable Subsidiary to reimburse) such amount in full to such Letter of Credit
Issuer pursuant to section 3.3(a), such Letter of Credit Issuer shall promptly
notify the Administrative Agent, and the Administrative Agent shall promptly
notify each Participant of such failure, and each Participant shall promptly and
unconditionally pay to the Administrative Agent for the account of such Letter
of Credit Issuer, the amount of such Participant's General Revolving Facility
Percentage of such payment in U.S. Dollars and in same day funds, PROVIDED,
HOWEVER, that no Participant shall be obligated to pay to the Administrative
Agent its General Revolving Facility Percentage of such unreimbursed amount for
any wrongful payment made by such Letter of Credit Issuer under a Letter of
Credit as a result of acts or omissions constituting willful misconduct or gross
negligence on the part of such Letter of Credit Issuer. If the Administrative
Agent so notifies any Participant required to fund a payment under a Letter of
Credit prior to 11:00 A.M. (local time at its Notice Office) on any Business
Day, such Participant shall make available to the Administrative Agent for the
account of the relevant Letter of Credit Issuer such Participant's General
Revolving Facility Percentage of the amount of such payment on such Business Day
in same day funds. If and to the extent such Participant shall not have so made
its General Revolving Facility Percentage of the amount of such payment
available to the Administrative Agent for the account of the relevant Letter of
Credit Issuer, such Participant agrees to pay to the Administrative Agent for
the account of such Letter of Credit Issuer, forthwith on demand such amount,
together
29
<PAGE> 35
with interest thereon, for each day from such date until the date such
amount is paid to the Administrative Agent for the account of such Letter of
Credit Issuer at the Federal Funds Effective Rate. The failure of any
Participant to make available to the Administrative Agent for the account of the
relevant Letter of Credit Issuer its General Revolving Facility Percentage of
any payment under any Letter of Credit shall not relieve any other Participant
of its obligation hereunder to make available to the Administrative Agent for
the account of such Letter of Credit Issuer its General Revolving Facility
Percentage of any payment under any Letter of Credit on the date required, as
specified above, but no Participant shall be responsible for the failure of any
other Participant to make available to the Administrative Agent for the account
of such Letter of Credit Issuer such other Participant's General Revolving
Facility Percentage of any such payment.
(d) Whenever a Letter of Credit Issuer receives a payment of a
reimbursement obligation as to which the Administrative Agent has received for
the account of such Letter of Credit Issuer any payments from the Participants
pursuant to section 3.4(c) above, such Letter of Credit Issuer shall pay to the
Administrative Agent and the Administrative Agent shall promptly pay to each
Participant which has paid its General Revolving Facility Percentage thereof, in
U.S. dollars and in same day funds, an amount equal to such Participant's
General Revolving Facility Percentage of the principal amount thereof and
interest thereon accruing after the purchase of the respective participations,
as and to the extent so received.
(e) The obligations of the Participants to make payments to the
Administrative Agent for the account of each Letter of Credit Issuer with
respect to Letters of Credit shall be irrevocable and not subject to
counterclaim, set-off or other defense or any other qualification or exception
whatsoever and shall be made in accordance with the terms and conditions of this
Agreement under all circumstances, including, without limitation, any of the
following circumstances:
(i) any lack of validity or enforceability of this Agreement
or any of the other Credit Documents;
(ii) the existence of any claim, set-off defense or other
right which the Borrower (or any Subsidiary) may have at any time
against a beneficiary named in a Letter of Credit, any transferee of
any Letter of Credit (or any person for whom any such transferee may be
acting), the Administrative Agent, any Letter of Credit Issuer, any
Lender, or other person, whether in connection with this Agreement, any
Letter of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the Borrower
(or any Subsidiary) and the beneficiary named in any such Letter of
Credit), other than any claim which the Borrower (or any Subsidiary
which is the account party with respect to a Letter of Credit) may have
against any applicable Letter of Credit Issuer for gross negligence or
wilful misconduct of such Letter of Credit Issuer in making payment
under any applicable Letter of Credit;
(iii) any draft, certificate or other document presented under
the Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents: or
(v) the occurrence of any Default or Event of Default.
(f) To the extent the Letter of Credit Issuer is not indemnified by the
Borrower, the Participants will reimburse and indemnify the Letter of Credit
Issuer, in proportion to their respective General Revolving Facility
Percentages, for and against any and all liabilities, obligations, losses,
damages, penalties, claims, actions, judgments, costs, expenses or disbursements
of whatsoever kind or nature which may be imposed on, asserted against or
incurred by the Letter of Credit Issuer in performing its respective duties in
any way related to or arising out of its issuance of Letters of Credit, PROVIDED
that no Participants shall be liable for any portion of such liabilities,
30
<PAGE> 36
obligations, losses, damages, penalties, claims, actions, judgments, costs,
expenses or disbursements resulting from the Letter of Credit Issuer's gross
negligence or willful misconduct.
3.5. INCREASED COSTS. If after the Effective Date, the adoption of any
applicable law, rule or regulation, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by any Letter of Credit Issuer or any Lender with any
request or directive (whether or not having the force of law) by any such
authority, central bank or comparable agency (in each case made subsequent to
the Effective Date) shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by such Letter of Credit Issuer or such Lender's participation
therein, or (ii) shall impose on such Letter of Credit Issuer or any Lender any
other conditions affecting this Agreement, any Letter of Credit or such Lender's
participation therein; and the result of any of the foregoing is to increase the
cost to such Letter of Credit Issuer or such Lender of issuing, maintaining or
participating in any Letter of Credit, or to reduce the amount of any sum
received or receivable by such Letter of Credit Issuer or such Lender hereunder
(other than any increased cost or reduction in the amount received or receivable
resulting from the imposition of or a change in the rate of taxes or similar
charges), then, upon demand to the Borrower by such Letter of Credit Issuer or
such Lender (a copy of which notice shall be sent by such Letter of Credit
Issuer or such Lender to the Administrative Agent), the Borrower shall pay to
such Letter of Credit Issuer or such Lender such additional amount or amounts as
will compensate any such Letter of Credit Issuer or such Lender for such
increased cost or reduction. A certificate submitted to the Borrower by any
Letter of Credit Issuer or any Lender, as the case may be (a copy of which
certificate shall be sent by such Letter of Credit Issuer or such Lender to the
Administrative Agent), setting forth, in reasonable detail, the basis for the
determination of such additional amount or amounts necessary to compensate any
Letter of Credit Issuer or such Lender as aforesaid shall be conclusive and
binding on the Borrower absent manifest error, although the failure to deliver
any such certificate shall not release or diminish any of the Borrower's
obligations to pay additional amounts pursuant to this section 3.5. Reference is
hereby made to the provisions of section 2.10(d) for certain limitations upon
the rights of a Letter of Credit Issuer or Lender under this section.
3.6. GUARANTY OF SUBSIDIARY LETTER OF CREDIT OBLIGATIONS. (a) The
Borrower hereby unconditionally guarantees, for the benefit of the
Administrative Agent and the Lenders, the full and punctual payment of the
Obligations of each Subsidiary under each Letter of Credit Document to which
such Subsidiary is now or hereafter becomes a party (such Obligations being
subject to certain limitations as provided in section 3.3(b) hereof). Upon
failure by any such Subsidiary to pay punctually any such amount, the Borrower
shall forthwith on demand by the Administrative Agent pay the amount not so paid
at the place and in the currency and otherwise in the manner specified in this
Agreement or any applicable Letter of Credit Document.
(b) As a separate, additional and continuing obligation, the Borrower
unconditionally and irrevocably undertakes and agrees, for the benefit of the
Administrative Agent and the Lenders, that, should any amounts not be
recoverable from the Borrower under section 3.6(a) for any reason whatsoever
(including, without limitation, by reason of any provision of any Credit
Document or any other agreement or instrument executed in connection therewith
being or becoming void, unenforceable, or otherwise invalid under any applicable
law) then, notwithstanding any notice or knowledge thereof by any Lender, the
Administrative Agent, any of their respective Affiliates, or any other person,
at any time, the Borrower as sole, original and independent obligor, upon demand
by the Administrative Agent, will make payment to the Administrative Agent, for
the account of the Lenders and the Administrative Agent, of all such obligations
not so recoverable by way of full indemnity, in such currency and otherwise in
such manner as is provided in the Credit Documents.
(c) The obligations of the Borrower under this section shall be
unconditional and absolute and, without limiting the generality of the foregoing
shall not be released, discharged or otherwise affected by the occurrence, one
or more times, of any of the following:
(i) any extension, renewal, settlement, compromise, waiver or
release in respect to any obligation of any Subsidiary under any Letter
of Credit Document, by operation of law or otherwise;
31
<PAGE> 37
(ii) any modification or amendment of or supplement to this
Agreement, any Note or any other Credit Document;
(iii) any release, non-perfection or invalidity of any direct
or indirect security for any obligation of the Borrower under this
Agreement, any Note or any other Credit Document or of any Subsidiary
under any Letter of Credit Document;
(iv) any change in the corporate existence, structure or
ownership of any Subsidiary or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting any Subsidiary or
its assets or any resulting release or discharge of any obligation of
any Subsidiary contained in any Letter of Credit Document;
(v) the existence of any claim, set-off or other rights which
the Borrower may have at any time against any Subsidiary, the
Administrative Agent, any Lender or any other person, whether in
connection herewith or any unrelated transactions;
(vi) any invalidity or unenforceability relating to or against
any Subsidiary for any reason of any Letter of Credit Document, or any
provision of applicable law or regulation purporting to prohibit the
payment by any Subsidiary of any Obligations in respect of any Letter
of Credit; or
(vii) any other act or omission to act or delay of any kind by
any Subsidiary, the Administrative Agent, any Lender or any other
person or any other circumstance whatsoever which might, but for the
provisions of this section, constitute a legal or equitable discharge
of the Borrower's obligations under this section.
(d) The Borrower's obligations under this section shall remain in full
force and effect until the Commitments shall have terminated and the principal
of and interest on the Notes and all other amounts payable by the Borrower under
the Credit Documents and by any Subsidiary under the Letter of Credit Documents
shall have been paid in full. If at any time any payment of any of the
Obligations of any Subsidiary in respect of any Letter of Credit Documents is
rescinded or must be otherwise restored or returned upon the insolvency,
bankruptcy or reorganization of such Subsidiary, the Borrower's obligations
under this section with respect to such payment shall be reinstated at such time
as though such payment had been due but not made at such time.
(e) The Borrower irrevocably waives acceptance hereof, presentment,
demand, protest and any notice not provided for herein, as well as any
requirement that at any time any action be taken by any person against any
Subsidiary or any other person, or against any collateral or guaranty of any
other person.
(f) Until the indefeasible payment in full of all of the Obligations
and the termination of the Commitments of the Lenders hereunder, the Borrower
shall have no rights, by operation of law or otherwise, upon making any payment
under this section to be subrogated to the rights of the payee against any
Subsidiary with respect to such payment or otherwise to be reimbursed,
indemnified or exonerated by any Subsidiary in respect thereof.
(g) In the event that acceleration of the time for payment of any
amount payable by any Subsidiary under any Letter of Credit Document is stayed
upon insolvency, bankruptcy or reorganization of such Subsidiary, all such
amounts otherwise subject to acceleration under the terms of any applicable
Letter of Credit Document shall nonetheless be payable by the Borrower under
this section forthwith on demand by the Administrative Agent.
SECTION 4. FEES; COMMITMENTS.
4.1. FEES. (a) The Borrower agrees to pay to the Administrative Agent a
Facility Fee ("FACILITY FEE")
32
<PAGE> 38
for the account of each Non-Defaulting Lender which has a General Revolving
Commitment for the period from and including the Effective Date to but not
including the date the Total General Revolving Commitment has been terminated,
on the average daily amount of the Total General Revolving Commitment, whether
used or unused, at the Applicable Facility Fee Rate, payable quarterly in
arrears on the last Business Day of each March, June, September and December and
the date the Total General Revolving Commitment is terminated.
As used herein, the term "APPLICABLE FACILITY FEE RATE" means the
particular rate per annum determined by the Administrative Agent in accordance
with the Pricing Grid Table which appears in section 2.8(g) hereof, based on the
Borrower's Interest Coverage Ratio for its most recent Testing Period which
consists of a single fiscal quarter, and the following provisions:
(i) Initially, until changed hereunder in accordance with the
following provisions, the Applicable Facility Fee Rate will be 50 basis
points per annum.
(ii) Commencing with the fiscal quarter of the Borrower ended
on or nearest to June 30, 1998, and continuing for each fiscal quarter
thereafter, the Administrative Agent will determine the Applicable
Facility Fee Rate in accordance with the Pricing Grid Table, based on
the Borrower's Interest Coverage Ratio for its most recent Testing
Period which consists of a single fiscal quarter. Changes in the
Applicable Facility Fee Rate shall be made and effective as of the same
date as is provided in section 2.8(g) in the case of the determination
or re-determination of the Applicable Eurodollar Margin. If any such
change in the Applicable Facility Fee Rate is retroactive to a date in
a period for which the Facility Fee has already been paid, the Borrower
will immediately pay to the Administrative Agent for the account of the
Lenders all additional Facility Fee due by reason of such increased
Applicable Facility Fee Rate.
(iii) Any changes in the Applicable Facility Fee Rate shall be
determined by the Administrative Agent in accordance with the above
provisions and the Administrative Agent will promptly provide notice of
such determinations to the Borrower and the Lenders. Any such
determination by the Administrative Agent pursuant to this section
4.1(a) shall be conclusive and binding absent manifest error.
(b) The Borrower agrees to pay to the Administrative Agent, for the
account of each Non-Defaulting Lender, PRO RATA on the basis of its General
Revolving Facility Percentage, a fee in respect of each Letter of Credit (the
"LETTER OF CREDIT FEE"), computed for each day at the rate per annum equal to
the Applicable Eurodollar Margin then in effect on the Stated Amount of all
Letters of Credit outstanding on such day. Accrued Letter of Credit Fees shall
be due and payable quarterly in arrears on the last Business Day of each March,
June, September and December and on the date on which the Total Commitment is
terminated.
(c) The Borrower agrees to pay directly to each Letter of Credit Issuer
a fee in respect of each Letter of Credit issued by it (a "FACING FEE") computed
at such rate as may be agreed between such Letter of Credit Issuer and the
Borrower on the average daily Stated Amount of such Letter of Credit. Accrued
Facing Fees shall be due and payable quarterly in arrears on the last Business
Day of each March, June, September and December and on the date on which the
Total General Revolving Commitment is terminated.
(d) The Borrower agrees to pay directly to each Letter of Credit Issuer
upon each drawing under, and/or amendment, extension, renewal or transfer of, a
Letter of Credit issued by it such amount as shall at the time of such drawing,
amendment, extension, renewal or transfer be the administrative charge which
such Letter of Credit Issuer is customarily charging for drawings under or
amendments, extensions, renewals or transfers of, letters of credit issued by
it.
(e) The Borrower shall pay to the Administrative Agent on the Effective
Date and thereafter for its own account and/or for distribution to the Lenders
such fees as heretofore agreed by the Borrower and the Administrative Agent.
(f) All computations of Fees shall be made in accordance with section
12.7(b).
33
<PAGE> 39
4.2. VOLUNTARY REDUCTION OF COMMITMENTS. Upon at least three Business
Days prior written notice (or telephonic notice confirmed in writing) to the
Administrative Agent at its Notice Office (which notice the Administrative Agent
shall promptly transmit to each of the Lenders), the Borrower shall have the
right, without premium or penalty, to:
(a) terminate the Total Commitment, PROVIDED that (i) all
outstanding Loans are contemporaneously prepaid in accordance with
section 5.1, and (ii) either (A) no Letters of Credit remain
outstanding, or (B) the Borrower shall contemporaneously either (x)
cause all outstanding Letters of Credit to be surrendered for
cancellation (any such Letters of Credit to be replaced by letters of
credit issued by other financial institutions acceptable to the
Required Lenders), or (y) the Borrower shall pay to the Administrative
Agent an amount in cash and/or Cash Equivalents equal to 100% of the
Letter of Credit Outstandings and the Administrative Agent shall hold
such payment as security for the reimbursement obligations of the
Borrower hereunder in respect of Letters of Credit pursuant to a cash
collateral agreement to be entered into in form and substance
reasonably satisfactory to the Administrative Agent and the Borrower
(which shall permit certain investments in Cash Equivalents
satisfactory to the Administrative Agent and the Borrower until the
proceeds are applied to the secured obligations);
(b) terminate the Swing Line Revolving Commitment, PROVIDED
that all outstanding Swing Line Revolving Loans are contemporaneously
prepaid in accordance with section 5.1;
(c) partially and permanently reduce the Unutilized Total
General Revolving Commitment, PROVIDED that (i) any such reduction
shall apply to proportionately and permanently reduce the General
Revolving Commitment of each of the Lenders; (ii) any partial reduction
of the Unutilized Total General Revolving Commitment pursuant to this
section 4.2(b) shall be in the amount of at least $3,000,000 (or, if
greater, in integral multiples of $1,000,000); and (iii) after giving
effect to any such partial reduction of the Unutilized Total General
Revolving Commitment, the Total General Revolving Commitment then in
effect shall exceed the Swing Line Revolving Commitment then in effect
by at least $10,000,000; and/or
(d) partially and permanently reduce the Unutilized Swing Line
Revolving Commitment, PROVIDED that any partial reduction of the
Unutilized Swing Line Revolving Commitment pursuant to this section
4.2(b) shall be in the amount of at least $250,000 (or, if greater, in
integral multiples of $100,000).
4.3. MANDATORY TERMINATION/ADJUSTMENTS OF COMMITMENTS, ETC. (a) The
Total Commitment (and the Commitment of each Lender) shall terminate on June 17,
1997, unless the Closing Date has occurred on or prior to such date.
(b) The Total Commitment (and the Commitment of each Lender) shall
terminate on the earlier of (x) the Maturity Date and (y) the date on which a
Change of Control occurs.
(c) The Total General Revolving Commitment shall be permanently
reduced, without premium or penalty, at the time that any mandatory prepayment
of General Revolving Loans would be made pursuant to section 5.2(d) if General
Revolving Loans were then outstanding in the full amount of the Total General
Revolving Commitment, in an amount at least equal to the required prepayment of
principal of General Revolving Loans which would be required to be made in such
circumstance. Any such reduction shall apply to proportionately and permanently
reduce the General Revolving Commitment of each of the affected Lenders, and any
partial reduction of the Total General Revolving Commitment pursuant to this
section 4.3(c) shall be in the amount of at least $1,000,000 (or, if greater, in
integral multiples of $1,000,000). The Borrower will provide at least three (or
such lesser number as the Administrative Agent may permit in the exercise of
reasonable discretion) Business Days' prior written notice (or telephonic notice
confirmed in writing) to the Administrative Agent at its Notice Office (which
notice the Administrative Agent shall promptly transmit to each of the Lenders),
of any reduction of the Total General Revolving Commitment pursuant to this
section 4.3(c), specifying the date and amount of the reduction.
34
<PAGE> 40
4.4. EXTENSION OF MATURITY DATE. At any time after August 1, 1998 and
during the 30 day period following delivery by the Borrower pursuant to section
8.1(a) of its consolidated financial statements for its fiscal year then most
recently ended, and annually thereafter during the 30 day period following
delivery by the Borrower of its consolidated financial statements pursuant to
section 8.1(a), the Borrower may request the Administrative Agent to determine
if all of the Lenders are then willing to extend the Maturity Date for a single
additional year. If the Borrower so requests, the Administrative Agent will so
advise the Lenders. If all of the Lenders in their sole discretion are all
willing to so extend the Maturity Date, after taking into account such
considerations as any Lender may deem relevant, the Borrower, the other
Borrowers, the Administrative Agent and all of the Lenders (including each
Letter of Credit Issuer) shall execute and deliver a definitive written
instrument so extending the Maturity Date. No such extension of the Maturity
Date shall be valid or effective for any purpose unless such definitive written
instrument is so signed and delivered within 60 days following the giving by the
Administrative Agent of notice to the Lenders that the Borrower has requested
such an extension.
SECTION 5. PAYMENTS.
5.1. VOLUNTARY PREPAYMENTS. The Borrower shall have the right to prepay
Loans, in whole or in part, without premium or penalty, from time to time on the
following terms and conditions:
(a) the Borrower shall give the Administrative Agent at the
Notice Office written or telephonic notice (in the case of telephonic
notice, promptly confirmed in writing if so requested by the
Administrative Agent) of its intent to prepay the Loans, the amount of
such prepayment and (in the case of Eurodollar Loans or Money Market
Rate Loans) the specific Borrowing(s) pursuant to which made, which
notice shall be received by the Administrative Agent by
(x) 11:00 A.M. (local time at the Notice Office)
three Business Days prior to the date of such prepayment, in
the case of any prepayment of Eurodollar Loans,
(y) 11:00 A.M. (local time at the Notice Office) on
the date of such prepayment, in the case of any prepayment of
General Revolving Loans which are Prime Rate Loans, or
(z) 2:00 P.M. (local time at the Notice Office) on
the date of such prepayment, in the case of any prepayment of
Swing Line Revolving Loans,
and which notice shall promptly be transmitted by the Administrative
Agent to each of the affected Lenders;
(b) in the case of prepayment of any Borrowings under the
General Revolving Facility, each partial prepayment of any such
Borrowing shall be in an aggregate principal of at least $3,000,000 or
an integral multiple of $1,000,000 in excess thereof, in the case of
Prime Rate Loans and at least $3,000,000 or an integral multiple of
$1,000,000 in excess thereof, in the case of Eurodollar Loans;
(c) in the case of prepayment of any Borrowings under the
Swing Line Revolving Facility, each partial prepayment of any such
Borrowing shall be in an aggregate principal of at least $250,000 or an
integral multiple of $100,000 in excess thereof;
(d) no partial prepayment of any Loans made pursuant to a
Borrowing shall reduce the aggregate principal amount of the Loans
outstanding pursuant to such Borrowing to an amount less than the
Minimum Borrowing Amount applicable thereto;
(e) each prepayment in respect of any Loans made pursuant to a
Borrowing shall be applied PRO RATA among such Loans; and
35
<PAGE> 41
(f) each prepayment of Eurodollar Loans or Money Market Rate
Loans pursuant to this section 5.1 on any date other than the last day
of the Interest period applicable thereto, in the case of Eurodollar
Loans, or the maturity date thereof, in the case of Money Market Rate
Loans, as the case may be, shall be accompanied by any amounts payable
in respect thereof under section 2.11.
5.2. MANDATORY PREPAYMENTS. The Loans shall be subject to mandatory
prepayment in accordance with the following provisions:
(a) IF GENERAL REVOLVING LOANS AND LETTER OF CREDIT
OUTSTANDINGS EXCEED TOTAL GENERAL REVOLVING COMMITMENT. If on any date
(after giving effect to any other payments on such date) the sum of (i)
the aggregate outstanding principal amount of General Revolving Loans
PLUS (ii) the aggregate amount of Letter of Credit Outstandings,
exceeds the Total General Revolving Commitment as then in effect, the
Borrower shall prepay on such date that principal amount of General
Revolving Loans and, after General Revolving Loans have been paid in
full, Unpaid Drawings, in an aggregate amount at least equal to such
excess. If, after giving effect to the prepayment of General Revolving
Loans and Unpaid Drawings, the aggregate amount of Letter of Credit
Outstandings exceeds the Total General Revolving Commitment as then in
effect, the Borrower shall pay to the Administrative Agent an amount in
cash and/or Cash Equivalents equal to such excess and the
Administrative Agent shall hold such payment as security for the
obligations of the Borrower hereunder pursuant to a cash collateral
agreement to be entered into in form and substance reasonably
satisfactory to the Administrative Agent and the Borrower (which shall
permit certain investments in Cash Equivalents satisfactory to the
Administrative Agent and the Borrower until the proceeds are applied to
the secured obligations).
(b) IF SWING LINE LOANS EXCEED UNUTILIZED TOTAL GENERAL
REVOLVING COMMITMENT. If on any date (after giving effect to any other
payments on such date) the aggregate outstanding principal amount of
Swing Line Revolving Loans exceeds the Unutilized Total General
Revolving Commitment as then in effect, the Borrower shall prepay on
such date that principal amount of Swing Line Revolving Loans in an
aggregate amount at least equal to such excess.
(c) IF SWING LINE REVOLVING LOANS EXCEED SWING LINE REVOLVING
COMMITMENT. If on any date (after giving effect to any other payments
on such date) the aggregate outstanding principal amount of Swing Line
Revolving Loans exceeds the Swing Line Revolving Commitment as then in
effect, the Borrower shall prepay on such date Swing Line Revolving
Loans in an aggregate principal amount at least equal to such excess.
(d) CERTAIN PROCEEDS OF ASSET SALES. If during any fiscal year
of the Borrower, the Borrower and its Subsidiaries have received
cumulative Cash Proceeds during such fiscal year from one or more Asset
Sales in an aggregate amount exceeding 10% of the Borrower's
Consolidated Net Worth at the beginning of such fiscal year, not later
than the third Business Day following the date of receipt of any Cash
Proceeds in excess of such amount, an amount at least equal to 100% of
the Net Cash Proceeds then received in excess of such amount from any
Asset Sale shall be applied as a mandatory prepayment of principal of,
FIRST, the outstanding loans, if any, under the Bridge Facility
Agreement, and, SECOND, the then outstanding General Revolving Loans;
PROVIDED that if no Default under section 10.1(a) or Event of Default
shall have occurred and be continuing and the making of such prepayment
of General Revolving Loans at such time would result in an obligation
on the part of the Borrower to make a breakage payment in respect
thereof under section 2.11 (which has not been waived by the Required
Lenders), the Borrower may upon notice to the Administrative Agent (a
copy of which notice the Administrative Agent shall promptly transmit
to each affected Lender) postpone making such prepayment for a period
of up to 30 days, or such shorter period as will result in no such
breakage payment being payable; and PROVIDED, FURTHER, that (i) if no
Default under section 10.1(a) or Event of Default shall have occurred
and be continuing, (ii) the Borrower and its Subsidiaries have
scheduled Consolidated Capital Expenditures during the following six
months, and (iii) the Borrower notifies the Administrative Agent of the
amount and nature thereof and of its intention to reinvest all or a
portion of such Net Cash Proceeds in such
36
<PAGE> 42
Consolidated Capital Expenditures during such six month period, then no
such prepayment of General Revolving Loans shall be required to the
extent the Borrower so indicates that such reinvestment will take
place. If at the end of any such six month period any portion of such
Net Cash Proceeds has not been so reinvested, such remaining amount
shall be immediately applied as a mandatory prepayment of principal of
the then outstanding General Revolving Loans. If the Borrower has
postponed the date of making any mandatory prepayment in accordance
with the first PROVISO to the first sentence of this section 5.2(d),
during the period of such postponement the Borrower will not incur
additional Loans or request additional Letters of Credit which would
cause (x) the sum of the outstanding General Revolving Loans, plus the
Letter of Credit Outstandings, plus the portion of the Total Unutilized
General Revolving Commitment reserved for refunding of outstanding
Swing Line Revolving Loans, to be greater than (y) the amount to which
the Total General Revolving Commitment will be permanently reduced
pursuant to section 4.3(c) as a consequence of the events giving rise
to such mandatory prepayment.
