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[LOGO]
1998 ANNUAL REPORT
<PAGE>
LETTER TO SHAREHOLDERS
I am pleased to announce that, for the year-ended December 31, 1998, Option
Care generated record revenues of $114.4 million--a 14.4 percent increase over
the prior year. In addition, the Company reported operating income for 1998 of
$1.5 million, compared to an operating loss of $2.2 million for 1997.
Still, 1998 was a year of CHALLENGES for the Company and the industry in
general.
- We continued with the integration process of the numerous acquisitions
completed in late 1997. Although a great deal of management time and
Company resources were spent on these operations, the effort paid off. ALL
COMPANY-OWNED LOCATIONS WERE CASH FLOW POSITIVE IN THE 4(TH) QUARTER.
- We reported a net loss for the year of $691,000, or $0.06 per share. Two
primary factors that contributed to the loss were: a $739,000 settlement
related to an IRS audit of prior years; along with almost $2.0 million of
operating and shutdown costs resulting from the administration of a
capitation agreement out of our West Coast Coordinated Care Center.
Neither of these items will have an impact on future earnings. In
addition, DURING THE 4(TH) QUARTER THE COMPANY HAS ENDED ITS PARTICIPATION
IN THIS AND OTHER NON-PROFITABLE CONTRACTS. Without these two items the
Company would have reported net income for the year of $1.1 million, or
$0.10 per share.
- We incurred an out of compliance situation with our former bank group when
we did not meet an interest coverage covenant at the end of the second
quarter. We successfully ended the search for a replacement facility--and
new banking partner--with the signing of A $25 MILLION AGREEMENT WITH
BANKAMERICA BUSINESS CREDIT in February 1999. Our new partner understands
the complexities of our industry and will be an asset to the Company going
forward.
Our new management team was put into place during the last half of the year
to address these challenges, and through their efforts, as highlighted above, we
conquered them one-by-one. In the process, we built a solid foundation that will
prepare the Company for 1999 and allow us to lead the industry to a new paradigm
and into the new millennium.
In looking forward, the Team adopted a twofold strategy--
1.) RETURN TO THE BASICS.
To ensure that the foundation we have rebuilt remains strong, we will
continue to focus our attention on the key areas of revenue management, cash
collections, contract reviews, and internal and external communication. In
addition, in order to compete successfully in a rapidly changing market, we will
build valuable client relationships through aggressive sales efforts.
<PAGE>
The results are already being seen. Vigorous billing and collection efforts
in the last half of 1998 generated $9 million of operating cash flow. Existing
contracts were evaluated, and where necessary, renegotiated or discontinued. New
agreements have been established, which will add to both our top line growth and
bottom line profit. And new relationships were formed--i.e. banking, auditing,
investor relations--with companies that understand the dynamics of our industry,
and will add value to our efforts.
From this foundation of solid, basic business fundamentals, we are
positioned to--
2.) BUILD UPON OUR CORE STRENGTHS.
As the need and desire increases for alternatives to acute-care setting
treatment, Option Care will respond. We will continue to be a leader in the
infusion industry through our network of locally owned franchises and Company
owned operations, our commitment to service and our clinical expertise.
We will build upon the economies of scale of a geographically diverse
organization, yet maintain the importance of local relationships. We will
maintain our high standards for quality, demonstrated by the fact that
substantially all of our locations are accredited by Joint Commission for
Accreditation--over one third with commendation. We will also expand our
existing disease management programs, and continually analyze the value added of
our other home healthcare services, such as durable medical equipment, nursing
and respiratory therapy.
In summary, Option Care's new management team is looking forward to the
opportunities we see in the dynamic home and alternate site health care market.
With our foundation, our dedication to quality and our vision for the future, we
continue to believe that, when it comes to home and alternate site I.V. therapy,
- --
THE BEST OPTION IS OPTION CARE.
Sincerely
[SIGNATURE]
Michael A. Rusnak
PRESIDENT AND CHIEF EXECUTIVE OFFICER
2
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM ______________ TO ______________
COMMISSION FILE NO. 0-19878
------------------------
OPTION CARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3791193
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
100 CORPORATE NORTH, SUITE 212, 60015
BANNOCKBURN, ILLINOIS
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
(847) 615-1690
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
Securities registered pursuant to Section 12(g) of the Act:
COMMON STOCK, $.01 PAR VALUE PER SHARE
Title of Each Class
------------------------
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. [__X__]
The aggregate market value of voting stock held by non-affiliates of the
registrant as of March 19, 1999 was approximately $9,684,072 (based on closing
sale price of $2.00 per share as reported by the Nasdaq National Market and
published in the Wall Street Journal.) Solely for purposes of the foregoing
calculation of aggregate market value of voting stock held by non-affiliates,
the registrant has assumed that all Directors and executive officers of the
registrant are affiliates of the registrant. Such assumption shall not be deemed
as determination by the registrant that such persons are affiliates of the
registrant for any purposes.
The number of shares of the registrant's Common Stock, $.01 par value,
outstanding as of March 19, 1999 was approximately 11,124,966.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for the 1999 Annual
Shareholders Meeting are incorporated by reference into Items 10-13 in Part III
of this Report.
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OPTION CARE, INC.
ANNUAL REPORT ON FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
PART I:
Item 1. Business..................................................................................... 3
Item 2. Properties................................................................................... 9
Item 3. Legal proceedings............................................................................ 10
Item 4. Submission of matters to a vote of security holders.......................................... 10
Item 4(a). Executive officers of registrant............................................................. 10
PART II:
Item 5. Market for registrant's common equity and related stockholder matters........................ 12
Item 6. Selected financial data...................................................................... 12
Item 7. Management's discussion and analysis of financial condition and results of operations........ 14
Item 7(a). Quantitative and qualitative disclosures about market risk................................... 18
Item 8. Financial statements and supplementary data.................................................. 18
Item 9. Changes in and disagreements with accountants on accounting and financial disclosure......... 18
PART III:
Item 10. Directors and executive officers of the registrant........................................... 20
Item 11. Executive compensation....................................................................... 20
Item 12. Security ownership of certain beneficial owners and management............................... 20
Item 13. Certain relationships and related transactions............................................... 20
PART IV:
Item 14. Exhibits, financial statement schedules, and reports on Form 8-K............................. 21
</TABLE>
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. Certain information included in this
Annual Report on Form 10-K and other materials filed or to be filed by the
Company with the Securities and Exchange Commission (as well as information
included in oral statements or other written statements made or to be made by
the Company) contains statements that are or will be forward-looking, such as
statements relating to acquisitions and other business development activities,
future capital expenditures and the effects of future regulation and
competition. Such forward-looking information involves important risks and
uncertainties that could significantly affect anticipated results in the future
and, accordingly, such results may differ from those expressed in any
forward-looking statements made by, or on behalf of, the Company. These risks
and uncertainties include, but are not limited to, uncertainties affecting
businesses of the Company and its franchisees relating to acquisitions and
divestitures (including continuing obligations with respect to completed
transactions), sales and renewals of franchises, government and regulatory
policies (including federal, state and local efforts to reform the delivery of
and payment for healthcare services), general economic conditions (including
economic conditions affecting the healthcare industry in particular), the
pricing and availability of equipment and services, technological developments
and changes in the competitive environment in which the Company operates.
2
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Option Care, Inc. (together with its subsidiaries, collectively "the
Company") provides infusion therapy and other ancillary home healthcare services
through its owned locations and through its supporting franchise network. In
addition, the Company operates a wholly-owned subsidiary that supplies state of
the art data management products and services to the home and alternate site
healthcare industry. The Company was incorporated in Delaware on July 9, 1991.
The Company's predecessor was incorporated in California in January 1984.
The Company has established a nationwide presence with a strong brand
identity and broad accessibility for managed care payors and customers. As of
December 31, 1998, 145 Option Care infusion therapy locations, including
satellite locations, were operating in 35 states. Existing locations include 121
locations owned and operated by franchise owners and 24 locations owned and
operated by the Company. Certain of the Company-owned locations also operate
other ancillary healthcare businesses which provide nursing, respiratory therapy
and durable medical equipment. Aggregate gross billings for patient care
services for all owned and franchised Option Care locations were approximately
$271 million for the year ended December 31, 1998.
The Company and its franchises have formed networks to provide managed care
companies and payors with nursing services, infusion therapy, respiratory
services and durable medical equipment. Many referral sources, such as
hospitals, physicians, third-party payors and case management companies, may
prefer making patient referrals to multi-office companies or systems, such as
the Option Care system. Under the Company's OPTIONET program, the Company has
contracted with certain regional and national third-party payors and case
management companies to refer patients to participating Company locations.
The Company is committed to the provision of quality care and believes that
an important measure of quality in the home healthcare industry is accreditation
by the Joint Commission on Accreditation of Healthcare Organizations ("JCAHO")
or similar organizations. As of December 31, 1998, 96% of the Company's
franchised locations were accredited and 26% received commendations. In
addition, 100.0% of the Company's owned infusion therapy locations were
accredited and 41% received commendations. All new franchises since April 1,
1990 have been required by the Company to apply for accreditation within their
first year of operation. The Company's goal is for all Option Care locations to
become accredited.
The Company plans to investigate expanding and developing its business
through (i) selective entry into new market places through alliances,
acquisition or start-ups, (ii) entering into strategic alliances with outpatient
services providers, hospitals, physicians and payors, and (iii) increasing the
volume of current therapies and adding new therapies and services. To meet the
Company's objectives, additional financing sources may be required, for which
the Company can give no guarantees that such financing will be available or
available at an acceptable cost.
THE HOME AND ALTERNATE SITE HEALTHCARE MARKET
Home and alternate site healthcare principally involves the in-home or
non-hospital provision of nursing services, infusion therapy, respiratory
services and durable medical equipment. These services often begin during
hospitalization and continue in the home or other non-acute care setting, but
may also be provided following outpatient surgery or in connection with the
treatment of conditions not requiring hospitalization.
The market for home and alternate site healthcare services has experienced
significant growth. The Company believes that the following factors have
contributed to this growth: (i) cost containment efforts
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by third-party payors promoting use of relatively less expensive home healthcare
therapy rather than more expensive hospital stays; (ii) increased awareness and
acceptance among physicians and third-party payors of alternatives to
in-hospital treatment; (iii) the desire of patients to be treated at home; and
(iv) improved technology facilitating the delivery of complete therapies and
care outside the hospital.
HEALTHCARE SERVICES
The Company is a direct provider of in-home or alternate site infusion
therapy and other healthcare services through its owned locations and supporting
franchise network. The Option Care locations compound, dispense and administer
pharmaceuticals, sell medical supplies, sell or rent associated durable medical
equipment, provide skilled nursing services, train patients and their care
givers, consult with attending physicians, and process reimbursement claims. The
decision to proceed with alternate site therapies is generally made jointly by
the patient, the attending physician and a representative of the Option Care
location involved. The decision involves obtaining and evaluating information
about the patient's medical history, care environment and insurance coverage, as
well as discussing the patient's, or care giver's, willingness and ability to
participate in the management of care in an alternate site setting.
Approximately 84% of the Company's patient care service revenue is derived
from home or alternate site infusion therapy related services either through
it's owned locations or payment of royalties from it's franchise network. The
principal home infusion therapies include the following:
TOTAL PARENTERAL NUTRITION ("TPN")
TPN involves the intravenous administration of life sustaining nutrients to
patients whose digestive tracts are unable to function normally due to severe
gastrointestinal illness or injury. In many cases the TPN patient's underlying
condition is chronic in nature and he or she may require TPN for life.
ANTI-INFECTIVE THERAPY
Anti-infective therapy involves the parenteral administration of
antibiotics, antiviral and antifungals to treat a variety of serious infections
such as those associated with AIDS, osteomyelitis, endocarditis, urinary tract
infection or wounds. Anti-infective therapy is generally administered in the
patient's home as a continuation of therapy initiated on an outpatient basis or
during hospitalization.
PAIN MANAGEMENT THERAPY
Pain management therapy is the parenteral administration of analgesic drugs
to patients suffering from acute or chronic pain. Specialized infusion devices
permit patients to control the administration of analgesic drugs to respond to
the severity of their pain.
ENTERAL NUTRITION
Enteral patients are usually unable to receive adequate nutrition orally due
to disorders including stroke, intestinal obstruction or cancer. Patients
receive nutritional formulae via a tube placed directly into the stomach or
small intestine, thereby bypassing the dysfunctional portion of the patient's
digestive tract.
CHEMOTHERAPY
Chemotherapy is the parenteral administration of drugs to treat patients
suffering from cancer. As chemotherapy is commonly administered periodically for
several weeks or months, patients may receive their therapy regimen in alternate
settings.
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OTHER THERAPIES
Other therapies provided by the Company's locations may include: (i)
hydration therapy; (ii) blood components (packed red blood cells, Factor VIII
and immune globulin); (iii) human growth hormone; (iv) aerosolized
anti-infectives; (v) intradialytic parenteral nutrition; (vi) deferoxamine; and
(vii) anticoagulation therapy and hematopoietic agents.
Approximately 11% of the Company's patient care service revenue is derived
from nursing services. The Company's nursing services include providing support
for infusion therapies, providing traditional home health nursing services,
skilled nursing services and private duty services. These nursing services
include patient assessment, training, monitoring, documentation and physician
communication.
In addition to the services mentioned above, the Company derives
approximately 5% of its patient care service revenue from the sale and rental of
durable medical equipment and respiratory therapy.
FRANCHISING PROGRAM
As of December 31, 1998, the Company had 121 franchise locations. The
Company's current franchise agreement grants the franchise owner the authority
to own and operate an Option Care franchise within a granted territory for up to
a 20-year term. The initial franchise fee for start-up franchises is payable by
the franchise owner upon execution of the franchise agreement. The exact amount
of the initial franchise fee is determined by the Company based on the
population in the territory granted to the franchise owner. Conversion franchise
fees are lower than those for start-ups.
The Company's franchise agreements generally provide for royalties on a
sliding scale ranging from a high of 9% to a low of 2% of annual gross cash
receipts depending on the levels of such receipts, whether the franchise owner
conducted a similar business prior to the execution of the franchise agreement,
and other factors.
Each franchised location is required to maintain a licensed pharmacy
equipped to prepare sterile patient medications and parenteral solutions as
prescribed by the patient's physician. Each location operates under a
confidential, proprietary system developed by the Company which includes
procedures for quality assurance, office administration, patient care,
consistency and uniformity of pharmaceuticals and offered services, initial
training and ongoing assistance.
Key employees of each franchised location, including the director of
pharmacy, director of nursing, and general manager, must complete initial
training programs provided by the Company. In addition to required initial
training, the Company offers advanced training in selected topics to franchise
owners and their employees. The Company's initial training and ongoing support
provided to its owned and franchised locations stresses the importance of
responsive service. In addition, the Company makes available to franchisees
marketing, operating support services and state-of-the-art data management
products.
The Company's franchise agreements require, among other things, that
franchise owners meet the Company's policies on quality assurance, clinical
services and local marketing and to obtain specified liability insurance
protecting the franchise owner against claims arising out of the operation of
the franchised business.
The Company conducts an annual meeting for franchise owners and their key
employees to offer information and training on new and existing Option Care
programs and procedures. The Company also works with its franchise owners'
National Advisory Council to discuss and communicate recommendations for changes
and improvements to the Option Care system.
5
<PAGE>
The following table indicates the number of Option Care franchise locations
at the beginning of the year, the number of new franchises sold, the number of
franchises terminated, consolidated or purchased and the number of franchises at
the end of each year in the three-year period ended December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
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<S> <C> <C> <C>
Number of franchise locations at beginning of year........................................... 138 164 166
New franchises opened........................................................................ 3 4 13
Franchises terminated, consolidated or purchased............................................. (20) (30) (15)
--- --- ---
Number of franchise locations at end of year................................................. 121 138 164
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</TABLE>
REIMBURSEMENT FOR SERVICES
Most of the patient care revenues of owned Option Care locations are derived
from third-party payors, such as insurance companies, health maintenance
organizations, self-insured employers, Medicare and state Medicaid programs.
Where permitted by law or contract, patients are billed for amounts not
reimbursed by third-party payors. Private third-party payors typically reimburse
more for a given service and reimburse for a broader range of benefits than
government sponsored programs.
Reimbursement from Medicare and Medicaid programs is subject to statutory
and regulatory requirements, administrative rulings, interpretations of policy,
implementation of reimbursement procedures, retroactive payment adjustments and
governmental funding restrictions, all of which may materially affect payments
to home healthcare providers.
Reimbursement of home healthcare is covered to varying degrees by
third-party payors. Obtaining reimbursement can be subject to delays and is not
always assured. Slower receivable collections may result in a need for higher
levels of short-term financing. Lack of adequate financing may limit growth.
The following table sets forth the approximate percentages of revenues
attributable to private and government reimbursement sources for Company-owned
locations for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
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<S> <C> <C> <C>
1998 1997 1996
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Private insurance and other private payors................................................... 75% 60% 55%
Medicare, Medicaid and other governmental programs........................................... 25 40 45
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Total.................................................................................... 100% 100% 100%
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</TABLE>
SALES AND MARKETING
Generating patient referrals is vital to the success of any home healthcare
business. Option Care locations are required to employ sales personnel whose
primary responsibility is to market Option Care services to potential referral
sources. Marketing efforts focus on area hospitals, physicians, managed-care and
other payors and case management companies. The active role which general
managers and franchise owners typically play in the operation of the business
also helps create a focused effort on developing the market for each location.
The Company has established a program called OPTIONET, through which the
Company contracts with certain regional and national third-party payors (e.g.,
insurance companies, health maintenance organizations and large self-insured
employers) to refer patients to participating Option Care locations. Under
OPTIONET agreements, each participating Option Care location provides local
services for covered patients. Based on payor preference or requirements, Option
Care locations bill the payor directly
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for services rendered, or the Company arranges for a third-party billing service
to bill the payor for a billing fee.
The Company maintains a National Advertising and Education Fund for
marketing the services of Option Care locations to patient referral sources such
as physicians, hospitals, nursing agencies, third-party payors and case
management companies, and for the cost of educational programs for franchise
owners. Franchised Option Care locations are required to contribute at various
rates up to 1 1/2% of gross receipts to this fund.
SUPPLIERS
Option Care offices must purchase pharmaceuticals, supplies, equipment and
services relating to their businesses from suppliers which satisfy certain
standards and possess adequate quality controls. The Company may derive revenue
through administrative fees received from contracted manufacturers.
Neither the Company nor its franchises have experienced significant
difficulty in purchasing pharmaceuticals, supplies or equipment. In the event
that current suppliers cease to sell pharmaceuticals, supplies or equipment to
the Company or its franchises, the Company believes that alternate sources can
be located without undue burden, which would adequately meet their needs.
GOVERNMENT REGULATION
HEALTH CARE REGULATION
Home healthcare is subject to regulation by the various states in which the
Company and its franchise owners conduct their businesses, as well as by the
federal government. Option Care locations are subject to federal, state and
local laws (including licensing laws) governing pharmacies, home health
agencies, nursing services, health planning and professional conduct. Each
Option Care location must be appropriately registered with the United States
Food and Drug Administration and Drug Enforcement Administration and comply with
record keeping and inventory requirements for the dispensing of controlled
substances. Although the Company provides its franchised locations guidance in
compliance with regulatory requirements, it is not responsible for such
compliance. The failure of an Option Care location to obtain, renew or maintain
any required regulatory approvals or licenses could adversely affect that
location and could prevent such location from offering services to patients.
To the extent Option Care locations provide services under the Medicare,
Medicaid and other governmental programs, they are subject to a broad body of
laws regulating those programs, including federal "fraud and abuse" laws. Among
other things, these laws prohibit any bribe, kickback or rebate in return for
the referral of Medicare or Medicaid patients. In addition, many of the states
in which Option Care locations operate have laws that prohibit certain direct or
indirect payments or fee-splitting arrangements between health care providers
that are designed to induce or encourage the referral of patients to, or the
recommendation of, a particular provider for medical products and services.
Several states restrict or prohibit referrals where a physician has a financial
relationship with the provider. In addition, some states restrict certain
business relationships between physicians and pharmacies. State laws vary from
state to state. The Company exercises care in structuring its arrangements with
health care providers and referral sources to comply with the relevant statutes,
but there can be no assurance that such laws will ultimately be interpreted in a
manner consistent with the practices of the Company or the franchise owners.
Other state and federal laws and regulations could also adversely affect
existing or future financial relationships between physicians and health care
businesses, including franchised businesses. The Omnibus Reconciliation Act of
1993 ("Act") prohibits physicians, subject to certain exceptions, who have a
"financial relationship" with an entity from referring patients to that entity
for the provision of "designated health services" which may be reimbursed by
Medicare or Medicaid. The eleven "designated health services"
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include parenteral and enteral nutrients; equipment and supplies; outpatient
prescription drugs; and durable medical equipment. With certain exceptions, this
Act also requires entities seeking payment from the Medicare and Medicaid
programs to report any ownership and compensation arrangements with physicians.
This federal law bars, with limited exceptions, physician ownership of an Option
Care franchised business.
The United States Department of Health and Human Services, Office of the
Inspector General ("OIG"), has been utilizing a civil statute, the False Claims
Act, in challenging Medicare billing practices. In particular, the False Claims
Act provides that any person who knowingly presents, or causes to be presented,
to an officer or employee of the United States Government or a member of the
Armed Forces of the United States a false or fraudulent claim for payment or
approval is liable to the United States Government for a civil penalty of
$10,000, plus 3 times the amount of damages which the Government sustains
because of the act of that person. It is the Company's understanding that the
OIG considers each claim that is submitted for reimbursement to the Medicare
program to be a claim for purposes of the False Claims Act. Accordingly, if 100
claims are submitted knowingly containing false or fraudulent information, the
party submitting the claim may be liable for not only treble damages, but also
$1,000,000 in fines.
New healthcare legislation is promulgated on an ongoing basis and could
impact providers of Option Care services, although it is not possible at this
time to predict the nature or extent of any impact upon the Company or the
franchised businesses.
The Company is unable to predict whether any new legislation or regulations
may be enacted in the future which may affect the business of the Company,
Option Care locations or the health care industry, including third-party
reimbursement. Accordingly, the Company cannot predict whether any such new
legislation or regulations would have a material adverse impact on the Company.
FRANCHISE REGULATION
The Company's franchising operations are subject to Federal Trade Commission
("FTC") regulation and state laws which regulate the offer and sale of
franchises. The Company is also subject to a number of state laws which regulate
substantive aspects of the relationship between franchisors and franchise
owners.
The FTC's Trade Regulation Rule on Franchising (the "FTC Rule") requires the
Company to furnish prospective franchise owners with a uniform franchise
offering circular containing information prescribed by the FTC Rule. At least 12
states presently regulate the offer and sale of franchises and, in almost all
cases, require registration of the franchise offering with state authorities.
State laws which regulate the relationship between franchisors and franchise
owners presently exist in a substantial number of states. Such laws regulate the
franchise relationship by, for example, requiring the franchisor to deal with
its franchise owners in good faith, prohibiting interference with the right of
free association among franchise owners, and limiting the imposition of standard
charges, royalties or fees. These laws have not precluded the Company from
seeking franchise owners in any given area and have not had a significant effect
on the Company's operations.
The Company is not aware of any pending franchise legislation which in its
view is likely to significantly affect the operations of the Company. The
Company believes that its operations comply substantially with the FTC Rule and
applicable state franchise laws.
COMPETITION
The home healthcare market is intensely competitive and varies by market
location. Although the market is somewhat fragmented, there are several major
providers of home healthcare services and increasing pressures toward market
consolidation. There are certain other national competitors who are larger and
have greater resources than those of the Company. Option Care's competitors
include numerous small, local companies and physician groups, major national and
regional companies, hospital-
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based programs, and nursing agencies. To the extent that the Company acquires or
otherwise enters new areas, the Company may face additional competition.
In addition, new competitors may enter the home healthcare market and
existing competitors may expand the variety of services that they offer. Option
Care locations compete on the basis of a number of factors, including quality,
consistency, responsiveness and diversity of services; geographic coverage; the
ability to develop and maintain goodwill or contractual relationships with
referral sources such as hospitals, managed care providers, physicians and other
related entities; and price.
SERVICE MARKS
The Company has registered with the federal government OPTION
CARE-Registered Trademark-, among others, as a service mark. The Company
believes that this service mark is becoming increasingly recognized by many
referral sources as representing a reliable, cost-effective source of home
healthcare services. The Company believes that its use of this service mark does
not violate or otherwise infringe on the rights of others.
EMPLOYEES
As of December 31, 1998, the Company employed 607 persons on a full-time
basis and 510 persons on a part-time basis. Of the Company's full-time
employees, 68 were corporate management and administrative personnel and the
remaining 539 were employees of Company owned locations, primarily in clinical,
management and administrative positions.
The Company considers its employee relations to be good. None of the
Company's employees are covered by a collective bargaining agreement.
INSURANCE
The Company currently maintains insurance for general and professional
liability claims in an aggregate amount which it believes to be sufficient given
the nature of its business. In addition, the Company maintains insurance for
vicarious liability of the Company, if any, for the acts and omissions of its
franchises, and the Company requires each franchise to maintain general
liability insurance and professional liability insurance on each of its
professionals, in each case covering both the franchise and the Company, with
coverage at levels which the Company believes to be sufficient. These policies
generally provide coverage on a claims made or occurrence basis and have certain
exclusions from coverage. These insurance policies must generally be renewed
annually. There can be no assurance that insurance coverage will be adequate to
cover liability claims that may be asserted against the Company or that adequate
insurance will be available in the future at acceptable cost. To the extent that
liability insurance is not adequate to cover liability claims against the
Company, the Company will be responsible for the excess.
ITEM 2. PROPERTIES
The Company maintains executive offices at 100 Corporate North, Suite 212,
Bannockburn, IL, consisting of approximately 18,845 square feet of leased space.
At December 31, 1998, the Company owned operations located in Little Rock,
AR, Bullhead City, AZ, Chico, Sacramento, Victorville and Vista, CA, Grand
Junction and Denver, CO, Brandon and Miami, FL, Ann Arbor and Grand Haven, MI,
Columbia, MO, Grand Island, Lincoln and Omaha, NE, Milford, OH, Oklahoma City,
OK, Bethlehem and Horsham, PA, Houston, TX, Bellingham, Everett, Kennewick and
Seattle, WA. These locations consist of approximately 164,291 square feet in
total.
All of the Company's locations are leased by the Company with remaining
lease terms ranging from one month to five years. All of the Company's locations
are in good condition and well maintained, and are adequate to fulfill the
operational needs of the Company for the foreseeable future.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is party to certain legal proceedings incidental to its
business. The Company does not believe that the outcome of such legal
proceedings will have a material adverse impact on the Company's financial
position or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders through the
solicitation of proxies, or otherwise during the fourth quarter of the fiscal
year ended December 31, 1998.
ITEM 4(A). EXECUTIVE OFFICERS
The names, ages and positions of the executive officers of the Company are
set forth below. Executive officers of the Company serve at the discretion of
the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------------------- --- -----------------------------------------------------
<S> <C> <C>
Dr. John N. Kapoor................................... 55 Chairman of the Board and Director
Michael A. Rusnakul 43 President, Chief Executive Officer and Director
Cathy Bellehumeur.................................... 48 Senior Vice President, General Counsel and Secretary
Michael A. Siri...................................... 44 Vice President and Chief Financial Officer
</TABLE>
All executive officers are elected annually and serve for a one-year term.
There are no family relationships between any of the Company's executive
officers and Directors and there are no arrangements or understandings between
any of the executive officers and any other person pursuant to which the
executive officer was selected as an officer.
John N. Kapoor, Ph.D., is currently the Company's Chairman of the Board. He
has been Chairman of the Board of Directors since October 1990. He served as the
Company's Chief Executive Officer from August 1993 to April 1996 and served as
President from August 1993 through October 1993 and from January 1995 through
February 1996. Dr. Kapoor also served as Chief Executive Officer and President
from March 1991 to May 1991. In addition, Dr. Kapoor is President of E. J.
Financial Enterprises, Inc., a position he has held since April 1990. From June
1982 to April 1990, Dr. Kapoor held several positions with Lyphomed, Inc.,
including Chairman, Chief Executive Officer and President. Dr. Kapoor is also a
Director of Integrated Surgical Systems, Inc. and the Chairman of the Board and
Director for each of the following companies: Akorn, Inc., NeoPharm, Inc. and
UniMed, Inc. Dr. Kapoor received his Ph.D. in medicinal chemistry from the State
University of New York and a B.S. in pharmacy from Bombay University.
Mr. Michael A. Rusnak has been the Company's President and Chief Executive
Officer and a member of the Board of Directors since October 1998. From June
1998 to October 1998, Mr. Rusnak was Executive Vice President and Chief
Operating Officer. Prior to such time he was Senior Vice President of Option
Care Inc. and President of Option Care Enterprises, Inc. from May 1998 to June
1998. Mr. Rusnak was also the Company's Vice President-Franchise Services from
November 1997 to May 1998. Prior to joining the Company, he was employed by
Columbia Home Care Group, a division of Columbia HCA, from October 1996 to
October 1997 as the Senior Vice President of Operations. From 1992 to 1997 he
was the Vice President of Operations for Staff Builders Services, Inc. From 1982
to 1992 he was the Operations Manager for Interim Systems Corporation. He has a
B.S. degree from St. Francis University and a Nursing and Respiratory degree
from Northwestern University/Wesley Passavant School of Nursing.
10
<PAGE>
Ms. Cathy Bellehumeur has been General Counsel since February 1994, a Vice
President since March 1994, and Senior Vice President since January 1997. Prior
to joining the Company, Ms. Bellehumeur was an attorney in private practice with
Ross & Hardies, Chicago, Illinois from August 1991 to January 1994. Ms.
Bellehumeur graduated Magna Cum Laude from Marquette University Law School and
also has a Masters Degree in Education.
Mr. Michael A. Siri has been Vice President and Chief Financial Officer
since October, 1998. Prior to such time, Mr. Siri was the Company's Vice
President--Finance from July 1998 to October 1998. From November 1986 to January
1998, Mr. Siri was employed by Culligan Water Technologies, Inc., where he was
their Executive Director Finance and Treasurer. Mr. Siri has a B.S. in
Accounting from Indiana University and a M.B.A. in Finance from the University
of Chicago.
11
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "OPTN". The following table sets forth, for the periods indicated, the
high and low sales prices for the Company's Common Stock.
<TABLE>
<CAPTION>
CALENDAR QUARTER HIGH LOW
- ------------------------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1998
First Quarter.................................................................................... $ 4.94 $ 3.25
Second Quarter................................................................................... $ 4.38 $ 2.69
Third Quarter.................................................................................... $ 3.06 $ 1.13
Fourth Quarter................................................................................... $ 2.00 $ 0.75
1997
First Quarter.................................................................................... $ 7.13 $ 5.25
Second Quarter................................................................................... $ 6.38 $ 4.25
Third Quarter.................................................................................... $ 5.31 $ 2.75
Fourth Quarter................................................................................... $ 4.75 $ 2.63
</TABLE>
As of March 19, 1999, there were approximately 303 holders of record of the
Company's Common Stock. The closing price of the Company's Common Stock on March
19, 1999 was $2.00 per share, as reported by the Nasdaq National Market.
The Company did not pay cash dividends in 1998 or 1997. The payment of
dividends by the Company is restricted under the Company's revolving credit
facility. See "Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 4 to the Company's Consolidated
Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company for each of the five years ended December 31, 1998. The selected
consolidated financial data are affected for the Company's acquisitions, all of
which were accounted for using the purchase method of accounting, except for the
acquisition of Addison Home Care, Inc. on September 19, 1996, which was treated
as a pooling of interests. This summary should be read in conjunction with the
Company's Consolidated Financial Statements and Notes thereto, contained
elsewhere in this Annual Report on Form 10-K.
12
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------------------
1998 1997 1996 1995 1994
---------- --------- ---------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AND PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Revenue:
Patient care services.................................. $ 96,119 $ 81,104 $ 49,035 $ 41,989 $ 34,703
Product sales and network management................... 9,583 8,907 9,293 10,997 15,401
Royalty fees and other................................. 8,700 9,966 12,193 12,517 11,915
---------- --------- ---------- --------- ---------
Total revenue........................................ 114,402 99,977 70,521 65,503 62,019
---------- --------- ---------- --------- ---------
Cost of revenue:
Patient care services operations....................... 41,695 42,268 29,038 24,838 19,947
Products and network management
services sold........................................ 51,904 36,875 22,160 22,275 23,401
---------- --------- ---------- --------- ---------
Total cost of revenue................................ 93,599 79,143 51,198 47,113 43,348
---------- --------- ---------- --------- ---------
Gross profit............................................. 20,803 20,834 19,323 18,390 18,671
Operating expenses:
Selling, general and administrative.................... 13,868 12,989 10,676 10,709 12,112
Provision for doubtful accounts........................ 4,936 5,750 1,861 1,653 1,899
Amortization of goodwill............................... 504 386 960 914 825
Asset write-offs and other charges..................... -- 3,902 24,164 -- 6,536
---------- --------- ---------- --------- ---------
Total operating expenses............................. 19,308 23,027 37,661 13,276 21,372
---------- --------- ---------- --------- ---------
Operating income (loss).................................. 1,495 (2,193) (18,338) 5,114 (2,701)
Other income (expense), net.............................. (1,344) (1,144) 380 93 130
---------- --------- ---------- --------- ---------
Income (loss) before income taxes........................ 151 (3,337) (17,958) 5,207 (2,571)
Provision (benefit) for income taxes..................... 842 (1,240) 2,298 2,219 (593)
---------- --------- ---------- --------- ---------
Net income (loss)........................................ $ (691) $ (2,097) $ (20,256) $ 2,988 $ (1,978)
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
Net income (loss) per common share:
Basic.................................................. $ (0.06) $ (0.19) $ (1.93) $ 0.29 $ (0.19)
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
Diluted................................................ $ (0.06) $ (0.19) $ (1.93) $ 0.28 $ (0.19)
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
Shares used in computing net income (loss) per common
share:
Basic.................................................. 11,070 10,879 10,494 10,431 10,435
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
Diluted................................................ 11,070 10,879 10,494 10,500 10,435
---------- --------- ---------- --------- ---------
---------- --------- ---------- --------- ---------
</TABLE>
CONSOLIDATED BALANCE SHEETS DATA:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Trade accounts receivable, net............................. $ 23,544 $ 34,138 $ 20,558 $ 16,558 $ 16,575
Working capital............................................ 19,796 25,901 21,458 16,131 16,614
Intangible assets, net..................................... 20,060 19,895 9,832 30,328 30,554
Total assets............................................... 58,892 68,639 44,041 58,997 59,525
Total long-term debt....................................... 22,358 29,115 12,461 6,696 9,517
Stockholders' equity....................................... 23,739 23,402 23,540 43,506 40,847
</TABLE>
13
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
Option Care, Inc. (together with its subsidiaries, collectively "the
Company") provides infusion therapy and other ancillary home healthcare services
through its owned locations and its supporting franchise network. In addition,
the Company operates a wholly-owned subsidiary that supplies state of the art
data management products and services to the home and alternate site healthcare
industry.
RESULTS OF OPERATIONS
The Company's revenues are derived primarily from three sources: (i) patient
care services from Company-owned locations,(ii) product sales and network
management services and (iii) royalty fees from franchise owners. The following
table sets forth the percentage relationships that certain items from the
Company's Consolidated Statements of Operations bear to total revenue for the
years ended December 31, 1998, 1997, and 1996, and should be read in conjunction
with the Company's Consolidated Financial Statements and Notes thereto contained
elsewhere in this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Revenue
Patient care services............................................................... 84.0% 81.1% 69.5%
Product sales and network management................................................ 8.4 8.9 13.2
Royalty fees and other.............................................................. 7.6 10.0 17.3
--------- --------- ---------
Total revenue......................................................................... 100.0 100.0 100.0
Gross profit margin................................................................... 18.2 20.8 27.4
Selling, general & administrative expenses............................................ 12.1 13.0 15.1
Provision for doubtful accounts....................................................... 4.3 5.8 2.6
Operating income (loss)............................................................... 1.3 (2.2) (26.0)
Net loss.............................................................................. (0.6)% (2.1)% (28.7)%
--------- --------- ---------
--------- --------- ---------
</TABLE>
1998 COMPARED TO 1997
Revenue for the year ended December 31, 1998 was $114.4 million, an increase
of $14.4 million or 14.4 percent over 1997. The $14.4 million increase in
revenue is due to: $9.6 million of internal growth from the Company's owned
operations; $8.6 million from a full year of results from the Company's 1997
acquisitions; $6.0 million of network management revenue from the Company's
administration of the Health Net contract at the Company's West Coast
Coordinated Care Center; offset by a net $9.8 million decline in other revenues.
Other revenues declined primarily due to reductions in product sales as a result
of management's decision during the second quarter of 1998 to end its program of
product distribution to the franchise network. Revenues from patient care
services for 1998 were $96.1 million, representing an increase of 18.5% over
1997. Product sales and network management revenue of $9.6 million increased
7.6% due to the Company's administration of the Health Net contract in 1998,
which more than offset the decline in products sales. Royalty fees and other
revenue of $8.7 million in 1998 declined 12.7% from the 1997 period due to
replacement of royalty fees with patient care services revenue due to the
acquisition by the Company of several large franchises during 1997. Gross profit
of $20.8 million for 1998 declined slightly from the prior year due to increased
costs of revenue associated with both the processing costs from the
administration of the Health Net contract and the replacement of royalty fees
with patient care services revenue. As a result, gross profit margin declined
from 20.8% in 1997 to 18.2% for 1998.
Operating expenses declined by $3.7 million to $19.3 million for 1998 due in
part to the inclusion of a $3.9 million asset write-off and other charges taken
by the Company in 1997. Excluding such charge, the
14
<PAGE>
Company's operating expenses increased by $0.2 million, largely due to increased
administrative costs and goodwill amortization which were offset by a decline in
the provision for doubtful accounts of $0.8 million. In addition, during the
fourth quarter of 1998, the Company ended it's participation under the Health
Net contract and accrued $0.4 million of expenses for the run-off costs
associated with such close-out.
Interest expense for 1998 increased by 39.8% or $0.7 million over the 1997
period as a result of higher interest rates incurred by the Company during the
third and fourth quarters of 1998 due to the Company's default under certain
interest coverage covenant in the revolving credit facility. Other income
increased by 84.8% or $0.5 million during 1998 over 1997, due in part to the
collection of a early termination fee with one of its franchises.
Income tax expense recognized in fiscal 1998 includes the recognition of
$0.7 million of expense due to tax adjustments and changes in reserves related
to the settlement of an IRS audit of prior years tax returns for the 1992
through 1995 periods.
As a result of the forgoing, the Company recorded a net loss of $0.7 million
in 1998 compared to a net loss of $2.1 million in 1997.
1997 COMPARED TO 1996
For 1997, total revenue rose 41.8% to $100 million from $70.5 million in
1996. Patient care services revenue rose 65.4% to $81.1 million, primarily
reflecting the results of 1997 acquisitions as well as a full year's operations
of the Company's 1996 acquisitions. Product sales and network management
revenues decreased 4.2% to $8.9 million, due primarily to management's continued
transition to direct billing of franchisees by selected manufacturers.
Management expects this transition to continue to have a negative effect on
gross profit but an immaterial impact on net income. The administrative fees
that are recognized on such sales are recorded as other income rather than as
revenue. Royalty fees and other revenue decreased 18.3 percent to $10 million,
reflecting the acquisition of several large franchises in 1997. The Company sold
four new franchises during 1997, and terminated, consolidated or purchased
thirty franchises and joint ventures, continuing the trend towards
consolidation.
Gross profit increased 7.8% for the year to $20.8 million, primarily due to
increased patient care services revenue. As a percentage of total revenue, gross
profit declined to 20.8% in 1997 from 27.4% in 1996. The decline in gross margin
is due primarily to changes in the Company's revenue mix, specifically the
decline in royalty fees and product sales coupled with growth in patient care
service revenue. Revenue from patient care services (derived from Company-owned
locations) have a higher cost of revenue than royalty and other revenues derived
from the Company's franchise business. One owned location was sold in Ft. Myers,
FL and two locations (Jacksonville, FL and Gadsden, AL) were closed in 1997 due
to population demographics and financial trends which limited the potential for
long-term profitability.
Total operating expenses decreased 38.9% to $23 million from $37.7 million
in 1996. Selling, general and administrative expenses increased 21.7% due to
increased patient care service revenue. The Company's provision for doubtful
accounts increased 209% or $3.9 million, due to increased receivables resulting
from a greater volume of revenues, acquisitions and a charge to write-off
certain account receivables which became uncollectible in 1997. Amortization of
goodwill decreased 59.8% due to the impact of the 1996 non-cash charge to
write-off impaired goodwill recorded as a result of the 1990 change in control
and prior years acquisitions.
During the fourth quarter of 1997, the Company evaluated its operations,
which resulted in the initiation of a cost reduction program and disposition of
certain under-performing assets. In conjunction with its evaluation of the
Company's operations, $3.9 million was recorded in asset write-offs and other
charges. During 1996, the Company recognized $24.2 million in non-cash charges
relating to the write-off of impaired goodwill. If the effect of the asset
write-offs and other charges in 1997 and 1996 are excluded, total operating
expenses increased 41.7% in 1997 compared to 1996.
15
<PAGE>
The effective combined federal and state income tax rate was 37.2% (benefit)
and negative 12.8% for 1997 and 1996, respectively. The effective tax rate is
higher than the federal statutory tax rate of 35% due to state taxes and to
non-tax deductible expenses, primarily goodwill amortization. The 1996 negative
effective tax rate is due to the non-deductible nature of certain components of
the asset write-off and other charges. The Company had a net loss of $2.1
million in 1997 compared to a net loss of $20.3 million in 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1998, the Company had $3.7 million of cash and cash
equivalents, compared to no cash and cash equivalents at December 31, 1997.
Because the Company was engaged in negotiations with its bank group at the end
of fiscal 1998, and concurrently negotiating the terms of a replacement
facility, the Company temporarily discontinued its policy of reducing its
outstanding debt with its excess cash flow from operations. This generated a
large cash balance at December 31, 1998 in relation to historical practices.
During 1998, the Company was a party to a $35 million revolving credit
facility, which contained certain financial covenants. As of June 30, 1998, the
Company was out of compliance with the interest coverage covenant. As a result,
the Company was not able to make draw downs on its facility for working capital
purposes. The Company was in negotiations with its lenders to secure a
forbearance with respect to such covenant as of December 31, 1998. The
forbearance was secured on January 15, 1999.
On February 5, 1999, the Company entered into a $25 million Loan and
Security Agreement ("Agreement") with a bank that replaces the former facility.
All amounts outstanding under the former facility were repaid using cash on hand
and proceeds from the Agreement. The Agreement provides for borrowings up to $25
million and requires the Company to meet certain financial covenants including,
but not limited to: fixed charge coverage ratio; debt ratio; and limitation on
annual capital expenditures. The Agreement provides for, among other things, the
ability to meet working capital needs and to retire in its entirety the
Company's former facility. The Company is subject to an early termination fee if
the loan is terminated prior to its natural expiration of February 2002. The
Company paid a facility fee of $0.2 million at the time of signing the
Agreement. The Agreement provides for an annual commitment fee paid by the
Company of 0.25% on the average daily unused amount of the facility. The
Agreement prohibits the Company from declaring any cash dividends on its common
stock. The Company may elect interest rates ranging from various LIBOR periods
plus a 2.125% margin, to the bank's reference rate.
Availability under the facility is related to a percentage of the Company's
net outstanding account receivable balances, less certain ineligible amounts, as
defined in the Agreement. The facility is secured by all of the issued and
outstanding Common Stock of each of the Company's subsidiaries. In addition to
the Company's assets, the John N. Kapoor Trust, dated September 20, 1989, (the
"Trust"), has pledged an irrevocable letter of credit totaling $7 million, in
favor of the lending bank, to support borrowings, if any, that exceed the
allowable collateral base as defined in the Agreement. Overall borrowings
allowable under the Agreement are limited to the lessor of $25 million or, the
total allowable collateral base plus amounts available that are supported by the
letters of credit. The Company has entered into an agreement with the Trust
which provides the monthly payment of a monitoring fee as well as all expenses
related to the set up and maintenance of the letter of credit.
In the case of a draw on the letter of credit pledged, the Company may
elect, at its option, to issue to the Trust a Convertible Note (the "Note") for
the amount of such draw. The Trust has the option, at any time up to and
including January 31, 2000 or until the Note has been paid in full, to convert
all or a portion of the unpaid amount of such Note into Common Stock of the
Company, at a price equal to the average closing price per share of the Common
Stock during the five days preceding the receipt of the Note.
Management believes that cash flow from operations, in conjunction with cash
on hand and amounts available under the new credit Agreement, will be sufficient
to meet the cash needs of the business for the
16
<PAGE>
immediate future. In the event that additional capital is required, management
cannot assure that such capital can be obtained on terms acceptable to the
Company.
There are currently various proposals under development to enact healthcare
reform on a national, state and local level. It is not possible at this time to
predict the cash flow impact, if any, which any such changes may have on
providers of home healthcare services and on the Option Care locations.
YEAR 2000 ISSUE
The year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Computer equipment,
software and devices with imbedded technology that are time sensitive may treat
years as occurring between 1900 and the end of 1999 and may not self-convert to
reflect the upcoming change in the century. If not corrected, this problem could
result in system failures or miscalculations and erroneous results by, or at,
Year 2000.
The Company has undertaken a program to understand the nature and extent of
the work required to make its systems Year 2000 compliant. This program
encompasses the Company's operating information and facilities systems, and the
readiness of customers, third-party payers, vendors and other third parties with
which the Company does business. The program includes the following phases:
awareness and inventory, detailed assessment and resolution, testing, deployment
and contingency plan development for all areas.
To date, the Company has substantially completed an internal review of its
computer equipment and software systems and other equipment with imbedded
technology, and is in the early stages of completion of the other phases of its
program, including the implementation of remediation measures for certain
identified systems, ordinary course replacement of equipment and software with
replacements which are Year 2000 complaint, and a comprehensive review of
customers, vendors and other third parties to determine the extent to which
interfaces with such entities are vulnerable to Year 2000 issues. The Company's
objective is to become Year 2000 compliant with its critical systems by
September 1999, with substantial time for further testing, verification and
conversion of less important activities and systems.
The total cost of the Year 2000 project to date has not been material. Based
on the program to date, the Company does not expect that future costs of
modifications will have a material adverse effect on the Company's financial
position or results of operations and that currently anticipated costs to be
incurred by the Company with respect to Year 2000 issues will be funded from
operating cash flows. However, if all Year 2000 issues are not properly
identified, or assessment, remediation and testing are not effected timely with
respect to Year 2000 problems that are identified, there can be no assurance
that the Year 2000 issue will not materially adversely impact the Company's
results of operations or adversely affect the Company's relationships with
customers, vendors, or others. Additionally, there can be no assurance that the
Year 2000 issues of other entities will not have a material adverse impact on
the Company's systems or results of operations.
Because the Company expects that its internal systems will become Year 2000
in a timely manner, the Company believes that the most likely worst case
scenario would result from vendors or other third parties failing to achieve
Year 2000 compliance. Depending upon the number of third parties, their identity
and the nature of the noncompliance, the Year 2000 issue could have a material
adverse effect on the Company's financial position or results of operations. The
Company has not yet developed full contingency plans for any critical problems
which may occur in any of the assessment areas noted above, but anticipates that
such plans will be completed by September 1999.
17
<PAGE>
QUARTERLY INFORMATION
Presented below is a summary of the unaudited consolidated quarterly
financial information for the years ended December 31, 1998 and 1997 (in
thousands, except per share data):
QUARTER
<TABLE>
<CAPTION>
1998: FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues........................................................ $ 26,618 $ 28,341 $ 30,261 $ 29,182
Gross profit.......................................................... 5,325 4,265 5,514 5,699
Pretax income (loss).................................................. 1,584 (888) (619) 74
Net income (loss)..................................................... 864 (585) (356) (614)
Basic EPS............................................................. $ .08 $ (.05) $ (.03) $ (.06)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted EPS........................................................... $ .08 $ (.05) $ (.03) $ (.06)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
1997: FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Total revenues........................................................ $ 19,924 $ 23,750 $ 27,690 $ 28,613
Gross profit.......................................................... 5,057 4,813 5,295 5,669
Pretax income (loss).................................................. 1,587 751 805 (6,480)
Net income (loss)..................................................... 922 434 453 (3,906)(1)
Basic EPS............................................................. $ .08 $ .04 $ .04 $ (.36)
--------- --------- --------- ---------
--------- --------- --------- ---------
Diluted EPS........................................................... $ .08 $ .04 $ .04 $ (.36)
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
(1) Includes asset write-offs and other charges of $3,902. See Footnote 8 of the
Consolidated Financial Statements.
ITEM 7(A). QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements of the Company and its subsidiaries
and the Independent Auditors' Reports thereon are included at Item 14(a) (1) &
(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
As of December 1, 1998, the Board of Directors of Option Care, Inc. (the
"Registrant"), upon recommendation of its Audit Committee, engaged Ernst & Young
LLP ("E&Y") as the Registrant's independent auditors for the year ending
December 31, 1998. The Board of Directors of the Registrant retained E&Y based
upon the Board's determination that the Registrant would benefit from E&Y's
competitive fee structure. The engagement of E&Y arose from the Registrant's
decision to request proposals for audit services from multiple firms, including
KPMG Peat Marwick LLP ("KPMG").
The KPMG audit reports on the consolidated financial statements of the
Registrant as of and for the two years ended December 31, 1997 did not contain
an adverse opinion or disclaimer of opinion, and were not qualified or modified
as to uncertainty, audit scope or accounting principles. During the two year
period ended December 31, 1997 and through the period ended December 1, 1998,
there were no disagreements between the Registrant and KPMG on any matters of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedures, which disagreements if not resolved to the
18
<PAGE>
satisfaction of KPMG, would have caused it to make references to the subject
matter of such disagreements in connection with its report.
In its management letter to the audit committee of the Registrant, dated May
13, 1998, KPMG identified two reportable conditions: (1) excessive turnover in
the Registrant's Chief Financial Officer position and (2) a lack of segregation
of duties between the treasury function and the controllership function of the
Registrant. The Registrant believes it has implemented steps to correct the
deficiencies noted, including (1) the hiring of Michael A. Siri as Chief
Financial Officer, who has 22 years experience in accounting and finance and (2)
the Registrant's recent implementation of alternative internal controls to
mitigate the risk of asset misappropriation.
The Registrant has authorized KPMG to respond to any inquiries of E&Y
concerning its audit. During the two years ended December 31, 1997 and through
the dated appointment, E&Y did not provide any consultations to the Registrant
regarding the application of accounting principles to specific transactions or
the type of opinion that they may have rendered on the financial statements.
19
<PAGE>
PART III
ITEMS 10. THROUGH 13.
Information regarding executive officers is contained in Item 4(a) of Part I
of this Report and is incorporated herein by reference. Information on Directors
of the registrant, executive compensation, security ownership of certain
beneficial owners and management and certain relationships and related
transactions is set forth under the Election of Directors, Security Ownership of
Certain Beneficial Owners and Management, Executive Compensation and Certain
Transactions with Management and Directors captions of the Registrant's
definitive proxy statement dated April 2, 1999 for its May 4, 1999 Annual
Shareholders Meeting, to be filed with the Securities and Exchange Commission in
April 1999, and such information is incorporated herein by reference; provided,
however the report of the compensation committee on executive compensation, the
stock performance graph and the ten-year option/SAR repricings table shall not
be deemed to be so incorporated by reference. The information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" of the 1999 Proxy
Statement is incorporated herein by reference.
20
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) & (2) The Consolidated Financial Statements and Schedule of the
Company and its subsidiaries and independent auditors' reports thereon are
included on pages 22 through 39 of this Annual Report on Form 10-K:
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Independent Auditors' Report--Ernst & Young LLP........................................ 22
Independent Auditors' Report--KPMG LLP................................................. 23
Consolidated Balance Sheets--December 31, 1998 and 1997................................ 24
Consolidated Statements of Operations--Years Ended
December 31, 1998, 1997 and 1996..................................................... 25
Consolidated Statements of Stockholders' Equity --
Years Ended December 31, 1998, 1997 and 1996......................................... 26
Consolidated Statements of Cash Flows--Years Ended
December 31, 1998, 1997 and 1996..................................................... 27
Notes to Consolidated Financial Statements............................................. 28
Schedule II--Valuation and Qualifying Statements....................................... 39
</TABLE>
All other Schedules are omitted because the required information is not
applicable or information is presented in the Consolidated Financial Statements
or related notes.
21
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Option Care, Inc.
We have audited the accompanying consolidated balance sheet of Option Care,
Inc. and subsidiaries as of December 31, 1998, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the year then
ended. Our audit also included the financial statement schedule listed in the
Index at Item 14(a). These consolidated financial statements and schedule are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements and schedule based on our
audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Option Care,
Inc. and subsidiaries at December 31, 1998, and the consolidated results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects, the
information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois
March 18, 1999
22
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Option Care, Inc.:
We have audited the accompanying consolidated balance sheet of Option Care,
Inc. and subsidiaries as of December 31, 1997, and the related consolidated
statements of operations, stockholders' equity, and cash flows for the two-year
period ended December 31, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Option Care,
Inc. and subsidiaries at December 31, 1997, and the consolidated results of its
operations and its cash flows for the two-year period ended December 31, 1997 in
conformity with generally accepted accounting principles.
