<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999
Commission File Number- 0-27602
-------
NCS HealthCare, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware No. 34-1816187
- ------------------------------- ----------------------
(State or other jurisdiction of (IRS employer
incorporation or organization) identification number)
3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122
- ---------------------------------------------------------
(Address of principal executive offices and zip code)
(216) 378-6800
- ----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check 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 requirement for the past 90 days.
Yes X No
--- ---
Common Stock Outstanding
- ------------------------
Indicate the number of shares outstanding of each of the Issuer's classes of
common stock, as of the latest practical date.
Class A Common Stock, $.01 par value -- 14,516,329 shares as of November 9, 1999
Class B Common Stock, $.01 par value -- 5,871,811 shares as of November 9, 1999
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<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
INDEX
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets-
September 30, 1999 and June 30, 1999 3
Condensed Consolidated Statements of Income-
Three months ended-
September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows-
Three months ended-
September 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements - September 30, 1999 6
Item 2. Management's Discussion and Analysis of
Results of Operations and Financial Condition 10
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
</TABLE>
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<CAPTION>
(Unaudited) (Note A)
September 30, June 30,
1999 1999
------------- ---------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 20,356 $ 29,424
Accounts receivable, less allowances 164,462 160,168
Inventories 49,184 49,244
Other 40,335 46,397
-------- --------
Total current assets 274,337 285,233
Property and equipment, at cost net of accumulated
depreciation and amortization 58,016 59,116
Goodwill, less accumulated amortization 341,153 343,247
Other assets 12,853 11,903
-------- --------
Total assets $686,359 $699,499
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 52,245 $ 50,061
Accrued expenses and other liabilities 32,158 37,777
-------- --------
Total current liabilities 84,403 87,838
Line of credit 203,120 214,700
Long-term debt, excluding current portion 1,993 1,936
Convertible subordinated debentures 100,000 100,000
Other 18,564 18,591
Stockholders' Equity:
Preferred stock, par value $ .01 per share, 1,000,000
shares authorized; none issued -- --
Common stock, par value $ .01 per share:
Class A - 50,000,000 shares authorized; 14,453,662
and 14,277,492 shares issued and outstanding at
September 30, 1999 and June 30, 1999, respectively 145 143
Class B - 20,000,000 shares authorized; 5,899,673
and 6,005,280 shares issued and outstanding at
September 30, 1999 and June 30, 1999, respectively 59 60
Paid-in capital 264,198 263,882
Retained earnings 13,877 12,349
-------- --------
Total stockholders' equity 278,279 276,434
-------- --------
Total liabilities and stockholders' equity $686,359 $699,499
======== ========
</TABLE>
Note A: The balance sheet at June 30, 1999 has been derived from the audited
consolidated financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements.
See notes to condensed consolidated financial statements.
3
<PAGE> 4
<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1999 1998
-------- --------
<S> <C> <C>
Revenues $184,191 $172,846
Cost of revenues 143,891 128,990
-------- --------
Gross profit 40,300 43,856
Selling, general and administrative expenses (1) 32,040 32,801
-------- --------
Operating income 8,260 11,055
Interest expense, net 5,670 4,478
-------- --------
Income before income taxes 2,590 6,577
Income tax expense 1,062 2,829
Cumulative effect of accounting change, net of taxes (1) -- (2,921)
-------- --------
Net income $ 1,528 $ 827
======== ========
Net income per share - basic $ 0.08 $ 0.04
======== ========
Net income per share - diluted $ 0.08 $ 0.04
======== ========
Income before cumulative effect
of accounting change per share - basic $ 0.08 $ 0.19
======== ========
Income before cumulative effect of accounting
change per share - diluted $ 0.08 $ 0.19
======== ========
Shares used in the computation - basic 20,322 20,085
======== ========
Shares used in the computation - diluted 20,322 20,171
======== ========
</TABLE>
(1) As disclosed in the Form 10-K for the year ended June 30, 1999,
selling, general and administrative expenses as originally reported for
the first quarter of fiscal 1999 excluded pre-tax costs of $1,757 that
were capitalized prior to the adoption of SOP 98-5, "Reporting on the
Costs of Start-up Activities." The $2,921 cumulative effect of the
accounting change represents start-up costs, net of tax, that were
previously capitalized as of June 30, 1998. As a result of the
restatement for the adoption of SOP 98-5, net income and diluted
earnings per share, were reduced by $3,923 and $0.20 from the
originally reported amounts of $4,750 and $0.24, respectively, for the
first quarter of fiscal 1999.
See notes to condensed consolidated financial statements.
4
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<TABLE>
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<CAPTION>
Three Months Ended
September 30,
----------------------
1999 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 1,528 $ 827
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 6,300 5,746
Cumulative effect of accounting change, net of taxes -- 2,921
Changes in assets and liabilities, net of effects of
assets and liabilities acquired:
Accounts receivable, net (4,294) (17,747)
Accrued expenses and other liabilities (3,196) (5,103)
Other, net 6,438 (6,482)
-------- --------
Net cash provided by (used in) operating activities 6,776 (19,838)
-------- --------
INVESTING ACTIVITIES
Purchases of businesses -- (425)
Capital expenditures for property and equipment, net (2,329) (6,350)
Other (1,753) (1,681)
-------- --------
Net cash used in investing activities (4,082) (8,456)
-------- --------
FINANCING ACTIVITIES
Line-of-credit, net (11,580) 25,200
Repayment of long-term debt (182) (250)
-------- --------
Net cash (used in) provided by financing activities (11,762) 24,950
-------- --------
Net decrease in cash and cash equivalents (9,068) (3,344)
Cash and cash equivalents at beginning of period 29,424 21,186
-------- --------
Cash and cash equivalents at end of period $ 20,356 $ 17,842
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 6
NCS HEALTHCARE, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
1. The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring accruals) considered
necessary for a fair presentation have been included. Operating results for
the three month period ended September 30, 1999 are not necessarily
indicative of the results that may be expected for the year ending June 30,
2000. For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's Form 10-K for the
year ended June 30, 1999.