(e) CHANGE OF CONTROL. On the date on which a Change of
Control occurs, notwithstanding anything to the contrary contained in
this Agreement, no further Borrowings shall be made and the then
outstanding principal amount of all Loans, if any, shall become due and
payable and shall be prepaid in full, and the Borrower shall
contemporaneously either (i) cause all outstanding Letters of Credit to
be surrendered for cancellation (any such Letters of Credit to be
replaced by letters of credit issued by other financial institutions),
or (ii) the Borrower shall pay to the Administrative Agent an amount in
cash and/or Cash Equivalents equal to 100% of the Letter of Credit
Outstandings and the Administrative Agent shall hold such payment as
security for the obligations of the Borrower hereunder pursuant to a
cash collateral agreement to be entered into in form and substance
reasonably satisfactory to the Administrative Agent and the Borrower
(which shall permit certain investments in Cash Equivalents
satisfactory to the Administrative Agent and the Borrower until the
proceeds are applied to the secured obligations).
(f) PARTICULAR LOANS TO BE PREPAID. With respect to each
prepayment of Loans required by this section 5.2, the Borrower shall
designate the Types of Loans which are to be prepaid and the specific
Borrowing(s) pursuant to which such prepayment is to be made, PROVIDED
that (i) the Borrower shall first so designate all Loans that are Prime
Rate Loans and Eurodollar Loans with Interest Periods ending on the
date of prepayment prior to designating any other Eurodollar Loans for
prepayment, (ii) if the outstanding principal amount of Eurodollar
Loans made pursuant to a Borrowing is reduced below the applicable
Minimum Borrowing Amount as a result of any such prepayment, then all
the Loans outstanding pursuant to such Borrowing shall be converted
into Prime Rate Loans, and (iii) each prepayment of any Loans made
pursuant to a Borrowing shall be applied PRO RATA among such Loans. In
the absence of a designation by the Borrower as described in the
preceding sentence, the Administrative Agent shall, subject to the
above, make such designation in its sole discretion with a view, but no
obligation, to minimize breakage costs owing under section 2.11. Any
prepayment of Eurodollar Loans or Money Market Rate Loans pursuant to
this section 5.2 shall in all events be accompanied by such
compensation as is required by section 2.11.
5.3. METHOD AND PLACE OF PAYMENT. Except as otherwise specifically
provided herein, all payments under this Agreement shall be made to the
Administrative Agent for the ratable (based on its PRO RATA share) account of
the Lenders entitled thereto, not later than 11:00 A.M. (local time at the
Payment Office) on the date when due and shall be made in immediately available
funds and in lawful money of the United States of America at the Payment Office,
it being understood that written notice by the Borrower to the Administrative
Agent to make a payment from the funds in the Borrower's account at the Payment
Office shall constitute the making of such payment to the extent of such funds
held in such account. Any payments under this Agreement which are made later
than 11:00 A.M. (local time at the Payment Office) shall be deemed to have been
made on the next succeeding Business Day. Whenever any payment to be made
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day and, with
respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.
37
<PAGE> 43
5.4. NET PAYMENTS. (a) All payments made by the Borrower hereunder,
under any Note or any other Credit Document, will be made without setoff,
counterclaim or other defense. Except as provided for in section 5.4(c), all
such payments will be made free and clear of, and without deduction or
withholding for, any present or future United States withholding taxes. The
Borrower will furnish to the Administrative Agent within 45 days after the date
of any withholding or deduction on account of United States withholding taxes
certified copies of tax receipts, or other evidence satisfactory to each
affected Lender, evidencing payment thereof by the Borrower.
(b) Each Lender that is not a United States person (as such term is
defined in section 7701(a)(30) of the Code) for Federal income tax purposes
agrees to provide to the Borrower and the Administrative Agent on or prior to
the Effective Date, or in the cases of a Lender that is an assignee or
transferee of an interest under this Agreement pursuant to section 12.4 (unless
the respective Lender was already a Lender hereunder immediately prior to such
assignment or transfer and such Lender is in compliance with the provisions of
this section 5.4(b)), on the date of such assignment or transfer to such Lender,
(i) two accurate and complete original signed copies of Internal Revenue Service
Form 4224 or 1001 (or successor forms) certifying to such Lender's entitlement
to a complete exemption from United States withholding tax with respect to
payments to be made under this Agreement, any Note or any other Credit Document,
or (ii) if the Lender is not a "bank" within the meaning of section 881(c)(3)(A)
of the Code and cannot deliver either Internal Revenue Service Form 1001 or 4224
pursuant to clause (i) above, (x) a certificate substantially in the form of
Exhibit F (any such certificate, a "SECTION 5.4(B)(II) CERTIFICATE") and (y) two
accurate and complete original signed copies of Internal Revenue Service Form
W-8 (or successor form) certifying to such Lender's entitlement to a complete
exemption from United States withholding tax with respect to payments of
interest to be made under this Agreement, any Note or any other Credit Document.
In addition, each Lender agrees that from time to time after the Effective Date,
when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver to
the Borrower and the Administrative Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 5.4(b)(ii) Certificate, as the case may be, and such other forms as may
be required in order to confirm or establish the entitlement of such Lender to a
continued exemption from or reduction in United States withholding tax with
respect to payments under this Agreement, any Note or any other Credit Document,
or it shall immediately notify the Borrower and the Administrative Agent of its
inability to deliver any such Form or Certificate, in which case such Lender
shall not be required to deliver any such Form or Certificate pursuant to this
section 5.4(b).
(c) Notwithstanding anything to the contrary contained in section
5.4(a), the Borrower shall be entitled, to the extent it is required to do so by
law, to deduct or withhold income or other similar taxes imposed by the United
States (or any political subdivision or taxing authority thereof or therein)
from interest, fees or other amounts payable hereunder for the account of any
Lender which is not a United States person (as such term is defined in section
7701(a)(30) of the Code) for United States federal income tax purposes and which
has not provided to the Borrower such forms that establish a complete exemption
from such deduction or withholding.
SECTION 6. CONDITIONS PRECEDENT.
6.1. CONDITIONS PRECEDENT AT CLOSING DATE. The obligation of the
Lenders to make Loans, and of any Letter of Credit Issuer to issue Letters of
Credit, is subject to the satisfaction of each of the following conditions on
the Closing Date:
(a) EFFECTIVENESS; NOTES. On or prior to the Closing Date, (i)
the Effective Date shall have occurred and (ii) there shall have been
delivered to the Administrative Agent for the account of each Lender
the appropriate Note or Notes executed by the Borrower, in each case,
in the amount, maturity and as otherwise provided herein.
(b) FEES, ETC. The Borrower shall have paid or caused to be
paid all fees required to be paid by it on or prior to such date
pursuant to section 4.1 hereof and all reasonable fees and expenses of
the Administrative Agent and of special counsel to the Administrative
Agent which have been invoiced on or prior to such date in connection
with the preparation, execution and delivery of this Agreement and the
38
<PAGE> 44
other Credit Documents and the consummation of the transactions
contemplated hereby and thereby.
(c) OTHER CREDIT DOCUMENTS, ETC. The Credit Parties named
therein shall have duly executed and delivered and there shall be in
full force and effect, and original counterparts shall have been
delivered to the Administrative Agent, in sufficient quantities for the
Administrative Agent and the Lenders, of, (i) the Subsidiary Guaranty
(as modified, amended or supplemented from time to time in accordance
with the terms thereof and hereof, the "SUBSIDIARY GUARANTY"),
substantially in the form attached hereto as Exhibit C-1, and (ii) the
Pledge Agreement (as modified, amended or supplemented from time to
time in accordance with the terms thereof and hereof, the "PLEDGE
AGREEMENT"), substantially in the form attached hereto as Exhibit C-2.
Certificates for the shares of stock pledged under the Pledge
Agreement, duly indorsed in blank, or accompanied by stock powers duly
signed in blank, shall have been delivered to the Collateral Agent.
(d) CORPORATE RESOLUTIONS AND APPROVALS. The Administrative
Agent shall have received, in sufficient quantity for the
Administrative Agent and the Lenders, certified copies of the
resolutions of the Board of Directors of the Borrower and each other
Credit Party, approving the Credit Documents to which the Borrower or
any such other Credit Party, as the case may be, is or may become a
party, and of all documents evidencing other necessary corporate action
and governmental approvals, if any, with respect to the execution,
delivery and performance by the Borrower or any such other Credit Party
of the Credit Documents to which it is or may become a party.
(e) INCUMBENCY CERTIFICATES. The Administrative Agent shall
have received, in sufficient quantity for the Administrative Agent and
the Lenders, a certificate of the Secretary or an Assistant Secretary
of the Borrower and of each other Credit Party, certifying the names
and true signatures of the officers of the Borrower or such other
Credit Party, as the case may be, authorized to sign the Credit
Documents to which the Borrower or such other Credit Party is a party
and any other documents to which the Borrower or any such other Credit
Party is a party which may be executed and delivered in connection
herewith.
(f) OPINION OF COUNSEL. On the Closing Date, the
Administrative Agent shall have received an opinion, addressed to the
Administrative Agent and each of the Lenders and dated on or prior to
the Closing Date, from Calfee, Halter & Griswold LLP, special counsel
to the Borrower, substantially in the form of Exhibit D hereto and
covering such other matters incident to the transactions contemplated
hereby as the Administrative Agent may reasonably request, such opinion
to be in form and substance satisfactory to the Administrative Agent.
(g) EXISTING CREDIT FACILITY. The Borrower shall have (i)
terminated the commitments of the lenders under its Credit Agreement,
dated as of August 1, 1997, among the Borrower, the financial
institutions party thereto, and KeyBank, as administrative agent
thereunder, (ii) prepaid all borrowings thereunder, (iii) arranged for
all letters of credit issued thereunder to be Existing Letters of
Credit hereunder or replaced or supported until replaced by Letters of
Credit issued hereunder, and (iv) obtained the release of all
collateral securing such Credit Agreement.
(h) BRIDGE FACILITY AGREEMENT. The Borrower shall have entered
into the Bridge Facility Agreement, such Agreement shall be in full
force and effect, and such Agreement shall provide for the irrevocable
undertaking of the lender thereunder to apply of all amounts collected
(by setoff or otherwise) in connection with the enforcement thereof as
provided in section 10.3 hereof.
(i) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and all documents incidental to the transactions
contemplated hereby shall be satisfactory in substance and form to the
Administrative Agent and the Lenders and the Administrative Agent and
its special counsel and the Lenders shall have received all such
counterpart originals or certified or other copies of such documents as
the Administrative Agent or its special counsel or any Lender may
reasonably request.
39
<PAGE> 45
6.2. CONDITIONS PRECEDENT TO ALL CREDIT EVENTS. The obligations of the
Lenders to make each Loan and/or of a Letter of Credit Issuer to issue each
Letter of Credit is subject, at the time thereof, to the satisfaction of the
following conditions:
(a) NOTICE OF BORROWING, ETC. The Administrative Agent shall
have received a Notice of Borrowing meeting the requirements of section
2.3 with respect to the incurrence of Loans or a Letter of Credit
Request meeting the requirement of section 3.2 with respect to the
issuance of a Letter of Credit.
(b) NO DEFAULT; REPRESENTATIONS AND WARRANTIES. At the time of
each Credit Event and also after giving effect thereto, (i) there shall
exist no Default or Event of Default and (ii) all representations and
warranties of the Credit Parties contained herein or in the other
Credit Documents shall be true and correct in all material respects
with the same effect as though such representations and warranties had
been made on and as of the date of such Credit Event, except to the
extent that such representations and warranties expressly relate to an
earlier specified date, in which case such representations and
warranties shall have been true and correct in all material respects as
of the date when made.
The acceptance of the benefits of each Credit Event shall constitute a
representation and warranty by the Borrower to each of the Lenders that all of
the applicable conditions specified in section 6.1 and/or 6.2, as the case may
be, exist as of that time. All of the certificates, legal opinions and other
documents and papers referred to in this section 6, unless otherwise specified,
shall be delivered to the Administrative Agent for the account of each of the
Lenders and, except for the Notes, in sufficient counterparts for each of the
Lenders, and the Administrative Agent will promptly distribute to the Lenders
their respective Notes and the copies of such other certificates, legal opinions
and documents.
SECTION 7. REPRESENTATIONS AND WARRANTIES.
In order to induce the Lenders to enter into this Agreement and to make
the Loans, and/or to issue and/or to participate in the Letters of Credit
provided for herein, the Borrower makes the following representations and
warranties to, and agreements with, the Lenders, all of which shall survive the
execution and delivery of this Agreement and each Credit Event:
7.1. CORPORATE STATUS, ETC. Each of the Borrower and its Subsidiaries
(i) is a duly organized or formed and validly existing corporation, partnership
or limited liability company, as the case may be, (ii) is in good standing under
the laws of the jurisdiction of its formation (except as to approximately six
Subsidiaries, which are in the process of filing annual reports in their
jurisdictions of formation, and which will be in good standing within 30 days
after the date hereof), (iii) has the corporate, partnership or limited
liability company power and authority, as applicable, to own its property and
assets and to transact the business in which it is engaged and presently
proposes to engage, and (iv) has duly qualified and is authorized to do business
in all jurisdictions where it is required to be so qualified except where the
failure to be so qualified would not have a Material Adverse Effect.
7.2. SUBSIDIARIES. Annex II hereto lists, as of the date hereof, each
Subsidiary of the Borrower (and the direct and indirect ownership interest of
the Borrower therein).
7.3. CORPORATE POWER AND AUTHORITY, ETC. Each Credit Party has the
corporate power and authority to execute, deliver and carry out the terms and
provisions of the Credit Documents to which it is party and has taken all
necessary corporate or other organizational action to authorize the execution,
delivery and performance of the Credit Documents to which it is party. Each
Credit Party has duly executed and delivered each Credit Document to which it is
party and each Credit Document to which it is party constitutes the legal, valid
and binding agreement or obligation of such Credit Party enforceable in
accordance with its terms, except to the extent that the enforceability thereof
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws
40
<PAGE> 46
generally affecting creditors' rights and by equitable principles (regardless of
whether enforcement is sought in equity or at law).
7.4. NO VIOLATION. Neither the execution, delivery and performance by
any Credit Party of the Credit Documents to which it is party nor compliance
with the terms and provisions thereof (i) will contravene any provision of any
law, statute, rule, regulation, order, writ, injunction or decree of any court
or governmental instrumentality applicable to such Credit Party or its
properties and assets, (ii) will conflict with or result in any breach of, any
of the terms, covenants, conditions or provisions of, or constitute a default
under, or result in the creation or imposition of (or the obligation to create
or impose) any Lien (other than any Lien created by any Security Document) upon
any of the property or assets of such Credit Party pursuant to the terms of any
promissory note, bond, debenture, indenture, mortgage, deed of trust, credit or
loan agreement, or any other material agreement or instrument, to which such
Credit Party is a party or by which it or any of its property or assets are
bound or to which it may be subject, or (iii) will violate any provision of the
certificate or articles of incorporation, code of regulations or by-laws, or
other charter documents of such Credit Party.
7.5. GOVERNMENTAL APPROVALS. No order, consent, approval, license,
authorization, or validation of, or filing, recording or registration with, or
exemption by, any foreign or domestic governmental or public body or authority,
or any subdivision thereof, is required to authorize or is required as a
condition to (i) the execution, delivery and performance by any Credit Party of
any Credit Document to which it is a party, or (ii) the legality, validity,
binding effect or enforceability of any Credit Document to which any Credit
Party is a party, other than any filings and recordings which may be required in
connection with the perfection of any Liens created by the Security Documents.
7.6. LITIGATION. There are no actions, suits or proceedings pending or,
to, the knowledge of the Borrower, threatened with respect to the Borrower or
any of its Subsidiaries (i) that have, or could reasonably be expected to have,
a Material Adverse Effect, or (ii) which question the validity or enforceability
of any of the Credit Documents, or of any action to be taken by any Credit Party
pursuant to any of the Credit Documents to which it is a party.
7.7. USE OF PROCEEDS; MARGIN REGULATIONS. (a) The proceeds of all Loans
shall be utilized (i) to retire the Indebtedness referred to in section 6.1(g),
(ii) to finance Acquisitions, and (iii) for general corporate purposes not
inconsistent with the requirements of this Agreement.
(b) No part of the proceeds of any Credit Event will be used directly
or indirectly to purchase or carry Margin Stock, or to extend credit to others
for the purpose of purchasing or carrying any Margin Stock, in violation of any
of the provisions of Regulation G, T, U or X of the Board of Governors of the
Federal Reserve System. The Borrower is not engaged in the business of extending
credit for the purpose of purchasing or carrying any Margin Stock. At no time
would more than 25% of the value of the assets of the Borrower or of the
Borrower and its consolidated Subsidiaries that are subject to any "arrangement"
(as such term is used in section 221.2(g) of such Regulation U) hereunder be
represented by Margin Stock.
7.8. FINANCIAL STATEMENTS, ETC. (a) The Borrower has furnished to the
Lenders and the Administrative Agent complete and correct copies of (i) the
audited consolidated balance sheets of the Borrower and its consolidated
subsidiaries as of June 30, 1997, and June 30, 1996, and the related audited
consolidated statements of income, stockholders' equity, and cash flows for the
fiscal years then ended, accompanied by the unqualified report thereon of the
Borrower's independent accountants; and (ii) the unaudited condensed
consolidated balance sheets of the Borrower and its consolidated subsidiaries as
of March 31, 1998, and the related unaudited condensed consolidated statements
of income and of cash flows of the Borrower and its consolidated subsidiaries
for the fiscal quarter or quarters then ended, as contained in the Form 10-Q
Quarterly Report of the Borrower filed with the SEC. All such financial
statements have been prepared in accordance with GAAP, consistently applied
(except as stated therein), and fairly present the financial position of the
Borrower and its consolidated subsidiaries as of the respective dates indicated
and the consolidated results of their operations and cash flows for the
respective periods indicated, subject in the case of any such financial
statements which are unaudited, to the absence of
41
<PAGE> 47
footnotes and to normal audit adjustments which the Borrower reasonably believes
will not involve a Material Adverse Effect.
(b) The Borrower has received consideration which is the reasonable
equivalent value of the obligations and liabilities that the Borrower has
incurred to the Administrative Agent and the Lenders. The Borrower now has
capital sufficient to carry on its business and transactions and all business
and transactions in which it is about to engage and is now solvent and able to
pay its debts as they mature and the Borrower, as of the Closing Date, owns
property having a value, both at fair valuation and at present fair salable
value, greater than the amount required to pay the Borrower's debts; and the
Borrower is not entering into the Credit Documents with the intent to hinder,
delay or defraud its creditors.
(c) The Borrower has delivered or caused to be delivered to the Lenders
prior to the execution and delivery of this Agreement (i) a copy of the
Borrower's Report on Form 10-K as filed (without Exhibits) with the SEC for its
fiscal year ended June 30, 1997, which contains a general description of the
business and affairs of the Borrower and its Subsidiaries, and (ii) financial
projections prepared by management of the Borrower for the Borrower and its
Subsidiaries for the fiscal year ended June 30, 1999 (the "FINANCIAL
PROJECTIONS"). The Financial Projections were prepared on behalf of the Borrower
in good faith after taking into account the existing and historical levels of
business activity of the Borrower and its Subsidiaries, trends known to the
Borrower, including general economic trends, and all other information,
assumptions and estimates considered by management of the Borrower and its
Subsidiaries to be pertinent thereto. The Financial Projections were considered
by management of the Borrower, as of such date of preparation, to be
realistically achievable; provided, that no representation or warranty is made
as to the impact of future general economic conditions or as to whether the
Borrower's projected consolidated results as set forth in the Financial
Projections will actually be realized. No facts are known to the Borrower at the
date hereof which, if reflected in the Financial Projections, would result in a
material adverse change in the assets, liabilities, results of operations or
cash flows reflected therein.
7.9. NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, there has been no
change in the condition, business or affairs of the Borrower and its
Subsidiaries taken as a whole, or their properties and assets considered as an
entirety, except for changes, none of which, individually or in the aggregate,
has had or could reasonably be expected to have, a Material Adverse Effect.
7.10. TAX RETURNS AND PAYMENTS. Each of the Borrower and each of its
Subsidiaries has filed all federal income tax returns and all other material tax
returns, domestic and foreign, required to be filed by it and has paid all
material taxes and assessments payable by it which have become due, other than
those not yet delinquent and except for those contested in good faith. The
Borrower and each of its Subsidiaries has established on its books such charges,
accruals and reserves in respect of taxes, assessments, fees and other
governmental charges for all fiscal periods as are required by GAAP. The
Borrower knows of no proposed assessment for additional federal, foreign or
state taxes for any period, or of any basis therefor, which, individually or in
the aggregate, taking into account such charges, accruals and reserves in
respect thereof as the Borrower and its Subsidiaries have made, could reasonably
be expected to have a Material Adverse Effect.
7.11. TITLE TO PROPERTIES, ETC. The Borrower and each of its
Subsidiaries has good and marketable title, in the case of real property, and
good title (or valid leasehold interests, in the case of any leased property),
in the case of all other property, to all of its properties and assets free and
clear of Liens other than Liens permitted by section 9.3. The interests of the
Borrower and each of its Subsidiaries in the properties reflected in the most
recent balance sheet referred to in section 7.8, taken as a whole, were
sufficient, in the judgment of the Borrower, as of the date of such balance
sheet for purposes of the ownership and operation of the businesses conducted by
the Borrower and such Subsidiaries.
7.12. LAWFUL OPERATIONS, ETC. The Borrower and each of its Subsidiaries
(i) holds all necessary federal, state and local governmental
licenses, registrations, certifications, permits and authorizations
necessary to conduct its business, and
42
<PAGE> 48
(ii) is in full compliance with all material requirements
imposed by law, regulation or rule, whether federal, state or local,
which are applicable to it, its operations, or its properties and
assets, including without limitation, applicable requirements of the
United States Food and Drug Administration, federal and state Medicaid
and Medicare requirements, Environmental Laws and zoning ordinances,
except for any failure to obtain and maintain in effect, or noncompliance,
which, individually or in the aggregate, could not reasonably be expected to
have a Material Adverse Effect.
7.13. ENVIRONMENTAL MATTERS. (a) The Borrower and each of its
Subsidiaries is in compliance with all Environmental Laws governing its business
except to the extent that any such failure to comply (together with any
resulting penalties, fines or forfeitures) would not reasonably be expected to
have a Material Adverse Effect. All licenses, permits, registrations or
approvals required for the business of the Borrower and each of its
Subsidiaries, as conducted as of the Closing Date, under any Environmental Law
have been secured and the Borrower and each of its Subsidiaries is in
substantial compliance therewith, except for such licenses, permits,
registrations or approvals the failure to secure or to comply therewith is not
reasonably likely to have a Material Adverse Effect. Neither the Borrower nor
any of its Subsidiaries has received written notice, or otherwise knows, that it
is in any respect in noncompliance with, breach of or default under any
applicable writ, order, judgment, injunction, or decree to which the Borrower or
such Subsidiary is a party or which would affect the ability of the Borrower or
such Subsidiary to operate any real property and no event has occurred and is
continuing which, with the passage of time or the giving of notice or both,
would constitute noncompliance, breach of or default thereunder, except in each
such case, such noncompliance, breaches or defaults as would not reasonably be
expected to, in the aggregate, have a Material Adverse Effect. There are as of
the Closing Date no Environmental Claims pending or, to the best knowledge of
the Borrower, threatened wherein an unfavorable decision, ruling or finding
would reasonably be expected to have a Material Adverse Effect. There are no
facts, circumstances, conditions or occurrences on any Real Property now or at
any time owned, leased or operated by the Borrower or any of its Subsidiaries or
on any property adjacent to any such Real Property, which are known by the
Borrower or as to which the Borrower or any such Subsidiary has received written
notice, that could reasonably be expected (i) to form the basis of an
Environmental Claim against the Borrower or any of its Subsidiaries or any Real
Property of the Borrower or any of its Subsidiaries, or (ii) to cause such Real
Property to be subject to any restrictions on the ownership, occupancy, use or
transferability of such Real Property under any Environmental Law, except in
each such case, such Environmental Claims or restrictions that individually or
in the aggregate would not reasonably be expected to have a Material Adverse
Effect.
(b) Hazardous Materials have not at any time been (i) generated, used,
treated or stored on, or transported to or from, any Real Property of the
Borrower or any of its Subsidiaries or (ii) released on any such Real Property,
in each case where such occurrence or event is not in compliance with
Environmental Laws and is reasonably likely to have a Material Adverse Effect.
7.14. COMPLIANCE WITH ERISA. Compliance by the Borrower with the
provisions hereof and Credit Events contemplated hereby will not involve any
prohibited transaction within the meaning of ERISA or section 4975 of the Code.
At and as of the Effective Date, the Borrower and each of its Subsidiaries:
(i) has fulfilled all obligations under minimum funding
standards of ERISA and the Code with respect to each Plan that is not a
Multiemployer Plan or a Multiple Employer Plan,
(ii) has satisfied all respective contribution obligations in
respect of each Multiemployer Plan and each Multiple Employer Plan,
(iii) is in compliance in all material respects with all other
applicable provisions of ERISA and the Code with respect to each Plan,
each Multiemployer Plan and each Multiple Employer Plan, and
(iv) has not incurred any material liability under the Title
IV of ERISA to the PBGC with respect to any Plan, any Multiemployer
Plan, any Multiple Employer Plan, or any trust established thereunder.