KPMG LLP
Chicago, Illinois
March 26, 1998
23
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AT DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 3,665 $ --
Trade accounts receivable, less allowance of $3,576 and $3,753, respectively.............. 23,544 34,138
Current portion of notes receivable, less allowance of $29 and $151, respectively......... 240 439
Inventory, net............................................................................ 2,097 2,289
Deferred income tax benefit............................................................... 1,963 2,108
Prepaid expenses.......................................................................... 519 2,324
Other current assets...................................................................... 320 605
--------- ---------
Total current assets.................................................................... 32,348 41,903
Notes receivable, less current portion.................................................... 168 296
Equipment and other fixed assets, net..................................................... 6,085 6,014
Goodwill, net............................................................................. 19,025 18,271
Other intangible assets, net.............................................................. 1,035 1,624
Other long-term assets.................................................................... 231 531
--------- ---------
Total assets............................................................................ $ 58,892 $ 68,639
--------- ---------
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Cash overdraft............................................................................ $ -- $ 145
Current portion of long-term debt......................................................... 262 314
Trade accounts payable.................................................................... 6,493 8,206
Accrued wages and related employee benefits............................................... 2,665 2,834
Accrued expenses.......................................................................... 3,132 4,503
--------- ---------
Total current liabilities............................................................. 12,552 16,002
--------- ---------
Long-term debt, less current portion...................................................... 22,096 28,801
Other long-term liabilities............................................................... 450 419
Minority interest......................................................................... 55 15
--------- ---------
Total liabilities..................................................................... 35,153 45,237
--------- ---------
Stockholders' equity:
Common stock, $.01 par value, 30,000,000 shares authorized, 11,006,386 and 10,731,918
shares issued and outstanding, respectively........................................... 110 108
Common stock to be issued, 439,627 and 296,650 shares, respectively..................... 1,227 1,425
Additional paid-in capital.............................................................. 43,273 42,049
Accumulated deficit..................................................................... (20,871) (20,180)
--------- ---------
Total stockholders' equity............................................................ 23,739 23,402
--------- ---------
Total liabilities and stockholders' equity............................................ $ 58,892 $ 68,639
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
24
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ----------
<S> <C> <C> <C>
Revenue:
Patient care services........................................................ $ 96,119 $ 81,104 $ 49,035
Product sales and network management......................................... 9,583 8,907 9,293
Royalty fees and other....................................................... 8,700 9,966 12,193
---------- --------- ----------
Total revenue.............................................................. 114,402 99,977 70,521
Cost of revenue:
Patient care services operations............................................. 41,695 42,268 29,038
Products and network management services sold................................ 51,904 36,875 22,160
---------- --------- ----------
Total cost of revenue...................................................... 93,599 79,143 51,198
---------- --------- ----------
Gross profit................................................................... 20,803 20,834 19,323
Operating expenses:
Selling, general and administrative expense.................................. 13,868 12,989 10,676
Provision for doubtful accounts.............................................. 4,936 5,750 1,861
Amortization of goodwill..................................................... 504 386 960
Asset write-offs and other charges........................................... -- 3,902 24,164
---------- --------- ----------
Total operating expenses................................................... 19,308 23,027 37,661
---------- --------- ----------
Operating income (loss)........................................................ 1,495 (2,193) (18,338)
Other income (expense), net:
Interest expense............................................................. (2,392) (1,711) (550)
Other, net................................................................... 1,048 567 930
---------- --------- ----------
Total other income (expense), net.............................................. (1,344) (1,144) 380
---------- --------- ----------
Income (loss) before income taxes.............................................. 151 (3,337) (17,958)
Provision (benefit) for income taxes........................................... 842 (1,240) 2,298
---------- --------- ----------
Net loss..................................................................... $ (691) $ (2,097) $ (20,256)
---------- --------- ----------
---------- --------- ----------
Net loss per common share:
Basic........................................................................ $ (0.06) $ (0.19) $ (1.93)
---------- --------- ----------
---------- --------- ----------
Diluted...................................................................... $ (0.06) $ (0.19) $ (1.93)
---------- --------- ----------
---------- --------- ----------
Shares used in computing net loss per common share:
Basic........................................................................ 11,071 10,879 10,494
---------- --------- ----------
---------- --------- ----------
Diluted...................................................................... 11,071 10,879 10,494
---------- --------- ----------
---------- --------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
25
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON RETAINED
STOCK TO ADDITIONAL EARNINGS/
COMMON BE PAID-IN (ACCUMULATED STOCKHOLDERS
STOCK ISSUED CAPITAL DEFICIT) EQUITY
------------- ----------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C>
December 31, 1995.................................. 105 -- 41,151 2,250 43,506
--- ----- ----------- ------------- ------------
Net Loss........................................... -- -- -- (20,256) (20,256)
Distribution to Sub S Corporation.................. -- -- -- (77) (77)
Common Stock to be issued.......................... -- 126 -- -- 126
Issuance of Common Stock........................... 1 -- 366 -- 367
--- ----- ----------- ------------- ------------
December 31, 1996.................................. 106 126 41,517 (18,083) 23,666
--- ----- ----------- ------------- ------------
Net Loss........................................... -- -- -- (2,097) (2,097)
Common Stock to be issued, net..................... -- 1,299 -- -- 1,299
Issuance of Common Stock........................... 2 -- 532 -- 534
--- ----- ----------- ------------- ------------
December 31, 1997.................................. 108 1,425 42,049 (20,180) 23,402
Net Loss........................................... -- -- -- (691) (691)
Common Stock to be issued, net..................... -- (198) -- -- (198)
Issuance of Common Stock........................... 2 -- 1,224 -- 1,226
--- ----- ----------- ------------- ------------
December 31, 1998.................................. 110 1,227 43,273 (20,871) 23,739
--- ----- ----------- ------------- ------------
--- ----- ----------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
26
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss..................................................................... $ (691) $ (2,097) $ (20,256)
Adjustments to reconcile net loss to net cash provided (used) by operating
activities:
Depreciation and amortization.............................................. 3,473 3,108 2,521
Provision for doubtful accounts............................................ 4,936 5,750 1,861
Asset write-offs and other charges......................................... -- 3,902 24,164
Changes in assets and liabilities, net of effects from acquisitions:
Trade accounts and notes receivable........................................ 5,985 (12,590) (2,320)
Inventory.................................................................. 192 17 180
Deferred income taxes benefit.............................................. 145 (1,591) (139)
Prepaid expenses and other current assets.................................. 2,090 (1,073) (1,205)
Trade accounts payable..................................................... (1,713) 2,423 (1,015)
Accrued wages and related benefits......................................... (169) 996
Accrued expenses and minority interest..................................... (1,331) (1,852) (975)
--------- ---------- ----------
Net cash provided (used) by operating activities......................... 12,917 (3,007) 2,816
--------- ---------- ----------
Cash flows from investing activities:
Purchases of equipment and other, net........................................ (2,120) (3,878) (1,423)
Other assets, net............................................................ -- (2,331) (426)
Payments for acquisitions, net of cash acquired.............................. (1,258) (9,210) (4,636)
--------- ---------- ----------
Net cash used by investing activities.................................... (3,378) (15,419) (6,485)
--------- ---------- ----------
Cash flows from financing activities:
Cash overdraft............................................................... (145) 145 --
Net (payments) borrowings under revolving credit agreement................... (6,400) 16,300 5,800
Payments on capital leases................................................... (142) (1,033) (543)
Payments of notes payable.................................................... (215) (168) (1,157)
Issuance of common stock..................................................... 1,028 1,959 367
Distribution to S Corporation................................................ -- -- (77)
--------- ---------- ----------
Net cash provided (used) by financing activities......................... (5,874) 17,203 4,390
--------- ---------- ----------
Net increase (decrease) in cash and cash equivalents........................... 3,665 (1,223) 721
Cash and cash equivalents, beginning of year................................... -- 1,223 502
--------- ---------- ----------
Cash and cash equivalents, end of year......................................... $ 3,665 $ -- $ 1,223
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
27
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) DESCRIPTION OF BUSINESS
Option Care, Inc. (together with its subsidiaries, collectively "the
Company") provides infusion therapy and other ancillary home and alternate site
healthcare services through its owned locations and its supporting franchise
network. In addition, the Company operates a wholly owned subsidiary that
supplies state of the art data management products and services to the home and
alternate site healthcare industry.
The Company was incorporated in Delaware on July 9, 1991. The Company's
predecessor was incorporated in California in January 1984. As of December 31,
1998, 145 Option Care locations, including satellite locations, were operating
in assigned territories in 35 states. Existing locations include 121 locations
owned and operated by franchise owners and 24 locations owned and operated by
the Company.
(B) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include Option Care, Inc. and its 50
percent or more owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
(C) USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the consolidated financial
statements and accompanying notes. Actual results could differ from these
estimates.
(D) CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents.
(E) FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximates their
carrying value.
(F) INVENTORY
Inventory, which consists primarily of medical supplies and pharmaceuticals
is stated at cost, which approximates market, on a first-in, first-out (FIFO)
basis.
(G) LONG-LIVED ASSETS
Equipment and other fixed assets are stated at cost. Equipment purchased
under capital leases is stated at the lower of the present value of minimum
lease payments at the beginning of the lease term or fair value at the inception
of the lease.
Depreciation on equipment is calculated on the straight-line method over the
estimated useful lives of the assets. Leasehold improvements and equipment
purchased under capital leases are amortized on the straight-line method over
the shorter of the lease term or estimated useful life of the asset.
28
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Goodwill, which represents the excess of fair market value over the cost of
net assets acquired, is amortized on a straight-line basis over 40 years.
Accumulated amortization was $1,483 and $979 at December 31, 1998 and 1997,
respectively.
Long-lived assets and certain identifiable intangibles are reviewed for
impairment in value based upon undiscounted future cash flows, and appropriate
losses are recognized, whenever the carrying amount of an asset may not be
recovered.
(H) INCOME TAXES
The Company files a consolidated federal income tax return with all of its
80 percent or more owned subsidiaries. Income taxes are accounted for under the
asset and liability method. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
consolidated financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using the
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
the consolidated financial statements in the period that includes the enactment
date.
(I) REVENUE RECOGNITION
(i) Patient care service revenue is reported at the estimated realized
amounts from patients, third-party payors and others for services rendered.
Revenue under certain third-party payor agreements is subject to audit and
retroactive adjustments. Provisions for estimated third-party payor settlements
and adjustments are estimated in the period the related services are rendered
and are adjusted in future periods as final settlements are determined.
During 1998 and 1997, approximately 25% and 40%, respectively, of patient
care service revenue and patient account receivables was from governmental
programs. Governmental programs pay for services based on fee schedules and
rates which are determined by the related governmental agency. The Company's
concentration of credit risk relating to trade account receivables is limited
due to the diversity of patients and payors.
Laws and regulations governing government programs are complex and subject
to interpretation. The Company believes that it is in compliance with all
applicable laws and regulations and is not aware of any pending or threatened
investigations involving allegations of potential wrongdoing. While no such
regulatory inquiries have been made, compliance with such laws and regulations
can be subject to future government review and interpretation as well as
significant regulatory action including fines, penalties and exclusion from the
government programs.
(ii) Royalty fees are recognized when cash is reported as received by the
franchises. Franchise agreements provide for royalties on either 9% of gross
cash receipts (subject to certain minimums and discounts), or on a sliding scale
ranging from 9% to 2% depending on the levels of such receipts and other certain
factors. Initial franchise fees are recognized when franchise training and
substantially all other services have been provided.
29
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(1) DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
(J) NET INCOME (LOSS) PER COMMON SHARE
The reconciliation of net income (loss) per weighted average common share
for the years ended December 31, 1998, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1998
-------------------------------------
<S> <C> <C> <C>
LOSS SHARES PER SHARE
---------- ------------ -----------
Basic EPS
Net loss.................................................................. $ (691) 11,070,820 $ (0.06)
Effect of dilutive securities............................................. -- -- --
---------- ------------ -----------
Diluted EPS................................................................. $ (691) 11,070,820 $ (0.06)
---------- ------------ -----------
---------- ------------ -----------
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-------------------------------------
LOSS SHARES PER SHARE
---------- ------------ -----------
<S> <C> <C> <C>
Basic EPS
Net loss.................................................................. $ (2,097) 10,879,000 $ (0.19)
Effect of dilutive securities............................................. -- -- --
---------- ------------ -----------
Diluted EPS................................................................. $ (2,097) 10,879,000 $ (0.19)
---------- ------------ -----------
---------- ------------ -----------
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-------------------------------------
LOSS SHARES PER SHARE
---------- ------------ -----------
<S> <C> <C> <C>
Basic EPS
Net loss.................................................................. $ (20,256) 10,494,000 $ (1.93)
Effect of dilutive securities............................................. -- -- --
---------- ------------ -----------
Diluted EPS................................................................. $ (20,256) 10,494,000 $ (1.93)
---------- ------------ -----------
---------- ------------ -----------
</TABLE>
(K) RECLASSIFICATIONS
Certain prior year amounts in the consolidated financial statements have
been reclassified to conform to the current year presentation.
(2) BUSINESS COMBINATIONS
At various dates during 1997, the Company purchased the assets of franchises
located in Vista and Victorville, CA, Miami, FL, Ann Arbor and Grand Haven, MI
and Lincoln and Grand Island, NE. The Company also purchased the assets of other
healthcare related businesses in Victorville, CA and Miami, FL. The aggregate
purchase price for these transactions was $10,689, of which $9,129 was paid in
cash, $1,260 in short-term obligations and $300 in forgiveness of accounts
receivable. The purchase method of accounting was used and $9,026 of goodwill
was recorded. The accompanying consolidated financial statements include the
results of operations of all acquired businesses from the date of acquisition.
The Company recorded an additional $1,257 and $1,758 of goodwill, in 1998
and 1997, respectively, from payments made under certain of the Company's
purchase agreements due to the meeting of certain
30
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(2) BUSINESS COMBINATIONS (CONTINUED)
financial milestones. The obligations due to contractual commitments that will
be paid in shares of the Company's Common Stock has been recorded as common
stock to be issued in the equity section of the consolidated financial
statements.
The unaudited pro-forma results of operations, affected by the acquisitions
accounted for as purchases as if they had occurred as of January 1, 1996, were
as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net revenue............................................................................... $ 104,008 $ 90,668
Net loss.................................................................................. (2,040) (19,850)
Net loss per common share................................................................. (0.19) (1.89)
</TABLE>
At various dates during 1996, the Company purchased the assets of franchises
located in Bethel and Milford, OH, Everett and Kennewick, WA as well as all the
outstanding stock of the franchise located in Oklahoma City, OK. The Company
also purchased the outstanding minority interest in the Bullhead City, AZ
location. The Company also purchased the assets of other healthcare related
businesses in Bethel and Milford, OH, Kirsksville, MO, Jefferson City, MO,
Bullhead City, AZ, Grand Junction, CO, Little Rock, AR, Ontario, CA and Houston,
TX. The aggregate purchase price for these transactions, except for the Oklahoma
City acquisition was $7,220, of which $4,652 was paid in cash, $1,305 in
short-term obligations, $471 in long-term obligations and $792 in forgiveness of
accounts receivable. The purchase method of accounting was used and $2,518, of
goodwill was recorded.
The Oklahoma City franchise, which was acquired through the issuance of
500,000 shares of common stock, was accounted for as a pooling of interests, and
the accompanying consolidated financial statements have been restated by
immaterial amounts to reflect this transaction.
The accompanying consolidated financial statements include the results of
operations of all other acquired businesses from the date of acquisition. The
unaudited pro-forma results of operations, affected by the acquisitions
accounted for as purchases as if they had occurred as of January 1, 1995, was as
follows:
<TABLE>
<CAPTION>
1996 1995
---------- ---------
<S> <C> <C>
Total revenues............................................................................. $ 77,502 $ 88,017
Net income (loss).......................................................................... (20,233) 3,397
Net income (loss) per common share......................................................... (1.93) 0.32
</TABLE>
31
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(3) EQUIPMENT AND OTHER FIXED ASSETS
Equipment and other fixed assets consists of:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Equipment................................................................................... $ 12,189 $ 10,787
Computer software........................................................................... 613 149
Leasehold improvements...................................................................... 1,140 1,064
--------- ---------
13,942 12,000
Less accumulated depreciation and amortization.............................................. 7,857 5,986
--------- ---------
$ 6,085 $ 6,014
--------- ---------
--------- ---------
</TABLE>
(4) LONG-TERM DEBT
Long-term debt consists of:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revolving credit facility................................................................... $ 21,800 $ 28,200
Notes payable, secured by various assets, with maturities through 2005 at interest rates
ranging from 8% to 10%.................................................................... 210 425
Capital lease obligations................................................................... 348 490
--------- ---------
22,358 29,115
Less current portion........................................................................ 262 314
--------- ---------
Long-term debt.............................................................................. $ 22,096 $ 28,801
--------- ---------
--------- ---------
</TABLE>
Maturities of long-term debt and capital lease obligations are:
<TABLE>
<CAPTION>
CAPITAL
YEAR ENDING LONG-TERM LEASE
DECEMBER 31, DEBT OBLIGATIONS
------------------ ----------- -------------
<S> <C> <C>
1999................................................................. $ 55 $ 249
2000................................................................. 21,838(1) 144
2001................................................................. 34 28
2002................................................................. 26 5
2003 and beyond...................................................... 57 --
----------- -----
$ 22,010 426
-----------
-----------
Less amounts representing interest................................... 78
-----
Present value of net minimum lease payments.......................... $ 348
-----
-----
</TABLE>
- ------------------------
(1) On February 5, 1999, the amount outstanding under the Company's revolving
credit facility was refinanced as detailed below.
At December 31, 1998 and 1997, the Company had a $35,000 revolving credit
agreement, of which there were outstanding borrowings of $21,800 and $28,200,
respectively. Borrowings under this revolving
32
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(4) LONG-TERM DEBT (CONTINUED)
credit facility were used to satisfy the Company's working capital requirements.
The effective borrowing rate of interest under this facility as of December 31,
1998 averaged 9.6%, as a result of the non-compliance of the interest coverage
covenant. The interest rate paid by the Company on its outstanding liability was
2% above the bank's reference rate plus an additional 0.25%. The Company retired
its existing amount due in its entirety and terminated this facility on February
5, 1999.
On February 5, 1999, the Company entered into a $25,000 Loan and Security
Agreement ("Agreement") with BankAmerica Business Credit that replaces the
former facility. The Agreement provides for borrowings up to $25,000 and
requires the Company to meet certain financial covenants including, but not
limited to: fixed charge coverage ratio; debt ratio; and limitation on annual
capital expenditures. The Agreement provides for, among other things, the
ability to meet working capital needs and to retire in its entirety the
Company's existing facility. The Company is subject to an early termination fee
if the loan is terminated prior to its natural expiration of February 2002. The
Company paid a facility fee of $185 at time of signing the Agreement. The
Agreement provides for an annual commitment fee paid by the Company of 0.25% on
the average daily unused amount of the facility. The Agreement prohibits the
Company from declaring any cash dividends on its common stock. The Company may
elect interest rates ranging from various LIBOR periods plus a 2.125% margin, to
the bank's reference rate.
Availability under the facility is related to a percentage of the Company's
net outstanding account receivable balances, as defined, less certain ineligible
amounts, as defined in the Agreement. The facility is secured by all of the
issued and outstanding Common Stock of the Company. In addition to the Company's
assets, the John N. Kapoor Trust, dated September 20, 1989, (the "Trust"), has
pledged an irrevocable letter of credit totaling $7,000 in favor of the lending
bank to support borrowings, if any, that exceed the allowable collateral base as
defined in the Agreement. Overall borrowings allowable under the Agreement are
limited to the lessor of total allowable collateral base plus amounts available
that are supported by the letter of credit or $25,000. The Company has entered
into an agreement with the Trust which provides the monthly payment of a
monitoring fee as well as all expenses related to the set up and maintenance of
the letter of credit.
In the case of a draw on the letter of credit pledged, the Company may
elect, at its option, to issue to the Trust a Convertible Note (the "Note") for
the amount of such draw. The Trust has the option, at any time up to and
including January 31, 2000 or until the Note has been paid in full, to convert
all or a portion of the unpaid amount of such Note into Common Stock of the
Company, at a price equal to the average closing price per share of the Common
Stock during the five days preceding the receipt of the Note.
The Company leases certain medical equipment under long-term lease
agreements. Most of these agreements have a term of 36 months and are classified
as capital leases. The net book value of the medical equipment under capital
leases were $298 and $162 for 1998 and 1997, respectively.
33
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(5) PROVISION FOR INCOME TAXES
The income tax provision (benefit) consisted of the following (in
thousands):
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
----------- --------- ---------
<S> <C> <C> <C>
1998:
Federal........................................................ $ 493 $ 233 $ 726
State.......................................................... 82 34 116
----------- --------- ---------
$ 575 $ 267 $ 842
----------- --------- ---------
----------- --------- ---------
1997:
Federal........................................................ $ -- $ (1,464) $ (1,464)
State.......................................................... 482 (258) 224
----------- --------- ---------
$ 482 $ (1,722) $ (1,240)
----------- --------- ---------
----------- --------- ---------
1996:
Federal........................................................ $ 2,012 $ (108) $ 1,904
State.......................................................... 425 (31) 394
----------- --------- ---------
$ 2,437 $ (139) $ 2,298
----------- --------- ---------
----------- --------- ---------
</TABLE>
A reconciliation between the income tax expense (benefit) recognized in the
Company's Consolidated Statement of Operations and the income tax expense
(benefit) computed by applying the U.S. Federal corporate income tax rate of
34%, 35% and 34% for 1998, 1997 and 1996, respectively, to earnings (loss)
before income taxes follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............................................ $ 51 $ (1,168) $ (6,124)
Increase in income taxes resulting from:
Amortization of goodwill........................................................... 55 56 8,248
State income taxes, net of federal income tax benefit.............................. 8 (143) 260
Settlement of 1992-1995 IRS audit and adjustments.................................. 739 -- --
Other, net......................................................................... (11) 15 (86)
--------- --------- ---------
Total provision (benefit)............................................................ $ 842 $ (1,240) $ 2,298
--------- --------- ---------
--------- --------- ---------
</TABLE>
34
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(5) PROVISION FOR INCOME TAXES (CONTINUED)
Deferred tax assets and (liabilities) at December 31, 1998 and 1997 include:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
<S> <C> <C> <C> <C>
CURRENT NONCURRENT CURRENT NONCURRENT
----------- ----------- ----------- -----------
Deferred tax assets:
Allowance for doubtful accounts...................................... $ 1,395 $ -- $ 1,451 $ --
Allowance for notes receivable....................................... 11 -- 65 --
Accrued expenses..................................................... 42 -- 137 --
Severance accrual.................................................... 103 -- 252 --
Reserve for discontinued operations.................................. 115 -- -- --
Capital loss carryforward............................................ -- 575 -- 590
Net operating loss carryforward...................................... -- 718 -- 651
Other, net........................................................... 378 -- 286 --
----------- ----------- ----------- -----------
Total deferred tax assets............................................ $ 2,044 $ 1,293 $ 2,191 $ 1,241
Valuation allowance.................................................. -- (575) -- (590)
----------- ----------- ----------- -----------
Net deferred tax asset............................................... $ 2,044 $ 718 $ 2,191 $ 651
Deferred tax liabilities:
Tax over book depreciation........................................... -- (172) -- (103)
Intangible assets.................................................... -- (434) -- (126)
Tax accounting change................................................ (81) -- (83) (83)
Other, net........................................................... -- (103) -- (208)
----------- ----------- ----------- -----------
Total deferred tax liabilities....................................... (81) (709) (83) (520)
----------- ----------- ----------- -----------
Net deferred tax asset............................................... $ 1,963 $ 9 $ 2,108 $ 131
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The Company has a capital loss carryforward of $1,475, which expires in
2001. The valuation allowance of $575 and $590, for 1998 and 1997, respectively,
has changed due to a reduction in the effective tax rate to 39%. The Company has
a net operating loss carryforward of $1,839, of which $1,628 expires in 2012 and
$211 expires in 2018. In 1998, the Company incurred additional expenses for
taxes due to the settlement of an IRS audit for prior years and the
corresponding adjustment to deferred taxes.
The Company believes it is more likely than not that the results of future
operations will generate sufficient taxable income to realize the net deferred
tax asset.
(6) STOCK INCENTIVE PLAN
The Company's Amended and Restated Incentive Plan (1997) was originally
adopted by the Board and approved by the shareholders on September 11, 1991 and
amended on February 21, 1997 (the "Incentive Plan"). The Incentive Plan provides
for the award of cash, stock, and stock unit bonuses, and the grant of stock
options and stock appreciation rights ("SARs"), to officers and employees of the
Company and its subsidiaries and other persons who provide services to the
Company on a regular basis. On February 21, 1997, the Company's Board approved
an increase in the amount of shares reserved for the Incentive Plan to 2,000,000
shares of Common Stock. All options under the Incentive Plan must be
35
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(6) STOCK INCENTIVE PLAN (CONTINUED)
exercised within ten years after the grant date. As of December 31, 1998, no
cash, stock, stock unit bonuses or SARs have been granted pursuant to the
Incentive Plan.
The following schedule details the changes in options granted under the
Company's Stock Incentive Plan for the three years ending December 31, 1998:
<TABLE>
<CAPTION>
1998 1997 1996
----------------------- ----------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS SHARES PRICE SHARES PRICE SHARES PRICE
- ---------------------------------------------------- ---------- ----------- ---------- ----------- --------- -----------
Outstanding at beginning of year.................... 977,715 $ 4.16 965,447 $ 3.58 870,230 $ 3.52
Granted............................................. 928,300 1.63 527,250 5.34 197,350 4.47
Exercised........................................... (18,250) 3.28 (160,748) 2.54 (42,428) 2.66
Terminated.......................................... (462,925) 3.95 (354,234) 5.11 (59,705) 2.88
---------- ---------- ---------
Outstanding at end of year.......................... 1,424,840 1.95 977,715 4.16 965,447 3.58
---------- ---------- ---------
---------- ---------- ---------
Options exercisable at year-end..................... 435,123 354,514 317,223
Weighted Average fair value of options granted
during the year................................... $ 0.89(1) $ 2.53 $ 1.71
</TABLE>
- ------------------------
(1) Includes an aggregate of 262,500 shares of options re-priced from exercise
prices ranging from $3.375 to $6.00, to an exercise price of $.75.
The following table summarizes information about the Company's Stock
Incentive Plan and options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ----------------------------
<S> <C> <C> <C> <C> <C>
WEIGHTED-AVG.
RANGE OF NUMBER REMAINING NUMBER
EXERCISE OUTSTANDING CONTRACTUAL WEIGHTED-AVG. EXERCISABLE WEIGHTED-AVG.
PRICES AT 12/31/98 LIFE EXERCISE PRICE AT 12/31/98 EXERCISE PRICE
------------- ----------- ------------- --------------- ----------- ---------------
$0.75 to $1.00............................ 877,600 9.5 years $ 0.76 59,226 $ 0.75
$2.25 to $3.47............................ 196,015 7.0 years $ 3.10 118,388 $ 2.98
$3.75 to $4.38............................ 305,962 6.5 years $ 4.04 233,198 $ 4.05
$5.00 to $7.50............................ 45,263 8.1 years $ 5.95 24,311 $ 5.92
----------- -----------
$0.75 to $7.50............................ 1,424,840 435,123
----------- -----------
----------- -----------
</TABLE>
The 1996 Employee Stock Purchase Plan permits eligible employees to acquire
shares of the Company's Common Stock through payroll deductions not exceeding
15% of base wages, at a 15% discount from market price on the grant date. During
1998, there were 108,580 shares issued that related to the plan.
The Company applies Accounting Principles Board (APB) Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized for its stock option plans.
36
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(6) STOCK INCENTIVE PLAN (CONTINUED)
Had compensation cost for the Company's stock-based compensations plans been
determined based on FASB Statement No. 123, the Company's net loss and loss per
common share in 1998, 1997 and 1996 would have been the pro forma amounts
indicated below:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ----------
<S> <C> <C> <C>
Net loss:
as reported.................................................................... $ (691) $ (2,097) $ (20,256)
pro forma...................................................................... $ (1,068) $ (2,520) $ (20,449)
Net loss per common and common equivalent share:
as reported.................................................................... $ (0.06) $ (0.19) $ (1.93)
pro forma...................................................................... $ (0.10) $ (0.24) $ (1.95)
</TABLE>
The fair value of options granted under the Company's stock option plan
during 1998, 1997 and 1996 was estimated on the date of grant using the
Black-Scholes option-pricing model with the following assumptions: no dividend
yield, expected volatility of 65% for 1998 and 45% for 1997 and 30% for 1996,
risk free interest rate of 4.65% for 1998, 5.75% for 1997 and 6.25% for 1996,
and expected lives of 5 years for all three years.
(7) RETIREMENT PLAN
All employees who have attained the age of 20 1/2 with one year's service
are eligible for participation in the Company's 401(k) Plan. The employer's
matching contribution is a percentage of the amount contributed by each employee
and is funded on a current basis. The expense recognized in 1998, 1997, and 1996
related to this plan totaled $106, $176 and $298, respectively.
(8) ASSET WRITE-OFFS AND OTHER CHARGES
During the fourth quarter of 1997, the Company evaluated its operations
which resulted in the initiation of a cost reduction program and disposition of
certain underperforming assets. In conjunction with its evaluation of
operations, the Company recorded $3,902 in asset write-offs and other charges.
The charge consists of $1,395 of cash charges, of which payments of $759 were
made in 1997 and $636 were made in 1998.
(9) COMMITMENTS AND CONTINGENCIES
The Company may be required, upon death or termination of employment, to
purchase stock of certain minority shareholders of subsidiaries.
Certain of the Company's purchase agreements for acquisitions made in 1997
and 1996, obligate the Company, upon the acquired businesses meeting of
determined milestones, the attainment of certain financial results or
contractually, to pay additional consideration to former owners representing
additional purchase price for these acquisitions. The contingency period for
these payments is through December 31, 2001. Amounts to be paid out under these
agreements, of which certain amounts will be paid out in Common Stock of the
Company, will be recorded as additional goodwill in the year that the amounts
become certain.
37
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
(9) COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company is subject to claims and legal actions that may arise in the
ordinary course of business. However, the Company maintains professional
liability and other insurance to protect against such claims or legal actions.
The Company is not aware of any litigation either pending or filed that might
have a potential impact on the Company's financial position and statement of
operations.
The Company leases office space under leases which are classified as
operating leases. Operating lease expense for 1998, 1997 and 1996 was $2,980,
$3,286, and $2,609, respectively. The future minimum lease payments for these
leases are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
- -------------------------------------------------------------------------------------
<S> <C>
1999......................................................................... $ 1,979
2000......................................................................... 1,621
2001......................................................................... 1,386
2002......................................................................... 859
2003 and beyond.............................................................. 533
---------
$ 6,378
---------
---------
</TABLE>
(10) SUPPLEMENTAL CASH FLOW INFORMATION
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Interest and taxes paid (refund):
Interest............................................................................. $ 3,125 $ 1,568 $ 899
--------- --------- ---------
--------- --------- ---------
Income taxes (refund)................................................................ $ (876) $ 2,085 $ 2,105
--------- --------- ---------
--------- --------- ---------
Noncash investing and financing activities:
Stock issued for franchise acquisitions.............................................. $ -- $ 1,260 $ 244
--------- --------- ---------
--------- --------- ---------
Notes issued for franchise acquisitions.............................................. $ -- $ -- $ 1,776
--------- --------- ---------
--------- --------- ---------
Additions to obligations under capital leases........................................ $ 23 $ 465 $ 85
--------- --------- ---------
--------- --------- ---------
Additions to subleases under direct financing leases................................. $ -- $ -- $ 45
--------- --------- ---------
--------- --------- ---------
</TABLE>
38
<PAGE>
OPTION CARE, INC. AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1996, 1997 AND 1998
(IN THOUSANDS)
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
<TABLE>
<CAPTION>
BALANCE BALANCE
BEGINNING (A) CHARGED (B) END
YEAR ENDED OF PERIOD ACQUISITIONS TO EXPENSE DEDUCTIONS OF PERIOD
- ----------------------------------------------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1996.................................... 1,273 306 1,861 (1,702) 1,738
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
December 31, 1997.................................... 1,738 1,049 5,715 (4,749) 3,753
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
December 31, 1998.................................... 3,753 -- 4,936 (5,113) 3,576
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
</TABLE>
ALLOWANCE FOR UNCOLLECTIBLE NOTES RECEIVABLE:
<TABLE>
<CAPTION>
BALANCE BALANCE
BEGINNING (A) CHARGED (B) END
YEAR ENDED OF PERIOD ACQUISITIONS TO EXPENSE DEDUCTIONS OF PERIOD
- ----------------------------------------------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1996.................................... 342 -- -- (226) 116
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
December 31, 1997.................................... 116 -- 35 -- 151
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
December 31, 1998.................................... 151 -- -- (122) 29
----- ----- ----- ----------- -----
----- ----- ----- ----------- -----
</TABLE>
- ------------------------
(A) Represents balances related to companies acquired during the year.
(B) Represents accounts written off.
39
<PAGE>
(a)(3) Exhibits:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
3.1 Certificate of Incorporation of the Registrant, together with Certificate of Amendment thereto filed
February 18, 1992. Filed as Exhibit 3(a) to the Company's Registration Statement (No. 33-45836) dated
April 15, 1992 and incorporated by reference herein.
3.2 Certificate of Amendment to Certificate of Incorporation of the Registrant filed March 25, 1992. Filed
as Exhibit 3(c) to the Company's Registration Statement (No. 33-45836) dated April 15, 1992 and
incorporated by reference herein.
3.3 Restated By-laws of the Registrant dated June 1, 1994. Filed as Exhibit 10.5 to the Company's Annual
Report on Form 10-K for the year ending December 31, 1994 and incorporated by reference herein.
10.1 Stock Purchase Agreement dated February 18, 1992, among the Registrant, OCE and the stockholders of
Young's I.V. Therapy, Inc. Filed as Exhibit 2(f) to the Company's Registration Statement (No. 33-45836)
dated April 15, 1992 and incorporated by reference herein.
10.2 1991 Stock Incentive Plan of the Registrant and related forms of Incentive and Nonqualified Stock Option
Agreements. Filed as Exhibit 10(a) to the Company's Registration Statement (No. 33-45836) dated April
15, 1992 and incorporated by reference herein. *
10.2(a) Amendment to the 1991 Stock Incentive Plan of the Registrant and related forms of Incentive and
Nonqualified Stock Option Agreements, dated February 21, 1995. Filed as Exhibit 10.6(a) to the Company's
Annual Report on Form 10-K for the year ending December 31, 1994 and incorporated by reference herein. *
10.2(b) Amendment to the 1991 Stock Incentive Plan of the Registrant, dated May 22, 1997. Filed as Exhibit
10.2(b) to the Company's Annual Report on Form 10-K for the year ending December 31, 1997 and
incorporated by reference herein *
10.3 Option Care, Inc. 401(k) Profit Sharing Plan. Filed as Exhibit 10(b) to the Company's Registration
Statement (No. 33-45836) dated April 15, 1992 and incorporated by reference herein. *
10.3(a) Amendment to the 1992 401(k) Profit Sharing Plan of the Registrant dated January 1, 1996. Filed as
Exhibit 10.3(a) to the Company's Annual Report on Form 10-K for the year ending December 31, 1997 and
incorporated by reference herein. *
10.4 Consulting Agreement dated as of September 27, 1990 between EJ Financial Enterprises and Michael Prime.
Filed as Exhibit 10(h) to the Company's Registration Statement (No. 33-45836) dated April 15, 1992 and
incorporated by reference herein. *
10.5 Form of Franchise Agreement. Filed as Exhibit 10.5 to the Company's Annual Report on Form 10-K for the
year ending December 31, 1996 and incorporated by reference herein.
10.6 Lease dated as of October 23, 1996 between the Registrant and LaSalle National Trust, N.A., as Trustee.
Filed as Exhibit 10.6 to the Company's Annual Report on Form 10-K for the year ending December 31, 1996
and incorporated by reference herein.
10.7 Consulting Agreement between the Registrant and EJ Financial Enterprises, Inc. Filed as Exhibit 10(o) to
the Company's Registration Statement (No. 33-45836) dated April 15, 1992 and incorporated by reference
herein.
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
10.8 Credit Agreement with ancillary documentation dated December 23, 1996, among Registrant, Option Care
Enterprises, Inc. ("OCE"), Option Care, Inc. (California), and Option Care Capital Services and PNC Bank
as agent and lender and Harris Bank and The Northern Trust Company as lenders re: $30,000,000 credit
agreement. Filed as Exhibit 10.8 to the Company's Annual Report on Form 10-K for the year ending
December 31, 1996 and incorporated by reference herein.
10.8(a) Amendment 1 to Credit Agreement dated February 5, 1997, among Registrant, Option Care Enterprises, Inc.
("OCE"), Option Care, Inc. (California), and PNC Bank as agent and lender and Harris Bank and The
Northern Trust Company as lenders. Filed as Exhibit 10.8(a) to the Company's Annual Report on Form 10-K
for the year ending December 31, 1997 and incorporated by reference herein.
10.8(b) Amendment 5 to Credit Agreement dated March 25, among Registrant, Option Care Enterprises, Inc. ("OCE"),
Option Care, Inc. (California), and PNC Bank as agent and lender and Harris Bank, The Northern Trust
Company and The First National Bank of Chicago as lenders re: an extension to the original revolving
credit agreement to January 2000. Filed as Exhibit 10.8(b) to the Company's Annual Report on Form 10-K
for the year ending December 31, 1997 and incorporated by reference herein.
10.9 Stock Sale Agreement, Franchise Agreement and Addendum to Franchise Agreement dated December 31, 1996
among the Registrant and J. Harris Morgan, Jr. Filed as Exhibit 10.9 to the Company's Annual Report on
form 10-K for the year ending December 31, 1996 and incorporated by reference herein.
10.10 Promissory Note between Convention Center Drug, Inc. and Option Care, Inc., dated November 15, 1996.
Filed as Exhibit 10.10 to the Company's Annual Report on Form 10-K for the year ending December 31, 1996
and incorporated by reference herein.
10.11 Security Agreement between Convention Center Drug, Inc. and Option Care, Inc., dated November 15, 1996.
Filed as Exhibit 10.11 to the Company's Annual Report on Form 10-K for the year ending December 31, 1996
and incorporated by reference herein.
10.12 Promissory Notes between Home I.V., Inc. and Option Care, Inc., dated March 17, 1995. Filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year ending December 31, 1995 and incorporated
by reference herein.
10.13 Promissory Note between Home Pharmacy Inc. and Option Care, Inc., dated February 1, 1997. Filed as
Exhibit 10.13 to the Company's Annual Report on Form 10-K for the year ending December 31, 1997 and
incorporated by reference herein.
10.14 Management Agreement between Pinecrest Healthcare Consultants, Inc., and Option Care, Inc. dated April,
1997. Filed as Exhibit 10.14 to the Company's Annual Report on Form 10-K for the year ending December
31, 1997 and incorporated by reference herein. *
10.15 Amended Option Care, Inc. 1996 Employee Stock Purchase Plan, dated January 1, 1996. Filed as Exhibit
10.19 to the Company's Annual Report on Form 10-K for the year ending December 31, 1995 and incorporated
by reference herein. *
10.16 Renewal, dated May 2, 1997, of the Executive Severance Agreement between Erick E. Hanson and Option
Care, Inc., dated June 28, 1996 incorporated by reference herein. *
10.17 Executive Severance Agreement between James A. Hodges, Jr. and Option Care, Inc., dated December 19,
1997. Filed as Exhibit 10.17 to the Company's Annual Report for the year ending December 31, 1997 and
incorporated by reference herein.*
10.18 Executive Severance Agreement between Cathy Bellehumeur and Option Care, Inc., dated November 12, 1997.
Filed as Exhibit 10.18 to the Company's Annual Report for the year ending December 31, 1997 and
incorporated by reference herein.*
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- ---------
<S> <C>
10.19 Promissory Note between Felice, Inc., and Option Care, Inc., dated March 11, 1997. Filed as Exhibit
10.19 to the Company's Annual Report for year ending December 31, 1997 and incorporated by reference
herein.*
10.20 Promissory Note between C.R. I.V. Service, Inc., and Option Care, Inc., dated April 24, 1997. Filed as
Exhibit 10.20 to the Company's Annual Report for year ending December 31, 1997 and incorporated by
reference herein. *
10.21 Promissory Note between Eugene and Susan Lutz, and Option Care, Inc., dated April 24, 1997. Filed as
Exhibit 10.20 to the Company's Annual Report for year ending December 31, 1997 and incorporated by
reference herein. *
10.22 Promissory Note between East Coast Optioncare, Inc., and Option Care, Inc., dated November 1, 1997.
Filed as Exhibit 10.21 to the Company's Annual Report for year ending December 31, 1997 and incorporated
by reference herein.*
10.23 Promissory Note between Brooks Home I.V., Inc., and Option Care, Inc., dated December 8, 1997. Filed as
Exhibit 10.22 to the Company's Annual Report for year ending December 31, 1997 and incorporated by
reference herein.*
10.24 Facility Provider Agreement between Foundation Health Corporation Affiliate(s) and Option Care, Inc.
dated June 1, 1997. Filed as Exhibit 10.24 to the Company's Annual Report for year ending December 31,
1997 and incorporated by reference herein.
10.25 Amendment to the Facility Provider Agreement between Foundation Health Corporation Affiliate(s) and
Option Care, Inc. dated March 23, 1998. Filed as Exhibit 10.25 to the Company's Annual Report for year
ending December 31, 1997 and incorporated by reference herein.
10.26 Loan and Security Agreement with ancillary documentation dated February 5, 1999, among Registrant,
Option Care Enterprises, Inc. ("OCE'), Option Care, Inc. (California) and BankAmerica Business Credit,
Inc. as lender
10.27 Employment Agreement between Michael A. Rusnak and Option Care, Inc., dated October 1, 1998.*
10.28 Reimbursement and Security Agreement dated February 10, 1999, between Option Care, Inc. and the John N.
Kapoor Trust dated September 20, 1989.
10.29 Letter Agreement dated January 15, 1999, among Registrant, Option Care Enterprises, Inc. ("OCE"), Option
Care, Inc. (California), and PNC Bank as agent and lender and Harris Bank, the Northern Trust Company
and The First National Bank of Chicago as lenders re: Forbearance Agreement.
16 Letter re Change in Certifying Accountant dated December 11, 1998 from KPMG, filed with Securities and
Exchange Commission as an amendment to Form 8-K filed by Company on December 4, 1998 and incorporated by
reference herein.
21 Subsidiaries of the Registrant.
23.1 Consent of Ernst & Young LLP.
23.2 Consent of KPMG LLP.
27 Financial Data Schedule
</TABLE>
- ------------------------
* Management contracts and compensatory plans and arrangements.
(d) Reports on Form 8-K.
The Company on December 4, 1998, filed a Report on Form 8-K concerning the
change in its certifying accountants.
42
<PAGE>
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.
OPTION CARE, INC.
BY: /S/ MICHAEL A. RUSNAK
-----------------------------------------
Michael A. Rusnak
PRESIDENT, CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Date: ______March 30, 1999____________
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 DATE
- ------------------------------ --------------------------- -------------------
/s/ MICHAEL A. RUSNAK President, Chief Executive March 30, 1999
- ------------------------------ Officer and Director
Michael A. Rusnak (Principal Executive
Officer)
/s/ MICHAEL A. SIRI Vice President and Chief March 30, 1999
- ------------------------------ Financial Officer
Michael A. Siri (Principal Accounting
Officer and Principal
Financial Officer)
/s/ JAMES G. ANDRESS Director March 30, 1999
- ------------------------------
James G. Andress
/s/ JOHN N. KAPOOR Chairman and Director March 30, 1999
- ------------------------------
Dr. John N. Kapoor
/s/ JEROME F. SHELDON Director March 30, 1999
- ------------------------------
Jerome F. Sheldon
/s/ ROGER W. STONE Director March 30, 1999
- ------------------------------
Roger W. Stone
43
<PAGE>
THE BEST OPTION IN COVERAGE
OPTION CARE, INC. IS A HOME AND ALTERNATE SITE HEALTHCARE COMPANY WITH 145
LOCATIONS IN 35 STATES, INCLUDING 24 COMPANY-OWNED LOCATIONS. THE COMPANY
PROVIDES HOME INFUSION THERAPY, ITS CORE SERVICE, AS WELL AS NURSING SERVICES,
RESPIRATORY SERVICES AND DURABLE MEDICAL EQUIPMENT THROUGH ITS OWNED LOCATIONS
AND HOME INFUSION THERAPY THROUGH ITS SUPPORTING FRANCHISE NETWORK.
[LOGO]
<PAGE>
DIRECTORS AND MANAGEMENT
DIRECTORS
DR. JOHN N. KAPOOR
Chairman, Dr. Kapoor is President of
E.J. Financial, Inc.
JAMES G. ANDRESS
Director, Mr. Andress is President and Chief Executive Officer of Option Care,
Inc.
MICHAEL A. RUSNAK
Director, Mr. Rusnak is President and Chief Executive Officer of Option Care,
Inc.
JEROME F. SHELDON
Director
ROGER W. STONE
Director
MANAGEMENT
DR. JOHN N. KAPOOR
Chairman
MICHAEL A. RUSNAK
President and Chief Executive Officer
CATHY BELLEHUMEUR
Senior Vice President, General Counsel and Secretary
MICHAEL A. SIRI
Chief Financial Officer
GENERAL CORPORATE INFORMATION
BANKS:
Bank of America
Chicago, Illinois
THE NORTHERN TRUST COMPANY
Chicago, Illinois
TRANSFER AGENT:
U.S. Stock Transfer Corporation
Glendale, California
Contact: Richard C. Brown
(818)502-1404
INDEPENDENT AUDITORS:
Ernst & Young LLP
Chicago, Illinois
OPTIONcare-Registered Trademark-
100 CORPORATE NORTH, SUITE 212, BANNOCKBURN, IL 60015 (847)615-1690
WEB SITE: HTTP://WWW.OPTIONCARE.COM
-C-1998 OPTION CARE, INC. -C-OPTION CARE IS A REGISTERED TRADEMARK OF OPTION
CARE, INC. MK98-006
<PAGE>
LOAN AND SECURITY AGREEMENT
Dated as of February 5, 1999
Among
BANKAMERICA BUSINESS CREDIT, INC.,
AS THE LENDER,
OPTION CARE, INC.,
a Delaware corporation,
INDIVIDUALLY AND AS THE BORROWERS' AGENT,
and
OPTION CARE, INC.,
a Delaware corporation,
AND EACH OF THE SUBSIDIARIES OF
OPTION CARE, INC. FROM
TIME TO TIME PARTY HERETO,
AS THE BORROWERS
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TABLE OF CONTENTS
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1. DEFINITIONS.........................................................1
1.1 Defined Terms..................................................1
1.2 Accounting Terms..............................................23
1.3 Interpretive Provisions........................................24
2. LOANS..............................................................25
2.1 Total Facility................................................25
2.2 Revolving Loans...............................................25
2.3 Automated Clearing House Transfers............................26
2.4 The Borrowers' Agent..........................................26
3. INTEREST AND OTHER CHARGES.........................................28
3.1 Interest......................................................28
3.2 Conversion and Continuation Elections.........................29
3.3 Maximum Interest Rate.........................................30
3.4 Facility Fee..................................................30
4. PAYMENTS AND PREPAYMENTS...........................................30
4.1 Revolving Loans...............................................30
4.2 Place and Form of Payments; Extension of Time.................31
4.3 Application and Reversal of Payments..........................31
4.4 INDEMNITY FOR RETURNED PAYMENTS...............................31
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS..........................32
6. TAXES, YIELD PROTECTION AND ILLEGALITY..................................32
6.1 Taxes.........................................................32
6.2 Illegality....................................................33
6.3 Increased Costs and Reduction of Return.......................33
6.4 Funding Losses................................................34
6.5 Inability to Determine Rates..................................34
6.6 Survival......................................................35
7. COLLATERAL.............................................................35
7.1 Grant of Security Interest....................................35
7.2 Perfection and Protection of Security Interest................36
7.3 Location of Collateral........................................37
7.4 Title to, Liens on, and Sale and Use of Collateral............37
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7.5 Additional Collateral.........................................37
7.6 Access and Examination........................................39
7.7 Insurance.....................................................39
7.8 Collateral Reporting..........................................40
7.9 Accounts......................................................41
7.10 Collection of Accounts; Payments.............................43
7.11 [Reserved]...................................................44
7.12 Equipment....................................................44
7.13 Material Contracts...........................................45
7.14 Documents, Instruments, and Chattel Paper....................46
7.15 Right to Cure................................................46
7.16 Power of Attorney............................................46
7.17 Lender's Rights, Duties, and Liabilities.....................47
7.18 [Reserved]...................................................47
7.19 License for use of Software and Other Intellectual Property..47
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES..................47
8.1 Books and Records.............................................47
8.2 Financial and Other Information...............................48
8.3 Notices to Lender.............................................50
9. GENERAL WARRANTIES AND REPRESENTATIONS.............................52
9.1 Authorization, Validity, and Enforceability of
this Agreement and the Loan Documents.....................52
9.2 Validity and Priority of Security Interest....................52
9.3 Organization and Qualification................................53
9.4 Corporate Name; Prior Transactions............................53
9.5 Subsidiaries and Affiliates...................................53
9.6 Financial Statements and Plan.................................54
9.7 [Reserved]....................................................54
9.8 Solvency......................................................54
9.9 Debt..........................................................54
9.10 Distributions................................................54
9.11 Title to Property............................................54
9.12 Adequate Assets..............................................55
9.13 Real Property; Leases........................................55
9.14 Proprietary Rights...........................................55
9.15 Trade Names and Terms of Sale................................55
9.16 Litigation...................................................55
9.17 Restrictive Agreements.......................................55
9.18 Labor Disputes...............................................56
9.19 Environmental Laws...........................................56
9.20 Health Care Laws.............................................57
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9.21 No Violation of Law..........................................58
9.22 No Default...................................................58
9.23 ERISA Compliance.............................................58
9.24 Taxes........................................................59
9.25 Use of Proceeds..............................................59
9.26 Private Offerings............................................59
9.27 Broker's Fees................................................60
9.28 Government Regulation........................................60
9.29 No Material Adverse Change...................................60
9.30 Disclosure...................................................60
9.31 Fixed Charge Coverage........................................60
10. AFFIRMATIVE AND NEGATIVE COVENANTS.....................................60
10.1 Taxes and Other Obligations..................................61
10.2 Corporate Existence and Good Standing........................61
10.3 Compliance with Law and Agreements...........................61
10.4 Maintenance of Property and Insurance........................61
10.5 Environmental Laws...........................................61
10.6 Health Care Laws.............................................62
10.7 ERISA........................................................62
10.8 Mergers, Consolidations or Sales.............................62
10.9 Distributions................................................62
10.10 Transactions Having a Material Adverse Effect...............62
10.11 Guaranties..................................................62
10.12 Debt........................................................63
10.13 Prepayment..................................................63
10.14 Transactions with Affiliates................................63
10.15 Business Conducted..........................................63
10.16 Liens.......................................................64
10.17 Sale and Leaseback Transactions.............................64
10.18 New Subsidiaries............................................64
10.19 Restricted Investments......................................64
10.20 Capital Expenditures........................................64
10.21 Fixed Charge Coverage.......................................64
10.22 Debt Ratio..................................................65
10.23 Loan Documents..............................................65
10.24 Further Assurances..........................................65
10.25 Delivery of Good Standing Certificates......................65
10.26 Northern Letter of Credit...................................65
10.27 Stock Certificates...........................................65
10.28 UCC Financing Statements.....................................65
10.29 Trademark Security Agreement.................................66
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11. CONDITIONS PRECEDENT...................................................66
11.1 Conditions Precedent to Making of Initial Loan...............66
11.2 Conditions Precedent to Each Loan............................69
12. DEFAULT................................................................69
12.1 Events of Default............................................69
13. REMEDIES...............................................................72
14. TERM AND TERMINATION...................................................73
15. MISCELLANEOUS..........................................................74
15.1 Cumulative Remedies; No Prior Recourse to Collateral.........74
15.2 No Implied Waivers...........................................74
15.3 Severability.................................................75
15.4 Governing Law................................................75
15.5 Consent to Jurisdiction and Venue; Service of Process........75
15.6 Waiver of Jury Trial.........................................75
15.7 Survival of Representations and Warranties...................75
15.8 Other Security and Guaranties................................76
15.9 Fees and Expenses............................................76
15.10 Notices.....................................................77
15.11 Indemnification.............................................78
15.12 Waiver of Notices...........................................79
15.13 Binding Effect; Assignment..................................79
15.14 Modification................................................79
15.15 Counterparts................................................80
15.16 Captions....................................................80
15.17 Right of Set-Off............................................80
15.18 Participating Lender's Security Interests...................80
15.19 Additional Borrowers........................................80
15.20 Joint and Several Liability.................................81
||
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SCHEDULES
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Schedule 7.3 Location of Collateral
Schedule 9.4 Corporate Name; Prior Transactions
Schedule 9.5 Subsidiaries and Affiliates
Schedule 9.9 Debt
Schedule 9.13 Real Property; Leases
Schedule 9.14 Proprietary Rights
Schedule 9.15 Trade Names
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EXHIBITS
- --------
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Exhibit A Form of Account Debtor Notice
Exhibit B Additional Borrower Agreement
Exhibit C Additional Borrower Consent Notice
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<PAGE>
LOAN AND SECURITY AGREEMENT, dated as of February 5, 1999 (this
"AGREEMENT"), by and among BANKAMERICA BUSINESS CREDIT, INC., a Delaware
corporation, with offices at 231 South LaSalle Street, 16th Floor, Chicago,
Illinois 60697 (the "LENDER"), OPTION CARE, INC., a Delaware corporation, with
offices at 100 Corporate North, Suite 212, Bannockburn, Illinois 60015,
individually ("OPTION CARE") and as the Borrowers' Agent, and Option Care and
each of Option Care's Subsidiaries from time to time party hereto (Option Care
and such Subsidiaries party hereto being referred to herein individually as a
"BORROWER" and collectively as the "BORROWERS").