2. During the fourth quarter of fiscal 1999, the Company recorded special and
nonrecurring charges of $40.5 million ($24.3 million net of tax). A special
charge of $32.4 million before tax was recorded to increase the allowance
for doubtful accounts, and nonrecurring charges of $8.1 million before tax
were recorded in connection with the implementation and execution of
strategic restructuring and consolidation initiatives of certain operations
and other nonrecurring items.
The special charge to increase the allowance for doubtful accounts resulted
from significant changes observed in industry and customer trends during the
last three months of the fiscal year ended June 30, 1999, and items
encountered from recent acquisitions. The circumstances of the customer and
industry trends primarily relate to increased bankruptcies and significant
financial difficulties recently experienced by the Company's customers
primarily as a result of the Medicare Prospective Payment System
implementation. The acquisition items encountered pertain to specific
accounts receivable collectibility issues identified relating to previous
utilization of "legacy" systems, and other nonrecurring issues which have
resulted in potentially uncollectible accounts receivable.
During the fourth quarter of fiscal 1999, the Company adopted a new plan of
restructuring to consolidate certain pharmacy sites in similar geographies.
The plan is a continuation of the plan adopted in fiscal 1998 to combine
pharmacies in close proximity in order to improve operating efficiencies. As
a result of the new exit plan, 4 additional pharmacy sites were consolidated
into either a new or existing location as of September 30, 1999. During the
year ended June 30, 1999, the Company recorded nonrecurring charges of $4.7
million, before tax, related to the new site consolidations and additional
costs incurred on the site consolidations announced in the prior year.
The remaining $3.4 million of the nonrecurring charge primarily relates to
severance incurred during the fourth quarter associated with the Company's
expense reduction initiatives, additional acquisition related and other
miscellaneous expenses.
Employee severance costs included in the nonrecurring charge relate to the
termination of 120 employees.
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<PAGE> 7
Details of the fourth quarter fiscal 1999 special and nonrecurring charge,
related activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99
----------- ------------- ------------ -------- ---------- -------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance/compensation related Cash $ 2.1 $ (1.5) $ .6 $(.4) $.2
Lease terminations Cash .6 (.1) .5 (.2) .3
Asset impairments Non-cash 1.5 (1.5) -- -- --
Other Cash .5 (.5) -- -- --
Special increase to allowance
for doubtful accounts Non-cash 32.4 (32.4) -- -- --
Other Cash 3.4 (2.7) .7 (.3) .4
----- ------ ---- ---- ---
Total $40.5 $(38.7) $1.8 $(.9) $.9
===== ====== ==== ==== ===
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded a
nonrecurring charge of $8,900,000 primarily related to: 1) the adoption of a
formal plan of restructuring to consolidate certain pharmacy sites in
similar geographies; 2) the buyout of existing employment agreements with
the prior owners of certain acquired businesses; 3) the write-off of certain
financing fees; and 4) additional acquisition related expenses.
The Company has adopted a formal plan of restructuring that will combine
pharmacies in close geographical proximity in order to improve operating
efficiencies. As a result of the plan, 17 pharmacy sites will be
consolidated into either new or existing locations and an estimated total of
149 employees will be terminated. As of September 30, 1999, 14 site
consolidations were completed, with the remainder expected to be completed
by the end of fiscal 2000.
Details of the fourth quarter fiscal 1998 nonrecurring charge, related activity
and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99
----------- ------------- ------------ -------- ---------- -------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance packages Cash $ .5 $ (.5) $-- $ -- $--
Lease terminations Cash .7 (.4) .3 (.1) .2
Asset impairments Non-cash 3.5 (3.5) -- -- --
Other Cash .6 (.6) -- -- --
Buyout of employment agreements Cash .9 (.8) .1 -- .1
Write-off financing fees Non-cash 1.3 (1.3) -- -- --
Other
Cash 1.0 (.9) .1 (.1) --
Non-cash .4 (.4) -- -- --
---- ----- --- ---- ---
Total $8.9 $(8.4) $.5 $(.2) $.3
==== ===== === ==== ===
</TABLE>
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3. The following table sets forth the computation of basic and diluted earnings
per share in accordance with Statement of Financial Accounting Standards No.
128, "Earnings per Share" (SFAS No. 128):
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
----------------------
1999 1998
------- -------
<S> <C> <C>
Numerator:
Numerator for basic earnings per share - net income $ 1,528 $ 827
Effect of dilutive securities:
Convertible debentures -- --
------- -------
Numerator for diluted earnings per share $ 1,528 $ 827
======= =======
Denominator:
Denominator for basic earnings per share -
Weighted average common shares 20,322 20,085
------- -------
Effect of dilutive securities:
Stock options -- 86
Convertible debentures -- --
------- -------
Dilutive potential common shares -- 86
------- -------
Denominator for diluted earnings per share 20,322 20,171
======= =======
Basic earnings per share:
Net income per share before accounting change $ 0.08 $ 0.19
Cumulative effect of change in accounting principle -- (0.15)
------- -------
Net income per share $ 0.08 $ 0.04
======= =======
Diluted earnings per share:
Net income per share before accounting change $ 0.08 $ 0.19
Cumulative effect of change in accounting principle -- (0.15)
------- -------
Net income per share $ 0.08 $ 0.04
======= =======
</TABLE>
At September 30, 1999, the Company has 1,335,944 of employee stock options
that are potentially dilutive that were not included in the computation of
diluted earnings per share as their effect would be antidilutive. The
Company had $100,000,000 of convertible subordinated debentures outstanding
at September 30, 1999 and 1998, that were convertible into 3,058,000 shares
of Class A Common Stock that were not included in the computation of diluted
earnings per share as their effect would be antidilutive for all periods
presented.