43
<PAGE> 49
No Plan or trust created thereunder has been terminated, and there have been no
Reportable Events, with respect to any Plan or trust created thereunder or with
respect to any Multiemployer Plan or Multiple Employer Plan, which termination
or Reportable Event will or could result in the termination of such Plan,
Multiemployer Plan or Multi Employer Plan and give rise to a material liability
of the Borrower or any ERISA Affiliate in respect thereof.
7.15. INTELLECTUAL PROPERTY, ETC. The Borrower and each of its
Subsidiaries has obtained or has the right to use all material patents,
trademarks, servicemarks, trade names, copyrights, licenses and other rights
with respect to the foregoing necessary for the present and planned future
conduct of its business, without any known conflict with the rights of others,
EXCEPT for such patents, trademarks, servicemarks, trade names, copyrights,
licenses and rights, the loss of which, and such conflicts, which in any such
case individually or in the aggregate would not reasonably be expected to have a
Material Adverse Effect.
7.16. INVESTMENT COMPANY ACT, ETC. Neither the Borrower nor any of its
Subsidiaries is subject to regulation with respect to the creation or incurrence
of Indebtedness under the Investment Company Act of 1940, as amended, the
Interstate Commerce Act, as amended, the Federal Power Act, as amended, the
Public Utility Holding Company Act of 1935, as amended, or any applicable state
public utility law.
7.17. BURDENSOME CONTRACTS; LABOR RELATIONS. Neither the Borrower nor
any of its Subsidiaries (i) is subject to any burdensome contract, agreement,
corporate restriction, judgment, decree or order, (ii) is a party to any labor
dispute affecting any bargaining unit or other group of employees generally,
(iii) is subject to any material strike, slow down, workout or other concerted
interruptions of operations by employees of the Borrower or any Subsidiary,
whether or not relating to any labor contracts, (iv) is subject to any
significant pending or, to the knowledge of the Borrower, threatened, unfair
labor practice complaint, before the National Labor Relations Board, and (v) is
subject to any significant pending or, to the knowledge of the Borrower,
threatened, grievance or significant arbitration proceeding arising out of or
under any collective bargaining agreement, (vi) is subject to any significant
pending or, to the knowledge of the Borrower, threatened, significant strike,
labor dispute, slowdown or stoppage, or (vii) is, to the knowledge of the
Borrower, involved or subject to any union representation organizing or
certification matter with respect to the employees of the Borrower or any of its
Subsidiaries, EXCEPT (with respect to any matter specified in any of the above
clauses), for such matters as, individually or in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
7.18. EXISTING INDEBTEDNESS. Annex III sets forth a true and complete
list, as of the date or dates set forth therein, of all Indebtedness (other than
Capitalized Lease Obligations) of the Borrower and each of its Subsidiaries, on
a consolidated basis, which (i) has an outstanding principal amount of at least
$1,000,000, or (ii) is secured by any Lien on any property of the Borrower or
any Subsidiary, and which will be outstanding on the Closing Date after giving
effect to any Borrowing hereunder on the Closing Date, other than the
Indebtedness created under the Credit Documents (all existing Indebtedness of
the Borrower and its Subsidiaries, whether or not in a principal amount meeting
such threshold or otherwise not required to be so listed on Annex III, herein
the "EXISTING INDEBTEDNESS"). The Borrower has provided to the Administrative
Agent prior to the date of execution hereof true and complete copies of all
agreements and instruments governing the Indebtedness listed on Annex III (the
"EXISTING INDEBTEDNESS AGREEMENTS").
7.19. YEAR 2000 PROBLEM. The Borrower and its Subsidiaries have
reviewed the areas within their business and operations which could be adversely
affected by, and have developed or are developing a program to address on a
timely basis the "Year 2000 Problem" (that is, the risk that computer
applications used by the Borrower and its Subsidiaries may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999). Based on such review and
program, the Borrower reasonably believes that the "Year 2000 Problem" is not
reasonably likely to have a Material Adverse Effect.
7.20. TRUE AND COMPLETE DISCLOSURE. All factual information (taken as a
whole) heretofore or contemporaneously furnished by or on behalf of the Borrower
or any of its Subsidiaries in writing
44
<PAGE> 50
to the Administrative Agent or any Lender specifically for purposes of this
Agreement, other than the Financial Projections (as to which representations are
made only as provided in section 7.8), is, and all other such factual
information (taken as a whole) hereafter furnished by or on behalf of such
person in writing to any Lender specifically for purposes of this Agreement will
be, true and accurate in all material respects on the date as of which such
information is dated or certified and not incomplete by omitting to state any
material fact necessary to make such information (taken as a whole) not
misleading at such time in light of the circumstances under which such
information was provided, except that any such future information consisting of
financial projections prepared by management of the Borrower is only represented
herein as being based on good faith estimates and assumptions believed by such
persons to be reasonable at the time made, it being recognized by the Lenders
that such projections as to future events are not to be viewed as facts and that
actual results during the period or periods covered by any such projections may
differ materially from the projected results. As of the Effective Date, there is
no fact known to the Borrower or any of its Subsidiaries which has, or could
reasonably be expected to have, a Material Adverse Effect which has not
theretofore been disclosed in writing to the Lenders.
SECTION 8. AFFIRMATIVE COVENANTS.
The Borrower hereby covenants and agrees that so long as this Agreement
is in effect and until such time as the Total Commitment has been terminated, no
Notes are outstanding and the Loans, together with interest, Fees and all other
Obligations hereunder, have been paid in full:
8.1. REPORTING REQUIREMENTS. The Borrower will furnish to each Lender
and the Administrative Agent:
(a) ANNUAL FINANCIAL STATEMENTS. Promptly and in any event
within 100 days after the close of each fiscal year of the Borrower,
the consolidated and consolidating balance sheets of the Borrower and
its consolidated Subsidiaries as at the end of such fiscal year and the
related consolidated and consolidating statements of income, of
stockholder's equity and of cash flows for such fiscal year, in each
case setting forth comparative figures for the preceding fiscal year,
all in reasonable detail and accompanied by the opinion with respect to
such consolidated financial statements of independent public
accountants of recognized national standing selected by the Borrower,
which opinion shall be unqualified and shall (i) state that such
accountants audited such consolidated financial statements in
accordance with generally accepted auditing standards, that such
accountants believe that such audit provides a reasonable basis for
their opinion, and that in their opinion such consolidated financial
statements present fairly, in all material respects, the consolidated
financial position of the Borrower and its consolidated subsidiaries as
at the end of such fiscal year and the consolidated results of their
operations and cash flows for such fiscal year in conformity with
generally accepted accounting principles, or (ii) contain such
statements as are customarily included in unqualified reports of
independent accountants in conformity with the recommendations and
requirements of the American Institute of Certified Public Accountants
(or any successor organization).
(b) QUARTERLY FINANCIAL STATEMENTS. Promptly and in any event
within 55 days after the close of each of the quarterly accounting
periods in each fiscal year of the Borrower, the unaudited condensed
consolidated and consolidating balance sheets of the Borrower and its
consolidated Subsidiaries as at the end of such quarterly period and
the related unaudited condensed consolidated and consolidating
statements of income and of cash flows for such quarterly period, and
setting forth, in the case of such unaudited consolidated statements of
income and of cash flows, comparative figures for the related periods
in the prior fiscal year, and which consolidated financial statements
shall be certified on behalf of the Borrower by the Chief Financial
Officer or other Authorized Officer of the Borrower, subject to changes
resulting from normal year-end audit adjustments.
(c) OFFICER'S COMPLIANCE CERTIFICATES. At the time of the
delivery of the financial statements provided for in sections 8.1(a)
and (b), a certificate on behalf of the Borrower of the Chief
45
<PAGE> 51
Financial Officer or other Authorized Officer of the Borrower to the
effect that, to the best knowledge of the Borrower, no Default or Event
of Default exists or, if any Default or Event of Default does exist,
specifying the nature and extent thereof, which certificate shall set
forth the calculations required to (i) determine the Borrower's
Interest Coverage Ratio for the most recent Testing Period consisting
of a single fiscal quarter, and (ii) establish compliance with the
provisions of sections 9.6, 9.7, 9.8 and 9.9.
(d) BUDGET. Not later than 90 days after the commencement of
any fiscal year of the Borrower and its Subsidiaries, a consolidated
budget in reasonable detail for each of the four fiscal quarters of
such fiscal year, and (if and to the extent prepared by management of
the Borrower) for any subsequent fiscal years, as customarily prepared
by management for its internal use, setting forth, with appropriate
discussion, the forecasted balance sheet, income statement, operating
cash flows and capital expenditures of the Borrower and its
Subsidiaries for the period covered thereby, and the principal
assumptions upon which forecasts and budget are based.
(e) NOTICE OF DEFAULT, LITIGATION OR CERTAIN MATTERS INVOLVING
MAJOR CUSTOMERS OR SUPPLIERS OR LEGAL REQUIREMENTS. Promptly, and in
any event within three Business Days, in the case of clause (i) below,
or five Business Days, in the case of clause (ii), (iii) or (iv) below,
after the Borrower obtains actual knowledge thereof, notice of
(i) the occurrence of any event which constitutes a
Default or Event of Default, which notice shall specify the
nature thereof, the period of existence thereof and what
action the Borrower proposes to take with respect thereto,
(ii) any litigation or governmental or regulatory
investigation or proceeding pending against or involving the
Borrower or any of its Material Subsidiaries which (A)
involves any federal or state "anti-kickback" laws or
regulations, or possible loss of any material governmental
license, certification, license or authorization, or (B) the
Borrower reasonably expects to have a Material Adverse Effect
or a material adverse effect on the ability of the Borrower to
perform its obligations hereunder or under any other Credit
Document,
(iii) any significant adverse change (in the
Borrower's reasonable judgment) in the Borrower's or any
Subsidiary's relationship with, or any significant event or
circumstance which is in the Borrower's reasonable judgment
likely to adversely affect the Borrower's or any Subsidiary's
relationship with, (A) any customer (or related group of
customers) representing more than 10% of the Borrower's
consolidated revenues during its most recent fiscal year, or
(B) any supplier which is significant to the Borrower and its
Subsidiaries considered as an entirety, and
(iv) any significant change in the reimbursement or
other provisions of the Medicaid or Medicare programs which
the Borrower reasonably expects to have a Material Adverse
Effect.
(f) AUDITORS' INTERNAL CONTROL COMMENT LETTERS, ETC. Promptly
upon receipt thereof, a copy of each letter or memorandum commenting on
internal accounting controls which is submitted to the Borrower by its
independent accountants in connection with any annual audit made by
them of the books of the Borrower.
(g) ERISA. Promptly, and in any event within 10 days after the
Borrower obtains actual knowledge of the occurrence of any of the
following, the Borrower will deliver to each of the Lenders a
certificate on behalf of the Borrower of an Authorized Officer of the
Borrower setting forth the full details as to such occurrence and the
action, if any, that the Borrower, such Subsidiary or such ERISA
Affiliate is required or proposes to take, together with any notices
required or proposed to be given to or filed with or by the Borrower,
the Subsidiary, the ERISA Affiliate, the PBGC, a Plan participant or
the Plan administrator with respect thereto:
46
<PAGE> 52
(i) that a Reportable Event has occurred with
respect to any Plan;
(ii) the institution of any steps by the Borrower,
any ERISA Affiliate, the PBGC or any other person to terminate
any Plan;
(iii) the institution of any steps by the Borrower or
any ERISA Affiliate to withdraw from any Plan;
(iv) the institution of any steps by the Borrower or
any Subsidiary to withdraw from any Multiemployer Plan or
Multiple Employer Plan, if such withdrawal could result in
withdrawal liability (as described in Part 1 of Subtitle E of
Title IV of ERISA) in excess of $1,000,000;
(v) a non-exempt "prohibited transaction" within the
meaning of section 406 of ERISA in connection with any Plan;
(vi) that a Plan has an Unfunded Current Liability
exceeding $1,000,000;
(vii) any material increase in the contingent
liability of the Borrower or any Subsidiary with respect to
any post-retirement welfare liability; or
(viii) the taking of any action by, or the
threatening of the taking of any action by, the Internal
Revenue Service, the Department of Labor or the PBGC with
respect to any of the foregoing.
(h) ENVIRONMENTAL MATTERS. Promptly upon, and in any event
within 10 Business Days after, an officer of the Borrower obtains
actual knowledge thereof, notice of any of the following environmental
matters which involves any reasonable likelihood (in the Borrower's
reasonable judgment) of resulting in a Material Adverse Effect: (i) any
pending or threatened (in writing) Environmental Claim against the
Borrower or any of its Subsidiaries or any Real Property owned or
operated by the Borrower or any of its Subsidiaries; (ii) any condition
or occurrence on or arising from any Real Property owned or operated by
the Borrower or any of its Subsidiaries that (A) results in
noncompliance by the Borrower or any of its Subsidiaries with any
applicable Environmental Law or (B) would reasonably be expected to
form the basis of an Environmental Claim against the Borrower or any of
its Subsidiaries or any such Real Property; (iii) any condition or
occurrence on any Real Property owned, leased or operated by the
Borrower or any of its Subsidiaries that could reasonably be expected
to cause such Real Property to be subject to any restrictions on the
ownership, occupancy, use or transferability by the Borrower or any of
its Subsidiaries of such Real Property under any Environmental Law; and
(iv) the taking of any removal or remedial action in response to the
actual or alleged presence of any Hazardous Material on any Real
Property owned, leased or operated by the Borrower or any of its
Subsidiaries as required by any Environmental Law or any governmental
or other administrative agency. All such notices shall describe in
reasonable detail the nature of the Environmental Claim and the
Borrower's or such Subsidiary's response thereto.
(i) SEC REPORTS AND REGISTRATION STATEMENTS. Promptly upon
transmission thereof or other filing with the SEC, copies of all
registration statements (other than the exhibits thereto and any
registration statement on Form S-8 or its equivalent) and annual,
quarterly or current reports that the Borrower or any of its
Subsidiaries files with the SEC.
(j) OTHER INFORMATION. With reasonable promptness, such other
information or documents (financial or otherwise) relating to the
Borrower or any of its Subsidiaries as any Lender (through the
Administrative Agent) may reasonably request from time to time.
8.2. BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will cause
each of its Subsidiaries to,
47
<PAGE> 53
(i) keep proper books of record and account, in which full and correct entries
shall be made of all financial transactions and the assets and business of the
Borrower or such Subsidiaries, as the case may be, in accordance with GAAP, in
the case of the Borrower, or which are reconcilable to GAAP, in the case of any
Subsidiary; and (ii) permit, upon at least five Business Days' notice to the
Chief Financial Officer or any other Authorized Officer of the Borrower,
officers and designated representatives of the Administrative Agent or any of
the Lenders to visit and inspect any of the properties or assets of the Borrower
and any of its Subsidiaries in whomsoever's possession (but only to the extent
the Borrower or such Subsidiary has the right to do so to the extent in the
possession of another person), and to examine the books of account of the
Borrower and any of its Subsidiaries and discuss the affairs, finances and
accounts of the Borrower and of any of its Subsidiaries with, and be advised as
to the same by, its and their officers and independent accountants and
independent actuaries (the Borrower having been offered an opportunity to be
present by telephone or in person for any discussions with such independent
accountants or independent actuaries), if any, all at such reasonable times and
intervals and to such reasonable extent as the Administrative Agent or any of
the Lenders may request.
8.3. INSURANCE. The Borrower will, and will cause each of its
Subsidiaries to, (a) maintain insurance coverage by such insurers and in such
forms and amounts and against such risks as are generally consistent with the
insurance coverage maintained by the Borrower and its Subsidiaries at the date
hereof, and (b) forthwith upon the Administrative Agent's written request,
furnish to the Administrative Agent such information about such insurance as the
Administrative Agent may from time to time reasonably request, which information
shall be prepared in form and detail satisfactory to the Administrative Agent
and certified by an Authorized Officer of the Borrower.
8.4. PAYMENT OF TAXES AND CLAIMS. The Borrower will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which penalties attach thereto, and all lawful claims which, if unpaid, might
become a Lien or charge upon any properties of the Borrower or any of its
Subsidiaries; PROVIDED that neither the Borrower nor any of its Subsidiaries
shall be required to pay any such tax, assessment, charge, levy or claim which
is being contested in good faith and by proper proceedings if it has maintained
adequate reserves with respect thereto in accordance with GAAP; and PROVIDED,
FURTHER, that the Borrower will not be considered to be in default of any of the
provisions of this sentence if the Borrower or any Subsidiary fails to pay any
such amount which, individually or in the aggregate, is immaterial to the
Borrower and its Subsidiaries considered as an entirety.
8.5. CORPORATE FRANCHISES. The Borrower will do, and will cause each of
its Subsidiaries to do, or cause to be done, all things necessary to preserve
and keep in full force and effect its corporate or other organizational
existence, rights, authority and franchises, PROVIDED that nothing in this
section 8.5 shall be deemed to prohibit (i) any transaction permitted by section
9.2; (ii) the termination of existence of any Subsidiary if the Borrower
determines that such termination is in its best interest; or (iii) the loss of
any rights, authorities or franchises if the loss thereof, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect.
8.6. GOOD REPAIR. The Borrower will, and will cause each of its
Subsidiaries to, ensure that its material properties and equipment used or
useful in its business in whomsoever's possession they may be, are kept in good
repair, working order and condition, normal wear and tear excepted, and that
from time to time there are made in such properties and equipment all needful
and proper repairs, renewals, replacements, extensions, additions, betterments
and improvements, thereto, to the extent and in the manner customary for
companies in similar businesses.
8.7. COMPLIANCE WITH STATUTES, ETC. The Borrower will, and will cause
each of its Subsidiaries to, comply, in all material respects, with all
applicable statutes, regulations and orders of, and all applicable restrictions
imposed by, all governmental bodies, domestic or foreign, in respect of the
conduct of its business and the ownership of its property, other than those (i)
being contested in good faith by appropriate proceedings, as to which adequate
reserves are established to the extent required under GAAP, and (ii) the
noncompliance with which would not have, and which would not be reasonably
expected to have, a Material Adverse Effect or a material adverse effect on the
ability of the Borrower to perform its obligations under any Credit Document.
48
<PAGE> 54
8.8. COMPLIANCE WITH ENVIRONMENTAL LAWS. Without limitation of the
covenants contained in section 8.7 hereof:
(a) The Borrower will, and will cause each of its Subsidiaries
to, (i) comply, in all material respects, with all Environmental Laws
applicable to the ownership, lease or use of all Real Property now or
hereafter owned, leased or operated by the Borrower or any of its
Subsidiaries, and promptly pay or cause to be paid all costs and
expenses incurred in connection with such compliance, except for such
noncompliance as would not have, and which would not be reasonably
expected to have, a Material Adverse Effect or a material adverse
effect on the ability of the Borrower to perform its obligations under
any Credit Document; and (ii) keep or cause to be kept all such Real
Property free and clear of any Liens imposed pursuant to such
Environmental Laws which are not permitted under section 9.3.
(b) Without limitation of the foregoing, if the Borrower or
any of its Subsidiaries shall generate, use, treat, store, release or
dispose of, or permit the generation, use, treatment, storage, release
or disposal of, Hazardous Materials on any Real Property now or
hereafter owned, leased or operated by the Borrower or any of its
Subsidiaries, or transport or permit the transportation of Hazardous
Materials to or from any such Real Property, any such action shall be
effected only in the ordinary course of business and in any event in
compliance, in all material respects, with all Environmental Laws
applicable thereto, except for such noncompliance as would not have,
and which would not be reasonably expected to have, a Material Adverse
Effect or a material adverse effect on the ability of the Borrower to
perform its obligations under any Credit Document.
(c) If required to do so under any applicable order of any
governmental agency, the Borrower will undertake, and cause each of its
Subsidiaries to undertake, any clean up, removal, remedial or other
action necessary to remove and clean up any Hazardous Materials from
any Real Property owned, leased or operated by the Borrower or any of
its Subsidiaries in accordance with, in all material respects, the
requirements of all applicable Environmental Laws and in accordance
with, in all material respects, such orders of all governmental
authorities, except (i) to the extent that the Borrower or such
Subsidiary is contesting such order in good faith and by appropriate
proceedings and for which adequate reserves have been established to
the extent required by GAAP, or (ii) for such noncompliance as would
not have, and which would not be reasonably expected to have, a
Material Adverse Effect or a material adverse effect on the ability of
the Borrower to perform its obligations under any Credit Document.
8.9. FISCAL YEARS, FISCAL QUARTERS. The Borrower will, for consolidated
financial reporting purposes, continue to use June 30 as the end of its fiscal
year and September 30, December 31, March 31 and June 30 as the end of its
fiscal quarters. If the Borrower shall change any of its Subsidiaries' fiscal
years or fiscal quarters (other than the fiscal year or fiscal quarters of a
person which becomes a Subsidiary, made at the time such person becomes a
Subsidiary, to conform to the Borrower's fiscal year and fiscal quarters or to
conform to the fiscal year or fiscal quarters which the Borrower generally
utilizes for its Subsidiaries), the Borrower will promptly, and in any event
within 30 days following any such change, deliver a notice to the Administrative
Agent and the Lenders describing such change and any material accounting entries
made in connection therewith and stating whether such change will have any
impact upon any financial computations to be made hereunder, and if any such
impact is foreseen, describing in reasonable detail the nature and extent of
such impact. If the Required Lenders determine that any such change will have
any impact upon any financial computations to be made hereunder which is adverse
to the Lenders, the Borrower will, if so requested by the Administrative Agent,
enter into an amendment to this Agreement, in form and substance satisfactory to
the Administrative Agent and the Required Lenders, modifying any of the
financial covenants or related provisions hereof in such manner as the Required
Lenders determine is necessary to eliminate such adverse effect.
8.10. CERTAIN SUBSIDIARIES TO JOIN IN SUBSIDIARY GUARANTY. (a) In the
event that at any time after the Closing Date
49
<PAGE> 55
(x) the Borrower has any Subsidiary (other than a Foreign
Subsidiary as to which section 8.10(b) applies) which is not a party to
the Subsidiary Guaranty, or
(y) an Event of Default shall have occurred and be continuing
and the Borrower has any Subsidiary which is not a party to the
Subsidiary Guaranty,
the Borrower will notify the Administrative Agent in writing of such event,
identifying the Subsidiary in question and referring specifically to the rights
of the Administrative Agent and the Lenders under this section. The Borrower
will, within 30 days following request therefor from the Administrative Agent
(who may give such request on its own initiative or upon request by the Required
Lenders), cause such Subsidiary to deliver to the Administrative Agent, in
sufficient quantities for the Lenders, (i) a joinder supplement, satisfactory in
form and substance to the Administrative Agent and the Required Lenders, duly
executed by such Subsidiary, pursuant to which such Subsidiary joins in the
Subsidiary Guaranty as a guarantor thereunder, and (ii) if such Subsidiary is a
corporation, resolutions of the Board of Directors of such Subsidiary, certified
by the Secretary or an Assistant Secretary of such Subsidiary as duly adopted
and in full force and effect, authorizing the execution and delivery of such
joinder supplement, or if such Subsidiary is not a corporation, such other
evidence of the authority of such Subsidiary to execute such joinder supplement
as the Administrative Agent may reasonably request.
(b) Notwithstanding the foregoing provisions of this section 8.10 or
the provisions of section 8.11, the Borrower shall not, unless an Event of
Default shall have occurred and be continuing, be required to cause a Foreign
Subsidiary to join in the Subsidiary Guaranty or to cause the stock of any
Foreign Subsidiary to be pledged pursuant to the Pledge Agreement if (i) to do
so would subject the Borrower to liability for additional United States income
taxes by virtue of section 956 of the Code in an amount the Borrower considers
material, and (ii) the Borrower provides the Administrative Agent, within the
30-day period referred to in section 8.10(a) or section 8.11(a), as applicable,
with documentation, including computations prepared by the Borrower's internal
tax officer, its independent accountants or tax counsel, acceptable to the
Required Lenders, in support thereof.
8.11. PLEDGE OF ADDITIONAL STOCK; RELEASE OF COLLATERAL. (a) In the
event that at any time after the Closing Date the Borrower has any direct or
indirect Subsidiary the stock in which owned by the Borrower or another
Subsidiary is not at the time pledged to the Collateral Agent pursuant to the
Pledge Agreement, the Borrower may, but shall not be obligated to, elect to (i)
cause such stock to be so pledged by delivering the certificates therefor to the
Collateral Agent, duly indorsed in blank or accompanied by separate stock powers
duly executed in blank, (ii) deliver or cause to be delivered to the Collateral
Agent an amendment or supplement to the Pledge Agreement signed by the pledging
Credit Party providing for such pledge, in sufficient quantities for the
Lenders, and (ii) if such pledging Credit Party is not already a Credit Party,
resolutions of the Board of Directors of such pledging Credit Party, certified
by the Secretary or an Assistant Secretary of such pledging Credit Party as duly
adopted and in full force and effect, authorizing the execution and delivery of
such amendment or supplement, or if such pledging Credit Party is not a
corporation, such other evidence of the authority of such pledging Credit Party
to execute such amendment or supplement as the Collateral Agent may reasonably
request.
(b) If no default under section 10.1(a) or Event of Default shall have
occurred and be continuing, the Borrower shall be entitled to obtain a complete
release of all Collateral covered by the Pledge Agreement and a termination of
the Pledge Agreement upon written notice to the Administrative Agent, and the
Administrative Agent and the Collateral Agent shall in such circumstances take
all such reasonable actions as may be necessary to effect such release and
termination.
