-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DOHpx67E1+P1GTw4/ZPccRtjHB4P67R3hHBPJG3J1r/TYbhqJeNj2muJ3rm0QZ36 Ow9ezN9zz/4RKL2qbPFxjA== /in/edgar/work/0000950152-00-007951/0000950152-00-007951.txt : 20001115 0000950152-00-007951.hdr.sgml : 20001115 ACCESSION NUMBER: 0000950152-00-007951 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NCS HEALTHCARE INC CENTRAL INDEX KEY: 0001004990 STANDARD INDUSTRIAL CLASSIFICATION: [5912 ] IRS NUMBER: 341816187 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27602 FILM NUMBER: 764604 BUSINESS ADDRESS: STREET 1: 3201 ENTERPRISE PKWY STREET 2: STE 2200 CITY: BEACHWOOD STATE: OH ZIP: 44122 BUSINESS PHONE: 2165143350 MAIL ADDRESS: STREET 1: 1400 MCDONALD INVESTMENT CENTER STREET 2: 800 SUPERIOR AVE CITY: CLEVELAND STATE: OH ZIP: 44114 10-Q 1 l84486ae10-q.txt NCS HEALTHCARE, INC. 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-Q Quarterly Report Under Section 13 or 15 (d) of The Securities Exchange Act of 1934 For Quarter Ended September 30, 2000 Commission File Number- 0-27602 ------- NCS HealthCare, Inc. - ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware No. 34-1816187 - ---------------------------------- --------------------- (State or other jurisdiction of (IRS employer incorporation or organization) identification number) 3201 Enterprise Parkway, Suite 220, Beachwood, Ohio 44122 - ---------------------------------------------------------- (Address of principal executive offices and zip code) (216) 378-6800 - ----------------------------------------------------------- (Registrant's telephone number, including area code) Indicate by check whether the registrant: 1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and 2) has been subject to such filing requirement for the past 90 days. Yes X No ---- ---- COMMON STOCK OUTSTANDING Indicate the number of shares outstanding of each of the Issuer's classes of common stock, as of the latest practical date. Class A Common Stock, $ .01 par value - 18,080,229 shares as of November 7, 2000 Class B Common Stock, $ .01 par value - 5,362,807 shares as of November 7, 2000 2 NCS HEALTHCARE, INC. AND SUBSIDIARIES INDEX
PAGE Part I. Financial Information: Item 1. Financial Statements (Unaudited) Condensed Consolidated Balance Sheets- September 30, 2000 and June 30, 2000 3 Condensed Consolidated Statements of Operations- Three months ended- September 30, 2000 and 1999 4 Condensed Consolidated Statements of Cash Flows- Three months ended- September 30, 2000 and 1999 5 Notes to Condensed Consolidated Financial Statements - September 30, 2000 6 Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 13 Part II. Other Information: Item 6. Exhibits and Reports on Form 8-K 14 Signatures 15
2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE INFORMATION)
(UNAUDITED) (NOTE A) SEPTEMBER 30, JUNE 30, 2000 2000 ------------ ----------- ASSETS Current Assets: Cash and cash equivalents $ 34,104 $ 16,387 Accounts receivable, less allowances 125,810 120,849 Inventories 30,163 37,086 Other 7,057 5,322 ---------- ----------- Total current assets 197,134 179,644 Property and equipment, at cost net of accumulated depreciation and amortization 42,583 45,164 Goodwill, less accumulated amortization 309,221 311,876 Other assets 8,986 9,979 ---------- ----------- TOTAL ASSETS $557,924 $546,663 ========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Line of credit in default $206,130 $206,130 Accounts payable 61,408 44,857 Accrued expenses and other liabilities 24,314 22,522 --------- ---------- Total current liabilities 291,852 273,509 Long-term debt, excluding current portion 1,191 1,291 Convertible subordinated debentures 102,000 102,000 Other 82 158 Stockholders' Equity: Preferred stock, par value $ .01 per share, 1,000,000 shares authorized; none issued - - Common stock, par value $ .01 per share: Class A - 50,000,000 shares authorized; 17,948,290 and 17,176,486 shares issued and outstanding at September 30, 2000 and June 30, 2000, respectively 179 172 Class B - 20,000,000 shares authorized; 5,494,746 and 5,807,283 shares issued and outstanding at September 30, 2000 and June 30, 2000, respectively 55 58 Paid-in capital 271,853 271,650 Accumulated deficit (109,288) (102,175) --------- --------- Total stockholders' equity 162,799 169,705 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $557,924 $546,663 ======== ========
Note A: The balance sheet at June 30, 2000 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. See notes to condensed consolidated financial statements. 3 4 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- Revenues $ 159,022 $ 184,191 Cost of revenues 130,985 143,891 --------- --------- Gross profit 28,037 40,300 Selling, general and administrative expenses 27,001 32,040 --------- --------- Operating income 1,036 8,260 Interest expense, net 8,049 5,670 --------- --------- Income (loss) before income taxes (7,013) 2,590 Income tax expense 100 1,062 --------- --------- Net income (loss) $ (7,113) $ 1,528 ========= ========= Net income (loss) per share - basic $ (0.31) $ 0.08 ========= ========= Net income (loss) per share - diluted $ (0.31) $ 0.08 ========= ========= Shares used in the computation - basic 23,150 20,322 ========= ========= Shares used in the computation - diluted 23,150 20,322 ========= =========
See notes to condensed consolidated financial statements. 4 5 NCS HEALTHCARE, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (IN THOUSANDS)
THREE MONTHS ENDED SEPTEMBER 30, 2000 1999 ---- ---- OPERATING ACTIVITIES Net income (loss) $ (7,113) $ 1,528 Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 6,433 6,300 Changes in assets and liabilities : Accounts receivable, net (4,961) (4,294) Accrued expenses and other liabilities 18,667 (3,196) Other, net 5,189 6,438 ------------------------- Net cash provided by operating activities 18,215 6,776 ------------------------- INVESTING ACTIVITIES Capital expenditures for property and equipment, net (555) (2,329) Other 273 (1,753) ------------------------- Net cash used in investing activities (282) (4,082) ------------------------- FINANCING ACTIVITIES Line-of-credit, net -- (11,580) Repayment of long-term debt (216) (182) ------------------------- Net cash used in financing activities (216) (11,762) ------------------------- Net increase (decrease) in cash and cash equivalents 17,717 (9,068) Cash and cash equivalents at beginning of period 16,387 29,424 ------------------------- Cash and cash equivalents at end of period $ 34,104 $ 20,356 =========================
See notes to condensed consolidated financial statements. 5 6 NCS HEALTHCARE, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2000 (UNAUDITED) 1. The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended September 30, 2000 are not necessarily indicative of the results that may be expected for the year ending June 30, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Form 10-K for the year ended June 30, 2000. 2. During fiscal 2000, the Company recorded nonrecurring, restructuring and special charges of $95,800,000. A special charge of $44,600,000 was recorded to increase the allowance for doubtful accounts and nonrecurring, restructuring and other special charges of $51,200,000 were recorded in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations, the planned disposition of certain non-core and/or non-strategic assets, impairment of certain assets and other nonrecurring items. The special charge to increase the allowance for doubtful accounts resulted from continuing negative changes observed in industry and customer trends during the year ended June 30, 2000, and a change in the method of estimating the allowance necessary for accounts receivable. The financial condition of the Company's primary customer base and negative industry trends continued to deteriorate throughout the year. Due to the negative trends that the Company's customers are facing, management re-evaluated the method of estimating the allowances necessary for these and other customers. The total provision for doubtful accounts, including the amounts included in the special charge, was $53,825,000 for the year ended June 30, 2000. The Company continued its plan of restructuring to consolidate certain pharmacy sites in order to improve operating efficiencies. As a result, the Company consolidated thirteen additional pharmacy sites into either a new or existing location. The Company also shutdown six locations associated with certain ancillary services. During