4. The Company's facility in Indianapolis, Indiana has been the subject of an
investigation by federal authorities, and the Company has engaged in
discussions with representatives of the U.S. Attorney's office concerning
the alleged violations of federal law at that facility. It is possible that
the imposition of significant fines or other remedies in connection with the
Indiana matter could have a material effect on the Company's financial
condition and results of operations.
The Company is involved from time to time in other litigation and regulatory
investigations on various matters relating to the conduct of its business
and acquisition related events. The Company is unable to predict the
ultimate outcome of these other various current litigation and regulatory
investigation matters. The Company
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<PAGE> 9
intends to vigorously defend actions currently pending. However, if the
Company is unsuccessful in defending such matters and insurance is
unavailable or insufficient, the resolution of certain lawsuits and
regulatory investigations could have a material effect on the Company's
consolidated financial position, results of operations, and cash flows.
Certain of the Company's acquisition agreements provide for contingent
purchase price arrangements under which the purchase price paid may be
subsequently increased upon the achievement of specific operating
performance targets during post acquisition periods. The additional purchase
price, payable in cash or Company stock is recorded, if earned, upon
resolution of the contingent factors. Depending on the outcome of various
contingent factors, the purchase price contingently payable could have a
material effect on the Company's financial condition and results of
operations.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
Results of Operations
Operating results for the fiscal quarter ended September 30, 1999 continued to
be negatively impacted by the implementation of Medicare's Prospective Payment
System (PPS). The adverse impact of the implementation of the PPS under the
Balanced Budget Act of 1997 for Medicare residents of skilled nursing
facilities was significantly greater than anticipated. PPS has created numerous
changes to reimbursement policies applicable to skilled nursing under Medicare
Part A. Prior to PPS, Medicare reimbursed each skilled nursing facility based on
that facility's actual Medicare Part A costs plus a premium. Under PPS, Medicare
pays skilled nursing facilities a fixed fee per Medicare Part A patient day
based on the acuity level of the patient. The per diem rate covers all items and
services furnished during a covered stay for which reimbursement was formerly
made separately under Medicare. Consequently, the Company has experienced
revenue pressure as a result of nursing facilities attempting to manage
pharmaceutical costs along with all other costs associated with patient care
under a simple per diem reimbursement amount. In addition, there has been a
reduction in utilization of other therapies such as speech, occupational and
physical rehabilitation. Additionally, as a result of these changes, skilled
nursing facilities have become increasingly more reluctant to admit Medicare
residents, especially those requiring complex care, causing Medicare census in
these facilities to weaken and a reduction in the average length of stay for
Medicare residents. These factors have had the effect of significantly reducing
overall occupancy in the facilities served by the Company. The resident acuity
level has also decreased as these facilities have attempted to avoid high acuity
patients negatively impacting overall utilization of drugs, particularly those
with higher cost such as infusion therapy. For Medicare certified skilled
nursing facilities with a high cost structure, or those which are unable to cut
costs, PPS has caused significant earnings and cash pressure. Some facilities
have sought consolidation as a method of reducing costs and increasing
efficiencies causing the Company to experience some bed loss.
These outcomes have negatively impacted nursing facilities and the institutional
pharmacy services industry as a whole. Although there may be some legislative
relief for the Company's customers, management is reacting to pressures in the
current PPS environment by adjusting its cost structure appropriately. The
Company is rapidly reducing operating and overhead costs and accelerating the
implementation of the hub and spoke fulfillment and delivery model.
Revenues for the three months ended September 30, 1999 increased $11,345,000 or
6.6% to $184,191,000 from $172,846,000 recorded in the comparable period in
fiscal 1999.
The increase in revenues during the first quarter of fiscal 2000 over the
comparable prior year period is primarily attributed to internal growth. The
Company's revenues continued to grow through marketing efforts to new and
existing clients, increased drug utilization of long-term care facilities and
the growth and integration of new and existing products and services by non
Medicare Part-A residents. Internal revenue growth was primarily driven by
expansion of the Company's non-pharmacy products and services. The total number
of beds served by the Company as of September 30, 1999 was 258,000, up from the
251,000 beds served at September 30, 1998, but a slight decrease from the
262,000 beds served at June 30, 1999. Although the Company added a number of
new customers during the quarter through its sales and marketing efforts, the
number of beds served by the Company declined slightly due to decisions by
management to terminate several uneconomic accounts.
Cost of revenues for the three months ended September 30, 1999 increased
$14,901,000 or 11.6% to $143,891,000 from $128,990,000 recorded in the
comparable period in fiscal 1999. Cost of revenues as a percentage of revenues
for the three month period ended September 30, 1999 was 78.1%, compared to 74.6%
for the same period during the prior fiscal year.
Gross margins during the period were effected by improved leverage associated
with purchasing pharmaceuticals, improvements in formulary management programs
and restructuring and streamlining production costs. These improvements were
offset by gross margin reductions due to the impact of the PPS reimbursement
system. The current period margin pressure resulted from continued Medicare Part
A pricing pressure and reduced acuity levels and census
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<PAGE> 11
at customer facilities. In addition, payer mix has shifted slightly towards
lower margin payers from the higher margin Medicare Part A business.