W I T N E S S E T H
WHEREAS, the Borrowers have requested the Lender to make available to
the Borrowers a revolving line of credit for loans in an amount not to exceed
twenty-five million dollars ($25,000,000), which extensions of credit the
Borrowers shall use for working capital needs, certain permitted acquisitions
and general business purposes; and
WHEREAS, the initial Loan under this Agreement shall be used to repay
amounts owing by Option Care Persons to the Existing Bank Group;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth in this Agreement, and for good and valuable consideration,
the receipt and adequacy of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINITIONS.
1.1 DEFINED TERMS. As used herein:
"ACCOUNT" means, with respect to any Option Care Person, such Option
Care Person's right to payment for a sale or lease and delivery of goods or
rendition of services, including without limitation health care goods and
services.
"ACCOUNT DEBTOR" means each Person obligated in any way on or in
connection with an Account.
"ACCOUNT DEBTOR NOTICE" means a notice to an Account Debtor
substantially in the form of EXHIBIT A, it being understood that Account Debtor
Notices shall be sent only to Account Debtors described in clause (p) of the
definition of "Eligible Account".
"ACH TRANSACTIONS" means all debts, liabilities, and obligations now
or hereafter owing from a Borrower to the Bank arising from or related to cash
management services including the automatic clearing house transfer of funds by
the Bank for the account of a Borrower pursuant to agreement or overdrafts.
<PAGE>
"ADDITIONAL AUTHORIZED INDIVIDUAL" has the meaning set forth in
SECTION 2.4(c).
"ADDITIONAL BORROWER AGREEMENT" is defined in SECTION 15.19.
"ADDITIONAL BORROWER CONSENT NOTICE" is defined in SECTION 15.19.
"ADDITIONAL COLLATERAL" means (i) a domestic, Dollar denominated
letter of credit in favor of the Lender from a bank which is satisfactory to the
Lender or (ii) Dollar denominated cash or cash equivalents acceptable to the
Lender, and in the case of each of clause (i) and (ii), in form and substance
and in amounts (and pursuant to pledge agreements and other documentation)
satisfactory to the Lender. Unless the Lender notifies the Borrowers' Agent in
writing that Northern is not satisfactory as the bank referred to in clause (i)
of the preceding sentence, Northern shall be satisfactory as the bank referred
to in clause (i) of the preceding sentence. If the Lender notifies the
Borrowers' Agent in writing that Northern is not satisfactory as the bank
referred to in clause (i) of the first sentence of this definition of
"Additional Collateral", then (i) the Borrowers' Agent shall have the right to
terminate this Agreement in accordance with and subject to the terms of SECTION
14(b), and (ii) regardless of whether the Borrowers' Agent exercises such right,
the Northern Letter of Credit shall no longer be included in the calculation of
Availability.
"ADDITIONAL COLLATERAL AMOUNT" means, at any time, the then
outstanding amount of Additional Collateral as determined by the Lender in its
reasonable commercial discretion.
"ADJUSTED CASH FLOW" means, with respect to any fiscal period of
Option Care, the net income of Option Care after provision for income taxes for
such fiscal period, as determined on a consolidated basis in accordance with
GAAP and reported on the Financial Statements for such period LESS, without
duplication, (a) all Distributions permitted hereunder and made by Option Care
during such fiscal period, (b) all regularly scheduled principal installments of
Debt for borrowed money which were actually paid by the Option Care Persons
during such fiscal period, and (c) Capital Expenditures permitted hereunder and
which were actually made by the Option Care Persons during such fiscal period
determined in accordance with GAAP and reported on the Financial Statements for
such period; PLUS (i) the depreciation and amortization expense deducted in
determining such net income for such fiscal period and (ii) other non-cash
expenses deducted in computing such net income.
"ADJUSTED NET EARNINGS FROM OPERATIONS" means, with respect to any
fiscal period of Option Care, the net income of Option Care after provision for
income taxes for such fiscal period, as determined on a consolidated basis in
accordance with GAAP and reported on the Financial Statements for such period,
excluding, without duplication, any and all of the following included in such
net income: (a) gain or loss arising from the sale of capital assets (other than
durable medical equipment sold in the ordinary course of business or consistent
with the practice of the Option Care Persons as such practice existed prior to
the Closing Date); (b) gain arising from any write-up in the book value of any
asset; (c) earnings
<PAGE>
of any corporation, substantially all the assets of which have been acquired by
an Option Care Person in any manner, to the extent realized by such other
corporation prior to the date of acquisition; (d) earnings of any Person that is
not consolidated with Option Care in accordance with GAAP, unless (and only to
the extent) such earnings shall actually have been received by Option Care or a
consolidated Subsidiary in the form of distributions of cash or cash
equivalents; (e) earnings of any Person to which assets of an Option Care Person
shall have been sold, transferred or disposed of, or into which an Option Care
Person shall have been merged, or which has been a party with an Option Care
Person to any consolidation or other form of reorganization, prior to the date
of such transaction; (f) gain arising from the acquisition of debt or equity
securities of an Option Care Person or from cancellation or forgiveness of Debt;
(g) amortization of goodwill and related intangibles; and (h) gain or loss
arising from extraordinary items, as determined in accordance with GAAP, or from
any other non-recurring transaction.
"ADJUSTED TANGIBLE ASSETS" means all of the assets of Option Care or
its consolidated Subsidiaries except: (a) deferred assets, other than prepaid
insurance and prepaid taxes; (b) patents, copyrights, trademarks, trade names,
franchises, goodwill, and other similar intangibles; (c) Restricted Investments;
(d) unamortized debt discount and expense; (e) assets of any such Person
constituting Intercompany Accounts; and (f) fixed assets to the extent of any
write-up in the book value thereof resulting from a revaluation effective after
the Closing Date.
"ADJUSTED TANGIBLE NET WORTH" means, at any date: (a) the book value
(after deducting related depreciation, obsolescence, amortization, valuation,
and other proper reserves as determined in accordance with GAAP) at which the
Adjusted Tangible Assets would be shown on a balance sheet of Option Care at
such date prepared on a consolidated basis in accordance with GAAP; LESS (b) the
amount at which the liabilities of Option Care would be shown on such balance
sheet at such date prepared on a consolidated basis in accordance with GAAP,
including as liabilities all reserves for contingencies and other potential
liabilities which would be required to be shown on such balance sheet as
determined in accordance with GAAP.
"AFFILIATE" means: (a) a Person which, directly or indirectly,
controls, is controlled by or is under common control with, an Option Care
Person; (b) a Person which beneficially owns or holds, directly or indirectly,
ten percent or more of any class of voting stock of an Option Care Person; (c) a
Person in which ten percent of any class of the voting stock is beneficially
owned or held, directly or indirectly, by an Option Care Person; or (d) a joint
venture in which an Option Care Person is a participant or in which an Option
Care Person has made an investment. The term control (including the terms
"controlled by" and "under common control with"), means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of the Person in question.
"ANNIVERSARY DATE" means each anniversary of the Closing Date.
<PAGE>
"AVAILABILITY" means at any time the lesser of:
(a) The amount of twenty-five million dollars ($25,000,000) (the
"MAXIMUM REVOLVING CREDIT LINE"), OR
(b) The sum of (i) eighty-five percent (85%) of the Expected Net
Receivables (excluding Unbilled Accounts), plus (ii) seventy-five percent (75%)
of the Expected Net Receivables which are Unbilled Accounts, plus (iii) the
lesser of (x) two million five hundred thousand dollars ($2,500,000) and (y)
fifty percent (50%) of the Additional Collateral Amount, plus (iv) seventy-five
percent (75%) of the excess, if any, of (x) the Additional Collateral Amount
over (y) five million dollars ($5,000,000); PROVIDED, HOWEVER, that at all times
Availability shall be reduced by the sum of:
(A) the unpaid balance of Revolving Loans at that time;
(B) the amount of all unapplied cash (i.e., Collections not yet
applied to Accounts);
(C) the Offset Reserve;
(D) any reserve which the Lender in its reasonable discretion,
based upon the Lender's customary credit and collateral
standards as modified from time to time, deems necessary or
desirable to maintain (i) in respect of any Lien for
delinquent taxes applicable to any Borrower, or (ii) in
respect of accrued interest on the Revolving Loans; and
(E) all other reserves which the Lender in its reasonable
discretion, based upon the Lender's customary credit and
collateral standards as modified from time to time, deems
necessary or desirable to maintain with respect to any
Borrower's account, including, without limitation, (i) any
amounts which the Lender may be obligated to pay in the
future for the account of any Borrower, (ii) in respect of
any Borrower's ability to bill and collect Accounts or (iii)
any Borrower's ability to prepare and provide timely and
accurate reporting to the Lender. If the Lender sends a
notice to the Borrowers' Agent to the effect that the Lender
shall maintain a reserve contemplated by this clause (E),
then the Borrowers' Agent shall have the right to terminate
this Agreement in accordance with and subject to the terms
of SECTION 14(b).
"BANK" means Bank of America National Trust and Savings Association in
San Francisco, California.
<PAGE>
"BLOCKED ACCOUNT" means a bank account subject to a Blocked Account
Agreement.
"BLOCKED ACCOUNT AGREEMENT" means an agreement among one or more
Option Care Persons, the Lender and a Blocked Account Bank, as the same may be
amended, amended and restated or otherwise modified from time to time in
accordance with its terms.
"BLOCKED ACCOUNT BANK" means a bank that is acceptable to the Lender.
As of the Closing Date, Northern is acceptable to the Lender; PROVIDED that if
the Lender determines that Northern is no longer able to perform the functions
(including, without limitation, the ability to follow the Lender's instructions)
of a Blocked Account Bank in a manner which is reasonably satisfactory to the
Lender, then the Lender may so notify the Borrowers' Agent and, upon such
notice, the parties hereto shall cooperate in good faith to appoint a new
Blocked Account Bank and to take all other actions which, in the reasonable
judgment of the Lender, are necessary in connection therewith to fulfill the
terms of this Agreement (including SECTION 7.10).
"BORROWER" is defined in the preamble.
"BORROWERS' AGENT" is defined in SECTION 2.4(a).
"BORROWING" means a borrowing hereunder consisting of Revolving Loans
by the Lender to one or more Borrowers.
"BORROWING BASE CERTIFICATE" means a certificate, in form and
substance reasonably satisfactory to the Lender, signed by the Chief Executive
Officer, the Chief Financial Officer or the Secretary of the Borrowers' Agent
(or by an Additional Authorized Individual). A Borrowing Base Certificate shall
be a Mid-Month Borrowing Base Certificate or a Final Borrowing Base Certificate.
"BUSINESS DAY" means (a) any day that is not a Saturday, Sunday, or a
day on which banks in San Francisco, California or Chicago, Illinois, are
required or permitted to be closed, and (b) with respect to all notices,
determinations, fundings and payments in connection with the LIBOR Rate or LIBOR
Rate Loans, any day that is a Business Day pursuant to clause (a) above and that
is also a day on which trading is carried on by and between banks in the London
interbank market.
"CAPITAL ADEQUACY REGULATION" means any guideline, request or
directive of any central bank or other Public Authority, or any other law, rule
or regulation, whether or not having the force of law, in each case, regarding
capital adequacy of any bank or of any corporation controlling any bank.
"CAPITAL EXPENDITURES" means, for any period, all payments due during
such
<PAGE>
period (whether or not paid) in respect of the cost of any fixed asset or
improvement, or replacement, substitution, or addition thereto, which has a
useful life of more than one year, including, without limitation, those arising
in connection with the direct or indirect acquisition of such assets by way of
increased product or service charges or offset items or in connection with
Capital Leases.
"CAPITAL LEASE" means, with respect to any Option Care Person, any
lease of Property by such Option Care Person that, in accordance with GAAP,
should be reflected as a capital lease on the balance sheet of such Option Care
Person.
"CHAMPUS" means the Civilian Health and Medical Program of the
Uniformed Services.
"CHAMPVA" means the Civilian Health and Medical Program of Veterans
Affairs.
"CLOSING DATE" means the date of this Agreement.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COLLATERAL" has the meaning given to such term in SECTION 7.1.
"COLLECTIONS" means all cash, funds, checks, notes, instruments,
warrants and any other form of remittance tendered by an Account Debtor in
payment (in whole or part) of an Account.
"CONTAMINANT" means any waste, pollutant, hazardous substance, toxic
substance, hazardous waste, special waste, petroleum or petroleum-derived
substance or waste, asbestos in any form or condition, polychlorinated biphenyls
("PCBs"), or other substance or material, the handling, release, or possession
of which is regulated to protect health, safety or the environment, or any
constituent of any such substance, material or waste.
"CONTRACTUAL RIGHTS" means, collectively, all of the rights and
remedies of any Option Care Person under, and all moneys and claims for money
due or to become due to any Option Care Person under, any contracts or
agreements and any and all amendments, supplements, extensions, and renewals
thereof including, without limitation, all rights and claims of any Option Care
Person now or hereafter existing: (a) under any insurance, indemnities,
warranties, and guarantees provided for or arising out of or in connection with
the foregoing contracts or agreements; (b) for any damages arising out of or for
breach or default under or in connection with the foregoing contracts or
agreements; (c) to all other amounts from time to time paid or payable under or
in connection with the foregoing contracts or agreements; or (d) to exercise or
enforce any and all covenants, remedies, powers and privileges thereunder.
<PAGE>
"DATE OF SERVICE" means, with respect to an Account, a date on which
services or goods giving rise to such Account or any portion thereof were
rendered or provided.
"DEBT" means, with respect to any Option Care Person at any time: (a)
all indebtedness, obligations or other liabilities of such Person (i) for
borrowed money or evidenced by debt securities, debentures, acceptances, notes
or other similar instruments, and any accrued interest, fees and charges
relating thereto; (ii) under profit payment agreements or similar agreements;
(iii) with respect to letters of credit issued for such Person's account; (iv)
to pay the deferred purchase price of Property or services, including, without
limitation, "earnout arrangements", except unsecured accounts payable and
accrued expenses arising in the ordinary course of business which in each case
are less than 60 days past due; or (v) Capital Lease obligations; (b) all
indebtedness, obligations or other liabilities of such Person or others secured
by a Lien on any Property of such Person, whether or not such indebtedness,
obligations or liabilities are assumed by such Person, all as of such time; (c)
all indebtedness, obligations or other liabilities of such Person in respect of
any foreign exchange contract or interest hedge agreement, net of liabilities
owed to such Person thereunder by the counterparties thereon; (d) all capital
stock of such Person subject (upon the occurrence of any contingency or
otherwise) to mandatory redemption; (e) all obligations and liabilities under
Guaranties; and (f) all other Obligations.
"DILUTION PERCENTAGE" has the meaning set forth in SECTION 7.8.
"DISTRIBUTION" means, in respect of any corporation: (a) the payment
or making of any dividend or other distribution of Property in respect of
capital stock (including in respect of any options or warrants for such stock)
of such corporation, other than distributions in capital stock of the same
class; or (b) the redemption or other acquisition by such corporation of any
capital stock (or options or warrants for such stock) of such corporation.
"DOL" means the United States Department of Labor or any successor
department or agency.
"DOLLARS" and "$" means dollars constituting lawful currency of the
United States.
"EBITDA" means, with respect to any fiscal period, the Adjusted Net
Earnings from Operations for such fiscal period plus all Interest Expense,
federal and state income taxes, depreciation, and amortization deducted from
revenue in determining such Adjusted Net Earnings from Operations.
"ELIGIBLE ACCOUNTS" means those Accounts which are not ineligible as
the basis for Revolving Loans, based on the following criteria and on such other
criteria of eligibility ("OTHER CRITERIA") as the Lender may from time to time
establish in its reasonable commercial discretion upon at least three days'
prior written notice to the Borrowers' Agent provided that
<PAGE>
if the Lender establishes Other Criteria then the Borrowers' Agent shall have
the right to terminate this Agreement in accordance with and subject to the
terms of SECTION 14(b). Without intending to limit the Lender's discretion to
establish Other Criteria, Eligible Accounts shall NOT include any Account:
(a) with respect to which more than 150 days have elapsed since
the Invoice Date; or
(b) with respect to which any of the representations, warranties,
covenants, and agreements contained in this Agreement are not or have ceased to
be complete and correct or have been breached; or
(c) with respect to which, in whole or in part, a check,
promissory note, draft, trade acceptance or other instrument for the payment of
money has been received, presented for payment and returned uncollected for any
reason; or
(d) as to which any one or more of the following events has
occurred with respect to the Account Debtor on such Account: the filing by or
against the Account Debtor of a request or petition for liquidation,
reorganization, arrangement, adjustment of debts, adjudication as a bankrupt,
winding-up, or other relief under the bankruptcy, insolvency, or similar laws of
the United States, any state or territory thereof, or any foreign jurisdiction,
now or hereafter in effect; the making of any general assignment by the Account
Debtor for the benefit of creditors; the appointment of a receiver or trustee
for the Account Debtor or for any of the assets of the Account Debtor,
including, without limitation, the appointment of or taking possession by a
"custodian," as defined in the Federal Bankruptcy Code; the institution by or
against the Account Debtor of any other type of insolvency proceeding (under
bankruptcy laws or insurance laws or otherwise) or of any formal or informal
proceeding for the dissolution or liquidation of, settlement of claims against,
or winding up of affairs of, the Account Debtor; the sale, assignment, or
transfer of all or any material part of the assets of the Account Debtor; the
nonpayment generally by the Account Debtor of its debts as they become due; or
the cessation of the business of the Account Debtor as a going concern; or
(e) owed by an Account Debtor which does not maintain its chief
executive office in the United States or is not organized under the laws of the
United States or any state or commonwealth thereof; or
(f) owed by an Account Debtor which is an Affiliate of any
Borrower; or
(g) as to which either (x) the perfection, enforceability, or
validity of the Security Interest in such Account, or (y) the Lender's right or
ability to obtain direct payment to the Lender of the Proceeds of such Account
(other than, in the case of this clause
<PAGE>
(y), an Account payable by a Government Account Debtor), is governed by any
federal, state, or local statutory requirements other than those of the UCC; or
(h) which is evidenced by a promissory note, warrant or other
instrument or by chattel paper; or
(i) if fifty percent (50%) or more of the aggregate dollar amount
of outstanding Accounts owed at such time by the Account Debtor to any Borrower
is classified by any Borrower as "not in good standing"; or
(j) which arises out of a sale made, or service performed,
outside of the ordinary course of the business of the Borrower which originated
such Receivable; or
(k) with respect to which the goods giving rise to such Account
have not been delivered to and accepted by the applicable patient or the
services giving rise to such Account have not been performed by a Borrower, and,
if applicable, accepted by the applicable patient, or the applicable patient
revokes its acceptance of such durable medical equipment which is unrelated to
infusion therapy services; or
(l) which is not subject to a first priority and perfected
security interest in favor of the Lender; or
(m) which arises under a healthcare capitation contract or
similar arrangement under which a Borrower receives payments (i) in advance of
providing the applicable goods and services or (ii) without regard to whether a
Borrower provides any goods or services; PROVIDED that if a capitation contract
or similar arrangement includes provisions for a Borrower to be paid on a "fee
for service" basis, then the related Accounts, to the extent they represent the
right to payment on such "fee for service" basis, shall not be excluded as
Eligible Accounts solely because of this clause (m); or
(n) to the extent such Account is a Self-Pay Account; or
(o) as to which at least than 60 days have elapsed since any Date
of Service and such Account was an Unbilled Account on such 60th day; or
(p) owed by an Account Debtor which is an insurance company or
health maintenance organization or other Person which is paid premiums in a
manner which is the same as or similar to an insurance company or health
maintenance organization if such Account Debtor has not received an Account
Debtor Notice; provided that this clause (p) shall apply commencing thirty (30)
days after the Closing Date; or
(q) which represents a right of payment under a servicing
contract; or
<PAGE>
(r) unless such Account is denominated in Dollars; or
(s) (i) if the goods (other than durable medical equipment) or
services giving rise to such Account were not authorized by a physician's
prescription, or (ii) the Account Debtor (other than a Self-Pay Account Debtor)
informs any Option Care Person (whether by EOB or otherwise) that such goods or
services were not medically necessary (and the applicable contract or applicable
law provides that payment for such goods or services may or shall be denied on
the grounds that such goods or services were not medically necessary); or
(t) to the extent that the fees charged for the services or goods
constituting the basis for such Account exceed limitations imposed by applicable
law, regulation or contract; or
(u) which is not owned free and clear of all Liens (other than
Permitted Liens) by the Borrower which originated such Account; or
(v) which represents a royalty or other right to receive a
franchise payment from any franchisee of any Option Care Person; or
(w) which represents amounts due in respect of a "settlement"
with respect to Medicare or Medicaid relating to the filing of a "cost report";
or
(x) which represents a right to payment for a sale or lease and
delivery of computer software or hardware or rendition of services pertaining to
computer software or hardware.
If any Account at any time ceases to be an Eligible Account by reason of
any of the foregoing exclusions or any failure to meet any Other Criteria, then
such Account shall promptly be excluded from the calculation of Eligible
Accounts.
"ENVIRONMENTAL LAWS" means all present and future federal, state and
local laws, rules, regulations, ordinances, programs, permits, guidance, orders
and consent decrees relating to health, safety, hazardous substances, and
environmental matters applicable to any Option Care Person's business and
facilities (whether or not owned by it). Such laws and regulations include but
are not limited to the Resource Conservation and Recovery Act, 42 U.S.C. ss.
6901 et seq., as amended; the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq., as amended; the Toxic Substances
Control Act, 15 U.S.C. ss. 2601 et seq., as amended; the Clean Water Act, 33
U.S.C. ss. 466 et seq., as amended; the Clean Air Act, 42 U.S.C. ss. 7401 et
seq., as amended; state and federal lien and environmental cleanup programs; and
U.S. Department of Transportation regulations.
<PAGE>
"ENVIRONMENTAL LIEN" means a Lien in favor of any Public Authority for
(a) any liability under any Environmental Laws, or (b) damages arising from, or
costs incurred by such Public Authority in response to, a Release or threatened
Release of a Contaminant into the environment.
"EOB" means the explanation of benefits, remittance advice or other
record that is provided by an Account Debtor explaining how it determined the
amount it shall or shall not pay with respect to an Account of which it is the
Account Debtor.
"EQUIPMENT" means machinery, equipment, furniture, furnishings,
fixtures, and other tangible personal property (except Inventory), including,
without limitation, data processing hardware and software, motor vehicles,
aircraft, dies, tools, jigs, and office equipment, whether owned or leased, and
all rights and interests with respect thereto under such leases (including,
without limitation, options to purchase); together with all present and future
additions and accessions thereto, replacements therefor, component and auxiliary
parts and supplies used or to be used in connection therewith, and all
substitutes for any of the foregoing, and all manuals, drawings, instructions,
warranties and rights with respect thereto; wherever any of the foregoing is
located.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is a member of a controlled group or under common control
with any Option Care Person within the meaning of Section 414(b) or (c) of the
Code (and Sections 414(m) and (o) of the Code for purposes of provisions
relating to Section 412 of the Code).
"ERISA EVENT" means, with respect to any Option Care Person, any ERISA
Affiliate or any Pension Plan, the occurrence of any of the following: (a) a
Reportable Event; (b) a withdrawal by a substantial employer (as defined in
Section 4001(a)(12) of ERISA) subject to Section 4063 of ERISA; (c) a cessation
of operations which is treated as a withdrawal under Section 4062(e) of ERISA;
(d) a complete or partial withdrawal under Section 4203 or 4205 of ERISA from a
Multiemployer Plan; (e) a notification that a Multiemployer Plan is in
reorganization under Section 4242 of ERISA; (f) the filing of a notice of intent
to terminate a Pension Plan under 4041 of ERISA; (g) the treatment of an
amendment of a Pension Plan as a termination under 4041 of ERISA; (h) the
termination of a Multiemployer Plan under Section 4041A of ERISA; (i) the
commencement of proceedings by the PBGC to terminate a Pension Plan under 4042
of ERISA; (j) an event or condition which would reasonably be expected to
constitute grounds under Section 4042 of ERISA for the termination of, or the
appointment of a trustee to administer, a Pension Plan; or (k) the imposition of
any material liability under Title IV of ERISA, other than PBGC premiums due but
not delinquent under Section 4007 of ERISA.
<PAGE>
"EVENT" means any event or condition which, with notice, the passage
of time, the happening of any other condition or event, or any combination
thereof, would constitute an Event of Default.
"EVENT OF DEFAULT" has the meaning specified in SECTION 12.1.
"EXISTING BANK GROUP" means the banks and the agent parties to that
certain credit agreement among Option Care, the other parties thereto and PNC
Bank, National Association, as agent.
"EXPECTED NET RECEIVABLES" means the amount of the Net Amount of
Eligible Accounts reasonably expected by the Lender to be collected within 180
days from Invoice Date.
"FACILITY FEE" has the meaning specified in SECTION 3.4.
"FEDERAL BANKRUPTCY CODE" or "BANKRUPTCY CODE" means the bankruptcy
code of the United States of America codified in Title 11 of the United States
Code.
"FINAL BORROWING BASE CERTIFICATE" means a Borrowing Base Certificate
reflecting actual information as of the end of the month preceding the month in
which such Final Borrowing Base Certificate is to be delivered pursuant to
SECTION 7.8.
"FINANCIAL STATEMENTS" means, according to the context in which it is
used, the financial statements contained in Option Care's Form 10-Q for the
quarterly period ended September 30, 1998, any financial statements required to
be given to the Lender pursuant to SECTIONS 8.2(a), (b) or (c), or any
combination thereof.
"FISCAL YEAR" means each Borrower's fiscal year for financial
accounting purposes. The current Fiscal Year of each Borrower shall end on
December 31, 1999.
"FUNDING DATE" means the date on which a Borrowing occurs.
"GAAP" means at any particular time generally accepted accounting
principles as in effect at such time in the United States.
"GOVERNMENT ACCOUNT DEBTOR" means the United States of America, any
state, any political subdivision of a state and any agency or instrumentality of
the United States of America or any state, political subdivision or fiscal
intermediary thereof (including any insurance company or other Person acting
solely in its capacity as a Medicare or Medicaid intermediary) that is obligated
to make any payments under (i) Medicare or Medicaid or (ii) with respect to
Accounts representing amounts owing under any other program established by
<PAGE>
federal or state law that provides for payments for health care goods or
services to be made to providers thereof (including CHAMPUS and CHAMPVA).
"GOVERNMENT OFFSET" means any amount determined by a Government
Account Debtor, or any agent or governmental agency acting on behalf of a
Government Account Debtor or governmental agency, to constitute an overpayment
made to any Option Care Person with respect to an Account and that is to be paid
to such Government Account Debtor by any Option Care Person or is to be offset
against amounts then due to any Option Care Person from such Government Account
Debtor, including any amounts determined by HCFA or any agent acting on behalf
thereof.
"GUARANTY" by any Person means all obligations of such Person which in
any manner directly or indirectly guarantee or assure, or in effect guarantee or
assure, the payment or performance of any indebtedness, dividend or other
obligation of any other Person (the "guaranteed obligations"), or assure or in
effect assure the holder of the guaranteed obligations against loss in respect
thereof, including, without limitation, any such obligations incurred through an
agreement, contingent or otherwise: (a) to purchase the guaranteed obligations
or any Property constituting security therefor; (b) to advance or supply funds
for the purchase or payment of the guaranteed obligations or to maintain a
working capital or other balance sheet condition; or (c) to lease Property or to
purchase any debt or equity securities or other Property or services.
"HCFA" means the Health Care Financing Administration or any successor
thereto.
"HEALTH CARE LAWS" means any and all federal, state and local laws and
regulations governing the licensure, certification, good standing, accreditation
and approval of the provision of health care goods and services provided by any
Option Care Person or any of its Subsidiaries, including but not limited to laws
and regulations relating to licensure of operation, certificates of need,
certificates of operations, insurance, fraud and abuse, kickbacks, false claims,
physician self-referral arrangements, Medicaid, Medicare, CHAMPUS, CHAMPVA, the
federal Food, Drug & Cosmetic Act (FDCA) and the Food and Drug Administration.
"INTERCOMPANY ACCOUNTS" means all assets and liabilities, however
arising, which are due to any Option Care Person from, which are due from any
Option Care Person to, or which otherwise arise from any transaction by any
Option Care Person with, any Affiliate of such Option Care Person.
"INTEREST EXPENSE" means, with respect to any period, the consolidated
gross interest expense of Option Care and its Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP.
"INTEREST PERIOD" means, as to any LIBOR Rate Loan, the period
commencing
<PAGE>
on the Funding Date of such Loan or on the Conversion/Continuation Date on which
the Loan is converted into or continued as a LIBOR Rate Loan, and ending on the
date one, two, three or six months thereafter as selected by the Borrowers'
Agent in its Notice of Borrowing or Notice of Conversion/Continuation; PROVIDED,
HOWEVER, that:
(i) if any Interest Period would otherwise end on a day that
is not a Business Day, that Interest Period shall be extended to
the following Business Day unless the result of such extension
would be to carry such Interest Period into another calendar
month, in which event such Interest Period shall end on the
preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR Rate Loan
that begins on the last Business Day of a calendar month (or on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on
the last Business Day of the calendar month at the end of such
Interest Period; and
(iii) no Interest Period shall extend beyond the Stated
Termination Date.
"INVENTORY" means inventory, goods and merchandise, wherever located,
to be furnished under any contract of service or held for sale or lease, all raw
materials, work-in-process, finished goods, returned goods, and materials and
supplies of any kind, nature or description, and all documents of title or other
documents representing them.
"INVOICE DATE" means, with respect to an Account, the date on which
any Option Care Person first submitted a claim to an Account Debtor (other than
a Self-Pay Account Debtor) with regard to such Account. For avoidance of doubt,
if an Option Care Person submits a claim in respect of an Account to an Account
Debtor and such claim is not paid in full (the "INITIAL CLAIM"), and the Option
Care Person then submits a claim in respect of such Account to another Account
Debtor, the Initial Claim shall be treated as the "claim" for purposes of the
first sentence of this definition of Invoice Date.
"IRS" means the Internal Revenue Service or any successor agency.
"LATEST PLAN" means: (a) on the Closing Date and thereafter until the
Lender receives new projections pursuant to SECTION 8.2(f), Option Care's
business plan for Fiscal Year 1999, a true, complete and correct copy of which
was provided by Option Care to the Lender prior to the Closing Date; and (b)
thereafter, the business plan most recently received by the Lender pursuant to
SECTION 8.2(f).
"LENDER" is defined in the preamble.
"LIBOR INTEREST PAYMENT DATE" means, with respect to a LIBOR Rate
Loan, the
<PAGE>
last day of each Interest Period applicable to such Loan.
"LIBOR INTEREST RATE DETERMINATION DATE" means each date of
calculating the LIBOR Rate for purposes of determining the interest rate with
respect to an Interest Period. The LIBOR Interest Rate Determination Date for
any LIBOR Rate Loan shall be the second Business Day prior to the first day of
the related Interest Period for such LIBOR Rate Loan.
"LIBOR RATE" means, for any Interest Period, with respect to LIBOR
Rate Loans comprising part of the same Borrowing, the rate of interest per annum
(rounded upward to the next 1/1000th of 1.0%) determined as follows:
LIBOR Rate = LIBOR
------------------------------------
1.00 - Eurodollar Reserve Percentage
Where,
"EURODOLLAR RESERVE PERCENTAGE" means for any day for any
Interest Period the maximum reserve percentage (expressed as a
decimal, rounded upward to the next 1/100th of 1.0%) in effect on such
day (whether or not applicable to the Lender) under regulations issued
from time to time by the Board of Governors of the Federal Reserve for
determining the maximum reserve requirement (including any emergency,
supplemental or other marginal reserve requirement) with respect to
Eurocurrency funding (currently referred to as "Eurocurrency
liabilities"); and
"LIBOR" means the rate of interest per annum (rounded upward to
the next 1/16 of 1%) notified to the Lender by Bank as the rate of
interest at which United States Dollar deposits in the approximate
amount of the Loan to be made or continued as, or converted into, a
LIBOR Rate Loan and having a maturity comparable to such Interest
Period would be offered by Bank's applicable lending office to major
banks in the London interbank market at their request at approximately
11:00 a.m. (London time) two Business Days prior to the commencement
of such Interest Period.
"LIBOR RATE LOANS" means a Revolving Loan during any period in which
it bears interest based on the LIBOR Rate.
"LIEN" means any mortgage or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
easement or encumbrance, or preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including, without
limitation, any lease or title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give or file, any financing statement perfecting a security
interest under the UCC or comparable law of any jurisdiction), regardless of
whether any of the foregoing is consensual or arises by operation of law or
otherwise is non-consensual.
<PAGE>
"LOANS" means, collectively, all loans and advances provided for in
SECTION 2.
"LOAN DOCUMENTS" means this Agreement, each Blocked Account Agreement,
each Additional Borrower Agreement, the Account Debtor Notices, the Borrowing
Base Certificates, the Northern Letter of Credit, the Pledge Agreements, the
Trust Reimbursement and Security Agreement, the Trust Subordination Agreement,
the Trademark Security Agreement, and all other agreements, letters of credit,
notices, instruments, and documents heretofore, now or hereafter evidencing,
securing, guaranteeing or otherwise relating to the Obligations, the Collateral,
the Security Interest, or any other aspect of the transactions contemplated by
this Agreement.
"LOCKBOX" means a lockbox or post office box which is subject to a
Blocked Account Agreement.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on any of
the following: (a) the Collateral, (b) the complete and timely repayment of the
Obligations, (c) the Lender's rights under any Loan Document, (d) the Property,
business, performance, operations, prospects, or condition (financial or
otherwise) of all Option Care Persons, taken as a whole, or (e) without limiting
the foregoing, the ability of all Option Care Persons, taken as a whole, to
perform their obligations under the Loan Documents in a manner which is
reasonably satisfactory to the Lender.
"MAXIMUM RATE" has the meaning specified in SECTION 3.3.
"MAXIMUM REVOLVING CREDIT LINE" has the meaning specified in clause
(a) of the definition of Availability.
"MEDICAID" means the medical assistance program established by Title
XIX of the Social Security Act.
"MEDICAID ACCOUNT" means an Account representing a claim payable under
Medicaid.
"MEDICARE" means the health insurance program established by Title
XVIII of the Social Security Act.
"MID-MONTH BORROWING BASE CERTIFICATE" means a Borrowing Base
Certificate reflecting estimated information (based on good faith, reasonable
estimates by the Borrowers' Agent) as of the fifteenth day of the month in which
such Mid-Month Borrowing Base Certificate is to be delivered pursuant to SECTION
7.8.
"MOODY'S" means Moody's Investors Service, Inc.
<PAGE>
"MULTIEMPLOYER PLAN" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which any Option Care Person or any ERISA Affiliate
makes, is making, made, or was at any time during the current year or the
immediately preceding six (6) years obligated to make contributions.
"NET AMOUNT OF ELIGIBLE ACCOUNTS" means, with respect to any Eligible
Accounts, the gross amount of such Eligible Accounts less sales, excise or
similar taxes, and less discounts, claims and credits at any time issued, owing,
granted, outstanding, available or claimed in respect of such Eligible Accounts
(including without limitation discounts, claims and allowances based on any fee
schedule, discount formula, cost-based reimbursement or other adjustment or
limitation required by the related Account Debtors) and disregarding interest,
if any, payable by the related Account Debtors.
"NORTHERN" means The Northern Trust Company.
"NORTHERN LETTER OF CREDIT" means a domestic, Dollar denominated
letter of credit in favor of the Lender from Northern, in form and substance
satisfactory to the Lender.
"NOTICE OF BORROWING" has the meaning specified in SECTION 2.2(b).
"NOTICE OF CONVERSION/CONTINUATION" has the meaning specified in
SECTION 3.2(B).
"OBLIGATIONS" means all present and future loans, advances,
liabilities, obligations (monetary or otherwise), covenants, duties, and Debt
owing by any Option Care Person to the Lender, whether or not arising under this
Agreement, whether or not evidenced by any note or other instrument or document,
whether arising from an extension of credit, opening of a letter of credit,
acceptance, loan, guaranty, indemnification or otherwise, whether direct or
indirect (including, without limitation, those acquired by assignment from
others, and any participation by the Lender in any Option Care Person's debts
owing to others), absolute or contingent, due or to become due, primary or
secondary, as principal or guarantor, and including, without limitation, all
interest, charges, expenses, fees, attorneys' fees, filing fees and any other
sums chargeable to any Option Care Person hereunder, under another Loan
Document, or under any other agreement or instrument with the Lender.
"OBLIGATIONS" includes, without limitation, all debts, liabilities and
obligations now or hereafter owing from any Option Care Person to the Lender
arising from or related to (i) ACH Transactions pursuant to the indemnity
provided in SECTION 2.3 hereof, or (ii) any payment made by the Lender to a
Blocked Account Bank pursuant to a Blocked Account Agreement.
"OFFSET RESERVE" means, with respect to all Accounts and Account
Debtors (other than Self-Pay Account Debtors), the result (but not less than
zero) of (a) the sum of the amounts which such Account Debtors have requested or
directed any Option Care Person to pay, or as to which any such Account Debtors
have notified any Option Care Person that such
<PAGE>
Account Debtors shall withhold, setoff or recoup from any Option Care Person, in
respect of actual or alleged overpayments by any such Account Debtor in respect
of any Account, plus (b) the aggregate amount which any Option Care Person is
indebted to such Account Debtors arising from the fact that an Account Debtor,
in addition to being an Account Debtor, has an additional relationship with any
Option Care Person (e.g., an Option Care Person is a tenant or customer of a
Person that is an Account Debtor), minus (c) the amount paid by any Option Care
Person to Account Debtors described in clause (a) as a refund of the
overpayments contemplated by clause (a); PROVIDED that no amount relating to a
Government Account Debtor shall be included in clause (a) of this definition
unless (i) such Government Account Debtor has requested payment from an Option
Care Person with respect to any actual or alleged overpayment by such Government
Account Debtor or (ii) such Government Account Debtor, without sending prior
request for payment to an Option Care Person, is or has been withholding,
setting-off or recouping from an Option Care Person in respect of any actual or
alleged overpayment by such Government Account Debtor to an Option Care Person.
"OPTION CARE" is defined in the preamble.
"OPTION CARE PERSON" means any of (a) Option Care (both individually
and in its capacity as the Borrowers' Agent), (b) Option Care as a Borrower, and
(c) any other Borrower, and "Option Care Persons" means, collectively, all of
such Persons.
"OTHER CRITERIA" has the meaning set forth in the definition of
Eligible Accounts.
"OTHER TAXES" means any present or future stamp or documentary taxes
or any other excise or property taxes, charges or similar levies which arise
from any payment made hereunder or from the execution, delivery or registration
of, or otherwise with respect to, this Agreement or any other Loan Documents.
"PARTICIPATING LENDER" means any Person that shall have been granted
the right by the Lender to participate in the Loans and that shall have entered
into a participation agreement in form and substance satisfactory to the Lender.
"PAYMENT ACCOUNT" means a bank account maintained in the name of the
Lender on terms and with a bank acceptable to the Lender.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to the functions thereof.
"PENSION PLAN" means a pension plan (as defined in Section 3(2) of
ERISA) subject to Title IV of ERISA which any Option Care Person or an ERISA
Affiliate sponsors, maintains, or to which it makes, is making, or is obligated
to make contributions or, in the case of a Multiemployer Plan, has made
contributions at any time during the current year or the immediately preceding
six (6) plan years.
<PAGE>
"PERMITTED LIENS" means:
(a) Liens for taxes not yet delinquent or Liens for taxes in an
amount not to exceed two hundred fifty thousand dollars ($250,000) being
contested in good faith by appropriate proceedings diligently pursued,
provided that a reserve or other appropriate provision, if any, as shall be
required by GAAP shall have been made therefor on the applicable Financial
Statements and that a stay of enforcement of any such Lien is in effect;
(b) Liens in favor of the Lender;
(c) Liens arising by operation of law in favor of warehousemen,
landlords, carriers, mechanics, materialmen, laborers, employees or
suppliers, incurred in the ordinary course of business of any Option Care
Person and not in connection with the borrowing of money, for sums not yet
delinquent or which are being contested in good faith and by proper
proceedings diligently pursued, provided that a reserve or other
appropriate provision, if any, required by GAAP shall have been made
therefor on the applicable Financial Statements and a stay of enforcement
of any such Lien is in effect;
(d) Liens in favor of any Person if such Liens are subordinated
to the Security Interest in a manner acceptable to the Lender pursuant to
an agreement, in form and substance satisfactory to the Lender, among the
Lender, such Person and, if the Lender so requires, one or more Option Care
Persons;
(e) Liens arising from cash deposits in connection with workers'
compensation or other unemployment insurance incurred in the ordinary
course of business of an Option Care Person;
(f) Liens created by deposits of cash to secure performance of
bids, tenders, leases (to the extent permitted under this Agreement), or
trade contracts, incurred in the ordinary course of business of an Option
Care Person and not in connection with the borrowing of money;
(g) Liens of or resulting from any judgment or award, the time
for the appeal or petition for rehearing of which has not yet expired, or
in respect of which an Option Care Person is in good faith prosecuting an
appeal or proceeding for a review, and in respect of which a stay of
execution pending such appeal or proceeding for review has been secured;
and
(h) purchase money security interests in equipment and liens of
lessors under Capital Leases to the extent that the acquisition or lease of
the underlying
<PAGE>
asset was permitted under SECTION 10.11, the security interest or lien only
encumbers the asset purchased or leased, and so long as the security
interest or lien only secures the purchase price of the asset.
"PERSON" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, limited liability company,
association, corporation, Public Authority, or any other entity.
"PLAN" means an employee benefit plan (as defined in Section 3(3) of
ERISA) which any Option Care Person or an ERISA Affiliate sponsors or maintains
or to which any Option Care Person or an ERISA Affiliate makes, is making, or is
obligated to make contributions and includes any Pension Plan.
"PLEDGE AGREEMENTS" is defined in SECTION 11.1.
"PREMISES" means the land identified by addresses on SCHEDULE 9.13
together with all buildings, improvements, and fixtures thereon and all
tenements, hereditaments, and appurtenances belonging or in any way appertaining
thereto, and which constitutes all of the real property in which any Option Care
Person has any interests on the Closing Date.
"PROCEEDS" means all products and proceeds of any Collateral, and all
proceeds of such proceeds and products, including, without limitation, all
Collections, cash and credit balances, all payments under any indemnity,
warranty, or guaranty payable with respect to any Collateral, all awards for
taking by eminent domain, all proceeds of fire or other insurance, and all money
and other Property obtained as a result of any claims against third parties or
any legal action or proceeding with respect to Collateral.
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PROPRIETARY RIGHTS" means all licenses, franchises, permits, patents,
patent rights, copyrights, works which are the subject matter of copyrights,
trademarks, trade names, trade styles, patent and trademark applications and
licenses and rights thereunder, including without limitation those patents,
trademarks and copyrights referred to on SCHEDULE 9.14, and all other rights
under any of the foregoing, all extensions, renewals, reissues, divisions,
continuations, and continuations-in-part of any of the foregoing, and all rights
to sue for past, present, and future infringement of any of the foregoing;
inventions, trade secrets, formulae, processes, compounds, drawings, designs,
blueprints, surveys, reports, manuals, and operating standards; goodwill;
customer and other lists in whatever form maintained; and trade secret rights,
copyright rights, rights in works of authorship, and contract rights relating to
computer software programs, in whatever form created or maintained.
"PUBLIC AUTHORITY" means the government of any country or sovereign
state, or
<PAGE>
of any state, province, municipality, or other political subdivision thereof, or
any department, agency, public corporation or other instrumentality of any of
the foregoing and, without limiting the foregoing, any official, attorney,
employee, agent or "ombudsman", whether elected, appointed or otherwise employed
or retained, by any of the foregoing.
"RECEIVABLES" means all Accounts (whether or not earned by
performance), including without limitation Accounts owed to any Option Care
Person by any of its Subsidiaries or Affiliates, together with all interest,
late charges, penalties, collection fees, and other sums which shall be due and
payable in connection with any Account; proceeds of any letters of credit naming
any Option Care Person as beneficiary; contract rights; chattel paper;
instruments; documents; investment property; royalty fees and other payments
from franchisees; general intangibles; tort claims; contract claims; choses in
action; causes of action; tax refunds; tax refund claims; Reversions and other
amounts payable to any Option Care Person from or with respect to any Plan;
interests in or claims under any policy of insurance; and all forms of
obligations owing to any Option Care Person (including, without limitation, in
respect of loans, advances, and extensions of credit by any Option Care Person
to its Subsidiaries and Affiliates); guarantees and other security for any of
the foregoing; goods represented by or the sale, lease or delivery of which gave
rise to any of the foregoing; merchandise returned to or repossessed by any
Option Care Person and rights of stoppage in transit, replevin, and reclamation;
and other rights or remedies of an unpaid vendor, lienor, or secured party.
"RECORDS" means books, documents, EOBs, instruments, files and other
records (including without limitation computer programs, tapes and disks) that
evidence an Account or are otherwise necessary or desirable to collect an
Account.
"REFERENCE RATE" means the rate of interest publicly announced from
time to time by the Bank as its reference rate. It is a rate set by the Bank
based upon various factors including the Bank's costs and desired return,
general economic conditions, and other factors, and is used as a reference point
for pricing some loans. However, the Bank may price loans at, above, or below
such announced rate. Any changes in the Reference Rate shall take effect on the
day specified in the public announcement of such change.
"REFERENCE RATE LOANS" means a Revolving Loan during any period in
which it bears interest based on the Reference Rate.
"RELEASE" means a release, spill, emission, leaking, pumping,
injection, deposit, disposal, discharge, dispersal, leaching or migration of a
Contaminant into the indoor or outdoor environment or into or out of any real
estate or other property, including the movement of Con taminants through or in
the air, soil, surface water, groundwater or real estate or other property.
"REPORTABLE EVENT" means any of the events set forth in Section
4043(b) of
<PAGE>
ERISA or the regulations thereunder, other than any such event for which the
30-day notice requirement under ERISA has been waived in regulations issued by
the PBGC.
"REQUIREMENT OF LAW" means any law (statutory or common), treaty, rule
or regulation or determination of an arbitrator or of a Public Authority.
"RESTRICTED INVESTMENT" means any acquisition of Property by any
Option Care Person or any of its Subsidiaries in exchange for cash or other
Property, whether in the form of an acquisition of stock, debt security, or
other indebtedness or obligation, or the purchase or acquisition of any other
Property, or a loan, advance, capital contribution, or subscription, except
acquisitions of the following: (a) fixed assets to be used in the business of
any Option Care Person or any of its Subsidiaries, so long as the acquisition
costs thereof constitute Capital Expenditures permitted hereunder; (b) goods
held for sale or lease or to be used in the rendition of services by any Option
Care Person and its Subsidiaries, in each case in the ordinary course of
business; (c) direct obligations of the United States of America, or any agency
thereof, or obligations guaranteed by the United States of America, provided
that such obligations mature within one year from the date of acquisition
thereof; (d) certificates of deposit maturing within one year from the date of
acquisition, bankers acceptances, Eurodollar bank deposits, or overnight bank
deposits, in each case issued by, created by, or with a bank or trust company
organized under the laws of the United States or any state thereof having
capital and surplus aggregating at least $100,000,000; and (e) commercial paper
given the highest rating by S&P or Moody's and maturing not more than 270 days
from the date of creation thereof.
"REVERSIONS" means any funds which may become due to any Option Care
Person in connection with the termination of any Plan or other employee benefit
plan.
"REVOLVING LOANS" has the meaning specified in SECTION 2.2.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw- Hill Companies, Inc.
"SECURITY INTEREST" means collectively the Liens granted to the Lender
in the Collateral pursuant to this Agreement, the other Loan Documents, or any
other agreement or instrument.
"SELF-PAY ACCOUNT" means (i) the "co-pay" or "deductible" portion of
an Account payable by a Self-Pay Account Debtor, or (ii) the entire Account when
the entire amount is payable by a Self-Pay Account Debtor.
"SELF-PAY ACCOUNT DEBTOR" means an individual "natural" person.
"SOLVENT" means when used with respect to any Person that at the time
of
<PAGE>
determination:
(i) the assets of such Person, at a fair valuation, are in excess
of the total amount of its debts (including, without limitation,
contingent liabilities); and
(ii) the present fair saleable value of its assets is greater
than its probable liability on its existing debts as such debts become
absolute and matured; and
(iii) it is then able and expects to be able to pay its debts
(including, without limitation, contingent debts and other
commitments) as they mature; and
(iv) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
For purposes of determining whether a Person is Solvent, the amount of any
contingent liability shall be computed as the amount that, in light of all the
facts and circumstances existing at such time, represents the amount that can
reasonably be expected to become an actual or matured liability.
"SPECIFIED BAD DEBT EXPENSE AMOUNT" means for any period of four
consecutive fiscal quarters, the excess, if any, of (i) the amount of "bad debt
expense" of Option Care and its Subsidiaries on a consolidated basis for such
period over (ii) three percent (3%) of the "net revenues" of Option Care and its
Subsidiaries on a consolidated basis for such period; provided that for any
period of four consecutive fiscal quarters ending with the last fiscal quarter
of any Fiscal Year (commencing with the Fiscal Year ending December 31, 1999),
the Specified Bad Debt Expense Amount shall be zero if the "actual writeoffs" of
Option Care and its Subsidiaries on a consolidated basis for such period do not
exceed three percent (3%) of the "net revenues" of Option Care and its
Subsidiaries on a consolidated basis for such period.
"STATED TERMINATION DATE" has the meaning specified in SECTION 14.
"SUBSIDIARY" of a Person means any corporation, association,
partnership, limited liability company, joint venture or other business entity
of which more than fifty percent (50%) of the voting stock or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of an Option Care Person.
"TAXES" means any and all present or future taxes, assessments,
levies, imposts,
<PAGE>
impositions, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of the Lender, such taxes (including
income taxes or franchise taxes) as are imposed on or measured by the Lender's
net income by the jurisdiction (or any political subdivision thereof) under the
laws of which the Lender is organized or maintains a lending office.
"TERMINATION FEE" means (x) two hundred fifty thousand dollars
($250,000) if this Agreement is terminated on or prior to the first Anniversary
Date, (y) one hundred twenty-five thousand dollars ($125,000) if this Agreement
is terminated after the first Anniversary Date but on or prior to the second
Anniversary Date, and (z) sixty-two thousand five hundred dollars ($62,500) if
this Agreement is terminated after the Second Anniversary Date but prior to the
Stated Termination Date.
"TOTAL FACILITY" has the meaning specified in SECTION 2.1.
"TRADEMARK SECURITY AGREEMENT" has the meaning specified in SECTION
10.29.
"TRUST" means the John N. Kapoor Trust dated 9/20/89.
"TRUST REIMBURSEMENT AND SECURITY AGREEMENT" has the meaning specified
in SECTION 11.1.
"TRUST SUBORDINATION AGREEMENT" has the meaning specified in SECTION
11.1.
"UCC" means the Uniform Commercial Code (or any successor statute) of
the State of Illinois or of any other state the laws of which are required by
Section 9-103 thereof to be applied in connection with the issue of perfection
of security interests.
"UNBILLED ACCOUNT" means an Account as to which an Option Care Person,
to the best of its knowledge, has not submitted to the related Account Debtor
(other than a Self-Pay Account Debtor) those necessary claim forms, other
documentation and information required in order for such Account Debtor to make
payment of such Account.
"UNUSED LINE FEE" has the meaning specified in SECTION 3.1(c).
1.2 ACCOUNTING TERMS. Any accounting term used in this Agreement shall
have, unless otherwise specifically provided herein, the meaning customarily
given in accordance with GAAP, and all financial computations hereunder shall be
computed, unless otherwise specifically provided herein, in accordance with GAAP
as consistently applied and using the same method for inventory valuation as
used in the preparation of the Financial Statements.
1.3 INTERPRETIVE PROVISIONS. (a) All other undefined terms contained
in this
<PAGE>
Agreement shall, unless the context indicates otherwise, have the meanings
provided for by the UCC to the extent the same are used or defined therein.
(b) Wherever appropriate in the context, terms used herein in the
singular also include the plural, and VICE VERSA, and each masculine, feminine,
or neuter pronoun shall also include the other genders.