8.12. MOST FAVORED COVENANT STATUS. Should the Borrower at any time
after June 1, 1998, issue any unsecured Indebtedness, or guarantee any secured
or unsecured Indebtedness, denominated in U.S. dollars or any other currency,
for money borrowed or represented by bonds, notes, debentures or similar
securities in an aggregate amount exceeding $5,000,000, to any lender or group
of lenders acting in concert with one another, or one or more institutional
investors, pursuant to a loan agreement, credit agreement, note purchase
agreement, indenture, guaranty or other similar instrument, which agreement,
indenture, guaranty or instrument, includes affirmative or negative financial
covenants (or any events of default or other type of restriction which would
have the practical effect of any
50
<PAGE> 56
affirmative or negative financial covenant, including, without limitation, any
"put" or mandatory prepayment of such Indebtedness upon the occurrence of
specified financial ratios or other specified financial measurements) which are
applicable to the Borrower and/or any of its Subsidiaries, other than those set
forth herein or in any of the other Credit Documents, the Borrower shall
promptly so notify the Administrative Agent and the Lenders and, if the
Administrative Agent shall so request by written notice to the Borrower (after a
determination has been made by the Required Lenders that any of the
above-referenced documents or instruments contain any such provisions, which
either individually or in the aggregate, are more favorable to the applicable
creditors of the Borrower than any of the particular provisions set forth
herein), the Borrower, the Administrative Agent and the Required Lenders shall
promptly amend this Agreement to incorporate some or all of such provisions, in
the discretion of the Administrative Agent and the Required Lenders, into this
Agreement and, to the extent necessary and reasonably desirable to the
Administrative Agent and the Required Lenders, into any of the other Credit
Documents, all at the election of the Administrative Agent and the Required
Lenders. If after any such provisions have been so incorporated into any of the
Credit Documents, the entire amount of the other Indebtedness from which such
provisions were incorporated is repaid, redeemed, prepaid or otherwise retired,
the Lenders will promptly upon request of the Borrower cause the Credit
Documents to be amended so as to eliminate such provisions which had been
previously incorporated therein.
8.13. SENIOR DEBT. The Borrower will at all times ensure that (a) the
claims of the Lenders in respect of the Obligations of the Borrower will not be
subordinate to, and will in all respects at least rank PARI PASSU with, the
claims of every other senior unsecured creditor of the Borrower, and (b) any
Indebtedness subordinated in any manner to the claims of any other senior
unsecured creditor of the Borrower will be subordinated in like manner to such
claims of the Lenders.
SECTION 9. NEGATIVE COVENANTS.
The Borrower hereby covenants and agrees that on the Effective Date and
thereafter for so long as this Agreement is in effect and until such time as the
Total Commitment has been terminated, no Notes remain outstanding and the Loans,
together with interest, Fees and all other Obligations incurred hereunder are
paid in full:
9.1. CHANGES IN BUSINESS. Neither the Borrower nor any of its
Subsidiaries will engage in any business if, as a result, the general nature of
the business, taken on a consolidated basis, which would then be engaged in by
the Borrower and its Subsidiaries, would be substantially changed from the
general nature of the business engaged in by the Borrower and its Subsidiaries
on the date hereof.
9.2. CONSOLIDATION, MERGER, ACQUISITIONS, AND SALE OF ASSETS, ETC. The
Borrower will not, and will not permit any Subsidiary to, (1) wind up, liquidate
or dissolve its affairs, (2) enter into any transaction of merger or
consolidation, (3) make or otherwise effect any Acquisition, (4) sell or
otherwise dispose of any of its property or assets otherwise than in the
ordinary course of business, or otherwise make or effect any Asset Sale, or (5)
agree to do any of the foregoing at any future time, EXCEPT that the following
shall be permitted:
(a) CAPITAL EXPENDITURES: Consolidated Capital Expenditures;
(b) PERMITTED INVESTMENTS: the investments permitted pursuant
to section 9.5;
(c) CERTAIN INTERCOMPANY MERGERS, ETC.: if no Default or Event
of Default shall have occurred and be continuing or would result
therefrom, (i) the merger, consolidation or amalgamation of any
Wholly-Owned Subsidiary with or into the Borrower or another
Wholly-Owned Subsidiary, so long as in any merger, consolidation or
amalgamation involving the Borrower it is the surviving or continuing
or resulting corporation, or the liquidation or dissolution of any
Subsidiary, or (ii) the transfer or other disposition of any property
by the Borrower to any Wholly-Owned Subsidiary or by any Wholly-Owned
Subsidiary to the Borrower or any other Wholly-Owned Subsidiary of the
Borrower;
51
<PAGE> 57
(d) ACQUISITIONS: if no Default or Event of Default shall have
occurred and be continuing or would result therefrom, the Borrower or
any Subsidiary may make Acquisitions, PROVIDED that (i) no Acquisition
may be consummated which is actively opposed by the Board of Directors
(or similar governing body) of the selling person or the person whose
equity interests are to be acquired, UNLESS all of the Lenders consent
to such transaction, and (ii) at least three Business Days prior to the
date of any such Acquisition which involves consideration (including
the amount of any assumed Indebtedness and (without duplication) any
outstanding Indebtedness of any person which becomes a Subsidiary as a
result of such Permitted Acquisition) of $20,000,000 or more, the
Borrower shall have delivered to the Administrative Agent an officer's
certificate executed on behalf of the Borrower by an Authorized Officer
of the Borrower, which certificate shall (A) contain the date such
Acquisition is scheduled to be consummated, (B) contain the estimated
purchase price of such Acquisition, (C) contain a description of the
property and/or assets acquired in connection with such Permitted
Acquisition, (D) demonstrate that at the time of making any such
Acquisition the covenants contained in sections 9.6, 9.7 and 9.8 shall
be complied with on a PRO FORMA basis as if the properties and/or
assets so acquired had been owned by the Borrower, and the Indebtedness
assumed and/or incurred to acquire and/or finance same has been
outstanding, for the 12 month period immediately preceding such
Acquisition (without giving effect to any credit for unobtained or
unrealized gains or any adjustments to overhead in connection with any
such Acquisition), and (E) if requested by the Administrative Agent,
attach thereto a true and correct copy of the then proposed purchase
agreement, merger agreement or similar agreement, partnership agreement
and/or other contract entered into in connection with such Acquisition,
and the most recent financial statements for the person or business
unit which is the subject of such Acquisition;
(e) PERMITTED DISPOSITIONS: if no Default or Event of Default
shall have occurred and be continuing or would result therefrom, the
Borrower or any of its Subsidiaries may (i) sell any property, land or
building (including any related receivables or other intangible assets)
to any person which is not a Subsidiary of the Borrower, or (ii) sell
the entire capital stock (or other equity interests) and Indebtedness
of any Subsidiary owned by the Borrower or any other Subsidiary to any
person which is not a Subsidiary of the Borrower, or (iii) permit any
Subsidiary to be merged or consolidated with a person which is not an
Affiliate of the Borrower, or (iv) consummate any other Asset Sale with
a person who is not a Subsidiary of the Borrower; PROVIDED that (A) the
consideration for such transaction represents fair value (as determined
by management of the Borrower), and at least 75% of such consideration
consists of cash, (B) in the case of any such transaction involving
consideration in excess of $10,000,000, at least five Business Days
prior to the date of completion of such transaction the Borrower shall
have delivered to the Administrative Agent an officer's certificate
executed on behalf of the Borrower by an Authorized Officer of the
Borrower, which certificate shall contain a description of the proposed
transaction, the date such transaction is scheduled to be consummated,
the estimated purchase price or other consideration for such
transaction, financial information pertaining to compliance with the
preceding clause (A), and which shall (if requested by the
Administrative Agent) include a certified copy of the draft or
definitive documentation pertaining thereto, and (C) contemporaneously
therewith, the Borrower prepays Loans as and to the extent contemplated
by section 5.2(d);
(f) CONTRIBUTIONS TO JOINT VENTURES, ETC.: if no Default or
Event of Default shall have occurred and be continuing or would result
therefrom, the Borrower or any of its Subsidiaries may contribute
assets to joint ventures and other persons in accordance with section
9.5(p); and
(g) LEASES: the Borrower or any of its Subsidiaries may enter
into leases of property or assets not constituting Permitted
Acquisitions in the ordinary course of business not otherwise in
violation of this Agreement.
To the extent (i) any Collateral is sold, transferred or disposed of as
permitted by this section 9.2, or (ii) the Required Lenders (or all of the
Lenders if required by section 13.12) waive the provisions of this section 9.2
with respect to the sale, transfer or other disposition of any Collateral, (a)
such Collateral shall be sold, transferred or disposed of free and clear of the
Liens created by the respective Security Documents; (b) if such Collateral
includes
52
<PAGE> 58
all of the capital stock of a Subsidiary which is a party to the Subsidiary
Guaranty or other Security Document, such capital stock shall be released from
the Pledge Agreement and such Subsidiary shall be released from the Subsidiary
Guaranty; and (c) the Administrative Agent and the Collateral Agent shall be
authorized to take actions deemed appropriate by them in order to effectuate the
foregoing.
9.3. LIENS. The Borrower will not, and will not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any property or assets of any kind (real or personal, tangible or
intangible) of the Borrower or any such Subsidiary whether now owned or
hereafter acquired, or sell any such property or assets subject to an
understanding or agreement, contingent or otherwise, to repurchase such property
or assets (including sales of accounts receivable or notes with or without
recourse to the Borrower or any of its Subsidiaries, other than for purposes of
collection of delinquent accounts in the ordinary course of business) or assign
any right to receive income, or file or permit the filing of any financing
statement under the UCC or any other similar notice of Lien under any similar
recording or notice statute, EXCEPT that the foregoing restrictions shall not
apply to:
(a) Liens for taxes not yet delinquent or Liens for taxes
being contested in good faith and by appropriate proceedings for which
adequate reserves (in the good faith judgment of the management of the
Borrower) have been established;
(b) Liens in respect of property or assets imposed by law
which were incurred in the ordinary course of business, such as
carriers', warehousemen's, materialmen's and mechanics' Liens and other
similar Liens arising in the ordinary course of business, which do not
in the aggregate materially detract from the value of such property or
assets or materially impair the use thereof in the operation of the
business of the Borrower or any Subsidiary;
(c) Liens created by this Agreement or the other Credit
Documents;
(d) Liens (i) in existence on the Closing Date which are
listed, and the Indebtedness secured thereby and the property subject
thereto on the Closing Date described, in Annex IV, or (ii) arising out
of the refinancing, extension, renewal or refunding of any Indebtedness
secured by any such Liens, PROVIDED that the principal amount of such
Indebtedness is not increased and such Indebtedness is not secured by
any additional assets;
(e) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under section
10.1(g);
(f) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social
security; and mechanic's Liens, carrier's Liens, and other Liens to
secure the performance of tenders, statutory obligations, contract
bids, government contracts, performance and return-of-money bonds and
other similar obligations, incurred in the ordinary course of business
(exclusive of obligations in respect of the payment for borrowed
money), whether pursuant to statutory requirements, common law or
consensual arrangements;
(g) Leases or subleases granted to others not interfering in
any material respect with the business of the Borrower or any of its
Subsidiaries and any interest or title of a lessor under any lease not
in violation of this Agreement;
(h) easements, rights-of-way, zoning or deed restrictions,
minor defects or irregularities in title and other similar charges or
encumbrances not interfering in any material respect with the ordinary
conduct of the business of the Borrower or any of its Subsidiaries
considered as an entirety;
(i) Liens arising from financing statements regarding property
subject to leases not in
53
<PAGE> 59
violation of the requirements of this Agreement, PROVIDED that such
Liens are only in respect of the property subject to, and secure only,
the respective lease (and any other lease with the same or an
affiliated lessor); and
(j) Liens which
(i) are placed upon equipment or machinery used in
the ordinary course of business of the Borrower or any
Subsidiary at the time of (or within 180 days after) the
acquisition thereof by the Borrower or any such Subsidiary to
secure Indebtedness incurred to pay or finance all or a
portion of the purchase price thereof, PROVIDED that the Lien
encumbering the equipment or machinery so acquired does not
encumber any other asset of the Borrower or any such
Subsidiary; or
(ii) are existing on property or other assets at the
time acquired by the Borrower or any Subsidiary or on assets
of a person at the time such person first becomes a Subsidiary
of the Borrower; PROVIDED that (A) any such Liens were not
created at the time of or in contemplation of the acquisition
of such assets or person by the Borrower or any of its
Subsidiaries; (B) in the case of any such acquisition of a
person, any such Lien attaches only to the property and assets
of such person; and (C) in the case of any such acquisition of
property or assets by the Borrower or any Subsidiary, any such
Lien attaches only to the property and assets so acquired and
not to any other property or assets of the Borrower or any
Subsidiary;
PROVIDED that (1) the Indebtedness secured by any such Lien does not
exceed 100% of the fair market value of the property and assets to
which such Lien attaches, determined at the time of the acquisition of
such property or asset or the time at which such person becomes a
Subsidiary of the Borrower (except in the circumstances described in
clause (ii) above to the extent such Liens constituted customary
purchase money Liens at the time of incurrence and were entered into in
the ordinary course of business), and (2) the Indebtedness secured
thereby is permitted by section 9.4(c); and
9.4. INDEBTEDNESS. The Borrower will not, and will not permit any of
its Subsidiaries to, contract, create, incur, assume or suffer to exist any
Indebtedness of the Borrower or any of its Subsidiaries, EXCEPT:
(a) Indebtedness incurred under this Agreement and the other
Credit Documents; and Indebtedness incurred under the Bridge Facility
Agreement not in excess of $50,000,000 aggregate principal amount
outstanding at any time, PROVIDED that (x) the scheduled maturity of
the Indebtedness under the Bridge Facility Agreement shall not be later
than December 31, 1998, and (y) in the event the Total General
Revolving Commitment hereunder is at any time increased above
$150,000,000, the foregoing amount shall be automatically reduced by
the amount of such increase;
(b) Indebtedness of the Borrower or any Subsidiary in respect
of Capital Leases; PROVIDED that (i) the aggregate Capitalized Lease
Obligations of the Borrower and its Subsidiaries, plus the aggregate
outstanding principal amount of Indebtedness permitted under clause (c)
below, shall not exceed $20,000,000 in the aggregate at any time
outstanding, and (ii) at the time of any incurrence thereof after the
date hereof, and after giving effect thereto, no Event of Default shall
have occurred and be continuing or would result therefrom;
(c) Indebtedness of the Borrower or any Subsidiary subject to
Liens permitted by section 9.3(j), including and any guaranty by the
Borrower of any such Indebtedness; PROVIDED that (i) the aggregate
principal amount of such Indebtedness shall not exceed $5,000,000 in
the aggregate at any time outstanding, and (ii) at the time of any
incurrence thereof after the date hereof, and after giving effect
thereto, no Event of Default shall have occurred and be continuing or
would result therefrom;
(d) the Subordinated Indebtedness evidenced by the Convertible
Subordinated Debentures
54
<PAGE> 60
due 2004 in the aggregate principal amount of $100,000,000;
(e) any refinancing, extension, renewal or refunding of any
Subordinated Indebtedness permitted by the foregoing clause (d) not
involving an increase in the principal amount thereof, a reduction of
more than 10% in the remaining weighted average life to maturity
thereof (computed in accordance with standard financial practice), or
any changes in the terms of subordination applicable thereto which is
adverse to the interests of the Lenders;
(f) the subordinated guaranties of Subsidiaries of the
Borrower with respect to the Subordinated Indebtedness referred to in
clauses (d) and (e) above, PROVIDED the terms of such subordination are
substantially the same as contained in the subordinated guaranties
originally issued in support of the Convertible Subordinated Debentures
due 2004;
(g) Existing Indebtedness, to the extent not otherwise
permitted pursuant to the foregoing clauses; and any refinancing,
extension, renewal or refunding of any such Existing Indebtedness not
involving an increase in the principal amount thereof or a reduction of
more than 10% in the remaining weighted average life to maturity
thereof (computed in accordance with standard financial practice);
(h) Indebtedness of the Borrower or any Subsidiary under Hedge
Agreements entered into in the ordinary course of business;
(i) Indebtedness of the Borrower to any of its Subsidiaries,
and Indebtedness of any of the Borrower's Subsidiaries to the Borrower
or to another Subsidiary of the Borrower, in each case to the extent
permitted under section 9.5;
(j) Guaranty Obligations permitted under section 9.5; and
(k) additional unsecured Indebtedness of the Borrower not in
excess of $35,000,000 aggregate principal amount outstanding at any
time, to the extent not otherwise permitted pursuant to the foregoing
clauses, PROVIDED that at the time of incurrence thereof, and after
giving effect thereto, (i) the Borrower will be in compliance with
sections 9.6, 9.7 and 9.8, (ii) no Event of Default shall have occurred
and be continuing or would result therefrom, and (iii) not more than
$25,000,000 aggregate principal amount of the Indebtedness permitted by
this clause (k) outstanding at any time shall consist of money borrowed
from banks or other financial institutions. .
9.5. ADVANCES, INVESTMENTS, LOANS AND GUARANTY OBLIGATIONS. The
Borrower will not, and will not permit any of its Subsidiaries to, (1) lend
money or make advances to any person, (2) purchase or acquire any stock,
obligations or securities of, or any other interest in, or make any capital
contribution to, or other investment in, any person, (3) create, acquire or hold
any Subsidiary, (4) be or become a party to any joint venture or partnership, or
(5) be or become obligated under any Guaranty Obligations (other than those
created in favor of the Lenders pursuant to the Credit Documents), EXCEPT:
(a) the Borrower or any of its Subsidiaries may invest in cash
and Cash Equivalents;
(b) any endorsement of a check or other medium of payment for
deposit or collection, or any similar transaction in the normal course
of business;
(c) the Borrower and its Subsidiaries may acquire and hold
receivables owing to them in the ordinary course of business and
payable or dischargeable in accordance with customary trade terms;
(d) investments acquired by the Borrower or any of its
Subsidiaries (i) in exchange for any other investment held by the
Borrower or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer
of such other investment, or (ii) as a
55
<PAGE> 61
result of a foreclosure by the Borrower or any of its Subsidiaries with
respect to any secured investment or other transfer of title with
respect to any secured investment in default;
(e) loans and advances to employees for business-related
travel expenses, moving expenses, costs of replacement homes and other
similar expenses, in each case incurred in the ordinary course of
business, shall be permitted;
(f) the Borrower may make Acquisitions in accordance with
section 9.2(d);
(g) investments in the capital of any Wholly-Owned Subsidiary
which is not a Foreign Subsidiary;
(h) to the extent not permitted by the foregoing clauses,
existing investments in any Subsidiaries (and any increases thereof
attributable to increases in retained earnings);
(i) to the extent not permitted by the foregoing clauses, the
existing loans, advances, investments and guarantees described on Annex
V hereto;
(j) any unsecured guaranty by the Borrower of any Indebtedness
of a Subsidiary permitted by section 9.4, and any guaranty by any
Subsidiary described in section 9.4;
(k) investments of the Borrower and its Subsidiaries in Hedge
Agreements;
(l) loans and advances by any Subsidiary of the Borrower to
the Borrower, PROVIDED that the Indebtedness represented thereby
constitutes Subordinated Indebtedness;
(m) loans and advances by the Borrower or by any Subsidiary of
the Borrower to, or other investments in, any Subsidiary of the
Borrower which is (i) a Subsidiary Guarantor, (ii) a Wholly-Owned
Subsidiary, and (iii) not a Foreign Subsidiary;
(n) loans and advances by any Subsidiary of the Borrower which
is not a Subsidiary Guarantor to, or other investments by any such
Subsidiary in, any other Subsidiary of the Borrower which is a
Wholly-Owned Subsidiary;
(o) Guaranty Obligations, not otherwise permitted by the
foregoing clauses, of (i) the Borrower or any Subsidiary in respect of
leases of the Borrower or any Subsidiary the entry into which is not
prohibited by this Agreement, (ii) the Borrower or any Subsidiary in
respect of any other person (other than in respect of (x) Indebtedness
for borrowed money or represented by bonds, notes, debentures or
similar securities, or (y) Indebtedness constituting Capital Leases)
arising as a matter of applicable law because the Borrower or such
Subsidiary is or is deemed to be a general partner of such other
person, or (iii) the Borrower or any Subsidiary in respect of any other
person (other than in respect of (x) Indebtedness for borrowed money or
represented by bonds, notes, debentures or similar securities, or (y)
Indebtedness constituting Capital Leases) arising in the ordinary
course of business;
(p) any other loans, advances, investments (whether in the
form of cash or contribution of property, and if in the form of a
contribution of property, such property shall be valued for purposes of
this clause (p) at the fair value thereof as reasonably determined by
the Borrower) and Guaranty Obligations, including, without limitation,
in or to or for the benefit of, Subsidiaries, joint ventures, or other
persons, not otherwise permitted by the foregoing clauses, made after
March 31, 1997 (such loans, advances and investments, collectively,
"BASKET INVESTMENTS", and such Guaranty Obligations, collectively
"BASKET GUARANTEES") described below: (i) if no Event of Default shall
have occurred and be continuing, or would result therefrom, (A) Basket
Investments of up to an aggregate amount not in excess of 15% of the
Borrower's Consolidated Net Worth as of the end of its most recently
completed fiscal year prior thereto
56
<PAGE> 62
for which financial statements have been delivered hereunder, taking
into account the repayment of any loans or advances comprising such
Basket Investments, and (B) additional Basket Investments made out of
the proceeds of the issue and sale of the Convertible Subordinated
Debentures due 2004, or the identifiable cash or Cash Equivalents in
which such proceeds have been temporarily invested, shall be permitted
to be made, in each case in persons whose principal business is related
or complementary to, the businesses of the Borrower and its
Subsidiaries, and (ii) if no Event of Default shall have occurred and
be continuing, or would result therefrom, Basket Guarantees covering up
to $15,000,000 aggregate principal amount of Indebtedness outstanding
at any time, shall be permitted to be incurred.
9.6. TOTAL INDEBTEDNESS/CAPITAL RATIO. The Borrower will not at any
time permit the ratio, expressed as a percentage, of (i) the amount of Total
Indebtedness at such time to (ii) the sum of such amount of Total Indebtedness,
PLUS its Consolidated Net Worth as of the end of its most recently completed
fiscal quarter, to exceed 55.00%.
9.7. TOTAL SENIOR INDEBTEDNESS/CAPITAL RATIO. The Borrower will not at
any time permit the ratio, expressed as a percentage, of (i) the amount of Total
Senior Indebtedness at such time to (ii) the sum of the amount of Total
Indebtedness at such time, PLUS its Consolidated Net Worth as of the end of the
most recently completed fiscal quarter, to exceed 35.00%.
9.8. INTEREST COVERAGE RATIO. The Borrower will not permit its Interest
Coverage Ratio to be (i) less than 2.00 to 1.00, for any Testing Period
consisting of two consecutive fiscal quarters (whether or not in the same fiscal
year) which ends on or prior to December 31, 1998, or (ii) less than 2.50 to
1.00 for any Testing Period consisting of two consecutive fiscal quarters
(whether or not in the same fiscal year) which ends thereafter.
9.9. MINIMUM CONSOLIDATED NET WORTH. The Borrower will not permit its
Consolidated Net Worth at any time to be less than $265,000,000, EXCEPT that (i)
effective as of the end of the Borrower's fiscal quarter ended March 31, 1998,
and as of the end of each fiscal quarter thereafter, the foregoing amount (as it
may from time to time be increased as herein provided), shall be increased by
50% of the consolidated net income of the Borrower and its Subsidiaries for the
fiscal quarter ended on such date, if any, without deduction for minority
interests, as determined in conformity with GAAP (there being no reduction in
the case of any such consolidated net income which reflects a deficit), and (ii)
the foregoing amount (as it may from time to time be increased as herein
provided), shall be increased by (A) an amount equal to 100% of the cash
proceeds (net of underwriting discounts and commissions and other customary fees
and costs associated therewith) from any sale or issuance of equity by the
Borrower after the Closing Date (other than any sale or issuance to management
or employees pursuant to employee benefit plans of general application), plus
(B) the principal amount of any Indebtedness which after the Effective Date is
converted or exchanged into equity securities of the Borrower.
9.10. PREPAYMENTS AND REFINANCINGS OF SUBORDINATED DEBT, ETC. The
Borrower will not, and will not permit any of its Subsidiaries to, make (or give
any notice in respect thereof) any voluntary or optional payment or prepayment
or redemption or acquisition for value of (including, without limitation, by way
of depositing with the trustee with respect thereto money or securities before
due for the purpose of paying when due) or exchange of, or refinance or refund,
any Subordinated Indebtedness of the Borrower; PROVIDED that the Borrower may
refinance or refund any such Subordinated Indebtedness in accordance with the
applicable requirements of section 9.4 hereof.
9.11. TRANSACTIONS WITH AFFILIATES. The Borrower will not, and will not
permit any Subsidiary to, enter into any transaction or series of transactions
with any Affiliate (other than, in the case of the Borrower, any Subsidiary, and
in the case of a Subsidiary, the Borrower or another Subsidiary) other than in
the ordinary course of business of and pursuant to the reasonable requirements
of the Borrower's or such Subsidiary's business and upon fair and reasonable
terms no less favorable to the Borrower or such Subsidiary than would obtain in
a comparable arm's-length transaction with a person other than an Affiliate,
EXCEPT (i) loans, advances and investments permitted by section 9.5, (ii) sales
of goods to an Affiliate for use or distribution outside the United States which
in the good faith judgment of the Borrower complies with any applicable legal
requirements of the Code, or (iii) agreements and transactions with and payments
to officers, directors and shareholders which are either (A) entered into in the
57
<PAGE> 63
ordinary course of business and not prohibited by any of the provisions of this
Agreement, or (B) entered into outside the ordinary course of business, approved
by the directors or shareholders of the Borrower, and not prohibited by any of
the provisions of this Agreement.
9.12. LIMITATION ON CERTAIN RESTRICTIVE AGREEMENTS. The Borrower will
not, and will not permit any of its Subsidiaries to, directly or indirectly,
enter into, incur or permit to exist or become effective, any agreement or other
arrangement that prohibits, restricts or imposes any condition upon (a) the
ability of the Borrower or any Subsidiary to create, incur or suffer to exist
any Lien upon any of its property or assets as security for Indebtedness, or (b)
the ability of any such Subsidiary to pay dividends or make any other
distributions on its capital stock or any other interest or participation in its
profits owned by the Borrower or any Subsidiary of the Borrower, or pay any
Indebtedness owed to the Borrower or a Subsidiary of the Borrower, or to make
loans or advances to the Borrower or any of the Borrower's other Subsidiaries,
or transfer any of its property or assets to the Borrower or any of the
Borrower's other Subsidiaries, EXCEPT for such restrictions existing under or by
reason of (i) applicable law, (ii) this Agreement and the other Credit
Documents, (iii) customary provisions restricting subletting or assignment of
any lease governing a leasehold interest, (iv) customary provisions restricting
assignment of any licensing agreement entered into in the ordinary course of
business, (v) customary provisions restricting the transfer of assets subject to
Liens permitted under section 9.3(j), (vi) restrictions contained in the
Existing Indebtedness Agreements as in effect on the Effective Date and
customary restrictions affecting only a Subsidiary of the Borrower under any
agreement or instrument governing any of the Indebtedness of a Subsidiary
permitted pursuant to 9.4, (vii) any document relating to Indebtedness secured
by a Lien permitted by section 9.3, insofar as the provisions thereof limit
grants of junior liens on the assets securing such Indebtedness, and (viii) any
operating lease or Capital Lease, insofar as the provisions thereof limit grants
of a security interest in, or other assignments of, the related leasehold
interest to any other person.