Selling, general and administrative expenses for the three months ended
September 30, 1999 decreased by $761,000 or 2.3% to $32,040,000, from
$32,801,000 recorded in the comparable period in fiscal 1999. Selling, general
and administrative expenses as a percentage of revenues was 17.4% for the three
month period ended September 30, 1999, compared to 19.0% during the comparable
period in fiscal 1999. Excluding the addition of $1,757,000 of pre-tax costs in
the first quarter of fiscal 1999 for costs that were capitalized prior to the
adoption of SOP-98-5, "Reporting on the Costs of Start-up Activities", selling,
general and administrative costs for the three months ended September 30, 1999
increased $996,000 or 3.2% to $32,040,000 from $31,044,000 recorded in the
comparable period in fiscal 1999. Excluding the effects of the adoption of SOP
98-5, selling, general and administrative expenses as a percentage of revenues
was 17.4% for the three month period ended September 30, 1999, compared to 18.0%
during the comparable period in fiscal 1999. The percentage decrease for the
three month period ended September 30, 1999 is a result of efforts by the
Company to reduce operating and overhead costs, accelerating the implementation
of the hub and spoke fulfillment and delivery model and the ability to leverage
overhead expenses over a larger revenue base. The Company has already reduced
annualized operating expenses by over $8 million through staff reductions,
selling general and administrative expense savings and the closing of four
pharmacy sites.
The Company had net interest expense of $5,670,000 for the three month period
ended September 30, 1999, compared to net interest expense of $4,478,000 during
the comparable period in fiscal 1999. The increase is primarily attributable to
increased borrowing on the Company's revolving credit facility and other finance
related charges during the first quarter of fiscal 2000 as compared to the same
period in fiscal 1999. The additional funds were primarily used to fund internal
growth and capital expenditures for infrastructure improvement.
During the fourth quarter of fiscal 1999, the Company recorded special and
nonrecurring charges of $40.5 million ($24.3 million net of tax). A special
charge of $32.4 million before tax was recorded to increase the allowance for
doubtful accounts, and nonrecurring charges of $8.1 million before tax were
recorded in connection with the implementation and execution of strategic
restructuring and consolidation initiatives of certain operations and other
nonrecurring items.
The special charge to increase the allowance for doubtful accounts resulted from
significant changes observed in industry and customer trends during the last
three months of the fiscal year ended June 30, 1999, and items encountered from
recent acquisitions. The circumstances of the customer and industry trends
primarily relate to increased bankruptcies and significant financial
difficulties recently experienced by the Company's customers primarily as a
result of the Medicare Prospective Payment System implementation. The
acquisition items encountered pertain to specific accounts receivable
collectibility issues identified relating to previous utilization of "legacy"
systems, and other nonrecurring issues which have resulted in potentially
uncollectible accounts receivable.
During the fourth quarter of fiscal 1999, the Company adopted a new plan of
restructuring to consolidate certain pharmacy sites in similar geographies. The
plan is a continuation of the plan adopted in fiscal 1998 to combine pharmacies
in close proximity in order to improve operating efficiencies. As a result of
the new exit plan, 4 additional pharmacy sites were consolidated into either a
new or existing location as of September 30, 1999. During the year ended June
30, 1999, the Company recorded nonrecurring charges of $4.7 million, before tax,
related to the new site consolidations and additional costs incurred on the site
consolidations announced in the prior year.
The remaining $3.4 million of the nonrecurring charge primarily relates to
severance incurred during the fourth quarter associated with the Company's
expense reduction initiatives, additional acquisition related and other
miscellaneous expenses.
Employee severance costs included in the nonrecurring charge relate to the
termination of 120 employees.
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<PAGE> 12
Details of the fourth quarter fiscal 1999 special and nonrecurring charge,
related activity and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99
----------- ------------- ------------ -------- ---------- -------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance/compensation related Cash $ 2.1 $ (1.5) $ .6 $(.4) $.2
Lease terminations Cash .6 (.1) .5 (.2) .3
Asset impairments Non-cash 1.5 (1.5) -- -- --
Other Cash .5 (.5) -- -- --
Special increase to allowance
for doubtful accounts Non-cash 32.4 (32.4) -- -- --
Other Cash 3.4 (2.7) .7 (.3) .4
----- ------ ---- ---- ---
Total $40.5 $(38.7) $1.8 $(.9) $.9
===== ====== ==== ==== ===
</TABLE>
During the fourth quarter of fiscal 1998, the Company recorded a nonrecurring
charge of $8,900,000 primarily related to: 1) the Company adopting a formal plan
of restructuring to consolidate certain pharmacy sites in similar geographies;
2) the buyout of existing employment agreements with the prior owners of certain
acquired businesses; 3) the write-off of certain financing fees; and 4)
additional acquisition related expenses.
The Company adopted a formal plan of restructuring that will combine pharmacies
in close geographical proximity in order to improve operating efficiencies. As a
result of the plan, 17 pharmacy sites will be consolidated into either new or
existing locations and an estimated total of 149 employees will be terminated as
a result of the plan. As of September 30, 1999, 14 site consolidations were
completed with the remainder expected to be completed by the end of fiscal 2000.
Details of the fourth quarter fiscal 1998 nonrecurring charge, related activity
and reserve balance are as follows:
<TABLE>
<CAPTION>
Nonrecurring Reserve Reserve
Description Cash/Non-cash Charge Activity At 6/30/99 Activity At 9/30/99
----------- ------------- ------------ -------- ---------- -------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Site Consolidations
Severance packages Cash $ .5 $ (.5) $-- $ -- $--
Lease terminations Cash .7 (.4) .3 (.1) .2
Asset impairments Non-cash 3.5 (3.5) -- -- --
Other Cash .6 (.6) -- -- --
Buyout of employment agreements Cash .9 (.8) .1 -- .1
Write-off financing fees Non-cash 1.3 (1.3) -- -- --
Other
Cash 1.0 (.9) .1 (.1) --
Non-cash .4 (.4) -- -- --
---- ----- --- ---- ---
Total $8.9 $(8.4) $.5 $(.2) $.3
==== ===== === ==== ===
</TABLE>
Liquidity and Capital Resources
Net cash provided by operating activities was $6,776,000 for the three months
ended September 30, 1999, as compared to net cash used in operating activities
of $19,838,000 during the comparable period in fiscal 1999. The increase in net
cash provided by operating activities was primarily due to a slower growth rate
in accounts
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<PAGE> 13
receivable and refunds received from federal and state income tax authorities.