(c) The words "hereof," "herein," "hereunder" and similar words refer
to this Agreement as a whole and not to any particular provision of this
Agreement; and Subsection, Section, Schedule and Exhibit references are to this
Agreement unless otherwise specified.
(d) (i) The term "documents" includes any and all instruments,
documents, agreements, certificates, indentures, notices and other writings.
(ii) The term "including" is not limiting and means "including
without limitation."
(iii) In the computation of periods of time from a specified date
to a later specified date, the word "from" means "from and including,"
the words "to" and "until" each mean "to but excluding" and the word
"through" means "to and including."
(e) Unless specified herein, references herein to times of day are to
Chicago time.
(f) Unless otherwise expressly provided herein, (i) references to
agreements (including this Agreement) and other contractual instruments shall be
deemed to include all subsequent amendments, amendments and restatements and
other modifications thereto, but only to the extent such amendments, amendments
and restatements and other modifications are not prohibited by the terms of any
Loan Document, and (ii) references to any statute or regulation are to be
construed as including all statutory and regulatory provisions consolidating,
amending, replacing, supplementing or interpreting the statute or regulation.
(g) This Agreement and other Loan Documents may use several different
limitations, tests or measurements to regulate the same or similar matters. All
such limitations, tests and measurements are cumulative and shall each be
performed in accordance with its terms.
(h) This Agreement and the other Loan Documents are the result of
negotiations among, and have been reviewed by counsel to, each of the parties
hereto and thereto and are the products of all parties. Accordingly, neither
this Agreement nor any other Loan Document shall be construed against the Lender
merely because of the Lender's involvement in the preparation of this Agreement
and the other Loan Documents.
<PAGE>
2. LOANS.
2.1 TOTAL FACILITY. Subject to all of the terms and conditions of this
Agreement, the Lender shall make available a total credit facility of up to
twenty-five million dollars ($25,000,000) (the "TOTAL FACILITY") for the
Borrowers' use from time to time during the term of this Agreement. The Total
Facility shall be comprised of a revolving line of credit up to the limits of
the Availability, consisting of Revolving Loans as described in SECTION 2.2.
2.2 REVOLVING LOANS.
(a) The Lender shall, upon request of the Borrowers' Agent from
time to time, make revolving loans (the "REVOLVING LOANS") to the Borrowers up
to the limits of the Availability calculated on a consolidated basis with
respect to all Option Care Persons. The Lender, in its discretion, may elect,
with the consent of the Borrowers' Agent, to make Revolving Loans in excess of
the Availability on one or more occasions, but if it does so, the Lender shall
not be deemed thereby to have changed the limits of the Availability or to be
obligated to exceed the limits of the Availability on any other occasion. If the
unpaid balance of the Revolving Loans exceeds the Availability (with
Availability determined for this purpose without subtracting the unpaid balance
of the Revolving Loans) then the Lender may refuse to make or otherwise restrict
Revolving Loans on such terms as the Lender determines until such excess has
been eliminated. The Lender shall charge all Revolving Loans and other
Obligations of an Option Care Person to a loan account of Option Care maintained
with the Lender (and all references in this Agreement to the "loan account" of
Option Care shall be references to such account). All Revolving Loans shall be
requested by and advanced to the Borrowers' Agent; provided that the Borrowers'
Agent hereby directs that the funds constituting the initial Loan under this
Agreement be paid directly to the agent for the Existing Bank Group. All fees,
commissions, costs, expenses, and other charges under or pursuant to the Loan
Documents, and all payments made and out-of-pocket expenses incurred by the
Lender pursuant to the Loan Documents, shall be charged as Revolving Loans to
the loan account of Option Care as of the date due or the date paid or incurred
by the Lender, as the case may be.
(b) PROCEDURE FOR BORROWING.
(i) Each Borrowing shall be made upon the irrevocable
written notice ("NOTICE OF BORROWING") from the Borrowers' Agent to the Lender,
which notice must be received by the Lender not later than (1) 12:00 noon,
Chicago time, three Business Days prior to the requested Funding Date in the
case of LIBOR Rate Loans and (2) 12:00 noon, Chicago time, on the requested
Funding Date in the case of Reference Rate Loans, specifying:
(A) the amount of the Borrowing which, in the case of
LIBOR Rate Loans, shall be in an amount not less than two million five hundred
thousand
<PAGE>
dollars ($2,500,000) and in an integral multiple of five hundred thousand
dollars ($500,000) in excess thereof;
(B) the requested Funding Date, which shall be a
Business Day;
(C) whether the Revolving Loans requested are to be
Reference Rate Loans or LIBOR Rate Loans; and
(D) the duration of the Interest Period if the
requested Revolving Loans are to be LIBOR Rate Loans. If the Notice of Borrowing
fails to specify the duration of the Interest Period for any Borrowing comprised
of LIBOR Rate Loans, such Interest Period shall be one month; provided, however,
that with respect to the Borrowings to be made on the Closing Date, such
Borrowings shall consist of Reference Rate Loans only.
(ii) After giving effect to any Borrowing, there may not be
more than five different Interest Periods in effect.
2.3 AUTOMATED CLEARING HOUSE TRANSFERS. Each Borrower may request
and the Lender may, in its sole and absolute discretion, arrange for such
Borrower to obtain from the Bank ACH Transactions. Each Borrower agrees to
indemnify and hold the Lender harmless from any and all obligations now or
hereafter owing by the Lender to the Bank arising from or related to such ACH
Transactions pursuant to the indemnity referred to in clause (c) below. Each
Borrower agrees to pay the Bank all amounts owing to the Bank pursuant to ACH
Transactions. In the event any Borrower shall not have paid to the Bank such
amounts, the Lender shall pay such amounts to the Bank and such amounts when
paid by the Lender shall constitute a Revolving Loan which shall be deemed to
have been requested by the Borrowers' Agent. Each Borrower acknowledges and
agrees that the obtaining of ACH Transactions from the Bank (a) is in the sole
and absolute discretion of the Bank, (b) is subject to all rules and regulations
of the Bank, and (c) is due to the Bank relying on the indemnity of the Lender
to the Bank with respect to obligations of such Borrower to the Bank in
connection with the ACH Transactions.
2.4 THE BORROWERS' AGENT.
(a) Each Borrower hereby irrevocably appoints, designates and
authorizes Option Care as the agent and attorney-in-fact of such Borrower
(Option Care, in such capacity for all of the Borrowers, being referred to as
the "BORROWERS' AGENT") to give and receive notices, statements, requests and
instructions on such Borrower's behalf under this Agreement and any other Loan
Document and otherwise communicate on such Borrower's behalf with the Lender,
and, without limiting the foregoing, to take such action on such Borrower's
behalf under the provisions of this Agreement and each other Loan Document and
to exercise such powers and perform such duties as are delegated to the
Borrowers' Agent by the terms of this
<PAGE>
Agreement or any other Loan Document, together with such powers as are
incidental thereto. Option Care hereby accepts such appointment, designation and
authorization.
(b) Without limiting the foregoing, the Lender may give notices,
statements, requests and instructions to any Borrower through the Borrowers'
Agent and may accept and act upon any notices, statements, requests and
instructions given by the Borrowers' Agent, and each such notice, statement,
request and instruction shall be binding upon the Borrowers. Notwithstanding
such appointment, designation, and authorization, the Lender may also deal
directly with, and give and receive notices, statements, requests and
instructions to and from, any Borrower, provided that the Lender shall promptly
give notice of any such communications with any Borrower to the Borrowers'
Agent. Any communications transmitted by the Lender to a Borrower shall be sent
to such Borrower in care of Option Care at the address of Option Care determined
in accordance with SECTION 15.10. If conflicting instructions are received from
an Option Care Person and from the Borrowers' Agent, the notice, statement,
request or instruction of the Borrowers' Agent shall prevail.
(c) The Borrowers' Agent may execute any of its duties under this
Agreement or any other Loan Document by or through any of, but none other than,
its Chief Executive Officer, Chief Financial Officer or Secretary.
Notwithstanding the foregoing, but subject to the conditions specified in the
proviso to this sentence, the Borrowers' Agent may authorize other agents,
officers or employees of the Borrowers' Agent (such other agents, officers or
employees being referred to collectively as the "ADDITIONAL AUTHORIZED
INDIVIDUALS" and individually as an "ADDITIONAL AUTHORIZED INDIVIDUAL") to sign
and submit a Notice of Borrowing or sign and submit a Notice of
Conversion/Continuation; provided that no Person shall be considered to be an
Additional Authorized Individual unless the Lender shall have received (i) a
written list of such Additional Authorized Individuals and their respective
signatures, and the Lender shall have acknowledged receipt of such list in
writing, and (ii) a resolution of the board of directors of the Borrowers' Agent
specifically identifying such Additional Authorized Individuals or authorizing
one or more officers of the Borrowers' Agent to designate Additional Authorized
Individuals, it being understood and agreed that the list and resolutions
described in clauses (i) and (ii) shall be in form and substance reasonably
satisfactory to the Lender and shall be certified by the Secretary of the
Borrowers' Agent pursuant to a certificate which is in form and substance
reasonably satisfactory to the Lender.
(d) The Borrowers' Agent shall promptly forward to the Lender or
the Borrowers, as appropriate, all notices, documents, certificates, financial
statements and reports received by it in the performance of its duties
hereunder.
(e) The Borrowers' Agent shall perform its duties hereunder and
under the other Loan Documents on behalf of the Borrowers. All actions of the
Borrowers' Agent shall in each case bind all the Borrowers, whether or not any
such action has been duly authorized by such Borrowers.
<PAGE>
3. INTEREST AND OTHER CHARGES.
3.1 INTEREST.
(a) All Obligations shall bear interest on the unpaid principal
amount thereof from the date made until paid in full in cash at a rate
determined by reference to the Reference Rate or the LIBOR Rate and SECTIONS
3.1(a)(i) or (ii), as applicable, but not to exceed the Maximum Rate. Subject to
the provisions of SECTION 3.2, any of the Loans may be converted into, or
continued as, Reference Rate Loans or LIBOR Rate Loans in the manner provided in
SECTION 3.2. If at any time Loans are outstanding with respect to which notice
has not been delivered to Lender in accordance with the terms of this Agreement
specifying the basis for determining the interest rate applicable thereto, then
those Loans shall be Reference Rate Loans and shall bear interest at a rate
determined by reference to the Reference Rate until notice to the contrary has
been given to the Lender and such notice has become effective. Except as
otherwise provided herein, the Obligations shall bear interest as follows:
(i) For all Obligations, other than LIBOR Rate Loans, then
at a fluctuating per annum rate equal to the Reference Rate; and
(ii) If the Loans are LIBOR Rate Loans, then at a per annum
rate equal to two and one-eighth percent (2.125%) (the "LIBOR MARGIN") plus the
LIBOR Rate determined for the applicable Interest Period.
Each change in the Reference Rate shall be reflected in the interest rate
described in clause (i) above as of the effective date of such change. All
interest charges in respect of the Obligations shall be computed on the basis of
a year of three hundred sixty (360) days and actual days elapsed. All interest
on the Obligations shall be payable to the Lender on the first day of each month
hereafter, and, with respect to a LIBOR Rate Loan, on the last day of each
Interest Period relating thereto.
(b) If any Event of Default occurs, then, from the date such
Event of Default occurs until it is cured or waived, or if not cured or waived
until all Obligations are paid and performed in full, then the Borrowers shall
pay interest on the unpaid principal balances of the Revolving Loans at a per
annum rate two percent (2%) greater than the rate of interest otherwise
specified herein.
(c) UNUSED LINE FEE. For every month during the term of this
Agreement, the Borrowers shall pay the Lender a fee (the "UNUSED LINE FEE") in
an amount equal to one-quarter of one percent (0.25%) per annum, MULTIPLIED BY
the average daily amount by which the Maximum Revolving Credit Line exceeds the
average daily outstanding amount of Revolving Loans during such month, with the
outstanding amount of Revolving Loans calculated for this purpose by applying
payments immediately upon receipt. Such a fee, if any, shall be calculated on
the basis of a year of three hundred sixty (360) days and actual days elapsed,
and shall be payable to the Lender on the first day of each month and on the
<PAGE>
termination of this Agreement, in each case, with respect to the prior month or
portion thereof.
3.2 CONVERSION AND CONTINUATION ELECTIONS.
(a) The Borrowers' Agent may, upon irrevocable written notice to
the Lender in accordance with SUBSECTION 3.2(b):
(i) elect, as of any Business Day, in the case of Reference
Rate Loans to convert any such Loans (or any part thereof in an amount not less
than two million five hundred thousand dollars ($2,500,000), or that is in an
integral multiple of five hundred thousand dollars ($500,000) in excess thereof)
into LIBOR Rate Loans; or
(ii) elect, as of the last day of the applicable Interest
Period, to continue any LIBOR Rate Loans having Interest Periods expiring on
such day (or any part thereof in an amount not less than two million five
hundred thousand dollars ($2,500,000), or that is in an integral multiple of
five hundred thousand dollars ($500,000) in excess thereof);
PROVIDED, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than two million five hundred thousand dollars
($2,500,000), such LIBOR Rate Loans shall automatically convert into Reference
Rate Loans, and on and after such date the right of the Borrowers' Agent to
continue such Loans as, and convert such Loans into, LIBOR Rate Loans, as the
case may be, shall terminate.
(b) The Borrowers' Agent shall deliver a written notice of
conversion or continuation ("NOTICE OF CONVERSION/CONTINUATION") to be received
by the Lender not later than 12:00 noon, Chicago time, at least three Business
Days in advance of the date of conversion or continuation, if the Loans are to
be converted into or continued as LIBOR Rate Loans and specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted or
continued;
(C) the type of Loans resulting from the proposed conversion
or continuation; and
(D) the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable to
LIBOR
<PAGE>
Rate Loans, the Borrowers' Agent has failed to select timely a new Interest
Period to be applicable to LIBOR Rate Loans or if any Event or Event of Default
then exists, the Borrowers' Agent shall be deemed to have elected to convert
such LIBOR Rate Loans into Reference Rate Loans effective as of the expiration
date of such Interest Period.
(d) During the existence of an Event, the Lender shall have the
right to decline to permit a Loan to be converted into or continued as a LIBOR
Rate Loan. During the existence of an Event of Default, the Borrowers' Agent
shall not elect to have a Loan converted into or continued as a LIBOR Rate Loan.
(e) After giving effect to any conversion or continuation of
Loans, there may not be more than five different Interest Periods in effect.
3.3 MAXIMUM INTEREST RATE. In no event shall any interest rate
provided for hereunder exceed the maximum rate permissible for corporate
borrowers under applicable law for loans of the type provided for hereunder (the
"MAXIMUM RATE"). If, in any month, any interest rate, absent such limitation,
would have exceeded the Maximum Rate, then the interest rate for that month
shall be the Maximum Rate, and, if in future months, that interest rate would
otherwise be less than the Maximum Rate, then that interest rate shall remain at
the Maximum Rate until such time as the amount of interest paid hereunder equals
the amount of interest which would have been paid if the same had not been
limited by the Maximum Rate. In the event that, upon payment in full of the
Obligations, the total amount of interest paid or accrued under the terms of
this Agreement is less than the total amount of interest which would, but for
this SECTION 3.3, have been paid or accrued if the interest rates otherwise set
forth in this Agreement had at all times been in effect, then the Borrowers
shall, to the extent permitted by applicable law, pay the Lender, an amount
equal to the excess of (a) the lesser of (i) the amount of interest which would
have been charged if the Maximum Rate had, at all times, been in effect or (ii)
the amount of interest which would have accrued had the interest rates otherwise
set forth in this Agreement, at all times, been in effect over (b) the amount of
interest actually paid or accrued under this Agreement. In the event that a
court determines that the Lender has received interest and other charges
hereunder in excess of the Maximum Rate, such excess shall be deemed received on
account of, and shall automatically be applied to reduce, the Obligations other
than interest, in the inverse order of maturity, and if there are no Obligations
outstanding, the Lender shall refund to the applicable Borrowers such excess.
3.4 FACILITY FEE. The Borrowers shall pay the Lender on the Closing
Date a facility fee in the amount of one hundred eighty-seven thousand five
hundred dollars ($187,500) (the "FACILITY FEE"), less twenty-five thousand
dollars ($25,000) previously paid as a commitment fee by Option Care in respect
thereof pursuant to the letter agreement dated January 13, 1999 between Option
Care and the Lender.
4. PAYMENTS AND PREPAYMENTS.
<PAGE>
4.1 REVOLVING LOANS. The Borrowers shall repay the outstanding
principal balance of the Revolving Loans, plus all accrued but unpaid interest
thereon, upon the termination of this Agreement for any reason. In addition, and
without limiting the generality of the foregoing, the Borrowers shall pay to the
Lender, on demand, the amount by which the unpaid principal balance of the
Revolving Loans at any time exceeds the Availability at such time (determined
for this purpose as if the amount of the Revolving Loans were zero) regardless
of whether the Lender elected to make Revolving Loans in excess of the
Availability; provided that if the unpaid principal balance of the Revolving
Loans so exceeds the Availability solely because the Lender established Other
Criteria, then the Borrowers shall pay to the Lender, within two days after
demand by the Lender, the amount of such excess.
4.2 PLACE AND FORM OF PAYMENTS; EXTENSION OF TIME. All payments of
principal, interest, and other sums due to the Lender shall be made at the
Lender's address determined in accordance with SECTION 15.10. Except for
Proceeds received directly by the Lender, all such payments shall be made in
immediately available funds. If any payment of principal, interest, or other sum
to be made hereunder becomes due and payable on a day other than a Business Day,
the due date of such payment shall be extended to the next succeeding Business
Day and interest thereon shall be payable at the applicable interest rate during
such extension.
4.3 APPLICATION AND REVERSAL OF PAYMENTS. The Lender shall determine
in its sole discretion the order and manner in which Proceeds of Collateral
(including amounts in respect of Additional Collateral) and other payments that
the Lender receives are applied to the Revolving Loans, interest thereon, and
the other Obligations, and each Option Care Person hereby irrevocably waives the
right to direct the application of any such Proceeds or payments. The Lender
shall have the continuing and exclusive right to apply and reverse and reapply
any and all such Proceeds and payments to any portion of the Obligations.
4.4 INDEMNITY FOR RETURNED PAYMENTS. IF AFTER RECEIPT OF ANY PAYMENT
WHICH IS APPLIED TO THE PAYMENT OF ALL OR ANY PART OF THE OBLIGATIONS, THE
LENDER IS FOR ANY REASON COMPELLED TO SURRENDER SUCH PAYMENT TO ANY PERSON
BECAUSE SUCH PAYMENT IS INVALIDATED, DECLARED FRAUDULENT, SET ASIDE, DETERMINED
TO BE VOID OR VOIDABLE AS A PREFERENCE, IMPERMISSIBLE SETOFF, OR A DIVERSION OF
TRUST FUNDS, OR FOR ANY OTHER REASON, THEN: THE OBLIGATIONS OR PART THEREOF
INTENDED TO BE SATISFIED SHALL BE REVIVED AND CONTINUE AND THIS AGREEMENT SHALL
CONTINUE IN FULL FORCE AS IF SUCH PAYMENT HAD NOT BEEN RECEIVED BY THE LENDER
AND EACH OPTION CARE PERSON SHALL BE LIABLE TO PAY TO THE LENDER AND HEREBY DOES
INDEMNIFY THE LENDER AND HOLD THE LENDER HARMLESS FOR THE AMOUNT OF SUCH PAYMENT
SURRENDERED. The provisions of this SECTION 4.4 shall be and remain effective
notwithstanding any contrary action which may have been taken by the Lender in
reliance upon such payment, and any such
<PAGE>
contrary action so taken shall be without prejudice to the Lender's rights under
this Agreement and shall be deemed to have been conditioned upon such payment
having become final and irrevocable. The provisions of this SECTION 4.4 shall
survive the termination of this Agreement.
5. LENDER'S BOOKS AND RECORDS; MONTHLY STATEMENTS. Each Option Care
Person agrees that the Lender's books and records showing the Obligations and
the transactions pursuant to this Agreement and the other Loan Documents shall
be admissible in any action or proceeding arising therefrom, and shall
constitute evidence thereof (absent manifest error), irrespective of whether any
Obligation is also evidenced by a promissory note or other instrument. The
Lender shall provide to the Borrowers' Agent a monthly statement of Loans,
payments, and other transactions pursuant to this Agreement. Such statement
shall be deemed correct, accurate, and binding on the Option Care Persons and as
an account stated (except for reversals and reapplications of payments made as
provided in SECTION 4.3 and corrections of errors discovered by the Lender),
unless the Borrowers' Agent notifies the Lender in writing to the contrary
within sixty (60) days after such statement is given to the Borrowers' Agent. In
the event a timely written notice of objections is given by the Borrowers'
Agent, only the items to which exception is expressly made shall be considered
to be disputed by the Option Care Persons.
6. TAXES, YIELD PROTECTION AND ILLEGALITY
6.1 TAXES.
(a) Any and all payments by any Option Care Person to the Lender
under this Agreement and any other Loan Document shall be made free and clear
of, and without deduction or withholding for any Taxes. In addition, the Option
Care Persons shall pay all Other Taxes.
(b) Each Option Care Person agrees to indemnify and hold harmless
the Lender for the full amount of Taxes or Other Taxes (including any Taxes or
Other Taxes imposed by any jurisdiction on amounts payable under this Section)
paid by the Lender and any liability (including penalties, interest, additions
to tax and expenses) arising therefrom or with respect thereto, whether or not
such Taxes or Other Taxes were correctly or legally asserted. The Lender shall
make payments of Other Taxes only in the event that either (i) an Event of
Default has occurred; or (ii) in the event that such Other Taxes remain
delinquent for more than thirty (30) days after the Lender has provided notice
thereof to the Borrowers' Agent. Payment under this indemnification shall be
made within thirty (30) days after the date the Lender makes written demand
therefor.
(c) If any Option Care Person shall be required by law to deduct
or withhold any Taxes or Other Taxes from or in respect of any sum payable
hereunder to the Lender, then:
<PAGE>
(i) the sum payable shall be increased as necessary so that
after making all required deductions and withholdings (including deductions and
withholdings applicable to additional sums payable under this Section) the
Lender receives an amount equal to the sum it would have received had no such
deductions or withholdings been made;
(ii) such Option Care Person shall make such deductions and
withholdings;
(iii) such Option Care Person shall pay the full amount
deducted or withheld to the relevant taxing authority or other authority in
accordance with applicable law; and
(iv) such Option Care Person shall also pay to the Lender at
the time interest is paid, all additional amounts which the Lender specifies as
necessary to preserve the after tax yield the Lender would have received if such
Taxes or Other Taxes had not been imposed.
(d) Within 60 days after the date of any payment by any Option
Care Person of Taxes or Other Taxes referred to in clause (c) above, such Option
Care Person shall furnish the Lender the original or a certified copy of a
receipt evidencing payment thereof, or other evidence of payment reasonably
satisfactory to the Lender, which such satisfactory evidence shall include,
without limitation, cancelled checks.
6.2 ILLEGALITY.
(a) If the Lender determines that the introduction of any
Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Public Authority has asserted that
it is unlawful, for the Lender or its applicable lending office to make LIBOR
Rate Loans, then, on notice thereof by the Lender to the Borrowers' Agent, any
obligation of the Lender to make LIBOR Rate Loans shall be suspended until the
Lender notifies the Borrowers' Agent that the circumstances giving rise to such
determination no longer exist.
(b) If the Lender determines that it is unlawful to maintain any
LIBOR Rate Loan, then, upon demand by the Lender, each Borrower shall prepay in
full all of the LIBOR Rate Loans relating to such Borrower and then outstanding,
together with interest accrued thereon and amounts required under SECTION 6.4,
either on the last day of the Interest Period thereof, if the Lender may
lawfully continue to maintain such LIBOR Rate Loans to such day, or immediately,
if the Lender may not lawfully continue to maintain such LIBOR Rate Loan. If any
Borrower is required to so prepay any LIBOR Rate Loan, then concurrently with
such prepayment, such Borrower shall borrow from the Lender, in the amount of
such
<PAGE>
repayment, a Reference Rate Loan.
6.3 INCREASED COSTS AND REDUCTION OF RETURN.
(a) If the Lender determines that, due to either (i) the
introduction of or any change in the interpretation of any law or regulation or
(ii) the compliance by the Lender with any guideline or request from any central
bank or other Public Authority (whether or not having the force of law), there
shall be any increase in the cost to the Lender of agreeing to make or making,
funding or maintaining any LIBOR Rate Loans, then the Borrowers shall be liable
for, and, upon demand by the Lender from time to time, shall pay to the Lender
additional amounts as are sufficient to compensate the Lender for such increased
costs.
(b) If the Lender shall have determined that (i) the introduction
of any Capital Adequacy Regulation, (ii) any change in any Capital Adequacy
Regulation, (iii) any change in the interpretation or administration of any
Capital Adequacy Regulation by any central bank or other Public Authority
charged with the interpretation or administration thereof, or (iv) compliance by
the Lender or any corporation controlling the Lender with any Capital Adequacy
Regulation, affects or would affect the amount of capital, reserves, or special
deposits required or expected to be maintained by the Lender or any corporation
controlling the Lender and (taking into consideration such Lender's or such
corporation's policies with respect to capital adequacy and such Lender's
desired return on capital) determines that the amount of such capital, reserves,
or special deposits is increased as a consequence of its loans, credits or
obligations under this Agreement, then each Borrower shall be liable for, and,
upon demand of the Lender from time to time, shall pay to the Lender additional
amounts sufficient to compensate the Lender for such increase. Notwithstanding
the foregoing, all such amounts shall be subject to the provisions of SECTION
3.3.
6.4 FUNDING LOSSES. The Borrowers shall reimburse the Lender and hold
the Lender harmless from any loss or expense which the Lender may sustain or
incur as a consequence of:
(a) the failure of any Borrower to make on a timely basis any
payment of principal of any LIBOR Rate Loan;
(b) the failure of any Borrower to borrow, continue or convert a
Loan after the Borrowers' Agent has given (or is deemed to have given) a Notice
of Borrowing or a Notice of Conversion/Continuation;
(c) the prepayment or other payment (including after acceleration
thereof) of an LIBOR Rate Loan on a day that is not the last day of the relevant
Interest Period;
including any such loss or expense arising from the liquidation or reemployment
of funds
<PAGE>
obtained by it to maintain its LIBOR Rate Loans or from fees payable to
terminate the deposits from which such funds were obtained.
6.5 INABILITY TO DETERMINE RATES. If the Lender determines that for
any reason adequate and reasonable means do not exist for determining the LIBOR
Rate for any requested Interest Period with respect to a proposed LIBOR Rate
Loan, or that the LIBOR Rate for any requested Interest Period with respect to a
proposed LIBOR Rate Loan does not adequately and fairly reflect the cost to the
Lender of funding such Loan, the Lender shall so notify the Borrowers' Agent.
Thereafter, the obligation of the Lender to make or maintain LIBOR Rate Loans
hereunder shall be suspended until the Lender revokes such notice in writing.
Upon receipt of such notice, the Borrowers' Agent may revoke any Notice of
Borrowing or Notice of Conversion/Continuation then submitted by it. If the
Borrowers' Agent does not revoke such Notice, the Lender shall make, convert or
continue the Loans, as proposed by the Borrowers' Agent, in the amount specified
in the applicable notice submitted by the Borrowers' Agent, but such Loans shall
be made, converted or continued as Reference Rate Loans instead of LIBOR Rate
Loans.
6.6 SURVIVAL. The agreements and obligations of the Option Care
Persons in this SECTION 6 shall survive the payment of all other Obligations.
7. COLLATERAL.
7.1 GRANT OF SECURITY INTEREST.
(a) As security for the payment and performance of all of the
Obligations, each Option Care Person hereby grants to the Lender a continuing
security interest in, lien on, and assignment of all of such Option Care
Person's right, title and interest in, to and under (but none of such Option
Care Person's obligations under) all of the following, in each case wherever
located and whether now owned or existing or hereafter arising or acquired: (i)
all Receivables, Inventory, Equipment, Contractual Rights, Proprietary Rights,
Lockboxes, Blocked Accounts, Payment Accounts, and Proceeds; (ii) all moneys,
securities and other property and the Proceeds thereof, now or hereafter held or
received by, or in transit to, the Lender from or for any Option Care Person,
whether for safekeeping, pledge, custody, transmission, collection or otherwise,
including, without limitation, all of the deposit accounts, credits, and
balances of any Option Care Person with the Lender and all claims of any Option
Care Person against the Lender at any time existing; (iii) all deposit accounts
with any financial institutions (including without limitation Northern) with
which any Option Care Person maintains deposits; (iv) the Loan Documents; (v)
all fixtures; (vi) all capital stock or other equity interests issued by any
Subsidiary of any Option Care Person; (vii) the Additional Collateral; (viii)
any other Property (including without limitation all checks, monies and other
items on deposit from time to time in any Lockbox or Blocked Account); and (ix)
all books, Records and other Property relating to or referring to any of the
foregoing, including, without limitation, all books, records, ledger cards, data
<PAGE>
processing records, computer software and other property and general intangibles
at any time evidencing or relating to the Receivables, Inventory, Equipment,
Contractual Rights, Proprietary Rights, Proceeds, or other items referred to
above (all of the foregoing, and all other property in which the Lender may at
any time be granted a Lien, being herein collectively referred to as the
"COLLATERAL"). The Lender shall have all of the rights of a secured party with
respect to the Collateral under the UCC and other applicable laws (except to the
extent, if any, prohibited by applicable law).
(b) All Obligations shall constitute a single loan secured by the
Collateral. The Lender may, in its sole discretion, (i) exchange, waive, or
release any of the Collateral, (ii) after the occurrence of an Event of Default,
apply Collateral and direct the order or manner of sale thereof as the Lender
may determine, and (iii) after the occurrence of an Event of Default, settle,
compromise, collect, or otherwise liquidate any Collateral in any manner, all
without affecting the Obligations or the Lender's right to take any other action
with respect to any other Collateral. To the extent that SECTION 7.5 is
applicable thereto, the preceding sentence is subject to SECTION 7.5.
7.2 PERFECTION AND PROTECTION OF SECURITY INTEREST. Each Option Care
Person shall, at its expense, perform all steps requested by the Lender at any
time and from time to time to perfect, maintain, protect, and enforce the
Security Interest including, without limitation: (a) executing and filing UCC
financing or continuation statements, and amendments thereof, in form and
substance satisfactory to the Lender; (b) delivering to the Lender the original
certificates of title for motor vehicles with the Security Interest properly
endorsed thereon; (c) delivering to the Lender the originals of all instruments,
documents, and chattel paper, and all other Collateral of which the Lender
determines it should have physical possession in order to perfect and protect
the Security Interest therein, duly endorsed or assigned to the Lender without
restriction; (d) delivering to the Lender warehouse receipts covering any
portion of the Collateral located in warehouses and for which warehouse receipts
are issued; (e) executing and delivering to the Lender a security agreement
relating to the Reversions in form and substance satisfactory to the Lender; (f)
delivering to the Lender all letters of credit on which such Option Care Person
is named beneficiary; and (g) taking such other steps as are deemed necessary or
appropriate by the Lender to maintain the Security Interest. To the extent
permitted by applicable law, the Lender may file, without any Option Care
Person's signature, one or more financing statements disclosing the Security
Interest. Each Option Care Person agrees that a carbon, photographic,
photostatic, or other reproduction of this Agreement or of a financing statement
is sufficient as a financing statement. If any Collateral is at any time in the
possession or control of any warehouseman, bailee or any of the agents or
processors of any Option Care Person, then such Option Care Person shall notify
the Lender thereof and shall notify such Person of the Security Interest in such
Collateral and, upon the Lender's request, instruct such Person to hold all such
Collateral for the Lender's account subject to the Lender's instructions. If at
any time any Collateral is located on any Premises that are not owned by an
Option Care Person, other than equipment located at a patient's premises, then,
at the request of the Lender, each Option Care Person
<PAGE>
shall use reasonable efforts to obtain written waivers, in form and substance
satisfactory to the Lender, of all present and future Liens to which the owner
or lessor or any mortgagee of such Premises may be entitled to assert against
the Collateral. From time to time, each Option Care Person shall, upon Lender's
request, execute and deliver confirmatory written instruments pledging to the
Lender the Collateral, but an Option Care Person's failure to do so shall not
affect or limit the Security Interest or the Lender's other rights in and to the
Collateral. So long as this Agreement is in effect and until all Obligations
have been fully satisfied, the Security Interest shall continue in full force
and effect in all Collateral (whether or not deemed eligible for the purpose of
calculating the Availability or as the basis for any advance, loan, extension of
credit, or other financial accommodation).
Without limiting the generality of the foregoing: (i) each Borrower which
is not a party to a Pledge Agreement acknowledges the terms of such Pledge
Agreement and agrees to comply with such terms as if it were a party to such
Pledge Agreement; and (ii) each Borrower which is an "Issuer", as defined in the
applicable Pledge Agreement, shall register the pledge effected by such Pledge
Agreement on the books of such Borrower.
7.3 LOCATION OF COLLATERAL. Each Option Care Person represents and
warrants to the Lender that as of the Closing Date: (a) the chief executive
office of such Option Care Person is located (and at all times during the twelve
months prior to the Closing Date, the chief executive office of such Option Care
Person has been located) at 100 Corporate North, Suite 212, Bannockburn,
Illinois 60015; (b) SCHEDULE 7.3 hereto is a correct and complete list of the
location of the books and records of such Option Care Person, the locations of
the Collateral (other than equipment located at a patient's premises), and the
locations of all of its other places of business; and (c) SCHEDULE 7.3 correctly
identifies any of such facilities and locations that are not owned by the Option
Care Persons and sets forth the names of the owners and lessors or sub-lessors
of such facilities and locations. Each Option Care Person covenants and agrees
that it shall not maintain any Collateral at any location other than those
listed on SCHEDULE 7.3, and, with the exception of equipment located at a
patient's premises, it shall not otherwise change or add to any of such
locations, unless it gives the Lender written notice thereof within thirty (30)
days after such change in or addition of location, and executes any and all UCC
financing statements and other documents that the Lender requests in connection
therewith.
7.4 TITLE TO, LIENS ON, AND SALE AND USE OF COLLATERAL. Each Option
Care Person represents and warrants to, and each Option Care Person covenants
with, the Lender that: (a) all Collateral is and shall continue to be owned by
the Option Care Persons free and clear of all Liens whatsoever, except for the
Security Interest and other Permitted Liens; (b) the Security Interest is not
and shall not be subject to any prior Lien; (c) each Option Care Person shall
use, store, and maintain the Collateral with all reasonable care and shall use
the Collateral for lawful purposes only; and (d) no Option Care Person shall,
without the Lender's prior written approval, sell, lease, or dispose of or
permit the sale or disposition of the Collateral or any portion thereof, except
for sales of Inventory in the ordinary course of
<PAGE>
business and as permitted by SECTION 7.12. The inclusion of Proceeds in the
Collateral shall not be deemed the Lender's consent to any sale or other
disposition of the Collateral except as expressly permitted herein.
7.5 ADDITIONAL COLLATERAL.
(a) Pursuant to SECTION 10.26, the Option Care Persons have
agreed to cause the Northern Letter of Credit to remain in effect. If an Event
of Default has occurred and either the Lender has declared any or all
Obligations to be immediately due and payable or all Obligations shall have
automatically become immediately due and payable as contemplated by SECTION
13(a), then
(i) during the one hundred eighty (180) days from and after
the Obligations being declared or automatically becoming due and payable, the
Lender shall have the right from time to time to draw on the Northern Letter of
Credit (and to draw on or liquidate other Additional Collateral) in an amount
equal to the amount of Availability attributable to clause (b)(iii) of the
definition of Availability; and
(ii) after the end of such one hundred eighty (180) day
period, the Lender shall have the right from time to time to draw on the
Northern Letter of Credit (and to draw on or liquidate other Additional
Collateral) in such amount as may be determined by the Lender from time to time.
Notwithstanding the foregoing, on any day which is not more than thirty
(30) days prior to the then current expiry date of the Northern Letter of
Credit, the Lender shall have the right to draw on the Northern Letter of Credit
in such amount as may be determined by the Lender from time to time.
(b) The Borrowers' Agent may cause the Northern Letter of Credit
to be terminated:
(i) if, as of December 31, 1999, (x) the Availability is at
least five million dollars ($5,000,000) without giving effect to clauses
(b)(iii) and (b)(iv) of the definition of Availability, and (y) the fixed charge
coverage ratio calculated pursuant to SECTION 10.21 for the four fiscal quarters
of Option Care ending December 31, 1999 (i.e., the twelve month period ending
December 31, 1999) is not less than 1.75 to 1; or
(ii) if, as of the end of any fiscal quarter of Option Care
(commencing with the fiscal quarter ending June 30, 2000), (x) the Availability
is at least twenty percent (20%) greater than the unpaid balance of Revolving
Loans at that time without giving effect to clauses (b)(iii) and (b)(iv) of the
definition of Availability, and (y) the fixed charge coverage ratio calculated
pursuant to SECTION 10.21 for the four fiscal quarters of Option Care ending
with the end of such fiscal quarter is not less than 2.0 to 1.
<PAGE>
(c) If the Lender consents in writing in its sole discretion that
Northern Letter of Credit shall be terminated or that the amount of the Northern
Letter of Credit shall be reduced, then the Borrowers' Agent may cause the
Northern Letter of Credit to be so terminated or reduced in accordance with the
terms of such consent; provided that (i) any such reduction shall be evidenced
by documentation which is in form and substance reasonably satisfactory to the
Lender and (ii) immediately after giving effect to such reduction the
Availability shall exceed zero (without giving effect to clauses (b)(iii) and
(b)(iv) of the definition of Availability).
(d) If the amount of the Northern Letter of Credit exceeds five
million dollars ($5,000,000), then the Borrowers' Agent may cause the amount of
the Northern Letter of Credit to be reduced; provided that (i) immediately after
giving effect to such reduction the amount of the Northern Letter of Credit
shall be not less than five million dollars ($5,000,000), (ii) such reduction
shall be evidenced by documentation which is in form and substance reasonably
satisfactory to the Lender, and (iii) immediately after giving effect to such
reduction the Availability shall exceed zero (without giving effect to clause
(b)(iv) of the definition of Availability).
(e) Any amendment to this Section 7.5 pertaining to the Northern
Letter of Credit shall not take effect unless the corresponding provision of the
Trust Subordination Agreement, if applicable, is also amended.
7.6 ACCESS AND EXAMINATION. The Lender may at all reasonable times and
from time to time (not to exceed four times each year, absent a continuing Event
of Default) have access to, examine, audit, make extracts from and inspect the
records, files, and books of account of the Option Care Persons and the
Collateral and may discuss the affairs of the Option Care Persons with the
officers and management of the Option Care Persons. Each Option Care Person
shall deliver to the Lender any instrument necessary for the Lender to obtain
records from any service bureau maintaining records for any Option Care Person.
The Lender may, at the reasonable expense of the Option Care Persons, make
copies of all of the books and records of the Option Care Persons, or require
the Option Care Persons to deliver such copies to the Lender. The Lender may,
without expense to the Lender, use such of the personnel, supplies, and Premises
of the Option Care Persons as may be reasonably necessary and appropriate for
maintaining or enforcing the Security Interest. The Lender shall have the right,
at any time, in Lender's name or in the name of a nominee of the Lender, to
verify the validity, amount or any other matter relating to the Accounts, by
mail, telephone, or otherwise.
7.7 INSURANCE. The Option Care Persons shall insure the Collateral
against loss or damage by fire with extended coverage, theft, burglary,
pilferage, loss in transit, and such other hazards as the Lender shall specify,
in amounts, under policies and by insurers acceptable to the Lender. The Option
Care Persons shall cause the Lender to be named in each such policy as
<PAGE>
secured party and loss payee or additional insured, in a manner acceptable to
the Lender. Each policy of insurance shall contain a clause or endorsement
requiring the insurer to give not less than thirty (30) days' prior written
notice to the Lender in the event of cancellation of the policy for any reason
other than for failure to pay premiums when due, and requiring the insurer to
give not less than ten (10) days' prior written notice to the Lender in the
event of cancellation of the policy for failure to pay premiums when due. Each
Option Care Person shall also pay all premiums for such insurance when due, and
shall deliver to the Lender certificates of insurance and, if requested,
photocopies of the policies.
If the Option Care Persons fail to pay such fees or to procure such
insurance or the premiums therefor when due, the Lender may (but shall not be
required to) do so and charge the costs thereof to the loan account of Option
Care as a Revolving Loan. The insurance referred to in the preceding sentence
may, but need not, protect the interests of the Option Care Persons. The
coverage purchased by the Lender hereunder may not pay any claim made by any
Option Care Person or any claim that is made against any Option Care Person in
connection with the Collateral. The Option Care Persons may later cancel any
insurance purchased by the Lender hereunder, but only after providing the Lender
with evidence that the Option Care Persons have obtained insurance as required
by this Agreement. If the Lender purchases insurance for the Collateral, each
Option Care Person shall be responsible for the costs of such insurance,
including interest and any other charges that the Lender may impose in
connection with the placement of such insurance, until the effective date of the
cancellation or expiration of such insurance. The costs of the insurance may be
added to the total outstanding Obligations. The costs of the insurance obtained
by the Lender hereunder may be more than the cost of insurance that the Option
Care Persons may be able to obtain on their own.
Each Option Care Person shall promptly notify the Lender of each instance
of any loss, damage, or destruction to the Collateral in excess of one hundred
thousand dollars ($100,000) or arising from its use, whether or not covered by
insurance. The Option Care Persons shall apply all insurance proceeds
contemplated by this SECTION 7.7 to the reduction of the Obligations; provided
that, prior to the occurrence of an Event of Default, an Option Care Person may
use such proceeds, or any part thereof, to replace, repair, restore or rebuild
the Collateral in a diligent and expeditious manner with materials and
workmanship of substantially the same quality as existed before the loss, damage
or destruction. Following the occurrence and during the continuance of an Event
of Default, the Lender shall have the right but not the obligation to collect
all insurance proceeds directly (other than proceeds of insurance which the
Lender procured pursuant to this SECTION 7.7, which may be collected directly by
the Lender regardless of whether an Event of Default exists); provided that any
insurance proceeds that the Lender collects pursuant to this SECTION 7.7 shall
be applied in accordance with SECTION 4.3.
7.8 COLLATERAL REPORTING. The Borrowers' Agent shall provide the
Lender with the following documents and information at the following times in
form satisfactory to the Lender: (a) on a weekly basis, a schedule of cash
received; (b) upon request by the Lender,
<PAGE>
copies of invoices, EOBs (and any similar correspondence from any Account Debtor
which is or which at any time has been an Account Debtor of an Eligible
Account), credit memos, shipping and delivery documents no later than ten
Business Days following such written request (except to the extent that delivery
of the foregoing violates applicable law); (c) monthly agings and
reconciliations of accounts receivable to be delivered no later than the
fifteenth day of each month respecting the immediately preceding month
(including detail as to applications of collections thereon); (d) monthly
reports as to "dilutions", including as to the Dilution Percentage for each
month and each calendar quarter, not later than the fifteenth day of each month
respecting the immediately preceding month and calendar quarter; (e) during the
third week of each month, a forecast as to revenue of the Option Care Persons
for such month; (f) monthly reports pertaining to the cash collections in
respect of Accounts as to which more than 120 days have elapsed since Invoice
Date, not later than the fifteenth day of each month respecting the immediately
preceding month; (g)(x) during the third week of each month, a Mid-Month
Borrowing Base Certificate for such month, and (y) on the fifteenth day of each
month (or, if such day is not a Business Day, on the next Business Day), a Final
Borrowing Base Certificate with respect to the immediately preceding month; (h)
such other reports as to the Collateral (including without limitation reports as
to adjusting entries) as the Lender shall request from time to time; and (i)
certificates of an officer of the Borrowers' Agent certifying as to the
foregoing; provided that reports delivered pursuant to clause (c) or clause (f),
and the Final Borrowing Base Certificate delivered pursuant to clause (g),
during January of each year may be delivered up to five Business Days later than
the applicable day specified in such clauses.
If (x) an Event of Default has occurred, or (y) as of the end of any two
consecutive calendar quarters the Dilution Percentage (defined below) for the
twelve month period ending as of the end of each such calendar quarter exceeds
seven and one-half percent (7.5%), then, upon request from the Lender, the
Lender shall have the right to retain the services of a collateral monitoring
company (at the expense of the Option Care Persons) to review, monitor and
report on Accounts and collections in such manner as may be required by the
Lender from time to time. If any of the records or reports of the Option Care
Persons with respect to the Collateral are prepared by an accounting service or
other agent, each Option Care Person hereby authorizes such service or agent to
deliver such records, reports, and related documents to the Lender.
As used herein, "DILUTION PERCENTAGE" means, on any date of determination,
the percentage identified as such in the most recent monthly report as to
"dilutions" referred to in clause (d) of the first paragraph of this SECTION 7.8
provided by the Borrowers' Agent to the Lender on or prior to such date of
determination. The Dilution Percentage for any period shall be calculated as a
fraction, the numerator of which is the aggregate amount of non-cash credits
(i.e., reductions) to the accounts receivable of the Option Care Persons during
such period and the denominator of which is the gross revenues of the Option
Care Persons during such period. The Borrowers' Agent shall not change the
method by which it calculates the Dilution Percentage (or by which it calculates
any component thereof) without the prior written consent of the Lender.
<PAGE>
7.9 ACCOUNTS.
(a) Each Option Care Person hereby represents and warrants to the
Lender and covenants with the Lender that: (i) each existing Account represents,
and each future Account shall represent, a BONA FIDE sale or lease and delivery
of goods by an Option Care Person, or rendition of services by an Option Care
Person, in the ordinary course of business of an Option Care Person; (ii) each
existing Account is, and each future Account shall be, at the time any such
Account arose and at the time any such Account is billed, for a liquidated
amount payable by the Account Debtor thereon on the terms set forth in the
invoice therefor or in the schedule thereof delivered to the Lender, without
offset, deduction, defense, or counterclaim, other than discounts required by
law or contract, and corrections of billing errors, in the ordinary course of
business of an Option Care Person; (iii) no payment shall be received with
respect to any Account, and no credit, discount, extension, or agreement
therefor shall be granted on any Account, except as reported to the Lender in
accordance with this Agreement; (iv) each copy of an invoice or claim form
delivered to the Lender by an Option Care Person shall be a genuine copy of the
original invoice or claim form sent to the Account Debtor named therein; (v) all
goods described in any invoice or claim form representing a sale of goods shall
have been delivered to the applicable patient and all services of any Option
Care Person described in any invoice or claim form shall have been performed;
(vi) each of the Accounts and the related contracts is in full force and effect
and represents and constitutes a legal, valid and binding obligation of the
related Account Debtor, enforceable against such Account Debtor in accordance
with its terms; (vii) promptly following notice from an Account Debtor as to an
earlier overpayment by such Account Debtor to any Option Care Person, such
Option Care Person has made all payments to such Account Debtor which are
necessary to prevent such Account Debtor from offsetting such overpayment
against any amount which such Account Debtor owes on the Accounts (however,
Lender acknowledges that notwithstanding said payments, offsets may and do
nonetheless occur); (viii) no direction of any Option Care Person or any other
Person is in effect directing Account Debtors (A) to remit payments in respect
of the Accounts other than to a Lockbox or a Blocked Account or (B) to remit
EOBs in respect of the Accounts to any Person or address other than to an Option
Care Person at its chief executive office; and (ix) during the one year prior to
the Closing Date, no Option Care Person has been subject to any Government
Offset involving in excess of fifty thousand dollars ($50,000). As of the date
of each Borrowing, each Option Care Person is unaware of any potential
Government Offset involving in excess of fifty thousand dollars ($50,000) for
any single Governmental Offset and in excess of two hundred thousand dollars
($200,000) for all such Government Offsets that has not been disclosed by such
Option Care Person to the Lender in writing prior to that date. All of the
Medicaid and Medicare reports required to be filed by any Option Care Person for
all reporting periods have been filed with the applicable Government Account
Debtor, or HCFA designated agents or agents of such Government Account Debtor.
At all times on and after the thirtieth day following the Closing Date, each
Option Care Person hereby represents and warrants to the Lender that Account
Debtor Notices, signed by the Borrowers, have been delivered to all of the
Account Debtors of the type referred to in clause (p) of the definition of
Eligible Account.
<PAGE>
(b) No Option Care Person shall re-date any invoice, claim form
or sale or make sales on extended dating or extend or modify any Account (other
than to correct billing errors in the ordinary course of business). The Lender
acknowledges that if an Account Debtor which is the "primary" payor does not pay
a claim in full or denies such claim, an Option Care Person may send a separate
invoice to an Account Debtor which is a "secondary" payor. If any Option Care
Person becomes aware of any matter that is reasonably likely to materially
adversely affect any Account Debtor (other than a Self-Pay Account Debtor),
including information regarding the Account Debtor's creditworthiness, such
Option Care Person shall promptly so advise the Lender.
(c) No Option Care Person shall accept any note, warrant or other
instrument (except a check or other instrument for the immediate payment of
money, subject to compliance with SECTION 7.10) with respect to any Account
(other than a Self-Pay Account) without the Lender's written consent. If the
Lender consents to the acceptance of any such note, warrant or other instrument,
it shall be considered as evidence of the Account and not payment thereof, and
the Option Care Persons shall promptly deliver such note, warrant or instrument
to the Lender appropriately endorsed. Regardless of the form of presentment,
demand, notice of dishonor, protest, and notice of protest with respect thereto,
the Option Care Persons shall remain liable thereon until such note, warrant or
instrument is paid in full. Notwithstanding the foregoing, any Option Care
Person may accept a note (i) from a franchisee or (ii) as payment solely for the
provision of computer software, provided that such Option Care Person shall (i)
promptly notify the Lender that it has accepted any such note, and (ii) upon
request by the Lender, promptly deliver such note to the Lender appropriately
endorsed.
(d) Each Option Care Person shall notify the Lender promptly of
(i) all disputes and claims (other than as to discounts required by law or
contract, and corrections of billing errors, in the ordinary course of business)
with Persons which are Account Debtors, involving in excess of fifty thousand
dollars ($50,000) for any single dispute or claim and in excess of two hundred
thousand dollars ($200,000) for all such disputes and claims, whether any such
Person is acting in its capacity as an Account Debtor or in its individual
capacity (e.g., as a landlord or supplier of an Option Care Person); and (ii)
all alleged or asserted Government Offsets involving in excess of fifty thousand
dollars ($50,000) for any single Government Offset and in excess of two hundred
thousand dollars ($200,000) for all such Government Offsets. No discount, credit
or allowance shall be granted with respect to any Eligible Account to any
Account Debtor (other than in respect of Self-Pay Accounts) without the Lender's
consent, which consent shall not be unreasonably withheld, except for: (i)
discounts required by law or contract, and corrections of billing errors, in the
ordinary course of business; and (ii) any other discount which does not exceed
fifty thousand dollars ($50,000), provided that the aggregate amount of
discounts permitted pursuant to this clause (ii) during any calendar year shall
not exceed five hundred thousand dollars ($500,000). The Lender may at all times
following the occurrence and during the continuance of an Event of Default
hereunder settle or adjust disputes and claims directly with Account Debtors for
amounts and upon terms which the Lender considers
<PAGE>
reasonable and, in all cases, the Lender shall credit the loan account of Option
Care with only the net amounts received by the Lender in payment of any
Accounts.
7.10 COLLECTION OF ACCOUNTS; PAYMENTS.
(a) Each Option Care Person shall (and all invoices and claim
forms with respect to the Accounts shall) instruct all Account Debtors to make
all payments only to a Lockbox or a Blocked Account (the Lender acknowledges
that payments by patients made at the time that a patient is receiving goods and
services at a facility of an Option Care Person would not be invoiced to such
patient). If, notwithstanding such instructions, any Option Care Person receives
any Proceeds of Accounts, it shall receive such payments as the Lender's
trustee, and shall immediately deliver such payments to the Lender in their
original form duly endorsed in blank or deposit them into a Lockbox, Blocked
Account or a Payment Account, as the Lender may direct; provided, however, that
each Option Care Person may maintain a separate account with a local financial
institution (each a "Local Account") for the deposit of walk-in payments from
patients and walk-in payments for durable medical equipment from customers;
provided, further, that (i) each Option Care Person shall deposit such walk-in
payments in a Local Account not later than the first Business Day after
receiving such walk-in payments, (ii) each Option Care Person shall cause all
available amounts in such Local Accounts to be transferred by wire transfer or
automated clearinghouse transfer to a Blocked Account during the last week of
each month, and (iii) no Option Care Person shall withdraw any funds on deposit
in any Local Account or permit funds on deposit in any Local Account to be
transferred other than in accordance with this sentence (provided that this
clause (iii) shall not prevent the Option Care Persons from writing checks on a
Local Account for the sole purpose of refunding some or all of such walk-in
payments to the Person or Persons who made such walk-in payments). Except as
otherwise provided under applicable law with respect to Accounts owed by
Government Account Debtors, all collections received in any such Lockbox,
Blocked Account or Payment Account or directly by any Option Care Person or the
Lender, and all funds in any Lockbox, Blocked Account or Payment Account or
other account to which such collections are deposited, shall be the sole
property of the Lender and subject to the Lender's sole control and shall be
applied by the Lender subject to and in accordance with the terms of SECTION
4.3. The Lender or the Lender's designee may, at any time after the occurrence
of an Event of Default, notify Account Debtors that the Accounts have been
assigned to the Lender and of the Security Interest therein, and may collect
them directly (except to the extent prohibited under applicable law with respect
to Accounts owed by Government Account Debtors) and charge the collection costs
and expenses to the loan accounts of the Borrowers as a Revolving Loan. At the
Lender's request, each Option Care Person shall execute and deliver to the
Lender such documents as the Lender shall require to grant the Lender access to
any post office box, lockbox or bank account in which collections of Accounts
are received or deposited.