the year ended June 30, 2000, the Company recorded nonrecurring charges of $9,700,000 related to these site consolidations and location shutdowns, inclusive of $1,100,000 of additional costs incurred on site consolidations previously announced. During the year ended June 30, 2000, the Company adopted a formal exit plan to dispose of certain non-core and/or non-strategic assets. The Company recorded nonrecurring charges of $30,700,000 related to the planned disposition of assets primarily consisting of impairment to goodwill and property and equipment. Total revenue and operating income of the related business units was $7,500,000 and $300,000, respectively, for the quarter ended September 30, 2000. The carrying amount of assets held for sale as of September 30, 2000 was $6,300,000. Through September 30, 2000, the Company has disposed of three ancillary service operations. The remaining $10,800,000 of the nonrecurring charge primarily relates to severance incurred during the year associated with the Company's expense reduction initiatives, additional asset impairments, costs related to a settlement with federal authorities regarding the investigation of the Company's Indianapolis, Indiana facility and other nonrecurring expenses. During December 1999, the Company reached a settlement with the U.S. Attorney's office in the Southern District of Indiana regarding the federal investigation of the Company's facility in Indianapolis, Indiana. As a result, the Company recorded the settlement amount as a nonrecurring charge. Under the terms of the settlement, the Company paid $4,100,000 to the U.S. Attorney's office. The Company also agreed to maintain its current level of spending in connection with its compliance systems and procedures for a period of three years. If the 6 7 Company does not comply with the terms of the accord, an additional $1,500,000 will be payable to the U.S. Attorney's office. Employee severance costs included in the nonrecurring charges relate to the termination of 472 employees. As of September 30, 2000, 432 employees have been terminated. Details of the fiscal 2000 nonrecurring, restructuring and special charges and related activity are as follows:
Nonrecurring Reserve Reserve Description Cash/Non-cash Charge Activity At 6/30/00 Activity At 9/30/00 ----------- ------------- ------------- -------- ------------ ------- ---------- (in thousands) Site Consolidations Severance/compensation related Cash $ 1,300 $(1,000) $ 300 $ (100) $ 200 Lease terminations Cash 2,800 (400) 2,400 (300) 2,100 Asset impairments Non-cash 4,400 (4,400) -- -- -- Other Cash 1,200 (600) 600 (100) 500 Special increase to allowance for doubtful accounts Non-cash 44,600 (44,600) -- -- -- Disposition of Assets Asset impairment Non-cash 30,200 (30,200) -- -- -- Other Cash 500 (200) 300 -- 300 Other Cash 6,600 (6,200) 400 -- 400 Non-cash 4,200 (4,200) -- -- -- ------- -------- ------ ------ ------ Total $95,800 $(91,800) $4,000 $ (500) $3,500 ======= ========= ====== ======= ======
7 8 3. The following table sets forth the computation of basic and diluted earnings per share in accordance with Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128):
THREE MONTHS ENDED SEPTEMBER 30, -------------------------- 2000 1999 -------- -------- Numerator: Numerator for basic earnings per share - net income (loss) $ (7,113) $ 1,528 Effect of dilutive securities: Convertible debentures -- -- ----------------------- Numerator for diluted earnings per share $ (7,113) $ 1,528 ======================= Denominator: Denominator for basic earnings per share - Weighted average common shares 23,150 20,322 ----------------------- Effect of dilutive securities: Stock options -- -- Convertible debentures -- -- ----------------------- Dilutive potential common shares -- -- ----------------------- Denominator for diluted earnings per share 23,150 20,322 ======================= Basic earnings per share: Net income (loss) per share $ (0.31) $ 0.08 ======================= Diluted earnings per share: Net income (loss) per share $ (0.31) $ 0.08 =======================
At September 30, 2000 and 1999, the Company has 1,297,109 and 1,335,944, respectively, of employee stock options that are potentially dilutive that were not included in the computation of diluted earnings per share as their effect would be antidilutive. The Company had $102,000,000 and $100,000,000 of convertible subordinated debentures outstanding at September 30, 2000 and 1999, respectively, that were convertible into 3,258,104 and 3,058,000, shares of Class A Common Stock, respectively, that were not included in the computation of diluted earnings per share as their effect would be antidilutive for all periods presented. 4. The Company's facility in Herrin, Illinois has been the subject of an investigation by federal authorities, and the Company has engaged in discussions with representatives of the U.S. Attorney's office concerning the alleged violations of federal law at that facility. It is possible that the imposition of significant fines or other remedies in connection with the Illinois matter could have a material effect on the Company's financial condition and results of operations. 8 9 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION Results of Operations The net loss for the three months ended September 30, 2000 was $7,113,000 or $0.31 per diluted share compared to net income of $1,528,000 or $0.08 per diluted share for the three months ended September 30, 1999. Operating results during the past year were negatively impacted by the implementation of Medicare's Prospective Payment System (PPS). The adverse impact of the implementation of PPS under the Balanced Budget Act of 1997 for Medicare residents of skilled nursing facilities has been significantly greater than anticipated resulting in a difficult operating environment in the long-term care industry. PPS created numerous changes to reimbursement policies applicable to skilled nursing facilities under Medicare Part A. Prior to the implementation of PPS, Medicare reimbursed each skilled nursing facility based on that facility's actual Medicare Part A costs plus a premium. Under PPS, Medicare pays skilled nursing facilities a fixed fee per Medicare Part A patient day based on the acuity level of the patient. The per diem rate covers all items and services furnished during a covered stay for which reimbursement was formerly made separately on a cost plus basis. This change in reimbursement policies has resulted in a substantial reduction in reimbursement for skilled nursing facilities. Consequently, the Company has experienced revenue and margin pressure as a result of nursing facilities attempting to manage pharmaceutical costs along with all other costs associated with patient care under a simple per diem reimbursement amount. In addition, there has been a significant reduction in the utilization of other therapies such as speech, occupational and physical rehabilitation. With the implementation of PPS, skilled nursing facilities have become increasingly more reluctant to admit Medicare residents, especially those requiring complex care, causing Medicare census in these facilities to weaken and reducing the average length of stay for Medicare residents. Resident acuity level has also decreased as these facilities have attempted to avoid high acuity patients, negatively impacting the overall utilization of drugs, particularly those with higher costs such as infusion therapy. These outcomes have negatively impacted nursing facilities and the institutional pharmacy services industry as a whole. For Medicare certified skilled nursing facilities, PPS has caused significant earnings and cash flow pressure. Some facilities have sought bankruptcy protection or consolidation as a method of reducing costs and increasing operating efficiencies causing the Company to experience bed loss as a result. For the Company, operating processes for administering and executing PPS related activities were significantly different than operating processes prior to the implementation of PPS. Contracting processes, data gathering, and operational dispensing processes for Medicare A residents all underwent significant change resulting in higher costs and lower margins for the Company. These costs were in addition to the impact of costs associated with customer bankruptcies and deteriorating financial condition. On November 29, 1999, Congress enacted the Balanced Budget Refinement Act (BBRA) in