The slower growth rate in accounts receivable from June 30, 1999 is mainly
attributable to slower internal sales growth during the three months ended
September 30, 1999, as compared to the three months ended June 30, 1999.
Additionally, some accounts receivable growth is attributable to slower payment
trends by customers as a result of PPS implementation.
Net cash used in investing activities decreased to $4,082,000 during the three
months ended September 30, 1999, as compared to $8,456,000 during the comparable
period in fiscal 1999. The decrease is primarily the result of reduced cash
outlays for information system equipment and building leasehold improvements.
The reduced levels of capital expenditures were achieved as a result of
decreased activity in the conversion of sites to a common operating system and
fewer build-outs required as the majority of the physical infrastructure of the
Company has been completed. To date, conversion to the common operating system,
Concord DX, has been implemented in over 80% of the Company's customer base.
Net cash used in financing activities increased to $11,762,000 during the three
months ended September 30, 1999, from net cash provided by financing activities
of $24,950,000 during the comparable period in fiscal 1999. The increase in cash
used in financing activities is a result of the Company's efforts to pay down
the outstanding revolving credit facility balance using positive cash flow
generated from operating activities and decreasing cash reserves.
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 a member of an affiliated group (within the meaning of
Section 279(g) of the Internal Revenue Code of 1986, as amended) that 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 $235 million revolving credit facility. The Credit Facility bears
interest at a variable rate based upon the Eurodollar rate plus a spread of 150
to 275 basis points, dependent upon the Company's ratio of Total Funded Debt to
EBITDA. 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.
Certain Regulatory Investigations and Legal Proceedings
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 review 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
notified by the United States Department of Justice, United States Attorney for
the Southern District of Indiana ("USA-Indiana") that the United States Drug
Enforcement Administration had referred this matter to the Office of the
USA-Indiana for possible legal action involving certain numerous alleged
violations of federal law. The USA-Indiana invited the Company to contact the
Office of the USA-Indiana in an effort to resolve the matter. The Company
subsequently contacted the Office of the USA-Indiana, discussions regarding a
possible settlement of this matter ensued and are currently proceeding. No
specific settlement terms or amounts have yet been agreed upon by the parties.
13
<PAGE> 14
In January 1998, federal and state government authorities sought and obtained
various documents and records from a Herrin, Illinois pharmacy operated by a
wholly-owned subsidiary of the Company. The Company has cooperated fully and
continues to cooperate fully with the government's inquiry. In June 1999,
representatives of the Company met with attorneys with the Civil and Criminal
Divisions of the Office of the United States Department of Justice, United
States Attorney for the Southern District of Illinois ("USA-Illinois") regarding
the government's investigation. The USA-Illinois informed the Company that it
had information that allegedly substantiated numerous violations of federal law,
but the Company has not received any written notification of these allegations.
Discussions regarding the government's investigation have ensued and are
currently proceeding between representatives of the USA-Illinois and the
Company.
It is possible that the imposition of significant fines or other remedies in
connection with the resolution of either of these matters could have a material
effect on the Company's financial condition and results of operations.
On June 7, 1999, a lawsuit was filed against the Company in the Superior Court
of Norfolk County, Massachusetts. Plaintiffs are certain selling stockholders of
the PharmaSource Group, Inc. ("PharmaSource"), which NCS acquired on September
17, 1997. The complaint alleges breach of contract and unfair business practices
arising out of NCS' non-payment of certain amounts allegedly payable under the
terms of an earn-out provision included in the acquisition agreement. Plaintiffs
seek to compel payment of NCS stock worth $17,385,223 based on the preliminary
earn-out calculation. NCS disputes the amount of the earn-out claim by the
plaintiffs.
Under the terms of the earn-out arrangement, amounts payable under the earn-out
are to be paid through the issuance of additional shares of Class A Common
Stock. If on the first anniversary of the date of issuance of the earn-out
shares, the per share price of the Company's Class A Common Stock is less than
$17.225 per share, then the Company will be required to issue additional shares
to compensate for the difference in value.
The Court held a pretrial hearing on October 4, 1999, at which time the court
set a discovery schedule and order concerning the progression of the
proceedings. Discovery closes on April 14, 2000 and dispositive motions are due
on April 28, 2000. Trial has been set for June of 2000. NCS strongly believes
that it has meritorious defenses against the claim of the plaintiffs and
believes the earn-out, if any, is substantially less than the amount claimed by
the plaintiffs.
Year 2000 Readiness Disclosure
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 significant current and planned internal IT systems
and believes these 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 Company is currently in the process of reviewing and assessing all
significant non-IT devices for Year 2000 compliance. The Company expects to
complete the process for review and assessment, device testing and resolution of
noncompliance issues, if any, by November 30, 1999.
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
is assessing and reviewing relationships with all significant customers,
suppliers, payors and other third parties to determine the extent, if any, to
which the Company could be impacted by those third-parties' failure to remediate
their own Year 2000 issues. The Company expects to complete this review and
assessment by November 30, 1999. 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.
14
<PAGE> 15
The Company intends to develop contingency plans for significant third parties'
determined to be at high risk of noncompliance or business disruption before
November 30, 1999. The contingency plans will be developed on a case-by-case
basis. Judgments regarding contingency plans are themselves subject to many
variables and uncertainties. There can be no assurance that the Company will
correctly anticipate the level, impact or duration of noncompliance by third
parties, or that its contingency plan will be sufficient to mitigate the impact.