(b) In accordance with the Blocked Account Agreement, the Blocked
Account Bank shall remit, by automatic standing wire transfer, on a daily basis,
all available
<PAGE>
amounts in the Blocked Accounts to or at the direction of the Lender. Such
amounts shall be applied in accordance with SECTION 4.3.
(c) All payments received by the Lender on account of Accounts or
other Collateral (including Proceeds) shall be the Lender's sole property and
subject to the Lender's sole control and shall be applied by the Lender subject
to and in accordance with the terms of SECTION 4.3. If such payments are
received by the Lender at or prior to 1:00 p.m., Chicago time, on any Business
Day, such payments shall be credited to the loan accounts of the Borrowers
(conditional upon final collection) on such Business Day. If such payments are
received by the Lender after 1:00 p.m., Chicago time, on any Business Day, such
payments shall be credited to the loan account of Option Care (conditional upon
final collection) on the next Business Day.
(d) In the event the Borrowers repay all of the Obligations upon
the termination of this Agreement, other than through the Lender's receipt of
payments on account of Accounts or Proceeds of other Collateral, such payment
shall be credited (conditional upon final collection) to the loan account of
Option Care in accordance with SECTION 7.10(c).
7.11 [Reserved]
7.12 EQUIPMENT. Each Option Care Person represents and warrants to the
Lender that all of the Equipment used or held for use in the business of an
Option Care Person is adequate for its current use, except that portion of
Equipment that is currently under repair. Each Option Care Person shall keep and
maintain such Equipment (or cause such Equipment to be kept and maintained) in
good operating condition and repair (ordinary wear and tear excepted) and shall
make all necessary replacements thereof.
7.13 MATERIAL CONTRACTS. Each Option Care Person shall fully perform
all of its obligations under each of the contracts and agreements to which it is
a party and shall enforce all of its rights and remedies thereunder, in each
case, as it deems appropriate in its business judgment; PROVIDED, HOWEVER, no
Option Care Person shall take any action or fail to take any action with respect
to any such contract or agreement that would cause the termination of any
Material Contract except in the ordinary course of business of such Option Care
Person. As used in this SECTION 7.13, "MATERIAL CONTRACT" means any contract or
agreement to which an Option Care Person is a party if such contract or
agreement involves amounts paid or payable to or by an Option Care Person in
excess of ten thousand dollars ($10,000) during any calendar year. No Option
Care Person shall, without the Lender's prior written consent, modify, amend,
supplement, compromise, satisfy, waive, release, terminate or discharge any
Material Contract, the Contractual Rights relating to any Material Contract, or
any collateral securing the same, except in the ordinary course of business of
such Option Care Person. Each Option Care Person shall notify the Lender in
writing, promptly after it becomes aware thereof, of any event or fact which
could reasonably be expected to give rise to a claim by it for indemnification
under any Material Contract and shall diligently pursue such right and report to
the Lender on all further
<PAGE>
developments with respect thereto, provided that the notification and
reporting requirements set forth in this sentence shall not apply except to
the extent that such a claim for indemnification is made outside of the
ordinary course of business of such Options Care Person. Each Option Care
Person shall remit directly to the Lender, for application to the Obligations
in such order as the Lender determines, all amounts received by such Option
Care Person as indemnification or otherwise pursuant to any contract or
agreement relating to Contractual Rights. If an Event of Default exists, then
the Lender may directly enforce such right in its own name or in the name of
an Option Care Person and may enter into such settlements or other agreements
with respect thereto as the Lender determines. All amounts thereby recovered
by the Lender, after deducting the Lender's costs and expenses in connection
therewith, shall be applied to the Obligations in such order as the Lender
determines. In any suit, proceeding or action brought by the Lender under any
contract or agreement relating to a Contractual Right for any sum owing
thereunder or to enforce any provision thereof, each Option Care Person shall
indemnify and hold the Lender harmless from and against all expense, loss or
damage suffered by reason of any defense, setoff, counterclaim, recoupment,
or reduction of liability whatsoever of the obligor thereunder arising out of
a breach by any Option Care Person of any obligation thereunder or arising
out of any other agreement, indebtedness or liability at any time owing from
any Option Care Person to or in favor of such obligor or its successors. All
such obligations of any Option Care Person shall be and remain enforceable
only against such Option Care Person and shall not be enforceable against the
Lender. Notwithstanding any provision hereof to the contrary, each Option
Care Person shall at all times remain liable to observe and perform all of
its duties and obligations under each contract or agreement relating to
Contractual Rights and the Lender's exercise of any of its rights with
respect to the Collateral shall not release any Option Care Person from any
of such duties and obligations. The Lender shall not be obligated to perform
or fulfill any of duties or obligations under any contract or agreement
relating to Contractual Rights or to make any payment thereunder or to make
any inquiry as to the nature or sufficiency of any payment or Property
received by it thereunder or the sufficiency of performance by any party
thereunder, or to present or file any claim, or to take any action to collect
or enforce any performance or payment of any amounts due.
7.14 DOCUMENTS, INSTRUMENTS, AND CHATTEL PAPER. Each Option Care
Person represents and warrants to the Lender, and covenants with the Lender,
that: (a) all documents, instruments, and chattel paper describing, evidencing,
or constituting Collateral, and all signatures and endorsements thereon, are and
shall be complete, valid, and genuine; and (b) all goods evidenced by such
documents, instruments, and chattel paper are and shall be owned by the Option
Care Person free and clear of all Liens other than Permitted Liens.
7.15 RIGHT TO CURE. The Lender may, in its sole discretion and at any
time, pay any amount or do any act required of any Option Care Person hereunder
to preserve, protect, maintain or enforce the Security Interest, which any
Option Care Person fails to pay or do, including, without limitation, payment of
any judgment against any Option Care Person, any insurance premium, any
warehouse charge, any landlord's claim, and any other obligation giving
<PAGE>
rise to any Lien upon or with respect to the Collateral. All payments that the
Lender makes under this SECTION 7.15 and all out-of-pocket costs and expenses
that the Lender pays or incurs in connection with any action taken by it
hereunder shall be charged to the loan accounts of the Borrowers as a Revolving
Loan. Any payment made or other action taken by the Lender under this SECTION
7.15 shall be without prejudice to any right to assert an Event of Default
hereunder.
7.16 POWER OF ATTORNEY. Each Option Care Person hereby appoints the
Lender and the Lender's designees as such Option Care Person's attorney, subject
to the provisions of applicable law, with power: (a) to endorse such Option Care
Person's name on any checks, notes, acceptances, money orders, or other forms of
payment or security that come into the Lender's possession; (b) to sign such
Option Care Person's name on any invoice, bill of lading, or other document of
title relating to any Collateral, on drafts against customers, on assignments of
Accounts, on notices of assignment, UCC financing statements and other public
records, on verifications of Accounts and on notices to Account Debtors and to
file any such financing statements by electronic means with or without a
signature as authorized or required by applicable law or filing procedure; (c)
to notify the post office authorities, when an Event of Default exists, to
change the address for delivery of such Option Care Person's mail to an address
designated by the Lender and to receive, open and review (but not to dispose of,
and in each instance promptly forward to Option Care) all mail addressed to such
Option Care Person; (d) when an Event of Default exists, to send requests for
verification of Accounts to Account Debtors; and (e) to do all things necessary
to carry out this Agreement; provided that to the extent that applicable law
prohibits the Lender from collecting any payment directly from a Government
Account Debtor, the Lender shall not collect such payment directly from such
Government Account Debtor. Each Option Care Person ratifies and approves all
acts of such attorney. Neither the Lender nor the attorney, as the case may be,
shall be liable for any acts or omissions or for any error of judgment or
mistake of fact or law absent gross negligence or wilful misconduct on the part
of the Lender or such attorney, as the case may be. This power, being coupled
with an interest, is irrevocable until this Agreement has been terminated and
the Obligations have been fully satisfied.
7.17 LENDER'S RIGHTS, DUTIES, AND LIABILITIES. Each Option Care Person
assumes all responsibility and liability arising from or relating to the use,
sale, or other disposition of the Collateral. The Obligations shall not be
affected by any failure of the Lender to take any steps to perfect the Security
Interest or to collect or realize upon the Collateral, nor shall loss of or
damage to the Collateral release any Option Care Person from any of the
Obligations. Following the occurrence of an Event of Default, the Lender may
(but shall not be required to), without notice to or consent from any Option
Care Person, sue upon or otherwise collect, extend the time for payment of,
modify or amend the terms of, compromise or settle for cash, credit, or
otherwise upon any terms, grant other indulgences, extensions, renewals,
compositions, or releases, and take or omit to take any other action with
respect to the Collateral, any security therefor, any agreement relating
thereto, any insurance applicable thereto, or any Person liable directly or
indirectly in connection with any of the foregoing, without discharging or
otherwise affecting the liability of any Option Care Person for the Obligations
or under this Agreement or any other
<PAGE>
agreement now or hereafter existing between the Lender and any Option Care
Person; provided that to the extent that applicable law prohibits the Lender
from collecting any payment directly from a Government Account Debtor, the
Lender shall not collect such payment directly from such Government Account
Debtor.
7.18 [Reserved]
7.19 LICENSE FOR USE OF SOFTWARE AND OTHER INTELLECTUAL PROPERTY.
Except to the extent prohibited by applicable law, each Option Care Person
hereby grants the Lender a non-exclusive, royalty-free license (with the right
to sublicense) to use, without payment or royalty of any kind, all books,
documents, EOBs, instruments, files, records, computer software programs, tapes,
disks, data bases, processes and materials used by such Option Care Person to
operate its business (including the collection or other liquidation of Accounts
and other items covered by the definition of Collateral), which license shall be
irrevocable so long as any of the Obligations remain outstanding or this
Agreement is in effect; PROVIDED that the Lender shall not use such license
unless an Event of Default exists; and PROVIDED, FURTHER, that should the
consent of any licensor of any Option Care Person to such grant of the license
described herein be required, each Option Care Person (upon the request of the
Lender) shall use its best efforts to obtain the consent of such third-party
licensor and, in the absence of obtaining such consent, shall, upon request of
the Lender, download all information required to operate its business (including
information required to collect or otherwise liquidate Collateral) contained in
such licensed computer software programs, tapes, disks, data bases, processes
and materials in a format which is accessible by the Lender or otherwise print
out such information.
8. BOOKS AND RECORDS; FINANCIAL INFORMATION; NOTICES.
8.1 BOOKS AND RECORDS. Each Option Care Person shall maintain, at all
times, correct and complete books, records and accounts in which complete,
correct and timely entries are made of its transactions in accordance with GAAP
consistent with those applied in the preparation of the Financial Statements.
Each Option Care Person shall, by means of appropriate entries, reflect in such
accounts and in all Financial Statements proper liabilities and reserves for all
taxes and proper provision for depreciation and amortization of Property and bad
debts, all in accordance with GAAP. Each Option Care Person shall maintain at
all times books and records pertaining to the Collateral in such detail, form,
and scope as the Lender shall reasonably require, including without limitation,
records of: (a) all payments received and all credits and extensions granted
with respect to the Accounts; (b) the return, rejection, repossession, stoppage
in transit, loss, damage, or destruction of any Inventory; and (c) all other
dealings affecting the Collateral which would reasonably be expected to have a
Material Adverse Effect.
8.2 FINANCIAL AND OTHER INFORMATION. Each Option Care Person shall
promptly furnish to the Lender or its agents all such information as the Lender
shall from time to time reasonably request through the Borrowers' Agent, and
notify its auditors and accountants that the
<PAGE>
Lender is authorized by each Option Care Person to obtain such information
directly from them. Without limiting the foregoing, each Option Care Person
shall furnish to the Lender through the Borrowers' Agent, in such detail as the
Lender shall request, the following:
(a) As soon as available, but in any event not later than 105
days after the close of each Fiscal Year, a copy of Option Care's annual report
on Form 10-K filed with the Securities and Exchange Commission or, if Option
Care is no longer required to file an annual report on Form 10-K with the
Securities and Exchange Commission, consolidated and consolidating audited
balance sheets, and statements of operation, and stockholders equity and cash
flows for Option Care and its consolidated Subsidiaries for such Fiscal Year,
and the accompanying notes thereto, setting forth in each case in comparative
form figures for the previous Fiscal Year, all in reasonable detail, fairly
presenting the financial position and the results of operations of Option Care
and its consolidated Subsidiaries as at the date thereof and for the Fiscal Year
then ended, and prepared in accordance with GAAP. Such statements shall be
examined in accordance with generally accepted auditing standards and
accompanied by a report thereon unqualified as to scope by independent certified
public accountants selected by Option Care and reasonably satisfactory to the
Lender.
(b) As soon as available, but in any event not later than 50 days
after the close of each fiscal quarter other than the fourth quarter of a Fiscal
Year, a copy of Option Care's quarterly report on Form 10-Q filed with the
Securities and Exchange Commission or, if Option Care is no longer required to
file quarterly reports on Form 10-Q with the Securities and Exchange Commission,
consolidated and consolidating unaudited balance sheets of Option Care and its
consolidated Subsidiaries as at the end of such quarter, and consolidated and
consolidating unaudited statements of income and cash flows for Option Care and
its consolidated Subsidiaries for such quarter and for the period from the
beginning of the Fiscal Year to the end of such quarter, together with the
accompanying notes, if any, thereto, all in reasonable detail, fairly presenting
the financial position and results of operation of Option Care and its
consolidated Subsidiaries as at the date thereof and for such periods, prepared
in accordance with GAAP consistent with the audited Financial Statements
required pursuant to SECTION 8.2(a). Such statements shall be certified to be
fairly stated in all material respects by the chief financial or accounting
officer of Option Care, subject to normal year-end adjustments.
(c) As soon as available, but in any event not later than 30 days
after the end of each month, consolidated and consolidating unaudited balance
sheets of Option Care and its consolidated Subsidiaries as at the end of such
month, and consolidated and consolidating unaudited statements of income and
expenses for Option Care and its consolidated Subsidiaries for such month and
for the period from the beginning of the Fiscal Year to the end of such month,
all in reasonable detail, fairly presenting the financial position and results
of operation of Option Care and its consolidated Subsidiaries as at the date
thereof and for such periods, and prepared in accordance with GAAP consistent
with the audited Financial Statements required pursuant to SECTION 8.2(a). Such
statements shall be certified to be correct by the chief financial
<PAGE>
or accounting officer of Option Care, subject to normal year-end adjustments, if
any.
(d) With each of the audited Financial Statements delivered
pursuant to SECTION 8.2(a), a certificate of the independent certified public
accountants that examined such statements to the effect that they have reviewed
and are familiar with the Loan Documents and that, in examining such Financial
Statements, they did not become aware of any fact or condition which then
constituted an Event or Event of Default under SECTION 10.20, 10.21 or 10.22,
except for those, if any, described in reasonable detail in such certificate.
(e) With each of the annual audited and quarterly unaudited
Financial Statements delivered pursuant to SECTIONS 8.2(a) and 8.2(b), a
certificate of the chief executive or chief financial officer of Option Care (i)
setting forth in reasonable detail the calculations required to establish that
each Option Care Person was in compliance with its covenants set forth in
SECTIONS 10.20, 10.21 and 10.22 during the period covered in such Financial
Statements, and (ii) stating that, except as explained in reasonable detail in
such certificate, (A) all of the representations and warranties of each Option
Care Person contained in this Agreement and the other Loan Documents are correct
and complete as at the date of such certificate as if made at such time, (B) no
Event or Event of Default then exists or existed during the period covered by
such Financial Statements. If such certificate discloses that a representation
or warranty is not correct or complete, or that a covenant has not been complied
with, or that an Event or Event of Default existed or exists, such certificate
shall set forth what action the applicable Option Care Person has taken or
proposes to take with respect thereto.
(f) No sooner than 90 days prior to the beginning of, and not
later than January 30 of, each Fiscal Year (beginning with Fiscal Year
commencing January 1, 2000), consolidated and consolidating projected balance
sheets, statements of income and expense, and statements of cash flow for Option
Care and its Subsidiaries on a consolidated basis as at the end of and for each
month of such Fiscal Year.
(g) Within 50 days after the end of each fiscal quarter, a report
of the Capital Expenditures of Option Care and its Subsidiaries for such quarter
and, if Option Care is no longer required to file quarterly reports on Form 10-Q
with the Securities and Exchange Commission, a statement of cash flow for Option
Care and its Subsidiaries for the period from the beginning of the then current
Fiscal Year to the end of such quarter, prepared in accordance with GAAP
consistent with the audited Financial Statements required pursuant to SECTION
8.2(a).
(h) Promptly after their preparation, copies of any and all proxy
statements, financial statements, and reports which Option Care makes available
to its stockholders.
(i) Promptly after the filing of any regular, periodic or special
reports (other than those delivered pursuant to a different clause of this
SECTION 8.2), registration statement, prospectus or any amendment to any of the
foregoing by Option Care or any of its Subsidiaries with the Securities and
Exchange Commission, copies of each such report,
<PAGE>
registration statement, prospectus or amendment.
(j) Promptly after filing with the PBGC, DOC, or IRS, a copy of
each annual report or other filing or notice filed with respect to each Plan of
any Option Care Person or any ERISA Affiliate with the PBGC, DOL, or IRS.
(k) Such additional information as the Lender may from time to
time reasonably request regarding the financial and business affairs of any
Option Care Person or any Subsidiary, including, without limitation: (i)
projections of future operations on both a consolidated and consolidating basis;
and (ii) the status and prospects of all outstanding litigation and proceedings
affecting any Option Care Person or any officer of any Option Care Person and
the terms and conditions of any settlements involving any Option Care Person or
any officer of any Option Care Person. The obligations of the Option Care
Persons pursuant to this clause (k) shall be limited to the extent that
complying with such obligations (x) is prohibited by (i) applicable law, (ii) a
governmental agency or (iii) a contractual restriction (except that this clause
(iii) shall not apply to litigation, proceedings or settlements) or (y) would
result in a complete waiver of the attorney-client privilege with respect to the
matters disclosed.
8.3 NOTICES TO LENDER. Each Option Care Person shall notify the Lender
in writing through the Borrowers' Agent, of the following matters at the
following times:
(a) Immediately after becoming aware of the existence of any
Event or Event of Default.
(b) Immediately after becoming aware that the holder of any
capital stock having a value of not less than one hundred thousand dollars
($100,000) issued by any Option Care Person has taken any legal action, or that
the holder of any Debt of any Option Care Person in excess of two hundred
thousand dollars ($200,000) has given notice or taken any action, with respect
to a claimed default.
(c) Immediately after becoming aware of any material adverse
change in the Property, business, performance, operations, prospects, or
condition (financial or otherwise) of any Option Care Person.
(d) Immediately after becoming aware of any pending or threatened
action, suit, proceeding, or counterclaim by any Person, or any pending or
threatened investigation by a Public Authority, or any actual or potential
Government Offset, which individually or in the aggregate could reasonably be
expected to have a Material Adverse Effect.
(e) Immediately after becoming aware of any pending or threatened
strike, work stoppage, material unfair labor practice claim, or other material
labor dispute affecting any Option Care Person or any of its Subsidiaries.
<PAGE>
(f) Immediately after becoming aware of any violation of any law,
statute, regulation, or ordinance of a Public Authority applicable to any Option
Care Person, any Subsidiary, or their respective Properties which could
reasonably be expected to have a Material Adverse Effect.
(g) Immediately after becoming aware of any violation by any
Option Care Person of Environmental Law (which violation could reasonably be
expected to have a Material Adverse Effect) or immediately upon receipt of any
notice that a Public Authority has asserted that any Option Care Person is not
in compliance with Environmental Laws or that its compliance is being
investigated.
(h) Thirty (30) days prior to any Option Care Person (x) changing
its name or the address of its chief executive office, (y) entering into any
merger or consolidation or (z) taking any other action which could result in the
Security Interest ceasing to be a first priority perfected security interest in
favor of the Lender.
(i) Immediately after becoming aware of any ERISA Event,
accompanied by any materials required to be filed with the PBGC with respect
thereto; immediately after any Option Care Person's receipt of any notice
concerning the imposition of any withdrawal liability under Section 4042 of
ERISA with respect to a Plan; immediately upon the establishment of any Pension
Plan not existing at the Closing Date or the commencement of contributions by
any Option Care Person to any Pension Plan to which any Option Care Person was
not contributing at the Closing Date; and immediately upon becoming aware of any
other event or condition regarding a Plan or regarding compliance by any Option
Care Person or an ERISA Affiliate with ERISA, which could have a Material
Adverse Effect.
(j) Immediately upon becoming aware of any delinquent taxes of
any Option Care Person which, individually or in the aggregate, exceed two
hundred fifty thousand dollars ($250,000).
Each notice given under this SECTION 8.3 shall describe the subject
matter thereof in reasonable detail and shall set forth the action that the
Option Care Persons have taken or propose to take with respect thereto.
The foregoing shall not limit the obligations of the Option Care
Persons to give other notices under this Agreement, including without limitation
to notify the Lender in accordance with SECTION 7.9(d) as to disputes and claims
and alleged or asserted Government Offsets.
9. GENERAL WARRANTIES AND REPRESENTATIONS.
<PAGE>
Each Option Care Person continuously warrants and represents to the
Lender, at all times during the term of this Agreement and until all Obligations
have been satisfied, that, except as hereafter disclosed to and accepted by the
Lender in writing:
9.1 AUTHORIZATION, VALIDITY, AND ENFORCEABILITY OF THIS AGREEMENT AND
THE LOAN DOCUMENTS. Each Option Care Person has the corporate power and
authority to execute, deliver and perform this Agreement and the other Loan
Documents, to incur the Obligations, and to grant the Security Interest. Each
Option Care Person has taken all necessary corporate action (including, without
limitation, obtaining approval of its stockholders, if necessary) to authorize
its execution, delivery, and performance of this Agreement and the other Loan
Documents to which it is a party. No consent, approval, or authorization of, or
declaration or filing with, any Public Authority, and no consent of any other
Person, is required in connection with the execution, delivery, and performance
of this Agreement and the other Loan Documents by any Option Care Person, except
for those already duly obtained. This Agreement and the other Loan Documents to
which it is a party have been duly executed and delivered by each Option Care
Person and constitute the legal, valid and binding obligations of each Option
Care Person, enforceable against it in accordance with their respective terms
without defense, setoff, or counterclaim. The execution, delivery, and
performance of this Agreement and the other Loan Documents by each Option Care
Person do not and shall not conflict with, or constitute a violation or breach
of, or constitute a default under, or result in the creation or imposition of
any Lien upon the Property of any Option Care Person or any of its Subsidiaries
(except as contemplated by this Agreement and the other Loan Documents) by
reason of the terms of (a) any mortgage, lease, agreement, or instrument to
which any Option Care Person or any of its Subsidiaries is a party or which is
binding upon it, (b) any judgment, law, statute, rule or governmental regulation
applicable to any Option Care Person or any of its Subsidiaries, or (c) the
certificate or articles of incorporation or bylaws of any Option Care Person or
any of its Subsidiaries.
9.2 VALIDITY AND PRIORITY OF SECURITY INTEREST. The provisions of this
Agreement and the other Loan Documents create legal and valid Liens on all the
Collateral in the Lender's favor, and when all proper filings, recordings, and
other actions necessary to perfect such Liens have been made or taken, such
Liens shall constitute perfected and continuing Liens on all the Collateral,
having priority over all other Liens on the Collateral and enforceable against
each Option Care Person and all other Persons.
9.3 ORGANIZATION AND QUALIFICATION. Each Option Care Person: (a) is
duly incorporated and organized and validly existing in good standing under the
laws of the state of its incorporation; (b) is qualified to do business as a
foreign corporation and is in good standing in all jurisdictions in which the
failure to be so qualified and in good standing could reasonably be expected to
result in a Material Adverse Effect; and (c) has all requisite power and
authority to conduct its business and to own its Property.
<PAGE>
9.4 CORPORATE NAME; PRIOR TRANSACTIONS. The corporate name of each
Option Care Person is set forth on its signature page to this Agreement (or, in
the case of a Person which becomes a Borrower pursuant to an Additional Borrower
Agreement, set forth on its signature page to such Additional Borrower
Agreement), and, except as set forth on SCHEDULE 9.4, such Option Care Person
has not used any other corporate name during the past five years. Since January
1, 1998, no Option Care Person has: been known by or used any doing business as
or fictitious name, or been a party to any merger or consolidation, or acquired
all or substantially all of the assets of any Person, or acquired any of its
Property out of the ordinary course of business, or been subject to any event,
occurrence or proceeding of the type contemplated by any of CLAUSE (f), CLAUSE
(g), CLAUSE (h), or CLAUSE (i) of SECTION 12.1, except as set forth on SCHEDULE
9.4.
9.5 SUBSIDIARIES AND AFFILIATES. SCHEDULE 9.5 is a correct and
complete list as of the Closing Date of the name and relationship to each Option
Care Person of each and all of its Subsidiaries and other Affiliates. Since the
Closing Date, each Option Care Person has notified the Lender as to the name and
relationship to such Option Care Person of any other Person which became a
Subsidiary or other Affiliate of such Option Care Person after the Closing Date.
The Option Care Persons and/or the applicable Subsidiary of Option Care Persons
are the only record and beneficial owner of all of the shares of capital stock,
partnership interests or other ownership interests of each of the Subsidiaries,
except as specified in SCHEDULE 9.5 or as specified in such notification. There
are no proxies, irrevocable or otherwise, with respect to such shares,
partnership interests or ownership interests, and no equity securities of any of
such Subsidiaries are or may become required to be issued by reason of any
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of any capital stock of, partnership interests or
ownership interests in any such Subsidiary, and there are no contracts,
commitments, understandings or arrangements by which any such Subsidiary is or
may become bound to issue additional shares of its capital stock, securities
convertible into or exchangeable for such shares, partnership interests or any
other ownership interests. All of such shares, partnership interests or
ownership interests so owned by each Option Care Person are owned by such Option
Care Person free and clear of any Liens other than Permitted Liens. Each
Subsidiary is (a) duly incorporated or formed, and duly organized and validly
existing in good standing under the laws of its state of incorporation set forth
on SCHEDULE 9.5, and (b) qualified to do business as a foreign corporation or
partnership and in good standing in each jurisdiction in which the failure to be
so qualified could result in a Material Adverse Effect.
9.6 FINANCIAL STATEMENTS AND PLAN.
(a) Option Care has delivered to the Lender the audited
consolidated balance sheet and related consolidated statements of operations,
cash flows, and changes in stockholders equity for Option Care and its
Subsidiaries as of December 31, 1997 and for the Fiscal Year then ended,
accompanied by the report thereon of Option Care's independent certified public
accountants, KPMG Peat Marwick LLP. Option Care has also delivered to the
<PAGE>
Lender the Borrower's Form 10-Q for the quarterly period ended September 30,
1998. All such financial statements have been prepared in accordance with GAAP
and present accurately and fairly Option Care's financial position as at the
dates thereof and its results of operations for the periods then ended.
(b) The Latest Plan represents Option Care's best estimate of the
future financial performance of Option Care and its Subsidiaries for the periods
set forth therein. The Latest Plan has been prepared on the basis of the
assumptions set forth therein, which Option Care believes are fair and
reasonable in light of current and reasonably foreseeable business conditions.
(c) During the past three (3) years, Option Care has not
discharged or replaced its independent certified public accountants, and such
accountants have not resigned as such, except as disclosed by Option Care to the
Lender.
9.7 [Reserved]
9.8 SOLVENCY. Each Option Care Person is Solvent prior to and after
giving effect to the making of each Revolving Loan.
9.9 DEBT. Except as disclosed in SCHEDULE 9.9, no Option Care Person
has any Debt, except as permitted by SECTION 10.12.
9.10 DISTRIBUTIONS. Except as disclosed in writing to the Lender,
since September 30, 1998, no Distribution has been declared, paid, or made upon
or in respect of any capital stock or other securities of Option Care.
9.11 TITLE TO PROPERTY. Except for Property which an Option Care
Person leases, each Option Care Person has good, indefeasible, and merchantable
title to all of its Property including, without limitation, the assets reflected
on the most recent Financial Statements delivered to the Lender, except as
disposed of since the date thereof in the ordinary course of business.
9.12 ADEQUATE ASSETS. Each Option Care Person possesses adequate
assets for the conduct of its business.
9.13 REAL PROPERTY; LEASES. SCHEDULE 9.13 contains a correct and
complete list, as of the Closing Date, of all real property owned by any Option
Care Person, all leases and subleases of real or personal property by any Option
Care Person as lessee or sublessee, and all leases and subleases of real or
personal property by any Option Care Person as lessor or sublessor. Since the
Closing Date, each Option Care Person has notified the Lender as to all other
real property acquired by such Option Care Person, and all leases and subleases
of real property (and all leases or subleases of personal property involving
payments by any Option Care
<PAGE>
Person during any Fiscal Year in excess of two hundred fifty thousand dollars
($250,000), entered into by any Option Care Person after the Closing Date. Each
of such leases and subleases is valid and enforceable in accordance with its
terms and is in full force and effect and no default by any party to any such
lease or sublease exists.
9.14 PROPRIETARY RIGHTS. SCHEDULE 9.14 contains a correct and complete
list, as of the Closing Date, of all the Proprietary Rights of each Option Care
Person. Since the Closing Date, each Option Care Person has notified the Lender
as to all other Proprietary Rights of which such Option Care Person became the
owner after the Closing Date. None of the Proprietary Rights are subject to any
licensing agreement or similar arrangement except as set forth on SCHEDULE 9.14
or in such notification. To the best knowledge of each Option Care Person, none
of such Proprietary Rights infringe on or conflict with any other Person's
Property and no other Person's Property infringes on or conflicts with the
Proprietary Rights. The Proprietary Rights described on SCHEDULE 9.14 or in such
notification constitute all of the Property of such type necessary to the
current conduct of the business of each Option Care Person.
9.15 TRADE NAMES AND TERMS OF SALE. All trade names or styles under
which any Borrower shall sell Inventory or create Accounts, or to which
instruments in payment of Accounts may be made payable, are listed on SCHEDULE
9.15. Each Borrower bills each Account Debtor having outstanding Accounts at
least once each calendar month. No Borrower redates any invoice or claim form
after such invoice or claim form has been sent to an Account Debtor. The Lender
acknowledges that if an Account Debtor which is the "primary" payor does not pay
a claim in full or denies such claim, an Option Care Person may send a separate
invoice to an Account Debtor which is a "secondary" payor.
9.16 LITIGATION. There is no pending or, to the best knowledge of any
Option Care Person, threatened action, suit, proceeding, or counterclaim by any
Person, or investigation by any Public Authority, or any basis for any of the
foregoing, which would reasonably be expected to result in a Material Adverse
Effect.
9.17 RESTRICTIVE AGREEMENTS. No Option Care Person is a party to any
contract or agreement, or is subject to any charter or other corporate
restriction, which affects its ability to execute, deliver, and perform the Loan
Documents, or which could otherwise reasonably be expected to result in a
Material Adverse Effect.
9.18 LABOR DISPUTES. As of the Closing Date: (a) there is no
collective bargaining agreement or other labor contract covering employees of
any Option Care Person or any of its Subsidiaries; (b) no such collective
bargaining agreement or other labor contract is scheduled to expire during the
term of this Agreement; (c) no union or other labor organization is seeking to
organize, or to be recognized as, a collective bargaining unit of employees of
any Option Care Person or any of its Subsidiaries or for any similar purpose;
and (d) there is no pending or, to the best knowledge of any Option Care Person,
threatened strike, work stoppage,
<PAGE>
material unfair labor practice claim, or other material labor dispute against or
affecting any Option Care Person, or any of its Subsidiaries or their respective
employees. Since the Closing Date, each Option Care Person has notified the
Lender as to any matters covered by clause (a), (b), (c) or (d) of the previous
sentence which first arose or existed after the Closing Date.
9.19 ENVIRONMENTAL LAWS.
(a) Each Option Care Person and its Subsidiaries have complied in
all material respects with all Environmental Laws applicable to its Premises and
business, and no Option Care Person or any of its Subsidiaries or any of its
present Premises or operations, or any of its past property or operations, is
subject to any enforcement order from or liability agreement with any Public
Authority or private Person respecting (i) compliance with or violation of any
Environmental Law or (ii) any potential liabilities and costs or remedial action
arising from the Release or threatened Release of a Contaminant. For purposes of
this SECTION 9.19, "Premises" means an area or areas leased by an Option Care
Person or a Subsidiary of an Option Care Person.
(b) Each Option Care Person and its Subsidiaries have obtained
all permits necessary for their current operations under Environmental Laws, and
all such permits are valid and each Option Care Person and its Subsidiaries are
in compliance with all terms and conditions of such permits.
(c) No Option Care Person or any of its Subsidiaries, or, to the
best knowledge of any Option Care Person, any of its predecessors in interest,
has in violation of applicable law stored, treated or disposed of any
Contaminant on any Premises, as defined pursuant to 40 CFR Part 261 or any
equivalent Environmental Law.
(d) No Option Care Person or any of its Subsidiaries has received
any summons, complaint, order or similar written notice that it is not currently
in compliance with, or that any Public Authority is investigating its compliance
with, any Environmental Laws or that it is or may be liable to any other Person
as a result of a Release or threatened Release of a Contaminant.
(e) To the best knowledge of each Option Care Person, none of the
present or past operations of any Option Care Person or any of its Subsidiaries
is the subject of any investigation by any Public Authority evaluating whether
any remedial action is needed to respond to a Release or threatened Release of a
Contaminant.
(f) To the best knowledge of each Option Care Person there is not
now, nor has there ever been on or in the Premises:
(i) any underground storage tanks or surface impoundments,
<PAGE>
(ii) any asbestos-containing material, or
(iii) any polychlorinated biphenyls (PCBs) used in hydraulic
oils, electrical transformers or other equipment.
(g) No Option Care Person or any of its Subsidiaries has filed
any notice under any applicable requirement of Environmental Law reporting a
spill or accidental and unpermitted release or discharge of a Contaminant into
the environment.
(h) No Option Care Person or any of its Subsidiaries has entered
into any negotiations or settlement agreements with any Person (including,
without limitation, the prior owner of its property) imposing material
obligations or liabilities on any Option Care Person or any of its Subsidiaries
with respect to any remedial action in response to the Release of a Contaminant
or environmentally related claim.
(i) None of the products manufactured, distributed or sold by any
Option Care Person or any of its Subsidiaries contains asbestos-containing
material.
(j) No Environmental Lien has attached to any Premises of any
Option Care Person or any of its Subsidiaries.
9.20 HEALTH CARE LAWS.
(a) Each Option Care Person and its Subsidiaries have complied in
all material respects with all Health Care Laws applicable to its business, and
no Option Care Person or any of its Subsidiaries or any of its present
operations, nor its past operations, is subject to any action, order from or
agreement respecting (i) to the best knowledge of each Option Care Person,
compliance with any Health Care Law or (ii) to the best knowledge of each Option
Care Person, any potential liabilities under Health Care Laws.
(b) Each Option Care Person and its Subsidiaries have obtained
all licenses, permits, accreditations, certifications and approvals necessary
for their current operations under Health Care Laws, and all such licenses,
permits, accreditations, certifications and approvals are in good standing, and
each Option Care Person and its Subsidiaries are in compliance with all material
terms and conditions thereof.
(c) No Option Care Person or any of its Subsidiaries has received
any summons, complaint, subpoena, order or other notice that it is not currently
in compliance with any Health Care Laws or that it is or may be liable to any
other Person under or in connection with any Health Care Laws (unless, with
respect to any such order (which is not a judicial order) or any such other
notice such Option Care Person is in the process of remediating such
noncompliance in accordance with any applicable cure or remediation plan or
period set forth in
<PAGE>
such order or notice).
(d) To the best knowledge of each Option Care Person, none of the
present or past operations of any Option Care Person or any of its Subsidiaries
is the subject of any investigation by any Public Authority concerning alleged
or potential violations of Health Care Laws.
(e) No Option Care Person or any of its Subsidiaries has entered
into any negotiations or settlement agreements with any Person which impose or
could impose material obligations or liabilities on any Option Care Person or
any of its Subsidiaries with respect to any Health Care Law.
9.21 NO VIOLATION OF LAW. No Option Care Person is in violation of any
law, statute, regulation, ordinance, judgment, order, or decree applicable to it
which violation could reasonably be expected to result in a Material Adverse
Effect.
9.22 NO DEFAULT. No Option Care Person is in default with respect to
any note, indenture, loan agreement, mortgage, lease, deed, or other agreement
to which any Option Care Person is a party or bound, which default could
reasonably be expected to result in a Material Adverse Effect.
9.23 ERISA COMPLIANCE.
(a) Each Plan is in compliance in all respects with the
applicable provisions of ERISA, the Code and other federal or state law, except
where any failure to comply would not reasonably be expected to have a Material
Adverse Effect. Each Plan which is intended to qualify under Section 401(a) of
the Code has received a favorable determination letter from the IRS or is
maintained in the form of a standardized prototype plan which has received a
favorable opinion letter or a favorable notification letter from the IRS, and to
the best knowledge of each Option Care Person, nothing has occurred which would
materially affect its reliance on such determination letter, opinion letter or
notification letter, except where any failure to rely would not reasonably be
expected to have a Material Adverse Effect. Each Option Care Person and each
ERISA Affiliate have made all required contributions to any Plan subject to
Section 412 of the Code, and no application for a funding waiver or an extension
of any amortization period pursuant to Section 412 of the Code, except where any
failure to contribute would not reasonably be expected to have a Material
Adverse Effect, has been made with respect to any Plan.
(b) There are no pending or, to the best knowledge of Borrower,
threatened claims, actions or lawsuits, or action by any Public Authority, with
respect to any Plan which has resulted or could reasonably be expected to have a
Material Adverse Effect. There has been no prohibited transaction or violation
of the fiduciary responsibility rules with respect to any Plan which has
resulted in or could reasonably be expected to have a Material Adverse Effect.
<PAGE>
(c) (i) No ERISA Event has occurred or is reasonably expected to
occur; (ii) no Pension Plan has any material unfunded liability; (iii) no Option
Care Person or any ERISA Affiliate has incurred, or reasonably expects to incur,
any material liability under Title IV of ERISA with respect to any Pension Plan
(other than premiums due and not delinquent under Section 4007 of ERISA); (iv)
no Option Care Person or any ERISA Affiliate has incurred, or reasonably expects
to incur, any material liability (and no event has occurred which, with the
giving of notice under Section 4219 of ERISA, would result in such liability)
under Section 4201 or 4243 of ERISA with respect to a Multiemployer Plan; and
(v) no Option Care Person or any ERISA Affiliate has engaged in a transaction
that could subject any Person to Section 4069 or 4212(c) of ERISA.
9.24 TAXES. Each Option Care Person and its Subsidiaries have filed
all tax returns and other reports required to be filed and have paid all Taxes,
assessments, fees and other governmental charges levied or imposed upon them or
their properties, income or assets that are otherwise due and payable, except
for those Taxes, assessments, fees and other governmental charges which are
being contested in good faith by appropriate proceedings diligently pursued.
9.25 USE OF PROCEEDS. The initial Loan made under this Agreement shall
be used to repay the obligations of Option Care Persons to the Existing Bank
Group. None of the transactions contemplated in this Agreement or any other Loan
Document (including the use of proceeds from the Loans) shall violate or result
in the violation of any law, rule or regulation, including Section 7 of the
Securities Exchange Act of 1934, as amended, or any regulations issued pursuant
thereto, including the regulations of the Board of Governors of the Federal
Reserve System ("Federal Reserve Board"), 12 CFR, Chapter II. No Option Care
Person owns or intends to carry or purchase any "margin stock" within the
meaning of the regulations of the Federal Reserve Board. Except as permitted by
SECTION 10.19, no Option Care Person has used proceeds of the Loans to invest in
any Restricted Investments.
9.26 PRIVATE OFFERINGS. No Option Care Person has, directly or
indirectly, offered the Loans for sale to, or solicited offers to buy part
thereof from, or otherwise approached or negotiated with respect thereto with
any prospective purchaser other than Lender. No Option Care Person or any Person
acting on its behalf has offered or shall offer the Loans or any part thereof or
any similar securities for issue or sale to or solicit any offer to acquire any
of the same from anyone so as to bring the issuance thereof within the
provisions of Section 5 of the Securities Act of 1933, as amended.
9.27 BROKER'S FEES. No Person is entitled to any brokerage or finder's
fee with respect to the transactions described in this Agreement.
9.28 GOVERNMENT REGULATION. No Option Care Person or any of its
Subsidiaries is subject to regulation under the Public Utility Holding Company
Act of 1935, the Federal
<PAGE>
Power Act, the Investment Company Act of 1940, or any other Requirement of Law
that limits its ability to incur indebtedness or its ability to enter into or
consummate the transactions contemplated in this Agreement and the other Loan
Documents.
9.29 NO MATERIAL ADVERSE CHANGE. No material adverse change has
occurred in the Property, business, performance, operations, prospects or
condition (financial or otherwise) of any Option Care Person since September 30,
1998. On the basis of a comprehensive review and assessment undertaken by Option
Care of the computer applications of Option Care and its Subsidiaries and
inquiry made of the material suppliers and vendors of Option Care and its
Subsidiaries, Option Care reasonably believes that the "Year 2000 problem" (that
is, the risk that computer applications used by any Person may be unable to
recognize and perform properly date-sensitive functions involving certain dates
prior to and any date after December 31, 1999) shall not result in a Material
Adverse Effect.
9.30 DISCLOSURE. Neither this Agreement nor any Borrowing Base
Certificate, report, notice, document or statement furnished to the Lender by or
on behalf of any Option Care Person under this Agreement or any other Loan
Document contains any untrue statement of a material fact or omits to state any
material fact necessary in order to make the statements contained herein or
therein not misleading.
9.31 FIXED CHARGE COVERAGE. As of December 31, 1998, the ratio of (a)
the sum of (i) EBITDA for the four consecutive fiscal quarters ending on
December 31, 1998, plus (ii) the Specified Bad Debt Expense Amount for such four
fiscal quarters TO (b) the sum of (i) Interest Expense for such four fiscal
quarters, (ii) Capital Expenditures of Option Care and its Subsidiaries during
such four fiscal quarters, (iii) payments by any Option Care Person during such
four fiscal quarters in respect of earnout obligations related to the buyback of
franchises by any Option Care Person, (iv) actual payments of taxes during such
four fiscal quarters, and (v) principal payments which any Option Care Person
was required to make on Debt for borrowed money during such four fiscal
quarters, which Debt had an original term of at least one year, was not less
than 1.1 to 1.
10. AFFIRMATIVE AND NEGATIVE COVENANTS. Each Option Care Person covenants
that, so long as any of the Obligations remain outstanding or this Agreement is
in effect:
10.1 TAXES AND OTHER OBLIGATIONS. Each Option Care Person and each of
its Subsidiaries shall: (a) file when due all tax returns and other reports
which it is required to file, pay, or provide for the payment, when due, of all
Taxes, fees, assessments and other governmental charges against it or upon its
Property, income, and franchises, make all required withholding and other tax
deposits, and establish adequate reserves for the payment of all such items, and
shall provide to the Lender, upon request, satisfactory evidence of its timely
compliance with the foregoing; and (b) pay when due all Debt owed by it and
perform and
<PAGE>
discharge in a timely manner all other obligations undertaken by it; PROVIDED,
HOWEVER, that each Option Care Person and its Subsidiaries need not pay any tax,
fee, assessment, governmental charge, or Debt, or perform or discharge any other
obligation, that it is contesting in good faith by appropriate proceedings
diligently pursued.
10.2 CORPORATE EXISTENCE AND GOOD STANDING. Each Option Care Person
shall maintain its corporate existence and its qualification and good standing
in all states necessary to conduct its business and own its Property, except
where the failure to remain qualified and in good standing could not reasonably
be expected to result in a Material Adverse Effect, and shall obtain and
maintain all material licenses, permits, franchises and governmental
authorizations necessary to conduct its business and own its Property.
10.3 COMPLIANCE WITH LAW AND AGREEMENTS. Each Option Care Person and
each of its Subsidiaries shall comply in all material respects with the terms
and provisions of each judgment, law, statute, rule, and governmental regulation
applicable to it and each contract, mortgage, lien, lease, indenture, order,
instrument, agreement, or document to which it is a party or by which it is
bound.
10.4 MAINTENANCE OF PROPERTY AND INSURANCE. Each Option Care Person
and each of its Subsidiaries shall: (a) maintain all of its Property necessary
and useful in its business in good operating condition and repair, ordinary wear
and tear excepted; and (b) in addition to the insurance required by SECTION 7.7,
maintain with financially sound and reputable insurers such other insurance with
respect to its Property and business against casualties and contingencies of
such types and in such amounts as is customary for Persons of established
reputation engaged in the same or a similar business and similarly situated,
naming the Lender, at its request, as additional insured under each such policy.
10.5 ENVIRONMENTAL LAWS. Each Option Care Person shall conduct its
business in full compliance with all Environmental Laws applicable to it,
including, without limitation, those relating to the generation, handling, use,
storage, and disposal of Contaminants. Each Option Care Person shall take (and
shall cause each of its Subsidiaries to take) prompt and appropriate action to
respond to and remediate any non-compliance with Environmental Laws, and shall
regularly report to the Lender on such response and remediation. Without
limiting the generality of the foregoing, whenever any Option Care Person gives
notice to the Lender pursuant to SECTION 8.3(g) the Option Care Persons shall,
at the Lender's request and the expense of the Option Care Persons: (a) cause an
independent environmental engineer acceptable to the Lender and the Borrowers'
Agent to conduct such tests of the site where the noncompliance or alleged
non-compliance with Environmental Laws has occurred and prepare and deliver to
the Lender a report setting forth the results of such tests, a proposed plan for
responding to any environmental problems described therein, and an estimate of
the costs thereof; and (b) provide to the Lender a supplemental report of such
engineer whenever the scope of the environmental problems, or the Option Care
Person's response thereto or the estimated costs thereof, shall change.
<PAGE>
10.6 HEALTH CARE LAWS. Each Option Care Person and each of its
Subsidiaries shall conduct its business in all material respects in compliance
with all Health Care Laws applicable to it. Each Option Care Person and its
Subsidiaries shall take prompt and appropriate action to respond to and
remediate any non-compliance with any Health Care Law. Each Option Care Person
and each of its Subsidiaries shall promptly report to the Lender on any such
non-compliance and any such response and remediation in each case if such
non-compliance or such response and remediation is reasonably likely to have a
Material Adverse Effect.
10.7 ERISA. Each Option Care Person shall cause each Plan, which has
been designated to be so, to be qualified within the meaning of Section 401(a)
of the Code and to be administered in all respects in compliance with Section
401(a) of the Code, except where any such failure to comply would not reasonably
be expected to have a Material Adverse Effect. Each Option Care Person shall
cause each Plan to be administered in all respects in compliance with ERISA,
except where any such failure to comply would not reasonably be expected to have
a Material Adverse Effect.
10.8 MERGERS, CONSOLIDATIONS OR SALES. Without the prior written
consent of the Lender, no Option Care Person or any of its Subsidiaries shall
enter into any transaction of merger, reorganization, or consolidation, or
transfer, sell, assign, lease, or otherwise dispose of all or any part of its
Property, or wind up, liquidate or dissolve, or acquire or purchase any Person
or substantially all of the assets of any Person or agree to do any of the
foregoing, except: (i) sales of Inventory in the ordinary course of its
business; (ii) sales of Equipment permitted under SECTION 7.12; and (iii) the
grant or termination of a franchise, which does not include an Option Care
Person's buyback of the franchise from the franchisee.
10.9 DISTRIBUTIONS. Except as permitted by SECTION 10.14, no Option
Care Person or any of its Subsidiaries shall directly or indirectly declare or
make, or incur any liability to make, any Distribution, except Distributions to
a Borrower by a Subsidiary wholly owned by such Borrower.
10.10 TRANSACTIONS HAVING A MATERIAL ADVERSE EFFECT. No Option Care
Person or any of its Subsidiaries shall enter into any transaction after the
Closing Date which is reasonably likely to have a Material Adverse Effect.
10.11 GUARANTIES. No Option Care Person or any of its Subsidiaries
shall make, issue or become liable on any Guaranty, except Guaranties in favor
of the Lender and endorsements of instruments for deposit, and except for
Guaranties of Debt otherwise expressly permitted hereunder.
10.12 DEBT. No Option Care Person or any of its Subsidiaries shall
incur or maintain any Debt, other than: (a) the Obligations; (b) trade payables
and contractual obligations
<PAGE>
to suppliers and customers incurred in the ordinary course of business; (c)
other Debt existing on the Closing Date and reflected (x) in the financial
statements contained in Option Care's Form 10-Q for the quarterly period ending
September 30, 1998, or (y) in SCHEDULE 9.9; (d) obligations to the Trust
pursuant to the Trust Reimbursement and Security Agreement, subject to the terms
of the Trust Subordination Agreement; (e) accruals required in connection with
any Plan; (f) any "earnout arrangements" pertaining to the purchase of a
business by any Option Care Person; and (g) other unsecured Debt in an aggregate
amount not to exceed two hundred fifty thousand dollars ($250,000) at any one
time outstanding.
10.13 PREPAYMENT. No Option Care Person or any of its Subsidiaries
shall voluntarily prepay any Debt, except: (a) prepayments of the Obligations in
accordance with their terms; (b) prepayments not exceeding two hundred fifty
thousand dollars ($250,000) in the aggregate from and after the Closing Date;
(c) repayment of the obligations of Option Care Persons to the Existing Bank
Group with the proceeds of the initial Loan under this Agreement; or (d)
otherwise with the prior written consent of the Lender.
10.14 TRANSACTIONS WITH AFFILIATES. Except as set forth below, no
Option Care Person or any of its Subsidiaries shall: (a) sell, transfer,
distribute, or pay any money or Property to any Affiliate other than pursuant to
the Trust Reimbursement and Security Agreement (but subject in the case of the
Trust Reimbursement and Security Agreement to the terms of the Trust
Subordination Agreement), (b) lend or advance money or Property to any
Affiliate, (c) invest in (by capital contribution or otherwise) or purchase or
repurchase any stock or indebtedness or any Property of any Affiliate, or (d)
become liable on any Guaranty of the indebtedness, dividends, or other
obligations of any Affiliate. Notwithstanding the foregoing, if no Event of
Default has occurred and is continuing, each Option Care Person and its
Subsidiaries may engage in transactions with Affiliates (including the payment
by Option Care of (i) an annual consulting fee of $100,000 to EJ Financial
Enterprises, Inc. pursuant to the consulting agreement between Option Care and
EJ Financial Enterprises, Inc. and (ii) a salary of $100,000 to Dr. John N.
Kapoor in his capacity as Chairman of Option Care) in the ordinary course of
business in amounts and upon terms fully disclosed to the Lender and no less
favorable to each Option Care Person and its Subsidiaries than would obtain in a
comparable arm's length transaction with a third party who is not an Affiliate
(but subject in the case of the Trust Reimbursement and Security Agreement to
the terms of the Trust Subordination Agreement).
10.15 BUSINESS CONDUCTED. No Option Care Person or any of its
Subsidiaries shall engage, directly or indirectly, in any line of business other
than the businesses in which such Option Care Person and its Subsidiaries are
engaged on the Closing Date.
10.16 LIENS. No Option Care Person or any of its Subsidiaries shall
create, incur, assume, or permit to exist any Lien on any Property now owned or
hereafter acquired by any of them, except Permitted Liens.
<PAGE>
10.17 SALE AND LEASEBACK TRANSACTIONS. Except with the prior written
consent of the Lender, no Option Care Person or any of its Subsidiaries shall,
directly or indirectly, enter into any arrangement with any Person providing for
such Option Care Person or any such Subsidiary to lease or rent Property that
such Option Care Person or Subsidiary has or shall sell or otherwise transfer to
such Person.
10.18 NEW SUBSIDIARIES. Except with the prior written consent of the
Lender, no Option Care Person shall, directly or indirectly, organize or acquire
any Subsidiary other than those listed on SCHEDULE 9.5.
10.19 RESTRICTED INVESTMENTS. Except with the prior written consent of
the Lender, no Option Care Person or any of its Subsidiaries shall make any
Restricted Investment.
10.20 CAPITAL EXPENDITURES. Except with the prior written consent of
the Lender, the aggregate amount of all Capital Expenditures by Option Care and
its Subsidiaries during any calendar year (beginning with January 1, 1999) shall
not exceed one million dollars ($1,000,000).