9.13. LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. The Borrower will
not, nor will it permit any Subsidiary to, enter into any Sale and Lease-Back
Transaction involving any individual property (or related group of properties as
part of the same Sale and Lease-Back Transaction) having a Value over $2,000,000
unless either (a) the Borrower or such Subsidiary would be entitled to incur
Indebtedness secured by a Lien on such property pursuant to section 9.4(c), or
(b) the Borrower shall prepay Loans, and to the extent Loans are not so prepaid,
shall voluntarily permanently reduce the Unutilized Total Commitment, by an
amount at least equal to the Value of such Sale and Lease-Back Transaction.
9.14. PLAN TERMINATIONS, MINIMUM FUNDING, ETC. The Borrower will not,
and will not permit any ERISA Affiliate to, (i) terminate any Plan or plans so
as to result in liability of the Borrower or any ERISA Affiliate to the PBGC in
excess of $2,000,000 in the aggregate, (ii) permit to exist one or more events
or conditions which reasonably present a material risk of the termination by the
PBGC of any Plan or Plans with respect to which the Borrower or any ERISA
Affiliate would, in the event of such termination, incur liability to the PBGC
in excess of $2,000,000 in the aggregate, or (iii) fail to comply with the
minimum funding standards of ERISA and the Code with respect to any Plan.
SECTION 10. EVENTS OF DEFAULT.
10.1. EVENTS OF DEFAULT. Upon the occurrence of any of the following
specified events (each an "EVENT OF DEFAULT"):
(a) PAYMENTS: the Borrower shall (i) default in the payment
when due of any principal of the General Revolving Loans; (ii) default,
and such default shall continue for three or more Business Days, in the
payment when due of any principal of the Swing Line Revolving Loans;
(iii) default, and such default shall continue for three or more
Business Days, in the payment when due of any reimbursement obligation
in respect of any Unpaid Drawing; or (iv) default, and such default
shall continue for five or more Business Days, in the payment when due
of any interest on the Loans or any Fees or any other
58
<PAGE> 64
amounts owing hereunder or under any other Credit Document; or
(b) REPRESENTATIONS, ETC.: any representation, warranty or
statement made by the Borrower herein or in any other Credit Document
or in any statement or certificate delivered or required to be
delivered pursuant hereto or thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
(c) CERTAIN NEGATIVE COVENANTS: the Borrower shall (i) default
in the due performance or observance by it of any term, covenant or
agreement contained in sections 9.6 through 9.9, inclusive, or section
9.13, of this Agreement; or (ii) default, and such default shall
continue for five or more Business Days after the Borrower shall first
have obtained actual knowledge thereof or the Administrative Agent or
any Lender shall have notified the Borrower thereof in writing,
whichever shall first occur, in the due performance or observance by it
of any other term, covenant or agreement contained in sections 9.2
through 9.5, inclusive, of this Agreement; or
(d) OTHER COVENANTS: the Borrower shall default in the due
performance or observance by it of any term, covenant or agreement
contained in this Agreement or any other Credit Document, other than
those referred to in section 10.1(a) or (b) or (c) above, and such
default shall continue unremedied for a period of at least 30 days
after notice by the Administrative Agent or the Required Lenders; or
(e) DEFAULT UNDER OTHER AGREEMENTS: the Borrower or any of its
Subsidiaries shall (i) default in any payment with respect to any
Indebtedness (other than the Obligations) owed to any Lender, or having
an unpaid principal amount of $1,000,000 or greater, and such default
shall continue after the applicable grace period, if any, specified in
the agreement or instrument relating to such Indebtedness, or (ii)
default in the observance or performance of any agreement or condition
relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto (and all grace
periods applicable to such observance, performance or condition shall
have expired), or any other event shall occur or condition exist, the
effect of which default or other event or condition is to cause, or to
permit the holder or holders of such Indebtedness (or a trustee or
agent on behalf of such holder or holders) to cause any such
Indebtedness to become due prior to its stated maturity; or any such
Indebtedness of the Borrower or any of its Subsidiaries shall be
declared to be due and payable, or shall be required to be prepaid
(other than by a regularly scheduled required prepayment or redemption,
prior to the stated maturity thereof); or
(f) OTHER CREDIT DOCUMENTS: the Subsidiary Guaranty or any
Security Document (once executed and delivered) shall cease for any
reason (other than termination in accordance with its terms) to be in
full force and effect; or any Credit Party shall default in any payment
obligation thereunder; or any Credit Party shall default in any
material respect in the due performance and observance of any other
obligation thereunder and such default shall continue unremedied for a
period of at least 30 days after notice by the Administrative Agent or
the Required Lenders; or any Credit Party shall (or seek to) disaffirm
or otherwise limit its obligations thereunder otherwise than in strict
compliance with the terms thereof; or
(g) JUDGMENTS: one or more judgments or decrees shall be
entered against the Borrower and/or any of its Subsidiaries involving a
liability (exclusive of the amount thereof covered by insurance as to
which the carrier has adequate claims paying ability and has not
reserved its rights) of $5,000,000 or more in the aggregate for all
such judgments and decrees for the Borrower and its Subsidiaries) and
any such judgments or decrees shall not have been vacated, discharged
or stayed or bonded pending appeal within 30 days from the entry
thereof; or
(h) BANKRUPTCY, ETC.: the Borrower or any of its Material
Subsidiaries shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE");
or an involuntary case is commenced against the Borrower or any of its
Material Subsidiaries and the petition is not controverted within 10
days, or is not dismissed within 60 days, after commencement of the
case; or a custodian (as defined in the
59
<PAGE> 65
Bankruptcy Code) is appointed for, or takes charge of, all or
substantially all of the property of the Borrower or any of its
Material Subsidiaries; or the Borrower or any of its Material
Subsidiaries commences (including by way of applying for or consenting
to the appointment of, or the taking of possession by, a rehabilitator,
receiver, custodian, trustee, conservator or liquidator (collectively,
a "CONSERVATOR") of itself or all or any substantial portion of its
property) any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency,
liquidation, rehabilitation, conservatorship or similar law of any
jurisdiction whether now or hereafter in effect relating to the
Borrower or any of its Material Subsidiaries; or any such proceeding is
commenced against the Borrower or any of its Material Subsidiaries to
the extent such proceeding is consented by such person or remains
undismissed for a period of 60 days; or the Borrower or any of its
Material Subsidiaries is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or the Borrower or any of its Material Subsidiaries suffers
any appointment of any conservator or the like for it or any
substantial part of its property which continues undischarged or
unstayed for a period of 60 days; or the Borrower or any of its
Material Subsidiaries makes a general assignment for the benefit of
creditors; or any corporate (or similar organizational) action is taken
by the Borrower or any of its Material Subsidiaries for the purpose of
effecting any of the foregoing; or
(i) ERISA: (i) any of the events described in clauses (i)
through (viii) of section 8.1(g) shall have occurred; or (ii) there
shall result from any such event or events the imposition of a lien,
the granting of a security interest, or a liability or a material risk
of incurring a liability; and (iii) any such event or events or any
such lien, security interest or liability, individually, and/or in the
aggregate, has had, or could reasonably be expected to have, a Material
Adverse Effect.
10.2. ACCELERATION, ETC. Upon the occurrence of any Event of Default,
and at any time thereafter, if any Event of Default shall then be continuing,
the Administrative Agent shall, upon the written request of the Required
Lenders, by written notice to the Borrower, take any or all of the following
actions, without prejudice to the rights of the Administrative Agent or any
Lender to enforce its claims against the Borrower (PROVIDED that, if an Event of
Default specified in section 10.1(h) shall occur with respect to the Borrower,
the result which would occur upon the giving of written notice by the
Administrative Agent as specified in clauses (i) and (ii) below shall occur
automatically without the giving of any such notice): (i) declare the Total
Commitment terminated, whereupon the Commitment of each Lender shall forthwith
terminate immediately without any other notice of any kind; (ii) declare the
principal of and any accrued interest in respect of all Loans, all Unpaid
Drawings and all obligations owing hereunder and thereunder to be, whereupon the
same shall become, forthwith due and payable without presentment, demand,
protest or other notice of any kind, all of which are hereby waived by the
Borrower; (iii) terminate any Letter of Credit which may be terminated in
accordance with its terms; and (iv) direct the Borrower to pay (and the Borrower
hereby agrees that on receipt of such notice or upon the occurrence of an Event
of Default with respect to the Borrower under section 10.1(h), it will pay) to
the Administrative Agent an amount of cash equal to the aggregate Stated Amount
of all Letters of Credit then outstanding (such amount to be held as security
after the Borrower's reimbursement obligations in respect thereof).
10.3. APPLICATION OF LIQUIDATION PROCEEDS. All monies received by the
Administrative Agent or any Lender from the exercise of remedies hereunder or
under the other Credit Documents or under any other documents relating to this
Agreement shall, unless otherwise required by the terms of the other Credit
Documents or by applicable law, be applied as follows:
(i) FIRST, to the payment of all expenses (to the extent not
paid by the Borrower) incurred by the Administrative Agent and the
Lenders in connection with the exercise of such remedies, including,
without limitation, all reasonable costs and expenses of collection,
attorneys' fees, court costs and any foreclosure expenses;
(ii) SECOND, to the payment PRO RATA of interest then accrued
on the outstanding Loans and the outstanding loans under the Bridge
Facility Agreement;
60
<PAGE> 66
(iii) THIRD, to the payment PRO RATA of any fees then accrued
and payable to the Administrative Agent, any Letter of Credit Issuer or
any Lender under this Agreement in respect of the Loans or the Letter
of Credit Outstandings;
(iv) FOURTH, to the payment PRO RATA of (A) the principal
balance then owing on the outstanding Loans, (B) the principal balance
then owing on the loans outstanding under the Bridge Facility
Agreement, (C) the amounts then due under Designated Hedge Agreements
to creditors of the Borrower or any Subsidiary thereunder, subject to
confirmation by the Administrative Agent of any calculations of
termination or other payment amounts being made in accordance with
normal industry practice, and (D) the Stated Amount of the Letter of
Credit Outstandings (to be held and applied by the Administrative Agent
as security for the reimbursement obligations in respect thereof);
(v) FIFTH, to the payment to the Lenders of any amounts then
accrued and unpaid under sections 2.10, 2.11 and 3.5 hereof, and if
such proceeds are insufficient to pay such amounts in full, to the
payment of such amounts PRO RATA;
(vi) SIXTH, to the payment PRO RATA of all other amounts owed
by the Borrower to the Administrative Agent, to any Letter of Credit
Issuer or any Lender under this Agreement or any other Credit Document,
to the lender under the Bridge Facility Agreement, and to any
counterparties under any Designated Hedge Agreements of the Borrower
and its Subsidiaries, and if such proceeds are insufficient to pay such
amounts in full, to the payment of such amounts PRO RATA; and
(vii) FINALLY, any remaining surplus after all of the
Obligations have been paid in full, to the Borrower or to whomsoever
shall be lawfully entitled thereto.
SECTION 11. THE ADMINISTRATIVE AGENT.
11.1. APPOINTMENT. Each Lender hereby irrevocably designates and
appoints KeyBank as Administrative Agent to act as specified herein and in the
other Credit Documents, and each such Lender hereby irrevocably authorizes
KeyBank as the Administrative Agent for such Lender, to take such action on its
behalf under the provisions of this Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated to
the Administrative Agent by the terms of this Agreement and the other Credit
Documents, together with such other powers as are reasonably incidental thereto.
The Administrative Agent agrees to act as such upon the express conditions
contained in this section 11. Notwithstanding any provision to the contrary
elsewhere in this Agreement, the Administrative Agent shall not have any duties
or responsibilities, except those expressly set forth herein or in the other
Credit Documents, nor any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or otherwise exist against the Administrative Agent.
The provisions of this section 11 are solely for the benefit of the
Administrative Agent, and the Lenders, and the Borrower and its Subsidiaries
shall not have any rights as a third party beneficiary of any of the provisions
hereof. In performing its functions and duties under this Agreement, the
Administrative Agent shall act solely as agent of the Lenders and does not
assume and shall not be deemed to have assumed any obligation or relationship of
agency or trust with or for the Borrower or any of its Subsidiaries.
11.2. DELEGATION OF DUTIES. The Administrative Agent may execute any of
its duties under this Agreement or any other Credit Document by or through
agents or attorneys-in-fact and shall be entitled to advice of counsel
concerning all matters pertaining to such duties. The Administrative Agent shall
not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care except to the extent
otherwise required by section 11.3.
11.3. EXCULPATORY PROVISIONS. Neither the Administrative Agent nor any
of its respective officers, directors, employees, agents, attorneys-in-fact or
affiliates shall be (i) liable for any action lawfully taken or omitted
61
<PAGE> 67
to be taken by it or such person under or in connection with this Agreement
(except for its or such person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or of its
Subsidiaries or any of their respective officers contained in this Agreement,
any other Credit Document or in any certificate, report, statement or other
document referred to or provided for in, or received by the Administrative Agent
under or in connection with, this Agreement or any other Credit Document or for
any failure of the Borrower or any Subsidiary of the Borrower or any of their
respective officers to perform its obligations hereunder or thereunder. The
Administrative Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement, or to inspect the
properties, books or records of the Borrower or any of its Subsidiaries. The
Administrative Agent shall not be responsible to any Lender for the
effectiveness, genuineness, validity, enforceability, collectibility or
sufficiency of this Agreement or any Credit Document or for any representations,
warranties, recitals or statements made herein or therein or made in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by the Administrative Agent to the Lenders or by or on behalf
of the Borrower or any of its Subsidiaries to the Administrative Agent or any
Lender or be required to ascertain or inquire as to the performance or
observance of any of the terms, conditions, provisions, covenants or agreements
contained herein or therein or as to the use of the proceeds of the Loans or of
the existence or possible existence of any Default or Event of Default.
11.4. RELIANCE BY ADMINISTRATIVE AGENT. The Administrative Agent shall
be entitled to rely, and shall be fully protected in relying, upon any note,
writing, resolution, notice, consent, certificate, affidavit, letter, cablegram,
telegram, facsimile transmission, telex or teletype message, statement, order or
other document or conversation believed by it, in good faith, to be genuine and
correct and to have been signed, sent or made by the proper person or persons
and upon advice and statements of legal counsel (including, without limitation,
counsel to the Borrower or any of its Subsidiaries), independent accountants and
other experts selected by the Administrative Agent. The Administrative Agent
shall be fully justified in failing or refusing to take any action under this
Agreement or any other Credit Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Administrative Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
other Credit Documents in accordance with a request of the Required Lenders (or
all of the Lenders, as to any matter which, pursuant to section 12.12, can only
be effectuated with the consent of all Lenders), and such request and any action
taken or failure to act pursuant thereto shall be binding upon all the Lenders.
11.5. NOTICE OF DEFAULT. The Administrative Agent shall not be deemed
to have knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Administrative Agent has received notice from a Lender or
the Borrower referring to this Agreement, describing such Default or Event of
Default and stating that such notice is a "notice of default". In the event that
the Administrative Agent receives such a notice, the Administrative Agent shall
give prompt notice thereof to the Lenders. The Administrative Agent shall take
such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders, PROVIDED that unless and until the
Administrative Agent shall have received such directions, the Administrative
Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as it shall
deem advisable in the best interests of the Lenders.
11.6. NON-RELIANCE. Each Lender expressly acknowledges that neither the
Administrative Agent nor any of its officers, directors, employees, agents,
attorneys-in-fact or Affiliates have made any representations or warranties to
it and that no act by the Administrative Agent hereinafter taken, including any
review of the affairs of the Borrower or any of its Subsidiaries, shall be
deemed to constitute any representation or warranty by the Administrative Agent
to any Lender. Each Lender represents to the Administrative Agent that it has,
independently and without reliance upon the Administrative Agent, or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other conditions, prospects and
creditworthiness of the Borrower and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender
62
<PAGE> 68
also represents that it will, independently and without reliance upon the
Administrative Agent, or any other Lender, and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit analysis, appraisals and decisions in taking or not taking action under
this Agreement, and to make such investigation as it deems necessary to inform
itself as to the business, assets, operations, property, financial and other
conditions, prospects and creditworthiness of the Borrower and its Subsidiaries.
The Administrative Agent shall not have any duty or responsibility to provide
any Lender with any credit or other information concerning the business,
operations, assets, property, financial and other conditions, prospects or
creditworthiness of the Borrower or any of its Subsidiaries which may come into
the possession of the Administrative Agent or any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates.
11.7. INDEMNIFICATION. The Lenders agree to indemnify the
Administrative Agent in its capacity as such ratably according to their
respective General Revolving Loans and Unutilized General Revolving Commitments,
from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed on,
incurred by or asserted against the Administrative Agent in its capacity as such
in any way relating to or arising out of this Agreement or any other Credit
Document, or any documents contemplated by or referred to herein or the
transactions contemplated hereby or any action taken or omitted to be taken by
the Administrative Agent under or in connection with any of the foregoing, but
only to the extent that any of the foregoing is not paid by the Borrower,
PROVIDED that no Lender shall be liable to the Administrative Agent for the
payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent resulting solely from the Administrative Agent's gross negligence or
willful misconduct. If any indemnity furnished to the Administrative Agent for
any purpose shall, in the opinion of the Administrative Agent, be insufficient
or become impaired, the Administrative Agent may call for additional indemnity
and cease, or not commence, to do the acts indemnified against until such
additional indemnity is furnished. The agreements in this section 11.7 shall
survive the payment of all Obligations.
11.8. THE ADMINISTRATIVE AGENT IN INDIVIDUAL CAPACITY. The
Administrative Agent and its Affiliates may make loans to, accept deposits from
and generally engage in any kind of business with the Borrower, its Subsidiaries
and their Affiliates as though not acting as Administrative Agent hereunder.
With respect to the Loans made by it and all Obligations owing to it, the
Administrative Agent shall have the same rights and powers under this Agreement
as any Lender and may exercise the same as though it were not the Administrative
Agent, and the terms "Lender" and "Lenders" shall include the Administrative
Agent in its individual capacity.
11.9. SUCCESSOR ADMINISTRATIVE AGENT. The Administrative Agent may
resign as the Administrative Agent upon 20 days' notice to the Lenders and the
Borrower. The Required Lenders shall appoint from among the Lenders a successor
Administrative Agent for the Lenders subject to prior approval by the Borrower
(such approval not to be unreasonably withheld or delayed), whereupon such
successor agent shall succeed to the rights, powers and duties of the
Administrative Agent, and the term "Administrative Agent" shall include such
successor agent effective upon its appointment, and the resigning Administrative
Agent's rights, powers and duties as the Administrative Agent shall be
terminated, without any other or further act or deed on the part of such former
Administrative Agent or any of the parties to this Agreement. After the retiring
Administrative Agent's resignation hereunder as the Administrative Agent, the
provisions of this section 11 shall inure to its benefit as to any actions taken
or omitted to be taken by it while it was Administrative Agent under this
Agreement.
11.10. OTHER AGENTS. Any Lender identified herein as a Co-Agent,
Syndication Agent, Documentation Agent, Managing Agent, Manager or any other
corresponding title, other than "Administrative Agent" and "Collateral Agent",
shall have no right, power, obligation, liability, responsibility or duty under
this Agreement or any other Credit Document except those applicable to all
Lenders as such. Each Lender acknowledges that it has not relied, and will not
rely, on any Lender so identified in deciding to enter into this Agreement or in
taking or not taking any action hereunder.
63
<PAGE> 69
SECTION 12. MISCELLANEOUS.
12.1. PAYMENT OF EXPENSES ETC. (a) The Borrower will, whether or not
the transactions herein contemplated are consummated, pay all reasonable
out-of-pocket costs and expenses of the Administrative Agent in connection with
the negotiation, preparation, execution and delivery of the Credit Documents and
the documents and instruments referred to therein and any amendment, waiver or
consent relating thereto (including, without limitation, the reasonable fees and
disbursements of Jones, Day, Reavis & Pogue, special counsel to the
Administrative Agent), and of the Administrative Agent and each of the Lenders
in connection with the enforcement of the Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and disbursements of counsel for the Administrative Agent and for each of
the Lenders and any allocated costs of internal counsel for any of the Lenders).
(b) In the event of the bankruptcy, insolvency, rehabilitation or other
similar proceeding in respect of the Borrower or any of its Subsidiaries, the
Borrower will pay all costs of collection and defense, including reasonable
attorneys' fees in connection therewith and in connection with any appellate
proceeding or post-judgment action involved therein, which shall be due and
payable together with all required service or use taxes.
(c) The Borrower will pay and hold each of the Lenders harmless from
and against any and all present and future stamp and other similar taxes with
respect to the foregoing matters and save each of the Lenders harmless from and
against any and all liabilities with respect to or resulting from any delay or
omission (other than to the extent attributable to such Lender) to pay such
taxes.
(d) The Borrower will indemnify each Lender, its officers, directors,
employees, representatives and agents (collectively, the "INDEMNITEES") from and
hold each of them harmless against any and all losses, liabilities, claims,
damages or expenses reasonably incurred by any of them as a result of, or
arising out of, or in any way related to, or by reason of
(i) any investigation, litigation or other proceeding (whether
or not any Lender is a party thereto) related to the entering into
and/or performance of any Credit Document or the use of the proceeds of
any Loans hereunder or the consummation of any transactions
contemplated in any Credit Document, other than any such investigation,
litigation or proceeding arising out of transactions solely between any
of the Lenders or the Administrative Agent, transactions solely
involving the assignment by a Lender of all or a portion of its Loans
and Commitment, or the granting of participations therein, as provided
in this Agreement, or arising solely out of any examination of a Lender
by any regulatory authority having jurisdiction over it, or
(ii) the actual or alleged presence of Hazardous Materials in
the air, surface water or groundwater or on the surface or subsurface
of any Real Property owned, leased or at any time operated by the
Borrower or any of its Subsidiaries, the release, generation, storage,
transportation, handling or disposal of Hazardous Materials at any
location, whether or not owned or operated by the Borrower or any of
its Subsidiaries, if the Borrower or any such Subsidiary could have or
is alleged to have any responsibility in respect thereof, the
non-compliance of any Real Property with foreign, federal, state and
local laws, regulations and ordinances (including applicable permits
thereunder) applicable to any Real Property, or any Environmental Claim
asserted against the Borrower or any of its Subsidiaries, in respect of
any Real Property owned, leased or at any time operated by the Borrower
or any of its Subsidiaries,
including, in each case, without limitation, the reasonable fees and
disbursements of counsel incurred in connection with any such investigation,
litigation or other proceeding (but excluding any such losses, liabilities,
claims, damages or expenses to the extent incurred by reason of the gross
negligence or willful misconduct of the person to be indemnified or of any other
Indemnitee who is such person or an Affiliate of such person). To the extent
that the undertaking to indemnify, pay or hold harmless any person set forth in
the preceding sentence may be unenforceable because it is violative of any law
or public policy, the Borrower shall make the maximum contribution to the
payment and satisfaction of each of the indemnified liabilities which is
permissible under
64
<PAGE> 70
applicable law.
12.2. RIGHT OF SETOFF. In addition to any rights now or hereafter
granted under applicable law or otherwise, and not by way of limitation of any
such rights, upon the occurrence of an Event of Default, each Lender is hereby
authorized at any time or from time to time, without presentment, demand,
protest or other notice of any kind to the Borrower or to any other person, any
such notice being hereby expressly waived, to set off and to appropriate and
apply any and all deposits (general or special) and any other Indebtedness at
any time held or owing by such Lender (including, without limitation, by
branches and agencies of such Lender wherever located) to or for the credit or
the account of the Borrower against and on account of the Obligations and
liabilities of the Borrower to such Lender under this Agreement or under any of
the other Credit Documents, including, without limitation, all interests in
Obligations the Borrower purchased by such Lender pursuant to section 12.4(b),
and all other claims of any nature or description arising out of or connected
with this Agreement or any other Credit Document, irrespective of whether or not
such Lender shall have made any demand hereunder and although said Obligations,
liabilities or claims, or any of them, shall be contingent or unmatured.
12.3. NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the
Borrower, at Suite 220, 3201 Enterprise Parkway, Beachwood, Ohio 44122,
attention: Chief Financial Officer (facsimile: (216) 464-8376); if to any Lender
at its address specified for such Lender on Annex I hereto; if to the
Administrative Agent, at its Notice Office; or at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telegraphed, telexed,
telecopied, or cabled or sent by overnight courier, and shall be effective when
received.