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 future outcomes, especially when third parties are
involved, there could be circumstances in which the Company's operations could
be interrupted. If the federal and state healthcare reimbursement agencies or
their intermediaries fail to implement Year 2000 compliant technologies before
December 31, 1999, a significant cash flow problem may result. In addition,
disruptions in the economy in general resulting from Year 2000 issues could also
adversely impact the Company.
The majority of costs related to Year 2000 readiness issues have been and will
be expensed as incurred and are expected to be funded through operating cash
flows. Through the first quarter of fiscal 2000 costs related to the Year 2000
issue have 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. Estimates of costs are based on currently available
information and developments may occur that could increase the costs related to
Year 2000 issues.
Disclosure Regarding Forward-Looking Statements
Certain statements contained in or incorporated by reference into this Quarterly
Report on Form 10-Q, including, but not limited to, those regarding the
Company's financial position, business strategy, Year 2000 readiness disclosure
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
expected effects on its business or operations. Among the factors that could
cause actual results to differ materially from the Company's expectations
include continuation of various trends in the long-term care market (including
the trend toward consolidation and the impact of the Balanced Budget Act of
1997), competition among providers of long-term care pharmacy services, the
availability of capital for capital requirements, changes in regulatory
requirements, reform of the health care delivery system, litigation, disruption
to the operations of the Company resulting from Year 2000 issues and other
factors.
15
<PAGE> 16
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to certain market risks from transactions that are
entered into during the normal course of business. The Company has not entered
into derivative financial instruments for trading purposes. The Company's
primary market risk exposure relates to interest rate risk. The Company has
managed its interest rate risk by balancing its exposure between fixed and
variable rates while attempting to minimize its interest costs. The Company has
a balance of $203,120,000 on its revolving credit facility at September 30,
1999, which is subject to a variable rate of interest based on the Eurodollar
rate. Assuming borrowings at September 30, 1999, a one-hundred basis point
change in interest rates would impact net interest expense by approximately
$2,031,200 per year.
16
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit
Numbers Exhibit
------- -------
10.1 Amendment No. 3, dated August 3, 1999, to the Credit
Agreement dated as of June 1, 1998 , among the
Company and the Lenders named therein, NBD Bank and
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. (A)
10.2 Security Agreement, dated August 3, 1999, among the
Company, its subsidiaries and KeyBank National
Association. (A)
10.3 Form of Salary Continuation Agreement, dated July
20, 1999, between the Company and each of Thomas B.
Mangum, J. Patrick Morris, Marvin R. Richardson, and
Gerald D. Stethem.
27.1 Financial Data Schedule
(A) Incorporated herein, by reference to the appropriate exhibit
to the Company's Annual Report on Form 10-K for the year
ended June 30, 1999.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended September 30, 1999.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NCS HealthCare, Inc.
(Registrant)
Date: November 15, 1999 By /s/ Kevin B. Shaw
----------------------------------
Kevin B. Shaw
President, Chief Executive Officer
and Director
Date: November 15, 1999 By /s/ William B. Byrum
----------------------------------
William B. Byrum
Chief Operating Officer
Date: November 15, 1999 By /s/ Gerald D. Stethem
----------------------------------
Gerald D. Stethem
Chief Financial Officer
18
<PAGE> 1
EXHIBIT 10.3
SALARY CONTINUATION AGREEMENT
-----------------------------
THIS SALARY CONTINUATION AGREEMENT between NCS HealthCare, Inc.,
an Ohio corporation (the "Company"), and ____________________ (the "Employee"),
dated as of the 20th day of July, 1999.
WITNESSETH:
WHEREAS, the Board of Directors of the Company (the "Board"), has
determined that it is in the best interests of the Company and its shareholders
to assure that the Company will have the continued dedication of the Employee,
notwithstanding the possibility, threat, or occurrence of a Change of Control
(as defined below) of the Company; and
WHEREAS, the Board believes it is imperative to diminish the
inevitable distraction of the Employee by virtue of the personal uncertainties
and risks created by a pending or threatened Change of Control, to encourage the
Employee's full attention and dedication to the Company currently and in the
event of any threatened or pending Change of Control, and to provide the
Employee with compensation arrangements upon a Change of Control which provide
the Employee with individual financial security and which are competitive with
those of other corporations; and
WHEREAS, in order to accomplish these objectives, the Board has
caused the Company to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants set
forth herein and other good and valuable consideration, the receipt and adequacy
of which is hereby acknowledged, the parties hereto agree as follows:
1. Definitions.
------------
1.1 EFFECTIVE DATE OF THIS AGREEMENT.
(a) This Agreement shall become effective only upon the
Effective Date (as defined in Section 1.1(b)). Until such time, the Employee
shall have no rights against any person and no person shall have any obligations
to the Employee under or by virtue of this Agreement.
(b) The "Effective Date" shall be the first date during the
"Change of Control Period" (as defined in Section 1.1(c)) on which a Change of
Control occurs. Anything in this Agreement to the contrary notwithstanding, if
the Employee's employment with the Company is terminated prior to the date on
which a Change of Control occurs, and it is reasonably demonstrated that such
termination (1) was at the request of a third party who has taken steps
reasonably calculated to effect a Change of Control or (2) otherwise arose in
connection with or anticipation of a Change of Control, then for all purposes of
this Agreement the "Effective Date" shall mean the date immediately prior to the
date of such termination.