10.21 FIXED CHARGE COVERAGE. As of the last day of each fiscal quarter
of Option Care, Option Care shall maintain a ratio of (a) the sum of (i) EBITDA
for the four consecutive fiscal quarters ending on such last day specified below
plus (ii) the Specified Bad Debt Expense Amount for such four fiscal quarters TO
(b) the sum of (i) Interest Expense for such four fiscal quarters, (ii) Capital
Expenditures of Option Care and its Subsidiaries during such four fiscal
quarters, (iii) payments by any Option Care Person during such four fiscal
quarters in respect of earnout obligations related to the buyback of franchises
by any Option Care Person, (iv) actual payments of taxes during such four fiscal
quarters, and (v) principal payments which any Option Care Person was required
to make on Debt for borrowed money during such four fiscal quarters, which Debt
had an original term of at least one year, of not less than the following ratios
during the following periods:
<TABLE>
<CAPTION>
FOUR QUARTER
PERIOD ENDED MINIMUM RATIO
<S> <C>
3/31/99 ......................... 1.1 to 1
6/30/99 ......................... 1.1 to 1
9/30/99 ......................... 1.1 to 1
12/31/99 ......................... 1.5 to 1
and thereafter
</TABLE>
10.22 DEBT RATIO. Option Care shall not permit the ratio of debt of
Option Care on a consolidated basis (determined in accordance with GAAP) to
Adjusted Tangible Net Worth to exceed the following amounts during the following
periods:
<PAGE>
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
1/1/99 - 12/30/99 ..................... 8.5 to 1
12/31/99 and thereafter ............... 5 to 1
</TABLE>
10.23 LOAN DOCUMENTS. No Option Care Person shall enter into or permit
to exist any amendment, modification, termination, supplement, compromise,
satisfaction, release, discharge or waiver of any Loan Document without the
prior written consent of the Lender. Except as otherwise provided in this
Agreement, no Option Care Person shall sell, assign, pledge or otherwise
transfer any of its rights or obligations under any Loan Document without the
prior written consent of the Lender.
10.24 FURTHER ASSURANCES. Each Option Care Person shall execute and
deliver, or cause to be executed and delivered, to the Lender such documents,
financing statements, instruments and agreements, and shall take or cause to be
taken such actions, as the Lender may, from time to time, request to carry out
the terms and conditions of this Agreement and the other Loan Documents.
10.25 DELIVERY OF GOOD STANDING CERTIFICATES. Within twenty (20) days
after the Closing Date, the Borrowers' Agent shall deliver to the Lender good
standing certificates of each Option Care Person issued during 1999 by the
Secretary of State of the state of incorporation or formation of such Option
Care Person and the state(s) in which such Option Care Person does business,
PROVIDED, HOWEVER, that with respect to Option Care, Inc., a California
corporation, such certificates need be provided only from the State of
California and the State of Illinois.
10.26 NORTHERN LETTER OF CREDIT. The Option Care Persons shall cause
the Northern Letter of Credit to remain in effect until the Stated Termination
Date, subject to SECTION 7.5(b).
10.27 STOCK CERTIFICATES. Not later than the third day after the
Closing Date, the Borrowers' Agent shall deliver (or cause to be delivered) to
the Lender all of the stock certificates pledged under the Pledge Agreements,
together with undated, signed stock powers, in form and substance reasonably
satisfactory to the Lender, relating thereto.
10.28 UCC FINANCING STATEMENTS. Not later than ten (10) Business Days
after the Closing Date, the Lender shall have received evidence that UCC
financing statements, in form and substance reasonably satisfactory to the
Lender, have been filed in the applicable jurisdictions: (i) amending filings
against Techni-Med, Inc. and Galesburg Institutional Pharmacy Management Inc. to
remove any reference to "Option Care"; and (ii) limiting the scope of filings
made by VGM Leasing. Inc. to leased equipment (and limiting the description of
proceeds therein).
<PAGE>
10.29 TRADEMARK SECURITY AGREEMENT. The Borrowers' Agent shall deliver
to the Lender, not later than ten (10) Business Days after the Closing Date, a
security agreement in form and substance reasonably satisfactory to the Lender
(as amended, amended and restated or otherwise modified from time to time, the
"TRADEMARK SECURITY AGREEMENT"), covering the trademarks listed in part A of
SCHEDULE 9.14 and signed by the owner of such trademarks.
11. CONDITIONS PRECEDENT. The Lender shall not be obligated to make the
initial Loans, unless the following conditions precedent have been satisfied in
a manner satisfactory to Lender:
11.1 CONDITIONS PRECEDENT TO MAKING OF INITIAL LOAN.
(a) REPRESENTATIONS OF EACH OPTION CARE PERSON AND WARRANTIES;
COVENANTS. The representations and warranties contained in this Agreement and
the other Loan Documents shall be true, correct and complete; each Option Care
Person shall have performed and complied with all covenants, agreements, and
conditions contained herein and in the other Loan Documents which are required
to have been performed or complied with.
(b) SECRETARY'S CERTIFICATE. The Lender shall have received a
certificate of the Secretary or Assistant Secretary of each Option Care Person
certifying (i) the certificate of incorporation referred to in SECTION 11.1(c),
(ii) the by-laws of such Option Care Person, (iii) a copy of the resolutions of
the board of directors of such Option Care Person approving this Agreement and
the other Loan Documents and the transactions contemplated hereby and thereby
and (iv) the names and true signatures of the officers of such Option Care
Person authorized to sign the Loan Documents (on which certificate the Lender
conclusively may rely until such time as the Lender receives a revised
certificate meeting the requirements hereof).
(c) CERTIFICATE OF INCORPORATION. The Lender shall have received
the certificate of incorporation of each Option Care Person certified by the
Secretary of State of the state of incorporation of such Person.
(d) LEGAL OPINIONS. The Lender shall have received legal opinions
from Heroux, Clingen, Callow, Wolfe and McClean, counsel to Option Care Persons,
and Burke, Warren, MacKay & Serritella, P.C., counsel for Dr. John N. Kapoor and
the Trust, in each case in form and substance satisfactory to the Lender and its
counsel.
(e) UCC MATTERS. The Lender shall have received:
(x) Acknowledgment copies of UCC financing statements filed
on or before the date hereof, or other similar instruments or documents, as may
be necessary or, in the opinion of the Lender, desirable under the UCC or any
comparable law of all appropriate jurisdictions to perfect the Lender's
interests in the Collateral.
<PAGE>
(y) A search report provided in writing by a Person
acceptable to the Lender listing all effective UCC financing statements that
name any Option Care Person as debtor and that are filed in the jurisdictions in
which filings were made pursuant to CLAUSE (x) and in such other jurisdictions
as the Lender reasonably may request, together with copies of such financing
statements and reflecting searches of applicable records showing any liens
affecting the Collateral or any Option Care Person.
(z) Subject to SECTION 10.28, one or more UCC financing
statements signed by the Option Care Persons and each secured party (including
those in the Existing Bank Group) that has a Lien on the Collateral (or on any
Property of a Subsidiary) that are necessary or, in the opinion of the Lender,
desirable under the UCC or any comparable law of all appropriate jurisdictions
to terminate or subordinate such Lien (including subordinating the Lien of the
Trust against Option Care), together with, if applicable, signed payoff letters
from each such secured party.
(f) NORTHERN LETTER OF CREDIT. The Lender shall have received the
Northern Letter of Credit, in form and substance satisfactory to the Lender,
executed by Northern, in an amount of not less than five million dollars
($5,000,000).
(g) REIMBURSEMENT AND SECURITY AGREEMENT; SUBORDINATION
AGREEMENT. The Lender shall have received a reimbursement and security
agreement, in form and substance satisfactory to the Lender, signed by the Trust
and Option Care (as amended, amended and restated or otherwise modified from
time to time in accordance with the terms hereof, the "TRUST REIMBURSEMENT AND
SECURITY AGREEMENT"), and a subordination agreement, in form and substance
satisfactory to the Lender, signed by the Trust and by Option Care (as amended,
amended and restated or otherwise modified from time to time in accordance with
the terms hereof, the "TRUST SUBORDINATION AGREEMENT").
(h) FINANCIAL STATEMENTS AND BUSINESS PLAN. The Lender shall have
received Option Care's audited financial statements for Fiscal Year 1997, and
Option Care's business plan for Fiscal Year 1999, in each case in form and
substance satisfactory to the Lender.
(i) PLEDGE AGREEMENTS. The Lender shall have received pledge
agreements from Option Care, Rehab Options, Inc. and Option Care Enterprises,
Inc., each in form and substance satisfactory to the Lender (such pledge
agreements, as amended, amended and restated or otherwise modified from time to
time in accordance with the terms hereof, being referred to individually as a
"PLEDGE AGREEMENT" and collectively as the "PLEDGE AGREEMENTS"), signed by the
parties thereto, whereby such pledgors pledge to the Lender all of the capital
stock or membership interests, as the case may be, issued by the Borrowers
(other than Option Care). Subject to SECTION 10.27, the Lender shall have
received all certificates representing the shares of stock pledged under the
Pledge Agreements.
<PAGE>
(j) LITIGATION. There shall exist no action, suit, investigation,
litigation, or proceeding pending or to the knowledge of any Option Care Person
threatened in any court or before any arbitrator or governmental instrumentality
that in the Lender's reasonable judgment (x) would reasonably be expected to
have a material adverse effect on the business, condition (financial or
otherwise), operations, performance, or properties of any Option Care Person or
which could impair the ability of any Option Care Person to perform
satisfactorily under this Agreement or (y) would reasonably be expected to
materially and adversely affect the transactions contemplated hereby. The Lender
shall be satisfied with the prospects of all outstanding litigation and
proceedings affecting any Option Care Person and the terms and conditions of any
settlements involving any Option Care Person.
(k) CORPORATE STRUCTURE. The Lender shall be satisfied with each
Option Care Person's corporate structure and ownership of Accounts and other
assets.
(l) BLOCKED ACCOUNT AGREEMENT. The Lender shall have received the
initial Blocked Account Agreement, signed by the parties thereto, which shall be
the Lockbox /Blocked Account Agreement among Northern, the Lender and the Option
Care Persons.
(m) FACILITY FEE. The Lender shall have received payment of the
Facility Fee.
(n) PAYMENT OF FEES AND EXPENSES. Option Care shall have paid, to
the extent invoiced, the fees and expenses of the Lender's outside counsel,
Mayer, Brown & Platt, and all other fees and expenses of the Lender incurred in
connection with any of the Loan Documents and the transactions contemplated
thereby (including the allocated costs of in-house counsel for non- duplicative
work).
(o) REQUIRED APPROVALS. The Lender shall have received certified
copies of all consents or approvals of any Public Authority or other Person
which the Lender determines is required in connection with the transactions
contemplated by this Agreement.
(p) NO MATERIAL ADVERSE CHANGE. No material adverse change shall
have occurred, as determined by the Lender in its sole discretion, in the
business, operations, profits, prospects, or financial condition of any Option
Care Person or in the Collateral since October 31, 1998, and Option Care shall
have met, as of the Closing Date, the Latest Plan, and the Lender shall have
received a certificate from Option Care to such effect.
(q) YEAR 2000 ISSUES. Each Option Care Person shall have
satisfied the Lender that (a) such Option Care Person is taking all necessary
and appropriate steps to ascertain the extent of, quantify and successfully
address the business and financial risks facing such Option Care Person as a
result of what is commonly referred to as the "Year 2000 problem" (i.e., the
inability of certain computer applications to recognize correctly and perform
properly
<PAGE>
date-sensitive functions involving certain dates prior to and any date after
December 31, 1999), including risks resulting from the failure of key customers
and suppliers of such Option Care Person to address successfully the Year 2000
problem, and (b) the material computer applications of such Option Care Person
will on a timely basis adequately address the Year 2000 problem in all material
respects.
(r) PROCEEDINGS. All proceedings to be taken in connection with
the transactions contemplated by this Agreement, all exhibits and schedules to
this Agreement, and all documents contemplated in connection with this
Agreement, shall be satisfactory in form and substance to the Lender and its
counsel.
(s) DELIVERY OF DOCUMENTS. The Option Care Persons shall have
delivered, or caused to be delivered, to the Lender such other certifications,
documents (including, without limitation, evidence of the federal taxpayer
identification number of each Option Care Person), instruments and agreements as
the Lender may request in connection herewith, duly executed by all parties
thereto other than the Lender, and in form and substance satisfactory to the
Lender and its counsel.
11.2 CONDITIONS PRECEDENT TO EACH LOAN. The obligation of the Lender
to make each Loan shall be subject to the conditions precedent that:
(a) on the date of any such Loan the following statements shall
be true, and the acceptance by any Borrower of any extension of credit shall be
deemed to be a statement, representation and warranty to the effect that (i) the
representations and warranties contained in this Agreement and the other Loan
Documents are correct in all material respects on and as of the date of such
Loan as though made on and as of such date, except to the extent the Lender has
been notified by such Borrower that any representation or warranty is not
correct and the Lender has explicitly waived in writing compliance with such
representation or warranty and (ii) no Event or Event of Default has occurred
and is continuing, or would result from such Loan; and
(b) the Lender shall have received the most recent Borrowing Base
Certificate delivered pursuant to SECTION 7.8 by 9:00 a.m., Chicago time, on the
date on which such Loan is made.
12. DEFAULT.
12.1 EVENTS OF DEFAULT. It shall constitute an event of default
("EVENT OF DEFAULT") if any one or more of the following shall occur for any
reason:
(a) any Option Care Person shall (i) fail to make payment of
principal on any Loan when due, or (ii) fail to make payment of interest, fees
or any other Obligation when due (and, in the case of this clause (ii), such
failure shall continue for a period of two (2) days
<PAGE>
after the date on which the Lender notifies any Option Care Person of any such
failure);
(b) any representation or warranty made (or deemed made pursuant
to SECTION 11.2) by any Option Care Person in this Agreement, any of the other
Loan Documents, any Financial Statement, or any certificate furnished by any
Option Care Person or any Subsidiary at any time to the Lender shall prove to be
untrue in any material respect as of the date when made, deemed made, or
furnished;
(c) any Option Care Person shall (i) fail to comply with any of
the covenants set forth in any of SECTIONS 7.1 through 7.19, 8.1, 8.2, 8.3,
10.6, 10.8 through 10.23 or 10.25 through 10.29, or (ii) fail to comply with any
of the covenants set forth in any of SECTIONS 10.1, 10.2, 10.3, 10.4(b), 10.5,
10.7, or 10.24 (if such failure specified this clause (ii) shall have existed
for more than five (5) days after the earlier to occur of (x) the date that any
Option Care Person discovers, or reasonably should have discovered, any such
failure and (y) the date on which the Lender notifies any Option Care Person of
any such failure); PROVIDED, HOWEVER, that to the extent that any covenant in
SECTION 8.2 or 8.3 specifies the number of days within which any Option Care
Person must comply with any reporting requirement therein, such failure shall
have existed for the number of days specified in such covenant, plus three (3)
days;
(d) any Option Care Person shall fail to comply with any of the
other terms, covenants or agreements contained in this Agreement, the other Loan
Documents, or any other agreement entered into at any time to which any Option
Care Person and the Lender are party and such failure shall continue for a
period of ten (10) days after the earlier to occur of (i) the date on which the
Lender notifies any Option Care Person of any such failure and (ii) the date on
which any Option Care Person discovers, or reasonably should have discovered,
any such failure, or if any such Loan Document or agreement shall terminate
(other than in accordance with its terms or with the written consent of the
Lender) or become void or unenforceable without the written consent of the
Lender; or any Person shall contest in any manner the validity or enforceability
of this Agreement or any of the other Loan Documents or shall deny that any
Option Care Person has any further liability or obligation thereunder;
(e) any Option Care Person shall fail to make any payment when
due in respect of any Debt (other than the Obligations) in an aggregate amount
in excess of two hundred fifty thousand dollars ($250,000) beyond any period of
grace or cure provided with respect thereto;
(f) any Option Care Person or any Subsidiary of any Option Care
Person shall: (i) file a voluntary petition in bankruptcy or file a voluntary
petition or an answer or otherwise commence any action or proceeding seeking
reorganization, arrangement or readjustment of its debts or for any other relief
under the Federal Bankruptcy Code, as amended, or under any other bankruptcy or
insolvency act or law, state or federal, now or hereafter existing, or consent
to, approve of, or acquiesce in, any such petition, action or proceeding; (ii)
apply for or acquiesce in the appointment of a receiver, assignee, liquidator,
sequestrator,
<PAGE>
custodian, trustee or similar officer for it or for all or any part of its
Property; (iii) make an assignment for the benefit of creditors; or (iv) admit
its inability, or be unable generally, to pay its debts as they become due;
(g) an involuntary petition shall be filed or an action or
proceeding otherwise commenced seeking reorganization, arrangement or
readjustment of the debts of any Option Care Person or any Subsidiary of any
Option Care Person or for any other relief under the Federal Bankruptcy Code, as
amended, or under any other bankruptcy or insolvency act or law, state or
federal, now or hereafter existing, and thirty (30) days shall pass from the
date of such filing or commencement;
(h) a receiver, assignee, liquidator, sequestrator, custodian,
trustee or similar officer for any Option Care Person or any Subsidiary of any
Option Care Person or for all or any part of their Property shall be appointed
involuntarily; or a warrant of attachment, execution or similar process shall be
issued against any part of the Property of any Option Care Person or any
Subsidiary of any Option Care Person;
(i) any Option Care Person shall file a certificate of
dissolution under applicable state law or shall be liquidated, dissolved or
wound-up or shall commence or have commenced against it any action or proceeding
for dissolution, winding-up or liquidation, or shall take any corporate action
in furtherance thereof;
(j) all or any material part of the Property of any Option Care
Person shall be nationalized, expropriated or condemned, seized or otherwise
appropriated, or custody or control of such Property or of any Option Care
Person shall be assumed by any Public Authority or any court of competent
jurisdiction at the instance of any Public Authority and, in either case, the
result thereof would have a Material Adverse Effect, except where contested in
good faith by proper proceedings diligently pursued where a stay of enforcement
is in effect;
(k) the Trust fails in any material respect to perform or observe
any term, covenant or agreement in the Trust Subordination Agreement; or the
Trust Subordination Agreement is for any reason revoked or invalidated, or
otherwise ceases to be in full force and effect; or the Trust or any other
Person by, through or on behalf of the Trust, contests in any manner the
validity or enforceability of the Trust Subordination Agreement or denies that
the Trust has any further liability or obligation thereunder;
(l) one or more final judgments for the payment of money
aggregating in excess of two hundred fifty thousand dollars ($250,000) shall be
rendered against any Option Care Person or any Subsidiary of any Option Care
Person and such Option Care Person or such Subsidiary shall fail to discharge
the same within thirty (60) days from the date of notice of entry thereof or to
appeal therefrom;
(m) any loss, theft, damage or destruction of any item or items
of
<PAGE>
Collateral occurs which: (i) materially and adversely affects the operation of
any Option Care Person's business or (ii) is material in amount and is not
adequately covered by insurance;
(n) any event or condition shall occur or exist with respect to a
Plan that could, in the Lender's reasonable judgment, subject any Option Care
Person or any Subsidiary of any Option Care Person to any tax, penalty or
liability under ERISA, the Code or otherwise which in the aggregate is material
in relation to the business, performance, operations, Property, prospects or
condition (financial or otherwise) of any Option Care Person;
(o) there occurs any material adverse change in the business,
performance, operations, Property, prospects or condition (financial or
otherwise) of any Option Care Person, which change would reasonably be expected
to have a Material Adverse Effect; or
(p) any Option Care Person shall: (i) withdraw or attempt to
withdraw any funds or other items on deposit in any Lockbox or any Blocked
Account; (ii) direct or attempt to direct a Blocked Account Bank not to make, or
to cease making, transfers of any funds or other items (x) from a Lockbox to a
Blocked Account, or (y) from a Blocked Account to the Lender or at the direction
of the Lender; or (iii) without limiting the foregoing, give a "Revocation
Order" (as defined in the applicable Blocked Account Agreement) to a Blocked
Account Bank.
13. REMEDIES.
(a) If an Event of Default has occurred and is continuing, the Lender
may, without notice to or demand on any Option Care Person, do one or more of
the following at any time or times and in any order: (i) reduce the Availability
or one or more of the elements thereof; (ii) restrict the amount of or refuse to
make Revolving Loans; (iii) terminate this Agreement; (iv) declare any or all
Obligations to be immediately due and payable (PROVIDED, HOWEVER, that upon the
occurrence of any Event of Default described in SECTIONS 12.1(f), 12.1(g),
12.1(h) or 12.1(i), all Obligations shall automatically become immediately due
and payable); and (v) pursue its other rights and remedies under the Loan
Documents and applicable law.
(b) If an Event of Default has occurred and is continuing: (i) the
Lender shall have, in addition to all other rights, the rights and remedies of a
secured party under the UCC; (ii) the Lender may, at any time, take possession
of the Collateral and keep it on the Premises of any Option Care Person, at no
cost to the Lender, or remove any part of it to such other place or places as
the Lender may desire, and each Option Care Person shall, upon the Lender's
demand, at the expense of the Option Care Persons, assemble the Collateral and
make it available to the Lender at a place reasonably convenient to the Lender;
and (iii) the Lender may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at such prices and upon such terms as
the Lender deems advisable, in its sole discretion, and may, if the Lender deems
it reasonable, postpone or adjourn any sale of the Collateral by an announcement
at the
<PAGE>
time and place of sale or of such postponed or adjourned sale without giving a
new notice of sale. Without in any way requiring notice to be given in the
following manner, each Option Care Person agrees that any notice by the Lender
of sale, disposition or other intended action hereunder or in connection
herewith, whether required by the UCC or otherwise, shall constitute reasonable
notice to such Option Care Person if such notice is mailed by registered or
certified mail, return receipt requested, postage prepaid, or is delivered
personally against receipt, at least five (5) days prior to such action to the
Borrowers' Agent at the address for notices to the Borrowers' Agent determined
in accordance with SECTION 15.10. If any Collateral is sold on terms other than
payment in full at the time of sale, no credit shall be given against the
Obligations until the Lender receives payment, and if the buyer defaults in
payment, the Lender may resell the Collateral without further notice to any
Option Care Person. In the event the Lender seeks to take possession of all or
any portion of the Collateral by judicial process, each Option Care Person
irrevocably waives: (a) the posting of any bond, surety or security with respect
thereto which might otherwise be required; (b) any demand for possession prior
to the commencement of any suit or action to recover the Collateral; and (c) any
requirement that the Lender retain possession and not dispose of any Collateral
until after trial or final judgment. Each Option Care Person agrees that the
Lender has no obligation to preserve rights to the Collateral or marshal any
Collateral for the benefit of any Person. The Lender is hereby granted a license
or other right to use, without charge, each Option Care Person's labels,
patents, copyrights, name, trade secrets, trade names, trademarks, and
advertising matter, or any similar property, in completing production of,
advertising or selling any Collateral, and each Option Care Person's rights
under all licenses and all franchise agreements shall inure to the Lender's
benefit. The proceeds of sale shall be applied first to all expenses of sale,
including attorney's fees, and second, in whatever order the Lender elects, to
all Obligations. The Lender shall return any excess to the Option Care Persons
or such other Person as shall be legally entitled thereto and the Option Care
Persons shall remain liable for any deficiency.
(c) Each Option Care Person hereby waives (i) all rights to notice and
hearing prior to the exercise by the Lender of the Lender's rights to repossess
the Collateral without judicial process following the occurrence of an Event of
Default or to replevy, attach or levy upon the Collateral without notice or
hearing following the occurrence of an Event of Default, and (ii) all rights of
set-off and counterclaim against the Lender.
14. TERM AND TERMINATION.
(a) This Agreement shall terminate, without premium or penalty, on the
third anniversary of the Closing Date (the "STATED TERMINATION DATE") unless
earlier terminated as provided in this Section.
(b) The Borrowers' Agent may also terminate this Agreement at any time
prior to the Stated Termination Date or during any renewal term if all of the
following conditions have been satisfied: (i) it gives the Lender at least
fifteen (15) days' prior written notice of
<PAGE>
termination; (ii) it pays and performs (or causes to be paid and performed) all
Obligations on or prior to the effective date of termination; and (iii) it pays
the Termination Fee (or causes the Termination Fee to be paid) to the Lender, on
or prior to the effective date of termination, which payment shall be in
addition to the fees required by SECTION 6.4; PROVIDED, HOWEVER, that the
Borrowers' Agent shall not be obligated to pay the Termination Fee if the reason
for termination of this Agreement is that (I) the Bank (or any Affiliate
thereof) has provided a revolving loan facility to the Borrowers which
completely refinances the credit facility provided for in this Agreement; (II)
the Lender has notified the Borrowers' Agent that Northern is not satisfactory
as the bank referred to in clause (i) of the first sentence of the definition of
Additional Collateral; (III) the Lender sends a notice to the Borrowers' Agent
establishing Other Criteria; or (IV) the Lender sends a notice to the Borrowers'
Agent to the effect that the Lender shall maintain a reserve pursuant to clause
(E) of the definition of Availability; PROVIDED, FURTHER, HOWEVER, that
notwithstanding clauses (II), (III) and (IV) of the preceding proviso, the
Borrowers' Agent shall be required to pay the Termination Fee (or to cause the
Termination Fee to be paid) if either: (x) the Borrowers' Agent fails to provide
written notice to the Lender of its intent to terminate this Agreement within
fifteen (15) days after (i) the Agent shall have notified the Borrowers' Agent
that Northern is not satisfactory as the bank referred to in clause (i) of the
first sentence of the definition of Additional Collateral, (ii) the Lender sends
a notice to the Borrowers' Agent establishing Other Criteria or (iii) the Lender
sends a notice to the Borrowers' Agent to the effect that the Lender shall
maintain a reserve pursuant to clause (E) of the definition of Availability; or
(y) the Borrowers' Agent fails to pay and perform (or fails to cause to be paid
and performed) all Obligations on or prior to the ninetieth (90th) day following
the end of the fifteen (15) day period referred to in clause (x) of this
proviso.
(c) The Lender may also terminate this Agreement without notice while
an Event of Default exists; provided that no Termination Fee shall be payable
solely as a result of a termination pursuant to this sentence.
(d) Upon the effective date of termination of this Agreement for any
reason whatsoever, all Obligations shall become immediately due and payable.
(e) Notwithstanding the termination of this Agreement, until all
Obligations are paid and performed in full, the Lender shall retain all its
rights and remedies hereunder (including, without limitation, in all then
existing and after-arising Collateral).
15. MISCELLANEOUS.
15.1 CUMULATIVE REMEDIES; NO PRIOR RECOURSE TO COLLATERAL. The
enumeration in this Agreement or any other Loan Document of the Lender's rights
and remedies is not intended to be exclusive, and such rights and remedies are
in addition to and not by way of limitation of any other rights or remedies that
the Lender may have under the UCC or other applicable law. The Lender shall have
the right, in its sole discretion, to determine which rights and remedies are
<PAGE>
to be exercised and in which order. The exercise of one right or remedy under or
in connection with this Agreement or any other Loan Document shall not preclude
the exercise of any others, all of which shall be cumulative. The Lender may,
without limitation, proceed directly against any Option Care Person to collect
the Obligations without any prior recourse to the Collateral.
15.2 NO IMPLIED WAIVERS. No act, failure or delay by the Lender under
or in connection with this Agreement or any other Loan Document shall constitute
a waiver of any of its rights and remedies. No single or partial waiver by the
Lender of any provision of this Agreement or any other Loan Document, or of
breach or default hereunder or thereunder, or of any right or remedy which the
Lender may have, shall operate as a waiver of any other provision, breach,
default, right or remedy or of the same provision, breach, default, right or
remedy on a future occasion. No waiver by the Lender shall affect its rights to
require strict performance of this Agreement or any other Loan Document.
15.3 SEVERABILITY. Whenever possible, each provision of this Agreement
and each other Loan Document shall be interpreted in such a manner as to be
effective and valid under applicable law, but if any provision of this Agreement
or any other Loan Document shall be prohibited by or invalid under applicable
law, such provision shall be ineffective only to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Agreement or such other Loan Document.
15.4 GOVERNING LAW. This Agreement and each other Loan Document shall
be deemed to have been made in the State of Illinois and shall be governed by
and interpreted in accordance with the laws of such state, except that no
doctrine of choice of law shall be used to apply the laws of any other state or
jurisdiction.
15.5 CONSENT TO JURISDICTION AND VENUE; SERVICE OF PROCESS. Each
Option Care Person agrees that, in addition to any other courts that may have
jurisdiction under applicable laws, any action or proceeding to enforce or
arising out of this Agreement or any of the other Loan Documents may be
commenced in the courts of the State of Illinois, or in the United States
District Court for the Northern District of Illinois, and each Option Care
Person consents and submits in advance to such jurisdiction and agrees that
venue shall be proper in such courts on any such matter. The choice of forum set
forth in this section shall not be deemed to preclude the enforcement of any
judgment obtained in such forum, or the taking of any action under this
Agreement to enforce the same, in any appropriate jurisdiction. Each Option Care
Person hereby waives personal service of process and agrees that a summons and
complaint commencing an action or proceeding in any such court shall be properly
served and shall confer personal jurisdiction if served by registered or
certified mail to the Borrowers' Agent, at the address for notices to the
Borrowers' Agent determined in accordance with SECTION 15.10. Should any Option
Care Person fail to appear or answer any summons, complaint, process or papers
so served within thirty (30) days after the mailing or other service thereof, it
shall be deemed in default and an order or judgment may be entered against it as
demanded or prayed for in such
<PAGE>
summons, complaint, process or papers.
15.6 WAIVER OF JURY TRIAL. EACH OPTION CARE PERSON HEREBY WAIVES TRIAL
BY JURY, RIGHTS OF SETOFF, AND THE RIGHT TO IMPOSE COUNTERCLAIMS IN ANY
LITIGATION IN ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF
THIS AGREEMENT, THE OTHER LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL, OR
ANY INSTRUMENT OR DOCUMENT DELIVERED PURSUANT HERETO OR THERETO, OR ANY OTHER
CLAIM OR DISPUTE HOWSOEVER ARISING, BETWEEN OR AMONG THE OPTION CARE PERSONS AND
THE LENDER. EACH OPTION CARE PERSON CONFIRMS THAT THE FOREGOING WAIVERS ARE
INFORMED AND FREELY MADE.
15.7 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations and warranties of the Option Care Persons contained in this
Agreement shall survive the execution, delivery, and acceptance thereof by the
parties, notwithstanding any investigation by the Lender or its agents, until
the later of (a) the termination of this Agreement and (b) payment and
performance in full of all of the Obligations.
15.8 OTHER SECURITY AND GUARANTIES. The Lender may, without notice or
demand and without affecting the Obligations, from time to time: (a) take from
any Person and hold collateral (other than the Collateral) for the payment of
all or any part of the Obligations and exchange, enforce or release such
collateral or any part thereof; and (b) accept and hold any endorsement or
guaranty of payment of all or any part of the Obligations and release or
substitute any such endorser or guarantor, or any Person who has given any Lien
in any other collateral as security for the payment of all or any part of the
Obligations, or any other Person in any way obligated to pay all or any part of
the Obligations.
15.9 FEES AND EXPENSES. The Option Care Persons agree to pay to the
Lender on demand (whether or not any transaction contemplated by this Agreement
is consummated) all costs and expenses that the Lender pays or incurs in
connection with the negotiation, preparation, consummation, administration,
enforcement, and termination of this Agreement and the other Loan Documents,
including, without limitation: (a) attorneys' and paralegals' fees and
disbursements of counsel to the Lender (including, without limitation, a
reasonable estimate of the allocable cost of in-house counsel and staff for
non-duplicative work); (b) costs and expenses including attorneys' and
paralegals' fees and disbursements (including, without limitation, a reasonable
estimate of the allocable cost of in-house counsel and staff for non-duplicative
work) for any amendment, supplement, waiver, consent, or subsequent closing in
connection with any Loan Document and the transactions contemplated thereby; (c)
costs and expenses of lien and title searches and title insurance; (d) Taxes,
fees and other charges for filing UCC financing statements and amendments and
continuations thereof, and other actions to perfect, protect, and continue the
Security Interest; (e) sums paid or incurred to pay any amount or take any
action required of any Option Care Person under the Loan Documents that such
Option Care Person
<PAGE>
fails to pay or take; (f) costs of review, due diligence, appraisals, audits,
inspections, and verifications of the Collateral and the operations of any
Option Care Person, including, without limitation, travel, lodging, meals, and
other expenses, together with an allocated "charge" per day for each auditor
employed or utilized by the Lender for any such purpose (such "charge" per day
to be specified from time to time by the Lender but, absent an Event of Default,
the aggregate "charges" per day during any calendar quarter shall not exceed
$5,000 per calendar quarter, it being understood that said $5,000 cap does not
cover or limit the other costs and expenses referred to in this clause (f)); (g)
costs and expenses of forwarding loan proceeds, collecting checks and other
items of payment, and establishing and maintaining Payment Accounts and lock
boxes; (h) costs and expenses of preserving and protecting the Collateral
(including without limitation costs and expenses relating to SECTIONS 7.16 and
7.17); and (i) costs and expenses including attorneys' and paralegals' fees and
disbursements (including, without limitation, a reasonable estimate of the
allocable cost of in-house counsel and staff) paid or incurred to obtain payment
of the Obligations, enforce the Security Interest, sell or otherwise realize
upon the Collateral, and otherwise enforce the provisions of any Loan Document
(including without limitation costs and expenses relating to SECTIONS 7.16 and
7.17), or to defend any claims made or threatened against the Lender arising out
of the transactions contemplated by this Agreement or any other Loan Document
(including without limitation, preparations for and consultations concerning any
such matters). The foregoing shall not be construed to limit any other
provisions of the Loan Documents regarding costs and expenses to be paid by any
Option Care Person. All of the foregoing costs and expenses shall be charged to
the loan account of Option Care as Revolving Loans. Notwithstanding the
foregoing, the Lender acknowledges receipt of the Borrowers' advance payment of
$25,000 toward the fees and expenses described herein.
15.10 NOTICES. Except as otherwise expressly provided herein or in an
Exhibit hereto, all notices, demands, and requests that any party hereto is
required or elects to give to any other party hereto shall be in writing, shall
be delivered personally against receipt, or sent by recognized overnight courier
services, or sent by facsimile transmission, or mailed by registered or
certified mail, return receipt requested, postage prepaid, and shall be
addressed to the party to be notified as follows:
If to the Lender: BankAmerica Business Credit, Inc.
231 South LaSalle Street, 16th Floor
Chicago, Illinois 60697
Attention: Pamela M. Turner
Facsimile: 312/974-8833
with a copy to: Bank of America National Trust
and Savings Association
10124 Old Grove Road
San Diego, California 92131
Attention: Legal Department
Facsimile: 619/549-7518
<PAGE>
If to Option Care: Option Care, Inc.
100 Corporate North
Suite 212
Bannockburn, Illinois 60015
Attention: Chief Financial Officer
Facsimile: 847/615-5
with a copy to: Option Care, Inc.
100 Corporate North
Suite 212
Bannockburn, Illinois 60015
Attention: General Counsel
Facsimile: 847/615-9345
and
Heroux, Clingen, Callow, Wolfe & McLean
2100 Manchester Road
Suite 1750
Wheaton, Illinois 60187
Attention: Kenneth W. Clingen
Facsimile: 630/871-9869
or to such other address as each party may designate for itself by like notice.
Any such notice, demand, or request shall be deemed given when received if
personally delivered or sent by overnight courier or facsimile transmission, or
when deposited in the United States mails, postage paid, if sent by registered
or certified mail.
15.11 INDEMNIFICATION.
(A) EACH OPTION CARE PERSON HEREBY INDEMNIFIES, DEFENDS AND HOLDS THE
LENDER, AND ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL, HARMLESS
FROM AND AGAINST ANY AND ALL LOSSES, CLAIMS, DAMAGES, LIABILITIES, DEFICIENCIES,
JUDGMENTS, PENALTIES OR EXPENSES IMPOSED ON, INCURRED BY OR ASSERTED AGAINST ANY
OF THEM, WHETHER DIRECT, INDIRECT OR CONSEQUENTIAL ARISING OUT OF OR BY REASON
OF ANY LITIGATION, INVESTIGATIONS, CLAIMS, OR PROCEEDINGS (WHETHER BASED ON ANY
FEDERAL, STATE OR LOCAL LAWS OR OTHER STATUTES OR REGULATIONS, INCLUDING,
WITHOUT LIMITATION, SECURITIES, ENVIRONMENTAL, OR COMMERCIAL LAWS AND
REGULATIONS, UNDER COMMON LAW OR AT EQUITY, OR ON CONTRACT OR OTHERWISE)
COMMENCED OR THREATENED, WHICH ARISE
<PAGE>
OUT OF OR ARE IN ANY WAY BASED UPON THE NEGOTIATION, PREPARATION, EXECUTION,
DELIVERY, ENFORCEMENT, PERFORMANCE OR ADMINISTRATION OF THIS AGREEMENT, ANY
OTHER LOAN DOCUMENT, OR ANY UNDERTAKING OR PROCEEDING RELATED TO ANY OF THE
TRANSACTIONS CONTEMPLATED HEREBY OR ANY ACT, OMISSION TO ACT, EVENT OR
TRANSACTION RELATED OR ATTENDANT THERETO, INCLUDING, WITHOUT LIMITATION, AMOUNTS
PAID IN SETTLEMENT, COURT COSTS, AND THE FEES AND EXPENSES OF COUNSEL INCURRED
IN CONNECTION WITH ANY SUCH LITIGATION, INVESTIGATION, CLAIM OR PROCEEDING AND
FURTHER INCLUDING, WITHOUT LIMITATION, ALL LOSSES, DAMAGES (INCLUDING
CONSEQUENTIAL DAMAGES), EXPENSES OR LIABILITIES SUSTAINED BY THE LENDER IN
CONNECTION WITH ANY ENVIRONMENTAL INSPECTION, MONITORING, SAMPLING, OR CLEANUP
OF THE ENCUMBERED REAL ESTATE REQUIRED OR MANDATED BY ANY ENVIRONMENTAL LAW;
PROVIDED, HOWEVER, THAT THE OPTION CARE PERSONS SHALL NOT INDEMNIFY THE LENDER,
ITS DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL FROM SUCH DAMAGES
RESULTING FROM THE GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF THE LENDER, ITS
DIRECTORS, OFFICERS, AGENTS, EMPLOYEES AND COUNSEL.
(b) Each Option Care Person hereby indemnifies, defends and holds
harmless the Lender from any loss or liability directly or indirectly arising
out of the use, generation, manufacture, production, storage, release,
threatened release, discharge, disposal or presence of a Hazardous Substance.
This indemnity shall apply whether the Hazardous Substance is on, under or about
any Option Care Person's property or operations or property leased to any Option
Care Person. The indemnity includes but is not limited to attorneys' fees
(including the reasonable estimate of the allocated cost of in-house counsel and
staff). The indemnity extends to the Lender, its parent, subsidiaries and all of
their directors, officers, employees, agents, successors, attorneys and assigns.
"Hazardous Substances" means any substance, material or waste that is or becomes
designated or regulated as "toxic," "hazardous," "pollutant," or "contaminant"
or a similar designation or regulation under any federal, state or local law
(whether under common law, statute, regulation or otherwise) or judicial or
administrative interpretation of such, including without limitation petroleum or
natural gas.
(c) Without limiting the foregoing, if, by reason of any suit or
proceeding of any kind, nature, or description against any Option Care Person or
by any Option Care Person or any other Person against the Lender, which in the
Lender's sole discretion makes it advisable for the Lender to seek counsel for
protection and preservation of its liens and security assets, or to defend its
own interest, such expenses and counsel fees shall be allowed to the Lender. To
the extent that the undertaking to indemnify, pay and hold harmless set forth in
this SECTION 15.11 may be unenforceable because it is violative of any law or
public policy, each Option Care Person shall contribute the maximum portion
which it is permitted to pay and satisfy under applicable law, to the payment
and satisfaction of all indemnified matters incurred by the Lender.
<PAGE>
The indemnity contained in this SECTION 15.11 shall survive the payment of the
Obligations and the termination of this Agreement. All of the foregoing costs
and expenses shall be part of the Obligations and secured by the Collateral.
(d) Without limiting the foregoing, the Option Care Persons shall
reimburse the Lender on demand for any amount paid by the Lender to a Blocked
Account Bank pursuant to a Blocked Account Agreement.
15.12 WAIVER OF NOTICES. Unless otherwise expressly provided herein,
each Option Care Person waives presentment, protest and notice of demand or
dishonor and protest as to any instrument, as well as any and all other notices
to which it might otherwise be entitled. No notice to or demand on any Option
Care Person which the Lender may elect to give shall entitle any Option Care
Person to any or further notice or demand in the same, similar or other
circumstances.
15.13 BINDING EFFECT; ASSIGNMENT. The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective
representatives, successors and assigns of the parties hereto; PROVIDED,
HOWEVER, that no interest in this Agreement may be assigned by any Option Care
Person without the prior written consent of the Lender. The rights and benefits
of the Lender under this Agreement and the other Loan Documents shall, if the
Lender so agrees, inure to any assignee of the Obligations or any part thereof.
15.14 MODIFICATION. This Agreement is intended by the parties hereto
to be the final, complete, and exclusive expression of the agreement between
them. This Agreement supersedes any and all prior oral or written agreements
relating to the subject matter hereof and may not be contradicted by evidence of
prior, contemporaneous or subsequent oral agreements of the parties. There are
no oral agreements between the parties. No modification, rescission, waiver,
release, or amendment of any provision of this Agreement (including the
Schedules and Exhibits hereto) shall be made, except by a written agreement
signed by the parties hereto.
15.15 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, and by the parties hereto in separate counterparts, each of which
shall be an original, but all of which shall together constitute one and the
same agreement.
15.16 CAPTIONS. The captions contained in this Agreement or any other
Loan Document (including without limitation the table of contents and the
exhibits and schedules hereto or thereto) are for convenience only, are without
substantive meaning and should not be construed to modify, enlarge, or restrict
any provision.
15.17 RIGHT OF SET-OFF. Whenever an Event of Default exists, 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
indebtedness at any time owing by the Lender or any Affiliate of the
<PAGE>
Lender to or for the credit or the account of any Option Care Person against any
and all of the Obligations, whether or not then due and payable.
15.18 PARTICIPATING LENDER'S SECURITY INTERESTS. The Lender may,
without notice to or consent by any Option Care Person, grant one or more
participations in the Loans to Participating Lenders. If a Participating Lender
shall at any time with the knowledge of an Option Care Person participate with
the Lender in the Loans, such Option Care Person hereby grants to such
Participating Lender, and the Lender and such Participating Lender shall have
and are hereby given, a continuing lien on and security interest in any money,
securities and other property of such Option Care Person in the custody or
possession of the Participating Lender, including the right of setoff, to the
extent of the Participating Lender's participation in the Obligations, and such
Participating Lender shall be deemed to have the same right of setoff to the
extent of Participating Lender's participation in the Obligations under this
Agreement as it would have if it were a direct lender.
15.19 ADDITIONAL BORROWERS. Any Subsidiary wholly owned by Option Care
(or wholly owned by any Subsidiary of Option Care) that is not a Borrower party
hereto on the Closing Date may become a Borrower party to this Agreement upon
the satisfaction of the following conditions: (a) such Subsidiary and Option
Care shall have signed and delivered to the Lender an agreement substantially in
the form of Exhibit B hereto (an "ADDITIONAL BORROWER AGREEMENT"); (b) the
Lender shall have received such other documents, agreements, instruments and
opinions as it may reasonably request in connection with such Subsidiary
becoming a Borrower, which shall be in form and substance reasonably
satisfactory to the Lender, including without limitation items of the type
delivered pursuant to SECTION 11.1; (c) the Lender shall have had a reasonable
period of time to conduct (and to cause one or more of its agents or
representatives to conduct) due diligence with respect to such Subsidiary, such
Subsidiary and the Option Care Persons shall have fully cooperated with the
Lender and such agents and representatives in connection with such due
diligence, and the results of such due diligence are satisfactory to the Lender;
(d) such Subsidiary shall be in the same line of business that one or more of
the Borrowers were engaged in on the Closing Date; and (e) the Lender shall have
sent the Borrowers' Agent a notice substantially in the form of Exhibit C hereto
(an "ADDITIONAL BORROWER CONSENT NOTICE").
15.20 JOINT AND SEVERAL LIABILITY. (a) The Borrowers shall be jointly
and severally liable for all Loans and other amounts due to the Lender under
this Agreement, regardless of which Borrower actually receives Loans or other
extensions of credit hereunder or the amount of such Loans received or the
manner in which the Lender accounts for such Loans or other extensions of credit
on its books and records. Each Borrower's Obligations with respect to Loans made
to it, and each Borrower's Obligations arising as a result of the joint and
several liability of the Borrowers hereunder with respect to Loans made to the
other Borrowers hereunder, shall be separate and distinct obligations, but all
such Obligations shall be primary obligations of such Borrower.
<PAGE>
(b) Each Borrower's Obligations arising as a result of the joint and
several liability of such Borrower hereunder with respect to Loans or other
extensions of credit made to the other Borrowers hereunder shall, to the fullest
extent permitted by law, be absolute and unconditional irrespective of (i) the
validity, legality, enforceability, avoidance or subordination of the
Obligations of any other Borrower or of any promissory note or other document
evidencing all or any part of the Obligations of any other Borrower, (ii) the
absence of any attempt to collect the Obligations from any other Borrower, any
other guarantor, or any other security therefor, or the absence of any other
action to enforce the same, (iii) the waiver, consent, extension, forbearance or
granting of any indulgence by the Lender with respect to any Obligations or any
provision of any instrument evidencing the Obligations of any other Borrower, or
any part thereof, or any other agreement now or hereafter executed by any other
Borrower and delivered to the Lender, (iv) the failure by the Lender to take any
steps to perfect and maintain its security interest in, or to preserve its
rights to, any security or collateral for the Obligations of any other Borrower,
(v) the Lender's election, in any proceeding instituted under the Federal
Bankruptcy Code, of the application of Section 1111(b)(2) of the Federal
Bankruptcy Code, (vi) any borrowing or grant of a security interest by any other
Borrower, as debtor-in-possession, under Section 364 of the Federal Bankruptcy
Code, (vii) the disallowance of all or any portion of the Lender's claim(s) for
the repayment of the Obligations of any other Borrower under Section 502 of the
Federal Bankruptcy Code, or (viii) any other events, conditions or circumstances
which might constitute a legal or equitable discharge or defense of a guarantor
or of a surety or of any Borrower. With respect to any Borrower's Obligations
arising as a result of the joint and several liability of the Borrowers
hereunder with respect to Loans or other extensions or credit made to any other
Borrower hereunder, each Borrower waives, until all of the Obligations shall
have been paid in full and this Agreement shall have been terminated, any right
to enforce any right of subrogation or any remedy which the Lender now has or
may hereafter have against any Borrower, any endorser or any guarantor of all or
any part of the Obligations, and any benefit of, and any right to participate
in, any security or collateral given to the Lender to secure payment of the
Obligations or any other liability of any Borrower to the Lender.
(c) Upon any Event of Default, the Lender may proceed directly and at
once, without notice, against any Borrower to collect and recover the full
amount, or any portion of, the Obligations, without first proceeding against any
other Borrower or any other Person, or against any security or collateral for
the Obligations. Each Borrower consents and agrees that the Lender shall be
under no obligation to marshal any assets in favor of any Borrower or against or
in payment of any or all of the Obligations.
(d) Notwithstanding the other provisions of this Agreement, each
Option Care Person shall be liable under this Agreement only for the maximum
amount of such liability that can hereby be incurred without rendering its
obligations under this Agreement voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer, and not for any greater
<PAGE>
amount.
[SIGNATURES FOLLOW]
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement on
the date first above written.
BANKAMERICA BUSINESS
CREDIT, INC., as the Lender
By:
----------------------------------
Vice President
OPTION CARE, INC., individually
and as the Borrowers' Agent
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
BORROWERS:
OPTION CARE, INC.
By:
----------------------------------
Name:
Title:
By:
----------------------------------
Name:
Title:
OPTION CARE ENTERPRISES, INC., OPTION CARE ENTERPRISES, INC.,
<PAGE>
<TABLE>
<S> <C>
a Delaware corporation a Delaware corporation
By: By:
- ----------------------------- -----------------------------------
Name: Michael Rusnak Name: Michael Siri
Title: President Title: Chief Financial Officer
OPTION CARE ENTERPRISES, INC.
a Pennsylvania corporation
By:
-----------------------------------
Name:
Title:
OPTION CARE, INC.,
a California corporation
By:
-----------------------------------
Name:
Title:
MANAGEMENT BY INFORMATION, INC.
By:
-----------------------------------
Name:
Title:
OPTION CARE HOME HEALTH
OF CALIFORNIA, INC.
By:
-----------------------------------
Name:
Title:
OPTION CARE HOSPICE, INC.
By:
-----------------------------------
Name:
Title:
</TABLE>
<PAGE>
<TABLE>
<S> <C>
NORTH COUNTY HOME I.V., INC.
By:
-----------------------------------
Name:
Title:
OPTION HOME HEALTH, INC.
By:
-----------------------------------
Name:
Title:
HOME CARE OF COLUMBIA, INC.
By:
-----------------------------------
Name:
Title:
OPTION CARE OF DENVER, INC.
By:
-----------------------------------
Name:
Title:
OPTION CARE HOME HEALTH, L.L.C. OPTION CARE HOME HEALTH, L.L.C.
By: By:
------------------------------ -----------------------------------
Name: Michael Rusnak Name: Michael Siri
Title: President Title: Chief Financial Officer
REHAB OPTIONS, INC.
By:
-----------------------------------
Name:
Title:
</TABLE>
<PAGE>
<TABLE>
<S> <C>
CORDESYS HEALTHCARE
MANAGEMENT, INC.
By:
-----------------------------------
Name:
Title:
</TABLE>
<PAGE>
EXHIBIT A
to Loan and Security Agreement
FORM OF ACCOUNT DEBTOR NOTICE
[Letterhead of Borrower]
_____________, 19__
CERTIFIED MAIL;
RETURN RECEIPT REQUESTED
[Name and address of Account Debtor]
To Whom It May Concern:
We are pleased to announce that we have entered into a revolving loan
agreement with BankAmerica Business Credit, Inc. ("BankAmerica"). In connection
with that agreement, we have granted a continuing security interest to
BankAmerica in our existing and future receivables and other amounts which you
may owe us from time to time.
Such security interest will continue in effect until such time as
BankAmerica otherwise notifies you in writing. We hereby revoke any notice we
may have given you previously with regard to any security interest granted (or
transfer made) by us to any person or entity other than BankAmerica.
If you have any questions about this notice or anything else, please
contact the undersigned.
Very truly yours,
[NAME OF BORROWER]
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT B
to Loan and Security Agreement
FORM OF ADDITIONAL BORROWER AGREEMENT
BankAmerica Business Credit, Inc.
231 South LaSalle Street, 16th Floor
Chicago, Illinois 60697
Attention: Pamela M. Turner
Re: Loan and Security Agreement dated as of February 5, 1999 (as amended,
amended and restated or otherwise modified from time to time, the
"LOAN AND SECURITY AGREEMENT") among BankAmerica Business Credit,
Inc., as the Lender, Option Care, Inc., individually and as the
Borrowers' Agent, and Option Care, Inc. and the Subsidiaries of Option
Care, Inc. from time to time party thereto, as the Borrowers
Ladies and Gentlemen:
This Additional Borrower Agreement is dated as of [ ] and
is made and delivered pursuant to Section 15.19 of the Loan and Security
Agreement, and reference is made thereto for full particulars of the matters
described herein. All capitalized terms defined in the Loan and Security
Agreement and used in this Additional Borrower Agreement without definition
shall have the meanings assigned to them in the Loan and Security Agreement.
Each of [ ](the "ADDITIONAL BORROWER") and the
Borrowers' Agent hereby confirms, represents and warrants to the Lender
that the Additional Borrower is a wholly-owned Subsidiary of Option Care
or a wholly-owned Subsidiary of one of the Subsidiaries of Option Care.
The parties hereto hereby agree that from and after the effective date
specified in the Additional Borrower Consent Notice relating to the Additional
Borrower, the Additional Borrower shall be a "Borrower" party to the Loan and
Security Agreement and, without limiting the foregoing, shall have all of the
rights, obligations, duties and liabilities of a Borrower thereunder. The
Additional Borrower confirms its acceptance of, and consents to, all
representations and warranties, covenants, and other terms and provisions of the
Loan and Security Agreement; provided, however, that the Schedules to the Loan
and Security Agreement are hereby supplemented with the information set forth in
Annex A attached hereto. [Annex A should be attached to the executed Additional
Borrower Agreement] Without limiting the generality of the foregoing, and
without limiting SECTION 7.1 of the Loan and Security Agreement: as security for
the payment and performance of all of the Obligations, the Additional Borrower
hereby grants to the Lender a continuing security interest in, lien on, and
assignment of
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all of the Additional Borrower's right, title and interest in, to and under (but
none of the Additional Borrower's obligations under) the Collateral, in each
case wherever located and whether now existing or hereafter arising or acquired.
This Additional Borrower Agreement may be executed in any number of
counterparts, and by the parties hereto in separate counterparts, each of which
shall be an original, but all of which shall together constitute one and the
same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Additional Borrower
Agreement to be duly executed and delivered by their duly authorized officers as
of the day and year first above written.
[NAME OF ADDITIONAL BORROWER]
By:
--------------------------
Name:
Title:
OPTION CARE, INC.,
as the Borrowers' Agent
By:
--------------------------
Name:
Title:
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT C
to Loan and Security Agreement
ADDITIONAL BORROWER CONSENT NOTICE
[Date]
Option Care, Inc.