12.4. BENEFIT OF AGREEMENT. (a) This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and assigns, PROVIDED that the Borrower may not assign or
transfer any of its rights or obligations hereunder without the prior written
consent of all the Lenders, and, PROVIDED, FURTHER, that any assignment by a
Lender of its rights and obligations hereunder shall be effected in accordance
with section 12.4(b). Each Lender may at any time grant participations in any of
its rights hereunder or under any of the Notes to (x) another Lender that is not
a Defaulting Lender or to an Affiliate of such Lender which is a commercial
bank, financial institution or other "accredited investor" (as defined in SEC
Regulation D), and (y) one or more Eligible Transferees, PROVIDED that in the
case of any such participation, (i) the participant shall not have any rights
under this Agreement or any of the other Credit Documents, including rights of
consent, approval or waiver (the participant's rights against such Lender in
respect of such participation to be those set forth in the agreement executed by
such Lender in favor of the participant relating thereto), (ii) such Lender's
obligations under this Agreement (including, without limitation, its Commitment
hereunder) shall remain unchanged, (iii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iv) such Lender shall remain the holder of any Note for all purposes of this
Agreement and (v) the Borrower, the Administrative Agent, and the other Lenders
shall continue to deal solely and directly with the selling Lender in connection
with such Lender's rights and obligations under this Agreement, and all amounts
payable by the Borrower hereunder shall be determined as if such Lender had not
sold such participation, except that the participant shall be entitled to the
benefits of sections 2.10 and 2.11 of this Agreement to the extent that such
Lender would be entitled to such benefits if the participation had not been
entered into or sold, and, PROVIDED, FURTHER, that no Lender shall transfer,
grant or sell any participation under which the participant shall have rights to
approve any amendment to or waiver of this Agreement or any other Credit
Document except to the extent such amendment or waiver would (w) extend the
final scheduled maturity of the Loans in which such participant is participating
(it being understood that any waiver of the making of, or the application of any
amortization payment or other prepayment or the method of any application of any
prepayment to the amortization of the Loans shall not constitute an extension of
the final maturity date thereof), or reduce the rate or extend the time of
payment of interest or Fees thereon (except in connection with a waiver of the
applicability of any post-default increase in interest rates), or reduce the
principal amount thereof, or increase such participant's participating interest
in any Commitment over the amount thereof then in effect (it being understood
that a waiver of any Default or Event of Default or of any mandatory prepayment
or a mandatory reduction in the Total Commitment, or a mandatory prepayment,
shall not constitute a change in the terms of any
65
<PAGE> 71
Commitment), (x) release any Credit Party from its obligations under the
Subsidiary Guaranty except strictly in accordance with the terms hereof or
thereof, (y) release all or substantially all of the Collateral except strictly
in accordance with the terms hereof, or (z) consent to the assignment or
transfer by the Borrower of any of its rights and obligations under this
Agreement.
(b) Notwithstanding the foregoing, (x) any Lender may assign all or a
fixed portion of its Loans and/or Commitments, and its rights and obligations
hereunder, which assignment does not have to be PRO RATA among the Facilities,
to another Lender that is not a Defaulting Lender, or to an Affiliate of any
Lender (including itself) which is not a Defaulting Lender and which is a
commercial bank, financial institution or other "accredited investor" (as
defined in SEC Regulation D), and (y) any Lender may assign all, or if less than
all, a PRO RATA fixed portion, equal to at least $10,000,000 in the case of
General Revolving Loans and/or General Revolving Commitments, in the aggregate
for the assigning Lender or assigning Lenders, of its Loans and/or Commitments
and its rights and obligations hereunder, which assignment does not have to be
PRO RATA among the Facilities, to one or more Eligible Transferees, each of
which assignees shall become a party to this Agreement as a Lender by execution
of an Assignment Agreement, PROVIDED that (i) assignments by the Swing Line
Lender of its Swing Line Revolving Commitment and its Swing Line Revolving Loans
may only be made if all of its Swing Line Revolving Commitment and all of its
Swing Line Revolving Loans are assigned to a single assignee and only if the
assignee thereof is or becomes a Lender with a General Revolving Commitment of
at least $20,000,000, (ii) in the case of any assignment of a portion of the
General Revolving Loans and/or General Revolving Commitments of a Lender, such
Lender shall retain a minimum fixed portion thereof equal to at least
$10,000,000, (iii) at the time of any such assignment Annex I shall be deemed
modified to reflect the Commitments of such new Lender and of the existing
Lenders, (iv) upon surrender of the old Notes, new Notes will be issued, at the
Borrower's expense, to such new Lender and to the assigning Lender, such new
Notes to be in conformity with the requirements of section 2.6 (with appropriate
modifications) to the extent needed to reflect the revised Commitments, (v) in
the case of clause (y) only, the consent of the Administrative Agent and each
Letter of Credit Issuer shall be required in connection with any such assignment
(which consent shall not be unreasonably withheld or delayed), and (vi) the
Administrative Agent shall receive at the time of each such assignment, from the
assigning or assignee Lender, the payment of a non-refundable assignment fee of
$2,500 and, PROVIDED, FURTHER, that such transfer or assignment will not be
effective until recorded by the Administrative Agent on the Lender Register
maintained by it as provided herein. To the extent of any assignment pursuant to
this section 12.4(b) the assigning Lender shall be relieved of its obligations
hereunder with respect to its assigned Commitments. At the time of each
assignment pursuant to this section 12.4(b) to a person which is not already a
Lender hereunder and which is not a United States person (as such term is
defined in section 7701(a)(30) of the Code) for Federal income tax purposes, the
respective assignee Lender shall provide to the Borrower and the Administrative
Agent the appropriate Internal Revenue Service Forms (and, if applicable a
Section 5.4(b)(ii) Certificate) described in section 5.4(b). To the extent that
an assignment of all or any portion of a Lender's Commitment and related
outstanding Obligations pursuant to this section 12.4(b) would, at the time of
such assignment, result in increased costs under section 2.10 from those being
charged by the respective assigning Lender prior to such assignment, then the
Borrower shall not be obligated to pay such increased costs (although the
Borrower shall be obligated to any other increased costs of the type described
above resulting from changes after the date of the respective assignment).
Nothing in this section 12.4(b) shall prevent or prohibit any Lender from
pledging its Notes or Loans to a Federal Reserve Bank in support of borrowings
made by such Lender from such Federal Reserve Bank.
(c) Notwithstanding any other provisions of this section 12.4, no
transfer or assignment of the interests or obligations of any Lender hereunder
or any grant of participation therein shall be permitted if such transfer,
assignment or grant would require the Borrower to file a registration statement
with the SEC or to qualify the Loans under the "Blue Sky" laws of any State.
(d) Each Lender initially party to this Agreement hereby represents,
and each person that became a Lender pursuant to an assignment permitted by this
section 12.4 will, upon its becoming party to this Agreement, represent that it
is a commercial lender, other financial institution or other "accredited"
investor (as defined in SEC Regulation D) which makes or acquires loans in the
ordinary course of its business and that it will make or acquire Loans for its
own account in the ordinary course of such business, PROVIDED that subject to
the preceding sections
66
<PAGE> 72
12.4(a) and (b), the disposition of any promissory notes or other evidences of
or interests in Indebtedness held by such Lender shall at all times be within
its exclusive control.
12.5. NO WAIVER: REMEDIES CUMULATIVE. No failure or delay on the part
of the Administrative Agent or any Lender in exercising any right, power or
privilege hereunder or under any other Credit Document and no course of dealing
between the Borrower and the Administrative Agent or any Lender shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, power
or privilege hereunder or under any other Credit Document preclude any other or
further exercise thereof or the exercise of any other right, power or privilege
hereunder or thereunder. The rights and remedies herein expressly provided are
cumulative and not exclusive of any rights or remedies which the Administrative
Agent or any Lender would otherwise have. No notice to or demand on the Borrower
in any case shall entitle the Borrower to any other or further notice or demand
in similar or other circumstances or constitute a waiver of the rights of the
Administrative Agent or the Lenders to any other or further action in any
circumstances without notice or demand.
12.6. PAYMENTS PRO RATA. (a) The Administrative Agent agrees that
promptly after its receipt of each payment from or on behalf of the Borrower in
respect of any Obligations, it shall distribute such payment to the Lenders
(other than any Lender that has expressly waived in writing its right to receive
its PRO RATA share thereof) PRO RATA based upon their respective shares, if any,
of the Obligations with respect to which such payment was received. As to any
such payment received by the Administrative Agent prior to 1:00 P.M. (local time
at the Payment Office) in funds which are immediately available on such day, the
Administrative Agent will use all reasonable efforts to distribute such payment
in immediately available funds on the same day to the Lenders as aforesaid.
(b) Each of the Lenders agrees that, if it should receive any amount
hereunder (whether by voluntary payment, by realization upon security, by the
exercise of the right of setoff or banker's lien, by counterclaim or cross
action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans or Fees, of a sum which with respect to the related sum or sums
received by other Lenders is in a greater proportion than the total of such
Obligation then owed and due to such Lender bears to the total of such
Obligation then owed and due to all of the Lenders immediately prior to such
receipt, then such Lender receiving such excess payment shall purchase for cash
without recourse or warranty from the other Lenders an interest in the
Obligations to such Lenders in such amount as shall result in a proportional
participation by all of the Lenders in such amount, PROVIDED that if all or any
portion of such excess amount is thereafter recovered from such Lender, such
purchase shall be rescinded and the purchase price restored to the extent of
such recovery, but without interest.
(c) Notwithstanding anything to the contrary contained herein, the
provisions of the preceding sections 12.6(a) and (b) shall be subject to the
express provisions of this Agreement which require, or permit, differing
payments to be made to Lenders which are not Defaulting Lenders, as opposed to
Defaulting Lenders.
12.7. CALCULATIONS: COMPUTATIONS. (a) The financial statements to be
furnished to the Lenders pursuant hereto shall be made and prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as set forth in the notes thereto or as otherwise disclosed in writing
by the Borrower to the Lenders); PROVIDED, that if at any time the computations
determining compliance with section 9 utilize accounting principles different
from those utilized in the financial statements furnished to the Lenders, such
computations shall set forth in reasonable detail a description of the
differences and the effect upon such computations.
(b) All computations of interest on Loans hereunder and all
computations of Facility Fees, Letter of Credit Fees and other Fees hereunder
shall be made on the actual number of days elapsed over a year of 360 days.
12.8. GOVERNING LAW; SUBMISSION TO JURISDICTION; VENUE; WAIVER OF JURY
TRIAL. (a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE CONSTRUED IN
ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF THE STATE OF OHIO. TO THE FULLEST
EXTENT
67
<PAGE> 73
PERMITTED BY LAW, THE BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY
CLAIM TO ASSERT THAT THE LAW OF ANY JURISDICTION OTHER THAN THE STATE OF OHIO
GOVERNS THIS AGREEMENT OR ANY OF THE OTHER CREDIT DOCUMENTS. Any legal action or
proceeding with respect to this Agreement or any other Credit Document may be
brought in the Courts of the State of Ohio, or of the United States for the
Northern District of Ohio, and, by execution and delivery of this Agreement, the
Borrower hereby irrevocably accepts for itself and in respect of its property,
generally and unconditionally, the jurisdiction of the aforesaid courts. The
Borrower hereby further irrevocably consents to the service of process out of
any of the aforementioned courts in any such action or proceeding by the mailing
of copies thereof by registered or certified mail, postage prepaid, to the
Borrower at its address for notices pursuant to section 12.3, such service to
become effective 30 days after such mailing or at such earlier time as may be
provided under applicable law. Nothing herein shall affect the right of the
Administrative Agent or any Lender to serve process in any other manner
permitted by law or to commence legal proceedings or otherwise proceed against
the Borrower in any other jurisdiction.
(b) The Borrower hereby irrevocably waives any objection which it may
now or hereafter have to the laying of venue of any of the aforesaid actions or
proceedings arising out of or in connection with this Agreement or any other
Credit Document brought in the courts referred to in section 12.8(a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
(c) Each of the parties to this Agreement hereby irrevocably waives all
right to a trial by jury in any action, proceeding or counterclaim arising out
of or relating to this Agreement, the other Credit Documents or the transactions
contemplated hereby or thereby.
12.9. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same agreement. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Administrative Agent.
12.10. EFFECTIVENESS. This Agreement shall become effective on the date
(the "EFFECTIVE DATE") on which the Borrower and each of the Lenders shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered the same to the Administrative Agent at the Notice Office of the
Administrative Agent or, in the case of the Lenders, shall have given to the
Administrative Agent telephonic (confirmed in writing), written telex or
facsimile transmission notice (actually received) at such office that the same
has been signed and mailed to it.
12.11. HEADINGS DESCRIPTIVE. The headings of the several sections and
other portions of this Agreement are inserted for convenience only and shall not
in any way affect the meaning or construction of any provision of this
Agreement.
12.12. AMENDMENT OR WAIVER. Neither this Agreement nor any terms hereof
or thereof may be changed, waived, discharged or terminated UNLESS such change,
waiver, discharge or termination is in writing signed by the Borrower and the
Required Lenders, PROVIDED that no such change, waiver, discharge or termination
shall, without the consent of each Lender (other than a Defaulting Lender)
affected thereby, (i) extend any interim or final maturity date provided for
herein (including any extension of any interim or final maturity date to be
effected in accordance with section 4.4 hereof) applicable to a Loan or a
Commitment (it being understood that any waiver of the making of, or application
of any prepayment of or the method of application of any mandatory prepayment of
the Loans shall not constitute an extension of such final maturity thereof),
reduce the rate or extend the time of payment of interest (other than as a
result of waiving the applicability of any post-default increase in interest
rates) or Fees thereon, or reduce the principal amount thereof, or increase the
Commitment of any Lender over the amount thereof then in effect (it being
understood that a waiver of any Default or Event of Default or of any mandatory
prepayment or a mandatory reduction in the Total Commitment shall not constitute
a change in the terms of any Commitment of any Lender), (ii) release the
Borrower from any obligations as a guarantor of its Subsidiaries'
68
<PAGE> 74
obligations under any Credit Document, (iii) release any Credit Party from the
Subsidiary Guaranty, except in connection with a transaction permitted by
section 9.2(e), (iv) release all or substantially all of the Collateral, except
strictly in accordance with the provisions of section 8.11(b), (v) change the
definition of the term "Change of Control" or any of the provisions of section
5.2(e) which are applicable upon a Change of Control, (vi) amend, modify or
waive any provision of this section 12.12, or section 11.7, 12.1, 12.4, 12.6 or
12.7(b), or any other provision of any of the Credit Documents pursuant to which
the consent or approval of all Lenders is by the terms of such provision
explicitly required, (vii) reduce the percentage specified in, or otherwise
modify, the definition of Required Lenders, or (viii) consent to the assignment
or transfer by the Borrower of any of its rights and obligations under this
Agreement. No provision of section 3 or 11 may be amended without the consent of
(x) any Letter of Credit Issuer adversely affected thereby or (y) the
Administrative Agent, respectively.
12.13. SURVIVAL OF INDEMNITIES. All indemnities set forth herein
including, without limitation, in section 2.10, 2.11, 3.5, 11.7 or 12.1 shall
survive the execution and delivery of this Agreement and the making and
repayment of Loans.
12.14. DOMICILE OF LOANS. Each Lender may transfer and carry its Loans
at, to or for the account of any branch office, subsidiary or affiliate of such
Lender, PROVIDED that the Borrower shall not be responsible for costs arising
under section 2.10 resulting from any such transfer (other than a transfer
pursuant to section 2.12) to the extent not otherwise applicable to such Lender
prior to such transfer.
12.15. CONFIDENTIALITY. Each Lender shall hold all non-public
information obtained pursuant to the requirements of this Agreement which has
been identified as such by the Borrower in accordance with its customary
procedure for handling confidential information of this nature and in accordance
with safe and sound banking practices and in any event may make disclosure
reasonably required by any BONA FIDE transferee or participant in connection
with the contemplated transfer of any Loans or Commitment or participation
therein (PROVIDED that each such prospective transferee and/or participant shall
execute an agreement for the benefit of the Borrower with such prospective
transferor Lender and/or participant containing provisions substantially
identical to those contained in this section 12.15), and to its auditors,
attorneys or as required or requested by any governmental agency or
representative thereof or pursuant to legal process, PROVIDED that, unless
specifically prohibited by applicable law or court order, each Lender shall
notify the Borrower of any request by any governmental agency or representative
thereof (other than any such request in connection with an examination of the
financial condition of such Lender by such governmental agency) for disclosure
of any such non-public information prior to disclosure of such information, and
PROVIDED, FURTHER that in no event shall any Lender be obligated or required to
return any materials furnished by or on behalf of the Borrower or any of its
Subsidiaries. The Borrower hereby agrees that the failure of a Lender to comply
with the provisions of this section 12.15 shall not relieve the Borrower of any
of the obligations to such Lender under this Agreement and the other Credit
Documents.
12.16. LENDER REGISTER. The Borrower hereby designates the
Administrative Agent to serve as its agent, solely for purposes of this section
12.16, to retain a copy of each Assignment Agreement delivered to and accepted
by it and to maintain a register (the "LENDER REGISTER") on or in which it will
record the names and addresses of the Lenders, and the Commitments from time to
time of each of the Lenders, the Loans made to the Borrower by each of the
Lenders and each repayment and prepayment in respect of the principal amount of
such Loans of each such Lender. Failure to make any such recordation, or (absent
manifest error) any error in such recordation, shall not affect the Borrower's
obligations in respect of such Loans. With respect to any Lender, the transfer
of any Commitment of such Lender and the rights to the principal of, and
interest on, any Loan made pursuant to such Commitment shall not be effective
until such transfer is recorded on the Lender Register maintained by the
Administrative Agent with respect to ownership of such Commitment and Loans and
prior to such recordation all amounts owing to the transferor with respect to
such Commitment and Loans shall remain owing to the transferor. The registration
of assignment or transfer of all or part of any Commitments and Loans shall be
recorded by the Administrative Agent on the Lender Register only upon the
acceptance by the Administrative Agent of a properly executed and delivered
Assignment Agreement pursuant to section 12.4(b). The Borrower agrees to
indemnify the Administrative Agent from and against any and all losses, claims,
damages and liabilities of whatsoever nature which may be imposed on, asserted
against or incurred by the Administrative Agent in performing its duties under
69
<PAGE> 75
this section 12.16, except to the extent the same result solely from the
Administrative Agent's negligence or willful misconduct. The Lender Register
shall be available for inspection by the Borrower or any Lender at any
reasonable time and from time to time upon reasonable prior notice.
12.17. LIMITATIONS ON LIABILITY OF THE LETTER OF CREDIT ISSUERS. The
Borrower assumes all risks of the acts or omissions of any beneficiary or
transferee of any Letter of Credit with respect to its use of such Letters of
Credit. Neither any Letter of Credit Issuer nor any of its officers or directors
shall be liable or responsible for: (a) the use which may be made of any Letter
of Credit or any acts or omissions of any beneficiary or transferee in
connection therewith; (b) the validity, sufficiency or genuineness of documents,
or of any endorsement thereon, even if such documents should prove to be in any
or all respects invalid, insufficient, fraudulent or forged; (c) payment by a
Letter of Credit Issuer against presentation of documents that do not comply
with the terms of a Letter of Credit, including failure of any documents to bear
any reference or adequate reference to such Letter of Credit; or (d) any other
circumstances whatsoever in making or failing to make payment under any Letter
of Credit, EXCEPT that the Borrower (or a Subsidiary which is the account party
in respect of the Letter of Credit in question) shall have a claim against a
Letter of Credit Issuer, and a Letter of Credit Issuer shall be liable to the
Borrower (or such Subsidiary), to the extent of any direct, but not
consequential, damages suffered by the Borrower (or such Subsidiary) which the
Borrower (or such Subsidiary) proves were caused by (i) such Letter of Credit
Issuer's willful misconduct or gross negligence in determining whether documents
presented under a Letter of Credit comply with the terms of such Letter of
Credit or (ii) such Letter of Credit Issuer's willful failure to make lawful
payment under any Letter of Credit after the presentation to it of documentation
strictly complying with the terms and conditions of such Letter of Credit. In
furtherance and not in limitation of the foregoing, a Letter of Credit Issuer
may accept documents that appear on their face to be in order, without
responsibility for further investigation.
12.18. GENERAL LIMITATION OF LIABILITY. No claim may be made by the
Borrower, any Lender, the Administrative Agent, any Letter of Credit Issuer or
any other person against the Administrative Agent, any Letter of Credit Issuer,
or any other Lender or the Affiliates, directors, officers, employees, attorneys
or agents of any of them for any damages other than actual compensatory damages
in respect of any claim for breach of contract or any other theory of liability
arising out of or related to the transactions contemplated by this Agreement or
any of the other Credit Documents, or any act, omission or event occurring in
connection therewith; and each of the Borrower, each Lender, the Administrative
Agent and each Letter of Credit Issuer hereby, to the fullest extent permitted
under applicable law, waives, releases and agrees not to sue or counterclaim
upon any such claim for any special, consequential or punitive damages, whether
or not accrued and whether or not known or suspected to exist in its favor.
12.19. NO DUTY. All attorneys, accountants, appraisers, consultants and
other professional persons (including the firms or other entities on behalf of
which any such person may act) retained by the Administrative Agent or any
Lender with respect to the transactions contemplated by the Credit Documents
shall have the right to act exclusively in the interest of the Administrative
Agent or such Lender, as the case may be, and shall have no duty of disclosure,
duty of loyalty, duty of care, or other duty or obligation of any type or nature
whatsoever to the Borrower, to any of its Subsidiaries, or to any other person,
with respect to any matters within the scope of such representation or related
to their activities in connection with such representation.
12.20. LENDERS AND AGENT NOT FIDUCIARY TO BORROWER, ETC. The
relationship among the Borrower and its Subsidiaries, on the one hand, and the
Administrative Agent, each Letter of Credit Issuer and the Lenders, on the other
hand, is solely that of debtor and creditor, and the Administrative Agent, each
Letter of Credit Issuer and the Lenders have no fiduciary or other special
relationship with the Borrower and its Subsidiaries, and no term or provision of
any Credit Document, no course of dealing, no written or oral communication, or
other action, shall be construed so as to deem such relationship to be other
than that of debtor and creditor.
12.21. MARGIN STOCK. The Lenders are not relying on any direct or
indirect security of any Margin Stock in extending the credit facilities
provided for herein and this Agreement shall be construed in a manner consistent
with such intention.
70
<PAGE> 76
12.22. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties herein shall survive the making of Loans and the issuance of
Letters of Credit hereunder, the execution and delivery of this Agreement, the
Notes and the other documents the forms of which are attached as Exhibits
hereto, the issue and delivery of the Notes, any disposition thereof by any
holder thereof, and any investigation made by the Administrative Agent or any
Lender or any other holder of any of the Notes or on its behalf. All statements
contained in any certificate or other document delivered to the Administrative
Agent or any Lender or any holder of any Notes by or on behalf of the Borrower
or of its Subsidiaries pursuant hereto or otherwise specifically for use in
connection with the transactions contemplated hereby shall constitute
representations and warranties by the Borrower hereunder, made as of the
respective dates specified therein or, if no date is specified, as of the
respective dates furnished to the Administrative Agent or any Lender.
IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart
of this Agreement to be duly executed and delivered as of the date first above
written.
NCS HEALTHCARE, INC.
By:/s/ Gerald D. Stethem
-----------------------------------------
Chief Financial Officer
KEYBANK NATIONAL ASSOCIATION,
individually as a Lender, the Swing
Line Lender, and as Administrative Agent
By:/s/ Thomas J. Purcell
-----------------------------------------
Vice President
71
<PAGE> 1
EXHIBIT 10.13
KEYBANK NATIONAL ASSOCIATION
KEY CENTER
127 PUBLIC SQUARE
CLEVELAND, OHIO 44114
Dated as of June 1, 1998
NCS HealthCare, Inc.
3201 Enterprise Parkway
Suite 220
Beachwood, Ohio 44122
Attention: Jeffrey R. Steinhilber
Senior Vice President
and Chief Financial Officer
---------------------------
Re: U.S. $50,000,000 Capital Markets Bridge Facility
for NCS HealthCare, Inc.
------------------------------------------------
Ladies and Gentlemen:
KeyBank National Association, a national banking association (the
"LENDER"), hereby establishes pursuant to this letter ("THIS AGREEMENT") a
committed single draw, non-revolving capital markets bridge credit facility in
favor of NCS HealthCare, Inc. (herein, together with its successors and assigns,
the "BORROWER"), upon and subject to the terms and conditions contained in this
Agreement. Certain terms used herein are defined in section 6 hereof.
1. AMOUNTS AND TERMS OF THE LOANS.
1.1. THE LOANS. The Lender agrees, on the terms and conditions
hereinafter set forth, to make one or more loans (each a "LOAN" and
collectively, the "LOANS") to the Borrower, all of which Loans shall be made on
a single occasion (the "CLOSING DATE"), which shall be a Business Day during the
period from the date hereof until December 31, 1998 (such date, or the earlier
date of termination of the Commitment pursuant to section 1.11 or 5.2, being the
"TERMINATION DATE"). The Loans made hereunder on the Closing Date shall be in an
aggregate amount not to exceed $50,000,000, as such amount may be reduced
pursuant to section 1.11 (the "COMMITMENT"). Each Loan shall be in an amount not
less than $5,000,000 or an integral multiple of $1,000,000 in excess thereof. No
additional Loans shall be made after the Closing Date, and the amount of any
unused Commitment remaining after Loans are made on the Closing Date shall be
automatically terminated.
1.2. MAKING THE LOANS ON THE CLOSING DATE. (a) The Borrower shall give
the Lender notice, not later than 11:00 A.M. (Cleveland, Ohio time) on the third
Business Day prior to the proposed Closing Date, a. specifying the proposed
Closing Date, b. specifying the amount and Type of each proposed Loan to be made
on the Closing Date, c. selecting the interest rate for each such Loan pursuant
to section 1.6 and, d. if any such Loan is to be a Eurodollar Loan, selecting
the initial Interest Period for such Loan. More than one Loan may be made on the
Closing Date as a Eurodollar Loan, but each such Eurodollar Loan so made shall
have a single Interest Period applicable thereto and no two Eurodollar Loans
made on the Closing Date shall have the same Interest Period. No more than three
Eurodollar Loans may be outstanding hereunder at any time. Not later than 11:00
A.M. (Cleveland, Ohio time) on the Closing Date and upon fulfillment of the
applicable conditions set forth in section 2, the Lender will make the requested
Loan or Loans available to the Borrower in same day funds at the Lender's
principal office in Cleveland, Ohio.
<PAGE> 2
(b) Anything in section 1.2 (a) above to the contrary notwithstanding,
the Borrower may not select a Eurodollar Rate for any Loan if the principal
amount of such Loan is less than $5,000,000.
(c) The notice from the Borrower to the Lender requesting a Loan or
Loans on the Closing Date shall be irrevocable and binding on the Borrower.
1.3. FEES. The Borrower agrees to pay to the Lender an upfront fee to
the Lender on the date this Agreement becomes effective in the amount separately
agreed upon by the parties hereto. The Borrower agrees to pay to the Lender an
activation fee in connection with the initial Loan made hereunder in accordance
with a separate letter between the Borrower and the Lender.
1.4. NOTE. (a) The Borrower's obligation to pay the principal of, and
interest on, the Loans made to it by the Lender shall be evidenced by a
promissory note substantially in the form of Exhibit A hereto with blanks
appropriately completed in conformity herewith (the "NOTE").