<PAGE> 2
(c) The "Change of Control Period" is the period commencing
on the date hereof and ending on the earlier to occur of (i) the first
anniversary of such date or (ii) the first day of the month next following the
Employee's 65th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that
commencing on the date one year after the date hereof, and on each annual
anniversary of such date (such date and each annual anniversary thereof is
hereinafter referred to as the "Renewal Date"), the Change of Control Period
shall be automatically extended so as to terminate on the earlier of (x) one
year from such Renewal Date or (y) the first day of the month coinciding with or
next following the Employee's Normal Retirement Date, unless at least 60 days
prior to the Renewal Date the Company shall give notice that the Change of
Control Period shall not be so extended.
1.2 CHANGE OF CONTROL. For the purpose of this Agreement, a
"Change of Control" shall mean:
(a) The acquisition (other than from the Company) by any
person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this
purpose, the Company or its subsidiaries, or any employee benefit plan of the
Company or its subsidiaries which acquires beneficial ownership of voting
securities of the Company), of beneficial ownership, (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of a majority of either the then
outstanding shares of common stock or the combined voting power of the Company's
then outstanding voting securities entitled to vote generally in the election of
directors; or
(b) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person becoming a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least a
majority of the directors then comprising the Incumbent Board (other than an
election or nomination of an individual whose initial assumption of office is in
connection with an actual or threatened election contest relating to the
election of the Directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of
this Agreement, considered as though such person were a member of the Incumbent
Board; or
(c) Approval by the shareholders of the Company of a
reorganization, merger, consolidation, in each case, with respect to which
persons who were the shareholders of the Company immediately prior to such
reorganization, merger or consolidation do not, immediately thereafter, own a
majority of the combined voting power entitled to vote generally in the election
of directors of the reorganized, merged or consolidated company's then
outstanding voting securities, or a liquidation or dissolution of the Company or
of the sale of all or substantially all of the assets of the Company.
2
<PAGE> 3
2. Termination of Employment.
--------------------------
2.1 TERMINATION BY THE COMPANY.
(a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's
obligations under Section 3 hereof subsequent to the Effective Date, the
Employee's employment with the Company may be terminated at any time without
cause.
(b) DEATH OR DISABILITY. This Agreement shall terminate
automatically upon the Employee's death. If the Company determines in good faith
that the Disability of the Employee has occurred (pursuant to the definition of
"Disability" set forth below), it may give to the Employee written notice of its
intention to terminate the Employee's employment. In such event, the Employee's
employment with the Company shall terminate effective on the 30th day after
receipt of such notice by the Employee (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, the Employee shall not
have returned to full-time performance of the Employee's duties. For purposes of
this Agreement, "Disability" means disability which, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Employee or the Employee's
legal representative (such agreement as to acceptability not to be withheld
unreasonably).
(c) CAUSE. The Company may terminate the Employee's
employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act
or acts of personal dishonesty taken by the Employee and intended to result in
substantial personal enrichment of the Employee at the expense of the Company or
(ii) the conviction of the Employee of a felony, or (iii) illegal drug use.
2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be
terminated by the Employee at any time for any reason, in the Employee's sole
discretion with or without "Good Reason." For purposes of this Agreement, "Good
Reason" means any of the following: (a) the reduction or diminution of the
Employee's base salary or other compensation or benefits, (b) the relocation of
the Company's principal executive offices outside the Cleveland, Ohio
metropolitan area, or (c) the requirement by the Company that the Employee be
based anywhere other than the Company's principal executive offices or the
Employee's then current office.
2.3 NOTICE OF TERMINATION.
(a) NOTICE. Any termination by the Company or by the
Employee shall be communicated by Notice of Termination to the other party
hereto given in accordance with Section 7(b) of this Agreement. For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon, (ii)
in the case of a termination for Cause, sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for termination of the
Employee's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than fifteen (15)
days after the giving of such notice).
3
<PAGE> 4
(b) DATE OF TERMINATION. "Date of Termination" means the
date of receipt of the Notice of Termination or any later date specified
therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's
employment is terminated by the Company other than for death or Disability, the
Date of Termination shall be the date on which the Company notifies the Employee
of such termination and (ii) if the Employee's employment is terminated by
reason of death or Disability, the Date of Termination shall be the date of
death of the Employee or the Disability Effective Date, as the case may be.
3. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i)
the date that is twenty-four (24) months subsequent to the Effective Date, or
(ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"),
the Company shall terminate the Employee's employment other than for Cause,
Disability, or death or if the Employee shall terminate his employment for Good
Reason:
(a) The Company shall continue pay to the Employee in
accordance with its normal payroll practices the Employee's base salary at an
annual rate equal to the greater of the Employee's (i) highest monthly base
salary paid or payable by the Company during the twelve-month period immediately
preceding the Effective Date, or (ii) the highest monthly salary paid or payable
by the Company at any time from the 90-day period preceding the Effective Date
through the Date of Termination (the "Highest Base Salary"), for the remainder
of the Salary Continuation Period.
(b) For the remainder of the Salary Continuation Period, or
such longer period as any plan, program, practice or policy may provide, the
Company shall continue to provide health insurance, life insurance and
retirement benefits to the Employee and/or the Employee's family at least equal
to those which would have been provided to them if the Employee's employment had
not been terminated, in accordance with the most favorable plans, practices,
programs or policies of the Company and its subsidiaries during the 90-day
period immediately preceding the Effective Date or, if more favorable to the
Employee, as in effect at any time thereafter with respect to other key
employees and their families and for purposes of eligibility for retirement
benefits pursuant to such plans, practices, programs and policies, the Employee
shall be considered to have remained employed until the end of the Salary
Continuation Period and to have retired on the last day of such period.
Notwithstanding the foregoing, the Employee shall have no right to participate
in any bonus plan of the Company subsequent to the Date of Termination.