100 Corporate North
Suite 212
Bannockburn, Illinois 60015
Attention: Chief Financial Officer
Re: Additional Borrower Agreement dated [ ] (the "ADDITIONAL BORROWER
AGREEMENT") between [name of Additional Borrower] (the "ADDITIONAL
BORROWER") and Option Care, Inc., as the Borrowers' Agent
Ladies and Gentlemen:
We have received the Additional Borrower Agreement and the other related
items contemplated by SECTION 15.19 of the Loan and Security Agreement referred
to therein. Please be advised that we consent to the Additional Borrower
becoming a Borrower party to, and agree that the Additional Borrower shall
become a Borrower party to, such Loan and Security Agreement, effective as of
[ ].
Very truly yours,
BANKAMERICA BUSINESS CREDIT, INC.
By:__________________________
Name:
Title:
<PAGE>
Exhibit 10.27
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into as of the 1st day of October,
1998, by and between OPTION CARE, INC., a Delaware corporation (the "Company")
and MICHAEL A. RUSNAK ("Executive").
WITNESSETH:
WHEREAS, the Company desires to employ the Executive, and the Executive
desires to accept such employment, upon the terms and conditions hereinafter set
forth;
NOW, THEREFORE, in consideration of the covenants and mutual agreements
set forth herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto do hereby agree
as follows:
1. EMPLOYMENT. Throughout the Term (as defined in Section 2 below), the
Company shall employ Executive as provided herein, and Executive hereby
accepts such employment. In accepting such employment, Executive states
that, to the best of his knowledge, he is not now, and by accepting such
employment, will not be, under any restrictions in the performance of the
duties contemplated under this Agreement as a result of the provisions of
any prior employment agreement or non-compete or similar agreement to
which Executive is or was a party.
2. TERM OF EMPLOYMENT. The term of Executive's employment by the Company
hereunder shall commence on October 1, 1998 (the "Effective Date") and
shall continue thereafter unless sooner terminated as a result of
Executive's death or in accordance with the provisions of Section 7 below
(the "Term").
3. DUTIES. Throughout the Term, and except as otherwise expressly provided
herein, Executive shall be employed by the Company as the President and
Chief Executive Officer ("CEO") of the Company. In such capacity,
Executive shall devote his full time to the performance of his duties as
President and CEO of the Company in accordance with the Company's
By-laws, this Agreement and the directions of the Company's Board of
Directors. Without limiting the generality of the foregoing, throughout
the Term Executive shall faithfully perform his duties as President and
CEO at all times so as to promote the best interests of the Company.
4. COMPENSATION.
(a) SALARY. For any and all services performed by Executive under this
Agreement during the Term, in whatever capacity, the Company shall
pay to Executive an
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annual salary of Two Hundred Ten Thousand Dollars ($210,000) per
year (the "Salary") less any and all applicable federal, state and
local payroll and withholding taxes. The Salary shall be paid in
the same increments as the Company's normal payroll, but no less
frequent than monthly and prorated, however, for any period of
less than a full month. The Salary will be reviewed annually by
the Compensation Committee of the Board and a determination shall
be made at that time as to the appropriateness of an increase, if
any, thereto.
(b) BONUS. In addition to the Salary, Executive shall be eligible to
receive from the Company a discretionary incentive compensation
bonus (the "Bonus") in an amount of up to forty percent (40%) of
his Salary. The amount of the Bonus, if any, shall be determined
by the Board of Directors based on the achievement by the Company
of certain specific strategic plans and goals (the "Performance
Goals") during the preceding calendar year (the "Measurement
Period") as shall be established by the Board in consultation with
the Executive. The initial Performance Goals will be established
by the Board within ninety (90) days of Executive's employment
hereunder. Thereafter, the Performance Goals for each Measurement
Period shall be established as promptly as possible in each such
Measurement Period, with the expectation that the Performance
Goals be in place each year prior to distribution of the Company's
annual proxy materials. Following each Measurement Period, the
Compensation Committee of the Board shall review the Performance
Goals for the prior Measurement Period in light of the Company's
actual performance during such Measurement Period as reflected on
the Company's audited financial statements to determine the amount
of Bonus payable to Executive. Payment of each year's Bonus, if
any, shall be made at the earlier of forty-five (45) days after
the Company's performance for the Measurement Period is
established on the basis of the Company's audited financial
statements or April 15th.
5. BENEFITS AND OTHER RIGHTS. In consideration for Executive's performance
under this Agreement, the Company shall provide to Executive the
following benefits:
(a) The Company will provide Executive with cash advances for or
reimbursement of all reasonable out-of-pocket business expenses
incurred by Executive in connection with his employment hereunder;
provided, Executive adheres to any and all policies established by
Company from time to time with respect to such reimbursements or
advances, including, but not limited to, a requirement that
Executive submit supporting evidence of any such expenses to the
Company.
(b) The Company will provide Executive with a monthly car allowance in
the amount of Five Hundred Dollars ($500.00) subject to standard
payroll withholding for taxes.
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(c) The Company will provide Executive and his family with group
medical coverage under the terms of the Company's health insurance
plan, but subject to completion of normal waiting periods. During
any such waiting period, or in the event that at the date of this
Agreement the Company's group medical coverage is not yet in
effect, then, in either case, the Company will pay, or reimburse
Executive for, the cost of COBRA coverage for Executive and his
family under his prior health plan.
(d) During the Term the Executive shall be entitled to four (4) weeks
paid vacation, it being understood and agreed that, for the
purposes of this Agreement, up to one-half of all unused vacation
may be carried over from one year to the next.
6. OPTIONS. The Company shall grant to Executive options pursuant to the
Option Care, Inc. Amended and Restated Incentive Plan (1997) (the "Option
Plan"), as amended, to purchase 100,000 shares of the Company's common
stock at an option exercise price of $0.75 per share of common stock (the
"Options") which was the fair market value (as determined under the
Option Plan) of the Company's common stock as of October 12, 1998, which
date shall be the date of grant of the Options for purposes of the Option
Plan (the "Date of Grant"). The Options shall vest in equal installments
of 25,000 Options per year on each of the first four anniversaries of the
Date of Grant. The Options shall not be exercisable subsequent to the
date ten (10) years after the Date of Grant. In all other respects the
Options shall be governed by the terms and conditions of the Option Plan.
7. TERMINATION OF THE TERM.
(a) The Company shall have the right to terminate the Term, effective
upon delivery of written notice of termination to Executive
setting forth the basis of such termination, under the following
circumstances:
(i) Executive shall die; or
(ii) With or without "Cause" (as herein defined).
A termination for "Cause" is a termination evidenced by a finding
adopted in good faith by the Board of Directors that Executive (i)
willfully and continually failed to substantially perform his
duties with the Company (other than a failure resulting from
Executive's incapacity due to illness, physical or mental
disability or other incapacity) and such failure continues after
the Board has given written notice to Executive providing a
reasonable description of the basis for the determination that
Executive has failed to perform his duties, (ii) has been
convicted of a felony, (iii) has breached this Agreement in any
material respect if such breach is not cured or remedied
reasonably promptly after the Board has
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given written notice to Executive providing a reasonable
description of the breach, or (iv) engaged in conduct constituting
willful malfeasance in connection with his employment which is
materially and demonstrably injurious to the Company and its
subsidiaries taken as a whole. No act, or failure to act, on
Executive's part, shall be considered "willful" for purposes of
(i) or (iv) above unless he has acted or failed to act with an
absence of good faith and without a reasonable belief that his
action or failure to act was in the best interests of the Company.
Notwithstanding anything contained in this Agreement to the
contrary, no failure to perform by Executive after Notice of
Termination (as herein after defined) is given by Executive shall
constitute Cause for purposes of this Agreement.
(b) This Agreement may be terminated by the Executive at any time upon
ninety (90) days prior written notice to the Company.
(c) Following a "Change of Control" (as hereinafter defined),
Executive may terminate his employment for "Good Reason" (as
hereinafter defined). For purposes of this Agreement, Good Reason
shall mean the occurrence after a Change of Control of any of the
events or conditions described in Subsections (i) through (iii)
below:
As used in this Section 7(c), the term "Company" shall also refer
to its successor entity or any entity which has acquired control
of the Company:
(i) Executive no longer serving as President and Chief
Executive Officer of the Company, or the assignment to
Executive of any duties or responsibilities which are
inconsistent with the status, title, position or
responsibilities of President and Chief Executive Officer
of the Company (which assignment is not rescinded after the
Company receives written notice from Executive providing a
reasonable description of such inconsistency);
(ii) the Company's requiring Executive to be based at any place
outside a 50 mile radius from the principal location from
which Executive served as an employee of the Company
immediately prior to the Change in Control, except for
reasonably required travel on the Company's business which
is not materially greater than such travel requirements
prior to the Change in Control;
(iii) the failure by the Company to provide Executive with
compensation and benefits substantially comparable, in the
aggregate, to those provided for under the employee benefit
plans, programs and practices in effect immediately prior
to the Change in Control;
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(d) NOTICE OF TERMINATION. Any purported termination of Executive's
employment hereunder by the Company or by Executive shall be
communicated by a written Notice of Termination to the other. For
purposes of this Agreement, a "Notice of Termination" shall mean a
notice which indicates the specific termination provision in this
Agreement relied upon as a basis for termination. For purposes of
this Agreement, no such purported termination of employment shall
be effective without such Notice of Termination.
(e) TERMINATION DATE. "Termination Date" shall mean in the case of
Executive's death, his date of death, or in all other cases, the
date specified in the Notice of Termination; provided, however,
that if Executive terminates his employment for Good Reason, the
date specified in the Notice of Termination shall not be less than
30 days from the date the Notice of Termination is given to the
Company and if the Company terminates Executive's employment other
than for Cause, the date specified in the Notice of Termination
shall be not less than 30 days from the date the Notice of
Termination is given to Executive.
(f) CHANGE OF CONTROL. For purposes of this Agreement, a "Change of
Control" shall mean the occurrence of any of the following events:
(a) a merger, consolidation or reorganization of the Company in
which the Company does not survive as an independent entity; (b) a
sale of all or substantially all of the assets of the Company; (c)
the first purchase of shares of common stock of the Company
pursuant to a tender or exchange offer for more than a majority of
the Company's outstanding shares of common stock by any person
other than John Kapoor; or (d) any change in control of a nature
that, in the opinion of the Board of Directors, would be required
to be reported under the federal securities laws; provided that
such a change in control shall be deemed to have occurred if (i)
any person, other than John Kapoor, is or becomes the beneficial
owner, directly or indirectly, of securities of the Company
representing at least a majority of the combined voting power of
the Company's then outstanding securities; or (ii) during any
period of two consecutive years, individuals who at the beginning
of such period constitute the Board of Directors of the Company
cease for any reason to constitute a majority thereof unless the
election of any director, who was not a director at the beginning
of the period, was approved by a vote of at least 70% of the
directors then still in office who were directors at the beginning
of the period.
8. COMPENSATION UPON TERMINATION. Upon termination of Executive's employment
during the Term, Executive shall be entitled to the following benefits:
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(a) If Executive's employment is terminated by the Company for Cause
or by Executive (other than for Good Reason), the Company shall
pay to Executive all amounts earned or accrued hereunder through
the Termination Date but not paid as of the Termination Date,
including (i) Salary through the Termination Date, (ii)
reimbursement (in accordance with the terms of this Agreement) for
any and all monies advanced or expenses incurred in connection
with Executive's employment for reasonable and necessary expenses
incurred by Executive on behalf of the Company for the period
ending on the termination Date, (iii) accrued but unpaid vacation
pay, (iv) any previously awarded and vested, but unpaid, bonus or
incentive compensation and (v) any previous compensation which
Executive has previously deferred (including any interest earned
or credited thereon) (collectively, "Accrued Compensation").
Executive's entitlement to any other benefits shall be determined
in accordance with the Company's employee benefit plans and other
applicable programs and practices then in effect, including but
not limited to the plan described in Section 3(d) hereof, and all
unvested stock options shall be forfeited.
(b) Subject to the last sentence of Section 8(c), if Executive's
employment is terminated by the Company prior to a Change in
Control for any reason other than for Cause or death, the Company
shall pay to Executive all Accrued Compensation plus any Bonus or
portion thereof which would be payable if Executive's employment
had continued because the performance targets relating thereto had
been achieved as of the Termination Date ("Earned Bonus"), and an
amount equal to one year's Salary payable in twenty-four (24)
equal installments on the same schedule as the Company shall pay
its regular payroll to employees. In addition, Executive shall
receive for a period of twelve (12) months from the Termination
Date, medical, dental and hospitalization benefits which Executive
would have been entitled to receive if he had continued his
employment with the Company on the terms and conditions applicable
to other executive officers of the Company as in effect from time
to time during such period Executive's entitlement to any other
benefits, including, but not limited to, exercise of Options,
shall be determined in accordance with the Company's employee
benefit plans and other programs and practices then in effect,
including but not limited to the plan described in Section 6
hereof.
(c) If Executive's employment by the Company is terminated by the
Company following a Change in Control other than for Cause or
death, or the Executive terminates his employment for Good Reason,
then Executive
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shall be entitled to the benefits provided below:
(1) The Company shall pay Executive the sum of:
(A) all Accrued Compensation; and
(B) forty percent (40%) of the Executive's Salary,
prorated for the percentage of the current calendar
year measured through the Termination Date.
The sum of the amounts described in Clauses (A) and (B)
shall be hereinafter referred to as the "Accrued
Obligations"; and
(2) The amount equal to the product of (2) two times the
Executive's Annual Base Salary (which shall be increased
for this purpose by any Section 401(k) deferrals, cafeteria
plan elections, or other deferrals that would have
increased Executive's Salary if paid in cash to Executive
when earned).
9. EFFECT OF EXPIRATION OR TERMINATION OF THE TERM. Promptly following the
termination of the Term, and except as provided in Section 7 or as
otherwise expressly agreed by the Company, Executive shall
(a) provide the Company with all reasonable assistance necessary to
permit the Company to continue its business operations without
interruption and in a manner consistent with reasonable business
practices; provided, however, that such transition period shall
not exceed sixty (60) days after termination nor require more than
twenty (20) hours of Executive's time per week. In the event that
the Company shall request Executive to provide transitional
assistance after the effective date of termination, Executive
shall be paid at any hourly rate based on an 8 hour work day, a
2,080 hour work year and his last Salary, based upon time sheets
submitted by Executive specifying the services performed and the
amount of time expended;
(b) deliver to the Company possession of any and all property owned or
leased by the Company which may then be in Executive's possession
or under his control, including without limitation any and all
such keys, credit cards, automobiles, equipment, supplies, books,
records, files, computer equipment, computer software and other
such tangible and intangible property of any description
whatsoever. If, following the expiration or termination of the
Term, Executive shall receive any mail addressed to the Company,
then Executive shall
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immediately deliver such mail, unopened and in its original
envelope or package, to the Company; and
(c) Other than as provided in Section 7, upon a termination of
employment all other benefits and/or entitlements to participate
in programs or benefits, if any, will cease as of the effective
date medical insurance coverage at his own expense as provided by
applicable law or written Company policy.
10. RESTRICTIVE COVENANTS FOR EXECUTIVE. Executive hereby covenants and
agrees with the Company that for so long as Executive is employed by the
Company and for a period (the "Restricted Period") of twelve (12) months
thereafter (but for eighteen (18) months thereafter if the Executive
voluntarily terminates employment under Section 7(b)) Executive shall
not, without the prior written consent of the Company, which consent
shall be within the sole and exclusive discretion of the Company, either
directly or indirectly, on his own account or as an Executive,
consultant, agent, partner, joint venturer, owner, officer, director or
shareholder of any other person, firm, corporation, partnership, limited
liability company or other entity, or in any other capacity, in any way:
(a) Carry on, be engaged in or have any financial interest in any
business which is in competition with the business of the Company.
For purposes of this Section 10, a business shall be deemed to be
in competition with the Company if it involves the home healthcare
business, either directly or as a franchisor, by providing
infusion therapy or research and development work involving
products or fields of research which are under study by the
Company at the Termination Date. Nothing in this Section 10 shall
be construed so as to preclude Executive from investing in any
publicly held company, provided Executive's beneficial ownership
of any class of such company's securities does not exceed 5% of
the outstanding securities of such class;
(b) solicit any current supplier, customer or client of the Company or
any affiliate of the Company or anyone who was a supplier,
customer or client at any time during the immediately preceding
twelve (12) month period; or
(c) solicit, employ or engage any person who was an Executive of the
Company or any affiliate of the Company at any time during the
immediately preceding twelve (12) month period.
11. CONFIDENTIALITY. The Executive acknowledges that during the period of his
employment by the Company, and in his performance of services hereunder,
he will be placed in a relationship of trust and confidence regarding the
Company and its affairs. In the course of and due to that relationship he
will have contact with the Company's customers,
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suppliers, affiliates, and distributors and their personnel. In the
course of the aforesaid relationship, he will have access to and will
acquire confidential information relating to the business and operations
of the Company, including, without limitation, information relating to
processes, plans and methods of operation of the Company. The Executive
acknowledges that any such information that is not a trade secret,
nonetheless constitutes confidential information as between himself and
the Company, that the disclosure thereof (or of any information which he
knows relates to confidential, trade, or other secret aspects of the
Company's business) would cause substantial loss to the goodwill of the
Company, and will continue to be made known to Executive only because of
the position of trust and confidence which he will continue to occupy
hereunder. In view of the foregoing, and in consideration of the
covenants and premises of this Agreement, the Executive agrees that he
will not, at any time during the term of his employment, and for a period
of twelve months thereafter, disclose to any person, firm or company any
trade secrets or confidential information or such ideas which he may have
acquired or developed or may acquire or develop relating to the Business
of the Company while serving the Company as an Executive.
12. REMEDIES.
(a) The covenants of Executive set forth in Sections 10 and 11 are
separate and independent covenants for which valuable
consideration has been paid, the receipt, adequacy and sufficiency
of which are acknowledged by Executive, and have also been made by
Executive to induce the Company to enter into this Agreement. Each
of the aforesaid covenants may be availed of, or relied upon, by
the Company in any court of competent jurisdiction, and shall form
the basis of injunctive relief and damages including expenses of
litigation (including, but not limited to, reasonable attorney's
fees upon trial and appeal) suffered by the Company arising out of
any breach of the aforesaid covenants by Executive. The covenants
of Executive set forth in this Section 12 are cumulative to each
other and to all other covenants of Executive in favor of the
Company contained in this Agreement and shall survive the
termination of this Agreement for the purposes intended.
(b) Each of the covenants contained in Sections 10 and 11 above shall
be construed as agreements which are independent of any other
provision of this Agreement, and the existence of any claim or
cause of action by any party hereto against any other party
hereto, of whatever nature, shall not constitute a defense to the
enforcement of such covenants. If any of such covenants shall be
deemed unenforceable by virtue of its scope in terms of
geographical area, length of time or otherwise, but may be made
enforceable by the imposition of limitations thereon, Executive
agrees that the same shall be enforceable to the fullest extent
permissible under
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the laws and public policies of the jurisdiction in which
enforcement is sought. The parties hereto hereby authorize any
court of competent jurisdiction to modify or reduce the scope of
such covenants to the extent necessary to make such covenants
enforceable.
13. ENFORCEMENT COSTS. If any legal action or other proceeding is brought for
the enforcement of this Agreement, or because of an alleged dispute,
breach, default or misrepresentation in connection with any provisions of
this Agreement, the successful or prevailing party or parties shall be
entitled to recover reasonable attorney's fees, court costs and all
expenses even if not taxable as court costs (including, without
limitation, all such fees, costs and expenses incident to appeal and
other post-judgment proceedings), incurred in that action or proceeding,
in addition to any other relief to which such party or parties may be
entitled. Attorney's fees shall include, without limitation, paralegal
fees, investigative fees, administrative costs, sales and use taxes and
all other charges billed by the attorney to the prevailing party.
14. NOTICES. Any and all notices necessary or desirable to be served
hereunder shall be in writing and shall be
(a) personally delivered, or
(b) sent by certified mail, postage prepaid, return receipt
requested, or guaranteed overnight delivery by a nationally
recognized express delivery company, in each case addressed
to the intended recipient at the address set forth below.
(c) For notices sent to the Company:
Option Care, Inc.
100 Corporate North - Suite 212
Bannockburn, Illinois 60015
Telephone No.: (847) 295-8678
Facsimile No.: (847) 295-8654
(d) For notices sent to Executive:
Mr. Michael A. Rusnak
7700 Wakefield Drive
Darien, Illinois 60561
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Either party hereto may amend the addresses for notices to such party
hereunder by delivery of a written notice thereof served upon the other
party hereto as provided herein. Any notice sent by certified mail as
provided above shall be deemed delivered on the third (3rd) business day
next following the postmark date which it bears.
15. ENTIRE AGREEMENT. This Agreement sets forth the entire agreement of the
parties hereto with respect to the subject matter hereof, and all prior
negotiations, agreements and understandings are merged herein. This
Agreement may not be modified or revised except pursuant to a written
instrument signed by the party against whom enforcement is sought.
16. SEVERABILITY. The invalidity or unenforceability of any provision hereof
shall not affect the enforceability of any other provision hereof, and
except as otherwise provided in Section 12 above, any such invalid or
unenforceable provision shall be severed from this Agreement.
17. WAIVER. Failure to insist upon strict compliance with any of the terms or
conditions hereof shall not be deemed a waiver or such term or condition,
and the waiver or relinquishment of any right or remedy hereunder at any
one or more times shall not be deemed a waiver or relinquishment of such
right or remedy at any other time or times.
18. GOVERNING LAW. This Agreement and the rights and obligations of the
parties hereto shall be governed by and construed in accordance with the
laws of the State of Illinois, without regard to its conflicts of laws
provisions. Each party hereto hereby (a) agrees that any litigation which
may be initiated with respect to this Agreement or to enforce rights
granted hereunder shall be initiated in a court located in Cook County,
Illinois and (b) consents to personal jurisdiction of such courts for
such purpose.
19. BENEFIT AND ASSIGNABILITY. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The
rights and obligations of Executive hereunder are personal to him, and
are not subject to voluntary or involuntary alienation, transfer,
delegation or assignment.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have executed this Employment
Agreement as of the day and year first above written.
OPTION CARE, INC.
By: _______________________________
Its: ______________________________
EXECUTIVE:
-----------------------------------
MICHAEL A. RUSNAK
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Exhibit 10.28
REIMBURSEMENT AND SECURITY AGREEMENT
REIMBURSEMENT AND SECURITY AGREEMENT, dated as of February 5, 1999 (this
"Agreement"), is by and between Option Care, Inc., a Delaware corporation (the
"Company"), and the John N. Kapoor Trust dtd. 9/20/89 (the "Trust").
WITNESSETH:
WHEREAS, the Company had entered into a Loan and Security Agreement dated
as of February 5, 1999 (the "Loan Agreement" or the "Senior Loan") with the
BankAmerica Business Credit, Inc. (the "Lender") pursuant to which Loan
Agreement the Lender has agreed to lend to the Company and to the other
"Borrowers" parties thereto up to $25,000,000 to fund working capital needs,
certain permitted acquisitions and general business purposes; and
WHEREAS, as additional security for the payment of the Loan, the Company
has requested the Trust to provide an irrevocable letter of credit in favor of
the Lender in the form of Exhibit A hereto (such letter of credit and any
succeeding letter of credit as described in Section 7.04 hereof being herein
called the "Letter of Credit,") in an amount not exceeding $7,000,000 to secure
payment of the Obligations as defined in the Loan Agreement; and
WHEREAS, as security for all indebtedness and obligations of the Company
to the Trust under this Agreement and the other Operative Documents (as defined
herein), the Company will execute and deliver, or cause to be executed and
delivered, to the Trust the Security Documents (as defined herein), and
WHEREAS, the Trust has agreed to provide the Letter of Credit on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises, the Company and the
Trust hereby agree as follows:
ARTICLE I.
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS. In addition to terms elsewhere
defined herein, the following terms shall have the following respective
meanings:
"ADMINISTRATIVE FEE" shall mean the fee payable in accordance with
Section 2.02(b).
"BASE RATE" shall mean the per annum rate announced by the Letter of
Credit Bank from time to time as its "prime rate" or "base rate" (it being
acknowledged that such announced rate may not necessarily be the lowest rate
charged by the Letter of Credit Bank to any of its customers) which Base Rate
shall change simultaneously with any change in such announced rate.
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"BUSINESS DAY" shall mean a day other than a Saturday, Sunday or other
day on which the Letter of Credit Bank is not open to the public for carrying on
substantially all of its banking functions in Chicago, Illinois.
"CAPITAL LEASE" of any person shall mean any lease which, in accordance
with Generally Accepted Accounting Principles, is or should be capitalized on
the books of such person.
"CLOSING DATE" shall mean the date of this Agreement which shall be the
same date as the Loan Agreement is dated.
"CODE" shall mean the Internal Revenue Code of 1986, as amended from time
to time, and the regulations thereunder.
"COMPANY COLLATERAL" shall have the meaning described in Section 2.09
hereof.
"CONTINGENT LIABILITIES" of any person shall mean, as of any date, all
obligations of such person or of others for which such person is contingently
liable, as obliger, guarantor, surety, accommodation party, partner or in any
other capacity, or in respect of which obligations such person assures a
creditor against loss or agrees to take any action to prevent any such loss
(other than endorsements of negotiable instruments for collection in the
ordinary course of business), including without limitation all reimbursement
obligations of such person in respect of any letters of credit, surety bonds or
similar obligations (including, without limitation, bankers acceptances) and all
obligations of such person to advance funds to, or to purchase assets, property
or services from, any other person in order to maintain the financial condition
of such other person.
"CONVERSION PERIOD" shall have the meaning described in Section 2.04(a).
"CONVERSION PRICE" shall have the meaning described in Section 2.04(a).
"CONVERTIBLE NOTE" shall mean a note in the form of the Convertible Note
attached hereto as Exhibit B.
"DEFAULT" shall mean any event or condition which might become an Event
of Default with notice or lapse of time or both.
"DOLLARS" and "$" shall mean the lawful money of the United States of
America.
"ENVIRONMENTAL LAWS" as of any date shall mean all provisions of law,
statute, ordinances, rules, regulations, judgments, writs, injunctions, decrees,
orders, awards and standards promulgated by the government of the United States
of America or any foreign government or by any state, province, municipality or
other political subdivision thereof or therein or by any court, agency,
instrumentality, regulatory authority or commission of any of the
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foregoing concerning the protection of, or regulating the discharge of
substances into, the environment.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations thereunder.
"ERISA AFFILIATE" shall mean, with respect to any person, any trade or
business (whether or not incorporated) which, together with such person or any
Subsidiary of such person, would be treated as a single employer under Section
414 of the Code.
"EVENT OF DEFAULT" shall mean any of the events or conditions described
in Section 6.01.
"GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" shall mean generally accepted
accounting principles applied on a basis consistent with that reflected in the
financial statements referred to in Section 4.01(g) hereof.
"HAZARDOUS MATERIALS" includes, without limitation, any flammable
explosives, radioactive materials, hazardous materials, hazardous wastes,
hazardous or toxic substances or related materials defined in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended (42
U.S.C. Sections 9601, ET SEQ.), the Hazardous Materials Transportation Act, as
amended (49 U.S.C. Sections 1801, ET SEQ.), the Resource Conservation and
Recovery Act, as amended (42 U.S.C. Sections 6901, ET SEQ.), and in the
regulations adopted and publications promulgated pursuant thereto, or any other
federal, state or local government law, ordinance, rule or regulation.
"INDEBTEDNESS" of any person shall mean, as of any date, (a) all
obligations of such person for borrowed money, (b) all obligations of such
person as lessee under any Capital Lease, (c) all obligations which are secured
by any Lien existing on any asset or property of such person whether or not the
obligation secured thereby shall have been assumed by such person (to the extent
of such Lien if such obligation is not assumed), (d) all obligations of such
person for the unpaid purchase price for goods, property or services acquired by
such person, except for trade accounts payable arising in the ordinary course of
business that are not past due, (e) all obligations of such person to purchase
goods, property or services where payment therefor is required regardless of
whether delivery of such goods or property or the performance of such services
is ever made or tendered (generally referred to as "take or pay contracts"), (f)
all liabilities of such person in respect of Unfunded Benefit Liabilities under
any Plan of such person or of any ERISA Affiliate, (g) all obligations of such
person in respect of any interest rate or currency swap, rate cap or other
similar transaction (valued in an amount equal to the highest termination
payment, if any, that would be payable by such person upon termination for any
reason on the date of determination), and (h) all obligations of others similar
in character to those described in clauses (a) through (g) of this definition
for which such person is contingently liable,
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as obliger, guarantor, surety, accommodation party, partner or in any other
capacity, or in respect of which obligations such person assures a creditor
against loss or agrees to take any action to prevent any such loss (other than
endorsements of negotiable instruments for collection in the ordinary course of
business), including without limitation all reimbursement obligations of such
person in respect of letters of credit, surety bonds or similar obligations and
all obligations of such person to advance funds to, or to purchase assets,
property or services from, any other person in order to maintain the financial
condition of such other person.
"LETTER OF CREDIT BANK" shall mean The Northern Trust Company, as issuer
of the Letter of Credit, or any other bank which shall hereafter issue a
Substitute Letter of Credit.
"LIEN" shall mean any pledge, assignment, hypothecation, mortgage,
security interest, deposit arrangement, option, conditional sale or title
retaining contract, sale and leaseback transaction, financing statement filing,
lessor's or lessee's interest under any lease, subordination of any claim or
right, or any other type of lien, charge, encumbrance, preferential arrangement
or other claim or right.
"LOAN" shall have the meaning described in Section 2.04(a).
"MONITORING FEE" shall mean the fee payable in accordance with Section
2.02(c).
"MULTIEMPLOYER PLAN" shall mean any "multiemployer plan" as defined in
Section 4001(a) (3) of ERISA or Section 414(f) of the Code.
"OPERATIVE DOCUMENTS" shall mean the Loan Agreement, the Letter of
Credit, this Agreement, the Convertible Note, the Security Documents, the
Subordination Agreement and any other agreement or instrument relating thereto.
"OVERDUE RATE" shall mean a rate per annum equal to the sum of 300 basis
points (3%) per annum plus the Base Rate.
"PBGC" shall mean the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"PERMITTED LIENS" shall mean Liens permitted by Section 5.02(b) hereof.
"PERSON" or "PERSON" shall include an individual, a corporation, an
association, a partnership, a trust or estate, a joint stock company, an
unincorporated organization, a joint venture, a limited liability company, a
trade or business (whether or not incorporated), a government (foreign or
domestic) and any agency or political subdivision thereof, or any other entity.
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<PAGE>
"PLAN" shall mean, with respect to any person, any pension plan
(including a Multiemployer Plan) subject to Title IV of ERISA or to the minimum
funding standards of Section 412 of the Code which has been established or
maintained by such person, any subsidiary of such person or any ERISA Affiliate,
or by any other person if such person or any ERISA Affiliate could have
liability with respect to such pension plan.
"PROHIBITED TRANSACTION" shall mean any transaction involving any Plan
which is proscribed by Section 406 of ERISA (and not exempt under Section 408 of
ERISA) or Section 4975 of the Code.
"REPORTABLE EVENT" shall mean a reportable event as described in Section
4043(b) of ERISA including those events as to which the thirty (30) day notice
period is waived under Part 2615 of the regulations promulgated by the PBGC
under ERISA.
"SECURITY DOCUMENTS" shall mean this Agreement (to the extent it grants a
security interest), and all other related agreements and documents, including
financing statements and similar documents, in each case including any
amendments, supplements, replacements or modifications thereof delivered
pursuant to this Agreement or otherwise entered into by any person to secure the
obligations of the Company under this Agreement.
"SUBORDINATED DEBT" of any person shall mean, as of any date, that
Indebtedness of such person which is expressly subordinate and junior in right
and priority of payment to all Indebtedness owing to another person in manner
and by agreement satisfactory in form and substance to the holder of the senior
debt.
"SUBORDINATION AGREEMENT" shall mean the Subordination Agreement dated
the date hereof, by and among the Company, the Trust and the Lender, as the same
shall be amended, extended, modified or supplemented from time to time.
"SUBSIDIARY" of any person shall mean any other person (whether now
existing or hereafter organized or acquired) in which (other than directors
qualifying shares required by law) at least a majority of the securities or
other ownership interests of each class having ordinary voting power or
analogous right (other than securities or other ownership interests which have
such power or right only by reason of the happening of a contingency), at the
time as of which any determination is being made, are owned, beneficially and of
record, by such person or by one or more of the other Subsidiaries of such
person or by any combination thereof. Unless otherwise specified, reference to
"Subsidiary" shall mean a Subsidiary of the Company.
"SUBSTITUTE LETTER OF CREDIT" shall mean any letter of credit which shall
be issued in substitution of the Letter of Credit.
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"TERMINATION DATE" shall have the meaning described in Section 2.01(a)
hereof.
"UCC" shall have the meaning described in Section 2.09 hereof.
"UNFUNDED BENEFIT LIABILITIES" shall mean, with respect to any Plan as of
any date, the amount of the unfunded benefit liabilities determined in
accordance with Section 4001(a)(18) of ERISA.
SECTION 1.02 OTHER DEFINITIONS: RULES OF CONSTRUCTION. As used herein,
the terms "Company", "Trust" and "Agreement" shall have the respective meanings
ascribed thereto in the introductory paragraph of this Agreement and the terms
"Lender", "Loan Agreement", "Senior Loan", and "Letter of Credit" shall have the
meanings ascribed thereto in the prefacing recitals of this Agreement. Such
terms, together with the other terms defined in Section 1.01 hereof and
elsewhere herein shall include both the singular and the plural forms thereof
and shall be construed accordingly. All financial terms used herein shall be
made or construed in accordance with Generally Accepted Accounting Principles
existing on the date hereof unless such principles are inconsistent with the
express requirements of this Agreement. Use of the terms "herein", "hereof", and
"hereunder" shall be deemed references to this Agreement in its entirety and not
to the Section or clause in which such term appears. References to "Sections"
and "subsections" shall be to Sections and subsections, respectively, of this
Agreement unless otherwise specifically provided.
ARTICLE II.
AMOUNT AND TERMS OF THE LETTER OF CREDIT
SECTION 2.01 THE LETTER OF CREDIT. The Trust agrees, on the terms and
subject to the conditions hereinafter set forth, to cause the Letter of Credit
to be issued for the benefit of the Lender in an amount not to exceed $7,000,000
and expiring on or before January 31, 2000 unless extended by the Trust pursuant
to the provisions of Section 7.04 hereof (the "Termination Date"). Delivery of
the Letter of Credit will be conditioned upon satisfaction of the conditions
precedent set forth in Section 3.01 hereof.
SECTION 2.02 LETTER OF CREDIT FEES. In consideration for the Trust's
delivery of the Letter of Credit, the Company agrees to make the following
payments to the Trust:
(a) Upon delivery of the Letter of Credit the Company shall reimburse the
Trust for its reasonable legal fees incurred in connection with the transactions
herein described; and
(b) To the extent permitted by the Subordination Agreement upon delivery
of the
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Letter of Credit and thereafter , on the first day of each month, beginning with
the first month following delivery of the Letter of Credit, the Company shall
pay the Trust an administrative fee of $13,500 per month (the "Administrative
Fee"); provided, however, that in the event that the amount of the Letter of
Credit shall be reduced in accordance with the provisions of Section 7.5(b) of
the Loan Agreement, the Administrative Fee otherwise payable to the Trust for
the month following such reduction and thereafter shall be proportionately
reduced to reflect the lower amount represented by the Letter of Credit.
(c) Upon delivery of the Letter of Credit and thereafter on the first day
of each month, beginning with the first month following delivery of the Letter
of Credit, the Company shall pay to E.J. Financial Enterprises, Inc., a
monitoring fee of $4,000 per month (the "Monitoring Fee").
SECTION 2.03 REIMBURSEMENT. Unless the Company shall have obtained a Loan
from the Trust pursuant to Section 2.04, the Company hereby agrees to pay to the
Trust (i) on any date on which the Trust shall be required to reimburse the
Letter of Credit Bank for a draft presented under the Letter of Credit, a sum
equal to the amount so paid by the Trust plus any and all reasonable
out-of-pocket expenses which the Trust may pay or incur relative to the Letter
of Credit, (ii) forthwith upon demand by the Trust, any and all expenses
incurred by the Trust in enforcing or protecting any rights under this Agreement
or any of the other Operative Documents, including without limitation reasonable
attorneys' fees relating to such enforcement or protection, and (iii) forthwith
upon demand by the Trust, interest on any and all amounts remaining unpaid by
the Company under this Agreement at any time from the date any such amount
becomes payable until payment in full, at the Overdue Rate.
SECTION 2.04 MAKING OF LOANS (a) The Company may, at its option, or any
date on which the Company shall be required to reimburse the Trust for a draw on
the Letter of Credit, and provided that no Event of Default shall have occurred
and be continuing, elect to not reimburse the Trust and instead the Company
shall be deemed, without further action on its part, to have obtained a loan or
loans (collectively the "Loan") for the amount of the reimbursement in
accordance with and subject to the terms and conditions set forth in this
Section 2.04.
(b) Each Loan shall be evidenced by the Convertible Note to be executed
by the Company and delivered to the Trust on the Closing Date. The Convertible
Note shall be dated as of the Closing Date. The Trust shall, and is hereby
authorized by the Company, to endorse on the schedule forming a part of the
Convertible Note appropriate notations evidencing the date, amount and maturity
of each Loan and the date and amount of each payment of principal on each Loan
received from the Company.
(c) The Loan shall mature on the earlier of (i) the date that the Trust
shall elect to convert the full outstanding principal of the Convertible Note in
accordance with Section 2.05 or
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(ii) January 31, 2000 ("Maturity"). Unless the Convertible Note shall have been
fully converted in accordance with Section 2.05, all principal shall be due and
payable in a single balloon payment on January 31, 2000 or such earlier date as
shall be consented to by the Trust; provided, however, that no principal on the
Loan shall be paid without the written consent of the Lender so long as the
Subordination Agreement is in effect.
(d) The principal amount of any Loan from time to time outstanding and
unpaid shall bear interest calculated at 200 basis points (2%) over the "Base
Rate" of interest. The effective date of any change in said Base Rate shall for
purposes hereof be the date the rate is changed by the Lender and such rate
shall be adjusted each January 1, April 1, July 1 and October 1 during which
time any part of the Loan is outstanding.
(e) Interest on the balance of the Loan outstanding from time to time
shall be payable simultaneous with the payment of principal provided for in the
Convertible Note or, upon conversion of the Convertible Note in accordance with
Section 2.05 hereof, all interest due and owing on the portion of the
Convertible Note so converted shall be paid on or prior to the date of
conversion. Interest shall be calculated on the basis of a year of 365 or 366
days, as the case may be, for the actual number of days elapsed. All payments
received by the Trust from the Company shall first be applied to accrued
interest, if any, and unpaid expenses and then to principal. Any amount of
principal or interest in the Convertible Note which is not paid when due,
whether at stated maturity, by acceleration or otherwise shall bear interest
payable on demand at the Overdue Rate.
(f) With the consent of the Trust, the Company may prepay the entire
outstanding principal and interest of the Loan, without any prepayment penalty
whatsoever; provided, however, (i) the Company shall have first given the Trust
fifteen (15) days prior written notice of the Company's intent to make such
prepayment, (ii) the Trust shall give its written consent to such prepayment,
which consent may be withheld by Trust for any reason, (iii) the Trust shall
not, prior to the date set for prepayment, have elected, or announced its
intention to convert, all or a portion of the Loan into shares of stock of the
Company pursuant to Section 2.05 hereof, and (iv) the Company shall concurrently
with the prepayment of the Loan pay all interest then accrued and unpaid on the
Loan; provided that no such prepayment may occur without the written consent of
the Lender so long as the Subordination Agreement is in effect.
SECTION 2.05 RIGHT TO CONVERT; CONVERSION PRICE.
(a) Subject to and upon compliance with the provisions hereof, the holder
of the Convertible Note shall have the right, at such holder's option, at any
time up to and including January 31, 2000 or until the Convertible Note shall
have been paid in full (the "Conversion Period"), to convert all or any portion
of the unpaid amount of such Convertible Note into Common Stock of the Company
at a price per share equal to the average closing price per share
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of the Common Stock during the five days preceding the date of the Company's
election to obtain a Loan (in the event that more than one Loan has been
obtained the price for each Loan shall be computed separately) ("Conversion
Price"). The number of shares of the Common Stock of the Company into which any
Convertible Note shall be convertible shall be subject to adjustment pursuant to
the further provisions of this Section 2.05.
In order to convert the Convertible Note, the holder thereof shall
surrender the Convertible Note to the Company at its principal office at 100
Corporate North, Suite 212, Bannockburn, Illinois (or such other office or
agency of the Company as the Company may designate by notice in writing to the
holder of the Convertible Note), accompanied by a written statement designating
the principal amount of such Convertible Note and the Conversion Price
applicable to the portion of the Loan so converted. If the Convertible Note is
converted in part only, the Company shall, upon such conversion, execute and
deliver to the holder thereof, at the expense of the Company, a new Convertible
Note in principal amount equal to the unconverted portion of such Convertible
Note.
(b) Within a reasonable time, not exceeding fifteen (15) days after the
receipt of the written statement referred to in subsection 2.05(a) and surrender
of the Convertible Note as aforesaid, the Company shall issue and deliver to the
holder thereof (hereinafter in this subsection, the term "holder" shall include
the nominee of any such holder), registered in the name of such holder, a
certificate or certificates for the number of full shares of Common Stock
issuable upon the conversion of such Convertible Note (or specified portion
thereof). To the extent permitted by law, such conversion shall be deemed to
have been effected and the Conversion Price and the number of shares of Common
Stock issuable in connection with such conversion shall be determined as of the
close of business on the date on which such written statement shall have been
received by the Company and the Convertible Note shall have been surrendered as
aforesaid, and at such time the rights of the holder of the Convertible Note as
to the converted portion of the principal of the Convertible Note shall cease,
and the person or persons in whose name or names any certificate or certificates
for shares of Conversion Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares represented
thereby. The Company will, at the time of such conversion, in whole or in part,
upon request of the holder of the Convertible Note, acknowledge in writing its
continuing obligation to such holder in respect of any rights (including,
without limitation, any right of registration of the shares of Common Stock
issued upon such conversion) to which such holder shall continue to be entitled
under this Agreement (including issuance of a new Convertible Note for any
non-converted portion of the Note) after such conversion; provided, that the
failure of such holder to make any such requests shall not affect the continuing
obligation of the Company to such holder in respect of such rights.
(c) No payment or adjustments shall be made upon any conversion on
account of any
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cash dividends on the Common Stock issued upon such conversion.
The Company shall pay all interest on the Convertible Note surrendered for
conversion, accrued to the date upon which the above-mentioned written statement
shall have been received by the Company.
(d) In case the Company shall at any time subdivide or combine the
outstanding shares of Common Stock, the Conversion Price shall forthwith be
proportionately decreased in the case of a subdivision and increased in the case
of a combination. Similarly, in case the Company shall pay a dividend in, or
make a distribution of, shares of Common Stock or of shares of the Company's
capital stock convertible with Common Stock, the Conversion Price shall
forthwith be proportionately decreased as of the record date for such divided or
distributions. Further, in the case of any reclassification or change of
outstanding shares of Common Stock, in the case of any consolidation or merger
of the Company with or into another corporation or in the case of any sale or
conveyance to another corporation of the property of the Company as an entity or
substantially as an entity, then, as a condition of such reclassification,
change, consolidation, merger, sale or conveyance, the Company, or such
successor or purchasing corporation, as the case may be, shall make lawful and
adequate provisions whereby the holder of the Convertible Note shall thereafter
have the right to receive on conversion of the Convertible Note the kind and
amount of securities and property receivable upon such reclassification, change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock issuable upon exercise of the Convertible Note immediately prior to
such reclassification, change, consolidation, merger, sale or conveyance. In the
event that further adjustments to the Conversion Price are warranted and are not
addressed above, the parties will negotiate in good faith to resolve such
differences and, in the absence of agreement will submit resolution of any such
matters to binding arbitration before the Chicago chapter of the American
Arbitration Association.
SECTION 2.06 PAYMENTS AND COMPUTATIONS. The Company shall make each
payment hereunder in lawful money of the United States of America to the Trust
at its address referred to in Section 7.02 hereof in immediately available
funds. All computations of interest, commissions and fees hereunder shall be
made by the Trust on the basis of a year of 365 or 366 days, as the case may be,
for the actual number of days elapsed.
SECTION 2.07 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Business Day,
such payment may be made on the next succeeding Business Day, and such extension
of time shall in such case be included in the computation of such payment.
SECTION 2.08 OBLIGATIONS ABSOLUTE. The obligations of the Company under
this Agreement shall be absolute, unconditional and irrevocable and shall remain
in full force and
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effect until this Agreement and the Letter of Credit are terminated with no
outstanding reimbursement obligations or other amounts owing hereunder or under
the Convertible Note or the entire principal of, premium, if any, and interest
on the Senior Loan shall have been paid, or a sufficient amount of the Loan
shall have been paid so as to cause the Lender to release the Letter of Credit
and thereafter until all of the obligations of the Company to the Trust
hereunder and under the Operative Documents, including, but not limited to the
Convertible Note, shall have been satisfied, and such obligations of the Company
shall not be affected, modified or impaired upon the happening of any event,
including, without limitation, any of the following, whether or not with notice
to, or the consent of, the Company:
(a) Any lack of validity or enforceability of any of the Operative
Documents;
(b) Any amendment, modification, waiver, consent, or any substitution,
exchange or release of or failure to perfect any interest in collateral or
security, with respect to any of the Operative Documents;
(c) The existence of any claim, setoff, defense or other right which the
Company may have at any time against the Lender, any beneficiary or any
transferee of the Letter of Credit (or any persons or entities for whom the
Lender, any such beneficiary or any such transferee may be acting), the Letter
of Credit Bank, the Trust or any other person or entity, whether in connection
with this Agreement, any of the Operative Documents, the transactions
contemplated herein or therein or any unrelated transactions;
(d) Any draft or other statement or 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
whatsoever;
(e) Payment by the Letter of Credit Bank under the Letter of Credit
against presentation of a draft or certificate which does not comply with the
terms of the Letter of Credit, including failure of any documents to bear any
reference or adequate reference to the Letter of Credit; provided, however, that
in any such event, upon payment in full of the Trust, the Company shall be
subrogated to the Trust's rights against the Letter of Credit Bank;
(f) Any failure, omission, delay or lack on the part of the Trust or any
party to any of the Operative Documents in enforcing, asserting or exercising
any right, power or remedy conferred upon the Trust or any such party under this
Agreement or any of the Operative Documents, or any other acts or omissions on
the part of the Trust or any such party;
(g) The voluntary or involuntary liquidation, dissolution, sale or other
disposition of all or substantially all the assets of the Company, the
receivership, insolvency, bankruptcy,
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assignment for the benefit of creditors, reorganization, arrangement,
composition with creditors or readjustment or other similar proceedings
affecting the Company or any of the assets of either of them, or any allegation
or contest of the validity of this Agreement or any of the Operative Documents,
in any such proceeding;
(h) Any other event or action that would, in the absence of this clause,
result in the release or discharge by operation of law of the Company from the
performance or observance of any obligation, covenant or agreement contained in
this Agreement; or
(i) No setoff, counterclaim, reduction or diminution of any obligation,
or any defense of any kind or nature which the Company has or may have against
the Lenders shall be available hereunder to the Company against the Trust.
SECTION 2.09 SECURITY AND COLLATERAL. Subject to the provisions of the
Subordination Agreement regarding subordination of the Trust's security interest
to the interest of the Lender, the Company, to secure all indebtedness and
obligations of the Company to the Trust under this Agreement and under the other
Operative Documents, hereby assigns to the Trust and grants to the Trust a
security interest in and to the following, and each item thereof, whether now
owned or now due, or in which the Company has an interest, or in which the
Company obtains an interest, or which the Company hereafter acquired, or which
becomes due, and all products, proceeds, substitutions, and accessions of or to
any of the following (all of which, together with any other property of the
Company in which the Trust now or may in the future be granted a security
interest hereunder or under or in any other Operative Document, being referred
to herein as the "Company Collateral"; all capitalized terms used in this
description of the Company Collateral which are not otherwise defined herein
have the meaning ascribed to such terms in the Uniform Commercial Code as
presently in effect in the State of Illinois ("UCC"): Accounts and Accounts
Receivable; Inventory; General Intangibles; Equipment; Goods; Fixtures; Contract
Rights; Chattel Paper; Instruments; Documents of Title; Documents; policies and
certificates of insurance; Securities; Investment Property; Securities
Entitlements; Security Accounts; deposits, deposit accounts; impressed accounts;
compensating balances; money; cash; insurance proceeds, refunds, and premium
rebates; warranty claims; tax refunds and rebates; all means and vehicles of
investment or hedging, including, without limitation, options, warrants, and
futures contracts; records; customer lists; telephone numbers; goodwill; causes
of action; judgments; payments under any settlement or other agreement; literary
rights; rights to performance; royalties; license and/or franchise fees;
licenses; franchises, license agreements, including all rights of Company to
enforce same; permits; certificates of convenience and necessity, and similar
rights granted by any governmental authority; patents, patent applications,
patents pending, and other intellectual property; development ideas and
concepts; proprietary processes; blueprints, drawings, designs, diagrams, plans,
reports, and charts; catalogs; manuals; technical data; computer records,
computer software, rights of access to computer record service bureaus, service
bureau computer contracts, and computer data; tapes, discs, semi-conductor chips
and printouts; trade secrets,
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copyrights, trade names, trademarks, service marks, and all goodwill relating
thereto; applications for registration of the foregoing; all other general
intangible property in the nature of intellectual property; all liens,
guaranties, rights, remedies, and privileges pertaining to any of the foregoing.
SECTION 2.10 CONFIRMATION OF SECURITY DOCUMENTS. To secure all
indebtedness and obligations of the Company to the Trust under this Agreement,
the Convertible Note and the other Operative Documents, the Company hereby
represents, warrants and agrees as follows:
(a) The Company previously executed and delivered or shall execute and
deliver pursuant hereto the Security Documents.
(b) The Company hereby further confirms its agreement that the Security
Documents secure or guarantee all indebtedness, obligations and liabilities of
the Company to the Trust, including, without limitation, all the indebtedness,
obligations and liabilities of the Company to the Trust pursuant to this
Agreement.
(c) The Company confirms and agrees that all references in the Security
Documents to the terms "Liabilities", "Obligations", "Secured Obligations" or
terms of like import shall include, without limitation, all indebtedness,
obligations and liabilities of the Company to the Trust pursuant to this
Agreement and the Convertible Note.
(d) The Company hereby represents and warrants that the representations
and warranties contained in the Security Documents executed and delivered by it
are true and correct on and as of the date of this Agreement with the same force
and effect as if made on such date.
(e) The Security Documents are ratified and confirmed and shall remain in
full force and effect, and the Company hereby acknowledges that it has no
defense, offset or counterclaim with respect thereto.
ARTICLE III.
CONDITIONS OF ISSUANCE
SECTION 3.01 CONDITIONS PRECEDENT TO ISSUANCE OF THE LETTER OF CREDIT.
The obligation of the Trust to deliver the Letter of Credit is subject to the
satisfaction of the following conditions precedent:
(a) DOCUMENTS. On or before the date of delivery of the Letter of Credit,
the Trust shall have received the following documents, each in form and
substance satisfactory to the
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Trust:
(i) ORGANIZATIONAL DOCUMENTS. A copy of the articles of
organization of the Company, certified to a current date by the Delaware
Secretary of State, together with current Certificates of Good Standing of the
Company in Delaware and Illinois issued by the Secretary of State of each of
those respective states, all certified as true and correct on the Closing Date
by an authorized member of the Company.
(ii) BY-LAWS AND CORPORATE AUTHORIZATIONS. Copies of the By-laws
of the Company and corporate resolutions of the Company approving this Agreement
and the Operative Documents to which the Company is a party and the consummation
by the Company of the transactions contemplated hereby and thereby, and copies
of all other documents evidencing necessary action of the Company with respect
to this Agreement, all certified as true and correct on the Closing Date by the
Company's secretary.
(iii) INCUMBENCY CERTIFICATE. A certificate of incumbency of the
Company containing, and attesting to the genuineness of, the signatures of those
officers of the Company authorized to act on behalf of the Company in connection
with the Operative Documents to which it is a party and the consummation by the
Company of the transactions contemplated thereby, certified as true and correct
as of the Closing Date by a duly authorized officer of the Company.
(iv) CONSENTS, APPROVALS, ETC. Copies of all consents and
approvals necessary for the Company to enter into this Agreement, the Loan
Agreement, the Convertible Note, the Operative Documents to which the Company is
a party and the transactions contemplated herein and therein, together with a
certificate of an authorized officer of the Company dated such date of issuance
stating that such approvals are true and correct copies thereof and are in full
force and effect at such date, or if none are required a certificate to that
effect executed by an authorized officer of the Company.