(b) The Note issued to the Lender shall be entitled to the benefits of
this Agreement as well as the Subsidiary Guaranty and the Pledge Agreement
referred to in the Credit Agreement.
(c). The Lender will note on its internal records the amount of each
Loan made by it and each payment in respect thereof and will, prior to any
transfer of the Note, endorse on the reverse side thereof or the grid attached
thereto the outstanding principal amount of Loans evidenced thereby. Failure to
make any such notation or any error in any such notation shall not affect the
Borrower's obligations in respect of such Loans.
1.5. CONVERSIONS OF LOANS. The Borrower shall have the option to
Convert on any Business Day all, or a portion equal to $5,000,000 or a multiple
of $1,000,000 in excess thereof, of the outstanding principal amount of any
outstanding Loan into a Loan or Loans of the other Type of Loan which can be
made pursuant to this Agreement, PROVIDED that: a. no partial conversion of a
Eurodollar Loan shall reduce the outstanding principal amount of such Eurodollar
Loan to less than $5,000,000; b. any conversion of a Eurodollar Loan into a
Prime Rate Loan shall be made on, and only on, the last day of an Interest
Period for such Eurodollar Loan; c. a Prime Rate Loan may not be converted into
a Eurodollar Loan if a Default or Event of Default has occurred and is in
existence on the date of the Conversion unless the Lender otherwise agrees; and
d. a Eurodollar Loan resulting from a Conversion under this section 1.5 shall
conform to the requirements of sections 1.1 and 1.2. Each such Conversion shall
be effected by the Borrower giving the Lender written notice thereof, prior to
11:00 A.M. (local time) at least three Business Days prior to the Conversion,
specifying the Loan or Loans to be so converted, the Type of Loan or Loans to be
converted into and, if to be converted into a Eurodollar Loan, the Interest
Period to be initially applicable thereto.
1.6. INTEREST. The Borrower shall pay interest on the unpaid principal
amount of each Loan from the date of such Loan until such principal amount shall
be paid in full, at the following rates per annum:
(a) PRIME RATE LOANS. During such periods as such Loan is a
Prime Rate Loan, a fluctuating rate per annum equal at all times to the
Prime Rate in effect from time to time, payable quarterly in arrears on
the last Business day of each March, June, September and December and
on the date such Prime Rate Loan shall be Converted (as hereinafter
defined) or paid in full; PROVIDED that any amount of principal which
is not paid when due (whether at stated maturity, by acceleration or
otherwise) shall bear interest, from the date on which such amount is
due until such amount is paid in full, payable on demand, at a
fluctuating rate per annum equal at all times to 3% per annum above the
Prime Rate in effect from time to time.
(b) EURODOLLAR LOANS. During such periods as such Loan is a
Eurodollar Loan, a rate per annum equal at all times during the
Interest Period for such Loan to the sum of the Eurodollar Rate for
such Interest Period PLUS (i) from the date hereof to September 30,
1998, an additional 200 basis points per annum and (ii) from and after
such date, an additional 262.50 basis points per annum, payable on the
last
2
<PAGE> 3
day of such Interest Period and, if such Interest Period has a duration
of more than three months, on each day which occurs during such
Interest Period every three months from the first day of such Interest
Period; PROVIDED that any amount of principal which is not paid when
due (whether at stated maturity, by acceleration or otherwise) shall
bear interest, from the date on which such amount is due until such
amount is paid in full, payable on demand, at a fluctuating rate per
annum equal at all times to 3% per annum above the Prime Rate in effect
from time to time.
1.7. PREPAYMENTS. (a) VOLUNTARY PREPAYMENTS. The Borrower may, upon at
least three Business Days' notice to the Lender stating the proposed date and
principal amount of the prepayment, and if such notice is given the Borrower
shall, without premium or penalty, prepay the outstanding principal amount of
any Loan, in whole or in part, together with accrued interest to the date of
such prepayment on the principal amount prepaid, PROVIDED that in the case of
any partial prepayment of a Loan the principal amount prepaid shall be at least
$1,000,000, or an integral multiple of $1,000,000 in excess thereof, and
PROVIDED, FURTHER, that in the case of prepayment of any Eurodollar Loan on any
date other than the last day of the Interest Period applicable thereto, such
prepayment shall be accompanied by such breakage compensation as is provided for
in section 1.10.
(b) MANDATORY PREPAYMENTS. The Loans shall be subject to mandatory
prepayment, without premium or penalty, in accordance with the following
provisions:
(i) CERTAIN PROCEEDS OF ASSET SALES AND DEBT OR EQUITY
OFFERINGS. If the Borrower and its Subsidiaries have received after the
date hereof Net Cash Proceeds from any Asset Sale or from any public
offering, Rule 144A offering or private placement with one or more
institutional investors of any debt or equity securities (exclusive of
any syndicated credit facilities), not later than the third Business
Day following the date of receipt of any such Net Cash Proceeds an
amount, conforming to the requirements of section 1.7(a) as to the
amount of any partial prepayment of Loans, at least equal to such Net
Cash proceeds so received shall be applied as a mandatory prepayment of
principal of the then outstanding Loans.
(ii) LOANS EXCEED COMMITMENT. If the outstanding Loans at any
time exceed the Commitment hereunder as then in effect, the Borrower
will immediately prepay Loans in an amount, conforming to the
requirements of section 1.7(a) as to the amount of any partial
prepayment of Loans, at least sufficient to eliminate such excess.
(iii) CHANGE OF CONTROL. On the date on which a Change of
Control occurs, notwithstanding anything to the contrary contained in
this Agreement, no further borrowings shall be made under this
Agreement and the then outstanding principal amount of all Loans, if
any, shall become due and payable and shall be prepaid in full.
(iv) PARTICULAR LOANS TO BE PREPAID. With respect to each
prepayment of Loans required by this section 1.7(b), the Borrower shall
designate the Types of Loans which are to be prepaid and the specific
Loan(s) to which such prepayment is to be applied, PROVIDED that (A)
the Borrower shall first so designate all Loans that are Prime Rate
Loans and Eurodollar Loans with Interest Periods ending on the date of
prepayment prior to designating any other Eurodollar Loans for
prepayment, and (B) if the outstanding principal amount of a Eurodollar
Loan is reduced below $1,000,000 as a result of any such prepayment,
then such Loan shall be Converted into a Prime Rate Loan. In the
absence of a designation by the Borrower as described in the preceding
sentence, the Lender shall, subject to the above, make such designation
in its sole discretion with a view, but no obligation, to minimize
breakage costs. Any prepayment of Loans pursuant to this section 1.7(b)
shall be accompanied by payment of interest accrued to the date of
prepayment on the amount prepaid and, in the case of any prepayment of
a Eurodollar Loan, shall in all events be accompanied by such breakage
compensation as is contemplated by section 1.10.
1.8. INTEREST PERIODS. (a) At the time the Borrower gives the notice of
the Closing Date or a notice of Conversion in respect of the making of, or
conversion into, a Eurodollar Loan (in the case of the initial Interest
3
<PAGE> 4
Period applicable thereto) or prior to 11:00 A.M. on the third Business Day
prior to the expiration of an Interest Period applicable to a Eurodollar Loan,
it shall have the right to elect by giving the Lender written or telephonic
notice (in the case of telephonic notice, promptly confirmed in writing if so
requested by the Lender) of the Interest Period applicable to such Loan, which
Interest Period shall, at the option of the Borrower, be a one, two, three or
six month period. Notwithstanding anything to the contrary contained above:
(i) the initial Interest Period for any Eurodollar Loan shall
commence on the date such Loan is made (including the date of any
conversion from a Prime Rate Loan) and each Interest Period occurring
thereafter in respect of such Loan shall commence on the day on which
the next preceding Interest Period expires;
(ii) if any Interest Period begins on a day for which there is
no numerically corresponding day in the calendar month at the end of
such Interest Period, such Interest Period shall end on the last
Business Day of such calendar month;
(iii) if any Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the
next succeeding Business Day, PROVIDED that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding Business
Day;
(iv) no Interest Period for any Loan may be selected which
would end after the then scheduled Termination Date; and
(v) no Interest Period may be elected at any time when a
Default under section 5.1(a) or an Event of Default is then in
existence unless the Lender otherwise agrees.
(b) If upon the expiration of any Interest Period the Borrower has
failed to (or may not) elect a new Interest Period to be applicable to a
Eurodollar Loan as provided above, the Borrower shall be deemed to have elected
to convert such Loan to a Prime Rate Loan effective as of the expiration date of
such current Interest Period.
1.9. INCREASED COSTS, ILLEGALITY, ETC. (a) In the event that the Lender
shall have determined on a reasonable basis (which determination shall, absent
manifest error, be final and conclusive and binding upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for any
Interest Period that, by reason of any changes arising after the
Effective Date affecting the interbank Eurodollar market, adequate and
fair means do not exist for ascertaining the applicable interest rate
on the basis provided for in the definition of Eurodollar Rate; or
(ii) at any time, that the Lender shall incur increased costs
or reductions in the amounts received or receivable hereunder in an
amount which the Lender deems material with respect to any Eurodollar
Loans (other than any increased cost or reduction in the amount
received or receivable resulting from the imposition of or a change in
the rate of taxes or similar charges) because of (x) any change since
the Effective Date in any applicable law, governmental rule,
regulation, guideline, order or request (whether or not having the
force of law), or in the interpretation or administration thereof and
including the introduction of any new law or governmental rule,
regulation, guideline, order or request (such as, for example, but not
limited to, a change in official reserve requirements, but, in all
events, excluding reserves includable in the Eurodollar Rate pursuant
to the definition thereof) and/or (y) other circumstances adversely
affecting the interbank Eurodollar market or the position of such
Lender in such market; or
(iii) at any time, that the making or continuance of any
Eurodollar Loan has become unlawful by compliance by the Lender in good
faith with any change since the Effective Date in any law, governmental
rule, regulation, guideline or order, or the interpretation or
application thereof, or would
4
<PAGE> 5
conflict with any thereof not having the force of law but with which
the Lender customarily complies or has become impracticable as a result
of a contingency occurring after the Effective Date which materially
adversely affects the interbank Eurodollar market;
THEN, and in any such event, the Lender shall (x) on or promptly following such
date or time and (y) within 10 Business Days of the date on which such event no
longer exists give notice (by telephone confirmed in writing) to the Borrower of
such determination. Thereafter (x) in the case of clause (i) above, Eurodollar
Loans shall no longer be available until such time as the Lender notifies the
Borrower that the circumstances giving rise to such notice by the Administrative
Agent no longer exist, and any notice of the Closing Date or notice of
Conversion given by the Borrower with respect to Eurodollar Loans which have not
yet been incurred or converted shall be deemed rescinded by the Borrower or, in
the case of the notice of the Closing Date, shall, at the option of the
Borrower, be deemed Converted into a notice requesting a Prime Rate Loan to be
made on the Closing Date, (y) in the case of clause (ii) above, the Borrower
shall pay to the Lender, upon written demand therefor, such additional amounts
(in the form of an increased rate of, or a different method of calculating,
interest or otherwise as the Lender shall determine) as shall be required to
compensate the Lender, for such increased costs or reductions in amounts
receivable hereunder (a written notice as to the additional amounts owed to the
Lender, showing the basis for the calculation thereof, which basis must be
reasonable, submitted to the Borrower by the Lender shall, absent manifest
error, be final and conclusive and binding upon all parties hereto) and (z) in
the case of clause (iii) above, the Borrower shall take one of the actions
specified in section 1.9(b) as promptly as possible and, in any event, within
the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in section 1.9(a)(ii) or (iii), the Borrower may (and in
the case of a Eurodollar Loan affected pursuant to section 1.9(a)(iii) the
Borrower shall) either a. if the affected Eurodollar Loan is then being made on
the Closing Date, by giving the Lender telephonic notice (confirmed promptly in
writing) thereof on the same date that the Borrower was notified by the Lender
pursuant to section 1.9(a)(ii) or (iii), cancel said borrowing, or convert the
related notice of the Closing Date into a notice requesting a Prime Rate Loan,
or b. if the affected Eurodollar Loan is then outstanding, upon at least one
Business Day's notice to the Lender, require the Lender to Convert each such
Eurodollar Loan into a Prime Rate Loan.
(c) If the Lender shall have determined that after the Effective Date,
the adoption of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or comparable
agency charged by law with the interpretation or administration thereof, or
compliance by the Lender or its parent corporation with any request or directive
regarding capital adequacy (whether or not having the force of law) of any such
authority, central bank, or comparable agency, in each case made subsequent to
the Effective Date, has or would have the effect of reducing by an amount
reasonably deemed by the Lender to be material the rate of return on the
Lender's or its parent corporation's capital or assets as a consequence of the
Lender's commitments or obligations hereunder to a level below that which the
Lender or its parent corporation could have achieved but for such adoption,
effectiveness, change or compliance (taking into consideration the Lender's or
its parent corporation's policies with respect to capital adequacy), then from
time to time, within 15 days after demand by the Lender, the Borrower shall pay
to the Lender such additional amount or amounts as will compensate the Lender or
its parent corporation for such reduction. The Lender, upon determining in good
faith that any additional amounts will be payable pursuant to this section
1.9(c), will give prompt written notice thereof to the Borrower, which notice
shall set forth, in reasonable detail, the basis of the calculation of such
additional amounts, which basis must be reasonable, although the failure to give
any such notice shall not release or diminish any of the Borrower's obligations
to pay additional amounts pursuant to this section 1.9(c) upon the subsequent
receipt of such notice.
(d) Notwithstanding anything in this Agreement to the contrary, a. the
Lender shall not be entitled to compensation or payment or reimbursement of
other amounts under this section 1.9 for any amounts incurred or accruing more
than 90 days prior to the giving of notice to the Borrower of additional costs
or other amounts of the nature described in this section, and b. the Lender
shall not demand compensation for any reduction referred to in section 1.9(c) if
it shall not at the time be the general policy or practice of the Lender to
demand such compensation
5
<PAGE> 6
in similar circumstances under comparable provisions of other credit agreements.
1.10. BREAKAGE COMPENSATION. The Borrower shall compensate the Lender,
upon its written request (which request shall set forth the detailed basis for
requesting and the method of calculating such compensation), for all reasonable
losses, expenses and liabilities (including, without limitation, any loss,
expense or liability incurred by reason of the liquidation or reemployment of
deposits or other funds required by the Lender to fund its Eurodollar Loans)
which the Lender may sustain: a. if for any reason (other than a default by the
Lender) a borrowing of a Eurodollar Loan does not occur on a date specified
therefor in the notice of the Closing Date or a notice of Conversion (whether or
not withdrawn by the Borrower or deemed withdrawn pursuant to section 1.9(a));
b. if any repayment, prepayment or Conversion of any Eurodollar Loan occurs on a
date which is not the last day of an Interest Period applicable thereto; c. if
any prepayment of any of its Eurodollar Loans is not made on any date specified
in a notice of prepayment given by the Borrower; or d. as a consequence of (x)
any other default by the Borrower to repay its Eurodollar Loans when required by
the terms of this Agreement or (y) an election made pursuant to section 1.9(b).
1.11. TERMINATION/REDUCTION OF THE COMMITMENT. (a) The Commitment shall
terminate on the earlier of (x) the Termination Date and (y) the date on which a
Change of Control occurs.
(b) Amounts borrowed hereunder and repaid or prepaid may not be
reborrowed. The Commitment shall be considered utilized by the principal amount
of each Loan made hereunder.
(c) The Borrower shall have the right, upon at least three Business
Days' notice to the Lender, to terminate in whole or reduce in part the unused
portion of the Commitment, PROVIDED that each partial reduction shall be in the
amount of $5,000,000 or an integral multiple of $1,000,000 in excess thereof.
(d) In the event the Total General Revolving Commitment under the
Credit Agreement is increased above $150,000,000, the then Commitment hereunder
shall be automatically and permanently reduced by the amount of such increase.
(e) If any portion of the Commitment remains unused after Loans are
made on the Closing Date, such unused portion of the Commitment shall be
automatically terminated.
1.12. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each
payment not later than 11:00 A.M. (Cleveland, Ohio time) on the day when due in
U.S. dollars to the Lender at its address referred to herein in same day funds.
(b) The Borrower hereby authorizes the Lender, if and to the extent
payment is not made when due, to charge from time to time against any or all of
the Borrower's accounts with the Lender any amount so due.
(c) All computations of interest shall be made by the Lender on the
basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest is payable. Each determination by the Lender of an interest
rate hereunder shall be conclusive and binding for all purposes, absent manifest
error.
(d) Whenever any payment shall be stated to be due on a day other than
a Business Day, such payment shall be made on the next succeeding Business Day,
and such extension of time shall in such case be included in the computation of
payment of interest.
SECTION 2. CONDITIONS OF LENDING.
2.1. CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of the Lender
to make its initial Loan is subject to satisfaction of the following conditions:
6
<PAGE> 7
(a) EFFECTIVENESS; NOTE. This Agreement shall have been duly
executed and delivered by the parties and shall be in full force and
effect, and there shall have been delivered to the Lender the Note
executed by the Borrower in the amount, maturity and as otherwise
provided herein.
(b) CREDIT AGREEMENT, ETC. The Credit Agreement, and the
Subsidiary Guaranty and the Pledge Agreement referred to therein, shall
each have been duly executed and delivered and shall be in full force
and effect. All conditions specified in section 6.1 of the Credit
Agreement shall have been satisfied or waived.
(c) FEES, ETC. The Borrower shall have paid or caused to be
paid all fees required to be paid by it on or prior to such date
pursuant to section 1.3 and all reasonable fees and expenses of the
Lender and of special counsel to the Lender which have been invoiced on
or prior to such date in connection with the preparation, execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby.
(d) CORPORATE RESOLUTIONS AND APPROVALS. The Lender shall have
received certified copies of the resolutions of the Board of Directors
of the Borrower approving this Agreement, and of all documents
evidencing other necessary corporate action and governmental approvals,
if any, with respect to the execution, delivery and performance by the
Borrower of this Agreement.
(e) INCUMBENCY CERTIFICATE. The Lender shall have received a
certificate of the Secretary or an Assistant Secretary of the Borrower,
certifying the names and true signatures of the officers of the
Borrower authorized to sign this Agreement and the Note and any other
documents to which the Borrower is a party which may be executed and
delivered in connection herewith.
(f) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and all documents incidental to the transactions
contemplated hereby shall be satisfactory in substance and form to the
Lender and the Lender and its special counsel shall have received all
such counterpart originals or certified or other copies of such
documents as the Lender or its special counsel may reasonably request.
2.2. CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to
make each Loan is subject, at the time thereof, to the satisfaction of the
conditions that at the time of such Loan and also after giving effect thereto:
(a) the Borrower shall have complied with the notice
requirements hereof with respect to the making of such Loan;
(b) there shall exist no Default or Event of Default; and
(c) all representations and warranties of the Borrower
contained herein shall be true and correct in all material respects
with the same effect as though such representations and warranties had
been made on and as of the date of such Loan, except to the extent that
such representations and warranties expressly relate to an earlier
specified date, in which case such representations and warranties shall
have been true and correct in all material respects as of the date when
made.
SECTION 3. REPRESENTATIONS AND WARRANTIES.
3.1. GENERAL REPRESENTATIONS AND WARRANTIES. The Borrower represents
and warrants that a. all of its representations and warranties contained in
section 7 of the Credit Agreement are true and correct, and b. all of such
representations and warranties contained in section 7 of the Credit Agreement
would be true and correct if references therein to the Credit Documents were
instead references to this Agreement and the Note.
7
<PAGE> 8
3.2. USE OF PROCEEDS, ETC. No part of the proceeds of any Loan will be
used directly or indirectly to a. purchase or carry Margin Stock, or to extend
credit to others for the purpose of purchasing or carrying any Margin Stock, in
violation of any of the provisions of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System, or b. finance any Acquisition (as
defined in the Credit Agreement) if such Acquisition is actively opposed by the
Board of Directors (or similar governing body) of the selling person or the
person whose equity interests are to be acquired. The Borrower is not engaged in
the business of extending credit for the purpose of purchasing or carrying any
Margin Stock. At no time would more than 25% of the value of the assets of the
Borrower or of the Borrower and its consolidated Subsidiaries that are subject
to any "arrangement" (as such term is used in section 221.2(g) of such
Regulation U) hereunder be represented by Margin Stock.
SECTION 4. COVENANTS OF THE BORROWER.
So long as the Note shall remain unpaid or the Lender shall have any
Commitment hereunder:
4.1. CREDIT AGREEMENT COVENANTS. The Borrower will comply with all
covenants and agreements contained in sections 8 and 9 of the Credit Agreement
as originally executed and delivered, regardless of any subsequent modification
or termination of the Credit Agreement, or consent or waiver thereunder, UNLESS
the Lender shall otherwise consent in writing (it being understood that a
consent by the Lender as a Lender under the Credit Agreement shall likewise be
considered a consent hereunder, UNLESS otherwise specified by the Lender at the
time any such consent is given).
4.2. REPORTING REQUIREMENTS. The Borrower will furnish to the Lender at
the time ot times referred to therein copies of all financial statements and
other information furnished or to be furnished pursuant to section 8.1 of the
Credit Agreement, as originally executed and delivered.
4.3. BOOKS, RECORDS AND INSPECTIONS. The Borrower will, and will cause
each of its Subsidiaries to, permit, upon at least five Business Days' notice to
the Chief Financial Officer or any other Authorized Officer of the Borrower,
officers and designated representatives of the Lender to visit and inspect any
of the properties or assets of the Borrower and any of its Subsidiaries in
whomsoever's possession (but only to the extent the Borrower or such Subsidiary
has the right to do so to the extent in the possession of another person), and
to examine the books of account of the Borrower and any of its Subsidiaries and
discuss the affairs, finances and accounts of the Borrower and of any of its
Subsidiaries with, and be advised as to the same by, its and their officers and
independent accountants and independent actuaries (the Borrower having been
offered an opportunity to be present by telephone or in person for any
discussions with such independent accountants or independent actuaries), if any,
all at such reasonable times and intervals and to such reasonable extent as the
Lender may request.
SECTION 5. EVENTS OF DEFAULT.
5.1. EVENTS OF DEFAULT. Any of the following events (an "EVENT OF
DEFAULT") shall constitute an Event of Default hereunder:
(a) PAYMENTS: the Borrower shall a. default in the payment
when due of any principal of the Loans; or b. default, and such default
shall continue for five or more Business Days, in the payment when due
of any interest on the Loans or any other amounts owing hereunder; or
(b) REPRESENTATIONS, ETC.: any representation, warranty or
statement made by the Borrower herein or in any statement or
certificate delivered or required to be delivered pursuant hereto shall
prove to be untrue in any material respect on the date as of which made
or deemed made; or
(c) CERTAIN NEGATIVE COVENANTS: the Borrower shall a. default
in the due performance or observance by it of any term, covenant or
agreement contained in section 4.1 hereof insofar as it relates to
sections 9.6 through 9.9, inclusive, or section 9.13, of the Credit
Agreement; or b. default, and such default
8
<PAGE> 9
shall continue for five or more Business Days after the Borrower shall
first have obtained actual knowledge thereof or the Lender shall have
notified the Borrower thereof in writing, whichever shall first occur,
in the due performance or observance by it of any other term, covenant
or agreement contained in section 4.1 hereof insofar as it relates to
sections 9.2 through 9.5, inclusive, of the Credit Agreement; or
(d) OTHER COVENANTS: the Borrower shall default in the due
performance or observance by it of any term, covenant or agreement
contained in this Agreement, other than those referred to in section
5.1(a) or (b) or (c) above, and such default shall continue unremedied
for a period of at least 30 days after notice by the Lender; or
(e) DEFAULT UNDER OTHER AGREEMENTS: an Event of Default under
and as defined in the Credit Agreement shall have occurred; or the
Borrower or any of its Subsidiaries shall a. default in any payment
with respect to any Indebtedness (other than the Note) owed to the
Lender, or having an unpaid principal amount of $1,000,000 or greater,
and such default shall continue after the applicable grace period, if
any, specified in the agreement or instrument relating to such
Indebtedness, or b. default in the observance or performance of any
agreement or condition relating to any such Indebtedness or contained
in any instrument or agreement evidencing, securing or relating thereto
(and all grace periods applicable to such observance, performance or
condition shall have expired), or any other event shall occur or
condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such
Indebtedness (or a trustee or agent on behalf of such holder or
holders) to cause any such Indebtedness to become due prior to its
stated maturity; or any such Indebtedness of the Borrower or any of its
Subsidiaries shall be declared to be due and payable, or shall be
required to be prepaid (other than by a regularly scheduled required
prepayment or redemption, prior to the stated maturity thereof); or
(f) BANKRUPTCY, ETC.: the Borrower or any of its Material
Subsidiaries shall commence a voluntary case concerning itself under
Title 11 of the United States Code entitled "Bankruptcy," as now or
hereafter in effect, or any successor thereto (the "BANKRUPTCY CODE");
or an involuntary case is commenced against the Borrower or any of its
Material Subsidiaries and the petition is not controverted within 10
days, or is not dismissed within 60 days, after commencement of the
case; or a custodian (as defined in the Bankruptcy Code) is appointed
for, or takes charge of, all or substantially all of the property of
the Borrower or any of its Material Subsidiaries; or the Borrower or
any of its Material Subsidiaries commences (including by way of
applying for or consenting to the appointment of, or the taking of
possession by, a rehabilitator, receiver, custodian, trustee,
conservator or liquidator (collectively, a "CONSERVATOR") of itself or
all or any substantial portion of its property) any other proceeding
under any reorganization, arrangement, adjustment of debt, relief of
debtors, dissolution, insolvency, liquidation, rehabilitation,
conservatorship or similar law of any jurisdiction whether now or
hereafter in effect relating to the Borrower or any of its Material
Subsidiaries; or any such proceeding is commenced against the Borrower
or any of its Material Subsidiaries to the extent such proceeding is
consented by such person or remains undismissed for a period of 60
days; or the Borrower or any of its Material Subsidiaries is
adjudicated insolvent or bankrupt; or any order of relief or other
order approving any such case or proceeding is entered; or the Borrower
or any of its Material Subsidiaries suffers any appointment of any
conservator or the like for it or any substantial part of its property
which continues undischarged or unstayed for a period of 60 days; or
the Borrower or any of its Material Subsidiaries makes a general
assignment for the benefit of creditors; or any corporate (or similar
organizational) action is taken by the Borrower or any of its Material
Subsidiaries for the purpose of effecting any of the foregoing.