3.2 DEATH. If the Employee's employment is terminated by reason
of the Employee's death, this Agreement shall terminate without further
obligations to the Employee's legal representatives under this Agreement, other
than those obligations accrued or earned and vested (if applicable) by the
Employee as of the Date of Termination, including, for this purpose
4
<PAGE> 5
(i) the Employee's base salary at the Highest Base Salary rate through the Date
of Termination, and (ii) any accrued vacation pay not yet paid by the Company
(such amounts specified in clauses (i) and (ii) are hereinafter referred to as
"Accrued Obligations"). All such Accrued Obligations shall be paid to the
Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30
days of the Date of Termination. Anything in this Agreement to the contrary
notwithstanding, the Employee's family shall be entitled to receive benefits at
least equal to the most favorable benefits provided by the Company and any of
its subsidiaries to surviving families of employees of the Company and such
subsidiaries under such plans, programs, practices and policies relating to
family death benefits, if any, in accordance with the most favorable plans,
programs, practices and policies of the Company and its subsidiaries in effect
at any time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Employee and/or the Employee's family, as in effect
on the date of the Employee's death with respect to other key employees of the
Company and its subsidiaries and their families.
3.3 DISABILITY. If the Employee's employment is terminated by
reason of the Employee's Disability, this Agreement shall terminate without
further obligations to the Employee, other than those obligations accrued or
earned and vested (if applicable) by the Employee as of the Date of Termination,
including for this purpose, all Accrued Obligations. All such Accrued
Obligations shall be paid to the Employee in a lump sum in cash within 30 days
of the Date of Termination. Anything in this Agreement to the contrary
notwithstanding, the Employee shall be entitled after the Disability Effective
Date to receive disability and other benefits at least equal to the most
favorable of those provided by the Company and its subsidiaries to disabled
employees and/or their families in accordance with such plans, programs,
practices and policies relating to disability, if any, in accordance with the
most favorable plans, programs, practices and policies of the Company and its
subsidiaries in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Employee and/or the
Employee's family, as in effect at any time thereafter with respect to other key
employees of the Company and its subsidiaries and their families.
3.4 CAUSE. If the Employee's employment shall be terminated for
Cause, this Agreement shall terminate without further obligations to the
Employee.
4. NON-EXCLUSIVITY OF RIGHTS.
Nothing in this Agreement shall prevent or limit the Employee's
continuing or future participation in any benefit, bonus, incentive or other
plans, programs, policies or practices, provided by the Company or any of its
subsidiaries and for which the Employee may qualify, nor shall anything herein
limit or otherwise affect such rights as the Employee may have under any stock
option or other agreements with the Company or any of its subsidiaries. Amounts
which are vested benefits or which the Employee is otherwise entitled to receive
under any plan, policy, practice or program of the Company or any of its
subsidiaries at or subsequent to the Date of Termination shall be payable in
accordance with such plan, policy, practice or program.
5. FULL SETTLEMENT.
5
<PAGE> 6
The Company's obligation to make the payments provided for in
this Agreement and otherwise to perform its obligations hereunder shall not be
affected by any set-off, counterclaim, recoupment, defense or other claim, right
or action which the Company may have against the Employee or others. In no event
shall the Employee be obligated to seek other employment or take any other
action by way of mitigation of the amounts payable to the Employee under any of
the provisions of this Agreement, nor shall any amounts actually paid to the
Employee by any person for services rendered during the Salary Continuation
Period reduce the Company's payment obligations under Section 3.1(a) hereof. The
Company agrees to pay, to the full extent permitted by law, all legal fees and
expenses which the Employee may reasonably incur as a result of any contest
(regardless of the outcome thereof) by the Company or others of the validity or
enforceability of, or liability under, any provision of this Agreement or any
guarantee of performance thereof, plus in each case interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
6. SUCCESSORS.
(a) This Agreement is personal to the Employee and without the
prior written consent of the Company shall not be assignable by the Employee
otherwise than by will or the laws of descent and distribution. This Agreement
shall inure to the benefit of and be enforceable by the Employee's legal
representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation of
law, or otherwise.
7. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without reference to
principles of conflict of laws. The captions of this Agreement are not part of
the provisions hereof and shall have no force or effect. This Agreement may not
be amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by registered
or certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Employee:
6
<PAGE> 7
If to the Company: NCS HealthCare, Inc.
3201 Enterprise Parkway
Suite 220
Beachwood, Ohio 44122
Attention: President and Chief Executive
Officer
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement.
(d) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be withheld
pursuant to any applicable law or regulation.
(e) The Employee's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision or any
other provision thereof.
(f) This Agreement contains the entire understanding of the
Company and the Employee with respect to the subject matter hereof.
(g) The Employee and the Company acknowledge that the employment
of the Employee by the Company is "at will", and, prior to the Effective Date,
may be terminated by either the Employee or the Company at any time without any
obligation under or by virtue of this Agreement. Upon a termination of the
Employee's employment or upon the Employee's ceasing to be an officer of the
Company, in each case, prior to the Effective Date, there shall be no further
rights under this Agreement.
(Signature Page Follows)
7
<PAGE> 8
IN WITNESS WHEREOF, the parties have hereunto set their hands as
of the day and year first above written.
__________________________________________
("Employee")
NCS HEALTHCARE, INC.
By:________________________________________
Kevin B. Shaw,
President and Chief Executive Officer
(the "Company")
8
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0
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<OTHER-SE> 278,075
<TOTAL-LIABILITY-AND-EQUITY> 686,359
<SALES> 184,191
<TOTAL-REVENUES> 184,191
<CGS> 143,891
<TOTAL-COSTS> 143,891
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 1,380
<INTEREST-EXPENSE> 6,783
<INCOME-PRETAX> 2,590
<INCOME-TAX> 1,062
<INCOME-CONTINUING> 1,528
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,528
<EPS-BASIC> .08
<EPS-DILUTED> .08
</TABLE>