an attempt to provide relief to skilled nursing facilities by providing a temporary increase in reimbursement rates effective April 1, 2000, particularly for higher acuity residents. This temporary rate increase will remain in place pending appropriate revisions to the PPS system. In addition, high acuity residents under the BBRA were provided additional increases effective October 1, 2000. Even with these changes, a very difficult operating environment remains and management continues to react to pressures in the current PPS environment. During the past year, the Company has reduced operating and overhead expenses, accelerated efforts to consolidate and/or close pharmacy locations, terminated uneconomic accounts and began applying stricter standards in accepting new business. Revenues for the three months ended September 30, 2000 decreased $25,169,000 or 13.7% to $159,022,000 from $184,191,000 recorded in the comparable period in fiscal 2000. Approximately $15,605,000 of the decrease in revenue from the prior fiscal year is attributable to a decrease in revenue from the Company's allied and ancillary services. This decrease is due to decisions by management to terminate uneconomic accounts and the shutdown or sale of certain non-strategic or unprofitable operations. Through September 30, 2000, the Company has disposed of three ancillary operations that were not contributing to the overall financial performance of the Company. The remaining $9,564,000 of the revenue decrease is attributable to the Company's pharmacy operations and is related to net bed loss during the period and revenue pressure associated with the implementation of the PPS system. Although the Company added new customers during the past year through its sales and marketing efforts, the number of beds served by the Company declined due to decisions by management to terminate uneconomic accounts. 9 10 Cost of revenues for the three months ended September 30, 2000 decreased $12,906,000 or 9.0% to $130,985,000 from $143,891,00 recorded in the comparable period in fiscal 2000. Cost of revenues as a percentage of revenues for the three month period ended September 30, 2000 was 82.4%, compared to 78.1% for the same period during the prior fiscal year. Gross margins during the past year have been significantly affected by the impact of the PPS reimbursement system. The margin pressure resulted from continued Medicare Part A pricing pressure, lower than anticipated gross margins on PPS related contracts and reduced acuity levels at customer facilities. In addition, the Company's payor mix has continued to shift towards lower margin payors, including Medicaid and insurance. Selling, general and administrative expenses for the three months ended September 30, 2000 decreased by $5,039,000 or 15.7% to $27,001,000, from $32,040,000 recorded in the comparable period in fiscal 2000. Selling, general and administrative expenses as a percentage of revenues was 17.0% for the three month period ended September 30, 2000, compared to 17.4% during the comparable period in fiscal 2000. The decrease in expenses from the prior year is a result of efforts by the Company to reduce operating and overhead costs by accelerating the consolidation and/or closing of pharmacy locations and continuing its employee reduction plan. These decreases were partially offset by increases in bad debt expense and professional fees. The Company had net interest expense of $8,049,000 for the three month period ended September 30, 2000, compared to net interest expense of $5,670,000 during the comparable period in fiscal 2000. The increase is primarily attributable to an increase in interest rates and other finance related charges during the three month period ended September 30, 2000 as compared to the prior year. As discussed below, the Company is in default of its line of credit agreement and is currently being charged a default interest rate. The Company will continue to pay the default interest rate as long as it is in default of its line of credit agreement. During fiscal 2000, the Company recorded nonrecurring, restructuring and special charges of $95,800,000. A special charge of $44,600,000 was recorded to increase the allowance for doubtful accounts and nonrecurring, restructuring and other special charges of $51,200,000 were recorded in connection with the implementation and execution of strategic restructuring and consolidation initiatives of certain operations, the planned disposition of certain non-core and/or non-strategic assets, impairment of certain assets and other nonrecurring items. The special charge to increase the allowance for doubtful accounts resulted from continuing negative changes observed in industry and customer trends during the year ended June 30, 2000, and a change in the method of estimating the allowance necessary for accounts receivable. The financial condition of the Company's primary customer base and negative industry trends continued to deteriorate throughout the year. Due to the negative trends that the Company's customers are facing, management re-evaluated the method of estimating the allowances necessary for these and other customers. The total provision for doubtful accounts, including the amounts included in the special charge, was $53,825,000 for the year ended June 30, 2000. The Company continued its plan of restructuring to consolidate certain pharmacy sites in order to improve operating efficiencies. As a result, the Company consolidated thirteen additional pharmacy sites into either a new or existing location. The Company also shutdown six locations associated with certain ancillary services. During the year ended June 30, 2000, the Company recorded nonrecurring charges of $9,700,000 related to these site consolidations and location shutdowns, inclusive of $1,100,000 of additional costs incurred on site consolidations previously announced. During the year ended June 30, 2000, the Company adopted a formal exit plan to dispose of certain non-core and/or non-strategic assets. The Company recorded nonrecurring charges of $30,700,000 related to the planned disposition of assets primarily consisting of impairment to goodwill and property and equipment. Total revenue and operating income of the related business units was $7,500,000 and $300,000, respectively, for the quarter ended September 30, 2000. The carrying amount of assets held for sale as of September 30, 2000 was $6,300,000. Through September 30, 2000, the Company has disposed of three ancillary service operations. The remaining $10,800,000 of the nonrecurring charge primarily relates to severance incurred during the year associated with the Company's expense reduction initiatives, additional asset impairments, costs related to a settlement with federal authorities regarding the investigation of the Company's Indianapolis, Indiana facility and other nonrecurring expenses. 10 11 During December 1999, the Company reached a settlement with the U.S. Attorney's office in the Southern District of Indiana regarding the federal investigation of the Company's facility in Indianapolis, Indiana. As a result, the Company recorded the settlement amount as a nonrecurring charge. Under the terms of the settlement, the Company paid $4,100,000 to the U.S. Attorney's office. The Company also agreed to maintain its current level of spending in connection with its compliance systems and procedures for a period of three years. If the Company does not comply with the terms of the accord, an additional $1,500,000 will be payable to the U.S. Attorney's office. Employee severance costs included in the nonrecurring charges relate to the termination of 472 employees. As of September 30, 2000, 432 employees have been terminated. Details of the fiscal 2000 nonrecurring, restructuring and special charges and related activity are as follows:
Nonrecurring Reserve Reserve Description Cash/Non-cash Charge Activity At 6/30/00 Activity At 9/30/00 ----------- ------------- ------ -------- ---------- -------- ---------- (in thousands) Site Consolidations Severance/compensation related Cash $ 1,300 $(1,000) $ 300 $ (100) $ 200 Lease terminations Cash 2,800 (400) 2,400 (300) 2,100 Asset impairments Non-cash 4,400 (4,400) -- -- -- Other Cash 1,200 (600) 600 (100) 500 Special increase to allowance for doubtful accounts Non-cash 44,600 (44,600) -- -- -- Disposition of Assets Asset impairment Non-cash 30,200 (30,200) -- -- -- Other Cash 500 (200) 300 -- 300 Other Cash 6,600 (6,200) 400 -- 400 Non-cash 4,200 (4,200) -- -- -- ------- --------- ------- ------- ------- Total $95,800 $(91,800) $4,000 $ (500) $3,500 ======= ========= ====== ======= ======