5.2. ACCELERATION, ETC. If an Event of Default shall have occurred and
be continuing, THEN, and in any such event, the Lender (i) may, by notice to the
Borrower, declare the Commitment and its obligation to make Loans to be
terminated, whereupon the same shall forthwith terminate, and (ii) may, by
notice to the Borrower, declare the Note, all interest thereon and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the Note, all such interest and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest, or further notice of any
kind, all of which are hereby expressly waived by the Borrower; PROVIDED,
HOWEVER, that in the event of an actual or deemed entry of an order for relief
with respect to the
9
<PAGE> 10
Borrower or any of its subsidiaries under the Bankruptcy Code, (A) the
obligation of the Lender to make Loans shall automatically be terminated and (B)
the Loans, the Note, all such interest and all such amounts shall automatically
become and be due and payable, without presentment, demand, protest or any
notice of any kind, all of which are hereby expressly waived by the Borrower.
5.3. SHARING OF PROCEEDS OF ENFORCEMENT. The Lender irrevocably
undertakes for the benefit of the Administrative Agent and the Lenders party to
the Credit Agreement that all amounts collected (by setoff or otherwise) in
connection with the enforcement of this Agreement and the Note after the
occurrence and during the continuance of an Event of Default hereunder will be
applied as provided in section 10.3 of the Credit Agreement.
The Borrower hereby consents to any such application.
6. DEFINITIONS.
6.1. TERMS DEFINED IN CREDIT AGREEMENT. Unless otherwise defined
herein, terms which are defined in the Credit Agreement, as originally executed
and delivered, are used herein with the same meaning.
6.2. DEFINED TERMS. As used in this Agreement, the following terms have
the following meanings:
"BUSINESS DAY" means a day of the year on which banks are not
required or authorized to close in Cleveland, Ohio and, if the
applicable Business Day relates to any Eurodollar Loans, on which
dealings are carried on in the London interbank market.
"CLOSING DATE" shall have the meaning provided in section 1.1.
"CONVERT", "CONVERSION" and "CONVERTED" each refers to a
conversion of a Loan of one Type into a Loan of another Type pursuant
to section 1.5 or 1.9.
"CREDIT AGREEMENT" shall mean the Credit Agreement, dated as
of June 1, 1998 (as now in effect or as hereafter amended or otherwise
modified), among the Borrower, the financial institutions party thereto
as Lenders, and KeyBank National Association, as Administrative Agent.
"DEFAULT" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"EFFECTIVE DATE" shall mean the date when this Agreement is
executed and delivered by the parties hereto.
"EURODOLLAR LOAN" shall mean each Loan bearing interest at the
rates provided in section 1.6(b).
"EURODOLLAR RATE" shall mean with respect to each Interest
Period for a Eurodollar Loan, (A) either (i) the rate per annum for
deposits in Dollars of amounts in same day funds comparable to the
outstanding principal amount of the Eurodollar Loan for which an
interest rate is then being determined for a maturity most nearly
comparable to such Interest Period which appears on page 3750 of the
Dow Jones Telerate Screen as of 11:00 A.M. (local time at the Notice
Office) on the date which is two Business Days prior to the
commencement of such Interest Period, or (ii) if such a rate does not
appear on such page, an interest rate per annum equal to the average
(rounded upward to the nearest whole multiple of 1/16 of 1% per annum,
if such average is not such a multiple) of the rate per annum at which
deposits in Dollars are offered to the Lender by prime banks in the
London interbank Eurodollar market for deposits of amounts in Dollars
in same day funds comparable to the outstanding principal amount of the
Eurodollar Loan for which an interest rate is then being determined
with maturities comparable to the Interest Period to be applicable to
such Eurodollar Loan, determined as of 11:00 A.M. (London time) on the
date which is two Business Days prior to the commencement of such
Interest Period, in each case divided (and rounded
10
<PAGE> 11
upward to the nearest whole multiple of 1/16th of 1%) by (B) a
percentage equal to 100% minus the then stated maximum rate of all
reserve requirements (including, without limitation, any marginal,
emergency, supplemental, special or other reserves and without benefit
of credits for proration, exceptions or offsets which may be available
from time to time) applicable to any member bank of the Federal Reserve
System in respect of Eurocurrency liabilities as defined in Regulation
D (or any successor category of liabilities under Regulation D).
"PRIME RATE LOAN" means an Loan which bears interest as
provided in section 1.6(a).
"TYPE" of Loan means a Prime Rate Loan or a Eurodollar Loan,
as the case may be.
SECTION 7. MISCELLANEOUS.
7.1. AMENDMENTS, ETC. No amendment or waiver of any provision of this
Agreement or the Note, nor consent to any departure by the Borrower therefrom,
shall in any event be effective unless the same shall be in writing and signed
by the Lender, and then such waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.
7.2. NOTICES. Except as otherwise expressly provided herein, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex, facsimile transmission or cable communication)
and mailed, telegraphed, telexed, transmitted, cabled or delivered, if to the
Borrower, at Suite 220, 3201 Enterprise Parkway, Beachwood, Ohio 44122,
attention: Chief Financial Officer (facsimile: (216) 464-8376); and if to the
Lender at 127 Public Square, Cleveland, Ohio 44114, attention: Large Corporate
Group (facsimile: (216) 689-4981); or at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telegraphed, telexed,
telecopied, or cabled or sent by overnight courier, and shall be effective when
received.
7.3. NO WAIVER; REMEDIES. No failure on the part of the Lender to
exercise, and no delay in exercising, any right under this Agreement or the Note
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. The remedies provided herein are cumulative and not exclusive
of any remedies provided by law.
7.4. ACCOUNTING TERMS. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles.
7.5. COSTS, EXPENSES AND TAXES. The Borrower agrees to pay on demand
all costs and expenses in connection with the preparation, execution, delivery,
administration, modification and amendment of this Agreement and the other
documents to be delivered in connection herewith, including, without limitation,
the reasonable fees and out-of-pocket expenses of special counsel for the Lender
with respect thereto and with respect to advising the Lender as to its rights
and responsibilities under this Agreement and such other documents. The Borrower
further agrees to pay on demand all costs and expenses, if any (including
reasonable counsel fees and expenses), in connection with the enforcement
(whether through negotiations, legal proceedings or otherwise) of this Agreement
and the other documents to be delivered hereunder, including, without
limitation, reasonable counsel fees and expenses in connection with the
enforcement of rights under this section 7.5. In addition, the Borrower shall
pay any and all stamp and other taxes payable or determined to be payable in
connection with the execution, delivery, filing and recording of the this
Agreement and the other documents to be delivered in connection herewith, and
agrees to save the Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such taxes.
7.6. RIGHT OF SET-OFF. Upon the occurrence and during the continuance
of any Event of Default the Lender is hereby authorized at any time and from
time to time, to the fullest extent permitted by law, to set off and apply any
and all deposits (general or special, time or demand, provisional or final) at
any time held and other
11
<PAGE> 12
indebtedness at any time owing by the Lender to or for the credit or the account
of the Borrower against any and all of the obligations of the Borrower now or
hereafter existing under this Agreement or the Note, whether or not the Lender
shall have made any demand hereunder or thereunder and although such obligations
may be unmatured. The Lender agrees promptly to notify the Borrower after any
such set-off and application, PROVIDED that the failure to give such notice
shall not affect the validity of such set-off and application. The rights of the
Lender under this section are in addition to other rights and remedies
(including, without limitation, other rights of set-off) which the Lender may
have.
7.7. BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the Borrower and the Lender and their respective successors and
assigns, EXCEPT that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lender.
7.8. MARGIN STOCK. The Lender is not relying on any direct or indirect
security of any Margin Stock in extending the credit facilities provided for
herein and this Agreement shall be construed in a manner consistent with such
intention.
7.9. GOVERNING LAW. This Agreement and the Note shall be governed by,
and construed in accordance with, the laws of the State of Ohio.
7.10. WAIVER OF JURY TRIAL. Each of the parties to this Agreement
hereby irrevocably waives all right to a trial by jury in any action, proceeding
or counterclaim arising out of or relating to this Agreement, the Note or the
transactions contemplated hereby or thereby.
7.11. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts, each
of which when so executed and delivered shall be an original, but all of which
shall together constitute one and the same agreement. A set of counterparts
executed by all the parties hereto shall be lodged with the Borrower and the
Lender.
12
<PAGE> 13
-------------------------------
If the foregoing correctly sets forth the arrangements between us with
regard to the matters specified above, please sign in the space provided below
and return a counterpart of this letter to the undersigned whereupon this letter
shall be a binding agreement.
Again, we thank you sincerely for this opportunity to be of assistance
to you, and we look forward to a long and mutually beneficial relationship with
you.
Very truly yours,
KEYBANK NATIONAL ASSOCIATION
BY:/S/ THOMAS J. PURCELL
------------------------------
VICE PRESIDENT
Accepted and agreed as of
the date set forth above.
NCS HEALTHCARE, INC.
BY:/S/ GERALD D. STETHEM
------------------------------------
CHIEF FINANCIAL OFFICER
13
<PAGE> 1
EXHIBIT 10.14
================================================================================
NCS HEALTHCARE, INC.
AS BORROWER
THE LENDERS NAMED HEREIN
AS LENDERS
NBD BANK
NATIONAL CITY BANK
AS CO-AGENTS
AND
KEYBANK NATIONAL ASSOCIATION
AS A LENDER,
THE SWING LINE LENDER, THE LETTER OF CREDIT ISSUER
AND AS ADMINISTRATIVE AGENT
---------------------
AMENDMENT NO. 1
DATED AS OF
JULY 13, 1998
TO
CREDIT AGREEMENT
DATED AS OF
JUNE 1, 1998
---------------------
================================================================================
<PAGE> 2
AMENDMENT NO. 1 TO CREDIT AGREEMENT
THIS AMENDMENT NO. 1 TO CREDIT AGREEMENT, dated as of July 13, 1998
("THIS AMENDMENT"), among the following: (i) NCS HEALTHCARE, INC., a Delaware
corporation (herein, together with its successors and assigns, the "BORROWER");
(ii) the Lenders party hereto; (iii) NBD BANK and NATIONAL CITY BANK, as Lenders
and as Co-Agents; and (iv) KEYBANK NATIONAL ASSOCIATION, a national banking
association, as a Lender, the Swing Line Lender, the Letter of Credit Issuer,
and as the Administrative Agent under the Credit Agreement:
PRELIMINARY STATEMENTS:
(1) The Borrower, the Lenders named therein, the Swing Line Lender and
the Administrative Agent entered into the Credit Agreement, dated as of June 1,
1998 (as in effect immediately prior to the effective date of this Amendment,
the "CREDIT AGREEMENT"; with the terms defined therein, or the definitions of
which are incorporated therein, being used herein as so defined).
(2) The Borrower, the Lenders party hereto and the Administrative Agent
desire to increase the Total General Revolving Commitment under the Credit
Agreement from $150,000,000 to $245,000,000, and to amend certain of the other
terms of the Credit Agreement, all as more fully set forth below.
Contemporaneously herewith, the Borrower is terminating the Bridge Facility
Agreement and prepaying in full all loans outstanding thereunder.
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. AMENDMENTS.
1.1. COMMITMENTS. Effective on July 13, 1998, the Total General
Revolving Commitment under the Credit Agreement is increased from $150,000,000
to $245,000,000 and Annex I to the Credit Agreement is amended and restated to
read in its entirety as set forth in Annex I to this Amendment.
1.2. OTHER AMENDMENTS. (a) The phrase ", the Security Documents" is
added to the definition of the term Credit Documents in section 1.1 of the
Credit Agreement after the phrase "the Subsidiary Guaranty" which is contained
in such definition.
(b) There being no possibility at this time of any termination of the
Total Commitment pursuant to section 4.3(a) of the Credit Agreement, such
section 4.3(a) is deleted from the Credit Agreement.
(c) A new section 8.14 is added to the Credit Agreement, reading as
follows:
8.14. CERTIFIED RESOLUTIONS, ETC. In light of the increase in
the Total General Revolving Commitment hereunder from $150,000,000 to
$245,000,000, pursuant to Amendment No. 1 to Credit Agreement, dated as
of July 13, 1998, and the termination of the entire $50,000,000
principal amount of the Bridge Facility Agreement, both of which became
effective July 13, 1998, the Borrower will, prior to the earlier of (x)
July 31, 1998, or (y) any Credit Event which would result in the sum of
the Letter of Credit Outstandings and the aggregate Loans
<PAGE> 3
outstanding hereunder exceeding $200,000,000, deliver to the
Administrative Agent, in sufficient quantities for the Lenders, (i)
certified resolutions of the Board of Directors of the Borrower
authorizing the increase of the Total General Revolving Commitment
hereunder from $150,000,000 to $245,000,000, and (ii) an opinion of
Calfee, Halter & Griswold LLP, special counsel to the Borrower,
addressed to the Administrative Agent and the Lenders, as to the due
authorization, execution, delivery, binding effect and enforceability
of such Amendment No. 1 and as to such other matters incident to such
Amendment No. 1 as the Administrative Agent may reasonably request.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows: (a) this Amendment has
been duly authorized by all necessary corporate action on the part of the
Borrower, has been duly executed and delivered by a duly authorized officer of
the Borrower, and constitutes the valid and binding agreement of the Borrower,
enforceable against the Borrower in accordance with its terms; (b) the
representations and warranties of the Credit Parties contained in the Credit
Agreement or in the other Credit Documents are true and correct in all material
respects on and as of the date hereof as though made on and as of the date
hereof, except to the extent that such representations and warranties expressly
relate to an earlier specified date, in which case such representations and
warranties are hereby reaffirmed as true and correct in all material respects as
of the date when made; (c) no condition or event has occurred or exists which
constitutes or which, after notice or lapse of time or both, would constitute an
Event of Default; and (d) the Borrower is in full compliance with all covenants
and agreements contained in the Credit Agreement, as amended hereby, and the
other Credit Documents to which it is a party.
SECTION 3. RATIFICATIONS.
Except as expressly modified and superseded by this Amendment, the
terms and provisions of the Credit Agreement are ratified and confirmed and
shall continue in full force and effect.
SECTION 4. BINDING EFFECT.
This Amendment shall become effective on July 13, 1998 if the following
conditions shall have been satisfied on and as of such date:
(a) this Amendment shall have been executed by the Borrower,
the Lenders and the Administrative Agent, and counterparts hereof as so
executed shall have been delivered to the Administrative Agent;
(b) the Acknowledgment and Consent appended hereto shall have
been executed by the Credit Parties named therein, and counterparts
thereof as so executed shall have been delivered to the Administrative
Agent;
(c) the Administrative Agent shall have been notified by each
of the Lenders that such Lenders have executed this Amendment (which
notification may be by facsimile or other written confirmation of such
execution);
and thereafter this Amendment shall be binding upon and inure to the benefit of
the Borrower, the Administrative Agent, and each Lender and their respective
permitted successors and assigns. After this Amendment becomes effective, the
Administrative Agent will promptly furnish a copy of this
2
<PAGE> 4
Amendment to each Lender and the Borrower.
SECTION 5. MISCELLANEOUS.
5.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties made in this Amendment shall survive the execution and delivery
of this Amendment, and no investigation by the Administrative Agent or any
Lender or any subsequent Loan or other Credit Event shall affect the
representations and warranties or the right of the Administrative Agent or any
Lender to rely upon them.
5.2. REFERENCE TO CREDIT AGREEMENT. The Credit Agreement and any and
all other agreements, instruments or documentation now or hereafter executed and
delivered pursuant to the terms of the Credit Agreement as amended hereby, are
hereby amended so that any reference therein to the Credit Agreement shall mean
a reference to the Credit Agreement as amended hereby.
5.3. EXPENSES. As provided in the Credit Agreement, but without
limiting any terms or provisions thereof, the Borrower shall pay on demand all
reasonable costs and expenses incurred by the Administrative Agent in connection
with the preparation, negotiation, and execution of this Amendment, including
without limitation the reasonable costs and fees of the Administrative Agent's
special legal counsel, regardless of whether this Amendment becomes effective in
accordance with the terms hereof, and all reasonable costs and expenses incurred
by the Administrative Agent or any Lender in connection with the enforcement or
preservation of any rights under the Credit Agreement, as amended hereby.
5.4. SEVERABILITY. Any term or provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of this Amendment and the effect thereof shall be
confined to the term or provision so held to be invalid or unenforceable.
5.5. APPLICABLE LAW. This Amendment shall be governed by and construed
in accordance with the laws of the State of Ohio.
5.6. HEADINGS. The headings, captions and arrangements used in this
Amendment are for convenience only and shall not affect the interpretation of
this Amendment.
5.7. ENTIRE AGREEMENT. This Amendment is specifically limited to the
matters expressly set forth herein. This Amendment and all other instruments,
agreements and documentation executed and delivered in connection with this
Amendment embody the final, entire agreement among the parties hereto with
respect to the subject matter hereof and supersede any and all prior
commitments, agreements, representations and understandings, whether written or
oral, relating to the matters covered by this Amendment, and may not be
contradicted or varied by evidence of prior, contemporaneous or subsequent oral
agreements or discussions of the parties hereto. There are no oral agreements
among the parties hereto relating to the subject matter hereof or any other
subject matter relating to the Credit Agreement.
5.8. COUNTERPARTS. This Amendment may be executed by the parties hereto
separately in one or more counterparts, each of which when so executed shall be
deemed to be an original, but all of which when taken together shall constitute
one and the same agreement.
3
<PAGE> 5
IN WITNESS WHEREOF, this Amendment has been duly executed and delivered
as of the date first above written.
<TABLE>
<CAPTION>
- ----------------------------------------------------------- --------------------------------------------------------
<S> <C>
NCS HEALTHCARE, INC. KEYBANK NATIONAL ASSOCIATION,
INDIVIDUALLY AS A LENDER, THE SWING LINE
LENDER, THE LETTER OF CREDIT ISSUER, AND
BY: /s/ Gerald D. Stethem AS ADMINISTRATIVE AGENT
--------------------------------
CHIEF FINANCIAL OFFICER
BY: /s/ Thomas J. Purcell
-----------------------------------
VICE PRESIDENT
- --------------------------------------------------------------------------------------------------------------------
NBD BANK, NATIONAL CITY BANK,
AS A LENDER AND AS CO-AGENT AS A LENDER AND AS CO-AGENT
BY: /s/ Winifred S. Pinet BY: /s/ Chris Thornton
-------------------------------- -----------------------------------
FIRST VICE PRESIDENT VICE PRESIDENT
- --------------------------------------------------------------------------------------------------------------------
BANK ONE, NA FIRST UNION NATIONAL BANK
BY: /s/ Jan Petrik BY: /s/ T.L. James
-------------------------------- -----------------------------------
VICE PRESIDENT VICE PRESIDENT
- --------------------------------------------------------------------------------------------------------------------
COMERICA BANK MELLON BANK, N. A.
BY: /s/ Craig F. Durno BY: Colleen McCullum
-------------------------------- -----------------------------------
VICE PRESIDENT Asst. VICE PRESIDENT
- --------------------------------------------------------------------------------------------------------------------
HARRIS TRUST AND SAVINGS BANK STAR BANK, N. A.
BY: /s/ Stan C. Rosendahl BY: /s/ W. Gregory Schmid
-------------------------------- -----------------------------------
VICE PRESIDENT Asst. VICE PRESIDENT
- --------------------------------------------------------------------------------------------------------------------
AMSOUTH BANK BANK HAPOALIM B. M.,
CHICAGO BRANCH
BY: /s/ Shannon O. Clark
-------------------------------- BY: Azarya D. Ressler
VICE PRESIDENT -----------------------------------
VICE PRESIDENT
AND: Thomas S. Hepperle
---------------------------------
VICE PRESIDENT
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
INCORPORATION OR
CORPORATE NAME ORGANIZATION
<S> <C>
Advanced Rx Services, Inc....................................................... New Jersey
Beachwood HealthCare Management, Inc............................................ Delaware
Cheshire Long Term Care Pharmacy, Inc........................................... Connecticut
HLF Adult Home Pharmacy Corp.................................................... New York
IV-A-Care of Wisconsin, Inc. ................................................... Wisconsin
JK Medical Services, Inc........................................................ Oklahoma
Kinetic Services, Inc........................................................... California
Look Drug Stores, Inc........................................................... Wisconsin
Management & Network Services, Inc.............................................. Ohio
Marlowe Nursing Center Services Limited Partnership............................. Delaware
Medi Centre, Inc................................................................ Michigan
NCS Daven Drug, Inc............................................................. Ohio
NCS HealthCare of Arizona, Inc.................................................. Ohio
NCS HealthCare of Arkansas, Inc................................................. Ohio
NCS HealthCare of California, Inc............................................... Ohio
NCS HealthCare of Florida, Inc.................................................. Ohio
NCS HealthCare of Illinois, Inc................................................. Illinois
NCS HealthCare of Indiana, Inc.................................................. Indiana
NCS HealthCare of Iowa, Inc..................................................... Ohio
NCS HealthCare of Kansas, Inc................................................... Ohio
NCS HealthCare of Kentucky, Inc................................................. Ohio
NCS HealthCare of Maryland, Inc................................................. Ohio
NCS HealthCare of Massachusetts, Inc............................................ Ohio
NCS HealthCare of Michigan, Inc................................................. Ohio
NCS HealthCare of Minnesota, Inc................................................ Ohio
NCS HealthCare of Missouri, Inc................................................. Ohio
NCS HealthCare of Modesto, Inc.................................................. Ohio
NCS HealthCare of Montana, Inc.................................................. Ohio
NCS HealthCare of Nebraska, Inc................................................. Ohio
NCS HealthCare of New Mexico, Inc............................................... Ohio
NCS HealthCare of New York, Inc................................................. Ohio
NCS HealthCare of North Carolina, Inc........................................... Ohio
NCS HealthCare of Ohio, Inc..................................................... Ohio
NCS HealthCare of Oklahoma, Inc................................................. Oklahoma
NCS HealthCare of Oregon, Inc................................................... Ohio
NCS HealthCare of Pennsylvania, Inc............................................. Pennsylvania
NCS HealthCare of Rhode Island, Inc............................................. Rhode Island
NCS HealthCare of South Carolina, Inc........................................... Ohio
NCS HealthCare of Tennessee, Inc................................................ Ohio
NCS HealthCare of Texas, Inc.................................................... Ohio
NCS HealthCare of Vermont, Inc.................................................. Ohio
</TABLE>
E-3
<PAGE> 2
<TABLE>
<CAPTION>
STATE OF
INCORPORATION OR
CORPORATE NAME ORGANIZATION
<S> <C>
NCS HealthCare of Washington, Inc............................................... Ohio
NCS HealthCare of Wisconsin, Inc................................................ Ohio
NCS of Missouri, Inc............................................................ Delaware
NCS Quality Care Pharmacy, Inc.................................................. Ohio
NCS Services, Inc............................................................... Ohio
NCS Unlimited, Inc.............................................................. Illinois
NCS Consulting, Inc............................................................. Ohio
PharmaSource Healthcare, Inc.................................................... Georgia
Rescot Systems Group, Inc....................................................... Pennsylvania
Thrifty Medical Supply, Inc..................................................... Oklahoma
Uni-Care Health Services, Inc................................................... New Hampshire
Uni-Care Health Services of Maine, Inc. ........................................ New Hampshire
</TABLE>
E-4
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements
(Form S-8 No. 333-49417; Form S-3 No. 333-63437; Form S-3 No. 333-47293; Form
S-3/A No. 333-29565 and Form S-3/A No. 333-35551) of NCS HealthCare, Inc. and
in the related prospectuses of our report dated August 6, 1998, with respect to
the consolidated financial statements of NCS HealthCare, Inc. and subsidiaries
included in its Annual Report (Form 10-K/A) for the year ended June 30, 1998.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
October 1, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<CASH> 1
<SECURITIES> 21,186
<RECEIVABLES> 0
<ALLOWANCES> 160,752
<INVENTORY> 18,427
<CURRENT-ASSETS> 43,784
<PP&E> 221,519
<DEPRECIATION> 69,559
<TOTAL-ASSETS> 25,966
<CURRENT-LIABILITIES> 623,790
<BONDS> 72,157
108,180
198
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 287,136
<SALES> 623,790
<TOTAL-REVENUES> 509,064
<CGS> 380,217
<TOTAL-COSTS> 380,217
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,279
<INTEREST-EXPENSE> 8,199
<INCOME-PRETAX> 20,345
<INCOME-TAX> 9,014
<INCOME-CONTINUING> 11,331
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,331
<EPS-PRIMARY> .59
<EPS-DILUTED> .58
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<CIK> 0001004990
<NAME> NCS Healthcare, Inc.
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JUN-30-1997 JUN-30-1996
<PERIOD-START> JUL-01-1996 JUL-01-1995
<PERIOD-END> JUN-30-1997 JUN-30-1996
<CASH> 8,160 21,460
<SECURITIES> 0 0
<RECEIVABLES> 83,751 27,762
<ALLOWANCES> 13,275 3,629
<INVENTORY> 22,281 7,487
<CURRENT-ASSETS> 107,487 59,193
<PP&E> 40,828 19,333
<DEPRECIATION> 17,519 9,050
<TOTAL-ASSETS> 321,030 110,668
<CURRENT-LIABILITIES> 54,323 10,857
<BONDS> 14,259 8,510
0 0
0 0
<COMMON> 180 122
<OTHER-SE> 253,046 90,978
<TOTAL-LIABILITY-AND-EQUITY> 321,030 110,668
<SALES> 275,040 113,281
<TOTAL-REVENUES> 275,040 113,281
<CGS> 205,536 82,415
<TOTAL-COSTS> 205,536 82,415
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 1,325 841
<INTEREST-EXPENSE> 1,143 2,282
<INCOME-PRETAX> 19,927 4,208
<INCOME-TAX> 8,655 1,852
<INCOME-CONTINUING> 11,272 2,356
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 11,272 2,356
<EPS-PRIMARY> .70 0.28
<EPS-DILUTED> .69 0.26
</TABLE>