(v) SECURITY DOCUMENTS. The Security Documents, duly executed on
behalf of the Company and any other requisite person, as the case may be,
granting to the Trust the collateral and security intended to be provided
pursuant hereto, together with all closing documentation provided for
thereunder, and together with:
(A) RECORDING, FILING, ETC. Evidence of the recordation,
filing and other action (including payments of any applicable taxes or fees) in
such jurisdictions as the Trust may deem necessary or appropriate with respect
to the Security Documents, including the filing of financing statements and
similar documents which the Trust may deem necessary or appropriate to create,
preserve or perfect the liens, security interests and other rights intended to
be granted to the Trust thereunder, together with Uniform Commercial Code record
searches in
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such offices as the Trust may request;
(B) CASUALTY AND OTHER INSURANCE. Certificates evidencing
liability and property damage insurance with respect to the Company's property
in such amounts, on such terms and covering such risks as are usually carried by
companies engaged in similar businesses, owning similar properties and which are
similarly situated;
(vi) OPERATIVE DOCUMENTS. An executed copy of the Loan Agreement,
the Convertible Note and each of the other Operative Documents.
(vii) COMPANY CLOSING CERTIFICATE. A certificate of an authorized
officer of the Company as to the matters set forth in Sections 3.01(b) and (c)
below.
(viii) OTHER DOCUMENTS. Such other documents, instruments,
approvals or opinions (and, if requested by the Trustee, certified duplicates of
executed copies thereof) as the Trust may reasonably request.
(b) NO MISREPRESENTATION. The representations and warranties of the
Company contained in Article IV of this Agreement are true and correct on and as
of the Closing Date as though made on and as of such date.
(c) NO DEFAULT. No event has occurred and is continuing, or would result
from such issuance, which constitutes a Default or an Event of Default.
(d) PRIOR LOAN. Evidence, satisfactory to the Trust and the Trust's
counsel, of the payment in full of the obligation owed under that certain loan
agreement dated as of December 23, 1996 among the Company and the financial
institution named in such loan agreement for which PNC, National Association
serves as agent (the "Prior Loan") and the release and return to the Trust of
the letter of credit provided by the Trust in support of the Prior Loan.
(e) ISSUANCE FEE. The Trust shall have received the Issuance Fee plus its
reasonable attorneys fees.
(f) INTERCREDITOR AGREEMENT. The Lender shall have executed and delivered
the Intercreditor Agreement to the Trust containing terms and conditions
satisfactory to the Trust, including, but not limited to, provisions that will
permit the Lender to make draws upon the Letter of Credit only after the
occurrence of an Event of Default (as defined in the Loan Agreement) and then
only to the extent that the liquidation by the Lender of the "Collateral" other
than the "Additional Collateral" (as those terms are defined in the Loan
Agreement) results in a shortfall of monies owed by the Company to the Lender
under the Loan Agreement.
(g) COUNSEL APPROVAL. All of the Operative Documents shall be in form and
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substance reasonably satisfactory to Burke, Warren, MacKay & Serritella, P.C.,
counsel for the Trust.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
SECTION 4.01 REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to the Trust as follows:
(a) COMPANY EXISTENCE AND POWER. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and is duly qualified to do business, and is in good standing, in all
additional jurisdictions where such qualification is necessary under applicable
law. The Company has all requisite power to own or lease the properties used in
its business and to carry on its business as now being conducted and as proposed
to be conducted, and to execute and deliver this Agreement and the Operative
Documents to which it is party and to engage in the transactions contemplated by
this Agreement.
(b) COMPANY AUTHORITY. The execution, delivery and performance by the
Company of this Agreement and the Operative Documents to which it is a party do
not contravene any law or any contractual restriction binding on or affecting
it, and do not result in or require the creation of any lien, security interest
or other charge or encumbrance (except as provided in or contemplated by this
Agreement or the Loan Agreement) upon or with respect to any of its properties;
the execution, delivery and performance by the Company of this Agreement and the
Operative Documents to which it is a party have been duly authorized by all
necessary action and do not contravene the Company's articles of organization or
agreement or any contract or undertaking to which the Company is a party or by
which the Company or its property may be bound or affected and will not result
in the imposition of any Lien except for Permitted Liens.
(c) CONSENTS. ETC. All necessary consents, authorizations or approvals
of, or other action by, or notice to or filing with, any governmental or
regulatory authority or any nongovernmental person or entity required to be
obtained or made by the Company in connection with (i) the execution, delivery
and performance by the Company of this Agreement, (ii) the execution and
delivery of the Loan Agreement or the other Operative Documents, or (iii) any of
the other transactions contemplated by this Agreement or the Operative Documents
to be performed as of the date of delivery of the Letter of Credit, have been
obtained or made.
(d) BINDING EFFECT. This Agreement and the Operative Documents to which
the Company is a party are legal, valid and binding obligations of the Company,
enforceable against
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the Company in accordance with their respective terms, subject to applicable
bankruptcy and insolvency law and general principles of equity.
(e) SUBSIDIARIES. The Company's subsidiaries which are parties to the
Loan Agreement, are each duly organized and validly existing subsidiaries and in
good standing under the laws of the state of their respective incorporation.
(f) LITIGATION. Except as set forth in Schedule 4.01(f) there is no
action, suit or proceeding pending or, to the best of the Company's knowledge,
threatened against or affecting the Company before or by any court, governmental
authority or arbitrator, including, but not limited to, any action, suit or
proceeding, alleging any violation of any federal or state fraud and abuse or
similar statutes, which if adversely decided would result, either individually
or collectively, in any material adverse change in the financial condition of
the Company or in any material adverse effect on the legality or enforceability
of this Agreement or any Operative Document.
(g) FINANCIAL CONDITION. The financial statements of the Company
delivered and to be delivered pursuant to Section 5.01 (d) will fairly present
the financial position of the Company as at the respective dates thereof, and
the results of operations of the Company for the respective periods indicated,
all in accordance with Generally Accepted Accounting Principles consistently
applied, or with appropriate footnotes explaining any variances from Generally
Accepted Accounting Principles (subject, in the case of interim statements, to
year-end audit adjustments). There is no material Contingent Liability of the
Company that will not be reflected in such financial statements or in the notes
thereto.
(h) TAXES. The Company has filed all tax returns (federal, state and
local) required to be filed and has paid all taxes shown thereon to be due,
including interest and penalties, or has established adequate financial reserves
on its books and records for payment thereof. Except as set forth on Schedule
4.01(h), the Company knows of no actual or proposed tax assessment or any basis
therefor, and no extension of time for the assessment of deficiencies in any
federal or state tax has been granted by the Company.
(i) TITLE TO PROPERTIES. The Company has good and marketable title to all
of its property and has a valid and indefeasible ownership interest in all of
such property. All of such properties and assets are free and clear of any Lien
except for Permitted Liens.
(j) ERISA. Except as set forth on Schedule 4.01(j), the Company and its
Plans (if any) are in compliance in all material respects with those provisions
of ERISA and of the Code which are applicable with respect to any Plan. No
Prohibited Transaction and no Reportable Event has occurred with respect to any
such Plan. The Company is not an employer with respect to any Multiemployer
Plan. The Company has met the minimum funding requirements under
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ERISA and the Code with respect to each of its Plans, if any, and has not
incurred any liability to the PBGC or any Plan. The execution, delivery and
performance of this Agreement and the Operative Documents to which it is a party
do not constitute a Prohibited Transaction. There is no material Unfunded
Benefit Liability, determined in accordance with Section 4001(a) (18) of ERISA,
with respect to any Plan of the Company.
(k) DISCLOSURE. No report or other information furnished in writing by or
on behalf of the Company to the Trust in connection with the negotiation or
administration of this Agreement or other Operative Documents contains any
material misstatement of fact or omits to state any material fact or any fact
necessary to make the statements contained therein not misleading. Neither this
Agreement, the other Operative Documents, nor any other document, certificate,
or report or statement or other information furnished to the Trust by or on
behalf of the Company in connection with the transactions contemplated hereby
contains any untrue statement of a material fact or omits to state a material
fact in order to make the statements contained herein and therein not
misleading. There is no fact known to the Company which materially and adversely
affects the business, properties, operations or condition, financial or
otherwise, of the Company, which has not been set forth in this Agreement or in
the other documents, certificates, statements, reports and other information
furnished in writing to the Trust by or on behalf of the Company in connection
with the transactions contemplated hereby.
(l) ENVIRONMENTAL AND SAFETY MATTERS. The Company is in substantial
compliance with all federal, state and local laws, ordinances and regulations
relating to safety and industrial hygiene or to the environmental condition,
including without limitation all Environmental Laws in jurisdictions in which
the Company owns or operates a facility or site, or arranges or has arranged for
disposal or treatment of Hazardous Materials, accepts or has accepted for
transport any Hazardous Materials, or holds or has held any interest in real
property or otherwise. No demand, claim, notice, suit, suit in equity, action,
administrative action, investigation or inquiry whether brought by any
governmental authority, private person or entity or otherwise, arising under,
relating to or in connection with any Environmental Laws is pending or to its
knowledge threatened against the Company, any real property in which the Company
holds or has held an interest or any past or present operation of the Company.
The Company (a) is not, to the best of its knowledge, the subject of any federal
or state investigation evaluating whether any remedial action is needed to
respond to a release of any toxic substances, radioactive materials, hazardous
wastes or related materials into the environment, (b) has not received any
notice of any toxic substances, radioactive materials, or hazardous waste in, or
upon any of its properties in violation of any Environmental Laws, (c) knows of
no basis for any such investigation, notice or violation, and (d) does not own
or operate, and to its knowledge has not owned or operated, property which
appears on the United States National Priority List or any other governmental
listing which identifies sites for remedial clean-up or investigatory actions.
No release, threatened release or disposal of hazardous waste, solid waste or
other wastes is occurring or has occurred on, under or
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to any real property (x) in which the Company or any of its Subsidiaries holds
any interest or performs any of its operations, or (y) to the best of the
Company's knowledge, information and belief, during the ownership or control of
any prior owner of any real property in which the Company holds an interest or
performs any of its operations, in either case in violation of any Environmental
Law, which release could reasonably be anticipated to result in liability for
clean up or otherwise in excess of $100,000 or could reasonably be anticipated
to result in a material adverse effect to the Company's business, properties or
financial condition.
(m) INCORPORATION OF REPRESENTATIONS AND WARRANTIES BY REFERENCE. The
Company hereby makes to the Trust the same representations and warranties as set
forth by it in each Operative Document to which it is a party, which
representations and warranties, as well as the related defined terms contained
therein, are hereby incorporated herein by reference for the benefit of the
Trust with the same effect as if each and every such representation and warranty
and defined term were set forth herein in its entirety and were made as of the
date hereof.
ARTICLE V.
COVENANTS OF THE COMPANY
SECTION 5.01 AFFIRMATIVE COVENANTS. So long as the Trust may be obligated
to provide the Letter of Credit, or a drawing is available under the Letter of
Credit, or any payment or other obligation is due or owing to the Trust under
this Agreement, the Convertible Note or any other Operative Document, the
Company will, unless the Trust shall otherwise consent in writing:
(a) PRESERVATION OF COMPANY EXISTENCE. ETC. Do or cause to be done all
things necessary to preserve, renew and keep in full force and effect its legal
existence and its qualification in good standing in each jurisdiction in which
such qualification is necessary under applicable law, and the rights, licenses,
permits (including those required under Environmental Laws), franchises,
patents, copyrights, trademarks and trade names material to the conduct of its
businesses; and defend all of the foregoing against all claims, actions,
demands, suits or proceedings at law or in equity or by or before any
governmental instrumentality or other agency or regulatory authority.
(b) COMPLIANCE WITH LAWS. ETC. Comply in all material respects with all
applicable laws, rules, regulations and orders of any governmental authority,
whether federal, state, local or foreign (including without limitation, ERISA,
the Code and Environmental Laws) in effect from time to time, non-compliance
with which could materially and adversely affect the financial condition or
operations of the Company (such compliance to include, without limitation,
paying before the same become delinquent all taxes, assessments and governmental
charges imposed upon the Company or upon its property the non-payment of which
could materially and
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adversely affect the financial condition or operations of the Company) except to
the extent that compliance with any of the foregoing is then contested in good
faith and by appropriate legal proceedings and with respect to which adequate
reserves have been established on the books and records of the Company.
(c) MAINTENANCE OF PROPERTIES: INSURANCE. Maintain, preserve and protect
all property that is material to the conduct of the business of the Company and
keep such property in good repair, working order and condition and from time to
time make, or cause to be made all needful and proper repairs, renewals,
additions, improvements and replacements thereto necessary in order that the
business carried on in connection therewith may be properly conducted at all
times in accordance with customary and prudent business practices for similar
businesses; and, in addition to that insurance required under the Operative
Documents, maintain in full force and effect insurance with responsible and
reputable insurance companies or associations in such amounts, on such terms and
covering such risks, including fire and other risks insured against by extended
coverage, as is usually carried by companies engaged in similar businesses and
owning similar properties similarly situated and maintain in full force and
effect public liability insurance, insurance against claims for personal injury
or death or property damage occurring in connection with any of its activities
or any properties owned, occupied or controlled by in such amount as it shall
reasonably deem necessary, and maintain such other insurance as may be required
by law.
(d) REPORTING REQUIREMENTS. Furnish to the Trust the following:
(i) Promptly and in any event within three calendar days after
becoming aware of the occurrence of (A) any Default or Event of Default, (B) the
commencement of any material litigation against, by or affecting the Company,
and any material developments therein, (C) entering into any material contract
or undertaking that is not entered into in the ordinary course of business or
(D) any development in the business or affairs of the Company which has resulted
in or which is likely in the reasonable judgment of the Company to have a
material adverse effect on the business, properties, operation or condition,
financial or otherwise, of the Company or on the legality, validity or
enforceability of this Agreement, the Convertible Note or any of the other
Operative Document, a statement of an authorized representative of the Company
setting forth details of each such Default or Event of Default or such
litigation, material contract or undertaking or development and the action which
the Company has taken and proposes to take with respect thereto;
(ii) As soon as available and in any event within 120 days after
the end of each fiscal year of the Company a copy of the balance sheet of the
Company as of the end of such fiscal year, and the related statements of income,
retained earnings and cash flows of the Company for such fiscal year, all in
reasonable detail and stating in comparative form the figures as of the end of
and for the previous fiscal year, compiled by certified public accountants of
recognized standing, satisfactory to the Trust, together with a certificate of
the President of the
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Company stating (A) that no Default or Event of Default has occurred, and is
continuing or, if a Default or an Event of Default has occurred is continuing, a
statement setting forth the details thereof and the action which the Company
proposes to take with respect thereto;
(iii) Promptly furnish to the Trust (A) copies of any other
reports or statements that the Company is required to furnish, or voluntarily
furnishes, to the Lender pursuant to the Loan Agreement or any other agreement
by and between the Company and the Lender and (B) such other information
respecting the business, properties, or the condition or operations, financial
or otherwise, of the Company as the Trust may from time to time reasonably
request.
(e) ACCOUNTING. ACCESS TO RECORDS. BOOKS. ETC. Maintain a system of
accounting established and administered in accordance with sound business
practices to permit preparation of financial statements in accordance with
Generally Accepted Accounting Principles and to comply with the requirements of
this Agreement and, at any reasonable time and from time to time, but not more
frequently than once in any three month period, (unless an Event of Default has
occurred hereunder, in which case such frequency limitation shall not apply) (i)
permit the Trust or any agents or representatives thereof to examine and make
copies of and abstracts from the records and books of account of, and visit the
properties of, the Company, and to discuss the affairs, finances and accounts of
the Company with its members, employees and independent auditors, and by this
provision the Company does hereby authorize such persons to discuss such
affairs, finances and accounts with the Trust, and (ii) permit the Trust or any
of its agents or representatives to conduct a comprehensive field audit of its
books, records, properties and assets, including without limitation all
collateral subject to the Security Documents. The activities described in this
subsection (e) shall be at the Trust's expense unless an Event of Default shall
have occurred, in which case such activities shall be at the Company's expense,
or if such activities have already been undertaken by or at the request of the
Senior Lender, in which case the Trust shall not undertake such activities
provided it is provided with any and all information generated for or on behalf
of the Senior Lender.
(f) ADDITIONAL SECURITY AND COLLATERAL. Promptly execute and deliver
additional Security Documents, within 30 days after request therefor by the
Trust, sufficient to grant to the Trust liens and security interests in any
after acquired property of the type described in Section 2.09. The Company shall
notify the Trust, within 10 days after the occurrence thereof, of any event or
condition that may require additional action of any nature in order to preserve
the effectiveness and perfected status of the liens and security interests of
the Trust with respect to such property pursuant to the Security Documents.
(g) FURTHER ASSURANCES. Execute and deliver within 30 days after request
therefor by the Trust, all further instruments and documents and take all
further action that may be necessary or desirable, or that the Trust may
reasonably request, in order to give effect to, and to aid in the exercise and
enforcement of the rights and remedies of the Trust under, this Agreement
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and the other Operative Documents.
SECTION 5.02 NEGATIVE COVENANTS. So long as the Trust may be obligated to
provide the Letter of Credit, or a drawing is available under the Letter of
Credit, or any payment or other obligation is due or owing to the Trust under
this Agreement, the Convertible Note or any of the other Operative Documents,
the Company will not, without the prior written consent of the Trust:
(a) INDEBTEDNESS. Create, incur, assume or in any manner become liable in
respect of, or suffer to exist, any Indebtedness or enter into any lease as
lessee (whether or not a Capital Lease) other than:
(i) The Indebtedness under the Operative Documents and hereunder,
and other Indebtedness to the Lender;
(ii) The Indebtedness described in SCHEDULE 5.02(A) hereto, having
the same terms as those existing on the date of this Agreement, but no extension
or renewal thereof shall be permitted;
(iii) Indebtedness incurred for the purchase, lease or other
acquisition for value of machinery and equipment classified under Generally
Accepted Accounting Principles as a fixed or capital asset, the principal amount
which on a cumulative basis shall not exceed $100,000 in the aggregate in any
fiscal year, with any amount being unused in any fiscal year being unavailable
for this purpose in succeeding fiscal years;
(iv) Unsecured current Indebtedness constituting obligations for
the unpaid purchase price of goods, property or services incurred in the
ordinary course of business (A) to a seller of inventory purchased for sale in
the ordinary course of business of the Company, (B) to a seller of other
property used in the business of the Company, or (C) to a provider of services
to the Company (including that under or pursuant to the construction contract
for the Project); and
(v) Subordinated Debt which is unsecured.
(b) LIENS. Create, incur or suffer to exist any Lien on any of the
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, whether now owned or hereafter acquired, of the Company, other than
the following Liens which shall constitute "Permitted Liens":
(i) Liens for taxes not delinquent or for taxes being contested in
good faith by appropriate proceedings and as to which adequate financial
reserves have been established on its books and records;
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(ii) Liens (other than any Lien imposed by ERISA or any
Environmental Law) created and maintained in the ordinary course of business
which would not have a material adverse effect on the business or operations of
the Company and which constitute (A) pledges or deposits under worker's
compensation laws, unemployment insurance laws or similar legislation, (B) good
faith deposits in connection with bids, tenders, contracts or leases to which
the Company is a party for a purpose other than borrowing money or obtaining
credit, (C) Liens imposed by law, such as those of carriers, warehousemen and
mechanics, if payment of the obligation secured thereby is not yet due, (D)
Liens securing taxes, assessments or other governmental charges or levies not
yet subject to penalties for nonpayment, and (E) pledges or deposits to secure
public or statutory obligations of the Company or surety, customs or appeal
bonds to which the Company is a party;
(iii) Liens affecting real property which constitute minor survey
exceptions or defects or irregularities in title, minor encumbrances, easements
or reservations of, or rights of others for, rights of way, sewers, electric
lines, telegraph and telephone lines and other similar purposes, or zoning or
other restrictions as to the use of such real property, PROVIDED that all of the
foregoing, in the aggregate, do not at any time materially detract from the
value of said properties or materially impair their use in the operation of the
businesses of the Company, and PROVIDED. FURTHER, that any such Lien affecting
the property referred to in the Mortgage shall not be permitted unless approved
by the Trust;
(iv) Liens created pursuant to this Agreement, the Loan Agreement,
any Pledge Agreement referred to in the Loan Agreement or the Security Documents
and Liens expressly permitted by the Security Documents;
(v) Liens securing a lease or payment of a portion of the purchase
price of any tangible fixed asset acquired by the Company secured solely by such
tangible fixed asset acquired if the outstanding principal amount of the
Indebtedness secured by such tangible fixed asset does not exceed the purchase
price thereof, no more than one such Lien encumbers such tangible fixed asset
and the aggregate Indebtedness secured by such Lien or Liens does not exceed the
amounts described in Section 5.02(a)(iii) hereof; and
(vi) Each Lien described in SCHEDULE 5.02(B) hereto which Lien may
be suffered to exist upon the same terms as those existing on the date hereof,
but no modification, extension or renewal thereof shall be permitted.
(c) MERGER: ACQUISITIONS: ETC. Purchase or otherwise acquire, whether in
one or a series of transactions, all or a substantial portion of the business
assets, rights, revenues or property, real, personal or mixed, tangible or
intangible, of any person, or all or a substantial portion of the capital stock
of or other ownership interest in any other person; nor merge or
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consolidate or amalgamate with any other person or take any other action having
a similar effect, nor enter into any joint venture or similar arrangement with
any other person; nor create any Subsidiaries.
(d) DISPOSITION OF ASSETS. ETC. Sell, lease, license, transfer, assign or
otherwise dispose of all or a substantial portion of its business, assets,
rights, revenues or property, real, personal or mixed, tangible or intangible,
whether in one or a series of transactions, other than as may be expressly
permitted under the Security Documents.
(e) NATURE OF BUSINESS. Engage in any other businesses other than those
in which it is engaged or businesses which are substantially related to the
businesses in which it is engaged on the date of this Agreement.
(f) INVESTMENTS, LOANS AND ADVANCES. Purchase or otherwise acquire any
capital stock of or other ownership interest in, or debt securities of or other
evidences of Indebtedness of any other person; nor make any loan or advance of
any of its funds or property or make any other extension of credit to, or make
any investment or acquire any interest whatsoever in, any other person; nor
create, incur, assume or in any manner become liable for any Contingent
Liability; other than (i) Contingent Liabilities in favor of the Trust or the
Lender, (ii) extensions of trade credit made in the ordinary course of business
on customary credit terms and commission, travel and similar advances made to
officers and employees in the ordinary course of business, (iii) commercial
paper of any United States issuer having the highest rating then given by
Moody's Investors Service, Inc., or Standard and Poor's Corporation, direct
obligations of and obligations fully guaranteed by the United States of America
or any agency or instrumentality thereof, or certificates of deposit of any
commercial bank which is a member of the Federal Reserve System and which has
capital, surplus and undivided profit (as shown on its most recently published
statement of condition) aggregating not less than $100,000,000, PROVIDED.
HOWEVER, that each of the foregoing investments has a maturity date not later
than 180 days after the acquisition thereof by the Company; and (iv) investments
permitted under the Operative Documents.
(g) INCONSISTENT AGREEMENTS. Enter into any agreement containing any
provision which would be violated or breached by this Agreement or any of the
transactions contemplated hereby or by performance by the Company of its
obligations in connection therewith.
(h) SUBORDINATED DEBT. Make any payment in violation of the terms
applicable to any Subordinated Debt.
ARTICLE VI.
EVENTS OF DEFAULT
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SECTION 6.01 EVENTS OF DEFAULT. The occurrence of any of the following
events shall be an Event of Default hereunder unless waived by the Trust
pursuant to Section 7.01 hereof:
(a) NONPAYMENT. The Company shall fail to pay when due any amount payable
pursuant to Section 2.03 or 2.04 hereof; or
(b) MISREPRESENTATION. Any representation or warranty made by the Company
in connection with this Agreement or any of the Operative Documents shall prove
to have been incorrect in any material respect when made; or
(c) CERTAIN COVENANTS. The Company shall fail to perform or observe any
term, covenant or agreement contained in Section 5.01(a), 5.01(d)(i) or 5.02
hereof; or
(d) OTHER DEFAULTS. The Company shall fail to perform or observe any
other term, covenant or agreement contained in this Agreement, and such failure
shall remain unremedied for 30 calendar days after written notice thereof shall
have been given to the Company by the Trust; or
(e) CROSS DEFAULT. The Company shall fail to pay any part of the
principal of, the premium, if any, or the interest on, or any other payment of
money due under the Loan Agreement or any of its other Indebtedness having a
principal balance, individually or in the aggregate, in excess of $100,000
(other than Indebtedness hereunder) beyond any period of grace provided with
respect thereto, or if the Company fails to perform or observe any other
agreement, term or condition contained in any document evidencing or securing
such Indebtedness or in any agreement or instrument under which any such
Indebtedness was issued or created, beyond any period of grace, if any, if the
effect of such default is either to cause or to permit the holder or holders
thereof (or a trustee on its or their behalf) to cause the Indebtedness to
become due prior to its stated maturity unless such default has been waived
pursuant to the terms of such other agreement; or
(f) OPERATIVE DOCUMENTS. A default (not caused by the failure of the
Trust to perform its payment obligations under the Letter of Credit) under any
of the Operative Documents shall have occurred and be continuing without being
cured or waived pursuant thereto; or
(g) JUDGMENTS. One or more judgments or orders for the payment of money
in an aggregate amount in excess of $100,000 shall be rendered against the
Company, or any other judgment or order (whether or not for the payment of
money) shall be rendered against the Company which causes a material adverse
change in the business, properties, operations or condition, financial or
otherwise, of the Company or which has a material adverse effect on the
25
<PAGE>
legality, validity or enforceability of this Agreement or the Security
Documents, and either (i) such judgment or order shall have remained unsatisfied
and the Company shall not have taken action necessary to stay enforcement
thereof by reason of pending appeal or otherwise, prior to the expiration of the
applicable period of limitations for taking such action or, if such action shall
have been taken, a final order denying such stay shall have been rendered,. or
(ii) enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order; or
(h) INSOLVENCY. ETC. The Company shall be dissolved or liquidated (or any
judgment, order or decree therefor shall be entered), or shall generally not pay
its debts as they become due, or shall admit in writing its inability to pay its
debts generally, or shall make a general assignment for the benefit of
creditors, or shall institute, or there shall be instituted against the Company
any proceeding or case seeking to adjudicate it a bankrupt or insolvent or
seeking liquidation, winding up, reorganization, arrangement, adjustment,
protection, relief or composition of it or its debts under any law relating to
bankruptcy, insolvency or reorganization or relief or protection of debtors or
seeking the entry of an order for relief, or the appointment of a receiver,
trustee, custodian or other similar official for it or for any substantial part
of its assets, rights, revenues or property, and, if such proceeding is
instituted against the Company and is being contested by the Company in good
faith by appropriate proceedings, such proceeding shall remain undismissed
unstayed for a period of 60 days; or the Company shall take any action
(corporate or other) to authorize or further any of the actions described above
in this subsection; or
(i) SECURITY DOCUMENTS. Any event of default described in any Security
Document shall have occurred and be continuing, or any material provision of any
Security Document shall at any time for any reason cease to be valid and binding
and enforceable against any obliger thereunder, or the validity, binding effect
or enforceability thereof shall be contested by any person, or any obliger shall
deny that it has any or further liability or obligation thereunder, or any
Security Document shall be terminated, invalidated or set aside, or be declared
ineffective or inoperative or in any way cease to give or provide to the Trust
the benefits purported to be created thereby.
SECTION 6.02 REMEDIES UPON AN EVENT OF DEFAULT. If any Event of Default
shall have occurred and be continuing, the Trust may (i) if the Letter of Credit
shall not have been provided, terminate its commitment to provide the Letter of
Credit, (ii) if the Letter of Credit shall have been provided, give notice to
the Company declaring any and all amounts drawn on the Letter of Credit or due
and owing under the Convertible Note, plus interest accrued thereon, to be
immediately due and payable, (iii) in any event, exercise such other rights and
remedies as are available to the Trust under this Agreement, any of the
Operative Documents, any of the Security Documents, or applicable law.
26
<PAGE>
ARTICLE VII.
MISCELLANEOUS
SECTION 7.01 AMENDMENTS. ETC. This Agreement may be amended from time to
time by the written agreement of all parties hereto. No amendment or waiver of
any provision of this Agreement nor consent to any departure by the Company
therefrom shall in any event be effective unless the same shall be in writing
and signed by the Trust, and then such amendment, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
SECTION 7.02 ADDRESSES FOR NOTICES. All notices and other communications
provided for hereunder shall be in writing and mailed by first class mail,
return receipt requested, by overnight delivery with a nationally recognized
carrier or personally delivered as follows:
If to the Company:
Option Care, Inc.
100 Corporate North
Suite 212
Bannockburn, Illinois 60015
Attn: Michael Siri
Tel: (847) 615-1690
Fax: (847) 615-1791
If to the Trust:
John N. Kapoor Trust
c/o EJ Financial Enterprises
225 E. Deerpath, Suite 250
Lake Forest, IL 60045
Attn: Kevin Harris
Tel: (847) 295-8665
Fax: (847) 295-8680
or such other address as either party may provide in writing to the other.
SECTION 7.03 COSTS, EXPENSES AND TAXES. The Company agrees to pay on
demand all reasonable costs and expenses in connection with the preparation,
execution, delivery, filing, recording and administration of this Agreement and
any other documents which may be delivered in connection with this Agreement,
including, without limitation, the reasonable fees
27
<PAGE>
and out-of-pocket expenses of Burke, Warren, MacKay & Serritella, P.C., counsel
to the Trust, with respect thereto and with respect to advising the Trust as to
its rights and responsibilities under this Agreement and all reasonable costs
and expenses (including counsel fees and expenses) in connection with (i) the
enforcement of this Agreement, the Security Documents or the other Operative
Documents, and all other documents and instruments which may be delivered in
connection with this Agreement, the Security Documents or the other Operative
Documents, or (ii) any action or proceeding relating to a court order,
injunction or other process or decree restraining or seeking to restrain the
Letter of Credit Bank from paying any amount under the Letter of Credit, or
(iii) any extension of the Letter of Credit or amendment to this Agreement. In
addition, the Company agrees to pay any and all stamp and other taxes and fees
payable or determined to be payable in connection with the execution, delivery,
filing and recording of this Agreement, the Security Documents, the other
Operative Documents and such other documents and agrees to save the Trust
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and fees.
SECTION 7.04 EXTENSION OF THE LETTER OF CREDIT. At the request of the
Company, but in the absolute, complete and sole discretion of the Trust, and
then only with the consent of the Letter of Credit Bank, the expiry date of the
Letter of Credit may be extended from time to time and each time for a minimum
period of one month. The Company's request for an extension of the Letter of
Credit must be received by the Trust no earlier than thirty (30) days prior to
the scheduled expiry date nor later than sixty (60) days prior to the scheduled
expiry date of the Letter of Credit or any extension thereof. The Trust will
endeavor, promptly after receipt of such request from the Company, to determine
whether the Letter of Credit Bank will extend the Letter of Credit, the period
of the extension, and the terms and conditions applicable to such extension,
including without limitation the Letter of Credit Bank's fees and commissions
applicable thereto. The extension shall be effective upon acceptance by the
Trust of such terms and conditions as the Letter of Credit Bank shall propose,
subject to the further acceptance thereof by the Lender, and delivery by the
Letter of Credit Bank to the Trust of an extension certificate as provided by
the Letter of Credit. Notwithstanding the foregoing, no such agreement for
extension shall in any way limit or otherwise affect the remedies of the Trust
upon an Event of Default set forth in Section 6.02 hereof or available to the
Trust under any of the other Operative Documents or Security Documents.
SECTION 7.05 INTEREST RATE LIMITATION. Notwithstanding any provisions of
this Agreement or any Operative Document, in no event shall the amount of
interest paid or agreed to be paid by the Company exceed an amount computed at
the highest rate of interest permissible under applicable law. If, from any
circumstances whatsoever, fulfillment of any provision of this Agreement or any
Operative Document at the time performance of such provision shall be due, shall
involve exceeding the interest rate limitation validly prescribed by law which a
court of competent jurisdiction may deem applicable hereto, then, IPSO FACTO,
the obligations to be
28
<PAGE>
fulfilled shall be reduced to an amount computed at the highest rate of interest
permissible under applicable law, and if for any reason whatsoever the Trust
shall ever receive as interest an amount which would be deemed unlawful under
such applicable law such interest shall be automatically applied to the payment
of principal of the amounts outstanding hereunder (whether or not then due and
payable) and not to the payment of interest, or shall be refunded to the Company
if such principal and all other obligations of the Company to the Trust have
been paid in full.
SECTION 7.06 BINDING EFFECT: ASSIGNMENT. This Agreement shall become
effective when it shall have been executed and delivered by the Company and the
Trust and thereafter shall be binding upon and inure to the benefit of the
Company and the Trust and their respective successors and assigns, except that
(i) the Company shall not have the right to assign its rights hereunder or any
interest herein without the prior written consent of the Trust, which will not
be unreasonably withheld, delayed or conditioned, and (ii) the Trust shall not
have the right to assign its rights hereunder without the prior written consent
of the Company, which will not be unreasonably withheld, delayed or conditioned
provided, however, that no consent of the Company shall be required for an
assignment of all or any part of, or any interest (divided or undivided) in, the
Trust's rights and benefits under this Agreement by the Trust to an entity
controlling, controlled by or under common control with Dr. John N. Kapoor, or
to any person who is related by blood, marriage or adoption to Dr. John N.
Kapoor, it being acknowledged that to the extent of any such assignment, such
assignee shall have the same rights and benefits against the Company hereunder
as it would have had if such assignee were the Trust providing the Letter of
Credit hereunder.
SECTION 7.07 SEVERABILITY. Any provision of this Agreement which is
prohibited, unenforceable or not authorized in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition,
unenforceability or non-authorization without invalidating the remaining
provisions hereof or affecting the validity, enforceability or legality of such
provision in any other jurisdiction.
SECTION 7.08 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with the laws of the State of Illinois without giving
effect to choice of law principles of such State.
SECTION 7.09 HEADINGS. Section headings in this Agreement are included
herein for convenience of reference only and shall not constitute a part of this
Agreement for any other purpose.
SECTION 7.10 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which, when so executed and delivered, shall be deemed
to be an original, but all such counterparts taken together shall constitute but
one and the same Agreement.
29
<PAGE>
SECTION 7.11 WAIVER OF JURY TRIAL. THE TRUST AND THE COMPANY, AFTER
CONSULTING OR HAVING HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL, KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT EITHER OF THEM MAY HAVE TO A TRIAL
BY JURY IN ANY LITIGATION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
RELATED INSTRUMENT OR AGREEMENT OR ANY OF THE TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT OR ANY COURSE OF CONDUCT, DEALING, STATEMENTS (WHETHER ORAL OR
WRITTEN) OR ACTIONS OF EITHER OF THEM. NEITHER THE TRUST NOR THE COMPANY SHALL
SEEK TO CONSOLIDATE, BY COUNTERCLAIM OR OTHERWISE, ANY SUCH ACTION IN WHICH A
JURY TRIAL HAS BEEN WAIVED WITH ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE
OR HAS NOT BEEN WAIVED. THESE PROVISIONS SHALL NOT BE DEEMED TO HAVE BEEN
MODIFIED IN ANY RESPECT OR RELINQUISHED BY EITHER THE TRUST OR THE COMPANY
EXCEPT BY A WRITTEN INSTRUMENT EXECUTED BY BOTH OF THEM.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered by their respective representatives "hereunto duly
authorized as of the date first above written.
OPTION CARE, INC., a Delaware corporation
By:________________________________________
Its:_______________________________________
JOHN N. KAPOOR TRUST, dtd. 9/20/89
By:________________________________________
John N. Kapoor, Trustee
31
<PAGE>
<PAGE>
Exhibit 10.29
January 15, 1999
Option Care, Inc., Option Care, Inc.
Option Care Enterprises, Inc., Home Care of Columbia, Inc.
Young's I.V. Therapy, Inc., Cordesys Healthcare Management, Inc.
North County Home I.V., Inc., Option Care Hospice, Inc.
Option Care Home Health, Inc., Management By Information, Inc.
Option Care of Oklahoma, Inc., Option Care Home Health of California, Inc.
Option Care Denver, Inc.
100 Corporate North, Suite 212
Bannockburn, Illinois 60015
Attention: Michael Siri
RE: Amended and Restated Credit Agreement dated as of December 23, 1996 by
and among Option Care, Inc., Option Care Enterprises, Inc., Home Care of
Columbia, Inc., Young's I.V. Therapy, Inc., Cordesys Healthcare
Management, Inc., North County Home I.V., Inc., Option Care Hospice,
Inc., Option Care Home Health, Inc., Management By Information, Inc.,
Option Care of Oklahoma, Inc., Option Care Home Health of California,
Inc., and Option Care Denver, Inc., the financial institutions parties
thereto as Banks, and PNC Bank, National Association, its capacity as
contractual representative, as amended by an Amendment No. 1, an
Amendment No. 2, an Amendment No. 3, an Amendment No. 4 and an Amendment
No. 5, dated as of February 5, 1997, February 27, 1997, March 23, 1997,
December 31, 1997 and March 25, 1998, respectively (as so amended and as
amended, restated, supplemented or OTHERWISE MODIFIED FROM TIME TO TIME,
THE "CREDIT AGREEMENT").
Ladies & Gentlemen:
We refer to (a) the Credit Agreement, and (b) our letters to you
dated August 14, 1998 and August 20, 1998 (collectively, the "Notices of
Default"). Capitalized terms not otherwise defined herein shall have the
meanings assigned thereto in the Credit Agreement.
The Events of Default referred to in the Notices of Default are
continuing, including, without limitation, that the Minimum Interest Coverage
Ratio is less than 3.0:1.0 (the "Applicable Default").
Subject to the conditions set forth in the next succeeding
sentence, during the time period from the date hereof through and including
January 15, 1999 (the "Forbearance Period") the Banks hereby agree to (i) permit
the Borrowers to elect to have the Euro-Rate Option apply to the outstanding
Loans to the extent that the Interest Period during which such Interest Rate
Option shall apply shall not exceed one Month, and (ii) provided that no Event
of Default (other than the Applicable Default) shall have occurred, forbear from
exercising those rights afforded to the Agent and the Banks under the Credit
Agreement, the Loan Documents and applicable law
<PAGE>
upon the occurrence of an Event of Default to: (a) terminate the Credit
Agreement, (b) accelerate or demand and immediately enforce payment in full of
the Obligations, (c) immediately enforce its security interests in or liens
against the Collateral, and (d) charge a default rate of interest pursuant to
SECTION 3.3 of the Credit Agreement; PROVIDED, that if on or before 12:00 noon
(New York time) on January 15, 1999, the Agent shall have received copies of a
firm commitment letter from Bank of America National Trust and Savings
Association (or its affiliate) in form and substance acceptable to the Agent and
the Banks and setting forth the terms of financing for the Borrowers, subject
only to typical and customary terms and conditions, pursuant to which the Credit
Agreement would be terminated and all unpaid Obligations of the Borrowers to the
Banks would be paid in full, the Forbearance Period shall be deemed to be
extended to February 8, 1999. The foregoing permission and forbearance is
subject to the conditions that on or before the date hereof the Agent shall have
received: (i) for the account of the Banks, an amount equal to $2,500,000, which
amount shall be applied to prepay the outstanding Loans and shall permanently
and ratably reduce the Revolving Credit Commitments of each of the Banks, (ii)
for the account of the Banks, an amount equal to all accrued and unpaid interest
owed pursuant to the Credit Agreement as of the date hereof, including all
default interest accrued and unpaid pursuant to Section 3.3 of the Credit
Agreement, (iii) in favor of the Agent for the benefit of the Banks, an
irrevocable letter of credit issued by The Northern Trust Company in the face
amount of $3,000,000 (the "Letter of Credit") in the form attached hereto as
EXHIBIT A, (iv) a subordination agreement, executed by John N. Kapoor Trust
Dated September 20, 1989 ("Kapoor"), in respect of its rights of reimbursement
as against Option Care, Inc. and its Affiliates in the event of any draw under
the Letter of Credit, in the form attached hereto as EXHIBIT B, and (v) for the
Agent's account, an amount equal to $74,352.08, plus other amounts for which
Borrowers have received an invoice, as of the date hereof, representing certain
fees, time charges and expenses of attorneys, accountants, auditors, and
paralegals for the Agent, and out of pocket travel expenses of the Agent,
incurred in connection with the Credit Agreement and the other Loan Documents.
Notwithstanding the foregoing, the Borrowers hereby acknowledge and agree that
the Banks shall have no further obligation to make Loans or issue Letters of
Credit under the Credit Agreement.
In addition, the Borrowers shall:
(i) deliver to the Agent on or before 5:00 p.m. (Chicago time) on
January 15, 1999, a certificate executed by an Authorized Officer
of Option Care, Inc., certifying that:
a. the consolidated operating income for the calendar month of
November, 1998 for Option Care, Inc. and its Subsidiaries
(as reported on the month-end financial statements of
Option Care, Inc. prepared in accordance with past practice
consistently applied) is greater than or equal to zero; and
b. the sum of (i) the consolidated net accounts receivable
balance of Option Care, Inc. and its Subsidiaries
(calculated in accordance with past practice consistently
applied), PLUS (ii) the consolidated cash balance of Option
Care, Inc. and its Subsidiaries (calculated in accordance
with past practice
<PAGE>
consistently applied), in each case as of November 30,
1998, is greater than or equal to $27,500,000; and
(ii) deliver to the Agent on or before January 19, 1998, a certificate
executed by an Authorized Officer of Option Care Inc., certifying
that:
a. the consolidated operating income for the three month
period ending December 31, 1998 for Option Care, Inc. and
its Subsidiaries (as reported on the month-end financial
statements of Option Care, Inc., prepared in accordance
with past practice consistently applied) is greater than or
equal to zero; and
b. the consolidated net revenue for the calendar month of
December 1998 for Option Care, Inc. and its Subsidiaries
(as reported on the month-end financial statements of
Option Care, Inc. prepared in accordance with past practice
consistently applied) is greater than or equal to
$8,000,000; and
c. either (x) the consolidated net accounts receivable balance
of Option Care, Inc. and its Subsidiaries (calculated in
accordance with past practice consistently applied) as of
December 31, 1998 is greater than or equal to $22,000,000,
or (y) the sum of (i) the consolidated net accounts
receivable balance of Option Care, Inc. and its
Subsidiaries (calculated in accordance with past practice
consistently applied), PLUS (ii) the consolidated cash
balance of Option Care, Inc. and its Subsidiaries
(calculated in accordance with past practice consistently
applied), in each case as of December 31, 1998, is greater
than or equal to $23,500,000; and
(iii) deliver to the Agent on or before 12:00 noon (Chicago time) on
January 13, 1999 a projection of the expected consolidated cash
receipts, cash disbursements and cash balances for Option Care,
Inc. and its Subsidiaries on a week by week basis for the period
commencing on December 14, 1998 through January 31, 1999 (the
"Cash Flow Projection"); and
(iv) deliver to the Agent, no later than the close of business on each
Tuesday for the period commencing on January 11, 1999 and ending
on February 5, 1999, a summary of the actual consolidated weekly
cash receipts, cash disbursements and cash balances for Option
Care, Inc. and its Subsidiaries in the form attached hereto as
EXHIBIT C, for the previous week, together with a certificate
executed by an Authorized Officer of Option Care, Inc. certifying
that the actual ending cash balance for the preceding week was
equal to or greater than 80% of the expected ending cash balance
for the week as shown in the Cash Flow Projection; and
(v) on or before 12:00 noon (Chicago time) on January 19, 1999, cause
to be executed and delivered to the Agent: (a) duly executed
Borrower Joinder, Guarantor Joinder, Security Agreement and
appropriate UCC financing statements, in each
<PAGE>
case, in form and substance acceptable to the Agent, from each of
the domestic Subsidiaries of Option Care, Inc. to the extent that
such Subsidiaries are not otherwise parties, as of the date
hereof, to the Credit Agreement or any Borrower Joinder, Guarantor
Joinder, or Security Agreement, and (b) (x) updated and conformed
schedules to each of the Pledge Agreements of Option Care, Inc.
and Option Care Enterprises, Inc., in form and substance
acceptable to the Agent, and (y) stock certificates in respect of
the capital stock (together in each instance with a stock power
executed in blank by Option Care, Inc. or Option Care Enterprises,
Inc., as applicable, pursuant to their respective Pledge
Agreements) of each of the domestic Subsidiaries of Option Care,
Inc. the capital stock of which is not pledged to the Agent for
the benefit of the Banks pursuant to the terms of any Pledge
Agreement as of the date hereof, and (c) such other documents,
instruments and agreements related to the items described in
CLAUSES (a) and (b) above as the Agent shall reasonably request;
PROVIDED, HOWEVER, that (x) the requirements of any CLAUSES (a)
and (b) above do not apply to the Subsidiaries listed on SCHEDULE
I attached hereto, and (y) the Borrowers hereby represent and
warrant that each such Subsidiary listed in Schedule I: (i) does
not, and shall not, engage in any business and (ii) does not, and
shall not, own any assets; and
(vi) promptly provide the Banks such financial information respecting
the Borrowers, the Guarantors, and any Affiliates thereof, as
Agent may from time to time reasonably request.
The Agent shall return the original Letter of Credit to Kapoor and consent to
its cancellation by the issuer promptly after payment in full in cash of the
Obligations under the Credit Agreement.
Any failure of the Borrowers to comply with terms and conditions of this letter
agreement shall constitute an additional Event of Default under the terms of the
Credit Agreement, and the Agent and the Banks may enforce their rights and
remedies under the Credit Agreement, the other Loan Documents or otherwise in
respect thereof, and the rate of interest for each Loan and the other
Obligations under the Loan Documents otherwise applicable pursuant to SECTION
3.1 of the Credit Agreement shall be increased to the default rate pursuant to
SECTION 3.3 of the Credit Agreement, and no Borrower shall have the right to
elect to convert any Loan to the Euro-Rate Option or to continue any Loan at the
Euro-Rate Option at the end of the Interest Period applicable thereto.
Nothing herein, and no decision by the Banks to forbear from
enforcing their rights and remedies under the Credit Agreement, the other Loan
Documents, or otherwise, shall constitute: (i) a modification or waiver or
amendment of any right of remedy of the Agent and the Banks pursuant to, and in
connection with, the Credit Agreement or the other Loan Documents, (ii) a waiver
of any existing defaults or Events of Default, or any default or Event of
Default that may occur after the date of this letter, or (iii) an agreement by
the Agent or the Banks to forbear from enforcing their rights and remedies at
any time, except as expressly set forth herein. Each Borrower hereby agrees and
understands that the Credit Agreement and the other Loan Documents (as modified
by this letter agreement) remain in full force and effect, and,
<PAGE>
except as expressly set forth herein, the Agent and the Banks remain entirely
free to exercise all of their rights and remedies, including the right to
initiate enforcement action and any other action the Banks consider appropriate
to protect their interest, in consequence of any Events of Default (other than
the Applicable Default).
Notwithstanding the foregoing, the Agent and the Banks agree to
waive compliance by the Borrowers with SECTIONS 7.2.1 and 7.2.8 of the Credit
Agreement to the limited extent necessary to allow Option Care, Inc., a Delaware
corporation ("Option Care") to incur Indebtedness to Kapoor in the principal
amount of up to $3,000,000 plus reasonable fees, expenses and interest thereon,
in amounts not to exceed those set forth pursuant to the terms of that certain
Reimbursement and Security Agreement, dated as of the date hereof, between
Kapoor and Option Care, and subject in all respects to the terms of that certain
Subordination Agreement between Kapoor and the Agent, also dated as of the date
hereof (the " Reimbursement Agreement Indebtedness"), and to grant a security
interest to Kapoor thereunder (the "Kapoor Security Interest"). The Borrowers
confirm that the Reimbursement Agreement Indebtedness and the Kapoor Security
Interest will be subordinated in accordance with the terms and provisions of the
Subordination Agreement, and the Borrowers also reaffirm and confirm that until
all the Guaranteed Indebtedness (as defined in the Guaranty Agreements) is
indefeasibly paid in full, the Guaranteed Indebtedness will remain subordinated,
in accordance with the terms of the Intercompany Subordination Agreement, to the
Obligations owed to the Agent and the Banks.
To the fullest extent permitted by applicable law, in
consideration of the Agent's and the Banks' execution of this letter, the
Borrowers and, by their acknowledgment and reaffirmation hereto, each of the
Guarantors in each case on behalf of itself and each of its successors and
assigns (collectively, the "Releasors"), does hereby forever release, discharge
and acquit the Agent, each Bank and each of their respective parents,
subsidiaries and affiliate corporations or partnerships, and their respective
officers, directors, partners, trustees, shareholders, agents, attorneys and
employees, and their respective successors, heirs and assigns (collectively, the
"Releasees") of and from any and all claims, demands, liabilities,
responsibilities, disputes, causes of action (whether at law or equity),
indebtedness and obligations (collectively, "Claims"), of every type, kind,
nature, description or character which (i) occurred on or prior to the date
hereof, and (ii) were in direct relation to the Obligations, this letter, the
Credit Agreement, or any Loan Document.
<PAGE>
This letter agreement shall be effective only if signed below by
each of the parties to whom it is addressed and delivered to the Agent. The
Agent may withdraw this agreement if it is not executed by the parties to whom
it is addressed and delivered to the Agent by the close of business on the date
hereof.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION, as Agent and
as a Bank
By: ____________________________
Name:
Title:
THE NORTHERN TRUST COMPANY, as a Bank
By: ____________________________
Name:
Title:
THE FIRST NATIONAL BANK OF CHICAGO, as a
Bank
By: ____________________________
Name:
Title:
HARRIS TRUST AND SAVINGS BANK, as a Bank
By: ____________________________
Name:
Title:
<PAGE>
Intending to be legally bound, the undersigned accept and agree to the terms and
conditions of the foregoing letter this __th day of January, 1999.
OPTION CARE, INC.
OPTION CARE, INC., a California corporation
OPTION CARE ENTERPRISES, INC.
HOME CARE OF COLUMBIA, INC.
YOUNG'S I.V. THERAPY, INC.
CORDESYS HEALTHCARE MANAGEMENT, INC.
NORTH COUNTY HOME I.V., INC.
OPTION CARE HOSPICE, INC.
OPTION CARE HOME HEALTH, INC.
MANAGEMENT BY INFORMATION, INC.
OPTION CARE OF OKLAHOMA, INC.
OPTION CARE HOME HEALTH OF CALIFORNIA, INC.
OPTION CARE DENVER, INC.
REHAB OPTIONS, INC.
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT A TO LETTER DATED
JANUARY 15, 1999
FORM OF LETTER OF CREDIT
<PAGE>
EXHIBIT B TO LETTER DATED
JANUARY 15, 1999
FORM OF SUBORDINATION AGREEMENT
<PAGE>
EXHIBIT C TO LETTER DATED
JANUARY 15, 1999
FORM OF WEEKLY SUMMARY
<PAGE>
EXHIBIT 21
OPTION CARE, INC.
LISTING OF SUBSIDIARIES OF THE REGISTRANT
Option Care, Inc. (Delaware corporation)
Option Care, Inc. (California corporation) (Franchising company)
Option Care Capital Services, Inc. (Delaware corporation) (Finance company)
Option Care Enterprises, Inc. (Delaware corporation)
Home Care of Columbia, Inc. (Missouri corporation)
Young's I.V. Therapy, Inc. (Pennsylvania corporation) (80% owned)
Rehab Options, Inc. (Missouri corporation)
North County Home I.V., Inc. (California corporation)
Option Care Hospice, Inc. (Missouri corporation)
Option Care Home Health, Inc. (Ohio corporation)
Management by Information, Inc. (Delaware corporation)
Cordesys Healthcare Management, Inc. (Delaware corporation)
Women's Health of Optioncare, Inc. (Delaware corporation)
Option Care of Oklahoma, Inc. (Delaware corporation)
Option Care of Denver, Inc. (Delaware corporation)
Option Care Home Health of California, Inc. (Delaware corporation)
Option Home Health Care, Inc. (Delaware corporation)
Option Care Home Health of Los Angeles, Inc. (Delaware corporation)
Option Care Home Health of Coweta, Inc. (Delaware corporation)
Entities listed above are all wholly owned subsidiaries, except as indicated.
46
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm in the Registration Statements (Form
S-8 No. 33-98256, 33-66592 and 333-66255) pertaining to the 1995 Employee
Stock Purchase Plan, 1991 Stock Incentive Plan and the Amended and Restated
Stock Incentive Plan (1997) and to the incorporation by reference therein of
our report dated March 18, 1999, with respect to the consolidated financial
statements and schedule of Option Care, Inc. included in its Annual Report on
Form 10-K for the year ended December 31, 1998, filed with the Securities and
Exchange Commission.
Ernst & Young LLP
Chicago, Illinois
March 26, 1999
<PAGE>
Exhibit 23.2
CONSENT OF KPMG LLP
The Board of Directors
Option Care, Inc:
We consent to the incorporation by reference in the Registration Statements
on Form S-8 (Nos. 33-66592, 33-98256 and 333-66255) of Option Care, Inc. of
our report dated March 26, 1998, relating to the consolidated balance sheet
of Option Care, Inc. and subsidiaries as of December 31, 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the years in the two-year period ended December 31, 1997,
which report appears in the December 31, 1998 annual report on Form 10-K of
Option Care, Inc.
KPMG LLP
Chicago, Illinois
March 29, 1999
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<PAGE>
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<FISCAL-YEAR-END> DEC-31-1998
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