Liquidity and Capital Resources Net cash provided by operating activities increased to $18,215,000 during the three months ended September 30, 2000 from $6,776,000 recorded in the comparable period in fiscal 2000. The increase in net cash provided by operating activities resulted primarily from an increase in accounts payable due to an interim modification of payment terms negotiated with a major Company supplier. The Company is continuing its negotiations with this supplier to achieve a permanent modification in payment terms. The timing and the ultimate outcome of these negotiations is uncertain. Net cash used in investing activities decreased to $282,000 during the three months ended September 30, 2000 from $4,082,000 recorded in the comparable period in fiscal 2000. The decrease is primarily the result of reduced capital expenditures during the current period. Net cash used in financing activities decreased to $216,000 during the three months ended September 30, 2000 from $11,762,000 recorded in the comparable period in fiscal 2000. The change is attributable to the Company making net payments of $11,580,000 on its line of credit in the prior year period with no similar payments this year. In August 1997, the Company issued $100 million of convertible subordinated debentures due 2004. The debentures carry an interest rate of 5 3/4%. The debentures are obligations of the Company. The operations of the Company are currently conducted principally through subsidiaries, which are separate and distinct legal entities. The Company's ability to make payments of principal and interest on the debentures will depend on its ability to receive distributions 11 12 of cash from its subsidiaries. Each of the Company's wholly-owned subsidiaries has guaranteed the Company's payment obligations under the debentures, so long as such subsidiary is a member of an affiliated group (within the meaning of Section 279(g) of the Internal Revenue Code of 1986, as amended) that includes the Company. The satisfaction by the Company's subsidiaries of their contractual guarantees, as well as the payment of dividends and certain loans and advances to the Company by such subsidiaries, may be subject to certain statutory or contractual restrictions, are contingent upon the earnings of such subsidiaries and are subject to various business considerations. In June 1998, the Company entered into a four-year, $150 million revolving credit facility (the "Credit Facility") with a bank, which replaced the existing $135 million revolving agreement. Effective July 13, 1998, the Credit Facility was amended increasing the total commitment from $150 million to $245 million and was syndicated to a consortium of 11 banks. Effective August 3, 1999, the Credit Facility was amended to reduce the available commitment from $245 million to $235 million, provide all of the Company assets as security, limit the availability of the facility to use for working capital only, require Lender approval on future acquisitions, and modify covenants and the variable interest rate basis. The amended Credit Facility bears interest at a variable rate based upon the Eurodollar rate plus a spread of 150 to 275 basis points, dependent upon the Company's ratio of Total Funded Debt to EBITDA. At September 30, 2000 the Company is in violation of certain financial covenants of the credit agreement related to the Credit Facility. On April 21, 2000, the Company received a formal notice of default from the bank group. As a result of the notice of default, the interest rate on the Credit Facility increased to the Prime Rate plus 2.25% (11.75% at September 30, 2000). In addition, the Company will not be permitted to obtain any further funds under the Credit Facility until the defaults have been waived by the bank group. The Company is currently in discussions to obtain waivers of the covenant violations and to amend the credit agreement. Until the amendment to the credit agreement is obtained, the borrowings of $206.1 million under the Credit Facility will be classified as a current liability. Failure to obtain the waiver and amendment could have a material adverse effect on the Company. If the waiver and amendment are not obtained, the Company's lenders may accelerate the maturity of the Company's obligations and/or exercise other remedies under the credit agreement including exercising their rights with respect to the pledged collateral. Such action could also result in the acceleration of the maturity of the Company's convertible subordinated debentures. Subject to obtaining the necessary waivers and amendments, the Company expects to meet future financing needs principally through the use of the Credit Facility and cash generated from operations. The Company has implemented measures to improve cash flows generated from operating activities, including reductions in operating and overhead costs by accelerating the consolidation and/or closing of pharmacy locations and continuing its employee reduction plan, and more aggressive collection and inventory reduction efforts. However, the Company may require additional capital resources for internal working capital needs and may need to incur additional indebtedness to meet these requirements. Additional funds are currently not available under the Credit Facility as described above and there can be no assurances that additional funds will be available. The Company has engaged financial advisors and legal counsel to assist in exploring various capital restructuring and strategic alternatives with third parties. At this time, no decision has been made to enter into a transaction or as to what form a transaction might take. There is no assurance that any such transaction will be consummated. The Company's effective income tax rate for the three months ended September 30, 2000 differs from the federal statutory rate primarily as a result of the recording of a full valuation allowance against the Company's net deferred tax assets consisting primarily of net operating loss carryforwards. Certain Regulatory Investigations and Legal Proceedings In January 1998, federal and state government authorities sought and obtained various documents and records from a Herrin, Illinois pharmacy operated by a wholly-owned subsidiary of the Company. The Company has cooperated fully and continues to cooperate fully with the government's inquiry. In June 1999, representatives of the Company met with attorneys with the Civil and Criminal Divisions of the Office of the United States Department of Justice, United States Attorney for the Southern District of Illinois ("USA-Illinois") regarding the government's investigation. The USA-Illinois informed the Company that it had information that allegedly substantiated numerous violations of federal law, but the Company has not received any written notification of these allegations. Discussions regarding the government's investigation have ensued and are currently proceeding between representatives of the USA-Illinois and the Company. It is possible that the imposition of significant fines or other remedies in connection with the resolution of this matter could have a material effect on the Company's financial condition and results of operations. 12 13 Disclosure Regarding Forward-Looking Statements Certain statements contained in or incorporated by reference into this Quarterly Report on Form 10-Q, including, but not limited to, those regarding the Company's financial position, business strategy and other plans and objectives for future operations and any other statements that are not historical facts constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause the actual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance or achievements expressed or implied by such forward-looking statements. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, there can be no assurance that the actual results or developments anticipated by the Company will be realized or, even if substantially realized, that they will have expected effects on its business or operations. These forward-looking statements are made based on management's expectations and beliefs concerning future events impacting the Company and are subject to uncertainties and factors (including, but not limited to, those specified below) which are difficult to predict and, in many instances, are beyond the control of the Company. As a result, actual results of the Company may differ materially from those expressed or implied by any such forward-looking statements. Among the factors that could cause actual results to differ materially from the Company's expectations include continuation of various trends in the long-term care market (including the trend toward consolidation and the impact of the Balanced Budget Act of 1997), competition among providers of long-term care pharmacy services, the Company's negotiations with its bank group related to the waiver and amendment of its credit facility, negotiations regarding payment terms with suppliers, changes in regulatory requirements and Federal and State reimbursement levels, reform of the health care delivery system, litigation matters, other factors and risks and uncertainties described in the Company's SEC reports. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to certain market risks from transactions that are entered into during the normal course of business. The Company has not entered into derivative financial instruments for trading purposes. The Company's primary market risk exposure relates to interest rate risk. The Company has managed its interest rate risk by balancing its exposure between fixed and variable rates while attempting to minimize its interest costs. The Company has a balance of $206,130,000 on its revolving credit facility at September 30, 2000, which is subject to a variable rate of interest based on the Eurodollar rate. Assuming borrowings at September 30, 2000, a one-hundred basis point change in interest rates would impact net interest expense by approximately $2,061,300 per year. 13 14 PART II. OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits EXHIBIT NUMBERS EXHIBIT ------- ------- 10.1 Salary Continuation Agreement dated September 29, 2000 between the Company and Jon H. Outcalt. 10.2 Salary Continuation Agreement dated September 29, 2000 between the Company and Kevin B. Shaw. 10.3 Salary Continuation Agreement dated October 25, 2000 between the Company and William B. Byrum. 27.1 Financial Data Schedule (A) Incorporated herein, by reference to the appropriate exhibit to the Company's Annual Report on Form 10-K for the year ended June 30, 2000. (b) Reports on Form 8-K: No reports on Form 8-K were filed during the three months ended September 30, 2000. 14 15 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. NCS HealthCare, Inc. (Registrant) Date: November 14, 2000 By /s/ Kevin B. Shaw ---------------------------------- Kevin B. Shaw President, Chief Executive Officer and Director Date: November 14, 2000 By /s/ William B. Byrum ---------------------------------- William B. Byrum Chief Operating Officer Date: November 14, 2000 By /s/ Gerald D. Stethem ---------------------------------- Gerald D. Stethem Chief Financial Officer 15 EX-10.1 2 l84486aex10-1.txt EXHIBIT 10.1 1 SALARY CONTINUATION AGREEMENT THIS SALARY CONTINUATION AGREEMENT between NCS HealthCare, Inc., an Ohio corporation (the "Company"), and Jon H. Outcalt (the "Employee"), dated as of the 29th day of September, 2000. WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with compensation arrangements upon a Change of Control which provide the Employee with individual financial security and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. 1.1 EFFECTIVE DATE OF THIS AGREEMENT. (a) This Agreement shall become effective only upon the Effective Date (as defined in Section 1.1(b)). Until such time, the Employee shall have no rights against any person and no person shall have any obligations to the Employee under or by virtue of this Agreement. (b) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1.1(c)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. 2 (c) The "Change of Control Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the first anniversary of such date or (ii) the first day of the month next following the Employee's 70th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the earlier of (x) one year from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Change of Control Period shall not be so extended. 1.2 CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own a majority of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 2 3 2. TERMINATION OF EMPLOYMENT. 2.1 TERMINATION BY THE COMPANY. (a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's obligations under Section 3 hereof subsequent to the Effective Date, the Employee's employment with the Company may be terminated at any time without cause. (b) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (c) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company or (ii) the conviction of the Employee of a felony, or (iii) illegal drug use. 2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be terminated by the Employee at any time for any reason, in the Employee's sole discretion with or without "Good Reason." For purposes of this Agreement, "Good Reason" means any of the following: (a) the reduction or diminution of the Employee's base salary or other compensation or benefits, (b) the relocation of the Company's principal executive offices outside the Cleveland, Ohio metropolitan area, or (c) the requirement by the Company that the Employee be based anywhere other than the Company's principal executive offices or the Employee's then current office. 2.3 NOTICE OF TERMINATION. (a) NOTICE. Any termination by the Company or by the Employee shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 7(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under 3 4 the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (b) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's employment is terminated by the Company other than for death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i) the date that is twenty-four (24) months subsequent to the Effective Date, or (ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"), the Company shall terminate the Employee's employment other than for Cause, Disability, or death or if the Employee shall terminate his employment for Good Reason: (a) The Company shall continue pay to the Employee in accordance with its normal payroll practices the Employee's base salary at an annual rate equal to the greater of the Employee's (i) highest monthly base salary paid or payable by the Company during the twelve-month period immediately preceding the Effective Date, or (ii) the highest monthly salary paid or payable by the Company at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), for the remainder of the Salary Continuation Period. (b) For the remainder of the Salary Continuation Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue to provide health insurance, life insurance and retirement benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families and for purposes of eligibility for retirement benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Salary Continuation Period and to have retired on the last day of such period. Notwithstanding the foregoing, the Employee shall have no right to participate in any bonus plan of the Company subsequent to the Date of Termination. 3.2 DEATH. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose 4 5 (i) the Employee's base salary at the Highest Base Salary rate through the Date of Termination, and (ii) any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) and (ii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving families of employees of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect on the date of the Employee's death with respect to other key employees of the Company and its subsidiaries and their families. 3.3 DISABILITY. If the Employee's employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries and their families. 3.4 CAUSE. If the Employee's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee. 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 5. FULL SETTLEMENT. 5 6 The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, nor shall any amounts actually paid to the Employee by any person for services rendered during the Salary Continuation Period reduce the Company's payment obligations under Section 3.1(a) hereof. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 6. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Jon H. Outcalt 1405 Hartwell Trail 6 7 Novelty, Ohio 44072 If to the Company: NCS HealthCare, Inc. 3201 Enterprise Parkway Suite 220 Beachwood, Ohio 44122 Attention: President and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. (g) The Employee and the Company acknowledge that the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time without any obligation under or by virtue of this Agreement. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. (Signature Page Follows) 7 8 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. -------------------------------------- Jon H. Outcalt ("Employee") NCS HEALTHCARE, INC. By: -------------------------------------- Kevin B. Shaw, President and Chief Executive Officer (the "Company") 8 EX-10.2 3 l84486aex10-2.txt EXHIBIT 10.2 1 SALARY CONTINUATION AGREEMENT THIS SALARY CONTINUATION AGREEMENT between NCS HealthCare, Inc., an Ohio corporation (the "Company"), and Kevin B. Shaw (the "Employee"), dated as of the 29th day of September, 2000. WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with compensation arrangements upon a Change of Control which provide the Employee with individual financial security and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. 1.1 EFFECTIVE DATE OF THIS AGREEMENT. (a) This Agreement shall become effective only upon the Effective Date (as defined in Section 1.1(b)). Until such time, the Employee shall have no rights against any person and no person shall have any obligations to the Employee under or by virtue of this Agreement. (b) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1.1(c)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. 2 (c) The "Change of Control Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the first anniversary of such date or (ii) the first day of the month next following the Employee's 65th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the earlier of (x) one year from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Change of Control Period shall not be so extended. 1.2 CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own a majority of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 2 3 2. TERMINATION OF EMPLOYMENT. 2.1 TERMINATION BY THE COMPANY. (a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's obligations under Section 3 hereof subsequent to the Effective Date, the Employee's employment with the Company may be terminated at any time without cause. (b) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (c) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company or (ii) the conviction of the Employee of a felony, or (iii) illegal drug use. 2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be terminated by the Employee at any time for any reason, in the Employee's sole discretion with or without "Good Reason." For purposes of this Agreement, "Good Reason" means any of the following: (a) the reduction or diminution of the Employee's base salary or other compensation or benefits, (b) the relocation of the Company's principal executive offices outside the Cleveland, Ohio metropolitan area, or (c) the requirement by the Company that the Employee be based anywhere other than the Company's principal executive offices or the Employee's then current office. 2.3 NOTICE OF TERMINATION. (a) NOTICE. Any termination by the Company or by the Employee shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 7(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under 3 4 the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (b) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's employment is terminated by the Company other than for death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i) the date that is twenty-four (24) months subsequent to the Effective Date, or (ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"), the Company shall terminate the Employee's employment other than for Cause, Disability, or death or if the Employee shall terminate his employment for Good Reason: (a) The Company shall continue pay to the Employee in accordance with its normal payroll practices the Employee's base salary at an annual rate equal to the greater of the Employee's (i) highest monthly base salary paid or payable by the Company during the twelve-month period immediately preceding the Effective Date, or (ii) the highest monthly salary paid or payable by the Company at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), for the remainder of the Salary Continuation Period. (b) For the remainder of the Salary Continuation Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue to provide health insurance, life insurance and retirement benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families and for purposes of eligibility for retirement benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Salary Continuation Period and to have retired on the last day of such period. Notwithstanding the foregoing, the Employee shall have no right to participate in any bonus plan of the Company subsequent to the Date of Termination. 3.2 DEATH. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose 4 5 (i) the Employee's base salary at the Highest Base Salary rate through the Date of Termination, and (ii) any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) and (ii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving families of employees of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect on the date of the Employee's death with respect to other key employees of the Company and its subsidiaries and their families. 3.3 DISABILITY. If the Employee's employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries and their families. 3.4 CAUSE. If the Employee's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee. 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 5. FULL SETTLEMENT. 5 6 The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, nor shall any amounts actually paid to the Employee by any person for services rendered during the Salary Continuation Period reduce the Company's payment obligations under Section 3.1(a) hereof. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 6. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7. MISCELLANEOUS. (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: Kevin B. Shaw 2239 Elandon Drive 6 7 Cleveland Heights, Ohio 44106 If to the Company: NCS HealthCare, Inc. 3201 Enterprise Parkway Suite 220 Beachwood, Ohio 44122 Attention: Chairman or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. (g) The Employee and the Company acknowledge that the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time without any obligation under or by virtue of this Agreement. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. (Signature Page Follows) 7 8 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. -------------------------------- Kevin B. Shaw ("Employee") NCS HEALTHCARE, INC. By: -------------------------------- Jon H. Outcalt Chairman (the "Company") 8 EX-10.3 4 l84486aex10-3.txt EXHIBIT 10.3 1 SALARY CONTINUATION AGREEMENT THIS SALARY CONTINUATION AGREEMENT between NCS HealthCare, Inc., an Ohio corporation (the "Company"), and William B. Byrum (the "Employee"), dated as of the 25th day of October, 2000. WITNESSETH: WHEREAS, the Board of Directors of the Company (the "Board"), has determined that it is in the best interests of the Company and its shareholders to assure that the Company will have the continued dedication of the Employee, notwithstanding the possibility, threat, or occurrence of a Change of Control (as defined below) of the Company; and WHEREAS, the Board believes it is imperative to diminish the inevitable distraction of the Employee by virtue of the personal uncertainties and risks created by a pending or threatened Change of Control, to encourage the Employee's full attention and dedication to the Company currently and in the event of any threatened or pending Change of Control, and to provide the Employee with compensation arrangements upon a Change of Control which provide the Employee with individual financial security and which are competitive with those of other corporations; and WHEREAS, in order to accomplish these objectives, the Board has caused the Company to enter into this Agreement; NOW, THEREFORE, in consideration of the mutual covenants set forth herein and other good and valuable consideration, the receipt and adequacy of which is hereby acknowledged, the parties hereto agree as follows: 1. DEFINITIONS. 1.1 EFFECTIVE DATE OF THIS AGREEMENT. (a) This Agreement shall become effective only upon the Effective Date (as defined in Section 1.1(b)). Until such time, the Employee shall have no rights against any person and no person shall have any obligations to the Employee under or by virtue of this Agreement. (b) The "Effective Date" shall be the first date during the "Change of Control Period" (as defined in Section 1.1(c)) on which a Change of Control occurs. Anything in this Agreement to the contrary notwithstanding, if the Employee's employment with the Company is terminated prior to the date on which a Change of Control occurs, and it is reasonably demonstrated that such termination (1) was at the request of a third party who has taken steps reasonably calculated to effect a Change of Control or (2) otherwise arose in connection with or anticipation of a Change of Control, then for all purposes of this Agreement the "Effective Date" shall mean the date immediately prior to the date of such termination. 2 (c) The "Change of Control Period" is the period commencing on the date hereof and ending on the earlier to occur of (i) the first anniversary of such date or (ii) the first day of the month next following the Employee's 65th birthday (the "Normal Retirement Date"); PROVIDED, HOWEVER, that commencing on the date one year after the date hereof, and on each annual anniversary of such date (such date and each annual anniversary thereof is hereinafter referred to as the "Renewal Date"), the Change of Control Period shall be automatically extended so as to terminate on the earlier of (x) one year from such Renewal Date or (y) the first day of the month coinciding with or next following the Employee's Normal Retirement Date, unless at least 60 days prior to the Renewal Date the Company shall give notice that the Change of Control Period shall not be so extended. 1.2 CHANGE OF CONTROL. For the purpose of this Agreement, a "Change of Control" shall mean: (a) The acquisition (other than from the Company) by any person, entity or "group", within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act") (excluding, for this purpose, the Company or its subsidiaries, or any employee benefit plan of the Company or its subsidiaries which acquires beneficial ownership of voting securities of the Company), of beneficial ownership, (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of a majority of either the then outstanding shares of common stock or the combined voting power of the Company's then outstanding voting securities entitled to vote generally in the election of directors; or (b) Individuals who, as of the date hereof, constitute the Board (as of the date hereof the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any person becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board (other than an election or nomination of an individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the Directors of the Company, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) shall be, for purposes of this Agreement, considered as though such person were a member of the Incumbent Board; or (c) Approval by the shareholders of the Company of a reorganization, merger, consolidation, in each case, with respect to which persons who were the shareholders of the Company immediately prior to such reorganization, merger or consolidation do not, immediately thereafter, own a majority of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged or consolidated company's then outstanding voting securities, or a liquidation or dissolution of the Company or of the sale of all or substantially all of the assets of the Company. 2 3 2. TERMINATION OF EMPLOYMENT. 2.1 TERMINATION BY THE COMPANY. (a) COMPANY'S RIGHT TO TERMINATE. Subject to the Company's obligations under Section 3 hereof subsequent to the Effective Date, the Employee's employment with the Company may be terminated at any time without cause. (b) DEATH OR DISABILITY. This Agreement shall terminate automatically upon the Employee's death. If the Company determines in good faith that the Disability of the Employee has occurred (pursuant to the definition of "Disability" set forth below), it may give to the Employee written notice of its intention to terminate the Employee's employment. In such event, the Employee's employment with the Company shall terminate effective on the 30th day after receipt of such notice by the Employee (the "Disability Effective Date"), provided that, within the 30 days after such receipt, the Employee shall not have returned to full-time performance of the Employee's duties. For purposes of this Agreement, "Disability" means disability which, at least 26 weeks after its commencement, is determined to be total and permanent by a physician selected by the Company or its insurers and acceptable to the Employee or the Employee's legal representative (such agreement as to acceptability not to be withheld unreasonably). (c) CAUSE. The Company may terminate the Employee's employment for "Cause." For purposes of this Agreement, "Cause" means (i) an act or acts of personal dishonesty taken by the Employee and intended to result in substantial personal enrichment of the Employee at the expense of the Company or (ii) the conviction of the Employee of a felony, or (iii) illegal drug use. 2.2 TERMINATION BY THE EMPLOYEE. The Employee's employment may be terminated by the Employee at any time for any reason, in the Employee's sole discretion with or without "Good Reason." For purposes of this Agreement, "Good Reason" means any of the following: (a) the reduction or diminution of the Employee's base salary or other compensation or benefits, (b) the relocation of the Company's principal executive offices outside the Cleveland, Ohio metropolitan area, or (c) the requirement by the Company that the Employee be based anywhere other than the Company's principal executive offices or the Employee's then current office. 2.3 NOTICE OF TERMINATION. (a) NOTICE. Any termination by the Company or by the Employee shall be communicated by Notice of Termination to the other party hereto given in accordance with Section 7(b) of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which (i) indicates the specific termination provision in this Agreement relied upon, (ii) in the case of a termination for Cause, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Employee's employment under 3 4 the provision so indicated and (iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date (which date shall be not more than fifteen (15) days after the giving of such notice). (b) DATE OF TERMINATION. "Date of Termination" means the date of receipt of the Notice of Termination or any later date specified therein, as the case may be; PROVIDED, HOWEVER, that (i) if the Employee's employment is terminated by the Company other than for death or Disability, the Date of Termination shall be the date on which the Company notifies the Employee of such termination and (ii) if the Employee's employment is terminated by reason of death or Disability, the Date of Termination shall be the date of death of the Employee or the Disability Effective Date, as the case may be. 3. OBLIGATIONS OF THE COMPANY UPON TERMINATION. 3.1 WITHOUT CAUSE. If, at any time prior to the earlier of (i) the date that is twenty-four (24) months subsequent to the Effective Date, or (ii) the Employee's Normal Retirement Date (the "Salary Continuation Period"), the Company shall terminate the Employee's employment other than for Cause, Disability, or death or if the Employee shall terminate his employment for Good Reason: (a) The Company shall continue pay to the Employee in accordance with its normal payroll practices the Employee's base salary at an annual rate equal to the greater of the Employee's (i) highest monthly base salary paid or payable by the Company during the twelve-month period immediately preceding the Effective Date, or (ii) the highest monthly salary paid or payable by the Company at any time from the 90-day period preceding the Effective Date through the Date of Termination (the "Highest Base Salary"), for the remainder of the Salary Continuation Period. (b) For the remainder of the Salary Continuation Period, or such longer period as any plan, program, practice or policy may provide, the Company shall continue to provide health insurance, life insurance and retirement benefits to the Employee and/or the Employee's family at least equal to those which would have been provided to them if the Employee's employment had not been terminated, in accordance with the most favorable plans, practices, programs or policies of the Company and its subsidiaries during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee, as in effect at any time thereafter with respect to other key employees and their families and for purposes of eligibility for retirement benefits pursuant to such plans, practices, programs and policies, the Employee shall be considered to have remained employed until the end of the Salary Continuation Period and to have retired on the last day of such period. Notwithstanding the foregoing, the Employee shall have no right to participate in any bonus plan of the Company subsequent to the Date of Termination. 3.2 DEATH. If the Employee's employment is terminated by reason of the Employee's death, this Agreement shall terminate without further obligations to the Employee's legal representatives under this Agreement, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including, for this purpose 4 5 (i) the Employee's base salary at the Highest Base Salary rate through the Date of Termination, and (ii) any accrued vacation pay not yet paid by the Company (such amounts specified in clauses (i) and (ii) are hereinafter referred to as "Accrued Obligations"). All such Accrued Obligations shall be paid to the Employee's estate or beneficiary, as applicable, in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee's family shall be entitled to receive benefits at least equal to the most favorable benefits provided by the Company and any of its subsidiaries to surviving families of employees of the Company and such subsidiaries under such plans, programs, practices and policies relating to family death benefits, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect on the date of the Employee's death with respect to other key employees of the Company and its subsidiaries and their families. 3.3 DISABILITY. If the Employee's employment is terminated by reason of the Employee's Disability, this Agreement shall terminate without further obligations to the Employee, other than those obligations accrued or earned and vested (if applicable) by the Employee as of the Date of Termination, including for this purpose, all Accrued Obligations. All such Accrued Obligations shall be paid to the Employee in a lump sum in cash within 30 days of the Date of Termination. Anything in this Agreement to the contrary notwithstanding, the Employee shall be entitled after the Disability Effective Date to receive disability and other benefits at least equal to the most favorable of those provided by the Company and its subsidiaries to disabled employees and/or their families in accordance with such plans, programs, practices and policies relating to disability, if any, in accordance with the most favorable plans, programs, practices and policies of the Company and its subsidiaries in effect at any time during the 90-day period immediately preceding the Effective Date or, if more favorable to the Employee and/or the Employee's family, as in effect at any time thereafter with respect to other key employees of the Company and its subsidiaries and their families. 3.4 CAUSE. If the Employee's employment shall be terminated for Cause, this Agreement shall terminate without further obligations to the Employee. 4. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall prevent or limit the Employee's continuing or future participation in any benefit, bonus, incentive or other plans, programs, policies or practices, provided by the Company or any of its subsidiaries and for which the Employee may qualify, nor shall anything herein limit or otherwise affect such rights as the Employee may have under any stock option or other agreements with the Company or any of its subsidiaries. Amounts which are vested benefits or which the Employee is otherwise entitled to receive under any plan, policy, practice or program of the Company or any of its subsidiaries at or subsequent to the Date of Termination shall be payable in accordance with such plan, policy, practice or program. 5. FULL SETTLEMENT. 5 6 The Company's obligation to make the payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Employee or others. In no event shall the Employee be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Employee under any of the provisions of this Agreement, nor shall any amounts actually paid to the Employee by any person for services rendered during the Salary Continuation Period reduce the Company's payment obligations under Section 3.1(a) hereof. The Company agrees to pay, to the full extent permitted by law, all legal fees and expenses which the Employee may reasonably incur as a result of any contest (regardless of the outcome thereof) by the Company or others of the validity or enforceability of, or liability under, any provision of this Agreement or any guarantee of performance thereof, plus in each case interest at the applicable Federal rate provided for in Section 7872(f)(2) of the Code. 6. SUCCESSORS. (a) This Agreement is personal to the Employee and without the prior written consent of the Company shall not be assignable by the Employee otherwise than by will or the laws of descent and distribution. This Agreement shall inure to the benefit of and be enforceable by the Employee's legal representatives. (b) This Agreement shall inure to the benefit of and be binding upon the Company and its successors and assigns. (c) The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Company to assume expressly and agree to perform this Agreement in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place. As used in this Agreement, "Company" shall mean the Company as hereinbefore defined and any successor to its business and/or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 7. MISCELLANEOUS. ------------- (a) This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without reference to principles of conflict of laws. The captions of this Agreement are not part of the provisions hereof and shall have no force or effect. This Agreement may not be amended or modified otherwise than by a written agreement executed by the parties hereto or their respective successors and legal representatives. (b) All notices and other communications hereunder shall be in writing and shall be given by hand delivery to the other party or by registered or certified mail, return receipt requested, postage prepaid, addressed as follows: If to the Employee: William B. Byrum 10049 Oak Ridge Drive 6 7 Zionsville, Indiana 46077 If to the Company: NCS HealthCare, Inc. 3201 Enterprise Parkway Suite 220 Beachwood, Ohio 44122 Attention: President and Chief Executive Officer or to such other address as either party shall have furnished to the other in writing in accordance herewith. Notice and communications shall be effective when actually received by the addressee. (c) The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement. (d) The Company may withhold from any amounts payable under this Agreement such Federal, state or local taxes as shall be required to be withheld pursuant to any applicable law or regulation. (e) The Employee's failure to insist upon strict compliance with any provision hereof shall not be deemed to be a waiver of such provision or any other provision thereof. (f) This Agreement contains the entire understanding of the Company and the Employee with respect to the subject matter hereof. (g) The Employee and the Company acknowledge that the employment of the Employee by the Company is "at will", and, prior to the Effective Date, may be terminated by either the Employee or the Company at any time without any obligation under or by virtue of this Agreement. Upon a termination of the Employee's employment or upon the Employee's ceasing to be an officer of the Company, in each case, prior to the Effective Date, there shall be no further rights under this Agreement. (Signature Page Follows) 7 8 IN WITNESS WHEREOF, the parties have hereunto set their hands as of the day and year first above written. ---------------------------------- William B. Byrum ("Employee") NCS HEALTHCARE, INC. By: ---------------------------------- Kevin B. Shaw, President and Chief Executive Officer (the "Company") 8 EX-27.1 5 l84486aex27-1.txt EXHIBIT 27.1
5 1,000 3-MOS JUN-30-2001 JUL-01-2000 SEP-30-2000 34,104 0 166,067 40,257 30,163 197,134 92,638 50,055 557,924 291,852 309,856 0 0 234 162,572 557,924 159,022 159,022 130,985 130,985 0 3,220 8,049 (7,013) 100 (7,113) 0 0 0 (7,113) (0.31) (0.31)
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